Greenlight Reinsurance, Ltd. · NASDAQ:GLRE
Greenlight Reinsurance — Greenlight Capital Re — Investor Day (May 2010)
43 slides from Greenlight Reinsurance's investor day presentation, May 18, 2010
Slide 1: 2010 Investor Meeting: Rethinking Reinsurance
2010 Investor Meeting May 18, 2010 “Rethinking Reinsurance”
Slide 2: Forward Looking Statements
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 st
Slide 3: Today's Agenda
Today’s Agenda § Overview Len Goldberg, Chief Executive Officer § Underwriting Bart Hedges, President and Chief Underwriting Officer § Investments David Einhorn, Chairman of the Board § Financials Tim Courtis, Chief Financial Officer § Summary Len Goldberg, Chief Executive Officer § Q&A § Cocktails
Slide 4: Who We Are
Who We Are § Cayman Islands based specialist Property and Casualty Reinsurer with an A- rating from A.M. Best § Our “dual-engine” reinsurance and investment strategy is fundamentally different from other reinsurance companies § We seek to earn an economic profit on every reinsurance contract and eve
Slide 5: Our Core Principles
Our Core Principles § We capitalize on inefficiencies in the reinsurance market § We employ “symmetric” and complementary reinsurance and investment strategies § We seek out and value long-term relationships with our client base § Our compensation structure focuses on the economics of the business,
Slide 6: Greenlight Re's Dual Engine Approach
Underwriting Concentrated portfolios Best risk-adjusted returns 88% of 2009 premium was frequency business Missed major recent disasters: hurricanes Ike and Gustav, Xynthia, Chilean earthquake Returns from both sides of the balance sheet Combined Ratio = 95.9% ITD + Float Investment Return = 9.7% an
Slide 7: How We Are Different
% Frequency (Quota Share) % Top 5 U.S. Clients To Total 88% 77% Platinum Underwriters 27% 26% Everest Re 71% 14% Partner Re 65% 23% Transatlantic Re 70% 26% How We Are Different Sources: Company 10k, SNL data, 2009 Figures
Slide 8: Focused on Profitability
Focused on Profitability § Keep expenses low to increase flexibility § 2009 expenses were 3.2% of 2009 average capital § 15 total staff after 4+ years of operation § Judiciously utilize our underwriting capital § Premium to capital ratio was 43.7% in 2009 § Good results in difficult markets § Well p
Slide 9: Our Overall Program
Our Overall Program § Concentrated Portfolio § Focus on best ideas § Top 5 clients by premium in 2009 = 73% § Top 5 long investments (April 2010) = 32% § Thoughtfully Manage Risk § Top 5 clients by capital usage in 2009 = 41% § Average net long equity exposure in 2009 = 10% § Mark to market entire i
Slide 10: Our Team: Highly Skilled and Focused Generalists
Len Goldberg CEO Bart Hedges President & CUO Tim Courtis CFO Brendan Barry SVP Sherry Diaz Controller Faramarz Romer Reporting and Compliance Parker Boone VP Claude Wagner VP Jordan Camacchio Analyst Nadia Dilbert Underwriting Assistant Andie Welsch VP Isaac Espinoza Senior Analyst Tom Curnock VP He
Slide 11: How We Are Different
Employees GWP / Employee $ millions 15 $17.3 Platinum Underwriters 146 $6.3 Everest Re 864 $4.8 Partner Re 1406 $2.8 Transatlantic Re 620 $6.8 How We Are Different Select Multiline Reinsurers 2009. Sources: Company 10k, SNL data
Slide 12: Bart Hedges, President and Chief Underwriting Officer
Bart Hedges, President and Chief Underwriting Officer
Slide 13: Underwriting Agenda
Underwriting Agenda § Our underwriting strategy § Why do brokers and clients want to work with us? § Opportunities we like now § Sample deal
Slide 14: Underwriting Strategy
Underwriting Strategy § Seeking profitability under all market conditions § Lead underwriter for majority of transactions § Generalist with a flexible approach § Create long-term business relationships from select opportunities § Concentrated portfolio § Rigorous modeling combined with practical und
Slide 15: Frequency
Frequency Frequency Oriented Portfolio § Frequency Business § Potentially large number of relatively smaller losses from multiple events § Greater predictability and less volatility § Tool for clients to increase their own underwriting capacity § Frequency business is our emphasis § Severity Busines
Slide 16: Lines of Business
Lines of Business 2009 Gross Written Premium
Slide 17: Our Business Model
Our Business Model All three of these elements are important to every contract we write
Slide 18: Greenlight Re is an Attractive Partner
Greenlight Re is an Attractive Partner § Strategic vs. Commoditized buyers § We seek out strategic buyers § We value long-term relationships § Quick decision making § We employ senior, highly skilled staff § Streamlined approval process § Creating more value for our clients § Understanding our clien
Slide 19: Business Development
Business Development Broker Distribution 2009 Gross Written Premium § Hired head of Business Development in June 2009 § 2010 Opportunities § 15 targeted brokers - knowledge intensive process § 20 targeted clients - data intensive process § Keeping track of quality clients in difficult markets - prep
Slide 20: Our Thoughts on the Current Market
Our Thoughts on the Current Market § Overall market pricing is very weak § Too much capital chasing too little risk § Hard to know when the turn will come § But, the reinsurance business is not monolithic and there are businesses we like now: § Florida Homeowners § Employer Stop Loss § Small Account
