Greenlight Re, the Cayman Islands domiciled reinsurer, backed by fund manager David Einhorn and his Greenlight Capital, Inc. hedge fund which acts as an investment manager for Greenlight Re, faces increasing competition from new reinsurance companies with similar investment strategies.
Rating agency A.M. Best yesterday affirmed Greenlight Reinsurance Ltd’s, its subsidiary Greenlight Reinsurance Ireland, Ltd’s financial strength and issuer credit ratings and its holding company Greenlight Capital Re, Ltd’s issuer credit rating. A.M. Best cited the firms excellent risk-adjusted capitalization, experienced management team and the disciplined implementation of its overall business strategy.
A.M. Best also recognised Greenlight Re’s “Exceptional enterprise risk management as it aggressively manages risks on both sides of the balance sheet.” This refers to Greenlight Re’s, and similar reinsurers, strategy of underwriting reinsurance business and utilising the premiums or float in the parent hedge funds investment strategies.
This strategy can allow them to outperform the wider market, where investment strategies can be more conservative, but also presents risks of its own if the investment portfolio doesn’t perform, as Greenlight Re itself has experienced.
Greenlight Re faces growing competition, according to A.M. Best. Recently Greenlight Re itself admitted that the reinsurance market has become more competitive, the increasing levels of alternative capital in the market a factor, and suggested it may pull out of less profitable areas of the market.
A.M. Best said that Greenlight Re; Faces challenges writing profitable business in a market with increased capacity and further competition from new reinsurance companies with a similar alternative investment strategy.”
The reinsurance market now has a number of firms which emulate the Greenlight Re, hedge fund backed reinsurer, strategy, including the under pressure SAC Re (which is reported to be looking for a new backer), Third Point Reinsurance and the Multi Strat Re initiative.
With hedge funds and asset managers increasingly looking to the insurance and reinsurance sector for sources of investment assets and premium float this competition that Greenlight Re, and other similar reinsurers, face is set to grow.