Greenlight Capital Re, Ltd. (GLRE)

Q2 2010 Earnings Call Transcript

August 3, 2010 9:00 am ET


Len Goldberg – CEO

David Einhorn – Chairman

Bart Hedges – President and Chief Underwriting Officer

Tim Courtis – CFO


Alec Ofsevit – Credit Suisse

Everett Weinberger – Merrill Lynch



Thank you for joining the Greenlight Re second quarter 2010 earnings call. 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 any 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 call over to Len Goldberg, CEO. Please go ahead.

Len Goldberg

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 second quarter of 2010, Greenlight Re continued to build on our strong reinsurance franchise. Overall, I am pleased to report that our fully diluted adjusted book value per share increased by 2.5% in the quarter.

While we had a small loss in our underwriting result for the quarter, we produced a positive return in our investment portfolio.

The core areas of focus at Greenlight Re continued to be the lines of business we have discussed in the last year, mainly employer stop loss, Florida homeowners, small account workers' comp and general liability and property catastrophe retro. These businesses continue to perform well; however, it is increasingly difficult to generate significant returns in most reinsurance lines outside these areas of focus. We plan to navigate this difficult market by staying disciplined in our underwriting, while awaiting improvement or dislocation in the market.

A principal contributor to our negative underwriting result during the second quarter of 2010 was an adverse development on a motor contract we had put into runoff last quarter. We believe we made the right decision in terminating this contract, but which we had done so sooner. Discontinuing the account will certainly limit the underwriting loss going forward.

In addition, we added reserves to a 2007 casualty clash contract based on new information received in the quarter. As we have mentioned in prior calls, part of our process is to reserve every account each quarter to what we think is an appropriate point estimate. We do not utilize reserve ranges to absorb unexpected losses while allowing deficiencies to build up on our balance sheet. When the data and our analysis tell us we need to increase or decrease the reserves on a contract, we do it in that quarter.

For the first six months of 2010, our combined ratio is just under 100%. Our gross written premiums through June 30, 2010 increased about 10% over the same period in 2009. This was driven by a 22% increase in our targeted frequency business and a 40% reduction in severity business.

Overall, market pricing continues to be challenged but we believe that business lines where we are focused remain areas of opportunity. We were able to expand on our success in these lines of business during the second quarter, which Bart will discuss later. Meanwhile, we remained focused on only writing accounts that we believe can generate an acceptable return on capital deployed.

The Greenlight Re investment portfolio gained 2.6% in the second quarter of 2010 and has produced a 0.6% gain for the first six months of the year. We benefit somewhat from our defensively positioned portfolio in what was a very difficult second quarter for the equity markets. Thanks to good stock selection, we’re able to achieve a small gain in the second quarter even as our portfolio was net long.

In the month of July 2010, we reported a 2.5% loss on our investment portfolio, driven primarily by declining gold prices.

Finally, during the second quarter, we were able to further expand the capacity under our letters of credit facility. Sufficient [ph] capacity in our letters of credit is important to the successful execution of our business strategy and we are pleased to have broadened our facilities with a number of highly rated institutions. Tim will talk more about this.

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. The stock market fell about 15% from peak to trough in the second quarter as investors realized that the economy might not have the v-shaped recovery they seem to be pricing in during the first quarter.

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