The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2021 and 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 September 30, 2021, 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, 2020, or the "2020 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 2020 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



?
"TransRe" are to our wholly-owned reinsurance holding company subsidiary
Transatlantic Holdings, Inc. and its subsidiaries;
?
"AIHL" are to our wholly-owned insurance holding company subsidiary Alleghany
Insurance Holdings LLC;
?
"RSUI" are to our wholly-owned subsidiary RSUI Group, Inc. and its subsidiaries;
?
"CapSpecialty" are to our wholly-owned subsidiary CapSpecialty, Inc. and its
subsidiaries;
?
"AIHL Re" are to our wholly-owned subsidiary AIHL Re LLC;
?
"Roundwood" are to our wholly-owned subsidiary Roundwood Asset Management LLC;
?
"Alleghany Capital" are to our wholly-owned subsidiary Alleghany Capital
Corporation and its subsidiaries;
?
"PCT" are to our wholly-owned subsidiary Precision Cutting Technologies, Inc.
and its subsidiaries;
?
"Kentucky Trailer" are to our majority-owned subsidiary R.C. Tway Company, LLC
and its subsidiaries;
?
"IPS" are to our majority-owned subsidiary IPS-Integrated Project Services, LLC
and its subsidiaries;
?
"Jazwares" are to our majority-owned subsidiary Jazwares, LLC and its
subsidiaries and affiliates;
?
"W&W|AFCO Steel" are to our majority-owned subsidiary WWSC Holdings, LLC and its
subsidiaries;
?
"Concord" are to our majority-owned subsidiary CHECO Holdings, LLC and its
subsidiaries;
?
"Wilbert" are to our majority-owned subsidiary Wilbert Funeral Services, Inc.
and its subsidiaries;
?
"Piedmont" are to our wholly-owned subsidiary Piedmont Manufacturing Group, LLC
and its subsidiaries;
?
"Alleghany Properties" are to our wholly-owned subsidiary Alleghany Properties
Holdings LLC and its subsidiaries; and
?
"SORC" are to our former wholly-owned subsidiary Stranded Oil Resources
Corporation and its subsidiaries, which was sold on December 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 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 2020 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 2020 Form 10-K for additional information.


                                       30

--------------------------------------------------------------------------------

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; (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."





                                       31

--------------------------------------------------------------------------------

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 for Alleghany 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 for Alleghany 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 September 30, 2021, we had total assets of $31.9 billion and total stockholders' equity attributable to Alleghany stockholders of $8.9 billion. As of September 30, 2021, we had consolidated total investments of approximately $21.5 billion, consisting of $15.9 billion invested in debt securities, $3.5 billion invested in equity securities, $0.5 billion invested in commercial mortgage loans, $1.1 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. Widespread vaccine rollouts in the U.S. 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 September 30, 2021, our reinsurance and insurance segments have incurred significant losses from the Pandemic (in total $430.8 million), most of which was incurred in 2020. We incurred $1.7 million of favorable and $15.6 million of unfavorable prior accident year Pandemic loss reserve development at TransRe in the third quarter and first nine months of 2021, respectively, compared with $51.0 million and $339.0 million of 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 U.S. 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 Alleghany Capital subsidiary goodwill and intangible assets.

In the third quarter and first nine months of 2021, our reinsurance and insurance segments incurred $433.8 million and $685.9 million of catastrophe losses, respectively. This included $263.5 million from Hurricane Ida, which caused widespread property damage and flooding in August and early September 2021, primarily in Louisiana upon landfall, as well as causing subsequent damage and flooding in portions of the Northeastern and Mid-Atlantic U.S., primarily in New Jersey and New York. In addition, we incurred $113.5 million from severe flooding in Northwestern and Central Europe in July 2021, or "European Floods." Weather-related catastrophe losses in the third quarter and first nine months of 2021 also include losses from other severe weather in Europe and Asia, severe weather and flooding in the Midwestern U.S. and wildfires in California. Catastrophe losses in the first nine months of 2021 also include $245.2 million, related to Winter Storm Uri and other storms, collectively referred to herein as the "Winter Storms." The Winter Storms caused widespread property damage, flooding and extended power outages in February 2021, primarily in Texas. Our 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 $218.8 million of weather-related catastrophe losses, including $100.9 million from Hurricane Laura, which caused widespread property damage and flooding in August 2020, primarily in Louisiana and Texas, and $56.5 million from Hurricane Sally, which caused widespread property damage and flooding in September 2020, primarily in Alabama and Florida. Weather-related catastrophe losses in the third quarter of 2020 also include losses from typhoons and flooding in Asia and a derecho in August 2020, which caused widespread property and crop damage, primarily in Iowa, and a hailstorm in Alberta, Canada.


                                       33

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses