Segments of Business

6 Months Ended

Jun. 30, 2022

Segment Reporting [Abstract]

Segments of Business

10. Segments of Business

(a) Overview

Alleghany’s segments are reported in a manner consistent with the way management evaluates the businesses. As such, Alleghany classifies its businesses into three reportable segments – reinsurance, insurance and Alleghany Capital.

Reinsurance and insurance underwriting activities are evaluated separately from investment and other activities. Segment accounting policies are described in Note 1 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2021 Form 10-K.

The reinsurance segment consists of property and casualty reinsurance operations conducted by TransRe’s reinsurance operating subsidiaries and is further reported through two major product lines – property, and casualty & specialty. TransRe provides property and casualty reinsurance to insurers and other reinsurers through brokers and on a direct basis to ceding companies. TransRe writes a modest amount of property and casualty insurance business, which is included in the reinsurance segment. Aside from the U.S., a significant portion of the premiums earned by TransRe’s operations are generated by offices located in Canada, Europe, Asia, Australia, Africa and those serving Latin America and the Caribbean. Although the majority of the premiums earned by these offices typically relate to the regions where they are located, a significant portion may be derived from other regions of the world, including the U.S. In addition, although a significant portion of the assets and liabilities of these foreign offices generally relate to the countries where the ceding companies and reinsurers are located, most investments are located in the country of domicile of these offices.

The insurance segment consists of property and casualty insurance operations conducted in the U.S. by AIHL through its insurance operating subsidiaries RSUI and CapSpecialty. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment.

The Alleghany Capital segment consists of industrial operations, consumer & services operations and corporate operations at the Alleghany Capital level, which include certain hotel development projects. Industrial operations are conducted through PCT, Kentucky Trailer, W&W|AFCO Steel, Wilbert and, beginning May 10, 2021, Piedmont. Consumer & services operations are conducted through IPS, Jazwares and Concord.

On October 14, 2021, IPS acquired the outstanding equity of Anchorbuoy Limited (with its subsidiaries, referred to as
“Linesight”), for approximately $262.5 million U.S. dollar-equivalent, consisting of: (i) $98.6 million of cash from IPS (which includes a $97.4 million contribution from Alleghany); (ii) the issuance of certain noncontrolling interests in IPS, which were valued at $38.8 million and which increased the aggregate noncontrolling interests in IPS from approximately 15 percent to approximately 18 percent; and (iii) $125.1 million of U.S. dollar-equivalent incremental debt, which is denominated in Euro. In connection with the acquisition, Alleghany completed the process of determining the fair value of acquired assets and liabilities in the second quarter of 2022, and recorded $102.1 million of goodwill, $124.7 million of finite-lived intangible assets related to customer relationships and $14.7 million of indefinite-lived intangible assets related to trade names and trademarks.

Corporate activities are not classified as a segment. The primary components of corporate activities are Alleghany Properties and activities at the Alleghany parent company. Corporate activities also include the elimination of minor activity between segments.

In addition, corporate activities include interest expense associated with the senior notes issued by Alleghany, whereas interest expense associated with senior notes issued by TransRe is included in “Total Segments” and interest expense associated with other debt is included in Alleghany Capital. Information related to the senior notes and other debt can be found in Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2021 Form 10-K.

(b) Results

The following tables present segment results for Alleghany’s three reportable segments and for corporate activities for the three and six months ended June 30, 2022 and 2021:

		Reinsurance Segment						Insurance Segment
Three Months Ended June 30, 2022		Property		Casualty & specialty(1)		Total		RSUI		Cap Specialty			Total		Subtotal			Alleghany Capital			Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	380.3	$	1,049.1	$	1,429.4	$	686.8	$	131.6		$	818.4	$	2,247.8		$	—		$	2,247.8		$	(9.8	)	$	2,238.0
Net premiums written			286.4		993.9		1,280.3		441.8		107.9			549.7		1,830.0			—			1,830.0			—			1,830.0
Net premiums earned			305.8		953.3		1,259.1		360.4		95.7			456.1		1,715.2			—			1,715.2			—			1,715.2
Net loss and LAE			177.4		596.2		773.6		202.4		63.1			265.5		1,039.1			—			1,039.1			—			1,039.1
Commissions, brokerage and    other underwriting expenses			92.2		304.9		397.1		76.3		37.5			113.8		510.9			—			510.9			—			510.9
Underwriting profit (loss)(2)		$	36.2	$	52.2	$	88.4	$	81.7	$	(4.9	)	$	76.8		165.2			—			165.2			—			165.2
Net investment income																117.8			(0.1	)		117.7			(12.2	)		105.5
Change in the fair value of equity securities																(405.1	)		—			(405.1	)		(95.1	)		(500.2	)
Net realized capital gains																3.0			8.1			11.1			—			11.1
Change in allowance for credit losses on available for sale securities																(7.6	)		—			(7.6	)		—			(7.6	)
Product and service revenues																6.6			1,262.3			1,268.9			4.0			1,272.9
Other operating expenses																11.1			1,138.4			1,149.5			0.6			1,150.1
Corporate administration																—			—			—			17.3			17.3
Amortization of intangible assets																0.3			14.6			14.9			—			14.9
Interest expense																6.7			5.3			12.0			16.5			28.5
(Losses) earnings before income taxes															$	(138.2	)	$	112.0		$	(26.2	)	$	(137.7	)	$	(163.9	)

