Greenlight Capital 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Reinsurance market is highly competitive

“Good morning. Thank you for taking the time to join us today. The reinsurance market remain challenging during 2014, in general the market remains over capitalize in this highly competitive especially for new business.”

Underwriting results deteriorated due to adverse development

“Our 2014 underwriting results deteriorated primarily due to adverse reserve development on certainly commercial automobile and general liability contracts and run-off which I will describe more fully in a momen”

Reasons for deterioration

“Reserve deterioration for commercial automobile relates to one contract where we’ve appointed a new claims handler who reviewed all the claims in the portfolio and were actively close claims reducing the count by over 60%. The adverse development on general liability reserves relates to a contract that has suffered a large number of asserted claims for construction defects by small contractors, majority of these claims close without any indemnity payment and majority of the adverse development relate to claims handling costs.”

Property catastrophe is the most competitive area of the business

” Our property catastrophe retro accounts continue to benefit from the light year from catastrophe. However, this was the most competitive area in the market due to influx of alternative capital and the recent history of years without a major loss.”

Greenlight did 8.7% last year

“The Greenlight Reinvestment portfolio returned 5.3% in the fourth quarter, bringing the 2014 full year return to 8.7%”

exited oil positions mid year

“In the fourth quarter we exited our energy positions in Anadarko BP, Mcdermott and National Oilwell Varco. We hedged our underlying exposure to oil mid-year by shorting crude oil futures. This protected us from the sharp falloff in oil prices.”

Ended the year with 39% net exposure

“We ended the year conservatively position with 39% net exposure which is 15% less net long than a year ago. The positives we see in 2015 include falling unemployment, lower oil and other commodity prices that should boost consumer spending in the short term. And the first quarter will be an easy comparison for corporate earnings given last year’s first quarter was negatively affected by harsh weather. The negatives we see include stretched valuations and earnings headwinds later this year including the strong dollar which reduces the translated earnings of foreign subsidiaries.”

Macro concerns

“From a macro perspective we are worried that emergency policies are now falling. We continue to maintain our macro overlay with positions in gold short Japanese yen and Chinese RMB and short French sovereign debt.”