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TPRE - Third Point Reinsurance


giofranchi

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Hi guys,  I'm happy to go research this myself, but in the interest of keeping the discussion going, does anyone know/recall any proxy contexts Dan Loeb has run/won?  I know he ran the Yahoo one and then got greenmailed out a few months back.  I've sort of convinced myself all he does it write nastygrams.

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I've sort of convinced myself all he does it write nastygrams.

 

;D ;D

Maybe... but the fact is I don’t think you really have to win a proxy context, for your investment thesis to prove successful… Usually, it is a win-win situation: either you win the proxy context and get control, or you force changes. In both outcomes you will witness a significant stock price appreciation. Yahoo has been a huge winner for Loeb! What you really have to watch out for are your costs (legal and others), which in some instances can be very high! But I guess Mr. Loeb knows his game very well. ;)

 

Gio

 

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Thanks.  Yeah, I agree its all relative.  I much prefer someone who will pen a nastygram to the typical manager who just sits there sucking his thumb, but I have an even greater preference for guys like Icahn, TPG/Dinakar Singh, Singer/Elloitt and Phil Goldstein who know how to actually bring the pain for management if needed.  Just another tool in their chest.

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The company pays a standard 2% management fee and 20% performance allocation

 

Ouch.  Seems like a decent way to get around the accredited investor rules and get that fee vacuum on the retail clients.  I hold the same critisim of Einhorn's Greenlight re. Dan Loeb and Einhorn have impressive records, but why not just go with BRK, or mirror the 13-fs (with leverage if you desire)? Cut out the rake, and lower the cost of leverage.

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Gio, since the investments in TPRE are managed by Third point LLC in a separate account, do they have the same investments in proportion as the Third point offshore fund?

 

Yes! I think they are. In fact, the monthly report on investments you can download from the TPOU’s internet site and the one downloadable from the TPRE’s internet site are exactly the same, aren’t they?

 

Gio

 

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I don't like the 107% Combined ratio.

 

Actually, when you start a new reinsurance company, you have kick off costs that afterwards should disappear… at least in theory! And it takes some time to grow premiums relative to general and administrative costs (which tend to be almost fixed). Therefore, I think the 107% combined ratio still might be negatively affected by those two facts. But it is clearly improving: from 127% in 2012 to 107% in 2013. Let’s hope they keep lowering it! :)

 

Gio

 

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I don't like the 107% Combined ratio.

 

Actually, when you start a new reinsurance company, you have kick off costs that afterwards should disappear… at least in theory! And it takes some time to grow premiums relative to general and administrative costs (which tend to be almost fixed). Therefore, I think the 107% combined ratio still might be negatively affected by those two facts. But it is clearly improving: from 127% in 2012 to 107% in 2013. Let’s hope they keep lowering it! :)

 

Gio

 

Yeah. I found that a member on page 1 pointed out that the underwriter achieved a history of 91% combined ratio in 30 years. I think if that could happen here, that would be great!

Have you ever done a stress test of this company under a 2007-2009 cycle? Third Point didn't do too well at that time, and I am concerned if TPRE would get wiped out in that case.

Is there any reinsurance regulators in Bermuda that would push for a capital raise if the investment portfolio tanks?

 

I did a little bit of homework to try to answer this question myself. I got a vague answer here. If anyone has a better understanding, please let me know.

http://www.insiderquarterly.com/right-on-time-

"He also emphasises the stress-testing conducted by AM Best before awarding a rating. The agency took Third Point LLC's worst year on record - when it lost 30 percent in 2008 as hedge funds were mired in the financial crisis - and flexed Third Point Re's model for that level of degradation."

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