Item 1. Financial Statements.
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
(unaudited)
|
|
|
|
|
($ in thousands, except share amounts)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Securities at fair value:
|
|
|
|
|
|
|
|
|
Equity securities (cost: 2018 $3,655,220; 2017 $3,170,673)
|
|
$
|
5,028,578
|
|
|
$
|
4,099,467
|
|
Debt securities (amortized cost: 2018 $12,179,758; 2017
$12,536,772)
|
|
|
12,071,191
|
|
|
|
12,721,399
|
|
Short-term investments
|
|
|
690,627
|
|
|
|
578,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,790,396
|
|
|
|
17,398,920
|
|
Commercial mortgage loans
|
|
|
695,889
|
|
|
|
658,364
|
|
Other invested assets
|
|
|
556,438
|
|
|
|
743,358
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
19,042,723
|
|
|
|
18,800,642
|
|
Cash
|
|
|
646,908
|
|
|
|
838,375
|
|
Accrued investment income
|
|
|
98,723
|
|
|
|
105,877
|
|
Premium balances receivable
|
|
|
839,017
|
|
|
|
797,346
|
|
Reinsurance recoverables
|
|
|
1,768,841
|
|
|
|
1,746,488
|
|
Ceded unearned premiums
|
|
|
228,459
|
|
|
|
190,252
|
|
Deferred acquisition costs
|
|
|
471,282
|
|
|
|
453,346
|
|
Property and equipment at cost, net of accumulated depreciation and amortization
|
|
|
196,314
|
|
|
|
125,337
|
|
Goodwill
|
|
|
346,022
|
|
|
|
334,905
|
|
Intangible assets, net of amortization
|
|
|
465,830
|
|
|
|
459,037
|
|
Current taxes receivable
|
|
|
100,130
|
|
|
|
31,085
|
|
Net deferred tax assets
|
|
|
-
|
|
|
|
136,489
|
|
Funds held under reinsurance agreements
|
|
|
755,734
|
|
|
|
706,042
|
|
Other assets
|
|
|
835,901
|
|
|
|
659,096
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,795,884
|
|
|
$
|
25,384,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Noncontrolling Interests and Stockholders Equity
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses
|
|
$
|
11,854,859
|
|
|
$
|
11,871,250
|
|
Unearned premiums
|
|
|
2,300,788
|
|
|
|
2,182,294
|
|
Senior Notes and other debt
|
|
|
1,581,676
|
|
|
|
1,484,897
|
|
Reinsurance payable
|
|
|
160,625
|
|
|
|
156,376
|
|
Net deferred tax liabilities
|
|
|
6,198
|
|
|
|
-
|
|
Other liabilities
|
|
|
1,158,146
|
|
|
|
1,068,907
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,062,292
|
|
|
|
16,763,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
|
138,507
|
|
|
|
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
|
|
|
3,612,862
|
|
|
|
3,612,109
|
|
Accumulated other comprehensive (loss) income
|
|
|
(220,808
|
)
|
|
|
618,118
|
|
Treasury stock, at cost (2018 2,541,581 shares; 2017 2,069,461 shares)
|
|
|
(1,103,835
|
)
|
|
|
(824,906
|
)
|
Retained earnings
|
|
|
6,289,406
|
|
|
|
5,091,282
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity attributable to Alleghany stockholders
|
|
|
8,595,085
|
|
|
|
8,514,063
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest and stockholders
equity
|
|
$
|
25,795,884
|
|
|
$
|
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 September 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands, except per share amounts)
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
1,225,346
|
|
|
$
|
1,239,721
|
|
Net investment income
|
|
|
127,329
|
|
|
|
104,663
|
|
Change in the fair value of equity securities
|
|
|
370,175
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
16,230
|
|
|
|
32,921
|
|
Other than temporary impairment losses
|
|
|
(3
|
)
|
|
|
(6,131
|
)
|
Noninsurance revenue
|
|
|
438,338
|
|
|
|
296,309
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,177,415
|
|
|
|
1,667,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
957,703
|
|
|
|
1,491,848
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
407,679
|
|
|
|
398,163
|
|
Other operating expenses
|
|
|
415,378
|
|
|
|
277,918
|
|
Corporate administration
|
|
|
19,094
|
|
|
|
(4,689
|
)
|
Amortization of intangible assets
|
|
|
5,500
|
|
|
|
5,765
|
|
Interest expense
|
|
|
22,189
|
|
|
|
20,804
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,827,543
|
|
|
|
2,189,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
349,872
|
|
|
|
(522,326
|
)
|
Income taxes
|
|
|
60,413
|
|
|
|
(212,379
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
|
289,459
|
|
|
|
(309,947
|
)
|
Net earnings attributable to noncontrolling interest
|
|
|
4,559
|
|
|
|
4,210
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses) attributable to Alleghany stockholders
|
|
$
|
284,900
|
|
|
$
|
(314,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
$
|
289,459
|
|
|
$
|
(309,947
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses), net of deferred taxes of ($8,932) and $52,766 for
2018 and
2017, respectively
|
|
|
(33,601
|
)
|
|
|
97,994
|
|
Less: reclassification for net realized capital gains and other than temporary
impairments,
net of taxes of ($3,408) and ($9,377) for 2018 and 2017, respectively
|
|
|
(12,819
|
)
|
|
|
(17,414
|
)
|
Change in unrealized currency translation adjustment, net of deferred taxes of ($407)
and
$3,967 for 2018 and 2017, respectively
|
|
|
(1,530
|
)
|
|
|
7,368
|
|
Retirement plans
|
|
|
(551
|
)
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
240,958
|
|
|
|
(221,901
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
4,559
|
|
|
|
4,210
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Alleghany stockholders
|
|
$
|
236,399
|
|
|
$
|
(226,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (losses) per share attributable to Alleghany stockholders
|
|
$
|
19.07
|
|
|
$
|
(20.38
|
)
|
Diluted earnings (losses) per share attributable to Alleghany stockholders
|
|
|
19.07
|
|
|
|
(20.90
|
)
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands, except per share amounts)
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
3,670,161
|
|
|
$
|
3,692,838
|
|
Net investment income
|
|
|
377,728
|
|
|
|
321,857
|
|
Change in the fair value of equity securities
|
|
|
512,771
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
67,197
|
|
|
|
101,840
|
|
Other than temporary impairment losses
|
|
|
(514
|
)
|
|
|
(13,095
|
)
|
Noninsurance revenue
|
|
|
1,032,690
|
|
|
|
650,413
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,660,033
|
|
|
|
4,753,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
2,366,491
|
|
|
|
2,926,039
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
1,216,057
|
|
|
|
1,220,415
|
|
Other operating expenses
|
|
|
1,023,440
|
|
|
|
678,226
|
|
Corporate administration
|
|
|
40,998
|
|
|
|
26,601
|
|
Amortization of intangible assets
|
|
|
16,730
|
|
|
|
14,140
|
|
Interest expense
|
|
|
65,997
|
|
|
|
62,728
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,729,713
|
|
|
|
4,928,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
930,320
|
|
|
|
(174,296
|
)
|
Income taxes
|
|
|
171,275
|
|
|
|
(116,368
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
|
759,045
|
|
|
|
(57,928
|
)
|
Net earnings attributable to noncontrolling interest
|
|
|
7,454
|
|
|
|
5,242
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses) attributable to Alleghany stockholders
|
|
$
|
751,591
|
|
|
$
|
(63,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
$
|
759,045
|
|
|
$
|
(57,928
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses), net of deferred taxes of ($56,690) and $196,336
for 2018 and
2017, respectively
|
|
|
(213,263
|
)
|
|
|
364,623
|
|
Less: reclassification for net realized capital gains and other than temporary
impairments,
net of taxes of ($4,398) and ($31,061) for 2018 and 2017, respectively
|
|
|
(16,546
|
)
|
|
|
(57,684
|
)
|
Change in unrealized currency translation adjustment, net of deferred taxes of
($1,848) and
$12,050 for 2018 and 2017, respectively
|
|
|
(6,953
|
)
|
|
|
22,379
|
|
Retirement plans
|
|
|
(1,664
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
520,619
|
|
|
|
271,191
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
7,454
|
|
|
|
5,242
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Alleghany stockholders
|
|
$
|
513,165
|
|
|
$
|
265,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (losses) per share attributable to Alleghany stockholders
|
|
$
|
49.55
|
|
|
$
|
(4.10
|
)
|
Diluted earnings (losses) per share attributable to Alleghany stockholders
|
|
|
49.53
|
|
|
|
(4.10
|
)
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
($ in thousands)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
$
|
759,045
|
|
|
$
|
(57,928
|
)
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
95,427
|
|
|
|
106,197
|
|
Change in the fair value of equity securities
|
|
|
(512,771
|
)
|
|
|
-
|
|
Net realized capital (gains) losses
|
|
|
(67,197
|
)
|
|
|
(101,840
|
)
|
Other than temporary impairment losses
|
|
|
514
|
|
|
|
13,095
|
|
(Increase) decrease in reinsurance recoverables, net of reinsurance payable
|
|
|
(18,104
|
)
|
|
|
(413,548
|
)
|
(Increase) decrease in premium balances receivable
|
|
|
(41,671
|
)
|
|
|
(134,088
|
)
|
(Increase) decrease in ceded unearned premiums
|
|
|
(38,207
|
)
|
|
|
(7,368
|
)
|
(Increase) decrease in deferred acquisition costs
|
|
|
(17,936
|
)
|
|
|
(28,000
|
)
|
(Increase) decrease in funds held under reinsurance agreements
|
|
|
(49,692
|
)
|
|
|
(94,222
|
)
|
Increase (decrease) in unearned premiums
|
|
|
118,494
|
|
|
|
120,456
|
|
Increase (decrease) in loss and loss adjustment expenses
|
|
|
(16,391
|
)
|
|
|
1,369,176
|
|
Change in unrealized foreign currency exchange rate losses (gains)
|
|
|
63,452
|
|
|
|
(134,404
|
)
|
Other, net
|
|
|
48,819
|
|
|
|
(211,479
|
)
|
|
|
|
|
|
|
|
|
|
Net adjustments
|
|
|
(435,263
|
)
|
|
|
483,975
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
323,782
|
|
|
|
426,047
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of debt securities
|
|
|
(3,206,369
|
)
|
|
|
(4,181,182
|
)
|
Purchases of equity securities
|
|
|
(678,311
|
)
|
|
|
(3,218,941
|
)
|
Sales of debt securities
|
|
|
2,279,104
|
|
|
|
2,836,272
|
|
Maturities and redemptions of debt securities
|
|
|
1,183,469
|
|
|
|
1,397,408
|
|
Sales of equity securities
|
|
|
532,864
|
|
|
|
2,970,760
|
|
Net (purchases) sales of short-term investments
|
|
|
(113,699
|
)
|
|
|
174,501
|
|
Net (purchases) sales and maturities of commercial mortgage loans
|
|
|
(37,525
|
)
|
|
|
(54,822
|
)
|
(Purchases) sales of property and equipment
|
|
|
(38,866
|
)
|
|
|
10,268
|
|
Purchases of affiliates and subsidiaries, net of cash acquired
|
|
|
(110,636
|
)
|
|
|
(244,311
|
)
|
Other, net
|
|
|
59,382
|
|
|
|
28,302
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(130,587
|
)
|
|
|
(281,745
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Treasury stock acquisitions
|
|
|
(282,053
|
)
|
|
|
(8,549
|
)
|
Increase (decrease) in other debt
|
|
|
50,892
|
|
|
|
(27,202
|
)
|
Cash dividends paid
|
|
|
(153,967
|
)
|
|
|
-
|
|
Other, net
|
|
|
7,854
|
|
|
|
(17,070
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(377,274
|
)
|
|
|
(52,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(7,388
|
)
|
|
|
16,269
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(191,467
|
)
|
|
|
107,750
|
|
Cash at beginning of period
|
|
|
838,375
|
|
|
|
594,091
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
646,908
|
|
|
$
|
701,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
59,806
|
|
|
$
|
58,133
|
|
Income taxes paid (refund received)
|
|
|
33,332
|
|
|
|
29,320
|
|
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 Reports on Form
10-Q
for the quarters ended March 31, 2018 and June 30, 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), 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 nine months of 2018, the noncontrolling interests outstanding were approximately as follows: Bourn & Koch - 11 percent; Kentucky Trailer - 21 percent; IPS - 15 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
In August 2018, the FASB issued guidance that changes the financial statement disclosure
requirements for measuring fair value. With respect to financial instruments classified as Level 3 in the fair value disclosure hierarchy, the guidance requires certain additional disclosures for public entities related to amounts
included in other comprehensive income and significant unobservable inputs used in the valuation, while removing disclosure requirements related to an entitys overall valuation processes. The guidance also removes certain disclosure
requirements related to transfers between financial instruments classified as Level 1 and Level 2 and provides clarification on certain other existing disclosure requirements. This guidance is effective for interim
and annual periods beginning after December 15, 2019, with early adoption permitted with respect to any eliminated or modified disclosures. 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.
2. Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of Alleghanys consolidated financial instruments as of
September 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
($ in millions)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (excluding equity method investments and loans)
(1)
|
|
$
|
17,791.3
|
|
|
$
|
17,791.3
|
|
|
$
|
17,406.5
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
(2)
|
|
$
|
1,581.7
|
|
|
$
|
1,701.8
|
|
|
$
|
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 September 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
($ in millions)
|
|
As of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
5,016.7
|
|
|
$
|
3.5
|
|
|
$
|
-
|
|
|
$
|
5,020.2
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
8.4
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
5,016.7
|
|
|
|
3.5
|
|
|
|
8.4
|
|
|
|
5,028.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
1,028.6
|
|
|
|
-
|
|
|
|
1,028.6
|
|
Municipal bonds
|
|
|
-
|
|
|
|
2,604.3
|
|
|
|
-
|
|
|
|
2,604.3
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
902.0
|
|
|
|
-
|
|
|
|
902.0
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,040.7
|
|
|
|
403.0
|
|
|
|
2,443.7
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,310.4
|
|
|
|
108.4
|
|
|
|
1,418.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities (RMBS)
(1)
|
|
|
-
|
|
|
|
1,115.6
|
|
|
|
-
|
|
|
|
1,115.6
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
-
|
|
|
|
523.9
|
|
|
|
-
|
|
|
|
523.9
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
654.4
|
|
|
|
1,379.9
|
|
|
|
2,034.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
10,179.9
|
|
|
|
1,891.3
|
|
|
|
12,071.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
690.6
|
|
|
|
-
|
|
|
|
690.6
|
|
|
|
|
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
5,016.7
|
|
|
$
|
10,874.0
|
|
|
$
|
1,900.6
|
|
|
$
|
17,791.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,504.1
|
|
|
$
|
197.7
|
|
|
$
|
1,701.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,368.9 million and $1,101.3 million of collateralized loan obligations as of September 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.
|
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
equity securities, was transferred into Level 1, and $58.7 million of Ares limited partner interests, classified as other invested assets, was transferred into Level 3. On September 24, 2018, AIHLs remaining
$56.9 million of Ares limited partner interests were converted into Ares common units and, as a result, was transferred from Level 3 other invested assets into Level 1 common stocks.
Aside from the $56.9 million of Ares-related other invested assets transferred out of Level 3, in the nine months ended
September 30, 2018, Alleghany transferred out of Level 3 an additional $153.7 million of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the
first nine months 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
$153.7 million of transfers, $150.6 million related to RMBS, $1.6 million related to CMBS, $1.3 million related to U.S. corporate bonds and $0.2 million related to foreign corporate bonds.
In addition to the $58.7 million of Ares-related other invested assets transferred into Level 3, in the nine months ended
September 30, 2018, Alleghany transferred into Level 3 $5.6 million 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, $4.4 million related to preferred stock and $1.2 million related to U.S. corporate bonds. There were no other material transfers between Levels 1, 2 or 3 in the three and nine months ended
September 30, 2018.
In the nine months ended September 30, 2017, Alleghany transferred out of Level 3 $7.2 million of
financial instruments, 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. There were no transfers of financial instruments out of Level 3 in the third quarter of 2017.
In the three and nine months ended September 30, 2017, Alleghany transferred into Level 3 $0.8 million and $5.5 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 $5.5 million of transfers, $3.8 million related to
U.S. corporate bonds, $1.4 million related to common stock and $0.3 million related to foreign corporate bonds. There were no other material transfers between Levels 1, 2 or 3 in the three and nine months ended September 30, 2017.
9
The following tables present reconciliations of the changes during the nine months ended
September 30, 2018 and 2017 in Level 3 assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Preferred
Stock
|
|
U.S.
Corporate
Bonds
|
|
Foreign
Corporate
Bonds
|
|
RMBS
|
|
CMBS
|
|
Other Asset-
backed
Securities
|
|
Other
Invested
Assets
(1)
|
|
Total
|
|
|
($ 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
|
)
|
|
|
-
|
|
|
|
1.5
|
|
|
|
1.2
|
|
|
|
2.3
|
|
Other comprehensive income
(loss)
|
|
|
0.2
|
|
|
|
(7.4
|
)
|
|
|
(2.5
|
)
|
|
|
(5.3
|
)
|
|
|
-
|
|
|
|
(10.3
|
)
|
|
|
(4.0
|
)
|
|
|
(29.3
|
)
|
Purchases
|
|
|
2.0
|
|
|
|
153.7
|
|
|
|
38.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
705.3
|
|
|
|
-
|
|
|
|
899.9
|
|
Sales
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(56.7
|
)
|
|
|
(5.6
|
)
|
|
|
(62.4
|
)
|
Issuances
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
|
|
(3.2
|
)
|
|
|
(2.9
|
)
|
|
|
(5.6
|
)
|
|
|
-
|
|
|
|
(361.2
|
)
|
|
|
-
|
|
|
|
(372.9
|
)
|
Transfers into
Level 3
|
|
|
4.4
|
|
|
|
1.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58.7
|
|
|
|
64.3
|
|
Transfers out of
Level 3
|
|
|
-
|
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
|
|
(150.6
|
)
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
(56.9
|
)
|
|
|
(210.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2018
|
|
$
|
8.4
|
|
|
$
|
403.0
|
|
|
$
|
108.4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,379.9
|
|
|
$
|
0.9
|
|
|
$
|
1,900.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Foreign
Government
Obligations
|
|
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)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
3.9
|
|
|
|
10.8
|
|
|
|
14.7
|
|
Other comprehensive
income
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
3.2
|
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
15.0
|
|
|
|
(8.9
|
)
|
|
|
10.7
|
|
Purchases
|
|
|
-
|
|
|
|
5.6
|
|
|
|
4.7
|
|
|
|
220.4
|
|
|
|
38.6
|
|
|
|
-
|
|
|
|
9.6
|
|
|
|
746.7
|
|
|
|
-
|
|
|
|
1,025.6
|
|
Sales
|
|
|
(2.6
|
)
|
|
|
(0.6
|
)
|
|
|
-
|
|
|
|
(10.2
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
(2.2
|
)
|
|
|
(59.5
|
)
|
|
|
(21.6
|
)
|
|
|
(96.9
|
)
|
Issuances
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6.3
|
)
|
|
|
-
|
|
|
|
(1.0
|
)
|
|
|
(0.4
|
)
|
|
|
(427.4
|
)
|
|
|
-
|
|
|
|
(435.1
|
)
|
Transfers into
Level 3
|
|
|
1.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.8
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.5
|
|
Transfers out of
Level 3
|
|
|
(2.4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2017
|
|
$
|
0.9
|
|
|
$
|
5.0
|
|
|
$
|
4.7
|
|
|
$
|
278.8
|
|
|
$
|
39.9
|
|
|
$
|
5.4
|
|
|
$
|
11.4
|
|
|
$
|
1,182.5
|
|
|
$
|
8.4
|
|
|
$
|
1,537.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 30, 2018 and 2017.
|
Net unrealized losses related to Level 3 assets
as of September 30, 2018 and December 31, 2017 were not material.
The increase in Senior Notes and other debt included in
Level 3 for the first nine months of 2018 primarily reflects increased borrowings at W&W|AFCO Steel, including its acquisition of Hirschfeld.
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 September 30, 2018 and
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
($ in millions)
|
As of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
$
|
1,069.4
|
|
|
$
|
0.1
|
|
|
$
|
(40.9)
|
|
|
$
|
1,028.6
|
|
Municipal bonds
|
|
|
2,591.2
|
|
|
|
37.3
|
|
|
|
(24.2)
|
|
|
|
2,604.3
|
|
Foreign government obligations
|
|
|
905.8
|
|
|
|
5.5
|
|
|
|
(9.3)
|
|
|
|
902.0
|
|
U.S. corporate bonds
|
|
|
2,464.8
|
|
|
|
19.4
|
|
|
|
(40.5)
|
|
|
|
2,443.7
|
|
Foreign corporate bonds
|
|
|
1,428.7
|
|
|
|
10.6
|
|
|
|
(20.5)
|
|
|
|
1,418.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
1,147.8
|
|
|
|
3.0
|
|
|
|
(35.2)
|
|
|
|
1,115.6
|
|
CMBS
|
|
|
530.7
|
|
|
|
2.3
|
|
|
|
(9.1)
|
|
|
|
523.9
|
|
|
|
|
|
|
Other asset-backed securities
(1)
|
|
|
2,041.4
|
|
|
|
2.9
|
|
|
|
(10.0)
|
|
|
|
2,034.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
12,179.8
|
|
|
|
81.1
|
|
|
|
(189.7)
|
|
|
|
12,071.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
690.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
690.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
12,870.4
|
|
|
$
|
81.1
|
|
|
$
|
(189.7)
|
|
|
$
|
12,761.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,368.9 million and $1,101.3 million of collateralized loan obligations as of September 30,
2018 and December 31, 2017, respectively.
|
(b) Contractual Maturity
The following table presents the amortized cost or cost and estimated fair value of debt securities by contractual maturity as of
September 30, 2018. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
11
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or Cost
|
|
Fair Value
|
|
|
($ in millions)
|
As of September 30, 2018
|
|
|
|
|
Short-term investments due in one year or less
|
|
$
|
690.6
|
|
|
$
|
690.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed
securities
(1)
|
|
|
3,719.9
|
|
|
|
3,673.8
|
|
Debt securities with maturity dates:
|
|
|
|
|
|
|
|
|
One year or less
|
|
|
230.8
|
|
|
|
230.4
|
|
Over one through five years
|
|
|
3,011.7
|
|
|
|
2,987.0
|
|
Over five through ten years
|
|
|
3,029.1
|
|
|
|
2,991.9
|
|
Over ten years
|
|
|
2,188.3
|
|
|
|
2,188.1
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
12,179.8
|
|
|
$
|
12,071.2
|
|
|
|
|
|
|
|
|
|
|
(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 nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Interest income
|
|
$
|
106.4
|
|
|
$
|
104.6
|
|
|
$
|
313.2
|
|
|
$
|
306.3
|
|
Dividend income
|
|
|
16.2
|
|
|
|
6.7
|
|
|
|
54.9
|
|
|
|
27.9
|
|
Investment expenses
|
|
|
(6.8
|
)
|
|
|
(5.8
|
)
|
|
|
(25.4
|
)
|
|
|
(20.1
|
)
|
Pillar Investments
(1)
|
|
|
(0.8
|
)
|
|
|
(9.4
|
)
|
|
|
1.2
|
|
|
|
(2.9
|
)
|
Limited partnership interests in certain subsidiaries of Ares
(1)
|
|
|
7.0
|
|
|
|
6.9
|
|
|
|
20.2
|
|
|
|
(0.4
|
)
|
Other investment results
|
|
|
5.3
|
|
|
|
1.7
|
|
|
|
13.6
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127.3
|
|
|
$
|
104.7
|
|
|
$
|
377.7
|
|
|
$
|
321.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
September 30, 2018, non-income producing invested assets were immaterial.
