Greenlight Capital Re - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was loss-making: net loss of $27.4m (–$0.81 diluted EPS), a 112.1% combined ratio, with losses driven by reserve strengthening on Russia‑Ukraine aviation exposures (10.1 pts of CR) and elevated catastrophes (11.9 pts; Hurricane Milton, Jeju Air, marine/energy).
• Investment performance was weak in the quarter (total investment income $2.6m; Solasglas −1.9%), but FY 2024 still delivered $79.6m of total investment income and a 9.8% Solasglas return; fully diluted BVPS rose 7.2% to $17.95, the fifth consecutive year of growth.
• Management introduced new segment reporting (Open Market and Innovations) to enhance transparency; FY 2024 combined ratio was 101.4% (Open Market 99.0%, Innovations 95.8%).
• Outlook/near‑term catalysts: 1/1 growth (Funds at Lloyd’s ~+25%, property ~+10%; NA hurricane 1‑in‑250 PML to $116.3m), but 2025 results will absorb Los Angeles wildfires loss ($15m–$30m estimate).
• Wall Street EPS/revenue consensus (S&P Global) was unavailable at the time of analysis; beat/miss vs estimates cannot be determined (we will update once accessible).

What Went Well and What Went Wrong

• What Went Well

  • FY 2024 capital creation despite Q4 headwinds: fully diluted BVPS +7.2% to $17.95; five consecutive years of BVPS growth.
  • Innovations segment profitability for FY 2024 (95.8% CR) and expanded disclosure, aligning with strategy to scale niche programs and balanced capital allocation.
  • Clear strategic and capital-allocation messaging: Solasglas +9.8% for 2024; net exposure ~33% at year‑end with continued “incremental, not step‑change” posture on investment allocation.
  • Quote (CEO): “We are well positioned to deliver shareholder value in 2025 and beyond.”

• What Went Wrong

  • Q4 underwriting loss ($18.0m) and 112.1% CR, driven by $17.6m cat losses (11.9 pts) and ~$15m reserve strengthening on Russia‑Ukraine aviation exposures (10.1 pts).
  • Open Market Q4 2024 deterioration (111.1% CR) versus 90.9% in Q4 2023; casualty legacy years also required additional reserves (partially offset by favorable specialty development).
  • Q4 investment income fell sharply ($2.6m vs $14.1m LY) as Solasglas produced −1.9% in the quarter; management cited post‑election market dynamics.

Transcript

Operator (participant)

Thank you for joining the Greenlight Capital Re Fourth Quarter and Year-End 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. You may press star one at any time to be placed into the question queue. It's now my pleasure to turn the call over to David Sigmon, Greenlight Capital Re General Counsel. You may begin.

David Sigmon (General Counsel)

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-K for the year ended December 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 (CEO)

Thanks, David. Good morning, everyone, and thank you for joining us today. To start off, I would like to thank everyone that attended our Investor Day presentation in New York City last November, where we provided additional color on Greenlight Capital Re's progress and our go-forward strategy. I'm excited about Greenlight Capital Re's future, notwithstanding the fourth quarter results. The Fourth Quarter of 2024 was challenging for Greenlight Capital Re. We reported a net underwriting loss of $18 million, or a combined ratio of 112.1%, and an investment loss from the Solasglas of $8.8 million, or negative 1.9%, driving a net loss for the quarter of $27.4 million. Our underwriting loss was driven by a combination of CAT activity in the quarter and prior year development. On the CAT side, we booked $17.6 million of CAT losses in quarter four, 2024, with Hurricane Milton being the most material at $7.5 million.

With regard to prior year development, the major driver was a $15 million increase in our Russia-Ukraine conflict reserves linked to the confiscation of aircraft. We booked an initial provision for the Russia-Ukraine conflict in the first quarter of 2022, and that provision remained broadly flat over the intervening quarters. However, in Q4 of last year, following the commencement of high-court litigation in London, we became aware of increased settlement activity. Based on our analysis of various legal claims in industry sources and in anticipation of formal claim notifications, we decided to get ahead of this issue and to strengthen our IBNR provision. Our fourth quarter 2024 underwriting results turned our solid performance for the first three quarters of the year into an underwriting loss of $8.2 million, or a combined ratio of 101.4% for the full year 2024.

