U.S. Markets closed

Edited Transcript of GLRE earnings conference call or presentation 3-May-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Greenlight Capital Re Ltd Earnings Call

Grand Cayman May 5, 2017 (Thomson StreetEvents) -- Edited Transcript of Greenlight Capital Re Ltd earnings conference call or presentation Wednesday, May 3, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Michael Einhorn

Greenlight Capital Re, Ltd. - Chairman of the Board, Chairman of Greenlight Re, President of Greenlight Capital Inc and President of Dme Advisors

* Leonard R. Goldberg

Greenlight Capital Re, Ltd. - Interim CEO and Director

* Tim Courtis

Greenlight Capital Re, Ltd. - CFO and Principal Accounting Officer

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for joining the Greenlight Re Conference Call for First Quarter 2017 Earnings.

Joining us on the call this morning are David Einhorn, Chairman; Len Goldberg, Interim Chief Executive Officer; Tim Courtis, Chief Financial Officer; and Brendan Barry, Chief Underwriting 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 those enumerated in the company's Form 10-K dated February 22, 2017, 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.

I would now like to turn the conference over to Len Goldberg. Please go ahead, sir.

--------------------------------------------------------------------------------

Leonard R. Goldberg, Greenlight Capital Re, Ltd. - Interim CEO and Director [2]

--------------------------------------------------------------------------------

Good morning, and thank you for joining today's call. In the first quarter of 2017, Greenlight Re generated a $200,000 underwriting loss and an $11.6 million gain on our investment portfolio. We grew our gross written premium to $197.2 million in the first quarter of 2017, up from $166.8 million in the prior year period. This substantial growth was due to increasing opportunities for some of our clients in nonstandard auto and new and growing relationships in workers' compensation, partially offset by decreases in other lines as we continue to reposition the underwriting portfolio towards opportunities with the best risk-adjusted returns.

While our underwriting performance suffered from $5 million of adverse development and catastrophe losses, which Tim will discuss later, we feel like we are gaining traction in the marketplace and are increasingly positive about our prospects in what is a very difficult market.

As Bart mentioned last quarter, we are seeing signs of sanity and small pockets of opportunity. In the first quarter, we successfully added a significant amount of new business, including another mortgage opportunity, financial lines business and new workers' compensation relationships. The workers' comp opportunities are all with regional insurance companies that have a long track record of underwriting discipline and profitability.

Most of the transactions are quarter share structures. However, we have seen opportunities in the working layers of the excess reinsurance placements and have worked with our clients to increase their net retention ceded to us, thereby, capturing these economics for Greenlight and for the client.

With the small universe of reinsurance companies present as a result of merger activity, we are well positioned to take advantage of future opportunities in our core business segments.

Now I'd like to turn the call over to our Chairman, David Einhorn, to discuss our investment results and the progress in Greenlight Re's overall strategy.

--------------------------------------------------------------------------------

David Michael Einhorn, Greenlight Capital Re, Ltd. - Chairman of the Board, Chairman of Greenlight Re, President of Greenlight Capital Inc and President of Dme Advisors [3]

--------------------------------------------------------------------------------

Thanks, Len, and good morning, everyone.

The Greenlight Re investment portfolio returned 0.9% in the first quarter. Chemours was our biggest winner during the quarter. In February, the company announced the settlement of its PFOA life litigation liabilities and that was lower than the market expected.

Additionally, titanium dioxide prices have continued to rise and the company's new product Opteon is selling well.

Our second biggest winner during the quarter was Apple, which recorded strong earnings, and more importantly, the market seems excited about the iPhone 8 upgrade type coming later in the year. Gold was also a positive contributor as it reversed some of its postelection decline. Rite Aid was our biggest detractor during the quarter as the company's proposed merger with Walgreens did not close as expected. We've trimmed our position as circumstances have changed, and it now seems less likely the merger will see regulatory approval.

Our bubble basket of shorts including Tesla also detracted from our performance during the quarter. For the time being, investors remain hypnotized by Tesla's CEO. They're skeptical that the company will be able to mass market its model 3 volumes and margins that justify the current valuation. The enthusiasm for TSLA and other bubble basket stocks is reminiscent of the March 2000 dot-com bubble as of the case then, the bulls have rejected conventional valuation methods for ample of stocks that seemingly can only go up. While we don't know exactly when the bubble will pop, it eventually will.

We added a couple of new small long positions during the quarter. We bought Conduent, a Xerox spinoff. We believe the management will renegotiate our exit under earning contracts, run off on profitable business units and simultaneously cut costs, which will lead to improved earnings and revenue growth over the next few years. We also added Perrigo, a private label manufacturer OTC pharmaceutical products. Perrigo is poised to grow its profits in its core U.S. OTC business and to expand margins as it streamlines its portfolio of European OTC brands.

