UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 | Results of Operations and Financial Condition. |
On November 5, 2019, Alleghany Corporation issued a press release on the subject of its financial results for the quarter ended September 30, 2019. A copy of such release is furnished herewith as Exhibit 99.1. The information hereunder shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
99.1 |
Press release of Alleghany Corporation, dated November 5, 2019 | |||
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Alleghany corporation | ||
Date: November 5, 2019 |
By: /s/ Kerry J. Jacobs | |
Name: Kerry J. Jacobs | ||
Title: Senior Vice President and chief financial officer |
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Exhibit 99.1
ALLEGHANY CORPORATION
1411 Broadway, 34th Floor
New York, NY 10018
ALLEGHANY CORPORATION REPORTS 2019 THIRD QUARTER RESULTS
Book value per share increases 1.8%
NEW YORK, NY, November 5, 2019 Alleghany Corporation (NYSE-Y) announced its financial results for the third quarter and first nine months of 2019. Highlights are below.
● | Book value per share1 was $612.87 as of September 30, 2019, an increase of 16.1% from year-end 2018, and an increase of 1.8% from June 30, 2019. Excluding changes in other comprehensive income primarily related to unrealized appreciation on bonds due to the decline in interest rates, book value per share increased 10.8% from year-end 2018 and 1.0% from June 30, 2019. |
● | Earnings per diluted share and operating earnings per diluted share were $6.27 and $7.61, respectively, for the third quarter of 2019, compared with earnings per diluted share and operating losses per diluted share of $19.07 and ($1.07), respectively, for the third quarter of 2018. |
● | Earnings per diluted share and operating earnings per diluted share were $57.14 and $29.65, respectively, for the first nine months of 2019, compared with earnings per diluted share and operating earnings per diluted share of $49.53 and $20.03, respectively, for the first nine months of 2018. |
● | Net premiums written increased 14.1% and 12.7% for the third quarter and first nine months of 2019, respectively. |
● | Underwriting profit was $33 million and $232 million in the third quarter and first nine months of 2019, respectively, generating combined ratios of 97.6% and 94.3%, compared with an underwriting loss of $140 million and combined ratio of 111.5% and underwriting profit of $88 million and combined ratio of 97.6% for the third quarter and first nine months of 2018, respectively. |
● | Net investment income increased 16.1% to $148 million and 9.5% to $414 million for the third quarter and first nine months of 2019, respectively. |
● | Alleghany Capital revenue2 increased 54.1% to $628 million and 76.3% to $1,727 million for the third quarter and first nine months of 2019, respectively. Excluding the impact of Concord, which was acquired on October 1, 2018, Alleghany Capital revenue increased 42.3% and 62.4%, in the third quarter and first nine months of 2019, respectively. |
● | Alleghany Capital earnings before income taxes and operating earnings before income taxes were $38 million and $46 million, respectively, for the third quarter of 2019, compared with earnings before income taxes and operating earnings before income taxes of $17 million and $23 million, respectively, for the third quarter of 2018. |
● | Alleghany Capital earnings before income taxes and operating earnings before income taxes were $102 million and $124 million, respectively, for the first nine months of 2019, compared with earnings before income taxes and operating earnings before income taxes of $23 million and $40 million, respectively, for the first nine months of 2018. |
1 | Stockholders equity attributable to Alleghany stockholders divided by common stock outstanding. |
2 | Relates to Alleghany Capital noninsurance revenue. |
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The following table summarizes results for the three and nine months ended September 30, 2019 and 2018:
Three Months Ended September 30, | Percent | Nine Months Ended September 30, | Percent | |||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||||||
Revenues: |
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Total revenues |
$ | 2,159.9 | $ | 2,177.4 | (0.8 | %) | $ | 6,739.9 | $ | 5,660.1 | 19.1 | % | ||||||||||||
Change in the fair value of equity securities |
(16.7 | ) | 370.2 | n/m | 519.3 | 512.8 | 1.3 | % | ||||||||||||||||
Net premiums written |
1,413.9 | 1,239.1 | 14.1 | % | 4,246.0 | 3,768.3 | 12.7 | % | ||||||||||||||||
Alleghany Capital revenue1 |
628.0 | 407.5 | 54.1 | % | 1,726.8 | 979.2 | 76.3 | % | ||||||||||||||||
Net investment income |
147.8 | 127.3 | 16.1 | % | 413.6 | 377.7 | 9.5 | % | ||||||||||||||||
Earnings: |
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Earnings before income taxes |
$ | 129.3 | $ | 349.9 | (63.0 | %) | $ | 1,061.9 | $ | 930.3 | 14.1 | % | ||||||||||||
Underwriting profit (loss) |
32.8 | (140.0 | ) | n/m | 232.3 | 87.7 | 164.9 | % | ||||||||||||||||
Net earnings attributable to Alleghany stockholders |
