The impact of Hurricane Michael and the California wildfires, combined with a testing investment environment has resulted in a $80.8 million Q4 2018 net loss for hedge fund backed reinsurer Greenlight Capital Re.
The $80.8 million fourth-quarter 2018 net loss compares to a $37.7 million net loss for the same period in 2017 and, was driven by a $56.4 million investment loss and an $18 million underwriting loss.
For the full-year 2018, Greenlight Re has reported a net loss of $350.1 million compared with a net loss of $45 million a year earlier. For 2018, the firm’s investment loss hit $323.1 million and its underwriting performance was also negative, at -$14.4 million.
For the hedge fund backed reinsurer business model, which looks to offset poor investment returns with strong underwriting gains, and vice versa, the operating environment has been relatively challenging in recent times.
The investment landscape has been volatile and was particularly difficult in the fourth-quarter, while the catastrophe loss experience in 2018 once again exceeded the long-term average.
Simon Burton, Greenlight Re’s Chief Executive Officer (CEO), commented: “Our fourth quarter results were negatively impacted by an investment loss of $56.4 million and an underwriting loss of $18.0 million primarily due to losses related to Hurricane Michael and the California wildfires. The net financial impact of catastrophe losses incurred during the fourth quarter added 11.9 points to our 115.0% combined ratio.”
Catastrophe losses (primarily Hurricane Michael and the California wildfires) had a net financial impact of almost $19 million in Q4 for the firm, which contributed 11.9 percentage points to the combined ratio.
Gross written premiums (GWP) declined to $135.1 million, while ceded premiums fell to $30.3 million and net earned premiums (NEP) declined to $199.6 million, in Q4. For the full-year, GWP declined to $567.5 million and NEP decreased to $508.4 million.
“While our financial performance in 2018 was weak, I am optimistic about our positioning. Through the year we steadily improved the profile of our underwriting business, which has led to a solid start to 2019. I’m encouraged by opportunities we are seeing in the open market and in our Innovations and other strategic partnerships and the progress has been achieved without compromising our focus on expense control. I am also a firm believer in our value-investing strategy and its potential to generate strong returns for our shareholders,” continued Burton.
David Einhorn, Greenlight Re’s Chairman of the Board of Directors, added: “The December equity market sell off contributed significantly to our fourth quarter investment loss. We remain committed to our long-term investing strategy despite a difficult environment for value investing in 2018.”
The hedge fund backed reinsurer model has come under scrutiny in recent years, with some market observers and analysts questioning the performance of players such as Greenlight Re, and noting that when compared with traditional reinsurers, the performance continues to lag.
