This is just a quick note to let you know of a personal buy in my portfolio — as shares of Third Point Reinsurance (TPRE) dipped today below $14.30 they triggered an incremental buy in my account, so I increased my holdings in TPRE by about 20% today.
That doesn’t mean TPRE will go up from here, but I’m happy to buy it at very close to the book value per share, which is the standard valuation metric I fall back on for insurance and reinsurance companies. Loeb’s Third Point has done a good job managing the investment portfolio for the reinsurance company thus far, though the third quarter investment portfolio was probably roughly flat (down a bit in July, up a bit in August, flat for September). That means the book value is likely to fall a little bit when they next announce their earnings, since they will probably not be profitable on the underwriting/insurance side, but it shouldn’t fall very much — and the underwriting performance has been on a generally improving trend toward eventual (maybe this winter) break-even. Book value is reported at $14.21 per share as of June 30, though it’s down to $13.70 or so if you account for dilution, so at this price I’m paying about a 5% premium to book value.
This is a long-term hold for me, essentially a way for a small investor to invest with Dan Loeb and to possibly get a little bit of free leverage on that investment since it flows through a reinsurance portfolio (because the investment portfolio is substantially bigger than the market cap for most insurance companies — even though they’ve only had a couple years to build up the float, the portfolio managed by Third Point for TPRE is at $1.7 billion, the market cap is $1.5 billion … this will get more pronounced over time, if managed well, which will mean big boosts to earnings if the portfolio continues to be well-managed, which is why I like having one of our generation’s best investors at the helm of the portfolio).
I think Greenlight Re (GLRE), which is also falling in price, is a safer bet because of their more established insurance operation (they’ve been around for many more years than TPRE, which is only a few years old and has only been public for one year) and their better deal ...