Q2 2023 Greenlight Capital Re Ltd Earnings Call
Thank you for joining the Greenlight capital raised second quarter earnings Conference.
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Question and answer session will follow the formal remarks.
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An audio replay will also be available under the investors section of the company's website.
At Www Dot greenlight read that calm.
It is now my pleasure to turn the call over to David Sigmund General Counsel at Greenlight re you may begin.
Thank you Diego joining.
Joining us on the call today will be Chief Executive Officer, Cylon Burton Chairman of the Board David Einhorn.
Financial Officer farmers drummer.
The company I'd like to remind you that forward looking statements may be made during this call and are intended to be covered by the safe Harbor provisions of the federal Securities.
These forward looking statements reflect the company's current expectations estimates and predictions about future results and are subject to risks and uncertainties.
As a result actual results may differ materially from those expressed or implied for more information on the risks and other factors that may impact future performance investors should review the periodic reports that are filed by the company with the S. C C from time to time.
Additionally, management may refer to certain non-GAAP financial measures. The reconciliation to these measures can be found in the company's filings with the S. E C, including the company's Form 10-Q for the second quarter ended June 30th 2023.
The company undertakes no obligation to publicly update or revise any forward looking statements with that it is now my pleasure to turn the call over to sign up.
Thanks, David Good morning, everyone. Thank you for joining us.
For the second quarter of 2023, we reported strong growth in book value per share of 9.9% a net income of $49.9 million. This.
This result was led by outperformance in the soapy funds along with contributions from our underwriting operations and other investment income.
Starting with the underwriting result.
The combined ratio of 96.2% was impacted by 7.3 points of catastrophe losses, primarily severe storm losses in the U S individually b storms, all large enough to attach to catastrophe lives.
<unk> as we mentioned on a Q1 cool we're seeing these claims through our exposure to a single home owner's property program.
The severe storm activity in the U S has been extraordinarily high since late December of 2022.
Although we expect to see a rapid performance improvements in this class is rates increases accelerates and severe storm frequency of base in the second half of the.
Severe storms aside a performance is exactly is what I would expect we have taken full advantage of the hard market conditions and we are starting to see the improvements in rates reflected in a combined ratio excluding catastrophes.
We expect to see continued improvement says business written in 2023.
Through over the next few quarters.
Turning to our top line production. We grew net written premium in the second quarter to $145.2 million, an increase of 13.8% compared to the second quarter of 2022.
Important to note. However is that the growth has not spread evenly across all classes. We have identified exceptional margin opportunities in specific areas such as commercial property, which includes 40 catastrophe Ah named Marine and other specialty lines.
And these forces we grew net written premium by an average of 67% compared to the second quarter of 2022.
Conversely on that written premium reduce materially in two areas first in workers compensation, we are more cautious about future inflationary risks than the market clearing price seems to imply.
Second the reduction in the financial class is driven more by our timing and mortgage business, which can be lumpy from the top line perspective, as we periodically replace maturing tranches of exposure.
We're still generally positive about the mortgage class and expect to add new exposure over the coming year.
As we consider our underwriting outlook. It has excellent overall, we have not seen a significant increase in the supply of rates at all I have less capital, which appears to be constrained by historic performance concerns and we believe that that is latent demand full catastrophe reinsurance due to the affordability issues, we should unlock his property insurance rates.
Increase.
This demand will be bolstered by upwards revisions invented a cat model assumptions.
Turning to a brief update on our renovations business, we made three new investments during the quarter each characterized by a vision for differentiated insurance products do we believe could ultimately strengthen our underwriting business.
<unk> values did not change materially during the quarter.
Measurements events, although I apologize continued to execute their business plans.
Our innovations platform is an attractive in differentiating driver my business model and it has a key elements of a long term strategy.
Finally, I'd like to think I shelled as for the votes of confidence reflected in all of our annual general meeting proposals passing last week.
Included reelection of older actors approval of new stock incentive plan that will continue to promote the interests of the company and our shareholders, but directly linking compensation with company performance for you to come in.
And the elimination of the company's previous jewel class share structure, which simplifies and improves a capital structure.
We also welcome down your appointment to brings decades of financial services in senior leadership experience as a valuable addition to Apple.
Is of course already intimately familiar with our company. Thanks to his he has a service as an ultimate director as well as a director of our Irish subsidiary I congratulate Dan and look forward to working with them in this new capacity.
Now I'd like to turn the call over to David.
Thanks, Simon and good morning, everyone.
The Silas glass fun gain 10.9% in the second quarter are long has contributed 18% and macro added 0.3%.
A single named short portfolio and index shorts, detract at 4.3% and 1.2% respectively. During the quarter the S and P 500 index advanced 8.7%.
