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spk03: Thank you for joining the GreenLight RE conference call for the third quarter of 2022 earnings. The company reminds you that forward-looking statements that may be made in this call are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, but rather reflect the company's current expectations, estimates, and predictions about future results and events are subject to risks, uncertainties, and assumptions, including those enumerated in the company's Form 10-K for the year ended December 31, 2021, Form 10-Q for the three months ended March 31, 2022, and other documents filed by the company with the SEC. If one or more risks or uncertainties materialize, or if the company's underlying assumptions prove to be incorrect, actual results may vary materially from what the company projects. The company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, as except required by law. After the prepared remarks, we will be conducting a question and answer session. For those that would like to ask a question, please press star 1 to be added to the question queue. I would now like to turn the call over to Greenlight RE's Chief Executive Officer, Mr. Simon Burton. Please go ahead, sir.
spk00: Good morning, and thank you for joining us today to discuss our third quarter results. Our key performance metric is change in book value per share, which decreased during the third quarter by 3.9%. Any reduction is a disappointment. although our performance was relatively good in the context of the severe challenges that the overall reinsurance industry faced this quarter. Hurricane Ian struck late in September and is yet to be fully assessed by the industry, although it is likely one of the costliest insurance events in history. Other natural catastrophes occurring during the third quarter included two typhoons impacting Japan and South Korea. These windstorms added 19 points to our third quarter combined ratio. In the past few years, we have been steadily reducing our exposure to headline natural catastrophes as our negative sentiment on exposure and tail risk outpaced the level of rate increases. On the other side of the industry balance sheet, the rapid increase in bond yields has, for the second successive quarter, hit those with fixed income investment strategies very hard. Most equity strategies haven't fared much better. our investment result was excellent in the third quarter. Relative to the reinsurance industry as a whole, our investment strategy is working well and has allowed us a level of capital preservation unavailable to more traditional reinsurance balance sheets with significant fixed income exposure. Looking forward, it's difficult to overstate the tailwinds we are seeing in our core reinsurance business. Underwriting conditions at the start of 2022 were very good, In our opinion, they were the best in over a decade. The industry has since seen an unusual confluence of events through the year. The Ukraine-Russia war, a series of natural catastrophes, including Hurricane Ian, claim inflation, and investment losses from multiple sources. So from a sentiment perspective, it's clear that reinsurers are determined to achieve better pricing and terms across a range of short-tail specialty classes led by property catastrophe, to achieve some level of payback following several years of underperformance. That's a helpful dynamic, although the real driver of better pricing will be the imbalance in supply and demand. We are already receiving urgent requests for reinsurance support from our customers, and it's clear that reinsurance capital is presently a valuable and scarce commodity. In previous market cycles, we have seen inflows of fresh reinsurance capital at times like these. but investors seem skeptical and fatigued by a pattern of weak performance and trapped capital, particularly in the catastrophe ILS funds. This leaves us in a strong competitive position in our short-tail specialty and catastrophe classes of business as we look to the year ahead. Last month, we announced three promotions and the revised underwriting structure that went with them. Thimbal Griffin was appointed Chief Underwriting Officer of Greenlight Reassurance Ireland, Regan Cairns was appointed chief underwriting officer of our Cayman subsidiary, Greenlight Reinsurance Limited, and Kagabo Ngiruwansanga is now head of innovations underwriting. They join Andy Gladwin, who is head of UK marketing, an active underwriter for Greenlight's innovation syndicate, to form an underwriting leadership team of four people. All of these leaders have a deep understanding of their respective markets and have developed a wealth of close customer relationships. Each has gained my trust and respect over the last several years. Turning now to our innovations business, this is the first quarter of the last eight that we haven't posted significant investment gains to our carry values. This isn't a surprise, as many of our largest partners had completed capital raises over the past year, which has generally left them in a strong financial position. Looking ahead, the combination of an improved insurance operating environment for everybody including tech-enabled startups, and the re-emergence of the buyer's market in early-stage investments has made our overall innovations thesis even stronger. For the year to date, about 12% of our total net written premium is derived from our innovations business, and the pipeline of attractive opportunities continues to grow. You may have seen the announcement that we are hosting an investor day in New York City on Thursday, November 17, starting at noon. We're looking forward to seeing many of you there in person for the first time in a few years. If you would like to attend, please contact Karen Daly of the Equity Group at ir.greenlightree.ky, and she will be happy to send you the details. Now I'd like to turn the call over to David.
