Q1 2022 Greenlight Capital Re Ltd Earnings Call

Thank you for joining the Greenlight re conference call for the first quarter of 2022 earnings. The company reminds you that forward looking statements may be made on this call are intended to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward 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 uncertainties and assumptions.

Leading those enumerated in the company's Form 10-K for the year ended December 31, 2021 and other documents filed by the company with the SEC.

If one or more risks or uncertainties, uncertainties materialize or if the companys underlying assumptions prove to be incorrect actual results may vary materially from the company's projections. The company undertakes 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 the prepared remarks, we will be conducting a question and answer session.

For those that would like to ask a question. Please press Star then one to be added to the question queue.

I would now like to turn the call over to Greenlight Re's CEO Mr. Simon Burton. Please go ahead, Sir good morning, everyone and thanks for joining the call.

The first quarter would be a used to be considered a benign periods for the reinsurance industry with only the occasional large loss boost those days seem distant though.

Two years ago, we were contemplating the impact from the onset of Covid last year Winter storm jewelry set new weather Records and this show Ukraine has enjoyed a massive ground invasion, while Russia is face facing extensive economic sanctions.

During the first quarter, we recognized $13 $6 million of losses from the Russian Ukrainian conflict.

Which contributed 10 points eight percentage points to a 106.2% combined ratio.

While the conflicts impacts in our combined ratio is substantial.

Next the growth in our short tail specialty business that is otherwise performing well.

The Russian Ukrainian conflict is highly complex, particularly as it relates to the impact of Russian sanctions I'd like to highlight a few points about our reserve estimates.

The loss estimate relates to an IBM all provision on losses incurred up to March 31st 2022, we have not received any reported losses today.

Our estimate includes an assessment of losses incurred in both Ukraine and Russia.

A portion of our exposure to the conflict, including Marine energy political violence, Tara and whole account risks is protected by retrocession will policy.

The detaches at $10 million and.

Is $20 million of coverage to us.

The first quarter loss estimate does not reach the attachment points of this cover.

So the source of my remarks, I referred to the apparent disappearance of periods without significant industry events not surprisingly we are seeing the withdrawal of reinsurance capacity in response to poor profitability of the industry over the past few years.

The other side of this picture is the market conditions continue to improve.

Market studies that suggested the rates overall have improved in each of the last 17 quarters and the Russian Ukrainian conflict and reduction in underwriting capital are likely to continue supporting that trend at least with respect to the short tail specialty classes.

And despite the scarcity of event free quarters, we've seen recently, we believe that no trends continue forever.

Looking forward as a non renewed lower margin business runs off over the next few quarters, we are expecting to see the impacts of better business mix and continued rates improvement reflected in our results.

In April we launched the Greenlights innovation Syndicate 3456 under the Lloyd's syndicates in the box initiative or.

Our innovations unit is central to the company's strategy and the syndicate will help us support our existing partnerships as well as grow our insured portfolio.

During the first quarter, we made additional investments and generated $4 million of unrealized gains, reflecting the continued strong market interest in our innovation partners.

Now I'd like to turn the call over to David.

Thanks, Simon and good morning, everyone.

The solid class fund returned one 7% in the first quarter shorts, including index positions contributed four 9% macro contributed three 5% and longs detracted, 6%.

During the quarter the S&P 500 index declined by four 6%.

Our long positions in console energy, Ryan Mattel and tech resources, and our macro positions in inflation swaps, where our largest positive contributors Greenberg partners, our largest long position was our largest detractor.

Consol energy and Tech resources stock prices advanced, 66%, and 42%, respectively hauling price searches for metallurgical and thermal coal.

Brian Mattel stock price climbed by 131% in the first quarter as Russia's invasion of Ukraine dramatically changed the outlook for European defense spending.

About three quarters of Orion Mattel's business is military related.

Our position and long inflation swaps benefited as the market began to price in its doubts about the fed's wherewithal to return inflation to its 2% target.

Even if the fed adjusted the market's expectation to a faster tightening cycle inflation expectations continue to increase this benefited our gold position as well.

Green brick share fell 35% during the first quarter, but nothing company specific to account for the drop in fact, the blow out earnings release last night indicate that current business performance is excellent.

However, the homebuilding sector de rated as the market formed a view that the sharp rise in interest and mortgage rates will be the cause for a repeat of the 2008 housing crisis. We believe the comparison and the fear that as a company that to be misguided due to a decade of under development. The U S is experiencing a severe shortage of housing.

Further homebuilders currently have low financial leverage there's significantly less speculation and lending underwriting standards are tighter well higher mortgage rates might have an impact on demand at this point homebuilders are more constrained by supply.

We continue to be focused on the global inflation problem and now at least we believe that the fed understands the problem while it sounds serious about fighting the fed has done little to help the problem other than talk about it it's kind of like the opposite of the main rule from the movie fight club.

If the fed was serious about stopping the inflation problem, we believe it would be as aggressive and creative and tightening as it is when it was easy.

