Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Day (November 2022)
49 slides from Greenlight Reinsurance's investor day presentation, Nov 17, 2022
Slide 1: Greenlight Capital Re, Ltd. 2022 Investor Day Presentation
Greenlight Capital Re, Ltd. 2022 Investor Day Presentation Thursday, November 17, 2022 1
Slide 2: Cautionary Note Regarding Forward-Looking Statements
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 2 This Investor Presentation (this “Presentation”) is intended solely for the informational purposes of the persons to whom it is presented in connection with the 2022 Investor Day of Greenlight Capital Re, Ltd. (the “Company”) to be held on Novem
Slide 3: Investment Portfolio Disclosure
INVESTMENT PORTFOLIO DISCLOSURE 3 All information provided for Solasglas Investments, LP 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 reflect the total returns, net of fees and expe
Slide 4: Management Team
Simon Burton Chief Executive Officer Faramarz Romer Chief Accounting Officer & Treasurer Richard Strommer Chief Actuary Regan Cairns* Chief Underwriting Officer - Cayman Pat O’Brien Chief Executive Officer - Ireland Brian O’Reilly Head of Innovations Tom Curnock Chief Risk Officer Andy Gladwin Activ
Slide 5: Agenda
OVERVIEW 01 OBJECTIVES 02 STRATEGY OVERVIEW 03 04 PAST PERFORMANCE FUTURE OPPORTUNITY SOLASGLAS 05 UNDERWRITING AND INNOVATIONS 06 FINANCIAL UPDATE 07 08 QUESTIONS AND ANSWERS AGENDA 5
Slide 6: Greenlight Capital Re, Ltd.
GREENLIGHT CAPITAL RE, LTD. $565 million Gross Written Premiums $1.5 billion Total Assets $467 million Consolidated GAAP Capital 45 Employees 29 Innovation Partners Reinsurance Insurance Greenlight Reinsurance, Ltd. Greenlight Reinsurance Ireland dac Syndicate 3456 (Lloyd’s) Entities & Licensing 6 A
Slide 7: Our Objective
OUR OBJECTIVE Maximize growth in Book Value Per Share within risk and operating constraints 7
Slide 8: Three Strategic Pillars
Open Market Underwriting THREE STRATEGIC PILLARS Combination of lead and follow business determined by expertise and market intelligence Small scale allows consistent review of all risks and dynamic allocation of capacity to best opportunities Focus on short- and medium-tail risks where we can compe
Slide 9: Underwriting Performance vs. Peers – Combined Ratios
UNDERWRITING PERFORMANCE VS. PEERS – COMBINED RATIOS 9Source: public disclosures. Reinsurance segment results used when reported.
Slide 10: Innovations Investments
INNOVATIONS INVESTMENTS $21.5M Deployed $60.6M1 Carry value 49.5% IRR (excluding internal expenses) Recorded significant and consistent unrealized investment gains over the last two years 10 1See Note 4 of our condensed consolidated financial statements in our Form 10-Q for the nine months ended Sep
Slide 11: Solasglas Performance (net of fees)
SOLASGLAS PERFORMANCE (net of fees) 2022 through October: 18.2% 2021 full year: 7.5% 11 -10 -5 0 5 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec R e tu rn (% ) 2021 2022
Slide 12: Preservation of Capital
PRESERVATION OF CAPITAL Change in GAAP Shareholders' Equity – YTD 2022 -1.9% -12.9% -15.2% -16.2% -16.4% -19.7% -23.5% -24.6% -23.7% -26.3% -29.9% -30.8% -49.5% Greenlight Re Arch Capital SCOR Markel Corp SiriusPoint Axis Capital Partner Re Everest Re Argo Group Renaissance Re Holdings Hannover Re M
Slide 13: Price-to-Book
PRICE-TO-BOOK Share prices at November 11th, 2022, close and book values at Q3 2022 per public disclosures. 13
Slide 14: Underwriting Opportunity Is Significant
UNDERWRITING OPPORTUNITY IS SIGNIFICANT 2022 reinsurance pricing conditions were the best we have seen in over a decade 2023 pricing conditions are likely to be better than 2022, perhaps significantly Emergent pressures in 2022: • Ukraine war • Rapid increase in inflation • Bond valuations • Hurrica
Slide 15: Investment Outlook
INVESTMENT OUTLOOK Innovations Solasglas Investments Prospective opportunities: • We believe early stage valuations are more attractive than in 2021 • Profitable MGAs are currently highly valued Existing book: • Our five largest partners (representing 77% of our carry value) have raised capital sinc
Slide 16: Environmental, Social, & Governance
ENVIRONMENTAL, SOCIAL, & GOVERNANCE We run our business as good corporate citizens & constructively engage with all of our stakeholders Environmental Social Governance Across our underwriting book we intend to support a responsible “net zero” transition We support diversity, equality and inclusion W