Net income for the year was $42.8 million, which generated 87.2% increase in fully diluted book value per share to $17.95. One item I would like to highlight in our earnings release and our 10-K filing is that for the first time, we have split our financial results into two segments, open market and innovations, which reflects how I think about and oversee the business. Historically, we have spoken of the importance of our innovations unit and the key part it plays in our growth strategy. Our innovation segment generated a combined ratio of 95.8% in 2024 on $94.7 million of gross written premium. We believe this new disclosure will be valuable to shareholders and other key stakeholders going forward. Turning to 1/1 renewals, the 1/1 renewal season is key for Greenlight Capital Re as over 50% of our business incepts on January 1.

We are very pleased with how 1/1 2025 progressed. Market conditions remain very attractive despite softening in certain classes, and we took advantage of those conditions to grow our business in key areas. I will provide an overview of our 1/1 2025 book in a few of these key areas. Generally, our funds at Lloyd's or FAL book incepts at 1/1. We have been a material player in this market for a few years, and we are optimistic for the prospects of Lloyd's in 2025 after several years of material rate increases and strong performance. This year, we expect our FAL book to grow by approximately 25% given the attractive opportunities available to us. A material element of our specialty book renews at 1/1. In general, the specialty market remained disciplined, with terms and conditions being maintained and some modest softening on rates from 2.5%-5% down.

However, the specialty market was very competitive on signings, with many of our competitors looking to grow in this space. We expect our 1/1 specialty book to grow modestly. The third element of our book with a strong 1/1 focus is our property book. We saw some weakening in the property line, and we estimate rates are down on average 5%-7.5%, with reductions on our XOL accounts larger than on our quota share accounts. Despite this, the market remains attractive, and we expect this portfolio to grow by approximately 10% over 2024. Our North Atlantic hurricane exposure on a one in 250 occurrence basis increased by 16% to $116.3 million, reflecting this increased volume. Our innovations portfolio is not heavily weighted towards 1/1. Rather, it is more evenly spread throughout the year. For the business that did renew on 1/1, we saw strong growth and relatively flat rates.

Since 1/1, we have all witnessed the tragic human and economic impact of the Los Angeles wildfires. It is early stages, but we estimate the insurance industry loss at $40 billion-$50 billion and anticipate Greenlight's share of this loss will be $15 million-$30 million as we are somewhat underweight in property compared to the industry. As we look ahead towards 2025, we are optimistic about the opportunities ahead. Over the past year, we have strengthened our organization, processes, and balance sheet. While we saw modest softening at 1/1, global uncertainty and losses such as the Los Angeles wildfires serve as a reminder of the importance of reinsurance and adequate rates to support the risks that we assume. Now I'd like to turn the call over to David.

David Einhorn (Chairman of the Board)

Thanks, Greg, and good morning, everyone. The Solasglas investment fund returned negative 1.9% in the fourth quarter. Our long portfolio detracted 3% on a gross basis, while the short and macro portfolios contributed 1.2% and 0.1%, respectively. During the quarter, the S&P 500 index advanced 2.4%. The largest positive contributors were long investments in Peloton Interactive and Green Brick Partners and a newly established arbitrage position in MicroStrategy. The largest detractors were long investments in Solvay and a short position in a profitless technology company. Peloton Interactive advanced 86% during the quarter. With its quarterly update, the company demonstrated progress in its cost-cutting initiatives and reaffirmed its commitment to prioritizing profitability. Peloton also announced the hiring of a well-regarded CEO who began his tenure with the company around the beginning of the year. Green Brick Partners advanced 51% during the quarter.

In its most recent quarterly update, Kyndryl announced another set of positive results, raised its guidance, and showed significant improvement in signings. The company also reaffirmed its positive fiscal 2025 outlook, with constant currency revenues now expected to return to growth by the fiscal fourth quarter and margins set to again improve. Our new position, shorting levered ETFs that aim to double the daily return of MicroStrategy stock, which is partially offset by owning MicroStrategy stock, was our third largest positive contributor. Greenlight Capital Re shares fell over 32% over the quarter, giving back most of the gains from the third quarter as rising interest rates weighed on the sector. In November, we increased the size of our short basket of homebuilder stocks, which enabled us to offset about half of Greenlight Capital Re's negative contribution for the quarter. Solvay declined 12% over the quarter.

The company announced quarterly results that mostly met expectations but allowed for skeptics to debate the quality of the earnings. Also, there were concerns that both demand and pricing for Solvay's soda ash products had not picked up as hoped around year-end. In addition to the MicroStrategy arbitrage position, we established a new medium-sized position in CNH Industrial, an agricultural equipment company. At year-end, our net exposure was about 33%, which was roughly the same as it was at the beginning of the fourth quarter. We're comfortable maintaining lower gross and net exposure as the market not only remains historically expensive, but the new administration in Washington is creating extraordinary volatility by a constant barrage of news flow. The Solasglas investment fund returned 9.8% in 2024 compared to a 25% return of the S&P 500.

