ALLEGHANY CORP /DE - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2021


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

Commission File Number 1-9371

ALLEGHANY CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		51-0283071
State or Other Jurisdiction of		I.R.S. Employer Identification No.
Incorporation or Organization

1411 Broadway, 34th Floor, NY, NY		10018
Address of Principal Executive Offices		Zip Code

212-752-1356

Registrant’s Telephone Number, Including Area Code

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

Securities registered pursuant to Section 12(b) of the Act:


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

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.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

Emerging growth company ☐

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 ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

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

13,699,071 Shares, par value $1.00 per share, as of October 24, 2021

ALLEGHANY CORPORATION

TABLE OF CONTENTS


		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	66
ITEM 4.	Controls and Procedures	67
PART II

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

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets


	September 30,			December 31,
	2021			2020
	(unaudited)
	($ in thousands, except share amounts)
Assets
Investments:
Securities at fair value:
Equity securities (cost: 2021 – $2,704,230; 2020 – $2,051,996)	$	3,471,705		$	2,718,902
Debt securities (amortized cost: 2021 – $15,441,754; 2020 – $14,898,522; allowance for credit losses: 2021 – $307; 2020 – $2,579)		15,884,928			15,618,470
Short-term investments		1,060,414			714,208
		20,417,047			19,051,580
Commercial mortgage loans		543,412			670,239
Other invested assets		543,662			465,153
Total investments		21,504,121			20,186,972
Cash		995,506			791,442
Accrued investment income		94,844			88,760
Premium balances receivable		1,487,785			1,145,341
Reinsurance recoverables		2,187,575			1,781,096
Ceded unearned premiums		447,125			311,898
Deferred acquisition costs		679,796			595,117
Property and equipment at cost, net of accumulated depreciation and amortization		299,404			267,872
Goodwill		631,827			614,163
Intangible assets, net of amortization		786,029			787,462
Current taxes receivable		—			3,189
Funds held under reinsurance agreements		887,551			794,453
Other assets		1,867,624			1,559,245
Total assets	$	31,869,187		$	28,927,010

Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
Loss and loss adjustment expenses	$	14,354,864		$	12,970,626
Unearned premiums		3,507,790			2,984,060
Senior notes and other debt		2,552,198			2,135,946
Reinsurance payable		333,033			208,384
Current taxes payable		8,966			—
Net deferred tax liabilities		16,670			43,547
Other liabilities		1,973,630			1,594,918
Total liabilities		22,747,151			19,937,481
Redeemable noncontrolling interests		262,526			233,809
Common stock (shares authorized: 2021 and 2020 – 22,000,000; shares issued: 2021 and 2020 – 17,459,961)		17,460			17,460
Contributed capital		3,611,383			3,613,454
Accumulated other comprehensive income		228,349			452,402
Treasury stock, at cost (2021 – 3,710,825 shares; 2020 – 3,418,781 shares)		(1,834,742	)		(1,645,930	)
Retained earnings		6,837,060			6,318,334
Total stockholders’ equity attributable to Alleghany stockholders		8,859,510			8,755,720
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	31,869,187		$	28,927,010

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)


	Three Months Ended September 30,
	2021			2020
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	1,842,894		$	1,556,859
Net investment income		132,965			129,265
Change in the fair value of equity securities		(136,042	)		92,799
Net realized capital gains		20,172			16,751
Change in allowance for credit losses on available for sale securities		54			3,454
Product and service revenues		1,006,570			723,785
Total revenues		2,866,613			2,522,913

Costs and Expenses
Net loss and loss adjustment expenses		1,513,877			1,173,655
Commissions, brokerage and other underwriting expenses		529,247			464,522
Other operating expenses		890,972			669,423
Corporate administration		6,225			12,871
Amortization of intangible assets		12,637			11,223
Interest expense		25,659			23,319
Total costs and expenses		2,978,617			2,355,013

(Losses) earnings before income taxes		(112,004	)		167,900
Income taxes		(28,509	)		30,253
Net (losses) earnings		(83,495	)		137,647
Net earnings attributable to noncontrolling interest		31,471			11,125
Net (losses) earnings attributable to Alleghany stockholders	$	(114,966	)	$	126,522

Net (losses) earnings	$	(83,495	)	$	137,647
Other comprehensive income (loss):
Change in unrealized gains, net of deferred taxes of ($14,784) and $20,504 in 2021 and 2020, respectively		(55,616	)		77,133
Less: reclassification for net realized capital gains and change in allowance for credit losses on available for sale securities, net of taxes of ($4,248) and ($1,687) for 2021 and 2020, respectively		(15,978	)		(6,345	)
Change in unrealized currency translation adjustment, net of deferred taxes of ($896) and $3,219 for 2021 and 2020, respectively		(3,370	)		12,109
Retirement plans		117			420
Comprehensive (loss) income		(158,342	)		220,964
Comprehensive income attributable to noncontrolling interests		31,471			11,125
Comprehensive (loss) income attributable to Alleghany stockholders	$	(189,813	)	$	209,839

Basic (losses) earnings per share attributable to Alleghany stockholders	$	(8.31	)	$	8.86
Diluted (losses) earnings per share attributable to Alleghany stockholders		(8.60	)		8.86

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)


	Nine Months Ended September 30,
	2021			2020
	($ in thousands, except per share amounts)
Revenues
Net premiums earned	$	5,232,008		$	4,396,147
Net investment income		413,380			359,938
Change in the fair value of equity securities		180,588			(187,991	)
Net realized capital gains		46,045			(8,323	)
Change in allowance for credit losses on available for sale securities		2,272			(10,900	)
Product and service revenues		2,574,830			1,684,335
Total revenues		8,449,123			6,233,206

Costs and Expenses
Net loss and loss adjustment expenses		3,713,153			3,225,461
Commissions, brokerage and other underwriting expenses		1,528,796			1,315,935
Other operating expenses		2,354,453			1,646,390
Corporate administration		35,931			17,143
Amortization of intangible assets		36,546			32,884
Interest expense		73,448			63,869
Total costs and expenses		7,742,327			6,301,682

Earnings (losses) before income taxes		706,796			(68,476	)
Income taxes		132,639			(21,111	)
Net earnings (losses)		574,157			(47,365	)
Net earnings attributable to noncontrolling interest		55,431			9,953
Net earnings (losses) attributable to Alleghany stockholders	$	518,726		$	(57,318	)

Net earnings (losses)	$	574,157		$	(47,365	)
Other comprehensive income (loss):
Change in unrealized gains, net of deferred taxes of ($48,377) and $56,401 in 2021 and 2020, respectively		(181,991	)		212,175
Less: reclassification for net realized capital gains and change in allowance for credit losses on available for sale securities, net of taxes of ($10,147) and ($6,051) for 2021 and 2020, respectively		(38,170	)		(22,761	)
Change in unrealized currency translation adjustment, net of deferred taxes of ($839) and $3,506 for 2021 and 2020, respectively		(3,158	)		13,190
Retirement plans		(735	)		1,356
Comprehensive income		350,103			156,595
Comprehensive income attributable to noncontrolling interests		55,431			9,953
Comprehensive income attributable to Alleghany stockholders	$	294,672		$	146,642

Basic earnings (losses) per share attributable to Alleghany stockholders	$	37.28		$	(4.01	)
Diluted earnings (losses) per share attributable to Alleghany stockholders		37.22			(4.43	)

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)


	Nine Months Ended September 30, 2021
	Common Stock		Contributed Capital			Accumulated Other Comprehensive Income (loss)			Treasury Stock			Retained Earnings			Total Stockholders' Equity Attributable to Alleghany Shareholders			Redeemable Non- controlling Interest
	($ in thousands, except share amounts)
Balance as of December 31, 2020
(17,459,961 shares of common stock issued; 3,418,781 in treasury)	$	17,460	$	3,613,454		$	452,402		$	(1,645,930	)	$	6,318,334		$	8,755,720		$	233,809
Add (deduct):
Net earnings		—		—			—			—			230,041			230,041			8,022
Other comprehensive income (loss), net of tax:
Retirement plans		—		—			(965	)		—			—			(965	)		—
Change in unrealized appreciation of investments, net		—		—			(229,708	)		—			—			(229,708	)		—
Change in unrealized currency translation adjustment, net		—		—			2,461			—			—			2,461			—
Comprehensive (loss) income		—		—			(228,212	)		—			230,041			1,829			8,022
Treasury stock repurchase		—		—			—			(63,192	)		—			(63,192	)		—
Other, net		—		310			—			1,214			—			1,524			(8,268	)
Balance as of March 31, 2021
(17,459,961 shares of common stock issued; 3,519,292 in treasury)		17,460		3,613,764			224,190			(1,707,908	)		6,548,375			8,695,881			233,563
Add (deduct):
Net earnings		—		—			—			—			403,651			403,651			15,938
Other comprehensive income (loss), net of tax:
Retirement plans		—		—			113			—			—			113			—
Change in unrealized appreciation of investments, net		—		—			81,141			—			—			81,141			—
Change in unrealized currency translation adjustment, net		—		—			(2,249	)		—			—			(2,249	)		—
Comprehensive income		—		—			79,005			—			403,651			482,656			15,938
Treasury stock repurchase		—		—			—			(35,925	)		—			(35,925	)		—
Other, net		—		(981	)		1			399			—			(581	)		(8,779	)
Balance as of June 30, 2021
(17,459,961 shares of common stock issued; 3,571,187 in treasury)	$	17,460	$	3,612,783		$	303,196		$	(1,743,434	)	$	6,952,026		$	9,142,031		$	240,722
Add (deduct):
Net (losses) earnings		—		—			—			—			(114,966	)		(114,966	)		31,471
Other comprehensive income (loss), net of tax:
Retirement plans		—		—			117			—			—			117			—
Change in unrealized appreciation of investments, net		—		—			(71,594	)		—			—			(71,594	)		—
Change in unrealized currency translation adjustment, net		—		—			(3,370	)		—			—			(3,370	)		—
Comprehensive (loss) income		—		—			(74,847	)		—			(114,966	)		(189,813	)		31,471
Treasury stock repurchase		—		—			—			(91,324	)		—			(91,324	)		—
Other, net		—		(1,400	)		—			16			—			(1,384	)		(9,667	)
Balance as of September 30, 2021
(17,459,961 shares of common stock issued; 3,710,825 in treasury)	$	17,460	$	3,611,383		$	228,349		$	(1,834,742	)	$	6,837,060		$	8,859,510		$	262,526


