Q1 2020 Earnings Call

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[noise], Hi, I'm, calling about the Greenlight capital we limited cool.

Please.

Catherine Harrison.

And your.

And I, it's buys her AI eat all right.

They are recorded today. Thank you.

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As the retroactive extension.

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All the insurance that.

In early April the company announced that conclusion, Orbitz review of strategic transaction alternatives, including our belief that stockholder value will be better enhanced on a standalone basis than by pursuing the transaction with the policy.

We have also expanded the share repurchase program, which reflects the confidence we have been the quality of ours and balance sheets and the opportunity presented by the market to increase shareholder value through buybacks.

Tim will share the details of the repurchases in a few minutes.

Now I will pass the goal over to David.

Thanks, Simon and good morning, everyone. The solid class foundry turned negative 8.1% in the first quarter.

Longs detracted, 8.6% lost shorts in macro or modestly positive.

During the quarter the S&P 500 index returned negative 19.6%.

Long positions and Brighthouse financial become worse company in Green brick partners, where the biggest detractors brighthouse financial fell 38% in the quarter.

In February the company reported strong fourth quarter operating results in an impressive year end risk based capital ratio of over 550%.

Additionally, a timely change and the company's hedging strategy enable management to announce a 1.25 billion dollar dividends in the holding company, which would bring its cash position to around $2 billion.

Despite this the stock fell 66% from its peak during the pandemic induced market route.

At one point valuing the entire company at less than its excess cash.

We were able to offset some of the bright house loss by hedging the position was Schwartz of other global life insurers.

Kim worst fell 50% in the first quarter in early February management pointed to a positive turns in the titanium dioxide cycle and early signs that the company is regaining lost market share.

After a strong positive reaction the stock price fell dramatically over fears that demand for its products will collapse in the global economic slowdown. Unlike some of its competitors. We believe the corners has sufficient liquidity to survive a protracted downturn and emerge with significant profits on the other side. We continue to think that come words legal liability concerns.

Over forever chemicals or overblown as it was not a participant in the P.F.A. asset used in firefighting foams.

Green brick partners fell 30% in the first quarter green bricks low leverage relative to its peer should allow it to weather the near term slowdown in home sales and we believe the company will ultimately benefit from a longer term shift and preferences for multifamily residences to single family homes.

Lets class returned negative 1.1% April bringing the 2020 year to date result for solace class to negative 9.1% compared to negative 9.3% for the S&P 500.

Net exposure was approximately 10% long in the investment portfolio at the end of the first quarter and 11% at the end of April.

The call that 19 pandemic, while health crisis has brought upon an economic crisis due to the lock down measures that we implemented globally.

Economy assays with simultaneous supply and demand shocks and have led us to a deep global recession. The authorities have now taken or whatever it takes approach to lessen the economic impact.

The magnitude of both fiscal and monetary stimulus is something which we've never experienced before.

We've been very cautious in managing the portfolio through this period, but believe there are medium and long term opportunities for value investment style as the market sorts through the net winners and losers of these unprecedented times now I'd like to turn the call over to Tim to discuss the financial results.

Thanks, David for the first quarter 2020, Greenlight re reported a net loss of $40.3 million compared to net income of $5.9 million for the comparable period in 2019.

The net loss per share was $1.11 cents for the first quarter of 2020 compared to fully diluted net income per share of 16 cents for the same period in 2019.

Net premiums written in the first quarter 2020 were $109.1 million, which is a reduction of approximately 23% from the prior year quarter, primarily due to the nonrenewal of certain auto business offset by new business written in several different specialty lines.

There was a significant decrease in ceded premiums in the quarter due to the nonrenewal of Retrocessional coverage on auto business.

Net premiums earned were $111 million for the first quarter, a decrease of approximately 11% compared to the prior year quarter.

The company reported underwriting income of $1.3 million during the first quarter of 2020, and a composite ratio of 96.8% compared to a composite ratio of 115.2% during the comparable period in 2019.

General and administrative expenses of $6.8 million incurred during the first quarter 2020 were relatively flat compared to the prior year period.

Underwriting expenses were $2.9 million for the first quarter 2020, as compared to $3.8 million incurred in 2019, the decrease primarily relating to personnel costs.

The underwriting expense ratio for the first three months of 2020 was 2.1%, resulting in a combined ratio of 98.9% for the quarter.

Our corporate expenses of $3.8 million for the first quarter were higher from the prior year quarter, primarily due to increased professional and legal fees related to the strategic review.

