Item 1. Financial Statements.
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
|
(unaudited)
|
|
|
|
|
($ in thousands, except share amounts)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Securities at fair value:
|
|
|
|
|
|
|
|
|
Equity securities (cost: 2018 $3,705,364; 2017 $3,170,673)
|
|
$
|
4,714,079
|
|
|
$
|
4,099,467
|
|
Debt securities (amortized cost: 2018 $12,206,035; 2017
$12,536,772)
|
|
|
12,155,866
|
|
|
|
12,721,399
|
|
Short-term investments
|
|
|
472,830
|
|
|
|
578,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,342,775
|
|
|
|
17,398,920
|
|
Commercial mortgage loans
|
|
|
695,772
|
|
|
|
658,364
|
|
Other invested assets
|
|
|
605,477
|
|
|
|
743,358
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
18,644,024
|
|
|
|
18,800,642
|
|
Cash
|
|
|
623,223
|
|
|
|
838,375
|
|
Accrued investment income
|
|
|
97,347
|
|
|
|
105,877
|
|
Premium balances receivable
|
|
|
831,989
|
|
|
|
797,346
|
|
Reinsurance recoverables
|
|
|
1,602,600
|
|
|
|
1,746,488
|
|
Ceded unearned premiums
|
|
|
208,534
|
|
|
|
190,252
|
|
Deferred acquisition costs
|
|
|
468,243
|
|
|
|
453,346
|
|
Property and equipment at cost, net of accumulated depreciation and amortization
|
|
|
197,678
|
|
|
|
125,337
|
|
Goodwill
|
|
|
346,270
|
|
|
|
334,905
|
|
Intangible assets, net of amortization
|
|
|
463,544
|
|
|
|
459,037
|
|
Current taxes receivable
|
|
|
68,396
|
|
|
|
31,085
|
|
Net deferred tax assets
|
|
|
61,806
|
|
|
|
136,489
|
|
Funds held under reinsurance agreements
|
|
|
719,360
|
|
|
|
706,042
|
|
Other assets
|
|
|
752,873
|
|
|
|
659,096
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,085,887
|
|
|
$
|
25,384,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Noncontrolling Interests and Stockholders Equity
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses
|
|
$
|
11,515,493
|
|
|
$
|
11,871,250
|
|
Unearned premiums
|
|
|
2,279,810
|
|
|
|
2,182,294
|
|
Senior Notes and other debt
|
|
|
1,569,367
|
|
|
|
1,484,897
|
|
Reinsurance payable
|
|
|
159,944
|
|
|
|
156,376
|
|
Other liabilities
|
|
|
1,021,512
|
|
|
|
1,068,907
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,546,126
|
|
|
|
16,763,724
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling
interests
|
|
|
135,372
|
|
|
|
106,530
|
|
|
|
|
Common stock (shares authorized: 2018 and 2017 22,000,000; shares issued: 2018 and
2017
17,459,961)
|
|
|
17,460
|
|
|
|
17,460
|
|
Contributed capital
|
|
|
3,612,615
|
|
|
|
3,612,109
|
|
Accumulated other comprehensive (loss) income
|
|
|
(172,307
|
)
|
|
|
618,118
|
|
Treasury stock, at cost (2018 2,465,282 shares; 2017 2,069,461 shares)
|
|
|
(1,057,885
|
)
|
|
|
(824,906
|
)
|
Retained earnings
|
|
|
6,004,506
|
|
|
|
5,091,282
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity attributable to Alleghany stockholders
|
|
|
8,404,389
|
|
|
|
8,514,063
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest and stockholders
equity
|
|
$
|
25,085,887
|
|
|
$
|
25,384,317
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
1
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands, except per share amounts)
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
1,236,959
|
|
|
$
|
1,243,929
|
|
Net investment income
|
|
|
126,273
|
|
|
|
101,656
|
|
Change in the fair value of equity securities
|
|
|
185,245
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
6,462
|
|
|
|
9,268
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(3,747
|
)
|
Noninsurance revenue
|
|
|
342,725
|
|
|
|
202,812
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,897,664
|
|
|
|
1,553,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
738,210
|
|
|
|
734,886
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
402,083
|
|
|
|
413,737
|
|
Other operating expenses
|
|
|
343,165
|
|
|
|
225,170
|
|
Corporate administration
|
|
|
14,119
|
|
|
|
14,405
|
|
Amortization of intangible assets
|
|
|
5,966
|
|
|
|
4,611
|
|
Interest expense
|
|
|
22,277
|
|
|
|
20,989
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,525,820
|
|
|
|
1,413,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
371,844
|
|
|
|
140,120
|
|
Income taxes
|
|
|
73,440
|
|
|
|
37,461
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
298,404
|
|
|
|
102,659
|
|
Net earnings attributable to noncontrolling interest
|
|
|
3,288
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Alleghany stockholders
|
|
$
|
295,116
|
|
|
$
|
101,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
298,404
|
|
|
$
|
102,659
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses), net of deferred taxes of ($8,853) and $76,300 for 2018 and
2017, respectively
|
|
|
(33,305
|
)
|
|
|
141,701
|
|
Less: reclassification for net realized capital gains and other than temporary impairments,
net
of taxes of ($1,357) and ($1,932) for 2018 and 2017, respectively
|
|
|
(5,105
|
)
|
|
|
(3,589
|
)
|
Change in unrealized currency translation adjustment, net of deferred
taxes of ($2,797) and $5,364 for 2018 and 2017, respectively
|
|
|
(10,523
|
)
|
|
|
9,962
|
|
Retirement plans
|
|
|
209
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
249,680
|
|
|
|
250,831
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
3,288
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Alleghany stockholders
|
|
$
|
246,392
|
|
|
$
|
249,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Alleghany stockholders
|
|
$
|
19.44
|
|
|
$
|
6.60
|
|
Diluted earnings per share attributable to Alleghany stockholders
|
|
|
19.44
|
|
|
|
6.60
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands, except per share amounts)
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
2,444,815
|
|
|
$
|
2,453,117
|
|
Net investment income
|
|
|
250,399
|
|
|
|
217,194
|
|
Change in the fair value of equity securities
|
|
|
142,596
|
|
|
|
|
|
Net realized capital gains
|
|
|
50,967
|
|
|
|
68,919
|
|
Other than temporary impairment losses
|
|
|
(511
|
)
|
|
|
(6,964
|
)
|
Noninsurance revenue
|
|
|
594,352
|
|
|
|
354,104
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,482,618
|
|
|
|
3,086,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
1,408,788
|
|
|
|
1,434,191
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
808,378
|
|
|
|
822,252
|
|
Other operating expenses
|
|
|
608,062
|
|
|
|
400,308
|
|
Corporate administration
|
|
|
21,904
|
|
|
|
31,290
|
|
Amortization of intangible assets
|
|
|
11,230
|
|
|
|
8,375
|
|
Interest expense
|
|
|
43,808
|
|
|
|
41,924
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
2,902,170
|
|
|
|
2,738,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
580,448
|
|
|
|
348,030
|
|
Income taxes
|
|
|
110,862
|
|
|
|
96,011
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
469,586
|
|
|
|
252,019
|
|
Net earnings attributable to noncontrolling interest
|
|
|
2,895
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Alleghany stockholders
|
|
$
|
466,691
|
|
|
$
|
250,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
469,586
|
|
|
$
|
252,019
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses), net of deferred taxes of ($47,758) and $143,570 for 2018 and
2017, respectively
|
|
|
(179,663
|
)
|
|
|
266,630
|
|
Less: reclassification for net realized capital gains and other than temporary impairments,
net
of taxes of ($991) and ($21,684) for 2018 and 2017, respectively
|
|
|
(3,726
|
)
|
|
|
(40,271
|
)
|
Change in unrealized currency translation adjustment, net of deferred taxes of ($1,442) and $8,083
for 2018 and 2017, respectively
|
|
|
(5,423
|
)
|
|
|
15,011
|
|
Retirement plans
|
|
|
(1,113
|
)
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
279,661
|
|
|
|
493,092
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
2,895
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Alleghany stockholders
|
|
$
|
276,766
|
|
|
$
|
492,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Alleghany stockholders
|
|
$
|
30.53
|
|
|
$
|
16.28
|
|
Diluted earnings per share attributable to Alleghany stockholders
|
|
|
30.52
|
|
|
|
16.27
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
469,586
|
|
|
$
|
252,019
|
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64,510
|
|
|
|
69,723
|
|
Change in the fair value of equity securities
|
|
|
(142,596
|
)
|
|
|
-
|
|
Net realized capital (gains) losses
|
|
|
(50,967
|
)
|
|
|
(68,919
|
)
|
Other than temporary impairment losses
|
|
|
511
|
|
|
|
6,964
|
|
(Increase) decrease in reinsurance recoverables, net of reinsurance payable
|
|
|
147,456
|
|
|
|
109,287
|
|
(Increase) decrease in premium balances receivable
|
|
|
(34,643
|
)
|
|
|
(109,073
|
)
|
(Increase) decrease in ceded unearned premiums
|
|
|
(18,282
|
)
|
|
|
4,057
|
|
(Increase) decrease in deferred acquisition costs
|
|
|
(14,897
|
)
|
|
|
(20,683
|
)
|
(Increase) decrease in funds held under reinsurance agreements
|
|
|
(13,318
|
)
|
|
|
(50,281
|
)
|
Increase (decrease) in unearned premiums
|
|
|
97,516
|
|
|
|
78,592
|
|
Increase (decrease) in loss and loss adjustment expenses
|
|
|
(355,757
|
)
|
|
|
(26,960
|
)
|
Change in unrealized foreign currency exchange rate losses (gains)
|
|
|
48,228
|
|
|
|
(86,834
|
)
|
Other, net
|
|
|
(48,172
|
)
|
|
|
45,989
|
|
|
|
|
|
|
|
|
|
|
Net adjustments
|
|
|
(320,411
|
)
|
|
|
(48,138
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
149,175
|
|
|
|
203,881
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
Purchases of debt securities
|
|
|
(2,301,614
|
)
|
|
|
(3,313,484
|
)
|
Purchases of equity securities
|
|
|
(533,842
|
)
|
|
|
(1,849,990
|
)
|
Sales of debt securities
|
|
|
1,667,526
|
|
|
|
2,193,147
|
|
Maturities and redemptions of debt securities
|
|
|
886,970
|
|
|
|
907,309
|
|
Sales of equity securities
|
|
|
269,567
|
|
|
|
1,972,117
|
|
Net (purchases) sales of short-term investments
|
|
|
104,728
|
|
|
|
73,725
|
|
Net (purchases) sales and maturities of commercial mortgage loans
|
|
|
(37,408
|
)
|
|
|
(41,659
|
)
|
(Purchases) sales of property and equipment
|
|
|
(13,164
|
)
|
|
|
16,006
|
|
Purchases of affiliates and subsidiaries, net of cash acquired
|
|
|
(108,386
|
)
|
|
|
(164,528
|
)
|
Other, net
|
|
|
50,415
|
|
|
|
84,585
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(15,208
|
)
|
|
|
(122,772
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
Treasury stock acquisitions
|
|
|
(236,103
|
)
|
|
|
-
|
|
Increase (decrease) in other debt
|
|
|
38,452
|
|
|
|
(26,098
|
)
|
Cash dividends paid
|
|
|
(153,967
|
)
|
|
|
-
|
|
Other, net
|
|
|
5,317
|
|
|
|
(15,238
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(346,301
|
)
|
|
|
(41,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash
|
|
|
(2,818
|
)
|
|
|
9,821
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(215,152
|
)
|
|
|
49,594
|
|
Cash at beginning of period
|
|
|
838,375
|
|
|
|
594,091
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
623,223
|
|
|
$
|
643,685
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
42,562
|
|
|
$
|
41,207
|
|
Income taxes paid (refund received)
|
|
|
22,135
|
|
|
|
31,242
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
ALLEGHANY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. Summary of Significant Accounting Principles
(a) Principles of Financial Statement Presentation
This Quarterly Report on Form
10-Q
(this Form
10-Q)
should be read in conjunction with the Annual Report on
Form 10-K
for the year ended December 31, 2017 (the 2017 Form
10-K)
and the Quarterly
Report on Form
10-Q
for the quarter ended March 31, 2018 of Alleghany Corporation (Alleghany).
Alleghany Corporation, a Delaware corporation, owns and manages certain operating subsidiaries and investments, anchored by a core position in
property and casualty reinsurance and insurance. Through its wholly-owned subsidiary Transatlantic Holdings, Inc. (TransRe), Alleghany is engaged in the property and casualty reinsurance business. TransRe has been a subsidiary of
Alleghany since March 2012. Through its wholly-owned subsidiary Alleghany Insurance Holdings LLC (AIHL) and its subsidiaries, Alleghany is engaged in the property and casualty insurance business. AIHLs insurance operations are
principally conducted by its subsidiaries RSUI Group, Inc. (RSUI) and CapSpecialty, Inc. (CapSpecialty). RSUI has been a subsidiary of AIHL since July 2003 and CapSpecialty has been a subsidiary of AIHL since January 2002.
AIHL Re LLC (AIHL Re), a captive reinsurance company which provides reinsurance to Alleghanys current and former insurance operating subsidiaries and affiliates, has been a subsidiary of Alleghany since its formation in May 2006.
Prior to December 31, 2017, AIHLs insurance operations also included Pacific Compensation Corporation
(PacificComp). On September 12, 2017, AIHL signed a definitive agreement to sell PacificComp to CopperPoint Mutual Insurance Company (CopperPoint) for total cash consideration of approximately $158 million. The
transaction closed on December 31, 2017, at which time: (i) approximately $442 million of PacificComp assets, consisting primarily of debt securities, and approximately $316 million of PacificComp liabilities, consisting
primarily of loss and loss adjustment expenses (LAE) reserves, were transferred to CopperPoint; and (ii) AIHL recorded an
after-tax
gain of approximately $16 million, which included a tax
benefit. 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.
AIHL Res obligations, which are guaranteed by Alleghany, are subject to: (i) an aggregate limit of $150.0 million; and (ii) a final commutation and settlement as of December 31, 2024.
Although Alleghanys primary sources of revenues and earnings are its reinsurance and insurance operations and investments, Alleghany also
sources, executes, manages and monitors certain private investments primarily through its wholly-owned subsidiary Alleghany Capital Corporation (Alleghany Capital). Alleghany Capitals investments include:
|
|
|
Bourn & Koch, Inc. (Bourn & Koch), a manufacturer/remanufacturer of specialty
machine tools and supplier of replacement parts, accessories and services for a variety of cutting technologies, headquartered in Rockford, Illinois;
|
|
|
|
R.C. Tway Company, LLC (Kentucky Trailer), a manufacturer of custom trailers and truck bodies for the
moving and storage industry and other markets, headquartered in Louisville, Kentucky;
|
|
|
|
IPS-Integrated
Project Services, LLC (IPS), a technical
service provider focused on the global pharmaceutical and biotechnology industries, headquartered in Blue Bell, Pennsylvania;
|
|
|
|
Jazwares, LLC (together with its affiliates, Jazwares), a global toy, entertainment and musical
instrument company, headquartered in Sunrise, Florida;
|
|
|
|
WWSC Holdings, LLC (W&W|AFCO Steel), a structural steel fabricator and erector, headquartered in
Oklahoma City, Oklahoma; and
|
|
|
|
a 45 percent equity interest in Wilbert Funeral Services, Inc. (Wilbert), a provider of products
and services for the funeral and cemetery industries and precast concrete markets, headquartered in Overland Park, Kansas.
|
The results
of W&W|AFCO Steel have been included in Alleghanys consolidated results beginning with its acquisition by Alleghany Capital on April 28, 2017. On February 7, 2018, W&W|AFCO Steel acquired Hirschfeld Holdings, LP
(Hirschfeld).
Wilbert is accounted for under the equity method of accounting and is included in other invested assets. The
results of Wilbert have been included in Alleghanys consolidated results beginning with its acquisition by Alleghany Capital on August 1, 2017.
In addition, Alleghany owns certain other holding-company investments. Alleghanys wholly-owned subsidiary, Stranded Oil Resources
Corporation (SORC) is an exploration and production company focused on enhanced oil recovery, headquartered in Golden, Colorado. Alleghanys wholly-owned subsidiary, Alleghany Properties Holdings LLC (Alleghany
Properties), owns and manages certain properties in the Sacramento, California region. Alleghanys public equity investments are managed primarily through Alleghanys wholly-owned subsidiary Roundwood Asset Management LLC.
5
Unless the context otherwise requires, references to Alleghany include Alleghany
together with its subsidiaries.
The accompanying consolidated financial statements include the results of Alleghany and its wholly-owned
and majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). All material inter-company balances and transactions have been eliminated in consolidation.
The portion of stockholders equity, net earnings and comprehensive income that is not attributable to Alleghany stockholders is presented
on the Consolidated Balance Sheets and the Consolidated Statements of Earnings and Comprehensive Income as noncontrolling interests. Because all noncontrolling interests have the option to sell their ownership interests to Alleghany in the future
(generally through 2024), the portion of stockholders equity that is not attributable to Alleghany stockholders is presented on the Consolidated Balance Sheets as redeemable noncontrolling interests for all periods presented. During the first
six months of 2018, the noncontrolling interests outstanding were approximately as follows: Bourn & Koch - 11 percent; Kentucky Trailer - 21 percent; IPS - 16 percent; Jazwares - 23 percent; and W&W|AFCO Steel -
20 percent.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions.
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. Alleghany relies on historical experience and on various other assumptions that it believes 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 those reported results to the extent that those estimates and assumptions prove to be inaccurate. Changes in estimates are reflected in the Consolidated Statements of Earnings and
Comprehensive Income in the period in which the changes are made.
(b) Other Significant Accounting Principles
Alleghanys significant accounting principles can be found in Note 1 to Notes to Consolidated Financial Statements set forth in
Part II, Item 8, Financial Statements and Supplementary Data of the 2017 Form
10-K.
(c) Recent Accounting Standards
Recently Adopted
In
February 2018, the Financial Accounting Standards Board (the FASB) issued guidance on certain tax effects caused by the Tax Cuts and Jobs Act of 2017 (the Tax Act), which was signed into law on December 22,
2017. The Tax Act, among other things, reduced the U.S. corporate federal income tax rate from 35.0 percent to 21.0 percent, effective January 1, 2018 for the 2018 tax year. Under such circumstances, GAAP requires that the
value of deferred tax assets and liabilities be reduced through tax expense. The new guidance provides an option to reclassify any stranded tax amounts that remain in accumulated other comprehensive income to retained earnings, either
retrospectively or at the beginning of the period in which the adoption is elected. This guidance became effective in the first quarter of 2018 for public entities, with early adoption permitted in 2017. Alleghany adopted this new guidance in
the first quarter of 2018 and has elected to reclassify stranded tax amounts that remain in accumulated other comprehensive income, in the amount of approximately $135 million, to retained earnings as of January 1, 2018. See Note 7(b) of
this Form
10-Q
for further information on accumulated other comprehensive income, and see Note 9 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and
Supplementary Data of the 2017 Form
10-K
for additional information on the Tax Act and its impact on Alleghany.
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. Alleghany adopted this guidance in the fourth quarter of 2017 and recorded a cumulative effect reduction of approximately $13 million directly
to opening 2017 retained earnings and an offsetting increase in opening 2017 accumulated other comprehensive income. The implementation did not have a material impact on Alleghanys results of operations and financial condition. See Note 7(b)
of this Form
10-Q
for further information on accumulated other comprehensive income.
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
contracts and revenues from investments are not impacted by this guidance, whereas noninsurance revenues arising from the sale of manufactured goods and services is generally included within the scope of this guidance. This guidance, and all related
amendments, became effective in the first quarter of 2018 for public entities, with early adoption permitted in 2017. Alleghany adopted this guidance in the first quarter of 2018 using the modified retrospective transition approach and the
implementation did not have a material impact on its results of operations and financial condition. See Note 10 of this Form
10-Q
for further information on Alleghanys noninsurance revenues.
6
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, but including partnership investments not accounted for under the equity method) to be measured at fair
value with changes in fair value recognized in net earnings. 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. Alleghany adopted this guidance in the first quarter of 2018. As
of January 1, 2018, approximately $736 million of net unrealized gains of equity securities, net of deferred taxes, were reclassified from accumulated other comprehensive income to retained earnings. Subsequently, all changes in unrealized
gains or losses of equity securities, net of deferred taxes, were presented in the Consolidated Statements of Earnings rather than the Consolidated Statements of Comprehensive Income, under the caption change in the fair value of equity
securities. Results arising from partnership investments, whether accounted for under the equity method or at fair value, continue to be reported as a component of net investment income. The implementation did not have a material impact on
Alleghanys financial condition. See Note 3 of this Form
10-Q
for further information on Alleghanys equity securities, and Note 7(b) of this Form
10-Q
for
further information on accumulated other comprehensive income.
Future Application of Accounting Standards
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. Alleghany will adopt this guidance in the first quarter of 2019 and does not currently believe that the implementation will have a material impact on its 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 2017 Form
10-K
for further information on
Alleghanys 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. 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
available-for-sale
(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. Alleghany will adopt this guidance in the first quarter of 2020 and does not currently believe that the implementation will have a material impact
on its 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. Alleghany will adopt this guidance in the first quarter of 2020 and does not currently believe that the implementation will have a material impact on its results of operations and financial condition.
See Note 2 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2017 Form
10-K
for further information on Alleghanys
goodwill.
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 improves the alignment between hedge accounting and a companys risk management activities. This guidance is effective in the first quarter of 2019 for public entities, with early
adoption permitted. Alleghany will adopt this guidance in the first quarter of 2019 and does not currently believe that the implementation will have a material impact on its results of operations and financial condition.
7
2. Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of Alleghanys consolidated financial instruments as of
June 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
($ in millions)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (excluding equity method investments and loans)
(1)
|
|
$
|
17,401.1
|
|
|
$
|
17,401.1
|
|
|
$
|
17,406.5
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
(2)
|
|
$
|
1,569.4
|
|
|
$
|
1,697.6
|
|
|
$
|
1,484.9
|
|
|
$
|
1,614.6
|
|
(1)
|
This table includes 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 2017 Form
10-K
for additional
information on the senior notes and other debt.
|
The following tables present Alleghanys financial instruments measured
at fair value and the level of the fair value hierarchy of inputs used as of June 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in millions)
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
4,704.2
|
|
|
$
|
3.6
|
|
|
$
|
-
|
|
|
$
|
4,707.8
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
6.3
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
4,704.2
|
|
|
|
3.6
|
|
|
|
6.3
|
|
|
|
4,714.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
993.6
|
|
|
|
-
|
|
|
|
993.6
|
|
Municipal bonds
|
|
|
-
|
|
|
|
2,842.5
|
|
|
|
-
|
|
|
|
2,842.5
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
932.9
|
|
|
|
-
|
|
|
|
932.9
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,040.6
|
|
|
|
367.8
|
|
|
|
2,408.4
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,317.6
|
|
|
|
94.8
|
|
|
|
1,412.4
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities (RMBS)
(1)
|
|
|
-
|
|
|
|
1,160.7
|
|
|
|
-
|
|
|
|
1,160.7
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
-
|
|
|
|
540.6
|
|
|
|
-
|
|
|
|
540.6
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
640.8
|
|
|
|
1,224.0
|
|
|
|
1,864.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
10,469.3
|
|
|
|
1,686.6
|
|
|
|
12,155.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
472.8
|
|
|
|
-
|
|
|
|
472.8
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
58.3
|
|
|
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
4,704.2
|
|
|
$
|
10,945.7
|
|
|
$
|
1,751.2
|
|
|
$
|
17,401.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,512.2
|
|
|
$
|
185.4
|
|
|
$
|
1,697.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in millions)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
4,090.7
|
|
|
$
|
3.8
|
|
|
$
|
-
|
|
|
$
|
4,094.5
|
|
Preferred stock
|
|
|
-
|
|
|
|
3.1
|
|
|
|
1.9
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
4,090.7
|
|
|
|
6.9
|
|
|
|
1.9
|
|
|
|
4,099.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
948.0
|
|
|
|
-
|
|
|
|
948.0
|
|
Municipal bonds
|
|
|
-
|
|
|
|
3,682.1
|
|
|
|
-
|
|
|
|
3,682.1
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
1,006.6
|
|
|
|
-
|
|
|
|
1,006.6
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,173.0
|
|
|
|
260.0
|
|
|
|
2,433.0
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,424.6
|
|
|
|
75.2
|
|
|
|
1,499.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
833.8
|
|
|
|
161.8
|
|
|
|
995.6
|
|
CMBS
|
|
|
-
|
|
|
|
550.1
|
|
|
|
1.6
|
|
|
|
551.7
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
503.3
|
|
|
|
1,101.3
|
|
|
|
1,604.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
11,121.5
|
|
|
|
1,599.9
|
|
|
|
12,721.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
578.1
|
|
|
|
-
|
|
|
|
578.1
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
4,090.7
|
|
|
$
|
11,706.5
|
|
|
$
|
1,609.3
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,513.6
|
|
|
$
|
101.0
|
|
|
$
|
1,614.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily includes government agency pass-through securities guaranteed by a government agency or government sponsored enterprise, among other types of RMBS.
|
(2)
|
Includes $1,224.0 million and $1,101.3 million of collateralized loan obligations as of June 30, 2018 and December 31, 2017, respectively.
|
(3)
|
Includes partnership and
non-marketable
equity investments accounted for at fair value, and excludes investments accounted for using the equity method.
|
In the three and six months ended June 30, 2018, Alleghany transferred out of Level 3 $151.9 million and $153.5 million,
respectively, of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the second quarter of 2018, there was a decrease in the weight given to
non-binding
broker quotes, and as such, there was a corresponding increase in quoted prices for similar assets in active markets. Of the $153.5 million of transfers, $150.6 million related to RMBS in the
second quarter of 2018, $1.6 million related to CMBS in the first quarter of 2018 and $1.3 million related to U.S. corporate bonds in the second quarter of 2018.
