Greenlight Capital Re, Ltd. (NASDAQ:GLRE)

cashsage (30.40) Submitted: 1/4/2009 12:36:59 PM : Start Price: $14.02 GLRE Score: -30.08

GLRE has a too high valuation compared to its assets under management. It is also loss making and does not distribute any dividend.

lawyerguy (59.49) Submitted: 10/13/2008 6:24:30 PM : Start Price: $14.10 GLRE Score: +44.89

Reinsurance gives a keen investor constant cash to make smart investments, while also accruing conventional earnings. This company gives Einhorn a vehicle for tremendous compound growth. Definitely a buy and hold forever (or as long as Einhorn does).

CMOCapital (88.34) Submitted: 10/8/2008 3:04:46 PM : Start Price: $15.49 GLRE Score: +24.73

Einhorn

ValueArbitrage (99.11) Submitted: 9/4/2008 6:06:16 PM : Start Price: $22.68 GLRE Score: -0.31

Two of the most important characteristics investors desire (or at least should) of the business interests in which they own are the ability of those businesses to generate a high rates of return on their equity and the opportunity to reinvest excess cash flow back into their business to grow earnings and improve results.

Indeed, these are the traits of any excellent business, and by excellent I mean businesses that are growing their per share economic values, have high returns on capital and have managements with a history of intelligent capital allocation as well as acting in the best interests of long-term shareholders.

Greenlight Re is exactly this type of business, and investors who purchase shares at or around today's levels will likely reap outsized returns for decades to come, driven by a combination of multiple expansion and earnings growth from current levels.

GLRE is in the business of reinsurance, and like all similar companies is valued on an appropriate multiple to book value. As a general rule of thumb, businesses with high ROE's should trade at higher book values, and vice versa.

A quick analysis:

Greenlight's unique operating strategy as well as the character and investment acumen of its chairman and investment manager David Einhorn, provide important clues to what GLRE's normalized ROE is likely to be and hence what a normalized (appropriate) book value multiple should be. For a variety of reasons, I believe that GLRE should trade around 2x book (at minimum) for the forseable future. Here's why...

One thing that sets GLRE apart from your typical insurance business (similar to MKL or early BRK-A) is Greenlight Re's investment strategy is primarily long/short equity driven (instead of the typical insurers float being invested in primarily fixed income instruments). By managing the asset side of the equation for capital preservation on an investment by investment basis in common stocks, and concentrating only on Mr. Einhorn's best ideas, Greenlight Re is likely to compound their investment assets at a much faster clip than would ordinarily be possible. Although this unique strategy will increase the volatility of GLRE's results in the short term, over the full cycle this investment strategy should significantly outperform relative to other insurance companies bond dominated float on a risk-adjusted basis.

A quick browsing of the companies latest investor presentation provides a sensitivity analysis regarding investment returns and their likely impact on Greenlight's ROE. The results are enlightening. Although still relatively unknown to the public, David Einhorn's track record speaks for itself. In comparison to an essentially flat S&P 500 over the last ten years, Einhorn's Greenlight Capital was able to produce investment returns net to partners (after his 2&20 fees) of roughly 25% over the same time period. Assuming GLRE simply breaks even on the underwriting side of the equation and investment returns are considerably less going forward than they have been historically, say 15% annualized instead of 25%...and assuming a BV multiple indicative of an avg. business with an avg. ROE of 1.5x (which this certainly is not), returns should approach %40 yoy.

Looking forward 5-10 years and assuming Einhorn can compound GLRE's capital at his historical pace, mangagement underwrites consistently profitable business, and the market comes to his senses and awards a more appropriate book value of 2X the upside gets ridiculous.

Also worth noting is the reinsurance units unique operating strategy, which allows the company to operate w/ a fraction of the capital its competitors require (GLRE has only of handful of full time employees). Additionally, Like any insurer worth their salt, mgmt is focused first and foremost on profitability, as opposed to a volume at any price mentality that so often destroys undisciplined competitors. And last but not least, Mr. Einhorn sunk roughly 50 million of his own money into GLRE last year, putting his money where his mouth is, and aligning his interests firmly with those of his shareholders.

OConnorFocus (99.70) Submitted: 9/1/2008 2:51:23 PM : Start Price: $17.49 GLRE Score: +41.88

GLRE, at around book value...offers patient investors an opportunity to purchase an outstanding business at a truly ludicrous price relative to its long term earnings power.

