Greenlight Capital Re's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Greenlight Capital Re, Ltd. ( GLRE)

Q3 2011 Earnings Conference Call

November 1, 2011 9:00 AM EST

Executives

Bart Hedges – CEO

David Einhorn – Chairman

Tim Courtis – CFO

Presentation

Operator

Thank you for joining the Greenlight Re Conference Call on third quarter 2011 earnings.

Joining us on the call this morning are David Einhorn, Chairman; Bart Hedges, Chief Executive Officer; Tim Courtis, Chief Financial Officer; Brendan Barry, Chief Underwriting Officer; and Claude Wagner, Chief Actuary.

All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions).

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 reflects 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 22nd, 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 proved 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.

Please note this event is being recorded.

I would now like to turn the conference over to Bart Hedges, Chief Executive Officer. Please go ahead.

Bart Hedges

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

We are very pleased to announce that during third quarter, A.M. Best upgraded our Cayman-based operating company to full “A” from "A-." We believe that this upgrade represents a significant step forward for our reinsurance platform and recognizes the strength of our capital positions, the experience of our team, the success of our differentiated business model and our financial performance. In the short term, we believe the effects of the upgrade will be modest. Over the long term, however, we believe the higher ratings will allow us to access certain classes of casualty business and larger transactions. In short, we expect to be able to develop more opportunities from which we can select the best partners and best risk adjusted returns.

In the third quarter of 2011, in what remains a challenging market for reinsurers and investors alike, Greenlight Re generated a small loss in our underwriting portfolio and a small gain in our investment portfolio. Overall, our fully diluted adjusted book value per share decreased by 0.4% in the quarter and by 7.7% for the first nine months of the year. Our year-to-date combined ratio of 103.3% has deteriorated slightly from our combined ratio of 102.1% reported last quarter. This is mainly due to adverse development on a commercial auto program that is in runoff.

Our gross written premium is flat for the year-to-date when compared to the same period in 2010. Overall, an increase in premiums written from frequency business primarily Florida homeowners business has offset a reduction in the severity business we have written in 2011. The Florida homeowners market continues to show its signs of improvement with their partners experiencing double-digit rate increases. In addition, there have been recent positive legislative changes implemented to mitigate frauds associated with sink hole claims.

We continue to focus on frequency oriented business. Our existing underwriting portfolio reflects this with a split of gross premium written of 96% in frequency business and 4% in severity business. We recently wrote two new significant nonstandard automobile contracts with private passenger automobile writers in the United States. The typical nonstandard automobile policyholder purchases very low limits of liability in order to meet state financial responsibility requirements and typically does not purchase physical damage protections for their own vehicle. These opportunities put our underwriter model of supporting these specialists who are experts in their field and finding areas of the market that are experiencing some dislocation.

One of the contracts is for a Florida provider. The Florida private passenger automobile market has suffered losses in the recent past and as a result significant price increases are now being implemented. We believe this new partner is well positioned to take advantage of these market dislocations. Our other new partner is a regional writer with the concentration in Louisiana and several other states.

Our property cash retro portfolio did not change during the third quarter. US hurricane season is traditionally a less active quarter for new property cat retro accounts. We do not believe we suffered any losses from the US storm season to date nor have we experienced any adverse developments from earthquake losses reported in prior periods.

Our maximum catastrophe exposure is $66 million for any one event and $94 million for our maximum aggregate exposures to all events. These exposures are unchanged from the second quarter of 2011. As a reminder, we always state our catastrophe aggregates as the absolute amount of limit we have at risk, plus any reinstatement premiums.

We are continuing to pursue appropriate opportunities to grow our European business through our Greenlight Reinsurance Ireland subsidiary and have a number of productive conversations underway. We are seeking to build partnerships with small and medium-sized insurance enterprises that need a reliable capital partner. These are typically specialist insurers who recognize that when Sovereignty II regulations are implemented introducing a new approach to risk-based capital, they want to have a partner who can provide quick access to capital. While we are only one year into the process of building our presence in Europe, we are encouraged by the acceptance of our model and the identified need in the marketplace.

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