Q3 2024 Greenlight Capital Re Ltd Earnings Call
Thank you for joining the Greenlight Capital Relimited, 3rd quarter 2024 earnings conference call. At this time, I'm Albert Tissipens, already listening to me mode. A question and answer session will follow the formal presentation.
Thank you Kevin and good morning, I would like to remind you that this conference call is being recorded and will be available for replay. Following the conclusion of the of that an audio replay will also be available under the investors section of the company's website at www Dot Greenlight re dotcom.
Joining us on the call today will be our Chief Executive Officer, Greg Richardson Chairman of the Board, David Einhorn, and Chief Financial Officer Rmr's Wilmar.
Half of 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.
All securities laws.
These forward looking statements reflect the company's current expectations estimates and predictions about future results and are subject to risk and uncertainty 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 investor.
Yours should review the periodic reports that are filed by the company with the SEC from time to time. Additionally.
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 SEC, including the company's recently filed Form 10-Q for the quarter ended September 32024.
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 Greg.
Greg: Thanks, David.
Greg: Morning, everyone and thank you for joining us today, which is also U S election day.
Greg Richardson: We have an investor day presentation in New York City, just two weeks from today and I hope that you all can attend.
Greg: It will provide additional background and color on Greenlight re's progress and go forward strategy.
Greg: Greenlight re reported gross written premiums up $168 3 million for the quarter.
Greg: We delivered net income of $35 2 million up 21.7 million versus the third quarter of 2023.
Greg: This equates to six 1% growth in fully diluted book value per share during the quarter.
Greg: So we booked fully diluted book value per share has grown 11, 8% in 2024.
Greg: 16.0% on an annualized basis.
Greg: Third quarter 2024 benefited from strong investment income driven by the solar glass fund, which reported income of $19 8 million.
Greg: Five 2% return on our investment portfolio.
Greg: Recall that on our earnings call last quarter, we announced that our allocation to solus glass investment portfolio was increased from 60% to 70% of adjusted book value effective August 1st.
Greg: We reported a combined ratio of 95, 9% for the quarter, our eighth consecutive quarter of underwriting profit.
Greg: Our year to date combined ratio is 97, 9% despite being another relatively active year for insured natural catastrophes, which are estimated at over 100 billion through the first nine months of 2024.
Greg: Hurricane Helane made landfall in Florida as Big Bend on September 26th as a category four storm and went onto impacts, Georgia and the Carolinas.
Greg: Most importantly, our hearts go out to those who lost loved loved ones and suffered devastating property losses, some of which are uninsured.
Greg: Greenlight Res expected loss from Helane is estimated at $7 5 million.
Greg: This assumes an industry loss of approximately $10 billion.
Greg: During the quarter, our overall cat losses were $14 1 million, including $2 million from central European floods, and the remainder from additional losses on severe convective storms from the first half of the year.
Greg: Cat losses contributed nine 3% to our combined ratio in the quarter.
Greg: The active Atlantic Hurricane season continued into the fourth quarter was hurricane Milton, making landfall in Florida on October 9th as a cat three storm.
Greg: Hurricane Milton was one of the most intense.
Greg: Atlantic Hurricane on record, but fortunately weakened prior to landfall.
Greg: There's a high degree of uncertainty over the extent of the industry loss, resulting from hurricane Milton with estimates ranging from a low of $5 billion to a high of 50 billion.
Greg: Fortunately Greenlight re's property exposure is under weighted in Florida.
Greg: Our preliminary loss estimate of 5 million to $15 million assumes three to four basis points of the overall industry loss.
Greg: With the third quarter behind Us our underwriting focus has turned to the critical one one renewal season.
Greg: We believe market conditions remain very attractive with disciplined remaining generally strong and no material increase in reinsurance capacity.
Greg: In recent weeks, we attended industry conferences in Monte Carlo and Baden Baden.
Greg: Where we have met many of our clients and brokers.
Greg: We are confident that greenlight re is well positioned to take advantage of market market opportunities at one one.
Greg: As to our leadership our board recently approved the appointment of Tom Cornacchia.
Greg: As group, Chief Wright, Chief Underwriting Officer, and Pat O'brien as group Chief operating Officer.
Greg: Both Tom and Pat have been instrumental leaders in our company for many years and have already hit the ground running and their new expanded roles.
Greg: Finally, we were pleased that am best recognized the progress Greenlight re has made in recent years.
Greg: In October a M best affirmed our a minus rating and upgraded our outlook to positive from stable.
Greg: Now I'd like to turn the call over to David.
David Einhorn: Thanks, Greg and good morning, everyone. The solid class fond returned five 2% in the third quarter, our long portfolio contributed $9 nine per cent the macro portfolio contributed one 2% and the short portfolio detracted five 1%.
David Einhorn: During the quarter, the S&P 500 index advanced five 9%.
Greg: The largest positive contributors for long positions and green brick partners bold and Solvay the largest detractors were short basket hedge homebuilding exposure.
Greg: Equity index hedges and a separate housing related single one chart position.
Greg: Green brick partners advanced 46% during the quarter. The company reported quarterly earnings of $2.32 per share, which beat analysts' expectations of $1 77 per share Greenbrier continues to execute well on its differentiated strategy that focuses on both land acquisition and the subsequent development of single family home.
Greg: DS, which enables us to deliver industry, leading gross margins.
Greg: Today advanced 7% during the quarter demand in solving key end markets continues to show signs of stabilization.
Greg: In the quarterly update the coffee announced earnings above expectations supported by cost cutting and better than expected free cash flow management also raised EBITDA guidance to the upper end of the previous range and increased free cash flow guidance for fiscal year 2024.
Greg: Gains in the macro portfolio came primarily from gold as the price depreciated another 13% over the quarter.