(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 nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2018
|
|
September 30, 2018
|
|
|
($ in millions)
|
Change in the fair value of equity securities sold during the period
|
|
$
|
7.3
|
|
|
$
|
23.3
|
|
Change in the fair value of equity securities held at the end of the period
|
|
|
362.9
|
|
|
|
489.5
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of equity securities
|
|
$
|
370.2
|
|
|
$
|
512.8
|
|
|
|
|
|
|
|
|
|
|
(e) Realized Gains and Losses
The proceeds from sales of debt and equity securities were $0.9 billion and $1.6 billion for the three months ended
September 30, 2018 and 2017, respectively, and $2.8 billion and $5.8 billion for the nine months ended September 30, 2018 and 2017, respectively.
12
Realized capital gains and losses for the first nine months of 2018 primarily reflect a
$45.7 million gain on AIHLs conversion of its limited partnership interests in certain subsidiaries of Ares into Ares common units. See Note 3(h) of this Form 10-Q for additional information on this conversion. Realized capital gains and
losses for the three and nine months ended September 30, 2018 also reflect the sale of debt securities.
Realized capital gains and
losses for the three and nine months ended September 30, 2017 primarily reflect the sale of equity securities and certain exchange traded funds. Realized capital gains for the first nine months of 2017 include the sale of certain equity securities
resulting from a partial restructuring of the equity portfolio.
The following table presents amounts of gross realized capital gains and
gross realized capital losses for the three and nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
($ in millions)
|
|
|
Gross realized capital gains
|
|
$
|
16.9
|
|
|
$
|
47.0
|
|
|
$
|
83.3
|
|
|
$
|
189.7
|
|
Gross realized capital losses
|
|
|
(0.7)
|
|
|
|
(14.1)
|
|
|
|
(16.1)
|
|
|
|
(87.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains
|
|
$
|
16.2
|
|
|
$
|
32.9
|
|
|
$
|
67.2
|
|
|
$
|
101.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 nine 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.
OTTI losses in the first nine months of 2017 reflect $13.1 million of unrealized losses that were deemed to be other than temporary and,
as such, were required to be charged against earnings. Of the $13.1 million of OTTI losses, $11.8 million related to equity securities, primarily in the retail sector, and $1.3 million related to debt securities. The determination
that unrealized losses on 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 $13.1 million of OTTI losses, $6.1 million
was incurred in the third quarter of 2017.
13
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 September 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 September 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 September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
$
|
389.9
|
|
|
$
|
7.8
|
|
|
$
|
611.1
|
|
|
$
|
33.1
|
|
|
$
|
1,001.0
|
|
|
$
|
40.9
|
|
Municipal bonds
|
|
|
695.0
|
|
|
|
12.2
|
|
|
|
261.7
|
|
|
|
12.0
|
|
|
|
956.7
|
|
|
|
24.2
|
|
Foreign government obligations
|
|
|
414.6
|
|
|
|
2.9
|
|
|
|
192.4
|
|
|
|
6.4
|
|
|
|
607.0
|
|
|
|
9.3
|
|
U.S. corporate bonds
|
|
|
1,238.9
|
|
|
|
27.0
|
|
|
|
294.9
|
|
|
|
13.5
|
|
|
|
1,533.8
|
|
|
|
40.5
|
|
Foreign corporate bonds
|
|
|
665.3
|
|
|
|
11.3
|
|
|
|
288.1
|
|
|
|
9.2
|
|
|
|
953.4
|
|
|
|
20.5
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
891.7
|
|
|
|
28.1
|
|
|
|
130.3
|
|
|
|
7.1
|
|
|
|
1,022.0
|
|
|
|
35.2
|
|
CMBS
|
|
|
273.5
|
|
|
|
5.3
|
|
|
|
46.3
|
|
|
|
3.8
|
|
|
|
319.8
|
|
|
|
9.1
|
|
Other asset-backed securities
|
|
|
1,260.4
|
|
|
|
8.5
|
|
|
|
68.6
|
|
|
|
1.5
|
|
|
|
1,329.0
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
5,829.3
|
|
|
$
|
103.1
|
|
|
$
|
1,893.4
|
|
|
$
|
86.6
|
|
|
$
|
7,722.7
|
|
|
$
|
189.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2018, Alleghany held a total of 2,289 debt securities that were in an unrealized loss
position, of which 617 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these debt securities consisted of losses related primarily to U.S. Government obligations, municipal
bonds, U.S. corporate bonds, foreign corporate bonds and RMBS.
As of September 30, 2018, the vast majority of Alleghanys debt
securities were rated investment grade, with 4.2 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 September 30, 2018, Alleghanys carrying value in the Pillar Investments, as determined under the equity method of accounting, was
$201.3 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. On September 24, 2018, AIHLs remaining Ares limited partner interests were converted into Ares common units and, as a result, AIHL reclassified the remaining $56.9 million of its converted
interests from other invested assets to equity securities.
15
(i) Investments in Commercial Mortgage Loans
As of September 30, 2018, the carrying value of Alleghanys commercial mortgage loan portfolio was $695.9 million, representing
the unpaid principal balance on the loans. As of September 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 nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 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
|
|
|
1.2
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred loss and LAE, net of reinsurance, related to:
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
2,579.3
|
|
|
|
3,099.0
|
|
|
|
|
Prior years
|
|
|
(212.8
|
)
|
|
|
(173.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred loss and LAE, net of reinsurance
|
|
|
2,366.5
|
|
|
|
2,926.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid loss and LAE, net of reinsurance, related
to:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
444.9
|
|
|
|
390.6
|
|
|
|
|
Prior years
|
|
|
1,928.9
|
|
|
|
1,743.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid loss and LAE, net of reinsurance
|
|
|
2,373.8
|
|
|
|
2,133.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate effect
|
|
|
(77.0
|
)
|
|
|
120.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves as of September 30
|
|
|
10,138.1
|
|
|
|
10,763.0
|
|
|
|
|
Reinsurance recoverables as of September
30
(1)
|
|
|
1,716.8
|
|
|
|
1,693.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves as of September 30
|
|
$
|
11,854.9
|
|
|
$
|
12,456.4
|
|
|
|
|
|
|
|
|
|
|
(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 as of September 30, 2018 decreased from December 31, 2017, primarily reflecting payments on catastrophe losses
incurred in 2017 and favorable prior accident year loss reserve development, partially offset by catastrophe losses in September 2018. Such 2018 catastrophe losses, net of reinsurance, include $87.7 million related to Typhoon Jebi,
$80.2 million related to Hurricane Florence and $38.5 million related to Typhoon Trami.
17
(b) Liability Development
The following table presents the (favorable) unfavorable prior accident year loss reserve development for the three and nine months ended
September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Reinsurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe events
|
|
$
|
9.6
(
|
1)
|
|
$
|
(7.8)
|
(2)
|
|
$
|
(15.6)
|
(3)
|
|
$
|
(12.2)
|
(2)
|
|
|
|
|
|
Non-catastrophe
|
|
|
(12.4)
|
(4)
|
|
|
(0.3)
|
|
|
|
(42.2)
|
(4)
|
|
|
(50.4)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property
|
|
|
(2.8)
|
|
|
|
(8.1)
|
|
|
|
(57.8)
|
|
|
|
(62.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malpractice Treaties
(6)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3.4)
|
|
|
|
(2.0)
|
|
|
|
|
|
|
Ogden rate impact
(7)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
|
|
|
Other
|
|
|
(38.7)
|
(8)
|
|
|
(41.7)
|
(9)
|
|
|
(102.5)
|
(10)
|
|
|
(100.6)
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total casualty & other
|
|
|
(38.7)
|
|
|
|
(41.7)
|
|
|
|
(105.9)
|
|
|
|
(78.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reinsurance Segment
|
|
|
(41.5)
|
|
|
|
(49.8)
|
|
|
|
(163.7)
|
|
|
|
(140.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty
|
|
|
(4.3)
|
(12)
|
|
|
(6.9)
|
(13)
|
|
|
(16.8)
|
(12)
|
|
|
(28.5)
|
(13)
|
|
|
|
|
|
Property and other
|
|
|
(27.7)
|
(14)
|
|
|
(1.7)
|
(15)
|
|
|
(27.7)
|
(14)
|
|
|
1.2
(
|
16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RSUI
|
|
|
(32.0)
|
|
|
|
(8.6)
|
|
|
|
(44.5)
|
|
|
|
(27.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
(1.5)
|
(17)
|
|
|
(2.3)
|
(18)
|
|
|
(4.6)
|
(17)
|
|
|
(3.1)
|
(18)
|
|
|
|
|
|
PacificComp
|
|
|
-
|
|
|
|
(0.8)
|
(19)
|
|
|
-
|
|
|
|
(1.8)
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred related to prior years
|
|
$
|
(75.0)
|
|
|
$
|
(61.5)
|
|
|
$
|
(212.8)
|
|
|
$
|
(173.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily reflects unfavorable prior accident year loss reserve development related to Hurricanes Maria and Irma
in the 2017 accident year.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development related to several catastrophes in the
2010 through 2016 accident years.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development related to Hurricane Harvey in the
2017 accident year and catastrophes in the 2016 accident year, partially offset by unfavorable prior accident year loss reserve development related to Hurricanes Maria and Irma in the 2017 accident year.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the 2017 accident year.
|
(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 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 longer-tailed casualty lines of
business in the 2007 and earlier accident years, partially offset by unfavorable prior accident year loss reserve development in the longer-tailed casualty lines of business in the 2014 through 2016 accident years.
|
(9)
|
Primarily reflects favorable prior accident year loss reserve development in the
longer-tailed
U.S. professional liability lines of business related to older accident years and shorter-tailed casualty lines of business in the U.K. related to recent accident years.
|
(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 in the longer-tailed casualty lines of business in the 2010 and earlier accident years, partially offset by unfavorable prior accident year loss reserve development in the longer-tailed casualty
lines of business in the 2014 accident year.
|
(11)
|
Primarily reflects favorable prior accident year loss reserve development in longer-tailed U.S. professional
liability lines of business in the 2005 through 2014 accident years, partially offset by unfavorable prior accident year loss reserve development in shorter-tailed casualty lines of business in the 2015 accident year in the U.S. and the U.K.
|
(12)
|
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, 2012 and 2016 accident years.
|
(13)
|
Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of
business in the 2005 through 2011 accident years.
|
(14)
|
Primarily reflects favorable prior accident year loss reserve development related to Hurricane Irma in the 2017
accident year and, to a lesser extent, Hurricane Matthew that occurred in the 2016 accident year, as well as various other losses not classified as catastrophes in recent accident years.
|
18
(15)
|
Primarily reflects favorable unallocated LAE development.
|
(16)
|
Primarily reflects unfavorable prior accident year property loss reserve development related to the binding
authority lines of business in the 2015 and 2016 accident years, partially offset by favorable prior accident year catastrophe loss reserve development in the 2016 accident year.
|
(17)
|
Primarily reflects favorable prior accident year loss reserve development related to the surety lines of
business in the 2016 and 2017 accident years.
|
(18)
|
Primarily reflects favorable prior accident year loss reserve development related to the casualty lines of
business in the 2010, 2014, 2015 and 2016 accident years.
|
(19)
|
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 nine months of 2018 was 18.4 percent, compared with 66.8 percent
for the first nine months of 2017. The 66.8 percent effective tax rate for the first nine months of 2017 was calculated based on actual results through September 30, 2017 because management was not able to reliably estimate the annual
effective tax rate in light of the significant catastrophe losses incurred in the third quarter of 2017. The decrease in the effective tax rate in the first nine months of 2018 from the first nine 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 and losses before income taxes in the first nine months of 2017, which magnified the impact of certain tax adjustments, 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 September 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 September 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 September 30, 2018, Alleghany had $481.1 million remaining under both share repurchase authorization programs.
The following
table presents the shares of Common Stock that Alleghany repurchased in the three and nine months ended September 30, 2018 and 2017 pursuant to the 2015 Repurchase Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
2018
|
|
|
2017
|
Shares repurchased
|
|
|
76,299
|
|
|
|
15,916
|
|
|
|
479,922
|
|
|
|
15,916
|
|
Cost of shares repurchased (in millions)
|
|
$
|
46.0
|
|
|
$
|
8.5
|
|
|
$
|
282.1
|
|
|
$
|
8.5
|
|
Average price per share repurchased
|
|
$
|
602.24
|
|
|
$
|
537.14
|
|
|
$
|
587.70
|
|
|
$
|
537.14
|
|
19
(b) Accumulated Other Comprehensive Income (Loss)
The following tables presents a reconciliation of the changes during the nine months ended September 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
|
|
|
(213.3)
|
|
|
|
(6.9)
|
|
|
|
(1.7)
|
|
|
|
(221.9)
|
|
Reclassifications from accumulated other comprehensive income
|
|
|
(16.5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(229.8)
|
|
|
|
(6.9)
|
|
|
|
(1.7)
|
|
|
|
(238.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2018
|
|
$
|
(90.6)
|
|
|
$
|
(109.7)
|
|
|
$
|
(20.5)
|
|
|
$
|
(220.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
364.6
|
|
|
|
22.4
|
|
|
|
(0.2)
|
|
|
|
386.8
|
|
Reclassifications from accumulated other comprehensive income
|
|
|
(57.7)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
306.9
|
|
|
|
22.4
|
|
|
|
(0.2)
|
|
|
|
329.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2017
|
|
$
|
552.0
|
|
|
$
|
(88.8)
|
|
|
$
|
(11.9)
|
|
|
$
|
451.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 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)
|
|
$
|
(16.2)
|
|
|
$
|
(32.9)
|
|
|
$
|
(21.5)
|
|
|
$
|
(101.8)
|
|
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
6.1
|
|
|
|
0.5
|
|
|
|
13.1
|
|
|
|
Income taxes
|
|
|
3.4
|
|
|
|
9.4
|
|
|
|
4.5
|
|
|
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications:
|
|
Net earnings
|
|
$
|
(12.8)
|
|
|
$
|
(17.4)
|
|
|
$
|
(16.5)
|
|
|
$
|
(57.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the nine month period ended September 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 $154.0 million.
20
8. Earnings Per Share of Common Stock
The following table presents a reconciliation of the earnings and share data used in the basic and diluted earnings per share computations for
the three and nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions, except share amounts)
|
Net earnings (losses) available to Alleghany stockholders
|
|
$
|
284.9
|
|
|
$
|
(314.2
|
)
|
|
$
|
751.6
|
|
|
$
|
(63.2
|
)
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
(8.9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders for diluted earnings per share
|
|
$
|
284.9
|
|
|
$
|
(323.1
|
)
|
|
$
|
751.6
|
|
|
$
|
(63.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding applicable to basic earnings
per share
|
|
|
14,937,135
|
|
|
|
15,416,014
|
|
|
|
15,168,831
|
|
|
|
15,416,249
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
42,310
|
|
|
|
4,849
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding applicable to diluted earnings per
share
|
|
|
14,937,135
|
|
|
|
15,458,324
|
|
|
|
15,173,680
|
|
|
|
15,416,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,285 and 63,567 contingently issuable shares were potentially available during the first nine 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 September 30, 2018, Alleghany had holdings in energy sector businesses of $896.8 million, comprised of $294.0 million of
debt securities, $483.5 million of equity securities and $119.3 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
21
regions of the world, including the U.S. In addition, although a significant 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 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 $14.7 million of incremental debt. The
acquisition-date consideration transferred and purchase price allocation to the acquired assets and assumed liabilities of Hirschfeld were based on estimated fair values that have not been finalized. As a result, the fair value recorded for these
items is a provisional estimate and may be subject to adjustment. Once completed, any adjustment resulting from the valuations may impact the individual amounts recorded for acquired assets and assumed liabilities, as well as the residual goodwill.
The acquisition accounting for Hirschfeld is expected to be finalized later in 2018.
Corporate activities are not classified as a segment.
The primary components of corporate activities are Alleghany Properties, SORC and activities at the Alleghany parent company.
In addition,
corporate activities include interest expense associated with the senior notes issued by Alleghany, whereas interest expense associated with senior notes issued by TransRe is included in Total Segments and interest expense associated
with other debt is included in Alleghany Capital. Information related to the senior notes and other debt can be found in Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary
Data of the 2017
Form 10-K.
