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Einhorn says liquidation of Greenlight Re 'very unlikely' as it weighs options

Liquidation or a large capital raise for Greenlight Capital Re Ltd. are "somewhere between very unlikely and remote at this stage," according to chairman David Einhorn.

But he said the reinsurer, with operations in the Cayman Islands and Ireland, was "not in a position to rule out any particular thing completely" as it continues to evaluate its future.

Greenlight Re's executives faced questions from investors on an earnings call about the company's continuing strategic review after announcing, in its second-quarter 2019 earnings, that it had hired investment bank Credit Suisse to help conduct the review.

The review was triggered by rating agency A.M. Best's decision May 31 to change the outlook on the reinsurer's A- financial strength rating to negative from stable, putting it at risk of a downgrade. Greenlight Re said in a statement at the time that the outlook change was caused by "negative underwriting performance and a material decrease in surplus in recent years."

The company also partially de-risked its investment portfolio following A.M. Best's announcement.

Strategic partners

Greenlight Re's management gave few concrete details of what options the review was considering. But Einhorn said the company had appointed Credit Suisse in part because it has "a large number of contacts and relationships with a broad number of potential strategic partners that we may want to consider engaging with."

Greenlight Re had a number of "attractive assets," he said, including its existing books of business in the Cayman Islands and Ireland, its investment program and its public listing.

Einhorn noted the gap between Greenlight Re's book value per share of $13.58 and its share price, adding, "It is something we hope will be addressed through this [review] process in reasonably short order."

When asked how long Credit Suisse would take with the review, he replied: "Without putting a line in the sand, we expect to have progress this year."

Retro nonrenewal

Greenlight Re's second-quarter 2019 earnings were an improvement over its performance in the same period of 2018. The company made a profit attributable to shareholders of $15.3 million, compared with a loss of $37.4 million. This was mainly driven by a turnaround in investment performance — the company's net investment income was $18.8 million for the second quarter of 2019, compared with a $40.7 million loss in the year-ago quarter.

The Nasdaq-listed company's shares were up 17.69% to $9.58 a share as of 10:42 a.m. Eastern time.

Greenlight Re CEO Simon Burton said the company had a "good quarter" and that the 7.2% growth in gross written premium to $152.3 million in the quarter was the first year-on-year quarterly increase since the company changed its underwriting appetite in late 2017. He attributed the growth to "a combination of attractive sources of new business and rate improvements in multiple areas of our existing portfolio."

Burton said the company saw opportunities in London market specialty business because of the profit push at Lloyd's of London, which has resulted in the withdrawal of capacity, particularly in marine, energy, satellite and aviation.

He added: "We have been building positions in each of these classes and expect to benefit from margin expansion as we renew and write additional business in these areas."

Burton revealed that the company had not renewed its retrocession coverage because retrocession price increases had exceeded reinsurance price increases by between 5% and 10%, and the company wanted to "maximize the return on the allocated capital."