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 This Investor Pre senta tion (this “Presenta tion”) is intended sole ly f or the inf orma tional 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
Slide 3: Investment Portfolio Disclosure
INVESTMENT PORTFOLIO DISCLOSURE 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 expens
Slide 4: Management Team
MANAGEMENT TEAM Simon Burton Pat O’Brien Neil Greenspan Chief Executive Officer Chief Executive Officer - Ireland Chief Financial Officer Faramarz Romer Brian O’Reilly Laura Accurso Chief Accounting Officer & Treasurer Head of Innovations General Counsel Richard Strommer Tom Curnock Finbar Griffin C
Slide 5: Agenda
AGENDA 01 02 03 04 OVERVIEW OBJECTIVES STRATEGY OVERVIEW PAST PERFORMANCE FUTURE OPPORTUNITY 05 06 07 08 UNDERWRITING AND SOLASGLAS FINANCIAL UPDATE QUESTIONS AND INNOVATIONS ANSWERS 5
Slide 6: Greenlight Capital Re, Ltd.
GREENLIGHT CAPITAL RE, LTD. Entities & Licensing $565 million Gross Written Premiums Year ended December 31st 2021 Reinsurance Insurance $1.5 billion Total Assets At September 30, 2022 $467 million Consolidated GAAP Capital At September 30, 2022 Greenlight Greenlight Syndicate 3456 Reinsurance Reins
Slide 7: Our Objective
OUR OBJECTIVE Maximize growth in Book Value Per Share within risk and operating constraints 7
Slide 8: Three Strategic Pillars
THREE STRATEGIC PILLARS Open Market Underwriting Innovations Solasglas Investments Combination of lead and Leverage investment to Designed to achieve higher follow business determined provide optionality to rates of return over the long by expertise and market participate in (re)insurance term than
Slide 9: Underwriting Performance vs. Peers – Combined Ratios
UNDERWRITING PERFORMANCE VS. PEERS – COMBINED RATIOS Source: public disclosures. Reinsurance segment results used when reported. 9
Slide 10: Innovations Investments
INNOVATIONS INVESTMENTS Recorded significant and consistent unrealized investment gains over the last two years $21.5M $60.6M1 49.5% Deployed Carry value IRR (excluding internal expenses) 1See Note 4 of our condensed consolidated financial statements in our Form 10 -Q for the nine months ended Septe
Slide 11: Solasglas Performance (net of fees)
SOLASGLAS PERFORMANCE (net of fees) 2022 through October: 18.2% 2021 full year: 7.5% 10 Return (%) 5 0 -5 -10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2021 2022 11
Slide 12: Preservation of Capital
PRESERVATION OF CAPITAL Change in GAAP Shareholders' Equity – YTD 2022 -1.9% Greenlight Re -12.9% Arch Capital -15.2% SCOR -16.2% Markel Corp -16.4% SiriusPoint -19.7% Axis Capital -23.5% Partner Re -24.6% Everest Re -23.7% Argo Group -26.3% Renaissance Re Holdings -29.9% Hannover Re -30.8% Munich R
Slide 13: Price-to-Book
PRICE-TO-BOOK Share prices at November 11 th , 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 2023 pricing conditions are likely to be were the best we have seen in over a better than 2022, perhaps significantly decade Lloyd’s Risk Adjusted Rate Change 10.8% 10.7% 7.7% 5.4% 3.2% -1.6% 2017 2018 2019 2020 2021 2022 H1
Slide 15: Investment Outlook
INVESTMENT OUTLOOK Innovations Solasglas Investments Prospective opportunities: Disciplined value-oriented strategy has been a • We believe early stage valuations are more attractive significant contributor during the market turmoil of than in 2021 the last year • Profitable MGAs are currently highl
Slide 16: Environmental, Social, & Governance
ENVIRONMENTAL, SOCIAL, & GOVERNANCE Environmental Social Governance Across our We support diversity, In 2022, we revised underwriting book we equality and inclusion executive intend to support a compensation plans We run our business responsible “net zero” We publish statistics with increased focus
Slide 17: Underwriting and Innovations
Underwriting and PATRICK O’BRIEN Chief Executive Officer – Ireland Innovations BRIAN O’REILLY Head of Innovations 17
Slide 18: Open Market Reinsurance Underwriting
OPEN MARKET REINSURANCE UNDERWRITING Open Market Reinsurance Aviation and Space We offer treaty reinsurance across a broad range Marine and Energy of classes through our reinsurance entities in Cayman Islands and Ireland Terror and Political Risk Mortgage Property Our focus is on underwriting reinsu
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 ▪ Lloyd’s track record post-loss-event is favorable ▪ Lloyd's has demonstrated improvements in efficiency and profitability: ▪ Non-cat loss ratio and expense ratio have reduced 15 significantly Syndicates for 2022 ▪ 19 quarters of rate increases
Slide 21: Open Market Reinsurance Underwriting: Property Cat
OPEN MARKET REINSURANCE UNDERWRITING PROPERTY CAT 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. 15 Syndicates for 2022 Year of Account Reduced our Cat appetite, with a material reduction in Florida exposure
Slide 22: Innovations Overview