90.4 | 284.9 | (68.3 | %) | 826.1 | 751.6 | 9.9 | % | ||||||||||||||||
Operating earnings (losses) |
109.8 | (16.0 | ) | n/m | 428.9 | 307.0 | 39.7 | % | ||||||||||||||||
Share and Per share data: |
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Earnings per diluted share |
$ | 6.27 | $ | 19.07 | (67.1 | %) | $ | 57.14 | $ | 49.53 | 15.4 | % | ||||||||||||
Operating earnings (losses) per diluted share |
7.61 | (1.07 | ) | n/m | 29.65 | 20.03 | 48.0 | % | ||||||||||||||||
Weighted average diluted shares outstanding |
14,422,581 | 14,937,135 | (3.4 | %) | 14,458,750 | 15,173,680 | (4.7 | %) |
1 | Relates to Alleghany Capital noninsurance revenue. |
The following table summarizes the change in book value per share1 for the three and nine months ended September 30, 2019:
Three | Nine | |||||||||||||||
months ended | Percent | months ended | Percent | |||||||||||||
Book value per share1: | September 30, 2019 | Change | September 30, 2019 | Change | ||||||||||||
As of the beginning of the period |
$ | 601.90 | $ | 527.75 | ||||||||||||
Diluted earnings per share |
6.27 | 1.0 | % | 57.14 | 10.8 | % | ||||||||||
Other comprehensive income and other2 |
4.70 | 0.8 | % | 27.98 | 5.3 | % | ||||||||||
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As of the end of the period |
$ | 612.87 | 1.8 | % | $ | 612.87 | 16.1 | % | ||||||||
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1 | Stockholders equity attributable to Alleghany stockholders divided by common stock outstanding. |
2 | Primarily related to unrealized appreciation on bonds, after tax. |
Weston Hicks, President and chief executive officer, commented, Despite a small decline in the fair value of Alleghanys equity portfolio and seasonal catastrophe losses in the quarter, Alleghanys book value per share grew due to strong growth in net investment income, unrealized appreciation of the fixed income portfolio, record earnings at Alleghany Capital, and solid ex-catastrophe underwriting results at both RSUI and TransRe.
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The excess and surplus lines underwriting environment continues to tighten and RSUI is benefiting from accelerating rate increases, improved terms, increased submissions and strong premium growth across most lines of business. TransRes casualty business is benefiting from improving original rate trends on its proportional business and some modest reductions in ceding commissions.
Alleghany Capital had another excellent quarter, reflecting strong revenue and earnings growth across almost all businesses with Jazwares and W&W|AFCO Steel being the largest contributors. We are continuing to see solid organic growth at the Alleghany Capital group of companies as well as attractive opportunities to add selectively to our platform companies through strategic add-on acquisitions.
SEGMENT RESULTS
The following table summarizes the reinsurance and insurance segment results for the three and nine months ended September 30, 2019 and 2018:
Three Months Ended September 30, | Percent | Nine Months Ended September 30, | Percent | |||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Net premiums written: |
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Reinsurance Segment |
$ | 1,111.7 | $ | 985.2 | 12.8 | % | $ | 3,332.1 | $ | 2,958.9 | 12.6 | % | ||||||||||||
Insurance Segment |
302.2 | 253.9 | 19.0 | % | 913.9 | 809.4 | 12.9 | % | ||||||||||||||||
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$ | 1,413.9 | $ | 1,239.1 | 14.1 | % | $ | 4,246.0 | $ | 3,768.3 | 12.7 | % | |||||||||||||
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Underwriting profit (loss): |
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Reinsurance Segment |
$ | 6.0 | $ | (172.4 | ) | n/m | $ | 122.0 | $ | (3.8 | ) | n/m | ||||||||||||
Insurance Segment |
26.8 | 32.4 | (17.3 | %) | 110.3 | 91.5 | 20.5 | % | ||||||||||||||||
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$ | 32.8 | $ | (140.0 | ) | n/m | $ | 232.3 | $ | 87.7 | 164.9 | % | |||||||||||||
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Reinsurance
Net premiums written increased by 12.8% and 12.6% in the third quarter and first nine months of 2019 from the corresponding 2018 periods, respectively. These increases primarily reflect the impact of TransRes August 29, 2018 purchase of the renewal rights to a block of U.S. treaty reinsurance business, partially offset by a decrease in net premiums written related to a certain large whole account quota share treaty and the impact of changes in foreign currency exchange rates.
TransRes 2019 third quarter combined ratio was 99.5%, compared with 117.9% for the 2018 third quarter, and was 96.2% for the first nine months of 2019, compared with 100.1% for the first nine months of 2018. The lower combined ratios in the current year are primarily due to significantly lower net catastrophe losses in the 2019 third quarter and year-to-date period of $76 million (including Typhoon Faxai and Hurricane Dorian) compared to corresponding period 2018 net catastrophe losses of $196 million (including Typhoon Jebi, Hurricane Florence and Typhoon Trami).
