Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Day (May 2016)
38 slides from Greenlight Reinsurance's investor day presentation, May 13, 2016
Slide 1: Greenlight Re Investor Meeting: Rethinking Reinsurance
Greenlight Re Investor Meeting May 12, 2016 “Rethinking Reinsurance”
Slide 2: Agenda
• Introduction and Underwriting – Bart Hedges, CEO • Investments – David Einhorn, Chairman • Financial Overview – Tim Courtis, CFO • Q&A • Cocktail Reception – The Sky Room 2 Agenda
Slide 3: Forward Looking Statements
3 Forward Looking Statements This presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the U.S. Federal securities laws. These
Slide 4: Our Strategy
Underwriting: Customer Centric Develop long-term reinsurance relationships that deliver superior value to our partners in areas of the market that present the best mutually beneficial opportunities Investing: Differentiated & Equity Focused Invest using a deep value, long-short equity strategy to ma
Slide 5: Customer Centricity
5 Customer Centricity Our customer centric approach includes: • Having a transparent relationship with our partners • Shaping our partners’ behavior at the front end of the business
Slide 6: Customer Centric Strong Relationships
Customer Centric Strong Relationships Renewal Business Converting a Deal to an Annuity 6 “Sticky” Premium Flow
Slide 7: Converting a Deal to an Annuity
Converting a Deal to an Annuity 7 Underwriting Year 2011 2012 2013 2014 2015 Retention - Client 59.1% 80.0% 91.7% 78.6% 77.8% Retention - Premium 71.8% 86.0% 93.6% 69.5% 92.4% • Retention ratios for both clients and premium have been high • 2014 reflects the non-renewal of a large relationship • 62%
Slide 8: Greenlight Re's Partnership with Windhaven Insurance Company
• A real world example of our strategy being successfully executed • Windhaven is a Miami-based non-standard auto insurance writer • Portfolio focused in South Florida and expanding in Texas • We have been partners since 2011 Greenlight Re’s Partnership with Windhaven Insurance Company 8
Slide 9: Windhaven's View of Our Relationship
Windhaven’s View of Our Relationship 9 Video from Jimmy Whited, President & CEO
Slide 10: Underwriting Vision and Focus: Adapting to the Environment
Underwriting Vision and Focus: Adapting to the Environment 10
Slide 11: Our Initial Vision
• Write a highly concentrated underwriting portfolio with a few sizeable relationships • Large partner deals represent 79% of total premium in underwriting year 2015 Our Initial Vision 11
Slide 12: Always Evolving
Always Evolving 12 Better diversified portfolio Support one placement, then expand into others Build relationships with larger carriers who purchase reinsurance across multiple lines
Slide 13: Underwriting Portfolio Evolution
13 Underwriting Portfolio Evolution Year-End 2013 Premium by Business Line ● Motor Liability ● Motor Physical Damage ● Professional Liability ● Homeowners ● Medical Stop Loss ● General Liability ● Commercial Property ● Workers Compensation ● Marine Liability ● Financial ● Other Year-End 2015 40.6% 6
Slide 14: Underwriting Results: A Deeper Dive
Underwriting Results: A Deeper Dive 14
Slide 15: Non-Standard Auto
Non-Standard Auto 15 Financial Year (US$ millions) 2011 2012 2013 2014 2015 Net Earned Premium $ 22 $ 204 $ 316 $ 158 $ 197 Composite Ratio 97.5% 95.0% 95.7% 94.0% 94.5% • 47.5% of our 2015 premium • Low limit, 6-month policies • Risk resolves quickly
Slide 16: Property Catastrophe Retrocession
Property Catastrophe Retrocession 16 Financial Year (US$ millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Earned Premium $ 9 $15 $15 $28 $21 $18 $21 $15 $27 $30 Composite Ratio 41.9% 21.2% 24.5% 54.2% 11.6% 43.8% 119.0% -81.7%* 26.5% 48.7% Major Industry Event European Winter Storms H
Slide 17: Professional Liability
• The professional liability portfolio has grown from 5.6% of our total book at year-end 2013 to 14.4% by year-end 2015 • Covers directors & officers liability, errors & omissions, employer practices liability insurance, medical malpractice and healthcare professional liability exposures • Portfolio
Slide 18: Underwriting Results
Underwriting Results 18 (US$ millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Frequency Net Earned Premium $16 $72 $81 $170 $259 $360 $444 $530 $331 $381 Composite Ratio 97% 94% 91% 95% 106% 103% 109% 97% 101% 111% Severity Net Earned Premium $11 $26 $34 $45 $29 $20 $22 $18 $24 $28 Compos
Slide 19: Greenlight Re Team
Greenlight Re Team 19
Slide 20: Greenlight Re Organization Chart
