Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Day (June 2008)
32 slides from Greenlight Reinsurance's investor day presentation, Jun 4, 2008
Slide 1: A Differentiated Model with Sustainable Advantage
A Differentiated Model with Sustainable Advantage Investor Presentation June 3, 2008 Nasdaq: GLRE
Slide 2: Forward-looking statements
This presentation includes statements about future economic performance, finances, expectations, plans and prospects of Greenlight Capital Re, Ltd. (“the Company”) that constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of
Slide 3: Today's Agenda
Short formal presentations, followed by Q&A and a reception Today’s Agenda John Andre, Group V.P. A.M. Best – Industry Overview and Rating Process Len Goldberg, CEO – Background and Vision Bart Hedges, President and CUO – Underwriting Philosophy and Examples David Einhorn, Chairman – Investment Revi
Slide 4: Best's Perspectives on Reinsurance and Bermuda Segment
Best’s Perspectives on Reinsurance and Bermuda Segment Capacity readily available in nearly all markets High cedant retentions, capital market solutions and government actions reduce demand New entrants and incumbent diversification change competitive landscape Bermudan reinsurers expand scope throu
Slide 5: Review of Reinsurance and Bermuda Segment - continued
Review of Reinsurance and Bermuda Segment - continued Enterprise Risk Management fully embraced Improved modeling tools enable reinsurers to garner appropriate rates relative to exposures Capital management-extensive share repurchase and increased dividend pay-outs Subprime impact modest with some e
Slide 6: Review of Reinsurance and Bermuda Segment - continued
Review of Reinsurance and Bermuda Segment - continued Harder to generate adequate risk-adjusted returns relative to capital at risk Moderate M&A Activity-no blockbusters Capital market solutions broadly accepted
Slide 7: Preview of Reinsurance and Bermuda Segment - continued
Preview of Reinsurance and Bermuda Segment - continued Anticipating another profitable 2008 Pressure on margins intensifies Wild-card is catastrophes Double-digit rate decreases at Jan 1 renewals Capital & risk management even more critical Acquisitions likely as growth is hard to come by
Slide 8: Financial Trends-Bermuda Insurance and Reinsurance
Financial Trends-Bermuda Insurance and Reinsurance (1) 2008P Net Premiums Written Growth % 5.4 3.2 0.8 3.0 Loss & LAE Ratio 92.8 55.7 54.9 65.0 Underwriting Expense Ratio 26.5 28.3 28.0 28.0 Combined Ratio 119.3 84.1 82.9 93.0 Less: Loss Reserve Development (1.0) (2.2) (5.2) (2.5) AY Combined Ratio
Slide 9: Best's Rating Perspective – Bringing it all Together
Best’s Rating Perspective – Bringing it all Together Capital strength is the foundation Sustained, stable operating profitability ensures future strength Well-diversified, strong business profile ensures stability Depth, experience and stability of management influences profile
Slide 10: Why Greenlight Re?
Why Greenlight Re? Differentiated, symmetric approach Low leverage model with significant upside potential A- rating from A.M. Best with ability to invest 100% in equities Proven underwriting and investment capabilities Uniquely positioned for current market conditions = Sustainable Advantage
Slide 11: Our job is to be the best
“Our job is to be the best Let marketing worry about attendance.” 7 Leo Cullum for Barron's
Slide 12: Greenlight Re Vision
We are a Cayman Islands specialty property and casualty reinsurer with a differentiated reinsurance and investment strategy Greenlight Re Vision Capitalize on inefficiencies in the traditional approach to reinsurance Generate superior underwriting economics Derive superior returns from both sides of
Slide 13: Greenlight Re Model
Liability Asset Greenlight Re Model Focus on downside on a deal- by-deal basis Fewer, bigger deals that are important to our clients and us Focus on deal economics Bottom-up approach to underwriting portfolio Portfolio is sum total of good opportunities Small team of highly skilled generalists Capit
Slide 14: Cyclical Opportunities
Cyclical Opportunities Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database. Casualty Excess Reinsurance 80.0% 100.0% 120.0% Combined Ratio 140.0% 160.0% 180.0% 200.0% Current Estimate Initial Estimate
Slide 15: Underwriting Philosophy
Underwriting Philosophy Lead underwriter for majority of transactions Generalists with flexibility to look at a wide range of opportunities Rigorous modeling combined with practical underwriting experience Each contract stands on its own Incorporate risk-aversion into pricing Focus on transaction ec
Slide 16: Underwriting Opportunities
