Cayman-based reinsurer Greenlight Re saw its net income jump in the second quarter as a result of investment gains, but the underwriting side of the business declined as the reinsurer exited some business.
Greenlight Re’s net income of $109.6 million for the second quarter of 2014 was up compared to the $28.5 million for the same period in 2013. Fully diluted net income per share for the second quarter of 2014 at $2.89 was also higher than the $0.76 in the same quarter last year.
However, during the period, gross written premiums of $33.7 million dropped significantly compared to $135.2 million in the second quarter of 2013, and net earned premiums decreased to $87.9 million from $133 million reported in the prior year period. Correspondingly, the firm’s underwriting income of $5.6 million was down from $11.7 million in the second quarter of 2013.
“We are pleased with the overall performance of the company during the second quarter,” said Bart Hedges, chief executive officer of Greenlight Re. He ascribed the reduction in gross written premiums to a combination of writing less new business than in previous periods due to the soft market environment, exiting some business and a shrinking renewal business as partners decided to purchase less reinsurance.
“The decrease is mainly attributable to our decision, at the end of 2013, to exit some business that no longer met our return hurdles, as well as reduced shares, in 2014, on renewal transactions with clients that decided to retain more of their business,” he said.
In a conference call with investors, David Einhorn, chairman of the board of directors, said Greenlight Re was facing challenges on the underwriting front but added, “It is better to reduce the amount of business we write than to accept mispriced risk.
“Our balanced approach between assets and liabilities gives us an opportunity to earn a good return on equity even in periods where underwriting volume shrink as they did this period. The team has done a good job of protecting capital and developing new ideas for the future while waiting for more opportune environment to increase our book of business,” Mr. Einhorn said.
Despite the competitive market conditions that make it challenging to find new business that meets the reinsurer’s return hurdles, Mr. Hedges said Greenlight Re has “a pipeline of attractive opportunities that we hope to underwrite over the intermediate term.”
The reinsurer benefited from an 8.1 percent investment gain on its investment portfolio managed by DME Advisors, LP, which significantly exceeded the 2 percent gain during the same period last year.
For the first six months of 2014, net investment income was $103.8 million, representing a gain of 7.3 percent. In the comparable period in 2013, Greenlight Re reported a 7.9 percent return and net investment income of $85.4 million.
“Our investment results were strong in the second quarter, mainly as a result of our long portfolio which benefited from the buoyant equity markets,” Mr. Einhorn said. “Our dual engine model is working well and allowing us to remain disciplined in a competitive underwriting environment,” he added.
Greenlight Re’s composite ratio for the first six months of 2014 was 93.9 percent, compared to 94.3 percent for the prior year period. The combined ratio for the first half year of 100.7 percent compared to 98.3 percent for the prior year period.
The fully diluted adjusted book value per share was $30.47 as of June 30, 2014, a 25.9 percent increase from $24.20 per share as of June 30, 2013.
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