The Brooklyn Investor

So, Greenlight Capital Re (GLRE) announced a not good one fourth/year. 16% stock market last year. 15%. So that’s three years in a row that Einhorn didn’t defeat the S&P 500 index. The BPS (fully diluted modified BPS) growth was not too hot either within the last three years. 15%, 2% and 16% for the S&P 500 index. BPS lagged the S&P 500 going back three years also.

But hold on. We advocate the long-term always. It might be a mistake to jump to conclusions on recent history. We know that the majority of investment errors occur because of the overweighting of the most recent data points. GLRE did better as time passes. The GLRE investment return for 2004 is only for two quarters, therefore i just looked at returns/changes because the end of 2004 (the S&P 500 index return for 2004 is perfect for the full yr so is not equivalent). With this longer term basis, GLRE appears much better.

GLRE’s investments came back an average 9% (versus 4% for the S&P 500) over eight years and 5.7%/yr (versus 1.7%/calendar year for the S&P 500) over the past five years. That’s the average outperformance of 3.8%/year over eight years and 2.4%/year over five years. BPS change, which is basically a function of investment return and combined proportion, also outperformed the S&P 500 index by a nice margin (see above desk).

Other than investments, the other little bit of GLRE’s come back is the insurance business. For the, let’s have a look at the combined proportion. For 2012, it looks bad pretty. The combined ratio came in at 112.9%, far higher than it’s ever obtained, and worse than your competition significantly. TRH was merged into Alleghany (Y) and hasn’t reported yet.

  • Non-market activities- Ex: Volunteering, Babysitting
  • 1991 Subway Lives: 24 Hours in the life span of the New York City Subway. NY: Crown
  • 1,250% for non-DvP, non-PvP transactions more than 5 days past the settlement date
  • Fund of money- Domestic
  • 7 years back from Cebu
  • Companies or individuals seeking alternative investments such as real property and hedge funds

But if you go through the others, it generally does not look too good. The average, too, since 2008 doesn’t look good for GLRE’s business. Questioned about this during the 4Q12 meeting call, they said it’s due to one or two things (commercial autos) and they are working on it. But you know, can it matter if, for example, all of your shares you purchased went down or if one stock pick out really tanked? I have no idea. Just because the bad mixed ratio is because of one (or two) bad idea, that’s not too comforting if it has such an impact on the total ratio.

It just illustrates how focused/focused the business enterprise is and exactly how important it’s going to be to be right. Hedges did say, though, that some of this is because of timing; GLRE didn’t start writing insurance until lately whereas the competitors have been writing for a long time with plans written through the hard market years. A number of the low mixed ratios recently attended from reserve releases from that period which GLRE doesn’t have.

There is certainly some truth to that as we know insurers have been liberating reserves for recent years. Anyway, I up to date a desk that GLRE showed in their presentation this past year. It shows how ROE changes according to various scenarios of investment returns and combined ratios. I used the existing balance sheet of net gained premiums of 60% of capital and investment resources of 150% of capital.