* CEO says competitors not limiting sinkhole losses
* Says new reinsurers not straining market
* Einhorn says portfolio up 2 pct in July
By Ben Berkowitz
July 31 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
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
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
"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
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.