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 six months ended June 30, 2022 and 2021.
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 June 30, 2022, or this "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
December 31, 2021, or the "2021 Form 10-K." This discussion contains
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 2021 Form 10-K, respectively.

References in this Form 10-Q to the "Company," "Alleghany," "we," "us," and
"our" refer to Alleghany Corporation and its consolidated subsidiaries unless
the context otherwise requires. In addition, unless the context otherwise
requires, references to

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"TransRe" are to our wholly-owned reinsurance holding company subsidiary
Transatlantic Holdings, Inc. and its subsidiaries;

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"AIHL" are to our wholly-owned insurance holding company subsidiary Alleghany
Insurance Holdings LLC;

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"RSUI" are to our wholly-owned subsidiary RSUI Group, Inc. and its subsidiaries;

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"CapSpecialty" are to our wholly-owned subsidiary CapSpecialty, Inc. and its
subsidiaries;

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"AIHL Re" are to our wholly-owned subsidiary AIHL Re LLC;

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"Roundwood" are to our wholly-owned subsidiary Roundwood Asset Management LLC;

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"Alleghany Capital" are to our wholly-owned subsidiary Alleghany Capital
Corporation and its subsidiaries;

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"PCT" are to our wholly-owned subsidiary Precision Cutting Technologies, Inc.
and its subsidiaries;

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"Kentucky Trailer" are to our majority-owned subsidiary R.C. Tway Company, LLC
and its subsidiaries;

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"IPS" are to our majority-owned subsidiary IPS-Integrated Project Services, LLC
and its subsidiaries;

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"Jazwares" are to our majority-owned subsidiary Jazwares, LLC and its
subsidiaries and affiliates;

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"W&W|AFCO Steel" are to our majority-owned subsidiary WWSC Holdings, LLC and its
subsidiaries;

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"Concord" are to our majority-owned subsidiary CHECO Holdings, LLC and its
subsidiaries;

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"Wilbert" are to our majority-owned subsidiary Wilbert Funeral Services, Inc.
and its subsidiaries;

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"Piedmont" are to our wholly-owned subsidiary Piedmont Manufacturing Group, LLC
and its subsidiaries; and

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"Alleghany Properties" are to our wholly-owned subsidiary Alleghany Properties
Holdings LLC and its subsidiaries.

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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:

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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;

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the cyclical nature of the property and casualty reinsurance and insurance
industries;

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changes in market prices of our significant equity investments and changes in
value of our debt securities portfolio;

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adverse loss development for events insured by our reinsurance and insurance
subsidiaries in either the current year or prior years;

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the long-tail and potentially volatile nature of certain casualty lines of
business written by our reinsurance and insurance subsidiaries;

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the cost and availability of reinsurance;

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the reliance by our reinsurance and insurance operating subsidiaries on a
limited number of brokers;

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legal, political, judicial and regulatory changes;

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increases in the levels of risk retention by our reinsurance and insurance
subsidiaries;

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changes in the ratings assigned to our reinsurance and insurance subsidiaries;

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claims development and the process of estimating reserves;

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exposure to terrorist acts and acts of war;

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the willingness and ability of our reinsurance and insurance subsidiaries'
reinsurers to pay reinsurance recoverables owed to our reinsurance and insurance
subsidiaries;

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the uncertain nature of damage theories and loss amounts;

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the loss of key personnel at Alleghany or our operating subsidiaries;

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fluctuation in foreign currency exchange rates;

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the failure to comply with the restrictive covenants contained in the agreements
governing our indebtedness;

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the ability to make payments on, or repay or refinance, our debt;

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risks inherent in international operations;

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difficult and volatile conditions in the global economy;

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the failure to complete the merger with Berkshire Hathaway Inc. on the terms and
timeline currently contemplated or at all;

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risks related to the conduct of our business while the merger with Berkshire
Hathaway Inc. is pending; and

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risks related to uncertainties related to the consummation of the merger with
Berkshire Hathaway Inc.

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 our plans, strategies, objectives, expectations, or
intentions, which may happen at any time at our discretion; and other factors
discussed in the 2021 Form 10-K and subsequent filings with the Securities and
Exchange Commission, or the "SEC." 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. See
Part I, Item 1A, "Risk Factors" of the 2021 Form 10-K and Part II, Item 1A,
"Risk Factors" herein 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
U.S., or "GAAP." Our results of operations have been presented in the way that
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 SEC. 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 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
Alleghany Capital segment. Adjusted earnings before income taxes represents
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; and (iv) change in allowance for credit losses on
available for sale securities. Because adjusted earnings before income taxes
excludes amortization of intangible assets, change in the fair value of equity
securities, net realized capital gains and change in allowance for credit losses
on available for sale securities, it provides an indication of economic
performance that is not affected by levels of amortization resulting from
acquisition accounting or effective tax rates. 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.

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Net losses attributable to Alleghany stockholders were $171.6 million in the
second quarter of 2022, compared with net earnings attributable to Alleghany
stockholders of $403.7 million in the second quarter of 2021, and net losses
attributable to Alleghany stockholders were $45.9 million in the first six
months of 2022, compared with net earnings attributable to Alleghany
stockholders of $633.7 million in the first six months of 2021.

•

Net investment income decreased by 16.9 percent and 21.9 percent in the second
quarter and first six months of 2022, respectively, from the corresponding 2021
periods.

•

Net premiums written decreased by 2.6 percent and 0.3 percent in the second
quarter and first six months of 2022, respectively, from the corresponding 2021
periods.

•

Underwriting profit was $165.2 million in the second quarter of 2022, compared
with $173.7 million in the second quarter of 2021, and was $351.6 million in the
first six months of 2022, compared with $190.3 million in the first six months
of 2021.

