Hedge fund manager David Einhorn is generating favorable investment returns after a poor stretch from 2015 through 2021. Investors looking to play his revival can buy shares of
Greenlight Capital Re.
Shares of the small reinsurer, in which Einhorn holds a stake of nearly 20%, trade for roughly 65% of the company’s Sept. 30 book value of $16.58 a share. The stock is off 1% Thursday to $10.72.
Einhorn is chairman of Cayman Islands-based Greenlight Re, which is valued at less than $400 million and pays no dividend.
Greenlight Capital Re
(Ticker GLRE) stock is up 30% this year and is benefiting from two favorable developments—better investment and underwriting results. There could be more upside in the stock given the low valuation, particularly if current trends persist.
Einhorn’s Greenlight Capital runs a chunk of the reinsurer’s investments and that equity-oriented portfolio was up 11.3% through October—slightly ahead of the
S&P 500’s
total return. The portfolio gained 25.3% in 2022 when the index was down 18%. Einhorn came to prominence 20 years ago and was correctly bearish on Lehman Brothers before its demise in 2008.
The reinsurer’s portfolio, now totaling about $375 million including leverage, has a mix of longs, notably a big holding in home builder
Green Brick Partners
(GRBK) which accounts for about a third of it. The fund also owns
Consol Energy
(CEIX), the coal producer and
Brighthouse Financial
(BHF).
It has a mix of undisclosed shorts and some macro plays including a long position in the oil markets. The portfolio is leveraged and was about 33% net long at the end of the third quarter.
Greenlight Re earned $1.99 a share in the first nine months of 2023, helped by investment gains and an underwriting profit, against a loss of 28 cents a share in the prior period. Earnings are tough to predict because they hinge on investment results. Net premium volume was up 18% in the first three quarters of 2023. Reinsurers offer coverage to primary insurers like
Chubb
and Travelers.
The original premise behind Greenlight Re was to create a mini
Berkshire Hathaway
(BRK/A, BRK/B). The company would take property and casualty reinsurance premium revenues and partly invest them in stocks through Einhorn’s Greenlight Capital. Like Berkshire, it would hold cash and limit its insurance risk relative to capital to comfort insurance counterparties. In contrast, most insurers seek to limit risk by weighting their portfolios heavily toward bonds.
Under CEO Warren Buffett’s leadership, Berkshire has long had success with both insurance underwriting and investments. But the Berkshire model hasn’t been easy to successfully replicate.
At Greenlight Re, things haven’t turned out well on both sides of the business, and the stock is down about 40% from its IPO price of $19 in 2007.
The stock remains a show-me story given its history and trades at a discount to most reinsurers which trade at book value or a premium.
There is virtually no Wall Street coverage of the reinsurer, which covers a range of property and casualty insurance risks including workers’ compensation and automotive.
The company had underwriting losses from 2019 through 2022 but has moved to a profit in the first nine months of 2023.
Einhorn’s investment record is another problem. From 2015 through 2021, the reinsurer’s portfolio was in the red while the S&P 500 returned over 150%.
The poor performance reflected a tough period for Einhorn’s value investments and losses on short positions. But Einhorn has done better in recent quarters, in part to a big holding in home builder
Green Brick Partners.
Another potential favorable development for the company is the hiring of Greg Richardson, a former insurance executive at TransRe, as the company’s new CEO. Richardson, who starts at the beginning of 2024, is well regarded. TransRe is the reinsurance arm of Alleghany which was bought by
Berkshire Hathaway
in 2022.
Einhorn’s revival, improved underwriting and a new CEO could mean better times ahead for Greenlight Re.
Write to Andrew Bary at andrew.bary@barrons.com
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