Greenlight Capital Re Ltd. on Wednesday responded to assertions about its business and potential tax consequences in a report from hedge fund Sunesis Capital L.L.C., which Greenlight Re said contains “inaccurate statements.”

On Monday, San Francisco-based Sunesis argued in a 29-page presentation that specialist reinsurer Greenlight Re should be classified as a passive foreign investment company, or PFIC.

Sunesis asserted in its report that Greenlight Re does not meet statutory requirements that it be “actively engaged” in the insurance business or otherwise be classified as PFIC.

Such a designation, Sunesis said in its presentation, would have catastrophic tax consequences for Greenlight Re.

A PFIC is a foreign-based corporation that derives at least 75% of its gross income from investments rather than from the company's regular business operations or has at least 50% of its assets producing income in the form of earned interest, dividends or capital gains.

In its response, Cayman Island-based Greenlight Re said “the company’s reinsurance activities and risk profile do not support the PFIC designation.”

Greenlight Re was established in 2004 and is “a standalone global property and casualty reinsurer regulated in the Cayman Islands and Ireland with 37 employees,” the company said in its statement.

It added that Greenlight Re is not invested in the Greenlight Capital investment funds and has a separately managed account subject to its own investment guidelines as overseen by its board of directors.

The Greenlight Re response also took issue with Sunesis’ math, saying “Greenlight Re comprises 18% of Greenlight Capital’s total assets under management, not 42% as erroneously calculated in the (Sunesis) Report.”

Among Sunesis’ arguments was the question as to whether the fact that more than 70% of Greenlight Re’s business comes via two brokers.

“Are these questionable transactions to maintain sufficient underwriting volume to keep exemption from PFIC status?” asked the Sunesis report.

“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,’” Simon Burton, CEO of Greenlight Re, said in the company’s statement. “These inflammatory statements are false and misleading. The report provides no substantive facts or analysis to support them whatsoever.”