|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($ in millions)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
$ 1,239.7
|
|
|
|
$ 1,253.5
|
|
|
|
$ 3,692.8
|
|
|
|
$ 3,736.6
|
|
Net investment income
|
|
|
104.7
|
|
|
|
120.6
|
|
|
|
321.9
|
|
|
|
332.3
|
|
Net realized capital gains
|
|
|
32.9
|
|
|
|
27.2
|
|
|
|
101.8
|
|
|
|
117.1
|
|
Other than temporary impairment losses
|
|
|
(6.1)
|
|
|
|
(11.7)
|
|
|
|
(13.1)
|
|
|
|
(38.2)
|
|
Other revenue
|
|
|
296.3
|
|
|
|
225.0
|
|
|
|
650.4
|
|
|
|
527.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,667.5
|
|
|
|
1,614.6
|
|
|
|
4,753.8
|
|
|
|
4,675.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
1,491.9
|
|
|
|
718.6
|
|
|
|
2,926.0
|
|
|
|
2,198.5
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
398.2
|
|
|
|
423.0
|
|
|
|
1,220.4
|
|
|
|
1,238.7
|
|
Other operating expenses
|
|
|
277.9
|
|
|
|
228.4
|
|
|
|
678.2
|
|
|
|
575.5
|
|
Corporate administration
|
|
|
(4.7)
|
|
|
|
10.7
|
|
|
|
26.6
|
|
|
|
34.0
|
|
Amortization of intangible assets
|
|
|
5.7
|
|
|
|
6.0
|
|
|
|
14.2
|
|
|
|
14.5
|
|
Interest expense
|
|
|
20.8
|
|
|
|
20.7
|
|
|
|
62.7
|
|
|
|
61.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
2,189.8
|
|
|
|
1,407.4
|
|
|
|
4,928.1
|
|
|
|
4,122.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) earnings before income taxes
|
|
|
(522.3)
|
|
|
|
207.2
|
|
|
|
(174.3)
|
|
|
|
553.0
|
|
Income taxes
|
|
|
(212.3)
|
|
|
|
48.4
|
|
|
|
(116.3)
|
|
|
|
162.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) earnings
|
|
|
(310.0)
|
|
|
|
158.8
|
|
|
|
(58.0)
|
|
|
|
390.7
|
|
Net earnings attributable to noncontrolling interest
|
|
|
4.2
|
|
|
|
3.0
|
|
|
|
5.2
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) earnings attributable to Alleghany stockholders
|
|
|
$ (314.2)
|
|
|
|
$ 155.8
|
|
|
|
$ (63.2)
|
|
|
|
$ 387.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Alleghanys segments are reported in a manner consistent with the way management evaluates
the businesses. As such, we classify our businesses into two reportable segments reinsurance and insurance. Other activities include Alleghany Capital and corporate activities. See Note 10 to Notes to Unaudited Consolidated Financial
Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional detail on our segments and other activities. The tables below present the results for our segments
and for other activities for the three and nine months ended September 30, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
Other Activities
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Reinsurance
Segment
|
|
|
Insurance
Segment
|
|
|
Total
Segments
|
|
|
Alleghany
Capital
|
|
|
Corporate
Activities
(1)
|
|
|
Consolidated
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
1,126.6
|
|
|
$
|
350.5
|
|
|
$
|
1,477.1
|
|
|
$
|
-
|
|
|
$
|
(5.3)
|
|
|
$
|
1,471.8
|
|
Net premiums written
|
|
|
978.5
|
|
|
|
281.8
|
|
|
|
1,260.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,260.3
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
953.2
|
|
|
|
286.5
|
|
|
|
1,239.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,239.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
593.0
|
|
|
|
167.9
|
|
|
|
760.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
760.9
|
|
Current year catastrophe losses
|
|
|
576.0
|
|
|
|
216.5
|
|
|
|
792.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
792.5
|
|
Prior years
|
|
|
(49.8)
|
|
|
|
(11.7)
|
|
|
|
(61.5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,119.2
|
|
|
|
372.7
|
|
|
|
1,491.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,491.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
308.9
|
|
|
|
89.3
|
|
|
|
398.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(474.9)
|
|
|
$
|
(175.5)
|
|
|
|
(650.4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(650.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
101.4
|
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
104.7
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
21.5
|
|
|
|
0.7
|
|
|
|
10.7
|
|
|
|
32.9
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
(6.1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.1)
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
291.7
|
|
|
|
(0.1)
|
|
|
|
296.3
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
269.1
|
|
|
|
0.5
|
|
|
|
277.9
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
(1.5)
|
|
|
|
-
|
|
|
|
(3.2)
|
|
|
|
(4.7)
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(0.3)
|
|
|
|
6.0
|
|
|
|
-
|
|
|
|
5.7
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
6.6
|
|
|
|
1.2
|
|
|
|
13.0
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(542.0)
|
|
|
$
|
17.7
|
|
|
$
|
2.0
|
|
|
$
|
(522.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
62.3%
|
|
|
|
58.6%
|
|
|
|
61.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
60.4%
|
|
|
|
75.6%
|
|
|
|
63.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.2%)
|
|
|
|
(4.1%)
|
|
|
|
(5.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
117.5%
|
|
|
|
130.1%
|
|
|
|
120.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
32.3%
|
|
|
|
31.2%
|
|
|
|
32.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
149.8%
|
|
|
|
161.3%
|
|
|
|
152.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
Other Activities
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Reinsurance
Segment
|
|
|
Insurance
Segment
|
|
|
Total
Segments
|
|
|
Alleghany
Capital
|
|
|
Corporate
Activities
(1)
|
|
|
Consolidated
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
1,065.4
|
|
|
$
|
350.0
|
|
|
$
|
1,415.4
|
|
|
$
|
-
|
|
|
$
|
(7.5)
|
|
|
$
|
1,407.9
|
|
Net premiums written
|
|
|
966.9
|
|
|
|
269.8
|
|
|
|
1,236.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,236.7
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
969.4
|
|
|
|
284.1
|
|
|
|
1,253.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,253.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
609.6
|
|
|
|
163.3
|
|
|
|
772.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
772.9
|
|
Current year catastrophe losses
|
|
|
21.6
|
|
|
|
10.5
|
|
|
|
32.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32.1
|
|
Prior years
|
|
|
(69.0)
|
|
|
|
(17.4)
|
|
|
|
(86.4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(86.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
562.2
|
|
|
|
156.4
|
|
|
|
718.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
718.6
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
333.1
|
|
|
|
89.9
|
|
|
|
423.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
423.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
74.1
|
|
|
$
|
37.8
|
|
|
|
111.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
118.7
|
|
|
|
-
|
|
|
|
1.9
|
|
|
|
120.6
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
27.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
27.2
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
(11.7)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11.7)
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
218.6
|
|
|
|
6.1
|
|
|
|
225.0
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
23.6
|
|
|
|
203.6
|
|
|
|
1.2
|
|
|
|
228.4
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
10.4
|
|
|
|
10.7
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(0.7)
|
|
|
|
6.7
|
|
|
|
-
|
|
|
|
6.0
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
|
|
0.6
|
|
|
|
13.3
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
216.3
|
|
|
$
|
7.8
|
|
|
$
|
(16.9)
|
|
|
$
|
207.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
62.8%
|
|
|
|
57.5%
|
|
|
|
61.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
2.2%
|
|
|
|
3.7%
|
|
|
|
2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(7.1%)
|
|
|
|
(6.1%)
|
|
|
|
(7.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
57.9%
|
|
|
|
55.1%
|
|
|
|
57.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
34.4%
|
|
|
|
31.7%
|
|
|
|
33.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
92.3%
|
|
|
|
86.8%
|
|
|
|
91.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
Other Activities
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Reinsurance
Segment
|
|
|
Insurance
Segment
|
|
|
Total
Segments
|
|
|
Alleghany
Capital
|
|
|
Corporate
Activities
(1)
|
|
|
Consolidated
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
3,227.7
|
|
|
$
|
1,131.5
|
|
|
$
|
4,359.2
|
|
|
$
|
-
|
|
|
$
|
(16.5)
|
|
|
$
|
4,342.7
|
|
Net premiums written
|
|
|
2,906.7
|
|
|
|
879.8
|
|
|
|
3,786.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,786.5
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
2,836.8
|
|
|
|
856.0
|
|
|
|
3,692.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,692.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,814.1
|
|
|
|
477.0
|
|
|
|
2,291.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,291.1
|
|
Current year catastrophe losses
|
|
|
576.0
|
|
|
|
231.9
|
|
|
|
807.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
807.9
|
|
Prior years
|
|
|
(140.8)
|
|
|
|
(32.2)
|
|
|
|
(173.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(173.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
2,249.3
|
|
|
|
676.7
|
|
|
|
2,926.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,926.0
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
946.6
|
|
|
|
273.8
|
|
|
|
1,220.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(359.1)
|
|
|
$
|
(94.5)
|
|
|
|
(453.6)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(453.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
311.7
|
|
|
|
2.1
|
|
|
|
8.1
|
|
|
|
321.9
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
90.8
|
|
|
|
0.9
|
|
|
|
10.1
|
|
|
|
101.8
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
(13.1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13.1)
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
|
|
634.3
|
|
|
|
5.6
|
|
|
|
650.4
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
57.4
|
|
|
|
618.2
|
|
|
|
2.6
|
|
|
|
678.2
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
26.4
|
|
|
|
26.6
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(1.2)
|
|
|
|
15.4
|
|
|
|
-
|
|
|
|
14.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
20.2
|
|
|
|
3.0
|
|
|
|
39.5
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(130.3)
|
|
|
$
|
0.7
|
|
|
$
|
(44.7)
|
|
|
$
|
(174.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
63.9%
|
|
|
|
55.8%
|
|
|
|
62.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
20.3%
|
|
|
|
27.1%
|
|
|
|
21.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.0%)
|
|
|
|
(3.8%)
|
|
|
|
(4.7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
79.2%
|
|
|
|
79.1%
|
|
|
|
79.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.4%
|
|
|
|
32.0%
|
|
|
|
33.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
112.6%
|
|
|
|
111.1%
|
|
|
|
112.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
Other Activities
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Reinsurance
Segment
|
|
|
Insurance
Segment
|
|
|
Total
Segments
|
|
|
Alleghany
Capital
|
|
|
Corporate
Activities
(1)
|
|
|
Consolidated
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
3,310.0
|
|
|
$
|
1,115.7
|
|
|
$
|
4,425.7
|
|
|
$
|
-
|
|
|
$
|
(19.0)
|
|
|
$
|
4,406.7
|
|
Net premiums written
|
|
|
3,033.4
|
|
|
|
859.8
|
|
|
|
3,893.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,893.2
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
2,888.5
|
|
|
|
848.1
|
|
|
|
3,736.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,736.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,838.2
|
|
|
|
462.0
|
|
|
|
2,300.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,300.2
|
|
Current year catastrophe losses
|
|
|
117.4
|
|
|
|
42.6
|
|
|
|
160.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160.0
|
|
Prior years
|
|
|
(218.0)
|
|
|
|
(43.7)
|
|
|
|
(261.7)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(261.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,737.6
|
|
|
|
460.9
|
|
|
|
2,198.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,198.5
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
969.2
|
|
|
|
269.5
|
|
|
|
1,238.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,238.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
181.7
|
|
|
$
|
117.7
|
|
|
|
299.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
326.4
|
|
|
|
-
|
|
|
|
5.9
|
|
|
|
332.3
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
107.6
|
|
|
|
13.0
|
|
|
|
(3.5)
|
|
|
|
117.1
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
(38.2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(38.2)
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
517.3
|
|
|
|
6.7
|
|
|
|
527.8
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
65.1
|
|
|
|
508.0
|
|
|
|
2.4
|
|
|
|
575.5
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
-
|
|
|
|
33.0
|
|
|
|
34.0
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(2.4)
|
|
|
|
16.9
|
|
|
|
-
|
|
|
|
14.5
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
20.6
|
|
|
|
1.2
|
|
|
|
39.6
|
|
|
|
61.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
614.7
|
|
|
$
|
4.2
|
|
|
$
|
(65.9)
|
|
|
$
|
553.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
63.6%
|
|
|
|
54.5%
|
|
|
|
61.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
4.1%
|
|
|
|
5.0%
|
|
|
|
4.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(7.4%)
|
|
|
|
(5.2%)
|
|
|
|
(7.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
60.3%
|
|
|
|
54.3%
|
|
|
|
58.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.6%
|
|
|
|
31.8%
|
|
|
|
33.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
93.9%
|
|
|
|
86.1%
|
|
|
|
92.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes elimination of minor reinsurance activity between segments.
|
(2)
|
Underwriting profit represents net premiums earned less net loss and LAE and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income,
net realized capital gains, OTTI losses, other revenue, other operating expenses, corporate administration, amortization of intangible assets and interest expense. Underwriting profit is a
non-GAAP
financial
measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. See Comment on
Non-GAAP
Financial Measures herein for additional detail
on the presentation of our results of operations.
|
(3)
|
The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.
|
(4)
|
The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.
|
(5)
|
The combined ratio is the sum of the loss ratio and the expense ratio, all as determined in accordance with GAAP. The combined ratio represents the percentage of each premium dollar a reinsurance or an insurance company
has to spend on net loss and LAE, and commissions, brokerage and other underwriting expenses.
|
32
Comparison of the Three and Nine Months Ended September 30, 2017 and 2016
Premiums.
The following table presents our consolidated premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,471.8
|
|
|
|
|
|
|
$
|
1,407.9
|
|
|
|
4.5
|
%
|
|
$
|
4,342.7
|
|
|
|
|
|
|
$
|
4,406.7
|
|
|
|
(1.5
|
%)
|
Net premiums written
|
|
|
1,260.3
|
|
|
|
|
|
|
|
1,236.7
|
|
|
|
1.9
|
%
|
|
|
3,786.5
|
|
|
|
|
|
|
|
3,893.2
|
|
|
|
(2.7
|
%)
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,239.7
|
|
|
|
|
|
|
|
1,253.5
|
|
|
|
(1.1
|
%)
|
|
|
3,692.8
|
|
|
|
|
|
|
|
3,736.6
|
|
|
|
(1.2
|
%)
|
The increases in gross and net premiums written in the third quarter of 2017 from the third quarter of 2016
are mainly attributable to increases at our reinsurance segment, primarily reflecting reinstatement premiums written related to the significant catastrophe losses that occurred in the third quarter of 2017. The increase in net premiums written in
the third quarter of 2017 from the third quarter of 2016 is also due to an increase at our insurance segment, reflecting growth at PacificComp, CapSpecialty and, to a lesser extent, RSUI.
The decreases in gross and net premiums written in the first nine months of 2017 from the first nine months of 2016 are mainly attributable to
decreases at our reinsurance segment, primarily related to cancellations,
non-renewals
and reduced participations in certain international treaties, the impact of rate pressures and increased retentions by
cedants and, to a lesser extent, the impact of changes in foreign currency exchange rates, partially offset by gross and net premiums written in the third quarter of 2017 related to reinstatement premiums written. The decrease at our reinsurance
segment in gross and net premiums written in the first nine months of 2017 from the first nine months of 2016 also reflects lower premiums related to a large whole account quota share treaty, or the Quota Share Treaty. Premiums related
to the Quota Share Treaty were $205.8 million and $199.4 million in the third quarter of 2017 and 2016, respectively, and $579.9 million and $624.2 million in the first nine months of 2017 and 2016, respectively. Premiums related
to the Quota Share Treaty in the first nine months of 2016 reflect elevated premiums written in the first quarter of 2016 due to differences between initial premium estimates at contract inception, which were recorded in the fourth quarter of 2015,
and actual data subsequently reported. As a consequence of this change in estimate, premiums written in the fourth quarter of 2015 were understated and premiums written in the first quarter of 2016 were correspondingly increased. In general, when
actual data has not been reported by ceding companies, premiums written are estimated based on historical patterns and other relevant factors. Any differences between these estimates and actual data subsequently reported are recorded in the period
when actual data becomes available.
The decreases in net premiums earned in the third quarter and first nine months of 2017 from the
corresponding 2016 periods primarily reflect decreases at our reinsurance segment due mainly to a decrease in net premiums written in recent quarters.
A comparison of premiums by segment for the third quarter and first nine months of 2017 and 2016 is more fully described in the following
pages.
Net loss and LAE.
The following table presents our consolidated net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
|
|
|
($ in millions)
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
$
|
760.9
|
|
|
$
|
772.9
|
|
|
|
(1.6
|
%)
|
|
$
|
2,291.1
|
|
|
$
|
2,300.2
|
|
|
|
(0.4%)
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
792.5
|
|
|
|
32.1
|
|
|
|
2,368.8
|
%
|
|
|
807.9
|
|
|
|
160.0
|
|
|
|
404.9%
|
|
Prior years
|
|
|
|
|
|
|
(61.5)
|
|
|
|
(86.4)
|
|
|
|
(28.8
|
%)
|
|
|
(173.0)
|
|
|
|
(261.7)
|
|
|
|
(33.9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
$
|
1,491.9
|
|
|
$
|
718.6
|
|
|
|
107.6
|
%
|
|
$
|
2,926.0
|
|
|
$
|
2,198.5
|
|
|
|
33.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
61.4%
|
|
|
|
61.7%
|
|
|
|
|
|
|
|
62.0%
|
|
|
|
61.6%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
63.9%
|
|
|
|
2.6%
|
|
|
|
|
|
|
|
21.9%
|
|
|
|
4.3%
|
|
|
|
|
|
Prior years
|
|
|
|
|
|
|
(5.0%)
|
|
|
|
(7.0%)
|
|
|
|
|
|
|
|
(4.7%)
|
|
|
|
(7.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
120.3%
|
|
|
|
57.3%
|
|
|
|
|
|
|
|
79.2%
|
|
|
|
58.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The increases in net loss and LAE in the third quarter and first nine months of 2017 from the
corresponding 2016 periods primarily reflect significant increases in catastrophe losses at our reinsurance and insurance segments. The catastrophe losses in the third quarter and first nine months of 2017 include $264.6 million related to
Hurricane Harvey, $312.0 million related to Hurricane Irma and $170.3 million related to Hurricane Maria.