Tom Curnock Chief Risk Officer Bart Hedges Chief Executive Officer Brendan Barry Chief Underwriting Officer Jim McNichols Chief Actuarial Officer Jordan Comacchio Underwriting Kagabo Ngiruwonsanga Underwriting Tim Courtis Chief Financial Officer Sherry Diaz Finance & Operations Faramarz Romer Financ
Slide 21: Outlook
Outlook 21
Slide 22: Looking Forward
• Continue to evolve our largest customer relationships into annuities • Diversify but continue to focus on large deals – Concentration in non-standard automobile will continue – Grow the Healthcare/Employer Stop Loss portfolio – Target more geographic diversification particularly in the U.K. Lookin
Slide 23: David Einhorn, Chairman of the Board
David Einhorn Chairman of the Board 23
Slide 24: Investment Approach
Investments held in a separate account that is managed by DME Advisors, an affiliate of Greenlight Capital Value-focused, long/short investment program Maximize total risk-adjusted return with a focus on capital preservation Average gross long exposure of 95% long and 59% short since formati
Slide 25: Statistics Since Formation
Statistics Since Formation 25 Note: All statistics are based on the 141-month period from August 2004 — April 2016 Barclays Agg. GLRE S&P 500 Russell 2000 Bond Index Cumulative Net Return 120.8% 139.4% 140.3% 94.0% Annualized Net Return 7.0% 7.7% 7.7% 5.8% Standard Deviation 10.4% 14.3% 19.1% 3.3% S
Slide 26: Winners and Losers
Winners and Losers 26 19% -35% -80% -60% -40% -20% 0% 20% 40% 60% 80% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Winners Gross Contribution Losers Gross Contribution Average: 41% Average: -29%
Slide 27: Current Investment Portfolio
Portfolio currently 93% long and 77% short Largest disclosed longs are Apple, CONSOL Energy, General Motors, gold, and Time Warner Long cash-rich companies trading at low multiples that are fundamentally executing Shorts include companies that are not only challenged but also pricing in too
Slide 28: Alignment with Shareholders
The investment manager is subject to a modified high water mark Reduced fees until the loss plus 150% of the loss is recovered This equates to a reduced fee on approximately the next 60% of the return from DME Advisors The reinsurance team is compensated for generating underwriting profits
Slide 29: Tim Courtis, Chief Financial Officer
Tim Courtis Chief Financial Officer 29
Slide 30: Premiums – Written & Earned
Premiums – Written & Earned 30 - 100 200 300 400 500 600 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (US$ mi lli o n s) Gross Written Premium Net Earned Premium
Slide 31: Underwriting Income
Underwriting Income 31 Underwriting Income = net earned premium – losses incurred – acquisition costs 0% 20% 40% 60% 80% 100% 120% (70) (60) (50) (40) (30) (20) (10) - 10 20 30 40 50 60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (U S$ m ill io n s) GAAP Fiscal Year Underwriting Year Fiscal Ye
Slide 32: Combined Ratio
0% 20% 40% 60% 80% 100% 120% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Loss Ratio Acquisition Cost Ratio Underwriting Expense Ratio Combined Ratio 32 Note: combined ratio based on GAAP fiscal year basis
Slide 33: Capital, Float and Invested Assets
- 200 400 600 800 1,000 1,200 1,400 1,600 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (US$ mi lli o n s) Capital Retained Earnings Float Invested Assets 33 $295
Slide 34: General & Administrative Expenses
General & Administrative Expenses 34 2.9% 2.0 % 2.8% 2.7% 2.0% 1.7% 2.0 % 2.0% 2.1% 2.8% G&A expenses as a percentage of year-end adjusted surplus - 5 10 15 20 25 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (US$ mi lli o n s)
Slide 35: Compensation Structure
Compensation Structure 35 • Align management with shareholders • Compensate for increase in economic value • Variable quantitative bonus for all employees is deferred until the ultimate underwriting result is better known
Slide 36: Book Value vs. Share Price
Book Value vs. Share Price 36 10.21 11.63 14.27 16.57 13.39 18.95 21.39 21.61 22.01 27.91 30.76 22.17 22.88 20.79 12.99 23.59 26.81 23.67 23.08 33.71 32.65 18.71 21.79 $5 $10 $15 $20 $25 $30 $35 $40 Fully Diluted Adjusted Book Value Share Price
Slide 37: ROE Potential
ROE Potential 37 Superior Potential Return on Equity From our Dual Engine Model Earned Premium = 50% of capital Invested Assets = 135% of capital In v e stm e n t R e tu rn 105.0% 102.5% 100.0% 97.5% 95.0% 0% -3% -1% 0% 1% 3% 5% 4% 6% 7% 8% 9% 10% 11% 12% 14% 15% 16% 15% 18% 19% 20% 22% 23% 20% 25%
Slide 38: Investment Portfolio Disclosure
38 Investment Portfolio Disclosure • All information provided is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. • Performance returns of the managed account reflect the time weighted rate of return of the N