(b) Results
The following tables present the results for Alleghanys three reportable segments and for corporate activities for the three and nine
months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
Property
|
|
Casualty
& Other
(1)
|
|
Total
|
|
RSUI
|
|
Cap
Specialty
|
|
Total
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(2)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
451.4
|
|
|
$
|
685.9
|
|
|
$
|
1,137.3
|
|
|
$
|
260.8
|
|
|
$
|
83.9
|
|
|
$
|
344.7
|
|
|
$
|
1,482.0
|
|
|
$
|
-
|
|
|
$
|
1,482.0
|
|
|
$
|
(6.7)
|
|
|
$
|
1,475.3
|
|
Net premiums written
|
|
|
331.1
|
|
|
|
654.1
|
|
|
|
985.2
|
|
|
|
176.0
|
|
|
|
77.9
|
|
|
|
253.9
|
|
|
|
1,239.1
|
|
|
|
-
|
|
|
|
1,239.1
|
|
|
|
-
|
|
|
|
1,239.1
|
|
Net premiums earned
|
|
|
326.5
|
|
|
|
635.0
|
|
|
|
961.5
|
|
|
|
190.6
|
|
|
|
73.3
|
|
|
|
263.9
|
|
|
|
1,225.4
|
|
|
|
-
|
|
|
|
1,225.4
|
|
|
|
-
|
|
|
|
1,225.4
|
|
Net loss and LAE
|
|
|
387.6
|
|
|
|
421.4
|
|
|
|
809.0
|
|
|
|
107.0
|
|
|
|
41.7
|
|
|
|
148.7
|
|
|
|
957.7
|
|
|
|
-
|
|
|
|
957.7
|
|
|
|
-
|
|
|
|
957.7
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
113.3
|
|
|
|
211.6
|
|
|
|
324.9
|
|
|
|
52.8
|
|
|
|
30.0
|
|
|
|
82.8
|
|
|
|
407.7
|
|
|
|
-
|
|
|
|
407.7
|
|
|
|
-
|
|
|
|
407.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(3)
|
|
$
|
(174.4
|
)
|
|
$
|
2.0
|
|
|
$
|
(172.4
|
)
|
|
$
|
30.8
|
|
|
$
|
1.6
|
|
|
$
|
32.4
|
|
|
|
(140.0
|
)
|
|
|
-
|
|
|
|
(140.0
|
)
|
|
|
-
|
|
|
|
(140.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122.5
|
|
|
|
0.7
|
|
|
|
123.2
|
|
|
|
4.1
|
|
|
|
127.3
|
|
Change in the fair value of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373.9
|
|
|
|
-
|
|
|
|
373.9
|
|
|
|
(3.7
|
)
|
|
|
370.2
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.2
|
|
|
|
-
|
|
|
|
16.2
|
|
|
|
-
|
|
|
|
16.2
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
|
|
407.5
|
|
|
|
413.7
|
|
|
|
24.6
|
|
|
|
438.3
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.6
|
|
|
|
382.5
|
|
|
|
406.1
|
|
|
|
9.2
|
|
|
|
415.3
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
-
|
|
|
|
1.3
|
|
|
|
17.8
|
|
|
|
19.1
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
5.8
|
|
|
|
5.5
|
|
|
|
-
|
|
|
|
5.5
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7
|
|
|
|
2.6
|
|
|
|
9.3
|
|
|
|
12.9
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
347.5
|
|
|
$
|
17.3
|
|
|
$
|
364.8
|
|
|
$
|
(14.9
|
)
|
|
$
|
349.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 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
|
|
$
|
445.5
|
|
|
$
|
681.1
|
|
|
$
|
1,126.6
|
|
|
$
|
234.6
|
|
|
$
|
74.3
|
|
|
$
|
41.6
|
|
|
$
|
350.5
|
|
|
$
|
1,477.1
|
|
|
$
|
-
|
|
|
$
|
1,477.1
|
|
|
$
|
(5.3
|
)
|
|
$
|
1,471.8
|
|
Net premiums written
|
|
|
329.0
|
|
|
|
649.5
|
|
|
|
978.5
|
|
|
|
170.8
|
|
|
|
69.5
|
|
|
|
41.5
|
|
|
|
281.8
|
|
|
|
1,260.3
|
|
|
|
-
|
|
|
|
1,260.3
|
|
|
|
-
|
|
|
|
1,260.3
|
|
Net premiums earned
|
|
|
310.8
|
|
|
|
642.4
|
|
|
|
953.2
|
|
|
|
179.0
|
|
|
|
66.1
|
|
|
|
41.4
|
|
|
|
286.5
|
|
|
|
1,239.7
|
|
|
|
-
|
|
|
|
1,239.7
|
|
|
|
-
|
|
|
|
1,239.7
|
|
Net loss and LAE
|
|
|
659.9
|
|
|
|
459.3
|
|
|
|
1,119.2
|
|
|
|
305.4
|
|
|
|
37.0
|
|
|
|
30.3
|
|
|
|
372.7
|
|
|
|
1,491.9
|
|
|
|
-
|
|
|
|
1,491.9
|
|
|
|
-
|
|
|
|
1,491.9
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
105.2
|
|
|
|
203.7
|
|
|
|
308.9
|
|
|
|
50.3
|
|
|
|
28.4
|
|
|
|
10.6
|
|
|
|
89.3
|
|
|
|
398.2
|
|
|
|
-
|
|
|
|
398.2
|
|
|
|
-
|
|
|
|
398.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(3)
|
|
$
|
(454.3
|
)
|
|
$
|
(20.6
|
)
|
|
$
|
(474.9
|
)
|
|
$
|
(176.7
|
)
|
|
$
|
0.7
|
|
|
$
|
0.5
|
|
|
$
|
(175.5
|
)
|
|
|
(650.4
|
)
|
|
|
-
|
|
|
|
(650.4
|
)
|
|
|
-
|
|
|
|
(650.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.4
|
|
|
|
1.6
|
|
|
|
103.0
|
|
|
|
1.7
|
|
|
|
104.7
|
|
Change in the fair value of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.5
|
|
|
|
0.7
|
|
|
|
22.2
|
|
|
|
10.7
|
|
|
|
32.9
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
-
|
|
|
|
(6.1
|
)
|
|
|
-
|
|
|
|
(6.1
|
)
|
Noninsurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
289.3
|
|
|
|
294.0
|
|
|
|
2.3
|
|
|
|
296.3
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
260.0
|
|
|
|
268.3
|
|
|
|
9.6
|
|
|
|
277.9
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
-
|
|
|
|
(1.5
|
)
|
|
|
(3.2
|
)
|
|
|
(4.7
|
)
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
6.0
|
|
|
|
5.7
|
|
|
|
-
|
|
|
|
5.7
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.6
|
|
|
|
1.2
|
|
|
|
7.8
|
|
|
|
13.0
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(542.0
|
)
|
|
$
|
24.4
|
|
|
$
|
(517.6
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(522.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 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
|
|
|
|
|
|
$
|
1,193.7
|
|
|
$
|
2,130.9
|
|
|
$
|
3,324.6
|
|
|
$
|
854.2
|
|
|
$
|
247.1
|
|
|
$
|
1,101.3
|
|
|
$
|
4,425.9
|
|
|
$
|
-
|
|
|
$
|
4,425.9
|
|
|
$
|
(19.2
|
)
|
|
$
|
4,406.7
|
|
Net premiums written
|
|
|
|
|
|
|
912.1
|
|
|
|
2,046.8
|
|
|
|
2,958.9
|
|
|
|
579.8
|
|
|
|
229.6
|
|
|
|
809.4
|
|
|
|
3,768.3
|
|
|
|
-
|
|
|
|
3,768.3
|
|
|
|
-
|
|
|
|
3,768.3
|
|
Net premiums earned
|
|
|
|
|
|
|
893.7
|
|
|
|
2,009.3
|
|
|
|
2,903.0
|
|
|
|
556.2
|
|
|
|
211.0
|
|
|
|
767.2
|
|
|
|
3,670.2
|
|
|
|
-
|
|
|
|
3,670.2
|
|
|
|
-
|
|
|
|
3,670.2
|
|
Net loss and LAE
|
|
|
|
|
|
|
637.7
|
|
|
|
1,304.3
|
|
|
|
1,942.0
|
|
|
|
309.6
|
|
|
|
114.9
|
|
|
|
424.5
|
|
|
|
2,366.5
|
|
|
|
-
|
|
|
|
2,366.5
|
|
|
|
-
|
|
|
|
2,366.5
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
|
|
|
|
301.2
|
|
|
|
663.6
|
|
|
|
964.8
|
|
|
|
160.0
|
|
|
|
91.2
|
|
|
|
251.2
|
|
|
|
1,216.0
|
|
|
|
-
|
|
|
|
1,216.0
|
|
|
|
-
|
|
|
|
1,216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(3)
|
|
|
|
|
|
$
|
(45.2
|
)
|
|
$
|
41.4
|
|
|
$
|
(3.8
|
)
|
|
$
|
86.6
|
|
|
$
|
4.9
|
|
|
$
|
91.5
|
|
|
|
87.7
|
|
|
|
-
|
|
|
|
87.7
|
|
|
|
-
|
|
|
|
87.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362.0
|
|
|
|
3.7
|
|
|
|
365.7
|
|
|
|
12.0
|
|
|
|
377.7
|
|
Change in the fair value of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
506.7
|
|
|
|
-
|
|
|
|
506.7
|
|
|
|
6.1
|
|
|
|
512.8
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.8
|
|
|
|
0.6
|
|
|
|
67.4
|
|
|
|
(0.2
|
)
|
|
|
67.2
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
Noninsurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
|
|
979.2
|
|
|
|
995.9
|
|
|
|
36.8
|
|
|
|
1,032.7
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.6
|
|
|
|
937.0
|
|
|
|
997.6
|
|
|
|
25.9
|
|
|
|
1,023.5
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
1.8
|
|
|
|
39.2
|
|
|
|
41.0
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
17.0
|
|
|
|
16.8
|
|
|
|
-
|
|
|
|
16.8
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.5
|
|
|
|
6.1
|
|
|
|
26.6
|
|
|
|
39.4
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
956.7
|
|
|
$
|
23.4
|
|
|
$
|
980.1
|
|
|
$
|
(49.8
|
)
|
|
$
|
930.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Segment
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 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
|
|
$
|
1,190.0
|
|
|
$
|
2,037.7
|
|
|
$
|
3,227.7
|
|
|
$
|
794.1
|
|
|
$
|
213.2
|
|
|
$
|
124.2
|
|
|
$
|
1,131.5
|
|
|
$
|
4,359.2
|
|
|
$
|
-
|
|
|
$
|
4,359.2
|
|
|
$
|
(16.5
|
)
|
|
$
|
4,342.7
|
|
Net premiums written
|
|
|
931.4
|
|
|
|
1,975.3
|
|
|
|
2,906.7
|
|
|
|
558.0
|
|
|
|
198.9
|
|
|
|
122.9
|
|
|
|
879.8
|
|
|
|
3,786.5
|
|
|
|
-
|
|
|
|
3,786.5
|
|
|
|
-
|
|
|
|
3,786.5
|
|
Net premiums earned
|
|
|
868.1
|
|
|
|
1,968.7
|
|
|
|
2,836.8
|
|
|
|
540.3
|
|
|
|
192.2
|
|
|
|
123.5
|
|
|
|
856.0
|
|
|
|
3,692.8
|
|
|
|
-
|
|
|
|
3,692.8
|
|
|
|
-
|
|
|
|
3,692.8
|
|
Net loss and LAE
|
|
|
904.6
|
|
|
|
1,344.7
|
|
|
|
2,249.3
|
|
|
|
479.7
|
|
|
|
105.7
|
|
|
|
91.3
|
|
|
|
676.7
|
|
|
|
2,926.0
|
|
|
|
-
|
|
|
|
2,926.0
|
|
|
|
-
|
|
|
|
2,926.0
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
283.7
|
|
|
|
662.9
|
|
|
|
946.6
|
|
|
|
158.3
|
|
|
|
83.3
|
|
|
|
32.2
|
|
|
|
273.8
|
|
|
|
1,220.4
|
|
|
|
-
|
|
|
|
1,220.4
|
|
|
|
-
|
|
|
|
1,220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(3)
|
|
$
|
(320.2
|
)
|
|
$
|
(38.9
|
)
|
|
$
|
(359.1
|
)
|
|
$
|
(97.7
|
)
|
|
$
|
3.2
|
|
|
$
|
-
|
|
|
$
|
(94.5
|
)
|
|
|
(453.6
|
)
|
|
|
-
|
|
|
|
(453.6
|
)
|
|
|
-
|
|
|
|
(453.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311.7
|
|
|
|
2.1
|
|
|
|
313.8
|
|
|
|
8.1
|
|
|
|
321.9
|
|
Change in the fair value of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.8
|
|
|
|
0.9
|
|
|
|
91.7
|
|
|
|
10.1
|
|
|
|
101.8
|
|
Other than temporary impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.1
|
)
|
|
|
-
|
|
|
|
(13.1
|
)
|
|
|
-
|
|
|
|
(13.1
|
)
|
Noninsurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
|
|
626.8
|
|
|
|
637.3
|
|
|
|
13.1
|
|
|
|
650.4
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57.4
|
|
|
|
591.0
|
|
|
|
648.4
|
|
|
|
29.8
|
|
|
|
678.2
|
|
Corporate administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
26.4
|
|
|
|
26.6
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
15.4
|
|
|
|
14.2
|
|
|
|
-
|
|
|
|
14.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.2
|
|
|
|
3.0
|
|
|
|
23.2
|
|
|
|
39.5
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(130.3
|
)
|
|
$
|
20.4
|
|
|
$
|
(109.9
|
)
|
|
$
|
(64.4
|
)
|
|
$
|
(174.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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
|
23
|
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 reportable segments and for corporate activities as of September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
Assets
|
|
|
|
Invested Assets
and Cash
|
|
|
|
Equity
Attributable to
Alleghany
|
|
|
($ in millions)
|
|
|
|
|
|
|
Reinsurance segment
|
|
$
|
16,740.1
|
|
|
|
|
$
|
13,461.2
|
|
|
|
|
$
|
5,167.6
|
|
Insurance segment
|
|
|
7,056.8
|
|
|
|
|
|
5,586.2
|
|
|
|
|
|
3,092.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
23,796.9
|
|
|
|
|
|
19,047.4
|
|
|
|
|
|
8,260.4
|
|
Alleghany Capital
|
|
|
1,476.6
|
|
|
|
|
|
195.4
|
|
|
|
|
|
855.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
25,273.5
|
|
|
|
|
|
19,242.8
|
|
|
|
|
|
9,116.2
|
|
Corporate activities
|
|
|
522.4
|
|
|
|
|
|
446.8
|
|
|
|
|
|
(521.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
25,795.9
|
|
|
|
|
$
|
19,689.6
|
|
|
|
|
$
|
8,595.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Alleghany Capital is debt associated with its operating subsidiaries, which totaled
$197.7 million as of September 30, 2018. The $197.7 million includes $102.3 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), $43.0 million of borrowings by Jazwares under its available credit facility, $21.5 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions and borrowings under its available
credit facility, $16.5 million of borrowings by IPS under its available credit facility, and $14.4 million of term loans at Bourn & Koch related to borrowings to finance an acquisition and borrowings under its available credit
facility. None of these liabilities are guaranteed by Alleghany or Alleghany Capital.
(d) Alleghany Capital Noninsurance Revenue
For Alleghany Capitals industrial and
non-industrial
operations, noninsurance
revenue consists of the sale of manufactured goods and services. The following table presents noninsurance revenue for the Alleghany Capital segment for the three and nine months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
Industrial
(1)
|
|
$
|
224.2
|
|
|
|
|
$
|
137.9
|
|
|
|
|
|
|
$
|
591.6
|
|
|
|
|
$
|
254.2
|
|
Non-Industrial
(2)
|
|
|
183.7
|
|
|
|
|
|
150.9
|
|
|
|
|
|
|
|
387.9
|
|
|
|
|
|
372.1
|
|
Corporate & other
|
|
|
(0.4
|
)
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alleghany Capital
|
|
$
|
407.5
|
|
|
|
|
$
|
289.3
|
|
|
|
|
|
|
$
|
979.2
|
|
|
|
|
$
|
626.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three and nine months ended September 30, 2018, the vast majority of noninsurance revenues were
recognized as goods and services transferred to customers over time. For the three and nine months ended September 30, 2017, approximately 77 percent and 67 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 nine months ended September 30, 2018, approximately 60 percent and 65 percent,
respectively, 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 nine months ended September 30, 2017, approximately
56 percent and 69 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
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in millions)
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
1,225.4
|
|
|
$
|
1,239.7
|
|
|
$
|
3,670.2
|
|
|
$
|
3,692.8
|
|
Net investment income
|
|
|
127.3
|
|
|
|
104.7
|
|
|
|
377.7
|
|
|
|
321.9
|
|
Change in the fair value of equity securities
|
|
|
370.2
|
|
|
|
-
|
|
|
|
512.8
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
16.2
|
|
|
|
32.9
|
|
|
|
67.2
|
|
|
|
101.8
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(6.1
|
)
|
|
|
(0.5
|
)
|
|
|
(13.1
|
)
|
Noninsurance revenue
|
|
|
438.3
|
|
|
|
296.3
|
|
|
|
1,032.7
|
|
|
|
650.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,177.4
|
|
|
|
1,667.5
|
|
|
|
5,660.1
|
|
|
|
4,753.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
957.7
|
|
|
|
1,491.9
|
|
|
|
2,366.5
|
|
|
|
2,926.0
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
407.7
|
|
|
|
398.2
|
|
|
|
1,216.0
|
|
|
|
1,220.4
|
|
Other operating expenses
|
|
|
415.3
|
|
|
|
277.9
|
|
|
|
1,023.5
|
|
|
|
678.2
|
|
Corporate administration
|
|
|
19.1
|
|
|
|
(4.7
|
)
|
|
|
41.0
|
|
|
|
26.6
|
|
Amortization of intangible assets
|
|
|
5.5
|
|
|
|
5.7
|
|
|
|
16.8
|
|
|
|
14.2
|
|
Interest expense
|
|
|
22.2
|
|
|
|
20.8
|
|
|
|
66.0
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,827.5
|
|
|
|
2,189.8
|
|
|
|
4,729.8
|
|
|
|
4,928.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
349.9
|
|
|
|
(522.3
|
)
|
|
|
930.3
|
|
|
|
(174.3
|
)
|
Income taxes
|
|
|
60.4
|
|
|
|
(212.3
|
)
|
|
|
171.2
|
|
|
|
(116.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses)
|
|
|
289.5
|
|
|
|
(310.0
|
)
|
|
|
759.1
|
|
|
|
(58.0
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
4.6
|
|
|
|
4.2
|
|
|
|
7.5
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (losses) attributable to Alleghany stockholders
|
|
$
|
284.9
|
|
|
$
|
(314.2
|
)
|
|
$
|
751.6
|
|
|
$
|
(63.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
See Note 10 to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Form
10-Q for additional detail on our segments and other activities. The tables below present the results for our segments and for other activities for the three and nine months ended September 30, 2018 and 2017.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
|
|
Gross premiums written
|
|
$
|
1,137.3
|
|
|
$
|
344.7
|
|
|
$
|
1,482.0
|
|
|
$
|
-
|
|
|
$
|
1,482.0
|
|
|
$
|
(6.7)
|
|
|
$
|
1,475.3
|
|
Net premiums written
|
|
|
985.2
|
|
|
|
253.9
|
|
|
|
1,239.1
|
|
|
|
-
|
|
|
|
1,239.1
|
|
|
|
-
|
|
|
|
1,239.1
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
961.5
|
|
|
|
263.9
|
|
|
|
1,225.4
|
|
|
|
-
|
|
|
|
1,225.4
|
|
|
|
-
|
|
|
|
1,225.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
654.7
|
|
|
|
140.2
|
|
|
|
794.9
|
|
|
|
-
|
|
|
|
794.9
|
|
|
|
-
|
|
|
|
794.9
|
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
42.0
|
|
|
|
237.8
|
|
|
|
-
|
|
|
|
237.8
|
|
|
|
-
|
|
|
|
237.8
|
|
Prior years
|
|
|
(41.5)
|
|
|
|
(33.5)
|
|
|
|
(75.0)
|
|
|
|
-
|
|
|
|
(75.0)
|
|
|
|
-
|
|
|
|
(75.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
809.0
|
|
|
|
148.7
|
|
|
|
957.7
|
|
|
|
-
|
|
|
|
957.7
|
|
|
|
-
|
|
|
|
957.7
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
324.9
|
|
|
|
82.8
|
|
|
|
407.7
|
|
|
|
-
|
|
|
|
407.7
|
|
|
|
-
|
|
|
|
407.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(2)
|
|
$
|
(172.4)
|
|
|
$
|
32.4
|
|
|
|
(140.0)
|
|
|
|
-
|
|
|
|
(140.0)
|
|
|
|
-
|
|
|
|
(140.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
122.5
|
|
|
|
0.7
|
|
|
|
123.2
|
|
|
|
4.1
|
|
|
|
127.3
|
|
Change in the fair value of equity securities
|
|
|
|
373.9
|
|
|
|
-
|
|
|
|
373.9
|
|
|
|
(3.7)
|
|
|
|
370.2
|
|
Net realized capital gains
|
|
|
|
16.2
|
|
|
|
-
|
|
|
|
16.2
|
|
|
|
-
|
|
|
|
16.2
|
|
Other than temporary impairment losses
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
|
6.2
|
|
|
|
407.5
|
|
|
|
413.7
|
|
|
|
24.6
|
|
|
|
438.3
|
|
Other operating expenses
|
|
|
|
23.6
|
|
|
|
382.5
|
|
|
|
406.1
|
|
|
|
9.2
|
|
|
|
415.3
|
|
Corporate administration
|
|
|
|
1.3
|
|
|
|
-
|
|
|
|
1.3
|
|
|
|
17.8
|
|
|
|
19.1
|
|
Amortization of intangible assets
|
|
|
|
(0.3)
|
|
|
|
5.8
|
|
|
|
5.5
|
|
|
|
-
|
|
|
|
5.5
|
|
Interest expense
|
|
|
|
6.7
|
|
|
|
2.6
|
|
|
|
9.3
|
|
|
|
12.9
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (lossses) before income taxes
|
|
|
$
|
347.5
|
|
|
$
|
17.3
|
|
|
$
|
364.8
|
|
|
$
|
(14.9)
|
|
|
$
|
349.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
68.1%
|
|
|
|
53.1%
|
|
|
|
64.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
20.4%
|
|
|
|
15.9%
|
|
|
|
19.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(4.4%)
|
|
|
|
(12.7%)
|
|
|
|
(6.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
84.1%
|
|
|
|
56.3%
|
|
|
|
78.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.8%
|
|
|
|
31.4%
|
|
|
|
33.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
117.9%
|
|
|
|
87.7%
|
|
|
|
111.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
1,126.6
|
|
|
$
|
350.5
|
|
|
$
|
1,477.1
|
|
|
$
|
-
|
|
|
$
|
1,477.1
|
|
|
$
|
(5.3
|
)
|
|
$
|
1,471.8
|
|
Net premiums written
|
|
|
978.5
|
|
|
|
281.8
|
|
|
|
1,260.3
|
|
|
|
-
|
|
|
|
1,260.3
|
|
|
|
-
|
|
|
|
1,260.3
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
953.2
|
|
|
|
286.5
|
|
|
|
1,239.7
|
|
|
|
-
|
|
|
|
1,239.7
|
|
|
|
-
|
|
|
|
1,239.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
593.0
|
|
|
|
167.9
|
|
|
|
760.9
|
|
|
|
-
|
|
|
|
760.9
|
|
|
|
-
|
|
|
|
760.9
|
|
Current year catastrophe losses
|
|
|
576.0
|
|
|
|
216.5
|
|
|
|
792.5
|
|
|
|
-
|
|
|
|
792.5
|
|
|
|
-
|
|
|
|
792.5
|
|
Prior years
|
|
|
(49.8
|
)
|
|
|
(11.7
|
)
|
|
|
(61.5
|
)
|
|
|
-
|
|
|
|
(61.5
|
)
|
|
|
-
|
|
|
|
(61.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,119.2
|
|
|
|
372.7
|
|
|
|
1,491.9
|
|
|
|
-
|
|
|
|
1,491.9
|
|
|
|
-
|
|
|
|
1,491.9
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
308.9
|
|
|
|
89.3
|
|
|
|
398.2
|
|
|
|
-
|
|
|
|
398.2
|
|
|
|
-
|
|
|
|
398.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(474.9
|
)
|
|
$
|
(175.5
|
)
|
|
|
(650.4
|
)
|
|
|
-
|
|
|
|
(650.4
|
)
|
|
|
-
|
|
|
|
(650.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
101.4
|
|
|
|
1.6
|
|
|
|
103.0
|
|
|
|
1.7
|
|
|
|
104.7
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
21.5
|
|
|
|
0.7
|
|
|
|
22.2
|
|
|
|
10.7
|
|
|
|
32.9
|
|
Other than temporary impairment losses
|
|
|
|
(6.1
|
)
|
|
|
-
|
|
|
|
(6.1
|
)
|
|
|
-
|
|
|
|
(6.1
|
)
|
Noninsurance revenue
|
|
|
|
4.7
|
|
|
|
289.3
|
|
|
|
294.0
|
|
|
|
2.3
|
|
|
|
296.3
|
|
Other operating expenses
|
|
|
|
8.3
|
|
|
|
260.0
|
|
|
|
268.3
|
|
|
|
9.6
|
|
|
|
277.9
|
|
Corporate administration
|
|
|
|
(1.5
|
)
|
|
|
-
|
|
|
|
(1.5
|
)
|
|
|
(3.2
|
)
|
|
|
(4.7
|
)
|
Amortization of intangible assets
|
|
|
|
(0.3
|
)
|
|
|
6.0
|
|
|
|
5.7
|
|
|
|
-
|
|
|
|
5.7
|
|
Interest expense
|
|
|
|
6.6
|
|
|
|
1.2
|
|
|
|
7.8
|
|
|
|
13.0
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
(542.0
|
)
|
|
$
|
24.4
|
|
|
$
|
(517.6
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(522.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
62.3
|
%
|
|
|
58.6
|
%
|
|
|
61.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
60.4
|
%
|
|
|
75.6
|
%
|
|
|
63.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.2
|
%)
|
|
|
(4.1
|
%)
|
|
|
(5.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
117.5
|
%
|
|
|
130.1
|
%
|
|
|
120.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
32.3
|
%
|
|
|
31.2
|
%
|
|
|
32.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
149.8
|
%
|
|
|
161.3
|
%
|
|
|
152.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
3,324.6
|
|
|
$
|
1,101.3
|
|
|
$
|
4,425.9
|
|
|
$
|
-
|
|
|
$
|
4,425.9
|
|
|
$
|
(19.2
|
)
|
|
$
|
4,406.7
|
|
Net premiums written
