Einhorn Insurer Shifts to Mortgage Bet After Florida Fraud Costsby and
Greenlight Re shares fall after fifth loss in six quarters
CEO Hedges also retreats from construction-liability coverage
David Einhorn’s Greenlight Capital Re Ltd., the reinsurer seeking to reverse underwriting losses, is pushing into the mortgage-guaranty market after being burned by fraudulent claims on property policies in Florida.
Greenlight Re has been struggling to find profitable insurance underwriting opportunities after Einhorn formed the company partly as vehicle to generate capital that he can invest through his hedge fund strategies. The Cayman Islands-based firm declined the most since October in New York trading Tuesday after posting its fifth quarterly loss in six periods. The reinsurer is exiting money-losing forays into construction-defect coverage and commercial-vehicle policies while scaling back in Florida.
“One part of the portfolio that we are growing is U.S. mortgage reinsurance,” Greenlight Re Chief Executive Officer Bart Hedges said in a conference call Tuesday. “The expected profitability on these transactions is higher than on much of our existing portfolio.”
Greenlight Re follows Dan Loeb’s Third Point Reinsurance Ltd. in betting on mortgage insurance, which covers losses for lenders when homeowners default and foreclosure fails to recoup costs. Primary carriers such as MGIC Investment Corp. and Radian Group Inc. have been facing tighter capital rules from U.S. regulators, which can increase demand for risk-sharing deals. Hedges didn’t specify which companies he is backing or how much premium revenue the deals generate.
The second-quarter net loss widened to $63 million from $39.6 million a year earlier, hurt by both Einhorn’s slipping investing results and higher-than-expected insurance claims costs, the company said late Monday in a statement.
Greenlight Re has been backing Florida home insurers since 2007 and has been hurt recently by the “phenomenon of fraudulent water-damage claims,” Hedges said. “These higher costs have not translated into higher premium rates, and thus profitability is decreasing.”
Einhorn’s company fell 5.9 percent to $19.96 at 9:46 a.m. in New York. That compares with the initial public offering price of $19 in 2007.