Hedge fund manager David Einhorn has staged an impressive comeback after a challenging period from 2015 through 2021. For investors seeking to capitalize on his resurgence, shares of Greenlight Capital Re offer an enticing opportunity.
With Einhorn maintaining a stake of nearly 20%, the small reinsurer's stock is currently trading at approximately 65% of its book value of $16.58 per share as of September 30. Although the stock experienced a 1% decline on Thursday, it still stands at a reasonable price of $10.72.
Einhorn serves as the chairman of Greenlight Re, a Cayman Islands-based company valued at under $400 million with no dividend payments.
In 2023, Greenlight Capital Re's stock (ticker: GLRE) has surged by 30%, thanks to two positive factors: improved investment outcomes and underwriting results. Considering the company's attractive valuation, there may be additional upside potential for the stock if current trends persist.
Einhorn's investment management firm oversees a significant portion of the reinsurer's investments, and its equity-oriented portfolio delivered a notable return of 11.3% through October. This performance slightly outpaced the S&P 500's total return. Impressively, the portfolio achieved a gain of 25.3% in 2022 when the market index fell by 18%. Einhorn's track record includes correctly predicting the downfall of Lehman Brothers in 2008, further enhancing his credibility.
Currently valued at approximately $375 million, including leverage, the reinsurer's diversified portfolio consists of long positions, with Green Brick Partners (GRBK), a prominent home builder, accounting for approximately one-third of the holdings. Additionally, the fund owns Consol Energy (CEIX), a notable coal producer, and Brighthouse Financial (BHF).
The portfolio also incorporates undisclosed short positions and macro plays, including a long position in the oil markets. By the end of the third quarter, the portfolio had a net long exposure of around 33%, indicating a leverage strategy.
Throughout the initial nine months of 2023, Greenlight Re achieved earnings of $1.99 per share, significantly benefiting from investment gains and underwriting profitability compared to a loss of 28 cents per share in the previous corresponding period. Notably, it's essential to recognize that earnings projections remain challenging due to the influential nature of investment outcomes. Meanwhile, the company experienced an 18% increase in net premium volume during the first three quarters of 2023. Reinsurers like Greenlight Re offer essential coverage to primary insurers such as Chubb and Travelers.
In conclusion, Greenlight Capital Re presents a favorable investment prospect, with David Einhorn's expertise fueling its recent success. With its attractive valuation, positive performance, and diverse portfolio, this small reinsurer holds promise for investors seeking sustainable returns.
Greenlight Re was founded with the aim of emulating the success of Berkshire Hathaway, one of the most renowned conglomerates in the world. The company's unique strategy involved utilizing property and casualty reinsurance premium revenues to invest in stocks through Greenlight Capital, an investment firm led by David Einhorn. While many insurers prioritize minimizing risk by leaning heavily on bonds, Greenlight Re sought to replicate Berkshire's model by maintaining a cash reserve and limiting insurance risk relative to capital in order to reassure its insurance counterparts.
Berkshire Hathaway, under the leadership of CEO Warren Buffett, has proven adept at both insurance underwriting and investments. However, replicating Berkshire's success has proven challenging for Greenlight Re.
Unfortunately, Greenlight Re has faced difficulties on both sides of its business, resulting in a decline of approximately 40% from its IPO price of $19 in 2007.
To date, the company remains a show-me story due to its track record and trades at a discount compared to most reinsurers, which typically trade at or above book value.
An interesting observation is the lack of Wall Street coverage on Greenlight Re, considering that it covers a range of property and casualty insurance risks such as workers' compensation and automotive.
While Greenlight Re experienced underwriting losses from 2019 to 2022, the company has managed to turn a profit in the first nine months of 2023.
David Einhorn's investment record is also a concern. Between 2015 and 2021, the reinsurer's portfolio performed poorly while the S&P 500 delivered returns exceeding 150%.
This underperformance can be attributed to a challenging period for Einhorn's value investments and losses on short positions. However, Einhorn has shown improvement in recent quarters, partly due to a significant stake in home builder Green Brick Partners.
Another positive development for Greenlight Re is the appointment of Greg Richardson as the company's new CEO. Richardson, a former insurance executive at TransRe, is highly regarded in the industry. TransRe, which is the reinsurance arm of Alleghany, was acquired by Berkshire Hathaway in 2022.
With Einhorn's resurgence, improved underwriting performance, and the addition of a respected CEO, Greenlight Re may be poised for a brighter future.
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