Hedge fund reinsurers benefit from strong investments in July

by Artemis on August 3, 2016

The two highest-profile proponents of the hedge fund reinsurance strategy, Third Point Re and Greenlight Re, have both benefited from very strong July investment returns, with a considerable boost to the year being received at both firms.

By the mid-point of the year the two hedge fund backed reinsurers saw investment results diverge, as Greenlight Re which is backed by hedge fund manager David Einhorn fell to a -1% first-half investment loss, while Third Point Re, the Bermudian reinsurance firm backed by Daniel Loeb’s Third Point LLC hedge fund finished the first-half with a 2% investment return.

In July both of the hedge fund strategy reinsurers saw positive investment performance, boosting their year-to-date returns, But Einhorn’s Greenlight Re prospered the most, with a very impressive 4.8% July 2016 investment return.

That’s the best single months performance this year for Einhorn’s Greenlight Re, and has helped the reinsurance firm to reverse the negative performance and record a 3.9% return for the year at the end of July.

Meanwhile, Loeb’s Third Point Re also fared well, although not quite as impressive as Greenlight’s July. Third Point Re reported a 2.6% return in July, which tales the reinsurer to 4.6% for the year-to-date.

So now there is not so much to choose between the two main hedge fund reinsurance firms, as both benefit from market forces driving up their investment returns.

For Einhorn the positive investment performance in the first month of Q3 will help to make up some of the ground lost in the second-quarter of 2016, which saw relatively poor results announced as the reinsurer reported a negative investment performance for Q2, as well as an underwriting hit and costs related to exiting certain reinsurance business. Third Point Re will announce its earnings tomorrow.

July has provided a good example of just how volatile the hedge fund reinsurance strategy can be, as Einhorn’s Greenlight Capital hedge fund showed just how dramatic a turnaround can be from one month to the next, having gone from a -0.9% investment hit in June to a +4.8% positive return for July.

Both of the hedge funds backing these reinsurance firms have gone through some portfolio adjustments at the end of last year and beginning of this one, as they dealt with the fallout of volatile investment markets in H2 2015. It can take time for changes to really manifest themselves in the results and both firms will be hoping that July provides a glimpse of how the portfolios may perform over the rest of the year.

Also read:

S&P warns on longevity of hedge fund reinsurance model.

Third Point leads on Q2 2016 hedge fund reinsurer investment returns.

Third Point Re renews investment agreement with Loeb’s hedge fund.

Hedge fund reinsurer investment fortunes reverse in Q2 2016.

Hedge fund reinsurers investments & underwriting diverge in Q1 2016.

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