Alleghany Bank of America Merrill Lynch 2020 Insurance Conference February 13, 2020
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Alleghany
Bank of America Merrill Lynch 2020 Insurance Conference
February 13, 2020Conservative Management Approach
Philosophy Strategy
1 Own high-quality underwriting franchises
“Conservatism dominates our
― Underwrite for profit
management philosophy. We ― Grow premiums only when market allows
for profitable growth
shun investment fads and ― Consistently maintain appropriately
conservative loss reserves
fashions in favor of acquiring
2
Invest for total return when risk/reward is
attractive
relatively few interests in
3
Acquire quality businesses at reasonable prices
basic financial, industrial and ― Provide resources, support and oversight to
help them grow revenues, profits and
other enterprises that offer the returns
potential to deliver long-term 4
Maintain a conservative financial and operating
risk profile
value to our investors” 5 Hold significant unrestricted liquidity for
potential opportunities (and downturns)
2Attractive & Consistent Returns
600
554.6
CAGR
Continued Q3 '19 YTD Since '13 Since '09 Since '99 509.4
Focus on 500 Y BVPS 16.1% 7.4% 8.0% 8.6%
BVPS Growth Y Share Price 28.0% 13.1% 12.1% 9.1%
S&P 500 (Total Return) 20.6% 10.9% 12.9% 5.7%
400
Indexed Total Return
297.1
Long-term 300
Conservative
Orientation
200
100
Quasi- Target Annual
Growth in BVPS:
autonomous 7% - 10%
Subsidiary
0
Operating 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Q3-2019
Model Y BVPS Y Share Price S&P 500 (Total Return)
Note: As of September 30, 2019. Compound annual growth rates (“CAGR”) for BVPS and Stock Price include the impact of $10 special dividend paid in 2018.
3Modest Financial Leverage and Conservative Risk Profile
Debt to Capital Holding Company Liquidity
Other Debt (ACC) (millions)
Senior Notes
$1,383
$1,294
19.4%
17.5% 13.4% $1,122
$1,032 $1,047
15.8% 15.6% 15.8% excl.
14.7%
2020 $821
notes (1)
2014 2015 2016 2017 2018 Q3-2019 2014 2015 2016 2017 2018 Q3-2019
Peak Zone PML / Shareholder Equity(2) Risk Assets / Shareholders’ Equity(3)
0.62x
10% 0.58x
9% 0.51x 0.52x 0.53x
8% 8%
7%
6% 0.34x
2014 2015 2016 2017 2018 Q3-2019 2014 2015 2016 2017 2018 Q3-2019
(1) Alleghany 2020 Senior Notes were redeemed on January 15, 2020.
(2) Reflects net occurrence PML (after-tax) in a 1-in-250 year event (having a likelihood of being exceeded in any single year of 0.4 percent) for largest single zone peril (i.e.
Florida wind).
(3) Risk assets are defined as high yield bonds, below investment grade collateralized loan obligations (“CLOs”) and bank loans, publicly traded equity securities, private
equity and partnership interests.
4Alleghany Today
Alleghany
Reinsurance Insurance
Investments Capital
53%(1) 27%(1)
20%(1)
Asset Subsidiaries &
TransRe RSUI CapSpecialty
Management Investments
GAAP equity of GAAP equity of $1.9 GAAP equity of $16.2 billion
$5.3 billion billion $0.4 billion fixed income
Gross premiums Gross premiums Gross premiums $2.1 billion
written of $4.7 written of $1.3 written of $0.4 equity portfolio
billion billion billion
$0.6 billion
Top 15 global 10th largest U.S. Focuses on niche other invested
reinsurer(2) excess & surplus specialty assets
lines group(3) commercial lines
90 years as a public company (NYSE: Y)
Notes: Financial data as of September 30, 2019 unless otherwise indicated. Gross premiums written for the trailing 12 months.
(1) As of September 30, 2019, YTD % Contribution to adjusted earnings before interest and taxes, excluding corporate items.
(2) Best’s Review March 2019 – Top 50 Global Reinsurers; ranking based on unaffiliated gross premiums written in 2018.
(3) A.M. Best U.S. Surplus Lines – Segment Review, September 2019.
