Specialist hedge fund backed property and casualty (P&C) reinsurer Greenlight Re has addressed a recent report published by Sunesis Capital, which alleges that Greenlight Re should be classified as a passive foreign investment company (PFIC).
The report claims that Greenlight Re, which is headquartered in the Cayman Islands, functions as a tax avoidance scheme for David Einhorn, Founder and President of hedge fund Greenlight Capital, allowing him to indefinitely defer taxation on the hedge fund’s investment earnings.
Sunesis contended that a PFIC classification, which, according to 2017’s U.S Tax Cuts and Jobs Act, applies to companies that use capital primarily for investing rather than insurance, would spell “lights out” for Greenlight Re.
Greenlight Re rejected the report as “erroneous”, and its Chief Executive Officer (CEO), Simon Burton, stated: “We have always operated in a transparent manner with our shareholders, policyholders, and the general public.
“Greenlight Re flatly denies the claims in the Report that the Company is ‘Defrauding Policyholders’ and that it is ‘Circumventing dividend restrictions from operating subsidiaries’. These inflammatory statements are false and misleading. The Report provides no substantive facts or analysis to support them whatsoever”.
Greenlight Re also stated that it “intends not to be treated as a PFIC”, and that it has “annually conducted an assessment and determined that in 2017 and prior years it should not be deemed a PFIC.”
Additionally, the company claimed that its reinsurance activities and risk profile do not support the PFIC designation, but that “the law change has put more emphasis on balance sheet arithmetic than a qualitative assessment.”
The statement clarified that Greenlight Re, which was established in 2004, is a standalone company and is not invested in the Greenlight Capital investment funds, “but rather has a separately managed account subject to its own investment guidelines as overseen by its Board of Directors.”
The company also dismissed claims that it had increased investment risk due to poor performance, citing recent reductions in the gross exposure of its investment portfolio, and maintained that its approach to utilising brokerage services was common industry practice.
Finally, the statement pointed out that “Greenlight Capital’s funds that employ a similar investment strategy to Greenlight Re have similar fee arrangements,” and that “Greenlight Re comprises 18% of Greenlight Capital’s total assets under management, not 42% as erroneously calculated in the Report.”
The full report by Sunesis Capital can be read here.