Greenlight Capital Re Ltd (GLRE) 2014 Q1 法說會逐字稿

Thank you for joining the Greenlight Re conference call for the first quarter 2014 earnings. Joining us on the call this morning are David Einhorn, Chairman, Bart Hedges, CEO, and Tim Curtis, CFO, 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.

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.

In the first quarter of 2014, Greenlight Re generated a small underwriting profit and a small loss in our investment portfolio. Overall, our fully diluted adjusted book value per share decreased by 1.1% in the quarter. Our combined ratio for the first quarter of 2014 was 99.9% compared to 97.1% for the full year 2013. The modest deterioration in our underwriting results was driven by a higher than expected combined ratio for our employer stop-loss book and higher G&A expenses.

In our other core areas of concentration, our Florida homeowners, nonstandard automobile and catastrophe retrocession businesses all continued to perform well. The composite ratio, which is the loss ratio plus the acquisition cost ratio, for these three businesses for the first quarter of 2014 was 86.4%, and the composite ratio for the entire book for the first quarter of 2014 was 94.1%. We are working on improvements in our employer stop-loss book. We continue to like our renewal portfolio, and we believe that the business is attractive. We have strong relationships with our partners that we believe can produce profitable results in 2014 and beyond.

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. There is still uncertainty with respect to the final settlement of claims but, with each quarter, we continue to resolve risk in this portfolio.

There were no significant property catastrophe events in the quarter, and thus, our catastrophe retro account continues to perform well. This business is under severe competitive pressure. We have had to walk away from some accounts due to low pricing that was supported by the market. We continue to believe that it is better to reduce premiums when competition forces pricing below [our] risk-adjusted returns that we find acceptable.

With respect to our property-catastrophe aggregates, our maximum exposure to a single event is currently $91.3 million, and our maximum exposure to all events is $150.2 million. This is a slight decrease from the prior quarter-end. 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 modeled Probable Maximum Loss, or PML, approach.

The first quarter is typically a light renewal period for us, and there was little activity in our underwriting portfolio. We continue to look for profitable areas of the market to deploy our capacity, but the market is competitive in nearly all sectors, and new businesses opportunities are challenging to find. We continue to deploy our client-centered approach to underwriting, which we believe differentiates us in the competitive market and allows us to maintain strong relationships with our existing client base and to selectively attract appropriately-priced new business.

On the personnel front, we disclosed a few weeks ago that our Chief Actuary, Claude Wagner, will be leaving Greenlight Re at the end of the quarter. Claude has been with us for almost eight years, and he'll be returning to the United States for personal reasons. We are sad to see him go, and wish him and his family the best.

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.

Thanks, Bart, and good morning, everyone. The Greenlight Re investment portfolio lost 7/10 of 1% in the first quarter. Our long portfolio was modestly profitable, led by gains in semiconductor companies Micron and Marvell. Our short and macro investments cost us a bit more than we made on our longs. During the quarter, the average net exposure to the portfolio was about 50%, a neutral stance in a mostly directionless market.

The portfolio performed better in April, with a gain of 4.2%, led by Apple. This was an above-average amount of activity in our portfolio during the quarter. We exited a number of longs and shorts, and also found several new investments.

We added two new sizable long positions in the largest Japanese regional bank, Resona Holdings, and solar company, SunEdison. We bought Resona at eight times earnings and 80% of book value. The company earns an attractive ROE and is in the process of buying back large amount of stock from the Japanese government, which should prove accretive to earnings and book value. SunEdison has transitioned away from the less profitable business of making solar wafers to the more profitable business of developing solar projects, which it plans to keep. We believe that, when the market digests this change in strategy, the shares will re-rate to a higher valuation.

I'd like to clarify Greenlight's remarks about a new technology bubble. In general, we are bullish on technology and technology stocks. Our largest positions include Apple, Micron Technology, and Marvell Technology, which we believe are quite inexpensive. However, we have identified a number of momentum technology stocks that have reached prices beyond any normal sense of valuation. We believe that they are in a bubble, and we have shorted a good number of them in what we call "the bubble basket."

The reinsurance market continues to be very soft, and the team remains disciplined in trying to find good risk-adjusted opportunities. Despite the environment, the dual-engine strategy is working well, and several new entrants are emulating our business model. I look forward to seeing you at our Investor Day on May 20. Bart will provide further details at the end of the call.

And now, I'd like to turn it over to Tim to discuss our financial results.

Thanks, David. For the first quarter of 2014, Greenlight Re reported a net loss of $8.9 million compared to net income of $56.7 million for the comparable period in 2013. The net loss per share was $0.24 for the first quarter 2014 compared to fully diluted net income of $1.52 per share for the same period in 2013.

Gross premiums were at -- were $118.9 million during the first quarter of 2014, a decrease of 6.4% from gross premium written of $127 million in the first quarter of 2013. This decrease is primarily the result of our decision to not renew a nonstandard automobile contract during the quarter, which was partially offset by increased premium writings for employer health stop-loss business and Florida homeowners contracts.

Our net earned premium of $111.7 million increased by approximately 2% from $109.5 million reported in the first quarter of last year. The slight increase in premiums earned is primarily attributable to the reversal of reinstatement premiums in the first quarter of 2013 on a catastrophe contract. The effect of this was partially offset by comparative decreases in premiums earned during the first quarter of this year, resulting from a multiline contract being commuted during the first quarter of 2013.

The composite ratio for the first quarter of 2014 was 94.1% compared to a composite ratio of 98.2% during the comparable period in 2013. Composite ratio for our frequency business for the quarter was 97.7%, and it was 34.9% for severity business. Internal expenses, which are comprised of general and administrative expenses, excluding corporate expenses, were 4.8% of net premium earned for the first quarter of 2014 as compared to 4.5% for the same period in 2013. The slightly higher internal expense in the first quarter of 2014 is partially due to increased quantitative bonus accruals during the quarter compared to the previous year.

Corporate expenses include those expenses directly related to being a publicly listed entity, as well as noncore operating expenses, which include non-investment related foreign exchange gains and losses. Corporate expenses were 1% of net premiums earned for the first quarter of 2014. Overall, the expense ratio was 5.8% for the first quarter of 2014, resulting in a combined ratio of 99.9% compared to 101.7% for the same period in 2013.

We reported a net investment loss of $10.2 million during the first quarter of 2014. Our investment portfolio, managed by DME Advisors, reported a loss of 70 basis points for the quarter. The fully diluted adjusted book value per share as of March 31, 2014, was $27.61, a 17.7% increase from $23.45 per share reported at March 31, 2013.

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 renewed plan provides for a repurchase authorization of two million shares and expires on June 30, 2015. There were no shares repurchased during the first quarter of 2014.

Greenlight Re held its Annual General Meeting on April 30, 2014. I am pleased to report that all seven proposals contained in the proxy were approved by shareholders, including the re-election of all Directors for additional one-year terms.

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

Thanks, Tim. 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 float generated from these contract 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, increased fully diluted book value per share.

We appreciate your continued confidence in Greenlight Re. We are looking forward to hosting our fourth biennial Investor Day on May 20 at 4:00 p.m. at the Lighthouse International in New York City. The program will consist of a formal presentation and a Q&A session, followed by a cocktail party. To RSVP, or for more information regarding the event, please contact Garret Edson at ICR.

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

(Operator instructions.) [Garrett Arms] of Moon Capital. And he has disconnected, so at this time we will conclude the question and answer session. Should you have any follow-up questions, please direct them to Garret 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. We thank you for attending today's presentation. You may now disconnect.