As further described in Note 3(h), on March 15, 2018, most of AIHLs limited partnership interests in certain subsidiaries of Ares
Management LLC (Ares) were converted into Ares common units. As a result of the conversion, as of March 15, 2018, $208.2 million of Ares common units, classified as common stock, was transferred into Level 1, and
$58.7 million of Ares limited partner interests, classified as other invested assets, was transferred into Level 3.
In addition
to the above, in the three and six months ended June 30, 2018, Alleghany transferred into Level 3 $1.3 million and $5.6 million, respectively, of financial instruments, principally due to a decrease in observable inputs related
to the valuation of such assets and, specifically, a decrease in broker quotes. Of the $5.6 million of transfers, $4.3 million related to preferred stock, $1.2 million related to U.S. corporate bonds, and $0.1 million related to
other invested assets. There were no other material transfers between Levels 1, 2 or 3 in the three and six months ended June 30, 2018.
In the three and six months ended June 30, 2017, Alleghany transferred out of Level 3 $3.1 million and $7.2 million,
respectively, of financial instruments that were principally due to an increase in observable inputs related to the valuation of such assets and, specifically, an increase in broker quotes. Of the $7.2 million of transfers, $4.8 million
related to U.S. corporate bonds and $2.4 million related to common stock.
In the three and six months ended June 30, 2017,
Alleghany transferred into Level 3 $2.1 million and $4.7 million, respectively, of financial instruments that were principally due to a decrease in observable inputs related to the valuation of such assets and, specifically, a
decrease in broker quotes. Of the $4.7 million of transfers, $3.0 million related to U.S. corporate bonds, $1.4 million related to common stock and $0.3 million related to foreign corporate bonds. There were no other material
transfers between Levels 1, 2 or 3 in the three and six months ended June 30, 2017.
9
The following tables present reconciliations of the changes during the six months ended
June 30, 2018 and 2017 in Level 3 assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
Preferred
Stock
|
|
U.S.
Corporate
Bonds
|
|
Foreign
Corporate
Bonds
|
|
RMBS
|
|
CMBS
|
|
Other Asset-
backed
Securities
|
|
Other
Invested
Assets
(1)
|
|
Total
|
|
|
|
|
($ in millions)
|
Balance as of January 1,
2018
|
|
|
|
|
|
$
|
1.9
|
|
|
$
|
260.0
|
|
|
$
|
75.2
|
|
|
$
|
161.8
|
|
|
$
|
1.6
|
|
|
$
|
1,101.3
|
|
|
$
|
7.5
|
|
|
$
|
1,609.3
|
|
Net realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(2)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.7
|
|
Other comprehensive income
|
|
|
|
|
|
|
0.2
|
|
|
|
(6.9
|
)
|
|
|
(2.2
|
)
|
|
|
(5.3
|
)
|
|
|
-
|
|
|
|
(7.7
|
)
|
|
|
(3.5
|
)
|
|
|
(25.4
|
)
|
Purchases
|
|
|
|
|
|
|
-
|
|
|
|
117.3
|
|
|
|
23.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
495.1
|
|
|
|
-
|
|
|
|
636.2
|
|
Sales
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(2.5
|
)
|
|
|
(1.9
|
)
|
|
|
(5.6
|
)
|
|
|
-
|
|
|
|
(365.7
|
)
|
|
|
(5.6
|
)
|
|
|
(381.4
|
)
|
Issuances
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Transfers into Level 3
|
|
|
|
|
|
|
4.3
|
|
|
|
1.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58.8
|
|
|
|
64.3
|
|
Transfers out of Level 3
|
|
|
|
|
|
|
-
|
|
|
|
(1.3
|
)
|
|
|
-
|
|
|
|
(150.6
|
)
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(153.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2018
|
|
|
|
|
|
$
|
6.3
|
|
|
$
|
367.8
|
|
|
$
|
94.8
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,224.0
|
|
|
$
|
58.3
|
|
|
$
|
1,751.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Common
Stock
|
|
Preferred
Stock
|
|
U.S.
Corporate
Bonds
|
|
Foreign
Corporate
Bonds
|
|
RMBS
|
|
CMBS
|
|
Other Asset-
backed
Securities
|
|
Other
Invested
Assets
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
Balance as of January 1,
2017
|
|
$
|
4.3
|
|
|
$
|
-
|
|
|
$
|
72.9
|
|
|
$
|
0.4
|
|
|
$
|
5.9
|
|
|
$
|
4.3
|
|
|
$
|
903.8
|
|
|
$
|
28.1
|
|
|
$
|
1,019.7
|
|
Net realized/unrealized gains (losses)
included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(2)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
2.7
|
|
|
|
10.8
|
|
|
|
13.2
|
|
Other comprehensive income
|
|
|
0.5
|
|
|
|
-
|
|
|
|
1.5
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
11.9
|
|
|
|
(10.6
|
)
|
|
|
4.0
|
|
Purchases
|
|
|
-
|
|
|
|
2.4
|
|
|
|
151.4
|
|
|
|
36.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
578.0
|
|
|
|
-
|
|
|
|
767.8
|
|
Sales
|
|
|
(1.8
|
)
|
|
|
(0.2
|
)
|
|
|
(4.3
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(2.2
|
)
|
|
|
(19.7
|
)
|
|
|
(21.6
|
)
|
|
|
(49.9
|
)
|
Issuances
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
(4.4
|
)
|
|
|
-
|
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
|
|
(315.8
|
)
|
|
|
-
|
|
|
|
(321.2
|
)
|
Transfers into Level 3
|
|
|
1.4
|
|
|
|
-
|
|
|
|
3.0
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4.7
|
|
Transfers out of Level 3
|
|
|
(2.4
|
)
|
|
|
-
|
|
|
|
(4.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2017
|
|
$
|
1.9
|
|
|
$
|
2.2
|
|
|
$
|
215.0
|
|
|
$
|
37.0
|
|
|
$
|
5.5
|
|
|
$
|
1.9
|
|
|
$
|
1,160.9
|
|
|
$
|
6.7
|
|
|
$
|
1,431.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes partnership and
non-marketable
equity investments accounted for at fair value.
|
(2)
|
There were no other than temporary impairment (OTTI) losses recorded in net earnings related to Level 3 assets still held as of June 30, 2018 and 2017.
|
Net unrealized losses related to Level 3 assets as of June 30, 2018 and December 31, 2017 were not material.
See Note 1(c) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary
Data of the 2017 Form
10-K
for Alleghanys accounting policy on fair value.
10
3. Investments
(a) Unrealized Gains and Losses
The following tables present the amortized cost or cost and the fair value of AFS securities as of June 30, 2018 and December 31,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
($ in millions)
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
$
|
1,026.0
|
|
|
$
|
0.6
|
|
|
$
|
(33.0)
|
|
|
$
|
993.6
|
|
Municipal bonds
|
|
|
2,803.5
|
|
|
|
56.1
|
|
|
|
(17.1)
|
|
|
|
2,842.5
|
|
Foreign government obligations
|
|
|
929.3
|
|
|
|
9.3
|
|
|
|
(5.7)
|
|
|
|
932.9
|
|
U.S. corporate bonds
|
|
|
2,432.4
|
|
|
|
17.9
|
|
|
|
(41.9)
|
|
|
|
2,408.4
|
|
Foreign corporate bonds
|
|
|
1,418.5
|
|
|
|
12.9
|
|
|
|
(19.0)
|
|
|
|
1,412.4
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
1,184.1
|
|
|
|
3.3
|
|
|
|
(26.7)
|
|
|
|
1,160.7
|
|
CMBS
|
|
|
545.5
|
|
|
|
2.5
|
|
|
|
(7.4)
|
|
|
|
540.6
|
|
Other asset-backed securities
(1)
|
|
|
1,866.7
|
|
|
|
4.9
|
|
|
|
(6.8)
|
|
|
|
1,864.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
12,206.0
|
|
|
|
107.5
|
|
|
|
(157.6)
|
|
|
|
12,155.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
472.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
12,678.8
|
|
|
$
|
107.5
|
|
|
$
|
(157.6)
|
|
|
$
|
12,628.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
|
|
($ in millions)
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
3,165.8
|
|
|
$
|
932.5
|
|
|
$
|
(3.8)
|
|
|
$
|
4,094.5
|
|
Preferred stock
|
|
|
4.9
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
3,170.7
|
|
|
|
932.6
|
|
|
|
(3.8)
|
|
|
|
4,099.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
963.9
|
|
|
|
1.7
|
|
|
|
(17.6)
|
|
|
|
948.0
|
|
Municipal bonds
|
|
|
3,578.9
|
|
|
|
109.8
|
|
|
|
(6.6)
|
|
|
|
3,682.1
|
|
Foreign government obligations
|
|
|
1,000.1
|
|
|
|
11.2
|
|
|
|
(4.7)
|
|
|
|
1,006.6
|
|
U.S. corporate bonds
|
|
|
2,381.1
|
|
|
|
61.6
|
|
|
|
(9.7)
|
|
|
|
2,433.0
|
|
Foreign corporate bonds
|
|
|
1,481.8
|
|
|
|
24.5
|
|
|
|
(6.5)
|
|
|
|
1,499.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
993.9
|
|
|
|
6.3
|
|
|
|
(4.6)
|
|
|
|
995.6
|
|
CMBS
|
|
|
545.0
|
|
|
|
9.0
|
|
|
|
(2.3)
|
|
|
|
551.7
|
|
Other asset-backed securities
(1)
|
|
|
1,592.1
|
|
|
|
13.8
|
|
|
|
(1.3)
|
|
|
|
1,604.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
12,536.8
|
|
|
|
237.9
|
|
|
|
(53.3)
|
|
|
|
12,721.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
578.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
578.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
16,285.6
|
|
|
$
|
1,170.5
|
|
|
$
|
(57.1)
|
|
|
$
|
17,399.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $1,224.0 million and $1,101.3 million of collateralized loan obligations as of June 30, 2018 and December 31, 2017, respectively.
|
11
(b) Contractual Maturity
The following table presents the amortized cost or cost and estimated fair value of debt securities by contractual maturity as of June 30,
2018. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or Cost
|
|
Fair Value
|
|
|
($ in millions)
|
As of June 30, 2018
|
|
|
|
|
Short-term investments due in one year or less
|
|
$
|
472.8
|
|
|
$
|
472.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
securities
(1)
|
|
|
3,596.3
|
|
|
|
3,566.1
|
|
Debt securities with maturity dates:
|
|
|
|
|
|
|
|
|
One year or less
|
|
|
348.2
|
|
|
|
348.2
|
|
Over one through five years
|
|
|
3,042.6
|
|
|
|
3,024.8
|
|
Over five through ten years
|
|
|
2,997.0
|
|
|
|
2,973.6
|
|
Over ten years
|
|
|
2,221.9
|
|
|
|
2,243.2
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
12,206.0
|
|
|
$
|
12,155.9
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mortgage and asset-backed securities by their nature do not generally have single maturity dates.
|
(c) Net Investment Income
The following table presents net investment income for the three and six months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Interest income
|
|
$
|
104.8
|
|
|
$
|
102.5
|
|
|
$
|
206.8
|
|
|
$
|
201.7
|
|
Dividend income
|
|
|
22.3
|
|
|
|
11.8
|
|
|
|
38.6
|
|
|
|
21.2
|
|
Investment expenses
|
|
|
(6.6
|
)
|
|
|
(6.9
|
)
|
|
|
(18.6
|
)
|
|
|
(14.3
|
)
|
Pillar Investments
(1)
|
|
|
1.9
|
|
|
|
3.2
|
|
|
|
1.9
|
|
|
|
6.6
|
|
Limited partnership interests in certain subsidiaries of Ares
(1)
|
|
|
(0.7
|
)
|
|
|
(12.6
|
)
|
|
|
13.2
|
|
|
|
(7.4
|
)
|
Other investment results
|
|
|
4.6
|
|
|
|
3.7
|
|
|
|
8.5
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126.3
|
|
|
$
|
101.7
|
|
|
$
|
250.4
|
|
|
$
|
217.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See Note 3(h) of this Form
10-Q
for discussion of the Pillar Investments, as defined therein, and limited partnership interests in certain subsidiaries of Ares.
|
As of June 30, 2018,
non-income
producing invested assets were immaterial.
12
(d) Change in the Fair Value of Equity Securities
In the first quarter of 2018, Alleghany adopted new investment accounting guidance, which requires changes in the fair value of equity
securities, except those accounted for under the equity method, to be recognized in net earnings. In earlier periods, equity securities were considered to be AFS and were included in the analysis of OTTI. See Note 1(c) of this Form
10-Q
for additional information regarding Alleghanys adoption of this new guidance.
The following
table presents increases in the fair value of equity securities for the three and six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2018
|
|
June 30, 2018
|
|
|
($ in millions)
|
Change in the fair value of equity securities sold during the period
|
|
$
|
4.4
|
|
|
$
|
16.0
|
|
Change in the fair value of equity securities held at the end of the period
|
|
|
180.8
|
|
|
|
126.6
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of equity securities
|
|
$
|
185.2
|
|
|
$
|
142.6
|
|
|
|
|
|
|
|
|
|
|
(e) Realized Gains and Losses
The proceeds from sales of debt and equity securities were $0.8 billion and $1.5 billion for the three months ended June 30,
2018 and 2017, respectively, and $1.9 billion and $4.2 billion for the six months ended June 30, 2018 and 2017, respectively.
Realized capital gains and losses for the three months ended June 30, 2018 primarily reflect the sale of debt securities. Realized capital
gains and losses for the first six months of 2018 primarily reflect a $45.7 million gain on AIHLs conversion of its limited partnership interests in certain subsidiaries of Ares into Ares common units. See Note 3(h) of this Form
10-Q
for additional information on this conversion.
Realized capital gains and losses for the three and
six months ended June 30, 2017 primarily reflect the sale of equity securities. Realized capital gains for the first six months of 2017 also include the sale of certain equity securities resulting from a partial restructuring of the equity
portfolio.
The following table presents amounts of gross realized capital gains and gross realized capital losses for the three and six
months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Gross realized capital gains
|
|
$
|
6.5
|
|
|
$
|
34.0
|
|
|
$
|
66.4
|
|
|
$
|
142.7
|
|
Gross realized capital losses
|
|
|
-
|
|
|
|
(24.7)
|
|
|
|
(15.4)
|
|
|
|
(73.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains
|
|
$
|
6.5
|
|
|
$
|
9.3
|
|
|
$
|
51.0
|
|
|
$
|
68.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized loss amounts exclude OTTI losses, as discussed below.
(f) OTTI Losses
Alleghany holds its debt securities as AFS and, as such, these securities are recorded at fair value. Alleghany continually monitors the
difference between amortized cost and the estimated fair value of its debt investments, which involves uncertainty as to whether declines in value are temporary in nature. The analysis of a securitys decline in value is performed in its
functional currency. If the decline is deemed temporary, Alleghany records the decline as an unrealized loss in stockholders equity. If the decline is deemed to be other than temporary, Alleghany writes its amortized cost-basis down to the
fair value of the security and records an OTTI loss on its statement of earnings. In addition, any portion of such decline related to a debt security that is believed to arise from factors other than credit is recorded as a component of other
comprehensive income rather than charged against earnings.
Debt securities in an unrealized loss position are evaluated for OTTI if they
meet any of the following criteria: (i) they are trading at a discount of at least 20 percent to amortized cost for an extended period of time (nine consecutive months or more); (ii) there has been a negative credit or news event with
respect to the issuer that could indicate the existence of an OTTI; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.
If Alleghany intends to sell, or it is more likely than not that Alleghany will sell, a debt security before recovery of its amortized cost
basis, the total amount of the unrealized loss position is recognized as an OTTI loss in earnings. To the extent that a debt security that is in an unrealized loss position is not impaired based on the preceding, Alleghany will consider a debt
security to be impaired when it believes it to be probable that Alleghany will not be able to collect the entire amortized cost basis. For debt securities in an
13
unrealized loss position as of the end of each quarter, Alleghany develops a best estimate of the present value of expected cash flows. If the results of the cash flow analysis indicate that
Alleghany will not recover the full amount of its amortized cost basis in the debt security, Alleghany records an OTTI loss in earnings equal to the difference between the present value of expected cash flows and the amortized cost basis of the debt
security. If applicable, the difference between the total unrealized loss position on the debt security and the OTTI loss recognized in earnings is the
non-credit
related portion, which is recorded as a
component of other comprehensive income.
In developing the cash flow analyses for debt securities, Alleghany considers various factors for
the different categories of debt securities. For municipal bonds, Alleghany takes into account the taxing power of the issuer, source of revenue, credit risk and enhancements and
pre-refunding.
For mortgage
and asset-backed securities, Alleghany discounts its best estimate of future cash flows at an effective rate equal to the original effective yield of the security or, in the case of floating rate securities, at the current coupon. Alleghanys
models include assumptions about prepayment speeds, default and delinquency rates, underlying collateral (if any), credit ratings, credit enhancements and other observable market data. For corporate bonds, Alleghany reviews business prospects,
credit ratings and available information from asset managers and rating agencies for individual securities.
OTTI losses in the first six
months of 2018 reflect $0.5 million of unrealized losses on debt securities that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $0.5 million of OTTI losses, none were incurred in
the second quarter of 2018.
OTTI losses in the first six months of 2017 reflect $7.0 million of unrealized losses that were deemed to
be other than temporary and, as such, were required to be charged against earnings. Of the $7.0 million of OTTI losses, $6.8 million related to equity securities, primarily in the retail sector, and $0.2 million related to debt
securities. The determination that unrealized losses on the 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 $7.0 million of
OTTI losses, $3.8 million was incurred in the second quarter of 2017.
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 amortized cost basis of securities for the recognition of OTTI losses, the remaining gross unrealized
investment losses for debt securities as of June 30, 2018 were deemed to be temporary, based on, among other factors: (i) the duration of time and the relative magnitude to which the fair value of these investments had been below cost were
not indicative of an OTTI loss; (ii) the absence of compelling evidence that would cause Alleghany to call into question the financial condition or near-term business prospects of the issuer of the security; and (iii) Alleghanys
ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery.
Alleghany may ultimately
record a realized loss after having originally concluded that the decline in value was temporary. Risks and uncertainties are inherent in the methodology. Alleghanys methodology for assessing other than temporary declines in value contains
inherent risks and uncertainties which could include, but are not limited to, incorrect assumptions about financial condition, liquidity or future prospects, inadequacy of any underlying collateral and unfavorable changes in economic conditions or
social trends, interest rates or credit ratings.
(g) Aging of Gross Unrealized Losses
The following tables present gross unrealized losses and related fair values for Alleghanys AFS securities, grouped by duration of time
in a continuous unrealized loss position, as of June 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
$
|
532.8
|
|
|
$
|
12.7
|
|
|
$
|
390.1
|
|
|
$
|
20.3
|
|
|
$
|
922.9
|
|
|
$
|
33.0
|
|
Municipal bonds
|
|
|
543.2
|
|
|
|
8.2
|
|
|
|
215.2
|
|
|
|
8.9
|
|
|
|
758.4
|
|
|
|
17.1
|
|
Foreign government obligations
|
|
|
189.9
|
|
|
|
2.1
|
|
|
|
130.5
|
|
|
|
3.6
|
|
|
|
320.4
|
|
|
|
5.7
|
|
U.S. corporate bonds
|
|
|
1,355.7
|
|
|
|
32.1
|
|
|
|
174.1
|
|
|
|
9.8
|
|
|
|
1,529.8
|
|
|
|
41.9
|
|
Foreign corporate bonds
|
|
|
656.7
|
|
|
|
12.7
|
|
|
|
189.2
|
|
|
|
6.3
|
|
|
|
845.9
|
|
|
|
19.0
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
887.3
|
|
|
|
21.3
|
|
|
|
116.5
|
|
|
|
5.4
|
|
|
|
1,003.8
|
|
|
|
26.7
|
|
CMBS
|
|
|
277.9
|
|
|
|
4.6
|
|
|
|
32.3
|
|
|
|
2.8
|
|
|
|
310.2
|
|
|
|
7.4
|
|
Other asset-backed securities
|
|
|
982.2
|
|
|
|
6.4
|
|
|
|
27.7
|
|
|
|
0.4
|
|
|
|
1,009.9
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
5,425.7
|
|
|
$
|
100.1
|
|
|
$
|
1,275.6
|
|
|
$
|
57.5
|
|
|
$
|
6,701.3
|
|
|
$
|
157.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
Common stock
|
|
$
|
145.7
|
|
|
$
|
3.8
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
145.7
|
|
|
$
|
3.8
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
145.7
|
|
|
|
3.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145.7
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
447.8
|
|
|
|
4.4
|
|
|
|
416.6
|
|
|
|
13.2
|
|
|
|
864.4
|
|
|
|
17.6
|
|
Municipal bonds
|
|
|
240.0
|
|
|
|
1.5
|
|
|
|
267.3
|
|
|
|
5.1
|
|
|
|
507.3
|
|
|
|
6.6
|
|
Foreign government obligations
|
|
|
321.9
|
|
|
|
2.7
|
|
|
|
72.2
|
|
|
|
2.0
|
|
|
|
394.1
|
|
|
|
4.7
|
|
U.S. corporate bonds
|
|
|
568.8
|
|
|
|
6.1
|
|
|
|
207.3
|
|
|
|
3.6
|
|
|
|
776.1
|
|
|
|
9.7
|
|
Foreign corporate bonds
|
|
|
417.4
|
|
|
|
3.0
|
|
|
|
159.4
|
|
|
|
3.5
|
|
|
|
576.8
|
|
|
|
6.5
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
284.2
|
|
|
|
1.6
|
|
|
|
131.5
|
|
|
|
3.0
|
|
|
|
415.7
|
|
|
|
4.6
|
|
CMBS
|
|
|
112.2
|
|
|
|
0.5
|
|
|
|
34.7
|
|
|
|
1.8
|
|
|
|
146.9
|
|
|
|
2.3
|
|
Other asset-backed securities
|
|
|
211.1
|
|
|
|
0.9
|
|
|
|
65.7
|
|
|
|
0.4
|
|
|
|
276.8
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
2,603.4
|
|
|
|
20.7
|
|
|
|
1,354.7
|
|
|
|
32.6
|
|
|
|
3,958.1
|
|
|
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
2,749.1
|
|
|
$
|
24.5
|
|
|
$
|
1,354.7
|
|
|
$
|
32.6
|
|
|
$
|
4,103.8
|
|
|
$
|
57.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018, Alleghany held a total of 1,995 debt securities that were in an unrealized loss
position, of which 430 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these debt securities consisted primarily of losses related primarily to U.S. Government obligations,
U.S. corporate bonds, municipal bonds, foreign corporate bonds and RMBS.
As of June 30, 2018, the vast majority of Alleghanys
debt securities were rated investment grade, with 4.3 percent of debt securities having issuer credit ratings that were below investment grade or not rated, compared with 5.3 percent as of December 31, 2017.
(h) Investments in Certain Other Invested Assets
In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings Limited (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 (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. Alleghany has concluded that both Pillar Holdings and the Funds (collectively, the Pillar Investments) represent variable interest entities and that Alleghany is not the primary beneficiary, as it does 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. Alleghanys
potential maximum loss in the Pillar Investments is limited to its cumulative net investment. As of June 30, 2018, Alleghanys carrying value in the Pillar Investments, as determined under the equity method of accounting, was
$219.8 million, which is net of returns of capital received from the Pillar Investments.
In July 2013, AIHL invested
$250.0 million in Ares, an asset manager, 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 into limited partner interests in certain Ares subsidiaries that were convertible into Ares common
units. On March 15, 2018, most of AIHLs limited partner interests were converted into Ares common units. As a result of the conversion and with respect to the limited partnership interests that were converted into Ares common units,
AIHL: (i) reclassified its converted interests from other invested assets to equity securities; (ii) increased its carrying value to $208.2 million to reflect the fair value of Ares common units; and (iii) recorded the
$45.7 million increase in carrying value as a realized capital gain as of March 15, 2018. As a result of the conversion and with respect to the unconverted limited partnership interests, AIHL: (i) changed its accounting from the
equity method to fair value; (ii) increased its carrying value to $58.7 million to reflect the fair value of Ares limited partnership interests; and (iii) recorded the $12.9 million increase in carrying value as a component of
net investment income as of March 15, 2018.
15
(i) Investments in Commercial Mortgage Loans
As of June 30, 2018, the carrying value of Alleghanys commercial mortgage loan portfolio was $695.8 million, representing the
unpaid principal balance on the loans. As of June 30, 2018, 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.
4. Reinsurance Ceded
Alleghanys 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. Alleghanys 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, Alleghanys 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 Alleghanys reinsurance recoverables and Alleghanys reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs.
TransRe enters into retrocession arrangements, including property catastrophe retrocession arrangements, in order to reduce the effect of
individual or aggregate exposure to losses, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and increase gross premium writings and risk capacity without requiring additional capital.
RSUI reinsures its property lines of business through a program consisting of surplus share treaties, facultative placements, per risk and
catastrophe excess of loss treaties. RSUIs catastrophe reinsurance program and property per risk reinsurance program run on an annual basis from May 1 to the following April 30 and portions expired on April 30, 2018. Both
programs were renewed on May 1, 2018 with substantially similar terms as the expired programs.
