Greenlight Capital Re Ltd. (NASDAQ:GLRE) Q1 2024 Results Conference Call May 9, 2024 9:00 AM ET
Company Participants
David Sigmon – General Counsel, Corporate Secretary & Chief Compliance Officer
Greg Richardson – Executive Officer
David Einhorn – Chairman of the Board
Faramarz Romer – Chief Financial Officer
Operator
Thank you for joining the Greenlight Capital Re Ltd First Quarter 2024 Earnings Conference. [Operator Instructions]. And as a reminder, this conference is being recorded.
It is now my pleasure to turn the call over to David Sigmon, Greenlight Re’s General Counsel. You may begin.
David Sigmon
Thank you, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company’s website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson, Chairman of the Board; David Einhorn; and Chief Financial Officer, Faramarz Romer.
On behalf of the company, I’d like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company’s current expectations, estimates and predictions about future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time.
Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company’s filings with the SEC, including the company’s recently filed Form 10-Q for the quarter ended March 31, 2024. The company undertakes no obligation to publicly update or revise any forward-looking statements.
With that, it is now my pleasure to turn the call over to Greg.
Greg Richardson
Thanks, David. Good morning, everyone, and thank you for joining us today. Greenlight Re had a strong first quarter with gross written premium up 16.5% compared to the first quarter of 2023. We delivered net income of $27 million, which equates to 3.9% growth in fully diluted book value per share during the quarter or 16.5% on an annualized basis. We reported a combined ratio of 98% for the quarter, our sixth consecutive quarter of underwriting profitability.
Our underwriting result includes a $10.1 million loss net of recoveries and reinstatement premiums from the tragic collapse of the Francis Scott Key Bridge in Baltimore. This equates to 6.3% combined ratio points for the quarter. Our exposure to this loss is predominantly driven by our specialty book, where we reinsure a number of cedents to provide cover to the international group. Based on an industry loss estimate of approximately $3 billion, we have assumed a full limit loss to this cover. Our net loss position benefits from excess of loss outwards reinsurance protection with additional protection still available if the industry loss estimate deteriorates. Accordingly, we expect limited variability in our loss reserve from this event.
Our underwriting portfolio favors shorter-tail specialty classes such as marine, so a loss of this magnitude falls within our range of expectations despite the Baltimore bridge loss perhaps being the largest marine loss in history. We were able to absorb it during the quarter while still delivering a small underwriting profit. Moreover, we expect the marine market rates to harden as a result of this significant event.
The 16.5% growth in first quarter gross written premium was primarily driven by growth in our casualty and specialty books as we took advantage of the strong rate environment. We were pleased to grow these classes of business in an environment where signings were competitive. During the first quarter, we non-renewed a homeowner’s quota share contract due to its exposure to U.S. convective storm risk. Excluding this contract, we also grew our property book during the quarter since we believe property cat pricing continues to be attractive.
Moving to April 1, 2024, renewal season. We saw similar trends to January 1 renewals with some premium growth year-on-year. The rating environment is broadly flat to down a few points, but in general, market discipline remains strong. We write a small Japanese property cat book at April 1, 2024. Consistent with overall market conditions, rates were very modestly down, but there was significant pressure on signings. The nearly 50% strengthening of the U.S. dollar versus the yen since the beginning of 2021 no doubt affects the overall supply-demand balance for Japanese catastrophe reinsurance.
A key personal focus has been to meet with our innovations portfolio companies. Our Head of Innovations, Brian O’Reilly, and I met with the leaders of a number of our portfolio companies during the quarter, having a chance to understand their unique value propositions and their potential for profitable growth.
I’m impressed with the quality of these opportunities and the excellent work our team performs in identifying, selecting, guiding and nurturing these innovative new businesses. Finally, in our March call, I provided some initial impressions of Greenlight Re and noted that Greenlight Re is in good shape and has exciting prospects. I would like to reiterate that impression.
Now I’ll turn the call over to David Einhorn.
David Einhorn
Great. Thanks, Greg, and good morning, everyone. The Solasglas fund returned 5.2% in the first quarter. Our loan portfolio added 4.4%. The short portfolio was flat and macro added 1.8%. During the quarter, the S&P 500 Index advanced 10.6%. The largest positive contributors were long investments in Green Brick Partners and Tenet Healthcare, an interest rate-related position and gold. The largest detractors were long positions in CONSOL Energy and PENN Entertainment and a single name short position.
Green Brick Partners advanced 16% after the company announced strong fourth quarter results. The company continues to perform well in its core markets and appears well positioned for another strong year in 2024. Tenet Healthcare rose 39%, benefiting from ongoing strength in health care utilization and the sale of additional hospitals at premium multiples.
Early in the quarter, we established a new macro position by selling December 24 SOFR futures. At the time, the market expected the Federal Reserve to cut short-term interest rates between 6 and 7x this year. The position benefited as the market came around our view by the end of the quarter with only about 2 to 3.25 basis point cut priced again for 2024. We trimmed the position to take some profits.
