We are a Delaware corporation which owns and manages certain operating subsidiaries
and investments, anchored by a core position in property and casualty reinsurance
and insurance. We were initially incorporated in 1929, were subsequently incorporated
in 1984 under the laws of the State of Delaware and, in December 1986, we succeeded
to the business of our parent company, Alleghany Corporation. Through our wholly-owned
subsidiary AIHL and its subsidiaries, we are engaged in the property and casualty
insurance business. AIHL’s insurance operations are principally conducted
by its subsidiaries RSUI, CapSpecialty and PacificComp. CapSpecialty has been
a subsidiary of AIHL since January 2002, RSUI has been a subsidiary of AIHL
since July 2003 and PacificComp has been a subsidiary of AIHL since July 2007.
AIHL Re, a captive reinsurance company which provides reinsurance to Alleghany’s
insurance operating subsidiaries and affiliates, has been a wholly-owned subsidiary
of Alleghany since its formation in May 2006. Our reinsurance operations commenced
on March 6, 2012 when we consummated a merger with TransRe, and TransRe became
one of our wholly-owned subsidiaries. Our public equity investments, including
those held by TransRe’s and AIHL’s operating subsidiaries, are managed
primarily through our wholly-owned subsidiary Roundwood.
Although our primary sources of revenues and earnings are our reinsurance and
insurance operations and investments, we also manage, source, execute and monitor
certain private capital investments primarily through our wholly-owned subsidiary
Alleghany Capital. Alleghany Capital’s private capital investments are
included in corporate activities for segment reporting purposes and include:
(i) SORC, an exploration and production company focused on enhanced oil recovery,
headquartered in Golden, Colorado; (ii) Bourn & Koch, a manufacturer and
remanufacturer/retrofitter of precision machine tools and supplier of replacement
parts, headquartered in Rockford, Illinois; (iii) Kentucky Trailer, a manufacturer
of custom trailers and truck bodies for the moving and storage industry and
other markets, headquartered in Louisville, Kentucky; (iv) IPS, a technical
service provider focused on the global pharmaceutical and biotechnology industries,
headquartered in Blue Bell, Pennsylvania, acquired on October 31, 2015 for $106.3
million; (v) an approximately 40 percent equity interest in ORX Exploration,
Inc., or “ORX,” a regional oil and gas exploration and production
company, headquartered in New Orleans, Louisiana; and (vi) a 30 percent equity
interest in Jazwares, LLC, or “Jazwares,” a toy and consumer electronics
company, headquartered in Sunrise, Florida, which interest was acquired on July
31, 2014 for $60.3 million. In addition, we own and manage properties in the
Sacramento, California region through our wholly-owned subsidiary Alleghany
Properties.
Our segments are reported in a manner consistent with the way management evaluates
the businesses. As such, we classify our business into two reportable segments
– reinsurance and insurance. In addition, reinsurance and insurance underwriting
activities are evaluated separately from investment and corporate activities.
The primary components of corporate activities are Alleghany Properties, SORC,
Bourn & Koch, our investments in Homesite (prior to its sale on December
31, 2013) and ORX and other activities at the parent level.
The reinsurance segment consists of property and casualty reinsurance operations
conducted by TransRe’s reinsurance operating subsidiaries.
The insurance segment consists of property and casualty insurance operations
conducted by AIHL through its insurance operating subsidiaries RSUI, headquartered
in Atlanta, Georgia; CapSpecialty, headquartered in Middleton, Wisconsin; and
PacificComp, headquartered in Westlake Village, California. AIHL Re, our Vermont-domiciled
captive reinsurance company, provides reinsurance to our insurance operating
subsidiaries and affiliates. Unless we state otherwise, references to AIHL include
the operations of RSUI, CapSpecialty, PacificComp and AIHL Re.
Each of our reinsurance and insurance subsidiaries establishes reserves on
its balance sheet for unpaid loss and LAE related to its property and casualty
reinsurance and insurance contracts. The reserves for loss and LAE represent
management’s best estimate of the ultimate cost of all reported and unreported
losses incurred through the balance sheet date. The process of estimating these
reserves is inherently difficult and involves a considerable degree of judgment,
especially in view of changing legal and economic environments that impact the
development of loss reserves. Therefore, quantitative techniques have to be
supplemented by subjective considerations and managerial judgment. In addition,
conditions and trends that have affected development of liabilities in the past
may not necessarily occur or affect liability development to the same degree
in the future.
Our reinsurance and insurance subsidiaries reinsure portions of the risks they
underwrite in order to reduce the effect of individual or aggregate exposure
to losses, manage capacity, protect capital resources, reduce volatility in
specific lines of business, improve risk-adjusted portfolio returns, and enable
them to increase gross premium writings and risk capacity without requiring
additional capital. Our reinsurance and insurance subsidiaries purchase reinsurance
and retrocessional coverages from highly-rated third-party reinsurers. If the
assuming reinsurers are unable or unwilling to meet the obligations assumed
under the applicable reinsurance agreements, our reinsurance and insurance subsidiaries
would remain liable for such reinsurance portion not paid by these reinsurers.
As such, funds, trust agreements and letters of credit are held to collateralize
a portion of our reinsurance and insurance subsidiaries’ reinsurance recoverables,
and our reinsurance and insurance subsidiaries reinsure portions of the risks
they underwrite or assume with multiple reinsurance programs.
To a limited extent, TransRe enters into retrocession arrangements, including
property catastrophe retrocession arrangements, in order to reduce the effect
of individual or aggregate exposure to losses, reduce volatility in specific
lines of business, improve risk-adjusted portfolio returns and increase gross
premium writings and risk capacity without requiring additional capital.
The business of our reinsurance and insurance subsidiaries exposes them to
losses from various catastrophe events. In a catastrophe event, losses from
many insureds across multiple lines of business may result directly or indirectly
from such single occurrence. The extent of losses caused by catastrophes is
a function of the amount and type of insured exposure in the area affected by
the event, as well as the severity of the event, potentially mitigated by any
reinsurance coverage purchased by our reinsurance and insurance subsidiaries.
Our reinsurance and insurance subsidiaries take certain measures to mitigate
the impact of catastrophe events through various means including considering
catastrophe risks in their underwriting and pricing decisions, purchasing reinsurance,
monitoring and modeling accumulated exposures and managing exposure in key geographic
zones and product lines that are prone to catastrophe events.
Natural disasters such as hurricanes, other windstorms, earthquakes and other
catastrophes have the potential to materially and adversely affect our operating
results. Other risks, such as an outbreak of a pandemic disease, a major terrorist
event, the bankruptcy of a major company, or a marine or an aviation disaster,
could also have a material adverse effect on our operating results.
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