Attached files
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| 8-K - GREENLIGHT CAPITAL RE LTD - GREENLIGHT CAPITAL RE, LTD. | form8k.htm |
2010 Investor Meeting
May 18, 2010
May 18, 2010
“Rethinking Reinsurance”
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. These statements involve
risks and uncertainties that could cause actual results to differ materially
from those contained in forward-looking statements made on behalf of the
Company. These risks and uncertainties include the impact of general
economic conditions and conditions affecting the insurance and reinsurance
industry, the adequacy of our reserves, our ability to assess underwriting
risk, trends in rates for property and casualty insurance and reinsurance,
competition, investment market fluctuations, trends in insured and paid
losses, catastrophes, regulatory and legal uncertainties and other factors
described in our most recent annual report on Form 10-K and Form 10-Q
filed subsequent thereto and other documents on file with the Securities
Exchange Commission. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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 statements involve
risks and uncertainties that could cause actual results to differ materially
from those contained in forward-looking statements made on behalf of the
Company. These risks and uncertainties include the impact of general
economic conditions and conditions affecting the insurance and reinsurance
industry, the adequacy of our reserves, our ability to assess underwriting
risk, trends in rates for property and casualty insurance and reinsurance,
competition, investment market fluctuations, trends in insured and paid
losses, catastrophes, regulatory and legal uncertainties and other factors
described in our most recent annual report on Form 10-K and Form 10-Q
filed subsequent thereto and other documents on file with the Securities
Exchange Commission. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Page 3
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
Page 4
Who We Are
§ Cayman Islands based specialist Property and Casualty
Reinsurer with an A- rating from A.M. Best
Reinsurer with an A- rating from A.M. Best
§ Our “dual-engine” reinsurance and investment strategy is
fundamentally different from other reinsurance companies
fundamentally different from other reinsurance companies
§ We seek to earn an economic profit on every reinsurance
contract and every investment in all market conditions
contract and every investment in all market conditions
§ We selectively offer customized reinsurance solutions in
markets where capacity and alternatives are limited
markets where capacity and alternatives are limited
§ We measure our progress by growth in book value per share
over the long-term
over the long-term
Page 5
Our Core Principles
§ We capitalize on inefficiencies in the reinsurance
market
market
§ We employ “symmetric” and complementary
reinsurance and investment strategies
reinsurance and investment strategies
§ We seek out and value long-term relationships
with our client base
with our client base
§ Our compensation structure focuses on the
economics of the business, aligning our
underwriting team with our shareholders
economics of the business, aligning our
underwriting team with our shareholders
Page 6
Greenlight Re’s Dual Engine Approach
Underwriting
Investment
Concentrated portfolios
Best risk-adjusted
returns
Deep value
Long / Short
Superior 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% annualized Compared to 7.8% Bond Index 3.2% S&P 500 4.1% Nasdaq
|
Page 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%
|
Sources: Company 10k, SNL data, 2009 Figures
Page 8
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 positioned for the next hardening market.
We continue to wait patiently!
We continue to wait patiently!
Page 9
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 investment portfolio
§ Reserve point estimates of every contract quarterly
§ Comfortable with more volatility in our results due to
increased transparency
increased transparency
Page 10
Our Team: Highly Skilled and Focused Generalists
Len Goldberg
CEO
Bart Hedges
President & CUO
Tim Courtis
CFO
Brendan Barry
SVP
Sherry Diaz
Controller
Kerry Berchem
General Counsel
(Partner, Akin Gump)
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
Underwriting
Finance
Administration
Hellen Ebanks
Office Administrator
Mandy Vodak-Marotta
Operations Manager
Page 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
|
Select Multiline Reinsurers 2009. Sources: Company 10k, SNL data
Bart Hedges, President and Chief Underwriting Officer
Page 13
Underwriting Agenda
§ Our underwriting strategy
§ Why do brokers and clients want to work with us?