Gold was also a significant contributor as the price advanced more than 8% during the quarter. CONSOL Energy shares fell 17% due to moderately lower coal pricing early in the quarter and the collapse of the Francis Scott Key Bridge in Baltimore Harbor later in the quarter. The bridge collapse will prevent CONSOL from exporting coal from its local terminal in the near term, but we do not believe this to have a long-term relevance for this investment. I will note this is the first time in many years where we saw risk aggregation on both sides of the balance sheet, which is a rare occurrence. On the other hand, CONSOL has insurance for the interruption and should be able to recoup much of its loss.
We established a long position in PENN Entertainment, an operator of land-based casinos and ESPN Bet, its new online gaming business. The shares declined 30% during the first quarter as the market appears to be concerned about the amount of marketing spend the company undertook to acquire customers while launching ESPN Bet. We believe the launch was successful and the company acquired 1 million customers in less than 2 months and guided to profitability a year earlier than previous guidance.
Last quarter, we referred to a new large position we were building in an undisclosed materials company. We unveiled this position as Solvay, a Belgian chemicals company at an investment conference in early April. After undergoing a corporate restructuring, which spun out of Specialty Chemicals division as SYENSQO, the new Solvay’s key products are soda ash and Bicar as well as peroxide, silicas, flooring, earth formulations and solvents. We expect Solvay to earn near EUR 7 per share in 2028, and we acquired our position for less than 4x those earnings all while the company plans to pay us an annual dividend of nearly 10% per year on our investment.
In addition to PENN and Solvay, we had a productive quarter and found a number of other promising long investments. We established a medium — a new medium-sized long position in HP Inc. and a macro position to benefit from higher copper prices as well as the small long positions in Roivant Sciences and the Class A shares of Liberty Gold Global. The Solasglas portfolio returned 1% in April and has returned 6.2% year-to-date as of April 30.
Net exposure in the investment portfolio was approximately 40% at the end of April. Greg has now been with us for just over 4 months and the management transition has been very smooth. He’s a prolific manager and leader, and we just had a fantastic board meeting in Cayman while observing energized team with a shared strategy and vision.
Now I’d like to turn the call over to Faramarz to discuss the financial results.
Faramarz Romer
Thank you, David, and good morning, everyone. During the first quarter of 2024, we generated earnings of $27.0 million or $0.78 per diluted share compared to $5.9 million or $0.17 per diluted share in Q1 2023. The underwriting book generated a $3.4 million profit after underwriting-related G&A expenses, which equates to a combined ratio of 98.0%. Current period catastrophe losses accounted for $12.4 million or 7.7% combined ratio points, mainly related to the Baltimore bridge incident as well as losses from satellite failures.
As Greg stated, we have booked the bridge loss at the full limit of our share of the underlying international group cover. Adverse loss development in the quarter primarily related to 2023 events, including an oil platform fire, Hurricane Otis and U.S. convective storms as well as reserve strengthening on a general liability program relating to the 2015 to 2017 years. The adverse development was partially offset by reserve releases on the FAL 2021 ERF account and matured specialty excessive loss contracts.
While none of these individually were significant, we generally tend to lean into adverse information quicker and wait for more clarity on favorable developments. The net adverse development of $5.4 million accounted for 3.3 combined ratio points during the first quarter of 2024. The rest of the current in-force book performed in line with our expectations.
During the first quarter, our net premiums written increased by $18.8 million or 10.7% to $194.1 million compared to the same quarter in 2023. The growth was split between our casualty and specialty books, while the property book offset some of the increases. The net premiums earned were $161.5 million, an increase of $18.9 million or 13.2% compared to the same quarter in 2023.
Turning to our casualty book. Net premiums written increased by $12.3 million or 14.1% during the first quarter, primarily related to multiline contracts, which is mostly composed of the Lloyd’s syndicate business. The composite ratio for the casualty business improved to 91% in the first quarter compared to 103.8% during the comparable period in 2023.
Moving to our specialty book. Net premiums written increased by $11.6 million or 18.7% during the first quarter, mainly within the marine and other specialty classes. The composite ratio for the specialty business increased to 110.7% in the first quarter compared to 75.8% during the comparable period in 2023. While the Baltimore bridge incident accounted for much of the increase, adverse development related to the 2023 oil platform explosion also contributed to the higher composite ratio this quarter.
Within our property book, net premiums written decreased by $5 million or 19% during the first quarter, driven primarily by a nonrenewed homeowners contract that Greg mentioned earlier. Excluding this contract, our net premiums written for the property book increased by $3.8 million or 22%. The composite ratio for the property book business was 71% for the first quarter compared to 113% during the comparable period in 2023. The improvement was partially driven by fewer U.S. convective storm losses that had impacted the homeowners contract in the first quarter of 2023.
Total general and administrative expenses increased by $0.8 million during the first quarter to $10.7 million compared to $9.9 million in the first quarter of 2023. We have been successful in recruiting talented individuals across the organization as we grow in all 3 jurisdictions in which we operate. We reported total net investment income of $26.4 million during the first quarter of 2024 compared to $5.2 million in 2023. Our investment in the Solasglas fund reported a gain of $18.2 million or 5.2%, while our innovations investments reported a small loss in the first quarter. We earned $8.6 million of interest income on our restricted cash and cash equivalents and on our funds deposited at Lloyd’s. At the end of the first quarter, our fully diluted book value per share was $17.39, an increase of 3.9% from December 31, 2023.
I will now hand the call back to the operator to open it up for questions.
Question-and-Answer Session
Operator
