Greenlight Capital Re, Ltd. (GLRE) on Q1 2022 Results - Earnings Call Transcript
Operator: Thank you for joining the Greenlight Re Conference Call for the First Quarter of 2022 Earnings. The company reminds you that forward-looking statements may be made on 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 for the year ended December 31, 2021, 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 the company's projections. 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, except as required by law. After the prepared remarks, we will be conducting a question-and-answer session. . I would now like to turn the call over to Greenlight Re's CEO, Mr. Simon Burton. Please go ahead, sir. Simon Burton: Good morning everyone and thanks for joining the call. The first quarter of the year used to be considered a benign period for the reinsurance industry, with only the occasional large loss, those days seem destined now. Two years ago we were contemplating the impact from the onset of COVID, last year Winter Storm Uri set new weather records, and this year, Ukraine has enjoyed a massive ground invasion, while Russia is facing extensive economic sanctions. During the first quarter, we recognized $13.6 million of losses from the Russian-Ukrainian conflict, which contributed 10.8 percentage points to our 106.2% combined ratio. While the conflicts impact on our combined ratio is substantial, it reflects the growth in our short-tailed specialty business that is otherwise performing well. The Russian-Ukrainian conflict is highly complex, particularly as it relates to the impact of Russian sanctions. I'd like to highlight a few points about our reserve estimates. The loss estimate relates to an IBNR provision on losses incurred up to March 31, 2022. We have not received any reported losses to date. Our estimate includes an assessment of losses incurred in both Ukraine and Russia. A portion of our exposure to the conflict including marine, energy, political violence, terror and whole account risks is protected by retrocessional policy that attaches at $10 million and provides $20 million of coverage to us. The first quarter loss estimate does not reach the attachment point of this cover. At the start my remarks I've referred to the apparent disappearance of periods without significant industry events. Not surprisingly, we are seeing the withdrawal of reinsurance capacity in response to poor profitability of the industry over the past few years. The other side of this picture is that, market conditions continue to improve. Market studies have suggested that rates overall have improved in each of the last 17 quarters. And the Russian-Ukrainian conflicts and reduction in underwriting capital are likely to continue supporting that trend, at least with respect to the short tail-specialty classes. And despite the scarcity of event free quarters we've seen recently, we believe that no trends continue forever. Looking forward, as our non-renewed lower margin business runs off over the next few quarters, we are expecting to see the impact of better business mix and continued rate improvement reflected in our results. In April, we launched the Greenlight Innovation Syndicate 3456 under the Lloyd's syndicates-in-a-box initiative. Our innovations unit is central to the company's strategy and the syndicate will help us support our existing partnerships, as well as grow our insurtech portfolio. During the first quarter, we made additional investments and generated $4 million of unrealized gains reflecting the continued strong market interest in our innovation partners. Now I'd like to turn the call over to David. David Einhorn: Thanks, Simon, and good morning everyone. The Solasglas fund returned 1.7% in the first quarter. Shorts, including index positions contributed 4.9%, macro contributed 3.5% and longs detracted 6%. During the quarter the S&P 500 Index declined by 4.6%. Our long positions in CONSOL Energy, Rheinmetall and Teck Resources and our macro position in inflation swaps were our largest positive contributors. Green Brick Partners, our largest long position was our largest detractor. CONSOL Energy and Teck Resources stock prices advanced 66% and 42% respectively, following price surges for metallurgical and thermal coal. Rheinmetall stock price climbed by 131% in the first quarter as Russia's invasion of Ukraine dramatically changed the outlook for European defense spending. About three quarters Rheinmetall business is military-related. Our position in long inflation swaps benefited as the market began to price in its doubts about the Fed's wherewithal to return inflation to its 2% target. Even as the Fed adjusted the market's expectation to a faster tightening cycle, inflation expectations continue to increase. This benefited our gold position as well. Green Brick shares fell 35% during the first quarter, with nothing company specific to account for the drop. In fact, the blowout earnings released last night indicate that current business performance is excellent. However, the homebuilding sector derated as the market formed a view that