The catastrophe losses
in the third quarter of 2016 related primarily to typhoons and floods in China and flooding and severe weather primarily in the State of Louisiana. In addition to the losses in the third quarter of 2016, the catastrophe losses in the first nine
months of 2016 included wildfire losses in Alberta, Canada and earthquake losses in Japan and Ecuador.
Net loss and LAE in the first nine
months of 2017 for the reinsurance segment includes $24.4 million of unfavorable prior accident year loss reserve development arising from the U.K. Ministry of Justices decision to significantly reduce the discount rate, referred to as
the Ogden rate, used to calculate
lump-sum
bodily injury payouts in personal injury insurance claims in the U.K.
A comparison of net loss and LAE by segment for the third quarter and first nine months of 2017 and 2016 is more fully described in the
following pages.
Commissions, brokerage and other underwriting expenses
.
The following table presents our
consolidated commissions, brokerage and other underwriting expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
$ 398.2
|
|
|
|
$ 423.0
|
|
|
|
(5.9%)
|
|
|
|
$ 1,220.4
|
|
|
|
$ 1,238.7
|
|
|
|
(1.5%)
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.1%
|
|
|
|
33.7%
|
|
|
|
|
|
|
|
33.0%
|
|
|
|
33.2%
|
|
|
|
|
|
The decreases in commissions,
brokerage and other underwriting expenses in the third quarter and first nine months of 2017 from the corresponding 2016 periods reflect the impact of lower net premiums earned and the impact of losses arising from Hurricanes Harvey, Irma and Maria
on short-term incentive compensation expense accruals at our reinsurance segment and RSUI.
A comparison of commissions, brokerage and other underwriting expenses for the third quarter and first nine months of 2017 and 2016 is more
fully described in the following pages.
Underwriting
profit.
The following table presents our consolidated underwriting (loss) profit:
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Underwriting (loss) profit
|
|
|
$ (650.4)
|
|
|
|
$ 111.9
|
|
|
|
(681.2%)
|
|
|
|
$ (453.6)
|
|
|
|
$ 299.4
|
|
|
|
(251.5%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
152.4%
|
|
|
|
91.0%
|
|
|
|
|
|
|
|
112.2%
|
|
|
|
92.0%
|
|
|
|
|
|
The underwriting losses in the third
quarter and first nine months of 2017, compared with underwriting profits in the corresponding 2016 periods primarily reflect significant catastrophe losses from Hurricanes Harvey, Irma and Maria at our reinsurance and insurance segments, as
discussed above.
A comparison of underwriting profit for the
third quarter and first nine months of 2017 and 2016 is more fully described in the following pages.
Investment results.
The following table presents our consolidated investment results:
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Net investment income
|
|
|
$ 104.7
|
|
|
|
$ 120.6
|
|
|
|
(13.2%)
|
|
|
|
$ 321.9
|
|
|
|
$ 332.3
|
|
|
|
(3.1%)
|
|
Net realized capital gains
|
|
|
32.9
|
|
|
|
27.2
|
|
|
|
21.0%
|
|
|
|
101.8
|
|
|
|
117.1
|
|
|
|
(13.1%)
|
|
Other than temporary impairment losses
|
|
|
(6.1)
|
|
|
|
(11.7)
|
|
|
|
(47.9%)
|
|
|
|
(13.1)
|
|
|
|
(38.2)
|
|
|
|
(65.7%)
|
|
34
The decreases in net investment income in the third quarter and first nine months of 2017 from
the corresponding 2016 periods primarily relate to losses incurred on our equity interests in Pillar Capital Holdings Limited and related funds, or Pillar Investments, arising from significant catastrophe losses incurred in August and
September 2017. The decrease in net investment income in the first nine months of 2017 also relates to a $12.6 million charge on our equity investment in Ares Management LLC, or Ares. The charge on our equity investment in Ares
reflects our share of a
one-time
payment recorded by Ares related to an acquisition by its affiliated entity. In connection with this acquisition, Ares agreed to make certain transaction support payments to
the sellers of the acquired entity. Ares expects to receive future management fees derived from the assets under management of the acquired entity.
The increase in net realized capital gains in the third quarter of 2017 from the third quarter of 2016 primarily reflects gains on the sale of
certain exchange-traded funds in the third quarter of 2017 that exceeded gains for the equity and bond portfolio in the third quarter of 2016. The decrease in net realized capital gains in the first nine months of 2017 from the first nine months of
2016 primarily reflects lower gains for the equity and bond portfolio and a
one-time
$13.2 million realized gain recorded on April 15, 2016 by Alleghany Capital, as more fully described in the
following pages, partially offset by gains on the sale of certain exchange-traded funds in the third quarter of 2017.
The decreases in
OTTI losses in the third quarter and first nine months of 2017 from the corresponding 2016 periods reflect decreases in OTTI losses related to debt and equity securities.
A comparison of investment results for the third quarter and first nine months of 2017 and 2016 is more fully described in the following pages.
Other revenue and expenses.
The following table presents our consolidated other revenue and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Percent Change
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
($ in millions)
|
Other revenue
|
|
$ 296.3
|
|
$
|
225.0
|
|
|
31.7%
|
|
$
|
650.4
|
|
|
$
|
527.8
|
|
|
23.2%
|
|
|
|
|
|
|
|
Other operating expenses
|
|
277.9
|
|
|
228.4
|
|
|
21.7%
|
|
|
678.2
|
|
|
|
575.5
|
|
|
17.8%
|
Corporate administration
|
|
(4.7)
|
|
|
10.7
|
|
|
(143.9%)
|
|
|
26.6
|
|
|
|
34.0
|
|
|
(21.8%)
|
Amortization of intangible assets
|
|
5.7
|
|
|
6.0
|
|
|
(5.0%)
|
|
|
14.2
|
|
|
|
14.5
|
|
|
(2.1%)
|
Interest expense
|
|
20.8
|
|
|
20.7
|
|
|
0.5%
|
|
|
62.7
|
|
|
|
61.4
|
|
|
2.1%
|
Other revenue and Other operating expenses.
Other revenue and other operating expenses primarily include
sales revenues and expenses associated with Alleghany Capital. Other operating expenses also include the long-term incentive compensation at our reinsurance and insurance segments, which totaled $5.4 million and $19.4 million in the third
quarter of 2017 and 2016, respectively, and $50.4 million and $61.5 million in the first nine months of 2017 and 2016, respectively. The decreases in long-term incentive compensation at our reinsurance and insurance segments in the third
quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect the impact of losses arising from Hurricanes Harvey, Irma and Maria on long-term incentive compensation expense accruals at TransRe and RSUI.
On April 28, 2017, Alleghany Capital acquired approximately 80 percent of the equity in W&W|AFCO Steel for $164.5 million,
including $163.9 million in cash paid on May 1, 2017 and $0.6 million of estimated purchase price adjustments.
The
increases in other revenue in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect the acquisition of W&W|AFCO Steel. The increases in other operating expenses in the third quarter and first nine
months of 2017 from the corresponding 2016 periods primarily reflect the acquisition of W&W|AFCO Steel, partially offset by decreases in the long-term incentive compensation of our reinsurance and insurance segments. The increase in other
operating expenses in the first nine months of 2017 from the first nine months of 2016 also reflects finders fees, legal and accounting costs and other transaction-related expenses at the Alleghany Capital level.
Corporate administration.
The negative corporate administration expense in the third quarter of 2017, compared with corporate
administration expense in the third quarter of 2016, and the decrease in corporate administration expense in the first nine months of 2017 from the first nine months of 2016, primarily reflect the impact of losses arising from Hurricanes Harvey,
Irma and Maria on long-term incentive compensation expense accruals at Alleghany.
Amortization of intangible assets.
The decreases in amortization expenses in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect decreases in amortization expense at IPS, as certain of IPSs intangible assets were fully
amortized as of December 31, 2016, partially offset by the amortization of net intangible assets related to the acquisition of W&W|AFCO Steel.
35
Interest expense.
The increases in interest expense in the third quarter and first nine
months of 2017 from the corresponding 2016 periods reflect new or increased borrowings at Bourn & Koch and Jazwares and borrowings at W&W|AFCO Steel.
Income taxes.
The following table presents our consolidated income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2017
|
|
2016
|
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Percent Change
|
|
|
($ in millions)
|
Income taxes
|
|
$ (212.3)
|
|
$
|
48.4
|
|
|
(538.6%)
|
|
$ (116.3)
|
|
$ 162.3
|
|
(171.7%)
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
|
|
|
66.8%
|
|
29.3%
|
|
|
The income tax benefits in the third
quarter and first nine months of 2017 compared with income tax expenses in the corresponding 2016 periods reflect the impact of taxable losses arising from Hurricanes Harvey, Irma and Maria. The 66.8 percent effective tax rate is calculated
based on actual results through September 30, 2017, because management was not able to reliably estimate the annual effective tax rate in light of the recent catastrophe losses incurred. In addition, income taxes in the first nine months of
2016 include prior period income tax expense adjustments. The effective tax rate in the first nine months of 2017 compared with the first nine months of 2016 primarily reflects income tax benefits from taxable losses arising from Hurricanes Harvey,
Irma and Maria in the first nine months of 2017, and prior period income tax expense adjustments in the first nine months of 2016, which include $16.1 million of
out-of-period
reductions to current and deferred TransRe tax assets recorded in the first nine months of 2016 that relate primarily to periods prior to our merger with
TransRe in 2012.
Earnings.
The following table
presents our consolidated earnings:
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2017
|
|
2016
|
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Percent Change
|
|
|
($ in millions)
|
(Losses) earnings before income taxes
|
|
$ (522.3)
|
|
$
|
207.2
|
|
|
(352.1%)
|
|
$ (174.3)
|
|
$ 553.0
|
|
(131.5%)
|
Net (losses) earnings attributable to Alleghany
stockholders
|
|
(314.2)
|
|
|
155.8
|
|
|
(301.7%)
|
|
(63.2)
|
|
387.4
|
|
(116.3%)
|
The losses before income taxes and net losses attributable to Alleghany stockholders in the third quarter and
first nine months of 2017, compared with earnings before income taxes and net earnings attributable to Alleghany stockholders in the corresponding 2016 periods primarily reflect significant catastrophe losses from Hurricanes Harvey, Irma and Maria
at our reinsurance and insurance segments, as discussed above.
36
Reinsurance Segment Underwriting Results
The reinsurance segment is comprised of TransRes property and casualty & other lines of business. TransRe also writes a modest
amount of property and casualty insurance business, which is included in the reinsurance segment. For a more detailed description of our reinsurance segment, see Part I, Item 1, BusinessSegment InformationReinsurance
Segment of the 2016
Form 10-K.
The underwriting results of the reinsurance segment are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Property
|
|
|
Casualty &
Other
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
445.5
|
|
|
$
|
681.1
|
|
|
$
|
1,126.6
|
|
Net premiums written
|
|
|
329.0
|
|
|
|
649.5
|
|
|
|
978.5
|
|
|
|
|
|
Net premiums earned
|
|
|
310.8
|
|
|
|
642.4
|
|
|
|
953.2
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
162.0
|
|
|
|
431.0
|
|
|
|
593.0
|
|
Current year catastrophe losses
|
|
|
506.0
|
|
|
|
70.0
|
|
|
|
576.0
|
|
Prior years
|
|
|
(8.1)
|
|
|
|
(41.7)
|
|
|
|
(49.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
659.9
|
|
|
|
459.3
|
|
|
|
1,119.2
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
105.2
|
|
|
|
203.7
|
|
|
|
308.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(454.3)
|
|
|
$
|
(20.6)
|
|
|
$
|
(474.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
52.1%
|
|
|
|
67.1%
|
|
|
|
62.3%
|
|
Current year catastrophe losses
|
|
|
162.8%
|
|
|
|
10.9%
|
|
|
|
60.4%
|
|
Prior years
|
|
|
(2.6%)
|
|
|
|
(6.5%)
|
|
|
|
(5.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
212.3%
|
|
|
|
71.5%
|
|
|
|
117.5%
|
|
Expense ratio
(4)
|
|
|
33.8%
|
|
|
|
31.7%
|
|
|
|
32.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
246.1%
|
|
|
|
103.2%
|
|
|
|
149.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Property
|
|
|
Casualty &
Other
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
400.2
|
|
|
$
|
665.2
|
|
|
$
|
1,065.4
|
|
Net premiums written
|
|
|
320.5
|
|
|
|
646.4
|
|
|
|
966.9
|
|
|
|
|
|
Net premiums earned
|
|
|
314.6
|
|
|
|
654.8
|
|
|
|
969.4
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
147.0
|
|
|
|
462.6
|
|
|
|
609.6
|
|
Current year catastrophe losses
|
|
|
21.4
|
|
|
|
0.2
|
|
|
|
21.6
|
|
Prior years
|
|
|
(10.8)
|
|
|
|
(58.2)
|
|
|
|
(69.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
157.6
|
|
|
|
404.6
|
|
|
|
562.2
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
105.4
|
|
|
|
227.7
|
|
|
|
333.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
51.6
|
|
|
$
|
22.5
|
|
|
$
|
74.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
46.7%
|
|
|
|
70.6%
|
|
|
|
62.8%
|
|
Current year catastrophe losses
|
|
|
6.8%
|
|
|
|
- %
|
|
|
|
2.2%
|
|
Prior years
|
|
|
(3.4%)
|
|
|
|
(8.9%)
|
|
|
|
(7.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
50.1%
|
|
|
|
61.7%
|
|
|
|
57.9%
|
|
Expense ratio
(4)
|
|
|
33.5%
|
|
|
|
34.8%
|
|
|
|
34.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
83.6%
|
|
|
|
96.5%
|
|
|
|
92.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Property
|
|
|
Casualty &
Other
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
1,190.0
|
|
|
$
|
2,037.7
|
|
|
$
|
3,227.7
|
|
Net premiums written
|
|
|
931.4
|
|
|
|
1,975.3
|
|
|
|
2,906.7
|
|
|
|
|
|
Net premiums earned
|
|
|
868.1
|
|
|
|
1,968.7
|
|
|
|
2,836.8
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
461.2
|
|
|
|
1,352.9
|
|
|
|
1,814.1
|
|
Current year catastrophe losses
|
|
|
506.0
|
|
|
|
70.0
|
|
|
|
576.0
|
|
Prior years
|
|
|
(62.6)
|
|
|
|
(78.2)
|
|
|
|
(140.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
904.6
|
|
|
|
1,344.7
|
|
|
|
2,249.3
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
283.7
|
|
|
|
662.9
|
|
|
|
946.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(320.2)
|
|
|
$
|
(38.9)
|
|
|
$
|
(359.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.1%
|
|
|
|
68.7%
|
|
|
|
63.9%
|
|
Current year catastrophe losses
|
|
|
58.3%
|
|
|
|
3.6%
|
|
|
|
20.3%
|
|
Prior years
|
|
|
(7.2%)
|
|
|
|
(4.0%)
|
|
|
|
(5.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
104.2%
|
|
|
|
68.3%
|
|
|
|
79.2%
|
|
Expense ratio
(4)
|
|
|
32.7%
|
|
|
|
33.7%
|
|
|
|
33.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
136.9%
|
|
|
|
102.0%
|
|
|
|
112.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Property
|
|
|
Casualty &
Other
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
1,173.3
|
|
|
$
|
2,136.7
|
|
|
$
|
3,310.0
|
|
Net premiums written
|
|
|
945.1
|
|
|
|
2,088.3
|
|
|
|
3,033.4
|
|
|
|
|
|
Net premiums earned
|
|
|
857.9
|
|
|
|
2,030.6
|
|
|
|
2,888.5
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
418.7
|
|
|
|
1,419.5
|
|
|
|
1,838.2
|
|
Current year catastrophe losses
|
|
|
115.5
|
|
|
|
1.9
|
|
|
|
117.4
|
|
Prior years
|
|
|
(79.3)
|
|
|
|
(138.7)
|
|
|
|
(218.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
454.9
|
|
|
|
1,282.7
|
|
|
|
1,737.6
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
275.6
|
|
|
|
693.6
|
|
|
|
969.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
127.4
|
|
|
$
|
54.3
|
|
|
$
|
181.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
48.8%
|
|
|
|
69.9%
|
|
|
|
63.6%
|
|
Current year catastrophe losses
|
|
|
13.5%
|
|
|
|
0.1%
|
|
|
|
4.1%
|
|
Prior years
|
|
|
(9.2%)
|
|
|
|
(6.8%)
|
|
|
|
(7.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
53.1%
|
|
|
|
63.2%
|
|
|
|
60.3%
|
|
Expense ratio
(4)
|
|
|
32.1%
|
|
|
|
34.2%
|
|
|
|
33.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
85.2%
|
|
|
|
97.4%
|
|
|
|
93.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily consists of the following assumed reinsurance lines of business: directors and officers liability; errors and omissions liability; general liability; medical malpractice; ocean marine and aviation;
auto liability; accident and health; surety; and credit.
|
(2)
|
Underwriting profit represents net premiums earned less net loss and LAE and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income,
net realized capital gains, OTTI losses, other revenue, other operating expenses, corporate administration, amortization of intangible assets and interest expense. Underwriting profit is a
non-GAAP
financial
measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. See Comment on
Non-GAAP
Financial Measures herein for additional detail
on the presentation of our results of operations.
|
(3)
|
The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.
|
(4)
|
The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.
|
(5)
|
The combined ratio is the sum of the loss ratio and the expense ratio, all as determined in accordance with GAAP. The combined ratio represents the percentage of each premium dollar a reinsurance or an insurance company
has to spend on net loss and LAE, and commissions, brokerage and other underwriting expenses.
|
39
Reinsurance Segment: Premiums.
