Just a note for you today — you may have noticed that Daniel Loeb’s Third Point Reinsurance (TPRE) went public this morning. The pricing was at the bottom of the expected range at $12.50, and the stock was flat when it started trading this morning.
According to the pre-IPO filing, TPRE book value per share was $12.40 at the end of June. The fully diluted book value per share was lower, thanks to some options and unvested restricted stock, at $12.07. Given Loeb’s investment prowess and the bona fides of the manager of the insurance business, I’m willing to pay book value for the stock to take an initial position so I picked up a few shares near the open today at very close to the $12.50 IPO price. This is a very, very small position, less than 1% of my portfolio, and I’m really picking it up just to get a taste of how the company performs over the next few quarters. If I like what I see and the valuation is compelling, I may addd to the holding eventually but I’ll likely wait for a couple quarters to see how the operations shake out first.
The trend in operations is good — they’re still losing money, which is not unusual for a new insurance company (they’ve been in operation about 18 months), but their combined ratio has been pretty consistently improving as they manage costs and pricing of their products. I don’t have a handle on how they underwrite or what their operations look like, but I get the impression they take on more risk than Greenlight Re (more catastrophe risk, that is), so it could be volatile. I expect the company to have a hard time competing in this space, which means they may have a hard time making strong operating profits, but Loeb’s portfolio has been generating enough income to get them over the hump for now and their very well-pedigreed insurance expertise at the helm gives me enough confidence to buy a few shares.
Unlike David Einhorn at Greenlight Re, Daniel Loeb is not on the board at TPRE and does not take an active role in managing the reinsurer, he just owns a solid chunk of it (between 8-9% according to published reports, I haven’t checked to see if he has any special shares like Einhorn does of GLRE), and his Third Point hedge ...