Select contracts which offer superior economic returns Concentrate on underserved/dislocated markets with unique needs Focus on strategic relationships rather than price driven or commodity buyers Frequency business orientation; severity business more opportunistic Generalist team approach with clie
Slide 17: THESE PREMIUMS MAY SEEM HIGH , BUT IN
THESE PREMIUMS MAY SEEM HIGH , BUT IN YOUR LINE OF WoRK THERE'S INCREASED PROBABILITY OF BEING CRUSHED BY AHOUSE.-. NOT 76 MENTION YouR FAMILY HISTORY OF BEING WATER-SOLUPSLE.. E=y
Slide 18: Underwriting Strategy: An Attractive Deal
Specialist underwriter requires rated reinsurer for program $20 million in annual premium, maximum loss of $1 million on any one event (frequency business) Client wants to share risk with us Client values underwriting results and is willing to give up float Solution: We reinsure 100% of the business
Slide 19: Underwriting Strategy: Taking a Pass
Company requires $100 million protection against severity losses The level of protection required has never been breached, and models show it is a 1-in-100 year event Client shares little/no risk once our cover is breached Company offers $5 million of premium Result: The market accepts this deal and
Slide 20: Investment Approach
Investment Approach Portfolio managed exclusively by DME Advisors, an affiliate of Greenlight Capital Value-oriented strategy Primarily long/short publicly-traded equity and corporate debt securities Lower volatility than equity indices Limited leverage Investment program matched to Greenlight Re’s
Slide 21: Investment Portfolio Summary
Investment Portfolio Summary Data since IPO (13 months May 2007 - May 2008): Performance Average GLRE S&P 500 (gross) Exposure Annualized Return 12.9% -3.4% Long -0.9% 90% Annualized Std. Dev 8.5% 11.5% Short 18.0% -53% Current Top 5 Long Positions Current Position Concentration Ameriprise Financial
Slide 22: Current Investment Environment
Current Investment Environment
Slide 23: Current Investment Environment
Current Investment Environment Credit crisis still playing out Defensively positioned Long unlevered companies at low absolute valuations with strong market positions and/or internal restructuring opportunities Short credit sensitive financials and companies at high multiples of earnings estimates t
Slide 24: Compensation Framework
Compensation Framework Align management and shareholders Compensate for true increase in economic value, not for premium growth, GAAP accounting, irrational exuberance or “fully deploying capital” Cash Bonus Program: Track economics of every contract individually No bonus when underwriting ROE less
Slide 25: Risk and Capital Management
Risk and Capital Management 2007 premium to capital ratio of 0.2, anticipated to increase as portfolio develops Low leverage play: No corporate debt Low premium-to-capital and reserve-to-capital ratios Frequency business orientation CEO and CFO review reserves by account every quarter Proposal to am
Slide 26: Contributions to Retained Earnings
($10) $15 $40 Millions $65 $90 $115 $140 Quarter ended Cumulative net UW profit Cumulative net UW profit plus risk free inv. income Cumulative Actual net income Contributions to Retained Earnings
Slide 27: Book Value Growth
$(4.8) $35.3 $57.0 $26.3 $6.8 NA NA 221.0 99.0% Book Value Growth $ in millions Notes: 1. The Composite Ratio is the ratio of underwriting losses incurred and acquisition costs, excluding internal expenses, to premiums earned. 2. The Combined Ratio is the sum of the loss ratio, acquisition cost rati
Slide 28: Net Invested Assets
Net Invested Assets $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600 $650 $700 Millions Quarter ended Capital Capital + Retained Earnings Capital + Retained Earnings + Float
Slide 29: Current ROE Sensitivity
Current ROE Sensitivity Assumptions: Earned Premium = 20% of capital Invested Assets = 120% of capital Combined Ratio (%) 80.0 90.0 100.0 110.0 120.0 5.0 10.0 15.0 20.0 Investment Return (%) 25.0
Slide 30: Hypothetical ROE Sensitivity
Combined Ratio (%) 80.0 90.0 100.0 110.0 120.0 5.0 (6) 10.0 15.0 20.0 Investment Return (%) 25.0 Hypothetical ROE Sensitivity Assumptions: Earned Premium = 75% of capital Invested Assets = 175% of capital
Slide 31: Why Greenlight Re?
Why Greenlight Re? Differentiated, symmetric approach Low leverage model with significant upside potential A- rating from A.M. Best with ability to invest 100% in equities Proven underwriting and investment capabilities Uniquely positioned for current market conditions = Sustainable Advantage
Slide 32: Q&A / Forward-Looking Statements
Q&A ### Forward-Looking Statements This news release 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.