The following table presents premiums for the
reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
445.5
|
|
|
$
|
400.2
|
|
|
|
11.3%
|
|
|
$
|
1,190.0
|
|
|
$
|
1,173.3
|
|
|
|
1.4%
|
|
Net premiums written
|
|
|
329.0
|
|
|
|
320.5
|
|
|
|
2.7%
|
|
|
|
931.4
|
|
|
|
945.1
|
|
|
|
(1.4%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
310.8
|
|
|
|
314.6
|
|
|
|
(1.2%)
|
|
|
|
868.1
|
|
|
|
857.9
|
|
|
|
1.2%
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
681.1
|
|
|
$
|
665.2
|
|
|
|
2.4%
|
|
|
$
|
2,037.7
|
|
|
$
|
2,136.7
|
|
|
|
(4.6%)
|
|
Net premiums written
|
|
|
649.5
|
|
|
|
646.4
|
|
|
|
0.5%
|
|
|
|
1,975.3
|
|
|
|
2,088.3
|
|
|
|
(5.4%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
642.4
|
|
|
|
654.8
|
|
|
|
(1.9%)
|
|
|
|
1,968.7
|
|
|
|
2,030.6
|
|
|
|
(3.0%)
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,126.6
|
|
|
$
|
1,065.4
|
|
|
|
5.7%
|
|
|
$
|
3,227.7
|
|
|
$
|
3,310.0
|
|
|
|
(2.5%)
|
|
Net premiums written
|
|
|
978.5
|
|
|
|
966.9
|
|
|
|
1.2%
|
|
|
|
2,906.7
|
|
|
|
3,033.4
|
|
|
|
(4.2%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
953.2
|
|
|
|
969.4
|
|
|
|
(1.7%)
|
|
|
|
2,836.8
|
|
|
|
2,888.5
|
|
|
|
(1.8%)
|
|
Property.
The increase in gross premiums written in the third quarter of 2017 from the third quarter of
2016 primarily reflects reinstatement premiums written related to the significant catastrophe losses that occurred in the third quarter of 2017 and, to a lesser extent, the impact of changes in foreign currency exchange rates. The increase in gross
premiums written for the first nine months of 2017 from the first nine months of 2016 primarily reflects reinstatement premiums written, partially offset by cancellations,
non-renewals
and reduced
participations in certain international treaties and the impact of changes in foreign currency exchange rates. Gross premiums written related to the Quota Share Treaty were $92.5 million and $93.5 million in the third quarter of 2017 and
2016, respectively, and $263.2 million and $265.3 million in the first nine months of 2017 and 2016, respectively. Excluding the impact of changes in foreign currency exchange rates, gross premiums written increased 10.9 percent in
the third quarter of 2017 from the third quarter of 2016, and 1.7 percent in the first nine months of 2017 from the first nine months of 2016.
The decrease in net premiums earned in the third quarter of 2017 from the third quarter of 2016 primarily reflects a decrease in net premiums
written in recent quarters, partially offset by $32.1 million of net reinstatement premiums earned related to the significant catastrophe losses that occurred in the third quarter of 2017. The increase in net premiums earned in the first nine
months of 2017 from the first nine months of 2016 primarily reflects increased premiums earned related to the Quota Share Treaty and $32.1 million of net reinstatement premiums earned, partially offset by a decrease in net premiums written in
recent quarters. Excluding the impact of changes in foreign currency exchange rates, net premiums earned decreased 1.5 percent in the third quarter of 2017 from the third quarter of 2016, and increased 1.7 percent in the first nine months
of 2017 from the first nine months of 2016.
Casualty
& other.
The increase in gross premiums written in the
third quarter of 2017 from the third quarter of 2016 primarily reflects an increase in premiums written related to the Quota Share Treaty and reinstatement premiums written related to the significant catastrophe losses that occurred in the third
quarter of 2017. The decrease in gross premiums written in the first nine months of 2017 from the first nine months of 2016 primarily reflects cancellations,
non-renewals
and reduced participations in certain
international treaties, as well as the impact of rate pressures and increased retentions by cedants, the impact of changes in foreign currency exchange rates and a decrease in casualty-related premiums written related to the Quota Share Treaty,
partially offset by reinstatement premiums written related to the significant catastrophe losses that occurred in the third quarter of 2017. Gross premiums written related to the Quota Share Treaty were $113.3 million and $105.9 million in
the third quarter of 2017 and 2016, respectively, and $316.7 million and $358.9 million in the first nine months of 2017 and 2016, respectively. Premiums related to the Quota Share Treaty in the first nine months of 2016 reflect elevated
premiums written in the first quarter of 2016 due to differences between initial premium estimates at contract inception, which were recorded in the fourth quarter of 2015, and actual data subsequently reported. As a consequence of this change in
estimate, premiums written in the fourth quarter of 2015 were understated and premiums written in the first quarter of 2016 were correspondingly increased. In general, when actual data has not been reported by ceding companies, premiums written are
estimated based on historical patterns and other relevant factors. Any differences between these estimates and actual data subsequently reported are recorded in the period when actual data becomes available. Excluding the impact of changes in
foreign currency exchange
40
rates, gross premiums written increased 2.3 percent in the third quarter of 2017 from the third quarter of 2016, and decreased 3.9 percent in the first nine months of 2017 from the
first nine months of 2016.
The decrease in net premiums earned in the third quarter of 2017 from the third quarter of 2016 primarily
reflects a decrease in net premiums written in recent quarters, partially offset by $5.0 million of net reinstatement premiums earned related to the significant catastrophe losses that occurred in the third quarter of 2017. The decrease in net
premiums earned in the first nine months of 2017 from the first nine months of 2016 primarily reflects the decline in net premiums written in recent quarters and the impact of changes in foreign currency exchange rates, partially offset by
$5.0 million of net reinstatement premiums earned. Excluding the impact of changes in foreign currency exchange rates, net premiums earned decreased 2.0 percent in the third quarter of 2017 from the third quarter of 2016, and decreased
2.1 percent in the first nine months of 2017 from the first nine months of 2016.
Reinsurance Segment: Net loss and
LAE.
The following table presents net loss and LAE for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
162.0
|
|
|
$
|
147.0
|
|
|
|
10.2%
|
|
|
$
|
461.2
|
|
|
$
|
418.7
|
|
|
|
10.2%
|
|
Current year catastrophe losses
|
|
|
506.0
|
|
|
|
21.4
|
|
|
|
2,264.5%
|
|
|
|
506.0
|
|
|
|
115.5
|
|
|
|
338.1%
|
|
Prior years
|
|
|
(8.1)
|
|
|
|
(10.8)
|
|
|
|
(25.0%)
|
|
|
|
(62.6)
|
|
|
|
(79.3)
|
|
|
|
(21.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
659.9
|
|
|
$
|
157.6
|
|
|
|
318.7%
|
|
|
$
|
904.6
|
|
|
$
|
454.9
|
|
|
|
98.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
52.1%
|
|
|
|
46.7%
|
|
|
|
|
|
|
|
53.1%
|
|
|
|
48.8%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
162.8%
|
|
|
|
6.8%
|
|
|
|
|
|
|
|
58.3%
|
|
|
|
13.5%
|
|
|
|
|
|
Prior years
|
|
|
(2.6%)
|
|
|
|
(3.4%)
|
|
|
|
|
|
|
|
(7.2%)
|
|
|
|
(9.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
212.3%
|
|
|
|
50.1%
|
|
|
|
|
|
|
|
104.2%
|
|
|
|
53.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
431.0
|
|
|
$
|
462.6
|
|
|
|
(6.8%)
|
|
|
$
|
1,352.9
|
|
|
$
|
1,419.5
|
|
|
|
(4.7%)
|
|
Current year catastrophe losses
|
|
|
70.0
|
|
|
|
0.2
|
|
|
|
34,900%
|
|
|
|
70.0
|
|
|
|
1.9
|
|
|
|
3,584%
|
|
Prior years
|
|
|
(41.7)
|
|
|
|
(58.2)
|
|
|
|
(28.4%)
|
|
|
|
(78.2)
|
|
|
|
(138.7)
|
|
|
|
(43.6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
459.3
|
|
|
$
|
404.6
|
|
|
|
13.5%
|
|
|
$
|
1,344.7
|
|
|
$
|
1,282.7
|
|
|
|
4.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
67.1%
|
|
|
|
70.6%
|
|
|
|
|
|
|
|
68.7%
|
|
|
|
69.9%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
10.9%
|
|
|
|
- %
|
|
|
|
|
|
|
|
3.6%
|
|
|
|
0.1%
|
|
|
|
|
|
Prior years
|
|
|
(6.5%)
|
|
|
|
(8.9%)
|
|
|
|
|
|
|
|
(4.0%)
|
|
|
|
(6.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
71.5%
|
|
|
|
61.7%
|
|
|
|
|
|
|
|
68.3%
|
|
|
|
63.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
593.0
|
|
|
$
|
609.6
|
|
|
|
(2.7%)
|
|
|
$
|
1,814.1
|
|
|
$
|
1,838.2
|
|
|
|
(1.3%)
|
|
Current year catastrophe losses
|
|
|
576.0
|
|
|
|
21.6
|
|
|
|
2,566.7%
|
|
|
|
576.0
|
|
|
|
117.4
|
|
|
|
390.6%
|
|
Prior years
|
|
|
(49.8)
|
|
|
|
(69.0)
|
|
|
|
(27.8%)
|
|
|
|
(140.8)
|
|
|
|
(218.0)
|
|
|
|
(35.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
1,119.2
|
|
|
$
|
562.2
|
|
|
|
99.1%
|
|
|
$
|
2,249.3
|
|
|
$
|
1,737.6
|
|
|
|
29.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
62.3%
|
|
|
|
62.8%
|
|
|
|
|
|
|
|
63.9%
|
|
|
|
63.6%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
60.4%
|
|
|
|
2.2%
|
|
|
|
|
|
|
|
20.3%
|
|
|
|
4.1%
|
|
|
|
|
|
Prior years
|
|
|
(5.2%)
|
|
|
|
(7.1%)
|
|
|
|
|
|
|
|
(5.0%)
|
|
|
|
(7.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
117.5%
|
|
|
|
57.9%
|
|
|
|
|
|
|
|
79.2%
|
|
|
|
60.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Property.
The increases in net loss and LAE in the third quarter and first nine months of
2017 from the corresponding 2016 periods, primarily reflect higher catastrophe losses. Catastrophe losses in the third quarter and first nine months of 2017 include $160.7 million related to Hurricane Harvey in August 2017, $175.0 million
related to Hurricane Irma in September 2017, $142.4 million related to Hurricane Maria in September 2017 and $27.9 million related to earthquakes in Mexico in September 2017. The catastrophe losses in the first nine months of 2016 relate
to wildfire losses in Alberta, Canada, earthquake losses in Japan and earthquake losses in Ecuador, all of which occurred in the second quarter of 2016, and catastrophe losses in the third quarter of 2016 that relate primarily to typhoons and floods
in China.
Net loss and LAE in the third quarter and first nine months of 2017 and 2016 include (favorable) unfavorable prior accident year
loss reserve development as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($ in millions)
|
|
Catastrophe events
|
|
$
|
(7.8)
|
(1)
|
|
$
|
(1.2)
|
(2)
|
|
$
|
(12.2)
|
(1)
|
|
$
|
(9.0)
|
(2)
|
Non-catastrophe
|
|
|
(0.3)
|
|
|
|
(9.6)
|
(3)
|
|
|
(50.4)
|
(4)
|
|
|
(70.3)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8.1)
|
|
|
$
|
(10.8)
|
|
|
$
|
(62.6)
|
|
|
$
|
(79.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects favorable prior accident year loss reserve development from several catastrophes that occurred in the 2010 through 2016 accident years.
|
(2)
|
Reflects favorable prior accident year loss reserve development from several catastrophes that occurred in the 2010 through 2015 accident years.
|
(3)
|
Reflects favorable prior accident year loss reserve development primarily related to the 2014 through 2015 accident years.
|
(4)
|
Reflects favorable prior accident year loss reserve development primarily related to the 2013 through 2016 accident years.
|
The favorable prior accident year loss reserve development in the third quarter and first nine months of 2017 and 2016 reflects favorable loss
emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in the third quarter and first nine months of 2017 did not impact assumptions used in estimating TransRes
loss and LAE liabilities for business earned in the first nine months of 2017.
Casualty
& other.
The
increases in net loss and LAE in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect higher catastrophe losses and less favorable prior accident year loss reserve development.
Catastrophe losses in the third quarter and first nine months of 2017 relate primarily to the marine lines of business, and include
$20.3 million related to Hurricane Harvey in August 2017, $33.3 million related to Hurricane Irma in September 2017, $13.6 million related to Hurricane Maria in September 2017 and $2.8 million related to earthquakes in Mexico in
September 2017. Catastrophe losses in the third quarter and first nine months of 2016 relate to earthquake losses in Ecuador.
Net loss and
LAE in the third quarter and first nine months of 2017 and 2016 include (favorable) unfavorable prior accident year loss reserve development as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($ in millions)
|
|
Malpractice Treaties
(1)
|
|
$
|
-
|
|
|
$
|
(2.0)
|
|
|
$
|
(2.0)
|
|
|
$
|
(10.8)
|
|
Ogden rate impact
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
-
|
|
Other
|
|
|
(41.7)
|
(3)
|
|
|
(56.2)
|
(4)
|
|
|
(100.6)
|
(5)
|
|
|
(127.9)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(41.7)
|
|
|
$
|
(58.2)
|
|
|
$
|
(78.2)
|
|
|
$
|
(138.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents certain medical malpractice treaties, or the Malpractice Treaties, pursuant to which the increased underwriting profits created by the favorable prior accident year loss reserve development are
largely retained by the cedants. As a result, the favorable prior accident year loss reserve development is largely offset by an increase in profit commission expense incurred when such favorable prior accident year loss reserve development occurs.
|
(2)
|
Represents unfavorable prior accident year loss reserve development arising from the U.K. Ministry of Justices decision to significantly reduce the discount rate, referred to as the Ogden rate, used to calculate
lump-sum
bodily injury payouts in personal injury insurance claims in the U.K. As of March 20, 2017, the Ogden rate changed from 2.50 percent to negative 0.75 percent.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development in longer-tailed U.S. professional liability lines of business related to older accident years and shorter-tailed casualty lines of business in
the U.K. related to recent accident years.
|
(4)
|
Generally reflects favorable prior accident year loss reserve development in a variety of casualty & other lines of business primarily related to the 2005, 2006 and 2008 through 2015 accident years.
|
(5)
|
Primarily reflects favorable prior accident year loss reserve development in longer-tailed U.S. professional liability lines of business related to the 2005 through 2014 accident years, partially offset by net
unfavorable prior accident year loss reserve development in shorter-tailed casualty lines of business in the 2015 accident year in the U.S. and the U.K.
|
42
The favorable prior accident year loss reserve development in the third quarter and first nine
months of 2017 and 2016 reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in the third quarter and first nine months of 2017 did not impact
assumptions used in estimating TransRes loss and LAE liabilities for business earned in the first nine months of 2017.
Reinsurance Segment: Commissions, brokerage and other underwriting expenses.
The following table presents commissions, brokerage
and other underwriting expenses for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
105.2
|
|
|
$
|
105.4
|
|
|
|
(0.2%)
|
|
|
$
|
283.7
|
|
|
$
|
275.6
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
33.8%
|
|
|
|
33.5%
|
|
|
|
|
|
|
|
32.7%
|
|
|
|
32.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
203.7
|
|
|
$
|
227.7
|
|
|
|
(10.5%)
|
|
|
$
|
662.9
|
|
|
$
|
693.6
|
|
|
|
(4.4%)
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
31.7%
|
|
|
|
34.8%
|
|
|
|
|
|
|
|
33.7%
|
|
|
|
34.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
308.9
|
|
|
$
|
333.1
|
|
|
|
(7.3%)
|
|
|
$
|
946.6
|
|
|
$
|
969.2
|
|
|
|
(2.3%)
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.3%
|
|
|
|
34.4%
|
|
|
|
|
|
|
|
33.4%
|
|
|
|
33.6%
|
|
|
|
|
|
Property.
The increase in commissions, brokerage and other underwriting expenses in the first nine
months of 2017 from the first nine months of 2016 primarily reflects the impact of higher net premiums earned and an increase in commission rates, partially offset by lower short-term incentive compensation expense accruals arising from the
significant catastrophe losses that occurred in the third quarter of 2017.
Casualty
& other.
The decreases
in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect lower short-term incentive compensation expense accruals arising from the significant
catastrophe losses that occurred in the third quarter of 2017, the impact of lower net premiums earned and a decrease in profit commissions related to the Malpractice Treaties.
Reinsurance Segment: Underwriting profit.
The following table presents underwriting profit for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
|
|
$
|
(454.3)
|
|
|
$
|
51.6
|
|
|
|
(980.4%)
|
|
|
$
|
(320.2)
|
|
|
$
|
127.4
|
|
|
|
(351.3%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
246.1%
|
|
|
|
83.6%
|
|
|
|
|
|
|
|
136.9%
|
|
|
|
85.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
|
|
$
|
(20.6)
|
|
|
$
|
22.5
|
|
|
|
(191.6%)
|
|
|
$
|
(38.9)
|
|
|
$
|
54.3
|
|
|
|
(171.6%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
103.2%
|
|
|
|
96.5%
|
|
|
|
|
|
|
|
102.0%
|
|
|
|
97.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
|
|
$
|
(474.9)
|
|
|
$
|
74.1
|
|
|
|
(740.9%)
|
|
|
$
|
(359.1)
|
|
|
$
|
181.7
|
|
|
|
(297.6%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
149.8%
|
|
|
|
92.3%
|
|
|
|
|
|
|
|
112.6%
|
|
|
|
93.9%
|
|
|
|
|
|
43
Property.
