Alleghany highlights profitable 2020 growth opportunities after Q4 UW loss

TransRe and RSUI parent Alleghany reported an underwriting loss from its (re)insurance operations of $199mn for the fourth quarter and a big group earnings miss as its results were impacted by $284mn of catastrophe losses and reserve charges at CapSpecialty.

The performance equated to a combined ratio of 113.9 percent and represented an improvement on the prior-year quarter when a $249mn underwriting loss (or 119.1 percent combined ratio) included a $402mn catastrophe loss hit.

At the group level Alleghany reported an operating loss of $83.3mn, or $6.09 a share, that widened from $4.35 a share in the prior-year period and was a surprise to Wall Street analysts who had projected a consensus operating profit of $8.46 a share.

That led Janney analyst Larry Greenberg to comment that the quarter included a number of adverse items that were either worse than expected or not factored into his model.

They included higher than expected cat losses from Typhoon Hagibis and Texas tornadoes, the CapSpecialty reserve strengthening, professional liability reserve strengthening at RSUI and certain unusual items at Alleghany Capital.

“With underlying loss ratios higher than expected and NII below expectations, it seems fair to say this was a challenged quarter almost across the board,” Greenberg said.

But Alleghany president and CEO Weston Hicks highlighted double digit premium growth across the group’s (re)insurance businesses in full-year 2019 which accelerated in the fourth quarter and reflected improving rates, terms and conditions.

“We believe these market conditions combined with our underwriting talent and strong balance sheet leave us poised for strong, profitable underwriting growth in 2020,” he said.

The group’s (re)insurance operations reported 17.6 percent net written premiums (NWP) growth in Q4, and 13.9 percent for the full year.

E&S specialist RSUI led the way with 29.3 percent growth in Q4 and 17.9 percent for the full year as Alleghany pointed to growth in most lines of business from increased business opportunities, improved market conditions and meaningfully higher rates – particularly in property, D&O and excess casualty.

RSUI’s combined ratio also improved, from 122.2 percent in Q4 2018 to 104.3 percent in the reporting period, as significantly lower net cat losses were only partially offset by lower reserve releases.

Alleghany said that in the fourth quarter favourable reserve development across several of RSUI’s lines of business was largely offset by adverse development in professional liability.

There was also adverse development on the professional liability and casualty book of stablemate CapSpecialty, which reported a combined ratio that deteriorated from 97.4 percent to 130.4 percent.

The adverse development mostly related to business written in recent years.

NWP at the carrier increased by 21.2 percent in Q4 and 12.6 percent in the full year.

But Alleghany warned that top line growth may be muted in 2020 as less profitable lines are cut back in a wider exercise at CapSpecialty to introduce initiatives to restructure operations and improve long-term profitability.

The group said the initiatives were undertaken in connection with leadership changes at the insurer, which included the departure of chairman, CEO and president Stephen Sills last year.

Sills was replaced with group CFO and board member Jack Sennott.

TransRe also saw double digit NWP growth for the quarter and full year at 15.1 percent and 13.2 percent respectively.

The increases reflected growth in its domestic operations, including its August 2018 purchase of renewal rights on Maiden Re’s US treaty reinsurance business.

Although TransRe made an underwriting loss in Q4, its combined ratio improved from 120.1 percent to 114.4 percent on lower cat losses that were partially offset by a reduction in favourable prior accident year loss reserve development.

Cat losses for the quarter were down from $304mn to $224mn in the fourth quarter.

Full-year cat losses across Alleghany’s (re)insurance platform were $400mn, with the largest impact from the Japanese Typhoons of Hagibis and Faxai – down from $658mn in 2018 which included Typhoon Jebi, California wildfires and Hurricane Michael.

Investment income increased by 11.2 percent to $137mn in the fourth quarter.