TransRes results include catastrophe loss estimates related to Typhoon Faxai, which made landfall in Japan on September 9, 2019. There is significant uncertainty regarding the loss estimates for Typhoon Faxai given the nature and location of the event. Furthermore, third quarter results do not take into account losses from Typhoon Hagibis, which made landfall in Japan on October 12, 2019, and affected regions also impacted by Typhoon Faxai. The impact of Tyhpoon Hagibis will be reflected in Alleghanys 2019 fourth quarter results.
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Insurance
Insurance segment net premiums written increased by 19.0% and 12.9% in the third quarter and first nine months of 2019 from the corresponding 2018 periods, respectively.
RSUIs net premiums written increased by 21.3% and 14.1% in the third quarter and first nine months of 2019 from the corresponding 2018 periods, respectively, reflecting growth in most lines of business due to increases in business opportunities, higher rates and improved general market conditions, particularly in the property line of business and, to a lesser extent, the excess casualty and directors and officers liability lines of business.
RSUIs combined ratio was 87.0% in the third quarter of 2019 compared with 83.8% in the third quarter of 2018, and was 81.7% in the first nine months of 2019 compared with 84.5% in the first nine months of 2018. The higher combined ratio in the third quarter of 2019 reflects lower favorable prior accident year loss reserve development, partially offset by lower catastrophe losses compared with the third quarter of 2018. The lower combined ratio in the first nine months of 2019 reflects the impact of higher net premiums earned, lower catastrophe losses and a lower non-catastrophe loss ratio, partially offset by lower favorable prior accident year loss reserve development.
CapSpecialtys net premiums written increased by 14.0% and 9.8% in the third quarter and first nine months of 2019 from the corresponding 2018 periods, respectively, primarily reflecting CapSpecialtys continued growth in the healthcare, specialty casualty and surety lines of business due to increases in business opportunities and CapSpecialtys expanded product offerings and, for the nine month period only, the impact of CapSpecialtys purchase on February 20, 2018 of certain renewal rights to a small environmental block of business.
CapSpecialtys combined ratio was 100.7% in the third quarter of 2019 compared with 97.7% in the third quarter of 2018, and was 100.1% in the first nine months of 2019 compared with 97.7% in the first nine months of 2018. The increases in combined ratio in the 2019 periods reflect modest unfavorable prior accident year loss reserve development compared with favorable prior accident year loss reserve development in the 2018 periods, partially offset by a lower expense ratio. In addition, Alleghany recognized approximately $8 million in non-recurring other operating expenses related to the retirement of CapSpecialtys former chief executive officer and the restructuring of CapSpecialty management compensation plans in the third quarter of 2019.
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Alleghany Capital
The following table summarizes earnings (losses) before income taxes and operating earnings (losses) before income taxes for the Alleghany Capital segment for the three and nine months ended September 30, 2019 and 2018:
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||||||||||
Non- | Corp. & | Non- | Corp. & | |||||||||||||||||||||||||||||
Industrial | industrial | other | Total | Industrial | industrial | other | Total | |||||||||||||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||||||||||||||||||
Earnings (losses) before income taxes |
$ | 16.3 | $ | 26.4 | $ | (4.8) | $ | 37.9 | $ | 3.5 | $ | 17.9 | $ | (4.0) | $ | 17.4 | ||||||||||||||||
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Less: net realized capital gains |
(0.1 | ) | 0.3 | - | 0.2 | (0.1 | ) | 0.1 | - | - | ||||||||||||||||||||||
Add: amortization of intangible assets |
2.9 | 4.8 | - | 7.7 | 2.4 | 3.4 | - | 5.8 | ||||||||||||||||||||||||
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Operating earnings (losses) before income taxes |
$ | 19.1 | $ | 31.5 | $ | (4.8) | $ | 45.8 | $ | 5.8 | $ | 21.4 | $ | (4.0) | $ | 23.2 | ||||||||||||||||
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Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||||||||||
Non- | Corp. & | Non- | Corp. & | |||||||||||||||||||||||||||||
Industrial | industrial | other | Total | Industrial | industrial | other | Total | |||||||||||||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||||||||||||||||||
Earnings (losses) before income taxes |
$ | 50.9 | $ | 66.1 | $ | (15.5) | $ | 101.5 | $ | 14.5 | $ | 17.9 | $ | (9.0) | $ | 23.4 | ||||||||||||||||
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Less: net realized capital gains |
(0.7 | ) | 0.4 | - | (0.3 | ) | (0.7 | ) | 0.1 | - | (0.6 | ) | ||||||||||||||||||||
Add: amortization of intangible assets |
9.3 | 13.5 | - | 22.8 | 6.7 | 10.3 | - | 17.0 | ||||||||||||||||||||||||
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Operating earnings (losses) before income taxes |
$ | 59.5 | $ | 80.0 | $ | (15.5) | $ | 124.0 | $ | 20.5 | $ | 28.3 | $ | (9.0) | $ | 39.8 | ||||||||||||||||
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The increases in earnings before income taxes in the third quarter and first nine months of 2019 from the corresponding 2018 periods reflect increased earnings in both the non-industrial and industrial operations. The increases in non-industrial earnings before income taxes primarily reflect the impact of higher sales and higher margins at Jazwares, most significantly due to the addition of the Fortnite license, which began generating sales in the fourth quarter of 2018 and, to a lesser extent, the acquisition of Concord and organic sales growth at IPS. The increases in industrial earnings before income taxes primarily reflect higher sales and higher margins at W&W|AFCO Steel and, to a lesser extent, higher sales at Kentucky Trailer. Increased sales at W&W|AFCO Steel reflects organic growth as well as margin improvement versus the corresponding 2018 periods reflecting progress on higher margin contracts this year.