Greg: The largest detractor was the recently implemented short basket homebuilder stocks constructed to hedge the broad exposure related to our green brick investment.
Greg: Other detractors included equity index hedges and our single name shorts and another housing related company. We believe the latter is structurally unprofitable business and faces looming debt maturities that could be challenging to refinance at a reasonable interest rate. Nonetheless, it was a strong period for everything housing related as investors celebrated the move and lower yield.
Greg: <unk> and the 50 basis point rate cut from the fed.
Greg: At an investment conference in October we outlined the thesis behind our long position in peloton interactive.
Greg: Peloton was a popular stocked during the Covid era as demand for at home fitness products and services skyrocketed. During this time the company heavily invested for growth without any regard for profitability or expense management. After multiple missteps and subsequent management changes the stocks held 98% from its peak price in late 'twenty 'twenty throughout this.
Greg: Peloton has maintained a loyal and engaged customer base through a subscription based business model recent.
Greg: Recently, the company has committed itself to dramatically cutting cost should the company be successful at right sizing its cost structure, we expect significant EBITDA generation and when applying a modest peer multiple so those profits. We believe the stock has significant upside.
Greg: We decreased our net exposure over the period as we seek to be more conservative position from an equity beta perspective, but the market make marching steadily higher into record territory has become arguably the most expensive stock market we've ever seen.
Greg: The solid class portfolio returned negative one 2% in October and has returned 11, 7% year to date through October 31, net exposure in the investment portfolio was approximately 31% at the end of October I look forward to seeing many of you at our Investor Day in New York on the afternoon of November nine.
Greg: Now I'd like to turn the call over to farmers to discuss the financial results in more detail.
Speaker Change: Thanks, David.
Speaker Change: Good morning, everyone. During the third quarter of 'twenty 'twenty four we generated net income of $35 $2 million or $1.01 per diluted share compared to 39 cents per diluted share during the third quarter last year.
Speaker Change: The underwriting book generated $6 1 million of profit after underwriting related G&A expenses are a combined ratio of 95, 9%.
Speaker Change: Current year Cat losses added nine three percentage points to our third quarter combined ratio.
Speaker Change: While favorable prior year lost about 90 improve the combined ratio by three one percentage points.
Speaker Change: Our gross premiums written for the third quarter decreased by $14 $7 million or 8%.
Speaker Change: $168 $3 million compared to the third quarter last year.
Speaker Change: The decrease was primarily related to two contracts that's the non renewed in 2024.
Speaker Change: Excluding those two contracts the gross premiums increased by three 3%.
Greg: The decrease in gross premiums related to the property book was mainly driven by our homeowners contract that'd be nonrenewed drink 'twenty 'twenty four that's homeowners contract has suffered from U S. Severe convective storms. However, our current enforce property book is expected to be profitable.
Speaker Change: Even with the hurricane losses that Greg mentioned.
Speaker Change: During the third quarter, our casualty gross premiums written decreased by 15, 5% due to non renewing a funds at Lloyd's contract during 2024.
Speaker Change: And a shift in our workers compensation book from proportional to access of loss. The remainder of our casualty book has performed in line with our expectations for the third quarter and year to date.
Speaker Change: Our casualty book is generally weighted towards small to medium sized enterprises, but low limits that are left.
Speaker Change: Less susceptible to extreme jury verdicts and risk of third party litigation funding.
Speaker Change: Gross premiums written by our specialty book grew by 21, 4 million or 52% compared to the third quarter last year. The majority of this growth was related to a proportional new specialty contract, which has an output proportional retrocession.
Speaker Change: On a net premium basis, our specialty book grew by seven 8 million.
Speaker Change: Our 19, 6% driven by new Marine and energy business.
Speaker Change: Partially offset by lower underlying premiums on the financial lines business.
Speaker Change: Notwithstanding the idiosyncratic Baltimore break incident in the first quarter of this year. Our specialty book has generated attractive returns for the third quarter and year to date.
Speaker Change: Our ceded premiums have increased both for the third quarter and year to date compared to the same periods last year.
Speaker Change: The reason for this is twofold first it relates to the new inward specialty contract that has an outward retrocession that I mentioned earlier.
Speaker Change: During 2024, we purchased additional excess of loss retrocession coverage to maintain our overall exposure to marine energy aviation and other specialty lines.
Greg: We see this as a key part of our risk management off our growing specialty book.
Greg: As a percentage of earned premiums our underwriting expense ratio was four 2% for the third quarter this year compared to 3% in the third quarter of last year.
Greg: Expense ratio was higher partly as a function of lower earned premiums and partly due to higher expenses related to personnel costs, including stock based compensation and higher professional fees.
Greg: We have generated 82 million of cash from operations during the first three quarters of this year.
Greg: This quarter, we repurchased shares of course.
Speaker Change: You repurchased shares for $7 $5 million on the open market at prices ranging from $12.49 to $14.22.
Greg: Nothing in an average price of $13.68.
Greg: We currently have $17 $5 million remaining under the share repurchase plan approved by the board earlier this year.
Greg: We have grown our book value per share for eighth consecutive quarters over the last 12 months, our fully diluted book value per share has grown 16% as a result of strong underwriting and investment results.
Greg: As of September 30th 'twenty, 'twenty, four our fully diluted book value per share was $18.72.
Greg: Look forward to seeing you at the Investor Day on November 19th in New York City. If you have not yet registered please contact Karen daily or Investor Relations representative.
Greg: I will now hand, the call back to the operator to open it up for questions.
Speaker Change: Thank you without conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
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Speaker Change: One moment, please while we poll for questions.
Speaker Change: We've reached end of our question and answer session and ladies and gentlemen that does conclude today's teleconference and webcast. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Speaker Change: Yeah.