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The combined ratio for our reinsurance and insurance segments was 90.4 percent
in the second quarter of 2022, compared with 90.2 percent in the second quarter
of 2021, and 89.5 percent in the first six months of 2022, compared with 94.4
percent in the first six months of 2021.

•

Catastrophe losses, net of reinsurance, were $43.8 million in the second quarter
of 2022, compared with $71.2 million in the second quarter of 2021, and $93.8
million in the first six months of 2022, compared with $252.2 million in the
first six months of 2021.

•

Net favorable prior accident year loss reserve development was $48.4 million in
the second quarter of 2022, compared with $85.5 million in the second quarter of
2021, and $101.7 million in the first six months of 2022, compared with $141.5
million in the first six months of 2021.

•

Product and service revenues for Alleghany Capital were $1,262.3 million in the
second quarter of 2022, compared with $789.2 million in the second quarter of
2021, and $2,383.6 million in the first six months of 2022, compared with
$1,548.4 million in the first six months of 2021.

•

Earnings before income taxes for Alleghany Capital were $112.0 million in the
second quarter of 2022, compared with $50.0 million in the second quarter of
2021, and $206.8 million in the first six months of 2022, compared with $85.8
million in the first six months of 2021. Adjusted earnings before income taxes
were $118.5 million in the second quarter of 2022, compared with $61.4 million
in the second quarter of 2021, and $220.9 million in the first six months of
2022, compared with $107.5 million in the first six months of 2021.

As of June 30, 2022, we had total assets of $31.0 billion and total
stockholders' equity attributable to Alleghany stockholders of $7.9 billion. As
of June 30, 2022, we had consolidated total investments of approximately $20.1
billion, consisting of $14.7 billion invested in debt securities, $2.9 billion
invested in equity securities, $0.4 billion invested in commercial mortgage
loans, $1.6 billion invested in short-term investments and $0.5 billion 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. Since early 2020 through June 30, 2022,
our reinsurance and insurance segments have incurred significant losses from the
Pandemic (in total $420.7 million), almost all of which was incurred in 2020.

We cannot reasonably estimate the duration 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, or those of our subsidiaries.
Widespread vaccine rollouts in the U.S. started in early 2021 and are
continuing, however, new variants of the virus have emerged. Such potential
adverse impacts of a prolonged Pandemic on our operations, financial position
and cash flows include 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 coverages from our
reinsurance and insurance subsidiaries, increased litigation and impairment of
certain Alleghany Capital subsidiary goodwill and intangible assets.

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Our reinsurance and insurance segments incurred $43.8 million and $93.8 million
of catastrophe losses in the second quarter and first six months of 2022,
respectively, of which $8.9 million and $44.1 million, respectively, where
incurred by our reinsurance segment related to the ongoing conflict between
Russia and Ukraine, or the "Russia/Ukraine Conflict," and arising primarily from
the confiscation of aircraft leased by Western leasing companies. We cannot
reasonably estimate the length or severity of the Russia/Ukraine Conflict, and
our loss estimate was 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. Aside from these losses, we do not have
significant additional Russia/Ukraine Conflict exposures. Specifically, we do
not have facilities, operations and suppliers in Russia, Ukraine or Belarus and
do not generate revenues in these countries. However, Jazwares had a small
amount of toy sales in Russia that has since been discontinued. We also have a
modest amount of indirect exposure to these countries. Such exposure arises
through certain of our debt and equity security investments, as well as certain
of our insurance and reinsurance contracts that relate to multi-national
corporations that have facilities, operations, suppliers and/or sales in one or
more of these countries.

Our reinsurance and insurance segments incurred $71.2 million and $252.2 million
of catastrophe losses in the second quarter and first six months of 2021,
respectively, of which $57.7 million and $238.4 million, respectively, related
to Winter Storm Uri and other storms, collectively referred to herein as the
"Winter Storms," which caused widespread property damage, flooding and extended
power outages in February 2021, primarily in Texas.

On March 20, 2022, we entered into an Agreement and Plan of Merger, or the
"Merger Agreement," with Berkshire Hathaway Inc., a Delaware corporation, or
"Berkshire," and O&M Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Berkshire, or "Merger Sub." Pursuant to the Merger Agreement
and subject to the satisfaction or waiver of the conditions set forth therein,
Merger Sub will be merged with and into Alleghany, with Alleghany continuing as
the surviving corporation and a wholly-owned subsidiary of Berkshire, or the
"Merger." As a result of the Merger, each issued and outstanding share of our
common stock, par value $1.00 per share, or "Common Stock," (other than shares
(a) held in the treasury of Alleghany or owned by Berkshire or any direct or
indirect wholly-owned subsidiary of Berkshire or (b) held by a stockholder who
has demanded and perfected such holder's demand for appraisal rights in
accordance with Delaware law) will be canceled and extinguished and converted
into the right to receive $848.02 in cash, without interest, representing a
total equity value of approximately $11.6 billion. Alleghany stockholders
approved and adopted the Merger Agreement and Merger on June 9, 2022 and the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or "HSR", expired in early May 2022. The closing of the Merger
remains subject to certain conditions, including (i) the receipt of
authorizations required to be obtained from applicable foreign antitrust
regulators or the expiration or termination of applicable waiting periods under
applicable foreign antitrust laws, (ii) the receipt of authorizations required
to be obtained from applicable insurance regulators and (iii) other customary
closing conditions. The Merger Agreement generally requires us to operate our
business in the ordinary course pending consummation of the proposed Merger and
restricts us, without Berkshire's consent, from taking certain specified actions
until the Merger is completed. For a description of the treatment of equity
awards under the Merger Agreement, see Alleghany's definitive proxy statement
filed with the SEC on April 29, 2022.

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