Greenlight Re (David Einhorn’s insurance company) reported earnings after close on Tuesday. The bad news first: GLRE reported a quarterly loss of 24 million for the quarter. The good news (and it is very good news) is that the company is sticking to its guns on underwriting and turned in an underwriting profit of 4.7 million. Volume is lower but I also take this as a good sign. A poorly run insurance company will respond to a weak underwriting environment by writing marginal policies to gain market share. The best insurance companies walk away when they can’t get their price. It appears GLRE is doing that.
How is Einhorn’s company doing as an investor? Not as well as we could hope. There was a net loss of 1.8% on the portfolio. I have faith that Mr. Einhorn will outperform over periods longer than a quarter however, especially as his operations gain scale.
What matters most to us as insurance company investors, after profitable combined ratio, is the multiple to book our vehicle can command and the rate at which it can grow book value. GLRE is still very cheap, selling for approximately book value. The company will need to build a history of strong growth in book value per share to command a higher multiple. Performance in book value growth was a 9.0% increase over 27.61/share to 30.09/share.
Remember though that GLRE is just one of the companies we pointed out that might become the next Berkshire Hathaway. The other is Third Point Re (TPRE), which is Dan Loeb’s insurance vehicle. They report the quarter tomorrow. I’ll check in on Friday with an update on TPRE’s performance after I’ve had a moment to digest the news.
Devour your prey raptors!