While inflation is set to drop from its current eight 5% year over year rate, we do not expect the fed to be sufficiently aggressive and fighting it. It is likely inflation will remain persistently above the 2% target.

The solid class portfolio returned six 9% in April and has returned eight 7% year to date net exposure was approximately 26% net long.

At the end of the first quarter and roughly 30% at the end of April now I'd like to turn the call over to Neal to discuss the financial results.

Thank you David and good morning at the end of the first quarter, our fully diluted book value per share was $13 65, a decrease of two 4% from December 31 2021.

Our net loss for the quarter was $5 $7 million or <unk> 17 per share we reported an underwriting loss of seven $7 million during the first quarter and a combined ratio of 106, 2%.

The Russian and Ukrainian conflict contributed $13 6 million or 10, 8% to the combined ratio.

The quarter's underwriting results included adverse prior year development with a net financial impact of $2 $6 million adjustments to our COVID-19 estimates estimates represented roughly half of this development.

Gross premiums written were $145 $9 million for the quarter, a decrease of 14% from the first quarter of 2021, due primarily to our decision to reduce our participation in motor and workers compensation contracts. This decrease was partially offset by growth.

In specialty general liability and multiline business, including premium generated by the company's innovation partners.

Premiums ceded were $6.1 million in the first quarter of 2022 and were insignificant for the three months ended March 31 2021 during.

During 2022, we entered into new retrocession agreements, primarily to reduce our exposure to large marine and energy loss events and certain property losses.

We reported total net investment income of $7 $7 million during the first quarter, we earned $4 $1 million from our investment in the Solas class fund and recognized an additional $3 $7 million of other investment income primarily from our innovation investments.

Total general and administrative expenses incurred during the quarter were $7 2 million down slightly from $7 $5 million in the first quarter of 2021 now.

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

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

You are using a speaker phone please pick up your handset before pressing the keys if at any time. Your question Thats been addressed and he would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our own.

Our first question will come from David <unk> with <unk> investments. Please go ahead.

Hello.

Thank you for the question.

I wanted to start with the insurance Tech I see its gone from I think 7% of the premiums up to 10% 10%.

Wondering if you could give us an indication of where it'll be in the next 24 months 12 or 24 months.

It sounds like great progress.

Hey, David Simon so.

The initial attack the innovations unit is.

<unk> of the organization to our operations.

Today and in the last several quarters.

It is growing we're growing it steadily in the past week.

On the insurance side.

Indicate where it will be we never forecast.

A nice metrics in any case.

We will tell you that it is my objective that innovation. This is increasingly important within the context of our overall operations if that helps.

Okay.

The 10% is it focused in one or two of the larger ones or is it kind of spread out I imagine it's in the more mature ones.

When you come below that we have.

We have approximately 20 partnerships this points and there is a wide variety of stages of maturity.

The first investment first partnership we entered into US and this is on the investment side.

Earlier in 2018.

We've been steadily making building off the books since then.

So these things will come online at different stages of maturity some of our partners.

Not really early stages that we are entering that medium stage maturity. They build teams and operations. They may have an NDA.

They've launched their products.

So.

It will be staggered.

It's quite a substantial portfolio most of our partnerships do presents also unlikely to presents us with the opportunity to participate in insurance business in the future.

So that will come on line.

As to our current volume, yes, there is.

Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line. Please standby as we reconnect.

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Okay.

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Pardon me, ladies and gentlemen, it appears that we have reconnected our speakers line Speaker. Please go ahead and proceed.

David I'm, sorry about that it's Simon here.

Hi, Lee.

Just addressing the question of insure tech.

Business as it comes online over time.

The constituents of our current book.

So we have.

About 20 partnerships on the innovation side investment partnerships.

A fairly high proportion of these will ultimately presents us with the opportunity to participate in the insurance business as it grows.

But they're all at varying stages of stages of maturity.

We made our first investments in earlier in 2018, I believe and we made our most recent investments a few weeks ago.

So where we stand today is there is a bit of lumpiness in our current book, but thats going to spread out significantly over the next several quarters I expect as more and more of our partners bring their launch their products bring their MGA is online and we participate in the in the insurance opportunity.

If that helps.

Okay. Thank you.

Yeah.

My other question was with the bond debt.

Can you comment or at least.

Hello.

Yeah.

Talking about you can about that.

Plan to refinance it.

We'll pay at all.

Down.

Uh huh.

And how that looks over the next 12 years 12.

Thomas Thank you sure David This is David and nice.

Nice to hear from you.

Worthiness.

We're quite aware of the bond maturing.

Yes.

And we began thinking about what to do about it.

<unk>.

We will approach it in an orderly and timely fashion.

Okay.

<unk>.

And then my other one was I'm trying to understand the net position of the.

Well I guess its for David or Neil.

But if you look on your website on April <unk>.

Increase of the 16 million% to 29%.

And you divide that by six 9% about $60 million, you get roughly 231 million debt.

