Greenlight Capital Re - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was mixed: underwriting improved materially (combined ratio 95.0%, +4.9 pts YoY) but investment losses (-$7.8M) held back bottom line to $0.3M net income and $0.01 diluted EPS; fully diluted BVPS rose 0.5% to $18.97.
• Open Market segment delivered a 92.0% combined ratio and $11.2M underwriting income; Innovations posted a 107.0% combined ratio on adverse development in two programs, which management said is being addressed.
• Management reiterated the strategic pivot away from open‑market casualty into better‑controlled Innovations channels; renewal pricing is “flat to mild single‑digit decreases” and exposures are positioned prudently into cat season.
• No formal guidance was issued; capital return continued with $5.0M in buybacks at $13.99 average price, and BVPS advanced despite market‑driven investment losses, a potential support for the stock on underwriting consistency and capital discipline.

What Went Well and What Went Wrong

• What Went Well

  • Underwriting: Combined ratio improved to 95.0% (from 99.9% YoY), driving $8.1M underwriting income; Open Market segment combined ratio improved to 92.0% with lower acquisition costs and growth in FAL business.
  • Capital management: Repurchased $5.0M of shares at $13.99 and still grew fully diluted BVPS to $18.97 (+0.5% QoQ; +7.5% since YE’24).
  • Strategic execution: Continued non‑renewal of open‑market casualty and reallocation to segments with better data visibility; CEO: “We believe our book is well positioned for a strong second half of the year.”.

• What Went Wrong

  • Investments: Solasglas returned -4% with shorts rallying into a strongly rising market; total investment loss was $7.8M, compressing reported EPS to $0.01.
  • Innovations segment: Combined ratio deteriorated to 107.0% on $2.5M adverse development in two programs; management is implementing corrective actions.
  • Prior-year development: Net adverse development added 1.9 pts to the consolidated loss ratio; runoff homeowners also saw $1.5M adverse development.

Transcript

Speaker 0

Thank you for joining the Greenlight Capital Re second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. You may press star one at any time to be placed in the question queue. It's now my pleasure to turn the call over to David Sigmon, Greenlight Capital Re's General Counsel. You may begin.

Speaker 1

Thank you, Kevin, 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 Form 10-K. 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.

Speaker 0

Thank you, David. Good morning, everyone, and thank you for joining us. We reported net income of $0.3 million in Q2 2025, which brings our year-to-date net income to $30 million. Fully diluted book value per share increased 0.5% in the quarter and 5.7% for the first half of the year. We reported a combined ratio of 95.0% for the quarter, translating to $8.1 million of underwriting income. Our investment in Solasglas Fund portfolio was down 4% in the quarter, reversing a portion of the Q1 outperformance. David will provide more color on this in his remarks. Q2 was a benign quarter from a catastrophe activity perspective. We have updated the definition of catastrophe event loss to be individual catastrophe loss to us of $5 million or more, net of reinsurance recoveries. We also started reporting known large loss events defined as losses between $1 million and $5 million.

The net financial impact of prior year adverse loss development was $2.6 million or 1.6 combined ratio points. Faramarz will elaborate on the loss development for each segment momentarily. Our underwriting result in the second quarter was largely unaffected by our previous reserving actions related to the California wildfires and the Russia-Ukraine aviation losses. On the latter, we had strengthened our reserves in Q4 of last year, and the long-awaited outcome of a UK trial in the second quarter validated our early decisive action on this. As mentioned on a previous quarter call, we have started to non-renew a significant portion of our open market casualty book. The impact of these non-renewals started to flow through our top line in Q2, which was offset by growth in other areas, including FAO and the specialty book.

We don't have a large renewal book for 7/1, but we are seeing overall market conditions remaining similar to 1/1 and 4/1, with flat to mild single-digit decreases in risk-adjusted rate change. As we head into the peak of catastrophe season, we feel good about our exposures and are well positioned to weather any storms. During the second quarter, we repurchased $5 million worth of our stock at an average cost of $13.99 per share. We continue to monitor our capital position in light of our various capital metrics and will carefully evaluate opportunities for further share repurchases as part of our overall capital management. Finally, this quarter we have prepared an investor presentation summarizing our results and strategy, which is available in the investor relations section of our corporate website. We hope it provides additional context as we continue our efforts to communicate more broadly with shareholders.

Now I'd like to turn the call over to David.

Speaker 1

Thanks, Greg, and good morning, everyone. The Solasglas Fund returned -4% in the second quarter. The long portfolio and macro contributed 1.2% and 3.5% respectively, while the short portfolio detracted 8.9%. During the quarter, the S&P 500 index advanced 10.9%. Our biggest problem during the quarter was the lack of winners in our long portfolio and the strongly rising market. The largest positive contributors were long investments in gold and Kindle Holdings, equity index hedges, and macro positions tied to a weaker U.S. dollar and lower short-term interest rates. The largest detractors included a short position in a profitless technology company and a healthcare equipment business. Gold was the largest positive contributor as its price appreciated about 6% over the quarter. Kindle Holdings shares advanced 34% during the quarter.

