Greenlight Capital Re, Ltd. (GLRE) Q3 2026 Earnings Call Transcript

Operator: Greetings. Thank you for joining the Greenlight Capital Re Third Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the prepared comments. You may press star 1 at any time to be placed in the question queue. It is now my pleasure to turn the call over to David E. Sigmon, Greenlight Re's general counsel. Thank you. You may begin.

David E. 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 CEO, Greg Richardson; Chairman of the board, David Einhorn, and our Chief Financial Officer, Faramarz Romer. On behalf of the company, I would 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, 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. 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. The third quarter of 26 was mixed with a strong underwriting result offset by investment losses. Overall, we reported a net profit of $3.2 million which brings our year to date net income to $9.4 million. Fully diluted book value per share increased 0.8% in the quarter to $20.78 per share. We reported a combined ratio of 90.5% in the quarter. Translating to $14.6 million of underwriting income. This result was driven by a combination of the strong underlying profitability of the book assisted by a benign cat quarter. Our open market book delivered an 87.9% combined ratio, while our innovations book delivered a 98.2% combined ratio. Shifting to our top line. Our open market gross written premium contracted 10.4% in the quarter compared to the prior year, as we respond to the softening market conditions and exercise prudent cycle management. In contrast, our innovations book grew by 46% in the quarter reflecting stable pricing and strong organic growth of the companies we support in this segment. During 2026, we have also expanded our use of outward reinsurance and third party capital, with overall gross written premium for the quarter down just 1.4% while net written premium was down 12.3%. During our August earnings call, we noted a $25 million provision linked to the Middle East conflict. This provision reduced by $6 million in the third quarter as more information became available on specific individual losses. While the Middle East conflict is still ongoing, it is noteworthy that we have not reported any new large losses this quarter. Our investment in the Solasglas portfolio was down 3.3% in the quarter. David will provide more color on this in his remarks. The Solasglas loss was offset by $10.5 million of other investment income. Included in other investment income was $4.1 million of realized gains on the partial sale of 2 Innovations investments. As our Innovations book matures, we are seeing opportunities to monetize gains on some of our investments. We will recycle this capital into new investment opportunities. I would like to highlight a strategic partnership we announced last week with Hippo Holdings. Under the partnership, Hippo will have the opportunity to co invest alongside our innovations unit in early stage MGA investments. Furthermore, Hippo's carrier, Spinnaker Insurance Company, will serve as Greenlight Re's preferred US admitted fronting carrier, for qualifying co invested programs. This partnership builds on existing relationships between Hippo and Greenlight Re. And we believe it will help accelerate disciplined, profitable growth of our innovation segment. We are now focused on the 1/1 renewals. While the market is continuing to soften, we generally believe that rates and terms remain attractive for our open market reinsurance business, and we expect to see profitable new opportunities through next year. As noted above, innovation's growth continues to be strong with stable rates. Now I would like to turn the call over to David.

David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas Fund returned negative 3.3% in the third quarter. The long portfolio detracted 7.6%, The short portfolio contributed 7.3%. And macro detracted 2.8%. During the quarter, the 500 index advanced 2.3%. While the market advanced, our long and short portfolios behaved as if they were in a bear market. Many of our longs and shorts declined between 10-25%. The longs reversed gains and the shorts reversed losses from earlier in the year. Without a company specific catalyst. The largest positive contributors are shorts of AI adjacent and homebuilder stocks and our long position in DHT Holdings. Which benefited from much higher tanker charter rates. The largest detractors were our macro position in short term US interest rates and our long positions in Green Brick Partners and Brighthouse Financial. The largest detractor in the quarter was our macro SOFR future position, which reflects our view that short term interest rates will decline or at least not increase as much as the market expects. The position has been costly year to date, and we have reduced it to manage risk. Our remaining exposure extends through next summer, and we continue to believe that the market is pricing in more Federal Reserve rate increases than our likely to occur. Green Brick Partners shares declined 17% and gave back most of their second quarter appreciation. Brighthouse Financial shares fell 21% amid increasing concern that regulators would block or delay its pending acquisition by Aquarian Capital. We added a few small long positions to the portfolio during the quarter. Century Aluminum is the largest domestic producer of primary aluminum. The company is benefiting from tariffs in the tight global market. And has an attractive growth opportunity to bring new smelter capacity online with government subsidies. We presented this idea last month at the Robinhood Investors Conference in New York The full presentation is available on our homepage at www.greenlightcapital.com. We also added positions in ADI Global Distribution a leading distributor of low voltage electrical products that recently spun out of Resideo, and Canal plus a London listed global pay TV and content production company. Our net exposure ended the third quarter at 32% compared to 33% at the end of the second quarter. Solasglas returned 2.3% in October, bringing the 2020 year-to-date return to flat. Net exposure in the investment portfolio was approximately 28% at the end of October. Greenlight Re continues to perform well in a softening reinsurance environment. The team has been disciplined and has made prudent decisions over the last year. While the market continues to trade our stock at a significant discount to book value we continue our share repurchase plan and have bought back over 5% of our outstanding shares in 2026. Joe Plati has been the director of Greenlight Re since 2004. At our board meeting last week, he announced he will retire from the board at the end of the year. Joe has been a great friend and a guiding light for the company through good times and bad, His role as lead director and his wise advice have been invaluable to me and the company. I wish Joe the best, and we will miss him. Now I would like to turn the call over to Faramarz to discuss the financial results in more detail.

