Q4 2019 Earnings Call
Dead dead dead.
Thank you for joining the green light RI conference call for the fourth quarter and full-year 2019 earnings. The company reminds you that forward-looking statements that may be made in this call. She tended to be covered by the Safe Harbor provisions of the private Securities litigation Reform Act of 1995.
We're looking statements are not statements of historical fact, but rather reflect the company's current expectations estimates and predictions about future results and events and are subject to risks on Thursday and assumptions including those enumerated in the company's form 10-K for the year ended December 31st, 2019 and other documents filed by the company with the SEC off if one or more risks of uncertainties materialize or if the company's underlying assumptions prove to be incorrect actual results, May Vary materially from what the company projects the company that takes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information future events, or otherwise except as required by law after they've prepared remarks. We will be conducting a question-and-answer session for those that would like to ask a question, please press * 1 to be added to the question Q I would now like to turn the conference over to gram.
Nitrous CEO Mister Simon Burton, please. Go ahead sir.
Thank you operator and good morning. Everyone 2019 was a year of transition for the company. We fell short and our goal to deliver meaningful growth in book value per share for walk-ins that I'll describe in a moment nevertheless. I am confident in the quality of our balance sheets and in the positioning of our underwriting business in an improving reinsurance Market.
We have spent the last few years building a business with certain characteristics a platform that is operationally lean and that emphasizes agility over scale and Geographic reach home and writing portfolio that is diverse by class and with much reduced counterparty concentration risk going forward strategy to participate mainly as a following Market on reinsurance patience, and there's a price-setter only in areas where we have sufficient depth of expertise and and Innovations unit that build strategic Partnerships with successful Tech enabled startups and oranges. They give us long-term access to profitable underwriting business as well as the stake in areas of potentially significant growth within the insurance industry. This strategy is designed not leverage a low expense space and a sensible and agile allocation of capacity by class of business as I key competitive advantages. We have made significant progress in all these birth
But let me address why a 2019 Financial results are not reflective of our improved business profile.
Looking at the 2019 Financial your performance excluding the impact of natural catastrophes three worst-performing counterparties produced a combined with the writing loss of $39 the bulk of this underwriting loss related to our non-standard Auto class and was recognized during the first half of 2019 additionally fourth-quarter changes and the carrying value of our notes receivable represents represents another six million dollars of losses. We've recognized on loans. We had extended to certain students may we have no ongoing underwriting relationship with any of these students as they no longer fit our underwriting strategy.
Well the impact on net income in 2019 from these discontinued relationships is painful. It also reinforces my conviction in our current strategy as the balance of the Android Import phone now has perform well despite $17 of catastrophe losses that impacted US during the additionally on the operational expense front. It is worth noting that I corporate expenses were elevated due to certain strategic review related expenses that we incurred during the
A strong investment performance of 9.3% on our investment in the solid glass fund more than offset the losses from the discontinued underwriting relationships and our overall result of the 1.7% reduction in fully diluted book value per share.
Before I turn the call over to David, I'd like to provide a brief update on our ongoing strategic review since commencing the review. We have identified a variety of potential options for the company that have also engaged in discussions with prospective partners and counterparties. However, we have not selected any particular course of action nor have we formalized at I am able to complete our review until we determine that further disclosure is appropriate. We do not intend to discuss developments with respect to the process.
No Honda call over to David.
Thank Simon good morning. Everyone the soulless glass find returned minus 1% in the fourth quarter Long's contributed six tenths of a percent in shorts detracted 1.8% during the quarter the S&P returns eight and half percent for the year solid glass returned 9.3% long positions in the chemours company in Greenbrook partners are the biggest winners in the quarter chemours returned 23% is the country downstair quarter results that demonstrated sequential progress in regaining market share and it's titanium dioxide segment. We expect these positive results to continue as well as intermediate-term improvements to Refrigeration segment. We also expect the market to come to better understand the concerns of potential large future legal liabilities related to pfos and pfoa are overstated Greenberg stock was off 7% is the company announced good results that included strong order growth and that its entry-level brand trophy Signature Homes is off to a wonderful start home building in the US is doing well and lower interest rates lead to lower mortgage.
It's very good for the industry.
Solace class returned minus 4% in February as the S&P dropped 8.2% bringing the 2020 year-to-date return for solid glass 2 - 3%
that exposure was approximately 20% long in the Investment Portfolio at the end of the fourth quarter and has been reduced to approximately 15% at long at the end of February. The majority of the investment assets are in cash short-term treasuries. This asset allocation mix is providing to be beneficial as the last few weeks. The markets have been extraordinarily volatile now, I'd like to turn the call over to Tim to discuss Financial results.