Slide 21: Opportunities We Like Now
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 § Will shrink if pricing comes down Small Account Workers Compensation, General Liabilit
Slide 22: Underwriting - Sample Deal
Underwriting - Sample Deal § No two deals are alike as each client has unique issues and risks § Today’s example: Florida Homeowners § Market Environment § Florida is characterized by a large number of small participants § Current turmoil - More than 6 companies have been forced to stop writing due
Slide 23: Underwriting - Sample Deal
Underwriting - Sample Deal § How do we find smart operators § Preference for real companies, not virtual companies § Evaluation of claims management § Evaluation of coastal exposure and sinkhole exposure § Management alignment of interest § Triangulate with others we respect in the market § We selec
Slide 24: Underwriting - Sample Deal
Underwriting - Sample Deal § Why do clients want ex-wind quota share? § Traditional markets want the windstorm cover -- Margins are better, but hurricane risk can create big losses § In Florida, clients can write $3 of premium for every $1 of net premium. The quota share reduces net premium. § Clien
Slide 25: Underwriting - Sample Deal
Underwriting - Sample Deal § How to Proceed? § We want: § A reasonable profit margin § Investable cash § Limit to our downside § Client wants: § Upside if the business runs well § Capital support for their business plan § Approval from the Florida Office of Insurance § Starting point: § Traditional
Slide 26: David Einhorn, Chairman of the Board
David Einhorn, Chairman of the Board
Slide 27: Investment Approach
Investment Approach § Our business model combines underwriting economics and cash flows with a non-traditional investment approach § Achieve higher rates of return over the long term than traditional, fixed-income strategies § Maximize total risk-adjusted return with a focus on capital preservation
Slide 28: Investment Approach
Investment Approach § Deep value, long/short equity and distressed debt § Historically approximately 80-100% long and 20-70% short § Higher returns with less volatility than the major stock indices over the last 14 years* § Constraints on leverage, liquidity and concentration risks § Fees are 1.5% o
Slide 29: Current Investment Environment
Current Investment Environment § Worst of the last crisis has passed § Economy has improved § Wide disparity of values § Wide range of possible equity outcomes § Trying to add alpha on both sides of the portfolio with modest long bias § Overlaying macro hedges due to questionable fiscal and monetary
Slide 30: Our Compensation Structure
Our Compensation Structure § A key differentiator is aligning management with shareholders § Compensates for actual increase in economic value - not for premium growth, GAAP accounting, irrational exuberance or “fully deploying capital” § Cash Bonus Program: § Track economics of every contract indiv
Slide 31: Tim Courtis, Chief Financial Officer
Tim Courtis, Chief Financial Officer
Slide 32: Float
Float § We only write transactions that we believe create positive economics on their own § 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 portfolio
Slide 33: Net Invested Assets
Net Invested Assets 1,000 Jul - 04 Dec - 04 Jun - 05 Dec - 05 Jul - 06 Dec - 06 Jun - 07 Dec - 07 Jul - 08 Dec - 08 Jun - 09 Dec - 09 Mar - 10
Slide 34: Amount of Float
Float ($ millions) Float as a % of Capital December 2005 0 0 December 2006 18 6 December 2007 61 10 December 2008 129 20 December 2009 178 26 March 2010 172 25 Amount of Float
Slide 35: 2009 Return on Capital
2009 increase in fully-diluted adjusted book value per share: § Investment Return on Capital = 32% § GAAP Underwriting Profit = 1% § Investment Return on Float = 8% Total Return = 41% 2009 Return on Capital
Slide 36: Our Measure of Performance
11.6% CAGR in fully diluted adjusted book value per share since inception Our Measure of Performance Growth in Fully Diluted Adjusted Book Value Per Share Over the Long-Term
Slide 37: The Numbers: 2009
Superior Potential Return on Equity From our Dual Engine Model 80% 90% 100% 110% 120% 5% 13 10 6 3 -1 10% 20 16 13 9 6 15% 26 22 19 15 12 20% 32 29 25 22 18 25% 38 35 31 28 24 Earned Premium = 35% of capital Invested Assets = 125% of capital The Numbers: 2009 Underwriting Return: Combined Ratio
Slide 38: The Numbers: Potential Future Results
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 Underwriting Return: Combined Ratio The Numbers: Potential Future Results Earned Premium = 50% of capital Invested Assets =
Slide 39: Len Goldberg, Chief Executive Officer
Len Goldberg, Chief Executive Officer
Slide 40: Greenlight Reinsurance: Summary
Greenlight Reinsurance: 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 § Focus for
Slide 41: Our Commitment to Communities and Causes
Our Commitment to Communities and Causes
Slide 42: The Blue Iguana Recovery Project
The Blue Iguana Recovery Project § We funded the first edition of “The Little Blue Book” § The Grand Cayman Blue Iguana only exists on Grand Cayman § An amazing story of one man’s quest to save a functionally extinct species
Slide 43: Thank You for Your Continued Support of Greenlight Re
Thank You for Your Continued Support of Greenlight Re