Alleghany enjoys solid growth but headwinds dent profits

Alleghany Corporation, the parent company of TransRe, enjoyed solid growth in 2016 but its profits dipped on the back of mixed investment results and a highly competitive property/casualty market.

The company’s gross written premiums soared to $5.7 billion, a 12.6 percent increase on the $5.1 billion it generated a year earlier driven by its reinsurance unit which increased its GWP for the year to $4.3 billion compared with $3.6 billion a year earlier.

The company made a net profit of $456.9 million last year, a decline on the $560.3 million it made in 2015. Its combined ratio increased to 91.9 percent from 89 percent a year earlier.

Weston Hicks, the president of Alleghany, said: “Our underwriting results in 2016 were solid and we made significant progress in the build-out of Alleghany Capital. Our investment results, however, were mixed, in part reflecting our reluctance to take excessive risk in what may be an over-valued stock market.

“The significant decline in interest rates following the 2008 Financial Crisis created a persistent headwind to the property and casualty industry’s operating profitability, as fixed income assets have yielded less than historical norms.”

He added: “Following the political changes in the United States last year, however, interest rates have begun to rise, which offers the prospect of a reversal of the multi-decade trend of declining real yields.”

He added that another direct effect of lower interest rates has been that disinflation has invited more competition, both within the commercial property/casualty industry and from new, non-traditional sources of capacity.

“We have only recently begun to see the consequences in the industry from over five years of price competition, and suspect that we will see more as the year ahead unfolds,” he said. “We have responded to this environment by maintaining underwriting discipline at TransRe and RSUI and improving the operating performance of our smaller insurance businesses through better execution and the pursuit of profitable niche opportunities, namely professional liability (at CapSpecialty) and workers’ compensation (at PacificComp).

“In addition, we have been investing in non-financial businesses at Alleghany Capital and repurchasing our stock when it is trading at a discount to book value. We believe that our Alleghany Capital investments have the potential to generate higher returns on capital than our core re/insurance businesses in the current environment.”

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