INVESTMENT PERFORMANCE
Alleghany reported net investment income for the third quarter of 2019 and first nine months of 2019 of $148 million and $414 million, respectively, an increase of 16.1% and 9.5%, respectively, from the corresponding 2018 periods. The increases in net investment income in the third quarter and first nine months of 2019 from the corresponding 2018 periods primarily reflect higher interest income, partially offset by lower dividend income. The increases in interest income and the decreases in dividend income primarily relate to a reallocation of a significant portion of our investment portfolio from equity securities to debt securities in the first quarter of 2019.
Financial statement total return3 on investments was 1.2% for the third quarter of 2019, compared with 2.4% for the third quarter of 2018. The decrease reflects a modest decline in the fair value of the equity securities portfolio compared with a significant increase in the third quarter of 2018, partially offset by higher net investment income and an increase in unrealized gains on the fixed income portfolio compared with a decrease in the third quarter of 2018.
OTHER FINANCIAL INFORMATION
As of September 30, 2019, Alleghany had 14,405,508 shares of its common stock outstanding, compared with 14,576,509 shares of its common stock outstanding as of December 31, 2018.
During the first nine months of 2019, Alleghany repurchased an aggregate of 174,211 shares of its common stock in the open market for $112 million, at an average price per share of $645.46. As of September 30, 2019, Alleghany had $659 million remaining under its share repurchase authorization.
3 | As calculated in Alleghanys financial supplement. |
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Additional Information
Concurrent with the issuance of todays earnings press release, Alleghany has posted a financial supplement to its website, www.alleghany.com, containing additional schedules that provide further detail pertaining to Alleghanys financial results.
Additional information regarding Alleghanys 2019 third quarter and first nine months financial results, including managements discussion and analysis of Alleghanys financial condition and results of operations, is contained in Alleghanys Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the Form 10-Q), to be filed with the U.S. Securities and Exchange Commission (the SEC) on or about the date hereof. The Form 10-Q and the financial supplement will be available on Alleghanys website at www.alleghany.com. The Form 10-Q will also be available on the SECs website at www.sec.gov. Readers are urged to review the Form 10-Q for a more complete discussion of Alleghanys financial performance.
About Alleghany Corporation
Alleghany Corporation (NYSE-Y) owns and manages operating subsidiaries and investments, anchored by a core position in property and casualty reinsurance and insurance. Alleghanys property and casualty subsidiaries include: Transatlantic Holdings, Inc. (referred to herein as TransRe), a leading global reinsurer; RSUI Group, Inc. (referred to herein as RSUI), a national underwriter of property and liability specialty insurance coverages; and CapSpecialty, Inc. (referred to herein as CapSpecialty), an underwriter of commercial property, casualty and surety insurance coverages.
Alleghanys subsidiary Alleghany Capital Corporation (referred to herein as Alleghany Capital) engages in and oversees strategic investments and acquisitions. Alleghany Capitals investments are categorized as either industrial businesses or non-industrial businesses. The industrial businesses include: (i) Precision Cutting Technologies, Inc., a holding company with three operating businesses: (a) Bourn & Koch, Inc., a provider of precision automated machine tool solutions; (b) Diamond Technology Innovations, Inc., a manufacturer of waterjet orifices and nozzles and a provider of related services; and (c) Coastal Industrial Distributors, LLC, a provider of high-performance solid carbide end mills; (ii) R.C. Tway Company, LLC (dba Kentucky Trailer), a manufacturer of custom trailers and truck bodies for the moving and storage industry and other markets; (iii) WWSC Holdings, LLC, a structural steel fabricator and erector (referred to herein as W&W|AFCO Steel); and (iv) Wilbert Funeral Services, Inc., a provider of products and services for the funeral and cemetery industries and precast concrete markets. The non-industrial businesses include: (i) IPS-Integrated Project Services, LLC, a technical service provider focused on the global pharmaceutical and biotechnology industries (referred to herein as IPS); (ii) Jazwares, LLC, a global toy, entertainment and musical instrument company (referred to herein as Jazwares); and (iii) CHECO Holdings, LLC, a hotel management and development company (referred to herein as Concord). For additional information about Alleghany Capital Corporation, please visit www.alleghanycc.com.