16
5. Liability for Loss and LAE
(a) Liability Rollforward
The following table presents the activity in the liability for loss and LAE in the six months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Reserves as of January 1
|
|
$
|
11,871.3
|
|
|
$
|
11,087.2
|
|
Less: reinsurance recoverables
(1)
|
|
|
1,650.1
|
|
|
|
1,236.2
|
|
|
|
|
|
|
|
|
|
|
Net reserves as of January 1
|
|
|
10,221.2
|
|
|
|
9,851.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments
|
|
|
2.0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred loss and LAE, net of reinsurance, related to:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
1,546.7
|
|
|
|
1,545.6
|
|
Prior years
|
|
|
(137.9
|
)
|
|
|
(111.4
|
)
|
|
|
|
|
|
|
|
|
|
Total incurred loss and LAE, net of reinsurance
|
|
|
1,408.8
|
|
|
|
1,434.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid loss and LAE, net of reinsurance, related
to:
(2)
|
|
|
|
|
|
|
|
|
Current year
|
|
|
237.6
|
|
|
|
242.7
|
|
Prior years
|
|
|
1,366.1
|
|
|
|
1,190.1
|
|
|
|
|
|
|
|
|
|
|
Total paid loss and LAE, net of reinsurance
|
|
|
1,603.7
|
|
|
|
1,432.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate effect
|
|
|
(24.2
|
)
|
|
|
55.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves as of June 30
|
|
|
10,004.1
|
|
|
|
9,907.8
|
|
Reinsurance recoverables as of June
30
(1)
|
|
|
1,511.4
|
|
|
|
1,152.4
|
|
|
|
|
|
|
|
|
|
|
Reserves as of June 30
|
|
$
|
11,515.5
|
|
|
$
|
11,060.2
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reinsurance recoverables in this table include only ceded loss and LAE reserves.
|
(2)
|
Includes paid losses, net of reinsurance, related to commutations.
|
Gross loss and LAE reserves
and reinsurance recoverables as of June 30, 2018 decreased from December 31, 2017, primarily reflecting payments on catastrophe losses incurred in 2017 and favorable prior accident year loss reserve development. The decrease in net loss
and LAE reserves was partially offset by the collection of reinsurance recoverables related to catastrophe losses incurred in 2017.
17
(b) Liability Development
The following table presents the (favorable) unfavorable prior accident year loss reserve development for the three and six months ended
June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Reinsurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe events
|
|
$
|
5.1
(
|
1)
|
|
$
|
(4.0)
|
(2)
|
|
$
|
(25.3)
|
(3)
|
|
$
|
(4.4)
|
(2)
|
Non-catastrophe
|
|
|
(18.8)
|
(4)
|
|
|
(18.9)
|
(5)
|
|
|
(29.8)
|
(4)
|
|
|
(50.0)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property
|
|
|
(13.7)
|
|
|
|
(22.9)
|
|
|
|
(55.1)
|
|
|
|
(54.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malpractice Treaties
(6)
|
|
|
(3.4)
|
|
|
|
(2.0)
|
|
|
|
(3.4)
|
|
|
|
(2.0)
|
|
Ogden rate impact
(7)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
Other
|
|
|
(33.6)
|
(8)
|
|
|
(27.7)
|
(9)
|
|
|
(63.8)
|
(10)
|
|
|
(58.9)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total casualty & other
|
|
|
(37.0)
|
|
|
|
(29.7)
|
|
|
|
(67.2)
|
|
|
|
(36.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reinsurance Segment
|
|
|
(50.7)
|
|
|
|
(52.6)
|
|
|
|
(122.3)
|
|
|
|
(90.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty
|
|
|
(1.5)
|
(11)
|
|
|
(9.5)
|
(12)
|
|
|
(12.5)
|
(13)
|
|
|
(21.6)
|
(12)
|
Property and other
|
|
|
0.1
|
|
|
|
(0.8)
|
|
|
|
-
|
|
|
|
2.9
(
|
14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RSUI
|
|
|
(1.4)
|
|
|
|
(10.3)
|
|
|
|
(12.5)
|
|
|
|
(18.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
(0.1)
|
|
|
|
(0.2)
|
(15)
|
|
|
(3.1)
|
(16)
|
|
|
(0.8)
|
(15)
|
PacificComp
|
|
|
-
|
|
|
|
(0.5)
|
(17)
|
|
|
-
|
|
|
|
(1.0)
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred related to prior years
|
|
$
|
(52.2)
|
|
|
$
|
(63.6)
|
|
|
$
|
(137.9)
|
|
|
$
|
(111.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily reflects unfavorable prior accident year loss reserve development related to Hurricane Maria that occurred in the 2017 accident year, partially offset by favorable prior accident year loss reserve development
related to Hurricane Harvey that occurred in the 2017 accident year and catastrophes that occurred in the 2016 accident year.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development related to catastrophes that occurred in the 2010 through 2016 accident years.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development related to Hurricanes Harvey and Maria that occurred in the 2017 accident year and catastrophes that occurred in the 2016 accident year.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the 2016 and 2017 accident years.
|
(5)
|
Primarily reflects favorable prior accident year loss reserve development in the 2013 through 2016 accident years.
|
(6)
|
Represents certain medical 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.
|
(7)
|
Represents unfavorable prior accident year loss reserve development related to the U.K. Ministry of Justices significant reduction in 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 to negative 0.75 percent as of March 20, 2017 from 2.50 percent.
|
(8)
|
Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed casualty lines of business in the 2015 and 2017 accident years and the longer-tailed lines of business in the 2008 through
2010 accident years.
|
(9)
|
Primarily reflects favorable prior accident year loss reserve development in the longer-tailed U.S. professional liability lines of business in the 2005 through 2014 accident years, partially offset by unfavorable
development in the shorter-tailed casualty lines of business in the 2015 accident year in the U.S. and in the U.K.
|
(10)
|
Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed casualty lines of business in the 2016 and 2017 accident years and the longer-tailed lines of business in the 2008 through
2010 accident years.
|
(11)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2012 accident years, partially offset by unfavorable prior accident year loss
reserve development in the directors and officers liability lines of business in the 2012 accident year.
|
(12)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2011 accident years.
|
18
(13)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2012 accident years, partially offset by unfavorable prior accident year loss
reserve development in the directors and officers liability lines of business in the 2009 and 2012 accident years.
|
(14)
|
Primarily reflects unfavorable prior accident year property loss reserve development in the binding authority lines of business in the 2015 and 2016 accident years.
|
(15)
|
Primarily reflects favorable prior accident year loss reserve development in the casualty lines of business in the 2010 and 2015 accident years.
|
(16)
|
Primarily reflects favorable prior accident year loss reserve development in the surety lines of business in the 2016 and 2017 accident years.
|
(17)
|
Primarily reflects favorable prior accident year loss reserve development in the 2013 and prior accident years.
|
6. Income Taxes
The effective tax rate
on earnings before income taxes for the first six months of 2018 was 19.1 percent, compared with 27.6 percent for the first six months of 2017. The decrease in the effective tax rate in the first six months of 2018 from the first six
months of 2017 primarily reflects the decrease in the U.S. corporate federal income tax rate from 35.0 percent to 21.0 percent due to the Tax Act, partially offset by new limitations on certain deductions as a result of the Tax Act. There
continues to be a degree of uncertainty as to how certain provisions of the Tax Act will be interpreted and implemented in practice in the future.
Alleghany believes that, as of June 30, 2018, it had no material uncertain tax positions. Interest and penalties related to unrecognized
tax expenses (benefits) are recognized in income tax expense, when applicable. There were no material liabilities for interest or penalties accrued as of June 30, 2018.
7. Stockholders Equity
(a)
Common Stock Repurchases
In November 2015, the Alleghany Board of Directors authorized the repurchase of shares of common stock of
Alleghany, par value $1.00 per share (Common Stock), at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million (the 2015 Repurchase Program). In June 2018, the Alleghany
Board of Directors authorized, upon the completion of the 2015 Repurchase Program, the repurchase of additional shares of Common Stock, at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million.
As of June 30, 2018, Alleghany had $527.1 million remaining under both share repurchase authorization programs.
The following
table presents the shares of Common Stock that Alleghany repurchased in the three and six months ended June 30, 2018 and 2017 pursuant to the 2015 Repurchase Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
2018
|
|
|
2017
|
Shares repurchased
|
|
|
368,551
|
|
|
|
-
|
|
|
|
403,623
|
|
|
|
-
|
|
Cost of shares repurchased (in millions)
|
|
$
|
214.8
|
|
|
$
|
-
|
|
|
$
|
236.1
|
|
|
$
|
-
|
|
Average price per share repurchased
|
|
$
|
582.92
|
|
|
$
|
-
|
|
|
$
|
584.96
|
|
|
$
|
-
|
|
19
(b) Accumulated Other Comprehensive Income (loss)
The following table presents a reconciliation of the changes during the six months ended June 30, 2018 and 2017 in accumulated other
comprehensive income (loss) attributable to Alleghany stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Appreciation
of
Investments
|
|
Unrealized
Currency
Translation
Adjustment
|
|
Retirement
Plans
|
|
Total
|
|
|
($ in millions)
|
Balance as of January 1,
2018
|
|
$
|
718.2
|
|
|
$
|
(84.6
|
)
|
|
|
$ (15.5
|
)
|
|
$
|
618.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of new accounting pronouncements
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of net unrealized gains on equity securities, net of tax
|
|
|
(735.6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(735.6
|
)
|
Reclassification of stranded taxes
|
|
|
156.6
|
|
|
|
(18.2
|
)
|
|
|
(3.3
|
)
|
|
|
135.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(579.0
|
)
|
|
|
(18.2
|
)
|
|
|
(3.3
|
)
|
|
|
(600.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(179.7
|
)
|
|
|
(5.4
|
)
|
|
|
(1.1
|
)
|
|
|
(186.2
|
)
|
Reclassifications from accumulated other comprehensive income
|
|
|
(3.7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(183.4
|
)
|
|
|
(5.4
|
)
|
|
|
(1.1
|
)
|
|
|
(189.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2018
|
|
$
|
(44.2
|
)
|
|
$
|
(108.2
|
)
|
|
$
|
(19.9
|
)
|
|
$
|
(172.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Appreciation
of
Investments
|
|
Unrealized
Currency
Translation
Adjustment
|
|
Retirement
Plans
|
|
Total
|
|
|
($ in millions)
|
Balance as of January 1,
2017
|
|
$
|
232.2
|
|
|
$
|
(111.2
|
)
|
|
$
|
(11.7
|
)
|
|
$
|
109.3
|
|
|
|
|
|
|
Cumulative effect of adoption of new accounting pronouncements
(1)
|
|
|
12.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12.9
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
266.7
|
|
|
|
15.0
|
|
|
|
(0.3
|
)
|
|
|
281.4
|
|
Reclassifications from accumulated other comprehensive income
|
|
|
(40.3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(40.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
226.4
|
|
|
|
15.0
|
|
|
|
(0.3
|
)
|
|
|
241.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2017
|
|
$
|
471.5
|
|
|
$
|
(96.2
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
363.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See Note 1(c) of this Form
10-Q
for additional information regarding Alleghanys adoption of new investment accounting guidance and new guidance on certain tax effects caused
by the Tax Act.
|
The following table presents reclassifications out of accumulated other comprehensive income attributable to
Alleghany stockholders during the three and six months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Comprehensive Income Component
|
|
Line in Consolidated Statement of Earnings
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
($ in millions)
|
Unrealized appreciation of investments:
|
|
Net realized capital gains
(1)
|
|
$
|
(6.5
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(5.3
|
)
|
|
$
|
(68.9
|
)
|
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
3.8
|
|
|
|
0.5
|
|
|
|
7.0
|
|
|
|
Income taxes
|
|
|
1.4
|
|
|
|
1.9
|
|
|
|
1.1
|
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications:
|
|
Net earnings
|
|
$
|
(5.1
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(40.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the six month period ended June 30, 2018, excludes a $45.7 million
pre-tax
gain from AIHLs conversion of its limited partnership interests in certain
subsidiaries of Ares into Ares common units. See Note 3(h) of this Form
10-Q
for additional information.
|
(c) Special Dividend
In February 2018, the Alleghany Board of Directors declared a special dividend of $10 per share for stockholders of record on March 5,
2018. On March 15, 2018, Alleghany paid dividends to stockholders totaling $154.0 million.
20
8. Earnings Per Share of Common Stock
The following table presents a reconciliation of the earnings and share data used in the basic and diluted earnings per share computations for
the three and six months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions, except share amounts)
|
Net earnings available to Alleghany stockholders
|
|
$
|
295.1
|
|
|
$
|
101.8
|
|
|
$
|
466.7
|
|
|
$
|
251.0
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders for diluted earnings per share
|
|
$
|
295.1
|
|
|
$
|
101.8
|
|
|
$
|
466.7
|
|
|
$
|
251.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding applicable to
basic earnings per share
|
|
|
15,180,075
|
|
|
|
15,419,034
|
|
|
|
15,284,679
|
|
|
|
15,416,366
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
4,915
|
|
|
|
5,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding
applicable to diluted earnings per
share
|
|
|
15,180,075
|
|
|
|
15,419,034
|
|
|
|
15,289,594
|
|
|
|
15,422,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,766 and 75,035 contingently issuable shares were potentially available during the first six months of 2018
and 2017, respectively, but were not included in the diluted earnings per share computations because the impact was anti-dilutive to the earnings per share calculation.
9. Commitments and Contingencies
(a) Legal Proceedings
Certain of Alleghanys subsidiaries are parties to pending litigation and claims in connection with the ordinary course of their
businesses. Each such subsidiary makes provisions for estimated losses to be incurred in such litigation and claims, including legal costs. In the opinion of management, such provisions are adequate, and management does not believe that any pending
litigation will have a material adverse effect on Alleghanys consolidated results of operations, financial position or cash flows.
(b) Leases
Alleghany and its subsidiaries lease certain facilities, furniture and equipment under long-term lease agreements. Additional information about
leases can be found in Note 12(b) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2017 Form
10-K.
(c) Energy Holdings
As of June 30, 2018, Alleghany had holdings in energy sector businesses of $920.0 million, comprised of $289.6 million of debt
securities, $487.1 million of equity securities and $143.3 million of Alleghanys equity attributable to SORC.
10. Segments of Business
(a) Overview
Alleghanys segments are reported in a manner consistent with the way management evaluates the business. As such, Alleghany classifies its
business into three reportable segments reinsurance, insurance and Alleghany Capital. Alleghany determined that Alleghany Capital qualified as a reportable segment in the first quarter of 2018, reflecting the increased significance of
Alleghany Capitals business to Alleghany and its projected growth.
Reinsurance and insurance underwriting activities are evaluated
separately from investment and other activities. Segment accounting policies are described in Note 1 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the
2017 Form
10-K.
The reinsurance segment consists of property and casualty reinsurance
operations conducted by TransRes reinsurance operating subsidiaries and is further reported through two major product lines property and casualty & other. TransRe provides property and casualty reinsurance to insurers and
reinsurers through brokers and on a direct basis to ceding companies. TransRe also writes a modest amount of insurance business, which is included in the reinsurance segment. A significant portion of the premiums earned by TransRes operations
are generated by offices located in Canada, Europe, Asia, Australia, Africa and those serving Latin America and the Caribbean. Although the majority of the premiums earned by these offices typically relate to the regions where they are located, a
significant portion may be derived from other regions of the world, including the U.S. In addition, although a significant
21
portion of the assets and liabilities of these foreign offices generally relate to the countries where ceding companies and reinsurers are located, most investments are located in the country of
domicile of these offices.
The insurance segment consists of property and casualty insurance operations conducted in the U.S. by AIHL
through its insurance operating subsidiaries RSUI, CapSpecialty and, prior to its sale on December 31, 2017, PacificComp. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment.
The Alleghany Capital segment consists of industrial operations,
non-industrial
operations and
corporate operations at the Alleghany Capital level. Industrial operations are conducted through Bourn & Koch, Kentucky Trailer, W&W|AFCO Steel, beginning April 28, 2017 (the date on which Alleghany Capital acquired approximately
80 percent of the equity thereof), and a 45 percent equity interest in Wilbert, beginning August 1, 2017 (the date on which Alleghany Capital acquired a 45 percent equity interest therein).
Non-industrial
operations are conducted through IPS and Jazwares. On August 1, 2017, Alleghany Capital acquired a 45 percent equity interest in Wilbert.
On February 7, 2018, W&W|AFCO Steel acquired the outstanding equity of Hirschfeld, a fabricator of steel bridges and structural steel
for stadiums, airports and other large commercial and industrial projects, for $111.3 million, consisting of $96.6 million in cash and $14.7 million of incremental debt. The acquisition-date consideration transferred and purchase
price allocation to the acquired assets and assumed liabilities of Hirschfeld were based on estimated fair values that have not been finalized. As a result, the fair value recorded for these items is a provisional estimate and may be subject to
adjustment. Once completed, any adjustment resulting from the valuations may impact the individual amounts recorded for acquired assets and assumed liabilities, as well as the residual goodwill. The acquisition accounting for Hirschfeld is expected
to be finalized later in 2018.
Corporate activities are not classified as a segment. The primary components of corporate activities are
Alleghany Properties, SORC and activities at the Alleghany parent company.
In addition, corporate activities include interest expense
associated with the senior notes issued by Alleghany, whereas interest expense associated with senior notes issued by TransRe is included in Total Segments and interest expense associated with other debt is included in Alleghany Capital.
Information related to the senior notes and other debt can be found in Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2017
Form 10-K.
(b) Results
The following tables present the results for Alleghanys three reportable segments and for corporate activities for the three and six
months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2018
|
|
Property
|
|
Casualty
& Other
(1)
|
|
Total
|
|
RSUI
|
|
Cap
Specialty
|
|
Total
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(2)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
345.1
|
|
|
$
|
726.6
|
|
|
$
|
1,071.7
|
|
|
$
|
318.8
|
|
|
$
|
88.7
|
|
|
$
|
407.5
|
|
|
$
|
1,479.2
|
|
|
$
|
-
|
|
|
$
|
1,479.2
|
|
|
$
|
(6.5
|
)
|
|
$
|
1,472.7
|
|
Net premiums written
|
|
|
275.9
|
|
|
|
700.7
|
|
|
|
976.6
|
|
|
|
216.9
|
|
|
|
82.3
|
|
|
|
299.2
|
|
|
|
1,275.8
|
|
|
|
-
|
|
|
|
1,275.8
|
|
|
|
-
|
|
|
|
1,275.8
|
|
Net premiums earned
|
|
|
292.1
|
|
|
|
689.2
|
|
|
|
981.3
|
|
|
|
184.7
|
|
|
|
71.0
|
|
|
|
255.7
|
|
|
|
1,237.0
|
|
|
|
-
|
|
|
|
1,237.0
|
|
|
|
-
|
|
|
|
1,237.0
|
|
Net loss and LAE
|
|
|
153.5
|
|
|
|
440.0
|
|
|
|
593.5
|
|
|
|
105.7
|
|
|
|
39.0
|
|
|
|
144.7
|
|
|
|
738.2
|
|
|
|
-
|
|
|
|
738.2
|
|
|
|
-
|
|
|
|
738.2
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
94.8
|
|
|
|
223.2
|
|
|
|
318.0
|
|
|
|
53.7
|
|
|
|
30.4
|
|
|
|
84.1
|
|
|
|
402.1
|
|
|
|
-
|
|
|
|
402.1
|
|
|
|
-
|
|
|
|
402.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(3)
|
|
$
|
43.8
|
|
|
$
|
26.0
|
|
|
$
|
69.8
|
|
|
$
|
25.3
|
|
|
$
|
1.6
|
|
|
$
|
26.9
|
|
|
|
96.7
|
|
|
|
-
|
|
|
|
96.7
|
|
|
|
-
|
|
|
|
96.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
121.1
|
|
|
|
1.2
|
|
|
|
122.3
|
|
|
|
4.0
|
|
|
|
126.3
|
|
Change in the fair value of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146.8
|
|
|
|
-
|
|
|
|
146.8
|
|
|
|
38.4
|
|
|
|
185.2
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
|
|
(0.1
|
)
|
|
|
6.7
|
|
|
|
(0.2
|
)
|
|
|
6.5
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
329.0
|
|
|
|
333.7
|
|
|
|
9.0
|
|
|
|
342.7
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.9
|
|
|
|
314.5
|
|
|
|
334.4
|
|
|
|
8.8
|
|
|
|
343.2
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
13.3
|
|
|
|
14.1
|
|
Amortization of intangible assets
|
|
|
|
0.2
|
|
|
|
5.8
|
|
|
|
6.0
|
|
|
|
-
|
|
|
|
6.0
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
2.3
|
|
|
|
9.2
|
|
|
|
13.1
|
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
$
|
348.3
|
|
|
$
|
7.5
|
|
|
$
|
355.8
|
|
|
$
|
16.0
|
|
|
$
|
371.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2017
|
|
Property
|
|
Casualty
& Other
(1)
|
|
Total
|
|
RSUI
|
|
Cap
Specialty
|
|
|
Pacific
Comp
|
|
Total
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(2)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
369.1
|
|
|
$
|
676.3
|
|
|
$
|
1,045.4
|
|
|
$
|
295.1
|
|
|
$
|
73.3
|
|
|
$
|
41.9
|
|
|
$
|
410.3
|
|
|
$
|
1,455.7
|
|
|
$
|
-
|
|
|
$
|
1,455.7
|
|
|
$
|
(5.7
|
)
|
|
$
|
1,450.0
|
|
Net premiums written
|
|
|
317.2
|
|
|
|
661.6
|
|
|
|
978.8
|
|
|
|
204.6
|
|
|
|
68.4
|
|
|
|
41.3
|
|
|
|
314.3
|
|
|
|
1,293.1
|
|
|
|
-
|
|
|
|
1,293.1
|
|
|
|
-
|
|
|
|
1,293.1
|
|
Net premiums earned
|
|
|
270.5
|
|
|
|
686.9
|
|
|
|
957.4
|
|
|
|
178.5
|
|
|
|
64.1
|
|
|
|
43.9
|
|
|
|
286.5
|
|
|
|
1,243.9
|
|
|
|
-
|
|
|
|
1,243.9
|
|
|
|
-
|
|
|
|
1,243.9
|
|
Net loss and LAE
|
|
|
122.9
|
|
|
|
450.1
|
|
|
|
573.0
|
|
|
|
93.8
|
|
|
|
35.6
|
|
|
|
32.5
|
|
|
|
161.9
|
|
|
|
734.9
|
|
|
|
-
|
|
|
|
734.9
|
|
|
|
-
|
|
|
|
734.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
87.9
|
|
|
|
234.3
|
|
|
|
322.2
|
|
|
|
53.0
|
|
|
|
27.2
|
|
|
|
11.3
|
|
|
|
91.5
|
|
|
|
413.7
|
|
|
|
-
|
|
|
|
413.7
|
|
|
|
-
|
|
|
|
413.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(3)
|
|
$
|
59.7
|
|
|
$
|
2.5
|
|
|
$
|
62.2
|
|
|
$
|
31.7
|
|
|
$
|
1.3
|
|
|
$
|
0.1
|
|
|
$
|
33.1
|
|
|
|
95.3
|
|
|
|
-
|
|
|
|
95.3
|
|
|
|
-
|
|
|
|
95.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
98.0
|
|
|
|
0.2
|
|
|
|
98.2
|
|
|
|
3.5
|
|
|
|
101.7
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
9.2
|
|
|
|
0.2
|
|
|
|
9.4
|
|
|
|
(0.1
|
)
|
|
|
9.3
|
|
Other than temporary impairment losses
|
|
|
|
(3.8
|
)
|
|
|
-
|
|
|
|
(3.8
|
)
|
|
|
-
|
|
|
|
(3.8
|
)
|
Noninsurance revenue
|
|
|
|
3.3
|
|
|
|
192.8
|
|
|
|
196.1
|
|
|
|
6.7
|
|
|
|
202.8
|
|
Other operating expenses
|
|
|
|
25.9
|
|
|
|
189.4
|
|
|
|
215.3
|
|
|
|
9.9
|
|
|
|
225.2
|
|
Corporate administration
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
13.6
|
|
|
|
14.4
|
|
Amortization of intangible assets
|
|
|
|
(0.4
|
)
|
|
|
5.0
|
|
|
|
4.6
|
|
|
|
-
|
|
|
|
4.6
|
|
Interest expense
|
|
|
|
6.8
|
|
|
|
1.0
|
|
|
|
7.8
|
|
|
|
13.2
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
168.9
|
|
|
$
|
(2.2
|
)
|
|
$
|
166.7
|
|
|
$
|
(26.6
|
)
|
|
$
|
140.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2018
|
|
Property
|
|
Casualty
& Other
(1)
|
|
Total
|
|
RSUI
|
|
Cap
Specialty
|
|
Total
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(2)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
742.3
|
|
|
$
|
1,445.0
|
|
|
$
|
2,187.3
|
|
|
$
|
593.4
|
|
|
$
|
163.2
|
|
|
$
|
756.6
|
|
|
$
|
2,943.9
|
|
|
$
|
-
|
|
|
$
|
2,943.9
|
|
|
$
|
(12.4
|
)
|
|
$
|
2,931.5
|
|
Net premiums written
|
|
|
581.0
|
|
|
|
1,392.7
|
|
|
|
1,973.7
|
|
|
|
403.8
|
|
|
|
151.7
|
|
|
|
555.5
|
|
|
|
2,529.2
|
|
|
|
-
|
|
|
|
2,529.2
|
|
|
|
-
|
|
|
|
2,529.2
|
|
Net premiums earned
|
|
|
567.2
|
|
|
|
1,374.3
|
|
|
|
1,941.5
|
|
|
|
365.6
|
|
|
|
137.7
|
|
|
|
503.3
|
|
|
|
2,444.8
|
|
|
|
-
|
|
|
|
2,444.8
|
|
|
|
-
|
|
|
|
2,444.8
|
|
Net loss and LAE
|
|
|
250.1
|
|
|
|
882.8
|
|
|
|
1,132.9
|
|
|
|
202.6
|
|
|
|
73.3
|
|
|
|
275.9
|
|
|
|
1,408.8
|
|
|
|
-
|
|
|
|
1,408.8
|
|
|
|
-
|
|
|
|
1,408.8
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
187.9
|
|
|
|
452.1
|
|
|
|
640.0
|
|
|
|
107.2
|
|
|
|
61.2
|
|
|
|
168.4
|
|
|
|
808.4
|
|
|
|
-
|
|
|
|
808.4
|
|
|
|
-
|
|
|
|
808.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(3)
|
|
$
|
129.2
|
|
|
$
|
39.4
|
|
|
$
|
168.6
|
|
|
$
|
55.8
|
|
|
$
|
3.2
|
|
|
$
|
59.0
|
|
|
|
227.6
|
|
|
|
-
|
|
|
|
227.6
|
|
|
|
-
|
|
|
|
227.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
239.4
|
|
|
|
3.1
|
|
|
|
242.5
|
|
|
|
7.9
|
|
|
|
250.4
|
|
Change in the fair value of equity securities
|
|
|
|
132.7
|
|
|
|
-
|
|
|
|
132.7
|
|
|
|
9.9
|
|
|
|
142.6
|
|
Net realized capital gains
|
|
|
|
50.7
|
|
|
|
0.5
|
|
|
|
51.2
|
|
|
|
(0.2
|
)
|
|
|
51.0
|
|
Other than temporary impairment losses
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
Noninsurance revenue
|
|
|
|
10.4
|
|
|
|
571.7
|
|
|
|
582.1
|
|
|
|
12.3
|
|
|
|
594.4
|
|
Other operating expenses
|
|
|
|
37.0
|
|
|
|
554.4
|
|
|
|
591.4
|
|
|
|
16.7
|
|
|
|
608.1
|
|
Corporate administration
|
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
21.4
|
|
|
|
21.9
|
|
Amortization of intangible assets
|
|
|
|
-
|
|
|
|
11.2
|
|
|
|
11.2
|
|
|
|
-
|
|
|
|
11.2
|
|
Interest expense
|
|
|
|
13.6
|
|
|
|
3.6
|
|
|
|
17.2
|
|
|
|
26.6
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
609.2
|
|
|
$
|
6.1
|
|
|
$
|
615.3
|
|
|
$
|
(34.8
|
)
|
|
$
|
580.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
Property
|
|
Casualty
& Other
(1)
|
|
Total
|
|
RSUI
|
|
Cap
Specialty
|
|
Pacific
Comp
|
|
Total
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(2)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
744.5
|
|
|
$
|
1,356.6
|
|
|
$
|
2,101.1
|
|
|
$
|
559.6
|
|
|
$
|
138.8
|
|
|
$
|
82.6
|
|
|
$
|
781.0
|
|
|
$
|
2,882.1
|
|
|
$
|
-
|
|
|
$
|
2,882.1
|
|
|
$
|
(11.2
|
)
|
|
$
|
2,870.9
|
|
Net premiums written
|
|
|
602.4
|
|
|
|
1,325.8
|
|
|
|
1,928.2
|
|
|
|
387.2
|
|
|
|
129.4
|
|
|
|
81.4
|
|
|
|
598.0
|
|
|
|
2,526.2
|
|
|
|
-
|
|
|
|
2,526.2
|
|
|
|
-
|
|
|
|
2,526.2
|
|
Net premiums earned
|
|
|
557.3
|
|
|
|
1,326.2
|
|
|
|
1,883.5
|
|
|
|
361.2
|
|
|
|
126.2
|
|
|
|
82.2
|
|
|
|
569.6
|
|
|
|
2,453.1
|
|
|
|
-
|
|
|
|
2,453.1
|
|
|
|
-
|
|
|
|
2,453.1
|
|
Net loss and LAE
|
|
|
244.7
|
|
|
|
885.4
|
|
|
|
1,130.1
|
|
|
|
174.4
|
|
|
|
68.7
|
|
|
|
61.0
|
|
|
|
304.1
|
|
|
|
1,434.2
|
|
|
|
-
|
|
|
|
1,434.2
|
|
|
|
-
|
|
|
|
1,434.2
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
178.7
|
|
|
|
459.0
|
|
|
|
637.7
|
|
|
|
107.9
|
|
|
|
54.9
|
|
|
|
21.7
|
|
|
|
184.5
|
|
|
|
822.2
|
|
|
|
-
|
|
|
|
822.2
|
|
|
|
-
|
|
|
|
822.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(3)
|
|
$
|
133.9
|
|
|
$
|
(18.2
|
)
|
|
$
|
115.7
|
|
|
$
|
78.9
|
|
|
$
|
2.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
81.0
|
|
|
|
196.7
|
|
|
|
-
|
|
|
|
196.7
|
|
|
|
-
|
|
|
|
196.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
210.3
|
|
|
|
0.5
|
|
|
|
210.8
|
|
|
|
6.4
|
|
|
|
217.2
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
69.4
|
|
|
|
0.1
|
|
|
|
69.5
|
|
|
|
(0.6
|
)
|
|
|
68.9
|
|
Other than temporary impairment losses
|
|
|
|
(7.0
|
)
|
|
|
-
|
|
|
|
(7.0
|
)
|
|
|
-
|
|
|
|
(7.0
|
)
|
Noninsurance revenue
|
|
|
|
5.8
|
|
|
|
337.6
|
|
|
|
343.4
|
|
|
|
10.7
|
|
|
|
354.1
|
|
Other operating expenses
|
|
|
|
49.1
|
|
|
|
331.0
|
|
|
|
380.1
|
|
|
|
20.2
|
|
|
|
400.3
|
|
Corporate administration
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
1.6
|
|
|
|
29.7
|
|
|
|
31.3
|
|
Amortization of intangible assets
|
|
|
|
(0.9
|
)
|
|
|
9.3
|
|
|
|
8.4
|
|
|
|
-
|
|
|
|
8.4
|
|
Interest expense
|
|
|
|
13.6
|
|
|
|
1.8
|
|
|
|
15.4
|
|
|
|
26.5
|
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
411.8
|
|
|
$
|
(3.9
|
)
|
|
$
|
407.9
|
|
|
$
|
(59.9
|
)
|
|
$
|
348.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Includes elimination of minor reinsurance activity between segments.
