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.

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GLRE Update

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4 thoughts on “GLRE Update

  • May 7, 2015 at 4:16 pm
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    It is interesting to see how there are other’s trying to emulate the Berkshire Hathaway model. If you get the float at cost, you are essentially getting an interest free margin loan that you may never have to pay back. I have not checked, but do you know how the equity portfolio has done for GLRE?

    In general, I am usually skeptical about the concept of “the next something”. In most cases throughout my investing “experience”, anytime I said something is the next something, I always lost money.

    Reply
    • May 8, 2015 at 12:53 am
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      DGI,

      The GLRE portfolio is vastly underperforming the 25% a year the Green Light Hedge Fund is used to experiencing. I’m sure they have to be more concerned about liquidity and need a higher allocation to bonds for a small insurer. Like you say, their profitable underwriting is effectively a margin loan with a negative interest rate. My money (but not much!) is on Mr. Einhorn finding a way to turn that negative interest margin loan into a much larger pile of money over the next three decades. Time will tell if he can outpace Buffet; those are mighty large shoes to fill!

      The growth rate in book was about 9%, enough to get you there if the company starts rewarding shareholders. Merely par for the equities course if they are going to reinvest all proceeds internally. I think you have to give this story at least another 7 years to play out before you can know. Thus, I am going with a basket that includes TPRE.

      Reply
  • May 8, 2015 at 6:56 pm
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    That is an interesting sector for sure. I would love to own/be in charge of investments for a conservatively managed insurance company. I think that even if I just bought the 100 – 1000 largest companies in the US, I would likely do better than everyone else.

    You might enjoy Buffett & Munger quotes about reinsurers from their 2015 meeting (sorry for posting an outside link):

    http://www.gurufocus.com/news/334684/detailed-notes-from-berkshire-shareholder-meeting-2015–part-ii

    Reply
    • May 8, 2015 at 7:53 pm
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      Thanks DGI. No worries about outside links. I’m open to alternative viewpoints and even self promotion by other bloggers so long as it doesn’t cross the fuzzy line into SPAM territory. Buff and Mung have been chafing a bit about the trend in Reinsurance for at least 3 years. I think Einhorn and Loeb are the primary irritants in that case. I’m updating TPRE within the hour. Combined ratio is still over 100 so you could make an argument that TPRE isn’t really a legitimate insurer yet. The improvements with scale have been impressive though.

      Reply

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