The underwriting losses in the third quarter and first nine months of 2017,
compared with underwriting profits in the corresponding 2016 periods, primarily reflect significant catastrophe losses from Hurricanes Harvey, Irma and Maria, as discussed above.
Casualty
& other.
The underwriting losses in the third quarter and first nine months of 2017, compared with
underwriting profits in the corresponding 2016 periods primarily reflect significant catastrophe losses from Hurricanes Harvey, Irma and Maria, as well as less favorable prior accident year loss reserve development, as discussed above.
Insurance Segment Underwriting Results
The insurance segment is comprised of AIHLs RSUI, CapSpecialty and PacificComp operating subsidiaries. RSUI also writes a modest amount
of assumed reinsurance business, which is included in the insurance segment. For a more detailed description of our insurance segment, see Part I, Item 1, BusinessSegment InformationInsurance Segment of the 2016 Form
10-K.
The underwriting results of the insurance segment are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
RSUI
|
|
|
CapSpecialty
|
|
|
PacificComp
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
234.6
|
|
|
$
|
74.3
|
|
|
$
|
41.6
|
|
|
$
|
350.5
|
|
Net premiums written
|
|
|
170.8
|
|
|
|
69.5
|
|
|
|
41.5
|
|
|
|
281.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
179.0
|
|
|
|
66.1
|
|
|
|
41.4
|
|
|
|
286.5
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
99.3
|
|
|
|
37.5
|
|
|
|
31.1
|
|
|
|
167.9
|
|
Current year catastrophe losses
|
|
|
214.7
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
216.5
|
|
Prior years
|
|
|
(8.6)
|
|
|
|
(2.3)
|
|
|
|
(0.8)
|
|
|
|
(11.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
305.4
|
|
|
|
37.0
|
|
|
|
30.3
|
|
|
|
372.7
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
50.3
|
|
|
|
28.4
|
|
|
|
10.6
|
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(1)
|
|
$
|
(176.7)
|
|
|
$
|
0.7
|
|
|
$
|
0.5
|
|
|
$
|
(175.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
55.5%
|
|
|
|
56.8%
|
|
|
|
75.2%
|
|
|
|
58.6%
|
|
Current year catastrophe losses
|
|
|
119.9%
|
|
|
|
2.7%
|
|
|
|
- %
|
|
|
|
75.6%
|
|
Prior years
|
|
|
(4.8%)
|
|
|
|
(3.5%)
|
|
|
|
(1.9%)
|
|
|
|
(4.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
170.6%
|
|
|
|
56.0%
|
|
|
|
73.3%
|
|
|
|
130.1%
|
|
Expense ratio
(3)
|
|
|
28.1%
|
|
|
|
43.0%
|
|
|
|
25.5%
|
|
|
|
31.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
198.7%
|
|
|
|
99.0%
|
|
|
|
98.8%
|
|
|
|
161.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
RSUI
|
|
|
CapSpecialty
|
|
|
PacificComp
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
243.7
|
|
|
$
|
68.5
|
|
|
$
|
37.8
|
|
|
$
|
350.0
|
|
Net premiums written
|
|
|
168.3
|
|
|
|
64.4
|
|
|
|
37.1
|
|
|
|
269.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
186.8
|
|
|
|
61.6
|
|
|
|
35.7
|
|
|
|
284.1
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
102.6
|
|
|
|
33.6
|
|
|
|
27.1
|
|
|
|
163.3
|
|
Current year catastrophe losses
|
|
|
8.7
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
10.5
|
|
Prior years
|
|
|
(16.5)
|
|
|
|
(0.9)
|
|
|
|
-
|
|
|
|
(17.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
94.8
|
|
|
|
34.5
|
|
|
|
27.1
|
|
|
|
156.4
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
53.9
|
|
|
|
26.4
|
|
|
|
9.6
|
|
|
|
89.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(1)
|
|
$
|
38.1
|
|
|
$
|
0.7
|
|
|
$
|
(1.0)
|
|
|
$
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
54.9%
|
|
|
|
54.6%
|
|
|
|
76.0%
|
|
|
|
57.5%
|
|
Current year catastrophe losses
|
|
|
4.7%
|
|
|
|
2.9%
|
|
|
|
- %
|
|
|
|
3.7%
|
|
Prior years
|
|
|
(8.8%)
|
|
|
|
(1.5%)
|
|
|
|
- %
|
|
|
|
(6.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
50.8%
|
|
|
|
56.0%
|
|
|
|
76.0%
|
|
|
|
55.1%
|
|
Expense ratio
(3)
|
|
|
28.9%
|
|
|
|
42.9%
|
|
|
|
26.9%
|
|
|
|
31.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
79.7%
|
|
|
|
98.9%
|
|
|
|
102.9%
|
|
|
|
86.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
RSUI
|
|
|
CapSpecialty
|
|
|
PacificComp
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
794.1
|
|
|
$
|
213.2
|
|
|
$
|
124.2
|
|
|
$
|
1,131.5
|
|
Net premiums written
|
|
|
558.0
|
|
|
|
198.9
|
|
|
|
122.9
|
|
|
|
879.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
540.3
|
|
|
|
192.2
|
|
|
|
123.5
|
|
|
|
856.0
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
279.1
|
|
|
|
104.8
|
|
|
|
93.1
|
|
|
|
477.0
|
|
Current year catastrophe losses
|
|
|
227.9
|
|
|
|
4.0
|
|
|
|
-
|
|
|
|
231.9
|
|
Prior years
|
|
|
(27.3)
|
|
|
|
(3.1)
|
|
|
|
(1.8)
|
|
|
|
(32.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
479.7
|
|
|
|
105.7
|
|
|
|
91.3
|
|
|
|
676.7
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
158.3
|
|
|
|
83.3
|
|
|
|
32.2
|
|
|
|
273.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(1)
|
|
$
|
(97.7)
|
|
|
$
|
3.2
|
|
|
$
|
-
|
|
|
$
|
(94.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
51.7%
|
|
|
|
54.5%
|
|
|
|
75.4%
|
|
|
|
55.8%
|
|
Current year catastrophe losses
|
|
|
42.2%
|
|
|
|
2.1%
|
|
|
|
- %
|
|
|
|
27.1%
|
|
Prior years
|
|
|
(5.1%)
|
|
|
|
(1.6%)
|
|
|
|
(1.5%)
|
|
|
|
(3.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
88.8%
|
|
|
|
55.0%
|
|
|
|
73.9%
|
|
|
|
79.1%
|
|
Expense ratio
(3)
|
|
|
29.3%
|
|
|
|
43.4%
|
|
|
|
26.1%
|
|
|
|
32.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
118.1%
|
|
|
|
98.4%
|
|
|
|
100.0%
|
|
|
|
111.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
RSUI
|
|
|
CapSpecialty
|
|
|
PacificComp
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
808.3
|
|
|
$
|
201.5
|
|
|
$
|
105.9
|
|
|
$
|
1,115.7
|
|
Net premiums written
|
|
|
566.3
|
|
|
|
189.0
|
|
|
|
104.5
|
|
|
|
859.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
567.4
|
|
|
|
175.8
|
|
|
|
104.9
|
|
|
|
848.1
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
291.9
|
|
|
|
90.6
|
|
|
|
79.5
|
|
|
|
462.0
|
|
Current year catastrophe losses
|
|
|
37.6
|
|
|
|
5.0
|
|
|
|
-
|
|
|
|
42.6
|
|
Prior years
|
|
|
(40.5)
|
|
|
|
(3.2)
|
|
|
|
-
|
|
|
|
(43.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
289.0
|
|
|
|
92.4
|
|
|
|
79.5
|
|
|
|
460.9
|
|
Commissions, brokerage and other underwriting
expenses
|
|
|
161.9
|
|
|
|
78.7
|
|
|
|
28.9
|
|
|
|
269.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(1)
|
|
$
|
116.5
|
|
|
$
|
4.7
|
|
|
$
|
(3.5)
|
|
|
$
|
117.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
51.4%
|
|
|
|
51.6%
|
|
|
|
75.8%
|
|
|
|
54.5%
|
|
Current year catastrophe losses
|
|
|
6.6%
|
|
|
|
2.8%
|
|
|
|
- %
|
|
|
|
5.0%
|
|
Prior years
|
|
|
(7.1%)
|
|
|
|
(1.8%)
|
|
|
|
- %
|
|
|
|
(5.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
50.9%
|
|
|
|
52.6%
|
|
|
|
75.8%
|
|
|
|
54.3%
|
|
Expense ratio
(3)
|
|
|
28.5%
|
|
|
|
44.8%
|
|
|
|
27.6%
|
|
|
|
31.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
79.4%
|
|
|
|
97.4%
|
|
|
|
103.4%
|
|
|
|
86.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Underwriting profit represents net premiums earned less net loss and LAE and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income,
net realized capital gains, OTTI losses, other revenue, other operating expenses, corporate administration, amortization of intangible assets and interest expense. Underwriting profit is a
non-GAAP
financial
measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. See Comment on
Non-GAAP
Financial Measures herein for additional detail
on the presentation of our results of operations.
|
(2)
|
The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.
|
(3)
|
The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.
|
(4)
|
The combined ratio is the sum of the loss ratio and the expense ratio, all as determined in accordance with GAAP. The combined ratio represents the percentage of each premium dollar a reinsurance or an insurance company
has to spend on net loss and LAE, and commissions, brokerage and other underwriting expenses.
|
46
Insurance Segment: Premiums.
The following table presents premiums for the
insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
234.6
|
|
|
$
|
243.7
|
|
|
|
(3.7%)
|
|
|
$
|
794.1
|
|
|
$
|
808.3
|
|
|
|
(1.8%)
|
|
Net premiums written
|
|
|
170.8
|
|
|
|
168.3
|
|
|
|
1.5%
|
|
|
|
558.0
|
|
|
|
566.3
|
|
|
|
(1.5%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
179.0
|
|
|
|
186.8
|
|
|
|
(4.2%)
|
|
|
|
540.3
|
|
|
|
567.4
|
|
|
|
(4.8%)
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
74.3
|
|
|
$
|
68.5
|
|
|
|
8.5%
|
|
|
$
|
213.2
|
|
|
$
|
201.5
|
|
|
|
5.8%
|
|
Net premiums written
|
|
|
69.5
|
|
|
|
64.4
|
|
|
|
7.9%
|
|
|
|
198.9
|
|
|
|
189.0
|
|
|
|
5.2%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
66.1
|
|
|
|
61.6
|
|
|
|
7.3%
|
|
|
|
192.2
|
|
|
|
175.8
|
|
|
|
9.3%
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
41.6
|
|
|
$
|
37.8
|
|
|
|
10.1%
|
|
|
$
|
124.2
|
|
|
$
|
105.9
|
|
|
|
17.3%
|
|
Net premiums written
|
|
|
41.5
|
|
|
|
37.1
|
|
|
|
11.9%
|
|
|
|
122.9
|
|
|
|
104.5
|
|
|
|
17.6%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
41.4
|
|
|
|
35.7
|
|
|
|
16.0%
|
|
|
|
123.5
|
|
|
|
104.9
|
|
|
|
17.7%
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
350.5
|
|
|
$
|
350.0
|
|
|
|
0.1%
|
|
|
$
|
1,131.5
|
|
|
$
|
1,115.7
|
|
|
|
1.4%
|
|
Net premiums written
|
|
|
281.8
|
|
|
|
269.8
|
|
|
|
4.4%
|
|
|
|
879.8
|
|
|
|
859.8
|
|
|
|
2.3%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
286.5
|
|
|
|
284.1
|
|
|
|
0.8%
|
|
|
|
856.0
|
|
|
|
848.1
|
|
|
|
0.9%
|
|
RSUI.
The decreases in gross premiums written in the third quarter and first nine months of 2017
from the corresponding 2016 periods primarily reflect decreases in the property and directors and officers liability lines of business, all due to an increase in competition and a reduction in pricing, partially offset by growth in the
general liability lines of business.
The decreases in net premiums earned in the third quarter and first nine months of 2017 from the
corresponding 2016 periods primarily reflect a decrease in gross premiums written in the second and third quarters of 2017 and the fourth quarter of 2016, partially offset by a modest increase in gross premiums written in the first quarter of 2017.
CapSpecialty.
The increases in gross premiums written in the third quarter and first nine months of 2017 from the corresponding
2016 periods primarily reflect growth in the professional liability and miscellaneous medical lines of business due to CapSpecialtys distribution initiatives, partially offset by a decrease in the environmental and construction liability lines
of business.
The increases in net premiums earned in the third quarter and first nine months of 2017 from the corresponding 2016 periods
primarily reflect an increase in gross premiums written in recent quarters.
PacificComp.
The increases in gross premiums written
and net premiums earned in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect premium growth due to PacificComps distribution initiatives and growth in targeted segments of the workers
compensation market in the State of California.
47
Insurance Segment: Net loss and LAE.
The following table presents net loss and LAE
for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
99.3
|
|
|
$
|
102.6
|
|
|
|
(3.2%)
|
|
|
$
|
279.1
|
|
|
$
|
291.9
|
|
|
|
(4.4%)
|
|
Current year catastrophe losses
|
|
|
214.7
|
|
|
|
8.7
|
|
|
|
2,367.8%
|
|
|
|
227.9
|
|
|
|
37.6
|
|
|
|
506.1%
|
|
Prior years
|
|
|
(8.6)
|
|
|
|
(16.5)
|
|
|
|
(47.9%)
|
|
|
|
(27.3)
|
|
|
|
(40.5)
|
|
|
|
(32.6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
305.4
|
|
|
$
|
94.8
|
|
|
|
222.2%
|
|
|
$
|
479.7
|
|
|
$
|
289.0
|
|
|
|
66.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
55.5%
|
|
|
|
54.9%
|
|
|
|
|
|
|
|
51.7%
|
|
|
|
51.4%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
119.9%
|
|
|
|
4.7%
|
|
|
|
|
|
|
|
42.2%
|
|
|
|
6.6%
|
|
|
|
|
|
Prior years
|
|
|
(4.8%)
|
|
|
|
(8.8%)
|
|
|
|
|
|
|
|
(5.1%)
|
|
|
|
(7.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
170.6%
|
|
|
|
50.8%
|
|
|
|
|
|
|
|
88.8%
|
|
|
|
50.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
37.5
|
|
|
$
|
33.6
|
|
|
|
11.6%
|
|
|
$
|
104.8
|
|
|
$
|
90.6
|
|
|
|
15.7%
|
|
Current year catastrophe losses
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
- %
|
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
(20.0%)
|
|
Prior years
|
|
|
(2.3)
|
|
|
|
(0.9)
|
|
|
|
155.6%
|
|
|
|
(3.1)
|
|
|
|
(3.2)
|
|
|
|
(3.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
37.0
|
|
|
$
|
34.5
|
|
|
|
7.2%
|
|
|
$
|
105.7
|
|
|
$
|
92.4
|
|
|
|
14.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
56.8%
|
|
|
|
54.6%
|
|
|
|
|
|
|
|
54.5%
|
|
|
|
51.6%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
2.7%
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
2.1%
|
|
|
|
2.8%
|
|
|
|
|
|
Prior years
|
|
|
(3.5%)
|
|
|
|
(1.5%)
|
|
|
|
|
|
|
|
(1.6%)
|
|
|
|
(1.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
56.0%
|
|
|
|
56.0%
|
|
|
|
|
|
|
|
55.0%
|
|
|
|
52.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
31.1
|
|
|
$
|
27.1
|
|
|
|
14.8%
|
|
|
$
|
93.1
|
|
|
$
|
79.5
|
|
|
|
17.1%
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Prior years
|
|
|
(0.8)
|
|
|
|
-
|
|
|
|
|
|
|
|
(1.8)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
30.3
|
|
|
$
|
27.1
|
|
|
|
11.8%
|
|
|
$
|
91.3
|
|
|
$
|
79.5
|
|
|
|
14.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
75.2%
|
|
|
|
76.0%
|
|
|
|
|
|
|
|
75.4%
|
|
|
|
75.8%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
- %
|
|
|
|
- %
|
|
|
|
|
|
|
|
- %
|
|
|
|
- %
|
|
|
|
|
|
Prior years
|
|
|
(1.9%)
|
|
|
|
- %
|
|
|
|
|
|
|
|
(1.5%)
|
|
|
|
- %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
73.3%
|
|
|
|
76.0%
|
|
|
|
|
|
|
|
73.9%
|
|
|
|
75.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
167.9
|
|
|
$
|
163.3
|
|
|
|
2.8%
|
|
|
$
|
477.0
|
|
|
$
|
462.0
|
|
|
|
3.2%
|
|
Current year catastrophe losses
|
|
|
216.5
|
|
|
|
10.5
|
|
|
|
1,961.9%
|
|
|
|
231.9
|
|
|
|
42.6
|
|
|
|
444.4%
|
|
Prior years
|
|
|
(11.7)
|
|
|
|
(17.4)
|
|
|
|
(32.8%)
|
|
|
|
(32.2)
|
|
|
|
(43.7)
|
|
|
|
(26.3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
372.7
|
|
|
$
|
156.4
|
|
|
|
138.3%
|
|
|
$
|
676.7
|
|
|
$
|
460.9
|
|
|
|
46.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
58.6%
|
|
|
|
57.5%
|
|
|
|
|
|
|
|
55.8%
|
|
|
|
54.5%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
75.6%
|
|
|
|
3.7%
|
|
|
|
|
|
|
|
27.1%
|
|
|
|
5.0%
|
|
|
|
|
|
Prior years
|
|
|
(4.1%)
|
|
|
|
(6.1%)
|
|
|
|
|
|
|
|
(3.8%)
|
|
|
|
(5.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
130.1%
|
|
|
|
55.1%
|
|
|
|
|
|
|
|
79.1%
|
|
|
|
54.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
RSUI.