Non-GAAP Financial Measures
Throughout this press release, Alleghanys results of operations have been presented in the way that Alleghany believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use financial information in evaluating the performance of Alleghany. This presentation includes the use of underwriting profit, operating earnings, operating earnings per diluted share and operating earnings before income taxes, which are non-GAAP financial measures. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Also, note that these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. A discussion of Alleghanys calculation and use of these financial measures is provided below.
Underwriting profit represents net premiums earned less net loss and loss adjustment expenses and commissions, brokerage and other underwriting expenses, all as determined in accordance with U.S. GAAP and does not include net investment income, change in the
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fair value of equity securities, net realized capital gains, other than temporary impairment losses, non-insurance revenue, other operating expenses, corporate administration, amortization of intangible assets and interest expense. Alleghany consistently uses underwriting profit as a supplement to earnings before income taxes, the most comparable U.S. GAAP financial measure, to evaluate the performance of its reinsurance and insurance segments and believes that underwriting profit provides useful additional information to investors because it highlights net earnings attributable to a segments underwriting performance. Earnings before income taxes may show a profit despite an underlying underwriting loss; and when underwriting losses persist over extended periods, a reinsurance or an insurance companys ability to continue as an ongoing concern may be at risk.
A reconciliation of underwriting profit to earnings before income taxes is presented below.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Earnings before income taxes |
$ | 129.3 | $ | 349.9 | $ | 1,061.9 | $ | 930.3 | ||||||||
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Adjustments to earnings before income taxes: |
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Net investment income |
147.8 | 127.3 | 413.6 | 377.7 | ||||||||||||
Change in the fair value of equity securities |
(16.7) | 370.2 | 519.3 | 512.8 | ||||||||||||
Net realized capital gains |
3.9 | 16.2 | 20.8 | 67.2 | ||||||||||||
Other than temporary impairment losses |
(3.6) | - | (13.6) | (0.5) | ||||||||||||
Noninsurance revenue |
638.5 | 438.3 | 1,756.5 | 1,032.7 | ||||||||||||
Other operating expenses |
(617.3) | (415.3) | (1,701.2) | (1,023.5) | ||||||||||||
Corporate administration |
(22.3) | (19.1) | (67.6) | (41.0) | ||||||||||||
Amortization of intangible assets |
(8.1) | (5.5) | (23.8) | (16.8) | ||||||||||||
Interest expense |
(25.7) | (22.2) | (74.4) | (66.0) | ||||||||||||
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96.5 | 489.9 | 829.6 | 842.6 | |||||||||||||
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Underwriting profit (loss) |
$ | 32.8 | $ | (140.0) | $ | 232.3 | $ | 87.7 | ||||||||
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Operating earnings and operating earnings per diluted share represent net earnings attributable to Alleghany stockholders and earnings per diluted share, respectively, excluding (on an after-tax basis) change in the fair value of equity securities, net realized capital gains, other than temporary impairment losses and amortization of intangible assets, all as determined in accordance with U.S. GAAP. Alleghany uses operating earnings and operating earnings per diluted share as supplements to net earnings attributable to Alleghany stockholders and earnings per diluted share, respectively, the most comparable U.S. GAAP financial measures, to provide useful additional information to investors by highlighting earnings and earnings per diluted share attributable to its performance exclusive of changes in the fair value of equity securities, realized capital gains or losses, impairments and amortization of intangible assets.
Reconciliations of operating earnings and operating earnings per diluted share to net earnings attributable to Alleghany stockholders and earnings per diluted share, respectively, are presented below.
7
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
($ in millions, except share and per share amounts) | ||||||||||||||||
Net earnings attributable to Alleghany stockholders(1) |
$ | 90.4 | $ | 284.9 | $ | 826.1 | $ | 751.6 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjustments to net earnings attributable to Alleghany stockholders: |
|
|||||||||||||||
Change in the fair value of equity securities |
(16.7) | 370.2 | 519.3 | 512.8 | ||||||||||||
Net realized capital gains |
3.9 | 16.2 | 20.8 | 67.2 | ||||||||||||
Other than temporary impairment losses |
(3.6) | - | (13.6) | (0.5) | ||||||||||||
Amortization of intangible assets |
(8.1) | (5.5) | (23.8) | (16.8) | ||||||||||||
Income tax effect of adjustments |
5.1 | (80.0) | (105.5) | (118.1) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(19.4) | 300.9 | 397.2 | 444.6 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating earnings (losses) |
$ | 109.8 | $ | (16.0) | $ | 428.9 | $ | 307.0 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average diluted common shares outstanding |
14,422,581 | 14,937,135 | 14,458,750 | 15,173,680 | ||||||||||||
Earnings per diluted share |
$ | 6.27 | $ | 19.07 | $ | 57.14 | $ | 49.53 | ||||||||
Operating earnings (losses) per diluted share |
$ | 7.61 | $ | (1.07) | $ | 29.65 | $ | 20.03 |
___________________ |
(1) | The numerators for calculating earnings per diluted share and operating earnings per share may be further reduced for the effect of dilutive securities. Please refer to the Form 10-Q for additional information. |
Operating earnings before income taxes is a non-GAAP financial measure for our non-insurance operating subsidiaries and investments in the Alleghany Capital segment. Operating earnings before income taxes represents noninsurance revenue and net investment income less other operating expenses and interest expense, and does not include: (i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) other than temporary impairment (OTTI) losses; and (v) income taxes. Because operating earnings before income taxes excludes amortization of intangible assets, change in the fair value of equity securities, net realized capital gains, OTTI losses and income taxes, it provides an indication of economic performance that is not affected by levels of effective tax rates or levels of amortization resulting from acquisition accounting. Alleghany uses operating earnings before income taxes as a supplement to earnings before income taxes, the most comparable GAAP financial measure, to evaluate the performance of certain of its non-insurance operating subsidiaries and investments. A reconciliation of operating earnings before income taxes to earnings before income taxes is presented above in Segment Results-Alleghany Capital.
