ALLEGHANY CORP /DE – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following is a discussion and analysis of our financial condition and
results of operations for the three and nine months ended
2020. This discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and Notes to Unaudited Consolidated
Financial Statements set forth in Part I, Item 1, "Financial Statements" of this
Quarterly Report on Form 10-Q for the quarter ended
"Form 10-Q," and our audited consolidated financial statements and Notes to
Consolidated Financial Statements set forth in Part II, Item 8, "Financial
Statements and Supplementary Data" of the Annual Report on Form 10-K for the
year ended
forward-looking statements that involve risks and uncertainties and that are not
historical facts, including statements about our beliefs and expectations. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those
discussed below and particularly under the headings "Risk Factors," "Business"
and "Note on Forward-Looking Statements" contained in Item 1A, Item 1, and Part
I of the 2020 Form 10-K, respectively.
References in this Form 10-Q to the "Company," "Alleghany," "we," "us," and
"our" refer to
the context otherwise requires. In addition, unless the context otherwise
requires, references to
? "TransRe" are to our wholly-owned reinsurance holding company subsidiaryTransatlantic Holdings, Inc. and its subsidiaries; ? "AIHL" are to our wholly-owned insurance holding company subsidiaryAlleghany Insurance Holdings LLC ; ? "RSUI" are to our wholly-owned subsidiaryRSUI Group, Inc. and its subsidiaries; ? "CapSpecialty" are to our wholly-owned subsidiaryCapSpecialty, Inc. and its subsidiaries; ? "AIHL Re" are to our wholly-owned subsidiaryAIHL Re LLC ; ? "Roundwood" are to our wholly-owned subsidiaryRoundwood Asset Management LLC ; ? "Alleghany Capital " are to our wholly-owned subsidiaryAlleghany Capital Corporation and its subsidiaries; ? "PCT" are to our wholly-owned subsidiaryPrecision Cutting Technologies, Inc. and its subsidiaries; ? "Kentucky Trailer" are to our majority-owned subsidiaryR.C. Tway Company, LLC and its subsidiaries; ? "IPS" are to our majority-owned subsidiaryIPS-Integrated Project Services, LLC and its subsidiaries; ? "Jazwares" are to our majority-owned subsidiaryJazwares, LLC and its subsidiaries and affiliates; ? "W&W|AFCO Steel" are to our majority-owned subsidiaryWWSC Holdings, LLC and its subsidiaries; ? "Concord" are to our majority-owned subsidiaryCHECO Holdings, LLC and its subsidiaries; ? "Wilbert" are to our majority-owned subsidiaryWilbert Funeral Services, Inc. and its subsidiaries; ? "Piedmont" are to our wholly-owned subsidiaryPiedmont Manufacturing Group, LLC and its subsidiaries; ? "Alleghany Properties " are to our wholly-owned subsidiaryAlleghany Properties Holdings LLC and its subsidiaries; and ? "SORC" are to our former wholly-owned subsidiaryStranded Oil Resources Corporation and its subsidiaries, which was sold onDecember 31, 2020 . 29 --------------------------------------------------------------------------------
Note on Forward-Looking Statements
Certain statements contained in this Form 10-Q may be deemed to be
"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
management's 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 Alleghany's current expectations and are subject to a number of
uncertainties and risks that could significantly affect current plans,
anticipated actions and Alleghany's 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 effects of outbreaks of pandemics or contagious diseases, including the length and severity of the current worldwide coronavirus pandemic, known as COVID-19, including its impact on our business; ? the cyclical nature of the property and casualty reinsurance and insurance industries; ? changes in market prices of our significant equity investments and changes in value of our debt securities portfolio; ? adverse loss development for events insured by our 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 our reinsurance and insurance subsidiaries; ? the cost and availability of reinsurance; ? the reliance by our 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 our reinsurance and insurance subsidiaries; ? changes in the ratings assigned to our 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 our reinsurance and insurance subsidiaries' reinsurers to pay reinsurance recoverables owed to our reinsurance and insurance subsidiaries; ? the uncertain nature of damage theories and loss amounts; ? the loss of key personnel of our reinsurance or insurance operating subsidiaries; ? fluctuation in foreign currency exchange rates; ? the failure to comply with the restrictive covenants contained in the agreements governing our indebtedness; ? the ability to make payments on, or repay or refinance, our debt; ? risks inherent in international operations; and ? difficult and volatile conditions in the global market.