|
|
|
2,958.9
|
|
|
|
809.4
|
|
|
|
3,768.3
|
|
|
|
-
|
|
|
|
3,768.3
|
|
|
|
-
|
|
|
|
3,768.3
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
2,903.0
|
|
|
|
767.2
|
|
|
|
3,670.2
|
|
|
|
-
|
|
|
|
3,670.2
|
|
|
|
-
|
|
|
|
3,670.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,909.9
|
|
|
|
413.2
|
|
|
|
2,323.1
|
|
|
|
-
|
|
|
|
2,323.1
|
|
|
|
-
|
|
|
|
2,323.1
|
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
60.4
|
|
|
|
256.2
|
|
|
|
-
|
|
|
|
256.2
|
|
|
|
-
|
|
|
|
256.2
|
|
Prior years
|
|
|
(163.7
|
)
|
|
|
(49.1
|
)
|
|
|
(212.8
|
)
|
|
|
-
|
|
|
|
(212.8
|
)
|
|
|
-
|
|
|
|
(212.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
1,942.0
|
|
|
|
424.5
|
|
|
|
2,366.5
|
|
|
|
-
|
|
|
|
2,366.5
|
|
|
|
-
|
|
|
|
2,366.5
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
964.8
|
|
|
|
251.2
|
|
|
|
1,216.0
|
|
|
|
-
|
|
|
|
1,216.0
|
|
|
|
-
|
|
|
|
1,216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(2)
|
|
$
|
(3.8
|
)
|
|
$
|
91.5
|
|
|
|
87.7
|
|
|
|
-
|
|
|
|
87.7
|
|
|
|
-
|
|
|
|
87.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
362.0
|
|
|
|
3.7
|
|
|
|
365.7
|
|
|
|
12.0
|
|
|
|
377.7
|
|
Change in the fair value of equity securities
|
|
|
|
506.7
|
|
|
|
-
|
|
|
|
506.7
|
|
|
|
6.1
|
|
|
|
512.8
|
|
Net realized capital gains
|
|
|
|
66.8
|
|
|
|
0.6
|
|
|
|
67.4
|
|
|
|
(0.2
|
)
|
|
|
67.2
|
|
Other than temporary impairment losses
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
Noninsurance revenue
|
|
|
|
16.7
|
|
|
|
979.2
|
|
|
|
995.9
|
|
|
|
36.8
|
|
|
|
1,032.7
|
|
Other operating expenses
|
|
|
|
60.6
|
|
|
|
937.0
|
|
|
|
997.6
|
|
|
|
25.9
|
|
|
|
1,023.5
|
|
Corporate administration
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
1.8
|
|
|
|
39.2
|
|
|
|
41.0
|
|
Amortization of intangible assets
|
|
|
|
(0.2
|
)
|
|
|
17.0
|
|
|
|
16.8
|
|
|
|
-
|
|
|
|
16.8
|
|
Interest expense
|
|
|
|
20.5
|
|
|
|
6.1
|
|
|
|
26.6
|
|
|
|
39.4
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
956.7
|
|
|
$
|
23.4
|
|
|
$
|
980.1
|
|
|
$
|
(49.8
|
)
|
|
$
|
930.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
65.8
|
%
|
|
|
53.9
|
%
|
|
|
63.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
6.7
|
%
|
|
|
7.8
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.6
|
%)
|
|
|
(6.4
|
%)
|
|
|
(5.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
66.9
|
%
|
|
|
55.3
|
%
|
|
|
64.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.2
|
%
|
|
|
32.7
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
100.1
|
%
|
|
|
88.0
|
%
|
|
|
97.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Reinsurance
Segment
|
|
Insurance
Segment
|
|
Subtotal
|
|
Alleghany
Capital
|
|
Total
Segments
|
|
Corporate
Activities
(1)
|
|
Consolidated
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
3,227.7
|
|
|
$
|
1,131.5
|
|
|
$
|
4,359.2
|
|
|
$
|
-
|
|
|
$
|
4,359.2
|
|
|
$
|
(16.5
|
)
|
|
$
|
4,342.7
|
|
Net premiums written
|
|
|
2,906.7
|
|
|
|
879.8
|
|
|
|
3,786.5
|
|
|
|
-
|
|
|
|
3,786.5
|
|
|
|
-
|
|
|
|
3,786.5
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
2,836.8
|
|
|
|
856.0
|
|
|
|
3,692.8
|
|
|
|
-
|
|
|
|
3,692.8
|
|
|
|
-
|
|
|
|
3,692.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
1,814.1
|
|
|
|
477.0
|
|
|
|
2,291.1
|
|
|
|
-
|
|
|
|
2,291.1
|
|
|
|
-
|
|
|
|
2,291.1
|
|
Current year catastrophe losses
|
|
|
576.0
|
|
|
|
231.9
|
|
|
|
807.9
|
|
|
|
-
|
|
|
|
807.9
|
|
|
|
-
|
|
|
|
807.9
|
|
Prior years
|
|
|
(140.8
|
)
|
|
|
(32.2
|
)
|
|
|
(173.0
|
)
|
|
|
-
|
|
|
|
(173.0
|
)
|
|
|
-
|
|
|
|
(173.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
2,249.3
|
|
|
|
676.7
|
|
|
|
2,926.0
|
|
|
|
-
|
|
|
|
2,926.0
|
|
|
|
-
|
|
|
|
2,926.0
|
|
Commissions, brokerage and other
underwriting expenses
|
|
|
946.6
|
|
|
|
273.8
|
|
|
|
1,220.4
|
|
|
|
-
|
|
|
|
1,220.4
|
|
|
|
-
|
|
|
|
1,220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(359.1
|
)
|
|
$
|
(94.5
|
)
|
|
|
(453.6
|
)
|
|
|
-
|
|
|
|
(453.6
|
)
|
|
|
-
|
|
|
|
(453.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
311.7
|
|
|
|
2.1
|
|
|
|
313.8
|
|
|
|
8.1
|
|
|
|
321.9
|
|
Change in the fair value of equity securities
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
|
90.8
|
|
|
|
0.9
|
|
|
|
91.7
|
|
|
|
10.1
|
|
|
|
101.8
|
|
Other than temporary impairment losses
|
|
|
|
(13.1
|
)
|
|
|
-
|
|
|
|
(13.1
|
)
|
|
|
-
|
|
|
|
(13.1
|
)
|
Noninsurance revenue
|
|
|
|
10.5
|
|
|
|
626.8
|
|
|
|
637.3
|
|
|
|
13.1
|
|
|
|
650.4
|
|
Other operating expenses
|
|
|
|
57.4
|
|
|
|
591.0
|
|
|
|
648.4
|
|
|
|
29.8
|
|
|
|
678.2
|
|
Corporate administration
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
26.4
|
|
|
|
26.6
|
|
Amortization of intangible assets
|
|
|
|
(1.2
|
)
|
|
|
15.4
|
|
|
|
14.2
|
|
|
|
-
|
|
|
|
14.2
|
|
Interest expense
|
|
|
|
20.2
|
|
|
|
3.0
|
|
|
|
23.2
|
|
|
|
39.5
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
|
$
|
(130.3
|
)
|
|
$
|
20.4
|
|
|
$
|
(109.9
|
)
|
|
$
|
(64.4
|
)
|
|
$
|
(174.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
63.9
|
%
|
|
|
55.8
|
%
|
|
|
62.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
20.3
|
%
|
|
|
27.1
|
%
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(5.0
|
%)
|
|
|
(3.8
|
%)
|
|
|
(4.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
79.2
|
%
|
|
|
79.1
|
%
|
|
|
79.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio
(4)
|
|
|
33.4
|
%
|
|
|
32.0
|
%
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
112.6
|
%
|
|
|
111.1
|
%
|
|
|
112.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
34
Comparison of the Three and Nine Months Ended September 30, 2018 and 2017
Premiums.
The following table presents our consolidated premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,475.3
|
|
|
$
|
1,471.8
|
|
|
|
0.2%
|
|
|
|
|
|
|
$
|
4,406.7
|
|
|
$
|
4,342.7
|
|
|
|
1.5%
|
|
Net premiums written
|
|
|
1,239.1
|
|
|
|
1,260.3
|
|
|
|
(1.7%
|
)
|
|
|
|
|
|
|
3,768.3
|
|
|
|
3,786.5
|
|
|
|
(0.5%
|
)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,225.4
|
|
|
|
1,239.7
|
|
|
|
(1.2%
|
)
|
|
|
|
|
|
|
3,670.2
|
|
|
|
3,692.8
|
|
|
|
(0.6%
|
)
|
The increases in gross premiums written in the third quarter and first nine months of 2018 from the
corresponding 2017 periods are primarily attributable to increases at our reinsurance segment, as well as growth at CapSpecialty and RSUI, partially offset by the impact of the sale of PacificComp. The increase in the third quarter at our
reinsurance segment is primarily due to the impact of TransRes purchase of renewal rights associated with a certain block of U.S. treaty reinsurance business focused on regional property and casualty, accident and health and personal auto
lines of business, on August 29, 2018, or the Renewal Rights Purchase, and an increase in premiums written by the Asia-Pacific operations, partially offset by lower reinstatement premiums written due to significantly lower
catastrophe losses in the third quarter of 2018 and the impact of changes in foreign currency exchange rates.
The increase in the first
nine months of 2018 at our reinsurance segment primarily reflects increases in casualty premiums written by the European and Asia-Pacific operations, the impact of the Renewal Rights Purchase and the impact of changes in foreign currency exchange
rates, partially offset by a decrease in reinstatement premiums written due to significantly lower catastrophe losses in 2018. Gross premiums written related to a certain large whole account quota share treaty, or the Quota Share Treaty,
were $207.2 million and $205.8 million in the third quarter of 2018 and 2017, respectively, and were $578.9 million and $579.9 million in the first nine months of 2018 and 2017, respectively.
The decreases in net premiums written in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect
higher ceded premiums written due to an increase in retrocessional coverage purchased in 2018 at our reinsurance segment, as well as higher ceded premiums written at RSUI, partially offset by higher gross premiums written.
The decreases in net premiums earned in the third quarter and first nine months of 2018 from the corresponding 2017 periods are primarily
attributable to decreases at our insurance segment due to the impact of the sale of PacificComp, partially offset by increases at our reinsurance segment primarily due to increases in gross premiums written in recent quarters, partially offset by
higher ceded premiums earned due to an increase in retrocessional coverage purchased in 2018 and lower reinstatement premiums earned due to significantly lower catastrophe losses in the third quarter of 2018. A detailed comparison of premiums by
segment for the third quarter and first nine months of 2018 and 2017 is contained in the following pages.
Net loss and LAE.
The following table presents our consolidated net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
September 30,
|
|
|
|
Percent
|
|
|
2018
|
|
|
|
|
2017
|
|
|
|
Change
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
Change
|
|
|
($ in millions)
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
794.9
|
|
|
|
|
|
|
$
|
760.9
|
|
|
|
|
|
|
|
4.5%
|
|
|
|
|
|
|
$
|
2,323.1
|
|
|
|
|
|
|
$
|
2,291.1
|
|
|
|
|
|
|
|
1.4%
|
|
Current year catastrophe losses
|
|
|
237.8
|
|
|
|
|
|
|
|
792.5
|
|
|
|
|
|
|
|
(70.0%)
|
|
|
|
|
|
|
|
256.2
|
|
|
|
|
|
|
|
807.9
|
|
|
|
|
|
|
|
(68.3%)
|
|
Prior years
|
|
|
(75.0)
|
|
|
|
|
|
|
|
(61.5)
|
|
|
|
|
|
|
|
22.0%
|
|
|
|
|
|
|
|
(212.8)
|
|
|
|
|
|
|
|
(173.0)
|
|
|
|
|
|
|
|
23.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
957.7
|
|
|
|
|
|
|
$
|
1,491.9
|
|
|
|
|
|
|
|
(35.8%)
|
|
|
|
|
|
|
$
|
2,366.5
|
|
|
|
|
|
|
$
|
2,926.0
|
|
|
|
|
|
|
|
(19.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
64.9%
|
|
|
|
|
|
|
|
61.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.3%
|
|
|
|
|
|
|
|
62.0%
|
|
|
|
|
|
|
|
|
|
Current year catastrophe losses
|
|
|
19.4%
|
|
|
|
|
|
|
|
63.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0%
|
|
|
|
|
|
|
|
21.9%
|
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(6.1%)
|
|
|
|
|
|
|
|
(5.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.8%)
|
|
|
|
|
|
|
|
(4.7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
78.2%
|
|
|
|
|
|
|
|
120.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.5%
|
|
|
|
|
|
|
|
79.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decreases in net loss and LAE in the third quarter and first nine months of 2018 from the corresponding
2017 periods primarily reflect significantly lower catastrophe losses at our reinsurance and insurance segments, the impact of the sale of PacificComp at our insurance segment and increases in favorable prior accident year loss reserve development,
partially offset by increases in
non-catastrophe
losses at our reinsurance
35
segment. The catastrophe losses in the third quarter and first nine months of 2018 include $87.7 million related to Typhoon Jebi, $80.2 million related to Hurricane Florence and
$38.5 million related to Typhoon Trami. Catastrophe losses in the third quarter and first nine months of 2017 include $264.6 million related to Hurricane Harvey, $312.0 million related to Hurricane Irma and $170.3 million related
to Hurricane Maria.
Net loss and LAE in the first nine months of 2017 for the reinsurance segment include $24.4 million of
unfavorable prior accident year loss reserve development related to the U.K. Ministry of Justices reduction in the discount rate, referred to as the Ogden rate, used to calculate
lump-sum
bodily injury
payouts in personal injury insurance claims in the U.K.
A detailed comparison of net loss and LAE by segment for the third quarter and
first nine months of 2018 and 2017 is contained in the following pages.
Commissions, brokerage and other underwriting
expenses
.
The following table presents our consolidated commissions, brokerage and other underwriting expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
407.7
|
|
|
$
|
398.2
|
|
|
|
2.4
|
%
|
|
$
|
1,216.0
|
|
|
$
|
1,220.4
|
|
|
|
|
(0.4%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
33.3%
|
|
|
|
32.1%
|
|
|
|
|
|
|
|
33.1%
|
|
|
|
33.0%
|
|
|
|
|
|
The increase in commissions, brokerage and other underwriting expenses in the third quarter of 2018 from the
third quarter of 2017 primarily reflects the impact of significantly lower catastrophe losses on short-term incentive compensation accruals at our reinsurance segment and RSUI and an increase in commissions, brokerage and other underwriting expenses
at CapSpecialty due primarily to the impact of higher net premiums earned, partially offset by the impact of the sale of PacificComp. The slight decrease in commissions, brokerage and other underwriting expenses in the first nine months of 2018 from
first nine months of 2017 primarily reflects the impact of the sale of PacificComp, partially offset by the impact of lower catastrophe losses on short-term incentive compensation accruals at our reinsurance segment and RSUI, and an increase at
CapSpecialty in commissions, brokerage and other underwriting expenses 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 nine months ended September 30, 2018 and 2017 is contained in the following pages.
Underwriting profit.
The following table presents our consolidated underwriting profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Underwriting (loss) profit
|
|
$
|
(140.0)
|
|
|
$
|
(650.4)
|
|
|
|
|
(78.5%)
|
|
$
|
87.7
|
|
|
$
|
(453.6)
|
|
|
|
(119.3%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
111.5%
|
|
|
|
152.4%
|
|
|
|
|
|
|
|
97.6%
|
|
|
|
112.2%
|
|
|
|
|
|
The significant decrease in underwriting loss in the third quarter of 2018 from the third quarter of 2017, and
the underwriting profit in the first nine months of 2018 compared with the underwriting loss in the first nine months of 2017, primarily reflect significantly lower catastrophe losses at our reinsurance and insurance segments and, to a lesser
extent, increases in favorable prior accident year loss reserve development, partially offset by increases in
non-catastrophe
losses at our reinsurance segment, all as discussed above.
A detailed comparison of underwriting profit by segment for the three and nine months ended September 30, 2018 and 2017 is contained in the
following pages.
36
Investment results.
The following table presents our consolidated investment
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Net investment income
|
|
|
$ 127.3
|
|
|
|
$ 104.7
|
|
|
|
21.6
|
%
|
|
|
$ 377.7
|
|
|
|
$ 321.9
|
|
|
|
17.3%
|
|
Change in the fair value of equity securities
|
|
|
370.2
|
|
|
|
-
|
|
|
|
|
-
|
|
|
512.8
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
16.2
|
|
|
|
32.9
|
|
|
|
(50.8
|
%)
|
|
|
67.2
|
|
|
|
101.8
|
|
|
|
(34.0%)
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(6.1)
|
|
|
|
(100.0
|
%)
|
|
|
(0.5)
|
|
|
|
(13.1)
|
|
|
|
(96.2%)
|
|
The increases in net investment income in the third quarter and first nine months of 2018 from the
corresponding 2017 periods primarily reflect increases in partnership income, increases in dividend income resulting from an increase in the size of the equity securities portfolio and, to a lesser extent, higher interest income. The increase in
interest income primarily reflects higher yields on
short-term
investments and floating-rate debt securities, partially offset by the impact of the sale of PacificComp.
Partnership income in the first nine 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 third quarter and first nine months of 2017 includes losses incurred
on our equity interests in Pillar Capital Holdings Limited, or Pillar Holdings, and related funds arising from significant catastrophe losses incurred in August and September 2017. Partnership income in the first nine months of 2017 also
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 third
quarter and first nine months of 2018 reflect appreciation in the value of our equity securities portfolio, primarily from our holdings in the technology and industrial sectors. To a lesser extent, the changes in the fair value of equity securities
in the third quarter and first nine months of 2018 also reflect appreciation in the value of our equity holdings in the healthcare and consumer discretionary sectors, respectively.
The decreases in net realized capital gains in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily
reflect a lack of net realized capital gains from equity securities in 2018 as a result of our adoption of the new investment accounting guidance discussed above. The decrease for the first nine months of 2018 was partially offset by a
$45.7 million gain on AIHLs conversion of its limited partnership interests in certain subsidiaries of Ares into Ares common units. See Note 3(h) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1,
Financial Statements of this Form 10-Q for additional information on AIHLs conversion.
The decrease in OTTI losses in
the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflects an absence of impairments from equity securities in 2018 resulting from our adoption of the new investment accounting guidance, as discussed
above.
A detailed comparison of investment results for the three and nine months ended September 30, 2018 and 2017 is contained in
the following pages.
Noninsurance revenue and expenses.
The following table presents our consolidated noninsurance revenue
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Noninsurance revenue
|
|
$
|
438.3
|
|
|
$
|
296.3
|
|
|
|
47.9%
|
|
|
$
|
1,032.7
|
|
|
$
|
650.4
|
|
|
|
58.8%
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
415.3
|
|
|
|
277.9
|
|
|
|
49.4%
|
|
|
|
1,023.5
|
|
|
|
678.2
|
|
|
|
50.9%
|
|
Corporation administration
|
|
|
19.1
|
|
|
|
(4.7)
|
|
|
|
(506.4%)
|
|
|
|
41.0
|
|
|
|
26.6
|
|
|
|
54.1%
|
|
Amortization of intangible assets
|
|
|
5.5
|
|
|
|
5.7
|
|
|
|
(3.5%)
|
|
|
|
16.8
|
|
|
|
14.2
|
|
|
|
18.3%
|
|
Interest expense
|
|
|
22.2
|
|
|
|
20.8
|
|
|
|
6.7%
|
|
|
|
66.0
|
|
|
|
62.7
|
|
|
|
5.3%
|
|
37
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
$19.9 million and $5.4 million in the third quarter of 2018 and 2017, respectively, and $52.5 million and $50.4 million in the first nine months of 2018 and 2017, respectively. The increases in long-term incentive compensation at
our reinsurance and insurance segments in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect the impact of significantly lower catastrophe losses on long-term incentive compensation accruals at
TransRe and RSUI, partially offset by the impact of declines in unrealized appreciation on our debt securities portfolio in the third quarter and first nine months of 2018 on long-term incentive compensation 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 third quarter and first nine months of 2018
from the corresponding 2017 periods primarily reflect the acquisition of Hirschfeld and, for the first nine months of 2018, the acquisition of W&W|AFCO Steel. The increase in other operating expenses in the third quarter of 2018 from the third
quarter of 2017 also reflects an increase in long-term incentive compensation at our reinsurance and insurance segments, as discussed above.
Corporate administration.
The corporate administration expense in the third quarter of 2018, compared with negative corporate
administration expense in the third quarter of 2017, and the increase in corporate administration expense in the first nine months of 2018 from the first nine months of 2017, primarily reflect increases in Alleghanys long-term incentive
compensation accruals. Such increases in accruals primarily reflect the impact of significantly lower catastrophe losses and increases in the price per share of our common stock during the 2018 periods, partially offset by the impact of declines in
unrealized appreciation on our debt securities portfolio in the third quarter and first nine months of 2018.
Amortization of intangible
assets.
The increase in amortization expense in the first nine months of 2018 from the first nine months of 2017 primarily reflects the Hirschfeld and W&W|AFCO Steel acquisitions.
Interest expense.
The increases in interest expense in the third quarter and first nine 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 nine months ended September 30, 2018 and 2017 is contained in the following pages.
Income taxes.