# # #
8
Forward-looking Statements
This release contains disclosures, which may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as may, will, expect, project, estimate, anticipate, plan, believe, potential, should or the negative versions of those words or other comparable words. Forward-looking statements do not relate solely to historical or current facts; rather, they are based on managements expectations as well as certain assumptions and estimates made by, and information available to, management at the time. These statements are not guarantees of future performance. These forward-looking statements are based upon Alleghanys current expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and Alleghanys future financial condition and results. Factors that could cause these forward-looking statements to differ, possibly materially, from that currently contemplated include:
| significant weather-related or other natural or man-made catastrophes and disasters; |
| the cyclical nature of the property and casualty reinsurance and insurance industries; |
| changes in market prices of Alleghanys significant equity investments and changes in value of Alleghanys debt securities portfolio; |
| adverse loss development for events insured by Alleghanys reinsurance and insurance subsidiaries in either the current year or prior years; |
| the long-tail and potentially volatile nature of certain casualty lines of business written by Alleghanys reinsurance and insurance subsidiaries; |
| the cost and availability of reinsurance; |
| the reliance by Alleghanys reinsurance and insurance operating subsidiaries on a limited number of brokers; |
| legal, political, judicial and regulatory changes; |
| increases in the levels of risk retention by Alleghanys reinsurance and insurance subsidiaries; |
| changes in the ratings assigned to Alleghanys reinsurance and insurance subsidiaries; |
| claims development and the process of estimating reserves; |
| exposure to terrorist acts and acts of war; |
| the willingness and ability of Alleghanys reinsurance and insurance subsidiaries reinsurers to pay reinsurance recoverables owed to Alleghanys reinsurance and insurance subsidiaries; |
| the uncertain nature of damage theories and loss amounts; |
| the loss of key personnel of Alleghanys reinsurance or insurance operating subsidiaries; |
| fluctuation in foreign currency exchange rates; |
| the failure to comply with the restrictive covenants contained in the agreements governing Alleghanys indebtedness; |
| the ability to make payments on, or repay or refinance, Alleghanys debt; |
| risks inherent in international operations; and |
| difficult and volatile conditions in the global market. |
9
Additional risks and uncertainties include general economic and political conditions, including the effects of a prolonged U.S. or global economic downturn or recession; changes in costs; variations in political, economic or other factors; risks relating to conducting operations in a competitive environment; effects of acquisition and disposition activities, inflation rates, or recessionary or expansive trends; changes in interest rates; extended labor disruptions, civil unrest, or other external factors over which we have no control; changes in Alleghanys plans, strategies, objectives, expectations, or intentions, which may happen at any time at its discretion; and other factors discussed in Alleghanys 2018 Form 10-K. All forward-looking statements speak only as of the date they are made and are based on information available at that time. Alleghany does not undertake any obligation to update or revise any forward-looking statements to reflect subsequent circumstances or events.
