Segments of Business (Tables)

9 Months Ended

Sep. 30, 2019

Results for Reportable Segments and Corporate Activities

The following tables present segment results for Alleghany’s three reportable segments and for corporate activities for the three and nine months ended September 30, 2019 and 2018:

		Reinsurance Segment							Insurance Segment
Three Months Ended September 30, 2019		Property			Casualty & other ⁽¹⁾		Total		RSUI		Cap Specialty			Total		Subtotal			Alleghany Capital ⁽²⁾			Total Segments			Corporate Activities ⁽³⁾			Consolidated
	($ in millions)
Gross premiums written		$	455.9		$	787.4	$	1,243.3	$	319.7	$	95.6		$	415.3	$	1,658.6		$	-		$	1,658.6		$	(7.5	)	$	1,651.1
Net premiums written			339.0			772.7		1,111.7		213.4		88.8			302.2		1,413.9			-			1,413.9			-			1,413.9
Net premiums earned			327.0			770.6		1,097.6		208.9		83.5			292.4		1,390.0			-			1,390.0			-			1,390.0
Net loss and LAE			225.1			505.6		730.7		125.9		51.1			177.0		907.7			-			907.7			-			907.7
Commissions, brokerage and other underwriting expenses			108.3			252.6		360.9		55.7		32.9			88.6		449.5			-			449.5			-			449.5
Underwriting (loss) profit⁽⁴⁾		$	(6.4	)	$	12.4	$	6.0	$	27.3	$	(0.5	)	$	26.8		32.8			-			32.8			-			32.8
Net investment income																	145.1			1.2			146.3			1.5			147.8
Change in the fair value of equity securities																	(16.7	)		-			(16.7	)		-			(16.7	)
Net realized capital gains																	4.1			(0.2	)		3.9			-			3.9
Other than temporary impairment losses																	(3.6	)		-			(3.6	)		-			(3.6	)
Noninsurance revenue																	7.5			628.0			635.5			3.0			638.5
Other operating expenses																	32.5			578.2			610.7			6.6			617.3
Corporate administration																	1.5			-			1.5			20.8			22.3
Amortization of intangible assets																	0.4			7.7			8.1			-			8.1
Interest expense																	6.8			5.2			12.0			13.7			25.7
Earnings (losses) before income taxes																$	128.0		$	37.9		$	165.9		$	(36.6	)	$	129.3

		Reinsurance Segment								Insurance Segment
Three Months Ended September 30, 2018		Property			Casualty & other ⁽¹⁾		Total			RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital ⁽²⁾		Total Segments			Corporate Activities ⁽³⁾			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⁽⁴⁾		$	(174.4	)	$	2.0	$	(172.4	)	$	30.8	$	1.6	$	32.4		(140.0	)		-		(140.0	)		-			(140.0	)
Net investment income																	122.5			0.8		123.3			4.0			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		$	17.4	$	364.9		$	(15.0	)	$	349.9

	Reinsurance Segment						Insurance Segment
Nine Months Ended September 30, 2019	Property		Casualty & other ⁽¹⁾		Total		RSUI		Cap Specialty			Total		Subtotal			Alleghany Capital ⁽²⁾		Total Segments			Corporate Activities ⁽³⁾			Consolidated
	($ in millions)
Gross premiums written	$	1,252.6	$	2,433.0	$	3,685.6	$	991.1	$	272.3		$	1,263.4	$	4,949.0		$	-	$	4,949.0		$	(20.5	)	$	4,928.5
Net premiums written		961.1		2,371.0		3,332.1		661.7		252.2			913.9		4,246.0			-		4,246.0			-			4,246.0
Net premiums earned		939.1		2,262.6		3,201.7		603.7		237.9			841.6		4,043.3			-		4,043.3			-			4,043.3
Net loss and LAE		523.8		1,505.1		2,028.9		325.8		142.3			468.1		2,497.0			-		2,497.0			-			2,497.0
Commissions, brokerage and other underwriting expenses		315.8		735.0		1,050.8		167.2		96.0			263.2		1,314.0			-		1,314.0			-			1,314.0
Underwriting profit (loss)⁽⁴⁾	$	99.5	$	22.5	$	122.0	$	110.7	$	(0.4	)	$	110.3		232.3			-		232.3			-			232.3
Net investment income															401.5			3.4		404.9			8.7			413.6
Change in the fair value of equity securities															515.7			-		515.7			3.6			519.3
Net realized capital gains															20.4			0.3		20.7			0.1			20.8
Other than temporary impairment losses															(13.6	)		-		(13.6	)		-			(13.6	)
Noninsurance revenue															19.5			1,726.8		1,746.3			10.2			1,756.5
Other operating expenses															88.3			1,592.0		1,680.3			20.9			1,701.2
Corporate administration															4.4			-		4.4			63.2			67.6
Amortization of intangible assets															1.0			22.8		23.8			-			23.8
Interest expense															20.3			14.2		34.5			39.9			74.4
Earnings (losses) before income taxes														$	1,061.8		$	101.5	$	1,163.3		$	(101.4	)	$	1,061.9

	Reinsurance Segment								Insurance Segment
Nine Months Ended September 30, 2018	Property			Casualty & other ⁽¹⁾		Total			RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital ⁽²⁾		Total Segments			Corporate Activities ⁽³⁾			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⁽⁴⁾	$	(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

(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)	Excludes certain minor, legacy investments that were previously reflected in Alleghany Capital in 2018 and prior periods, to align with management’s view of reportable segments.

(3)	Includes elimination of minor reinsurance activity between segments. Also, includes certain minor, legacy investments that were previously reflected in Alleghany Capital in 2018 and prior periods.

(4)

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’ 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.

Summary of 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 September 30, 2019:

	Identifiable Assets		Invested Assets and Cash		Equity Attributable to Alleghany
	($ in millions)
Reinsurance segment	$	16,914.1	$	13,540.7	$	5,347.8
Insurance segment		7,166.5		5,615.8		3,141.8
Subtotal		24,080.6		19,156.5		8,489.6
Alleghany Capital		1,914.5		148.4		901.5
Total segments		25,995.1		19,304.9		9,391.1
Corporate activities		495.7		457.8		(562.4	)
Consolidated	$	26,490.8	$	19,762.7	$	8,828.7

Summary of Alleghany Capital Noninsurance Revenue

For Alleghany Capital’s 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, 2019 and 2018:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
	($ in millions)
Industrial⁽¹⁾	$	286.8	$	224.2		$	865.2	$	591.6
Non-Industrial⁽²⁾		341.2		183.7			861.2		387.9
Corporate & other		-		(0.4	)		0.4		(0.3	)
Alleghany Capital	$	628.0	$	407.5		$	1,726.8	$	979.2

(1)

For the three and nine months ended September 30, 2019 and 2018, the vast majority of noninsurance revenue was recognized as goods and services transferred to customers over time. See Note 1(c) of this Form 10-Q for additional information on Alleghany’s adoption of new revenue recognition accounting guidance effective in the first quarter of 2018.

(2)

For the three and nine months ended September 30, 2019, approximately 71 percent 71 percent, respectively, of noninsurance revenue was 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, 2018, approximately 60 percent and 65 percent, respectively, of noninsurance revenue was recognized as services 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 on Alleghany’s adoption of new revenue recognition accounting guidance effective in the first quarter of 2018.