	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 Shareholders			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	)		—			(361,218	)		(661,911	)		(254	)
Dividends paid		—		—			—			—			(215,013	)		(215,013	)		—
Treasury stock repurchase		—		—			—			(44,268	)		—			(44,268	)		—
Other, net		—		1,499			—			3,591			—			5,090			3,862
Balance as of March 31, 2020
(17,459,961 shares of common stock issued; 3,150,279 in treasury)		17,460		3,610,137			(129,343	)		(1,496,554	)		5,855,362			7,857,062			208,361
Add (deduct):
Net earnings (losses)		—		—			—			—			177,378			177,378			(918	)
Other comprehensive income, net of tax:
Retirement plans		—		—			419			—			—			419			—
Change in unrealized appreciation of investments, net		—		—			406,103			—			—			406,103			—
Change in unrealized currency translation adjustment, net		—		—			14,814			—			—			14,814			—
Comprehensive income (loss)		—		—			421,336			—			177,378			598,714			(918	)
Treasury stock repurchase		—		—			—			—			—			—			—
Other, net		—		(616	)		—			1,079			—			463			20,463
Balance as of June 30, 2020
(17,459,961 shares of common stock issued; 3,148,009 in treasury)	$	17,460	$	3,609,521		$	291,993		$	(1,495,475	)	$	6,032,740		$	8,456,239		$	227,906
Add (deduct):
Net earnings		—		—			—			—			126,522			126,522			11,125
Other comprehensive income, net of tax:
Retirement plans		—		—			420			—			—			420			—
Change in unrealized appreciation of investments, net		—		—			70,788			—			—			70,788			—
Change in unrealized currency translation adjustment, net		—		—			12,109			—			—			12,109			—
Comprehensive income		—		—			83,317			—			126,522			209,839			11,125
Treasury stock repurchase		—		—			—			(69,989	)		—			(69,989	)		—
Other, net		—		268			—			38			—			306			(2,152	)
Balance as of September 30, 2020
(17,459,961 shares of common stock issued; 3,279,342 in treasury)	$	17,460	$	3,609,789		$	375,310		$	(1,565,426	)	$	6,159,262		$	8,596,395		$	236,879

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
	2021			2020
	($ in thousands)
Cash flows from operating activities
Net earnings (losses)	$	574,157		$	(47,365	)
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		131,980			114,717
Change in the fair value of equity securities		(180,588	)		187,991
Net realized capital (gains) losses		(46,045	)		8,323
Change in allowance for credit losses on available for sale securities		(2,272	)		10,900
(Increase) decrease in reinsurance recoverables, net of reinsurance payable		(281,830	)		(1,947	)
(Increase) decrease in premium balances receivable		(342,444	)		(144,274	)
(Increase) decrease in ceded unearned premiums		(135,227	)		(62,646	)
(Increase) decrease in deferred acquisition costs		(84,679	)		(52,085	)
(Increase) decrease in funds held under reinsurance agreements		(93,098	)		(52,828	)
Increase (decrease) in unearned premiums		523,730			322,383
Increase (decrease) in loss and loss adjustment expenses		1,384,238			753,156
Change in unrealized foreign currency exchange rate losses (gains)		75,413			(7,012	)
Other, net		50,808			(245,578	)
Net adjustments		999,986			831,100
Net cash provided by operating activities		1,574,143			783,735
Cash flows from investing activities
Purchases of debt securities		(5,219,289	)		(5,255,118	)
Purchases of equity securities		(963,870	)		(1,282,583	)
Sales of debt securities		2,957,325			2,906,720
Maturities and redemptions of debt securities		1,652,348			1,215,659
Sales of equity securities		387,455			1,442,025
Net (purchases) sales of short-term investments		(346,375	)		286,249
Net (purchases) sales and maturities of commercial mortgage loans		126,827			(5,675	)
(Purchases) sales of property and equipment		(45,065	)		(27,412	)
Purchases of affiliates and subsidiaries, net of cash acquired		(58,011	)		(123,936	)
Other, net		12,974			251,072
Net cash used in investing activities		(1,495,681	)		(592,999	)
Cash flows from financing activities
Repayment of senior notes		—			(307,095	)
Treasury stock acquisitions		(190,441	)		(114,258	)
Proceeds from issuance of senior notes		493,195			499,335
Debt issue costs paid		(5,675	)		(4,550	)
Increase (decrease) in other debt		(104,845	)		(8,215	)
Cash dividends paid		—			(215,013	)
Other, net		(51,005	)		2,582
Net cash provided by (used in) financing activities		141,229			(147,214	)
Effect of foreign exchange rate changes on cash		(15,627	)		7,959
Net increase in cash		204,064			51,481
Cash at beginning of period		791,442			1,179,098
Cash at end of period	$	995,506		$	1,230,579

Supplemental disclosures of cash flow information
Cash paid during period for:
Interest paid	$	56,683		$	55,683
Income taxes paid		100,653			57,461

See accompanying Notes to Unaudited Consolidated Financial Statements.

ALLEGHANY CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Summary of Significant Accounting Principles

(a) Principles of Financial Statement Presentation

This Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 of Alleghany Corporation (“Alleghany”).

Alleghany, a Delaware corporation, owns and supports certain operating subsidiaries and manages investments, anchored by a core position in property and casualty reinsurance and insurance. Through its wholly-owned subsidiary Transatlantic Holdings, Inc. (“TransRe”), an Alleghany subsidiary since March 2012, Alleghany is engaged in the property and casualty reinsurance business. Through its wholly-owned subsidiary Alleghany Insurance Holdings LLC (“AIHL”), Alleghany is engaged in the property and casualty insurance business. AIHL’s insurance operations are principally conducted by its subsidiaries RSUI Group, Inc. (“RSUI”) and CapSpecialty, Inc. (“CapSpecialty”). RSUI and CapSpecialty have been subsidiaries of AIHL since July 2003 and January 2002, respectively. AIHL Re LLC (“AIHL Re”), a captive reinsurance company, which provides reinsurance to Alleghany’s current and former insurance operating subsidiaries and affiliates, has been a subsidiary of Alleghany since its formation in May 2006.

Although Alleghany’s primary sources of revenues and earnings are its reinsurance and insurance operations and investments, Alleghany also generates revenues and expenses from a diverse portfolio of non-financial businesses that are owned and supported through its wholly-owned subsidiary Alleghany Capital Corporation (“Alleghany Capital”). Alleghany Capital’s businesses include:



Precision Cutting Technologies, Inc. (“PCT”), a holding company headquartered in Rockford, Illinois, with four operating businesses: (i) Bourn & Koch, Inc., a provider of precision automated machine tool solutions; (ii) Diamond Technology Innovations, Inc., a manufacturer of waterjet orifices and nozzles and a provider of related services; (iii) Coastal Industrial Distributors, LLC, a provider of high-performance solid carbide end mills; and (iv) Supermill LLC, a manufacturer of high-performance solid carbide end mills;



R.C. Tway Company, LLC (“Kentucky Trailer”), a manufacturer of custom trailers and truck bodies for the moving and storage industry and other markets, headquartered in Louisville, Kentucky;



IPS-Integrated Project Services, LLC (“IPS”), a design, engineering, procurement, construction management and validation service provider focused on the global pharmaceutical and biotechnology industries, headquartered in Blue Bell, Pennsylvania;



Jazwares, LLC (together with its affiliates, “Jazwares”), a global toy and musical instrument company, headquartered in Sunrise, Florida;



WWSC Holdings, LLC (“W&W|AFCO Steel”), a structural steel fabricator and erector, headquartered in Oklahoma City, Oklahoma;



CHECO Holdings, LLC (“Concord”), a hotel management and development company, headquartered in Raleigh, North Carolina;



Wilbert Funeral Services, Inc. (“Wilbert”), a provider of products and services for the funeral and cemetery industries and precast concrete markets, headquartered in Overland Park, Kansas; and



Piedmont Manufacturing Group, LLC (“Piedmont”), a provider of injection molded and thermoformed parts and multi-component assemblies for original equipment manufacturer customers in a range of end-markets, headquartered in Belmont, North Carolina.

The results of Piedmont have been included in Alleghany’s consolidated results from its formation and subsequent acquisition of Wilbert, Inc., doing business as Wilbert Plastic Services (“WPS”) on May 10, 2021.

On April 1, 2020, Alleghany Capital acquired an additional approximately 55 percent of Wilbert it previously did not own, bringing its equity interest in Wilbert to approximately 100 percent, and as of that date, the results of Wilbert were included in Alleghany’s consolidated results. Prior to April 1, 2020, Wilbert was accounted for under the equity method of accounting and was included in other invested assets.

In addition, Alleghany owns certain other holding-company investments. Alleghany’s wholly-owned subsidiary Alleghany Properties Holdings LLC (“Alleghany Properties”) owns and manages certain properties in the Sacramento, California region. Alleghany’s public equity investments are managed primarily through Alleghany’s wholly-owned subsidiary Roundwood Asset Management LLC. Prior to its December 31, 2020 sale, Stranded Oil Resources Corporation (“SORC”) was a wholly-owned subsidiary. Headquartered in Golden, Colorado, SORC was an exploration and production company focused on enhanced oil recovery.