		Reinsurance Segment						Insurance Segment
Three Months Ended June 30, 2021		Property		Casualty & specialty(1)		Total		RSUI		Cap Specialty		Total		Subtotal		Alleghany Capital		Total Segments		Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	505.4	$	1,041.1	$	1,546.5	$	557.6	$	123.4	$	681.0	$	2,227.5	$	—	$	2,227.5	$	(7.6	)	$	2,219.9
Net premiums written			419.9		989.2		1,409.1		363.7		105.4		469.1		1,878.2		—		1,878.2		—			1,878.2
Net premiums earned			438.9		954.3		1,393.2		296.3		94.9		391.2		1,784.4		—		1,784.4		—			1,784.4
Net loss and LAE			273.7		570.0		843.7		186.9		56.6		243.5		1,087.2		—		1,087.2		—			1,087.2
Commissions, brokerage and    other underwriting expenses			123.7		301.6		425.3		60.6		37.6		98.2		523.5		—		523.5		—			523.5
Underwriting profit(2)		$	41.5	$	82.7	$	124.2	$	48.8	$	0.7	$	49.5		173.7		—		173.7		—			173.7
Net investment income															136.6		—		136.6		(9.7	)		126.9
Change in the fair value of equity securities															169.5		—		169.5		34.4			203.9
Net realized capital gains															12.8		0.2		13.0		(0.1	)		12.9
Change in allowance for credit losses on available for sale securities															0.2		—		0.2		—			0.2
Product and service revenues															11.1		789.2		800.3		0.1			800.4
Other operating expenses															15.1		724.1		739.2		0.3			739.5
Corporate administration															0.4		—		0.4		19.8			20.2
Amortization of intangible assets															0.8		11.6		12.4		—			12.4
Interest expense															6.7		3.7		10.4		13.6			24.0
Earnings (losses) before income taxes														$	480.9	$	50.0	$	530.9	$	(9.0	)	$	521.9

		Reinsurance Segment						Insurance Segment
Six Months Ended June 30, 2022		Property		Casualty & specialty(1)		Total		RSUI		Cap Specialty			Total		Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	834.7	$	2,123.0	$	2,957.7	$	1,204.3	$	243.7		$	1,448.0	$	4,405.7		$	—	$	4,405.7		$	(20.7	)	$	4,385.0
Net premiums written			633.0		2,005.3		2,638.3		783.8		200.7			984.5		3,622.8			—		3,622.8			—			3,622.8
Net premiums earned			597.3		1,824.6		2,421.9		706.8		191.9			898.7		3,320.6			—		3,320.6			—			3,320.6
Net loss and LAE			339.5		1,157.1		1,496.6		361.8		122.5			484.3		1,980.9			—		1,980.9			—			1,980.9
Commissions, brokerage and    other underwriting expenses			178.9		586.5		765.4		148.5		74.2			222.7		988.1			—		988.1			—			988.1
Underwriting profit (loss)(2)		$	78.9	$	81.0	$	159.9	$	196.5	$	(4.8	)	$	191.7		351.6			—		351.6			—			351.6
Net investment income																226.1			—		226.1			(7.2	)		218.9
Change in the fair value of equity securities																(559.2	)		—		(559.2	)		(79.8	)		(639.0	)
Net realized capital gains																(12.9	)		14.2		1.3			(0.1	)		1.2
Change in allowance for credit losses on available for sale securities																(8.2	)		—		(8.2	)		—			(8.2	)
Product and service revenues																14.7			2,383.6		2,398.3			23.8			2,422.1
Other operating expenses																24.6			2,151.7		2,176.3			2.5			2,178.8
Corporate administration																—			—		—			28.0			28.0
Amortization of intangible assets																0.7			28.3		29.0			—			29.0
Interest expense																13.5			11.0		24.5			36.2			60.7
(Losses) earnings before income taxes															$	(26.7	)	$	206.8	$	180.1		$	(130.0	)	$	50.1

