Reinsurance Ceded

3 Months Ended

Mar. 31, 2021

Insurance [Abstract]

Reinsurance Ceded

4. Reinsurance Ceded

(a) Overview

Alleghany’s 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. Alleghany’s reinsurance and insurance subsidiaries generally purchase reinsurance and retrocessional coverages from highly- rated third-party reinsurers or on a collateralized basis. If the assuming reinsurers are unable or unwilling to meet the obligations assumed under the applicable reinsurance agreements, Alleghany’s 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 Alleghany’s reinsurance recoverables and Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs. A summary of the more significant programs follows.

TransRe enters into various retrocession arrangements, including property catastrophe retrocession contracts, to manage the effects of individual or aggregate exposure to losses, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns, strengthen its market position and enhance capital efficiency. These include excess-of-loss and quota share treaties in both traditional rated and collateralized form as well as catastrophe bonds. TransRe’s retrocession protections generally have a one-year term and renewal dates occur throughout the year, with the majority renewing at January 1. The catastrophe bonds, however, have a four-year term, with maturities in 2022 and 2023.

RSUI reinsures its property lines of business through a program consisting of surplus share treaties, facultative placements, and per risk and catastrophe excess of loss treaties. RSUI’s catastrophe reinsurance program and property per risk reinsurance program each run on an annual basis from May 1 to the following April 30 and portions expired on April 30, 2021. Both programs were renewed on May 1, 2021 with substantially similar terms as the expired programs.

(b) Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the loss and loss adjustment expense (“LAE”) liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverables, and are recorded after an allowance for credit losses. Such balances as of March 31, 2021 and December 31, 2020 are presented in the table below:

	As of March 31,			As of December 31,
	2021			2020
	($ in millions)
Reinsurance recoverables on paid losses	$	96.5		$	85.3
Ceded outstanding loss and LAE		1,738.7			1,703.7
Reinsurance recoverables, before allowance for credit losses		1,835.2			1,789.0
Allowance for credit losses		(6.0	)		(7.9	)
Total	$	1,829.2		$	1,781.1

The following table presents information regarding concentration of Alleghany’s reinsurance recoverables and the ratings profile of our reinsurers as of March 31, 2021:

Reinsurer(1)	Rating(2)	Amount			Percentage
	($ in millions)
Syndicates at Lloyd's of London	A (Excellent)	$	152.4			8.3	%
Kane SAC Ltd, Rondout Segregated Account(3)	not rated		129.2			7.1	%
PartnerRe Ltd	A (Excellent)		119.9			6.5	%
RenaissanceRe Holdings Ltd	A+ (Superior)		119.9			6.5	%
Fairfax Financial Holdings Ltd	A (Excellent)		108.7			5.9	%
Swiss Reinsurance Company	A+ (Superior)		97.0			5.3	%
Third Point Reinsurance Group(3)	A- (Excellent)		79.3			4.3	%
W.R. Berkley Corporation	A+ (Superior)		73.5			4.0	%
Chubb	A++ (Superior)		71.3			3.9	%
Kane SAC Ltd, Bowery Segregated Account(3)	not rated		61.6			3.4	%
All other reinsurers			822.4			44.8	%
Total reinsurance recoverables, before allowance for credit losses(4)		$	1,835.2			100.0	%
Allowance for credit losses			(6.0	)
Total		$	1,829.2
Secured reinsurance recoverables(3)		$	697.8			38.0	%

(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 71 percent of our reinsurance recoverables balance as of March 31, 2021 was due from reinsurers having an A.M. Best Company, Inc. financial strength rating of A (Excellent) or higher, with a majority of the other reinsurance recoverables being secured by funds held, trust agreements or letters of credit.

The following table presents a rollforward of Alleghany’s allowance for credit losses on reinsurance recoverables for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended March 31,
	2021			2020
	($ in millions)
Allowance for Credit Losses
Beginning balance	$	7.9		$	—
Beginning balance - cumulative effect of an accounting change		—			3.3
Provision for credit losses		(1.9	)		3.5
Charge-offs		—			—
Recoveries		—			—
Ending balance	$	6.0		$	6.8