Thanks David starting with the fourth quarter. We reported a net loss of 30.3 million dollars or $0.84 per diluted share net premiums written during the fourth quarter were 98.5 million dollars, which is a reduction of 6.2% in that premiums written in the fourth quarter of 2018. The decrease was primarily due to the non-renewal of auto business during 2019 month for the quarter. We reported an underwriting loss of 15.8 million dollars, which was negatively impacted by natural catastrophe losses of approximately 14.2 million dollars. The quarter was also effectively impacted by a small prior-year adverse Reserve development of one point 1 million dollars, the composite ratio for the quarter was 111.9% with fourth-quarter cat loss is adding 13.1 points to the composite ratio.
We reported a total net investment-related loss of eight point eight million dollars during the fourth quarter 2019, which was result of a net loss of 1% or 5.7 million dollars on our Investment Portfolio and soulless glass and a loss of six million dollars due to a valuation allowance in connection with loans. We had extended to certain students moving on to the full-year results. Green light re reported in a loss of four million dollars for 2019 or 11 cents per fully diluted shares.
Gross premiums written were 524 million dollars for the year at decrease of approximately 7.7% over 2018 as reported in Prior quarters. The 2019 premiums have decreased primarily due to the non-renewal of motor and medical stop loss contracts with these decreases being partially offset by new contracts relating to financial crop energy and other specialty lines for 2019 are composite ratio was 104.5% with net catastrophe losses contributing 3.6 percentage points prior year development along reserves primarily from private personal auto business negatively impacted our first quarter 2019 results. Although subsequent quarters reported net positive Reserve development compact of Reserve development for the year contributed 6.2 percentage points to the composite ratio.
Our general and administrative expenses for the year total 29.8 million dollars, which is an increase of four point six million dollars from the prior-year underwriting expenses of 14.3 million months or slightly higher than 13.1 million dollars in 2018 primarily as a result of hire Personnel an it costs the underwriting expense ratio for the year was 2.4% off resulting in a combined ratio for the year of 106.9% a corporate expenses during 2019, a 15.6 million dollars compares to 12.1 million dollars for the entire year and it's higher primarily due to higher level of professional fees and legal fees as well as Personnel costs. We reported total net investment related income 52.3 thousand dollars, which primarily was the result of a net gain of 9.3% for the year on our investment in Solace class.
the fully diluted adjusted
Book value per share as of December 31st 2019 was $12.88 a 1.7% decrease from $13.10 per share reported at December 31st, June 2018. Now turn the call back to the operator to open it up to Q&A.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using your speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
Our first question comes from queried from Otter Creek advisors, please go ahead. Yes. I'm going to try and do my best David Einhorn hear you turn down at 12:50 for the company earlier this year. You can probably not get anywhere near to that now, but perhaps 1150 why don't you go back and try and page that bid, you know underwriting has been miserable over a long period of time. We all understand the investment experience, but having to bring it here and ride this thing down down. The tubes is very frustrating. Thank you.
Well, this is David Einhorn and honestly, I don't think that was a very good David. I'm are being said the companies doing the best it can within the Strategic review process. I can't comment on any specifics the figure you quoted came out of a press report. I can't comment on the accuracy of that report, but I don't endorse it back receive either the process is ongoing and the companies going to do the best that it can to get the bags compostable for the shareholders to say about this.
The next question comes from David rocker from rocket Partners, please. Go ahead. Hi. This is somewhat similar to the previous question, but this month strategic review has been going on that was announced at the time of the second quarter report, and it was indicated that as of May 31st after the downgrade from best choice that you would commence this review. This is a very long time to have a review and to not say anything about it is puzzling the companies Who start take over battles and end them in a week off. I don't expect that, but I certainly don't expect there to be other Silence at this point there without any description of what you're considering or while you're doing it and further as the second question. Why was the the company obviously in shrink mode while you're operating expenses are rising. Could you please come on on those two things, please?
Well, I'll take the first one and and Simon will take the second one. I think it is fair to say that the Strategic review has taken longer than we would have expected it to and I think you can take from that that
you know, whatever. Our first course of action Choice was did not pan out. And so now we're thinking about other courses of action and when we eventually come up with something that we think is is the best available choice. We will make it and we will announce it and go forward on that basis.
I mean you want to answer about the expand your question David.
Yes, the question your question David on us being drinking. Do you need if you look at?
If you look at our expenses in two pieces, the underwriting expenses are slightly off. Not materially so frankly, I would not characterize the company that all in shrink mode where the Top Line maybe reducing the gross written premium. We're actually writing considerably more margin Rich business page, uh, which requires a great deal more effort and and operations. Um, so we doing quite a lot with what we have on the underwriting side the the increase in the operating expenses that I'm seeing is almost entirely from expenses connected to the Strategic review, which obviously are we we would consider 1000 for the for the purposes of of the Strategic review.