INNOVATIONS OVERVIEW We partner with and support early-stage Insurtechs Expertise Capital Network Currently, 29 minority investments Portfolio companies benefit from our: We are a market leader in early stage Insurtech space Reinsurance Risk Retention Capacity Insurance We consider opportunities to
Slide 23: Innovations – Strategic Benefit
INNOVATIONS – STRATEGIC BENEFIT Access • Lower volatility business differentiated • New geographies markets • Specialized expertise Better • Long-term focused Counterparty • Reduced frictional cost Relationship • High transparency Strategic Benefits • Expanded opportunity set • Differentiated value
Slide 24: Selected Innovations Partners
SELECTED INNOVATIONS PARTNERS Niche Products Established Products Battery Health Cargo Delay Audit Protection Small Commercial Workers' Comp Landlord Protection Title Auto Homeowners Vacation Rental Invoice Protection Travel Health Construction Amateur Sports Embedded Boating Financial 24
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 ▪ We currently provide underwriting capacity to Innovations partners through Syndicate 3456 15 of our Innovations partn
Slide 26: Solasglas
Solasglas DAVID EINHORN Chairman of the Board 26
Slide 27: Investment Approach
INVESTMENT APPROACH ● 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 strategy s
Slide 28: Investment Portfolio
INVESTMENT PORTFOLIO ● 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: Br
Slide 29: Historical Investment Performance
Annualized Returns HISTORICAL INVESTMENT PERFORMANCE 1-year 26.2% Investment Returns Net of Fees 3-year 9.1% 40% 5-year -0.5% 32.1% Since inception 4.7% 30% 24.4% 19.6% 18.2% 20% 14.2% 11.0% 8.7% 9.3% 10% 5.9% 7.1% 7.2% 7.5% 5.2% 2.1% 1.5% 1.4% 0% -10% -20% (17.6%) (20.2%) -30% (30.3%) -40% (1) 2004
Slide 30: Solasglas Risk Management
SOLASGLAS RISK MANAGEMENT ● 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/bas
Slide 31: Is Value Investing Dead?
IS VALUE INVESTING DEAD? U.S. Flow of Funds $1,000 $800 Fund Flows ($ billions) $600 $400 $200 $0 -$200 -$400 Passive Active Source: Morningstar data compiled by PWL Capital, https://www.pwlcapital.com/resources/the-passive-vs-active-fund-monitor-2021/ 31
Slide 32: DME Advisors' Current View
DME ADVISORS’ CURRENT VIEW ● 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 ● Housin
Slide 33: Solasglas Portfolio Positioning
SOLASGLAS PORTFOLIO POSITIONING ● 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 exposure
Slide 34: Solasglas Portfolio Positioning: Macro
SOLASGLAS PORTFOLIO POSITIONING: MACRO ● Macro overlay to protect from exogenous shocks ● 2022 year-to-date attribution of returns Gross Attribution Longs -1.8% Shorts 20.4% Macro 3.1% ● Credit spreads for tail risk ● Inflation swaps and interest rate derivatives ● Gold has been a detractor this yea
Slide 35: Capital Management
CAPITAL MANAGEMENT ● 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 bo
Slide 36: Capital Management
CAPITAL MANAGEMENT ● 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 fro
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) Deferred Other assets acquisition costs 2% Investment in Solasglas 5% 13% Other investments 4% Reinsurance Cash and cash balances receivable equivalents 31% 2% Restricted cash and cash equivalents 43% 38
Slide 39: Liabilities at September 30, 2022
LIABILITIES AT SEPTEMBER 30, 2022 (unaudited) (Total liabilities: $1.1 billion) Convertible senior notes Other liabilities payable 2% 9% Reinsurance balances payable 10% Loss reserves 51% Unearned premium 28% 39
Slide 40: Reserve Stability
RESERVE STABILITY Prior-year development: Q1 2011 – Q3 2022 (2022 unaudited) 40
Slide 41: Financial FAQs
Financial FAQs FARAMARZ ROMER Chief Accounting Officer & Treasurer 41
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 We apply deposit accounting to reinsurance contracts that do not transfer sufficient insurance risk to merit reinsurance accounting Heavily structured transactions: no longer a signif
Slide 43: Question 2: Is restricted cash available for...
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 * December rates estimated 45
Slide 46: Restricted Cash
Restricted Cash * Unaudited 46
Slide 47: Conclusion
CONCLUSION We believe that all components of our strategy poised to continue functioning well Underwriting ▪ Market conditions are the best in more than a decade ▪ Reinsurance is cyclical and results lag; rate has decoupled from risk in some areas Innovations ▪ We are a market leader in early-stage
Slide 48: Question & Answer Session
DAVID EINHORN Chairman of the Board SIMON BURTON Chief Executive Officer PATRICK O’BRIEN Question & Chief Executive Officer – Ireland NEIL GREENSPAN Chief Financial Officer Answer FARAMARZ ROMER Chief Accounting Officer & Treasurer Session BRIAN O'REILLY Head of Innovations 48
Slide 49: Thank You
GREENLIGHT RE THANK YOU