Returns over the next 2-3 yrs should be driven by a combination of earnings growth and multiple expansion. I expect returns approaching 100% as the market comes to its senses and rewards this "Little Berkshire" with a more appropriate valuation (2x Book at minimum).

brightsideLP (91.44) Submitted: 8/29/2008 12:25:19 PM : Start Price: $21.06 GLRE Score: +10.97

My favorite investor on the planet.

David Einhorn is the new age investor that will be a household name for the coming decades.

$630mm market cap is a very nice gift to investors.

gobble gobble.

nrbqfan (< 20) Submitted: 8/6/2008 9:44:07 PM : Start Price: $21.25 GLRE Score: +9.15

I don't understand why this stock is not being followed. The numbers in todays second quarter report are impressive.

LurkyLurky (99.92) Submitted: 6/20/2008 4:25:30 AM : Start Price: $23.05 GLRE Score: +4.13

Have I found this stock too late? It's up over 30% from its lows of less than two months ago.

The run-up followed Einhorn publicly discussing his Lehman Brothers short, and the subsequent problems that became apparent at Lehman Brothers.
http://nymag.com/news/businessfinance/47844/?dlbk

Opinions? I'm tempted to wait to see if the 2008 hurricane season will be a bad one. Also, another pitch mentioned that this might be a volatile stock.

rijoker (98.71) Submitted: 5/2/2008 10:50:55 AM : Start Price: $18.51 GLRE Score: +36.00

An Overlooked stock that when more analyst start covering, this stock will have great returns for the long term investor.

The stock has touched what I believe to be bottom and I picked some up under $17. I just hope it is an enjoyable ride and am in for the long term.

PrudentiaLP (70.71) Submitted: 12/7/2007 10:34:12 PM : Start Price: $21.60 GLRE Score: +20.24

Long term opportunity here is compelling for a variety of factors

David Einhorn, one of the investing communities brightest young minds, is behind the helm. Considering he has put 50 million of his own money at prices around todays, no one can say he hasn't "put his money where his mouth is"...aligning shareholders interests with his own.

In addition, a quick browsing of GLRE's institutional shareholders shows that Marty Whitman, Bill Ackman, and other investment luminaries are buying near today's prices. Fellow shareholders are in good company...

GLRE will take a Fundamentally different approach to reinsurance business, and this should drive out-sized gains in stock performance for years to come. Returns should approach 20-25% annually over the long term.

Some noteworthy examples of their uniques approach includes...managing the asset side of the equation for capital preservation on an investment by investment basis in common stocks. Instead of the float being invested in primarily fixed income instruments, greenlight will concentrate on its best ideas. This approach should drive outsized returns on its float over the long term, compounding book value at above average rates.

On the liability side of the equation, GLRE operates with a disciplined risk selection process, with focusing on the downside. Mgmt. will only select contracts with superior economic returns, and will focus on underserved markets with unique needs (much like MKL).

Essentially, they hope to capitalize on inefficiencies in the traditional approach to reinsurance...to generate superior underwriting results...to derive superior returns from both sides of the balance sheet... & maintain a highly skilled and focused team of generalists, with a focus on long term growth in book value per share. I believe they will accomplish each if the above.

Misc. Positives

- GLRE provides a unique opportunity to invest in Greenlight Capital, a highly successful hedge fund run by David Einhorn. Greenlight Capital has compounded returns at roughly 25% over its 10 year history, and is currently closed to new investors. Through GLRE, investors not only will get the opportunity to participate in the highly successful, and closed Limited Partnership, but will benefit directly from other unique aspects of GLRE's structure...1) More liquidity than owning the hedge fund directly 2) The ability to compound investment returns tax free with a cayman islands domicile; and 3) adding to returns by investing the "float" Greenlight Re generates.

- Experienced, High quality Management team

- Given GLRE's conservative underwriting strategy and management incentive compensation, which is pegged to developed underwriting results, I believe it to highly likely that GLRE's underwriting results will be accretive to book value per share. Greenlight Re's management team is incented to write profitable business that will stand the test of time. Between 60% and 80% of cash incentive compensation is deferred over a multi-year period and is based on the ultimate underwriting results of contracts written in a given year. By deferring the bonus, it allows for the business to mature and more accurately reflect the actual underwriting results. Senior management bonuses do not take into account returns on the investment portfolio but are based on returns on deployed capital for all contracts bound in a year using a risk-free rate of return.