Slide 17: Underwriting and Innovations
Underwriting and Innovations PATRICK O’BRIEN Chief Executive Officer – Ireland BRIAN O’REILLY Head of Innovations 17
Slide 18: Open Market Reinsurance Underwriting
OPEN MARKET REINSURANCE UNDERWRITING We offer treaty reinsurance across a broad range of classes through our reinsurance entities in Cayman Islands and Ireland Our focus is on underwriting reinsurance business profitably and in a disciplined manner Our major operational priority is to take advantage
Slide 19: Open Market Reinsurance Underwriting
OPEN MARKET REINSURANCE UNDERWRITING ▪ Portfolio is well-diversified by line of business and cedant ▪ Generally, we are a following market – we benefit from the insights of recognized leaders ▪ Client list includes Lloyds and large global insurers ▪ Only 7% of current in-force premium was on the boo
Slide 20: Open Market Reinsurance Underwriting: Funds at Lloyd's
OPEN MARKET REINSURANCE UNDERWRITING FUNDS AT LLOYD’S A significant capital provider at Lloyd's 15 Syndicates for 2022 Year of Account ▪ Lloyd’s track record post-loss-event is favorable ▪ FAL portfolio characteristics: ▪ Relatively low natural cat risk ▪ High level of risk diversification ▪ High le
Slide 21: Open Market Reinsurance Underwriting: Property Cat
OPEN MARKET REINSURANCE UNDERWRITING PROPERTY CAT Reduced our Cat appetite, with a material reduction in Florida exposure 15 Syndicates for 2022 Year of Account Hurricanes Harvey, Irma, and Maria struck in 2017, and cost us $56m. We estimate our current exposure to a repeat of these events at $24m.
Slide 22: Innovations Overview
INNOVATIONS OVERVIEW We partner with and support early-stage Insurtechs Currently, 29 minority investments We are a market leader in early stage Insurtech space We consider opportunities to monetize our market position Capital Expertise Portfolio companies benefit from our: Network Reinsurance Capac
Slide 23: Innovations – Strategic Benefit
INNOVATIONS – STRATEGIC BENEFIT Access differentiated markets •Lower volatility business •New geographies •Specialized expertise Better Counterparty Relationship •Long-term focused •Reduced frictional cost •High transparency Improved Positioning •Expanded opportunity set •Differentiated value propos
Slide 24: Selected Innovations Partners
SELECTED INNOVATIONS PARTNERS Boating Battery Health Vacation Rental Amateur Sports Cargo Delay Invoice Protection Landlord Protection Travel Embedded Audit Protection Homeowners Construction Workers' Comp Auto Health Financial Small Commercial Niche Products Established Products 24 Title
Slide 25: Innovations Underwriting
INNOVATIONS UNDERWRITING Our primary driver in making Insurtech investments is to support our (re)insurance business Approach: Success To Date: ▪ We offer insurance capacity to our Innovations partners through Syndicate 3456 at Lloyd’s ▪ We offer reinsurance capacity to our Innovations partners via
Slide 26: Solasglas
Solasglas DAVID EINHORN Chairman of the Board 26
Slide 27: Investment Approach
INVESTMENT APPROACH 27 ● Greenlight Capital, an affiliate of DME Advisors, was founded in 1996 ● DME Advisors analyzes available financial data, business strategies, and prospects to identify undervalued and overvalued securities ● Greenlight Re has implemented this value-oriented investment strateg
Slide 28: Investment Portfolio
INVESTMENT PORTFOLIO 28 ● Solasglas Investments, LP is the fund that holds all investment assets managed by DME Advisors ● DME Advisors is the general partner and owns approximately 26% of Solasglas ● Investment Portfolio is 50% of Greenlight Re’s Adjusted Surplus ● Largest longs as of Oct 31, 2022:
Slide 29: Historical Investment Performance
HISTORICAL INVESTMENT PERFORMANCE 29 Investment Returns Net of Fees 5.2% 14.2% 24.4% 5.9% (17.6%) 32.1% 11.0% 2.1% 7.1% 19.6% 8.7% (20.2%) 7.2% 1.5% (30.3%) 9.3% 1.4% 7.5% 18.2% -40% -30% -20% -10% 0% 10% 20% 30% 40% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202
Slide 30: Solasglas Risk Management
SOLASGLAS RISK MANAGEMENT 30 ● Tighter investment guidelines and risk management post-2018 ● Have reduced gross and net exposure in 2022 ● Short portfolio changes: ○ Reduced single-name exposure due to meme stock phenomenon ○ Manage exposure through a combination of smaller position sizes and index/
Slide 31: Is Value Investing Dead?
