GLRE - Greenlight Capital Re

[Scunny Bunny]

done and done. My apologies.

[muscleman]

GLRE trades at $18.40 for a market cap of $681m and a 9/30/15 NTA of $23.40/share - a 21% discount. NTA at 12/31/2015 should be around $1.10 lower based on -4% investment return in Q4, so at $22.30 estimated NTA the discount is about 17.5%. I've always figured the very best time to buy insurers - subject to them having some kind of underwriting skill - is when the THREE key drivers of investment return - (1) underwriting profitability (2) investment returns (3) price/NTA for the company - are way low.  GLRE sure fits all three at present in spades. (1) I run rolling twelve months results on the company and it lost around $60m from UW in the year to 9/30/15.  Of that, about $37m was from a liability program in run off. Historically the UW hasn't been great with adverse loss experiences in 4 of last five years; however, they've generally been smallish and the company writes very little earned premium ($360m annually) versus equity of about $867m. So its not leveraged too badly to current day underwriting.  Nor is it leveraged to adverse reserving since reserves net of reinsurance (yep aware of that risk) are only $164m or $4.42 a share. Reserves are paid off relatively quickly.  (2) investment returns have been killed by David Einhorn's implosion in Q3 when investment return was (14.2%) in the quarter.  Things hadn't improved by 11/30/15 when the return had "grown" to (20.2%) for the 11 months and based on knowledge of the major holdings - AER, APPL, CNX, GM and gold - it probably hasn't done much in December either.  Einhorn has been a class long term investor and its obviously a matter of judgement as to whether he can get it back together again.  If you believe he can, then there's about $8/share of investments (ex-cash) netting short against long ($51.40/share if you gross the exposures).  because of the nature of the investing, there is a net $23.72/share in CASH. (Hold that thought). A reasonable criticism of GLRE is the Einhorn take of "1.5% + 20%". Totally fair but he is miles underwater on the HWM and needs to recoup $150m plus ($200m + probably) to get back there.  So there's a free kick for a while. (3) the discount is obvious and the company has been buying back stock.  GLRE represents c.10% of Greenlight assets managed so its relevant and Einhorn wouldn't want to liquidate that easily.  But if the discount grows, it would become an option. Given the apparent lack of leverage to underwriting, there may be some chance of "embarrassment" pressure - remember the company is incorporated in Grand Cayman so certain rules don't apply. I do own the stock having acquired recently.

 

Please delete the other thread.

You should use the up to date book value instead of 9/30 book value. I think it will be much lower right now than 9/30.

I don't think full liquidation is what he wanted to do. It will be better to partially liquidate and buy back stocks.

 

I still have doubts about his investing ability. It hasn't been that great in the past 5 years. People justify the low track record by saying that he is conservative and heavily hedged, but if you look at the recent market down turn, his portfolio dropped a lot, which mean he is not well hedged.

 

In addition, he seems lack of George Soros' understanding of reflexivity, which basically says the more over valued, the over valuation itself can cause the fundamental to dramatically improve, which further confirms the bull and make the stock price go up. He failed to understand this but he is shorting a bunch of names with this relationship and losing.

 

 

[dcollon]

S&P sounds alarm on hedge fund reinsurers

 

http://www.ft.com/cms/s/0/5ef77350-4383-11e6-b22f-79eb4891c97d.html#axzz4DjRfkEDi

 

[Haasje]

This article is kind of discussing last year  :-\

 

"As reinsurance pricing continues to decline across the board, and subdued investment returns fail to compensate for underwriting losses, we might start to see bigger cracks in certain HFR models,” said Taoufik Gharib, S&P credit analyst."

 

It is not a good market is what I hear from everyone. The reinsurers tells us themselves. Buffett says it. Etc it is not new and I expect this is pretty much baked in. Ok maybe you could argue a below < book value numer is appropriate on this perspective.

 

"In contrast, HFRs pursue what S&P described as “meaningfully riskier” investment strategies. Their assets are managed by their affiliated hedge funds. Allocations vary but include exposure to speculative-grade leveraged loans, private equity and short positions."

 

Such a genius comment by S&P. Regulators still look at the investment strategies of the hedge funds I think they are required to have a long/short strategy if they want to invest a lot in equities. You could really argue whether bonds are safer right now as compared to long/short. If rates move up 3% fast, long/short can do fine but bonds are going to blow up right? So, what's safe?

 

"Poor performance of several large hedge funds recently has raised questions over the consistency of their investment returns — and the risks they are willing to take to deliver them. Greenlight Capital, the hedge fund affiliated with Greenlight Re, lost a fifth of its clients’ money last year after several of its biggest investments went against it."

 

I think this is unbelievably cherry picking of results to prove your point. It is one of two downyears in the history of Greenlight Capital...