		Reinsurance Segment							Insurance Segment
Six Months Ended June 30, 2021		Property			Casualty & specialty(1)		Total		RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	1,070.7		$	2,014.0	$	3,084.7	$	978.4	$	225.7	$	1,204.1	$	4,288.8		$	—	$	4,288.8		$	(18.6	)	$	4,270.2
Net premiums written			878.9			1,925.1		2,804.0		636.2		192.8		829.0		3,633.0			—		3,633.0			—			3,633.0
Net premiums earned			810.2			1,812.8		2,623.0		579.9		186.2		766.1		3,389.1			—		3,389.1			—			3,389.1
Net loss and LAE			597.2			1,095.5		1,692.7		395.1		111.5		506.6		2,199.3			—		2,199.3			—			2,199.3
Commissions, brokerage and    other underwriting expenses			232.9			568.3		801.2		124.7		73.6		198.3		999.5			—		999.5			—			999.5
Underwriting (loss) profit(2)		$	(19.9	)	$	149.0	$	129.1	$	60.1	$	1.1	$	61.2		190.3			—		190.3			—			190.3
Net investment income																259.7			—		259.7			20.7			280.4
Change in the fair value of equity securities																254.8			—		254.8			61.8			316.6
Net realized capital gains																23.3			1.2		24.5			1.4			25.9
Change in allowance for credit losses on available for sale securities																2.1			—		2.1			0.1			2.2
Product and service revenues																19.7			1,548.4		1,568.1			0.2			1,568.3
Other operating expenses																29.5			1,433.4		1,462.9			0.6			1,463.5
Corporate administration																(0.2	)		—		(0.2	)		29.9			29.7
Amortization of intangible assets																1.0			22.9		23.9			—			23.9
Interest expense																13.4			7.5		20.9			26.9			47.8
Earnings before income taxes															$	706.2		$	85.8	$	792.0		$	26.8		$	818.8

(1)Primarily consists of the following reinsurance lines of business: directors’ and officers’ liability; errors and omissions liability; general liability; medical malpractice; ocean marine and aviation; auto liability; accident and health; mortgage reinsurance; surety; and credit.

(2)Underwriting profit represents net premiums earned less net loss and LAE and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income, change in the fair value of equity securities, net realized capital gains, change in allowance for credit losses on available for sale securities, product and service revenues, other operating expenses, corporate administration, amortization of intangible assets or interest expense. Underwriting profit does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. Rather, Alleghany believes that underwriting profit enhances the understanding of its reinsurance and insurance segments’ operating results by highlighting net earnings attributable to their underwriting performance. Earnings before income taxes (a GAAP measure) may show a profit despite an underlying underwriting loss. Where underwriting losses persist over extended periods, a reinsurance or an insurance company’s ability to continue as an ongoing concern may be at risk. Therefore, Alleghany views underwriting profit as an important measure in the overall evaluation of performance.

(c) Identifiable Assets and Equity

The following table presents identifiable assets, the portion of identifiable assets related to cash and invested assets and equity attributable to Alleghany for Alleghany’s reportable segments and for corporate activities as of June 30, 2022:

	Identifiable Assets		Invested Assets and Cash		Equity Attributable to Alleghany
	($ in millions)
Reinsurance segment	$	18,104.6	$	14,073.0	$	4,402.5
Insurance segment		8,480.5		5,860.2		2,504.6
Subtotal		26,585.1		19,933.2		6,907.1
Alleghany Capital		3,536.3		228.9		1,368.2
Total segments		30,121.4		20,162.1		8,275.3
Corporate activities		886.5		914.2		(368.6	)
Consolidated	$	31,007.9	$	21,076.3	$	7,906.7

(d) Alleghany Capital Product and Service Revenues

For Alleghany Capital’s industrial and consumer & services operations, product and service revenues consist of the sale of manufactured goods and services. The following table presents product and service revenues for the Alleghany Capital segment for the three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	($ in millions)
Industrial(1)	$	508.6	$	407.2	$	970.1	$	811.7
Consumer & services(2)		753.7		382.0		1,413.5		736.7
Alleghany Capital	$	1,262.3	$	789.2	$	2,383.6	$	1,548.4

(1)For the three and six months ended June 30, 2022 and 2021, the vast majority of industrial product and service revenues were recognized as goods and services transferred to customers over time.

(2)For the three and six months ended June 30, 2022, approximately 55 percent and 57 percent, respectively, of consumer & services product and service revenues were recognized as services transferred to customers over time, with the remainder recognized as goods transferred at a point in time. For the three and six months ended June 30, 2021, approximately 55 percent and 59 percent, respectively, of consumer & services product and service revenues were recognized as services transferred to customers over time, with the remainder recognized as goods transferred at a point in time.