Raptor holding Third Point Reinsurance (TPRE) reported the quarter after close yesterday.  There is much to like and a little to remain concerned about.  The top of the house news is good.  Net income is up to 50.5 million for the quarter, up 26.9% versus the same quarter 2014.  Diluted book value per share (our key metric for an insurer) was about 3.1% since year end was reported.  That is a 12.4% annual pace.  Much better than the performance of the GLRE twin run by Einhorn.

Combined ratio is still an area for concern.  Performance for the quarter was 102.8, which is a large improvement over the 107.1 number from last year.  Still not good enough though.  The good news is there is improvement and the company is investing well enough to overcome the short fall.  I think we will see combined ratio under 100 soon.  What makes me confident is the company has been willing to walk away completely from unprofitable business lines.  That is the kind of ‘just say no’ discipline an underwriter needs.  From the press release:

“In December 2014, The Company announced that it would no longer accept investments in the Catastrophe Fund, that no new business would be written in the Catastrophe Reinsurer and that the Company would be redeeming all existing investments in the Catastrophe Fund. Despite the Catastrophe Fund’s solid investment returns from its inception, the Company is winding it down due to challenging market conditions and competition with other collateralized reinsurance and insurance-linked securities vehicles.  Catastrophe reinsurance pricing and the fees available to manage catastrophe risk have decreased significantly in the past two years.  The Catastrophe Fund Manager will continue to manage the runoff of the remaining exposure in the Catastrophe Fund.”

Now what TPRE had to say about investment results is promising too.  They were firing on all cylinders during the quarter:

“The net investment results for the three months ended March 31, 2015 were driven by gains across all investment strategies.  The structured credit portfolio performed strongly, contributing more than half of the returns for the quarter.  In equities, gains in several core positions in the Industrial & Commodities and Healthcare sectors more than offset moderate losses in Technology, Media and Telecommunications and Financials.  Net investment income for the three months ended March 31, 2015 benefited from higher average investments managed by Third Point LLC compared to the prior year period due to the float generated by the Company’s reinsurance operations and the proceeds from the issuance of $115.0 million senior notes during the period.”

What gets me excited is what can happen when Dan Loeb finds himself with a vehicle that is providing him free money to invest via a sub 100 combined ratio.  The next Berkshire Hathaway?  Not for another 50 years but this is a nice start.

Devour your prey raptors!

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