Long and Greenberg partners cancel energy Tenet health care and R. U S interest rate derivatives are the largest positive contributors to the quarterly resolved and.
And S and P 500 index short two single named short positions in gold, where our largest detractors green.
Greenberg shares advanced another 62% in the second quarter, bringing it's 2023 first have returned to 134%.
The company posted exceptional first quarter results, beating a new orders closings and bottom line E. P. S.
Sell side analysts have been taking up current you're at earnings expectations. All year as consensus estimates began 2023 $3.17 per share and as of yesterday or $5.16 per share. The company reported second quarter numbers last night and again dramatically exceeded consensus estimates.
Cancel energy returned 19% during the second quarter.
With its earnings released the company updated is capital allocation strategy and guided to a new policy returning at least 75% of its free cash flow to investors with a preference for stock buybacks over cash dividends.
And the healthcare shares gained 37 per cent during the quarter as the company announced first quarter results repeat expectations and also raised estimates for the remainder of the year.
The ambulatory service Center strategy continues to show progress during the corner the market came around to share our belief that the.
Federal reserve is unlikely to cut interest rates this year, which benefited R. U S rates macro position.
We maintained our net exposure within a band that we deem to be neutral. The first half of 2023 was an extremely difficult period for shorting is animal spirits return to the anti value pockets of the market.
While inflation has been moderating we expect that it will remain stickier than the market expects and has a reasonable chance to reaccelerate from here if.
If so this will complicate the job of the fed and the second half of the year and adds risks that the growing complacency on inflation could needs to be reevaluated by the market as a result, we've added some equity indexed Schwartz.
<unk> seven tenths of 1% in July and has returned 8.9% year to date in 2023 net exposure and investment portfolio is approximately 40% at the end of July .
Solve the shareholder vote, we collapse the companies do a class structure and further simplify the capital structure by repaying the convertible notes I know hold 17.7% of the ordinary shares were pleased with the progress we've made a greenlight re in 2023 and while there's a wide range of potential outcomes in the equity markets at the current juncture remain constructive with our.
80 to generate good risk adjusted returns now I'd like to turn the call over to farmers to discuss the financial results.
Thank you David and good morning, everyone.
Our net income for the second quarter of 2023 was $49.9 million or one dollar and 32 cents per diluted share compared to a net income of $14.8 million or 37 cents per diluted share in the comparable period in 2022 for the.
First half of 2023, we earned net income of $55.7 million or one dollar and 49 cents per diluted share compared to a net income of $9.1 million or 23 cents per diluted share in the first half of 2022.
We reported in underwriting income a $5.4 million during the second quarter and the combined ratio of 96.2% compared to an underwriting income of $9.3 million and a combined ratio of 91.6%.
The underwriting income was impacted by $10.2 million or 7.3 combined ratio points of catastrophe and weather events related to the severe storms in the United States during the second quarter of 2023 by.
By comparison, we had no cat losses during the same quarter of 2022.
I just think for a catastrophe event losses current your loss ratio decreased 1.7 percentage points, 256.1% compared to 57.8% during the comparable period in 2022.
Our net written premiums increased by $17.6 million or 13.8% to $145.2 million compared to the same quarter in 2022.
The net earned premiums increased by $29.7 million or 27% compared to the same quarter in 2022.
I will now briefly discuss the second quarter performance for each category property casualty and specialty.
Within our property book, we saw an increase in net premiums written of $9.5 million or 56.5%, mainly driven by commercial property business.
The property book was negatively impacted by the U S. Severe storms, primarily related to one program as Simon mentioned.
As a result, the composite ratio for the property business was 122.2% for the quarter compared to 72.6% and 2020th too.
Our casualty net premiums written group by $9 million or 11.9%, primarily driven by general liability business.
The growth in general liability business was partially driven by our innovation partnerships and partially through new contracts bound in 2023.
This increase was net off the reduction in the workers compensation line S. Simon mentioned.
The composite ratio for the casualty business improved to 91.4% in this quarter compared to 92.8% during the second quarter of 2022.
Our specialty net premiums written was down slightly by $1 million or 2.8%.
Decrease was due to fluctuations in a mortgage premiums as Simon mentioned earlier.
However, this decrease was mostly offset by growth and our marine and energy business.
The composite ratio for the specialty business improved 276.7% compared to 984.
0.0% during the second quarter of 2022.
We reported total net investment income of $42.2 million during the second quarter of 2023.
Compared to $17.2 million for the second quarter of 2022.
<unk> $32.8 million from our investment in the soulless loss fund and $9.4 million of other investment income primarily from interest income earned on a restricted cash which benefited from higher interest rates compared to the same period in 2022.