5Current (Re)insurance Operations
($ in millions)
Cumulative Results Over Holding Period
Net Underwriting
Subsidiary / Cash & Stockholders’ Years Premiums Profits Combined Net
Acquisition Date Investments Equity Held Written (Losses) Ratio Dividends IRR
$13,541 $5,348 7 $28,320 $1,179 95.7% $1,492(1) 10.2%
March 6, 2012 2.5x
3,837 1,858 16 11,776 1,785 84.2 1,124 11.6
2.1x
July 1, 2003
846 413 17 3,430 (28) 100.8 130 5.6
January 1, 2002 2.1x
Total
$18,257(2) 7,639(2)
(Re)insurance
2.4x
Note: As of September 30, 2019.
(1) Total dividends to Alleghany of $1,800 million less a $309 million capital contribution in 2014 primarily to repay senior notes.
(2) Inclusive of AIHL Re.
6Consolidated Underwriting Results for Past 10 Years
Underwriting Profit Combined Ratio
$495 83.0%
$467 84.7%
$421
$401
88.8%
89.0%
90.1%
$220 $232 91.9%
93.4%
$129 $131 94.1% 94.3%
94.5%
$50
Pre-TransRe Pre-TransRe
103.2%
($162)
106.4%
($316)
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q3 '19 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q3 '19
YTD YTD
2009-to-Date Underwriting Profits of $2.1 B and Combined Ratio of
~94.5%
Note: 2019 YTD as of September 30, 2019. Underwriting profit is a non-GAAP financial measure. Refer to the appendix for further information.
7TransRe – Structural Competitive Advantages
Net Premiums Written(1) Diversified, global reinsurer with
(Q3 2019 YTD)
casualty & specialty expertise
Engineering Other Specialty
Aviation 1% 3% Long-standing client and
Marine & 2%
Energy intermediary relationships
4%
70% proportional business
Specialty
26%
Personal Auto / Leads or co-leads more than
Motor
Guaranty
8%
16% half of its book
Strong balance sheet and
A&H Traditional infrastructure
8% Casualty
16% Leveraging market position with
Catastrophe third party capital
Property
7% Generates recurring fee
Non- Professional
Casualty
income
Catastrophe Liability
Property 15% 47%
20% Q3 ’19 YTD Highlights
Property
27% Net premiums written up 13%
Combined ratio of 96.2%
$2.8 billion(1) Underwriting profit of $122mm
History of Prudently Navigating Market Conditions and Opportunities
(1) Excludes Farmers quota share treaty which contributed $509 million to net premiums written.
8RSUI – Taking Advantage of Improving E&S Market
Underwriting Profit 30 years dedicated to wholesale
(Cumulative data for 2003 – Q3 2019 period) specialty insurance market
Alternative D&O Liability
Proven ability to generate
Structures
2%
7% underwriting profit and grow
book value through cycles
Highly experienced underwriters
Professional
Nimble and reacts quickly to
Liability opportunities
23%
Property Proprietary, in-house developed
49%
technology, models and
General
analytical tools
Umbrella / Liability
Excess 7% Diversified profitable portfolio
12%
Q3 ’19 YTD Highlights
Net premiums written up 14%
Cumulative Underwriting Profit:
$1.8 billion Combined ratio of 81.7%
Underwriting profit of $111mm
Continued New Business and Rate Momentum with Double Digit Renewal
Rate Increases on Multiple Lines
9CapSpecialty – Repositioned for Greater Efficiency & Overall
Profitability
Gross Premiums Written Well-diversified specialty company
(2018)
Niche product focus for small and
mid-size businesses
Surety Recognized experts in select classes
15%
Property & New CEO, Jack Sennott appointed
Casualty July 1, 2019
29%
Professional
Liability Current focus on profitable growth,
16% expense management & technology
optimization
Specialty Healthcare
Casualty 20% Q3 ’19 YTD Highlights
20%
Net premiums written up 10%
Combined ratio of 100.1%
$329 million 10-point improvement in expense
ratio since 2014
Meaningful Progress Towards Its Goal of Becoming A Preferred Specialty
Insurer for Small and Mid-Sized Businesses
10Alleghany Capital – Becoming a More Meaningful Contributor
Adjusted Earnings Before Tax(1) – 100% Basis Permanent capital
provider to leading
middle-market
businesses
($ millions) $140
$124
Partners with aligned
entrepreneurial
$93 management teams /
founders with high
$64 $82 integrity
$43 $51
Acquire leaders in niche
$25 $31 markets, or rapid share
$14 gainers in large
fragmented markets
2015 2016 2017 2018 Q3 2019 YTD
Accelerate operational
efficiency improvements;
Corporate Activity & Deal Expenses Non-Industrial follow-on capital for
Industrial Adjusted EBT (Net of Corp. Activity & Deal Expenses)
growth / add-on
acquisitions
Diversified Portfolio of High-Performing Businesses Helps Mitigate
Individual Business Seasonality
(1) Adjusted earnings before income taxes (“Adjusted EBT”) represents noninsurance revenue less all operating expenses, and does not include: (i) amortization of
intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) other than temporary impairment ("OTTI") losses; and (v) income
taxes.
