Business Overview and History
Greenlight Capital Re, Ltd. (GLRE) is a global specialty property and casualty reinsurer headquartered in the Cayman Islands. The company has established itself as a unique player in the reinsurance market, combining a value-oriented investment strategy with a diversified underwriting approach.
Greenlight Capital Re was incorporated as an exempted company under the laws of the Cayman Islands in July 2004. The company commenced underwriting operations in April 2006 through its wholly-owned subsidiary, Greenlight Reinsurance, Ltd. Greenlight Capital Re was established with the goal of building long-term shareholder value by providing risk management solutions to the insurance, reinsurance, and other risk marketplaces.
In 2010, the company expanded its operations by establishing Greenlight Reinsurance Ireland, Designated Activity Company (GRIL), a subsidiary domiciled in Ireland. GRIL allowed Greenlight Capital Re to access the European broker market and serve clients located in Europe and North America. Over the next several years, the company continued to grow and diversify its underwriting portfolio, writing business across various property and casualty lines.
Greenlight Capital Re faced several challenges over the years. In 2018, the company entered into an amended and restated exempted limited partnership agreement with DME Advisors, LP, an affiliate of David Einhorn, the company's Chairman, to manage its investment portfolio. This strategy generated mixed results, with periods of outperformance as well as underperformance compared to the broader market. Additionally, the company grappled with the impact of major catastrophe events, such as hurricanes and wildfires, which resulted in significant losses.
To address these challenges, Greenlight Capital Re restructured its reportable segments in 2024, separating its operations into the Open Market and Innovations segments. This move was intended to provide greater transparency into the performance of the company's in-force business and align with how management allocates capital. Despite these setbacks, Greenlight Capital Re remained focused on its mission, continuously seeking to enhance its underwriting expertise, risk management practices, and investment strategy to deliver value to its shareholders.
One of Greenlight Capital Re's key differentiators is its investment strategy, managed through its partnership with DME Advisors, LP. The company follows a value-oriented, long-short equity approach, aiming to generate higher returns over the long term than traditional reinsurance companies that invest predominantly in fixed-income securities. This non-traditional investment approach has been a significant contributor to the company's performance over the years.
In 2018, Greenlight Capital Re launched its Innovations business unit, which focuses on strategic capital investments in startup companies and managing general agents (MGAs). This initiative not only provides the potential for higher investment returns but also positions the company to access a steady stream of attractive underwriting opportunities directly with its investees, coupled with new sources of fee income.
Financial Performance and Ratios
Over the past five years, Greenlight Capital Re has demonstrated a consistent focus on growing its fully diluted book value per share, which is the company's primary financial metric. In 2024, the company reported a 7.2% increase in fully diluted book value per share to $17.95, marking the fifth consecutive year of book value growth.
For the full year 2024, Greenlight Capital Re reported revenue of $698.34 million and net income of $42.82 million. The company's operating cash flow for the year was $111.50 million, which was also its free cash flow. The company's return on equity (ROE) for the full year 2024 was 6.7%, reflecting its ability to generate profitable underwriting and investment returns.
In the fourth quarter of 2024, the company reported revenue of $141.8 million, representing a 12.4% increase year-over-year. However, the company experienced a net loss of $27.4 million in Q4 2024, compared to a net income of $17.6 million in Q4 2023. This loss was primarily driven by $17.6 million in catastrophe losses, including $7.5 million from Hurricane Milton, as well as a $15 million increase in reserves related to the Russia-Ukraine conflict.
The company's financial ratios have remained relatively stable, with a debt-to-capital ratio of 9.5% as of December 31, 2024, indicating a solid capital structure. The debt-to-equity ratio stood at 0.095 as of the same date.
Liquidity
Greenlight Capital Re maintains a strong liquidity position to support its operations and meet its financial obligations. The company's liquidity is primarily derived from its investment portfolio, reinsurance premiums received, and investment income. As of December 31, 2024, the company had cash and cash equivalents of $64.69 million.
In terms of available credit, Greenlight Capital Re has $575 million in total letters of credit capacity with Citibank, HSBC, and CIBC. The Citibank and HSBC facilities are uncommitted, while the CIBC facility is committed, providing the company with additional financial flexibility if needed.