the sharp rise in interest in mortgage rates will be the cause for a repeat of the 2008 housing crisis. We believe the comparison and the fear that is accompanying that to be misguided. Due to a decade of underdevelopment, US is experiencing a severe shortage of housing. Further, homebuilders currently have low financial leverage, there is significantly less speculation and lending underwriting standards are tighter. While higher mortgage rates might have an impact on demand, at this point, homebuilders are more constrained by supply. We continue to be focused on the global inflation problem, and now at least we believe that the Fed understands the problem. While it sounds serious about fighting it, the Fed has done little to help the problem other than talk about it. It's kind of like the opposite of the main rule from the movie Fight Club. If the Fed was serious about stopping the inflation problem, we believe it would be as aggressive and creative in tightening as it is when it was easing. While inflation is set to drop from its current 8.5% year-over-year rate, we do not expect the Fed to be sufficiently aggressive in fighting it. It is like the inflation will remain persistently above the 2% target. The Solasglas portfolio returned 6.9% in April and has returned 8.7% year-to-date. Net exposure was approximately 26% net long at the end of the first quarter and roughly 30% at the end of April. Now I'd like to turn the call over to Neil to discuss the financial results. Neil Greenspan: Thank you, David. And good morning. At the end of the first quarter our fully diluted book value per share was $13.65, a decrease of 2.4% from December 31, 2021. Our net loss for the quarter was $5.7 million or $0.17 per share. We reported an underwriting loss of $7.7 million during the first quarter and a combined ratio of 106.2%. The Russian-Ukrainian conflict contributed $13.6 million or 10.8% to the combined ratio. The quarter's underwriting results included adverse prior year development with the net financial impact of $2.6 million. Adjustments to our COVID-19 estimates represented roughly half of this development. Gross premiums written were $145.9 million for the quarter, a decrease of 14% from the first quarter of 2021, due primarily to our decision to reduce our participation in motor and worker's compensation contracts. This decrease was partially offset by growth in specialty, general liability and multiline business, including premium generated by the company's innovations partners. Premiums ceded were $6.0 million in the first quarter of 2022 and were insignificant for the three months ended March, 31, 2021. During 2022, we entered into new retrocession agreements, primarily to reduce our exposure to large marine and energy loss events and certain property losses. We reported total net investment income of $7.7 million during the first quarter, we are in $4.1 million from our investment in the Solasglas fund and recognized an additional $3.7 million of other investment income, primarily from our innovations investments. Total general and administrative expenses incurred during the quarter were $7.2 million, down slightly from $7.5 million in the first quarter of 2021. Now I'll turn the call back to the operator and open it up to questions. Operator: We'll now begin the question-and-answer session. Our first question will come from (ph) Investments . Please go ahead. Unidentified Participant: Hello, thank you for the opportunity to ask questions. I wanted to start with the insurtech. I see it's grown from, I think 7% of the premiums up to 10%. I was wondering if you could give us an indication of where we'll be in the next 24 months -- 12 or 24 months? It seems like great progress. Simon Burton: Hey Dave, it’s Simon. So the insurtech, the innovations unit is substantial to the organization, to our operations as I’ve mentioned today and in the last several quarters. It is growing, we are growing it steadily and carefully on the insurance side. I can't indicate where it will be, we never forecast our financial metrics in any case. But I will tell you that, it is my objective that innovation is increasingly important in the context of our overall operations if that helps. Unidentified Participant: Okay. A little bit. The 10%, is it focused in one or two of the larger ones or is it kind of spread out? I imagine, it's in the more mature ones. Can you comment on that? Simon Burton: So we have approximately 20 partnerships at this point. And there is a wide variety of stages of maturity. So the first investment -- first partnership we entered into was -- and this is on the investment side was earlier in 2018. And we've been steadily making -- building up the book since then. So, these things will come online at different stages in maturity. Some of our partners are not really early anymore. They're sort of entering their medium stage of maturity, they built teams and operations. They may have an MGA and they’ve launched their products. So it will be staggered. But it's quite a substantial portfolio. Most of our partnerships do present