Investing with David Einhorn - Greenlight Capital Re Ltd

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Oct 30, 2009
You can invest with David Einhorn by owning stock in Greenlight Capital Re Ltd. Einhorn is the Chairman of GLRE and owns 17.4% of the shares outstanding. However, as a caveat, he owns super voting B shares which carry 10 votes for each share so this is really his baby.


GLRE is a specialty property and casualty reinsurer based in the Cayman Islands which affords it tax-free status. David Einhorn has created GLRE as a vehicle to raise funds to invest primarily in equities or debt of other companies.


The strategy of any insurance company is to invest premium income so as to generate returns before claims are paid out. Therefore it is possible to generate earnings even if a company's combined ratio is 100%, meaning an insurer pays out as much in claims as the premium income it generates. GLRE's combined ratio is is expected to be 83% for 2009 and 2010 according to Value ine estimates which means it is making an underwriting profit of 17% for the reinsurance it is writing in addition to generating investment returns on its portfolio. The following link from GLRE's website shows it investment returns since the company was formed. http://www.greenlight.ky/?=node/91 While most insurance companies generally invest in conservative fixed income securities GLRE throught DME Advisors, which I will discuss shortly, will employ more aggressive strategies including long and short sales, derivitives and options to enhance returns. While this might cause some discomfort among insurance company investors I believe Einhorn's record speaks for itself.


All GLRE's investing will be done by DME Advisors, the hedge fund firm Einhorn manages. An investment in GLRE is a way for the average investor to generate hedge fund like returns without a direct investment in one.


GLRE has only been a public compaqny since 2007, but since its inception in 2004 it has increased BV/share from $10 to $19 by year end 2009 and has shown compounded annual premium growth north of 30% in what has been a generally crummy environment for insurance underwriting and a week equity market. GLRE is expected to earn $4.50 per share in 2009 which ammounst to a PE ratio of just over 4 at yesterday's closing price of $19.21, although I would argue that book value will be the stock's primary value determinent.


A bet on GLRE is a regular guy's way of getting David Einhorn to work for you where his interests are aligned with yours.