§ Opportunities we like now
§ Sample deal
Page 14
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 underwriting
experience
experience
§ Focus on transaction economics rather than on earnings or
premium growth
premium growth
§ Incorporate risk-aversion into pricing
§ Deep knowledge of each transaction: Cradle-to-grave
administration
administration
Page 15
Frequency Oriented Portfolio
§ Frequency Business
§ Potentially large number of relatively
smaller losses from multiple events
smaller losses from multiple events
§ Greater predictability and less volatility
§ Tool for clients to increase their own
underwriting capacity
underwriting capacity
§ Frequency business is our emphasis
§ Severity Business
§ Potential for significant losses from one or
multiple events
multiple events
§ Volatile results from period to period
§ Generates higher profit margins and return
on equity over the long-term
on equity over the long-term
§ Tool for clients to remove volatility from
their balance sheets
their balance sheets
Severity
Frequency
Greenlight Re’s
2009 Reinsurance Business
Page 16
Lines of Business
2009 Gross Written Premium
2009 Gross Written Premium
Page 17
Our Business Model
All three of these
elements are
important to
every contract
we write
elements are
important to
every contract
we write
Page 18
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 clients needs
§ “Making the pie bigger”
§ Providing more value by trading off issues of less importance to the client
§ Creating customized structures
Page 19
Business Development
Broker Distribution 2009
Gross Written Premium
§ Hired head of Business Development
in June 2009
in June 2009
§ 2010 Opportunities
§ 15 targeted brokers - knowledge intensive
process
process
§ 20 targeted clients - data intensive
process
process
§ Keeping track of quality clients in
difficult markets - preparing for
better times
difficult markets - preparing for
better times
§ Targeted markets
§ Quality over quantity
§ Feedback loop from Underwriting to
Business Development
Business Development
§ Result: The market knows us better
Page 20
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:
and there are businesses we like now:
§ Florida Homeowners
§ Employer Stop Loss
§ Small Account Workers Compensation, General Liability
and Commercial Auto
and Commercial Auto
§ Property Catastrophe Retrocessional (Cat Retro)
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
syndicates: Need for capital management
or Realistic Disaster Scenario analysis
§ Will shrink if pricing comes down
Small Account Workers
Compensation, General Liability
and Commercial Auto
Compensation, General Liability
and Commercial Auto
§ New opportunities here
§ Less price sensitive than large accounts
§ Strategic reinsurance purchasers
§ Long-term based business
Page 21
Opportunities We Like Now
Employer Stop Loss
§ Countercyclical to property casualty cycle
§ Total market - $6 billion in premium
§ Pricing has been in excess of loss trend
§ Margins have been better than expected
§ Healthcare reform could impact this
business
business
Florida Homeowners - Ex Wind
§ Turmoil in the market: We like that
§ Clients are small specialist companies
§ Capital is needed - strategic reinsurance
purchase
purchase
§ Pricing is increasing
§ There is political risk if regulations change
Page 22
Underwriting - Sample Deal
§ No two deals are alike as each client has unique issues
and risks
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 to capital concerns . . . and there hasn’t been a
hurricane in Florida in over 4 years!
stop writing due to capital concerns . . . and there hasn’t been a
hurricane in Florida in over 4 years!
§ So, price of Florida homeowners coverage is increasing
§ Challenge: Find smart operators in an inefficient market place
who will have a big opportunity at an improving price
who will have a big opportunity at an improving price
§ Our client-based approach is made for this type of market
Page 23
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 select the companies we like
§ We find the right broker contact
§ We offer a frequency oriented product that the market
doesn’t generally offer - “ex-wind quota share”
doesn’t generally offer - “ex-wind quota share”
Page 24
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
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.
premium. The quota share reduces net premium.