Did you it was four million dollars was that what the cost that you paid for the Strategic review? And and I guess when one other thing I've ever had to it, what are the tests that am best choice? That was a Navy you to restore your rating to stable from negative? And where are you in seeking to achieve those?
We have a an ongoing and healthy communication line with their best. We keep them fully apprised of our progress both operationally and around the Strategic review and they'll they're interested in in our conclusions. There's there's nothing else to add.
And was your cost of Credit Suisse four million dollars.
No, David, I can confirm that as of 12:31 2019 what is in the financials? It was approximately three million accrued for total expenses related to strategic and review.
The next question comes from Jonathan shaft from Clear Harbor, please go ahead get the 13% net-long in the solid glass Investment Portfolio that you disclose for the end of February. Does that apply to just the $162 million of invested Assets in the portfolio or is that month on the $348 billion of total assets in the portfolio or I guess, you know about the 240 million net.
No, you have you have cash in the portfolio. Is that included in that 13% or is it 13% or 50% of cash?
It's 13% of whatever the grossest highest figure you would come up with us. I don't know if I would confirm it the exact way that you're describing it. Okay?
Thank you.
And just further to that if you wanted to refer to Note 3 in the financial statements, it does break down the investments in the Solace glass fund so you can actually see the the vagaries components that make up the fund.
Again, if you have a question, please press * then 1 the next question is from Daniel schneeberger private investor, please go ahead.
Hi guys, and thanks for taking my question. My first question is around, you know, a compass of Interest David and you know, you're you're both the GPO friedlein obviously and you know, you're a good chairman of the board and in charge of achieving the best outcome for shareholders. So I was just wondering how do you manage that conflict?
Well, we have independent Committee of directors to address these kinds of conflicts and they they are regularly engaged in it when matters come up.
Okay and have you know during this process? Have you become more agnostic towards green lights role will be going forward, you know in terms of managing the capital.
I don't know what you mean by that.
So let's say you know, you would have to similar options and one of them would involve, you know consideration of investment mandate and you know, let's say the other option would be slightly more favorable for shareholders. How would you persuade he will he will do what's best for all of the stakeholders of the company.
Okay, understood. My second question is you know your thoughts on the liquidation because blue Capital, you know, obviously announced a liquidation last July and you know, they are able to return pretty much bought a book value for their shareholders and they returned about 80% of their Capital within 12 months. My question for you guys is if you if you were to choose a liquidation as the best path forward for shareholders. How long do you envision would that take would you be able to return Capital sort of in a similar Pace or would that be a you know a long a process?
I don't think
Would be in a position to comment on that at this point.
Okay. Thank you very much.
The next question comes from John Lavigne from Levin Capital, please go ahead. Hi. It's a great admirer of David. You mentioned pfas wage. Is there any open-ended thing in the underwriting that is significant and material enough to affect the book value and important way or ask the question a different way the way I should have asked it. I'm not sure how I should have asked it. Every time I am yeah cuz we bought the zillion dollars in Dupont on this thing already.
Yeah.
We don't we've done a lot of work here.
We believe that their exposure is largely limited to three plants right have done most of most of their remediation that there's one plant that had a fair number of human plaintiffs off most of which were resolved in 2017 and a large settlement that Dupont and from or split. There's ongoing litigation relating to approximately sixty plaintiff's that emerged after 2017. There was a trial of a week or two ago that led to 103 on one page and a 50 million dollar verdict on the other plaintiff.
So the company needs to figure out how to resolve those. Those are the only
injuries deals that we that we know about at, you know at this stage and we think that the remediation from the other two plans is just further away mostly from birth and populated centers is relatively unlikely to lead to things other than just actual cleanup costs of the physical facilities and surrounding areas, which I think is name is long since in process. There's a second set of litigation relating to firefighting phone, which is a product that 3M made that Dupont May contributions in terms of ingredients. Our understanding is that the DuPont ingredients were not the the chemicals that had led to the
The distress but this is going to be something that's going to be the subject of litigation probably for many years. Our our understanding is the 3M is the one who has the vast vast majority of these bulbs. That's all understanding. Also David. That's why I asked the question to try to be helpful. Okay, and just just to be clarified for everybody on the call. This is a discussion related to our asset investment in the solid doors. This is not a liability that is anywhere in the green light underwriting portfolio. Oh that's important. Great. Okay.
That's why I asked the question to clarify.
To be helpful. Thank you.
There are no more questions in the queue this concludes our question-and-answer session and the conference. Thank you for attending today's presentation. You may now disconnect.
Thursday Thursday