For more information, please contact:
Dale James
Alleghany Corporation
212-508-8116
10
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2019 |
December 31, 2018 | |||||||
(unaudited) | ||||||||
($ in thousands, except share amounts) | ||||||||
Assets |
||||||||
Investments: |
||||||||
Securities at fair value: |
||||||||
Equity securities (cost: 2019 $1,399,141; 2018 $2,904,496) |
$ | 2,092,267 | $ | 3,572,790 | ||||
Debt securities (amortized cost: 2019 $14,012,407; 2018 $11,895,850) |
14,488,289 | 11,823,968 | ||||||
Short-term investments |
968,547 | 893,776 | ||||||
|
|
|
|
|
| |||
17,549,103 | 16,290,534 | |||||||
Commercial mortgage loans |
706,030 | 676,532 | ||||||
Other invested assets |
610,234 | 555,972 | ||||||
|
|
|
|
|
| |||
Total investments |
18,865,367 | 17,523,038 | ||||||
Cash |
897,477 | 1,038,763 | ||||||
Accrued investment income |
100,085 | 91,913 | ||||||
Premium balances receivable |
928,740 | 842,642 | ||||||
Reinsurance recoverables |
1,618,679 | 1,921,278 | ||||||
Ceded unearned premiums |
258,617 | 221,232 | ||||||
Deferred acquisition costs |
505,826 | 464,546 | ||||||
Property and equipment at cost, net of accumulated depreciation and amortization |
206,346 | 195,243 | ||||||
Goodwill |
484,556 | 455,142 | ||||||
Intangible assets, net of amortization |
588,178 | 553,136 | ||||||
Current taxes receivable |
30,243 | 116,637 | ||||||
Net deferred tax assets |
- | 164,890 | ||||||
Funds held under reinsurance agreements |
740,291 | 744,057 | ||||||
Other assets |
1,266,426 | 1,012,379 | ||||||
|
|
|
|
|
| |||
Total assets |
$ | 26,490,831 | $ | 25,344,896 | ||||
|
|
|
|
|
| |||
Liabilities, Redeemable Noncontrolling Interests and Stockholders Equity |
||||||||
Loss and loss adjustment expenses |
$ | 11,634,021 | $ | 12,250,294 | ||||
Unearned premiums |
2,495,698 | 2,267,078 | ||||||
Senior Notes and other debt |
1,695,303 | 1,669,039 | ||||||
Reinsurance payable |
184,543 | 168,667 | ||||||
Net deferred tax liabilities |
3,533 | - | ||||||
Other liabilities |
1,468,222 | 1,127,346 | ||||||
|
|
|
|
|
| |||
Total liabilities |
17,481,320 | 17,482,424 | ||||||
|
|
|
|
|
| |||
Redeemable noncontrolling interests |
180,853 | 169,762 | ||||||
Common stock (shares authorized: 2019 and 2018 22,000,000; shares issued: 2019 and 2018 17,459,961) |
17,460 | 17,460 | ||||||
Contributed capital |
3,608,353 | 3,612,830 | ||||||
Accumulated other comprehensive income (loss) |
223,266 | (202,003 | ) | |||||
Treasury stock, at cost (2019 3,054,453 shares; 2018 2,883,452 shares) |
(1,423,901 | ) | (1,312,939 | ) | ||||
Retained earnings |
6,403,480 | 5,577,362 | ||||||
|
|
|
|
|
| |||
Total stockholders equity attributable to Alleghany stockholders |
8,828,658 | 7,692,710 | ||||||
|
|
|
|
|
| |||
Total liabilities, redeemable noncontrolling interests and stockholders equity |
$ | 26,490,831 | $ | 25,344,896 | ||||
|
|
|
|
|
|
11
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
Three Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
($ in thousands, except per share amounts) | ||||||||
Revenues |
||||||||
Net premiums earned |
$ | 1,389,981 | $ | 1,225,346 | ||||
Net investment income |
147,829 | 127,329 | ||||||
Change in the fair value of equity securities |
(16,691 | ) | 370,175 | |||||
Net realized capital gains |
3,957 | 16,230 | ||||||
Other than temporary impairment losses |
(3,597 | ) | (3 | ) | ||||
Noninsurance revenue |
638,478 | 438,338 | ||||||
|
|
|
|
|
| |||
Total revenues |
2,159,957 | 2,177,415 | ||||||
|
|
|
|
|
| |||
Costs and Expenses |
||||||||
Net loss and loss adjustment expenses |
907,736 | 957,703 | ||||||
Commissions, brokerage and other underwriting expenses |
449,519 | 407,679 | ||||||
Other operating expenses |
617,326 | 415,378 | ||||||
Corporate administration |
22,276 | 19,094 | ||||||
Amortization of intangible assets |
8,095 | 5,500 | ||||||
Interest expense |
25,703 | 22,189 | ||||||
|
|
|
|
|
| |||
Total costs and expenses |
2,030,655 | 1,827,543 | ||||||
|
|
|
|
|
| |||
Earnings before income taxes |
129,302 | 349,872 | ||||||
Income taxes |
28,010 | 60,413 | ||||||
|
|
|
|
|
| |||
Net earnings |
101,292 | 289,459 | ||||||
Net earnings attributable to noncontrolling interest |
10,860 | 4,559 | ||||||
|
|
|
|
|
| |||
Net earnings attributable to Alleghany stockholders |
$ | 90,432 | $ | 284,900 | ||||
|
|
|
|
|
| |||
Net earnings |
$ | 101,292 | $ | 289,459 | ||||
Other comprehensive income (loss): |
