References to "we," "us," "our," "our company," or "the Company" refer to Greenlight Capital Re, Ltd. ("GLRE") and its wholly-owned subsidiaries, Greenlight Reinsurance, Ltd, ("Greenlight Re"), Greenlight Reinsurance Ireland, Ltd. ("GRIL") and Verdant Holding Company, Ltd. ("Verdant"), unless the context dictates otherwise. References to our "Ordinary Shares" refers collectively to our Class A Ordinary Shares and Class B Ordinary Shares.

The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2012 and 2011 and financial condition as of September 30, 2012 and December 31, 2011. The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear in our annual report on Form 10-K for the fiscal year ended December 31, 2011.

Special Note About Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements generally are identified by the words "believe," "project," "predict," "expect," "anticipate," "estimate," "intend," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled "Risk Factors" (refer to Part I, Item 1A) contained in our annual report on Form 10-K for the fiscal year ended December 31, 2011. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on the forward looking statements which speak only to the dates on which they were made.

We intend to communicate certain events that we believe may have a material adverse impact on our operations or financial position, including property and casualty catastrophic events and material losses in our investment portfolio, in a timely manner through a public announcement. Other than as required by the Exchange Act, we do not intend to make public announcements regarding reinsurance or investments events that we do not believe, based on management's estimates and current information, will have a material adverse impact on our operations or financial position.

General

We are a Cayman Islands headquartered global specialty property and casualty reinsurer with a reinsurance and investment strategy that we believe differentiates us from most of our competitors. Our goal is to build long-term shareholder value by selectively offering customized reinsurance solutions, in markets where capacity and alternatives are limited, which we believe will yield favorable long-term returns on equity.

We aim to complement our underwriting results with a non-traditional investment approach in order to achieve higher rates of return over the long term than reinsurance companies that employ more traditional, fixed-income investment strategies. We manage our investment portfolio according to a value-oriented philosophy, in which we take long positions in perceived undervalued securities and short positions in perceived overvalued securities.

Because we employ an opportunistic underwriting philosophy, period-to-period comparisons of our underwriting results may not be meaningful. In addition, our historical investment results may not necessarily be indicative of future performance. Due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.

Segments

We manage our business on the basis of one operating segment, property and casualty reinsurance, in accordance with the qualitative and quantitative criteria established by United States generally accepted accounting principles ("U.S. GAAP"). Within the property and casualty reinsurance segment, we analyze our underwriting operations using two categories:

• frequency business; and
• severity business.

Frequency business is generally characterized as contracts containing a potentially large number of small losses emanating from multiple events. Clients generally buy this protection to increase their own underwriting capacity and typically select a reinsurer based upon the reinsurer's financial strength, service and expertise. We expect the results of frequency business to be less volatile than those of severity business from period to period due to greater predictability. We also expect that over time the profit margins and return on equity of our frequency business will be lower than those of our severity business.

Severity business is generally characterized as contracts with the potential for significant losses emanating from one event or multiple events. Clients generally buy this protection to remove volatility from their balance sheets, and accordingly, we expect the results of severity business to be volatile from period to period. However, over the long term, we also expect that our severity business will generate higher profit margins and return on equity than those of our frequency business.

Outlook and Trends

We believe the reinsurance industry in general has been, and for the foreseeable future will remain, over capitalized. There is an influx of new capital for peak zone catastrophe risk from alternative capital market participants such as hedge funds, pension funds and other fixed income bond managers. Additionally, we believe that the slowdown in worldwide economic activity continues to weaken the overall demand for property and casualty insurance and, accordingly, reinsurance.
Notwithstanding the foregoing, the over capitalization of the reinsurance industry may be countered by the introduction of more stringent capital requirements in the industry (particularly in Europe), the recalibration of catastrophe risk models to reflect recent catastrophic activity and a sustained low interest rate environment. We believe the introduction of Solvency II for European insurers and reinsurers will create a demand for capital and/or reinsurance solutions for some smaller and less diversified companies. The persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies. We believe the continuation of low interest rates, coupled with the reduction of prior years' reserve redundancies, could cause the industry to adopt overall higher pricing.
Overall, we believe we are in a gradually hardening market, but industry over capitalization will temper rate increases and that overall increases will not significantly exceed loss trends. The result is a slightly improving market, but with many areas of the market continuing to operate at levels which we believe are economically irrational. Price increases could occur earlier if financial and credit markets experience adverse shocks that result in the loss of capital of insurers and reinsurers, or if there are major catastrophic events, especially in North America.
Our reinsurance portfolio is currently concentrated in four areas: Florida homeowners; U.S. employer health stop loss; catastrophe retrocession and private passenger automobile. While each of these areas is competitive, we believe we are experiencing rate increases that are in excess of loss trends. In particular, the Florida homeowners' insurance market continues to experience rate increases, although the rate of increase has slowed relative to the prior period. Additionally, property catastrophe retrocession pricing increased moderately during 2011 and has also increased slightly during 2012. We continue to look for attractive opportunities in this area of the market; however, as mentioned earlier, the influx of new capacity has increased competition. We believe that we are well positioned to compete for frequency business due to our increasing market recognition, the development of strategic relationships and Greenlight Re's "A (Excellent)" rating by A.M. Best. Meanwhile, there are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues. Thus far in 2012, we have seen a number of large, frequency-oriented opportunities that we believe fit well within our business strategy. We converted some of these opportunities into bound contracts, and are currently analyzing others. Further, there has been additional consolidation activity in the industry and we believe if such activity continues and the number of industry participants decreases, we could benefit from increased opportunities since insurers may prefer to diversify their reinsurance placements.
We believe our investment portfolio continues to be conservatively postured in 2012, with a net long position of 26% as of September 30, 2012. The challenging investment environment has continued throughout the year, with significant uncertainty and global geopolitical and economic headwinds. Equity markets in the U.S. and Europe are volatile due to slowing economic growth and concerns about the sustainability of monetary and fiscal policies. Rising concern about sovereign debt, particularly in Europe, appears likely to limit further fiscal stimulus. Given the challenging macroeconomic environment, we intend, for the foreseeable future, to continue holding a significant position in gold and other macro hedges in the form of options on higher interest rates and foreign exchange rates, short positions in sovereign debt and sovereign credit default swaps.