 

"So-called combined ratio for the HFRs — claims paid and expenses incurred as a proportion of premium income — has been above 100 in every year since 2012, meaning a loss from underwriting. Last year the ratio came in at 110.2 per cent, compared with a profitmaking 88.6 per cent for their conventional reinsurance peers."

 

I don't know which hedge fund reinsurers they included in this evaluation and I'm only quite familiar with Greenlight Re. In that specific case there is certainly something to be said about the underwriting. Greenlight Re for the most part reinsures high frequency claims. That means it mostly doesn't reinsure the cat risks. On the cat risk stuff you can get unbelievable combined ratios. Very deep below 100. Then, at some point, you blow up. I wouldn't be surprised if the hedge fund reinsurers were leaving the cat stuff for the "conventional reinsurers".

 

So in reality the conventional reinsurers could be reinsuring lots of cat risk and hitting the ball out of the park on their combined ratios. Invest their float in "rock solid" bonds and outperform the sucker hedgies like no tomorrow.

 

Until they utterly blow up. Let's see who the sucker is in the end  8)

 

 

 

 

 

 

[fareastwarriors]

Greenlight Capital Re CEO Barton Hedges to Leave]Greenlight Capital Re CEO Barton Hedges to Leave

 

http://www.wsj.com/articles/greenlight-capital-re-ceo-barton-hedges-to-leave-1482160792

[james22]

GLRE was cheap @~80% book value with a new CEO with a Lancashire pedigree.

 

Anyone interested?

[CorpRaider]

I was mostly dinging myself for thumb sucking when it got down below $20, but I am watching it.  Einhorn is legit, zero doubt in my mind, but I don't like the shorting and macro and you never know how a divorce or stuff like that will impact someone. 

[HJ]

I haven't dug into the docs more carefully, but is he charging lower fee on the asset side for the reinsurer?  2 and 20 is awfully hard to swallow.

[TBW]

I owned in the past, but changed my mind.  Reinsurance by all accounts is too cheap.  Guys like GLRE don't have the relationships, so they get picked-off or have to offer very competitive rates to compete.

 

On the investing side you are charged 2 x 20.

 

Also, all other insurers have an investment side that starts with a positive yield.  With GLRE the inv sides starts with a cost.  That is a very different beast.

 

So you really have to clear two hurdles here, tough operating environment and large fees on inv side.  To me that was too much.

 

I have a tonne of respect for Einhorn and I do think any future mkt dispersions should see him do very well.  But you really need him to crush it and soon for this to do really well. 

 

Just my thoughts

[Gregmal]

I owned in the past, but changed my mind.  Reinsurance by all accounts is too cheap.  Guys like GLRE don't have the relationships, so they get picked-off or have to offer very competitive rates to compete.

 

On the investing side you are charged 2 x 20.

 

Also, all other insurers have an investment side that starts with a positive yield.  With GLRE the inv sides starts with a cost.  That is a very different beast.

 

So you really have to clear two hurdles here, tough operating environment and large fees on inv side.  To me that was too much.

 

I have a tonne of respect for Einhorn and I do think any future mkt dispersions should see him do very well.  But you really need him to crush it and soon for this to do really well. 

 

Just my thoughts

 

Agreed. GLRE IMO benefits Einhorn more than Einhorn benefits GLRE.

[james22]

GLRE was cheap @~80% book value with a new CEO with a Lancashire pedigree.

 

Anyone interested?

 

How about now at ~75% book value and Einhorn believing a shift in favor of value stocks may soon be coming (at least 9 months closer to the end of the cycle)?

[scorpioncapital]

Maybe he should switch from poker to bridge.

What happens in poker if you keep doubling down at every turn with nothing in your hand? You might win but it's just a pure gamble. If I was his opponent in poker and he played this way I'd be happy. If I was his partner in investments and he played this way I'd want to run away fast.

However, I would argue his thesis that value is mean reverting is only true if there is some decent quality in the value stocks. If they are sub-average he may wait a long time or forever. It all boils down to stock selection and even a shrinking value stock tends to 'grow into' it's low valuation (just look at IBM)

[Spekulatius]

Both the underwriting and the investment returns suck, that is why GLRE trades at 0.75x book. Maybe the new mangement fixes the underwriting, but it will some time to play out. The investment side is harder to fix, because I don’t think they can fire the investment manager. :P

 

It is funny how Einhorn pushes for aggressive capital actions with his stock positions, but here he can buy back a dollar for 75c in his own company and dances around it.

[CorpRaider]

Yeah, I haven't bought any.  I think a kitchen sink quarter from the underwriting side was to be expected.  I haven't yet become comfortable with his shorting or paying anyone those fees and the impact of the recent tax reform (PFIC?).  Also, concerned about reinsurance disintermediation in general. 