|
(3)
|
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,
change in the fair value of equity securities, net realized capital gains, OTTI losses,
|
23
|
noninsurance revenue, other operating expenses, corporate administration, amortization of intangible assets or interest expense. Underwriting profit does not replace earnings before income taxes determined in accordance
with GAAP as a measure of profitability. Rather, Alleghany believes that underwriting profit enhances the understanding of its reinsurance and insurance segments operating results by highlighting net earnings attributable to their underwriting
performance. Earnings before income taxes (a GAAP measure) may show a profit despite an underlying underwriting loss. Where underwriting losses persist over extended periods, a reinsurance or an insurance companys ability to continue as an
ongoing concern may be at risk. Therefore, Alleghany views underwriting profit as an important measure in the overall evaluation of performance.
|
(c) Identifiable Assets and Equity
The following table presents identifiable assets, the portion of identifiable assets related to cash and invested assets, and equity
attributable to Alleghany, for Alleghanys three reportable segments and for corporate activities as of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
Assets
|
|
Invested Assets
and Cash
|
|
Equity
Attributable to
Alleghany
|
|
|
($ in millions)
|
Reinsurance segment
|
|
$
|
16,356.9
|
|
|
$
|
13,387.8
|
|
|
$
|
5,208.5
|
|
Insurance segment
|
|
|
6,837.9
|
|
|
|
5,263.3
|
|
|
|
2,891.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
23,194.8
|
|
|
|
18,651.1
|
|
|
|
8,100.0
|
|
Alleghany Capital
|
|
|
1,328.3
|
|
|
|
130.5
|
|
|
|
777.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
24,523.1
|
|
|
|
18,781.6
|
|
|
|
8,877.2
|
|
Corporate activities
|
|
|
562.8
|
|
|
|
485.6
|
|
|
|
(472.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
25,085.9
|
|
|
$
|
19,267.2
|
|
|
$
|
8,404.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Alleghany Capital is debt associated with its operating subsidiaries, which totaled
$185.4 million as of June 30, 2018. The $185.4 million includes $95.0 million of borrowings by W&W|AFCO Steel under its available credit facility and term loans (including borrowings incurred and assumed from its acquisition
of Hirschfeld), $41.0 million of borrowings by Jazwares under its available credit facility, $19.1 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions and borrowings under its available
credit facility, $15.7 million of borrowings by IPS under its available credit facility, and $14.6 million of term loans at Bourn & Koch related to borrowings to finance an acquisition and borrowings under its available credit
facility. None of these liabilities are guaranteed by Alleghany or Alleghany Capital.
(d) Alleghany Capital Noninsurance Revenue
For Alleghany Capitals industrial and
non-industrial
operations, noninsurance
revenue consists of the sale of manufactured goods and services. The following table presents noninsurance revenue for the Alleghany Capital segment for the three and six months ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Industrial
(1)
|
|
$
|
221.9
|
|
|
$
|
74.5
|
|
|
$
|
367.4
|
|
|
$
|
116.4
|
|
Non-industrial
(2)
|
|
|
107.1
|
|
|
|
118.3
|
|
|
|
204.2
|
|
|
|
221.2
|
|
Corporate & other
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alleghany Capital
|
|
$
|
329.0
|
|
|
$
|
192.8
|
|
|
$
|
571.7
|
|
|
$
|
337.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three and six months ended June 30, 2018, the vast majority of noninsurance revenues were
recognized as goods and services transferred to customers over time. For the three and six months ended June 30, 2017, approximately 66 percent and 57 percent, respectively, of noninsurance revenues were recognized as services were
transferred to customers over time, with the remainder recognized as goods transferred at a point in time. See Note 1(c) of this Form
10-Q
for additional information regarding Alleghanys adoption of new
revenue recognition accounting guidance effective in the first quarter of 2018.
|
(2)
|
For the three and six months ended June 30, 2018, approximately 70 percent of noninsurance revenues
were recognized as services transferred to customers over time, with the remainder recognized as goods transferred at a point in time. For the three and six months ended June 30, 2017, approximately 75 percent and 78 percent,
respectively, of noninsurance revenues were recognized as services were transferred to customers over time, with the remainder recognized as goods were transferred at a point in time. See Note 1(c) of this Form
10-Q
for additional information regarding Alleghanys adoption of new revenue recognition accounting guidance effective in the first quarter of 2018.
|
24
Consolidated Results of Operations
The following table presents our consolidated revenues, costs and expenses and earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
1,237.0
|
|
|
$
|
1,243.9
|
|
|
$
|
2,444.8
|
|
|
$
|
2,453.1
|
|
Net investment income
|
|
|
126.3
|
|
|
|
101.7
|
|
|
|
250.4
|
|
|
|
217.2
|
|
Change in the fair value of equity securities
|
|
|
185.2
|
|
|
|
-
|
|
|
|
142.6
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
6.5
|
|
|
|
9.3
|
|
|
|
51.0
|
|
|
|
68.9
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(3.8
|
)
|
|
|
(0.5
|
)
|
|
|
(7.0
|
)
|
Noninsurance revenue
|
|
|
342.7
|
|
|
|
202.8
|
|
|
|
594.4
|
|
|
|
354.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,897.7
|
|
|
|
1,553.9
|
|
|
|
3,482.7
|
|
|
|
3,086.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenseses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
738.2
|
|
|
|
734.9
|
|
|
|
1,408.8
|
|
|
|
1,434.2
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
402.1
|
|
|
|
413.7
|
|
|
|
808.4
|
|
|
|
822.2
|
|
Other operating expenses
|
|
|
343.2
|
|
|
|
225.2
|
|
|
|
608.1
|
|
|
|
400.3
|
|
Corporate administration
|
|
|
14.1
|
|
|
|
14.4
|
|
|
|
21.9
|
|
|
|
31.3
|
|
Amortization of intangible assets
|
|
|
6.0
|
|
|
|
4.6
|
|
|
|
11.2
|
|
|
|
8.4
|
|
Interest expense
|
|
|
22.3
|
|
|
|
21.0
|
|
|
|
43.8
|
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,525.9
|
|
|
|
1,413.8
|
|
|
|
2,902.2
|
|
|
|
2,738.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
371.8
|
|
|
|
140.1
|
|
|
|
580.5
|
|
|
|
348.0
|
|
Income taxes
|
|
|
73.4
|
|
|
|
37.4
|
|
|
|
110.9
|
|
|
|
96.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
298.4
|
|
|
|
102.7
|
|
|
|
469.6
|
|
|
|
252.0
|
|
Net earnings attributable to noncontrolling interests
|
|
|
3.3
|
|
|
|
0.9
|
|
|
|
2.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Alleghany stockholders
|
|
$
|
295.1
|
|
|
$
|
101.8
|
|
|
$
|
466.7
|
|
|
$
|
251.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alleghanys segments are reported in a manner consistent with the way management evaluates the business.
As such, Alleghany classifies its business into three reportable segments reinsurance, insurance and Alleghany Capital. Alleghany determined that Alleghany Capital qualified as a reportable segment in the first quarter of 2018, reflecting the
increased significance of Alleghany Capitals business to Alleghany and its projected growth. Corporate activities are not classified as a segment.
29
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 six months ended June 30, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
1,071.7
|
|
|
$
|
407.5
|
|
|
$
|
1,479.2
|
|
|
$
|
-
|
|
|
$
|
1,479.2
|
|
|
$
|
(6.5
|
)
|
|
$
|
1,472.7
|
|
Net premiums written
|
|
|
976.6
|
|
|
|
299.2
|
|
|
|
1,275.8
|
|
|
|
-
|
|
|
|
1,275.8
|
|
|
|
-
|
|
|
|
1,275.8
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
981.3
|
|
|
|
255.7
|
|
|
|
1,237.0
|
|
|
|
-
|
|
|
|
1,237.0
|
|
|
|
-
|
|
|
|
1,237.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
644.2
|
|
|
|
131.9
|
|
|
|
776.1
|
|
|
|
-
|
|
|
|
776.1
|
|
|
|
-
|
|
|
|
776.1
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
14.3
|
|
|
|
14.3
|
|
|
|
-
|
|
|
|
14.3
|
|
|
|
-
|
|
|
|
14.3
|
|
Prior years
|
|
|
(50.7
|
)
|
|
|
(1.5
|
)
|
|
|
(52.2
|
)
|
|
|
-
|
|
|
|
(52.2
|
)
|
|
|
-
|
|
|
|
(52.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
593.5
|
|
|
|
144.7
|
|
|
|
738.2
|
|
|
|
-
|
|
|
|
738.2
|
|
|
|
-
|
|
|
|
738.2
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
318.0
|
|
|
|
84.1
|
|
|
|
402.1
|
|
|
|
-
|
|
|
|
402.1
|
|
|
|
-
|
|
|
|
402.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
69.8
|
|
|
$
|
26.9
|
|
|
|
96.7
|
|
|
|
-
|
|
|
|
96.7
|
|
|
|
-
|
|
|
|
96.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
121.1
|
|
|
|
1.2
|
|
|
|
122.3
|
|
|
|
4.0
|
|
|
|
126.3
|
|
Change in the fair value of equity securities
|
|
|
|
146.8
|
|
|
|
-
|
|
|
|
146.8
|
|
|
|
38.4
|
|
|
|
185.2
|
|
Net realized capital gains
|
|
|
|
6.8
|
|
|
|
(0.1
|
)
|
|
|
6.7
|
|
|
|
(0.2
|
)
|
|
|
6.5
|
|
Other than temporary impairment losses
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
|
4.7
|
|
|
|
329.0
|
|
|
|
333.7
|
|
|
|
9.0
|
|
|
|
342.7
|
|
Other operating expenses
|
|
|
|
19.9
|
|
|
|
314.5
|
|
|
|
334.4
|
|
|
|
8.8
|
|
|
|
343.2
|
|
Corporate administration
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
13.3
|
|
|
|
14.1
|
|
Amortization of intangible assets
|
|
|
|
0.2
|
|
|
|
5.8
|
|
|
|
6.0
|
|
|
|
-
|
|
|
|
6.0
|
|
Interest expense
|
|
|
|
6.9
|
|
|
|
2.3
|
|
|
|
9.2
|
|
|
|
13.1
|
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
$
|
348.3
|
|
|
$
|
7.5
|
|
|
$
|
355.8
|
|
|
$
|
16.0
|
|
|
$
|
371.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
65.6
|
%
|
|
|
51.6
|
%
|
|
|
62.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
5.6
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.2
|
%)
|
|
|
(0.6
|
%)
|
|
|
(4.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
60.4
|
%
|
|
|
56.6
|
%
|
|
|
59.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
32.4
|
%
|
|
|
32.9
|
%
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
92.8
|
%
|
|
|
89.5
|
%
|
|
|
92.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
1,045.4
|
|
|
$
|
410.3
|
|
|
$
|
1,455.7
|
|
|
$
|
-
|
|
|
$
|
1,455.7
|
|
|
$
|
(5.7
|
)
|
|
$
|
1,450.0
|
|
Net premiums written
|
|
|
978.8
|
|
|
|
314.3
|
|
|
|
1,293.1
|
|
|
|
-
|
|
|
|
1,293.1
|
|
|
|
-
|
|
|
|
1,293.1
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
957.4
|
|
|
|
286.5
|
|
|
|
1,243.9
|
|
|
|
-
|
|
|
|
1,243.9
|
|
|
|
-
|
|
|
|
1,243.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
625.6
|
|
|
|
161.5
|
|
|
|
787.1
|
|
|
|
-
|
|
|
|
787.1
|
|
|
|
-
|
|
|
|
787.1
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
-
|
|
|
|
11.4
|
|
|
|
-
|
|
|
|
11.4
|
|
Prior years
|
|
|
(52.6
|
)
|
|
|
(11.0
|
)
|
|
|
(63.6
|
)
|
|
|
-
|
|
|
|
(63.6
|
)
|
|
|
-
|
|
|
|
(63.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
573.0
|
|
|
|
161.9
|
|
|
|
734.9
|
|
|
|
-
|
|
|
|
734.9
|
|
|
|
-
|
|
|
|
734.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
322.2
|
|
|
|
91.5
|
|
|
|
413.7
|
|
|
|
-
|
|
|
|
413.7
|
|
|
|
-
|
|
|
|
413.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
62.2
|
|
|
$
|
33.1
|
|
|
|
95.3
|
|
|
|
-
|
|
|
|
95.3
|
|
|
|
-
|
|
|
|
95.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
98.0
|
|
|
|
0.2
|
|
|
|
98.2
|
|
|
|
3.5
|
|
|
|
101.7
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
9.2
|
|
|
|
0.2
|
|
|
|
9.4
|
|
|
|
(0.1
|
)
|
|
|
9.3
|
|
Other than temporary impairment losses
|
|
|
|
(3.8
|
)
|
|
|
-
|
|
|
|
(3.8
|
)
|
|
|
-
|
|
|
|
(3.8
|
)
|
Noninsurance revenue
|
|
|
|
3.3
|
|
|
|
192.8
|
|
|
|
196.1
|
|
|
|
6.7
|
|
|
|
202.8
|
|
Other operating expenses
|
|
|
|
25.9
|
|
|
|
189.4
|
|
|
|
215.3
|
|
|
|
9.9
|
|
|
|
225.2
|
|
Corporate administration
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
13.6
|
|
|
|
14.4
|
|
Amortization of intangible assets
|
|
|
|
(0.4
|
)
|
|
|
5.0
|
|
|
|
4.6
|
|
|
|
-
|
|
|
|
4.6
|
|
Interest expense
|
|
|
|
6.8
|
|
|
|
1.0
|
|
|
|
7.8
|
|
|
|
13.2
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
168.9
|
|
|
$
|
(2.2
|
)
|
|
$
|
166.7
|
|
|
$
|
(26.6
|
)
|
|
$
|
140.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
65.4
|
%
|
|
|
56.3
|
%
|
|
|
63.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
4.0
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.5
|
%)
|
|
|
(3.8
|
%)
|
|
|
(5.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
59.9
|
%
|
|
|
56.5
|
%
|
|
|
59.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.6
|
%
|
|
|
31.9
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
93.5
|
%
|
|
|
88.4
|
%
|
|
|
92.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
2,187.3
|
|
|
$
|
756.6
|
|
|
$
|
2,943.9
|
|
|
$
|
-
|
|
|
$
|
2,943.9
|
|
|
$
|
(12.4
|
)
|
|
$
|
2,931.5
|
|
Net premiums written
|
|
|
1,973.7
|
|
|
|
555.5
|
|
|
|
2,529.2
|
|
|
|
-
|
|
|
|
2,529.2
|
|
|
|
-
|
|
|
|
2,529.2
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,941.5
|
|
|
|
503.3
|
|
|
|
2,444.8
|
|
|
|
-
|
|
|
|
2,444.8
|
|
|
|
-
|
|
|
|
2,444.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,255.2
|
|
|
|
273.1
|
|
|
|
1,528.3
|
|
|
|
-
|
|
|
|
1,528.3
|
|
|
|
-
|
|
|
|
1,528.3
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
18.4
|
|
|
|
18.4
|
|
|
|
-
|
|
|
|
18.4
|
|
|
|
-
|
|
|
|
18.4
|
|
Prior years
|
|
|
(122.3
|
)
|
|
|
(15.6
|
)
|
|
|
(137.9
|
)
|
|
|
-
|
|
|
|
(137.9
|
)
|
|
|
-
|
|
|
|
(137.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,132.9
|
|
|
|
275.9
|
|
|
|
1,408.8
|
|
|
|
-
|
|
|
|
1,408.8
|
|
|
|
-
|
|
|
|
1,408.8
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
640.0
|
|
|
|
168.4
|
|
|
|
808.4
|
|
|
|
-
|
|
|
|
808.4
|
|
|
|
-
|
|
|
|
808.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
168.6
|
|
|
$
|
59.0
|
|
|
|
227.6
|
|
|
|
-
|
|
|
|
227.6
|
|
|
|
-
|
|
|
|
227.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
239.4
|
|
|
|
3.1
|
|
|
|
242.5
|
|
|
|
7.9
|
|
|
|
250.4
|
|
Change in the fair value of equity securities
|
|
|
|
132.7
|
|
|
|
-
|
|
|
|
132.7
|
|
|
|
9.9
|
|
|
|
142.6
|
|
Net realized capital gains
|
|
|
|
50.7
|
|
|
|
0.5
|
|
|
|
51.2
|
|
|
|
(0.2
|
)
|
|
|
51.0
|
|
Other than temporary impairment losses
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
Noninsurance revenue
|
|
|
|
10.4
|
|
|
|
571.7
|
|
|
|
582.1
|
|
|
|
12.3
|
|
|
|
594.4
|
|
Other operating expenses
|
|
|
|
37.0
|
|
|
|
554.4
|
|
|
|
591.4
|
|
|
|
16.7
|
|
|
|
608.1
|
|
Corporate administration
|
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
21.4
|
|
|
|
21.9
|
|
Amortization of intangible assets
|
|
|
|
-
|
|
|
|
11.2
|
|
|
|
11.2
|
|
|
|
-
|
|
|
|
11.2
|
|
Interest expense
|
|
|
|
13.6
|
|
|
|
3.6
|
|
|
|
17.2
|
|
|
|
26.6
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
609.2
|
|
|
$
|
6.1
|
|
|
$
|
615.3
|
|
|
$
|
(34.8
|
)
|
|
$
|
580.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
64.7
|
%
|
|
|
54.3
|
%
|
|
|
62.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
3.6
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(6.3
|
%)
|
|
|
(3.1
|
%)
|
|
|
(5.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
58.4
|
%
|
|
|
54.8
|
%
|
|
|
57.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.0
|
%
|
|
|
33.5
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
91.4
|
%
|
|
|
88.3
|
%
|
|
|
90.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
2,101.1
|
|
|
$
|
781.0
|
|
|
$
|
2,882.1
|
|
|
$
|
-
|
|
|
$
|
2,882.1
|
|
|
$
|
(11.2
|
)
|
|
$
|
2,870.9
|
|
Net premiums written
|
|
|
1,928.2
|
|
|
|
598.0
|
|
|
|
2,526.2
|
|
|
|
-
|
|
|
|
2,526.2
|
|
|
|
-
|
|
|
|
2,526.2
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,883.5
|
|
|
|
569.6
|
|
|
|
2,453.1
|
|
|
|
-
|
|
|
|
2,453.1
|
|
|
|
-
|
|
|
|
2,453.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,221.0
|
|
|
|
309.2
|
|
|
|
1,530.2
|
|
|
|
-
|
|
|
|
1,530.2
|
|
|
|
-
|
|
|
|
1,530.2
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
15.4
|
|
|
|
15.4
|
|
|
|
-
|
|
|
|
15.4
|
|
|
|
-
|
|
|
|
15.4
|
|
Prior years
|
|
|
(90.9
|
)
|
|
|
(20.5
|
)
|
|
|
(111.4
|
)
|
|
|
-
|
|
|
|
(111.4
|
)
|
|
|
-
|
|
|
|
(111.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,130.1
|
|
|
|
304.1
|
|
|
|
1,434.2
|
|
|
|
-
|
|
|
|
1,434.2
|
|
|
|
-
|
|
|
|
1,434.2
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
637.7
|
|
|
|
184.5
|
|
|
|
822.2
|
|
|
|
-
|
|
|
|
822.2
|
|
|
|
-
|
|
|
|
822.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
115.7
|
|
|
$
|
81.0
|
|
|
|
196.7
|
|
|
|
-
|
|
|
|
196.7
|
|
|
|
-
|
|
|
|
196.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
210.3
|
|
|
|
0.5
|
|
|
|
210.8
|
|
|
|
6.4
|
|
|
|
217.2
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
69.4
|
|
|
|
0.1
|
|
|
|
69.5
|
|
|
|
(0.6
|
)
|
|
|
68.9
|
|
Other than temporary impairment losses
|
|
|
|
(7.0
|
)
|
|
|
-
|
|
|
|
(7.0
|
)
|
|
|
-
|
|
|
|
(7.0
|
)
|
Noninsurance revenue
|
|
|
|
5.8
|
|
|
|
337.6
|
|
|
|
343.4
|
|
|
|
10.7
|
|
|
|
354.1
|
|
Other operating expenses
|
|
|
|
49.1
|
|
|
|
331.0
|
|
|
|
380.1
|
|
|
|
20.2
|
|
|
|
400.3
|
|
Corporate administration
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
1.6
|
|
|
|
29.7
|
|
|
|
31.3
|
|
Amortization of intangible assets
|
|
|
|
(0.9
|
)
|
|
|
9.3
|
|
|
|
8.4
|
|
|
|
-
|
|
|
|
8.4
|
|
Interest expense
|
|
|
|
13.6
|
|
|
|
1.8
|
|
|
|
15.4
|
|
|
|
26.5
|
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
411.8
|
|
|
$
|
(3.9
|
)
|
|
$
|
407.9
|
|
|
$
|
(59.9
|
)
|
|
$
|
348.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
64.8
|
%
|
|
|
54.3
|
%
|
|
|
62.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
2.7
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(4.8
|
%)
|
|
|
(3.6
|
%)
|
|
|
(4.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
60.0
|
%
|
|
|
53.4
|
%
|
|
|
58.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.9
|
%
|
|
|
32.4
|
%
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
93.9
|
%
|
|
|
85.8
|
%
|
|
|
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,
change in the fair value of equity securities, net realized capital gains, OTTI losses, noninsurance 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.
|
33
Comparison of the Three and Six Months Ended June 30, 2018 and 2017
Premiums.