11Key Macroeconomic & Industry Themes
Opportunities Challenges
1
1) E&S market is firming 1
1) Late in economic cycle (elevated
sovereign, corporate and household
debt)
- Significant competitors
retrenching
2
2) Geopolitical uncertainty (including
trade)
- Changing view of certain risks
(e.g., wildfires, casualty inflation)
3
3) Low return world
- Limits contraction
4)
4 High asset prices (public and
2 private)
2) Reinsurance market slowly
improving
5)
5 Industry consolidation
3
3) Opportunistic capital allocation
6
6) Increasing loss cost trends / social
inflation in casualty lines
12RSUI – Accelerating Rate Increases and Increasing Opportunity
15%
Renewal Rate Change (%)
12%
9%
6%
3%
0%
-3%
-6%
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19
50%
New Business Submissions (Units)
40%
30%
20%
10%
0%
-10%
-20%
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19
Note: Data is quarterly rate and new business submission increases over prior-year quarter.
13Alleghany Capital – 2019 Bolt-On Acquisitions
Wicked Cool Toys (Oct-2019) Warren Manufacturing (Jul-2019)
Jazware’s 4th acquisition since Alleghany’s Acquired animal feed transportation assets
investment
Deepens market share in animal feed
Deepens management talent transportation segment
Adds iconic brands such as Pokémon and Broadens geographic coverage
Cabbage Patch Kids to an already
impressive portfolio
CID Performance Tooling (Jun-2019) The Cardinal Group (Apr-2019)
Leading manufacturer of consumable Significantly expands IPS footprint in the
precision cutting tools Northeast, a key biopharmaceutical hub
Stable, recurring source of revenue for PCT Adds highly experienced management
team, particularly in construction
management
$250 Million of Capital(1) Deployed in 2019
(1) Debt and equity.
14Slowing U.S. & Global Growth
8.0%
6.0%
5.7%
4.0%
2.5%
2.0% 1.8%
1.0%
0.0%
(2.0)%
(4.0)%
(6.0)%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020E
World United States European Union East Asia & Pacific
What Impact Will The Coronavirus Outbreak Have on Growth?
Source: World Bank. GDP growth (annual %) based on constant local currency and U.S. dollars for aggregates.
15Investment Environment Remains Challenging
Treasury Yields & Credit Spreads Is the S&P 500 Overpriced?
35.0x
4.5%
32.1x
4.0% Jan 2018 -
30.0x
Feb 2020
3.5%
25.0x
3.0%
Yield / Spread
20.0x
2.5%
2.0% 15.0x 30%
20%
1.5% 10%
1.56% Slowing
10.0x Growth
1.28% 0%
1.92%
1.0%
(10%)
5.0x (20%)
0.5% 2014 2015 2016 2017 2018 2019
Quarterly Earnings Growth
0.0% 0.0x
2010 2012 2014 2016 2018 2020 2009 2011 2013 2015 2017 2019
UST 10Y BBB Credit Spreads
Shiller P/E - S&P 500
Source: Bloomberg. Market data as of February 10, 2020
16Alleghany’s Tactical Response
1 Prudently manage underwriting risks
- Reduction in emerging risks where future severity not reflected in current pricing (e.g., cyber)
- Conservatism in property-cat opportunities where rate still not sufficient (e.g., Florida reinsurance)
- Grow where significant rate, terms and conditions allow (Attritional Property, Umbrella / Excess, D&O,
Professional Liability)
- Focus on aggregations and tail risk
2 De-risk investment portfolio
- Reduced size of equity portfolio by more than half
- Sold lower quality fixed income securities
3 Efficiently deploy capital
- Allocate capital to ACC to support bolt-on acquisitions at existing portfolio companies
- Return capital to shareholders
- Potential to de-lever balance sheet over time; retired $300 million of debt in January 2020
4 Maintain sufficient dry powder for eventual opportunities
- Significant holding company liquidity
- Meaningful debt capacity
17Key Takeaways
Long-term focus with track record of consistent growth in book value
per share, despite significant headwinds over last 3 years
TransRe and RSUI are strong franchises in their respective market
segments with improving outlook
Alleghany Capital has achieved critical mass with prospect of improved
earnings contribution and double-digit return on equity
Holding company conservatively capitalized with significant optionality
Reiterating long-term goal of 7 to 10% growth in book value per share
18Appendix
Capital Allocation as of September 30, 2019
amounts in millions, except book value per share
Consolidated: Alleghany Capital Operating Entities:
Stockholders' Equity $ 8,829 89.9% W&W|AFCO Steel $ 275 2.8%
(1)
