(GLRE)
Operator: Thank you for joining the Greenlight Capital Re Limited First Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to David Sigmon, Greenlight Re’s General Counsel. Thank you. Please go ahead.
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-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: Thank you, David. Good morning, everyone, and thank you for joining us. We reported net income of $29.6 million in Q1 2025, which equates to an increase in fully diluted book value per share of 5.1% in the quarter. Our net income was driven by strong investment performance with the Solasglas portfolio returning 7.2% in the quarter, tremendous outperformance during a volatile market downturn. We recorded an underwriting loss, however, of $7.8 million in the quarter, which equates to a combined ratio of 104.6%. Our underwriting result in the first quarter was dominated by our provision for the California wildfires in January. We booked a net wildfire loss of $23.6 million [ph], which equates to 14 combined ratio points.
Our provision is based on an industry ultimate loss estimate of $50 billion and is consistent with the $15 million to $30 million range we disclosed on our fourth quarter 2024 earnings call. Our industry loss estimate is at the higher end of the industry range, in part because tariffs could drive higher reconstruction costs. Overall, we don’t anticipate tariffs will cause a significant impact on our underwriting profitability in the near term. On the one hand, inflationary pressures tend to increase loss costs. On the other hand, an economic slowdown, for example, reduced shipping activity could reduce exposure. In the longer term, if tariffs trigger a major economic downturn, we believe our investment portfolio is well positioned. David Einhorn will touch on this later.
The other material underwriting topic in the quarter is a change in our approach to open market casualty business. Historically, we access casualty MGA business through both our open market channel and our innovations channel. We’ve decided to going forward. We will access casualty MGA business primarily through our innovations channel, where we have better access to underlying data, a clear line of sight to the underlying economics of the business and therefore, more control. In the short-term, this will lead to some contraction of our casualty book as we non-renew some open market casualty business. In time, however, we expect to replace some of this volume with Innovation’s business. It is also worth noting that we indirectly write casualty business through our FAL participations.
As part of our review of casualty business, we strengthened our historical casualty reserves by $22 million in the quarter, mainly relating to underwriting years 2014 to 2019. During our quarterly reserve review, we also released $11 million of specialty and $8 million of property reserves in the quarter. Therefore, our first quarter prior year development impact across all lines was $3.5 million or $2.1 million combined ratio points. While underwriting performance in the quarter was disappointing, excluding the 14 points related to California wildfires, our first quarter combined ratio was strong and consistent with expectations. In March, we highlighted a change to our financial statement disclosures where we broke out our Innovation segment for the first time.
The performance of our innovations book in the first quarter was in line with the expectations, and we reported a combined ratio of 94.3% in that segment. On our Q4 2024 call, I provided an update on our 1/1 Renewal season and the market environment at that time. While April 1 renewals are considerably less material than January 1, overall market conditions remain attractive and similar to 1/1. Now I’d like to turn the call over to David Einhorn.
David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned 7.2% in the first quarter. Our short and macro portfolios contributed 5.0% and 4.6%, respectively, and our long portfolio detracted 1.4%. During the quarter, the S&P 500 Index declined 4.3%. The largest positive contributors were long investments in Gold, Brighthouse Financial and Lanxess. The largest detractors were long investments in Core Natural Resources and PENN Entertainment and a short position in a direct-to-consumer health care company. Gold was the largest positive contributor as it appreciated 19% over the quarter. Brighthouse Financial shares advanced 21% during the quarter. This followed news that the company is looking to sell itself and has hired Goldman Sachs and Wells Fargo as advisers.
There appears to be significant interest from large asset managers who are particularly interested in managing Brighthouse’s large general account. While there is a risk the current market turbulence could derail a deal, we expect the company will be successful in selling itself at a healthy premium. Lanxess shares advanced 18% during the quarter. Core Natural Resources shares fell 28% over the quarter. It is the company that was created with the merger of CONSOL Energy and Arch Resources in January. In 2025, the combined company has suffered from falling coal prices and reduced production due to a fire in one of its mines. However, it has a conservative balance sheet and the capacity to repurchase a lot of stock this year. In fact, shortly after completing the merger, the company announced it had authorized a $1 billion share repurchase program, which is about a quarter of the current market value.