Solasglas returned 2.8% in January and 1.4% in February, bringing the 2025 year-to-date through the end of February to 4.2%. Net exposure in the investment portfolio was approximately 30% at the end of February. We do not usually discuss performance intra-month, but in light of the sharp downturn in equity markets so far this month, we are pleased to report that we had a solidly profitable return through last night. While we ended 2024 with disappointing results, we managed to grow fully diluted book value per share, our key metric, by 7.2%. Despite the Los Angeles wildfire losses, we started 2025 well, and I am optimistic about the year ahead. Now I would like to turn the call over to Faramarz to discuss the financial results in more detail.

Faramarz Romer (CFO)

Thank you, David. Good morning, everyone. During the Fourth Quarter of 2024, Greenlight Capital Re reported a net loss of $27.4 million or a loss of $0.81 per diluted share compared to net income of $17.6 million or $0.50 per diluted share during the Fourth Quarter of 2023. The underwriting loss of $18 million translated into a combined ratio of 112.1%. Fourth quarter CAT losses added 11.9 percentage points to our combined ratio, while the aviation reserves strengthening relating to the Russia-Ukraine conflict contributed 10.1 percentage points of combined ratio. As Greg mentioned, we have revised our segment disclosures to present our results separately for the open market segment and the innovation segment. For each of these segments, we now present the underwriting results and any investment income that is directly attributable to those segments.

For the open market segment, the investment income includes interest income on the collateral we have pledged to our open market cedents and any interest and investment income related to our funds at Lloyd's business. For our innovation segment, the investment income includes interest on the collateral pledged to the innovation cedents and any investment gains or losses from our private innovations investments. We also allocate corporate and other expenses such as personnel costs and other overhead expenses that can be attributable to the innovations investments operations. Any other income or expense that is not attributable to the two segments is included as corporate. As we have mentioned on previous calls, we non-renewed and placed into runoff the sole innovations property program due to the impact of underlying exposure to severe convective storms. That runoff business is also included under corporate.

We believe the new segment reporting structure provides greater transparency and insight into the performance of our in-force business and aligns with how we manage and allocate our capital. Now let's turn to the underwriting results by segment. For the fourth quarter, the open market segment's net earned premiums increased 25% to $127.8 million, primarily related to the financial and specialty lines. The open market combined ratio for the fourth quarter was 111.1% compared to 90.9% for the same period in 2023. The impact of aviation losses relating to the Russia-Ukraine conflict accounted for 11.7 combined ratio points. The CAT losses during the fourth quarter accounted for 13.8 combined ratio points, which by comparison, the CAT activity during the same period in 2023 was more benign at 3 combined ratio points.

Additionally, we increased our loss reserves on older years' casualty business based on updated reporting from cedents and driven by inflationary trends. The reserve increases were partially offset by favorable loss development on the specialty lines. For the full year, open market segment's net earned premiums increased by 9.7% to $511.9 million, driven by growth in our property and specialty lines. We also grew the written premiums on our financial lines. However, those premiums earn out over a longer time frame. For the full year 2024, the open market combined ratio was 99% compared to 89.6% in 2023. The CAT losses in 2024 accounted for 7 combined ratio points, and prior year loss development accounted for 2.9 combined ratio points.

Turning to our innovation segment, for the fourth quarter, the net earned premiums decreased by $4.2 million or 18.1% to $19 million as we reduced our share on a multi-line program. During the fourth quarter, we also put in place a whole account quota share retrocession of 28% of our innovations book. The innovations combined ratio for the fourth quarter was 102.1% compared to 93.4% for the same period in 2023. The main driver of the higher combined ratio in the fourth quarter was adverse loss development on a multi-line contract. For the full year, the innovation segment's net earned premiums increased by 20.3% to $86.4 million, driven by growth in our specialty, casualty, and multi-line business as new programs were added. The innovations combined ratio for the full year 2024 improved to 95.8% compared to 97.5% for 2023.