The following
table presents our consolidated income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
|
Percent
|
|
September 30,
|
|
|
Percent
|
|
|
2018
|
|
|
2017
|
|
Change
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
($ in millions)
|
|
Income taxes
|
|
$
|
60.4
|
|
|
$
|
(212.3)
|
|
|
|
(128.5%)
|
|
|
|
$ 171.2
|
|
|
|
$ (116.3)
|
|
|
|
(247.2%)
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.4%
|
|
|
|
66.8%
|
|
|
|
|
|
The income taxes in the third quarter and first nine months of 2018, compared with income tax benefits in the
corresponding 2017 periods, primarily reflect the impact of significantly lower taxable catastrophe losses and the taxable income from appreciation in the value of our equity securities portfolio resulting from our adoption of new investment
accounting guidance in 2018, all as discussed above. The 66.8 percent effective tax rate for the first nine months of 2017 was calculated based on actual results through September 30, 2017 because management was not able to reliably
estimate the annual effective tax rate in light of the significant catastrophe losses incurred in the third quarter of 2017. The decrease in the effective tax rate in the first nine months of 2018 from the first nine 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, and losses before income taxes in the first nine months of 2017,
which magnified the impact of certain tax adjustments, partially offset by new limitations on certain deductions as a result of the Tax Act.
38
Net earnings.
The following table presents our consolidated earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Percent
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
($ in millions)
|
|
Earnings (losses) before income taxes
|
|
|
$ 349.9
|
|
|
|
$ (522.3)
|
|
|
|
(167.0%)
|
|
|
|
$ 930.3
|
|
|
|
$ (174.3)
|
|
|
|
(633.7%)
|
|
Net earnings (losses) attributable to Alleghany stockholders
|
|
|
284.9
|
|
|
|
(314.2)
|
|
|
|
(190.7%)
|
|
|
|
751.6
|
|
|
|
(63.2)
|
|
|
|
(1,289.2%)
|
|
The earnings before income taxes and net earnings attributable to Alleghany stockholders in the third quarter
and first nine months of 2018, compared with the losses before income taxes and net losses attributable to Alleghany stockholders in the corresponding 2017 periods, primarily reflect significantly lower catastrophe losses and appreciation in the
value of our equity securities portfolio resulting from our adoption of new investment accounting guidance in 2018, all as discussed above.
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 September 30, 2018
|
|
Property
|
|
|
Casualty &
Other
(1)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
Gross premiums
written
|
|
|
$ 451.4
|
|
|
|
$ 685.9
|
|
|
|
$ 1,137.3
|
|
Net premiums written
|
|
|
331.1
|
|
|
|
654.1
|
|
|
|
985.2
|
|
|
|
|
|
Net premiums earned
|
|
|
326.5
|
|
|
|
635.0
|
|
|
|
961.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
194.6
|
|
|
|
460.1
|
|
|
|
654.7
|
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
-
|
|
|
|
195.8
|
|
Prior years
|
|
|
(2.8)
|
|
|
|
(38.7)
|
|
|
|
(41.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
387.6
|
|
|
|
421.4
|
|
|
|
809.0
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
113.3
|
|
|
|
211.6
|
|
|
|
324.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(2)
|
|
|
$ (174.4)
|
|
|
|
$ 2.0
|
|
|
|
$ (172.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
59.6%
|
|
|
|
72.5%
|
|
|
|
68.1%
|
|
Current year catastrophe losses
|
|
|
60.0%
|
|
|
|
- %
|
|
|
|
20.4%
|
|
Prior years
|
|
|
(0.9%)
|
|
|
|
(6.1%)
|
|
|
|
(4.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
118.7%
|
|
|
|
66.4%
|
|
|
|
84.1%
|
|
Expense ratio
(4)
|
|
|
34.7%
|
|
|
|
33.3%
|
|
|
|
33.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
153.4%
|
|
|
|
99.7%
|
|
|
|
117.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
445.5
|
|
|
$
|
681.1
|
|
|
$
|
1,126.6
|
|
Net premiums written
|
|
|
329.0
|
|
|
|
649.5
|
|
|
|
978.5
|
|
|
|
|
|
Net premiums earned
|
|
|
310.8
|
|
|
|
642.4
|
|
|
|
953.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
162.0
|
|
|
|
431.0
|
|
|
|
593.0
|
|
Current year catastrophe losses
|
|
|
506.0
|
|
|
|
70.0
|
|
|
|
576.0
|
|
Prior years
|
|
|
(8.1
|
)
|
|
|
(41.7
|
)
|
|
|
(49.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
659.9
|
|
|
|
459.3
|
|
|
|
1,119.2
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
105.2
|
|
|
|
203.7
|
|
|
|
308.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(454.3
|
)
|
|
$
|
(20.6
|
)
|
|
$
|
(474.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
52.1
|
%
|
|
|
67.1
|
%
|
|
|
62.3
|
%
|
Current year catastrophe losses
|
|
|
162.8
|
%
|
|
|
10.9
|
%
|
|
|
60.4
|
%
|
Prior years
|
|
|
(2.6
|
%)
|
|
|
(6.5
|
%)
|
|
|
(5.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
212.3
|
%
|
|
|
71.5
|
%
|
|
|
117.5
|
%
|
Expense ratio
(4)
|
|
|
33.8
|
%
|
|
|
31.7
|
%
|
|
|
32.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
246.1
|
%
|
|
|
103.2
|
%
|
|
|
149.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
1,193.7
|
|
|
$
|
2,130.9
|
|
|
$
|
3,324.6
|
|
Net premiums written
|
|
|
912.1
|
|
|
|
2,046.8
|
|
|
|
2,958.9
|
|
|
|
|
|
Net premiums earned
|
|
|
893.7
|
|
|
|
2,009.3
|
|
|
|
2,903.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
499.7
|
|
|
|
1,410.2
|
|
|
|
1,909.9
|
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
-
|
|
|
|
195.8
|
|
Prior years
|
|
|
(57.8
|
)
|
|
|
(105.9
|
)
|
|
|
(163.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
637.7
|
|
|
|
1,304.3
|
|
|
|
1,942.0
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
301.2
|
|
|
|
663.6
|
|
|
|
964.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(2)
|
|
$
|
(45.2
|
)
|
|
$
|
41.4
|
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
55.9
|
%
|
|
|
70.2
|
%
|
|
|
65.8
|
%
|
Current year catastrophe losses
|
|
|
21.9
|
%
|
|
|
-
|
%
|
|
|
6.7
|
%
|
Prior years
|
|
|
(6.5
|
%)
|
|
|
(5.3
|
%)
|
|
|
(5.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
71.3
|
%
|
|
|
64.9
|
%
|
|
|
66.9
|
%
|
Expense ratio
(4)
|
|
|
33.7
|
%
|
|
|
33.0
|
%
|
|
|
33.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
105.0
|
%
|
|
|
97.9
|
%
|
|
|
100.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Property
|
|
Casualty &
Other
(1)
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
1,190.0
|
|
|
$
|
2,037.7
|
|
|
$
|
3,227.7
|
|
Net premiums written
|
|
|
931.4
|
|
|
|
1,975.3
|
|
|
|
2,906.7
|
|
|
|
|
|
Net premiums earned
|
|
|
868.1
|
|
|
|
1,968.7
|
|
|
|
2,836.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
461.2
|
|
|
|
1,352.9
|
|
|
|
1,814.1
|
|
Current year catastrophe losses
|
|
|
506.0
|
|
|
|
70.0
|
|
|
|
576.0
|
|
Prior years
|
|
|
(62.6
|
)
|
|
|
(78.2
|
)
|
|
|
(140.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
904.6
|
|
|
|
1,344.7
|
|
|
|
2,249.3
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
283.7
|
|
|
|
662.9
|
|
|
|
946.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
(2)
|
|
$
|
(320.2
|
)
|
|
$
|
(38.9
|
)
|
|
$
|
(359.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.1
|
%
|
|
|
68.7
|
%
|
|
|
63.9
|
%
|
Current year catastrophe losses
|
|
|
58.3
|
%
|
|
|
3.6
|
%
|
|
|
20.3
|
%
|
Prior years
|
|
|
(7.2
|
%)
|
|
|
(4.0
|
%)
|
|
|
(5.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
104.2
|
%
|
|
|
68.3
|
%
|
|
|
79.2
|
%
|
|
|
|
|
Expense ratio
(4)
|
|
|
32.7
|
%
|
|
|
33.7
|
%
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(5)
|
|
|
136.9
|
%
|
|
|
102.0
|
%
|
|
|
112.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
41
Reinsurance Segment: Premiums.
The following table presents premiums for the
reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Percent
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
($ in millions)
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
451.4
|
|
|
$
|
445.5
|
|
|
|
1.3%
|
|
|
$
|
1,193.7
|
|
|
$
|
1,190.0
|
|
|
|
0.3%
|
|
Net premiums written
|
|
|
331.1
|
|
|
|
329.0
|
|
|
|
0.6%
|
|
|
|
912.1
|
|
|
|
931.4
|
|
|
|
(2.1%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
326.5
|
|
|
|
310.8
|
|
|
|
5.1%
|
|
|
|
893.7
|
|
|
|
868.1
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
685.9
|
|
|
$
|
681.1
|
|
|
|
0.7%
|
|
|
$
|
2,130.9
|
|
|
$
|
2,037.7
|
|
|
|
4.6%
|
|
Net premiums written
|
|
|
654.1
|
|
|
|
649.5
|
|
|
|
0.7%
|
|
|
|
2,046.8
|
|
|
|
1,975.3
|
|
|
|
3.6%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
635.0
|
|
|
|
642.4
|
|
|
|
(1.2%)
|
|
|
|
2,009.3
|
|
|
|
1,968.7
|
|
|
|
2.1%
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,137.3
|
|
|
$
|
1,126.6
|
|
|
|
0.9%
|
|
|
$
|
3,324.6
|
|
|
$
|
3,227.7
|
|
|
|
3.0%
|
|
Net premiums written
|
|
|
985.2
|
|
|
|
978.5
|
|
|
|
0.7%
|
|
|
|
2,958.9
|
|
|
|
2,906.7
|
|
|
|
1.8%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
961.5
|
|
|
|
953.2
|
|
|
|
0.9%
|
|
|
|
2,903.0
|
|
|
|
2,836.8
|
|
|
|
2.3%
|
|
Property.
The increase in gross premiums written in the third quarter of 2018 from the third quarter of
2017 primarily reflects higher property-related premiums written related to the Quota Share Treaty, partially offset by the impact of changes in foreign currency exchange rates and lower reinstatement premiums written due to significantly lower
catastrophe losses in the third quarter of 2018. The increase in gross premiums written in the first nine months of 2018 from the first nine months of 2017 primarily reflects increases in premiums written by the Asia-Pacific operations and the
impact of changes in foreign currency exchange rates, partially offset by a decline in property-related premiums written related to the Quota Share Treaty and lower reinstatement premiums written due to significantly lower catastrophe losses in the
first nine months of 2018. Gross premiums written related to the Quota Share Treaty were $113.4 million and $92.5 million in the third quarter of 2018 and 2017, respectively, and $224.0 million and $263.2 million in the first
nine months of 2018 and 2017, respectively. Excluding the impact of changes in foreign currency exchange rates, gross premiums written increased 2.7 percent and decreased 0.1 percent, respectively, in the third quarter and first nine
months of 2018 from the corresponding 2017 periods.
The increase in net premiums earned in the third quarter of 2018 from the third
quarter of 2017 primarily reflects an increase in gross premiums written in recent quarters, partially offset by lower reinstatement premiums written due to significantly lower catastrophe losses in the third quarter of 2018 and the impact of
changes in foreign currency exchange rates. The increase in net premiums earned in the first nine months of 2018 from the first nine 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 and lower reinstatement premiums written due to significantly lower catastrophe losses in the first nine
months of 2018. Reinstatement premiums earned on 2018 catastrophe losses in the third quarter and first nine months of 2018 were $10.8 million, compared with $32.1 million on 2017 catastrophe losses in the third quarter and first nine
months of 2017. Excluding the impact of changes in foreign currency exchange rates, net premiums earned increased 6.5 percent and 2.3 percent, respectively, in the third quarter and first nine months of 2018 from the corresponding 2017
periods.
Casualty
& other.
The increase in gross premiums written in the third quarter of 2018 from the
third quarter of 2017 primarily reflects increases in premiums written by the Asia-Pacific operations and the impact of the Renewal Rights Purchase, partially offset by lower casualty-related premiums written related to the Quota Share Treaty, the
impact of changes in foreign currency exchange rates and lower reinstatement premiums written due to significantly lower catastrophe losses in the third quarter of 2018. The increase in gross premiums written in the first nine months of 2018 from
the first nine months of 2017 primarily reflects increases in premiums written by the European and Asia-Pacific operations, higher casualty-related premiums written related to the Quota Share Treaty, the impact of the Renewal Rights Purchase and the
impact of changes in foreign currency exchange rates, partially offset by reinstatement premiums written from catastrophe losses in the third quarter of 2017. Gross premiums written related to the Quota Share Treaty were $93.8 million and
$113.3 million in the third quarter of 2018 and 2017, respectively, and $354.9 million and $316.7 million in the first nine months of 2018 and 2017, respectively. Excluding the impact of changes in foreign currency exchange rates,
gross premiums written increased 1.6 percent and 3.9 percent, respectively, in the third quarter and first nine months of 2018 from the corresponding 2017 periods.
42
The decrease in net premiums earned in the third quarter of 2018 from the third quarter of
2017 primarily reflects the impact of changes in foreign currency exchange rates and reinstatement premiums earned from catastrophe losses in the third quarter of 2017, partially offset by an increase in gross premiums written in recent quarters.
The increase in net premiums earned in the first nine months of 2018 from the first nine months of 2017 primarily reflects an increase in gross premiums written in recent quarters and the impact of changes in foreign currency exchange rates,
partially offset by reinstatement premiums earned from catastrophe losses in the first nine months of 2017. Excluding the impact of changes in foreign currency exchange rates, net premiums earned decreased 0.2 percent in the third quarter of
2018 from the third quarter of 2017, and increased 1.5 percent in the first nine months of 2018 from the first nine months of 2017.
Reinsurance Segment: Net loss and LAE.
The following table presents net loss and LAE for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
194.6
|
|
|
$
|
162.0
|
|
|
|
20.1
|
%
|
|
$
|
499.7
|
|
|
$
|
461.2
|
|
|
|
8.3
|
%
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
506.0
|
|
|
|
(61.3
|
%)
|
|
|
195.8
|
|
|
|
506.0
|
|
|
|
(61.3
|
%)
|
Prior years
|
|
|
(2.8
|
)
|
|
|
(8.1
|
)
|
|
|
(65.4
|
%)
|
|
|
(57.8
|
)
|
|
|
(62.6
|
)
|
|
|
(7.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
387.6
|
|
|
$
|
659.9
|
|
|
|
(41.3
|
%)
|
|
$
|
637.7
|
|
|
$
|
904.6
|
|
|
|
(29.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
59.6
|
%
|
|
|
52.1
|
%
|
|
|
|
|
|
|
55.9
|
%
|
|
|
53.1
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
60.0
|
%
|
|
|
162.8
|
%
|
|
|
|
|
|
|
21.9
|
%
|
|
|
58.3
|
%
|
|
|
|
|
Prior years
|
|
|
(0.9
|
%)
|
|
|
(2.6
|
%)
|
|
|
|
|
|
|
(6.5
|
%)
|
|
|
(7.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
118.7
|
%
|
|
|
212.3
|
%
|
|
|
|
|
|
|
71.3
|
%
|
|
|
104.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
460.1
|
|
|
$
|
431.0
|
|
|
|
6.8
|
%
|
|
$
|
1,410.2
|
|
|
$
|
1,352.9
|
|
|
|
4.2
|
%
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
70.0
|
|
|
|
(100.0
|
%)
|
|
|
-
|
|
|
|
70.0
|
|
|
|
(100.0
|
%)
|
Prior years
|
|
|
(38.7
|
)
|
|
|
(41.7
|
)
|
|
|
(7.2
|
%)
|
|
|
(105.9
|
)
|
|
|
(78.2
|
)
|
|
|
35.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
421.4
|
|
|
$
|
459.3
|
|
|
|
(8.3
|
%)
|
|
$
|
1,304.3
|
|
|
$
|
1,344.7
|
|
|
|
(3.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
72.5
|
%
|
|
|
67.1
|
%
|
|
|
|
|
|
|
70.2
|
%
|
|
|
68.7
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
3.6
|
%
|
|
|
|
|
Prior years
|
|
|
(6.1
|
%)
|
|
|
(6.5
|
%)
|
|
|
|
|
|
|
(5.3
|
%)
|
|
|
(4.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
66.4
|
%
|
|
|
71.5
|
%
|
|
|
|
|
|
|
64.9
|
%
|
|
|
68.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
654.7
|
|
|
$
|
593.0
|
|
|
|
10.4
|
%
|
|
$
|
1,909.9
|
|
|
$
|
1,814.1
|
|
|
|
5.3
|
%
|
Current year catastrophe losses
|
|
|
195.8
|
|
|
|
576.0
|
|
|
|
(66.0
|
%)
|
|
|
195.8
|
|
|
|
576.0
|
|
|
|
(66.0
|
%)
|
Prior years
|
|
|
(41.5
|
)
|
|
|
(49.8
|
)
|
|
|
(16.7
|
%)
|
|
|
(163.7
|
)
|
|
|
(140.8
|
)
|
|
|
16.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
809.0
|
|
|
$
|
1,119.2
|
|
|
|
(27.7
|
%)
|
|
$
|
1,942.0
|
|
|
$
|
2,249.3
|
|
|
|
(13.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
68.1
|
%
|
|
|
62.3
|
%
|
|
|
|
|
|
|
65.8
|
%
|
|
|
63.9
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
20.4
|
%
|
|
|
60.4
|
%
|
|
|
|
|
|
|
6.7
|
%
|
|
|
20.3
|
%
|
|
|
|
|
Prior years
|
|
|
(4.4
|
%)
|
|
|
(5.2
|
%)
|
|
|
|
|
|
|
(5.6
|
%)
|
|
|
(5.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
84.1
|
%
|
|
|
117.5
|
%
|
|
|
|
|
|
|
66.9
|
%
|
|
|
79.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Property.
The decreases in net loss and LAE in the third quarter and first nine
months of 2018 from the corresponding 2017 periods primarily reflect significantly lower catastrophe losses, partially offset by higher
non-catastrophe
losses. The catastrophe losses in the third quarter and
first nine months of 2018 include $87.7 million related to Typhoon Jebi, $46.2 million related to Hurricane Florence, $38.5 million related to Typhoon Trami and $23.4 million from several severe weather events in East Asia.
Catastrophe losses in the third quarter and first nine months of 2017 include $160.7 million related to Hurricane Harvey in August 2017, $175.0 million related to Hurricane Irma in September 2017, $142.4 million related to Hurricane
Maria in September 2017 and $27.9 million related to earthquakes in Mexico in September 2017.
Net loss and LAE in the third quarter
and first nine months of 2018 and 2017 include (favorable) unfavorable prior accident year loss reserve development as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Catastrophe events
|
|
$
|
9.6
(
|
1)
|
|
$
|
(7.8)
|
(2)
|
|
$
|
(15.6)
|
(3)
|
|
$
|
(12.2)
|
(2)
|
|
|
|
|
|
Non-catastrophe
|
|
|
(12.4)
|
(4)
|
|
|
(0.3)
|
|
|
|
(42.2)
|
(4)
|
|
|
(50.4)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2.8)
|
|
|
$
|
(8.1)
|
|
|
$
|
(57.8)
|
|
|
$
|
(62.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily reflects unfavorable prior accident year loss reserve development related to Hurricanes Maria and Irma
in the 2017 accident year.
|
(2)
|
Primarily reflects favorable prior accident year loss reserve development related to several catastrophes in the
2010 through 2016 accident years.
|
(3)
|
Primarily reflects favorable prior accident year loss reserve development related to Hurricane Harvey in the
2017 accident year and catastrophes in the 2016 accident year, partially offset by unfavorable prior accident year loss reserve development related to Hurricanes Maria and Irma in the 2017 accident year.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the 2017 accident year.
|
(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 third quarter and first nine 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 third quarter and first nine months of 2018 did not impact assumptions used in
estimating TransRes loss and LAE liabilities for business earned in the first nine months of 2018.
Casualty
& other.
The decreases in net loss and LAE in the third quarter and first nine months of 2018 from the
corresponding 2017 periods primarily reflect an absence of catastrophe losses and, for the nine month period only, higher favorable prior accident year loss reserve development, partially offset by higher
non-catastrophe
losses. Catastrophe losses in the third quarter and first nine months of 2017 relate primarily to the marine lines of business, and include $20.3 million related to Hurricane Harvey in
August 2017, $33.3 million related to Hurricane Irma in September 2017, $13.6 million related to Hurricane Maria in September 2017 and $2.8 million related to earthquakes in Mexico in September 2017.
Net loss and LAE in the third quarter and first nine months of 2018 and 2017 include (favorable) unfavorable prior accident year loss reserve
development as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Malpractice Treaties
(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(3.4)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
Ogden rate impact
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.4
|
|
|
|
|
|
|
Other
|
|
|
(38.7)
|
(3)
|
|
|
(41.7)
|
(4)
|
|
|
(102.5)
|
(5)
|
|
|
(100.6)
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(38.7)
|
|
|
$
|
(41.7)
|
|
|
$
|
(105.9)
|
|
|
$
|
(78.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 longer-tailed casualty lines of
business in the 2007 and earlier accident years, partially offset by unfavorable prior accident year loss reserve development in the longer-tailed casualty lines of business in the 2014 through 2016 accident years.
|
(4)
|
Primarily reflects favorable prior accident year loss reserve development in the
longer-tailed
U.S. professional liability lines of business related to older accident years and shorter-tailed casualty lines of business in the U.K. related to recent accident years.
|
44
(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 in the longer-tailed casualty lines of business in the 2010 and earlier accident years, partially offset by unfavorable prior accident year loss reserve development in the longer-tailed casualty
lines of business in the 2014 accident year.
|
(6)
|
Primarily reflects favorable prior accident year loss reserve development in longer-tailed U.S. professional
liability lines of business in the 2005 through 2014 accident years, partially offset by unfavorable prior accident year loss reserve development in shorter-tailed casualty lines of business in the 2015 accident year in the U.S. and the U.K.
|
The favorable prior accident year loss reserve development in the third quarter and first nine 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 third quarter and first nine months of 2018 did not impact assumptions used in
estimating TransRes loss and LAE liabilities for business earned in the first nine months of 2018.