Unless the context otherwise requires, references to “Alleghany” include Alleghany together with its subsidiaries.

The accompanying consolidated financial statements include the results of Alleghany and its wholly-owned and majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All material inter-company balances and transactions have been eliminated in consolidation.

The portion of stockholders’ equity, net earnings and comprehensive income that is not attributable to Alleghany stockholders is presented on the consolidated balance sheets, the consolidated statements of earnings and comprehensive income and the consolidated statements of changes in stockholders’ equity as noncontrolling interests. Because all noncontrolling interests have the option to sell their ownership interests to Alleghany in the future (generally through 2024), the portion of stockholders’ equity that is not attributable to Alleghany stockholders is presented on the consolidated balance sheets and the consolidated statements of changes in stockholders’ equity as redeemable noncontrolling interests for all periods presented. In addition, Alleghany accretes the redeemable noncontrolling interests up to their future estimated redemption value over the period from the date of issuance to the earliest redemption date. The redemption value of the equity interests is generally based on the subsidiary’s earnings in specified periods preceding the applicable redemption date, calculated based on either a specified formula or an independent fair market valuation. During the first nine months of 2021, the noncontrolling interests outstanding were approximately as follows: Kentucky Trailer - 23 percent; IPS - 15 percent; Jazwares - 24 percent; W&W|AFCO Steel - 20 percent; and Concord - 15 percent.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Alleghany relies on historical experience and on various other assumptions that it believes to be reasonable under the circumstances to make judgments about the carrying value of assets and liabilities and reported revenues and expenses that are not readily apparent from other sources. Actual results may differ materially from those reported results to the extent that those estimates and assumptions prove to be inaccurate. Changes in estimates are reflected in the consolidated statements of earnings and comprehensive income in the period in which the changes are made.

(b) Other Significant Accounting Principles

Alleghany’s significant accounting principles can be found in Note 1 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K.

Recently Adopted

In June 2016, the FASB issued guidance on credit losses. Under this guidance, a company is required to measure all expected credit losses on loans, reinsurance recoverables and other financial assets accounted for at cost or amortized cost, as applicable, over the remaining expected life of such assets. Estimates of expected credit losses are to be based on historical experience, current conditions and reasonable and supportable forecasts. Under former FASB guidance, credit losses on these assets generally required a company to recognize credit losses when it was probable that a loss had been incurred. Credit losses for securities accounted for on an available for sale (“AFS”) basis are to be measured in a manner similar to GAAP as applied under former guidance and cannot exceed the amount by which the fair value is less than the amortized cost, although the new guidance removes the length of time a security has been in an unrealized loss position as a possible indication of a credit impairment. Credit losses for all financial assets are to be recorded through an allowance for credit losses. Subsequent reversals in credit loss estimates are permitted and are to be recognized in earnings. This guidance also requires new disclosures about the significant estimates and judgments used in estimating credit losses, as well as the credit quality of financial assets. This guidance was effective in the first quarter of 2020 for public companies, with early adoption permitted. Alleghany adopted this guidance in the first quarter of 2020.

As of January 1, 2020, Alleghany increased its allowances for credit losses on certain financial assets accounted for at cost or amortized cost by $4.5 million and recorded an after-tax cumulative effect reduction in opening retained earnings of $3.6 million. The increase in allowances for credit losses primarily relates to reinsurance recoverables and commercial mortgage loans. See Note 4 of this Form 10-Q for further information on Alleghany’s reinsurance recoverables and Note 3(i) of this Form 10-Q for further information on Alleghany’s investments in commercial mortgage loans. The increase in allowances for credit losses also relates to premium balances receivable. Estimates of expected credit losses for all of these assets are based on certain market-based indicators of credit quality, which are updated on an annual basis and re-assessed at least quarterly. Related credit loss expenses are recorded as a component of other operating expenses.

As of January 1, 2020, credit losses for Alleghany’s AFS securities are recorded through an allowance for credit losses on the consolidated balance sheets and as a change in allowance for credit losses on AFS securities in the consolidated statements of earnings and comprehensive income. See Note 3(f) of this Form 10-Q for further information on the credit quality for Alleghany’s AFS securities.

In January 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill. Under this guidance, if an initial qualitative assessment indicates that the fair value of an operating subsidiary may be less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount of the operating subsidiary exceeds its estimated fair value. Any resulting impairment loss recognized cannot exceed the total amount of goodwill associated with the operating subsidiary. This guidance was effective in the first quarter of 2020 for public companies, with early adoption permitted. Alleghany adopted this guidance in the first quarter of 2020 and the implementation did not have a material impact on its results of operations and financial condition. See Note 2 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for further information on Alleghany’s goodwill.

In August 2018, the FASB issued guidance that changes the financial statement disclosure requirements for measuring fair value. With respect to financial instruments classified as “Level 3” in the fair value disclosure hierarchy, the guidance requires certain additional disclosures for public companies related to amounts included in other comprehensive income and significant unobservable inputs used in the valuation, while removing disclosure requirements related to an entity’s overall valuation processes. The guidance also removes certain disclosure requirements related to transfers between financial instruments classified as “Level 1” and “Level 2” and provides clarification on certain other existing disclosure requirements. This guidance was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted with respect to any eliminated or modified disclosures. Alleghany adopted this guidance in the first quarter of 2020 and the implementation did not impact its results of operations or financial condition. See Note 2 of this Form 10-Q for further information on the fair value of Alleghany’s financial instruments.

In March 2020, the FASB issued guidance to expedite and simplify the accounting associated with the anticipated migration away from the widely-used London Inter-bank Offered Rate and other similar rates as benchmark interest rates after 2021. Under pre-existing GAAP, such modifications made to: (i) loans and certain other contracts would require re-assessments of the accounting for those contracts, such as whether they were extinguished and remeasured from an accounting perspective; and (ii) derivative contracts may cause a change in accounting, such as a possible dedesignation of hedge accounting. This new guidance largely eliminates these requirements as a result of this migration to one or more new benchmark rates and is generally applicable for contract modifications made prior to December 31, 2022. As a consequence, Alleghany will not recognize gains and losses during this benchmark interest rate transition period that would otherwise have arisen from accounting assessments and remeasurements. Alleghany adopted this guidance in March 2020 and the implementation did not have an impact on its results of operations and financial condition.

Future Application of Accounting Standards

In August 2020, the FASB issued guidance that simplifies the accounting and disclosure requirements for certain financial instruments with characteristics of liabilities and equity, such as convertible debt and convertible preferred stock. This guidance also modifies the accounting for certain contracts involving an entity’s own stock. This guidance is effective in the first quarter of 2022 for public companies, with early adoption permitted. Alleghany will adopt this guidance in the first quarter of 2022 and does not currently believe that the implementation will have a material impact on its results of operations and financial condition.

In May 2021, the FASB issued guidance on how issuers should account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. Under this guidance, the issuer will determine the accounting for the modification or exchange based on the economic substance of the modification or exchange (i.e. to issue equity, to issue or modify debt, or other reasons). This guidance is effective in the first quarter of 2022 for all entities, with early adoption permitted when applied as of the beginning of the fiscal year. Alleghany will adopt this guidance in the first quarter of 2022 and does not currently believe that the implementation will have a material impact on its results of operations and financial condition.

2. Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of Alleghany’s consolidated financial instruments as of September 30, 2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
	($ in millions)
Assets
Investments (excluding equity method investments and loans)(1)	$	20,417.0	$	20,417.0	$	19,051.9	$	19,051.9

Liabilities
Senior notes and other debt(2)	$	2,552.2	$	2,850.4	$	2,135.9	$	2,468.7

(1)

This table includes debt and equity securities, as well as partnership and non-marketable equity investments accounted for at fair value that are included in other invested assets. This table excludes investments accounted for using the equity method and commercial mortgage loans that are accounted for at unpaid principal balance. The fair value of short-term investments approximates amortized cost.

(2)

See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for additional information on the senior notes and other debt.

The following tables present Alleghany’s financial instruments at fair value and the level of the fair value hierarchy of inputs used as of September 30, 2021 and December 31, 2020:


	Level 1		Level 2		Level 3		Total
	($ in millions)
As of September 30, 2021
Equity securities:
Common stock	$	3,465.0	$	2.1	$	—	$	3,467.1
Preferred stock		—		3.3		1.3		4.6
Total equity securities		3,465.0		5.4		1.3		3,471.7
Debt securities:
U.S. Government obligations		—		2,011.8		—		2,011.8
Municipal bonds		—		2,608.5		—		2,608.5
Foreign government obligations		—		826.7		1.7		828.4
U.S. corporate bonds		—		2,696.8		641.2		3,338.0
Foreign corporate bonds		—		1,060.7		163.1		1,223.8
Mortgage and asset-backed securities:
Residential mortgage-backed securities (“RMBS”)(1)		—		1,953.8		2.0		1,955.8
Commercial mortgage-backed securities (“CMBS”)		—		909.9		—		909.9
Other asset-backed securities(2)		—		1,619.6		1,389.1		3,008.7
Total debt securities		—		13,687.8		2,197.1		15,884.9
Short-term investments		—		1,060.4		—		1,060.4
Other invested assets(3)		—		—		—		—
Total investments (excluding equity method investments and loans)	$	3,465.0	$	14,753.6	$	2,198.4	$	20,417.0
Senior notes and other debt	$	—	$	2,364.8	$	485.6	$	2,850.4


	Level 1		Level 2		Level 3		Total
	($ in millions)
As of December 31, 2020
Equity securities:
Common stock	$	2,711.1	$	3.5	$	—	$	2,714.6
Preferred stock		—		3.0		1.3		4.3
Total equity securities		2,711.1		6.5		1.3		2,718.9
Debt securities:
U.S. Government obligations		—		1,360.1		—		1,360.1
Municipal bonds		—		2,656.8		—		2,656.8
Foreign government obligations		—		879.5		—		879.5
U.S. corporate bonds		—		2,914.1		631.6		3,545.7
Foreign corporate bonds		—		1,133.6		189.5		1,323.1
Mortgage and asset-backed securities:
RMBS(1)		—		2,608.9		2.5		2,611.4
CMBS		—		884.5		5.8		890.3
Other asset-backed securities(2)		—		1,448.9		902.7		2,351.6
Total debt securities		—		13,886.4		1,732.1		15,618.5
Short-term investments		—		714.2		—		714.2
Other invested assets(3)		—		—		0.3		0.3
Total investments (excluding equity method investments and loans)	$	2,711.1	$	14,607.1	$	1,733.7	$	19,051.9
Senior notes and other debt	$	—	$	1,911.8	$	556.9	$	2,468.7

(1)

Primarily includes government agency pass-through securities guaranteed by a government agency or government sponsored enterprise, among other types of RMBS.