While both our segments reported underwriting profits for full year 2024, the runoff business related to the homeowners property program generated a loss of $16.8 million, primarily due to the severe convective storms during 2024. For full year 2024, we reported a consolidated combined ratio of 101.4%, which generated a small underwriting loss of $8.2 million. However, we ended the year with $42.8 million of net income and $1.24 of diluted earnings per share, driven by total investment income of $79.6 million. For the full year 2024, we grew our fully diluted book value per share by 7.2% to $17.95 as of December 31st, 2024. 2024 was the fifth consecutive year of growing our fully diluted book value per share, equating to an annualized growth rate of 6.9%.

While this growth rate is below our expectations, we believe the current in-force book, along with its investment income generating assets, Greenlight Capital Re is capable of delivering double-digit growth in book value per share. I will now hand the call back to the operator to open it up for questions.

Operator (participant)

Thank you. I'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 handset before pressing star keys. One moment, please, while we pull for questions. Our first question today is coming from Anthony Mottolese from Dowling & Partners. Your line is now live.

Anthony Mottolese (Equity Research Analyst)

Hi, good morning. Greg, do you think you could share some more information on that Q4 charge related to Russia-Ukraine? It maybe helps frame it in the sense of how this fits into your view on the ultimate industry loss? Really, any additional insight in potential losses to Greenlight would be helpful here. Thank you.

Greg Richardson (CEO)

Sure. Good morning, Anthony. Thanks for the question. I'll start, and then Faramarz can add color to it. The thrust of your question is how do we view this in terms of ultimate losses? With all of our losses, we endeavor to book what we think are the ultimate loss ratios for all the contracts and every line of business. That's our goal. This is not intended to be a down payment on what we think the ultimate loss is. This is what we think the ultimate loss is. Obviously, there's some uncertainty, but perhaps not as much as one might think. Already, there's been some settlements, significant settlements in the industry. There's been significant legal expenses. There is a limited, bounded number of aircraft involved at the end of the day. That limits the range. In addition, we have outward retrocession.

We're booking a number which is net of that. That retrocessional cover is not exhausted. We're into it, but not exhausted. That also dampens the uncertainty. Where there is, I think for us, the most uncertainty is the treatment of the interpretation of the loss in terms of number of events and how it's reported by our reinsurers into the reinsurance and retrocessional market. Those are the biggest drivers of the uncertainty. Faramarz, do you want to add any color to that, or is that pretty much?

Faramarz Romer (CFO)

No, I think we've always reserved our best estimate, as Greg said. It's hard to tell exactly how much the ultimate settlements will be. As reinsurers, we're one layer removed, and there's been a lot of settlements happening on the underlying business. There could be various movements on it. The one thing we haven't received are formal notices or formal notifications from our cedents on the losses. At this point, all of the reserve that we've booked previously in 2022, as well as the increase this quarter, is booked as IBNR. We are anticipating there's going to be claims now starting to flow in from what we're hearing in the industry. We've taken the strengthening this quarter in anticipation of that.

Greg Richardson (CEO)

Does that answer that?

Anthony Mottolese (Equity Research Analyst)

It does. Thank you for the full answer on that. If I may, I have a second question. Specifically, I was thinking about the other adverse development trends you cited in the quarter. It sounds specific to casualty books. I was curious if there were any primary accident years or specific books of businesses impacted by inflationary or other accelerating trends. Just anything you can share there?

Greg Richardson (CEO)

Yeah. These are secondary and smaller issues relative to the Ukraine adverse development. We continue to observe the development in casualty lines. Our historical exposure to sort of the broader market casualty trends are primarily from earlier years from a large retrocessional contract that we wrote. Fortunately, that contract started to shrink before the market started getting particularly bad. I think our biggest exposure is maybe in the 2015, 2016, 2017 years, but then diminishing for 2018 and 2019. In terms of that wholesale open market casualty reinsurance adverse development, that's fairly older. We think we have that pretty well boxed in, but we can't guarantee that. It is not huge, we don't think.

I think our go-forward book tends to be smaller limits, more frequency, severity, not the major casualty programs that are subject to nuclear verdicts and aggressive plaintiff attorneys and severity kind of problems that have been plaguing the industry. We have seen some adverse development in the casualty lines. It's not something that we think is hugely problematic for us. Is that a fair answer?

Faramarz Romer (CFO)

Yeah. Some of the legacy casualty contracts is what's impacting it. We did, in the quarter, have favorable development on our specialty lines as well. When you look at our overall adverse development for the quarter, Ukraine was by far the largest. We had some adverse on casualty, which was, for the most part, offset by favorable development on our specialty book.

