y-10q_20200930.htm

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

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.

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 ☐

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

	September 30,			December 31,
	2020			2019
	(unaudited)
	($ in thousands, except share amounts)
Assets
Investments:
Securities at fair value:
Equity securities (cost: 2020 – $1,650,797; 2019 – $1,625,256)	$	2,163,350		$	2,505,496
Debt securities (amortized cost: 2020 – $14,931,902; 2019 – $13,798,576;
allowance for credit losses: 2020 – $5,450)		15,579,894			14,211,745
Short-term investments		636,130			914,776
		18,379,374			17,632,017
Commercial mortgage loans		691,881			686,206
Other invested assets		445,828			573,605
Total investments		19,517,083			18,891,828
Cash		1,230,579			1,179,098
Accrued investment income		94,938			96,516
Premium balances receivable		1,092,284			948,010
Reinsurance recoverables		1,696,996			1,681,962
Ceded unearned premiums		310,799			248,153
Deferred acquisition costs		574,662			522,577
Property and equipment at cost, net of accumulated depreciation and amortization		270,178			205,397
Goodwill		612,394			523,021
Intangible assets, net of amortization		799,010			685,953
Current taxes receivable		—			4,081
Net deferred tax assets		6,046			5,860
Funds held under reinsurance agreements		808,343			755,515
Other assets		1,439,259			1,183,633
Total assets	$	28,452,571		$	26,931,604

Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
Loss and loss adjustment expenses	$	12,681,515		$	11,928,359
Unearned premiums		2,888,553			2,566,170
Senior notes and other debt		2,041,610			1,751,113
Reinsurance payable		201,486			188,399
Current taxes payable		5,773			—
Other liabilities		1,800,360			1,516,076
Total liabilities		19,619,297			17,950,117
Redeemable noncontrolling interests		236,879			204,753
Common stock (shares authorized: 2020 and 2019 – 22,000,000; shares issued: 2020 and 2019 – 17,459,961)		17,460			17,460
Contributed capital		3,609,789			3,608,638
Accumulated other comprehensive income		375,310			171,350
Treasury stock, at cost (2020 – 3,279,342 shares; 2019 – 3,095,333 shares)		(1,565,426	)		(1,455,877	)
Retained earnings		6,159,262			6,435,163
Total stockholders’ equity attributable to Alleghany stockholders		8,596,395			8,776,734
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	28,452,571		$	26,931,604

	Three Months Ended
	September 30,
	2020			2019
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	1,556,859		$	1,389,981
Net investment income		129,265			147,829
Change in the fair value of equity securities		92,799			(16,691	)
Net realized capital gains		16,751			3,957
Change in allowance for credit losses on available for sale securities		3,454			(3,597	)
Noninsurance revenue		723,785			638,478
Total revenues		2,522,913			2,159,957

Costs and Expenses
Net loss and loss adjustment expenses		1,173,655			907,736
Commissions, brokerage and other underwriting expenses		464,522			449,519
Other operating expenses		669,423			617,326
Corporate administration		12,871			22,276
Amortization of intangible assets		11,223			8,095
Interest expense		23,319			25,703
Total costs and expenses		2,355,013			2,030,655

Earnings before income taxes		167,900			129,302
Income taxes		30,253			28,010
Net earnings		137,647			101,292
Net earnings attributable to noncontrolling interest		11,125			10,860
Net earnings attributable to Alleghany stockholders	$	126,522		$	90,432

Net earnings	$	137,647		$	101,292
Other comprehensive income (loss):
Change in unrealized gains, net of deferred taxes of $20,504 and $22,918 in 2020 and 2019, respectively		77,133			86,215
Less: reclassification for net realized capital gains and change in allowance for credit losses on available for sale securities, net of taxes of ($1,687) and ($1,301) for 2020 and 2019, respectively		(6,345	)		(4,892	)
Change in unrealized currency translation adjustment, net of deferred taxes of $3,219 and ($2,749) for 2020 and 2019, respectively		12,109			(10,343	)
Retirement plans		420			322
Comprehensive income		220,964			172,594
Comprehensive income attributable to noncontrolling interests		11,125			10,860
Comprehensive income attributable to Alleghany stockholders	$	209,839		$	161,734