Additional risks and uncertainties include general economic and political
conditions, including the effects of a prolonged
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 our plans, strategies, objectives, expectations, or
intentions, which may happen at any time at our discretion; and other factors
discussed in the 2020 Form 10-K and subsequent filings with the
Exchange Commission
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. See
Part I, Item 1A, "Risk Factors" of the 2020 Form 10-K for additional
information.
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Comment on Non-GAAP Financial Measures
Throughout this Form 10-Q, our analysis of our financial condition and results
of operations is based on our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
we believe will be the most meaningful and useful to investors, analysts, rating
agencies and others who use financial information in evaluating our performance.
This presentation includes the use of underwriting profit and adjusted earnings
before income taxes, which are "non-GAAP financial measures," as such term is
defined in Item 10(e) of Regulation S-K promulgated by the
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 GAAP. These measures may also be different from non-GAAP
financial measures used by other companies, limiting their usefulness for
comparison purposes. A discussion of our calculation and use of these financial
measures is provided below.
Underwriting profit is a non-GAAP financial measure for our reinsurance and
insurance segments. Underwriting profit represents net premiums earned less net
loss and loss adjustment expenses, or "LAE," and commissions, brokerage and
other underwriting expenses, all as determined in accordance with GAAP and does
not include: (i) net investment income; (ii) change in the fair value of equity
securities; (iii) net realized capital gains; (iv) change in allowance for
credit losses on available for sale securities; (v) product and service
revenues; (vi) other operating expenses; (vii) corporate administration; (viii)
amortization of intangible assets; and (ix) interest expense. We use
underwriting profit as a supplement to earnings before income taxes, the most
comparable GAAP financial measure, to evaluate the performance of our
reinsurance and insurance segments and believe that underwriting profit provides
useful additional information to investors because it highlights net earnings
attributable to our reinsurance and insurance 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 company's ability to continue as an
ongoing concern may be at risk. A reconciliation of underwriting profit to
earnings before income taxes is presented within "Consolidated Results of
Operations."
Adjusted earnings before income taxes is a non-GAAP financial measure for our
product and service revenues 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) change in allowance for credit losses on available
for sale securities; and (v) income taxes. Because adjusted earnings before
income taxes excludes amortization of intangible assets, change in the fair
value of equity securities, net realized capital gains, change in allowance for
credit losses on available for sale securities 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. We
use adjusted 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 our noninsurance operating subsidiaries and
investments. A reconciliation of adjusted earnings before income taxes to
earnings before income taxes is presented within "Consolidated Results of
Operations."
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Overview
The following overview does not address all of the matters covered in the other
sections of Management's Discussion and Analysis of Financial Condition and
Results of Operations or contain all of the information that may be important to
our stockholders or the investing public. This overview should be read in
conjunction with the other sections of Management's Discussion and Analysis of
Financial Condition and Results of Operations.
? Net losses attributable to Alleghany stockholders were$115.0 million in the third quarter of 2021, compared with net earnings of$126.5 million in the third quarter of 2020, and net earnings attributable to Alleghany stockholders were$518.7 million in the first nine months of 2021, compared with net losses of$57.3 million in the first nine months of 2020. ? Net investment income increased by 2.9 percent and 14.9 percent in the third quarter and first nine months of 2021, respectively, from the corresponding 2020 periods. ? Net premiums written increased by 21.1 percent and 20.8 percent in the third quarter and first nine months of 2021, respectively, from the corresponding 2020 periods. ? Underwriting loss was$200.2 million in the third quarter of 2021, compared with$81.3 million in the third quarter of 2020, and underwriting loss was$10.0 million in the first nine months of 2021, compared with$145.3 million in the first nine months of 2020. ? The combined ratio for our reinsurance and insurance segments was 110.8 percent in the third quarter of 2021, compared with 105.2 percent in the third quarter of 2020, and 100.2 percent in the first nine months of 2021, compared with 103.2 percent in the first nine months of 2020. ? Catastrophe losses, net of reinsurance and including current year losses from the Pandemic, as defined below, were$433.8 million in the third quarter of 2021, compared with$269.8 million in the third quarter of 2020, and$685.9 million in the first nine months of 2021, compared with$616.0 million in the first nine months of 2020. ? Net favorable prior accident year loss reserve development, including prior accident year losses from the Pandemic, as defined below, was$62.0 million in the third quarter of 2021, compared with$62.3 million in the third quarter of 2020, and$203.5 million in the first nine months of 2021, compared with$156.0 million in the first nine months of 2020. ? Product and service revenues forAlleghany Capital was$986.4 million in the third quarter of 2021, compared with$713.8 million in the third quarter of 2020, and$2,534.7 million in the first nine months of 2021, compared with$1,654.3 million in the first nine months of 2020. ? Earnings before income taxes forAlleghany Capital were$101.4 million in the third quarter of 2021, compared with$70.0 million in the third quarter of 2020, and$187.1 million in the first nine months of 2021, compared with$80.0 million in the first nine months of 2020. Adjusted earnings before income taxes were$113.6 million in the third quarter of 2021, compared with$67.1 million in the third quarter of 2020, and$221.1 million in the first nine months of 2021, compared with$77.0 million in the first nine months of 2020.