The following table presents our consolidated premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,472.7
|
|
|
$
|
1,450.0
|
|
|
|
1.6
|
%
|
|
$
|
2,931.5
|
|
|
$
|
2,870.9
|
|
|
|
2.1
|
%
|
Net premiums written
|
|
|
1,275.8
|
|
|
|
1,293.1
|
|
|
|
(1.3
|
%)
|
|
|
2,529.2
|
|
|
|
2,526.2
|
|
|
|
0.1
|
%
|
Net premiums earned
|
|
|
1,237.0
|
|
|
|
1,243.9
|
|
|
|
(0.6
|
%)
|
|
|
2,444.8
|
|
|
|
2,453.1
|
|
|
|
(0.3
|
%)
|
The increases in gross premiums written in the second quarter and first six months of 2018 from the
corresponding 2017 periods are primarily attributable to increases at our reinsurance segment, as well as growth at CapSpecialty and, to a lesser extent, RSUI, partially offset by the impact of the sale of PacificComp. The increases at our
reinsurance segment primarily reflect increases in casualty premiums written by the European and Asia-Pacific operations and the impact of changes in foreign currency exchange rates. In addition, gross premiums written related to a certain large
whole account quota share treaty, or the Quota Share Treaty, increased to $187.7 million in the second quarter of 2018 from $183.9 million in the second quarter of 2017, and decreased to $371.7 million in the first six
months of 2018 from $374.1 million in the first six months of 2017.
The decrease in net premiums written in the second quarter of
2018 from the second quarter of 2017 primarily reflects higher ceded premiums written due to an increase in retrocessional coverage purchased in 2018 at our reinsurance segment, partially offset by increases in gross premiums written, as discussed
above.
The decreases in net premiums earned in the second quarter and first six months of 2018 from the corresponding 2017 periods are
primarily attributable to decreases at our insurance segment due to the impact of sale of PacificComp, partially offset by increases at our reinsurance segment due mainly to increases in gross premiums written in recent quarters, partially offset by
higher ceded premiums earned due to an increase in retrocessional coverage purchased in 2018.
A detailed comparison of premiums by segment
for the second quarter and first six months of 2018 and 2017 is contained in the following pages.
Net loss and LAE.
The
following table presents our consolidated net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
776.1
|
|
|
$
|
787.1
|
|
|
|
(1.4%
|
)
|
|
$
|
1,528.3
|
|
|
$
|
1,530.2
|
|
|
|
(0.1%
|
)
|
Current year catastrophe losses
|
|
|
14.3
|
|
|
|
11.4
|
|
|
|
25.4%
|
|
|
|
18.4
|
|
|
|
15.4
|
|
|
|
19.5%
|
|
Prior years
|
|
|
(52.2)
|
|
|
|
(63.6)
|
|
|
|
(17.9%
|
)
|
|
|
(137.9)
|
|
|
|
(111.4)
|
|
|
|
23.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
738.2
|
|
|
$
|
734.9
|
|
|
|
0.4%
|
|
|
$
|
1,408.8
|
|
|
$
|
1,434.2
|
|
|
|
(1.8%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
62.7%
|
|
|
|
63.3%
|
|
|
|
|
|
|
|
62.5%
|
|
|
|
62.4%
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
1.2%
|
|
|
|
0.9%
|
|
|
|
|
|
|
|
0.8%
|
|
|
|
0.6%
|
|
|
|
|
|
Prior years
|
|
|
(4.2%
|
)
|
|
|
(5.1%
|
)
|
|
|
|
|
|
|
(5.7%
|
)
|
|
|
(4.5%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
59.7%
|
|
|
|
59.1%
|
|
|
|
|
|
|
|
57.6%
|
|
|
|
58.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net loss and LAE in the second quarter of 2018 from the second quarter of 2017 primarily
reflects an increase at our reinsurance segment, due to the impact of an increase in net premiums earned, partially offset by a decrease at our insurance segment. The decrease at our insurance segment is due to the impact of the sale of PacificComp,
partially offset by a decrease in favorable prior accident year loss reserve development and higher catastrophe losses incurred at RSUI.
The decrease in net loss and LAE in the first six months of 2018 from the first six months of 2017 primarily reflects a decrease at our
insurance segment, partially offset by a slight increase at our reinsurance segment. The decrease in our insurance segment primarily reflects the impact of the sale of PacificComp, partially offset by a decrease in favorable prior accident year loss
reserve development and higher catastrophe losses incurred at RSUI. The slight increase at our reinsurance segment primarily reflects the
34
impact of an increase in net premiums earned, partially offset by an increase in favorable prior accident year loss reserve development.
Net loss and LAE in the first six months of 2017 for the reinsurance
segment includes $24.4 million of unfavorable prior accident year loss reserve development related to the U.K. Ministry of Justices significant reduction in the discount rate, referred to as the Ogden rate, used to calculate
lump-sum
bodily injury payouts in personal injury insurance claims in the U.K.
A detailed comparison of net loss and LAE by segment for the second quarter and first six months of 2018 and 2017 is contained in the following
pages.
Commissions, brokerage and other underwriting
expenses
.
The following table presents our consolidated commissions, brokerage and other underwriting expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
402.1
|
|
|
$
|
413.7
|
|
|
|
(2.8%
|
)
|
|
$
|
808.4
|
|
|
$
|
822.2
|
|
|
(1.7%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.5%
|
|
|
|
33.3%
|
|
|
|
|
|
|
|
33.1%
|
|
|
|
33.5%
|
|
|
|
The decreases in commissions, brokerage and other underwriting expenses in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflect decreases at our insurance segment due to the impact of the sale of PacificComp, partially offset by increases at CapSpecialty due primarily to the impact of higher net premiums earned.
A detailed comparison of commissions, brokerage and other underwriting expenses by segment for the three and six months ended June 30,
2018 and 2017 is contained in the following pages.
Underwriting profit.
The following table presents our consolidated underwriting profit:
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Underwriting profit
|
|
$
|
96.7
|
|
|
$
|
95.3
|
|
|
|
1.5%
|
|
|
$
|
227.6
|
|
|
$
|
196.7
|
|
|
15.7%
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
92.2%
|
|
|
|
92.4%
|
|
|
|
|
|
|
|
90.7%
|
|
|
|
92.0%
|
|
|
|
The increases in underwriting profit in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily
reflect increases at our reinsurance segment, partially offset by decreases at our insurance segment. The increases at our reinsurance segment primarily reflect the impact of increases in net premiums earned and, for the first six months of 2018, an
increase in favorable prior accident year loss reserve development, all as discussed above. The decreases at our insurance segment primarily reflect decreases in favorable prior accident year loss reserve development and higher catastrophe losses
incurred at RSUI, all as discussed above.
A detailed comparison of underwriting profit by segment for the three and six months ended June 30, 2018 and 2017 is contained in the
following pages.
Investment results.
The following table presents our consolidated investment results:
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Net investment income
|
|
$
|
126.3
|
|
|
$
|
101.7
|
|
|
|
24.2%
|
|
|
$
|
250.4
|
|
|
$
|
217.2
|
|
|
15.3%
|
Change in the fair value of equity securities
|
|
|
185.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
142.6
|
|
|
|
-
|
|
|
-
|
Net realized capital gains
|
|
|
6.5
|
|
|
|
9.3
|
|
|
|
(30.1%
|
)
|
|
|
51.0
|
|
|
|
68.9
|
|
|
(26.0%)
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(3.8)
|
|
|
|
(100.0%
|
)
|
|
|
(0.5)
|
|
|
|
(7.0)
|
|
|
(92.9%)
|
The increases in net investment income in
the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect increases in dividend income resulting from an increase in the size of the equity securities portfolio and higher interest income. The increase in
interest income primarily reflects higher yields on short-term investments and floating-rate debt securities and higher income from funds withheld, partially offset by the impact of the sale of PacificComp.
35
In addition, net investment income in the second quarter and first six months of 2018 reflects
higher partnership income at AIHL. AIHLs partnership income in the first six months of 2018 includes a $12.9 million increase in the carrying value of AIHLs limited partnership interests in certain subsidiaries of Ares Management
LLC, or Ares, as of March 15, 2018. See Note 3(h) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional information. Partnership income in the second quarter and first six months of 2017 includes a $12.6 million charge on our equity investment in Ares, reflecting 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.
In the first quarter of 2018, we adopted new investment accounting guidance which required changes in the fair value of equity securities,
except those accounted for under the equity method, to be recognized in net earnings. In earlier periods, equity securities were considered to be
available-for-sale,
or
AFS, and were included in the analysis of OTTI. See Note 1(c) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional information regarding our adoption of this new guidance.
The changes in the
fair value of equity securities in the second quarter and first six months of 2018 reflect appreciation in the value of our equity securities portfolio, primarily from our holdings in the technology, industrial and energy sectors.
The decreases in net realized capital gains in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily
reflect a lack of net realized capital gains from equity securities in the 2018 periods resulting from our adoption of the new investment accounting guidance discussed above. The decrease for the first six months of 2018 was partially offset by a
$45.7 million gain on AIHLs conversion of most of its limited partnership interests in certain subsidiaries of Ares into Ares common units. See Note 3(h) to Notes to Unaudited Consolidated Financial Statements set forth in Part I,
Item 1, Financial Statements of this Form
10-Q
for additional information on AIHLs conversion.
The absence of OTTI losses in the second quarter of 2018, compared with OTTI losses in the second quarter of 2017, and the decrease in OTTI
losses in the first six months of 2018 from the first six months of 2017, primarily reflect an absence of impairments from equity securities in the 2018 periods resulting from our adoption of the new investment accounting guidance, as discussed
above.
A detailed comparison of investment results for the three and six months ended June 30, 2018 and 2017 is contained in the
following pages.
Noninsurance revenue and expenses.
The following table presents our consolidated noninsurance revenue and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Noninsurance revenue
|
|
$
|
342.7
|
|
|
$
|
202.8
|
|
|
|
69.0%
|
|
|
$
|
594.4
|
|
|
$
|
354.1
|
|
|
|
67.9%
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
343.2
|
|
|
|
225.2
|
|
|
|
52.4%
|
|
|
|
608.1
|
|
|
|
400.3
|
|
|
|
51.9%
|
|
Corporation administration
|
|
|
14.1
|
|
|
|
14.4
|
|
|
|
(2.1%
|
)
|
|
|
21.9
|
|
|
|
31.3
|
|
|
|
(30.0%
|
)
|
Amortization of intangible assets
|
|
|
6.0
|
|
|
|
4.6
|
|
|
|
30.4%
|
|
|
|
11.2
|
|
|
|
8.4
|
|
|
|
33.3%
|
|
Interest expense
|
|
|
22.3
|
|
|
|
21.0
|
|
|
|
6.2%
|
|
|
|
43.8
|
|
|
|
41.9
|
|
|
|
4.5%
|
|
Noninsurance revenue and Other operating expenses.
Noninsurance revenue and other operating expenses
primarily include sales and expenses associated with our Alleghany Capital segment. Other operating expenses also include the long-term incentive compensation of our reinsurance and insurance segments, which totaled $18.1 million and
$23.6 million in the second quarter of 2018 and 2017, respectively, and $32.4 million and $45.0 million in the first six months of 2018 and 2017, respectively. The decreases in long-term incentive compensation at our reinsurance and
insurance segments in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the impact of a decline in unrealized appreciation on our debt securities portfolio in the first six months of 2018 on
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. On February 7, 2018, W&W|AFCO Steel acquired the outstanding equity of Hirschfeld Holdings, LP, or Hirschfeld, a fabricator of steel bridges and structural steel for stadiums,
airports and other large commercial and industrial projects, for $111.3 million.
The increases in noninsurance revenue and other
operating expenses in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the acquisitions of W&W|AFCO Steel and Hirschfeld.
Corporate administration.
The decrease in corporate administration expense in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflects a decrease in Alleghanys long-term incentive compensation expense accruals due to the impact of a decline in unrealized appreciation on our debt securities portfolio in the first six months of
2018.
36
Amortization of intangible assets.
The increases in amortization expense in
the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the amortization of net intangible assets related to the acquisition of W&W|AFCO Steel and, to a lesser extent, Hirschfeld.
Interest expense.
The increases in interest expense in the second quarter and first six months of 2018 from the corresponding 2017
periods primarily reflect borrowings at W&W|AFCO Steel and Hirschfeld.
A detailed comparison of noninsurance revenues and expenses for
the three and six months ended June 30, 2018 and 2017 is contained in the following pages.
Income taxes.
The following
table presents our consolidated income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
Percent Change
|
|
|
2018
|
|
|
2017
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
Income taxes
|
|
$
|
73.4
|
|
|
$
|
37.4
|
|
|
|
96.3%
|
|
|
$
|
110.9
|
|
|
$
|
96.0
|
|
|
|
15.5%
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.1%
|
|
|
|
27.6%
|
|
|
|
|
|
The increases in income taxes in the second quarter and first six months of 2018 from the corresponding 2017
periods primarily reflect increases in earnings before income taxes, partially offset by lower effective tax rates. The decrease in the effective tax rate in first six months of 2018 from the first six months of 2017 primarily reflects the decrease
in the U.S. corporate federal income tax rate from 35.0 percent to 21.0 percent due to the Tax Cuts and Jobs Act of 2017, or the Tax Act, partially offset by new limitations on certain deductions as a result of the Tax Act.
Net earnings.
The following table presents our consolidated earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Percent Change
|
|
|
2018
|
|
|
2017
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Earnings before income taxes
|
|
$
|
371.8
|
|
|
$
|
140.1
|
|
|
|
165.4%
|
|
|
$
|
580.5
|
|
|
$
|
348.0
|
|
|
|
66.8%
|
|
Net earnings attributable to Alleghany stockholders
|
|
|
295.1
|
|
|
|
101.8
|
|
|
|
189.9%
|
|
|
|
466.7
|
|
|
|
251.0
|
|
|
|
85.9%
|
|
The increases in earnings before income taxes in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflect appreciation in the value of our equity securities portfolio resulting from our adoption of new investment accounting guidance in 2018 and, to a lesser extent, increases in net investment income, all as
discussed above. In addition, the increase in earnings before income taxes in the first six months of 2018 from the first six months of 2017 also reflects an increase in underwriting profit, partially offset by a decrease in net realized capital
gains, all as discussed above.
The increases in net earnings attributable to Alleghany stockholders in the second quarter and first six
months of 2018 from the corresponding 2017 periods primarily reflect increases in earnings before income taxes and lower effective income tax rates, all as discussed above.
37
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 2017
Form 10-K.
The underwriting results of the reinsurance segment are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
345.1
|
|
|
$
|
726.6
|
|
|
$
|
1,071.7
|
|
Net premiums written
|
|
|
275.9
|
|
|
|
700.7
|
|
|
|
976.6
|
|
|
|
|
|
Net premiums earned
|
|
|
292.1
|
|
|
|
689.2
|
|
|
|
981.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
167.2
|
|
|
|
477.0
|
|
|
|
644.2
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(13.7
|
)
|
|
|
(37.0
|
)
|
|
|
(50.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
153.5
|
|
|
|
440.0
|
|
|
|
593.5
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
94.8
|
|
|
|
223.2
|
|
|
|
318.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
43.8
|
|
|
$
|
26.0
|
|
|
$
|
69.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
57.2
|
%
|
|
|
69.2
|
%
|
|
|
65.6
|
%
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Prior years
|
|
|
(4.7
|
%)
|
|
|
(5.4
|
%)
|
|
|
(5.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
52.5
|
%
|
|
|
63.8
|
%
|
|
|
60.4
|
%
|
Expense ratio
(4)
|
|
|
32.5
|
%
|
|
|
32.4
|
%
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
85.0
|
%
|
|
|
96.2
|
%
|
|
|
92.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
369.1
|
|
|
$
|
676.3
|
|
|
$
|
1,045.4
|
|
Net premiums written
|
|
|
317.2
|
|
|
|
661.6
|
|
|
|
978.8
|
|
|
|
|
|
Net premiums earned
|
|
|
270.5
|
|
|
|
686.9
|
|
|
|
957.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
145.8
|
|
|
|
479.8
|
|
|
|
625.6
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(22.9
|
)
|
|
|
(29.7
|
)
|
|
|
(52.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
122.9
|
|
|
|
450.1
|
|
|
|
573.0
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
87.9
|
|
|
|
234.3
|
|
|
|
322.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
59.7
|
|
|
$
|
2.5
|
|
|
$
|
62.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.9%
|
|
|
|
69.9%
|
|
|
|
65.4
|
%
|
Current year catastrophe losses
|
|
|
- %
|
|
|
|
- %
|
|
|
|
-
|
%
|
Prior years
|
|
|
(8.5%
|
)
|
|
|
(4.3%
|
)
|
|
|
(5.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
45.4%
|
|
|
|
65.6%
|
|
|
|
59.9
|
%
|
Expense ratio
(4)
|
|
|
32.5%
|
|
|
|
34.1%
|
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
77.9%
|
|
|
|
99.7%
|
|
|
|
93.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
742.3
|
|
|
$
|
1,445.0
|
|
|
$
|
2,187.3
|
|
Net premiums written
|
|
|
581.0
|
|
|
|
1,392.7
|
|
|
|
1,973.7
|
|
|
|
|
|
Net premiums earned
|
|
|
567.2
|
|
|
|
1,374.3
|
|
|
|
1,941.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
305.2
|
|
|
|
950.0
|
|
|
|
1,255.2
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(55.1
|
)
|
|
|
(67.2
|
)
|
|
|
(122.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
250.1
|
|
|
|
882.8
|
|
|
|
1,132.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
187.9
|
|
|
|
452.1
|
|
|
|
640.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(2)
|
|
$
|
129.2
|
|
|
$
|
39.4
|
|
|
$
|
168.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.8
|
%
|
|
|
69.1
|
%
|
|
|
64.7
|
%
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Prior years
|
|
|
(9.7
|
%)
|
|
|
(4.9
|
%)
|
|
|
(6.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
44.1
|
%
|
|
|
64.2
|
%
|
|
|
58.4
|
%
|
Expense ratio
(4)
|
|
|
33.1
|
%
|
|
|
32.9
|
%
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
77.2
|
%
|
|
|
97.1
|
%
|
|
|
91.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
744.5
|
|
|
$
|
1,356.6
|
|
|
$
|
2,101.1
|
|
Net premiums written
|
|
|
602.4
|
|
|
|
1,325.8
|
|
|
|
1,928.2
|
|
|
|
|
|
Net premiums earned
|
|
|
557.3
|
|
|
|
1,326.2
|
|
|
|
1,883.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
299.1
|
|
|
|
921.9
|
|
|
|
1,221.0
|
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(54.4
|
)
|
|
|
(36.5
|
)
|
|
|
(90.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
244.7
|
|
|
|
885.4
|
|
|
|
1,130.1
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
178.7
|
|
|
|
459.0
|
|
|
|
637.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(2)
|
|
$
|
133.9
|
|
|
$
|
(18.2
|
)
|
|
$
|
115.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.7
|
%
|
|
|
69.5
|
%
|
|
|
64.8
|
%
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Prior years
|
|
|
(9.8
|
%)
|
|
|
(2.8
|
%)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
43.9
|
%
|
|
|
66.7
|
%
|
|
|
60.0
|
%
|
Expense ratio
(4)
|
|
|
32.1
|
%
|
|
|
34.6
|
%
|
|
|
33.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
76.0
|
%
|
|
|
101.3
|
%
|
|
|
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,
change in the fair value of equity securities, net realized capital gains, OTTI losses, noninsurance 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
June 30,
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Percent Change
|
|
|
2018
|
|
|
2017
|
|
|
Percent Change
|
|
|
|
($ in millions)
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
345.1
|
|
|
$
|
369.1
|
|
|
|
(6.5%)
|
|
|
$
|
742.3
|
|
|
$
|
744.5
|
|
|
|
(0.3%)
|
|
Net premiums written
|
|
|
275.9
|
|
|
|
317.2
|
|
|
|
(13.0%)
|
|
|
|
581.0
|
|
|
|
602.4
|
|
|
|
(3.6%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
292.1
|
|
|
|
270.5
|
|
|
|
8.0%
|
|
|
|
567.2
|
|
|
|
557.3
|
|
|
|
1.8%
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
726.6
|
|
|
$
|
676.3
|
|
|
|
7.4%
|
|
|
$
|
1,445.0
|
|
|
$
|
1,356.6
|
|
|
|
6.5%
|
|
Net premiums written
|
|
|
700.7
|
|
|
|
661.6
|
|
|
|
5.9%
|
|
|
|
1,392.7
|
|
|
|
1,325.8
|
|
|
|
5.0%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
689.2
|
|
|
|
686.9
|
|
|
|
0.3%
|
|
|
|
1,374.3
|
|
|
|
1,326.2
|
|
|
|
3.6%
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,071.7
|
|
|
$
|
1,045.4
|
|
|
|
2.5%
|
|
|
$
|
2,187.3
|
|
|
$
|
2,101.1
|
|
|
|
4.1%
|
|
Net premiums written
|
|
|
976.6
|
|
|
|
978.8
|
|
|
|
(0.2%)
|
|
|
|
1,973.7
|
|
|
|
1,928.2
|
|
|
|
2.4%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
981.3
|
|
|
|
957.4
|
|
|
|
2.5%
|
|
|
|
1,941.5
|
|
|
|
1,883.5
|
|
|
|
3.1%
|
|
Property.
The decreases in gross premiums written in the second quarter and first six months of 2018
from the corresponding 2017 periods primarily reflect a decline in property-related premiums written related to the Quota Share Treaty, partially offset by the impact of changes in foreign currency exchange rates and, for the first six months of
2018, an increase in premiums written by the U.S. operations (excluding the Quota Share Treaty). Gross premiums written related to the Quota Share Treaty were $41.3 million and $62.9 million in the second quarter of 2018 and 2017,
respectively, and $110.6 million and $170.7 million in the first six months of 2018 and 2017, respectively. Excluding the impact of changes in foreign currency exchange rates, gross premiums written decreased 7.0 percent and
1.8 percent, respectively, in the second quarter and first six months of 2018 from the corresponding 2017 periods.
The increases in
net premiums earned in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the impact of changes in foreign currency exchange rates and an increase in gross premiums written in recent quarters,
partially offset by higher ceded premiums earned due to an increase in retrocessional coverage purchased. Excluding the impact of changes in foreign currency exchange rates, net premiums earned increased 7.4 percent in the second quarter of
2018 and net premiums earned in the first six months of 2018 approximated net premiums earned in the first six months of 2017.
Casualty
& other.
The increases in gross premiums written in the second quarter and first six months of 2018 from
the corresponding 2017 periods primarily reflect increases in premiums written by the European and Asia-Pacific operations, increases in casualty-related premiums written related to the Quota Share Treaty and the impact of changes in foreign
currency exchange rates. Gross premiums written related to the Quota Share Treaty were $146.4 million and $121.0 million in the second quarter of 2018 and 2017, respectively, and $261.1 million and $203.4 million in the first six
months of 2018 and 2017, respectively. Excluding the impact of changes in foreign currency exchange rates, gross premiums written increased 6.9 percent and 5.1 percent, respectively, in the second quarter and first six months of 2018 from
the corresponding 2017 periods.
The increase in net premiums earned in the first six months of 2018 from the first six months of 2017
primarily reflects an increase in gross premiums written in recent quarters and the impact of changes in foreign currency exchange rates, partially offset by higher ceded premiums earned due to an increase in retrocessional coverage purchased.
Excluding the impact of changes in foreign currency exchange rates, net premiums earned increased 2.3 percent in the first six months of 2018 from the first six months of 2017.