Other non underwriting income was $7.6 million during the second quarter of 2023.
Other income primarily related to investment income on the funds withheld by Deloitte send the kids.
And foreign exchange gains driven by the strengthening of the pound sterling during the quarter.
Total general and administrative expenses incurred during the quarter, what $10.0 million up from $8.1 million in the second quarter of 2022.
The increase related primarily to personnel costs professional fees and technology expenses.
At the end of the second quarter of fully diluted book value per share was $16.21 an increase of 9.9% from March 31st 2023, and an increase of 15% from June 30th 2022.
As we previously announced the company has secured a three your term loan facility for the primary purpose of repaying the convertible notes that mature on August 1st 2023.
Details of the loan agreement were included in a form 8-K filed on June 22nd 2023.
Now I'll turn the call back to the operator, who will open it up for questions.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
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Our first question comes from Benjamin Billiard with per Gam police that your question.
Yes, Hello, I Hope you can you hear me fine two questions. Please.
First question on.
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Question on capital relocation can you rank for us.
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Business and and a strawberry back and that's that's all for me. Thank you.
Good morning, Benjamin This is Simon so on your first question on reserve adequacy or redundancy look at every point in time, we we estimates and evaluates R. As a best estimate and that is <unk>.
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They very time from time to time, because we get you your data, which causes us to to Amanda best estimates, but but at every point in time, we strive for consistency in the in the quality of reserves around the best estimates valuation.
I will add one observation, which is in a period of excess inflation, which is what we've experienced over the last year or more I I appreciate that inflation appears to be abating somewhat today uhm everybody in our industry gets reserves wrong, usually on the low side with.
Simply not pricing in that excess inflation.
As we write products for five years ago.
All other things equal in that period of excess inflation, you might expect <unk> puts pressure on the reserves for all good reasons, but back to my original answer at every point in time, we strive for best estimate.
On the second question the pricing of July 1st and whether there's a sequential improvement from January it's a good one the the fact is the business. That's placed in July is a a different characteristic to January particularly on the cat side, the cat business and John .
Re tends to be in a global cats, except for Japan, which tends to be April 1st in July and John Ah June and July is is Florida southeast.
So so June or July with dominated by southeast placements, Florida, primarily so it's very difficult to compare sequential changes in quality of pricing and different charges of business.
So there was significant improvements in John in July and in June in Florida, no doubts over and above last year.
Would I judged those to be sequentially better than January subjectively.
So I think the <unk> pressure on pricing still remains.
There's all sorts of reasons for that demand and supply is not flooded back into the market as I said in my prepared remarks. So we we have not seen a full reemergence of Alaska paucity and even the models are taking up all that did come a bit too late for the for the June renewals in Florida.
So there's there there are a number of reasons why both supply is constrained from investor sentiment in demand is is propped up by a combination of improved affordability and you know model re estimation. So we're we're very optimistic across Apple not just didn't.
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About the prospects for a business as we go through the next six to 12 months, whether that will manifest as you know.
Equal sort of sequential assessments in other words renewal so as good as they were a year ago that would be perfectly fine we're in a great spot.
There may be some improvements here and there certainly wanted to areas of one or two smaller class. So business had some way to go notably satellite. So there was a very large satellite lost at the beginning of July which I expect will will give us significant tailwind in that in that class, which currently is very small.
For us so very optimistic overall.
Uhm on your last question on capital allocation.
Uhm the priority of I believe operational.
Deployment virtually share buybacks.
Alright, I've. We've had this question number times and we've we've only always answer the same way or which is entirely truthfully, which is that we evaluate this equation for the benefit of our shareholders at all points in time, it's a it's a it's a standing conversation with the board of directors and.
We determine what is in the best.
The best interests of our shareholders at each station. We we appreciate it and we're mindful through that process the share buyback proposition of bit has been exceptionally good.
But and observation I'd have over the last six to 12 months is.
The operational opportunity has only increased there's no doubts about that and uhm multiple has improved somewhat so.
On a relative basis, you might expect that conversation to be a little easier in favor of the operational opportunity relative to a year ago, but again, we commit to performing that assessments on an ongoing basis, and we will always keep shoulder objectives into.
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Perfect. Thank you.
Thank you.
I think it is a reminder to ask a question press star one on your telephone keypad will pause for a couple of moments.
Thank you there are no additional questions at this time should you have any follow up questions. Please direct them.
To Karen daily of the equity group at I R. At Greenlight re dot K Y and she will be happy to assist you. This now concludes greenlight re second quarter of 2023 earnings conference call. Thank you.
You may now disconnect.