Greenlight Capital Re Ltd (GLRE) 2013 Q4 法說會逐字稿

Thank you for joining the Greenlight Re conference call for fourth-quarter and full-year 2013 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.

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 18, 2014, 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.

Please note this event is being recorded. And I would now like to turn the conference over to Bart Hedges. Please go ahead, sir.

Good morning. Thank you for taking the time to join us today. The reinsurance market remained challenging during 2013. In general, the market remains over-capitalized and there is a high degree of competition, especially for new business. The investment environment was more favorable in 2013 as the equity markets reflect the reduced concerns about economic uncertainty, despite lackluster corporate earnings.

In the fourth quarter of 2013, Greenlight Re generated profits in both our underwriting and investment portfolios. Overall, our fully diluted adjusted book value per share increased by 8.6% in the quarter and increased by 26.8% for the year. Our 2013 underwriting result improved significantly from 2012. Our combined ratio for the full-year 2013 was 97.1% compared to 112.9% for the prior year.

The return from underwriting continues to be driven by profitable performance in each of our four core areas of concentration: Florida homeowners, nonstandard auto liability, employer stop loss, and catastrophe retro. The composite ratio, which is the loss ratio plus the acquisition cost ratio, for these four core areas for the fourth-quarter and full-year 2013 was 95.7% and 89.4%, respectively.

These four areas represent approximately 92% of our 2013 net earned premium. We continue to find this business attractive and believe we have strong relationships with our partners to continue producing profitable returns in 2014.

We continue to monitor the runoff of our commercial automobile and general liability books of business. These accounts are developing as expected based on our current estimates of ultimate losses. Recently, several other companies reported material developments of past reserves related to business similar to ours.

While our performance on this business was poor, we believe we spotted the trends quickly, and by recognizing losses in 2012 and mitigating further exposure, we were and are ahead of the curve in recognizing our ultimate liabilities.

While the reinsurance market remains challenging, our gross premiums written for 2013 increased by 25.2% over 2012, and net premiums earned increased by 17.4% over 2012. This growth was mainly attributable to the growth in our nonstandard automobile liability business. We did not add any new nonstandard automobile accounts during 2013, but our existing partners grew significantly. However, we do not expect this growth to continue into 2014.

Our property catastrophe retro account continues to benefit from the light year for catastrophes. The market for this business is competitive, with a great deal of new capital from investors looking to increase their returns through investments in cat bonds, ILS funds, sidecars, and other alternative vehicles. We remain disciplined in our approach to this business and we'll reduce our writings if we cannot find transactions with attractive risk-adjusted returns.

With respect to our property catastrophe aggregates, our maximum exposure to a single event is currently $106.4 million and our maximum exposure to all events is $177.4 million. As a reminder, we measure our aggregates as the maximum amount of limit available, less the amount of reinstatement premiums due. We do not use a probable maximum loss, or PML, approach. At January 1, 2014, we had mixed experience with our renewals and new business.

We decided to not renew one significant nonstandard automobile contract due to highly competitive reinsurance pricing and uncertainty about the Company's ability to continue producing profitable business.

We renewed several of our catastrophe retro accounts, discontinued one long-standing retro account, and added two new retro accounts. Our underwriting team is focused on finding new opportunities where we can use our differentiated client-centric approach to underwriting to develop long-term partnerships. We continue to focus on only accepting well-priced risk, and we believe that, even in a difficult market, we can produce underwriting profits.

Now I would 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.

Thanks, Bart, and good morning, everyone. The Greenlight Re investment portfolio returned 6.6% in the fourth quarter and 19.6% in 2013. During the quarter, our longs outperformed the S&P 500, our shorts went up less than the market, and macro positions led by the yen were a slight contributor. This was also the case for the full year, as we generated alpha in both our long and short portfolios and had gains in our macro positions.

During the quarter, the largest contributors to our result were long positions in Apple, Marvell, and Micron Technologies. The biggest detractors were short positions in Chipotle and US Steel. Our portfolio performed well in the melt-up environment in 2013, as investors priced in lower unemployment and improved home prices. A number of new long positions contributed to our performance.

We also avoided getting hurt too badly in our short portfolio by having minimal exposure to the most speculative stocks, many of which appeared to have completely disconnected from normal valuation methods. We established a position in Micron in the second half of the year. We believe the Company can earn $4 per share in the calendar year 2014, and it is well positioned to benefit from favorable dynamics from consolidation in the DRAM and flash memory industries.