A word on our biggest position, General Motors. GM traded a significant discount to its intrinsic value despite the company's strong operating performance. In March, we publicly announced the plan for GM to unlock substantial shareholder value by splitting its common into 2 classes of common equity. By placing what we believe are conservative valuations on each component, it's easy to get a value that is 27% to 79% higher than the current share price. We generally avoid public activism, but in this case, management has misrepresented our idea, and we think our fellow shareholders has earned an opportunity to weigh the merits of our plans for themselves. We've also nominated 3 people to the board to bring additional focus to shareholder value creation.

The investment portfolio declined 0.9% in April. At month end, investment portfolio's constantly 105% long and 75% short. We had successful renewals on our January 1 business, and increased first quarter premiums by about 18% over the prior year. Given the headwinds that we in our industry have faced, the team executed very well.

Our CEO search is in full force, and we've already met with thousands of senior executives globally. Based on the progress we've made, we hope to be able to announce a new leader in the foreseeable future.

Now I'd like to turn the call over to Tim to discuss the financial results.

--------------------------------------------------------------------------------

Tim Courtis, Greenlight Capital Re, Ltd. - CFO and Principal Accounting Officer [4]

--------------------------------------------------------------------------------

Thanks, David. For the first quarter of 2017, Greenlight Re reported net income of $8.4 million compared to $28.7 million for the comparable period in 2016. Fully diluted net income per share was $0.22 for the first quarter of 2017 compared to $0.77 per share for the same period in 2016. Gross premiums written in the first quarter of 2017 increased by 18.2% from the prior year period and net earned premiums increased approximately 10%. The increase in both premiums written and earned was primarily due to growth in premiums received on existing nonstandard auto contracts.

The composite ratio for the first quarter of 2017 was 97.4% compared to a composite ratio of 93.8% during the comparable period in 2016. The composite ratio for frequency business for the quarter was 99.1% and it was 67.9% for severity business. Composite ratio in frequency business was somewhat higher than the first quarter of 2016, primarily due to some development on older Florida Homeowners contracts relating to assignment of benefits and 2 large claims on a surety contract.

Additionally, our severity composite ratio was higher than last year due to some losses incurred from European hail storm and flooding. Overall, prior period reserves were strengthened by $5 million during the quarter.

General and administrative expenses incurred during the first quarter of 2017 decreased slightly to $6.7 million compared to $7 million incurred during the first -- the prior year period. Underwriting expenses of $4.1 million for the first quarter of 2017 were slightly lower compared to $4.8 million incurred in 2016, primarily as a result of slightly lower accruals for quantitative bonuses.

The underwriting expense ratio for the first 3 months of 2017 was 2.7%, resulting in a combined ratio of 100.1% for the quarter.

Our corporate expenses of $2.6 million for the first quarter compares to $2.2 million reported during the prior year quarter with the slight increase being primarily due to higher legal and professional fees incurred during the quarter.

We reported net investment income of $11.6 million during the first quarter of 2017, representing a return of 0.9% on our investment portfolio managed by DME Advisors. Fully diluted adjusted book value per share as of March 31, 2017, was $23.57, an increase of 3% from $22.88 per share reported at March 31, 2016.

At a recently held Board of Directors meeting, the board approved a renewal of the company's current share repurchase plan, which expires on June 30 of this year. The plan provides for a repurchase authorization of 2 million shares and expires on June 30, 2018. There were no shares repurchased during the first quarter of 2017.

Greenlight Re held its Annual General Meeting on April 26, 2017, and I am pleased to report that all 9 proposals contained in the proxy were approved by shareholders, including the reelection of all directors for additional 1 year terms.

I'll now turn the call back over to Len, who will provide some concluding remarks.

--------------------------------------------------------------------------------

Leonard R. Goldberg, Greenlight Capital Re, Ltd. - Interim CEO and Director [5]

--------------------------------------------------------------------------------

Thanks, Tim. Our goal at Greenlight Re is to build long-term shareholder value by writing an underwriting portfolio with the best risk-adjusted returns we can find and to utilize the float generated from these contracts to invest in our value-oriented long short investment program. This investment approach has historically generated superior returns with less volatility than the overall equity markets. We will continue to execute on this strategy and remain focused on driving our key yardstick, increase in fully diluted adjusted book value per share.

Our team has worked exceptionally hard during the last few months as we begin our transition to a new CEO. It has been, and continues to be, my pleasure to help lead this dedicated group during this interim period. Our CEO search continues to progress very well, and we are looking at high-quality candidates. While we cannot anticipate exactly when a new CEO will be in place, we are hopeful that this will happen well in advance of the run-up to January 1, 2018 renewals. We appreciate your continued confidence in Greenlight Re.

Thank you again for your time. And now we would like to open the call up to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Should you have any questions, please direct them to Garrett Edson of ICR at (203) 682-8331, and he will be happy to assist you. We also remind you that a replay of this call and other pertinent information about Greenlight Re is available on our website at www.greenlightre.ky.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.