us or likely to present us with the opportunity to participate in insurance business in the future. So that will come online over time. As to our current volume, yes, there is a bit Operator: Pardon me ladies and gentlemen, it appears that we have reconnected our speaker line. Speaker, please go ahead and proceed. Simon Burton: David, I'm sorry about that. It’s Simon here. I believe we were just addressing the question of insurtech business as it comes online over time and the constituents of our current book. And so, we have about 20 partnerships on the innovation side investment partnerships and a fairly high proportion of these will ultimately present us with the opportunity to participate in the insurance business as it grows, but they're all are at varying stages of maturity. We made our first investments earlier in 2018, I believe, and we made our most recent investments a few weeks ago. So, where we stand today is, there is a bit of lumpiness in our current book, but that's going to spread out significantly over the next several quarters. I expect as more and more of our partners bring their -- launch their products, bring their MGAs online and we participate in the insurance opportunity. Does that helps? Unidentified Participant: Okay. It does help. Thank you. Yeah. My other question was to the bond debt. Can you comment or at least talk as much you can about the plan to refinance it or pay it down. And how that looks over the next 12 months? Thank you. David Einhorn: Sure, David. This is David and nice to hear from you. We're quite aware of the bond maturing in August and we've begun thinking about what to do about it. And we will approach it in an orderly and timely fashion. Unidentified Participant: Okay. And then my other one was, I'm trying to understand the net position of the -- I guess, it's for David or Neil or Simon. But, if you look at your website, on the April increase of the $16 million, 6.9% and you divide that, the 6.9% by the $16 million, you get roughly $231 million net invested. But on the balance sheet I see $151 million. I guess my question is, the difference between the net assets versus GLRE LP share, the net assets. David Einhorn: Yeah. We're investing about 50% of the surplus. So just look at the shareholder equity and divide it by tow. Unidentified Participant: How was there a $16 million gain, though on a 6.9% mark. David Einhorn: That was -- if you took the surplus and divided it by two and you compare that to the profit, I think it was about 6.9%. Unidentified Participant: Okay. So the equity is roughly $460 million. Okay. David Einhorn: Sure. Unidentified Participant: Thank you. Okay. I'll get back in the queue. I'm sure there is other questions. But I appreciate your guys hard work. And David, amazing monthly outperformance and on the insurance side, just touch Ukraine-Russian thing is tough everybody. Anyway, thank you very much. Simon Burton: Thank you, David. Operator: Our next question will come from Daniel (ph), a private investor. Please go ahead. Unidentified Participant: Hi, my question is regarding the Solasglas fund and how much surplus is in that. I think on the last call you said you're looking at increasing the percentage managed, has there been any progress on that? And is the lack of share buybacks related to the idea of managing a larger percentage of surplus? David Einhorn: Yeah, this is David. I raised the question again with the Board and as yet there hasn't been a change in that determination. I expect it will come up again at subsequent Board meetings. No, it's not related to the share repurchase. Operator: Our next question is a follow-up from David Bail with Enobia Investments. Please go ahead. Unidentified Participant: I have another question on the insurance side. I was wondering if you all internally look at the return on allocated capital either in the past three years, or five years, that's not investment related, just insurance. Simon Burton: Yes, David. We spend a great deal of time thinking about that through, both the strategy work that we do, and the business planning and the capital allocation is a critical theme there. We think we've got a pretty good balance, as you can see, we've allocated a fair amount of our capital to our innovations partners on the investment and increasingly on the insurance side and that's worked out tremendously well. I suppose you could argue that a greater allocation would have been an even better results, but given the illiquid and private nature of these partnerships we think we've got that allocation about right. While in the insurance portfolio, keep in mind, of course, you're seeing some volatility here from Ukraine, but keep in mind the flavor of our book is, it tends to be shorter tail in nature. So some cats, some idiosyncratic type events like Ukraine, but generally not highly exposed to long-term inflation. And we're seeing that being pickup in the marketplace right now. So the duration of our reserves is about two years and that's tremendously shorts across the industry. So I just want to -- you to keep in mind