The increases in net loss and LAE in the third quarter and first nine months of 2017
from the corresponding 2016 periods primarily reflect higher catastrophe losses.
Catastrophe losses in the third quarter and first nine
months of 2017 include $83.3 million related to Hurricane Harvey in August 2017, $103.7 million related to Hurricane Irma in September 2017 and $14.3 million related to Hurricane Maria in September 2017. Catastrophe losses in the
third quarter and first nine months of 2017 also reflect losses from flooding in the State of California and severe weather primarily in the Southeastern and Midwestern U.S. Catastrophe losses in the third quarter of 2016 primarily reflect losses
from flooding and severe weather primarily in the State of Louisiana and the Midwestern U.S. Catastrophe losses in the first nine months of 2016 also reflect losses from flooding and severe weather primarily in the State of Texas in April and May
and, to a lesser extent, losses from wildfires in Alberta, Canada in May.
Net loss and LAE in the third quarter and first nine months of
2017 and 2016 include (favorable) unfavorable prior accident year loss reserve development as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($ in millions)
|
|
Casualty
|
|
$
|
(6.9)
|
(1)
|
|
$
|
(11.9)
|
(2)
|
|
$
|
(28.5)
|
(1)
|
|
$
|
(32.1)
|
(2)
|
Property and other
|
|
|
(1.7)
|
(3)
|
|
|
(4.6)
|
(4)
|
|
|
1.2
|
(5)
|
|
|
(8.4)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8.6)
|
|
|
$
|
(16.5)
|
|
|
$
|
(27.3)
|
|
|
$
|
(40.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business related to the 2005 through 2011 accident years.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess, general liability and professional liability lines of business related to the 2006 through 2012 accident years.
|
(3)
|
Primarily reflects favorable unallocated LAE development.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the
non-catastrophe
property lines of business in recent accident years.
|
(5)
|
Primarily reflects unfavorable prior accident year property loss reserve development in the binding authority lines of business primarily related to the 2015 and 2016 accident years, partially offset by favorable
catastrophe prior accident year loss reserve development related to the 2016 accident year.
|
The favorable prior accident
year loss reserve development in the third quarter and first nine months of 2017 and 2016 reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development
in the third quarter and first nine months of 2017 did not impact assumptions used in estimating RSUIs loss and LAE liabilities for business earned in the first nine months of 2017.
CapSpecialty.
The increases in net loss and LAE in the third quarter and first nine months of 2017 from the corresponding 2016 periods
primarily reflect the impact of higher net premiums earned and higher property losses. The increase in net loss and LAE in the third quarter of 2017 from the third quarter of 2016 was partially offset by more favorable prior accident year loss
reserve development. Catastrophe losses in the third quarter and first nine months of 2017 include $0.3 million related to Hurricane Harvey in August 2017.
Net loss and LAE in the third quarter and first nine months of 2017 include favorable prior accident year loss reserve development primarily
in the casualty lines of business primarily related to the 2010, 2014, 2015 and 2016 accident years. The favorable prior accident year loss reserve development in the first nine months of 2017 reflects net favorable loss emergence compared with loss
emergence patterns assumed in earlier periods. Net loss and LAE in the third quarter of 2016 includes favorable prior accident year loss reserve development primarily in the surety lines of business related to the 2015 accident year. Net loss and
LAE in the first nine months of 2016 includes favorable prior accident year loss reserve development primarily related to CapSpecialtys legacy asbestos-related illness and environmental impairment liabilities and the surety lines of business.
PacificComp.
The increases in net loss and LAE in the third quarter and first nine months of 2017 from the corresponding 2016
periods primarily reflect the impact of higher net premiums earned, partially offset by favorable prior accident year loss reserve development in the corresponding 2017 periods.
The favorable prior accident year loss reserve development in the third quarter and first nine months of 2017 relates primarily to the 2013
and prior accident years, and reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods.
49
Insurance Segment: Commissions, brokerage and other underwriting expenses.
The
following table presents commissions, brokerage and other underwriting expenses for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
50.3
|
|
|
$
|
53.9
|
|
|
|
(6.7%)
|
|
|
$
|
158.3
|
|
|
$
|
161.9
|
|
|
|
(2.2%)
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
28.1%
|
|
|
|
28.9%
|
|
|
|
|
|
|
|
29.3%
|
|
|
|
28.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
28.4
|
|
|
$
|
26.4
|
|
|
|
7.6%
|
|
|
$
|
83.3
|
|
|
$
|
78.7
|
|
|
|
5.8%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
43.0%
|
|
|
|
42.9%
|
|
|
|
|
|
|
|
43.4%
|
|
|
|
44.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
10.6
|
|
|
$
|
9.6
|
|
|
|
10.4%
|
|
|
$
|
32.2
|
|
|
$
|
28.9
|
|
|
|
11.4%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
25.5%
|
|
|
|
26.9%
|
|
|
|
|
|
|
|
26.1%
|
|
|
|
27.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
89.3
|
|
|
$
|
89.9
|
|
|
|
(0.7%)
|
|
|
$
|
273.8
|
|
|
$
|
269.5
|
|
|
|
1.6%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
31.2%
|
|
|
|
31.7%
|
|
|
|
|
|
|
|
32.0%
|
|
|
|
31.8%
|
|
|
|
|
|
RSUI.
The decreases in commissions, brokerage and other underwriting expenses in the third quarter and
first nine months of 2017 from the corresponding 2016 periods primarily reflect the impact of lower net premiums earned and the impact of losses arising from Hurricanes Harvey, Irma and Maria on short-term incentive compensation expense accruals.
CapSpecialty.
The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months
of 2017 from the corresponding 2016 periods primarily reflect the impact of higher net premiums earned and relatively stable overhead expenses.
PacificComp.
The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2017
from the corresponding 2016 periods primarily reflect the impact of higher net premiums earned and relatively stable overhead expenses.
50
Insurance Segment: Underwriting profit.
The following table presents underwriting
profit for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
|
|
|
$ (176.7)
|
|
|
|
$ 38.1
|
|
|
|
(563.8%)
|
|
|
|
$ (97.7)
|
|
|
|
$ 116.5
|
|
|
|
(183.9%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
198.7%
|
|
|
|
79.7%
|
|
|
|
|
|
|
|
118.1%
|
|
|
|
79.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
|
$ 0.7
|
|
|
|
$ 0.7
|
|
|
|
- %
|
|
|
|
$ 3.2
|
|
|
|
$
4.7
|
|
|
|
(31.9%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
99.0%
|
|
|
|
98.9%
|
|
|
|
|
|
|
|
98.4%
|
|
|
|
97.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
|
$
0.5
|
|
|
|
$ (1.0)
|
|
|
|
(150.0%)
|
|
|
|
$ -
|
|
|
|
$ (3.5)
|
|
|
|
(100.0%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
98.8%
|
|
|
|
102.9%
|
|
|
|
|
|
|
|
100.0%
|
|
|
|
103.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
|
|
|
$
(175.5)
|
|
|
|
$
37.8
|
|
|
|
(564.3%)
|
|
|
|
$ (94.5)
|
|
|
|
$
117.7
|
|
|
|
(180.3%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
161.3%
|
|
|
|
86.8%
|
|
|
|
|
|
|
|
111.1%
|
|
|
|
86.1%
|
|
|
|
|
|
RSUI.
The underwriting losses in the third quarter and first nine months of 2017, compared with
underwriting profits in the corresponding 2016 periods primarily reflect the impact of significant catastrophe losses from Hurricanes Harvey, Irma and Maria, as discussed above.
CapSpecialty.
The decrease in underwriting profit in the first nine months of 2017 from the first nine months of 2016 primarily
reflects the impact of higher property losses, as discussed above.
PacificComp.
The underwriting profit in the third
quarter of 2017 compared with the underwriting loss in the third quarter of 2016, and the decrease in underwriting loss in the first nine months of 2017 from the first nine months of 2016, primarily reflect favorable prior accident year loss reserve
development and the impact of growing net premiums earned, all as discussed above.
Investment Results for the Reinsurance and Insurance Segments
The following table presents the investment results for our reinsurance and insurance segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
2017
|
|
|
2016
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Net investment income
|
|
|
$ 101.4
|
|
|
|
$ 118.7
|
|
|
|
(14.6%)
|
|
|
|
$ 311.7
|
|
|
|
$ 326.4
|
|
|
|
(4.5%)
|
|
Net realized capital gains
|
|
|
21.5
|
|
|
|
27.1
|
|
|
|
(20.7%)
|
|
|
|
90.8
|
|
|
|
107.6
|
|
|
|
(15.6%)
|
|
Other than temporary impairment losses
|
|
|
(6.1)
|
|
|
|
(11.7)
|
|
|
|
(47.9%)
|
|
|
|
(13.1)
|
|
|
|
(38.2)
|
|
|
|
(65.7%)
|
|
Net Investment Income.
The decreases in net investment income in the third quarter and first
nine months of 2017 from the corresponding 2016 periods primarily relate to losses incurred on our equity interests in the Pillar Investments arising from significant catastrophe losses incurred in August and September 2017 and, for the first nine
months of 2017 only, a $12.6 million charge on our equity investment in Ares. The charge on our equity investment in Ares reflects our share of a
one-time
payment recorded by Ares related to an
acquisition by its affiliated entity. In connection with this acquisition, Ares agreed to make certain transaction support payments to the sellers of the acquired entity. Ares expects to receive future management fees derived from the assets under
management of the acquired entity.
51
Net Realized Capital Gains.
The decreases in net realized capital gains in the
third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect lower gains for the equity and bond portfolio, partially offset by gains on the sale of certain exchange-traded funds in the third quarter of 2017. In
addition, the first nine months of 2016 reflected a
one-time
$13.2 million realized gain recorded on April 15, 2016 by Alleghany Capital, as more fully described in the following pages.
Other Than Temporary Impairment Losses.
OTTI losses in the first nine months of 2017 reflect $13.1 million of unrealized
losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $13.1 million of OTTI losses, $11.8 million related to equity securities, primarily in the retail sector, and
$1.3 million related to debt securities. The determination that unrealized losses on equity and debt securities were other than temporary was primarily due to the duration of the decline in the fair value of equity and debt securities relative
to their costs. Of the $13.1 million of OTTI losses, $6.1 million was incurred in the third quarter of 2017.
OTTI losses in the
first nine months of 2016 reflect $38.2 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $38.2 million of OTTI losses, $16.6 million related to
equity securities, primarily in the retail, financial services, technology and chemical sectors, and $21.6 million related to debt securities, primarily in the energy sector. The determination that unrealized losses on equity and debt
securities were other than temporary was primarily due to the severity and duration of the decline in the fair value of equity and debt securities relative to their costs. Of the $38.2 million of OTTI losses, $11.7 million was incurred in
the third quarter of 2016.
Upon the ultimate disposition of the securities for which OTTI losses have been recorded, a portion of the loss
may be recoverable depending on market conditions at the time of disposition. After adjusting the cost basis of securities for the recognition of OTTI losses, the remaining gross unrealized investment losses for debt and equity securities as of
September 30, 2017 were deemed to be temporary, based on, among other factors: (i) the duration of time and the relative magnitude to which the fair values of these securities had been below cost were not indicative of an OTTI loss;
(ii) the absence of compelling evidence that would cause us to call into question the financial condition or near-term business prospects of the issuers of the securities; and (iii) our ability and intent to hold the securities for a
period of time sufficient to allow for any anticipated recovery.
See Note 3 to Notes to Unaudited Consolidated Financial Statements set
forth in Part I, Item 1, Financial Statements of this
Form 10-Q
for additional detail on gross unrealized investment losses for debt and equity securities as of September 30, 2017.
Alleghany Capital Results
Alleghany
Capital consists of: (i) manufacturing and service operations conducted through Bourn & Koch, Kentucky Trailer, IPS, Jazwares, W&W|AFCO Steel, beginning April 28, 2017, and a 45 percent equity interest in Wilbert Funeral
Services, Inc., or Wilbert, beginning August 1, 2017; (ii) oil and gas operations conducted through SORC; and (iii) corporate operations and investments at the Alleghany Capital level.
On August 1, 2017, Alleghany Capital acquired a 45 percent equity interest in Wilbert, a provider of products and services for the
funeral and cemetery industries and precast concrete markets, headquartered in Overland Park, Kansas, for $72.3 million. Wilbert is accounted for under the equity method of accounting and is included in other invested assets.
On April 28, 2017, Alleghany Capital acquired approximately 80 percent of the equity in W&W|AFCO Steel, a structural steel
fabricator and erector headquartered in Oklahoma City, Oklahoma, for $164.5 million, including $163.9 million in cash paid on May 1, 2017 and $0.6 million of estimated purchase price adjustments.
In July 2014, Alleghany Capital acquired a 30 percent equity interest in Jazwares. On April 15, 2016, Alleghany Capital acquired an
additional 50 percent of Jazwares outstanding equity, bringing its equity ownership interest to 80 percent and, as of that date, the results of Jazwares have been included in our consolidated results. Prior to April 15, 2016,
Jazwares was accounted for under the equity method of accounting.
52
The results of Alleghany Capital for the third quarter and first nine months of 2017 and 2016 are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Mfg. &
Svcs.
|
|
|
Oil & Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
Mfg. &
Svcs.
|
|
|
Oil & Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Net investment income
|
|
$
|
0.9
|
|
|
$
|
-
|
|
|
$
|
0.7
|
|
|
$
|
1.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net realized capital gains
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other revenue
|
|
|
288.8
|
|
|
|
2.4
|
|
|
|
0.5
|
|
|
|
291.7
|
|
|
|
216.7
|
|
|
|
2.4
|
|
|
|
(0.5)
|
|
|
|
218.6
|
|
Other operating expenses
|
|
|
259.6
|
|
|
|
9.1
|
|
|
|
0.4
|
|
|
|
269.1
|
|
|
|
192.9
|
|
|
|
9.3
|
|
|
|
1.4
|
|
|
|
203.6
|
|
Corporate administration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of intangible assets
|
|
|
6.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.0
|
|
|
|
6.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.7
|
|
Interest expense
|
|
|
1.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
23.6
|
|
|
$
|
(6.7)
|
|
|
$
|
0.8
|
|
|
$
|
17.7
|
|
|
$
|
16.7
|
|
|
$
|
(6.9)
|
|
|
$
|
(2.0)
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
|
|
$
|
34.3
|
|
|
$
|
(3.8)
|
|
|
$
|
0.8
|
|
|
$
|
31.3
|
|
|
$
|
25.6
|
|
|
$
|
(3.4)
|
|
|
$
|
(1.9)
|
|
|
$
|
20.3
|
|
Less: depreciation expense
|
|
|
(3.2)
|
|
|
|
(2.9)
|
|
|
|
-
|
|
|
|
(6.1)
|
|
|
|
(1.8)
|
|
|
|
(3.5)
|
|
|
|
-
|
|
|
|
(5.3)
|
|
Less: amortization of intangible assets
|
|
|
(6.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.0)
|
|
|
|
(6.7)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.7)
|
|
Less: interest expense
|
|
|
(1.2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.2)
|
|
|
|
(0.5)
|
|
|
|
-
|
|
|
|
(0.1)
|
|
|
|
(0.6)
|
|
Add: net realized capital gains
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
Adjustments to equity in earnings of Wilbert
|
|
|
(1.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
23.6
|
|
|
$
|
(6.7)
|
|
|
$
|
0.8
|
|
|
$
|
17.7
|
|
|
$
|
16.7
|
|
|
$
|
(6.9)
|
|
|
$
|
(2.0)
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Mfg. &
Svcs.
|
|
|
Oil & Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
Mfg. &
Svcs.
|
|
|
Oil & Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Net investment income
|
|
$
|
1.1
|
|
|
$
|
-
|
|
|
$
|
1.0
|
|
|
$
|
2.1
|
|
|
$
|
0.2
|
|
|
$
|
-
|
|
|
$
|
(0.2)
|
|
|
$
|
-
|
|
Net realized capital gains
|
|
|
0.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
(0.2)
|
|
|
|
-
|
|
|
|
13.2
|
|
|
|
13.0
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other revenue
|
|
|
626.3
|
|
|
|
7.5
|
|
|
|
0.5
|
|
|
|
634.3
|
|
|
|
511.0
|
|
|
|
6.8
|
|
|
|
(0.5)
|
|
|
|
517.3
|
|
Other operating expenses
|
|
|
579.4
|
|
|
|
27.2
|
|
|
|
11.6
|
|
|
|
618.2
|
|
|
|
474.6
|
|
|
|
27.6
|
|
|
|
5.8
|
|
|
|
508.0
|
|
Corporate administration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of intangible assets
|
|
|
15.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15.4
|
|
|
|
16.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16.9
|
|
Interest expense
|
|
|
2.9
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
3.0
|
|
|
|
1.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
30.6
|
|
|
$
|
(19.7)
|
|
|
$
|
(10.2)
|
|
|
$
|
0.7
|
|
|
$
|
18.4
|
|
|
$
|
(20.8)
|
|
|
$
|
6.6
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
|
|
$
|
56.8
|
|
|
$
|
(10.9)
|
|
|
$
|
(10.1)
|
|
|
$
|
35.8
|
|
|
$
|
41.5
|
|
|
$
|
(10.1)
|
|
|
$
|
(6.5)
|
|
|
$
|
24.9
|
|
Less: depreciation expense
|
|
|
(7.8)
|
|
|
|
(8.8)
|
|
|
|
-
|
|
|
|
(16.6)
|
|
|
|
(4.9)
|
|
|
|
(10.7)
|
|
|
|
-
|
|
|
|
(15.6)
|
|
Less: amortization of intangible assets
|
|
|
(15.4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15.4)
|
|
|
|
(16.9)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16.9)
|
|
Less: interest expense
|
|
|
(2.9)
|
|
|
|
-
|
|
|
|
(0.1)
|
|
|
|
(3.0)
|
|
|
|
(1.1)
|
|
|
|
-
|
|
|
|
(0.1)
|
|
|
|
(1.2)
|
|
Add: net realized capital gains
|
|
|
0.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
(0.2)
|
|
|
|
-
|
|
|
|
13.2
|
|
|
|
13.0
|
|
Adjustments to equity in earnings of Wilbert
|
|
|
(1.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.0)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
30.6
|
|
|
$
|
(19.7)
|
|
|
$
|
(10.2)
|
|
|
$
|
0.7
|
|
|
$
|
18.4
|
|
|
$
|
(20.8)
|
|
|
$
|
6.6
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusted EBITDA is a
non-GAAP
financial measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. See
Comment on
Non-GAAP
Financial Measures herein for additional detail on the presentation of our results of operations. Adjusted EBITDA represents other revenue less certain other expenses and does
not include: (i) depreciation expense (a component of other operating expenses); (ii) amortization of intangible assets; (iii) interest expense; (iv) net realized capital gains; (v) OTTI impairment losses; and (vi) income
taxes.