Faramarz Romer: Thank you, David. Good morning, everyone. During the third quarter of 26, Greenlight Re reported a net income of $3.2 million or $0.10 per diluted share bringing our year to date earnings to $9.4 million or $0.28 per diluted share. The underwriting income of $14.6 million for the quarter resulted in a combined ratio of 90.5% which benefited from no new cat or large losses during the quarter. While the Middle East conflict has continued, we received favorable information relating to specific events that were reserved in the first and second quarters. As Greg mentioned, we reduced our case reserves by $6 million on certain events, while we have maintained our IBNR reserves given the uncertainty in the region. Prior year adverse reserve development was 1.6 points during the third quarter. Compared to 0.5 points in the same period last year. Most of the reserve strengthening related to a handful of contracts within the innovation segment. Now let's look at this quarter's results at the segment level. The open market segment reported a pretax income of $19.5 million composed of underwriting income of $15.2 million, investment income of $4.3 million. For the third quarter, the open market segment net written premiums decreased by 19% to $114.2 million, while net earned premiums decreased by 13%. The decrease in net earned premiums was driven by lowered premium estimates on specialty and property proportional contracts as well as decreased exposure on the nonrenewed casualty book. The open market combined ratio for the third quarter was 87.9% compared to 84.5% for the third quarter last year. Ross ratio for open market decreased by 1.9 points driven by favorable prior year reserve development of 0.6 points compared to adverse development of 0.6 points in third quarter of last year. The favorable movement in the cat and large loss ratio from the release of reserves relating to the Middle East conflict was partially offset by higher attritional loss ratio mainly related to the specialty business compared to the same period last year. The acquisition cost ratio for the open market segment increased by 4.1 points compared to same period last year. Mainly due to variable commission true ups recorded in the quarter. Expense ratio increased by 1.1 points to 4.9% as a function of lower earned premiums and higher expenses related to personnel costs. Moving to the innovation segment, The Innovation segment reported a pretax income of $5.8 million composed of underwriting income of $0.5 million and investment income of $6 million, partially offset by other expenses of $0.6 million. During the quarter, Innovation's gross written premiums increased by $13.6 million, or 46%, compared to third quarter last year to $43 million, mainly driven by new business and exposure growth from existing treaties in multiline and financial lines. Net earned premiums in the third quarter increased by $7.1 million, or 34% to $28.1 million as all lines within the 98.2% during the third quarter compared to 96.8% for the same period last year. The loss ratio in the third quarter increased by 13.5 points, primarily due to 7.6 points of adverse prior year reserve development while during the same period last year, the segment reported a favorable reserve development of 3.1 points. The third quarter acquisition cost ratio for Innovations improved by 10.1 points compared to the same period last year, due to variable commission adjustments. In our 10-Ks filed yesterday, we noted that the innovations underwriting expenses now include our share of Syndicate 3.46 thousand expenses which were previously presented under acquisition costs. We have reclassified the comparatives to conform prior period figures to the new presentation as we believe it better reflects the nature of these expenses. As we previously indicated, we expect the expense ratio for Innovations to decrease as the segment gains scale. We are starting to see evidence of this as the expense ratio improved by 2 points as the premium growth exceeded expense growth. We continue to invest in this segment to deliver profitable growth. Our new partnership with Hippo and the Lloyd's approval to transition Syndicate 3.46 thousand to a full syndicate are some of the initiatives that we expect will advance us towards this objective. During the third quarter, we repurchased 505 thousand shares for $8 million. Subsequently, in October, we repurchased an additional 220 thousand shares for $3.3 million. Since the beginning of the year, we have repurchased 5.4% of our outstanding shares for $30.5 million. We have $24.8 million remaining under the current Board approved repurchase plan which will allow us to continue repurchasing shares opportunistically. At the end of the third quarter, our fully diluted book value per share was $20.78 an increase of 1.7% for the first 9 months of the year. That concludes our prepared remarks. The operator will now open the line for your questions.

Operator: Thank you. At this time, we will conduct a question-and-answer session. Use the star keys. Once again, at this time, that is star 1 to ask a question. The first question comes from Unknown Analyst. Please proceed with your question.

Unknown Analyst: Hi. Could you give more explanation of the tax considerations that make you want to keep David Einhorn's ownership of the company I guess, it is or lower it slightly when doing the-- the share buybacks. Please?

Greg Richardson: David, do you want to take that? Or do you want Faramarz to speak on that?

Faramarz Romer: Yeah. Look. We have-- we have entered into a number of. This is, I think, the third 1 now where we have a share repurchase agreement with David. I will let David talk about the details of it, but essentially, as the company is buying back shares, it reduces the number of outstanding shares of the company and increases the portion that David is owning as if he keeps holding on to the shares. So in order to ensure that David does not exceed the thresholds required we have entered into an agreement where we repurchased 33% of the shares that we purchased on the open market. We will repurchase them from David. So as we enter into our open market repurchase agreements, we then enter into a similar agreement with David. And I think the new. We just recently filed a new 1 with our 8 k yesterday. Where you will see that is continuing up to March 2027.

Unknown Analyst: Okay. Thank you.

Faramarz Romer: it is not something where David wants to reduce his ownership. it is just for tax considerations and the threshold of his ownership.

David Einhorn: Right. To maintain his overall ownership percentage.

Faramarz Romer: Yes. that is right.

David Einhorn: The alternative would be not to be able to buy back stock.

Unknown Analyst: Okay. Greg. I am glad you are doing it. So thank you.

Operator: Thank you. At this time, ladies and gentlemen, we would like to thank you for your participation This does conclude today's teleconference. Please disconnect your lines at this time, and have a great day.