that, as we think about allocating capital we generally staying away from the long-term inflationary side of risk. And again, we think that serves us quite well on the capital side. Unidentified Participant: Thank you. Is there any -- forecast with the insurance with the quarter ending in the March, is there any kind of insight into things following into April and May about how the Ukraine thing is moving forward or other policies? I guess there's no forecast or anything, just sticking around the insurance side since we have no – Simon Burton: No, David, we don't publish interim forecasts, the event is ongoing, obviously, you're aware of that. We are monitoring it very carefully. I'd say that we've had no specific data on any emerging losses since March 31, let's call it the fog of war, but that information will steadily make its way to us through our partners, reinsurance partners and of course, it will be reflected in our financial statements at the earliest opportunity to the extent that the ongoing events presents new exposure, but we are monitoring the situation very carefully. Unidentified Participant: Okay. And then, switching back to the insurance tech. Just one more question, it will be my last question for today. But do you expect in 2022 or 2023 one of the more mature the larger ones to exit an IPO. Simon Burton: 21:49 We're not expecting -- we're not aware of any definitive plans of our partners. It's always an option and founders at a certain stage in their maturity will consider liquidity as an option for them and their shareholders. So it's always a possibility, but we're not, we're not expecting that or relying on it, let's say. Unidentified Participant: If one were to occur, would you -- how would you all reallocate the $50 million, would you reshare up the insurance? Would you pivot into the portfolio -- the investment portfolio. That is really my last quarter. Simon Burton: 22:30 Well, of course The IPO event is not the only way to see some liquidity of our partnership investments, there may be other opportunities through other capital raises as we go. And at every stage, we consider our position has it -- is it still the right size in our portfolio, is it how positive, are we on the prospects of the partnership, generally very positive. So we consider this at all stages. And you're asking how we might redeploy that capital over time. Well, again that will be based on the conditions that we see between Solasglas buybacks insurance opportunities or other new innovations partnerships and those events -- those conditions very rapidly and constantly, we make those decisions live. Okay. Unidentified Partcipant: Okay. thank you. Simon Burton: Thank you. Operator: This concludes our question-and-answer session, which also concludes our conference for today. Should you have any follow-up questions, please direct them to Karin Daly of The Equity Group at 212-836-963 and she 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.com. Thank you for attending today's presentation. You may now disconnect.
Understanding Greenlight Capital Re, Ltd.'s (NASDAQ:GLRE) Financial Performance in the Reinsurance Industry
- Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the highly competitive reinsurance industry, providing crucial risk management services to other insurance companies.
- The company's Return on Invested Capital (ROIC) of 7.914% slightly exceeds its Weighted Average Cost of Capital (WACC) of 7.898%, indicating marginal profitability.
- Compared to peers like AMERISAFE, Inc. (NASDAQ:AMSF) with a higher ROIC/WACC ratio, GLRE shows mixed performance but maintains a positive ratio, highlighting its effective capital use in a competitive market.
Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the reinsurance industry, a sector known for its competitive nature and the importance of financial metrics in evaluating company performance. Reinsurance companies like GLRE provide insurance to other insurance companies, helping them manage risk. This industry includes several key players, and understanding how GLRE stands in comparison to its peers is crucial for investors.
The Return on Invested Capital (ROIC) of 7.914% and the Weighted Average Cost of Capital (WACC) of 7.898% are two important financial metrics used to assess a company's efficiency and profitability. GLRE's ROIC compared to its WACC results in a ROIC/WACC ratio of 1.002. This indicates that GLRE is just marginally generating returns above its cost of capital. In simple terms, the company is making a slight profit on the money it invests after accounting for the costs associated with raising that capital.
When comparing GLRE to its peers, it's evident that the company's performance is mixed. For instance, AMERISAFE, Inc. (NASDAQ:AMSF) boasts the highest ROIC/WACC ratio of 3.809 among the peers, showcasing its superior efficiency in generating returns relative to its cost of capital. On the other hand, Hallmark Financial Services, Inc. (NASDAQ:HALL) has a negative ROIC, indicating it's losing money on its investments relative to the cost of its capital.