(2)

Includes $1,360.0 million and $878.4 million of collateralized loan obligations as of September 30, 2021 and December 31, 2020, respectively.

(3)

Includes partnership and non-marketable equity investments accounted for at fair value and excludes investments accounted for using the equity method.

In the nine months ended September 30, 2021, Alleghany transferred into Level 3 $5.8 million of financial instruments, principally due to a decrease in observable inputs related to the valuation of such assets. Specifically, during the first nine months of 2021, there was an increase in the weight given to non-binding broker quotes and, as a result, there was a corresponding decrease in quoted prices for similar assets in active markets. All of the $5.8 million of transfers related to other asset-backed securities. There were no transfers into Level 3 in the three months ended September 30, 2021.

In the three and nine months ended September 30, 2021, Alleghany transferred out of Level 3 $10.2 million and $45.6 million respectively, of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the first nine months of 2021, there was a decrease in the weight given to non-binding broker quotes and, as a result, there was a corresponding increase in quoted prices for similar assets in active markets. Of the $45.6 million of transfers, $37.0 million related other asset-backed securities, $5.8 million related to CMBS and $2.8 million related to U.S. corporate bonds.

In the nine months ended September 30, 2020, Alleghany transferred out of Level 3 $17.8 million of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the first nine months of 2020, there was a decrease in the weight given to non-binding broker quotes and, as a result, there was a corresponding increase in quoted prices for similar assets in active markets. Of the $17.8 million of transfers, $14.5 million related to other asset-backed securities, with the remainder related to foreign corporate bonds. There were no transfers out of Level 3 in the three months ended September 30, 2020.

The following tables present reconciliations of the changes during the nine months ended September 30, 2021 and 2020 in Level 3 assets measured at fair value:


			Debt Securities
											Mortgage and asset-backed
Nine Months Ended September 30, 2021	Preferred Stock		Foreign Government Obligations		U.S. Corporate Bonds			Foreign Corporate Bonds			RMBS			CMBS			Other Asset- backed Securities			Other Invested Assets(1)			Total
	($ in millions)
Balance as of January 1, 2021	$	1.3	$	—	$	631.6		$	189.5		$	2.5		$	5.8		$	902.7		$	0.3		$	1,733.7
Net realized/unrealized gains (losses) included in:
Net earnings (losses)(2)		—		—		0.1			(0.1	)		—			—			0.4			0.1			0.5
Other comprehensive income (loss)		—		—		(14.0	)		(5.3	)		(0.1	)		—			8.9			—			(10.5	)
Purchases		—		1.7		99.5			2.4			—			—			732.6			—			836.2
Sales		—		—		—			—			—			—			(1.4	)		(0.4	)		(1.8	)
Issuances		—		—		—			—			—			—			—			—			—
Settlements		—		—		(73.2	)		(23.4	)		(0.4	)		—			(222.9	)		—			(319.9	)
Transfers into Level 3		—		—		—			—			—			—			5.8			—			5.8
Transfers out of Level 3		—		—		(2.8	)		—			—			(5.8	)		(37.0	)		—			(45.6	)
Balance as of September 30, 2021	$	1.3	$	1.7	$	641.2		$	163.1		$	2.0		$	—		$	1,389.1		$	—		$	2,198.4


			Debt Securities
											Mortgage and asset-backed
Nine Months Ended September 30, 2020	Preferred Stock		Foreign Government Obligations		U.S. Corporate Bonds			Foreign Corporate Bonds			RMBS			CMBS		Other Asset- backed Securities			Other Invested Assets(1)		Total
	($ in millions)
Balance as of January 1, 2020	$	2.0	$	—	$	605.0		$	168.7		$	1.9		$	5.8	$	856.7		$	0.3	$	1,640.4
Net realized/unrealized gains (losses) included in:
Net earnings (losses)(2)		—		—		(3.8	)		0.1			—			—		(9.5	)		—		(13.2	)
Other comprehensive income (loss)		—		—		19.2			5.1			(0.1	)		0.1		(8.2	)		—		16.1
Purchases		—		—		26.0			15.6			0.9			—		63.3			—		105.8
Sales		—		—		(2.0	)		(0.8	)		—			—		(54.7	)		—		(57.5	)
Issuances		—		—		—			—			—			—		—			—		—
Settlements		—		—		(14.7	)		(10.4	)		(0.2	)		—		(55.8	)		—		(81.1	)
Transfers into Level 3		—		—		—			—			—			—		—			—		—
Transfers out of Level 3		—		—		—			(3.3	)		—			—		(14.5	)		—		(17.8	)
Balance as of September 30, 2020	$	2.0	$	—	$	629.7		$	175.0		$	2.5		$	5.9	$	777.3		$	0.3	$	1,592.7

(1)

Includes partnership and non-marketable equity investments accounted for at fair value.

(2)

There were no credit losses recorded in net earnings related to Level 3 instruments still held as of September 30, 2021 and 2020.

With respect to changes in Level 3 liabilities during the first nine months of 2021, the decrease in senior notes and other debt reflects decreased borrowings at Alleghany Capital subsidiaries due to a reduction in working capital needs.

Although Alleghany is responsible for the determination of the fair value of Alleghany’s financial assets and the supporting methodologies and assumptions, it employs third-party valuation service providers to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments. When those providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting a quote, which is generally non-binding, from brokers who are knowledgeable about these securities or by employing widely accepted valuation models. As of September 30, 2021 and December 31, 2020, the fair value for the vast majority of debt securities included in Level 3 was provided by such third-party valuation service providers, and as such, valuation details on these securities are generally not available to Alleghany.

Alleghany employs specific control processes to determine the reasonableness of the fair values of its financial assets and liabilities. Alleghany’s processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. Alleghany assesses the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, Alleghany validates the reasonableness of fair values by comparing information obtained from Alleghany’s valuation service providers to other third-party valuation sources for selected securities. Alleghany also validates prices obtained from brokers for selected securities through reviews by those who have relevant expertise and who are independent of those charged with executing investing transactions.

See Note 1(c) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for Alleghany’s accounting policy on fair value.

3. Investments

(a) Unrealized Gains and Losses

The following tables present the amortized cost and the fair value of AFS securities as of September 30, 2021 and December 31, 2020:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses			Fair Value
	($ in millions)
As of September 30, 2021
Debt securities:
U.S. Government obligations	$	1,996.9	$	26.1	$	(11.2	)	$	—		$	2,011.8
Municipal bonds		2,482.0		130.9		(4.4	)		—			2,608.5
Foreign government obligations		817.0		17.3		(5.9	)		—			828.4
U.S. corporate bonds		3,162.6		190.0		(14.3	)		(0.3	)		3,338.0
Foreign corporate bonds		1,202.8		27.0		(6.0	)		—			1,223.8
Mortgage and asset-backed securities:
RMBS		1,921.9		48.4		(14.5	)		—			1,955.8
CMBS		875.2		36.7		(2.0	)		—			909.9
Other asset-backed securities(1)		2,983.3		33.1		(7.7	)		—			3,008.7
Total debt securities		15,441.7		509.5		(66.0	)		(0.3	)		15,884.9
Short-term investments		1,060.4		—		—			—			1,060.4
Total investments	$	16,502.1	$	509.5	$	(66.0	)	$	(0.3	)	$	16,945.3


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses			Fair Value
	($ in millions)
As of December 31, 2020
Debt securities:
U.S. Government obligations	$	1,317.6	$	44.0	$	(1.5	)	$	—		$	1,360.1
Municipal bonds		2,489.1		168.3		(0.6	)		—			2,656.8
Foreign government obligations		846.6		33.4		(0.5	)		—			879.5
U.S. corporate bonds		3,262.0		289.7		(3.5	)		(2.5	)		3,545.7
Foreign corporate bonds		1,268.3		55.6		(0.7	)		(0.1	)		1,323.1
Mortgage and asset-backed securities:
RMBS		2,533.6		78.3		(0.5	)		—			2,611.4
CMBS		852.6		45.3		(7.6	)		—			890.3
Other asset-backed securities(1)		2,328.7		47.6		(24.7	)		—			2,351.6
Total debt securities		14,898.5		762.2		(39.6	)		(2.6	)		15,618.5
Short-term investments		714.2		—		—			—			714.2
Total investments	$	15,612.7	$	762.2	$	(39.6	)	$	(2.6	)	$	16,332.7

(1)

Includes $1,360.0 million and $878.4 million of collateralized loan obligations as of September 30, 2021 and December 31, 2020, respectively.

