Greenlight Capital Re, Ltd. (GLRE)

Q4 2010 Earnings Call

February 23, 2011 09:00 AM ET


Len Goldberg – CEO

David Einhorn – Chairman

Bart Hedges – President and Chief Underwriting Officer

Tim Courtis – CFO


Russell Mullin – Harris Capital Management

Gabriel Fosner [ph] – Investor



Thank you for joining the Greenlight Re fourth quarter and full year 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 22, 2011 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 differ 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. Please note this event is being recorded. I would now like to turn the conference over to Len Goldberg, Chief Executive Officer. Mr. Goldberg, the floor is yours sir.

Len Goldberg

Thanks 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 fourth quarter of 2010, I’m pleased to report that we produced a 7.6% increase in fully diluted adjusted book value per share and a 12.9% increase for the full year 2010. While we had a small loss in our underwriting results for the quarter, we produced a positive return in our investment portfolio.

Greenlight Re continued to build on our strong reinsurance franchise during the quarter, despite the fact that it is increasingly difficult to generated significant returns in most reinsurance lines. We are navigating this difficult market by focusing on our core business lines and staying disciplined in our underwriting while awaiting improvement or dislocation in the market.

The core lines at Greenlight Re continue to be Employer Stop Loss, Florida Homeowners, Small Account Workers Comp and General Liability and Property Catastrophe Retro. These businesses continue to perform well.

We are continuing to shift our portfolio to clients and lines of business that we believe have the best risk return profile. For example, for the full year 2010, we reduced our gross written premium in motor business by almost 40% while growing our Florida Homeowners quota share by over 280%.

The principal contributor to our negative underwriting result during the 2010 calendar year was adverse development on a motor liability contract we had placed in runoff during the first quarter of 2010. 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 estimate.

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. While we cannot insure there will be no further developments, we believe we are properly reserved for the two and a quarter year period that this particular contract is on risk. For 2010, our combined ratio was 102.8%, of which five points related to adverse development on this motor liability contract.

Our gross written premium for the year increased by 60% over 2009. The growth was driven by a frequency business that more than offset a reduction in severity business. Frequency written premium grew by 73% and severity written premium shrunk by 28% in 2010.

As a result, frequency business made up almost 95% of our gross premium written for the 2010 year. Bart will discuss in more detail why we believe this achievement is mainly attributable to getting our message out to the market consistently and actively identifying and seizing opportunities in the market.

Meanwhile, we are only writing accounts that we believe can generate an acceptable return on capital deployed.

The January 1 renewals saw us decrease our property catastrophe retro portfolio as pricing came down on a couple of the contracts we support. Consistent with our strategy, we have reduced our exposure. Bart will also discuss this in further detail.

Greenlight Re’s investment portfolio gained 6.5% in the fourth quarter of 2010 and produced an 11% gain for the 2010 year. Market gains in the fourth quarter were strong and we were pleased with our returns considering our continued defensive positioning. In the month of January 2011, we reported a 0.7% loss on our investment portfolio.

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 everyone for joining us today. In the fourth quarter 2010, the Greenlight Re investment portfolio returned 6.5%, bringing the 2010 net return to 11%. We achieved this result with an average net exposure of 20% in the fourth quarter and 26% for the full year 2010.

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