This peer analysis highlights the competitive landscape in which GLRE operates. While GLRE's performance is not at the top of its peer group, it still maintains a positive ROIC/WACC ratio, suggesting it is managing to generate returns slightly above its cost of capital. This is a critical aspect for investors to consider, as it reflects the company's ability to use its capital effectively in a highly competitive market.
Understanding Greenlight Capital Re, Ltd.'s (NASDAQ:GLRE) Financial Performance in the Reinsurance Industry
- Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the highly competitive reinsurance industry, providing crucial risk management services to other insurance companies.
- The company's Return on Invested Capital (ROIC) of 7.914% slightly exceeds its Weighted Average Cost of Capital (WACC) of 7.898%, indicating marginal profitability.
- Compared to peers like AMERISAFE, Inc. (NASDAQ:AMSF) with a higher ROIC/WACC ratio, GLRE shows mixed performance but maintains a positive ratio, highlighting its effective capital use in a competitive market.
Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the reinsurance industry, a sector known for its competitive nature and the importance of financial metrics in evaluating company performance. Reinsurance companies like GLRE provide insurance to other insurance companies, helping them manage risk. This industry includes several key players, and understanding how GLRE stands in comparison to its peers is crucial for investors.
The Return on Invested Capital (ROIC) of 7.914% and the Weighted Average Cost of Capital (WACC) of 7.898% are two important financial metrics used to assess a company's efficiency and profitability. GLRE's ROIC compared to its WACC results in a ROIC/WACC ratio of 1.002. This indicates that GLRE is just marginally generating returns above its cost of capital. In simple terms, the company is making a slight profit on the money it invests after accounting for the costs associated with raising that capital.
When comparing GLRE to its peers, it's evident that the company's performance is mixed. For instance, AMERISAFE, Inc. (NASDAQ:AMSF) boasts the highest ROIC/WACC ratio of 3.809 among the peers, showcasing its superior efficiency in generating returns relative to its cost of capital. On the other hand, Hallmark Financial Services, Inc. (NASDAQ:HALL) has a negative ROIC, indicating it's losing money on its investments relative to the cost of its capital.
This peer analysis highlights the competitive landscape in which GLRE operates. While GLRE's performance is not at the top of its peer group, it still maintains a positive ROIC/WACC ratio, suggesting it is managing to generate returns slightly above its cost of capital. This is a critical aspect for investors to consider, as it reflects the company's ability to use its capital effectively in a highly competitive market.
Comparative Analysis of Capital Utilization in the Insurance Sector
- Greenlight Capital Re, Ltd. (NASDAQ:GLRE) demonstrates a nearly balanced capital utilization with a ROIC to WACC ratio of 0.989, indicating efficiency close to its cost of capital.
- AMERISAFE, Inc. (NASDAQ:AMSF) showcases superior capital utilization efficiency with a ROIC to WACC ratio of 3.716, significantly outperforming peers like GLRE.
- Global Indemnity Group, LLC (NASDAQ:GBLI) and AMERISAFE, Inc. (NASDAQ:AMSF) efficiently use their capital to generate returns well above their cost of capital, in contrast to Hallmark Financial Services, Inc. (NASDAQ:HALL) which faces operational challenges as indicated by a negative ROIC.
Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the competitive insurance and reinsurance industry, where efficient capital utilization is crucial for generating sustainable returns and growth. The company's stock price stands at $13.97, reflecting the market's current valuation of its financial health and operational performance. With a Weighted Average Cost of Capital (WACC) of 8.00% and a Return on Invested Capital (ROIC) of 7.91%, GLRE demonstrates a nearly balanced but slightly less efficient use of capital compared to its cost. This ROIC to WACC ratio of 0.989 indicates that the company is almost generating returns at its cost of capital, which is a critical measure of financial and operational efficiency in the insurance sector.
In comparison, AMERISAFE, Inc. (NASDAQ:AMSF), a peer in the same industry, showcases a significantly higher efficiency in capital utilization with a ROIC to WACC ratio of 3.716. This indicates that AMSF is generating returns on its investments at a rate nearly four times its cost of capital. Such a high ratio is indicative of AMSF's strong financial health and operational efficiency, making it a standout among its peers, including GLRE.