We intend to continue monitoring market conditions to position ourselves to participate in future under-served or capacity-constrained markets as they arise and intend to offer products that we believe will generate favorable returns on equity over the long term. Accordingly, our underlying results and product line concentrations in any given period may not be indicative of our future results of operations.
Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. We believe that the critical accounting policies set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2011 continue to describe the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. These accounting policies pertain to premium revenues and risk transfer, valuation of investments, loss and loss adjustment expense reserves, acquisition costs, bonus accruals and share-based payments. If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material effect on our results of operations and financial condition.

Recently issued accounting standards and their impact to the Company have been presented under "Recently Issued Accounting Standards" in Note 2 of the accompanying condensed consolidated financial statements.

Results of Operations

Three and nine months ended September 30, 2012 and 2011

For the three months ended September 30, 2012, we reported net income of $46.1 million, as compared to a net loss of $4.5 million reported for the same period in 2011. The underwriting loss before general and administrative expenses for the three months ended September 30, 2012 was $43.9 million, compared to an underwriting loss of $3.9 million for the same period in 2011. The increase in underwriting loss for the three months ended September 30, 2012 was primarily due to strengthening of loss reserves during the quarter relating to commercial motor liability contracts that are currently in run off and to a lesser extent due to adverse development of losses relating to the 2010 earthquake in New Zealand.

One of our commercial motor liability contract covering long haul trucking which we canceled during 2010, accounted for $18.5 million of the underwriting loss during the third quarter of 2012. This book of business is quite mature with a small number of open claims. The rate of new claims being reported on this contract has slowed, however, there is still uncertainty associated with the final outcome of the contract. During the third quarter of 2012, we increased our recorded loss ratio on this contract to122%.

Our commercial motor portfolio also includes two multi-line contracts that contain some long haul trucking but mostly contain small trucks, dump trucks, trash haulers and other commercial vehicles. These two contracts together accounted for $22.1 million of the underwriting loss for the third quarter. We stopped writing new commercial motor liability business under each of these contracts during first quarter of 2012 and canceled one of the multi-line contracts at the end of the second quarter of 2012. This book of business is less mature than our other commercial motor contract however some similar characteristics have emerged in the claims data. Therefore, during the third quarter of 2012, we booked the commercial motor components of these contracts at a 122% loss ratio.

We had previously recorded a $3.1 million loss reserve on a natural peril contract relating to the 2010 New Zealand earthquake. However, as a result of complex engineering and structural requirements as well as legislative building-code changes being implemented in New Zealand, insured losses are expected to increase and as such losses ceded to us are now expected to exceed the maximum limit under the contract. During the three months ended September 30, 2012, we increased the loss reserves by $6.9 million to record a full limit loss of $10.0 million on this contract.

For the three months ended September 30, 2012, our overall composite ratio increased to 137.6%, from 104.3% during the same period in 2011. For the three months ended September 30, 2012, our investment portfolio reported a net income of $96.5 million, or a return of 8.8%, on our investment account, compared to a net investment income of $1.1 million, or a return of 0.1%, for the same period in 2011.