|
53
The following table presents the changes in Alleghany Capitals equity for the three and
nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Mfg. &
Svcs.
|
|
|
Oil &
Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
Mfg. &
Svcs.
|
|
|
Oil &
Gas
|
|
|
Corp. &
other
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Equity, beginning of period
|
|
$
|
607.5
|
|
|
$
|
146.0
|
|
|
$
|
(5.2)
|
|
|
$
|
748.3
|
|
|
$
|
453.4
|
|
|
$
|
149.2
|
|
|
$
|
(12.1)
|
|
|
$
|
590.5
|
|
Earnings (losses) before income taxes
|
|
|
23.6
|
|
|
|
(6.7)
|
|
|
|
0.8
|
|
|
|
17.7
|
|
|
|
30.6
|
|
|
|
(19.7)
|
|
|
|
(10.2)
|
|
|
|
0.7
|
|
Income taxes
(1)
|
|
|
(0.7)
|
|
|
|
2.6
|
|
|
|
(5.2)
|
|
|
|
(3.3)
|
|
|
|
(0.9)
|
|
|
|
7.2
|
|
|
|
(3.6)
|
|
|
|
2.7
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(4.2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4.2)
|
|
|
|
(5.2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5.2)
|
|
Capital contributions (returns of capital) and
other
(2)
|
|
|
67.0
|
|
|
|
7.3
|
|
|
|
0.5
|
|
|
|
74.8
|
|
|
|
215.3
|
|
|
|
12.5
|
|
|
|
16.8
|
|
|
|
244.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period
|
|
$
|
693.2
|
|
|
$
|
149.2
|
|
|
$
|
(9.1)
|
|
|
$
|
833.3
|
|
|
$
|
693.2
|
|
|
$
|
149.2
|
|
|
$
|
(9.1)
|
|
|
$
|
833.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Income taxes for certain Alleghany Capital subsidiaries are incurred at the Alleghany Capital level.
|
(2)
|
For the third quarter of 2017, primarily reflects the investment in Wilbert, and for the first nine months of 2017, also reflects the acquisition of W&W|AFCO Steel.
|
Net investment income.
The increases in net investment income in the third quarter and first nine months of 2017 from the
corresponding 2016 periods primarily reflect Alleghany Capitals earnings from its investment in Wilbert.
Net realized capital
gains.
Net realized capital gains in the first nine months of 2016 primarily reflect a gain of $13.2 million recognized by Alleghany Capital on April 15, 2016 in connection with the acquisition of an additional 50 percent
equity ownership in Jazwares, when its
pre-existing
30 percent equity ownership was remeasured at estimated fair value, or the Jazwares Remeasurement Gain.
Other revenue and Other operating expenses.
The increases in other revenue and other operating expenses in the third quarter and
first nine months of 2017 from the corresponding 2016 periods primarily reflect the acquisition of W&W|AFCO Steel. The increases in other operating expenses in the first nine months of 2017 from the first nine months of 2016 also reflect finders
fees, legal and accounting costs and other transaction-related expenses at the Alleghany Capital level.
Amortization of intangible
assets.
The decreases in amortization expenses in the third quarter and first nine months of 2017 from the corresponding 2016 periods primarily reflect decreases in amortization expense at IPS, as certain of IPSs intangible assets were
fully amortized as of December 31, 2016, partially offset by the amortization of net intangible assets related to the acquisition of W&W|AFCO Steel.
Interest expense.
The increases in interest expense in the third quarter and first nine months of 2017 from the corresponding
2016 periods reflect new or increased borrowings at Bourn & Koch and Jazwares and borrowings at W&W|AFCO Steel.
Earnings (losses) before income taxes.
The increase in earnings before income taxes in the third quarter of 2017 from the third
quarter of 2016 primarily reflects higher margins of the manufacturing and service operations, as well as the inclusion of W&W|AFCO Steel and our investment in Wilbert, as discussed above. The decrease in earnings before income taxes in the
first nine months of 2017 from the first nine months of 2016 primarily reflects the $13.2 million Jazwares Remeasurement Gain in the 2016 period, partially offset by higher margins of the manufacturing and service operations, as well as the
inclusion of W&W|AFCO Steel and our investment in Wilbert, all as discussed above.
54
Corporate Activities Results
The primary components of corporate activities are Alleghany Properties and activities at the Alleghany parent company. The following table
presents the results for corporate activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
($ in millions)
|
|
Net premiums earned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net investment income
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
8.1
|
|
|
|
5.9
|
|
Net realized capital gains
|
|
|
10.7
|
|
|
|
-
|
|
|
|
10.1
|
|
|
|
(3.5)
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other revenue
|
|
|
(0.1)
|
|
|
|
6.1
|
|
|
|
5.6
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12.3
|
|
|
|
8.0
|
|
|
|
23.8
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other operating expenses
|
|
|
0.5
|
|
|
|
1.2
|
|
|
|
2.6
|
|
|
|
2.4
|
|
Corporate administration
|
|
|
(3.2)
|
|
|
|
10.4
|
|
|
|
26.4
|
|
|
|
33.0
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
13.0
|
|
|
|
13.3
|
|
|
|
39.5
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
2.0
|
|
|
$
|
(16.9)
|
|
|
$
|
(44.7)
|
|
|
$
|
(65.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income.
The increase in net investment income in the first nine months of
2017 from the first nine months of 2016 primarily reflects higher income from new investments in other invested assets resulting from the purchase of certain
non-marketable
equity investments at the Alleghany
parent company.
Net realized capital gains.
The net realized capital gains in the third quarter and first nine months of
2017 primarily reflect gains on the sale of certain exchange-traded funds. The net realized capital losses in the first nine months of 2016 primarily reflect the sale at a loss of equity securities in the health care sector in the first quarter of
2016.
Other revenue.
The decrease in other revenue in the third quarter of 2017 from the third quarter of 2016 reflects a
gain on the sale of a retail shopping center by Alleghany Properties in July 2016. The decrease in other revenue in the first nine months of 2017 from the first nine months of 2016 reflects lower real estate sales activity at Alleghany Properties.
Corporate administration.
The negative corporate administration expense in the third quarter of 2017 compared with
corporate administration expense in the third quarter of 2016, and the decrease in corporate administration expense in the first nine months of 2017 from the first nine months of 2016, primarily reflect the impact of losses arising from Hurricanes
Harvey, Irma and Maria on long-term incentive compensation expense accruals at Alleghany.
Earnings (losses) before income
taxes.
The earnings before income taxes in the third quarter of 2017 compared with the net losses before income taxes in the third quarter of 2016, and the decrease in losses before income taxes in the first nine months of 2017 from the
first nine months of 2016, primarily reflect the impact of losses arising from Hurricanes Harvey, Irma and Maria on long-term incentive compensation expense accruals and net realized capital gains in the third quarter and first nine months of 2017,
as explained above.
55
Reserve Review Process
Our reinsurance and insurance subsidiaries analyze, at least quarterly, liabilities for unpaid loss and LAE established in prior years and
adjust their expected ultimate cost, where necessary, to reflect favorable or unfavorable development in loss experience and new information, including, for certain catastrophe events, revised industry estimates of the magnitude of a catastrophe.
Adjustments to previously recorded liabilities for unpaid loss and LAE, both favorable and unfavorable, are reflected in our financial results in the periods in which these adjustments are made and are referred to as prior accident year loss reserve
development. The following table presents the reserves established in connection with the loss and LAE of our reinsurance and insurance segments on a gross and net basis by line of business. These reserve amounts represent the accumulation of
estimates of ultimate loss (including for losses that have been incurred but not yet reported, or IBNR) and LAE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
|
As of December 31, 2016
|
|
|
|
Gross Loss
and LAE
Reserves
|
|
|
Reinsurance
Recoverables
on Unpaid
Losses
|
|
|
Net Loss and
LAE Reserves
|
|
|
Gross Loss
and LAE
Reserves
|
|
|
Reinsurance
Recoverables
on Unpaid
Losses
|
|
|
Net Loss and
LAE Reserves
|
|
|
|
($ in millions)
|
|
Reinsurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
1,891.3
|
|
|
$
|
(523.9)
|
|
|
$
|
1,367.4
|
|
|
$
|
952.7
|
|
|
$
|
(106.7)
|
|
|
$
|
846.0
|
|
Casualty & other
(1)
|
|
|
7,524.7
|
|
|
|
(259.9)
|
|
|
|
7,264.8
|
|
|
|
7,324.4
|
|
|
|
(226.0)
|
|
|
|
7,098.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,416.0
|
|
|
|
(783.8)
|
|
|
|
8,632.2
|
|
|
|
8,277.1
|
|
|
|
(332.7)
|
|
|
|
7,944.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
581.6
|
|
|
|
(231.1)
|
|
|
|
350.5
|
|
|
|
362.2
|
|
|
|
(186.8)
|
|
|
|
175.4
|
|
Casualty
(2)
|
|
|
2,076.1
|
|
|
|
(672.7)
|
|
|
|
1,403.4
|
|
|
|
2,083.1
|
|
|
|
(696.0)
|
|
|
|
1,387.1
|
|
Workers Compensation
|
|
|
274.2
|
|
|
|
(1.1)
|
|
|
|
273.1
|
|
|
|
241.2
|
|
|
|
(1.8)
|
|
|
|
239.4
|
|
All other
(3)
|
|
|
181.4
|
|
|
|
(77.6)
|
|
|
|
103.8
|
|
|
|
192.1
|
|
|
|
(87.4)
|
|
|
|
104.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,113.3
|
|
|
|
(982.5)
|
|
|
|
2,130.8
|
|
|
|
2,878.6
|
|
|
|
(972.0)
|
|
|
|
1,906.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(72.9)
|
|
|
|
72.9
|
|
|
|
-
|
|
|
|
(68.5)
|
|
|
|
68.5
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,456.4
|
|
|
$
|
(1,693.4)
|
|
|
$
|
10,763.0
|
|
|
$
|
11,087.2
|
|
|
$
|
(1,236.2)
|
|
|
$
|
9,851.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily consists of the following reinsurance lines of business: directors and officers liability; errors and omissions liability; general liability; medical malpractice; ocean marine and aviation; auto
liability; accident and health; surety; asbestos-related illness and environmental impairment liability; and credit.
|
(2)
|
Primarily consists of the following direct lines of business: umbrella/excess; directors and officers liability; professional liability; and general liability.
|
(3)
|
Primarily consists of commercial multi-peril and surety lines of business, as well as loss and LAE reserves for terminated lines of business and loss reserves acquired in connection with prior acquisitions for which the
sellers provided loss reserve guarantees.
|
Changes in Gross and Net Loss and LAE Reserves between
September
30, 2017 and December
31, 2016
. Gross and net loss and LAE reserves, and reinsurance recoverables as of September 30, 2017 increased from December 31,
2016, primarily reflecting significant catastrophe losses. Catastrophe losses, net of reinsurance, in the third quarter and first nine months of 2017 included $264.6 million related to Hurricane Harvey in August 2017, $312.0 million
related to Hurricane Irma in September 2017, and $170.3 million related to Hurricane Maria in September 2017, all as discussed above.
Reinsurance
Recoverables
Our reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite in order to reduce the effect
of individual or aggregate exposure to losses, manage capacity, protect capital resources, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and enable them to increase gross premium writings and risk capacity
without requiring additional capital. Our reinsurance and insurance subsidiaries purchase reinsurance and retrocessional coverages from highly-rated third-party reinsurers. If the assuming reinsurers are unable or unwilling to meet the obligations
assumed under the applicable reinsurance agreements, our reinsurance and insurance subsidiaries would remain liable for such reinsurance portion not paid by these reinsurers. As such, funds, trust agreements and letters of credit are held to
collateralize a portion of our reinsurance and insurance subsidiaries reinsurance recoverables, and our reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs.
As of September 30, 2017, our reinsurance and insurance subsidiaries had total reinsurance recoverables of $1,738.4 million,
consisting of $1,693.4 million of ceded outstanding loss and LAE and $45.0 million of recoverables on paid losses. See Part I, Item 1,
56
BusinessReinsurance Protection of the 2016 Form
10-K
for additional information on the reinsurance purchased by our reinsurance and
insurance subsidiaries.
The following table presents information regarding concentration of our reinsurance recoverables and the ratings
profile of our reinsurers as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurer
(1)
|
|
Rating
(2)
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
Swiss Reinsurance
Company
|
|
|
A+ (Superior)
|
|
|
$
|
159.5
|
|
|
|
9.2%
|
|
Syndicates at Lloyds of London
|
|
|
A (Excellent)
|
|
|
|
135.8
|
|
|
|
7.8%
|
|
PartnerRe Ltd
|
|
|
A (Excellent)
|
|
|
|
122.5
|
|
|
|
7.0%
|
|
Fairfax Financial Holdings Ltd
(3)
|
|
|
A (Excellent)
|
|
|
|
102.0
|
|
|
|
5.9%
|
|
RenaissanceRe Holdings Ltd
|
|
|
A+ (Superior)
|
|
|
|
99.1
|
|
|
|
5.7%
|
|
Chubb Corporation
|
|
|
A++ (Superior)
|
|
|
|
89.4
|
|
|
|
5.1%
|
|
W.R. Berkley Corporation
|
|
|
A+ (Superior)
|
|
|
|
88.3
|
|
|
|
5.1%
|
|
Liberty Mutual
|
|
|
A (Excellent)
|
|
|
|
72.6
|
|
|
|
4.2%
|
|
Kane SAC Ltd
(4)
|
|
|
not rated
|
|
|
|
70.4
|
|
|
|
4.0%
|
|
Hannover Ruck SE
|
|
|
A+ (Superior)
|
|
|
|
53.5
|
|
|
|
3.1%
|
|
All other reinsurers
|
|
|
|
|
|
|
745.3
|
|
|
|
42.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance recoverables
(5)
|
|
|
|
|
|
$
|
1,738.4
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured reinsurance recoverables
(4)
|
|
|
|
|
|
$
|
477.7
|
|
|
|
27.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reinsurance recoverables reflect amounts due from one or more reinsurance subsidiaries of the listed company.
|
(2)
|
Represents the A.M. Best Company, Inc. financial strength rating for the applicable reinsurance subsidiary or subsidiaries from which the reinsurance recoverable is due.
|
(3)
|
In July 2017, Fairfax Financial Holdings Ltd acquired Allied World Assurance Company Holdings, AG.
|
(4)
|
Represents reinsurance recoverables secured by funds held, trust agreements or letters of credit.
|
(5)
|
Approximately 80 percent of our reinsurance recoverables balance as of September 30, 2017 was due from reinsurers having an A.M. Best Company, Inc. financial strength rating of A (Excellent) or higher.
|
We had no allowance for uncollectible reinsurance as of September 30, 2017.
Critical Accounting Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that directly affect our reported financial condition and operating performance. More specifically, these estimates
and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting
period. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from reported results to the extent that estimates and assumptions prove to be inaccurate.
We believe
our most critical accounting estimates are those with respect to the liability for unpaid loss and LAE reserves, fair value measurements of certain financial assets, OTTI losses on investments, goodwill and other intangible assets and reinsurance
premium revenues, as they require managements most significant exercise of judgment on both a quantitative and qualitative basis. The accounting estimates that result require the use of assumptions about certain matters that are highly
uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our financial condition, results of operations and cash flows would be affected, possibly materially.
See Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting Estimates of the 2016 Form
10-K
for a more complete description of our critical accounting estimates.
Financial Condition
Parent Level
General.
In general, we follow a policy of maintaining a relatively liquid financial condition at our unrestricted holding
companies. This policy has permitted us to expand our operations through internal growth at our subsidiaries and through acquisitions
57
of, or substantial investments in, operating companies. As of September 30, 2017, we held total marketable securities and cash of $1,110.3 million, compared with $1,047.4 million
as of December 31, 2016. The increase in the nine months ended September 30, 2017 primarily reflects the receipt of dividends from TransRe and RSUI, partially offset by contributions to Alleghany Capital to fund the acquisition of
approximately 80 percent of the equity in W&W|AFCO Steel and the 45 percent equity interest in Wilbert, as well as the purchase of certain
non-marketable
equity investments at the Alleghany
parent company. The $1,110.3 million is comprised of $549.4 million at the Alleghany parent company, $533.2 million at AIHL and $27.7 million at the TransRe holding company. We also hold certain
non-marketable
investments at our unrestricted holding companies. We believe that we have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the
currently foreseeable needs of our business, and we had no material commitments for capital expenditures as of September 30, 2017.