As of
stockholders' equity attributable to Alleghany stockholders of
of
billion
mortgage loans,
invested in other invested assets.
The ongoing COVID-19 global pandemic, or the "Pandemic," has significantly
disrupted many aspects of society, as well as financial markets, and has caused
widespread global economic dislocation. Widespread vaccine rollouts in the
occurred earlier in 2021 and are continuing, however, new variants of the virus
have emerged, delaying widespread implementation of return-to-office plans. At
the parent and subsidiary levels, we have implemented a variety of business
continuation and crisis management policies and procedures to reduce the risk of
infection to our employees and others.
Among other impacts on the economy, the Pandemic has adversely impacted
financial markets, which in turn impacted our investment portfolio in the first
nine months of 2020. These impacts are more fully discussed below and throughout
our 2020 Form 10-K.
32 --------------------------------------------------------------------------------
Since early 2020 through
segments have incurred significant losses from the Pandemic (in total
million
favorable and
reserve development at TransRe in the third quarter and first nine months of
2021, respectively, compared with
Pandemic-related catastrophe losses, mostly at TransRe, in the third quarter and
first nine months of 2020, respectively. The Pandemic losses incurred at TransRe
included those from event cancellation coverage for conferences and sporting
events as well as other property coverages and, to a lesser extent, the accident
and health and trade credit lines of business. Our Pandemic loss estimates were
based on information available at the time to us, including an analysis of
reported claims, an underwriting review of in-force contracts and other factors
requiring considerable judgment. Our loss estimates for Pandemic losses do not
reflect judicial, legislative and regulatory risk that could expand coverage
beyond the terms of our treaty and policy language, although they do reflect
provisions for related legal expenses. Widespread vaccine rollouts in the
occurred earlier in 2021 and are continuing, however, new variants of the virus
have emerged. We cannot reasonably estimate the length or severity of the
Pandemic, or the extent to which the related disruption may adversely impact our
results of operations, financial position and cash flows. Such potential adverse
impacts of a prolonged Pandemic on our operations, financial position and cash
flows include further declines in our equity securities portfolio, additional
credit-related realized and unrealized losses on our debt securities and
commercial mortgage portfolios, additional credit losses on our reinsurance
recoverables and other receivables, further losses from event cancellation and
other coverages from our reinsurance and insurance subsidiaries, increased
litigation and impairment of certain
intangible assets.
In the third quarter and first nine months of 2021, our reinsurance and
insurance segments incurred
losses, respectively. This included
caused widespread property damage and flooding in August and early
2021
and flooding in portions of the Northeastern and Mid-Atlantic
flooding in
Weather-related catastrophe losses in the third quarter and first nine months of
2021 also include losses from other severe weather in
weather and flooding in the Midwestern
Catastrophe losses in the first nine months of 2021 also include
related to Winter Storm Uri and other storms, collectively referred to herein as
the "
flooding and extended power outages in
loss estimates for these catastrophes were based on information available at the
time, including an analysis of reported claims, an underwriting review of
in-force contracts, estimates of losses to the extent covered by applicable
policies, and other factors requiring considerable judgment.
In the third quarter of 2020, our reinsurance and insurance segments incurred
from Hurricane Laura, which caused widespread property damage and flooding in
Sally, which caused widespread property damage and flooding in
primarily in
third quarter of 2020 also include losses from typhoons and flooding in
a derecho in
primarily in
33
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ENACT HOLDINGS, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REGIONAL MANAGEMENT CORP. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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