Anthony Mottolese (Equity Research Analyst)

Okay. Thank you. As I think about sort of this go-forward book, you shared an update about one-to-one renewals for property on specialty. How are you thinking about where does casualty fit into the growth profile today? Are there areas, specific lines of business that you find attractive now, or is there still just caution given the loss environment here?

Greg Richardson (CEO)

Yeah. I think caution. As an underwriting team, we're very much underwriting margin focus. And so casualty today, I think, is being underwritten with an eye to future investment income. I think there's a role of ILS that's playing in this that allows people to monetize future investment income in the forms of ceding commissions. I think that we're not likely to be a major player on the large U.S. national casualty programs. Where we are attracted is some of these smaller programs. We definitely don't want to turn off the spigot on that area. There's a lot going on there. I think some of the major markets in the reinsurance industry are being cautious in that area and maybe even pulling back. That can also create opportunities in casualty. I don't want to paint a completely negative picture about casualty.

We want to be sort of strategic and targeted where Greenlight Capital Re, as a smaller company, can compete most effectively. I think some of that, for example, is in our innovation space.

Anthony Mottolese (Equity Research Analyst)

Thank you for your time and for all the answers today.

Greg Richardson (CEO)

Thank you. Any other questions?

Operator (participant)

Yeah. Thank you. Our next question is coming from Eric Hagen from BTIG. Your line is now live.

Eric Hagen (Managing Director and Equity Research Analyst)

Hey, thanks. Good morning. Good to hear from you guys. Thanks for a great investor day back in November. I want to revisit the overall capital allocation, how you see the target allocation maybe changing with a chunk of the business renewing over the near to medium term. Does the broader market volatility right now actually serve as an opportunistic window to deviate from the capital allocation strategy overall at all here? Thank you.

Greg Richardson (CEO)

Yeah. I think it's incremental, not step change. As we said at investor day, we continue to find the returns on our SIP investment strategy very attractive. And so over time, continuing with that allocation, possibly increasing the allocation is something that is accretive to us, as we indicated on investor day. Open market is subject to cyclical pressures in the overall global reinsurance market. We did see softening, modest softening, maybe a little more than we expected, though, at investor day. I think the rates remain very attractive. As you see, we grew that segment at 1/1. If rates continue to soften, and all indications are that they will in 2026 and beyond, absent major market-changing events, we would begin probably to reallocate capital from that, perhaps increase our outwards purchases is one way to manage that capital allocation down. What do we do?

We either could allocate that capital to innovations, to other pillars, or buy back shares. That is more of a '26 and beyond kind of a question. Innovations, again, we find that attractive. We see that as a great growth opportunity, building on some really distinctive strengths that Greenlight has in that area. I am committed to finding ways to leverage those strengths. That is an area we would look for growth over time.

Faramarz Romer (CFO)

Eric, the only thing I would add, this is Faramarz, is that on the innovation side, we did enter into a whole-account quota share in Q4, which was a way of allocating capital and allowing for more growth in that segment by freeing up some capital by having that retro program in place as well.

Eric Hagen (Managing Director and Equity Research Analyst)

Yep. Okay. This is helpful. Thank you, guys. On the MicroStrategy arbitrage, is there a target rate of return you're looking for on an opportunistic trade like that? How does it compare to the target return you might look for in other pair trades or opportunities you apply in Solasglas?

David Einhorn (Chairman of the Board)

Yeah. This is David. Thanks for the question. I don't think there's a way to calculate a target rate of return for the arbitrage. There's two dynamics that work for it. One is that the double-levered ETFs relating to MicroStrategy achieve some of their leverage through high volatility, very expensive call options. As those call options decay or have to get rolled on a continued basis, there's just a drain in NAV that investors who own these things don't seem to appreciate. Secondarily, there's the impact of the negative gamma that is created through the double leverage such that on updays, they have to buy more, and on downdays, they have to sell more. To the extent you have chop, the gamma kind of destroys the return. The return on that position, since we put it on, has been exceedingly high.

It probably annualizes nearly triple digits. It is a lot better than many other things that we've been able to do.

Eric Hagen (Managing Director and Equity Research Analyst)

Great stuff. Appreciate you guys. Thank you.

Greg Richardson (CEO)

Sure.

Operator (participant)

Thank you. There are no further questions at this time. Should you have any follow-up questions, please direct them to Karin Daly of Equity Group Inc. at [email protected]. She'll be happy to assist you. This now concludes Greenlight Capital Re's Fourth Quarter and Year-End 2024 earnings conference call. Thank you. You may now disconnect.