Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Presentation (May 2014)
35 slides from Greenlight Reinsurance's investor presentation, May 21, 2014
Slide 1: Investor Meeting May 20, 2014 "Rethinking Reinsurance"
Investor Meeting May 20, 2014 “Rethinking Reinsurance”
Slide 2: Forward Looking Statements
Page 2 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. T
Slide 3: Today's Agenda
Page 3 Today’s Agenda Overview Bart Hedges, Chief Executive Officer Investments David Einhorn, Chairman of the Board Financials Tim Courtis, Chief Financial Officer Summary Bart Hedges, Chief Executive Officer Q&A Cocktails
Slide 4: Who We Are
Page 4 Who We Are Specialist property and casualty reinsurer with operations in the Cayman Islands and Dublin, Ireland Cayman operating company is rated “A” by A.M. Best and Irish operating subsidiary is rated “A-” Our “dual-engine” reinsurance and investment strategy is fundamentally differen
Slide 5: Our History
Our History We have had consistent surplus growth Company founded in 2004 with $212M in capital Identified Senior Management Team Raised additional $258M in Initial Public Offering (Listed on NASDAQ ticker: GLRE) Market tested our business model Achieved A- (Excellent) rating from A.M. Best Underwri
Slide 6: Underwriting Approach
Page 6 Underwriting Approach DELIVER SUPERIOR LONG-TERM GROWTH IN BOOK VALUE A fundamentally different approach to the reinsurance business Focus on downside on a deal-by-deal basis Fewer, bigger deals that are important to our clients and to us Focus on deal economics Bottom-up approach to
Slide 7: Our Measure of Performance
Page 7 Our Measure of Performance 11.1% Compound Annual Growth Rate Note: Numbers represent fully-diluted adjusted book value per share Growth in Book Value Per Share
Slide 8: Organization Chart
Bart Hedges CEO Brendan Barry Chief Underwriting Officer Claude Wagner Chief Actuary Jordan Comacchio Underwriting Kagabo Ngiruwonsanga Underwriting Bruno Landry Underwriting Tim Courtis CFO Sherry Diaz Finance & Operations Faramarz Romer Finance & Operations Adam Ridley Finance & Operations Laura A
Slide 9: How Do We Compare?
Page 9 How Do We Compare? Sources: Company 10k, SNL data, 2013 Figures Net E a rn e d P re mium /S urplu s
Slide 10: Our Historical Underwriting Results
Page 10 Our Historical Underwriting Results Combined Frequency & Severity 2007 2008 2009 2010 2011 2012 2013 Net Earned Premium ($ millions) 98.0 114.9 214.7 287.7 379.7 466.7 547.9 Loss Ratio 40.3% 48.3% 55.4% 61.5% 63.6% 78.5% 61.8% Acquisition Cost & Other Ratio 39.7% 36.2% 32.3% 35.7% 36.5% 30.6
Slide 11: Underwriting Results By Area of Focus
Page 11 Underwriting Results By Area of Focus Calendar Year Composite Ratio Area of Concentration 2007 2008 2009 2010 Florida Homeowners (Limited Wind) 95.0% 71.9% 84.2% 92.0% Non-Standard Auto 0.0% 0.0% 0.0% 0.0% Health (Employer Stop Loss) 97.0% 87.7% 95.3% 94.4% Catastrophe Retro 21.2% 24.5% 54.2
Slide 12: Market Conditions
Market Conditions Macro conditions Persistent low interest rate environment Impact on our market • Reduced ability to generate investment income puts more pressure on underwriting earnings • Increases interest in trying to replicate the Greenlight Re model • Slow to moderate growth will increase t
Slide 13: Where are the opportunities going forward?