Reinsurance Segment:
Commissions, brokerage and other underwriting expenses.
The following table presents commissions, brokerage and other underwriting expenses for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Percent
|
|
Nine Months Ended
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
113.3
|
|
|
$
|
105.2
|
|
|
|
7.7%
|
|
|
$
|
301.2
|
|
|
$
|
283.7
|
|
|
|
6.2%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
34.7%
|
|
|
|
33.8%
|
|
|
|
|
|
|
|
33.7%
|
|
|
|
32.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
211.6
|
|
|
$
|
203.7
|
|
|
|
3.9%
|
|
|
$
|
663.6
|
|
|
$
|
662.9
|
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
33.3%
|
|
|
|
31.7%
|
|
|
|
|
|
|
|
33.0%
|
|
|
|
33.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
324.9
|
|
|
$
|
308.9
|
|
|
|
5.2%
|
|
|
$
|
964.8
|
|
|
$
|
946.6
|
|
|
|
1.9%
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
33.8%
|
|
|
|
32.3%
|
|
|
|
|
|
|
|
33.2%
|
|
|
|
33.4%
|
|
|
|
|
|
Property.
The increases in commissions, brokerage and other underwriting expenses in the third quarter
and first nine months of 2018 from the corresponding 2017 periods primarily reflect higher short-term incentive compensation expense accruals arising from significantly lower catastrophe losses in the third quarter of 2018, the impact of higher net
premiums earned and, for the nine month period only, higher commission rates.
Casualty
& other.
The increase
in commissions, brokerage and other underwriting expenses in the third quarter of 2018 from the third quarter of 2017 primarily reflects higher short-term incentive compensation expense accruals arising from the absence of catastrophe losses in the
third quarter of 2018 and, for the third quarter period only, higher commission rates, partially offset by the impact of lower net premiums earned.
45
Reinsurance Segment: Underwriting profit.
The following table presents
underwriting profit (loss) for the reinsurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Percent
|
|
Nine Months Ended
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
|
|
$
|
(174.4)
|
|
|
$
|
(454.3)
|
|
|
|
(61.6%)
|
|
|
$
|
(45.2)
|
|
|
$
|
(320.2)
|
|
|
|
(85.9%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
153.4%
|
|
|
|
246.1%
|
|
|
|
|
|
|
|
105.0%
|
|
|
|
136.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
$
|
2.0
|
|
|
$
|
(20.6)
|
|
|
|
(109.7%)
|
|
|
$
|
41.4
|
|
|
$
|
(38.9)
|
|
|
|
(206.4%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
99.7%
|
|
|
|
103.2%
|
|
|
|
|
|
|
|
97.9%
|
|
|
|
102.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss)
|
|
$
|
(172.4)
|
|
|
$
|
(474.9)
|
|
|
|
(63.7%)
|
|
|
$
|
(3.8)
|
|
|
$
|
(359.1)
|
|
|
|
(98.9%)
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
117.9%
|
|
|
|
149.8%
|
|
|
|
|
|
|
|
100.1%
|
|
|
|
112.6%
|
|
|
|
|
|
Property.
The decreases in underwriting loss in the third quarter and first nine months of 2018 from the
corresponding 2017 periods primarily reflect significantly lower catastrophe losses, partially offset by increases in
non-catastrophe
losses, all as discussed above.
Casualty
& other.
The underwriting profit in the third quarter and first nine months of 2018 compared with the
underwriting loss from the corresponding 2017 periods primarily reflects the absence of catastrophe losses and, for the nine month period only, higher favorable prior accident year loss reserve development, 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.
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
RSUI
|
|
CapSpecialty
|
|
Total
|
|
|
|
|
($ in millions)
|
Gross premiums written
|
|
|
|
|
|
$
|
260.8
|
|
|
$
|
83.9
|
|
|
$
|
344.7
|
|
Net premiums written
|
|
|
|
|
|
|
176.0
|
|
|
|
77.9
|
|
|
|
253.9
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
190.6
|
|
|
|
73.3
|
|
|
|
263.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
97.9
|
|
|
|
42.3
|
|
|
|
140.2
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
41.1
|
|
|
|
0.9
|
|
|
|
42.0
|
|
Prior years
|
|
|
|
|
|
|
(32.0
|
)
|
|
|
(1.5
|
)
|
|
|
(33.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
107.0
|
|
|
|
41.7
|
|
|
|
148.7
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
|
|
|
|
52.8
|
|
|
|
30.0
|
|
|
|
82.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(1)
|
|
|
|
|
|
$
|
30.8
|
|
|
$
|
1.6
|
|
|
$
|
32.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
51.4
|
%
|
|
|
57.7
|
%
|
|
|
53.1
|
%
|
Current year catastrophe losses
|
|
|
|
|
|
|
21.6
|
%
|
|
|
1.2
|
%
|
|
|
15.9
|
%
|
Prior years
|
|
|
|
|
|
|
(16.9
|
%)
|
|
|
(2.1
|
%)
|
|
|
(12.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
56.1
|
%
|
|
|
56.8
|
%
|
|
|
56.3
|
%
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
|
|
|
|
27.7
|
%
|
|
|
40.9
|
%
|
|
|
31.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
|
|
|
|
83.8
|
%
|
|
|
97.7
|
%
|
|
|
87.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
RSUI
|
|
CapSpecialty
|
|
PacificComp
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
234.6
|
|
|
$
|
74.3
|
|
|
$
|
41.6
|
|
|
$
|
350.5
|
|
Net premiums written
|
|
|
170.8
|
|
|
|
69.5
|
|
|
|
41.5
|
|
|
|
281.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
179.0
|
|
|
|
66.1
|
|
|
|
41.4
|
|
|
|
286.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
99.3
|
|
|
|
37.5
|
|
|
|
31.1
|
|
|
|
167.9
|
|
Current year catastrophe losses
|
|
|
214.7
|
|
|
|
1.8
|
|
|
|
-
|
|
|
|
216.5
|
|
Prior years
|
|
|
(8.6
|
)
|
|
|
(2.3
|
)
|
|
|
(0.8
|
)
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
305.4
|
|
|
|
37.0
|
|
|
|
30.3
|
|
|
|
372.7
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
50.3
|
|
|
|
28.4
|
|
|
|
10.6
|
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) profit
(1)
|
|
$
|
(176.7
|
)
|
|
$
|
0.7
|
|
|
$
|
0.5
|
|
|
$
|
(175.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
55.5
|
%
|
|
|
56.8
|
%
|
|
|
75.2
|
%
|
|
|
58.6
|
%
|
Current year catastrophe losses
|
|
|
119.9
|
%
|
|
|
2.7
|
%
|
|
|
-
|
%
|
|
|
75.6
|
%
|
Prior years
|
|
|
(4.8
|
%)
|
|
|
(3.5
|
%)
|
|
|
(1.9
|
%)
|
|
|
(4.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
170.6
|
%
|
|
|
56.0
|
%
|
|
|
73.3
|
%
|
|
|
130.1
|
%
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
28.1
|
%
|
|
|
43.0
|
%
|
|
|
25.5
|
%
|
|
|
31.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
198.7
|
%
|
|
|
99.0
|
%
|
|
|
98.8
|
%
|
|
|
161.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
RSUI
|
|
CapSpecialty
|
|
Total
|
|
|
|
|
|
|
($ in millions)
|
|
|
Gross premiums written
|
|
|
|
|
|
$
|
854.2
|
|
|
$
|
247.1
|
|
|
$
|
1,101.3
|
|
Net premiums written
|
|
|
|
|
|
|
579.8
|
|
|
|
229.6
|
|
|
|
809.4
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
556.2
|
|
|
|
211.0
|
|
|
|
767.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
295.4
|
|
|
|
117.8
|
|
|
|
413.2
|
|
Current year catastrophe losses
|
|
|
|
|
|
|
58.7
|
|
|
|
1.7
|
|
|
|
60.4
|
|
Prior years
|
|
|
|
|
|
|
(44.5
|
)
|
|
|
(4.6
|
)
|
|
|
(49.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
309.6
|
|
|
|
114.9
|
|
|
|
424.5
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
|
|
|
|
160.0
|
|
|
|
91.2
|
|
|
|
251.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(1)
|
|
|
|
|
|
$
|
86.6
|
|
|
$
|
4.9
|
|
|
$
|
91.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
|
|
|
|
53.1
|
%
|
|
|
55.8
|
%
|
|
|
53.9
|
%
|
Current year catastrophe losses
|
|
|
|
|
|
|
10.6
|
%
|
|
|
0.8
|
%
|
|
|
7.8
|
%
|
Prior years
|
|
|
|
|
|
|
(8.0
|
%)
|
|
|
(2.1
|
%)
|
|
|
(6.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
|
|
|
|
55.7
|
%
|
|
|
54.5
|
%
|
|
|
55.3
|
%
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
|
|
|
|
28.8
|
%
|
|
|
43.2
|
%
|
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
|
|
|
|
84.5
|
%
|
|
|
97.7
|
%
|
|
|
88.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
RSUI
|
|
CapSpecialty
|
|
PacificComp
|
|
Total
|
|
|
($ in millions)
|
Gross premiums written
|
|
$
|
794.1
|
|
|
$
|
213.2
|
|
|
$
|
124.2
|
|
|
$
|
1,131.5
|
|
Net premiums written
|
|
|
558.0
|
|
|
|
198.9
|
|
|
|
122.9
|
|
|
|
879.8
|
|
|
|
|
|
|
Net premiums earned
|
|
|
540.3
|
|
|
|
192.2
|
|
|
|
123.5
|
|
|
|
856.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
279.1
|
|
|
|
104.8
|
|
|
|
93.1
|
|
|
|
477.0
|
|
Current year catastrophe losses
|
|
|
227.9
|
|
|
|
4.0
|
|
|
|
-
|
|
|
|
231.9
|
|
Prior years
|
|
|
(27.3
|
)
|
|
|
(3.1
|
)
|
|
|
(1.8
|
)
|
|
|
(32.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
479.7
|
|
|
|
105.7
|
|
|
|
91.3
|
|
|
|
676.7
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
158.3
|
|
|
|
83.3
|
|
|
|
32.2
|
|
|
|
273.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
(1)
|
|
$
|
(97.7
|
)
|
|
$
|
3.2
|
|
|
$
|
-
|
|
|
$
|
(94.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
51.7
|
%
|
|
|
54.5
|
%
|
|
|
75.4
|
%
|
|
|
55.8
|
%
|
Current year catastrophe losses
|
|
|
42.2
|
%
|
|
|
2.1
|
%
|
|
|
-
|
%
|
|
|
27.1
|
%
|
Prior years
|
|
|
(5.1
|
%)
|
|
|
(1.6
|
%)
|
|
|
(1.5
|
%)
|
|
|
(3.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
88.8
|
%
|
|
|
55.0
|
%
|
|
|
73.9
|
%
|
|
|
79.1
|
%
|
|
|
|
|
|
Expense ratio
(3)
|
|
|
29.3
|
%
|
|
|
43.4
|
%
|
|
|
26.1
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
(4)
|
|
|
118.1
|
%
|
|
|
98.4
|
%
|
|
|
100.0
|
%
|
|
|
111.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
48
Insurance Segment: Premiums.
The following table presents premiums for the
insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Percent
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
($ in millions)
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
260.8
|
|
|
$
|
234.6
|
|
|
|
11.2%
|
|
|
$
|
854.2
|
|
|
$
|
794.1
|
|
|
|
7.6%
|
|
Net premiums written
|
|
|
176.0
|
|
|
|
170.8
|
|
|
|
3.0%
|
|
|
|
579.8
|
|
|
|
558.0
|
|
|
|
3.9%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
190.6
|
|
|
|
179.0
|
|
|
|
6.5%
|
|
|
|
556.2
|
|
|
|
540.3
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
83.9
|
|
|
$
|
74.3
|
|
|
|
12.9%
|
|
|
$
|
247.1
|
|
|
$
|
213.2
|
|
|
|
15.9%
|
|
Net premiums written
|
|
|
77.9
|
|
|
|
69.5
|
|
|
|
12.1%
|
|
|
|
229.6
|
|
|
|
198.9
|
|
|
|
15.4%
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
73.3
|
|
|
|
66.1
|
|
|
|
10.9%
|
|
|
|
211.0
|
|
|
|
192.2
|
|
|
|
9.8%
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
-
|
|
|
$
|
41.6
|
|
|
|
(100.0%)
|
|
|
$
|
-
|
|
|
$
|
124.2
|
|
|
|
(100.0%)
|
|
Net premiums written
|
|
|
-
|
|
|
|
41.5
|
|
|
|
(100.0%)
|
|
|
|
-
|
|
|
|
122.9
|
|
|
|
(100.0%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
-
|
|
|
|
41.4
|
|
|
|
(100.0%)
|
|
|
|
-
|
|
|
|
123.5
|
|
|
|
(100.0%)
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
344.7
|
|
|
$
|
350.5
|
|
|
|
(1.7%)
|
|
|
$
|
1,101.3
|
|
|
$
|
1,131.5
|
|
|
|
(2.7%)
|
|
Net premiums written
|
|
|
253.9
|
|
|
|
281.8
|
|
|
|
(9.9%)
|
|
|
|
809.4
|
|
|
|
879.8
|
|
|
|
(8.0%)
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
263.9
|
|
|
|
286.5
|
|
|
|
(7.9%)
|
|
|
|
767.2
|
|
|
|
856.0
|
|
|
|
(10.4%)
|
|
RSUI.
The increases in gross premiums written in the third quarter and first nine months of 2018 from
the corresponding 2017 periods primarily reflect growth 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 third quarter and first nine 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 and the impact of growth in the heavily-reinsured
property lines of business.
CapSpecialty.
The increases in gross premiums written in the third quarter and first nine 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 the impact of
CapSpecialtys February 20, 2018 purchase of certain renewal rights associated with a small environmental block of business.
The
increases in net premiums earned in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect increases in gross premiums written in recent quarters.
PacificComp.
The results shown for the third quarter and first nine months of 2018 reflect the sale of PacificComp as of
December 31, 2017.
49
Insurance Segment: Net loss and LAE.
The following table presents net loss and
LAE for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
97.9
|
|
|
$
|
99.3
|
|
|
|
(1.4
|
%)
|
|
$
|
295.4
|
|
|
$
|
279.1
|
|
|
|
5.8
|
%
|
Current year catastrophe losses
|
|
|
41.1
|
|
|
|
214.7
|
|
|
|
(80.9
|
%)
|
|
|
58.7
|
|
|
|
227.9
|
|
|
|
(74.2
|
%)
|
Prior years
|
|
|
(32.0
|
)
|
|
|
(8.6
|
)
|
|
|
272.1
|
%
|
|
|
(44.5
|
)
|
|
|
(27.3
|
)
|
|
|
63.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
107.0
|
|
|
$
|
305.4
|
|
|
|
(65.0
|
%)
|
|
$
|
309.6
|
|
|
$
|
479.7
|
|
|
|
(35.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
51.4
|
%
|
|
|
55.5
|
%
|
|
|
|
|
|
|
53.1
|
%
|
|
|
51.7
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
21.6
|
%
|
|
|
119.9
|
%
|
|
|
|
|
|
|
10.6
|
%
|
|
|
42.2
|
%
|
|
|
|
|
Prior years
|
|
|
(16.9
|
%)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
(8.0
|
%)
|
|
|
(5.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
56.1
|
%
|
|
|
170.6
|
%
|
|
|
|
|
|
|
55.7
|
%
|
|
|
88.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
42.3
|
|
|
$
|
37.5
|
|
|
|
12.8
|
%
|
|
$
|
117.8
|
|
|
$
|
104.8
|
|
|
|
12.4
|
%
|
Current year catastrophe losses
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
(50.0
|
%)
|
|
|
1.7
|
|
|
|
4.0
|
|
|
|
(57.5
|
%)
|
Prior years
|
|
|
(1.5
|
)
|
|
|
(2.3
|
)
|
|
|
(34.8
|
%)
|
|
|
(4.6
|
)
|
|
|
(3.1
|
)
|
|
|
48.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
41.7
|
|
|
$
|
37.0
|
|
|
|
12.7
|
%
|
|
$
|
114.9
|
|
|
$
|
105.7
|
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
57.7
|
%
|
|
|
56.8
|
%
|
|
|
|
|
|
|
55.8
|
%
|
|
|
54.5
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
1.2
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
0.8
|
%
|
|
|
2.1
|
%
|
|
|
|
|
Prior years
|
|
|
(2.1
|
%)
|
|
|
(3.5
|
%)
|
|
|
|
|
|
|
(2.1
|
%)
|
|
|
(1.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
56.8
|
%
|
|
|
56.0
|
%
|
|
|
|
|
|
|
54.5
|
%
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
-
|
|
|
$
|
31.1
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
93.1
|
|
|
|
(100.0
|
%)
|
Current year catastrophe losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Prior years
|
|
|
-
|
|
|
|
(0.8
|
)
|
|
|
(100.0
|
%)
|
|
|
-
|
|
|
|
(1.8
|
)
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
-
|
|
|
$
|
30.3
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
91.3
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
-
|
%
|
|
|
75.2
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
75.4
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
|
Prior years
|
|
|
-
|
%
|
|
|
(1.9
|
%)
|
|
|
|
|
|
|
-
|
%
|
|
|
(1.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
-
|
%
|
|
|
73.3
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
73.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
$
|
140.2
|
|
|
$
|
167.9
|
|
|
|
(16.5
|
%)
|
|
$
|
413.2
|
|
|
$
|
477.0
|
|
|
|
(13.4
|
%)
|
Current year catastrophe losses
|
|
|
42.0
|
|
|
|
216.5
|
|
|
|
(80.6
|
%)
|
|
|
60.4
|
|
|
|
231.9
|
|
|
|
(74.0
|
%)
|
Prior years
|
|
|
(33.5
|
)
|
|
|
(11.7
|
)
|
|
|
186.3
|
%
|
|
|
(49.1
|
)
|
|
|
(32.2
|
)
|
|
|
52.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
$
|
148.7
|
|
|
$
|
372.7
|
|
|
|
(60.1
|
%)
|
|
$
|
424.5
|
|
|
$
|
676.7
|
|
|
|
(37.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year (excluding catastrophe losses)
|
|
|
53.1
|
%
|
|
|
58.6
|
%
|
|
|
|
|
|
|
53.9
|
%
|
|
|
55.8
|
%
|
|
|
|
|
Current year catastrophe losses
|
|
|
15.9
|
%
|
|
|
75.6
|
%
|
|
|
|
|
|
|
7.8
|
%
|
|
|
27.1
|
%
|
|
|
|
|
Prior years
|
|
|
(12.7
|
%)
|
|
|
(4.1
|
%)
|
|
|
|
|
|
|
(6.4
|
%)
|
|
|
(3.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss and LAE
|
|
|
56.3
|
%
|
|
|
130.1
|
%
|
|
|
|
|
|
|
55.3
|
%
|
|
|
79.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
RSUI.
The decreases in net loss and LAE in the third quarter and first nine months of
2018 from the corresponding 2017 periods primarily reflect significantly lower catastrophe losses and, to a lesser extent, higher favorable prior accident year loss reserve development. The catastrophe losses in the third quarter and first nine
months of 2018 include $34.0 million related to Hurricane Florence, as well as losses related to flooding and severe weather in the Northeastern U.S. and the State of California. Catastrophe losses in the third quarter and first nine months of
2017 include $83.3 million related to Hurricane Harvey, $103.7 million related to Hurricane Irma and $14.3 million related to Hurricane Maria. Catastrophe losses in the third quarter and first nine months of 2017 also reflect losses
related to flooding in the State of California and severe weather primarily in the Southeastern and Midwestern U.S.
Net loss and LAE in
the third quarter and first nine months of 2018 and 2017 include (favorable) unfavorable prior accident year loss reserve development as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Casualty
|
|
$
|
(4.3)
|
(1)
|
|
$
|
(6.9)
|
(2)
|
|
$
|
(16.8)
|
(1)
|
|
$
|
(28.5)
|
(2)
|
|
|
|
|
|
Property and other
|
|
|
(27.7)
|
(3)
|
|
|
(1.7)
|
(4)
|
|
|
(27.7)
|
(3)
|
|
|
1.2
(
|
5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(32.0)
|
|
|
$
|
(8.6)
|
|
|
$
|
(44.5)
|
|
|
$
|
(27.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2009, 2012 and 2016 accident years.
|
(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 related to Hurricane Irma in the 2017
accident year and, to a lesser extent, Hurricane Matthew in the 2016 accident year, as well as various other losses not classified as catastrophes in recent accident years.
|
(4)
|
Primarily reflects favorable unallocated LAE development.
|
(5)
|
Primarily reflects unfavorable prior accident year property loss reserve development in the binding authority
lines of business in the 2015 and 2016 accident years, partially offset by favorable prior accident year catastrophe loss reserve development in the 2016 accident year.
|
The favorable prior accident year loss reserve development in the third quarter and first nine 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 third quarter and first nine months of 2018 did not impact assumptions used in estimating RSUIs loss
and LAE liabilities for business earned in the first nine months of 2018.
CapSpecialty.
The increases in net loss and LAE in the
third quarter and first nine 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, partially offset by lower catastrophe losses. The increase in net loss and LAE in the third quarter of 2018 also reflects a decrease in favorable prior accident year loss reserve development. The increase in net
loss and LAE in the first nine months of 2018 was partially offset by an increase in favorable prior accident year loss reserve development.
Net loss and LAE in the first nine months of 2018 includes favorable prior accident year loss reserve development primarily in the surety lines
of business primarily in the 2016 and 2017 accident years. The favorable prior accident year loss reserve development in the first nine 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 nine months of 2018 did not impact assumptions used in estimating CapSpecialtys loss and LAE liabilities for business earned in the first nine months of
2018. Net loss and LAE in the third quarter and first nine months of 2017 include favorable prior accident year loss reserve development primarily in the casualty lines of business in the 2010, 2014, 2015 and 2016 accident years.