We expect our quarterly corporate expenses to be lower in the near term.

We reported a net investment loss of $42.1 million on our investment in Solus glass during the first quarter 2020, representing a loss of 8.1% on the investment portfolio in the fund.

Additionally, we reported net investment income of $6.8 million on our other investments.

Fully diluted book value per share as of March 31, 2020 was $11 in 63 cents, a decrease of 9.7% for the quarter.

As Simon indicated the board expanded the company's current share repurchase plan from 2.5 million to 5 million class eight ordinary shares with an extended expiry to June Thirtyth 2021, there were no shares repurchased during the first quarter of 2020, as we were restricted due to the.

A strategic review however during April the company repurchased approximately 293000 shares at an average price of $6.44 per share.

Now I'll turn the call back to the operator and open it up to questions.

We will now begin look question answer session asked a question you May Press Star then one on your Touchtone phone.

If you are using speakerphone, please pick up your handset before pressing the key to.

To withdraw your question. Please press Star then Q.

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Hi, Dan if you have a question our first time, please press star wireless.

Our first question.

Come from just a.

A private investor.

Hi.

Question on DNA, and you mentioned that that will come now you can you elaborate a little bit on where you think DNA will allow going forward.

Okay.

Hi, Thanks, Chris it's Tim careers here.

Yes, as we mentioned the expenses were approximately $1 million.

Higher in terms of what we're seeing on the corporate expense side, and I think thats a decent proxy for how we're looking going forward in the near term.

Okay.

And then.

On the composite ratio and the improvement that you saw there versus the prior periods.

What do you expect I mean, not necessarily in Q2, but.

Given the book of business that you have going forward. What do you think is a reasonable expectation on whether it's on the composite or combined ratio whatever that easier way to describe.

So.

Hi, Good morning, Chris This is Simon here.

So we don't.

Forecast combined ratio or any of our financial metrics.

But to do just.

Performance this quarter in context, particularly if you're comparing to Q1 a year ago.

Good morning America was dominated by.

The auto situation that we described in some detail in previous quarters and was quite good use in krasik and and confined to a.

A small.

Area of our book the underlying performance of the rest of the book is not.

Does that difference to.

Two years ago. So the residual performance is improving we're growing the business that we want to grow with shrinking the business that we want to shrink notably auto.

So we are pleased not surprised by.

By the outcome, but it was raw the obfuscated by this single idiosyncratic.

Loss from our auto book, a year ago I have that helps.

Okay, I guess, the bigger picture that I'm trying to understand because this is the certainly.

As you mentioned a better performance on the.

Deposit ratio than you've seen for.

For some time.

And even even with that and even if we adjust for the the higher than normal corporate expense.

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It seems likely that between DNA.

At this level of composite ratio that there will be.

A drag on earnings from the insurance side of the business is that.

I appreciate that you don't forecast, especially not in any kind of given quarter, but is that something that you think.

Here to say or is there that's a transformation in the book of business on the insurance side that you could envision no longer having a drag from.

Composite ratio flood.

<unk>.

Expenses et cetera.

Well I would disagree with.

The observation you've made that says there's a drag on the overall company from the insurance performance from the reinsurance book again, the the source of the loss deterioration a year ago.

Was from policies under its and frankly before I joined the company and that several years in the past.

The residual performance of the book has been steadily improving over that period.

So I.

I firmly believe that the reinsurance business as it stands today is additive to the company.

No of course, we want to improve on the on the economic condition of the reinsurance business overall and as I said the trajectory of growing the business that we want say is is steady and I think you see that Tim and some of the.

Mix of business shifts in our premium detail, particularly in the of the other and specialty lines.

But secondly.

The pandemic really has thrown a spanner in the works of the entire industry.

You've heard in my opening remarks that I consider the company to be.

Well positions.

For the difficulties the industry is experiencing and we'll continue to experience over the next six months.

No thats by primarily by virtue of as being a pure reinsurance company without the exceptionally high leverage that you'll typically see insurers.

That that which is.

How an insurance portfolio is characterized against the balance sheet.

So we're well positioned for for the stresses and changes that were anticipating.

I consider our portfolio additives, improving on the right trajectory.

And I I do expect improved conditions for us going forward as as the world.

Right. So following this really awful pandemic situation.

Okay, well, it's good to hear that that you think that can be additive going forward. Hopefully you can appreciate whether I look on a.

Three year five year 10 year basis.