||||||||
Change in unrealized gains (losses), net of deferred taxes of $22,918 and ($8,932) in 2019 and 2018, respectively |
86,215 | (33,601 | ) | |||||
Less: reclassification for net realized capital gains and other than temporary impairments, net of taxes of ($1,301) and ($3,408) for 2019 and 2018, respectively |
(4,892 | ) | (12,819 | ) | ||||
Change in unrealized currency translation adjustment, net of deferred taxes of ($2,749) and ($407) for 2019 and 2018, respectively |
(10,343 | ) | (1,530 | ) | ||||
Retirement plans |
322 | (551 | ) | |||||
|
|
|
|
|
| |||
Comprehensive income |
172,594 | 240,958 | ||||||
Comprehensive income attributable to noncontrolling interests |
10,860 | 4,559 | ||||||
|
|
|
|
|
| |||
Comprehensive income attributable to Alleghany stockholders |
$ | 161,734 | $ | 236,399 | ||||
|
|
|
|
|
| |||
Basic earnings per share attributable to Alleghany stockholders |
$ | 6.27 | $ | 19.07 | ||||
Diluted earnings per share attributable to Alleghany stockholders |
6.27 | 19.07 |
12
ALLEGHANY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
($ in thousands, except per share amounts) | ||||||||
Revenues |
||||||||
Net premiums earned |
$ | 4,043,298 | $ | 3,670,161 | ||||
Net investment income |
413,623 | 377,728 | ||||||
Change in the fair value of equity securities |
519,322 | 512,771 | ||||||
Net realized capital gains |
20,753 | 67,197 | ||||||
Other than temporary impairment losses |
(13,617 | ) | (514 | ) | ||||
Noninsurance revenue |
1,756,507 | 1,032,690 | ||||||
|
|
|
|
|
| |||
Total revenues |
6,739,886 | 5,660,033 | ||||||
|
|
|
|
|
| |||
Costs and Expenses |
||||||||
Net loss and loss adjustment expenses |
2,497,037 | 2,366,491 | ||||||
Commissions, brokerage and other underwriting expenses |
1,313,961 | 1,216,057 | ||||||
Other operating expenses |
1,701,218 | 1,023,440 | ||||||
Corporate administration |
67,612 | 40,998 | ||||||
Amortization of intangible assets |
23,790 | 16,730 | ||||||
Interest expense |
74,363 | 65,997 | ||||||
|
|
|
|
|
| |||
Total costs and expenses |
5,677,981 | 4,729,713 | ||||||
|
|
|
|
|
| |||
Earnings before income taxes |
1,061,905 | 930,320 | ||||||
Income taxes |
207,878 | 171,275 | ||||||
|
|
|
|
|
| |||
Net earnings |
854,027 | 759,045 | ||||||
Net earnings attributable to noncontrolling interest |
27,909 | 7,454 | ||||||
|
|
|
|
|
| |||
Net earnings attributable to Alleghany stockholders |
$ | 826,118 | $ | 751,591 | ||||
|
|
|
|
|
| |||
Net earnings |
$ | 854,027 | $ | 759,045 | ||||
Other comprehensive income (loss): |
||||||||
Change in unrealized gains (losses), net of deferred taxes of $117,548 and ($56,690) in 2019 and 2018, respectively |
442,205 | (213,263 | ) | |||||
Less: reclassification for net realized capital gains and other than temporary impairments, net of taxes of ($2,723) and ($4,398) for 2019 and 2018, respectively |
(10,246 | ) | (16,546 | ) | ||||
Change in unrealized currency translation adjustment, net of deferred taxes of ($2,141) and ($1,848) for 2019 and 2018, respectively |
(8,054 | ) | (6,953 | ) | ||||
Retirement plans |
1,363 | (1,664 | ) | |||||
|
|
|
|
|
| |||
Comprehensive income |
1,279,295 | 520,619 | ||||||
Comprehensive income attributable to noncontrolling interests |
27,909 | 7,454 | ||||||
|
|
|
|
|
| |||
Comprehensive income attributable to Alleghany stockholders |
$ | 1,251,386 | $ | 513,165 | ||||
|
|
|
|
|
| |||
Basic earnings per share attributable to Alleghany stockholders |
$ | 57.18 | $ | 49.55 | ||||
Diluted earnings per share attributable to Alleghany stockholders |
57.14 | 49.53 |
13
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Cover [Abstract]
Entity Registrant Name
ALLEGHANY CORP /DE
Amendment Flag
false
Entity Central Index Key
0000775368
Document Type
8-K
Document Period End Date
Nov. 05, 2019
Entity Incorporation State Country Code
DE
Entity File Number
1-9371
Entity Tax Identification Number
51-0283071
Entity Address, Address Line One
1411 Broadway
Entity Address, Address Line Two
34th Floor
Entity Address, City or Town
New York
Entity Address, State or Province
NY
Entity Address, Postal Zip Code
10018
City Area Code
(212)
Local Phone Number
752-1356
Written Communications
false
Soliciting Material
false
Pre Commencement Tender Offer
false
Pre Commencement Issuer Tender Offer
false
Security 12b Title
Common Stock, $1.00 par value
Trading Symbol
Y
Security Exchange Name
NYSE
Entity Emerging Growth Company
false