For the nine months ended September 30, 2012, we reported net income of $75.2 million, compared to a net loss of $63.4 million reported for the same period in 2011. Our investment portfolio reported a net income of $131.2 million, or a return of 12.1%, for the nine months ended September 30, 2012, compared to a net investment loss of $54.6 million, or a loss

of 5.1%, for the same period in 2011. The underwriting loss before general and administrative expenses for the nine months ended September 30, 2012 was $36.9 million, compared to underwriting income of $0.9 million reported for the nine months ended September 30, 2011. The underwriting loss was primarily due to the reasons explained above.

For the three months ended September 30, 2012, the basic adjusted book value per share increased by $1.28 per share, or 5.6%, to $24.02 per share from $22.74 per share at June 30, 2012. During the three months ended September 30, 2012, fully diluted adjusted book value increased by $1.23 per share, or 5.5%, to $23.57 per share from $22.34 per share at June 30, 2012.

For the nine months ended September 30, 2012, the basic adjusted book value per share increased by $2.04 per share, or 9.3%, to $24.02 per share from $21.98 per share at December 31, 2011. During the nine months ended September 30, 2012, fully diluted adjusted book value increased by $1.96 per share, or 9.1%, to $23.57 per share from $21.61 per share at December 31, 2011.

Basic adjusted book value per share is a non-GAAP measure as it excludes the non-controlling interest in a joint venture from total equity. In addition, fully diluted adjusted book value per share is also a non-GAAP measure and represents basic adjusted book value per share combined with the impact from dilution of all in-the-money stock options issued and outstanding as of any period end. We believe that long-term growth in fully diluted adjusted book value per share is the most relevant measure of our financial performance. In addition, fully diluted adjusted book value per share may be of benefit to our investors, shareholders and other interested parties to form a basis of comparison with other companies within the property and casualty reinsurance industry.

The following table presents a reconciliation of the non-GAAP basic adjusted and fully diluted adjusted book value per share to the most comparable GAAP measure.

                            September 30, 2012      June 30, 2012      March 31,  2012     December 31, 2011     September 30, 2011
                                                      ($ in thousands, except per share and share amounts)
Basic adjusted and fully
diluted adjusted book
value per share numerator:
Total equity (US GAAP)               894,215              845,696             881,304               845,698               765,958
Less: Non-controlling
interest in joint venture            (13,113 )            (11,778 )           (12,227 )             (42,595 )             (33,866 )
Basic adjusted book value
per share numerator                  881,102              833,918             869,077               803,103               732,092
Add: Proceeds from
in-the-money stock options
issued and outstanding                19,294               18,215              18,215                18,215                16,590
Fully diluted adjusted
book value per share
numerator                            900,396              852,133             887,292               821,318               748,682
Basic adjusted and
fully diluted adjusted
book value per share
denominator:
Ordinary shares issued
and outstanding for basic
adjusted book value per
share denominator                 36,678,653           36,678,653          36,633,638            36,538,149            36,509,036
Add: In-the-money stock
options issued and
outstanding                        1,514,290            1,469,000           1,469,000             1,469,000             1,419,000
Fully diluted adjusted
book value per share
denominator                       38,192,943           38,147,653          38,102,638            38,007,149            37,928,036
Basic adjusted book value
per share                  $           24.02       $        22.74     $         23.72     $           21.98     $           20.05
Fully diluted adjusted
book value per share       $           23.57       $        22.34     $         23.29     $           21.61     $           19.74

Premiums Written

Details of gross premiums written are provided in the following table:
                 Three months ended September 30,                Nine months ended September 30,
                    2012                    2011                   2012                   2011
                         ($ in thousands)                               ($ in thousands)
Frequency $   67,644       100.0 %   $ 89,656     96.2 %   $ 284,957     93.8 %   $ 290,610     94.6 %
Severity           -           -        3,500      3.8        18,893      6.2        16,550      5.4
Total     $   67,644       100.0 %   $ 93,156    100.0 %   $ 303,850    100.0 %   $ 307,160    100.0 %

We expect quarterly reporting of premiums written to be volatile as our underwriting portfolio continues to develop. Additionally, the composition of premiums written between frequency and severity business may vary from quarter to quarter depending on the specific market opportunities that we pursue.

For the three months ended September 30, 2012, the premiums written relating to frequency contracts decreased by $22.0 million, or 24.6%, compared to the same period in 2011. The decrease in frequency gross premiums written was primarily related to the Florida homeowners' personal lines which decreased by $56.5 million. During the third quarter of 2012, we novated certain of our Florida homeowners' contracts and their corresponding retroceded contracts which resulted in a $32.5 million reversal in both gross written premiums and ceded premiums.

In addition, the decrease in gross premiums for the Florida homeowners' personal lines was partially due to contracts which were renewed during 2012, at a lower quota share percentage than the expiring contracts, and partially due to the termination of a contract during the fourth quarter of 2011.

During the third quarter of 2012, we commuted a surety and trade credit contract earlier than its expiration period, which resulted in a $4.1 million reversal of premiums in our financial line of business.