Insurance business has been a material drag I know that that you weren't there.

For a lot of that time, but that would be a really significant change and certainly hope to see that going forward.

Thank you Gary It's just one last comment this isn't thank you. This isn't some me distancing ourselves from our results of course, what I'm trying to point out simply is that our strategy did undergo a marked change around 2017.

When I joined the company and it has taken some time to that strategy to.

To play out to manifest in our in our financial results us simply a byproduct of the the claims reporting lag that you always see and a reinsurance company.

But the thank you for your question.

Thanks.

Our next question comes from Michael Paul, Let the Glenrock Advisory Associates.

Hi, I have a question for.

David I suppose.

I Havent looked at.

At the stock in a while and.

We're looking through the is a website I saw that.

Portfolio has been caught de risks the and will be substantially cash by now.

I remember it at a time when it was.

Reasonably closely mirroring.

David hedge funds it positioning.

Can you please comment on how the portfolio is different from the past.

Or what the exposure is now and perhaps the highlight.

Some of the some of the features of the current positioning.

Thank you, yes, absolutely.

We did move the portfolio to.

Approximately 70% cash.

Roughly a year ago.

Salyer today is position 30 about 30% long a little bit less than that and about 20% short for a net exposure of about 10%.

All of the positions in the Greenlight re portfolio are also in the Greenlight capital portfolio, although they're not in the same proportions.

There's been various changes relating to the.

The de risking which caused some positions to remain relatively larger and other positions to.

A much smaller even disappear entirely so theres fewer over all positions.

In the.

Palace class partnership at this time.

I see it can you comment on why why the degree of invested nurses solo now.

And and also.

Where would I.

Fine informational can you comment about.

The positioning.

More specifically I mean, the type of sectors or maybe even individual names in the portfolio.

Sure.

The reason for the portfolio is the rest was roughly a year ago in response to the difficult performance that the company was.

Having which led us to decide to conduct a strategic review and to operate at a lower level of risk while that review was being.

Conducted.

Specific names in the portfolio.

On the alongside the the largest exposures are brighthouse financial.

Green brick.

We recently added back a bunch of air cap.

And Tim worse.

Can you think would be the four largest positions in the and alongside of the book today.

Is there an intention to return to a more.

Okay full investor.

Promo more full investor weakness.

There's an intention to have those times in discussions, but no decision to do that has been made by the board at this time.

I see.

Thank you very much.

Sure.

Our next question comes from Sean Lee a private individual.

Hi, Yes, my questions for Simon.

Several research universities recently published reports sand at this year's Hurricane season is going to house.

Above normal activity, maybe even possibly be one of the most active on record.

I was just wondering are the model year running showing the same types of forecasts and if so what something.

The team can do to be a little bit more proactive.

This year in protecting from any potentially devastating losses there. Thanks.

Hi, Good morning, Sean I asked the question the models that we run and in fact, but generally across the industry or not forecasting models just to be clear.

We do benefit from forecasts from.

Institutions universities, and so on research institutions and of course industry does pay some attention to those forecasts.

But.

They usually discounted.

To the fullest degree for two reasons, one is difficult to shift the portfolio meaningfully.

In response to a short range forecast that often arise about this time of year may just before the hurricanes hurricane season starts so what about bets in place before now.

And second is the forecasts or I'm, sorry to say even at this point.

Our often quite an accurate.

So the models that we run our based on views of historical frequencies.

Often with layers of conservatism to reflect things like cut climate change and.

And the that has industry perception that frequency and severity and then on on an upswing certainly in certain parts of the route of the world.

So the models to reflect some conservatism and a skeptical view of a general conditions and in in natural catastrophes of but not fully done we don't fully contemplated forecasting I mean settled that.

We do place our bets in the Cat business, we we see the classes additive to our portfolio, we don't see the conditions and kept to be sufficient exciting for this to be an outsized line for us. So we don't consider ourselves account specialist it's not we're not heavy in that class where.

Relatively underway compared to many of our peers should those conditions change and then it becomes a considerably more interesting class for us than we'd revisit for that so that's our current view.

Okay, great. Thanks.

This will conclude our question and answer session will follow today's call should you have any follow up question. Please direct them to Adam prior of the ACA clip.

Q1, 2836, 960 sex and he will be happy to assist you.

We also remind you that a replay of this call and other pertinent information.

Greenlight re is available on our website at www Dot Greenlight re dot com.

The conference has now concluded. Thank you for attending today's presentation you may now just color.