Another peer, Global Indemnity Group, LLC (NASDAQ:GBLI), also shows strong performance with a ROIC/WACC ratio of 2.080. This suggests that GBLI, like AMSF, is efficiently using its capital to generate returns that significantly exceed its cost of capital. This level of efficiency is crucial for companies in the insurance industry to ensure they can sustain growth and return value to shareholders.
On the other end of the spectrum, Hallmark Financial Services, Inc. (NASDAQ:HALL) presents a stark contrast with a negative ROIC, leading to a ROIC/WACC ratio of -6.095. This negative ratio is a clear indicator of operational challenges or inefficient use of capital, which starkly contrasts with the efficient capital utilization seen in AMSF and GBLI.
The analysis of these companies within the insurance and reinsurance sector highlights the importance of not only generating a positive ROIC but also achieving a ROIC that exceeds the WACC. This is essential for sustainable growth and value creation, as demonstrated by the standout performance of AMERISAFE, Inc. in comparison to Greenlight Capital Re, Ltd. and other peers.
Comparative Analysis of Capital Utilization in the Insurance Sector
- Greenlight Capital Re, Ltd. (NASDAQ:GLRE) demonstrates a nearly balanced capital utilization with a ROIC to WACC ratio of 0.989, indicating efficiency close to its cost of capital.
- AMERISAFE, Inc. (NASDAQ:AMSF) showcases superior capital utilization efficiency with a ROIC to WACC ratio of 3.716, significantly outperforming peers like GLRE.
- Global Indemnity Group, LLC (NASDAQ:GBLI) and AMERISAFE, Inc. (NASDAQ:AMSF) efficiently use their capital to generate returns well above their cost of capital, in contrast to Hallmark Financial Services, Inc. (NASDAQ:HALL) which faces operational challenges as indicated by a negative ROIC.
Greenlight Capital Re, Ltd. (NASDAQ:GLRE) operates in the competitive insurance and reinsurance industry, where efficient capital utilization is crucial for generating sustainable returns and growth. The company's stock price stands at $13.97, reflecting the market's current valuation of its financial health and operational performance. With a Weighted Average Cost of Capital (WACC) of 8.00% and a Return on Invested Capital (ROIC) of 7.91%, GLRE demonstrates a nearly balanced but slightly less efficient use of capital compared to its cost. This ROIC to WACC ratio of 0.989 indicates that the company is almost generating returns at its cost of capital, which is a critical measure of financial and operational efficiency in the insurance sector.
In comparison, AMERISAFE, Inc. (NASDAQ:AMSF), a peer in the same industry, showcases a significantly higher efficiency in capital utilization with a ROIC to WACC ratio of 3.716. This indicates that AMSF is generating returns on its investments at a rate nearly four times its cost of capital. Such a high ratio is indicative of AMSF's strong financial health and operational efficiency, making it a standout among its peers, including GLRE.
Another peer, Global Indemnity Group, LLC (NASDAQ:GBLI), also shows strong performance with a ROIC/WACC ratio of 2.080. This suggests that GBLI, like AMSF, is efficiently using its capital to generate returns that significantly exceed its cost of capital. This level of efficiency is crucial for companies in the insurance industry to ensure they can sustain growth and return value to shareholders.
On the other end of the spectrum, Hallmark Financial Services, Inc. (NASDAQ:HALL) presents a stark contrast with a negative ROIC, leading to a ROIC/WACC ratio of -6.095. This negative ratio is a clear indicator of operational challenges or inefficient use of capital, which starkly contrasts with the efficient capital utilization seen in AMSF and GBLI.
The analysis of these companies within the insurance and reinsurance sector highlights the importance of not only generating a positive ROIC but also achieving a ROIC that exceeds the WACC. This is essential for sustainable growth and value creation, as demonstrated by the standout performance of AMERISAFE, Inc. in comparison to Greenlight Capital Re, Ltd. and other peers.