Page 13 Where are the opportunities going forward? Remain in relatively short duration lines with exposure to primary and low excess layers We expect to continue to have concentrations in: Florida Homeowners (limited wind) Employer Stop Loss Non-standard Automobile Health, including empl
Slide 14: Absolute Return Reinsurance Models
Absolute Return Reinsurance Models Page 14 Source: Dowling & Partners analysis Capital $1.1B $1.4B $800M $500M $1.13B AMB Rating A A- A- A- A- Collateralized No No No No No Type of Reinsurance High frequency / Low severity; some cat High frequency / Low severity Cat & low severity casualty + Insuran
Slide 15: David Einhorn, Chairman of the Board
Page 15 David Einhorn, Chairman of the Board
Slide 16: Investment Approach
Investment Approach Investments managed by DME Advisors Value oriented, long-short investment program Focus on capital preservation Average gross long exposure of 91% long and 55% short since formation of GLRE Annualized return of 10.2% since formation of GLRE in July 2004 * Page 16 * As o
Slide 17: Investment Performance Since Formation
Investment Performance Since Formation Page 17 Note: from formation to April 30, 2014
Slide 18: Statistics Since Formation
Statistics Since Formation Barclays Agg. GLRE S&P 500 Russell 2000 Bond Index Cumulative Net Return 158.6% 109.4% 132.9% 80.8% Annualized Net Return 10.2% 7.9% 9.1% 6.3% Standard Deviation 10.1% 14.7% 19.7% 3.4% Sharpe Ratio 0.9 0.5 0.5 1.4 Probability of Down Year 16% 30% 32% 3% Probability of Down
Slide 19: Current Investment Environment
Current Investment Environment U.S. economy and corporate earnings continue to grow Corporate earnings expectations are high New Fed leadership and policies Wide range of possible outcomes Page 19
Slide 20: Current Investment Portfolio
Current Investment Portfolio Portfolio currently 114% long and 66% short * Largest disclosed long positions are Alpha Bank, Apple, gold, Marvell, Micron and Oil States International * Long cash-rich technology companies and businesses benefitting from structural changes Shorts include secula
Slide 21: Compensation Structure
Page 21 Compensation Structure Align management with shareholders Compensate for increase in economic value Variable quantitative bonus component for all employees based on underwriting results u/w years 2007-2008 = bonus above target u/w years 2009-2010 = no bonus u/w year 2011 = bonus
Slide 22: Where We Are Today
Page 22 Where We Are Today Established company with fully-staffed operations in Cayman and Ireland Proven 10-year track record through a full cycle and a financial crisis “A” rating from A.M. Best provides a competitive advantage versus new players Balanced approach allows us to stay discipl
Slide 23: Tim Courtis, Chief Financial Officer
Page 23 Tim Courtis, Chief Financial Officer
Slide 24: Accounting Year vs. Underwriting Year
Page 24 Accounting Year vs. Underwriting Year GAAP quarterly/annual results report the accounting impact of all underwriting years Reinsurance contracts often take years to be resolved before actual profitability is known Underwriting decisions made in prior years affect current results Econ
Slide 25: Accounting Year vs. Underwriting Year
Page 25 Accounting Year vs. Underwriting Year Underwriting Income = net earned premium – losses incurred – acquisition costs
Slide 26: Float
Page 26 Float We only write transactions that we believe create positive standalone economics As a consequence of writing these contracts, we generate investable funds or “float” Premium is usually collected before claims are paid The claim payment duration for our current portfolio averages
Slide 27: Invested Assets
Invested Assets cs 8 5 8 8 S " e 8 $ 8 8 8 8 8 8 3 3 8 8 8 8 8 8 8 8 Quarter ended ——Capital —S- Capital + Retained earings == Capital +Retained eamings+Float Page 27
Slide 28: Amount of Float
Page 28 Amount of Float Float ($ millions) Growth in Float (%) Float as a % of Capital December 2007 71 95% 12% December 2008 115 63% 24% December 2009 182 59% 26% December 2010 256 40% 32% December 2011 274 7% 34% December 2012 334 20% 40% December 2013 320 -4% 30% March 2014 306 -5% 29%
Slide 29: Calculation of Float
Page 29 Calculation of Float Note: as of March 31, 2014 (US$ millions) Total investments 1,343 Cash and cash equivalents 4 Restricted cash and cash equivalents 1,229 Financial contracts receivable 83 Notes receivable 16 Securities sold, not yet purchased (986) Financial contracts payable (24) Due to
Slide 30: Change in Fully Diluted Adjusted Book Value
The change in fully diluted adjusted book value can be broken down as follows: Page 30 Return on Equity 2009 2010 2011 2012 2013 Investment Return on Capital 29.8% 10.8% 2.4% 6.9% 17.5% Investment Return on Float 9.5% 3.4% 0.9% 2.7% 7.6% Underwriting Net Income (Loss) 6.0% 1.0% -0.1% -5.5% 4.3% G&A
Slide 31: Superior Potential Return on Equity From our Dual Engine Model
Page 31 Earned Premium = 52% of capital Invested Assets = 130% of capital Superior Potential Return on Equity From our Dual Engine Model 80% 90% 100% 110% 120% 2% 13 8 3 -3 -8 10% 23 18 13 8 3 15% 30 25 20 14 9 20% 37 31 27 21 16 25% 43 38 33 27 22 The Numbers: Using 2013 Ratios In vestm e n t Retur
Slide 32: Growth in Book Value vs. Share Price
Page 32 Growth in Book Value vs. Share Price Note: numbers represent fully diluted adjusted book value per share 10.40 11.63 14.27 16.57 13.39 18.95 21.39 21.61 22.01 27.91 27.61 20.79 12.99 23.59 26.81 23.67 23.08 33.71 32.80 $5 $10 $15 $20 $25 $30 $35 $40 Fully Diluted Adjusted Book Value Share Pr
Slide 33: Bart Hedges, Chief Executive Officer
Page 33 Bart Hedges, Chief Executive Officer
Slide 34: Summary
Page 34 Summary We set out in 2004 to create a reinsurance company with a superior business model Our vision then is exactly what you see now We continue to find ways to create value in a difficult market We are eager to see what we can do in a favorable market Goals for 2014 and beyond:
Slide 35: Greenlight Re
% GREENLIGHT page 25 RE
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