spk01: Thanks, Simon, and good morning, everyone. The Salus Glass Fund returned 3.6% in the third quarter. Our longs contributed 6%, the short portfolio detracted one-tenth of 1%, and macro detracted 1.4%. During the quarter, the S&P 500 index declined 4.9%. Long positions in Atlas Air and Greenbrick Partners and a short position to manage Greenbrick's housing sector exposure were our largest positive contributions. Gold and two undisclosed short positions were the biggest detractors. Atlas Air Worldwide was our biggest winner during the quarter as shares advanced 55% after the company received a takeover bid from a group of private equity investors. At $102.50 per share, we believe the consortium is getting a great deal, but we were content to exit our two-plus year investment for a large gain after the deal was announced. Greenbrick Partners shares advanced 9% during the quarter after the company announced its second quarter earnings of $2.08 per share, which beat the consensus estimates by nearly 70%. During the quarter, the company was also added to the S&P 600 small cap index. We believe the quarterly share price gain was held in check due to the widely publicized slowdown in housing demand, as mortgage rates spiked at the fastest rate in decades. Nonetheless, GreenBrick outperformed its peers, and as a result, a short position we added in August in a basket of home builders to hedge housing sector risk was also positive for us during the quarter. The price of gold declined 8.1% during the quarter as investors preferred the shininess of the now higher yielding cash alternatives and treasury bonds to the precious metal. We remain concerned that the current global inflation problem could metastasize into a full-fledged sovereign debt crisis somewhere and believe that continuing to own gold, despite the possibility of further short-term weakness, is prudent. Aside from Twitter, which we've exited into the completed deal, we didn't add any new material long positions during the quarter. And quite frankly, we haven't been doing much buying all year. With the capital we recently received from the Twitter deal closing, we're building our stockpile of dry powder for potential opportunities in the coming quarters. We're in a bear market, and we expect it to continue for some time. The solids class portfolio returned 6.9% in October. and has returned 18.2% year-to-date. Net exposure in the investment portfolio was approximately 13% at the end of the third quarter, down from 20% at the end of the second quarter. While the losses from Hurricane Ian are frustrating, in light of an otherwise calm storm season, we did well on a relative basis and are positioned to capitalize as the reinsurance market improves further. We have a great team, and I want to take this opportunity to congratulate Regan Cairns and Barry Griffin who was recently promoted for the roles of Chief Underwriting Officer in Cayman and Ireland, respectively. Now I'd like to turn the call over to Neil to discuss the financial results.
spk04: Thank you, David, and good morning. Our net loss for the quarter was $18.5 million, or $0.56 per share. With the nine months ended September 30, 2022, our net loss was $9.4 million, or $0.28 per share. We reported an underwriting loss of $18.9 million during the third quarter and a combined ratio of 115.4%. The underwriting loss included $19.5 million of losses from Hurricane Ian and $3.2 million from typhoons Nanmadal and Hinnomnor. The underwriting loss also included $6.1 million of expense relating to deposit-accounted contracts. The catastrophe losses and deposit accounting expense contributed 23.6 percentage points to the combined ratio. By comparison, the equivalent period in 2021 reported an underwriting loss of $12.6 million, which included $25.9 million of catastrophe losses from Hurricane Ida, the European floods and hailstorms, and South African riots. Gross premiums written in the third quarter were $155.1 million, an increase of 21% from the third quarter of 2021. This increase was due to growth in specialty, general liability, multi-line, and personal property business, including premium generated by the company's innovations partners. Our decision to reduce our participation in motor contracts partially offset this increase. Premium seeded were $8.8 million in the third quarter of 2022 and immaterial in the third quarter of 2021. We reported total net investment income of $11.6 million during the third quarter. We earned $8.5 million from our investment in the Solus Glass Fund and recognized an additional $3 million of other investment income, primarily from interest earned on our restricted cash. Total general and administrative expenses incurred during the quarter were $7.4 million, up from $6.1 million in the third quarter of 2021. The increase was due primarily to higher expenses relating to share-based compensation and Syndicate 3456. We incurred other non-underwriting expenses of $6.8 million in the third quarter of 2022, due primarily to foreign exchange losses. Our non-underwriting expenses incurred in the third quarter of 2021 were insignificant. At the end of the third quarter, our fully diluted book value per share was $13.55, a decrease of 3.9% from June 30. Now I'll turn the call back to the operator and open it up to questions.
spk02: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad. and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. There are no questions at this time. Should you have any follow-up questions, please direct them to Karen Daly of the Equity Group at ir.greenlightre.ky, and she'll be happy to assist you. We also remind you that a replay of this call and other pertinent information about Greenlight RE is available on our website at www.greenlightre.com. Thank you.
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