Segments of Business

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segments of Business

10. Segments of Business

(a) Overview

Alleghany’s segments are reported in a manner consistent with the way management evaluates the businesses. As such, Alleghany classifies its businesses into three reportable segments – reinsurance, insurance and Alleghany Capital.

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 2021 Form 10-K.

The reinsurance segment consists of property and casualty reinsurance operations conducted by TransRe’s reinsurance operating subsidiaries and is further reported through two major product lines – property, and casualty & specialty. TransRe provides property and casualty reinsurance to insurers and other reinsurers through brokers and on a direct basis to ceding companies. TransRe writes a modest amount of property and casualty insurance business, which is included in the reinsurance segment. Aside from the U.S., a significant portion of the premiums earned by TransRe’s operations are generated by offices located in Canada, Europe, Asia, Australia, Africa and those serving Latin America and the Caribbean. Although the majority of the premiums earned by these offices typically relate to the regions where they are located, a significant portion may be derived from other regions of the world, including the U.S. In addition, although a significant portion of the assets and liabilities of these foreign offices generally relate to the countries where the 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 and CapSpecialty. 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, consumer & services operations and corporate operations at the Alleghany Capital level, which include certain hotel development projects. Industrial operations are conducted through PCT, Kentucky Trailer, W&W|AFCO Steel, Wilbert and, beginning May 10, 2021, Piedmont. Consumer & services operations are conducted through IPS, Jazwares and Concord.

On October 14, 2021, IPS acquired the outstanding equity of Anchorbuoy Limited (with its subsidiaries, referred to as
“Linesight”), for approximately $262.5 million U.S. dollar-equivalent, consisting of: (i) $98.6 million of cash from IPS (which includes a $97.4 million contribution from Alleghany); (ii) the issuance of certain noncontrolling interests in IPS, which were valued at $38.8 million and which increased the aggregate noncontrolling interests in IPS from approximately 15 percent to approximately 18 percent; and (iii) $125.1 million of U.S. dollar-equivalent incremental debt, which is denominated in Euro. In connection with the acquisition, Alleghany recorded $102.1 million of goodwill, $124.7 million of finite-lived intangible assets related to customer relationships and $15.5 million of indefinite-lived intangible assets related to trade names and trademarks. The acquisition-date consideration transferred and purchase price allocation to the acquired assets and liabilities of Linesight 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 assets acquired and liabilities assumed, as well as the residual goodwill. The acquisition accounting for Linesight is expected to be finalized later in 2022.

Corporate activities are not classified as a segment. The primary components of corporate activities are Alleghany Properties and activities at the Alleghany parent company. Corporate activities also include the elimination of minor activity between segments.

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 2021 Form 10-K.

(b) Results

The following tables present segment results for Alleghany’s three reportable segments and for corporate activities for the three months ended March 31, 2022 and 2021:

		Reinsurance Segment						Insurance Segment
Three Months Ended March 31, 2022		Property		Casualty & specialty(1)		Total		RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	454.4	$	1,074.0	$	1,528.4	$	517.4	$	112.2	$	629.6	$	2,158.0		$	—	$	2,158.0		$	(11.0	)	$	2,147.0
Net premiums written			346.6		1,011.4		1,358.0		342.1		92.7		434.8		1,792.8			—		1,792.8			—			1,792.8
Net premiums earned			291.5		871.4		1,162.9		346.4		96.2		442.6		1,605.5			—		1,605.5			—			1,605.5
Net loss and LAE			162.1		560.9		723.0		159.4		59.4		218.8		941.8			—		941.8			—			941.8
Commissions, brokerage and    other underwriting expenses			86.7		281.6		368.3		72.2		36.7		108.9		477.2			—		477.2			—			477.2
Underwriting profit(2)		$	42.7	$	28.9	$	71.6	$	114.8	$	0.1	$	114.9		186.5			—		186.5			—			186.5
Net investment income															108.5			—		108.5			5.0			113.5
Change in the fair value of equity securities															(154.1	)		—		(154.1	)		15.2			(138.9	)
Net realized capital gains															(16.1	)		6.1		(10.0	)		—			(10.0	)
Change in allowance for credit losses on available for sale securities															(0.6	)		—		(0.6	)		—			(0.6	)
Product and service revenues															8.0			1,121.4		1,129.4			19.8			1,149.2
Other operating expenses															13.6			1,013.3		1,026.9			1.9			1,028.8
Corporate administration															—			—		—			10.7			10.7
Amortization of intangible assets															0.4			13.7		14.1			—			14.1
Interest expense															6.7			5.7		12.4			19.7			32.1
Earnings before income taxes														$	111.5		$	94.8	$	206.3		$	7.7		$	214.0

