Segments of Business

3 Months Ended

Mar. 31, 2013

Segments of Business

9. 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 business into two reportable segments – reinsurance and insurance. In addition, reinsurance and insurance underwriting activities are evaluated separately from investment and corporate activities. Net realized capital gains and OTTI losses are not considered relevant in evaluating investment performance on an annual basis. Segment accounting policies are described in Note 1 to the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of the 2012 10-K.

The reinsurance segment consists of property and casualty reinsurance operations conducted by TransRe’s reinsurance operating units and is further reported by 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. Approximately half 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 United States. 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 by AIHL through RSUI, CATA and PCC. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment.

The primary components of “corporate activities” are Alleghany Properties, Alleghany’s investments in Homesite and ORX and strategic investments and other activities at the parent level. As of April 26, 2012, corporate activities also includes the operating results of BKI. Corporate activities also includes interest expense associated with senior notes issued by Alleghany, whereas interest expense associated with senior notes issued by TransRe is included in “Total Segments.” Information related to the senior notes can be found in Note 8 to the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of the 2012 10-K.

(b) Results

Segment results for Alleghany’s two reportable segments and for corporate activities for the three months ended March 31, 2013 and March 31, 2012 (which include TransRe from March 6, 2012 through March 31, 2012) are shown in the tables below:

	Reinsurance Segment							Insurance Segment
Three Months Ended March 31, 2013	Property		Casualty  & Other(1)			Total		RSUI		CATA			PCC			Total		Total Segments			Corporate Activities(2)			Consolidated
										(in millions)
Gross premiums written	$	270.1	$	637.6		$	907.7	$	285.8	$	40.2		$	9.1		$	335.1	$	1,242.8		$	(5.3	)	$	1,237.5
Net premiums written		236.7		629.3			866.0		181.2		37.8			8.9			227.9		1,093.9			—			1,093.9
Net premiums earned		250.1		603.8			853.9		175.7		37.3			8.1			221.1		1,075.0			—			1,075.0
Net loss and LAE		56.2		415.0			471.2		70.4		18.1			7.7			96.2		567.4			—			567.4
Commissions, brokerage and     other underwriting expenses		62.4		188.9			251.3		48.4		19.5			7.0			74.9		326.2			—			326.2
Underwriting profit (loss)(3)	$	131.5	$	(0.1	)	$	131.4	$	56.9	$	(0.3	)	$	(6.6	)	$	50.0		181.4			—			181.4
Net investment income																			93.3			25.5			118.8
Net realized capital gains																			49.3			1.6			50.9
Other than temporary impairment losses																			(32.3	)		—			(32.3	)
Gain on bargain purchase																			—			—			—
Other income																			0.7			10.5			11.2
Other operating expenses																			20.4			10.4			30.8
Corporate administration																			—			12.4			12.4
Amortization of intangible assets																			11.6			—			11.6
Interest expense																			12.4			9.4			21.8
Earnings before income taxes																		$	248.0		$	5.4		$	253.4

	Reinsurance Segment						Insurance Segment
Three Months Ended March 31, 2012	Property		Casualty  & Other(1)		Total		RSUI		CATA			PCC			Total		Total Segments			Corporate Activities(2)			Consolidated
										(in millions)
Gross premiums written	$	71.1	$	175.0	$	246.1	$	247.3	$	38.5		$	2.7		$	288.5	$	534.6		$	(1.2	)	$	533.4
Net premiums written		63.7		172.6		236.3		158.9		36.3			2.7			197.9		434.2			—			434.2
Net premiums earned		66.1		177.0		243.1		153.9		34.7			2.5			191.1		434.2			—			434.2
Net loss and LAE		17.8		129.9		147.7		65.1		18.6			2.5			86.2		233.9			—			233.9
Commissions, brokerage and other underwriting expenses		8.1		21.1		29.2		44.8		19.2			6.7			70.7		99.9			—			99.9
Underwriting profit (loss)(3)	$	40.2	$	26.0	$	66.2	$	44.0	$	(3.1	)	$	(6.7	)	$	34.2		100.4			—			100.4
Net investment income																		40.7			12.5			53.2
Net realized capital gains																		29.3			38.7			68.0
Other than temporary impairment losses																		(1.8	)		—			(1.8	)
Gain on bargain purchase																		—			494.9			494.9
Other income																		0.3			—			0.3
Other operating expenses																		13.8			1.9			15.7
Corporate administration																		—			47.3			47.3
Amortization of intangible assets																		31.9			—			31.9
Interest expense																		4.8			4.3			9.1
Earnings before income taxes																	$	118.4		$	492.6		$	611.0

(1) Casualty & other primarily consists of assumed: 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) Represents net premiums earned less net loss and LAE and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income, net realized capital gains, OTTI losses, other income, other operating expenses, 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 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

As of March 31, 2013, the identifiable assets of the reinsurance segment, insurance segment and corporate activities were $16.3 billion, $5.8 billion and $0.7 billion, respectively, of which cash and invested assets represented $14.4 billion, $4.2 billion and $0.5 billion, respectively. As of March 31, 2013, Alleghany’s equity attributable to the reinsurance segment, insurance segment and corporate activities was $4.3 billion, $2.4 billion and ($0.1) billion, respectively.