Greenlight Re result shows attraction of hedge fund reinsurer strategy

by Artemis on February 19, 2014

The 2013 results posted by Greenlight Re, the Cayman Islands domiciled, hedge fund manager David Einhorn and Greenlight Capital, Inc. backed reinsurance firm, show just why the hedge fund reinsurer strategy is attractive for investors and managers.

Greenlight Capital Re had a good year in 2013, helped by the low-level of catastrophe losses affecting the industry and also buoyed by a strong result from its investments side, driven by David Einhorn’s hedge funds return.

Greenlight Re has managed to achieve better results in 2013, than it did in 2012, despite the highly competitive reinsurance market. Gross written premiums were $537.5m for 2013, compared to $427.8m for 2012 resulting in underwriting income of $37.5m compared to an underwriting loss of $42.6m a year earlier.

The positive underwriting results, which with increased premium income will have driven more premium float into the investment portfolio managed by David Einhorn, was accompanied by a strong investment performance as well. Greenlight Re’s investment portfolio, managed by DME Advisors, LP, returned 19.6% for 2013, its strongest investment return since 2009, with net investment income hitting $218.1m, compared to $78.9m in 2012.

“We are pleased that we experienced positive results from both our underwriting and investing operations during the quarter,” said Bart Hedges, Chief Executive Officer of Greenlight Re. “Our underwriting portfolio has performed profitably; while the overall reinsurance market has become increasingly competitive, we continue to find attractive opportunities.”

“2013 was a solid year for Greenlight Re that showed the strength of our dual-engine strategy,” stated David Einhorn, Chairman of the Board of Directors. “The results of both our underwriting and investment portfolio were good and created value for Greenlight Re shareholders.”

So for hedge fund manager David Einhorn his reinsurance firm managed to underwrite more premiums in 2013, which drove more capital into his investment strategy and this helps to boost his net asset value and profits.

For investors in Greenlight Re, the underwriting profit combined with the impressive investment returns in 2013 drove earnings per share of $6.13, according to the firms 10k filing. That’s the highest earnings per share achieved since before 2009. Basic adjusted book value per share grew from $22.39 at the end of 2012 to $28.39 at the end of 2013, an increase of almost 27% in a year.

When market conditions converge, with low underwriting losses and high returns on the investment side, investors in hedge fund backed reinsurers stand to make extremely attractive returns on their investments. The strategy of lower volatility (than is often typical in reinsurance) underwriting, backed with a non-traditional, often higher performing, investment strategy, can be very effective, as these results show.

For Greenlight, 2013 saw both the asset management and underwriting liability sides of the business perform, giving a great example of why these hedge fund reinsurers will continue to start-up as more asset managers embrace the strategy.

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