(b) Contractual Maturity

The following table presents the amortized cost and estimated fair value of debt securities by contractual maturity as of September 30, 2021. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
	($ in millions)
As of September 30, 2021
Short-term investments due in one year or less	$	1,060.4	$	1,060.4
Mortgage and asset-backed securities(1)		5,780.4		5,874.4
Debt securities with maturity dates:
One year or less		691.7		697.8
Over one through five years		3,608.2		3,705.1
Over five through ten years		2,845.3		2,940.4
Over ten years		2,516.1		2,667.2
Total debt securities	$	15,441.7	$	15,884.9

(1)

Mortgage and asset-backed securities by their nature do not generally have single maturity dates.

The following table presents net investment income for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	($ in millions)
Interest income	$	99.4		$	109.1		$	298.4		$	337.6
Dividend income		18.8			4.9			65.4			20.2
Investment expenses		(6.5	)		(7.6	)		(19.4	)		(22.1	)
Partnerships and other investment results		21.3			22.9			69.0			24.2
Total	$	133.0		$	129.3		$	413.4		$	359.9

As of September 30, 2021, non-income producing invested assets were immaterial.

(d) Change in the Fair Value of Equity Securities

The proceeds from sales of equity securities were $0.0 billion and $0.1 billion for the three months ended September 30, 2021 and 2020, respectively, and $0.4 billion and $1.4 billion for the nine months ended September 30, 2021 and 2020, respectively.

The following table presents changes in the fair value of equity securities for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021		2020
	($ in millions)
Change in the fair value of equity securities sold during the period	$	0.3		$	3.4	$	8.2	$	(110.8	)
Change in the fair value of equity securities held at the end of the period		(136.4	)		89.4		172.4		(77.2	)
Change in the fair value of equity securities	$	(136.1	)	$	92.8	$	180.6	$	(188.0	)

(e) Realized Gains and Losses

The proceeds from sales of debt securities were $0.6 billion and $0.4 billion for the three months ended September 30, 2021 and 2020, respectively, and $3.0 billion and $2.9 billion for the nine months ended September 30, 2021 and 2020, respectively.

Realized capital gains and losses for the three and nine months ended September 30, 2021 and 2020 primarily reflect the sale of debt securities, except as noted in the footnotes to the following table. The following table presents amounts of gross realized capital gains and gross realized capital losses for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2021			2020				2021			2020
	($ in millions)
Gross realized capital gains	$	20.8		$	21.4		(1)	$	63.1		$	108.8		(3)
Gross realized capital losses		(0.7	)		(4.6	)	(2)		(17.1	)		(117.1	)	(4)
Net realized capital gains	$	20.1		$	16.8			$	46.0		$	(8.3	)

(1)

Gross realized capital gains in the three months ended September 30, 2020 include a gain of $13.8 million on a partial settlement and remeasurement of fair value of certain outstanding contingent consideration liabilities by Alleghany Capital in connection with its 2018 acquisition of Concord (the “Concord Settlement Gain”).

(2)

Gross realized capital losses in the three months ended September 30, 2020 include impairment charges of $1.6 million from write-downs of SORC oil field assets prior to SORC’s December 31, 2020 sale.

(3)

Gross realized capital gains in the nine months ended September 30, 2020 include (i) the $13.8 million Concord Settlement Gain; (ii) a gain of $16.3 million on April 1, 2020 in connection with Alleghany Capital’s acquisition of an additional approximately 55 percent of Wilbert that it did not previously own, and the remeasurement of its pre-existing approximately 45 percent equity ownership to estimated fair value (the “Wilbert Remeasurement Gain”); and (iii) a $5.0 million realized gain from a reduction of certain contingent consideration liabilities at the PCT-level in connection with its acquisition of a provider of high-performance solid carbide end mills in June 2019.

(4)

Gross realized capital losses in the nine months ended September 30, 2020 include (i) impairment charges of $76.0 million from write-downs of SORC oil field assets prior to SORC’s December 31, 2020 sale; and (ii) a $7.1 million realized loss as a result of an early redemption of debt (see Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K).

Gross realized loss amounts exclude change in allowance for credit losses on AFS securities, as discussed below.

(f) Credit quality for AFS securities

Alleghany holds its debt securities as AFS and, as such, these securities are recorded at fair value. Credit losses on AFS securities are recorded through an allowance for credit losses. Changes in the allowance for credit losses are recorded for (or as a reversal of) credit losses on AFS securities. Any portion of a decline in fair value related to a debt security that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than charged against earnings.

Alleghany continually monitors the difference between amortized cost and the estimated fair value of its debt investments. The analysis of a security’s decline in value is performed in its functional currency. Debt securities in an unrealized loss position are evaluated for credit losses if they meet any of the following criteria: (i) they are trading at a discount of at least 20 percent to amortized cost and have a credit rating below investment grade or are not rated; (ii) there has been a negative credit or news event with respect to the issuer that could indicate the existence of a credit loss; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.

If Alleghany intends to sell, or it is more likely than not that Alleghany will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as a credit loss in earnings. To the extent that a debt security that is in an unrealized loss position is not impaired based on the preceding, Alleghany will consider a debt security to be impaired when it believes it to be probable that Alleghany will not be able to collect the entire amortized cost basis. For debt securities in an unrealized loss position as of the end of each quarter, Alleghany develops a best estimate of the present value of expected cash flows. If the results of the cash flow analysis indicate that Alleghany will not recover the full amount of its amortized cost basis in the debt security, Alleghany records a credit loss in earnings equal to the difference between the present value of expected cash flows and the amortized cost basis of the debt security. If applicable, the difference between the total unrealized loss position on the debt security and the total loss recognized in earnings is the non-credit related portion, which is recorded as a component of other comprehensive income.

In developing the cash flow analyses for debt securities, Alleghany considers various factors for the different categories of debt securities. For municipal bonds, Alleghany takes into account the taxing power of the issuer, source of revenue, credit risk and enhancements and pre-refunding. For mortgage and asset-backed securities, Alleghany discounts its best estimate of future cash flows at an effective rate equal to the original effective yield of the security or, in the case of floating rate securities, at the current coupon. Alleghany’s models include assumptions about prepayment speeds, default and delinquency rates, underlying collateral (if any), credit ratings, credit enhancements and other observable market data. For corporate bonds, Alleghany reviews business prospects, credit ratings and available information from asset managers and rating agencies for individual securities.

Change in allowance for credit losses on AFS securities in the first nine months of 2021 primarily reflects a $2.3 million reduction of credit losses on AFS securities primarily from debt security sales. Of the $2.3 million of change in allowance for credit losses on AFS securities, $0.1 million were incurred in the third quarter of 2021.

Change in allowance for credit losses on AFS securities in the first nine months of 2020 reflects $10.9 million of unrealized losses on debt securities, primarily related to the energy sector and lower-quality corporate bonds in other sectors due to a significant decline in their fair value relative to their amortized costs. The $10.9 million is net of a $3.4 million reduction of the allowance for credit losses on AFS securities in the third quarter of 2020, arising primarily from the improved bond market conditions and bond sales

The following table presents a rollforward of Alleghany’s allowance for credit losses on AFS securities for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	($ in millions)
Allowance for Credit Losses
Beginning balance	$	0.4		$	8.9		$	2.6		$	—
Beginning balance - cumulative effect of an accounting change		—			—			—			—
Provision for credit losses		(0.1	)		(3.4	)		(2.3	)		10.9
Charge-offs		—			—			—			(5.4	)
Recoveries		—			—			—			—
Ending balance	$	0.3		$	5.5		$	0.3		$	5.5

The gross unrealized investment losses for debt securities as of September 30, 2021 were deemed to be temporary, based on, among other factors: (i) the relative magnitude to which the fair value of these investments had been below cost were not indicative of a credit loss; (ii) the absence of compelling evidence that would cause Alleghany to call into question the financial condition or near-term business prospects of the issuer of the security; and (iii) Alleghany’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery.

Alleghany’s methodology for assessing credit losses contains inherent risks and uncertainties which could include, but are not limited to, incorrect assumptions about financial condition, liquidity or future prospects, inadequacy of any underlying collateral and unfavorable changes in economic conditions or social trends, interest rates or credit ratings.

Alleghany’s consolidated investment portfolio consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The overall credit quality of the debt securities portfolio is measured using the lowest rating of three large, reputable rating agencies. In this regard, the overall weighted-average credit quality rating of Alleghany’s debt securities portfolio as of September 30, 2021 and December 31, 2020, was AA-. Although a portion of Alleghany’s debt securities is insured by third-party financial guaranty insurance companies, which consist predominantly of municipal bonds, the impact of such insurance was not significant to the debt securities’ credit quality rating as of September 30, 2021.

The following table presents the ratings of Alleghany’s debt securities as of September 30, 2021:


	Ratings as of September 30, 2021
	AAA / Aaa			AA / Aa			A			BBB / Baa			Below BBB / Baa or Not Rated(1)			Total
	($ in millions)
U.S. Government obligations	$	1.4		$	2,010.4		$	—		$	—		$	—		$	2,011.8
Municipal bonds		218.9			1,841.5			456.3			83.6			8.2			2,608.5
Foreign government obligations		382.2			359.6			83.7			1.2			1.7			828.4
U.S. corporate bonds		14.1			143.0			1,324.8			1,474.4			381.7			3,338.0
Foreign corporate bonds		198.4			74.6			546.7			373.6			30.5			1,223.8
Mortgage and asset-backed securities:
RMBS		2.3			1,947.1			—			0.8			5.6			1,955.8
CMBS		316.6			385.2			200.4			7.7			—			909.9
Other asset-backed securities		1,343.4			756.6			438.7			434.3			35.7			3,008.7
Total debt securities	$	2,477.3		$	7,518.0		$	3,050.6		$	2,375.6		$	463.4		$	15,884.9
Percentage of debt securities, before allowance for credit losses		15.6	%		47.3	%		19.2	%		15.0	%		2.9	%		100.0	%

(1)

Consists of $139.5 million of securities rated BB / Ba, $200.2 million of securities rated B, $31.2 million of securities rated CCC, $0.6 million of securities rated CC, $2.8 million of securities rated below CC and $89.1 million of not rated securities.

