Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Presentation (May 2012)
43 slides from Greenlight Reinsurance's investor presentation, May 22, 2012
Slide 1: Investor Meeting May 21, 2012: Rethinking Reinsurance
Investor Meeting May 21, 2012 “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 our Irish operating subsidiary is rated “A-” Our “dual-engine” reinsurance and investment strategy is fundamentally diff
Slide 5: Our Approach
Page 5 Our Approach We employ “symmetric” and complementary reinsurance and investment strategies We use a client-centric underwriting approach to develop long term reinsurance partnerships Our underwriting portfolio is heavily weighted toward frequency business – 95% frequency business in 201
Slide 6: Symmetric Approach
Page 6 Symmetric Approach Capital preservation on an investment-by-investment basis Concentrate on best investment ideas Focus on business economics Bottom-up approach to investment selection Portfolio is sum total of good opportunities Small team of highly skilled generalists Underwriti
Slide 7: Our Measure of Performance: Growth in Book Value Per Share
Page 7 Our Measure of Performance Growth in Book Value Per Share Over the Long-Term 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 23.29 $0 $5 $10 $15 $20 $25 11.7% CAGR
Slide 8: Organization Chart
Organization Chart Bart Hedges CEO Brendan Barry Chief Underwriting Officer TBD VP Business Develop. Claude Wagner Chief Actuary Jordan Comacchio Actuarial Analyst Isaac Espinoza Senior Actuarial Analyst Kagabo Ngiruwonsanga Actuarial Analyst Bruno Landry Actuary Tim Courtis CFO Sherry Diaz Controll
Slide 9: How Do We Compare?
Page 9 How Do We Compare? Sources: Company 10k, SNL data, 2011 Figures ACE AXS ACGL XL RNR MRH PTP RE PRE TRH SBX RLI MIG GBLI ASI GLRE 0% 20% 40% 60% 80% 100% 120% 140% 100% 150% 200% 250% 300% 350% Ne t Ea rne d P rem ium /Su rpl us Invested Assets/Surplus Underwriting and Investment Leverage Insu
Slide 10: Peer Group Combined Ratio Comparison
Page 10 Peer Group Combined Ratio Comparison Sources: Company 10k, SNL data, 2011 Figures Company 2008 2009 2010 2011 GLRE 96.5% 96.5% 102.8% 103.8% Transatlantic (TRH) 98.6% 93.5% 98.2% 113.9% Everest (RE) 95.2% 89.1% 102.8% 118.5% Partner Re (PRE) 94.1% 81.8% 95.0% 125.4% Platinum Underwriters (PT
Slide 11: Our Historical Underwriting Results
Page 11 Our Historical Underwriting Results Combined Frequency & Severity 2007 2008 2009 2010 2011 Net Earned Premium ($ millions) 98.0 114.9 214.7 287.7 379.7 Loss Ratio 40.3% 48.3% 55.4% 61.5% 63.6% Acquisition Cost & Other Ratio 39.7% 36.2% 32.3% 35.7% 36.5% Composite Ratio 80.0% 84.5% 87.7% 97.2
Slide 12: Underwriting Results By Line of Business
Page 12 Underwriting Results By Line of Business Line of Business 2007 2008 2009 2010 2011 Property Commercial 21.4% 28.5% 43.3% 8.9% 48.4% Property Personal 92.6% 63.1% 76.2% 87.7% 91.9% Motor Liability Commercial 57.5% 100.2% 97.9% 146.4% 167.3% Motor Liability Personal 94.1% 95.2% 106.3% 107.5% 9
Slide 13: Motor Liability Commercial
Motor Liability Commercial Page 13 - 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 2008 2009 2010 2011 Es tim at ed U lti m at e L os se s Treaty Year Losses by Treaty Year IBNR Case Reserves Paid Losses 63%18% 20% Composition of Losse
Slide 14: Motor Liability Commercial Thesis, Results & Actions
Motor Liability Commercial Thesis • Long Haul Trucking pricing was going to improve due to exit of a large carrier • Economic slow down would result in lower frequency – Less miles driven – More experienced drivers Results & Actions • Results within modeled expectations • Competitive rating environm
Slide 15: Areas of Focus