IS VALUE INVESTING DEAD? 31 -$400 -$200 $0 $200 $400 $600 $800 $1,000 F u n d F lo w s ( $ b ill io n s ) U.S. Flow of Funds Passive Active Source: Morningstar data compiled by PWL Capital, https://www.pwlcapital.com/resources/the-passive-vs-active-fund-monitor-2021/
Slide 32: DME Advisors' Current View
DME ADVISORS’ CURRENT VIEW 32 ● We are in a bear market that is likely to continue ● There is significant volatility in financial markets and a wider range of possible outcomes ● The Federal Reserve is in a bind ○ It has a systemic and embedded inflation problem ○ The economy has begun to slow ● Hou
Slide 33: Solasglas Portfolio Positioning
SOLASGLAS PORTFOLIO POSITIONING 33 ● On the long side: ○ The bar is high for new longs ○ Only one large position bought this year ○ Focused on high expected cash-on-cash returns ● On the short side: ○ Unprofitable companies ○ Event specific shorts ○ Specific hedges for large positions ● Manage expos
Slide 34: Solasglas Portfolio Positioning: Macro
SOLASGLAS PORTFOLIO POSITIONING: MACRO 34 ● Macro overlay to protect from exogenous shocks ● 2022 year-to-date attribution of returns ● Credit spreads for tail risk ● Inflation swaps and interest rate derivatives ● Gold has been a detractor this year Gross Attribution Longs -1.8% Shorts 20.4% Macro
Slide 35: Capital Management
CAPITAL MANAGEMENT 35 ● There are several competing uses for Greenlight Re’s capital ○ Underwriting activities ○ Insurtech investments at our Innovations unit ○ Investment in Solasglas fund ○ Share buybacks ● There is tension between these uses of capital: ○ Share buybacks at the current discount to
Slide 36: Capital Management
CAPITAL MANAGEMENT 36 ● Convertible notes ○ We issued $100 million of convertible notes in August 2018 ○ Repurchased $20 million as of October 2022 ○ Intend to refinance all or in part in an effort to preserve financial flexibility ● Solasglas fund ○ Greenlight Re expects to increase the allocation
Slide 37: Financial Update
Financial Update NEIL GREENSPAN Chief Financial Officer 37
Slide 38: Assets at September 30, 2022
ASSETS AT SEPTEMBER 30, 2022 (unaudited) (Total assets: $1.5 billion) Investment in Solasglas 13% Other investments 4% Cash and cash equivalents 2% Restricted cash and cash equivalents 43% Reinsurance balances receivable 31% Deferred acquisition costs 5% Other assets 2% 38
Slide 39: Liabilities at September 30, 2022
LIABILITIES AT SEPTEMBER 30, 2022 (unaudited) (Total liabilities: $1.1 billion) Loss reserves 51% Unearned premium 28% Reinsurance balances payable 10% Convertible senior notes payable 9% Other liabilities 2% 39
Slide 40: Reserve Stability
RESERVE STABILITY Prior-year development: Q1 2011 – Q3 2022 (2022 unaudited) 40
Slide 41: Financial FAQs
Financial FAQs 41 FARAMARZ ROMER Chief Accounting Officer & Treasurer
Slide 42: Question 1: What Is Deposit Interest Expense?
Question 1: what is deposit interest expense? FY 2016 – 2020: < $1m in total FY 2021: $12m YTD 2022 (unaudited): $6m 42 We apply deposit accounting to reinsurance contracts that do not transfer sufficient insurance risk to merit reinsurance accounting Heavily structured transactions: no longer a sig
Slide 43: Question 2: Is Restricted Cash Available?
Question 2: is restricted cash available for... …investing in Solasglas? ….buying back stock or the convertible notes? ….generating investment return? At September 30, 2022 (unaudited): ▪ Restricted cash and cash equivalents: $649 million ▪ Total assets: $1.5 billion 43
Slide 44: Restricted Cash
Restricted Cash ▪ Required to collateralize reinsurance obligations to cedants ▪ Amount dictated by contractual terms ▪ Provided via LOCs and Trusts 44
Slide 45: Restricted Cash
Restricted Cash 45 * December rates estimated
Slide 46: Restricted Cash
Restricted Cash 46 * Unaudited
Slide 47: Conclusion
CONCLUSION We believe that all components of our strategy poised to continue functioning well Underwriting Innovations Solasglas ▪ Market conditions are the best in more than a decade ▪ Reinsurance is cyclical and results lag; rate has decoupled from risk in some areas ▪ We are a market leader in ea
Slide 48: Question & Answer Session
Question & Answer Session NEIL GREENSPAN Chief Financial Officer FARAMARZ ROMER Chief Accounting Officer & Treasurer DAVID EINHORN Chairman of the Board PATRICK O’BRIEN Chief Executive Officer – Ireland SIMON BURTON Chief Executive Officer BRIAN O'REILLY Head of Innovations 48
Slide 49: Thank You
GREENLIGHT RE THANK YOU