		Reinsurance Segment							Insurance Segment
Three Months Ended March 31, 2021		Property			Casualty & specialty(1)		Total		RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	565.3		$	972.9	$	1,538.2	$	420.9	$	102.2	$	523.1	$	2,061.3		$	—	$	2,061.3		$	(10.9	)	$	2,050.4
Net premiums written			459.0			935.9		1,394.9		272.5		87.4		359.9		1,754.8			—		1,754.8			—			1,754.8
Net premiums earned			371.3			858.6		1,229.9		283.6		91.3		374.9		1,604.8			—		1,604.8			—			1,604.8
Net loss and LAE			323.5			525.4		848.9		208.2		55.0		263.2		1,112.1			—		1,112.1			—			1,112.1
Commissions, brokerage and    other underwriting expenses			109.2			266.8		376.0		64.1		35.9		100.0		476.0			—		476.0			—			476.0
Underwriting (loss) profit(2)		$	(61.4	)	$	66.4	$	5.0	$	11.3	$	0.4	$	11.7		16.7			—		16.7			—			16.7
Net investment income																123.1			—		123.1			30.4			153.5
Change in the fair value of equity securities																85.3			—		85.3			27.4			112.7
Net realized capital gains																10.5			0.9		11.4			1.5			12.9
Change in allowance for credit losses on available for sale securities																1.9			—		1.9			0.1			2.0
Product and service revenues																8.6			759.1		767.7			0.1			767.8
Other operating expenses																14.4			709.2		723.6			0.3			723.9
Corporate administration																(0.5	)		—		(0.5	)		10.1			9.6
Amortization of intangible assets																0.2			11.3		11.5			—			11.5
Interest expense																6.8			3.8		10.6			13.1			23.7
Earnings before income taxes															$	225.2		$	35.7	$	260.9		$	36.0		$	296.9

(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; mortgage reinsurance; 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, change in allowance for credit losses on available for sale securities, product and service revenues, other operating expenses, corporate administration, amortization of intangible assets or interest expense. Underwriting profit does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. Rather, Alleghany believes that underwriting profit enhances the understanding of its reinsurance and insurance segments’ operating results by highlighting net earnings attributable to their underwriting performance. Earnings before income taxes (a GAAP measure) may show a profit despite an underlying underwriting loss. Where underwriting losses persist over extended periods, a reinsurance or an insurance company’s 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 Alleghany’s reportable segments and for corporate activities as of March 31, 2022:

	Identifiable Assets		Invested Assets and Cash		Equity Attributable to Alleghany
	($ in millions)
Reinsurance segment	$	18,771.4	$	14,734.9	$	4,892.4
Insurance segment		8,320.4		5,967.3		2,677.8
Subtotal		27,091.8		20,702.2		7,570.2
Alleghany Capital		3,419.2		169.6		1,357.6
Total segments		30,511.0		20,871.8		8,927.8
Corporate activities		1,383.4		1,423.0		(332.4	)
Consolidated	$	31,894.4	$	22,294.8	$	8,595.4

The debt associated with Alleghany Capital’s operating subsidiaries totaled $756.0 million and $780.5 million as of March 31, 2022 and December 31, 2021, respectively, and is generally used to support working capital needs and to help finance acquisitions. As of March 31, 2022, the $756.0 million includes:

•$267.9 million of borrowings by Jazwares under its available credit facilities to support its seasonal peak working capital requirements and borrowings incurred and assumed from its recent acquisitions;

•$172.1 million of borrowings by IPS under its available credit facility and term loans, including U.S. dollar-equivalent Euro-based borrowings incurred from its acquisition of Linesight in 2021;

•$125.4 million of borrowings by W&W|AFCO Steel under its available credit facilities;

•$74.7 million of borrowings by Wilbert under its available credit facility and term loans;

•$60.4 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions, including its recent acquisitions and borrowings under its available credit facilities;

•$31.4 million at Piedmont primarily related to borrowings to finance the acquisition of WPS in May 2021; and

•$24.1 million of term loans at PCT primarily related to borrowings to finance recent acquisitions.

None of the above liabilities are guaranteed by Alleghany or Alleghany Capital. In December 2019, third-party, floating-rate term loans at Concord were repaid and replaced with approximately $33 million of intercompany floating-rate debt funded by the Alleghany parent company. The intercompany debt and related interest expenses are eliminated at the Alleghany consolidated level.

 

(d) Alleghany Capital Product and Service Revenues

For Alleghany Capital’s industrial and consumer & services operations, product and service revenues consist of the sale of manufactured goods and services. The following table presents product and service revenues for the Alleghany Capital segment for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022		2021
	($ in millions)
Industrial(1)	$	461.6	$	404.4
Consumer & services(2)		659.8		354.7
Corporate & other		—		—
Alleghany Capital	$	1,121.4	$	759.1

(1)For the three months ended March 31, 2022 and 2021, the vast majority of industrial product and service revenues were recognized as goods and services transferred to customers over time.

(2)For the three months ended March 31, 2022 and 2021, approximately 59 percent and 63 percent, respectively, of consumer & services product and service revenues were recognized as services transferred to customers over time, with the remainder recognized as goods transferred at a point in time.