Greenlight Capital Re, Ltd. (GLRE)

Q1 2010 Earnings Call Transcript

May 4, 2010 9:00 am ET


David Einhorn – Chairman

Len Goldberg – CEO

Bart Hedges – President and Chief Underwriting Officer

Tim Courtis – CFO


Jim Bradshaw – Bares Capital Management

Rusty Deuss [ph] – JP Morgan



Thank you for joining the Greenlight Capital RE Limited conference call on first quarter 2010 earnings. Joining us on the call this morning are David Einhorn, Chairman, Len Goldberg, Chief Executive Officer, Bart Hedges, President and Chief Underwriting Officer and Tim Courtis, Chief Financial 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 24, 2010 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.

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Len Goldberg, Chief Executive Officer. Please go ahead.

Len Goldberg

Thank you and good morning. My name is Len Goldberg, Chief Executive Officer of Greenlight RE. Thank you for taking the time to join us today. In the first quarter of 2010, Greenlight Re produced a strong result in our underwriting portfolio and a small loss in our investment portfolio. Overall, our fully diluted, adjusted, book value per share decreased by 1.9% in the quarter.

We continue to build on our strong re-insurance franchise during the quarter. Though pricing is still difficult, we are pleased with the performance of our underwriting portfolio. We are especially pleased that although there are a number of significant catastrophe events in the first quarter, including the Chilean earthquake and Xynthia, the European winter storm, we were largely unaffected by these events.

After a 6.4% gain in the fourth quarter of 2009, we had a negative investment return in the first quarter of 2010. However, we achieved our goal of preserving capital. While the equity markets were up strongly in the first quarter, the economic environment ahead still seems quite unstable.

Our combined ratio was 92.6% in the first quarter of 2010. Our strategy of writing a small catastrophe retrocessional book generally focused on peak exposures continues to pay dividends. We believe the pricing of this business continues to hold up much better than traditional property catastrophe re-insurance.

At the same time, we tend to not be affected by events like the earthquake in Chile and the winter storm, Xynthia, just as we were not affected by hurricanes Ike and Gustav in 2008 as the insured losses from these events are not of significant magnitude to impact our contracts.

In the first quarter, we also recognize a gain from the commutation of a medical malpractice contract. For the rest of the book, our combined ratio was similar to 2009 and 2008. Our gross written premium decreased 7% compared to the first quarter of 2009. However, the frequency oriented business that we prefer rose 12% while severity business decreased 42%.

Even though overall market pricing continues to be depressed, we believe the areas of business we continue to focus on still provide acceptable returns and strong opportunities. Our areas of focus continue to be employer stop loss, Florida Homeowners, Small Account Workers' Compensation and General Liability and Property Catastrophe Retro.

As we mentioned last quarter, we saw an opportunity to add a small portfolio of credit and surety risks as of January 1st. We also canceled a commercial motor contract as of March 31st of this year. We continue to seek other pockets of profitable business, but they are hard to come by in the current market environment.

Bart will take you through this in more detail. Meanwhile, we remain focused on only writing accounts that we believe can generate an acceptable return on capital deployed. Our investment portfolio lost 1.9% in the first quarter of 2010 as we maintained a defensively positioned portfolio in what was a very strong quarter for the equity markets.

Our portfolio tends to be short, highly-leveraged companies. So, when markets like we saw in the first quarter, the drag from the short portfolio can overcome the gains in the long portfolio. In the month of April, we reported a 0.1% loss on our investment portfolio.

And now, I'd like to turn the call over to our Chairman, David Einhorn, to discuss our investment results in more detail and the progress in Greenlight RE's overall strategy.

David Einhorn

Thanks, Len and thanks to everyone for joining us today. Last week, I went to the Cayman Islands for two days for Greenlight RE's Quarterly Board Meeting and Annual Shareholders' Meeting. This gave me an opportunity to spend some time with the team.

Over the past couple of years, Len has done a great job growing Greenlight RE's team which now stands at 15 strong. We're well positioned to capitalize on an expanded opportunity set in the re-insurance market when a more favorable pricing environment emerges.

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