Stockholders equity attributable to Alleghany stockholders was approximately $8.2 billion as of September 30, 2017, compared
with approximately $7.9 billion as of December 31, 2016. The increase in stockholders equity in the first nine months of 2017 primarily reflects an increase in unrealized appreciation on our equity and, to a lesser extent, bond
portfolios, partially offset by net losses attributable to Alleghany stockholders in the first nine months of 2017. Net losses attributable to Alleghany stockholders in the first nine months of 2017 primarily reflect significant catastrophe losses
from Hurricanes Harvey, Irma and Maria at our reinsurance and insurance segments, as discussed above. As of September 30, 2017, we had 15,403,758 shares of our common stock outstanding, compared with 15,410,164 shares of our common stock
outstanding as of December 31, 2016.
Sale of Subsidiary
. On September 12, 2017, AIHL signed a definitive agreement to
sell PacificComp to CopperPoint Mutual Insurance Company (CopperPoint) for total cash consideration of approximately $150 million. In connection with the transaction, AIHL Re will continue to provide adverse development reinsurance
coverage on PacificComps
pre-acquisition
claims, subject to certain terms and conditions. The transaction, which is subject to customary regulatory review and approvals, is expected to close on
December 31, 2017. Upon closing, we expect to record an estimated
after-tax
gain of approximately $25 million, which amount includes a tax benefit. As of September 30, 2017, PacificComps
total assets were $440.6 million, consisting primarily of debt securities, and PacificComps total liabilities were $313.7 million, consisting primarily of loss and LAE reserves.
Debt.
On September 9, 2014, we completed a public offering of $300.0 million aggregate principal amount of our 4.90% senior
notes due on September 15, 2044. On June 26, 2012, we completed a public offering of $400.0 million aggregate principal amount of our 4.95% senior notes due on June 27, 2022. On September 20, 2010, we completed a public
offering of $300.0 million aggregate principal amount of our 5.625% senior notes due on September 15, 2020. See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and
Supplementary Data of the 2016 Form
10-K
for additional information on the senior notes.
Credit Agreement.
On July 31, 2017, we entered into a five-year credit agreement, or the Credit Agreement, with
certain lenders party thereto, which provides for an unsecured revolving credit facility in an aggregate principal amount of up to $300.0 million. The credit facility is scheduled to expire on July 31, 2022, unless earlier terminated.
Borrowings under the Credit Agreement will be available for working capital and general corporate purposes, including permitted acquisitions and repurchases of Common Stock. Borrowings under the Credit Agreement bear a floating rate of interest
based in part on our credit rating, among other factors. The Credit Agreement contains representations, warranties and covenants customary for bank loan facilities of this nature. There were no borrowings under the Credit Agreement from
July 31, 2017 through September 30, 2017.
The Credit Agreement replaced our previous four-year credit agreement, or the
Prior Credit Agreement, which provided for an unsecured revolving credit facility in an aggregate principal amount of up to $200.0 million. The Prior Credit Agreement was terminated on July 31, 2017 in advance of its scheduled
October 15, 2017 expiration date. There were no borrowings under the Prior Credit Agreement in the seven months ended July 31, 2017.
Common Stock Repurchases.
In July 2014, our Board of Directors authorized the repurchase of shares of our common stock at such times
and at prices as management determines to be advisable, up to an aggregate of $350.0 million, or the 2014 Repurchase Program. In November 2015, our Board of Directors authorized the repurchase, upon the completion of the 2014
Repurchase Program, of additional shares of our common stock, at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million, or the 2015 Repurchase Program. In the first quarter of 2016,
we completed the 2014 Repurchase Program and subsequent repurchases have been made pursuant to the 2015 Repurchase Program. As of September 30, 2017, we had $370.7 million remaining under our share repurchase authorization.
58
The following table presents the shares of our common stock that we repurchased in the three and
nine months ended September 30, 2017 and 2016 pursuant to the 2014 Repurchase Program and the 2015 Repurchase Program, as applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Shares repurchased
|
|
|
15,916
|
|
|
|
4,621
|
|
|
|
15,916
|
|
|
|
117,721
|
|
Cost of shares repurchased (in millions)
|
|
$
|
8.5
|
|
|
$
|
2.4
|
|
|
$
|
8.5
|
|
|
$
|
55.7
|
|
Average price per share repurchased
|
|
$
|
537.14
|
|
|
$
|
517.40
|
|
|
$
|
537.14
|
|
|
$
|
472.97
|
|
Investments in Certain Other Invested Assets.
In December 2012, TransRe obtained an ownership interest
in Pillar Capital Holdings Limited, or Pillar Holdings, a Bermuda-based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe invested $175.0 million and
AIHL invested $25.0 million in limited partnership funds managed by Pillar Holdings, or the Funds. The objective of the Funds is to create portfolios with attractive risk-reward characteristics and low correlation with other asset
classes, using the extensive reinsurance and capital market experience of the principals of Pillar Holdings. We have concluded that the Pillar Investments represent variable interest entities and that we are not the primary beneficiary, as we do not
have the ability to direct the activities that most significantly impact each entitys economic performance. Therefore, the Pillar Investments are not consolidated and are accounted for under the equity method of accounting. Our potential
maximum loss in the Pillar Investments is limited to our cumulative net investment. As of September 30, 2017, our carrying value in the Pillar Investments, as determined under the equity method of accounting, was $216.7 million, which is
net of returns of capital received from the Pillar Investments.
In July 2013, AIHL invested $250.0 million in Ares in exchange for a
6.25 percent equity stake in Ares, with an agreement to engage Ares to manage up to $1.0 billion in certain investment strategies. In May 2014, Ares completed an initial public offering of its common units. Upon completion of the initial
public offering, Alleghanys equity investment in Ares converted to limited partner interests in certain Ares subsidiaries that are convertible into an aggregate 5.9 percent interest in Ares common units. These interests may be converted
at any time at our discretion. Until we determine to convert our limited partner interests into Ares common units, we classify our investment in Ares as a component of other invested assets and we account for our investment using the equity method
of accounting. As of September 30, 2017, AIHLs carrying value in Ares was $213.9 million, which is net of returns of capital received from Ares.
Investments in Commercial Mortgage Loans.
As of September 30, 2017, the carrying value of our commercial mortgage loan portfolio
was $649.7 million, representing the unpaid principal balance on the loans. As of September 30, 2017, there was no allowance for loan losses. The commercial mortgage loan portfolio consists primarily of first mortgages on commercial
properties in major metropolitan areas in the U.S. The loans earn interest at fixed- and floating-rates, mature in two to ten years from loan origination and the principal amounts of the loans were no more than approximately
two-thirds
of the propertys appraised value at the time the loans were made.
Energy
Holdings.
As of September 30, 2017, we had holdings in energy sector businesses of $519.3 million, comprised of $319.4 million of debt securities, $50.7 million of equity securities and $149.2 million of Alleghanys
equity attributable to SORC.
Subsidiaries
Financial strength is also a high priority of our subsidiaries, whose assets stand behind their financial commitments to their customers and
vendors. We believe that our subsidiaries have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of their businesses. Our subsidiaries had no material
commitments for capital expenditures as of September 30, 2017.
The obligations and cash outflow of our reinsurance and insurance
subsidiaries include claim settlements, commission expenses, administrative expenses, purchases of investments, and interest and principal payments on TransRes 8.00% senior notes due on November 30, 2039. In addition to premium
collections, cash inflow is obtained from interest and dividend income and maturities and sales of investments. Because cash inflow from premiums is received in advance of cash outflow required to settle claims, our reinsurance and insurance
operating units accumulate funds which they invest pending the need for liquidity. As the cash needs of a reinsurance or an insurance company can be unpredictable due to the uncertainty of the claims settlement process, the portfolios of our
reinsurance and insurance subsidiaries consist primarily of debt securities and short-term investments to ensure the availability of funds and maintain a sufficient amount of liquid securities.
With respect to our
non-insurance
operating subsidiaries, SORC has relied on Alleghany almost entirely
to support its operations. From its formation in 2011 through September 30, 2017, we have invested $281.8 million in SORC.
59
Included in other activities is debt associated with Alleghany Capitals operating
subsidiaries, which totaled $102.5 million as of September 30, 2017. The $102.5 million includes $31.2 million of borrowings by Jazwares under its available credit facility, $23.0 million of borrowings by W&W|AFCO Steel
under its available credit facility and term loans, $17.0 million of debt at Kentucky Trailer related primarily to a mortgage loan, borrowings to finance small acquisitions and borrowings under its available credit facility, $15.9 million
of borrowings by IPS under its available credit facility, and $15.4 million of term loans at Bourn & Koch related to borrowings to finance an acquisition. None of these liabilities are guaranteed by Alleghany or Alleghany Capital.
Consolidated Investment Holdings
Investment Strategy and Holdings.
Our investment strategy seeks to preserve principal and maintain liquidity while trying to maximize
our risk-adjusted,
after-tax
rate of return. Our investment decisions are guided mainly by the nature and timing of expected liability payouts, managements forecast of cash flows and the possibility of
unexpected cash demands, for example, to satisfy claims due to catastrophe losses. Our consolidated investment portfolio currently consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The
overall credit quality of the debt securities portfolio is measured using the lowest rating of Standard & Poors Ratings Services, Moodys Investors Service, Inc. or Fitch Ratings, Inc. In this regard, the overall weighted-average
credit quality rating of our debt securities portfolio as of September 30, 2017 and December 31, 2016 was
AA-.
Although many of our debt securities, which consist predominantly of municipal bonds,
are insured by third-party financial guaranty insurance companies, the impact of such insurance was not significant to the debt securities credit quality rating as of September 30, 2017. The following table presents the ratings of our debt
securities portfolio as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings as of September 30, 2017
|
|
|
|
AAA / Aaa
|
|
|
AA / Aa
|
|
|
A
|
|
|
BBB / Baa
|
|
|
Below
BBB / Baa or
Not-Rated
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
U.S. Government obligations
|
|
$
|
-
|
|
|
$
|
1,020.7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,020.7
|
|
Municipal bonds
|
|
|
549.3
|
|
|
|
2,574.2
|
|
|
|
835.6
|
|
|
|
124.8
|
|
|
|
47.8
|
|
|
|
4,131.7
|
|
Foreign government obligations
|
|
|
572.6
|
|
|
|
338.0
|
|
|
|
210.7
|
|
|
|
19.6
|
|
|
|
-
|
|
|
|
1,140.9
|
|
U.S. corporate bonds
|
|
|
4.7
|
|
|
|
91.0
|
|
|
|
628.3
|
|
|
|
995.6
|
|
|
|
761.4
|
|
|
|
2,481.0
|
|
Foreign corporate bonds
|
|
|
202.9
|
|
|
|
149.9
|
|
|
|
543.1
|
|
|
|
285.5
|
|
|
|
112.8
|
|
|
|
1,294.2
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
15.3
|
|
|
|
923.6
|
|
|
|
0.1
|
|
|
|
7.2
|
|
|
|
8.0
|
|
|
|
954.2
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
172.4
|
|
|
|
270.3
|
|
|
|
66.5
|
|
|
|
1.4
|
|
|
|
6.3
|
|
|
|
516.9
|
|
Other asset-backed securities
|
|
|
712.7
|
|
|
|
234.4
|
|
|
|
356.8
|
|
|
|
339.9
|
|
|
|
29.0
|
|
|
|
1,672.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
2,229.9
|
|
|
$
|
5,602.1
|
|
|
$
|
2,641.1
|
|
|
$
|
1,774.0
|
|
|
$
|
965.3
|
|
|
$
|
13,212.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of debt securities
|
|
|
16.9%
|
|
|
|
42.4%
|
|
|
|
20.0%
|
|
|
|
13.4%
|
|
|
|
7.3%
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of $223.0 million of securities rated BB / Ba, $286.8 million of securities rated B, $51.5 million of securities rated CCC, $3.2 million of securities rated CC, $3.7 million of
securities rated below CC and $397.1 million of
not-rated
securities.
|
Our debt
securities portfolio has been designed to enable management to react to investment opportunities created by changing interest rates, prepayments, tax and credit considerations or other factors, or to circumstances that could result in a mismatch
between the desired duration of debt securities and the duration of liabilities and, as such, is classified as
available-for-sale,
or AFS.
Effective duration measures a portfolios sensitivity to changes in interest rates. In this regard, as of September 30, 2017, our
debt securities portfolio had an effective duration of approximately 4.5 years, approximately the same duration as of December 31, 2016. As of September 30, 2017, approximately $3.5 billion, or 26.6 percent, of our debt
securities portfolio represented securities with maturities of five years or less. See Note 3(b) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional detail on the contractual maturities of our consolidated debt securities portfolio. We may increase the proportion of our debt securities portfolio held in securities with maturities of more than
five years should the yields of these securities provide, in our judgment, sufficient compensation for their increased risk. We do not believe that this strategy would reduce our ability to meet ongoing claim payments or to respond to significant
catastrophe losses.
60
In the event paid losses accelerate beyond the ability of our reinsurance and insurance
subsidiaries to fund these paid losses from current cash balances, current operating cash flow, dividend and interest receipts and security maturities, we would need to liquidate a portion of our investment portfolio, make capital contributions to
our reinsurance and insurance subsidiaries, and/or arrange for financing. Strains on liquidity could result from: (i) the occurrence of several significant catastrophe events in a relatively short period of time; (ii) the sale of
investments into a depressed marketplace to fund these paid losses; (iii) the uncollectibility of reinsurance recoverables on these paid losses; (iv) the significant decrease in the value of collateral supporting reinsurance
recoverables; or (v) a significant reduction in our net premium collections.
We may, from time to time, make significant
investments in the common stock of a public company, subject to limitations imposed by applicable regulations.
On a consolidated basis,
our invested assets increased to approximately $19.0 billion as of September 30, 2017 from approximately $18.1 billion as of December 31, 2016, primarily reflecting the impact of an increase in unrealized appreciation on our
equity portfolio and, to a lesser extent, our bond portfolio, partially offset by the acquisition of approximately 80 percent of the equity in W&W|AFCO Steel.
Fair Value.
The following table presents the carrying value and estimated fair value of our consolidated financial instruments as of
September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (excluding equity method investments and loans)
(1)
|
|
|
$ 17,590.2
|
|
|
|
$ 17,590.2
|
|
|
|
$ 16,899.2
|
|
|
|
$ 16,899.2
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
(2)
|
|
|
$ 1,486.4
|
|
|
|
$ 1,655.5
|
|
|
|
$ 1,476.5
|
|
|
|
$ 1,584.3
|
|
(1)
|
This table includes AFS investments (debt and equity securities, as well as partnership and
non-marketable
equity investments carried at fair value that are included in other
invested assets). This table excludes investments accounted for using the equity method and commercial mortgage loans that are carried at unpaid principal balance. The fair value of short-term investments approximates amortized cost. The fair value
of all other categories of investments is discussed below.
|
(2)
|
See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2016 Form
10-K
for additional
information on the senior notes.
|
Fair value is defined as the price that would be received upon the sale of an asset or paid
to transfer a liability in an orderly transaction between willing, able and knowledgeable market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. In addition, a three-tiered hierarchy for inputs
is used in managements determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are
market participant assumptions based on market data obtained from sources independent of the reporting entity. Unobservable inputs are the reporting entitys own assumptions about market participant assumptions based on the best information
available under the circumstances. In assessing the appropriateness of using observable inputs in making our fair value determinations, we consider whether the market for a particular security is active or not based on all the relevant
facts and circumstances. A market may be considered to be inactive if there are relatively few recent transactions or if there is a significant decrease in market volume. Furthermore, we consider whether observable transactions are
orderly or not. We do not consider a transaction to be orderly if there is evidence of a forced liquidation or other distressed condition; as such, little or no weight is given to that transaction as an indicator of fair value.
Although we are responsible for the determination of the fair value of our financial assets and the supporting methodologies and assumptions,
we employ third-party valuation service providers to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments. When those providers are unable to obtain
sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting a quote, which is generally
non-binding,
from brokers who
are knowledgeable about these securities or by employing widely accepted internal valuation models.
Valuation service providers typically
obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted internal valuation models, provide a single fair value measurement for individual securities for which a fair
value has been requested under the terms of service agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities,
interest rate yield curves, credit spreads, currency rates and other market observable information, as applicable. The valuation models take into account, among other things, market observable information as of the measurement date as well as the
specific attributes of the security being valued including its term, interest rate, credit rating, industry sector and, when applicable, collateral quality and other issue or issuer specific information. When market transactions or other market
observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased.