§ Clients write more premium without adding hard capital
§ They view our quota share as strategic capital replacement
Page 25
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 capped quota share with a combined ratio of 125%
§ Profit sharing to the client of 60% after our margin of 7%
§ Loss corridor of 3 points
David Einhorn, Chairman of the Board
Page 27
Investment Approach
§ Our business model combines underwriting
economics and cash flows with a non-traditional
investment approach
economics and cash flows with a non-traditional
investment approach
§ Achieve higher rates of return over the long term than
traditional, fixed-income strategies
traditional, fixed-income strategies
§ Maximize total risk-adjusted return with a focus on
capital preservation
capital preservation
§ Value-oriented philosophy drives the investment
portfolio
portfolio
§ Take long positions in perceived undervalued securities and
short positions in securities we believe are overvalued
short positions in securities we believe are overvalued
§ Investment portfolio managed by DME Advisors, an affiliate
of Greenlight Capital
of Greenlight Capital
Page 28
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*
over the last 14 years*
§ Constraints on leverage, liquidity and concentration risks
§ Fees are 1.5% of assets under management and 20% of
investment profits with a modified high water mark
investment profits with a modified high water mark
§ As of 30 April 2010, the largest disclosed long positions in our
investment portfolio are Arkema, CIT Group, gold, Lanxess
and Vodafone Group
investment portfolio are Arkema, CIT Group, gold, Lanxess
and Vodafone Group
* 14 years of the Greenlight Capital strategy (GLRE for 6 years)
Page 29
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
modest long bias
§ Overlaying macro hedges due to questionable fiscal and
monetary policies
monetary policies
Page 30
Our Compensation Structure
§ A key differentiator is aligning management with
shareholders
shareholders
§ Compensates for actual increase in economic value -
not for premium growth, GAAP accounting, irrational
exuberance or “fully deploying capital”
not for premium growth, GAAP accounting, irrational
exuberance or “fully deploying capital”
§ Cash Bonus Program:
§ Track economics of every contract individually
§ Assume risk free return on float
§ No bonus when underwriting ROE less than risk free return
§ Target bonus when ROE = target ROE (risk free plus a premium)
§ Upside when ROE is in excess of target
§ First bonus payment after three years with continuous roll-forward
Tim Courtis, Chief Financial Officer
Page 32
Float
§ We only write transactions that we believe
create positive economics on their own
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
claims are paid
§ The claim payment duration for our current portfolio
averages between 2 - 4 years
averages between 2 - 4 years
§ We invest our entire capital base plus our float
(less a reserve for ongoing expenses) into a
portfolio managed by DME Advisors
(less a reserve for ongoing expenses) into a
portfolio managed by DME Advisors
Net Invested Assets
Page 33
1,000
900
800
700
600
500
400
300
200
100
0
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
Page 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
|
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%
Page 35
2009 Return on Capital
Our Measure of Performance
Growth in Fully Diluted Adjusted Book
Value Per Share Over the Long-Term
11.6% CAGR in
fully diluted adjusted
book value per share
since inception
book value per share
since inception
Page 36
Page 37
Earned Premium = 35% of capital Invested Assets = 125% of capital
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
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The Numbers: 2009
Underwriting Return: Combined Ratio
Page 38
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 = 175% of capital
Len Goldberg, Chief Executive Officer
Page 40
Greenlight Reinsurance: Summary
§ We set out in 2004 to create a reinsurance company
with a superior business model
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
difficult market - we are anxious to see what we
can do in a favorable market
§ Focus for 2010 and beyond is to keep our focus
§ More of the same
§ Deploy more underwriting capital in favorable markets
§ One contract at a time, one investment at a time
Page 41
Our Commitment to Communities and Causes
Page 42
The Blue Iguana Recovery Project
§ We funded the first
edition of “The Little
Blue Book”
edition of “The Little
Blue Book”
§ The Grand Cayman
Blue Iguana only exists
on Grand Cayman
Blue Iguana only exists
on Grand Cayman
§ An amazing story of
one man’s quest to
save a functionally
extinct species
one man’s quest to
save a functionally
extinct species
Page 43
Thank You for Your Continued Support of Greenlight Re