Greenlight Capital Re, Ltd. (GLRE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning and thank you for joining the Greenlight Re Conference Call for the First Quarter of 2021 Earnings. 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 are subject to risks, uncertainties and assumptions, including those enumerated in the company's Form 10-K from the year ended December 31, 2020, and other documents filed by the company with the SEC. After the prepared remarks, we will be conducting a question-and-answer session. Simon Burton: Good morning, everyone, and thanks for joining today's call. I'd like to start with an overview of the main drivers of financial performance for the first quarter, which saw growth in our book value per share of 0.5%. We had hoped for a straightforward start to 2021 after the industry turmoil of the last year, but we have already experienced some unusual events. David will later discuss the investment environment that we saw in January. From an underwriting perspective in February, Winter Storm Uri was the latest example of a natural catastrophe that surprised the insurance industry with its reach and intensity. Our exposure to Storm Uri resulted in a small underwriting loss for the quarter. We sold our majority stake in AccuRisk during the quarter, resulting in an after-tax gain of $10.5 million. AccuRisk is a successful and rapidly growing traditional MGA, but is no longer core to our strategic holdings. And we have ample opportunities to deploy this capital in other areas of the business. As we look forward to the rest of 2021 and beyond, we are working hard to grow and reposition our underwriting business to capitalize on significantly improved market conditions. Overall gross written premium in the first quarter increased by 55% to $170 million compared to the first quarter of 2020. Part of this increase came from rates where we charge more for the same exposure. But much of the increase was from the deployment of risk capacity that we withheld over the past two years as we waited for improved terms in the marketplace. The largest area of growth was reinsurance of various Lloyd's syndicates, an institution that has an exceptional track record of performance in periods of market dislocation. Similarly improved market conditions drove the year-on-year expansion of marine and other specialty classes. The increases in our motor liability and workers' compensation classes on the other hand result mainly from the growth in several quota share partners. We intend to reduce motor and workers' compensation exposure as the business renews over the coming year. As we grow the business overall, it's worth noting that the property catastrophe class was relatively disappointing at the January 1st renewals. Rates were up overall, but not enough in our view to adequately compensate for the accumulation and parameter risks of the class relative to other lines of business. Clearly an inflow of new capital late last year that quickly settled on the cat class as the path of least resistance was the culprit. As a result we reduced our risk to the pure catastrophe classes with overall exposure remaining about the same as incidental cat exposure increased in line with growth in the specialty area. David Einhorn: Thanks Simon, and good morning everyone. The Solasglas fund returned 1.5% in the first quarter. Longs contributed 11.7%, shorts detracted 6.8% and macro detracted 2.8%. During the quarter, the S&P 500 index returned 6.2%. Long positions in Brighthouse Financial, AerCap Holdings, Danimer Scientific were the biggest winners. Brighthouse Financial returned 22% in the first quarter as the company benefited from rising interest rates. AerCap shares returned 29% in the first quarter as the aviation industry continued on its path to recovery. In March, AerCap announced its acquisition of GE Capital Aviation services continuing management's track record of buying attractive assets at compelling prices. The combined fleet of over 2000 planes is expected to comprise primarily new technology and narrow-body aircraft and have an average remaining lease term of around seven years, which should continue to support a high degree of earnings visibility for the combined entity. The transaction is expected to close in the fourth quarter. Danimer Scientific, which manufactures biodegradable plastic branded as Nodax soared 61% in its first quarter as a public company. Danimer's intellectual property is extremely valuable and positions the company as a leader in PHA production. The world has an enormous problem with single-use plastics and we believe PHA will contribute to the solution for many plastic packaging applications. Already several blue-chip brands have already signed on as Danimer's customers and demand for Nodax will outstrip supply for the foreseeable future. The stock has tumbled after the Wall Street Journal raised questions about Nodax's biodegradability claims. We believe the criticism is unfounded. Danimer's product has been tested extensively and certified as biodegradable in all environments according to high international standards. Most recently, Danimer has been a target of a pair of aggressive short sell reports from a single entity. We have followed this author's work for a long time. He is extremely smart and capable; however, the reports on Danimer are so full of blatant misuse of data that we have to believe that the purpose is to intentionally spread false and misleading information for the purpose of affecting the short-term stock price. We, of course, support the vigorous debate and discussion about stocks but there are limits and these reports in our view cross the line and represent the worst elements of the short-selling profession. Neil Greenspan: Thank you David, and good morning everyone. Our fully diluted book value per share grew 0.5% during Q1, ending the quarter at $13.49 per share. Net income for the quarter was $6.5 million, or $0.19 per share driven primarily by the investment gains that Simon and David discussed earlier. The company reported an underwriting loss of $2.0 million for the quarter and the combined ratio of 101.5%. The quarter's results included $4.6 million of losses from Winter Storm Uri and an additional $2.9 million from deposit-accounted contracts. Net premium writtens were $170 million for the quarter, up 56% from the first quarter of 2020. Most of this increase is reflected in our casualty line of business and was driven largely by multi-line quota share contracts covering several Lloyd's syndicates. Total general and administrative expenses incurred during the quarter were $7.5 million, representing an increase of 11% over Q1 2020. This increase was due primarily to additional incentive compensation costs. We reported total net investment income of $18.7 million for the quarter, which includes $4 million of income on our investment in Solasglas. Our other investment income includes $14.2 million of realized gains from the AccuRisk sale. Partially offsetting this gain was an income tax expense of $3.7 million associated with the sale. We did not repurchase any shares during Q1. As our existing