51
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
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
52.8
|
|
|
$
|
50.3
|
|
|
|
5.0
|
%
|
|
$
|
160.0
|
|
|
$
|
158.3
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
27.7
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
28.8
|
%
|
|
|
29.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
30.0
|
|
|
$
|
28.4
|
|
|
|
5.6
|
%
|
|
$
|
91.2
|
|
|
$
|
83.3
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
40.9
|
%
|
|
|
43.0
|
%
|
|
|
|
|
|
|
43.2
|
%
|
|
|
43.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
-
|
|
|
$
|
10.6
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
32.2
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
-
|
%
|
|
|
25.5
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
26.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions, brokerage and other underwriting expenses
|
|
$
|
82.8
|
|
|
$
|
89.3
|
|
|
|
(7.3
|
%)
|
|
$
|
251.2
|
|
|
$
|
273.8
|
|
|
|
(8.3
|
%)
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
31.4
|
%
|
|
|
31.2
|
%
|
|
|
|
|
|
|
32.7
|
%
|
|
|
32.0
|
%
|
|
|
|
|
RSUI.
The increases in commissions, brokerage and other underwriting expenses in the third quarter and
first nine months of 2018 from the corresponding 2017 periods primarily reflect the impact of higher net premiums earned and higher short-term incentive compensation expense accruals arising from significantly lower catastrophe losses in the third
quarter of 2018, partially offset by slightly lower commission expense incurred.
CapSpecialty.
The increases in commissions,
brokerage and other underwriting expenses in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect the impact of higher net premiums earned and relatively stable overhead expenses. The increases also
reflect
one-time
acquisition expenses arising from CapSpecialtys February 20, 2018 purchase of certain renewal rights associated with a small environmental block of business.
52
Insurance Segment: Underwriting profit.
The following table presents
underwriting profit (loss) for the insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
RSUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
$
|
30.8
|
|
|
$
|
(176.7
|
)
|
|
|
(117.4
|
%)
|
|
$
|
86.6
|
|
|
$
|
(97.7
|
)
|
|
|
(188.6
|
%)
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
83.8
|
%
|
|
|
198.7
|
%
|
|
|
|
|
|
|
84.5
|
%
|
|
|
118.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
CapSpecialty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
|
128.6
|
%
|
|
$
|
4.9
|
|
|
$
|
3.2
|
|
|
|
53.1
|
%
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
97.7
|
%
|
|
|
99.0
|
%
|
|
|
|
|
|
|
97.7
|
%
|
|
|
98.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
PacificComp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
$
|
-
|
|
|
$
|
0.5
|
|
|
|
(100.0
|
%)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
-
|
%
|
|
|
98.8
|
%
|
|
|
|
|
|
|
-
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit (loss)
|
|
$
|
32.4
|
|
|
$
|
(175.5
|
)
|
|
|
(118.5
|
%)
|
|
$
|
91.5
|
|
|
$
|
(94.5
|
)
|
|
|
(196.8
|
%)
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
87.7
|
%
|
|
|
161.3
|
%
|
|
|
|
|
|
|
88.0
|
%
|
|
|
111.1
|
%
|
|
|
|
|
RSUI.
The underwriting profit in the third quarter and first nine months of 2018, compared with the
underwriting loss in the corresponding 2017 periods, primarily reflects significantly lower catastrophe losses and, to a lesser extent, increases in favorable prior accident year loss reserve development, all as discussed above.
CapSpecialty.
The increase in underwriting profit in the third quarter of 2018 from the third quarter of 2017 primarily reflects the
impact of higher net premiums earned, partially offset by a decrease in favorable prior accident year loss reserve development, all as discussed above. The increase in underwriting profit in the first nine months of 2018 from the first nine 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
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Percent
|
|
September 30,
|
|
Percent
|
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
|
($ in millions)
|
Net investment income
|
|
$
|
122.5
|
|
|
$
|
101.4
|
|
|
|
20.8
|
%
|
|
$
|
362.0
|
|
|
$
|
311.7
|
|
|
|
16.1
|
%
|
Change in the fair value of equity securities
|
|
|
373.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
506.7
|
|
|
|
-
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
16.2
|
|
|
|
21.5
|
|
|
|
(24.7
|
%)
|
|
|
66.8
|
|
|
|
90.8
|
|
|
|
(26.4
|
%)
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
(6.1
|
)
|
|
|
(100.0
|
%)
|
|
|
(0.5
|
)
|
|
|
(13.1)
|
|
|
|
(96.2
|
%)
|
Net investment income.
The increases in net investment income in the third quarter and first nine
months of 2018 from the corresponding 2017 periods primarily reflect increases in partnership income, increases in dividend income resulting from an increase in the size of the equity securities portfolio and, to a lesser extent, higher interest
income. The increase in interest income primarily reflects higher yields on
short-term
investments and floating-rate debt securities, partially offset by the impact of the sale of PacificComp.
Partnership income in the first nine 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 third quarter and first nine months of 2017 includes losses incurred on our equity interests in
Pillar Holdings and related funds arising from significant catastrophe losses incurred in August and September 2017. Partnership income in the first nine months of 2017 also 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.
53
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 third quarter and first nine months of 2018
reflect appreciation in the value of our equity securities portfolio, primarily from our holdings in the technology and industrial sectors. To a lesser extent, the changes in the fair value of equity securities in the third quarter and first nine
months of 2018 also reflect appreciation in the value of our equity holdings in the healthcare and consumer discretionary sectors, respectively.
Net realized capital gains.
The decreases in net realized capital gains in the third quarter and first nine months of 2018 from
the corresponding 2017 periods primarily reflect a lack of net realized capital gains from equity securities in the 2018 periods as a result of our adoption of the new investment accounting guidance discussed above. The decrease for the first nine
months of 2018 was partially offset by 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) 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 nine 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.
OTTI
losses in the first nine months of 2017 reflect $13.1 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $13.1 million of OTTI losses,
$11.8 million related to equity securities, primarily in the retail sector, and $1.3 million related to debt securities. The determination that unrealized losses on 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 $13.1 million of OTTI losses, $6.1 million was incurred in the third 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 September 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 September 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.
54
The results of the Alleghany Capital segment for the third quarter and first nine months of
2018 and 2017 are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Noninsurance revenue
(1)
|
|
$
|
224.2
|
|
|
$
|
183.7
|
|
|
$
|
(0.4
|
)
|
|
$
|
407.5
|
|
|
$
|
137.9
|
|
|
$
|
150.9
|
|
|
$
|
0.5
|
|
|
$
|
289.3
|
|
Net investment income
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
1.6
|
|
Net realized capital gains
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
225.0
|
|
|
$
|
183.6
|
|
|
$
|
(0.4
|
)
|
|
$
|
408.2
|
|
|
$
|
139.2
|
|
|
$
|
151.2
|
|
|
$
|
1.2
|
|
|
$
|
291.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
(1)
|
|
|
217.1
|
|
|
|
161.7
|
|
|
|
3.7
|
|
|
|
382.5
|
|
|
|
130.8
|
|
|
|
128.7
|
|
|
|
0.5
|
|
|
|
260.0
|
|
Amortization of intangible assets
|
|
|
2.4
|
|
|
|
3.4
|
|
|
|
-
|
|
|
|
5.8
|
|
|
|
1.9
|
|
|
|
4.1
|
|
|
|
-
|
|
|
|
6.0
|
|
Interest expenses
|
|
|
2.0
|
|
|
|
0.6
|
|
|
|
-
|
|
|
|
2.6
|
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
3.5
|
|
|
$
|
17.9
|
|
|
$
|
(4.1
|
)
|
|
$
|
17.3
|
|
|
$
|
5.7
|
|
|
$
|
18.0
|
|
|
$
|
0.7
|
|
|
$
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses) before income
taxes
(2)
|
|
$
|
5.8
|
|
|
$
|
21.4
|
|
|
$
|
(4.1
|
)
|
|
$
|
23.1
|
|
|
$
|
7.1
|
|
|
$
|
21.9
|
|
|
$
|
0.7
|
|
|
$
|
29.7
|
|
Add: net realized capital gains
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.7
|
|
Less: amortization of intangible assets
|
|
|
(2.4
|
)
|
|
|
(3.4
|
)
|
|
|
-
|
|
|
|
(5.8
|
)
|
|
|
(1.9
|
)
|
|
|
(4.1
|
)
|
|
|
-
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
3.5
|
|
|
$
|
17.9
|
|
|
$
|
(4.1
|
)
|
|
$
|
17.3
|
|
|
$
|
5.7
|
|
|
$
|
18.0
|
|
|
$
|
0.7
|
|
|
$
|
24.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Noninsurance revenue
(1)
|
|
$
|
591.6
|
|
|
$
|
387.9
|
|
|
$
|
(0.3
|
)
|
|
$
|
979.2
|
|
|
$
|
254.2
|
|
|
$
|
372.1
|
|
|
$
|
0.5
|
|
|
$
|
626.8
|
|
Net investment income
|
|
|
3.6
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
3.7
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
1.1
|
|
|
|
2.1
|
|
Net realized capital gains
|
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
595.9
|
|
|
$
|
387.9
|
|
|
$
|
(0.3
|
)
|
|
$
|
983.5
|
|
|
$
|
255.6
|
|
|
$
|
372.6
|
|
|
$
|
1.6
|
|
|
$
|
629.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
(1)
|
|
|
570.2
|
|
|
|
358.1
|
|
|
|
8.7
|
|
|
|
937.0
|
|
|
|
241.2
|
|
|
|
338.2
|
|
|
|
11.6
|
|
|
|
591.0
|
|
Amortization of intangible assets
|
|
|
6.7
|
|
|
|
10.3
|
|
|
|
-
|
|
|
|
17.0
|
|
|
|
2.9
|
|
|
|
12.5
|
|
|
|
-
|
|
|
|
15.4
|
|
Interest expenses
|
|
|
4.5
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
6.1
|
|
|
|
1.9
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
14.5
|
|
|
$
|
17.9
|
|
|
$
|
(9.0
|
)
|
|
$
|
23.4
|
|
|
$
|
9.6
|
|
|
$
|
20.9
|
|
|
$
|
(10.1
|
)
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (losses) before income
taxes
(2)
|
|
$
|
20.5
|
|
|
$
|
28.3
|
|
|
$
|
(9.0
|
)
|
|
$
|
39.8
|
|
|
$
|
11.9
|
|
|
$
|
33.1
|
|
|
$
|
(10.1
|
)
|
|
$
|
34.9
|
|
Add: net realized capital gains
|
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
0.9
|
|
Less: amortization of intangible assets
|
|
|
(6.7
|
)
|
|
|
(10.3
|
)
|
|
|
-
|
|
|
|
(17.0
|
)
|
|
|
(2.9
|
)
|
|
|
(12.5
|
)
|
|
|
-
|
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
14.5
|
|
|
$
|
17.9
|
|
|
$
|
(9.0
|
)
|
|
$
|
23.4
|
|
|
$
|
9.6
|
|
|
$
|
20.9
|
|
|
$
|
(10.1
|
)
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $0.3 million and $0.8 million for the third quarter of 2018 and 2017, respectively, and $3.2 million and $6.8 million for the first nine months of 2018
and 2017, respectively.
|
(2)
|
Operating earnings before income taxes is a non-GAAP financial measure and does not replace earnings before
income taxes determined in accordance with GAAP as a measure of profitability. See Comment on Non-GAAP Financial Measures herein for additional detail on the presentation of our results of operations. Operating earnings before income
taxes represent noninsurance revenue less all operating expenses and does not include: (i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) OTTI
impairment losses; and (v) income taxes.
|
55
The changes in Alleghany Capitals equity for the three and nine months ended September
30, 2018 and 2017 are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
Industrial
|
|
Non-
industrial
|
|
Corp. &
other
|
|
Total
|
|
|
($ in millions)
|
Equity, beginning of period
|
|
$
|
439.2
|
|
|
$
|
312.1
|
|
|
$
|
25.9
|
|
|
$
|
777.2
|
|
|
$
|
284.0
|
|
|
$
|
323.5
|
|
|
$
|
(5.2
|
)
|
|
$
|
602.3
|
|
Earnings (losses) before income taxes
|
|
|
3.5
|
|
|
|
17.9
|
|
|
|
(4.1
|
)
|
|
|
17.3
|
|
|
|
5.7
|
|
|
|
18.0
|
|
|
|
0.7
|
|
|
|
24.4
|
|
Income taxes
(1)
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(2.2
|
)
|
|
|
(3.1
|
)
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)
|
|
|
(5.2
|
)
|
|
|
(5.9
|
)
|
Net earnings attributable to noncontrolling
interests
(2)
|
|
|
(0.5
|
)
|
|
|
(4.1
|
)
|
|
|
-
|
|
|
|
(4.6
|
)
|
|
|
(0.7
|
)
|
|
|
(3.5
|
)
|
|
|
-
|
|
|
|
(4.2
|
)
|
Capital contributions (returns of capital) and
other
(3)
|
|
|
5.9
|
|
|
|
(4.1
|
)
|
|
|
67.2
|
|
|
|
69.0
|
|
|
|
70.5
|
|
|
|
(3.7
|
)
|
|
|
0.7
|
|
|
|
67.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period
|
|
$
|
447.9
|
|
|
$
|
321.1
|
|
|
$
|
86.8
|
|
|
$
|
855.8
|
|
|
$
|
358.9
|
|
|
$
|
334.2
|
|
|
$
|
(9.0
|
)
|
|
$
|
684.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 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
|
|
|
14.5
|
|
|
|
17.9
|
|
|
|
(9.0
|
)
|
|
|
23.4
|
|
|
|
9.6
|
|
|
|
20.9
|
|
|
|
(10.1
|
)
|
|
|
20.4
|
|
Income taxes
(1)
|
|
|
(0.8
|
)
|
|
|
(1.4
|
)
|
|
|
(2.4
|
)
|
|
|
(4.6
|
)
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
(3.6
|
)
|
|
|
(4.5
|
)
|
Net earnings attributable to noncontrolling
interests
(2)
|
|
|
(1.8
|
)
|
|
|
(5.7
|
)
|
|
|
-
|
|
|
|
(7.5
|
)
|
|
|
(1.3
|
)
|
|
|
(3.9
|
)
|
|
|
-
|
|
|
|
(5.2
|
)
|
Capital contributions (returns of capital) and
other
(3)
|
|
|
72.4
|
|
|
|
(21.0
|
)
|
|
|
87.0
|
|
|
|
138.4
|
|
|
|
228.7
|
|
|
|
(13.4
|
)
|
|
|
16.8
|
|
|
|
232.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity, end of period
|
|
$
|
447.9
|
|
|
$
|
321.1
|
|
|
$
|
86.8
|
|
|
$
|
855.8
|
|
|
$
|
358.9
|
|
|
$
|
334.2
|
|
|
$
|
(9.0
|
)
|
|
$
|
684.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 third quarter of 2018 were ($0.7)
million and ($3.8) million, respectively, for the third quarter of 2017 were ($1.9) million and ($6.3) million, respectively, for the first nine months of 2018 were ($2.8) million and ($3.8) million, respectively, and for the first nine months of
2017 were ($3.3) million and ($7.3) million, respectively.
|
(2)
|
During the first nine 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 - 15 percent; and Jazwares - 23 percent.
|
(3)
|
For the third quarter and first nine months of 2018, primarily reflects funding provided by Alleghany to
Alleghany Capital for an acquisition in October 2018 and, for the first nine months only, reflects funding provided by Alleghany Capital for the acquisition of Hirschfeld by W&W|AFCO Steel. For the third quarter and first nine months of 2017,
primarily reflects funding provided by Alleghany Capital for the investment in Wilbert in August 2017 and, for the nine month period only, the acquisition of W&W|AFCO Steel.
|
Noninsurance revenue.
The increases in noninsurance revenue in the third quarter and first nine months of 2018 from the
corresponding 2017 periods primarily reflect increases in industrial operations, due primarily to the acquisition of Hirschfeld and, for the first nine months of 2018, the acquisition of W&W|AFCO Steel. To a lesser extent, the increases in the
third quarter and first nine months of 2018 also reflect higher sales at Kentucky Trailer. With respect to
non-industrial
operations, the increase in noninsurance revenue in the third quarter of 2018 from the
third quarter of 2017 primarily reflects higher sales at IPS and the increase in noninsurance revenue in the first nine months of 2018 from the first nine months of 2017 primarily reflects higher sales at Jazwares.
Net investment income.
The increases in net investment income in the first nine months of 2018 from the first nine months of 2017
primarily reflect Alleghany Capitals earnings from its investment in Wilbert.
Net realized capital gains.
Net realized
capital gains in first nine months of 2018 and 2017 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 third quarter and first nine months of 2018 from the
corresponding 2017 periods primarily reflect significant increases in industrial operations, due primarily to the acquisition of Hirschfeld and, for the first nine months of 2018, the acquisition of W&W|AFCO Steel. To a lesser extent, the
increase in other operating expenses in the third quarter and first nine months of 2018 also reflects higher costs related to higher sales and facility consolidation activities at Kentucky Trailer, as well as higher costs for
non-industrial
operations. The increase in
non-industrial
operations other operating expenses in the third quarter of 2018 primarily reflects higher costs at IPS related
to higher sales. The increase in
non-industrial
operations other operating expenses in the first nine months of 2018 primarily reflects higher costs at Jazwares related to higher sales, increased
marketing expenditures and the impact of certain Toys R Us Inc. liquidation-related charges. The increase in other operating expenses in the third quarter of 2018 also reflects an increase in long-term incentive compensation expense
accruals at Alleghany Capital.
56
Other operating expenses in the first nine months of 2018 and 2017 also reflect significant
finders fees, legal and accounting costs and other transaction-related expenses, primarily related to W&W|AFCO Steels acquisition of Hirschfeld and Alleghany Capitals acquisition of W&W|AFCO Steel.
Amortization of intangible assets.
The increase in amortization expense in the first nine months of 2018 from the first nine
months of 2017 primarily reflects the acquisition of Hirschfeld and, for the first nine months of 2018, the acquisition of W&W|AFCO Steel.
Interest expense.
The increases in interest expense in the third quarter and first nine months of 2018 from the corresponding
2017 periods primarily reflect borrowings at W&W|AFCO Steel and Hirschfeld.
Earnings (losses) before income taxes.
The
decrease in earnings before income taxes in the third quarter of 2018 from the third quarter of 2017 primarily reflects a loss for corporate & other compared with earnings in the third quarter of 2017 and, to a lesser extent, a decrease in
the industrial operations earnings before income taxes. The loss for corporate & other primarily reflects an increase in long-term incentive compensation expense accruals at Alleghany Capital. The decrease in the industrial
operations earnings before income taxes primarily reflects higher interest expense and amortization expenses at W&W|AFCO Steel and expenses related to facility consolidation activities at Kentucky Trailer, all as discussed above, as well
as the timing of certain large projects at W&W|AFCO Steel.
The increase in earnings before income taxes in the first nine months of
2018 from the first nine months of 2017 primarily reflects increased earnings in the industrial operations, partially offset by lower earnings in the
non-industrial
operations. The increase in the industrial
operations earnings before income taxes primarily reflects Alleghany Capitals earnings from its investment in Wilbert, as well as the impact of increased sales at Kentucky Trailer, all as discussed above. The increase in earnings before
income taxes from the acquisitions of W&W|AFCO Steel and Hirschfeld was offset by an increase in amortization expense. The decrease in
non-industrial
operating earnings before income taxes in the first
nine months of 2018 primarily reflects higher expenses at Jazwares, 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
($ in millions)
|
|
Net premiums earned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net investment income
|
|
|
4.1
|
|
|
|
1.7
|
|
|
|
12.0
|
|
|
|
8.1
|
|
Change in the fair value of equity securities
|
|
|
(3.7)
|
|
|
|
-
|
|
|
|
6.1
|
|
|
|
-
|
|
Net realized capital gains
|
|
|
-
|
|
|
|
10.7
|
|
|
|
(0.2)
|
|
|
|
10.1
|
|
Other than temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noninsurance revenue
|
|
|
24.6
|
|
|
|
2.3
|
|
|
|
36.8
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
25.0
|
|
|
|
14.7
|
|
|
|
54.7
|
|
|
|
31.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commissions, brokerage and other underwriting expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other operating expenses
|
|
|
9.2
|
|
|
|
9.6
|
|
|
|
25.9
|
|
|
|
29.8
|
|
Corporate administration
|
|
|
17.8
|
|
|
|
(3.2)
|
|
|
|
39.2
|
|
|
|
26.4
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
12.9
|
|
|
|
13.0
|
|
|
|
39.4
|
|
|
|
39.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes
|
|
$
|
(14.9)
|
|
|
$
|
(4.7)
|
|
|
$
|
(49.8)
|
|
|
$
|
(64.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income.
The increases in net investment income in the third quarter and first nine
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.
57
The changes in the fair value of equity securities in the third quarter and first nine
months of 2018 reflect depreciation and appreciation, respectively, 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.
The net realized capital gains in the third quarter and first nine months of 2017 primarily reflect
gains on the sale of certain exchange-traded funds.
Noninsurance revenue.
The increases in noninsurance revenue in the third
quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect increases in property sales at Alleghany Properties and, to a lesser extent, increases in oil sales at SORC. Noninsurance revenue includes the sale in
September 2018 of 68 acres of land located in Sacramento, California for approximately $20 million.
Other operating expenses.
The decreases in other operating expenses in the third quarter and first nine months of 2018 from the corresponding 2017 periods primarily reflect the impact of the sale of a SORC legacy oil field in December 2017.
Corporate administration.
The corporate administration expense in the third quarter of 2018, compared with negative corporate
administration expense in the third quarter of 2017, and the increase in corporate administration expense in the first nine months of 2018 from the first nine months of 2017, primarily reflect increases in Alleghanys long-term incentive
compensation accruals. Such increases in accruals primarily reflect the impact of significantly lower catastrophe losses and increases in the price per share of our common stock during the 2018 periods, partially offset by the impact of declines in
unrealized appreciation on our debt securities portfolio in the third quarter and first nine months of 2018.