Segmental Performance
In 2024, Greenlight Capital Re revised its reporting segments to better align with its multi-pillar strategy. The company now reports financial results under two segments: Open Market and Innovations.
The Open Market segment, which accounts for the majority of the company's gross premiums written, reported a 9.7% increase in net premiums earned to $511.9 million in 2024. This segment generated $603.80 million in gross premiums written, accounting for 86.50% of the company's total consolidated gross premiums. However, the segment's combined ratio increased to 99.0% from 89.6% in the prior year, primarily due to higher catastrophe losses and prior-year reserve development. Despite these challenges, the Open Market segment reported an underwriting income of $5.08 million for the year.
The Innovations segment, which focuses on providing reinsurance capacity to startup companies and MGAs, saw a 20.3% increase in net premiums earned to $86.4 million in 2024. This segment generated $94.72 million in gross premiums written, accounting for 13.60% of the company's total consolidated gross premiums. The segment's combined ratio improved to 95.8% from 97.5% in the prior year, demonstrating the success of the company's strategic investments in this area. The Innovations segment reported an underwriting income of $3.58 million for the year.
In addition to these two reportable segments, Greenlight Capital Re has a Corporate category that includes the company's runoff property business, corporate expenses, income from the investment in Solasglas, foreign exchange gains and losses, interest expense, and income taxes. The Corporate category reported a pre-tax income of $5.98 million in 2024.
Challenges and Responses
Greenlight Capital Re faced several challenges in 2024, including significant catastrophe losses and adverse reserve development related to the Russia-Ukraine conflict. For the full year 2024, the company reported an overall consolidated combined ratio of 101.4%, resulting in a small underwriting loss of $8.2 million. The Open Market segment's combined ratio was impacted by 7 percentage points of catastrophe losses and 2.9 percentage points of prior year loss development.
To address these challenges, the company has taken several measures, including: 1. Increasing its outward reinsurance purchases to manage its overall exposure. 2. Focusing on more granular, specialized lines of business within the Open Market segment, where it can leverage its underwriting expertise. 3. Continuing to grow its Innovations segment, which has demonstrated more stable underwriting performance and the potential for higher investment returns.
Outlook and Growth Opportunities
Looking ahead, Greenlight Capital Re remains cautiously optimistic about the reinsurance market conditions, particularly in areas where the company has established a strong presence, such as specialty lines and property catastrophe. For the January 1, 2025 renewals, the company provided the following guidance:
- The funded at Lloyd's (FAL) book is expected to grow by approximately 25% given attractive opportunities.
- The specialty book is expected to grow modestly, as the specialty market remained competitive.
- The property book is expected to grow by approximately 10%, despite a 5-7.5% rate decrease on average.
- The company's North Atlantic hurricane exposure on a 1-in-250 occurrence basis increased by 16% to $116.3 million.
Regarding the recent Los Angeles wildfires, Greenlight Capital Re estimates the industry loss at $40-$50 billion and anticipates its share of the loss will be $15-$30 million.
The Innovations segment remains a key focus for the company, with plans to leverage its existing partnerships and investment expertise to identify new opportunities. The company's recent launch of Syndicate 3456 at Lloyd's of London and the introduction of its Viridis Re platform are expected to further enhance its capabilities in this area.
Geographic Distribution
While Greenlight Capital Re operates globally, the majority of its business is written in the Cayman Islands, United Kingdom, and Ireland. In 2024, 51.7% of gross premiums written originated from the Cayman Islands.
Conclusion
Greenlight Capital Re has demonstrated its ability to navigate challenging market conditions through its diversified business model and innovative approach. The company's focus on growing its fully diluted book value per share, coupled with its strategic investments in the Innovations segment, position it well for continued success in the reinsurance industry. As the company continues to adapt to evolving market dynamics, investors will be closely watching its ability to capitalize on emerging opportunities and maintain a strong financial profile. With its strategic focus on both traditional reinsurance and innovative insurtech investments, Greenlight Capital Re is well-positioned to weather industry challenges and pursue growth opportunities in the coming years.