In May, the company announced strong quarterly results marked by a return to positive net revenue growth and a significant increase in new customer signings. Also, the company raised its guidance for fiscal year 2026. In macro, our silver futures position benefited as the market priced in additional interest rate cuts from the Federal Reserve. Also, our long euro and yen positions were positive contributors as the dollar weakened further. The largest detractors included several short positions primarily in profitless tech and similarly speculative companies, which all rallied significantly. We found ourselves on the wrong side of a couple of short squeezes, which we had to risk manage, which means taking a partial loss. In the long portfolio, Brighthouse Financial declined 7% as the market speculated that a possible takeover may happen at a smaller premium than originally expected or possibly not at all.

Throughout the quarter, there was a lot of economic activity designed to get ahead of the tariff implementation. As tariffs have now mostly come into effect on August 1, we believe that there will be a reversal of some of that front running and expect it to show in the data over the next several months. While the losses were mostly on the shorts, our underperformance came mostly on the longs. As we contemplate the reason why, we believe that the economy is doing worse than generally understood, as many of the companies actually on both sides of our book are reporting weak results. The main difference is that the investors have more commitment to look through the weakness on our short names than on our long names. Our net exposure ended the quarter at about 2%, down from 20% at the end of the first quarter.

Solasglas Fund returned negative 4% in July, bringing the 2023 year-to-date return to negative 1.2%. Net exposure for the investment portfolio was approximately 7% at the end of July. We continue to make progress on our underwriting portfolio and expect that the repositioning away from open market casualty into other better risk-adjusted lines will contribute to our results over the intermediate term. Last week, we held our annual shareholders' meeting, and I'm pleased to announce that all the proposals passed by over 90%. I want to thank all of our shareholders for their vote of confidence. I would now like to turn the call over to Faramarz to discuss the financial results.

Speaker 2

Thank you, David, and good morning, everyone. During the second quarter of 2025, Greenlight Capital Re reported a net income of $0.3 million or $0.01 per diluted share, compared to a net income of $8 million or $0.23 per diluted share during the second quarter of 2024. The consolidated underwriting income was $8.1 million, resulting in a combined ratio of 95%, which was 4.9 points better than the second quarter last year, primarily due to no CAT losses in the quarter. Our investments in the Solasglas Fund lost $18.3 million during the second quarter, while other investments earned $10.5 million income, the majority of which related to interest on restricted cash and cash equivalents, collateralizing our obligations to Cedence. Now let's look at the second quarter results by segment. For the quarter, the open market segment grew net written premiums by 8% to $142.1 million.

The increase was driven primarily from growth in the FAO business. Meanwhile, the casualty premiums decreased during the quarter as a result of non-renewing the casualty book. The open market combined ratio for the second quarter improved by 2.1 points to 92% compared to 94.1% for the same period in 2024. The current year loss ratio increased by 1.8 points, primarily related to the casualty book and the transactional liability program. The higher loss ratio was offset by the lower acquisition cost ratio, which improved by 3.1 points on lower commissions. The segment reported a net favorable loss development of $0.9 million or 0.7 combined ratio points, resulting from a $9.7 million release of our specialty reserves, partially offset by reserve strengthening of casualty and multiline programs and a transactional liability program.

The open market segment reported a pre-tax income of $16.8 million, composed of underwriting income of $11.2 million and investment income of $5.6 million. The innovation segment grew net written premiums by 2.3% to $22.7 million during Q2. The increase was mainly driven by Syndicate 3456 and some specialty programs, partially offset by a decrease in casualty premiums. Our whole account quota share retro program, which incepted in Q4 2024, also contributed to lower net earned premiums compared to the same quarter of last year. The combined ratio for innovation segment was 107% during the second quarter, compared to 90.9% in Q2 last year. Unfavorable prior year reserve development contributed 11.8 points to the innovation segment combined ratio, compared to favorable development of 6.5 points in Q2 2024. The $2.5 million of adverse reserve development related to two specific programs that reported a greater number of claims than expected.

We are already working with our partners to implement corrective actions on these programs. The combined ratio benefited from a lower attritional loss ratio and lower acquisition cost ratio, which improved by 0.8 points and 5.1 points, respectively. The expense ratio for the innovation segment this quarter was 7.6% compared to 3.9% during the same quarter last year, due to a combination of growth in personnel and an increase in direct costs attributable to the segment and lower earned premiums. Outside of the two segments, the runoff homeowners' property contract suffered adverse development of $1.5 million during the second quarter. Foreign exchange gains in the quarter were $6.3 million, primarily driven by our British pound sterling denominated balances, as the pound strengthened against the U.S. dollar.

We ended the second quarter of 2025 with our fully diluted book value per share growing to $18.97, an increase of 7.5% since the second quarter of 2024. This included the impact of the $5 million of shares repurchased in the second quarter. That concludes our prepared comments. The operator will now open the line for questions.

Speaker 0

Thank you, ladies and gentlemen. At this time, we'll be conducting a question and answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Once again, at this time, ladies and gentlemen, we'll be conducting a question and answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment, please, while we poll for questions.

Once again, that's star one to be placed into the question queue. We have reached the end of our question and answer session. Should you have any follow-up questions, please write to Karen Daly of The Equity Group Inc. at [email protected]. We'll be happy to assist you. This now concludes Greenlight Capital Re's second quarter 2025 earnings conference call. Thank you. You may now disconnect.