40
Reinsurance Segment: Net loss and LAE.
The following table presents net loss and
LAE for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
167.2
|
|
|
$
|
145.8
|
|
|
|
14.7
|
%
|
|
$
|
305.2
|
|
|
$
|
299.1
|
|
|
|
2.0
|
%
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(13.7
|
)
|
|
|
(22.9
|
)
|
|
|
(40.2
|
%)
|
|
|
(55.1
|
)
|
|
|
(54.4
|
)
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
153.5
|
|
|
$
|
122.9
|
|
|
|
24.9
|
%
|
|
$
|
250.1
|
|
|
$
|
244.7
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
57.2
|
%
|
|
|
53.9
|
%
|
|
|
|
|
|
|
53.8
|
%
|
|
|
53.7
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
Prior years
|
|
|
(4.7
|
%)
|
|
|
(8.5
|
%)
|
|
|
|
|
|
|
(9.7
|
%)
|
|
|
(9.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
52.5
|
%
|
|
|
45.4
|
%
|
|
|
|
|
|
|
44.1
|
%
|
|
|
43.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
477.0
|
|
|
$
|
479.8
|
|
|
|
(0.6
|
%)
|
|
$
|
950.0
|
|
|
$
|
921.9
|
|
|
|
3.0
|
%
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(37.0
|
)
|
|
|
(29.7
|
)
|
|
|
24.6
|
%
|
|
|
(67.2
|
)
|
|
|
(36.5
|
)
|
|
|
84.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
440.0
|
|
|
$
|
450.1
|
|
|
|
(2.2
|
%)
|
|
$
|
882.8
|
|
|
$
|
885.4
|
|
|
|
(0.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
69.2
|
%
|
|
|
69.9
|
%
|
|
|
|
|
|
|
69.1
|
%
|
|
|
69.5
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
Prior years
|
|
|
(5.4
|
%)
|
|
|
(4.3
|
%)
|
|
|
|
|
|
|
(4.9
|
%)
|
|
|
(2.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
63.8
|
%
|
|
|
65.6
|
%
|
|
|
|
|
|
|
64.2
|
%
|
|
|
66.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
644.2
|
|
|
$
|
625.6
|
|
|
|
3.0
|
%
|
|
$
|
1,255.2
|
|
|
$
|
1,221.0
|
|
|
|
2.8
|
%
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
(50.7
|
)
|
|
|
(52.6
|
)
|
|
|
(3.6
|
%)
|
|
|
(122.3
|
)
|
|
|
(90.9
|
)
|
|
|
34.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
593.5
|
|
|
$
|
573.0
|
|
|
|
3.6
|
%
|
|
$
|
1,132.9
|
|
|
$
|
1,130.1
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
65.6
|
%
|
|
|
65.4
|
%
|
|
|
|
|
|
|
64.7
|
%
|
|
|
64.8
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
Prior years
|
|
|
(5.2
|
%)
|
|
|
(5.5
|
%)
|
|
|
|
|
|
|
(6.3
|
%)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
60.4
|
%
|
|
|
59.9
|
%
|
|
|
|
|
|
|
58.4
|
%
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property.
The increase in net loss and LAE in the second quarter of 2018 from the second quarter of
2017 primarily reflects a decrease in favorable prior accident year loss reserve development, the impact of higher net premiums earned and higher
non-catastrophe
losses. The increase in net loss and LAE in the
first six months of 2018 from the first six months of 2017 primarily reflects the impact of higher net premiums earned. There were no catastrophe losses in the second quarter or the first six months of 2018 and 2017.
41
Net loss and LAE in the second quarter and first six months of 2018 and 2017 include (favorable)
unfavorable prior accident year loss reserve development as presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Catastrophe events
|
|
$
|
5.1
(
|
1)
|
|
$
|
(4.0)
|
(2)
|
|
$
|
(25.3)
|
(3)
|
|
$
|
(4.4)
|
(2)
|
|
|
|
|
|
Non-catastrophe
|
|
|
(18.8)
|
(4)
|
|
|
(18.9)
|
(5)
|
|
|
(29.8)
|
(4)
|
|
|
(50.0)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(13.7)
|
|
|
$
|
(22.9)
|
|
|
$
|
(55.1)
|
|
|
$
|
(54.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily reflects unfavorable prior accident year loss reserve development related to Hurricane Maria that occurred in the 2017 accident year, partially offset by favorable prior accident year loss reserve development
related to Hurricane Harvey that occurred in the 2017 accident year and catastrophes that occurred in the 2016 accident year.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development related to several catastrophes that occurred in the 2010 through 2016 accident years.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development related to Hurricanes Harvey and Maria that occurred in the 2017 accident year and catastrophes that occurred in the 2016 accident year.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the 2016 and 2017 accident years.
|
(5)
|
Primarily reflects favorable prior accident year loss reserve development in the 2013 through 2016 accident years.
|
The favorable prior accident year loss reserve development in the second quarter and first six months of 2018 and 2017 reflects favorable loss
emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in the second quarter and first six months of 2018 did not impact assumptions used in estimating TransRes
loss and LAE liabilities for business earned in the first six months of 2018.
Casualty
& other.
The
decrease in net loss and LAE in the second quarter of 2018 from the second quarter of 2017 primarily reflects an increase in favorable prior accident year loss reserve development. The slight decrease in net loss and LAE in the first six months of
2018 from the first six months of 2017 primarily reflects an increase in favorable prior accident year loss reserve development, largely offset by the impact of higher net premiums earned.
Net loss and LAE in the second quarter and first six months of 2018 and 2017 include (favorable) unfavorable prior accident year loss reserve
development as presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Malpractice Treaties
(1)
|
|
$
|
(3.4)
|
|
|
$
|
(2.0)
|
|
|
$
|
(3.4)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
Ogden rate impact
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
|
|
|
Other
|
|
|
(33.6)
|
(3)
|
|
|
(27.7)
|
(4)
|
|
|
(63.8)
|
(5)
|
|
|
(58.9)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(37.0)
|
|
|
$
|
(29.7)
|
|
|
$
|
(67.2)
|
|
|
$
|
(36.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents certain medical 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 related to the U.K. Ministry of Justices significant reduction in 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 to negative 0.75 percent as of March 20, 2017 from 2.50 percent.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed casualty lines of business in the 2015 and 2017 accident years and the longer-tailed lines of business in the 2008 through
2010 accident years.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the longer-tailed U.S. professional liability lines of business in the 2005 through 2014 accident years, partially offset by unfavorable
development in the shorter-tailed casualty lines of business in the 2015 accident year in the U.S. and in the U.K.
|
(5)
|
Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed casualty lines of business in the 2016 and 2017 accident years and the longer-tailed lines of business in the 2008 through
2010 accident years.
|
The favorable prior accident year loss reserve development in the second quarter and first six months
of 2018 and 2017 reflects favorable loss emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in the second quarter and first six months of 2018 did not impact
assumptions used in estimating TransRes loss and LAE liabilities for business earned in the first six months of 2018.
42
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
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
94.8
|
|
|
$
|
87.9
|
|
|
|
7.8%
|
|
|
$
|
187.9
|
|
|
$
|
178.7
|
|
|
|
5.1%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.5%
|
|
|
|
32.5%
|
|
|
|
|
|
|
|
33.1%
|
|
|
|
32.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
223.2
|
|
|
$
|
234.3
|
|
|
|
(4.7%)
|
|
|
$
|
452.1
|
|
|
$
|
459.0
|
|
|
|
(1.5%)
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.4%
|
|
|
|
34.1%
|
|
|
|
|
|
|
|
32.9%
|
|
|
|
34.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
318.0
|
|
|
$
|
322.2
|
|
|
|
(1.3%)
|
|
|
$
|
640.0
|
|
|
$
|
637.7
|
|
|
|
0.4%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.4%
|
|
|
|
33.6%
|
|
|
|
|
|
|
|
33.0%
|
|
|
|
33.9%
|
|
|
|
|
|
Property.
The increase in commissions, brokerage and other underwriting expenses in the second quarter
of 2018 from the second quarter of 2017 primarily reflects the impact of higher net premiums earned. The increase in commissions, brokerage and other underwriting expenses in the first six months of 2018 from the first six months of 2017 primarily
reflects an increase in commission rates and the impact of higher net premiums earned.
Casualty
& other.
The
decrease in commissions, brokerage and other underwriting expenses in the second quarter of 2018 from the second quarter of 2017 primarily reflects a decrease in commission rates. The decrease in commissions, brokerage and other underwriting
expenses in the first six months of 2018 from the first six months of 2017 primarily reflects a decrease in commission rates, partially offset by the impact of higher net premiums earned.
Reinsurance Segment: Underwriting profit.
The following table presents underwriting profit (loss) for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
43.8
|
|
|
$
|
59.7
|
|
|
|
(26.6%)
|
|
|
$
|
129.2
|
|
|
$
|
133.9
|
|
|
|
(3.5%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
85.0%
|
|
|
|
77.9%
|
|
|
|
|
|
|
|
77.2%
|
|
|
|
76.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
$
|
26.0
|
|
|
$
|
2.5
|
|
|
|
940.0%
|
|
|
$
|
39.4
|
|
|
$
|
(18.2)
|
|
|
|
(316.5%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
96.2%
|
|
|
|
99.7%
|
|
|
|
|
|
|
|
97.1%
|
|
|
|
101.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
69.8
|
|
|
$
|
62.2
|
|
|
|
12.2%
|
|
|
$
|
168.6
|
|
|
$
|
115.7
|
|
|
|
45.7%
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
92.8%
|
|
|
|
93.5%
|
|
|
|
|
|
|
|
91.4%
|
|
|
|
93.9%
|
|
|
|
|
|
Property.
The decrease in underwriting profit in the second quarter of 2018 from the second quarter of
2017 primarily reflects a decrease in favorable prior accident year loss reserve development and higher
non-catastrophe
losses, partially offset by the impact of
43
higher net premiums earned, all as discussed above. The decrease in underwriting profit in the first six months of 2018 from the first six months of 2017 primarily reflects an increase in
commission rates, as discussed above.
Casualty
& other.
The increase in
underwriting profit in the second quarter of 2018 from the second quarter of 2017, and the underwriting profit in the first six months of 2018 compared with an underwriting loss in the first six months of 2017, primarily reflect increases in
favorable prior accident year loss reserve development, decreases in commission rates and the impact of higher net premiums earned, all as discussed above.
Insurance Segment Underwriting Results
The insurance segment is comprised of AIHLs RSUI, CapSpecialty and PacificComp (prior to its sale on December 31, 2017) 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 2017 Form
10-K.
The underwriting results of the
insurance segment are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
RSUI
|
|
|
CapSpecialty
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums written
|
|
$
|
318.8
|
|
|
$
|
88.7
|
|
|
$
|
407.5
|
|
Net premiums written
|
|
|
216.9
|
|
|
|
82.3
|
|
|
|
299.2
|
|
|
|
|
|
Net premiums earned
|
|
|
184.7
|
|
|
|
71.0
|
|
|
|
255.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
93.4
|
|
|
|
38.5
|
|
|
|
131.9
|
|
Current year catastrophe losses
|
|
|
13.7
|
|
|
|
0.6
|
|
|
|
14.3
|
|
Prior years
|
|
|
(1.4)
|
|
|
|
(0.1)
|
|
|
|
(1.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
105.7
|
|
|
|
39.0
|
|
|
|
144.7
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
53.7
|
|
|
|
30.4
|
|
|
|
84.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(1)
|
|
$
|
25.3
|
|
|
$
|
1.6
|
|
|
$
|
26.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
50.6%
|
|
|
|
54.2%
|
|
|
|
51.6%
|
|
Current year catastrophe losses
|
|
|
7.4%
|
|
|
|
0.8%
|
|
|
|
5.6%
|
|
Prior years
|
|
|
(0.8%)
|
|
|
|
(0.1%)
|
|
|
|
(0.6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
57.2%
|
|
|
|
54.9%
|
|
|
|
56.6%
|
|
Expense ratio
(3)
|
|
|
29.1%
|
|
|
|
42.8%
|
|
|
|
32.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
86.3%
|
|
|
|
97.7%
|
|
|
|
89.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
RSUI
|
|
CapSpecialty
|
|
PacificComp
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
295.1
|
|
|
$
|
73.3
|
|
|
$
|
41.9
|
|
|
$
|
410.3
|
|
Net premiums written
|
|
|
204.6
|
|
|
|
68.4
|
|
|
|
41.3
|
|
|
|
314.3
|
|
|
|
|
|
|
Net premiums earned
|
|
|
178.5
|
|
|
|
64.1
|
|
|
|
43.9
|
|
|
|
286.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
94.5
|
|
|
|
34.0
|
|
|
|
33.0
|
|
|
|
161.5
|
|
Current year catastrophe losses
|
|
|
9.6
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
11.4
|
|
Prior years
|
|
|
(10.3)
|
|
|
|
(0.2)
|
|
|
|
(0.5)
|
|
|
|
(11.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
93.8
|
|
|
|
35.6
|
|
|
|
32.5
|
|
|
|
161.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
53.0
|
|
|
|
27.2
|
|
|
|
11.3
|
|
|
|
91.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(1)
|
|
$
|
31.7
|
|
|
$
|
1.3
|
|
|
$
|
0.1
|
|
|
$
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
52.9%
|
|
|
|
53.0%
|
|
|
|
75.2%
|
|
|
|
56.3%
|
|
Current year catastrophe losses
|
|
|
5.4%
|
|
|
|
2.8%
|
|
|
|
- %
|
|
|
|
4.0%
|
|
Prior years
|
|
|
(5.8%)
|
|
|
|
(0.3%)
|
|
|
|
(1.1%)
|
|
|
|
(3.8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
52.5%
|
|
|
|
55.5%
|
|
|
|
74.1%
|
|
|
|
56.5%
|
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
29.7%
|
|
|
|
42.5%
|
|
|
|
25.7%
|
|
|
|
31.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
82.2%
|
|
|
|
98.0%
|
|
|
|
99.8%
|
|
|
|
88.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
RSUI
|
|
CapSpecialty
|
|
Total
|
|
|
|
|
($ in millions)
|
Gross premiums written
|
|
|
|
|
|
$
|
593.4
|
|
|
$
|
163.2
|
|
|
$
|
756.6
|
|
Net premiums written
|
|
|
|
|
|
|
403.8
|
|
|
|
151.7
|
|
|
|
555.5
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
365.6
|
|
|
|
137.7
|
|
|
|
503.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
197.5
|
|
|
|
75.6
|
|
|
|
273.1
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
17.6
|
|
|
|
0.8
|
|
|
|
18.4
|
|
Prior years
|
|
|
|
|
|
|
(12.5)
|
|
|
|
(3.1)
|
|
|
|
(15.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
202.6
|
|
|
|
73.3
|
|
|
|
275.9
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
|
|
|
|
107.2
|
|
|
|
61.2
|
|
|
|
168.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(1)
|
|
|
|
|
|
$
|
55.8
|
|
|
$
|
3.2
|
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
54.0%
|
|
|
|
54.9%
|
|
|
|
54.3%
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
4.8%
|
|
|
|
0.6%
|
|
|
|
3.6%
|
|
Prior years
|
|
|
|
|
|
|
(3.4%)
|
|
|
|
(2.3%)
|
|
|
|
(3.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
55.4%
|
|
|
|
53.2%
|
|
|
|
54.8%
|
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
|
|
|
|
29.3%
|
|
|
|
44.4%
|
|
|
|
33.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
|
|
|
|
84.7%
|
|
|
|
97.6%
|
|
|
|
88.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
RSUI
|
|
CapSpecialty
|
|
PacificComp
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
559.6
|
|
|
$
|
138.8
|
|
|
$
|
82.6
|
|
|
$
|
781.0
|
|
Net premiums written
|
|
|
387.2
|
|
|
|
129.4
|
|
|
|
81.4
|
|
|
|
598.0
|
|
|
|
|
|
|
Net premiums earned
|
|
|
361.2
|
|
|
|
126.2
|
|
|
|
82.2
|
|
|
|
569.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
179.9
|
|
|
|
67.3
|
|
|
|
62.0
|
|
|
|
309.2
|
|
Current year catastrophe losses
|
|
|
13.2
|
|
|
|
2.2
|
|
|
|
-
|
|
|
|
15.4
|
|
Prior years
|
|
|
(18.7
|
)
|
|
|
(0.8
|
)
|
|
|
(1.0
|
)
|
|
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
174.4
|
|
|
|
68.7
|
|
|
|
61.0
|
|
|
|
304.1
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
107.9
|
|
|
|
54.9
|
|
|
|
21.7
|
|
|
|
184.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(1)
|
|
$
|
78.9
|
|
|
$
|
2.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
81.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
49.8
|
%
|
|
|
53.3
|
%
|
|
|
75.4
|
%
|
|
|
54.3
|
%
|
Current year catastrophe losses
|
|
|
3.7
|
%
|
|
|
1.7
|
%
|
|
|
-
|
%
|
|
|
2.7
|
%
|
Prior years
|
|
|
(5.2
|
%)
|
|
|
(0.6
|
%)
|
|
|
(1.2
|
%)
|
|
|
(3.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
48.3
|
%
|
|
|
54.4
|
%
|
|
|
74.2
|
%
|
|
|
53.4
|
%
|
Expense ratio
(3)
|
|
|
29.9
|
%
|
|
|
43.5
|
%
|
|
|
26.4
|
%
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
78.2
|
%
|
|
|
97.9
|
%
|
|
|
100.6
|
%
|
|
|
85.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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,
change in the fair value of equity securities, net realized capital gains, OTTI losses, noninsurance 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
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
Percent Change
|
|
|
($ in millions)
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
318.8
|
|
|
$
|
295.1
|
|
|
|
8.0
|
%
|
|
$
|
593.4
|
|
|
$
|
559.6
|
|
|
|
6.0
|
%
|
Net premiums written
|
|
|
216.9
|
|
|
|
204.6
|
|
|
|
6.0
|
%
|
|
|
403.8
|
|
|
|
387.2
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
184.7
|
|
|
|
178.5
|
|
|
|
3.5
|
%
|
|
|
365.6
|
|
|
|
361.2
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
88.7
|
|
|
$
|
73.3
|
|
|
|
21.0
|
%
|
|
$
|
163.2
|
|
|
$
|
138.8
|
|
|
|
17.6
|
%
|
Net premiums written
|
|
|
82.3
|
|
|
|
68.4
|
|
|
|
20.3
|
%
|
|
|
151.7
|
|
|
|
129.4
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
71.0
|
|
|
|
64.1
|
|
|
|
10.8
|
%
|
|
|
137.7
|
|
|
|
126.2
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
-
|
|
|
$
|
41.9
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
82.6
|
|
|
|
(100.0
|
%)
|
Net premiums written
|
|
|
-
|
|
|
|
41.3
|
|
|
|
(100.0
|
%)
|
|
|
-
|
|
|
|
81.4
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
-
|
|
|
|
43.9
|
|
|
|
(100.0
|
%)
|
|
|
-
|
|
|
|
82.2
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
407.5
|
|
|
$
|
410.3
|
|
|
|
(0.7
|
%)
|
|
$
|
756.6
|
|
|
$
|
781.0
|
|
|
|
(3.1
|
%)
|
Net premiums written
|
|
|
299.2
|
|
|
|
314.3
|
|
|
|
(4.8
|
%)
|
|
|
555.5
|
|
|
|
598.0
|
|
|
|
(7.1
|
%)
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
255.7
|
|
|
|
286.5
|
|
|
|
(10.8
|
%)
|
|
|
503.3
|
|
|
|
569.6
|
|
|
|
(11.6
|
%)
|
RSUI.
The increases in gross premiums written in the second quarter and first six months of 2018
from the corresponding 2017 periods primarily reflect increases in most lines of business due to an increase in business opportunities and improved general market conditions, particularly in the property lines of business.
The increases in net premiums earned in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect
an increase in gross premiums written in recent quarters, partially offset by higher ceded premiums earned related to reinstatement premiums on RSUIs per risk property reinsurance treaties.
CapSpecialty.
The increases in gross premiums written in the second quarter and first six months of 2018 from the corresponding 2017
periods primarily reflect growth in the professional liability and miscellaneous medical lines of business due to CapSpecialtys distribution initiatives and expanded product offerings and, to a lesser extent, the impact of CapSpecialtys
purchase of renewal rights associated with a small environmental block of business on February 20, 2018, as well as growth in the surety lines of business.
The increases in net premiums earned in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect
increases in gross premiums written in recent quarters.
PacificComp.
The results shown for the second quarter and first six months
of 2018 reflect the sale of PacificComp as of December 31, 2017.
47
Insurance Segment: Net loss and LAE.
The following table presents net loss and LAE
for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
93.4
|
|
|
$
|
94.5
|
|
|
|
(1.2
|
%)
|
|
$
|
197.5
|
|
|
$
|
179.9
|
|
|
|
9.8
|
%
|
Current year catastrophe losses
|
|
|
13.7
|
|
|
|
9.6
|
|
|
|
42.7
|
%
|
|
|
17.6
|
|
|
|
13.2
|
|
|
|
33.3
|
%
|
Prior years
|
|
|
(1.4
|
)
|
|
|
(10.3
|
)
|
|
|
(86.4
|
%)
|
|
|
(12.5
|
)
|
|
|
(18.7
|
)
|
|
|
(33.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
105.7
|
|
|
$
|
93.8
|
|
|
|
12.7
|
%
|
|
$
|
202.6
|
|
|
$
|
174.4
|
|
|
|
16.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
50.6
|
%
|
|
|
52.9
|
%
|
|
|
|
|
|
|
54.0
|
%
|
|
|
49.8
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
7.4
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
4.8
|
%
|
|
|
3.7
|
%
|
|
|
|
|
Prior years
|
|
|
(0.8
|
%)
|
|
|
(5.8
|
%)
|
|
|
|
|
|
|
(3.4
|
%)
|
|
|
(5.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
57.2
|
%
|
|
|
52.5
|
%
|
|
|
|
|
|
|
55.4
|
%
|
|
|
48.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
38.5
|
|
|
$
|
34.0
|
|
|
|
13.2
|
%
|
|
$
|
75.6
|
|
|
$
|
67.3
|
|
|
|
12.3
|
%
|
Current year catastrophe losses
|
|
|
0.6
|
|
|
|
1.8
|
|
|
|
(66.7
|
%)
|
|
|
0.8
|
|
|
|
2.2
|
|
|
|
(63.6
|
%)
|
Prior years
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
(50.0
|
%)
|
|
|
(3.1
|
)
|
|
|
(0.8
|
)
|
|
|
287.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
39.0
|
|
|
$
|
35.6
|
|
|
|
9.6
|
%
|
|
$
|
73.3
|
|
|
$
|
68.7
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
54.2
|
%
|
|
|
53.0
|
%
|
|
|
|
|
|
|
54.9
|
%
|
|
|
53.3
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
0.8
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
0.6
|
%
|
|
|
1.7
|
%
|
|
|
|
|
Prior years
|
|
|
(0.1
|
%)
|
|
|
(0.3
|
%)
|
|
|
|
|
|
|
(2.3
|
%)
|
|
|
(0.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
54.9
|
%
|
|
|
55.5
|
%
|
|
|
|
|
|
|
53.2
|
%
|
|
|
54.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
-
|
|
|
$
|
33.0
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
62.0
|
|
|
|
(100.0
|
%)
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
(100.0
|
%)
|
|
|
-
|
|
|
|
(1.0
|
)
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
-
|
|
|
$
|
32.5
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
61.0
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
-
|
%
|
|
|
75.2
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
75.4
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
Prior years
|
|
|
-
|
%
|
|
|
(1.1
|
%)
|
|
|
|
|
|
|
-
|
%
|
|
|
(1.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
-
|
%
|
|
|
74.1
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
74.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
131.9
|
|
|
$
|
161.5
|
|
|
|
(18.3
|
%)
|
|
$
|
273.1
|
|
|
$
|
309.2
|
|
|
|
(11.7
|
%)
|
Current year catastrophe losses
|
|
|
14.3
|
|
|
|
11.4
|
|
|
|
25.4
|
%
|
|
|
18.4
|
|
|
|
15.4
|
|
|
|
19.5
|
%
|
Prior years
|
|
|
(1.5
|
)
|
|
|
(11.0
|
)
|
|
|
(86.4
|
%)
|
|
|
(15.6
|
)
|
|
|
(20.5
|
)
|
|
|
(23.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
144.7
|
|
|
$
|
161.9
|
|
|
|
(10.6
|
%)
|
|
$
|
275.9
|
|
|
$
|
304.1
|
|
|
|
(9.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
51.6
|
%
|
|
|
56.3
|
%
|
|
|
|
|
|
|
54.3
|
%
|
|
|
54.3
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
5.6
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
3.6
|
%
|
|
|
2.7
|
%
|
|
|
|
|
Prior years
|
|
|
(0.6
|
%)
|
|
|
(3.8
|
%)
|
|
|
|
|
|
|
(3.1
|
%)
|
|
|
(3.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
56.6
|
%
|
|
|
56.5
|
%
|
|
|
|
|
|
|
54.8
|
%
|
|
|
53.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
RSUI.
The increases in net loss and LAE in the second quarter and first six months of 2018
from the corresponding 2017 periods primarily reflect decreases in favorable prior accident year loss reserve development and increases in catastrophe losses. The increase in net loss and LAE in the first six months of 2018 from the first six months
of 2017 also reflects higher
non-catastrophe
property losses incurred. Catastrophe losses in the second quarter and first six months of 2018 primarily related to flooding and severe weather in the Northeastern
U.S. and the State of California. Catastrophe losses in the second quarter and first six months of 2017 primarily reflect losses from flooding in the State of California and severe weather primarily in the Southeastern and Midwestern U.S.