- Outside of the obvious benefits of GLRE being domiciled within the Cayman Islands and the ability, due to their location, to compound investment returns tax free...Greenlight Re will also benefit from a more accomodating regulatory environment, as well as the caymans access to a large captive insurance markets. GLRE is the only gloal reinsurer located in the Cayman Islands, giving it local access to more the more than 700 captive insurance companies on the island as well as the potential for future business.

- Significant inside ownership of roughly 20% of the outstanding common stock

Investment Concerns

1) High Earnings Volatility - Due to GLRE's unique investment approach as well as their focus on disciplined underwriting, they may experience significantly more, quarter to quarter earnings volatility than traditional reinsurers. Although I will take a "lumpy" 20% return any day of the week over a "smooth" 10%, odds are high that GLRE will from time to time experience large deviations in operating performance due to their active investment strategy and refusal to write business that does not makes sense from an economic perspective. Assuming volatility is on the downside, and no significant permanent damage has been done to the companies business, GLRE's volatile results should provide significant opportunity going forward to add to the position over time.

2) Current AM Best rating of A- (excellent) - Current outlook is stable and will likely stay that way...this is especially positive considering the companies young history and limited underwriting track record. On the other side of the equation I believe their current rating could possibly prohibit (at minimum making it more challenging) GLRE from winning longer-tail casualty business over competitors that can offer ratings of A or better. Most importantly, if GLRE's rating were ever downgraded below A-, their ability to underwrite reinsurance contracts would be seriously impaired.

3) Limited track record - GLRE bound only 9 contracts in 2006...although this is quickly changing, the limited amount of business written coupled with their short track record make it more difficult to determine wether or not GLRE will be successful in attracting profitable business and how good underwriting results will likely be going forward. Currently their underwriting appears to be stellar, but the absence of a 20 year history to verify a consistent ability to underwrite intelligently remains a concern to monitor

4) Increasingly Competitive Reinsurance Market - with the exception of property catastrophe reinsurance in hurricane-exposed areas, the reinsurance market is becoming increasingly more competitive, with softening in the majority of lines globally and terms and conditions beginning to loosen. Barring any significant catastrophe, with underwriting profitability still at attractive levels and sufficient capital, I expect price deterioration to continue. Moreover, primary companies are continuing to retain more business reducing the available reinsurance business. Additionally, in a buyers market, primary insurance companies will likely prefer to place their business with higher rated (A or better) reinsurers, which might have a negative impact on GLRE's ability to win new business. It is worth noting that Greenlight Re's unique approach should significantly reduce most of these risks due to their unique approach to the liability side of the business. Nonetheless a more competitive environment could make it more difficult to grow the company.

ACMPartnerslp (30.89) Submitted: 11/5/2007 5:22:39 AM : Start Price: $20.20 GLRE Score: +29.19

Long term opportunity here is compelling for a variety of factors

David Einhorn, one of the investing communities brightest young minds, is behind the helm. Considering he has put 50 million of his own money at prices around todays, no one can say he hasn't "put his money where his mouth is"...aligning shareholders interests with his own.

In addition, a quick browsing of GLRE's institutional shareholders shows that Marty Whitman, Bill Ackman, and other investment luminaries are buying near today's prices. Fellow shareholders are in good company...

GLRE will take a Fundamentally different approach to reinsurance business, and this should drive out-sized gains in stock performance for years to come. Returns should approach 20-25% annually over the long term.

Some noteworthy examples of their uniques approach includes...managing the asset side of the equation for capital preservation on an investment by investment basis in common stocks. Instead of the float being invested in primarily fixed income instruments, greenlight will concentrate on its best ideas. This approach should drive outsized returns on its float over the long term, compounding book value at above average rates.

On the liability side of the equation, GLRE operates with a disciplined risk selection process, with focusing on the downside. Mgmt. will only select contracts with superior economic returns, and will focus on underserved markets with unique needs (much like MKL).

Essentially, they hope to capitalize on inefficiencies in the traditional approach to reinsurance...to generate superior underwriting results...to derive superior returns from both sides of the balance sheet... & maintain a highly skilled and focused team of generalists, with a focus on long term growth in book value per share. I believe they will accomplish each if the above.

yehudazk (< 20) Submitted: 9/9/2007 4:39:59 PM : Start Price: $20.50 GLRE Score: +25.00

This company is being overlooked by the street because management is not really selling it.