Property Catastrophe Retro We participate fairly high up Small number of long-term clients Clients are reinsurers and Lloyd’s syndicates: need for capital management or “Realistic Disaster Scenario” analysis Participation determined based on market conditions Small Account Workers Compensati
Slide 16: Underwriting Results By Area of Focus
Page 16 Underwriting Results By Area of Focus Area of Concentration 2007 2008 2009 2010 2011 Florida Homeowners (Limited Wind) 95.0% 71.9% 84.2% 92.0% 93.4% Health (Employer Stop Loss) 97.0% 87.7% 95.3% 94.4% 103.6% Small Account WC/GL/Some Comm Auto 24.4% 91.1% 89.8% 93.1% 104.3% Catastrophe Retro
Slide 17: Takeaways
Page 17 Takeaways We measure our results based on growth in fully diluted adjusted book value per share Our frequency oriented strategy has preserved capital during periods of volatility Our client-centric underwriting model has gained market recognition Our underwriting portfolio is concent
Slide 18: 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 for high yielding catastrophe bonds, side cars, etc. • No/slow growth reduces demand for
Slide 19: Where are the opportunities going forward?
Page 19 Where are the opportunities going forward? Remain in relatively short duration lines with exposure to primary and low excess layers We will continue to have concentrations in: FL Homeowners (limited wind) Employer Stop Loss Catastrophe Retrocession Small Account General Liability
Slide 20: David Einhorn, Chairman of the Board
Page 20 David Einhorn, Chairman of the Board
Slide 21: Investment Approach
Investment Approach Investments managed by DME Advisors Value long/short investments with macro hedges Focus on capital preservation Average gross long exposure of 90% long and 53% short since formation of GLRE Annualized return of 9.6% since formation of GLRE ** Page 21 ** past performanc
Slide 22: Investment Performance Since Formation
Investment Performance Since Formation -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2004 2005 2006 2007 2008 2009 2010 2011 Pe rforma nc e -70% -56% -42% -28% -14% 0% 14% 28% 42% 56% 70% N et Ex pos ure GLRE S&P 500 Net exposure Page 22
Slide 23: Statistics Since Formation
Statistics Since Formation Barclays Agg. GLRE S&P 500 Russell 2000 Bond Index Cumulative Net Return 103.6% 48.8% 64.3% 74.8% Annualized Net Return 9.6% 5.3% 6.6% 7.5% Standard Deviation 10.8% 15.7% 21.1% 3.4% Sharpe Ratio 0.8 0.3 0.3 1.6 Probability of Down Year 19% 37% 38% 2% Probability of Down Mo
Slide 24: Current Investment Environment
Current Investment Environment U.S. economy and corporate earnings continue to grow Quantitative easing on hold for now; commodity prices trending lower Wide disparity of equity valuations European problem remains unsolved Slowdown in China Possible Japan sentiment change Page 24
Slide 25: Current Investment Portfolio
Current Investment Portfolio Portfolio currently 96% long and 57% short ** Largest disclosed long positions are Apple, Arkema, General Motors, gold and Seagate ** Longs include cash-rich large cap technology companies with strong balance sheets Shorts include misunderstood cyclicals and over
Slide 26: Our Compensation Structure
Page 26 Our Compensation Structure Align management with shareholders Compensate for actual increase in economic value – not for premium growth, GAAP accounting, irrational exuberance or “fully deploying capital” Variable compensation component for all employees based on underwriting results
Slide 27: Our Progress
Page 27 Our Progress In August 2011, CEO transition In September 2011, A.M. Best upgraded the rating of our Cayman subsidiary to “A” Continued building the team Senior underwriter in Cayman Junior staff on underwriting and actuarial teams In-house counsel Launched our presence in Irela
Slide 28: Tim Courtis, Chief Financial Officer
Page 28 Tim Courtis, Chief Financial Officer
Slide 29: Float