61
The three-tiered hierarchy used in managements determination of fair value is broken down
into three levels based on the reliability of inputs as follows:
|
|
|
Level 1: Valuations are based on unadjusted quoted prices in active markets that we have the ability to access for identical, unrestricted assets and do not involve any meaningful degree of judgment. An active
market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 assets include publicly traded common stocks and mutual
funds (which are included on the balance sheet in equity securities) where our valuations are based on quoted market prices.
|
|
|
|
Level 2: Valuations are based on direct and indirect observable inputs other than quoted market prices included in Level 1. Level 2 inputs include quoted prices for similar assets in active markets and
inputs other than quoted prices that are observable for the asset, such as the terms of the security and market-based inputs. Terms of the security include coupon, maturity date and any special provisions that may, for example, enable the investor,
at its election, to redeem the security prior to its scheduled maturity date (such provisions may apply to all debt securities except U.S. Government obligations). Market-based inputs include interest rates and yield curves that are observable at
commonly quoted intervals and current credit rating(s) of the security. Market-based inputs may also include credit spreads of all debt securities except U.S. Government obligations, and currency rates for certain foreign government obligations and
foreign corporate bonds denominated in foreign currencies. Fair values are determined using a market approach that relies on the securities relationships to quoted prices for similar assets in active markets, as well as the other inputs
described above. In determining the fair values for the vast majority of CMBS and other asset-backed securities, as well as a small portion of RMBS, an income approach is used to corroborate and further support the fair values determined by the
market approach. The income approach primarily involves developing a discounted cash flow model using the future projected cash flows of the underlying collateral, and the terms of the security. Level 2 assets generally include short-term
investments and most debt securities. Our Level 2 liabilities consist of the senior notes.
|
|
|
|
Level 3: Valuations are based on techniques that use significant inputs that are unobservable. The valuation of Level 3 assets requires the greatest degree of judgment. These measurements may be made under
circumstances in which there is little, if any, market activity for the asset. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, we consider factors
specific to the asset. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement is classified is
determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assets classified as Level 3 principally include certain RMBS, CMBS, other asset-backed securities (primarily, collateralized loan
obligations), U.S. corporate bonds, partnership investments and
non-marketable
equity investments.
|
Mortgage-backed and asset-backed securities are initially valued at the transaction price. Subsequently, we use widely accepted valuation
practices that produce a fair value measurement. The vast majority of fair values are determined using an income approach. The income approach primarily involves developing a discounted cash flow model using the future projected cash flows of the
underlying collateral, as well as other inputs described below. A few Level 3 valuations are based entirely on
non-binding
broker quotes. These securities consist primarily of mortgage-backed and
asset-backed securities where reliable pool and loan level collateral information cannot be reasonably obtained, and as such, an income approach is not feasible.
Since Level 3 valuations are based on techniques that use significant inputs that are unobservable with little or no market activity,
the fair values under the market approach for Level 3 securities are less credible than under the income approach; however, the market approach, where feasible, is used to corroborate the fair values determined by the income approach. The
market approach primarily relies on the securities relationships to quoted transaction prices for similarly structured instruments. To the extent that transaction prices for similarly structured instruments are not available for a particular
security, other market approaches are used to corroborate the fair values determined by the income approach, including option adjusted spread analyses.
Unobservable inputs, significant to the measurement and valuation of mortgage-backed and asset-backed securities, are generally used in the
income approach, and include assumptions about prepayment speed and collateral performance, including default, delinquency and loss severity rates. Significant changes to any one of these inputs, or combination of inputs, could significantly change
the fair value measurement for these securities.
The impact of prepayment speeds on fair value is dependent on a number of variables
including whether the securities were purchased at a premium or discount. A decrease in interest rates generally increases the assumed rate of prepayments, and an increase in interest rates generally decreases the assumed speed of prepayments.
Increased prepayments increase the yield on securities purchased at a discount and reduce the yield on securities purchased at a premium. In a decreasing prepayment environment, yields on securities purchased at a discount are reduced but are
increased for securities purchased at a premium. Changes in default assumptions on underlying collateral are generally accompanied by directionally similar changes in other collateral performance factors, but generally result in a directionally
opposite change in prepayment assumptions.
62
Our Level 3 liabilities consist of the debt of Alleghany Capitals operating
subsidiaries.
We employ specific control processes to determine the reasonableness of the fair values of our financial assets and
liabilities. Our processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied and that the assumptions are
reasonable and consistent with the objective of determining fair value. We assess the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, we validate the
reasonableness of fair values by comparing information obtained from our valuation service providers to other third-party valuation sources for selected securities. We also validate prices obtained from brokers for selected securities through
reviews by those who have relevant expertise and who are independent of those charged with executing investing transactions.
In addition
to such procedures, we review the reasonableness of our classification of securities within the three-tiered hierarchy to ensure that the classification is consistent with GAAP.
The following tables present the estimated fair values of our financial instruments measured at fair value and the level of the fair value
hierarchy of inputs used as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
($ in millions)
|
|
As of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
$ 3,815.2
|
|
|
|
$
0.5
|
|
|
|
$ 0.9
|
|
|
|
$ 3,816.6
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
3,815.2
|
|
|
|
0.5
|
|
|
|
5.9
|
|
|
|
3,821.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
1,020.7
|
|
|
|
-
|
|
|
|
1,020.7
|
|
Municipal bonds
|
|
|
-
|
|
|
|
4,131.7
|
|
|
|
-
|
|
|
|
4,131.7
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
1,136.2
|
|
|
|
4.7
|
|
|
|
1,140.9
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,202.2
|
|
|
|
278.8
|
|
|
|
2,481.0
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,254.3
|
|
|
|
39.9
|
|
|
|
1,294.2
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
948.8
|
|
|
|
5.4
|
|
|
|
954.2
|
|
CMBS
|
|
|
-
|
|
|
|
505.5
|
|
|
|
11.4
|
|
|
|
516.9
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
490.3
|
|
|
|
1,182.5
|
|
|
|
1,672.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
11,689.7
|
|
|
|
1,522.7
|
|
|
|
13,212.4
|
|
Short-term investments
|
|
|
-
|
|
|
|
547.8
|
|
|
|
-
|
|
|
|
547.8
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
8.4
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
|
$ 3,815.2
|
|
|
|
$ 12,238.0
|
|
|
|
$ 1,537.0
|
|
|
|
$ 17,590.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
|
$
-
|
|
|
|
$ 1,553.0
|
|
|
|
$ 102.5
|
|
|
|
$ 1,655.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
3,105.2
|
|
|
$
|
-
|
|
|
$
|
4.3
|
|
|
$
|
3,109.5
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
3,105.2
|
|
|
|
-
|
|
|
|
4.3
|
|
|
|
3,109.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
1,243.3
|
|
|
|
-
|
|
|
|
1,243.3
|
|
Municipal bonds
|
|
|
-
|
|
|
|
4,185.8
|
|
|
|
-
|
|
|
|
4,185.8
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
1,047.1
|
|
|
|
-
|
|
|
|
1,047.1
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,120.2
|
|
|
|
72.9
|
|
|
|
2,193.1
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,088.4
|
|
|
|
0.4
|
|
|
|
1,088.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
994.5
|
|
|
|
5.9
|
|
|
|
1,000.4
|
|
CMBS
|
|
|
-
|
|
|
|
730.5
|
|
|
|
4.3
|
|
|
|
734.8
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
586.1
|
|
|
|
903.8
|
|
|
|
1,489.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
11,995.9
|
|
|
|
987.3
|
|
|
|
12,983.2
|
|
Short-term investments
|
|
|
-
|
|
|
|
778.4
|
|
|
|
-
|
|
|
|
778.4
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
28.1
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
3,105.2
|
|
|
$
|
12,774.3
|
|
|
$
|
1,019.7
|
|
|
$
|
16,899.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,491.5
|
|
|
$
|
92.8
|
|
|
$
|
1,584.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily includes government agency pass-through securities guaranteed by a government agency or government sponsored enterprise, among other types of RMBS.
|
(2)
|
Includes $1,146.2 million and $903.8 million of collateralized loan obligations as of September 30, 2017 and December 31, 2016, respectively.
|
(3)
|
Includes partnership and
non-marketable
equity investments accounted for on an AFS basis, and excludes investments accounted for using the equity method.
|
Municipal Bonds.
The following table provides the fair value of our municipal bonds as of September 30, 2017, categorized by state
and revenue source. Special revenue bonds are debt securities for which the payment of principal and interest is available solely from the cash flows of the related projects. As issuers of revenue bonds do not have the ability to draw from tax
revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than general obligation bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Revenue
|
|
|
|
|
|
|
|
State
|
|
Education
|
|
|
Hospital
|
|
|
Housing
|
|
|
Lease
Revenue
|
|
|
Special Tax
|
|
|
Transit
|
|
|
Utilities
|
|
|
All Other
Sources
|
|
|
Total Special
Revenue
|
|
|
Total
General
Obligation
|
|
|
Total Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York
|
|
$
|
18.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100.0
|
|
|
$
|
163.3
|
|
|
$
|
83.7
|
|
|
$
|
49.5
|
|
|
$
|
415.1
|
|
|
$
|
15.4
|
|
|
$
|
430.5
|
|
California
|
|
|
9.8
|
|
|
|
46.7
|
|
|
|
-
|
|
|
|
9.4
|
|
|
|
1.3
|
|
|
|
27.4
|
|
|
|
113.5
|
|
|
|
7.5
|
|
|
|
215.6
|
|
|
|
99.7
|
|
|
|
315.3
|
|
Texas
|
|
|
13.0
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
26.4
|
|
|
|
96.5
|
|
|
|
75.3
|
|
|
|
2.4
|
|
|
|
213.8
|
|
|
|
81.9
|
|
|
|
295.7
|
|
Massachusetts
|
|
|
28.9
|
|
|
|
24.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29.6
|
|
|
|
40.3
|
|
|
|
32.3
|
|
|
|
0.2
|
|
|
|
156.2
|
|
|
|
115.9
|
|
|
|
272.1
|
|
Washington
|
|
|
1.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13.6
|
|
|
|
21.1
|
|
|
|
56.6
|
|
|
|
2.3
|
|
|
|
94.8
|
|
|
|
69.1
|
|
|
|
163.9
|
|
Ohio
|
|
|
46.3
|
|
|
|
1.5
|
|
|
|
0.2
|
|
|
|
1.5
|
|
|
|
2.1
|
|
|
|
-
|
|
|
|
49.2
|
|
|
|
2.2
|
|
|
|
103.0
|
|
|
|
59.5
|
|
|
|
162.5
|
|
Colorado
|
|
|
25.1
|
|
|
|
14.0
|
|
|
|
-
|
|
|
|
13.4
|
|
|
|
8.4
|
|
|
|
32.1
|
|
|
|
6.9
|
|
|
|
2.3
|
|
|
|
102.2
|
|
|
|
22.8
|
|
|
|
125.0
|
|
North Carolina
|
|
|
11.4
|
|
|
|
26.2
|
|
|
|
1.8
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
6.8
|
|
|
|
9.5
|
|
|
|
56.5
|
|
|
|
52.6
|
|
|
|
109.1
|
|
Florida
|
|
|
9.4
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14.2
|
|
|
|
32.6
|
|
|
|
14.7
|
|
|
|
10.1
|
|
|
|
81.3
|
|
|
|
27.6
|
|
|
|
108.9
|
|
Pennsylvania
|
|
|
2.5
|
|
|
|
0.6
|
|
|
|
10.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41.7
|
|
|
|
2.2
|
|
|
|
6.3
|
|
|
|
63.7
|
|
|
|
44.9
|
|
|
|
108.6
|
|
All other states
|
|
|
215.6
|
|
|
|
115.4
|
|
|
|
26.9
|
|
|
|
75.3
|
|
|
|
152.6
|
|
|
|
191.3
|
|
|
|
221.2
|
|
|
|
107.9
|
|
|
|
1,106.2
|
|
|
|
323.4
|
|
|
|
1,429.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
381.8
|
|
|
$
|
229.6
|
|
|
$
|
39.5
|
|
|
$
|
99.9
|
|
|
$
|
348.2
|
|
|
$
|
646.8
|
|
|
$
|
662.4
|
|
|
$
|
200.2
|
|
|
$
|
2,608.4
|
|
|
$
|
912.8
|
|
|
|
3,521.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advance refunded / escrowed maturity bonds
|
|
|
|
610.5
|
|
|
|
|
|
|
|
Total municipal bonds
|
|
|
$
|
4,131.7
|
|
|
|
|
|
|
|
64
Recent Accounting Standards
Recently Adopted
In May
2015, the Financial Accounting Standards Board, or the FASB, issued guidance that requires disclosures related to short-duration insurance contracts. The guidance applies to property and casualty insurance and reinsurance entities, among
others, and requires the following annual disclosure related to the liability for loss and LAE: (i) net incurred and paid claims development information by accident year for up to ten years; (ii) a reconciliation of incurred and paid
claims development information to the aggregate carrying amount of the liability for loss and LAE; (iii) liabilities for IBNR by accident year and in total; (iv) a description of reserving methodologies (as well as any changes to those
methodologies); (v) quantitative information about claim frequency by accident year; and (vi) the average annual percentage payout of incurred claims by age and accident year. In addition, the guidance also requires insurance entities to
disclose for annual and interim reporting periods a roll-forward of the liability for loss and LAE. This guidance was effective for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after
December 15, 2016, with early adoption permitted. We adopted this guidance as of December 31, 2016 and the implementation did not have an impact on our results of operations and financial condition. See Note 5 to Notes to Unaudited
Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
and Note 1(k) and Note 6 to Notes to Consolidated Financial Statements set forth in Part
II, Item 8, Financial Statements and Supplementary Data of the 2016 Form
10-K
for the new disclosures.
Future Application of Accounting Standards
In May 2014, the FASB, together with the International Accounting Standards Board, issued guidance on the recognition of revenue from contracts
with customers. Under this guidance, revenue is recognized as the transfer of goods and services to customers takes place and in amounts that reflect the payment or payments that are expected to be received from the customers for those goods and
services. This guidance also requires new disclosures about revenue. Revenues related to insurance and reinsurance are not impacted by this guidance. This guidance is effective in the first quarter of 2018 for public entities, with early adoption
permitted in 2017. We will adopt this guidance in the first quarter of 2018 and do not currently believe that the implementation will have a material impact on our results of operations and financial condition.
In January 2016, the FASB issued guidance that changes the recognition and measurement of certain financial instruments. This guidance requires
investments in equity securities (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. For equity securities that do not have readily determinable fair
values, measurement may be at cost, adjusted for any impairment and changes resulting from observable price changes for a similar investment of the same issuer. This guidance also changes the presentation and disclosure of financial instruments by:
(i) requiring that financial instrument disclosures of fair value use the exit price notion; (ii) requiring separate presentation of financial assets and financial liabilities by measurement category and form, either on the balance sheet
or the accompanying notes to the financial statements; (iii) requiring separate presentation in other comprehensive income for the portion of the change in a liabilitys fair value resulting from instrument-specific credit risk when an
election has been made to measure the liability at fair value; and (iv) eliminating the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the
balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017 for public entities, including interim periods within those fiscal years. Except for the change in presentation for instrument-specific credit risk,
this guidance does not permit early adoption. We will adopt this guidance in the first quarter of 2018. As of January 1, 2018, unrealized gains or losses of equity securities, net of deferred taxes, will be reclassified from accumulated other
comprehensive income to retained earnings. Subsequently, all changes in unrealized gains or losses of equity securities, net of deferred taxes, will be presented in the Consolidated Statements of Earnings rather than the Consolidated Statements of
Comprehensive Income. We do not currently believe that the implementation will have a material impact on our financial condition. See Note 3(a) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial
Statements of this Form
10-Q
for further information on our unrealized gains and losses of equity securities.
In February 2016, the FASB issued guidance on leases. Under this guidance, a lessee is required to recognize lease liabilities and
corresponding
right-of-use
assets for leases with terms of more than one year, whereas under current guidance, a lessee is only required to recognize assets and
liabilities for those leases qualifying as capital leases. This guidance also requires new disclosures about the amount, timing and uncertainty of cash flows arising from leases. The accounting by lessors is to remain largely unchanged. This
guidance is effective in the first quarter of 2019 for public entities, with early adoption permitted. A modified retrospective transition approach is required for all leases in existence as of, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. We will adopt this guidance in the first quarter of 2019 and do not currently believe that the implementation will have a material impact on our results of operations and financial condition.
See Note 12(b) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2016 Form
10-K
for further information on our
leases.
In June 2016, the FASB issued guidance on credit losses. Under this guidance, a company is required to measure all expected credit
losses on loans, reinsurance recoverables and other financial assets accounted for at cost or amortized cost, as applicable.
65
Estimates of expected credit losses are to be based on historical experience, current conditions and reasonable and supportable forecasts. Credit losses for securities accounted for on an AFS
basis are to be measured in a manner similar to GAAP as currently applied and cannot exceed the amount by which the fair value is less than the amortized cost. Credit losses for all financial assets are to be recorded through an allowance for credit
losses. Subsequent reversals in credit loss estimates are permitted and are to be recognized in earnings. This guidance also requires new disclosures about the significant estimates and judgments used in estimating credit losses, as well as the
credit quality of financial assets. This guidance is effective in the first quarter of 2020 for public entities, with early adoption permitted. We will adopt this guidance in the first quarter of 2020 and do not currently believe that the
implementation will have a material impact on our results of operations and financial condition.
In January 2017, the FASB issued guidance
that simplifies the subsequent measurement of goodwill. Under this guidance, if an initial qualitative assessment indicates that the fair value of an operating subsidiary may be less than its carrying amount, an impairment charge is recognized for
the amount by which the carrying amount of the operating subsidiary exceeds its estimated fair value. Any resulting impairment loss recognized cannot exceed the total amount of goodwill associated with the operating subsidiary. This guidance is
effective in the first quarter of 2020 for public entities, with early adoption permitted. We will adopt this guidance in the first quarter of 2020 and do not currently believe that the implementation will have a material impact on our results of
operations and financial condition.
In March 2017, the FASB issued guidance that reduces the amortization period for the premium on
certain purchased callable debt securities to the earliest call date. The guidance applies specifically to noncontingent call features that are callable at a predetermined and fixed price and date. The accounting for purchased callable debt
securities held at a discount is not affected. This guidance is effective in the first quarter of 2019 for public entities, with early adoption permitted. We will adopt this guidance in the fourth quarter of 2017, and we will record a cumulative
effect reduction directly to opening 2017 retained earnings and an offsetting increase in opening 2017 accumulated other comprehensive income at that time. We do not currently believe that the implementation will have a material impact on our
results of operations and financial condition.
In August 2017, the FASB issued guidance that simplifies the requirements to achieve hedge
accounting, better reflects the economic results of hedging in the financial statements and better aligns hedge accounting with a companys risk management activities. This guidance is effective in the first quarter of 2019 for public entities,
with early adoption permitted. We will adopt this guidance in the first quarter of 2019 and do not currently believe that the implementation will have a material impact on our results of operations and financial condition.