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Greenlight Capital Re, Ltd. (



Q4 2011 Earnings Call

February 22, 2012 09:00 am ET


Bart Hedges – Chief Executive Officer

Tim Courtis – Chief Financial Officer

David Einhorn – Chairman

Brendan Barry – Chief Underwriting Officer


Brian Meredith – UBS

Michael Bunyaner – TLF Capital

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Thank you for joining the Greenlight Re Conference Call on fourth quarter and full year 2011 earnings. Joining us on the call this morning are David Einhorn, Chairman; Bart Hedges, Chief Executive Officer; Tim Courtis, Chief Financial Officer; and Brendan Barry, Chief Underwriting Officer.

The company reminds you that forward-looking statements that may be made in 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, including risks, uncertainties and assumptions that are enumerated in the company’s Form 10-K dated February 21nd, 2012, and other documents filed by the company with the SEC.

If one or more risks or 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 undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(Operator instructions) After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Bart Hedges. Please go ahead.

Bart Hedges

Good morning. I’m Bart Hedges, Chief Executive Officer of Greenlight Re. Thank you for taking the time to join us today.

In the fourth quarter of 2011, Greenlight Re generated small loss in our underwriting portfolio and a gain in our investment portfolio. Overall, our fully diluted adjusted book value per share increased by 9.5% in the quarter and by 1% for the year. Greenlight Re’s combined ratio for the year ended December 31


, 2011 of 103.8% stayed relatively stable compared to our combined ratio of 103.3% for the first nine months of 2011.

While our combined ratio for the year compares favorably with many in the reinsurance industry, it reflects 2011 as being a challenging year for both the industry as a whole and us. During the year of record-setting industry losses as a result of a series of natural catastrophes, we were fortunate to experience a loss to only one property catastrophe contract in the amount of $5 million. We do not believe we suffered any adverse development from earthquake losses reported in prior periods.

Our maximum catastrophe exposure currently is $71 million for any one event and $99 million for our maximum aggregate exposures to all events. These figures are up marginally from the prior period as we deployed slightly more capacity January 1 with our existing partners. As a reminder, we always state our catastrophe aggregates as the absolute amount of limit we have at risk less any reinstatement premiums.

Also, our Florida homeowners’ business performed well this year with loss activity at or below our expectations. However, as we discussed previously, our commercial motor liability account experienced increased large claim activity during the first and third quarters of 2011, which caused an increase to our combined ratio for the year.

During the fourth quarter of 2011, our small account commercial liability business experienced some increased large claim activity causing an underwriting loss for the quarter. As you will recall, we reserve each contract every quarter based on the most recently available information and select our best estimate of reserves. We are working closely with our partners to implement rate changes and further improve risk selection in order to improve overall profitability for ongoing accounts.

Our gross written premium was down 4% in 2011 compared to 2010. Overall, both frequency and severity business had small decreases in premiums written, primarily as a result of the commutation of a Florida homeowners’ account and a small reduction in severity business written in 2011. This reduction in premium writing is a function of the opportunities in the market. We believe we are disciplined in passing up unattractive business and we continue to focus on frequency oriented business, which was 96% of gross written premium for the year.

Based on rate change activity that our partners have been able to achieve in recent quarters, we are cautiously optimistic that, absent an unexpected spike in claim costs, the market is slowly hardening in areas of the commercial market where we currently participate. We wrote one new significant private passenger automobile account at January 1 with the regional writer of non-standard automobile. The business reinsured with this partner complements geographically the two non-standard automobile accounts we discussed during our last call.

On January 1


, we renewed our catastrophe retro book with significant rate increases, and in some cases, with improved terms and conditions. While the catastrophe retro market improved over prior periods in response to significant loss activity in 2011, we did find that there was ample capacity to fill programs.

New, non-traditional capacity from hedge funds, pension funds and other fixed income managers continues to flow to this part of the market. As long as the spread remains high between fixed income yields and the perceived margin in the catastrophe retro market, we believe new capacity will continue to be attracted to this space.

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