Page 29 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” In reinsurance, premium is usually collected before claims are paid The claim payment duration for our current po
Slide 30: Invested Assets
Page 30 Invested Assets $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 $1,200 Capital Capital + Retained earnings Capital + Retained earnings + Float Mi llio ns
Slide 31: Amount of Float
Page 31 Amount of Float Float ($ 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% March 2012 282 3% 32%
Slide 32: Calculation of Float
Page 32 Calculation of Float Note: numbers as of March 31, 2012 US$ millions Total investments 1,180 Cash and cash equivalents 5 Restricted cash 1,021 Fin'l contracts receivable 32 Notes receivable 18 Securities sold, not yet purchased (746) Fin'l contracts pay (16) Due to prime brokers (315) Perfor
Slide 33: The "Appearance" of Debt
Page 33 The “Appearance” of Debt No debt has been issued as part of the company’s capital structure Investment guidelines prohibit significant borrowing DME may use up to 20% net margin leverage for periods of less than 30 days Due to prime brokers as of March 31, 2012: Short term investment
Slide 34: The "Appearance" of Debt
The “Appearance” of Debt | | | | | | | | Broker/Dealer Bank GLRe Prime Brokerage Account (Long/Short Equity Portfolio) Bank Issues LOCs GLRe Custody Account (Cash) Bank has a security interest in a custodial account Term Margin Borrowing US$ Page 34
Slide 35: How do Reinsurance Companies Make Money?
ROE = Underwriting Return + Investment Return ROE = (P/E) * (100%-CR) + (IA/E) * (IR) where: P = Earned Premium E = Equity CR = Combined Ratio IA = Invested Assets IR = Investment Return There are two types of leverage: • underwriting leverage • investment leverage = float Page 35 How do Reinsurance
Slide 36: Underwriting Leverage
• Our underwriting leverage is low compared to our peers and we write a higher proportion of less volatile, frequency oriented business • We have patiently grown our business in a “softening” market • Our current portfolio is dominated by low limit “insurance business” • We intend to increase our un
Slide 37: Return on Equity
The change in fully diluted adjusted book value can be broken down as follows: Page 37 Return on Equity 2009 2010 2011 Investment Return on Capital 32.1% 11.0% 2.1% Investment Return on Float 8.0% 3.2% 0.7% GAAP Underwriting Profit (loss) 1.4% -1.3% -1.8% Total ROE 41.5% 12.9% 1.0%
Slide 38: Superior Potential Return on Equity: Using 2011 Ratios
Page 38 Earned Premium = 47% of capital Invested Assets = 134% of capital Superior Potential Return on Equity From our Dual Engine Model 80% 90% 100% 110% 120% 2% 12 7 3 -2 -7 10% 23 18 13 9 4 15% 30 25 20 15 11 20% 36 32 27 22 17 25% 43 38 34 29 25 The Numbers: Using 2011 Ratios In v e stm e n t R
Slide 39: Superior Potential Return on Equity: Potential Future Results
Page 39 Superior Potential Return on Equity From our Dual Engine Model 80% 90% 100% 110% 120% 5% 19 14 9 4 -1 10% 28 23 18 13 8 15% 36 31 26 21 16 20% 45 40 35 30 25 25% 54 49 44 39 34 I n v e stm e n t R e tu rn Underwriting Return: Combined Ratio The Numbers: Potential Future Results Earned Premiu
Slide 40: Growth in Book Value vs. Share Price
Page 40 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 23.29 20.79 12.99 23.59 26.81 23.67 24.63 $5 $10 $15 $20 $25 $30 Fully Diluted Adjusted Book Value Share Price Share price/FDBV multiple 1.
Slide 41: Bart Hedges, Chief Executive Officer
Page 41 Bart Hedges, Chief Executive Officer
Slide 42: Summary
Page 42 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 anxious to see what we can do in a favorable market Goal for 2012 and beyond i
Slide 43: Greenlight Re
7 GREENLIGHT page43 RE
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