Offsetting these decreases, our motor liability premiums and motor physical damage premiums for the three months ended September 30, 2012 increased by $28.2 million and $12.3 million, respectively. The motor liability line includes both commercial motor contracts as well as private automobile contracts (also referred to as non-standard automobile). For the three months ended September 30, 2012, the commercial motor premiums written decreased by $10.3 million to $2.8 million, while the private automobile premiums written increased by $38.5 million to $40.4 million as a result of new non-standard automobile contracts entered into during late 2011 and early 2012. We canceled the commercial motor coverage on a multi-line contract during 2012 which resulted in the decrease in commercial motor premiums. Additionally, premiums for our specialty health line increased by $5.8 million while workers' compensation and general liabilities lines reported small decreases of $2.8 million and $1.9 million, respectively.

For the three months ended September 30, 2012, there were no new severity contracts written.

For the nine months ended September 30, 2012, the frequency gross premiums decreased by $5.7 million, or 1.9%, primarily as a result of the Florida homeowners' personal lines which decreased $110.6 million due to the reasons explained above. In addition, the financial line premiums decreased $10.3 million due to the commutation of a surety and trade credit contract, while our workers' compensation, and general liability lines decreased by $10.4 million and $5.6 million, respectively due to lower underlying business written by our clients.

Offsetting these decreases, our motor liability and motor physical damage premiums for the nine months ended September 30, 2012, increased by $84.0. million and $49.2 million, respectively. The increase in motor liability line includes an increase of $125.8 million in private automobile premiums written as a result of new non-standard automobile contracts entered into during late 2011 and early 2012, offset by a decrease of $41.8 million in commercial motor premiums written as we canceled the commercial motor coverage on a multi-line contract during 2012.

For the nine months ended September 30, 2012, the increase in severity premiums of $2.3 million, or 14.2%, compared to the same period in 2011 was principally due to the renewal of our existing multi-line property catastrophe contracts with higher aggregate limits as well as higher pricing. During the nine months ended September 30, 2012, we restructured some of our property catastrophe contracts and increased our limits of coverage while also increasing the thresholds for losses entering our layer of coverage. As a result, while direct comparison of pricing is not possible, overall we

obtained slightly higher prices on renewing contracts that had no claims reported during the prior year and significantly higher prices on catastrophe contracts that experienced losses during 2011.

For the three months ended September 30, 2012, our ceded premiums decreased by $39.9 million, to negative $30.6 million from $9.3 million for the same period in 2011. For the nine months ended September 30, 2012, our ceded premiums decreased by $54.2 million, to negative $24.2 million from $30.0 million for the same period in 2011. The decrease in ceded premiums for both the three and nine months ended September 30, 2012 was principally due to the novation of the Florida homeowners' personal lines contracts as explained above.

Details of net premiums written are provided in the following table:

                 Three months ended September 30,                 Nine months ended September 30,
                     2012                     2011                   2012                   2011
                         ($ in thousands)                                ($ in thousands)
Frequency $    98,281         100.0 %  $ 80,348    95.8 %  $   309,201       94.2 %  $ 260,643    94.0 %
Severity            -             -       3,500     4.2         18,893        5.8       16,550     6.0
Total     $    98,281         100.0 %  $ 83,848   100.0 %  $   328,094      100.0 %  $ 277,193   100.0 %

 Net Premiums Earned

Net premiums earned reflect the pro-rata inclusion into income of net premiums
written over the life of the reinsurance contracts. Details of net premiums
earned are provided in the following table:
                 Three months ended September 30,                 Nine months ended September 30,
                     2012                     2011                   2012                   2011
                         ($ in thousands)                                ($ in thousands)
Frequency $    111,886         96.0 %  $ 85,301    94.4 %  $   333,931       95.9 %  $ 288,158    95.2 %
Severity         4,671          4.0       5,047     5.6         14,228        4.1       14,497     4.8
Total     $    116,557        100.0 %  $ 90,348   100.0 %  $   348,159      100.0 %  $ 302,655   100.0 %

Premiums relating to quota share contracts are earned over the contract period in proportion to the period of protection. Similarly, incoming unearned premiums are earned in proportion to the remaining period of protection. For the three months ended September 30, 2012, the frequency earned premiums increased by $26.6 million, or 31.2%, primarily as a result of our motor liability and motor physical damage contracts which increased net earned premiums by $37.0 million and $14.6 million, respectively. The increase in motor liability line includes an increase of $41.2 million in private automobile earned premiums as a result of new non-standard automobile contracts entered into during late 2011 and early 2012, offset by a decrease of $4.2 million in commercial motor earned premiums as we canceled the commercial motor coverage on a multi-line contract during 2012.

For the three months ended June 30, 2012, our Florida homeowners' personal lines . . .