Earnings (Losses)
before income taxes.
The increase in losses before income taxes in the third quarter of 2018 from the third quarter of 2017 primarily reflects the corporate administration expense in the third quarter of 2018, compared with negative
corporate administration expense in the third quarter of 2017 and, to a lesser extent, gains on the sale of certain exchange-traded funds in the third quarter of 2017, partially offset by an increase in sales at Alleghany Properties, all as
discussed above. The decrease in losses before income taxes in the first nine months of 2018 from the first nine months of 2017 primarily reflects an increase in sales at Alleghany Properties, partially offset by an increase in corporate
administration expense, all 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 and LAE.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 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
|
|
$
|
1,832.7
|
|
|
$
|
(598.9
|
)
|
|
$
|
1,233.8
|
|
|
$
|
1,758.0
|
|
|
$
|
(493.7
|
)
|
|
$
|
1,264.3
|
|
Casualty & other
(1)
|
|
|
7,309.4
|
|
|
|
(247.9
|
)
|
|
|
7,061.5
|
|
|
|
7,370.0
|
|
|
|
(251.0
|
)
|
|
|
7,119.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,142.1
|
|
|
|
(846.8
|
)
|
|
|
8,295.3
|
|
|
|
9,128.0
|
|
|
|
(744.7
|
)
|
|
|
8,383.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
448.5
|
|
|
|
(173.0
|
)
|
|
|
275.5
|
|
|
|
545.9
|
|
|
|
(225.9
|
)
|
|
|
320.0
|
|
Casualty
(2)
|
|
|
2,154.5
|
|
|
|
(691.5
|
)
|
|
|
1,463.0
|
|
|
|
2,078.6
|
|
|
|
(671.8
|
)
|
|
|
1,406.8
|
|
Workers Compensation
|
|
|
3.1
|
|
|
|
-
|
|
|
|
3.1
|
|
|
|
1.5
|
|
|
|
-
|
|
|
|
1.5
|
|
All other
(3)
|
|
|
173.6
|
|
|
|
(72.4
|
)
|
|
|
101.2
|
|
|
|
185.1
|
|
|
|
(75.5
|
)
|
|
|
109.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,779.7
|
|
|
|
(936.9
|
)
|
|
|
1,842.8
|
|
|
|
2,811.1
|
|
|
|
(973.2
|
)
|
|
|
1,837.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(66.9
|
)
|
|
|
66.9
|
|
|
|
-
|
|
|
|
(67.8
|
)
|
|
|
67.8
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,854.9
|
|
|
$
|
(1,716.8
|
)
|
|
$
|
10,138.1
|
|
|
$
|
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 September 30, 2018 and December 31, 2017
. Gross and net loss and LAE
reserves as of September 30, 2018 decreased from December 31, 2017, primarily reflecting payments on catastrophe losses incurred in 2017 and favorable prior accident year loss reserve development, partially offset by catastrophe losses in
September 2018. Such 2018 catastrophe losses, net of reinsurance, include $87.7 million related to Typhoon Jebi, $80.2 million related to Hurricane Florence and $38.5 million related to Typhoon Trami.
Reinsurance Recoverables
Our reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite in order to reduce the effect of individual or
aggregate exposure to losses, manage capacity, protect capital resources, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and enable them to increase gross premium writings and risk capacity without requiring
additional capital. Our reinsurance and insurance subsidiaries purchase reinsurance and retrocessional coverages from highly-rated
third-party
reinsurers. If the assuming reinsurers are unable or unwilling to
meet the obligations assumed under the applicable reinsurance agreements, our reinsurance and insurance subsidiaries would remain liable for such reinsurance portion not paid by these reinsurers. As such, funds, trust agreements and letters of
credit are held to collateralize a portion of our reinsurance and insurance subsidiaries reinsurance recoverables, and our reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple
reinsurance programs.
As of September 30, 2018, our reinsurance and insurance subsidiaries had total reinsurance recoverables of
$1,768.8 million, consisting of $1,716.8 million of ceded outstanding loss and LAE and $52.0 million of recoverables on paid losses. See Part I, Item 1, Business Reinsurance Protection of the 2017 Form
10-K
for additional information on the reinsurance purchased by our reinsurance and insurance subsidiaries.
59
The following table presents information regarding concentration of our reinsurance
recoverables and the ratings profile of our reinsurers as of September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
Reinsurer
(1)
|
|
Rating
(2)
|
|
Amount
|
|
|
Percentage
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
Syndicates at Lloyds of London
|
|
A (Excellent)
|
|
$
|
126.7
|
|
|
|
7.2%
|
|
PartnerRe Ltd
|
|
A (Excellent)
|
|
|
112.2
|
|
|
|
6.3%
|
|
Swiss Reinsurance Company
|
|
A+ (Superior)
|
|
|
107.7
|
|
|
|
6.1%
|
|
Fairfax Financial Holdings Ltd
|
|
A (Excellent)
|
|
|
96.0
|
|
|
|
5.4%
|
|
RenaissanceRe Holdings Ltd
|
|
A+ (Superior)
|
|
|
89.9
|
|
|
|
5.1%
|
|
W.R. Berkley Corporation
|
|
A+ (Superior)
|
|
|
87.7
|
|
|
|
5.0%
|
|
Chubb Corporation
|
|
A++ (Superior)
|
|
|
79.6
|
|
|
|
4.5%
|
|
Kane SAC Ltd, Rondout Segregated
Account
(3)
|
|
not rated
|
|
|
75.5
|
|
|
|
4.3%
|
|
Liberty Mutual
|
|
A (Excellent)
|
|
|
67.7
|
|
|
|
3.8%
|
|
Kane SAC Ltd, Bowery Segregated
Account
(3)
|
|
not rated
|
|
|
52.1
|
|
|
|
2.9%
|
|
All other reinsurers
|
|
|
|
|
873.7
|
|
|
|
49.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance recoverables
(4)
|
|
|
|
$
|
1,768.8
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured reinsurance recoverables
(3)
|
|
|
|
$
|
613.3
|
|
|
|
34.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 73 percent of our reinsurance recoverables balance as of September 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 September 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.
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 September 30, 2018, we held total marketable securities and cash
of $1,421.1 million, compared with $1,383.4 million as of December 31, 2017. The increase in the nine months ended September 30, 2018 primarily reflects the receipt of dividends from TransRe and RSUI and appreciation in the value of
the equity securities held at the holding company-level, partially offset by 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. The $1,421.1 million is comprised of $405.8 million at the Alleghany parent
60
company, $959.2 million at AIHL and $56.1 million at the TransRe holding company. We also hold certain
non-marketable
investments at our
unrestricted holding companies. We believe that we have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of our business, and we had no material commitments
for capital expenditures as of September 30, 2018.
Stockholders equity attributable to Alleghany stockholders was approximately
$8.6 billion as of September 30, 2018, compared with approximately $8.5 billion as of December 31, 2017. The increase in stockholders equity in the first nine months of 2018 primarily reflects net earnings, partially offset
by a decline in unrealized appreciation on our debt securities portfolio due to an increase in interest rates in the first nine months of 2018, as well as a special dividend and repurchases of our common stock, all as discussed below. As of
September 30, 2018, we had 14,918,380 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 September 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, the
Alleghany 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, the Alleghany 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 September 30, 2018, we had $481.1 million remaining under both share repurchase authorization programs.
The following table presents the shares of our common stock that we repurchased in the three and nine months ended September 30, 2018 and 2017
pursuant to the 2015 Repurchase Program:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Shares repurchased
|
|
76,299
|
|
15,916
|
|
479,922
|
|
15,916
|
Cost of shares repurchased (in millions)
|
|
$ 46.0
|
|
$ 8.5
|
|
$ 282.1
|
|
$ 8.5
|
Average price per share repurchased
|
|
$ 602.24
|
|
$ 537.14
|
|
$ 587.70
|
|
$ 537.14
|
Special Dividend.
In February 2018, the Alleghany Board of Directors declared a special dividend of
$10.00 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 Holdings, a
Bermuda-based
insurance asset manager focused on collateralized reinsurance and catastrophe
insurance-linked
securities. Additionally,
61
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 September 30, 2018, our carrying value in the Pillar Investments, as determined under the equity method of accounting, was $201.3 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 partnership interests in certain Ares subsidiaries that were convertible into Ares common units. On March 15, 2018, most of AIHLs limited partnership 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. On September 24, 2018, AIHLs remaining Ares limited partnership interests were
converted into Ares common units and, as a result, AIHL reclassified the remaining $56.9 million of its converted interests from other invested assets to equity securities.
Investments in Commercial Mortgage Loans.
As of September 30, 2018, the carrying value of our commercial mortgage loan portfolio
was $695.9 million, representing the unpaid principal balance on the loans. As of September 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 September 30, 2018, we had holdings of
$896.8 million, comprised of $294.0 million of debt securities, $483.5 million of equity securities and $119.3 million of Alleghanys equity attributable to SORC.
Subsidiaries
Financial strength is also a high priority of our subsidiaries, whose assets stand behind their financial commitments to their customers and
vendors. We believe that our subsidiaries have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of their businesses. Our subsidiaries had no material
commitments for capital expenditures as of September 30, 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.
Included in Alleghany Capital is debt associated with its operating subsidiaries, which totaled $197.7 million as of September 30, 2018.
The $197.7 million includes $102.3 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), $43.0 million of
borrowings by Jazwares under its available credit facility, $21.5 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions and borrowings under its available credit facility, $16.5 million of
borrowings by IPS under its available credit facility, and $14.4 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 September 30, 2018, we have invested $293.8 million in SORC.
62
Consolidated Investment Holdings
Investment Strategy and Holdings.
Our investment strategy seeks to preserve principal and maintain liquidity while trying to maximize
our
risk-adjusted,
after-tax rate of return. Our investment decisions are guided mainly by the nature and timing of expected liability payouts, managements forecast of cash flows and the possibility of
unexpected cash demands, for example, to satisfy claims due to catastrophe losses. Our consolidated investment portfolio currently consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The
overall credit quality of the debt securities portfolio is measured using the lowest rating of Standard & Poors Ratings Services, Moodys Investors Service, Inc. or Fitch Ratings, Inc. In this regard, the overall
weighted-average
credit quality rating of our debt securities portfolio as of September 30, 2018 and December 31, 2017 was
AA-.
Although a portion of our debt securities,
which consist predominantly of municipal bonds, are insured by
third-party
financial guaranty insurance companies, the impact of such insurance was not significant to the debt securities credit quality rating
as of September 30, 2018. The following table presents the ratings of our debt securities portfolio as of September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings as of September 30, 2018
|
|
|
AAA / Aaa
|
|
AA / Aa
|
|
A
|
|
BBB / Baa
|
|
Below
BBB / Baa or
Not Rated
(1)
|
|
Total
|
|
|
($ in millions)
|
U.S. Government obligations
|
|
$
|
-
|
|
|
$
|
1,028.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,028.6
|
|
Municipal bonds
|
|
|
253.0
|
|
|
|
1,693.4
|
|
|
|
542.6
|
|
|
|
114.4
|
|
|
|
0.9
|
|
|
|
2,604.3
|
|
Foreign government obligations
|
|
|
458.6
|
|
|
|
259.4
|
|
|
|
174.9
|
|
|
|
9.1
|
|
|
|
-
|
|
|
|
902.0
|
|
U.S. corporate bonds
|
|
|
12.5
|
|
|
|
99.0
|
|
|
|
856.4
|
|
|
|
1,038.4
|
|
|
|
437.4
|
|
|
|
2,443.7
|
|
Foreign corporate bonds
|
|
|
319.3
|
|
|
|
154.2
|
|
|
|
556.4
|
|
|
|
330.7
|
|
|
|
58.2
|
|
|
|
1,418.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
15.1
|
|
|
|
1,045.1
|
|
|
|
-
|
|
|
|
48.5
|
|
|
|
6.9
|
|
|
|
1,115.6
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
155.1
|
|
|
|
308.2
|
|
|
|
59.6
|
|
|
|
1.0
|
|
|
|
-
|
|
|
|
523.9
|
|
Other asset-backed securities
|
|
|
833.9
|
|
|
|
422.3
|
|
|
|
352.0
|
|
|
|
417.6
|
|
|
|
8.5
|
|
|
|
2,034.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
2,047.5
|
|
|
$
|
5,010.2
|
|
|
$
|
2,541.9
|
|
|
$
|
1,959.7
|
|
|
$
|
511.9
|
|
|
$
|
12,071.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of debt securities
|
|
|
17.0
|
%
|
|
|
41.5
|
%
|
|
|
21.1
|
%
|
|
|
16.2
|
%
|
|
|
4.2
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of $157.2 million of securities rated BB / Ba, $209.8 million of securities rated B,
$44.8 million of securities rated CCC, $0.4 million of securities rated CC, $4.3 million of securities rated below CC and $95.4 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 September 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 September 30, 2018, approximately $3.2 billion, or 27 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 period of time; (ii) the sale of investments into a depressed marketplace to fund these paid
losses; (iii) the uncollectibility of reinsurance recoverables on these paid losses; (iv) the significant decrease in the value of collateral supporting reinsurance recoverables; or (v) a significant reduction in our net premium
collections.
We may, from time to time, make significant investments in the common stock of a public company, subject to limitations
imposed by applicable regulations.
On a consolidated basis, our invested assets increased to approximately $19.0 billion as of
September 30, 2018 from approximately $18.8 billion as of December 31, 2017, primarily reflecting appreciation in the fair value of equity securities, partially offset by a decline in unrealized appreciation on our debt securities
portfolio due to an increase in interest rates in the first nine months of 2018,
63
contributions to Alleghany Capital to fund the acquisition of Hirschfeld by its subsidiary, W&W|AFCO Steel, and repurchases of shares of our common stock, all as discussed above. The special
dividend was funded by the proceeds from the sale of PacificComp at December 31, 2017.
Fair Value.
The following table
presents the carrying values and estimated fair values of our consolidated financial instruments as of September 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (excluding equity method investments and loans)
(1)
|
|
$
|
17,791.3
|
|
|
$
|
17,791.3
|
|
|
$
|
17,406.5
|
|
|
$
|
17,406.5
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
(2)
|
|
$
|
1,581.7
|
|
|
$
|
1,701.8
|
|
|
$
|
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.
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.
|
64
|
|
|
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.
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.
65
In addition to such procedures, we review the reasonableness of our classification of
securities within the
three-tiered
hierarchy to ensure that the classification is consistent with GAAP.
The following tables present the estimated fair values of our financial instruments measured at fair value and the level of the fair value
hierarchy of inputs used as of September 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
($ in millions)
|
|
As of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
5,016.7
|
|
|
$
|
3.5
|
|
|
$
|
-
|
|
|
$
|
5,020.2
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
8.4
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
5,016.7
|
|
|
|
3.5
|
|
|
|
8.4
|
|
|
|
5,028.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations
|
|
|
-
|
|
|
|
1,028.6
|
|
|
|
-
|
|
|
|
1,028.6
|
|
Municipal bonds
|
|
|
-
|
|
|
|
2,604.3
|
|
|
|
-
|
|
|
|
2,604.3
|
|
Foreign government obligations
|
|
|
-
|
|
|
|
902.0
|
|
|
|
-
|
|
|
|
902.0
|
|
U.S. corporate bonds
|
|
|
-
|
|
|
|
2,040.7
|
|
|
|
403.0
|
|
|
|
2,443.7
|
|
Foreign corporate bonds
|
|
|
-
|
|
|
|
1,310.4
|
|
|
|
108.4
|
|
|
|
1,418.8
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
(1)
|
|
|
-
|
|
|
|
1,115.6
|
|
|
|
-
|
|
|
|
1,115.6
|
|
CMBS
|
|
|
-
|
|
|
|
523.9
|
|
|
|
-
|
|
|
|
523.9
|
|
Other asset-backed securities
(2)
|
|
|
-
|
|
|
|
654.4
|
|
|
|
1,379.9
|
|
|
|
2,034.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
-
|
|
|
|
10,179.9
|
|
|
|
1,891.3
|
|
|
|
12,071.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
690.6
|
|
|
|
-
|
|
|
|
690.6
|
|
|
|
|
|
|
Other invested assets
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (excluding equity method investments and loans)
|
|
$
|
5,016.7
|
|
|
$
|
10,874.0
|
|
|
$
|
1,900.6
|
|
|
$
|
17,791.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and other debt
|
|
$
|
-
|
|
|
$
|
1,504.1
|
|
|
$
|
197.7
|
|
|
$
|
1,701.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,368.9 million and $1,101.3 million of collateralized loan obligations as of September 30,
2018 and December 31, 2017, respectively.
|
(3)
|
Includes partnership and non-marketable equity investments accounted for at fair value, and excludes investments
accounted for using the equity method.
|
Municipal Bonds.
The following table provides the fair value of our
municipal bonds as of September 30, 2018, categorized by state and revenue source. Special revenue bonds are debt securities for which the payment of principal and interest is available solely from the cash flows of the related projects. As
issuers of revenue bonds do not have the ability to draw from tax revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than general obligation bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Revenue
|
|
|
|
|
|
|
|
State
|
|
Education
|
|
|
Hospital
|
|
|
Housing
|
|
|
Lease
Revenue
|
|
|
Special Tax
|
|
|
Transit
|
|
|
Utilities
|
|
|
All Other
Sources
|
|
|
Total
Special
Revenue
|
|
|
Total
General
Obligation
|
|
|
Total Fair
Value
|
|
|
|
($ in millions)
|
|
New York
|
|
$
|
9.7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
102.8
|
|
|
$
|
76.0
|
|
|
$
|
32.0
|
|
|
$
|
7.3
|
|
|
$
|
227.8
|
|
|
$
|
9.2
|
|
|
$
|
237.0
|
|
Texas
|
|
|
24.9
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
7.9
|
|
|
|
42.2
|
|
|
|
72.5
|
|
|
|
2.3
|
|
|
|
150.0
|
|
|
|
65.1
|
|
|
|
215.1
|
|
California
|
|
|
8.4
|
|
|
|
43.4
|
|
|
|
-
|
|
|
|
2.5
|
|
|
|
1.3
|
|
|
|
27.6
|
|
|
|
69.2
|
|
|
|
-
|
|
|
|
152.4
|
|
|
|
58.5
|
|
|
|
210.9
|
|
Massachusetts
|
|
|
18.6
|
|
|
|
5.4
|
|
|
|
6.7
|
|
|
|
-
|
|
|
|
29.8
|
|
|
|
29.7
|
|
|
|
25.8
|
|
|
|
0.3
|
|
|
|
116.3
|
|
|
|
72.6
|
|
|
|
188.9
|
|
Washington
|
|
|
-
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
-
|
|
|
|
8.9
|
|
|
|
10.9
|
|
|
|
30.3
|
|
|
|
2.2
|
|
|
|
54.0
|
|
|
|
49.1
|
|
|
|
103.1
|
|
Pennsylvania
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
10.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33.3
|
|
|
|
1.1
|
|
|
|
14.4
|
|
|
|
62.8
|
|
|
|
36.2
|
|
|
|
99.0
|
|
Ohio
|
|
|
42.8
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
23.8
|
|
|
|
3.0
|
|
|
|
72.3
|
|
|
|
17.9
|
|
|
|
90.2
|
|
Florida
|
|
|
-
|
|
|
|
0.3
|
|
|
|
3.6
|
|
|
|
-
|
|
|
|
11.0
|
|
|
|
30.4
|
|
|
|
14.5
|
|
|
|
10.6
|
|
|
|
70.4
|
|
|
|
10.8
|
|
|
|
81.2
|
|
Colorado
|
|
|
23.0
|
|
|
|
14.8
|
|
|
|
-
|
|
|
|
9.9
|
|
|
|
2.4
|
|
|
|
6.5
|
|
|
|
6.1
|
|
|
|
-
|
|
|
|
62.7
|
|
|
|
16.9
|
|
|
|
79.6
|
|
New Jersey
|
|
|
27.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16.4
|
|
|
|
-
|
|
|
|
32.3
|
|
|
|
76.6
|
|
|
|
-
|
|
|
|
76.6
|
|
All other states
|
|
|
109.8
|
|
|
|
90.3
|
|
|
|
28.4
|
|
|
|
51.7
|
|
|
|
112.5
|
|
|
|
65.2
|
|
|
|
119.4
|
|
|
|
133.3
|
|
|
|
710.6
|
|
|
|
174.4
|
|
|
|
885.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267.5
|
|
|
$
|
156.2
|
|
|
$
|
50.9
|
|
|
$
|
64.1
|
|
|
$
|
278.6
|
|
|
$
|
338.2
|
|
|
$
|
394.7
|
|
|
$
|
205.7
|
|
|
$
|
1,755.9
|
|
|
$
|
510.7
|
|
|
|
2,266.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advanced refunded / escrowed maturity funds
|
|
|
|
337.7
|
|
|
|
|
|
|
|
Total municipal bonds
|
|
|
$
|
2,604.3
|
|
|
|
|
|
|
|
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 requires that the value of deferred
67
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
68
quarter of 2019 for public entities, with early adoption permitted. A modified retrospective transition approach is required for all leases in existence as of, or entered into after, the
beginning of the earliest comparative period presented in the financial statements. We will adopt this guidance in the first quarter of 2019 and do not currently believe that the implementation will have a material impact on our results of
operations and financial condition. See Note 12(b) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, Financial Statements and Supplementary Data of the 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.
In August 2018, the FASB issued guidance that changes the financial statement disclosure requirements for measuring fair value. With respect to
financial instruments classified as Level 3 in the fair value disclosure hierarchy, the guidance requires certain additional disclosures for public entities related to amounts included in other comprehensive income and significant
unobservable inputs used in the valuation, while removing disclosure requirements related to an entitys overall valuation processes. The guidance also removes certain disclosure requirements related to transfers between financial instruments
classified as Level 1 and Level 2 and provides clarification on certain other existing disclosure requirements. This guidance is effective for interim and annual periods beginning after December 15, 2019, with
early adoption permitted with respect to any eliminated or modified disclosures. We will adopt this guidance in the first quarter of 2020 and we do not currently believe that the implementation will have a material impact on our results of
operations and financial condition.
69