Net loss and LAE in the second quarter and first six months of 2018 and 2017 include (favorable) unfavorable prior accident year loss reserve
development as presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Casualty
|
|
$
|
(1.5
|
)
(1)
|
|
$
|
(9.5
|
)
(2)
|
|
$
|
(12.5
|
)
(3)
|
|
$
|
(21.6
|
)
(2)
|
Property and other
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
|
-
|
|
|
|
2.9
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1.4
|
)
|
|
$
|
(10.3
|
)
|
|
$
|
(12.5
|
)
|
|
$
|
(18.7
|
)
|
(1)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2012 accident years, partially offset by unfavorable prior accident year loss
reserve development in the directors and officers liability lines of business in the 2012 accident year.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2011 accident years.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2005 through 2012 accident years, partially offset by unfavorable prior accident year loss
reserve development in the directors and officers liability lines of business in the 2009 and 2012 accident years.
|
(4)
|
Primarily reflects unfavorable prior accident year property loss reserve development in the binding authority lines of business in the 2015 and 2016 accident years.
|
The favorable prior accident year loss reserve development in the second quarter and first six months of 2018 and 2017 reflects favorable loss
emergence compared with loss emergence patterns assumed in earlier periods. The favorable prior accident year loss reserve development in the second quarter and first six months of 2018 did not impact assumptions used in estimating RSUIs loss
and LAE liabilities for business earned in the first six months of 2018.
CapSpecialty.
The increases in net loss and LAE in the
second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the impact of higher net premiums earned and higher 2018 accident year losses due primarily to an increase in net premiums earned for certain lines of
business with a higher loss ratio. The increase in net loss and LAE in the first six months of 2018 from the first six months of 2017 was partially offset by an increase in favorable prior accident year loss reserve development.
Net loss and LAE in the first six months of 2018 includes favorable prior accident year loss reserve development primarily in the surety lines
of business primarily related to the 2016 and 2017 accident years. The favorable prior accident year loss reserve development in the first six months of 2018 and 2017 reflects favorable loss emergence compared with loss emergence patterns assumed in
earlier periods. The favorable prior accident year loss reserve development in the first six months of 2018 did not impact assumptions used in estimating CapSpecialtys loss and LAE liabilities for business earned in the first six months of
2018. Net loss and LAE in the second quarter and first six months of 2017 include favorable prior accident year loss reserve development primarily in the casualty lines of business related primarily to the 2010 and 2015 accident years.
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
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
($ in millions)
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
53.7
|
|
|
$
|
53.0
|
|
|
|
1.3
|
%
|
|
$
|
107.2
|
|
|
$
|
107.9
|
|
|
|
(0.6
|
%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
29.1
|
%
|
|
|
29.7
|
%
|
|
|
|
|
|
|
29.3
|
%
|
|
|
29.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
30.4
|
|
|
$
|
27.2
|
|
|
|
11.8
|
%
|
|
$
|
61.2
|
|
|
$
|
54.9
|
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
42.8
|
%
|
|
|
42.5
|
%
|
|
|
|
|
|
|
44.4
|
%
|
|
|
43.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
-
|
|
|
$
|
11.3
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
21.7
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
-
|
%
|
|
|
25.7
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
26.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other
underwriting expenses
|
|
$
|
84.1
|
|
|
$
|
91.5
|
|
|
|
(8.1
|
%)
|
|
$
|
168.4
|
|
|
$
|
184.5
|
|
|
|
(8.7
|
%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
32.9
|
%
|
|
|
31.9
|
%
|
|
|
|
|
|
|
33.5
|
%
|
|
|
32.4
|
%
|
|
|
|
|
RSUI.
Commissions, brokerage and other underwriting expenses in the second quarter and first six months
of 2018 approximated commissions, brokerage and other underwriting expenses from the corresponding 2017 periods, primarily reflecting the impact of higher net premiums earned, offset by slightly lower commission expense incurred.
CapSpecialty.
The increases in commissions, brokerage and other underwriting expenses in the second quarter and first six months of 2018
from the corresponding 2017 periods primarily reflect the impact of higher net premiums earned and relatively stable overhead expenses. In addition, the increases also reflect
one-time
acquisition expenses
arising from CapSpecialtys purchase of renewal rights associated with a small environmental block of business on February 20, 2018.
50
Insurance Segment: Underwriting profit.
The following table presents underwriting
profit (loss) for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
Percent Change
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
25.3
|
|
|
$
|
31.7
|
|
|
|
(20.2
|
%)
|
|
$
|
55.8
|
|
|
$
|
78.9
|
|
|
|
(29.3
|
%)
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
86.3
|
%
|
|
|
82.2
|
%
|
|
|
|
|
|
|
84.7
|
%
|
|
|
78.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
1.6
|
|
|
$
|
1.3
|
|
|
|
23.1
|
%
|
|
$
|
3.2
|
|
|
$
|
2.6
|
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
97.7
|
%
|
|
|
98.0
|
%
|
|
|
|
|
|
|
97.6
|
%
|
|
|
97.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
$
|
-
|
|
|
$
|
0.1
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
(0.5
|
)
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
-
|
%
|
|
|
99.8
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
100.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
26.9
|
|
|
$
|
33.1
|
|
|
|
(18.7
|
%)
|
|
$
|
59.0
|
|
|
$
|
81.0
|
|
|
|
(27.2
|
%)
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
89.5
|
%
|
|
|
88.4
|
%
|
|
|
|
|
|
|
88.3
|
%
|
|
|
85.8
|
%
|
|
|
|
|
RSUI.
The decreases in underwriting profit in the second quarter and first six months of 2018 from
the corresponding 2017 periods primarily reflect decreases in favorable prior accident year loss reserve development and increases in catastrophe losses, all as discussed above. The increase in net loss and LAE in the first six months of 2018 from
the first six months of 2017 also reflects higher
non-catastrophe
property losses incurred.
CapSpecialty.
The increase in underwriting profit in the second quarter of 2018 from second quarter of 2017 primarily reflects the
impact of higher net premiums earned, as discussed above. The increase in underwriting profit in the first six months of 2018 from the first six months of 2017 primarily reflects an increase in favorable prior accident year loss reserve development
and the impact of higher 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
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
Percent Change
|
|
|
($ in millions)
|
Net investment income
|
|
$
|
121.1
|
|
|
$
|
98.0
|
|
|
|
23.6
|
%
|
|
$
|
239.4
|
|
|
$
|
210.3
|
|
|
|
13.8
|
%
|
Change in the fair value of equity securities
|
|
|
146.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132.7
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
6.8
|
|
|
|
9.2
|
|
|
|
(26.1
|
%)
|
|
|
50.7
|
|
|
|
69.4
|
|
|
|
(26.9
|
%)
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(3.8
|
)
|
|
|
(100.0
|
%)
|
|
|
(0.5
|
)
|
|
|
(7.0)
|
|
|
|
(92.9
|
%)
|
Net investment income.
The increases in net investment income in the second quarter and first six
months of 2018 from the corresponding 2017 periods primarily reflect increases in dividend income resulting from an increase in the size of the equity securities portfolio and higher interest income. The increase in interest income primarily
reflects higher yields on short-term investments and floating-rate debt securities and higher income from funds withheld, partially offset by the impact of the sale of PacificComp.
In addition, net investment income in the second quarter and first six months of 2018 reflects higher partnership income at AIHL. AIHLs
partnership income in the first six months of 2018 includes a $12.9 million increase in the carrying value of AIHLs limited partnership interests in certain subsidiaries of Ares as of March 15, 2018. See Note 3(h) to Notes to
Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional information. Partnership income in the second quarter and first
six months of 2017 includes a $12.6 million charge on our equity investment in Ares. The charge on our equity investment in Ares reflected our share of a
one-time
payment recorded by Ares related to an
acquisition by its affiliated entity.
51
In connection with this acquisition, Ares agreed to make certain transaction support payments to the sellers of the acquired entity.
Change in the fair value of equity securities.
In the first quarter of 2018, we adopted new investment accounting guidance which
required changes in the fair value of equity securities, except those accounted for under the equity method, to be recognized in net earnings. In earlier periods, equity securities were considered to be AFS and were included in the analysis of OTTI.
See Note 1(c) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional information regarding our adoption of this
new guidance.
The changes in the fair value of equity securities in the second quarter and first six months of 2018 reflect appreciation
in the value of our equity securities portfolio, primarily from our holdings in the technology, industrial and energy sectors.
Net
realized capital gains.
The decreases in net realized capital gains in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect a lack of net realized capital gains from equity securities in the
2018 periods resulting from our adoption of the new investment accounting guidance discussed above. The decrease for the first six months of 2018 was partially offset by a $45.7 million gain on AIHLs conversion of most of its limited
partnership interests in certain subsidiaries of Ares into Ares common units. See Note 3(h) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q
for additional information on AIHLs conversion.
Other than temporary impairment losses.
OTTI losses in the first six months of 2018 reflect $0.5 million of unrealized losses on debt securities that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $0.5 million of
OTTI losses, none were incurred in the second quarter of 2018.
OTTI losses in the first six months of 2017 reflect $7.0 million of
unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $7.0 million of OTTI losses, $6.8 million related to equity securities, primarily in the retail sector, and
$0.2 million related to debt securities. The determination that unrealized losses on the 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 $7.0 million of OTTI losses, $3.8 million was incurred in the second quarter of 2017.
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 June 30, 2018 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 securities as of June 30, 2018.
Alleghany Capital Segment Results
The
Alleghany Capital segment consists of: (i) industrial operations conducted through Bourn & Koch, Kentucky Trailer, W&W|AFCO Steel, beginning April 28, 2017 (the date on which Alleghany Capital acquired approximately
80 percent of the equity thereof), and a 45 percent equity interest in Wilbert Funeral Services, Inc., or Wilbert, beginning August 1, 2017 (the date on which Alleghany Capital acquired its equity interest therein);
(ii) non-industrial
operations conducted through IPS and Jazwares; and (iii) corporate operations at the Alleghany Capital level. On February 7, 2018, W&W|AFCO Steel acquired the outstanding
equity of Hirschfeld, a fabricator of steel bridges and structural steel for stadiums, airports and other large commercial and industrial projects. Wilbert is accounted for under the equity method of accounting and is included in other invested
assets.
52
The results of the Alleghany Capital segment for the second quarter and first six months of 2018
and 2017 are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Noninsurance revenue
(1)
|
|
$
|
221.9
|
|
|
$
|
107.1
|
|
|
$
|
-
|
|
|
$
|
329.0
|
|
|
$
|
74.5
|
|
|
$
|
118.3
|
|
|
$
|
-
|
|
|
$
|
192.8
|
|
Net investment income
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
1.2
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Net realized capital gains
|
|
|
0.2
|
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
223.4
|
|
|
$
|
106.9
|
|
|
$
|
(0.2
|
)
|
|
$
|
330.1
|
|
|
$
|
74.6
|
|
|
$
|
118.5
|
|
|
$
|
0.1
|
|
|
$
|
193.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
(1)
|
|
|
210.5
|
|
|
|
101.0
|
|
|
|
3.0
|
|
|
|
314.5
|
|
|
|
71.2
|
|
|
|
110.6
|
|
|
|
7.6
|
|
|
|
189.4
|
|
Amortization of intangible assets
|
|
|
2.4
|
|
|
|
3.4
|
|
|
|
-
|
|
|
|
5.8
|
|
|
|
0.8
|
|
|
|
4.2
|
|
|
|
-
|
|
|
|
5.0
|
|
Interest expenses
|
|
|
1.7
|
|
|
|
0.6
|
|
|
|
-
|
|
|
|
2.3
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
8.8
|
|
|
$
|
1.9
|
|
|
$
|
(3.2
|
)
|
|
$
|
7.5
|
|
|
$
|
2.0
|
|
|
$
|
3.4
|
|
|
$
|
(7.6
|
)
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses) before income
taxes
(2)
|
|
$
|
11.0
|
|
|
$
|
5.6
|
|
|
$
|
(3.2
|
)
|
|
$
|
13.4
|
|
|
$
|
2.7
|
|
|
$
|
7.5
|
|
|
$
|
(7.6
|
)
|
|
$
|
2.6
|
|
Add: net realized capital gains
|
|
|
0.2
|
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.2
|
|
Less: amortization of intangible assets
|
|
|
(2.4
|
)
|
|
|
(3.4
|
)
|
|
|
-
|
|
|
|
(5.8
|
)
|
|
|
(0.8
|
)
|
|
|
(4.2
|
)
|
|
|
-
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
8.8
|
|
|
$
|
1.9
|
|
|
$
|
(3.2
|
)
|
|
$
|
7.5
|
|
|
$
|
2.0
|
|
|
$
|
3.4
|
|
|
$
|
(7.6
|
)
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Noninsurance revenue
(1)
|
|
$
|
367.4
|
|
|
$
|
204.2
|
|
|
$
|
0.1
|
|
|
$
|
571.7
|
|
|
$
|
116.4
|
|
|
$
|
221.2
|
|
|
$
|
-
|
|
|
$
|
337.6
|
|
Net investment income
|
|
|
2.9
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
3.1
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.5
|
|
Net realized capital gains
|
|
|
0.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
370.8
|
|
|
$
|
204.3
|
|
|
$
|
0.2
|
|
|
$
|
575.3
|
|
|
$
|
116.5
|
|
|
$
|
221.4
|
|
|
$
|
0.3
|
|
|
$
|
338.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
(1)
|
|
|
353.0
|
|
|
|
196.5
|
|
|
|
4.9
|
|
|
|
554.4
|
|
|
|
110.4
|
|
|
|
209.5
|
|
|
|
11.1
|
|
|
|
331.0
|
|
Amortization of intangible assets
|
|
|
4.4
|
|
|
|
6.8
|
|
|
|
-
|
|
|
|
11.2
|
|
|
|
1.0
|
|
|
|
8.3
|
|
|
|
-
|
|
|
|
9.3
|
|
Interest expenses
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
3.6
|
|
|
|
1.1
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
10.9
|
|
|
$
|
-
|
|
|
$
|
(4.8
|
)
|
|
$
|
6.1
|
|
|
$
|
4.0
|
|
|
$
|
3.0
|
|
|
$
|
(10.9
|
)
|
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses) before income
taxes
(2)
|
|
$
|
14.8
|
|
|
$
|
6.8
|
|
|
$
|
(4.8
|
)
|
|
$
|
16.8
|
|
|
$
|
4.9
|
|
|
$
|
11.3
|
|
|
$
|
(10.9
|
)
|
|
$
|
5.3
|
|
Add: net realized capital gains
|
|
|
0.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
Less: amortization of intangible assets
|
|
|
(4.4
|
)
|
|
|
(6.8
|
)
|
|
|
-
|
|
|
|
(11.2
|
)
|
|
|
(1.0
|
)
|
|
|
(8.3
|
)
|
|
|
-
|
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
10.9
|
|
|
$
|
-
|
|
|
$
|
(4.8
|
)
|
|
$
|
6.1
|
|
|
$
|
4.0
|
|
|
$
|
3.0
|
|
|
$
|
(10.9
|
)
|
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For industrial and
non-industrial
operations: (i) noninsurance revenue consists of the sale of manufactured goods and services; and (ii) other operating expenses consist
of the cost of goods and services sold, and selling, general and administrative expenses. Other operating expenses also includes finders fees, legal and accounting costs and other transaction-related expenses of $1.1 million and
$5.7 million for the second quarter of 2018 and 2017, respectively, and $2.9 million and $6.0 million for the first six months of 2018 and 2017, respectively.
|
(2)
|
Operating earnings before income taxes is a
non-GAAP
financial measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of
profitability. See Comment on
Non-GAAP
Financial Measures herein for additional detail on the presentation of our results of operations. Operating earnings before income taxes represent
noninsurance revenue less all operating expenses, and does not include: (i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) OTTI impairment losses; and
(v) income taxes.
|
53
The changes in Alleghany Capitals equity for the three and six months ended June 30,
2018 and 2017 are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Equity, beginning of period
|
|
$
|
442.7
|
|
|
$
|
319.5
|
|
|
$
|
34.9
|
|
|
$
|
797.1
|
|
|
$
|
122.0
|
|
|
$
|
325.5
|
|
|
$
|
(8.2
|
)
|
|
$
|
439.3
|
|
Earnings (losses) before income taxes
|
|
|
8.8
|
|
|
|
1.9
|
|
|
|
(3.2
|
)
|
|
|
7.5
|
|
|
|
2.0
|
|
|
|
3.4
|
|
|
|
(7.6
|
)
|
|
|
(2.2
|
)
|
Income taxes
(1)
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
0.7
|
|
Net earnings attributable to noncontrolling
interests
(2)
|
|
|
(1.3
|
)
|
|
|
(2.0
|
)
|
|
|
-
|
|
|
|
(3.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.6
|
)
|
|
|
-
|
|
|
|
(0.9
|
)
|
Capital contributions (returns of capital) and
other
(3)
|
|
|
(10.6
|
)
|
|
|
(7.1
|
)
|
|
|
(5.1
|
)
|
|
|
(22.8
|
)
|
|
|
160.5
|
|
|
|
(4.7
|
)
|
|
|
9.6
|
|
|
|
165.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period
|
|
$
|
439.2
|
|
|
$
|
312.1
|
|
|
$
|
25.9
|
|
|
$
|
777.2
|
|
|
$
|
284.0
|
|
|
$
|
323.5
|
|
|
$
|
(5.2
|
)
|
|
$
|
602.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Equity, beginning of period
|
|
$
|
363.6
|
|
|
$
|
331.3
|
|
|
$
|
11.2
|
|
|
$
|
706.1
|
|
|
$
|
122.7
|
|
|
$
|
330.7
|
|
|
$
|
(12.1
|
)
|
|
$
|
441.3
|
|
Earnings (losses) before income taxes
|
|
|
10.9
|
|
|
|
-
|
|
|
|
(4.8
|
)
|
|
|
6.1
|
|
|
|
4.0
|
|
|
|
3.0
|
|
|
|
(10.9
|
)
|
|
|
(3.9
|
)
|
Income taxes
(1)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
(1.5
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
1.6
|
|
|
|
1.4
|
|
Net earnings attributable to noncontrolling
interests
(2)
|
|
|
(1.3
|
)
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
(2.9
|
)
|
|
|
(0.6
|
)
|
|
|
(0.4
|
)
|
|
|
-
|
|
|
|
(1.0
|
)
|
Capital contributions (returns of capital) and
other
(3)
|
|
|
66.7
|
|
|
|
(17.0
|
)
|
|
|
19.7
|
|
|
|
69.4
|
|
|
|
158.1
|
|
|
|
(9.8
|
)
|
|
|
16.2
|
|
|
|
164.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period
|
|
$
|
439.2
|
|
|
$
|
312.1
|
|
|
$
|
25.9
|
|
|
$
|
777.2
|
|
|
$
|
284.0
|
|
|
$
|
323.5
|
|
|
$
|
(5.2
|
)
|
|
$
|
602.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Federal income taxes for most Alleghany Capital subsidiaries are incurred at the Alleghany Capital corporate level. Estimated federal income tax (expense) benefit incurred at the Alleghany Capital corporate level
attributable to industrial and
non-industrial
operations for the second quarter of 2018 were ($1.9) million and ($0.4) million, respectively, and for the second quarter of 2017 were ($0.7) million and ($1.2)
million, respectively, and for the first six months of 2018 were ($2.1) million and ($0.0) million, respectively, and for the first six months of 2017 were ($1.4) million and ($1.0) million, respectively.
|
(2)
|
During the first six months of 2018, the noncontrolling interests outstanding were approximately as follows: Bourn & Koch - 11 percent; Kentucky Trailer - 21 percent; W&W|AFCO Steel -
20 percent; IPS - 16 percent; and Jazwares - 23 percent.
|
(3)
|
For the six months ended June 30, 2018, primarily reflected funding provided by Alleghany Capital for the February 7, 2018 acquisition of Hirschfeld by W&W|AFCO Steel. For the second quarter and first six
months of 2017, primarily reflected funding provided by Alleghany Capital for the acquisition of W&W|AFCO Steel.
|
Noninsurance revenue.
The increases in noninsurance revenue in the second quarter and first six months of 2018 from the
corresponding 2017 periods reflect significant increases in industrial operations, partially offset by decreases in
non-industrial
operations. The increases for the industrial operations primarily reflect the
acquisitions of W&W|AFCO Steel and, to a lesser extent, Hirschfeld, as well as increases in sales at Kentucky Trailer and Bourn & Koch. The decreases for the
non-industrial
operations primarily
reflect lower sales at IPS due to the timing of large projects and changes in the mix of services provided, partially offset by increases in sales at Jazwares.
Net investment income.
The increases in net investment income in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflect Alleghany Capitals earnings from its investment in Wilbert.
Net realized capital
gains.
Net realized capital gains in the second quarter and first six months of 2018 primarily reflect gains from the sale of certain investments and equipment, as well as certain foreign currency exchange rate impacts.
Other operating expenses.
The increases in other operating expenses in the second quarter and first six months of 2018 from the
corresponding 2017 periods reflect significant increases in industrial operations, partially offset by decreases in
non-industrial
operations and corporate & other. The increases for the industrial
operations primarily reflect the acquisitions of W&W|AFCO Steel and, to a lesser extent, Hirschfeld, as well as increases in costs related to higher sales at Kentucky Trailer and Bourn & Koch. Other operating expenses of the industrial
operations also reflect significant finders fees, legal and accounting costs and other transaction-related expenses in the first quarter of 2018, primarily related to W&W|AFCO Steels acquisition of Hirschfeld, as well as in the
second quarter of 2017, primarily related to Alleghany Capitals acquisition of W&W|AFCO Steel. The decreases in other operating expenses for the
non-industrial
operations primarily reflect lower
costs related to lower sales at IPS, partially offset by increases in
54
costs at Jazwares related to higher sales, as well as the impact of certain Toys R Us Inc. liquidation-related charges. The decreases at corporate & other is due to decreases
in long-term incentive compensation expense accruals at Alleghany Capital.
Amortization of intangible assets.
The increases
in amortization expense in the second quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the amortization of net intangible assets related to the acquisition of W&W|AFCO Steel and, to a lesser extent,
Hirschfeld.
Interest expense.
The increases in interest expense in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflect borrowings at W&W|AFCO Steel and, to a lesser extent, Hirschfeld.
Earnings (losses)
before income taxes.
The earnings before income taxes in the second quarter and first six months of 2018, compared with losses before income taxes in the second quarter and first six months of 2017, reflect increased earnings in the
industrial businesses and decreased corporate & other expenses, partially offset by lower earnings in the
non-industrial
business. The increases in industrial businesses earnings before taxes
primarily reflect Alleghany Capitals investment in Wilbert, as well as improved results at Kentucky Trailer and Bourn & Koch, all as discussed above. The increased earnings before income taxes from the acquisitions of W&W|AFCO
Steel and Hirschfeld were offset by increases in amortization expense. The decreases in
non-industrial
operating earnings before income taxes in the second quarter and first six months of 2018 reflect lower
sales at IPS and higher expenses at Jazwares, all as discussed above.
Corporate Activities Results
The primary components of corporate activities are Alleghany Properties, SORC and activities at the Alleghany parent company. The following
table presents the results for corporate activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Net premiums earned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net investment income
|
|
|
4.0
|
|
|
|
3.5
|
|
|
|
7.9
|
|
|
|
6.4
|
|
Change in the fair value of equity securities
|
|
|
38.4
|
|
|
|
-
|
|
|
|
9.9
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
9.0
|
|
|
|
6.7
|
|
|
|
12.3
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
51.2
|
|
|
|
10.1
|
|
|
|
29.9
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other operating expenses
|
|
|
8.8
|
|
|
|
9.9
|
|
|
|
16.7
|
|
|
|
20.2
|
|
Corporate administration
|
|
|
13.3
|
|
|
|
13.6
|
|
|
|
21.4
|
|
|
|
29.7
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
13.1
|
|
|
|
13.2
|
|
|
|
26.6
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
16.0
|
|
|
$
|
(26.6
|
)
|
|
$
|
(34.8
|
)
|
|
$
|
(59.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income.
The increases in net investment income in the second quarter and first six
months of 2018 from the corresponding 2017 periods primarily reflect higher dividend income resulting from an increase in the size of the equity security portfolio held at the Alleghany parent company-level.
Change in the fair value of equity securities.
In the first quarter of 2018, we adopted new investment accounting guidance which
required changes in the fair value of equity securities, except those accounted for under the equity method, to be recognized in net earnings. See Note 1(c) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1,
Financial Statements of this Form
10-Q
for additional information regarding our adoption of this new guidance.
The changes in the fair value of equity securities in the second quarter and first six months of 2018 reflect increases in the value of the
equity securities held at the Alleghany parent company-level, primarily from holdings in the energy sector.
Net realized capital
gains.
Net realized capital losses for the first six months of 2017 primarily reflect modest net losses from the sale of equity securities.
Noninsurance revenue.
The increases in noninsurance revenue in the second quarter and first six months of 2018 from the
corresponding 2017 periods primarily reflect increases in oil sales at SORC and property sales at Alleghany Properties.
55
Other operating expenses.
The decreases in other operating expenses in the second
quarter and first six months of 2018 from the corresponding 2017 periods primarily reflect the impact of the sale of a SORC legacy oil field on December 29, 2017.
Corporate administration.
The decrease in corporate administration expense in the first six months of 2018 from the first six
months of 2017 primarily reflects a decrease in Alleghanys long-term incentive compensation expense accruals due to the impact of a decline in unrealized appreciation on our debt securities portfolio in the first six months of 2018.
Earnings (Losses) before income taxes.