(g) Aging of Gross Unrealized Losses

The following tables present gross unrealized losses and related fair values for Alleghany’s AFS securities for which an allowance for credit losses has not been recorded, grouped by duration of time in a continuous unrealized loss position, as of September 30, 2021 and December 31, 2020:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of September 30, 2021
Debt securities:
U.S. Government obligations	$	784.4	$	9.0	$	41.6	$	2.2	$	826.0	$	11.2
Municipal bonds		236.6		4.3		2.1		0.1		238.7		4.4
Foreign government obligations		278.5		4.4		36.7		1.5		315.2		5.9
U.S. corporate bonds		467.5		9.0		67.0		5.3		534.5		14.3
Foreign corporate bonds		324.8		5.2		23.0		0.8		347.8		6.0
Mortgage and asset-backed securities:
RMBS		949.7		14.3		19.7		0.2		969.4		14.5
CMBS		82.1		0.2		40.8		1.8		122.9		2.0
Other asset-backed securities		1,095.2		3.2		324.5		4.5		1,419.7		7.7
Total temporarily impaired securities	$	4,218.8	$	49.6	$	555.4	$	16.4	$	4,774.2	$	66.0


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of December 31, 2020
Debt securities:
U.S. Government obligations	$	255.9	$	1.5	$	—	$	—	$	255.9	$	1.5
Municipal bonds		36.2		0.6		—		—		36.2		0.6
Foreign government obligations		132.8		0.5		—		—		132.8		0.5
U.S. corporate bonds		168.5		3.5		2.4		—		170.9		3.5
Foreign corporate bonds		36.4		0.2		19.5		0.5		55.9		0.7
Mortgage and asset-backed securities:
RMBS		152.6		0.5		0.4		—		153.0		0.5
CMBS		133.5		7.6		3.8		—		137.3		7.6
Other asset-backed securities		547.9		13.4		533.9		11.3		1,081.8		24.7
Total temporarily impaired securities	$	1,463.8	$	27.8	$	560.0	$	11.8	$	2,023.8	$	39.6

As of September 30, 2021, Alleghany held a total of 1,234 debt securities that were in an unrealized loss position, of which 145 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these debt securities consisted of losses related primarily to U.S. corporate bonds and other asset-backed securities.

(h) Investments in Variable Interest Entities

In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings Limited (“Pillar Holdings”), a Bermuda- based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe and, to a lesser extent, AIHL invested in limited partnership funds managed by Pillar Holdings (the “Funds”). The objective of the Funds is to create portfolios with attractive risk-reward characteristics and low correlation with other asset classes, using the extensive reinsurance and capital market experience of the principals of Pillar Holdings. Alleghany has concluded that both Pillar Holdings and the Funds (collectively, the “Pillar Investments”) represent variable interest entities and that Alleghany is not the primary beneficiary, as it does not have the ability to direct the activities that most significantly impact each entity’s economic performance. Therefore, the Pillar Investments are not consolidated and are accounted for under the equity method of accounting. Alleghany’s potential maximum loss in the Pillar Investments is limited to its cumulative net investment. As of September 30, 2021 and December 31, 2020, Alleghany’s carrying value in the Pillar Investments, as determined under the equity method of accounting, was $164.6 million and $173.3 million, respectively, which is reported as a component of other invested assets and is net of returns of capital received from the Pillar Investments.

(i) Investments in Commercial Mortgage Loans

As of September 30, 2021 and December 31, 2020, the carrying value of Alleghany’s commercial mortgage loan portfolio was $543.4 million and $670.2 million, respectively, representing the unpaid principal balance on the loans, less allowance for credit losses. The estimated fair value of the commercial mortgage loan portfolio approximated carrying value as of September 30, 2021 and December 31, 2020. The commercial mortgage loan portfolio consists primarily of first mortgages on commercial properties in major metropolitan areas in the U.S. The loans earn interest at fixed- and floating-rates, and mature in two to ten years from loan origination. As of September 30, 2021, the vast majority of loans in Alleghany’s portfolio were originated in the 2016 through 2019 years.

The principal amounts of the loans were no more than approximately two-thirds of the property’s appraised value at the time the loans were made and the estimated fair value of underlying collateral was approximately double that of the commercial mortgage loan portfolio carrying value as of September 30, 2021. Fair value estimates of underlying collateral are updated on a rolling basis at least annually, with a portion of the portfolio updated each quarter. As of September 30, 2021, there was no loan in default or in arrears.

The following table presents a rollforward of Alleghany’s allowance for credit losses on commercial mortgage loans for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
	($ in millions)
Allowance for Credit Losses
Beginning balance	$	0.6		$	1.3	$	1.4		$	—
Beginning balance - cumulative effect of an accounting change		—			—		—			0.8
Provision for credit losses		(0.4	)		0.2		(1.2	)		0.7
Charge-offs		—			—		—			—
Recoveries		—			—		—			—
Ending balance	$	0.2		$	1.5	$	0.2		$	1.5

4. Reinsurance Ceded

(a) Overview

Alleghany’s 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. Alleghany’s reinsurance and insurance subsidiaries generally purchase reinsurance and retrocessional coverages from highly-rated third-party reinsurers or on a collateralized basis. If the assuming reinsurers are unable or unwilling to meet the obligations assumed under the applicable reinsurance agreements, Alleghany’s 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 Alleghany’s reinsurance recoverables and Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs. A summary of the more significant programs follows.

TransRe enters into various retrocession arrangements, including property catastrophe retrocession contracts, to manage the effects of individual or aggregate exposure to losses, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns, strengthen its market position and enhance capital efficiency. These include excess-of-loss and quota share treaties in both traditional rated and collateralized form as well as catastrophe bonds. TransRe’s retrocession protections generally have a one-year term and renewal dates occur throughout the year, with the majority renewing at January 1. The catastrophe bonds, however, have a four-year term, with maturities in 2022 and 2023.

RSUI reinsures its property lines of business through a program consisting of surplus share treaties, facultative placements, and per risk and catastrophe excess of loss treaties. RSUI’s catastrophe reinsurance program and property per risk reinsurance program each run on an annual basis from May 1 to the following April 30 and portions expired on April 30, 2021. Both programs were renewed on May 1, 2021 with substantially similar terms as the expired programs.

(b) Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the loss and loss adjustment expense (“LAE”) liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverables, and are recorded after an allowance for credit losses. Such balances as of September 30, 2021 and December 31, 2020 are presented in the table below:


	As of September 30,			As of December 31,
	2021			2020
	($ in millions)
Reinsurance recoverables on paid losses	$	134.4		$	85.3
Ceded outstanding loss and LAE		2,056.1			1,703.7
Reinsurance recoverables, before allowance for credit losses		2,190.5			1,789.0
Allowance for credit losses		(2.9	)		(7.9	)
Total	$	2,187.6		$	1,781.1

The following table presents information regarding concentration of Alleghany’s reinsurance recoverables and the ratings profile of our reinsurers as of September 30, 2021:


Reinsurer(1)	Rating(2)	Amount			Percentage
	($ in millions)
Kane SAC Ltd, Rondout Segregated Account(3)	not rated	$	179.7			8.2	%
Syndicates at Lloyd's of London	A (Excellent)		159.5			7.3	%
PartnerRe Ltd	A (Excellent)		133.2			6.1	%
RenaissanceRe Holdings Ltd	A+ (Superior)		123.5			5.6	%
Fairfax Financial Holdings Ltd	A (Excellent)		115.4			5.3	%
Swiss Reinsurance Company	A+ (Superior)		98.7			4.5	%
Kane SAC Ltd, Bowery Segregated Account(3)	not rated		76.0			3.5	%
Chubb	A++ (Superior)		74.2			3.4	%
W.R. Berkley Corporation	A+ (Superior)		71.0			3.2	%
SiriusPoint Ltd.	A- (Excellent)		70.2			3.2	%
All other reinsurers			1,089.1			49.7	%
Total reinsurance recoverables, before allowance for credit losses(4)		$	2,190.5			100.0	%
Allowance for credit losses			(2.9	)
Total		$	2,187.6
Secured reinsurance recoverables(3)		$	972.5			44.4	%

(1)

Reinsurance recoverables reflect amounts due from one or more reinsurance subsidiaries of the listed company.

(2)

Represents the A.M. Best Company, Inc. financial strength rating for the applicable reinsurance subsidiary or subsidiaries from which the reinsurance recoverable is due.

(3)

Represents reinsurance recoverables secured by funds held, trust agreements or letters of credit.

(4)

Approximately 63 percent of our reinsurance recoverables balance as of September 30, 2021 was due from reinsurers having an A.M. Best Company, Inc. financial strength rating of A (Excellent) or higher, with a majority of the other reinsurance recoverables being secured by funds held, trust agreements or letters of credit.