[kab60]

Maybe it's time for an activist to step in and kick the investment manager out to unlock value. That would be the ultimate defeat. :P (I actually like Einhorn and his reasoning, but jeeez I'm glad I haven't shorted what he's up against. I think he might ultimately be proven right (on company calls - NOT timing!) but until then it's pure pain. Ouch).

[Liberty]

One problem with Einhorn seems to be (based on my skimming of his recent letters, I haven't followed him closely in many years) that he blames external factors for his problems (oh, value has underperformed for such a long time) rather than mistakes in his analysis (maybe I shouldn't have shorted Tesla and Amazon and gone long some of the stuff I've been long).

 

I bet that if he turns around, he won't say he's up just because of external factors rather than because of his analysis...

[StevieV]

I owned in the past, but changed my mind.  Reinsurance by all accounts is too cheap.  Guys like GLRE don't have the relationships, so they get picked-off or have to offer very competitive rates to compete.

 

On the investing side you are charged 2 x 20.

 

Also, all other insurers have an investment side that starts with a positive yield.  With GLRE the inv sides starts with a cost.  That is a very different beast.

 

So you really have to clear two hurdles here, tough operating environment and large fees on inv side.  To me that was too much.

 

I have a tonne of respect for Einhorn and I do think any future mkt dispersions should see him do very well.  But you really need him to crush it and soon for this to do really well. 

 

Just my thoughts

 

I also owned for a bit, and then sold out.  The theory was, Einhorn + investing leverage = compelling math.  It hasn't worked out that way at all.

 

As someone else noted, both the insurance operations and the investing haven't performed well.  I likely underestimated the difficulty on the insurance side.  I didn't expect that the company would make strong, or even any, insurance profits.  However, I expected the people, prudence and skills to get around break-even.  Probably more difficult than I gave credit for.

 

On the investing side, Einhorn simply hasn't had good returns lately.  I am not sure this could have been anticipated.  He had a great track record, and I generally agree with his analyses.  It just hasn't been working.  From the investor side, the whole basis of the company is Einhorn's investing.  If he doesn't produce, there is no reason to invest.

[rb]

Both the underwriting and the investment returns suck, that is why GLRE trades at 0.75x book. Maybe the new mangement fixes the underwriting, but it will some time to play out. The investment side is harder to fix, because I don’t think they can fire the investment manager. :P

 

It is funny how Einhorn pushes for aggressive capital actions with his stock positions, but here he can buy back a dollar for 75c in his own company and dances around it.

If Einhorn would buy back stock at .75 that would maybe be good for shareholders of GLRE (assuming the thing is worth more than .75) but it would mean less money into his fund to charge 2 and 20 so it's not gonna happen. I would love for someone to ask the question on a call though. The mental pretzel to justify not doing the buyback is gonna be a lot of fun.

[Spekulatius]

Both the underwriting and the investment returns suck, that is why GLRE trades at 0.75x book. Maybe the new mangement fixes the underwriting, but it will some time to play out. The investment side is harder to fix, because I don’t think they can fire the investment manager. :P

 

It is funny how Einhorn pushes for aggressive capital actions with his stock positions, but here he can buy back a dollar for 75c in his own company and dances around it.

If Einhorn would buy back stock at .75 that would maybe be good for shareholders of GLRE (assuming the thing is worth more than .75) but it would mean less money into his fund to charge 2 and 20 so it's not gonna happen. I would love for someone to ask the question on a call though. The mental pretzel to justify not doing the buyback is gonna be a lot of fun.

 

Agreed on above and these insurance /hedge fund vehicles seem to resemble more poorly managed high fee closed end funds rather than the BRK Original that they were build after. I would love an activist to put pressure on this.

[given2invest]

Lost 4.8% in Feb.  OUCH

[Lakesider]

http://www.sunesiscapital.com/greenlight

 

Greenlight short thesis. Interesting read.

 

[Spekulatius]

http://www.sunesiscapital.com/greenlight

 

Greenlight short thesis. Interesting read.

 

David getting taste of his own medicine. ;D

 

I don’t think that there is a huge risk that GRLE will get the dreaded PFIF designation. GLRE insurance losses are too substantial for insurance being called  cover operation. That won’t help much fighting the shorts, though.

[ukvalueinvestment]

But their insurance operation has been turning around hasn't it?  It's had a new guy in charge for a year now and the combined ratio is down to 96%.

 

It feels like sentiment can't get much worse and operations and investments both have scope to improve on the upside.

 

I don't think that David Einhorn has suddenly become a bad investor.

[given2invest]

It hasn't been sudden.

[muscleman]

But their insurance operation has been turning around hasn't it?  It's had a new guy in charge for a year now and the combined ratio is down to 96%.

 

It feels like sentiment can't get much worse and operations and investments both have scope to improve on the upside.

 

I don't think that David Einhorn has suddenly become a bad investor.

 

We may need an activist to oust Einhorn and put in better ones like David Tepper.  ;D