The following is a discussion and analysis of our financial condition and
results of operations for the three and nine months ended
References in this Form 10-Q to the "Company," "Alleghany," "we," "us," and
"our" refer 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
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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
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
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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
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
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.
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Since early 2020 through
In the third quarter and first nine months of 2021, our reinsurance and
insurance segments incurred
In the third quarter of 2020, our reinsurance and insurance segments incurred
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