authorized share and convertible note repurchase plan expires on June 30, 2021 our Board has approved a new repurchase plan that becomes effective on July 1, 2021. The new plan which authorizes the company to purchase up to $25 million of our ordinary shares expires on June 30, 2022. Now I'll turn the call back to the operator and open it up to questions. Operator: Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Kyle LaBarre from Dowling & Partners. Please go ahead. Kyle LaBarre: Thank you. Good morning everybody. Couple of questions for me. Maybe first Simon, appreciate the commentary on the market. Obviously, through earnings so far there seems to be a lot of focus on rate trends and rate increases beginning to moderate a bit, and some increased discussion about loss cost trends starting to pick back up. Just sort of curious from where you sit what you're seeing on both those trends? Simon Burton: Sure. Good morning, Kyle. So within our book, we do monitor rate trends. We don't disclose those trends, because we just don't have the sufficient volume of business for it to be credible. Having said that, we're observing similar trends to that we're seeing disclosed by our peers in the market. Specifically as I said in my prepared comments, cat is I think a bit disappointing. Rates were certainly off. But I don't think they were -- they increased to the extent that was required given the risk the peril and the opportunities across the market. So relatively speaking it was a disappointment. It's clear that the new capital found an easy path to writing cat business and I suspect that washed out some of the rate momentum. Going forward, I think that although we are not active in the middle of the year in direct to Florida placements June and July, I suspect there may be an affordability question on top of slowing of rate momentum in the Florida carriers. Simply can't pay the monumental rate increases that the reinsurers otherwise would like. So that's going to be an interesting dynamic that we're watching carefully. As I said we're not direct writers of that business. We do assume a small amount through a couple of our partners, but that will be an interesting situation to watch. Elsewhere in the portfolio, similar to other observations, workers' comp while it's performed well for us has certainly not responded with rates in the way that almost every other class has. And we will be pairing our positions on the workers' comp business as we go through the next year or so. Not that we dislike it. It's simply that there is a better opportunity elsewhere. Rate is continuing to move in the right direction in our specialty business. We've been -- we've seen a great deal of movement there and we're very optimistic going forward that there may be a slight slowing of momentum, but the increases seem to continue. Kyle Labarre: That’s great. Thanks. Simon Burton: And the second part -- the second part of your question is on loss cost trends. Sorry to interrupt Kyle. The -- on the trend side clearly comp has -- worker's comp has performed well, surprisingly well. And there may be a bit of a pandemic effect there. And, of course, that's feeding into the rate trajectory. We are concerned about social inflation as I think everybody is. The character of our book though means that we're not particularly exposed or certainly not as exposed as much of the industry might be to big shifts in social inflation, legal awards and so on. We just don't carry the same tail of exposure that many of our peers do. So again something we're watching carefully. We are concerned about it, but we're not unduly concerned about our book. Kyle Labarre: Got it. Thank you. That's helpful. And then maybe a bigger picture question, listening to your comments Simon on capital deployment within the reinsurance business and David's comments sounding a bit more favorable on the investment markets, obviously, you guys have continued to be able to find investments on the innovation side. Just, again, as you sit there in your seat Simon, how do you think about capital deployment from here given we're increasingly in a period where it seems like there's probably good uses of capital in a number of different places within your business? Simon Burton: Sure. We're seeing a plethora of opportunity and you listed the main candidates there. It's the Solasglas investment strategy. It's our innovation strategy. It's clearly our core reinsurance business. There's also a buyback potential that we should throw in the mix. So plenty of opportunity to use our capital. But that's a great place to be when we're examining every risk and every opportunity we see and we're measuring it against everything else. It's far, far better place to be than perhaps a couple of years ago when we were scrutinizing risk for adequacy. So very optimistic about how that will all come together. Kyle Labarre: Yeah. Okay. That's helpful. And then one last one for me and I'm not sure there's necessarily an answer at this point. But I think A.M. Best typically does their annual review of your rating sometime around mid-year June, July sometime like that. I know you guys talked to them all the time thoughts on how they're feeling about the model, the results obviously the underwriting has been improved since last year still a little bit above 100 in 2020, but I think you probably have some good reasons as to why. Just curious how those discussions are going and any insights you may have? Simon Burton: Sure. Look I'm not going to prejudge the outcome. Of course I won't do that. We continue to have a very good and productive relationship with A.M. Best. I do think that -- and this is my reading of the tea leaves, I think they understand and appreciate the improvement in underwriting except that between the COVID-19 losses, the pandemic exposure and various cats over the past not just one year, but a couple of years relative to performance to the industry has really been quite good on the underwriting side. I think they also appreciate that we are relatively less exposed to the extremely low yield on new money. We're a float business. We have an investment strategy that is a great use of our floats at a time when others are seeing investment returns fall off a cliff. Not only that but the -- you've got to roll the dice between investing new money in ultra shorts and getting almost nothing, or pushing out the duration of bit and suffering mark-to-market exposure on a leveraged balance sheet. But we don't have those issues to anything like the same degree. And we think that that positions us well and we believe that A.M. Best understand that also. So I'm optimistic as we go forward and we'll certainly have a continuation of a very good relationship with A.M. Best. Kyle Labarre: Perfect. Thanks very much for the answers. That’s it for me. Operator: Thank you. Simon Burton: Thank you. Operator: Thank you. Should you have any follow-up questions please direct them to Adam Prior of the Equity Group Inc. at 212-836-9606 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.com. The conference is now concluded. 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.