Invested.

But on the balance sheet I see a $161 million I guess my question is.

The difference between the net asset versus do it.

Ari LP share more of that.

Yes, we're investing about 50% of the surplus so just look at the shareholder equity to buy back shares.

How is there a $16 million gain though six 9% month.

Oh.

That was to prevent that.

That was if you took the surplus and divide it by two.

And you compare that to the profit I think it was about six nine years.

Okay. So the equity is roughly 460 BOE okay sure.

Sure.

Thank you.

Okay I'll get back in the queue I'm sure. There's other questions, but I appreciate the hard work and the.

David the amazing monthly outperformance.

And.

So on the insurance side.

Yes.

Ukraine Cushing.

Well everybody.

Alright, Thank you very much.

David.

Again, if you have a question. Please press Star then one our next question will come from Daniel Baek Young a private investor. Please go ahead.

Hi, Mike.

My question is regarding <unk>.

And how what's the surpluses in Boston I think on the last call. You said you were looking at increasing the percentage of advantage.

Has there been any progress on that and is the lack of share buybacks.

<unk> idea.

Managing a larger percentage of surplus.

Yeah. This is David I raised the question again with the board and as yet there hasn't been a change in that determination.

Expect it will come up again.

At subsequent board meetings.

No, it's not related to the share repurchase.

Our next question is a follow up from David <unk> with <unk> investments. Please go ahead.

Hello.

I had another question on that Amit.

Insurance side.

I was wondering if you all.

Internally look at the return on allocated capital in the past four years or five years, that's not investment related just insurance.

Okay.

Yes, David.

We spent a great deal of time thinking about that through both the strategy.

Work that we do and the business planning.

Capital allocation is a is a critical theme there.

We think we've got a pretty good balance.

As you can see we've allocated a fair amount of that capital to our innovations partners on the investments and increasingly on the insurance side.

And Thats whats out tremendously well.

Pose you could argue that's.

A greater allocation would have been even better results, but given the the illiquid private nature of these partnerships. We think we've got that allocation about rights.

In the insurance portfolio.

Yes.

Keep in mind of course, Youre seeing some volatility here from Ukraine, but keep in mind. The flavor of book is it tends to be shorter tail in nature.

So some costs some idiosyncratic type events like Ukraine, but generally not highly exposed to long term inflation and we're seeing that being picked up in the marketplace right now so the duration of ours is.

Is about two years and that's tremendously shorts across the industry. So I just wanted to see you.

Keep in mind that as we think about allocating capital.

Where gen.

Generally staying away from the long term inflationary side.

Yes.

And again, we think that serves us quite well on the capital side.

Okay. Thank you.

Is there any.

I realize all of your forecast.

<unk>.

With the insurance with a quarter ending.

March is there any kind of insight into.

Thank you thanks, Paula into April and May about how.

The Ukraine thing.

Going forward or other policies.

<unk>.

I guess, there's no there's no forecast or anything else just strictly on entering.

Thank you you haven't.

No David we don't publish interim forecast the event is ongoing but obviously you're aware of that.

We are monitoring it very carefully.

Say that we've had no specific data on any.

Any emergent losses since March 31st let's call it the fog of war.

But that inflammation will steadily make its way to us through our partners reinsurance partners and of course, we will it'll be reflected in our financial statements at the earliest opportunity to.

To the extent that.

The ongoing events presents new exposure.

But we're monitoring the situation very carefully.

Okay, and then switching back to the insurance Tech just just one more question won't be my last question.

For today, but.

Do you have do you do you expect in 2022 or 23.

More mature of the larger ones to exit an IPO.

We're not expecting we're not aware of any definitive plans of our partners.

It's always an option.

Founders at a certain stage in their maturity, we will consider liquidity as an option for them and their shareholders.

So it's always a possibility.

So we're not we're not expecting that to or relying on it let's say.

If one were to occur.

Would you all reallocate the $50 million would you reinsure update in Charles would you.

Moving into the portfolio and investment portfolio.

That is really my last question.

Well of course.

I bought shares.

The IPO events is not the only way to see some liquidity of five of our partnership investments that may be other opportunities through all the other capital raises as we go at every stage, we consider our position.

Has it.

Is it still the right size in our portfolio.

Is it how how positive all we own the prospects of the partnership generally very positive.

So we consider this at all stages.

And.

You're asking how we might redeploy that capital over time, well again that will be based on the conditions that we see.

Between Solus glass buybacks.

Insurance opportunities or other new innovations partnerships.

And those those events.

This condition is very rapidly and constantly we make those decisions lightly.

Okay.

Okay. Thank you.

Thank you.

This concludes our question and answer session, which also concludes our conference for today should you have any follow up questions. Please direct them to Karen daily of the equity group at 2128369623, and she will be happy to assist you.

Also remind you that a replay of this call and other pertinent information about Greenlight Ari is available on our website at Www Dot Green light <unk> Dot com. Thank you for attending today's presentation you may now disconnect.