The earnings before income taxes in the second quarter of 2018 compared with losses before
income taxes in the second quarter of 2017, and the decrease in losses before income taxes in the first six months of 2018 from the first six months of 2017, primarily reflect an increase in the value of the equity securities held at the Alleghany
parent company-level and, to a lesser extent, decreases in losses before income taxes at SORC, all as discussed above. The decrease in losses before income taxes in the first six months of 2018 from the first six months of 2017 also reflects a
decrease in corporate administration expense, as discussed above.
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 reported, or IBNR) and LAE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
As of December 31, 2017
|
|
|
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
|
|
$
|
1,491.7
|
|
|
$
|
(429.5
|
)
|
|
$
|
1,062.2
|
|
|
$
|
1,758.0
|
|
|
$
|
(493.7
|
)
|
|
$
|
1,264.3
|
|
Casualty & other
(1)
|
|
|
7,342.4
|
|
|
|
(233.8
|
)
|
|
|
7,108.6
|
|
|
|
7,370.0
|
|
|
|
(251.0
|
)
|
|
|
7,119.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,834.1
|
|
|
|
(663.3
|
)
|
|
|
8,170.8
|
|
|
|
9,128.0
|
|
|
|
(744.7
|
)
|
|
|
8,383.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
461.6
|
|
|
|
(176.2
|
)
|
|
|
285.4
|
|
|
|
545.9
|
|
|
|
(225.9
|
)
|
|
|
320.0
|
|
Casualty
(2)
|
|
|
2,101.9
|
|
|
|
(667.5
|
)
|
|
|
1,434.4
|
|
|
|
2,078.6
|
|
|
|
(671.8
|
)
|
|
|
1,406.8
|
|
Workers Compensation
|
|
|
3.8
|
|
|
|
-
|
|
|
|
3.8
|
|
|
|
1.5
|
|
|
|
-
|
|
|
|
1.5
|
|
All other
(3)
|
|
|
180.3
|
|
|
|
(70.6
|
)
|
|
|
109.7
|
|
|
|
185.1
|
|
|
|
(75.5
|
)
|
|
|
109.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,747.6
|
|
|
|
(914.3
|
)
|
|
|
1,833.3
|
|
|
|
2,811.1
|
|
|
|
(973.2
|
)
|
|
|
1,837.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(66.2
|
)
|
|
|
66.2
|
|
|
|
-
|
|
|
|
(67.8
|
)
|
|
|
67.8
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,515.5
|
|
|
$
|
(1,511.4
|
)
|
|
$
|
10,004.1
|
|
|
$
|
11,871.3
|
|
|
$
|
(1,650.1
|
)
|
|
$
|
10,221.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
June
30, 2018 and December
31, 2017
. Gross and net loss and LAE reserves as of June 30, 2018 decreased from December 31, 2017, primarily reflecting payments on
catastrophe losses incurred in 2017 and favorable prior accident year loss reserve development.
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
56
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 June 30, 2018, our reinsurance and insurance subsidiaries had total reinsurance recoverables of
$1,602.6 million, consisting of $1,511.4 million of ceded outstanding loss and LAE and $91.2 million of recoverables on paid losses. See Part I, Item 1, Business Reinsurance Protection of the 2017 Form
10-K
for additional information on the reinsurance purchased by our reinsurance and insurance subsidiaries.
The following table presents information regarding concentration of our reinsurance recoverables and the ratings profile of our reinsurers as
of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
Reinsurer
(1)
|
|
Rating
(2)
|
|
Amount
|
|
Percentage
|
|
|
|
|
|
($ in millions)
|
|
|
|
Swiss Reinsurance Company
|
|
A+ (Superior)
|
|
$
|
126.9
|
|
|
|
7.9%
|
|
Syndicates at Lloyds of London
|
|
A (Excellent)
|
|
|
125.1
|
|
|
|
7.8%
|
|
PartnerRe Ltd
|
|
A (Excellent)
|
|
|
106.1
|
|
|
|
6.6%
|
|
Fairfax Financial Holdings Ltd
|
|
A (Excellent)
|
|
|
93.6
|
|
|
|
5.8%
|
|
W.R. Berkley Corporation
|
|
A+ (Superior)
|
|
|
85.6
|
|
|
|
5.3%
|
|
RenaissanceRe Holdings Ltd
|
|
A+ (Superior)
|
|
|
85.5
|
|
|
|
5.3%
|
|
Chubb Corporation
|
|
A++ (Superior)
|
|
|
79.4
|
|
|
|
5.0%
|
|
Liberty Mutual
|
|
A (Excellent)
|
|
|
57.6
|
|
|
|
3.6%
|
|
Kane SAC Ltd
(3)
|
|
not rated
|
|
|
50.0
|
|
|
|
3.1%
|
|
Hannover Ruck SE
|
|
A+ (Superior)
|
|
|
48.1
|
|
|
|
3.0%
|
|
All other reinsurers
|
|
|
|
|
744.7
|
|
|
|
46.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance recoverables
(4)
|
|
|
|
$
|
1,602.6
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured reinsurance recoverables
(3)
|
|
|
|
|
486.3
|
|
|
|
30.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Represents reinsurance recoverables secured by funds held, trust agreements or letters of credit.
|
(4)
|
Approximately 79 percent of our reinsurance recoverables balance as of June 30, 2018 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 June 30, 2018.
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 2017 Form
10-K
for a more complete description of our critical accounting estimates.
57
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 of, or substantial investments in, operating companies. As of June 30, 2018, we held total marketable securities and cash
of $1,299.6 million, compared with $1,383.4 million as of December 31, 2017. The decrease in the six months ended June 30, 2018 primarily reflects a special dividend and repurchases of shares of our common stock, each as
discussed below, as well as contributions to Alleghany Capital to fund the acquisition of Hirschfeld by its subsidiary, W&W|AFCO Steel, partially offset by the receipt of dividends from TransRe and RSUI and an increase in the value of the equity
securities held at the holding company-level. The $1,299.6 million is comprised of $479.0 million at the Alleghany parent company, $759.3 million at AIHL and $61.3 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 June 30, 2018.
Stockholders equity attributable to Alleghany stockholders was approximately $8.4 billion as of June 30, 2018, compared with
approximately $8.5 billion as of December 31, 2017. The decrease in stockholders equity in the first six months of 2018 primarily reflects a decline in unrealized appreciation on our debt securities portfolio due to an increase in
interest rates that occurred in the first six months of 2018, as well as a special dividend and repurchases of our common stock, all as discussed below, partially offset by net earnings. As of June 30, 2018, we had 14,994,679 shares of our
common stock outstanding, compared with 15,390,500 shares of our common stock outstanding as of December 31, 2017.
Sale of
Subsidiary
. On September 12, 2017, AIHL signed a definitive agreement to sell PacificComp to CopperPoint Mutual Insurance Company for total cash consideration of approximately $158 million. The transaction closed on December 31,
2017, at which time: (i) approximately $442 million of PacificComp assets, consisting primarily of debt securities, and approximately $316 million of PacificComp liabilities, consisting primarily of loss and LAE reserves, were
transferred; and (ii) AIHL recorded an
after-tax
gain of approximately $16 million, which included a tax benefit. 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. AIHL Res obligations, which are guaranteed by Alleghany, are subject to:
(i) an aggregate limit of $150.0 million; and (ii) a final commutation and settlement as of December 31, 2024.
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 2017 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 inception through
June 30, 2018.
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 November 2015, 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 $400.0 million, or the 2015
Repurchase Program. In June 2018, our Board of Directors authorized, upon the completion of the 2015 Repurchase Program, the repurchase 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. As of June 30, 2018, we had $527.1 million remaining under both share repurchase authorization programs.
58
The following table presents the shares of our common stock that we repurchased in the three and
six months ended June 30, 2018 and 2017 pursuant to the 2015 Repurchase Program:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Shares repurchased
|
|
368,551
|
|
-
|
|
403,623
|
|
-
|
Cost of shares repurchased (in millions)
|
|
$ 214.8
|
|
$ -
|
|
$ 236.1
|
|
$ -
|
Average price per share repurchased
|
|
$ 582.92
|
|
$ -
|
|
$ 584.96
|
|
$ -
|
Special Dividend.
In February 2018, the Alleghany Board of Directors declared a special dividend of $10
per share for stockholders of record on March 5, 2018. On March 15, 2018, we paid dividends to stockholders totaling $154.0 million.
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 both Pillar Holdings and the Funds, or collectively, 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 June 30, 2018, our carrying value in the Pillar Investments, as determined under the equity method of
accounting, was $219.8 million, which is net of returns of capital received from the Pillar Investments.
In July 2013, AIHL invested
$250.0 million in Ares, an asset manager, 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 into limited partner interests in certain Ares subsidiaries that were convertible into Ares common
units. On March 15, 2018, most of AIHLs limited partner interests were converted into Ares common units. As a result of the conversion and with respect to the limited partnership interests that were converted into Ares common units,
AIHL: (i) reclassified its converted interests from other invested assets to equity securities; (ii) increased its carrying value to $208.2 million to reflect the fair value of Ares common units; and (iii) recorded the
$45.7 million increase in carrying value as a realized capital gain as of March 15, 2018. As a result of the conversion and with respect to the unconverted limited partnership interests, AIHL: (i) changed its accounting from the
equity method to fair value; (ii) increased its carrying value to $58.7 million to reflect the fair value of Ares limited partnership interests; and (iii) recorded the $12.9 million increase in carrying value as a component of
net investment income as of March 15, 2018.
Investments in Commercial Mortgage Loans.
As of June 30, 2018, the carrying
value of our commercial mortgage loan portfolio was $695.8 million, representing the unpaid principal balance on the loans. As of June 30, 2018, 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 June 30, 2018, we had holdings of $920.0 million, comprised of $289.6 million of debt securities,
$487.1 million of equity securities and $143.3 million of our 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 June 30, 2018.
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, maturities and sales of investments and reinsurance recoveries. 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.
59
Included in Alleghany Capital is debt associated with its operating subsidiaries, which totaled
$185.4 million as of June 30, 2018. The $185.4 million includes $95.0 million of borrowings by W&W|AFCO Steel under its available credit facility and term loans (including borrowings incurred and assumed from its acquisition
of Hirschfeld), $41.0 million of borrowings by Jazwares under its available credit facility, $19.1 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions and borrowings under its available
credit facility, $15.7 million of borrowings by IPS under its available credit facility, and $14.6 million of term loans at Bourn & Koch related to borrowings to finance an acquisition and borrowings under its available credit
facility. None of these liabilities are guaranteed by Alleghany or Alleghany Capital.
With respect to corporate activities, SORC has
relied on Alleghany almost entirely to support its operations. From its formation in 2011 through June 30, 2018, we have invested $288.6 million in SORC.
Consolidated Investment Holdings
Investment Strategy and Holdings.
Our investment strategy seeks to preserve principal and maintain liquidity while trying to maximize
our risk-adjusted,
after-tax
rate of return. Our investment decisions are guided mainly by the nature and timing of expected liability payouts, managements forecast of cash flows and the possibility of
unexpected cash demands, for example, to satisfy claims due to catastrophe losses. Our consolidated investment portfolio currently consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The
overall credit quality of the debt securities portfolio is measured using the lowest rating of Standard & Poors Ratings Services, Moodys Investors Service, Inc. or Fitch Ratings, Inc. In this regard, the overall weighted-average
credit quality rating of our debt securities portfolio as of June 30, 2018 and December 31, 2017 was
AA-.
Although many of our debt securities, which consist predominantly of municipal bonds, are
insured by third-party financial guaranty insurance companies, the impact of such insurance was not significant to the debt securities credit quality rating as of June 30, 2018. The following table presents the ratings of our debt securities
portfolio as of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings as of June 30, 2018
|
|
|
AAA / Aaa
|
|
AA / Aa
|
|
A
|
|
BBB / Baa
|
|
Below
BBB / Baa or
Not Rated
(1)
|
|
Total
|
|
|
($ in millions)
|
U.S. Government obligations
|
|
$
|
-
|
|
|
$
|
993.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
993.6
|
|
Municipal bonds
|
|
|
261.5
|
|
|
|
1,879.7
|
|
|
|
583.7
|
|
|
|
116.7
|
|
|
|
0.9
|
|
|
|
2,842.5
|
|
Foreign government obligations
|
|
|
465.9
|
|
|
|
277.4
|
|
|
|
180.5
|
|
|
|
9.1
|
|
|
|
-
|
|
|
|
932.9
|
|
U.S. corporate bonds
|
|
|
9.5
|
|
|
|
102.4
|
|
|
|
844.4
|
|
|
|
1,012.7
|
|
|
|
439.4
|
|
|
|
2,408.4
|
|
Foreign corporate bonds
|
|
|
320.5
|
|
|
|
143.0
|
|
|
|
550.4
|
|
|
|
332.3
|
|
|
|
66.2
|
|
|
|
1,412.4
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
15.1
|
|
|
|
1,089.6
|
|
|
|
-
|
|
|
|
49.0
|
|
|
|
7.0
|
|
|
|
1,160.7
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
155.5
|
|
|
|
316.2
|
|
|
|
67.6
|
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
540.6
|
|
Other asset-backed securities
|
|
|
687.8
|
|
|
|
417.7
|
|
|
|
350.0
|
|
|
|
404.8
|
|
|
|
4.5
|
|
|
|
1,864.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
1,915.8
|
|
|
$
|
5,219.6
|
|
|
$
|
2,576.6
|
|
|
$
|
1,925.7
|
|
|
$
|
518.2
|
|
|
$
|
12,155.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of debt securities
|
|
|
15.8%
|
|
|
|
42.9%
|
|
|
|
21.2%
|
|
|
|
15.8%
|
|
|
|
4.3%
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of $161.0 million of securities rated BB / Ba, $226.9 million of securities rated B, $38.2 million of securities rated CCC, $2.6 million of securities rated CC, $3.1 million of
securities rated below CC and $86.4 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 AFS.
Effective duration
measures a portfolios sensitivity to changes in interest rates. In this regard, as of June 30, 2018 and December 31, 2017, our debt securities portfolio had an effective duration of approximately 4.3 years and 4.4 years,
respectively. As of June 30, 2018, approximately $3.4 billion, or 28 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.
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
60
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 decreased to approximately $18.6 billion as of June 30, 2018 from
approximately $18.8 billion as of December 31, 2017, primarily reflecting a decline in unrealized appreciation on our debt securities portfolio due to an increase in interest rates that occurred in the first six months of 2018,
contributions to Alleghany Capital to fund the acquisition of Hirschfeld by its subsidiary, W&W|AFCO Steel, and repurchases of shares of our common stock, partially offset by an increase in the fair value of equity securities, all as discussed
above. The special dividend was funded by the proceeds from the sale of PacificComp at December 31, 2017.
Fair Value.
The
following table presents the carrying values and estimated fair values of our consolidated financial instruments as of June 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
($ in millions)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (excluding equity method investments and loans)
(1)
|
|
$
|
17,401.1
|
|
|
$
|
17,401.1
|
|
|
$
|
17,406.5
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
(2)
|
|
$
|
1,569.4
|
|
|
$
|
1,697.6
|
|
|
$
|
1,484.9
|
|
|
$
|
1,614.6
|
|
(1)
|
This table includes 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 2017 Form
10-K
for additional
information on the senior notes and other debt.
|
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, other asset-backed securities (primarily, collateralized loan
obligations), U.S. and foreign corporate bonds (including privately issued securities), 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.
|
|
|
Our Level 3 liabilities consist of the debt of Alleghany Capitals operating subsidiaries.
|
62
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 June 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in millions)
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
4,704.2
|
|
|
$
|
3.6
|
|
|
$
|
-
|
|
|
$
|
4,707.8
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
6.3
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
4,704.2
|
|
|
|
3.6
|
|
|
|
6.3
|
|
|
|
4,714.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
993.6
|
|
|
|
-
|
|
|
|
993.6
|
|
Municipal bonds
|
|
|
-
|
|
|
|
2,842.5
|
|
|
|
-
|
|
|
|
2,842.5
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
932.9
|
|
|
|
-
|
|
|
|
932.9
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,040.6
|
|
|
|
367.8
|
|
|
|
2,408.4
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,317.6
|
|
|
|
94.8
|
|
|
|
1,412.4
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
1,160.7
|
|
|
|
-
|
|
|
|
1,160.7
|
|
CMBS
|
|
|
-
|
|
|
|
540.6
|
|
|
|
-
|
|
|
|
540.6
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
640.8
|
|
|
|
1,224.0
|
|
|
|
1,864.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
10,469.3
|
|
|
|
1,686.6
|
|
|
|
12,155.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
472.8
|
|
|
|
-
|
|
|
|
472.8
|
|
|
|
|
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
58.3
|
|
|
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
4,704.2
|
|
|
$
|
10,945.7
|
|
|
$
|
1,751.2
|
|
|
$
|
17,401.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,512.2
|
|
|
$
|
185.4
|
|
|
$
|
1,697.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in millions)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
4,090.7
|
|
|
$
|
3.8
|
|
|
$
|
-
|
|
|
$
|
4,094.5
|
|
Preferred stock
|
|
|
-
|
|
|
|
3.1
|
|
|
|
1.9
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
4,090.7
|
|
|
|
6.9
|
|
|
|
1.9
|
|
|
|
4,099.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
948.0
|
|
|
|
-
|
|
|
|
948.0
|
|
Municipal bonds
|
|
|
-
|
|
|
|
3,682.1
|
|
|
|
-
|
|
|
|
3,682.1
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
1,006.6
|
|
|
|
-
|
|
|
|
1,006.6
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,173.0
|
|
|
|
260.0
|
|
|
|
2,433.0
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,424.6
|
|
|
|
75.2
|
|
|
|
1,499.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
833.8
|
|
|
|
161.8
|
|
|
|
995.6
|
|
CMBS
|
|
|
-
|
|
|
|
550.1
|
|
|
|
1.6
|
|
|
|
551.7
|
|
Other asset-backed
securities
(2)
|
|
|
-
|
|
|
|
503.3
|
|
|
|
1,101.3
|
|
|
|
1,604.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
11,121.5
|
|
|
|
1,599.9
|
|
|
|
12,721.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
578.1
|
|
|
|
-
|
|
|
|
578.1
|
|
|
|
|
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
4,090.7
|
|
|
$
|
11,706.5
|
|
|
$
|
1,609.3
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,513.6
|
|
|
$
|
101.0
|
|
|
$
|
1,614.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily includes government agency pass-through securities guaranteed by a government agency or government
sponsored enterprise, among other types of RMBS.
|
(2)
|
Includes $1,224.0 million and $1,101.3 million of collateralized loan obligations as of June 30,
2018 and December 31, 2017, respectively.
|
(3)
|
Includes partnership and
non-marketable
equity investments accounted for
at fair value, and excludes investments accounted for using the equity method.
|
Municipal Bonds.
The following
table provides the fair value of our municipal bonds as of June 30, 2018, categorized by state and revenue source. Special revenue bonds are debt securities for which the payment of principal and interest is available solely from the cash flows
of the related projects. As issuers of revenue bonds do not have the ability to draw from tax revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than general obligation bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Revenue
|
|
|
|
|
State
|
|
Education
|
|
Hospital
|
|
Housing
|
|
Lease
Revenue
|
|
Special Tax
|
|
Transit
|
|
Utilities
|
|
All Other
Sources
|
|
Total
Special
Revenue
|
|
Total
General
Obligation
|
|
Total Fair
Value
|
|
|
($ in millions)
|
New York
|
|
$
|
18.0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
104.6
|
|
|
$
|
89.8
|
|
|
$
|
35.8
|
|
|
$
|
18.1
|
|
|
$
|
266.3
|
|
|
$
|
9.3
|
|
|
$
|
275.6
|
|
Texas
|
|
|
25.1
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
10.6
|
|
|
|
51.2
|
|
|
|
73.4
|
|
|
|
2.3
|
|
|
|
162.8
|
|
|
|
69.3
|
|
|
|
232.1
|
|
California
|
|
|
8.6
|
|
|
|
43.9
|
|
|
|
-
|
|
|
|
2.5
|
|
|
|
1.3
|
|
|
|
35.2
|
|
|
|
70.0
|
|
|
|
-
|
|
|
|
161.5
|
|
|
|
60.1
|
|
|
|
221.6
|
|
Massachusetts
|
|
|
18.9
|
|
|
|
5.5
|
|
|
|
6.8
|
|
|
|
-
|
|
|
|
30.2
|
|
|
|
30.0
|
|
|
|
27.6
|
|
|
|
0.3
|
|
|
|
119.3
|
|
|
|
75.7
|
|
|
|
195.0
|
|
Washington
|
|
|
-
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
-
|
|
|
|
11.7
|
|
|
|
13.0
|
|
|
|
30.7
|
|
|
|
2.3
|
|
|
|
59.4
|
|
|
|
49.9
|
|
|
|
109.3
|
|
Pennsylvania
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
10.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26.1
|
|
|
|
1.1
|
|
|
|
14.7
|
|
|
|
56.0
|
|
|
|
36.6
|
|
|
|
92.6
|
|
District of Columbia
|
|
|
4.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62.9
|
|
|
|
13.1
|
|
|
|
3.9
|
|
|
|
-
|
|
|
|
84.6
|
|
|
|
7.1
|
|
|
|
91.7
|
|
Ohio
|
|
|
43.3
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
2.1
|
|
|
|
-
|
|
|
|
24.1
|
|
|
|
3.1
|
|
|
|
73.3
|
|
|
|
18.1
|
|
|
|
91.4
|
|
Colorado
|
|
|
23.7
|
|
|
|
16.1
|
|
|
|
-
|
|
|
|
10.1
|
|
|
|
2.4
|
|
|
|
8.0
|
|
|
|
6.2
|
|
|
|
-
|
|
|
|
66.5
|
|
|
|
17.2
|
|
|
|
83.7
|
|
New Jersey
|
|
|
28.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16.4
|
|
|
|
-
|
|
|
|
32.4
|
|
|
|
77.1
|
|
|
|
-
|
|
|
|
77.1
|
|
All other states
|
|
|
125.6
|
|
|
|
96.8
|
|
|
|
24.7
|
|
|
|
52.5
|
|
|
|
83.1
|
|
|
|
80.6
|
|
|
|
130.5
|
|
|
|
149.6
|
|
|
|
743.4
|
|
|
|
193.7
|
|
|
|
937.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
298.6
|
|
|
$
|
164.3
|
|
|
$
|
43.8
|
|
|
$
|
65.1
|
|
|
$
|
308.9
|
|
|
$
|
363.4
|
|
|
$
|
403.3
|
|
|
$
|
222.8
|
|
|
$
|
1,870.2
|
|
|
$
|
537.0
|
|
|
|
2,407.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advanced refunded / escrowed maturity funds
|
|
|
|
435.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total municipal bonds
|
|
|
$
|
2,842.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Standards
Recently Adopted
In February
2018, the Financial Accounting Standards Board, or the FASB, issued guidance on certain tax effects caused by the Tax Act, which was signed into law on December 22, 2017. The Tax Act, among other things, reduced the U.S.
corporate federal income tax rate from 35.0 percent to 21.0 percent, effective January 1, 2018 for the 2018 tax year. Under such circumstances, GAAP
64
requires that the value of deferred tax assets and liabilities be reduced through tax expense. The new guidance provides an option to reclassify any stranded tax amounts that remain in
accumulated other comprehensive income to retained earnings, either retrospectively or at the beginning of the period in which the adoption is elected. This guidance became effective in the first quarter of 2018 for public entities, with early
adoption permitted in 2017. We adopted this new guidance in the first quarter of 2018 and have elected to reclassify stranded tax amounts that remain in accumulated other comprehensive income, in the amount of approximately $135 million, to
retained earnings as of January 1, 2018. See Note 7(b) 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 accumulated other comprehensive income, and see Note 9 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2017 Form
10-K
for additional information on the Tax Act and its impact on Alleghany.
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 adopted this guidance
in the fourth quarter of 2017 and recorded a cumulative effect reduction of approximately $13 million directly to opening 2017 retained earnings and an offsetting increase in opening 2017 accumulated other comprehensive income. The
implementation did not have a material impact on our results of operations and financial condition. See Note 7(b) 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 accumulated other comprehensive income.
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 contracts and revenues
from investments are not impacted by this guidance, whereas noninsurance revenues arising from the sale of manufactured goods and services is generally included within the scope of this guidance. This guidance, and all related amendments, became
effective in the first quarter of 2018 for public entities, with early adoption permitted in 2017. We adopted this guidance in the first quarter of 2018 using the modified retrospective transition approach and the implementation did not have a
material impact on our results of operations and financial condition. 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 further information on Alleghanys noninsurance revenues.
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, but including partnership
investments not accounted for under the equity method) to be measured at fair value with changes in fair value recognized in net earnings. 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 adopted this guidance in the first quarter of 2018. As of January 1, 2018, approximately $736 million of net unrealized gains of equity securities, net of deferred taxes, were reclassified from accumulated other
comprehensive income to retained earnings. Subsequently, all changes in unrealized gains or losses of equity securities, net of deferred taxes, were presented in the Consolidated Statements of Earnings rather than the Consolidated Statements of
Comprehensive Income, under the caption change in the fair value of equity securities. Results arising from partnership investments, whether accounted for under the equity method or at fair value, continue to be reported as a component
of net investment income. The implementation did not have a material impact on our financial condition. 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 further information on Alleghanys equity securities, and Note 7(b) 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 accumulated other comprehensive income.
Future Application of
Accounting Standards
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
65
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 2017 Form
10-K
for further information on Alleghanys 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. 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. See Note 2 to Notes to Consolidated Financial Statements set
forth in Part II, Item 8, Financial Statements and Supplementary Data of the 2017 Form
10-K
for further information on our goodwill.
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 improves the alignment between hedge accounting and 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.
66