The following table presents a rollforward of Alleghany’s allowance for credit losses on reinsurance recoverables for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021			2020
	($ in millions)
Allowance for Credit Losses
Beginning balance	$	2.6	$	6.9	$	7.9		$	—
Beginning balance - cumulative effect of an accounting change		—		—		—			3.3
Provision for credit losses		0.3		—		(5.0	)		3.6
Charge-offs		—		—		—			—
Recoveries		—		—		—			—
Ending balance	$	2.9	$	6.9	$	2.9		$	6.9

5. Liability for Loss and LAE

(a) Liability Rollforward

The following table presents the activity in the liability for loss and LAE for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30,
	2021			2020
	($ in millions)
Reserves as of January 1	$	12,970.6		$	11,928.4
Less: reinsurance recoverables(1)		1,703.7			1,583.9
Net reserves as of January 1		11,266.9			10,344.5

Other adjustments		0.1			(2.3	)

Incurred loss and LAE, net of reinsurance, related to:
Current year		3,916.7			3,381.5
Prior years		(203.5	)		(156.0	)
Total incurred loss and LAE, net of reinsurance		3,713.2			3,225.5

Paid loss and LAE, net of reinsurance, related to:(2)
Current year		585.4			504.0
Prior years		2,097.2			2,078.0
Total paid loss and LAE, net of reinsurance		2,682.6			2,582.0

Foreign currency exchange rate effect		1.2			74.9

Net reserves as of September 30		12,298.8			11,060.6
Reinsurance recoverables as of September 30(1)		2,056.1			1,620.9
Reserves as of September 30	$	14,354.9		$	12,681.5

(1)

Reinsurance recoverables in this table include only ceded loss and LAE reserves.

(2)

Includes paid losses and LAE, net of reinsurance, related to commutations.

Gross loss and LAE reserves as of September 30, 2021 increased from December 31, 2020, primarily reflecting the impact of growing net premiums earned and catastrophe losses incurred in first nine months of 2021, partially offset by payments on catastrophe losses incurred primarily in 2017 through 2020, and net favorable prior accident year loss reserve development. Catastrophe losses incurred in 2020 and, as noted below, prior accident year loss reserve development in the first nine months of 2021 include amounts related to the COVID-19 global pandemic (the “Pandemic”); See Note 9(a) of this Form 10-Q for additional information.

(b) Liability Development

The following table presents the (favorable) unfavorable prior accident year loss reserve development for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	($ in millions)
Reinsurance Segment
Property:
Catastrophe events (excluding Pandemic)	$	(11.2	)	(1)	$	4.6			$	(14.2	)	(2)	$	(27.3	)	(3)
Pandemic		15.1				—				62.7				—
Non-catastrophe		(20.0	)	(4)		(19.7	)	(5)		(54.6	)	(4)		(47.5	)	(5)
Total		(16.1	)			(15.1	)			(6.1	)			(74.8	)
Casualty & specialty:
Catastrophe events (excluding Pandemic)		(1.5	)			0.4				(2.7	)			(2.1	)
Pandemic		(16.8	)			—				(47.1	)			—
Non-catastrophe		(23.2	)	(6)		(33.6	)	(7)		(131.5	)	(6)		(80.3	)	(8)
Total		(41.5	)			(33.2	)			(181.3	)			(82.4	)
Total Reinsurance Segment		(57.6	)			(48.3	)			(187.4	)			(157.2	)

Insurance Segment
RSUI:
Casualty		(3.2	)	(9)		(6.6	)	(10)		(6.9	)	(9)		8.9		(11)
Property and other		(3.6	)	(12)		(7.9	)	(13)		(11.9	)	(12)		(8.4	)	(13)
Total		(6.8	)			(14.5	)			(18.8	)			0.5
CapSpecialty		2.4		(14)		0.5				2.7		(14)		0.7
Total incurred related to prior years	$	(62.0	)		$	(62.3	)		$	(203.5	)		$	(156.0	)

(1)

Primarily reflects favorable prior accident year loss reserve development related to catastrophe losses in the 2018 accident year.

(2)

Primarily reflects favorable prior accident year loss reserve development related to catastrophic events in the 2017 and 2018 accident years, partially offset by unfavorable prior accident year loss reserve development related to Hurricane Laura and Sally in the 2020 accident year.

(3)

Primarily reflects favorable prior accident year loss reserve development related to Typhoon Hagibis in the 2019 accident year and, to a lesser extent, catastrophic events in the 2018 accident year.

(4)

Primarily reflects favorable prior accident year loss reserve development related to the 2019 and 2020 accident years.

(5)

Primarily reflects favorable prior accident year loss reserve development in recent accident years.

(6)

Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed lines of business in recent accident years and longer-tailed lines of business in the 2014 and earlier accident years, partially offset by unfavorable prior accident year development in the longer-tailed lines of business in the 2015 through 2018 accident years.

(7)

Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed lines of business in the 2018 and 2019 accident years.

(8)

Primarily reflects favorable prior accident year loss reserve development in the longer-tailed lines of business in the 2013 and earlier accident years and in the shorter-tailed lines of business in the 2017 accident year, partially offset by unfavorable prior accident year loss reserve development in the longer- and shorter-tailed lines of business in the 2015 accident year.

(9)

Primarily reflects favorable prior accident year loss reserve development in the umbrella/excess lines of business in the 2007 through 2015 accident years, partially offset by unfavorable prior accident year loss reserve development in the directors’ and officers’ liability lines of business in the 2013 and 2014 accident years and the binding authority lines of business in the 2011 through 2013 accident years.

(10)

Primarily reflects favorable prior accident year loss reserve development in the directors’ and officers’ liability and umbrella/excess lines of business in the 2011 through 2015 accident years, partially offset by unfavorable prior accident year loss reserve development in the professional liability and binding authority lines of business in recent accident years.

(11)

Primarily reflects unfavorable prior accident year loss reserve development in the professional liability lines of business in the 2017 through 2019 accident years, partially offset by favorable prior accident year loss reserve development in the directors’ and officers’ liability and umbrella/excess lines of business in the 2011 through 2015 accident years.

(12)

Primarily reflects favorable prior accident year loss reserve development related to losses not classified as catastrophes in recent accident years and, to a lesser extent, catastrophes in the 2017 and 2018 accident years, partially offset by unfavorable prior accident year loss reserve development related to catastrophes in the 2020 accident year.

(13)

Primarily reflects favorable prior accident year loss reserve development related to the assumed property reinsurance lines of business from Asian catastrophe losses in the 2019 and 2018 accident years and, to a lesser extent, favorable prior accident year loss reserve development also reflects U.S. catastrophe losses in the 2018 accident year.

(14)

Primarily reflects unfavorable prior accident year loss reserve development in the healthcare and construction liability lines of business in the 2015 through 2017 accident years.

6. Income Taxes

The effective tax rate on earnings before income taxes for the first nine months of 2021 was 18.8 percent compared with 30.8 percent for the first nine months of 2020. The effective tax rate in the first nine months of 2021, expressed as an expense, represents an estimate of the annual effective tax rate, comprised of the 21.0 percent federal income tax rate less 2.2 percent of projected permanent tax benefits, net of state and foreign tax rates and certain other adjustments. The effective tax rate in the first nine months of 2020 was calculated based on actual results through September 30, 2020 because management was not able to reliably estimate the annual effective tax rate in light of the significant losses incurred. Therefore, the effective tax rate in the first nine months of 2020, expressed as a benefit, represents the actual effective rate, comprised of the 21.0 percent federal income tax rate plus 9.8 percent of actual permanent tax benefits, net of state and foreign tax rates and certain other adjustments. Permanent tax benefits primarily include tax exempt interest income and dividends-received deductions. The relatively high effective tax rate in the first nine months of 2020 reflects the increased effect of permanent tax benefits on an effective tax rate basis due to the relatively modest amount of losses before income taxes.

Alleghany believes that, as of September 30, 2021, it had no material uncertain tax positions. Interest and penalties related to unrecognized tax expenses (benefits) are recognized in income tax expense, when applicable. There were no material liabilities for interest or penalties accrued as of September 30, 2021. Alleghany’s deferred tax balances include significant amounts of assets related to foreign currency exchange losses.

Alleghany’s foreign tax credit carry forwards begin to expire in 2028. A valuation allowance is provided against deferred tax assets when, in the opinion of management, it is more likely than not that a portion of the deferred tax asset will not be realized. The realization of the deferred tax assets is dependent upon Alleghany’s ability to generate sufficient foreign taxable income in future periods. Based on historical results, current tax laws and the prospects for future profits, management believes that it is more likely than not that future taxable income will be sufficient for the realization of these assets. See Note 9 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for additional information on Alleghany’s deferred tax assets.

7. Stockholders’ Equity

(a) Common Stock Repurchases

In June 2018, the Alleghany Board of Directors authorized the repurchase of shares of common stock of Alleghany, par value $1.00 per share (“Common Stock”), at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million. In September 2019, the Alleghany Board of Directors authorized, upon the completion of the program authorized in 2018, the repurchase of additional shares of Common Stock at such times and at prices as management determines to be advisable, up to an aggregate of $500.0 million. As of September 30, 2021, Alleghany had $242.0 million remaining under its share repurchase authorizations.

