Alleghany Earnings 2019-09-30

Y 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

y-10q_20190930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2019

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 1-9371

ALLEGHANY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware		51-0283071
State or Other Jurisdiction of		I.R.S. Employer Identification No.
Incorporation or Organization

1411 Broadway, 34^th Floor, NY, NY		10018
Address of Principal Executive Offices		Zip Code

212-752-1356

Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	Y	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

14,393,281 Shares, par value $1.00 per share, as of October 27, 2019

ALLEGHANY CORPORATION

TABLE OF CONTENTS

		Page
PART I

ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	67
ITEM 4.	Controls and Procedures	68
PART II

ITEM 1.	Legal Proceedings	69
ITEM 1A.	Risk Factors	69
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
ITEM 6.	Exhibits	70
SIGNATURES		71

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30,			December 31,
	2019			2018
	(unaudited)
	($ in thousands, except share amounts)
Assets
Investments:
Securities at fair value:
Equity securities (cost: 2019 – $1,399,141; 2018 – $2,904,496)	$	2,092,267		$	3,572,790
Debt securities (amortized cost: 2019 – $14,012,407; 2018 – $11,895,850)		14,488,289			11,823,968
Short-term investments		968,547			893,776
		17,549,103			16,290,534
Commercial mortgage loans		706,030			676,532
Other invested assets		610,234			555,972
Total investments		18,865,367			17,523,038
Cash		897,477			1,038,763
Accrued investment income		100,085			91,913
Premium balances receivable		928,740			842,642
Reinsurance recoverables		1,618,679			1,921,278
Ceded unearned premiums		258,617			221,232
Deferred acquisition costs		505,826			464,546
Property and equipment at cost, net of accumulated depreciation and amortization		206,346			195,243
Goodwill		484,556			455,142
Intangible assets, net of amortization		588,178			553,136
Current taxes receivable		30,243			116,637
Net deferred tax assets		-			164,890
Funds held under reinsurance agreements		740,291			744,057
Other assets		1,266,426			1,012,379
Total assets	$	26,490,831		$	25,344,896

Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
Loss and loss adjustment expenses	$	11,634,021		$	12,250,294
Unearned premiums		2,495,698			2,267,078
Senior Notes and other debt		1,695,303			1,669,039
Reinsurance payable		184,543			168,667
Net deferred tax liabilities		3,533			-
Other liabilities		1,468,222			1,127,346
Total liabilities		17,481,320			17,482,424
Redeemable noncontrolling interests		180,853			169,762
Common stock (shares authorized: 2019 and 2018 – 22,000,000; shares issued: 2019 and 2018 – 17,459,961)		17,460			17,460
Contributed capital		3,608,353			3,612,830
Accumulated other comprehensive income (loss)		223,266			(202,003	)
Treasury stock, at cost (2019 – 3,054,453 shares; 2018 – 2,883,452 shares)		(1,423,901	)		(1,312,939	)
Retained earnings		6,403,480			5,577,362
Total stockholders’ equity attributable to Alleghany stockholders		8,828,658			7,692,710
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	26,490,831		$	25,344,896

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)

	Three Months Ended September 30,
	2019			2018
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	1,389,981		$	1,225,346
Net investment income		147,829			127,329
Change in the fair value of equity securities		(16,691	)		370,175
Net realized capital gains		3,957			16,230
Other than temporary impairment losses		(3,597	)		(3	)
Noninsurance revenue		638,478			438,338
Total revenues		2,159,957			2,177,415

Costs and Expenses
Net loss and loss adjustment expenses		907,736			957,703
Commissions, brokerage and other underwriting expenses		449,519			407,679
Other operating expenses		617,326			415,378
Corporate administration		22,276			19,094
Amortization of intangible assets		8,095			5,500
Interest expense		25,703			22,189
Total costs and expenses		2,030,655			1,827,543

Earnings before income taxes		129,302			349,872
Income taxes		28,010			60,413
Net earnings		101,292			289,459
Net earnings attributable to noncontrolling interest		10,860			4,559
Net earnings attributable to Alleghany stockholders	$	90,432		$	284,900

Net earnings	$	101,292		$	289,459
Other comprehensive income (loss):
Change in unrealized gains (losses), net of deferred taxes of $22,918 and ($8,932) in 2019 and 2018, respectively		86,215			(33,601	)
Less: reclassification for net realized capital gains and other than temporary impairments, net of taxes of ($1,301) and ($3,408) for 2019 and 2018, respectively		(4,892	)		(12,819	)
Change in unrealized currency translation adjustment, net of deferred taxes of ($2,749) and ($407) for 2019 and 2018, respectively		(10,343	)		(1,530	)
Retirement plans		322			(551	)
Comprehensive income		172,594			240,958
Comprehensive income attributable to noncontrolling interests		10,860			4,559
Comprehensive income attributable to Alleghany stockholders	$	161,734		$	236,399

