Greenlight Capital Re's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Greenlight Capital Re, Ltd. (GLRE)

Q2 2012 Earnings Conference Call

July 26, 2012 9:00 AM ET

Executives

Bart Hedges – Chief Executive Officer

David Einhorn – Chairman

Tim Courtis – Chief Financial Officer

Claude Wagner – Chief Actuary

Analysts

Samira Tari – Capital Returns Management

Presentation

Operator

Thank you for joining the Greenlight Re Conference Call on the Second Quarter 2012 Earnings. Joining us on the call this morning are David Einhorn, Chairman; Bart Hedges, Chief Executive Officer; Tim Courtis, Chief Financial Officer; and Claude Wagner, Chief Actuary.

The Company reminds you the 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 facts, 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 21, 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 publically or revise any forward-looking statements whether as a result of new information, future events or otherwise.

All participants will be in listen-only-mode. (Operator instructions). 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 Bart Hedges. Please go ahead sir.

Bart Hedges

Good morning. I'm Bart Hedges, Chief Executive Officer of Greenlight Re. Thank you for taking the time to join us today. During the second quarter of 2012, Greenlight Re generated a small gain in our underwriting portfolio after taking account of all general and administrative expenses and a loss in our investment portfolio. Overall, our fully diluted adjusted book value per share decreased by 4.1% to $22.34 per share during the quarter. Greenlight Re's combined ratio for the quarter ended June 30, 2012 was 99.7%, which was a marginal improvement over a combined ratio for the first quarter of 2012.

Reinsurance opportunities in the Florida’s homeowners market, generally renew at June 1 each year. As you know, for several years we’ve been supporting specialist writers of homeowners insurance in the State with limit wind quarter share arrangements. During the quarter we renewed our existing Florida homeowners’ accounts on terms and conditions similar to last year. However, there was substantial competition for new business, and in some cases we witnessed what we considered a rational behavior. For instance, we observed certain reinsurers doing transactions without contractual limitations, while losses due to sink holes, one of the most problematic causes of loss in the business. Historically, fraudulent sink hole claims have been a big driver of results for Florida homeowners business.

Although recent enacted legislation is designed to mitigate this fraudulent practice, we believe sink hole losses can still be quite volatile and contractual sub-limits are necessary. All of our contracts contain a sink hole sub-limit.

As a result of the competitive environment, we did not write any new business in Florida during the quarter and our existing book was reduced. We are comfortable with relationships we have and this business continues to perform in line with their expectations.

We did not make any material adjustments to our commercial automobile reserve this quarter. As discussed previously, we see striding this business during the fourth quarter of 2011. However, we continue to earn premium on several discontinued contracts and we’ll continue to do so through the first quarter of 2013. We are actively monitoring this business and we’ll report on any material reserve movements.

Our non-standard motor liability business continues to experience rate increases especially in Florida. This book is growing as a percentage of our earned premium is performing in line with our expectations.

Our catastrophe retro book was negatively impacted during the quarter by an increase by reported loss from one of our partners due to increased loss estimates on the first earthquake that struck Christchurch, New Zealand. The impact was approximately $2.5 million of additional loss reserves. This contract has an additional $7 million of exposure if losses were to deteriorate further. In order to exhaust the entire $7 million available limit, reported ground up losses would have to deteriorate on additional 13%, which we are not expecting. We did not experience any loss development from any other catastrophe events this quarter.

In general, the reinsurance market place remains competitive. The number of new business opportunities that we reviewed so far this year is up considerably over the same period last year. However, we are converting fewer of these opportunities to new business.

In addition to the competition for new homeowners business in Florida, we experienced intense competition new business in specialty insurance areas. In one instance, a competitor completed a large quota share with an expected profit margin that is roughly 25% of our offer terms with a potential downside that is 150% of our offered terms. These are risk reward characteristics fall well below our acceptable return threshold. We continue to remain disciplined during this period and we’ll keep on searching for underwriting opportunities with the best risk adjusted returns. When we don’t find them, we simply wait and keep our powder dry.

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