We also added two energy long positions during the quarter -- Anadarko Petroleum and British Petroleum. The market ended the year on a strong note after a huge move that was supported mostly by multiple expansion, as earnings growth was lackluster. In 2013, the market rewarded many companies for beating earnings after they had lowered guidance. This trend is not likely to continue indefinitely.

During the month of January, our net exposure decreased about 10 points to 45% as we reduced our exposure on both long and short sides. We continue to hold macro positions in gold, short the yen, and short sovereign debt. Our goal in 2014 remains to protect capital in an uncertain environment and to find investment opportunities that will generate alpha on both our long and short portfolios.

2013 was a good year for Greenlight Re. We had decent results on both our underwriting and investment activities and solid growth in fully diluted book value per share. We believe we can do better on both sides of our dual engine strategy, but are pleased with how the past year has shown our business strategy at work.

Now I'm going to turn the call over to Tim, who will review the financial results.

Thanks, David. For the fourth quarter of 2013, Greenlight Re reported net income of $83.9 million compared to a net loss of $60.6 million for the comparable period in 2012. The fully diluted earnings per share was $2.22 for the fourth quarter of 2013 compared to a net loss per share of $1.65 for the same period in 2012.

For the year-ended December 31, 2013, we reported net income of $225.7 million compared to net income of $14.6 million for the year-ended December 31, 2012. On a fully diluted basis, net income per share was $6.01 compared to $0.39 in 2012.

Gross premiums written were $124.8 million during the fourth quarter of 2013, a slight increase from gross premiums written of $124 million in the fourth quarter of 2012. As Bart mentioned, for the year ended December 31, 2013, gross written premiums increased by 25.2% over 2012 to $535.7 million.

The composite ratio for our frequency business for the 2013 fiscal year was 97.2% compared to a composite ratio of 108.8% during 2012. The lower composite ratio on our frequency business reflects the stable underwriting performance experienced during the year, particularly on our core areas of focus.

For severity business, the composite ratio showed positive development during 2013 as the loss reserves on Superstorm Sandy, which were booked in 2012, were taken down in the first quarter of the year. The overall composite ratio was 93.2% for 2013 compared to 109.1% for the prior year.

Our total expense ratio, which is comprised of both internal expenses and corporate expenses, was 3.9% of net premium earned in 2013 as compared to 3.8% for 2012. Operating expenses of $21.7 million for 2013 increased by approximately $4.2 million versus 2012.

This increase was primarily the result of increased compensation costs associated with additional staff hired during 2013, as well as higher bonus accruals resulting from positive developments on the 2011 through 2013 underwriting years. As a result, the combined ratio for the full year of 2013 was 97.1% as compared to 112.9% for 2012.

We reported a net investment gain of $83.3 million during the fourth quarter of 2013, reflecting a net return of 6.6% on our investment account. We recorded net investment income of $218.1 million for 2013, reflecting a net investment return of $19.6 million. The fully diluted adjusted book value per share as of December 31, 2013, was $27.91, a 26.8% increase from $22.01 per share reported at December 31, 2012.

Now I would like to turn the call back to Bart to provide some concluding remarks.

Thanks, Tim. Our underwriting performance in 2013 was much improved, as was our overall performance as measured by the increase in our fully diluted book value per share. We continue to survey the market for underserved areas and to seek partners that value our capacity and long-term partnership approach to the business.

However, the reinsurance market remains competitive and one of the strengths of our model is to be able to remain disciplined during times of heightened competition.

If we cannot find opportunities to deploy our capital profitably, we will continue to manage our renewal relationships and remain ready for a better underwriting environment. Our goal is unchanged: we aim to build long-term shareholder value by writing a concentrated underwriting portfolio with the best risk-adjusted returns we can find, and to utilize the flow 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 the strategy and remain focused on driving our key yardstick: increased fully diluted book value per share. We appreciate your continued confidence in Greenlight Re.

We are looking forward to hosting our fourth biannual investor day on May 20th at The Lighthouse in New York City, and we'll be sending out the details shortly. For anyone interested in intending our investor day, please contact Garrett Edson at ICR.

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

(Operator Instructions) So no questions. Should you have any follow-up 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 is now concluded. Thank you for attending today's presentation. You may now disconnect.