Basic earnings per share attributable to Alleghany stockholders	$	6.27		$	19.07
Diluted earnings per share attributable to Alleghany stockholders		6.27			19.07

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)

	Nine Months Ended September 30,
	2019			2018
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	4,043,298		$	3,670,161
Net investment income		413,623			377,728
Change in the fair value of equity securities		519,322			512,771
Net realized capital gains		20,753			67,197
Other than temporary impairment losses		(13,617	)		(514	)
Noninsurance revenue		1,756,507			1,032,690
Total revenues		6,739,886			5,660,033

Costs and Expenses
Net loss and loss adjustment expenses		2,497,037			2,366,491
Commissions, brokerage and other underwriting expenses		1,313,961			1,216,057
Other operating expenses		1,701,218			1,023,440
Corporate administration		67,612			40,998
Amortization of intangible assets		23,790			16,730
Interest expense		74,363			65,997
Total costs and expenses		5,677,981			4,729,713

Earnings before income taxes		1,061,905			930,320
Income taxes		207,878			171,275
Net earnings		854,027			759,045
Net earnings attributable to noncontrolling interest		27,909			7,454
Net earnings attributable to Alleghany stockholders	$	826,118		$	751,591

Net earnings	$	854,027		$	759,045
Other comprehensive income (loss):
Change in unrealized gains (losses), net of deferred taxes of $117,548 and ($56,690) in 2019 and 2018, respectively		442,205			(213,263	)
Less: reclassification for net realized capital gains and other than temporary impairments, net of taxes of ($2,723) and ($4,398) for 2019 and 2018, respectively		(10,246	)		(16,546	)
Change in unrealized currency translation adjustment, net of deferred taxes of ($2,141) and ($1,848) for 2019 and 2018, respectively		(8,054	)		(6,953	)
Retirement plans		1,363			(1,664	)
Comprehensive income		1,279,295			520,619
Comprehensive income attributable to noncontrolling interests		27,909			7,454
Comprehensive income attributable to Alleghany stockholders	$	1,251,386		$	513,165

Basic earnings per share attributable to Alleghany stockholders	$	57.18		$	49.55
Diluted earnings per share attributable to Alleghany stockholders		57.14			49.53

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	Nine Months Ended September 30, 2019
	Common Stock		Contributed Capital			Accumulated Other Comprehensive Income (loss)			Treasury Stock			Retained Earnings		Total Stockholders' Equity Attributable to Alleghany Shareholders			Redeemable Non- controlling Interest
	($ in thousands, except share amounts)
Balance as of December 31, 2018
(17,459,961 shares of common stock issued; 2,883,452 in treasury)	$	17,460	$	3,612,830		$	(202,003	)	$	(1,312,939	)	$	5,577,362	$	7,692,710		$	169,762
Add (deduct):
Net earnings		-		-			-			-			440,227		440,227			7,675
Other comprehensive income (loss), net of tax:
Retirement plans		-		-			937			-			-		937			-
Change in unrealized appreciation of investments, net		-		-			187,794			-			-		187,794			-
Change in unrealized currency translation adjustment, net		-		-			(885	)		-			-		(885	)		-
Comprehensive income		-		-			187,846			-			440,227		628,073			7,675
Treasury stock repurchase		-		-			-			(80,486	)		-		(80,486	)		-
Other, net		-		(4,176	)		-			366			-		(3,810	)		(1,716	)
Balance as of March 31, 2019
(17,459,961 shares of common stock issued; 3,012,224 in treasury)		17,460		3,608,654			(14,157	)		(1,393,059	)		6,017,589		8,236,487			175,721
Add (deduct):
Net earnings		-		-			-			-

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$750.12	14	$10,834

10-Q	2019-09-30	Quarter: 2019-09-30
10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-11-05	Earnings, Exhibits
8-K	2019-10-22	Officers, Exhibits
8-K	2019-08-06	Earnings, Exhibits
8-K	2019-07-01	Officers, Other Events, Exhibits
8-K	2019-05-07	Earnings, Exhibits
8-K	2019-04-26	Shareholder Vote
8-K	2019-02-20	Earnings, Exhibits
8-K	2019-01-15	Officers, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-06-21	Other Events, Exhibits
8-K	2018-04-27	Shareholder Vote

TRV	Travelers Companies	38,485
ORI	Old Republic	7,107
AXS	Axis Capital Holdings	5,431
AGO	Assured Guaranty	4,332
KNSL	Kinsale Capital Group	2,038
NAVG	Navigators Group	1,735
SAFT	Safety Insurance Group	1,502
MBI	MBIA	811
TIPT	Tiptree	228
KFS	Kingsway Financial Services	64

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