PENN Entertainment shares declined 18% over the quarter as Gaming stocks broadly fell on fears of slower consumer spending. Also, investors have become more pessimistic on the viability of PENN’s online sports betting business, ESPN Bet. In the United States, we’re concerned at a significant economic slowdown is underway, led by reduced consumer spending. We’ve pivoted from conservative to bearish positioning and added several new short positions in consumer discretionary companies. We also believe that the slowdown will require the Fed to lower interest rates more than the market expects and established a long SOFR position consistent with this view. After the Liberation Day trade announcements, we also added to our position in long-duration inflation swaps and established tail protection for potential further depreciation of the dollar against the euro and the yen.
We lowered our gross and net exposures based on our view we have entered a bear market. Our net exposure ended the quarter at about 20%, down from 33% at the end of 2024, and we expressed mostly through net long investments in Europe. Solasglas returned to 3.2% in April, bringing the 2025 year-to-date return to 10.6%. Net exposure in the investment portfolio was approximately 22% at the end of April. On the underwriting side, large loss from the California wildfires clouded otherwise positive underlying trends in our underwriting portfolio. Greg and Tom Curnock are Group CUO, continue to overhaul our portfolio mix, which should advance Greenlight Re’s dual engine strategy. Now I’d like to turn the call over to Faramarz to discuss financial results in more detail.
Faramarz Romer: Thank you, David, and good morning, everyone. During the first quarter of 2025, Greenlight Re reported a net income of $29.6 million or $0.86 per diluted share compared to a net income of $27 million or $0.78 per diluted share during the first quarter of 2024. The underwriting loss of $7.8 million translated into a combined ratio of 104.6%. The first quarter cat losses added 14 percentage points to our combined ratio, while the reserve development contributed 2.1 percentage points to the combined ratio. Our investments in the Solasglas fund contributed $32.2 million of income. Other investment income added additional $8.3 million of income for the quarter, the majority of which related to interest on restricted cash and cash equivalents collateralizing our obligations to the cedents.
I will now break down the underwriting results by our two segments. For the quarter, the open market segment grew net written premiums by 16.6%. The increase was driven partly from growth in the FAL business and partly from general liability contracts, which were bound during 2024. The segment suffered a pretax loss of $3.2 million, mainly due to California wildfires, driving an underwriting loss of $8.9 million, partly offset by investment income of $5.8 million for the segment. The open market combined ratio for the first quarter was 106% compared to 96.2% for the same period in 2024. The only weather-related cat activity impacting us this quarter were the California wildfires, which added 18 combined ratio points to the segment. By comparison, the cat activity during the same period last year was much lower at 9.4 combined ratio points.
The current year attritional loss ratio improved by 1.3 percentage points to 54% and prior year reserve development, primarily relating to the casualty book added 2.9 points to the segment combined ratio. Turning to our Innovation segment. During the first quarter, we reported a pretax income of $0.9 million with underwriting income contributing $1.1 million. The Innovation segment combined ratio improved to 94.3% compared to 99.3% for the same period last year. Net written premiums of $24 million were lower by 8.7%, mainly related to the Syndicate 3456 and termination of underperforming programs. There were no cat losses within the Innovation segment. The innovation loss ratio improved by 10.6 points, primarily driven by favorable reserve development and Syndicate 3456 underlying programs.
The expense ratio for the Innovation segment this quarter was 8.2% compared to 4.3% during the same quarter last year due to a combination of growth in personnel and increase in indirect costs attributed to the segment and lower earned premiums. We expect the expense ratio to normalize over time as the innovation’s book of business grows. We ended the first quarter of 2025 with our fully diluted book value per share growing to $18.87, an increase of 8.5% from the first quarter of 2024. That concludes our prepared remarks. Operator, please open the lines for questions.
Operator: Thank you. [Operator Instructions] As there are no questions at this time. Should you have any follow-up questions, you may direct them to Karin Daly of The Equity Group Inc. at ir@greenlightre.ky, and she’ll be happy to assist you. This now concludes today’s conference call for Greenlight Re’s first quarter 2025. Thank you. You may now disconnect.
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