Parent Company Debt 994 10.1% Jazwares 233 2.4%
Total Capital $ 9,823 100.0% Concord 109 1.1%
Precision Cutting Technologies 103 1.0%
Shares outstanding (mm) 14.41 Wilbert (45% investment) 79 0.8%
BVPS $ 612.87 IPS 69 0.7%
Market Capitalization $ 11,795 Kentucky Trailer 79 0.8%
Total Alleghany Capital $ 947 9.6%
(Re)insurance: Other:
TransRe $ 5,348 54.5% Parent cash and marketable securities(2) $ 1,206 12.3%
RSUI 1,858 18.9% Stranded Oil 88 0.9%
CapSpecialty 413 4.2% Alleghany Properties 24 0.2%
AIHL Re 20 0.2% Other items, net(3) (81) (0.8%)
Total (Re)insurance $ 7,639 77.8% Total Other $ 1,237 12.6%
Note: All subsidiaries are majority owned unless otherwise stated. Market data as of February 10, 2020.
(1) Excludes $350 million par value senior notes at TransRe that mature in 2039. Also excludes $311 million of debt at ACC.
(2) Parent cash and marketable securities exclude cash at the TransRe holding company ($88 million at 9/30/2019), which is included in TransRe capital.
(3) Primarily deferred compensation and deferred taxes, as well as ACC parent.
20Alleghany Capital - Platform Companies
Company Description Founded Revenue(1) Acquired % Owned
Manufactures specialty machine
tools and, through DTI, supplies 1975 $37 2012 100%
waterjet cutting consumables
Manufactures highly-engineered
Industrial
custom trailers and truck bodies 1879 $227 2013 77%
for a variety of niche markets
Fabricates and erects heavy
structural steel for bridges and 1945 $926 2017 80%
large structures
Supplies products and services to
the funeral and precast concrete 1880 $171 2017 45%
markets
Manages and develops hotels in
Non-Industrial
1985 $172 2018 85%
the U.S. and Canada
Provides technical consulting for
the biopharmaceutical and other
1989 $599 2015 84%
highly-complex manufacturing
environments
Global toy, entertainment, and
1997 $358 2016(2) 77%
musical instrument company
(1) LTM 3Q 2019. Revenues are on 100% basis in $millions.
(2) 30% stake acquired in 2014. Additional 50% acquired in 2016. 3% stake sold in Q1 2018.
21Non-GAAP Financial Measures
This document and the remarks made during the presentation today may also contain non-GAAP financial measures.
Reconciliations of these non-GAAP financial measures to the most direct comparable GAAP measures and related
information are provided in our financial supplement and Form 10-K and 10-Q filings, which are available on our website
at www.alleghany.com, and below.
Adjusted Earnings Before Income Taxes
Adjusted earnings before income taxes represents noninsurance revenue less all operating expenses, and does not include:
(i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv)
OTTI losses; and (vii) income taxes. Because adjusted earnings before income taxes excludes income taxes, change in the
fair value of equity securities, net realized capital gains, OTTI losses and amortization of intangible assets, it provides an
indication of economic performance that is not affected by investment activity, levels of effective tax rates or levels of
amortization resulting from acquisition accounting. Alleghany uses adjusted earnings before income taxes as a
supplement to earnings before income taxes, the most comparable GAAP financial measure, to evaluate the performance
of certain of its noninsurance operating subsidiaries and investments. A reconciliation of adjusted earnings before income
taxes to earnings before income taxes is presented on page 35 of the 3Q 2019 financial supplement.
Underwriting Profit
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, net
realized capital gains, OTTI losses, other revenue, other operating expenses, corporate administration, amortization of
intangible assets and interest expense. Alleghany consistently uses underwriting profit as a supplement to earnings
before income taxes, the most comparable GAAP financial measure, to evaluate the performance of its segments and
believes that underwriting profit provides useful additional information to investors because it highlights net earnings
attributable to a segment's underwriting performance. Earnings before income taxes may show a profit despite an
underlying underwriting loss, and when underwriting losses persist over extended periods, a reinsurance or an insurance
company's ability to continue as an ongoing concern may be at risk.
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