Basic earnings per share attributable to Alleghany stockholders	$	8.86		$	6.27
Diluted earnings per share attributable to Alleghany stockholders		8.86			6.27

	Nine Months Ended
	September 30,
	2020			2019
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	4,396,147		$	4,043,298
Net investment income		359,938			413,623
Change in the fair value of equity securities		(187,991	)		519,322
Net realized capital gains		(8,323	)		20,753
Change in allowance for credit losses on available for sale securities		(10,900	)		(13,617	)
Noninsurance revenue		1,684,335			1,756,507
Total revenues		6,233,206			6,739,886

Costs and Expenses
Net loss and loss adjustment expenses		3,225,461			2,497,037
Commissions, brokerage and other underwriting expenses		1,315,935			1,313,961
Other operating expenses		1,646,390			1,701,218
Corporate administration		17,143			67,612
Amortization of intangible assets		32,884			23,790
Interest expense		63,869			74,363
Total costs and expenses		6,301,682			5,677,981

(Losses) earnings before income taxes		(68,476	)		1,061,905
Income taxes		(21,111	)		207,878
Net (losses) earnings		(47,365	)		854,027
Net earnings attributable to noncontrolling interest		9,953			27,909
Net (losses) earnings attributable to Alleghany stockholders	$	(57,318	)	$	826,118

Net (losses) earnings	$	(47,365	)	$	854,027
Other comprehensive income (loss):
Change in unrealized gains, net of deferred taxes of $56,401 and $117,548 in 2020 and 2019, respectively		212,175			442,205
Less: reclassification for net realized capital gains and change in allowance for credit losses on available for sale securities, net of taxes of ($6,051) and ($2,723) for 2020 and 2019, respectively		(22,761	)		(10,246	)
Change in unrealized currency translation adjustment, net of deferred taxes of $3,506 and ($2,141) for 2020 and 2019, respectively		13,190			(8,054	)
Retirement plans		1,356			1,363
Comprehensive income		156,595			1,279,295
Comprehensive income attributable to noncontrolling interests		9,953			27,909
Comprehensive income attributable to Alleghany stockholders	$	146,642		$	1,251,386

Basic (losses) earnings per share attributable to Alleghany stockholders	$	(4.01	)	$	57.18
Diluted (losses) earnings per share attributable to Alleghany stockholders		(4.43	)		57.14

	Nine Months Ended September 30, 2020
	Common Stock		Contributed Capital		Accumulated Other Comprehensive Income (loss)			Treasury Stock			Retained Earnings			Total Stockholders' Equity Attributable to Alleghany Stockholders			Redeemable Non- controlling Interest
	($ in thousands, except share amounts)
Balance as of December 31, 2019
(17,459,961 shares of common stock issued; 3,095,333 in treasury)	$	17,460	$	3,608,638	$	171,350		$	(1,455,877	)	$	6,435,163		$	8,776,734		$	204,753
Add (deduct):
Cumulative effect of adoption of new accounting pronouncements		—		—		—			—			(3,570	)		(3,570	)		—
Net (losses)		—		—		—			—			(361,218	)		(361,218	)		(254	)
Other comprehensive income (loss), net of tax:
Retirement plans		—		—		517			—			—			517			—
Change in unrealized appreciation of investments, net		—		—		(287,477	)		—			—			(287,477	)		—
Change in unrealized currency translation adjustment, net		—		—		(13,733	)		—			—			(13,733	)		—
Comprehensive (loss)		—		—		(300,693	)		—

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

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

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

Emerging growth company ☐

		Page
PART I

ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	64
ITEM 4.	Controls and Procedures	65
PART II

ITEM 1.	Legal Proceedings	66
ITEM 1A.	Risk Factors	66
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
ITEM 5.	Other Information	68
ITEM 6.	Exhibits	69
SIGNATURES		70

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2020

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