I wrote last month that I couldn’t justify buying more Third Point Reinsurance at $18 — and, indeed, that $16 was a stretch for new purchases as we wait for them to become profitable in their reinsurance business at some point over the next year (potentially … profitability is not, of course, guaranteed) and watch to see how Daniel Loeb’s investment portfolio does. They’ve still only reported a single quarter as a public company, so one wouldn’t want to overpay for this emerging reinsurance business … particularly when the chatter from most reinsurers is that the added capacity is pressuring reinsurance prices (particularly from “non traditional” pools of capital like hedge funds… as with TPRE).
But when it dipped down into the $14.80s today, I doubled my position. Book value should have risen in the fourth quarter by at least a little bit, given solid investment performance in that quarter, or at least have stayed stable depending on the losses on reinsurance — so anything under $15.20 means you’re paying a premium of less than 1.2X September’s book value. Better, of course, to buy the stock at a discount to book value if you can — and there may be opportunities to do so at some point, particularly if sentiment about reinsurance turns or if the market crashes more substantially, but I’m happy to build a larger position in a well-managed and small firm at this price.
They have a great investor running the portfolio, they have excellent insurance people in charge of the reinsurance business, and this now becomes a mid-size position for me personally … still much smaller than my holdings in competitor Greenlight (GLRE) or other insurers Markel (MKL) or Berkshire Hathaway (BRK-B). We’ll see how it goes — earnings come out on Wednesday evening, and the shares have been falling for the last month after peaking at pretty ridiculous valuations in early January so I suspect the shares don’t have too far to fall even if earnings are disappointing … but I’ll re-evaluate after they release their numbers.