* CEO says competitors not limiting sinkhole losses
* Says new reinsurers not straining market
* Einhorn says portfolio up 2 pct in July
July 31 (Reuters) - Hedge fund heavyweight David Einhorn's reinsurance business, Greenlight Capital Re Ltd, on Tuesday warned that other insurers were making "irrational" deals in Florida in the face of heavy competition.
The Florida market is crucial for Bermuda- and Caymans-based reinsurers like Greenlight because of the heavy weather-related risks there. Reinsuring Florida homeowners' policies has been one of Greenlight's key categories in recent years.
But Greenlight's chief executive, Bart Hedges, said there was so much competition in Florida that some companies were writing deals he considered unsound.
"In some cases we witnessed what we consider irrational behavior," Hedges said on a conference call with analysts. As an example, he cited reinsurers writing contracts without loss limits for sinkhole claims, traditionally a major problem in the state.
Greenlight Capital Re wrote no new business in the state during the second quarter and reduced its existing book of business as well, he said.
Hedges added that the company had seen competitors writing deals with smaller profit margins and larger potential maximum losses than Greenlight was willing to do.
Greenlight's success since its founding in 2004 has served as a model for other hedge fund managers who have recently jumped into the reinsurance business, drawn by the chance to raise fresh investment capital and by the reinsurance industry's lack of a direct connection to broader moves in financial markets.
In recent months, hedge fund notables Daniel Loeb, John Paulson and Steven A. Cohen have been involved in the creation of reinsurance companies, an influx of capital that some fear could depress prices across the industry.
But Hedges dismissed that threat, given that the three are relatively smaller, with about $500 million in start-up capital each.
"I do expect to run into them from time to time but I don't expect it to be a big problem for us," he said.
Einhorn also spoke on the conference call, saying underperformance in some of the reinsurer's long-term investments weighed on results in the second quarter.
But the investment portfolio is up 2 percent in July, he added, led by the performance of a long investment in wireless carrier Sprint.
Shares in Greenlight Capital Re opened down 0.6 percent at $23.36. The stock currently trades at 0.89 times book value, roughly in line with larger peers.