The following table presents the shares of Common Stock that Alleghany repurchased in the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Shares repurchased		139,670		131,414		295,411		193,954
Cost of shares repurchased (in millions)	$	91.3	$	70.0	$	190.4	$	114.3
Average price per share repurchased	$	653.85	$	532.59	$	644.66	$	589.10

(b) Accumulated Other Comprehensive Income (Loss)

The following tables present a reconciliation of the changes during the three and nine months ended September 30, 2021 and 2020 in accumulated other comprehensive income (loss) attributable to Alleghany stockholders:


	Unrealized Appreciation of Investments			Unrealized Currency Translation Adjustment			Retirement Plans			Total
	($ in millions)
Balance as of January 1, 2021	$	564.9		$	(99.4	)	$	(13.1	)	$	452.4
Other comprehensive (loss) income, net of tax:
Other comprehensive loss before reclassifications		(182.0	)		(3.2	)		(0.7	)		(185.9	)
Reclassifications from accumulated other comprehensive income		(38.2	)		—			—			(38.2	)
Total		(220.2	)		(3.2	)		(0.7	)		(224.1	)
Balance as of September 30, 2021	$	344.7		$	(102.6	)	$	(13.8	)	$	228.3


	Unrealized Appreciation of Investments			Unrealized Currency Translation Adjustment			Retirement Plans			Total
	($ in millions)
Balance as of January 1, 2020	$	321.0		$	(121.8	)	$	(27.9	)	$	171.3
Other comprehensive income (loss), net of tax:
Other comprehensive income before reclassifications		212.2			13.2			1.4			226.8
Reclassifications from accumulated other comprehensive income		(22.8	)		—			—			(22.8	)
Total		189.4			13.2			1.4			204.0
Balance as of September 30, 2020	$	510.4		$	(108.6	)	$	(26.5	)	$	375.3

The following table presents unrealized appreciation of investment reclassifications out of accumulated other comprehensive income (loss) attributable to Alleghany stockholders during the three and nine months ended September 30, 2021 and 2020:


Accumulated Other		Three Months Ended September 30,						Nine Months Ended September 30,
Comprehensive Income Component	Line in Consolidated Statement of Earnings	2021			2020			2021			2020
		($ in millions)
Unrealized appreciation of investments:	Net realized capital gains(1)	$	(20.1	)	$	(4.6	)	$	(46.0	)	$	(39.8	)
	Change in allowance for credit losses on available for sale securities		(0.1	)		(3.4	)		(2.3	)		10.9
	Income taxes		4.2			1.7			10.1			6.1
Total reclassifications:	Net (earnings) losses	$	(16.0	)	$	(6.3	)	$	(38.2	)	$	(22.8	)

(1)

For the three months ended September 30, 2020, excludes: (i) the $13.8 million Concord Settlement Gain; and (ii) $1.6 million of impairment charges from a write-down of SORC oil field assets. For the nine months ended September 30, 2020, excludes: (i) the $16.3 million Wilbert Remeasurement Gain; (ii) a $7.1 million realized loss as a result of an early redemption of debt (Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for further information); (iii) $76.0 million of impairment charges from a write-down of SORC oil field assets; (iv) a $5.0 million realized gain resulting from a reduction of certain PCT contingent consideration liabilities (see Note 3(e) of this Form 10-Q for additional information); and (v) the $13.8 million Concord Settlement Gain.

In February 2020, the Alleghany Board of Directors declared a special dividend of $15.00 per share for stockholders of record on March 5, 2020. On March 16, 2020, Alleghany paid dividends to stockholders totaling $215.0 million.

8. Earnings Per Share of Common Stock

The following table presents a reconciliation of the earnings and share data used in the basic and diluted earnings per share computations for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021		2020
	($ in millions, except share amounts)
Net (losses) earnings available to Alleghany stockholders	$	(115.0	)	$	126.5	$	518.7	$	(57.3	)
Effect of dilutive securities		(4.1	)		—		0.2		(6.2	)
Income available to common stockholders for diluted earnings per share	$	(119.1	)	$	126.5	$	518.9	$	(63.5	)

Weighted average common shares outstanding applicable to basic earnings per share		13,837,707			14,275,487		13,915,535		14,309,010
Effect of dilutive securities		16,931			—		23,480		23,310
Adjusted weighted average common shares outstanding applicable to diluted earnings per share		13,854,638			14,275,487		13,939,015		14,332,320

Contingently issuable shares(1)							35,510		32,652

(1)

Contingently issuable shares were potentially available in the periods presented, but were not included in the diluted earnings per share computations because the impact was anti-dilutive to the earnings per share calculation.

9. Commitments and Contingencies

(a) The Pandemic

The Pandemic has significantly disrupted many aspects of society, as well as financial markets, and has caused widespread global economic dislocation. Widespread vaccine rollouts in the U.S. occurred earlier in 2021 and are continuing, however, new variants of the virus have emerged, delaying widespread implementation of return-to-office plans. Alleghany cannot reasonably estimate the duration or severity of the Pandemic, or the extent to which the related disruption may adversely impact its results of operations, financial position and cash flows, or those of its subsidiaries. Adverse impacts from the Pandemic in future periods may include realized and unrealized losses in Alleghany’s investment portfolio and receivables, increased underwriting losses at its reinsurance and insurance segments, and impairment losses on certain subsidiary goodwill and intangible assets.

(b) Legal Proceedings

Certain of Alleghany’s subsidiaries are parties to pending litigation and claims in connection with the ordinary course of their businesses. Each such subsidiary makes provisions for estimated losses to be incurred in such litigation and claims, including legal costs. In the opinion of management, such provisions are adequate, and management does not believe that any pending litigation will have a material adverse effect on Alleghany’s consolidated results of operations, financial position or cash flows.

Alleghany and its subsidiaries lease certain facilities, land, furniture and equipment under long-term, non-cancelable lease agreements that expire at various dates in future years. Most of Alleghany’s leases relate to office facilities. Alleghany’s lease agreements do not contain any material restrictive covenants and substantially all are considered to be operating leases. Additional information about leases can be found in Note 12(b) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K.

(d) Hotel Development Commitments

Commencing in 2020, Alleghany Capital invested $0.7 million in certain hotel development projects. The projects are conducted through certain limited liability entities, which are variable interest entities, to which Alleghany is not the primary beneficiary. As of September 30, 2021, Alleghany guaranteed up to $5.3 million of debt of these entities to certain third-party lenders, for which Alleghany receives a fee.

10. Segments of Business

(a) Overview

Alleghany’s segments are reported in a manner consistent with the way management evaluates the businesses. As such, Alleghany classifies its businesses into three reportable segments – reinsurance, insurance and Alleghany Capital.

Reinsurance and insurance underwriting activities are evaluated separately from investment and other activities. Segment accounting policies are described in Note 1 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K.

The reinsurance segment consists of property and casualty reinsurance operations conducted by TransRe’s reinsurance operating subsidiaries and is further reported through two major product lines – property, and casualty & specialty (formerly casualty & other). TransRe provides property and casualty reinsurance to insurers and other reinsurers through brokers and on a direct basis to ceding companies. TransRe writes a modest amount of property and casualty insurance business, which is included in the reinsurance segment. A significant portion of the premiums earned by TransRe’s operations are generated by offices located in Canada, Europe, Asia, Australia, Africa and those serving Latin America and the Caribbean. Although the majority of the premiums earned by these offices typically relate to the regions where they are located, a significant portion may be derived from other regions of the world, including the U.S. In addition, although a significant portion of the assets and liabilities of these foreign offices generally relate to the countries where the ceding companies and reinsurers are located, most investments are located in the country of domicile of these offices.

The insurance segment consists of property and casualty insurance operations conducted in the U.S. by AIHL through its insurance operating subsidiaries RSUI and CapSpecialty. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment.

The Alleghany Capital segment consists of industrial operations, non-industrial operations and corporate operations at the Alleghany Capital level, which include hotel development projects. Industrial operations are conducted through PCT, Kentucky Trailer, W&W|AFCO Steel, Wilbert and, beginning May 10, 2021, Piedmont. Non-industrial operations are conducted through IPS, Jazwares and Concord.

On May 10, 2021, Piedmont acquired all outstanding equity in WPS for $93.4 million, consisting of $60.4 million in cash and $33.0 million of incremental debt. In connection with the acquisition, Alleghany completed the process of determining the fair value of acquired assets and liabilities in the third quarter of 2021, and recorded $17.7 million and $36.3 million of goodwill and finite-lived intangible assets, respectively. Finite-lived intangible assets relate primarily to customer relationships. The customer relationship asset is estimated to have a useful life of 18.5 years.

Corporate activities are not classified as a segment. The primary components of corporate activities are Alleghany Properties, activities at the Alleghany parent company and, prior to its December 31, 2020 sale, SORC. Corporate activities also include the elimination of minor activity between segments.

In addition, corporate activities include interest expense associated with the senior notes issued by Alleghany, whereas interest expense associated with senior notes issued by TransRe is included in “Total Segments” and interest expense associated with other debt is included in Alleghany Capital. Information related to the senior notes and other debt can be found in Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K.

(b) Results

The following tables present segment results for Alleghany’s three reportable segments and for corporate activities for the three and nine months ended September 30, 2021 and 2020:


		Reinsurance Segment								Insurance Segment
Three Months Ended September 30, 2021		Property			Casualty & specialty(1)		Total			RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital			Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	617.2		$	1,111.0	$	1,728.2		$	533.1	$	128.4	$	661.5	$	2,389.7		$	—		$	2,389.7		$	(11.7	)	$	2,378.0
Net premiums written			467.9			1,046.7		1,514.6			358.0		110.5		468.5		1,983.1			—			1,983.1			—			1,983.1
Net premiums earned			474.3			949.0		1,423.3			316.6		103.0		419.6		1,842.9			—			1,842.9			—			1,842.9
Net loss and LAE			611.2			619.6		1,230.8			219.5		63.6		283.1		1,513.9			—			1,513.9			—			1,513.9
Commissions, brokerage and other underwriting expenses			124.0			300.4		424.4			66.5		38.3		104.8		529.2			—			529.2			—			529.2
Underwriting (loss) profit(2)		$	(260.9	)	$	29.0	$	(231.9	)	$	30.6	$	1.1	$	31.7		(200.2	)		—			(200.2	)		—			(200.2	)
Net investment income																	125.0			0.1			125.1			7.9			133.0
Change in the fair value of equity securities																	(78.3	)		—			(78.3	)		(57.8	)		(136.1	)
Net realized capital gains																	20.7			(0.5	)		20.2			(0.1	)		20.1
Change in allowance for credit losses on available for sale securities																	0.1			—			0.1			—			0.1
Product and service revenues																	10.4			986.4			996.8			9.8			1,006.6
Other operating expenses																	20.8			869.0			889.8			1.2			891.0
Corporate administration																	(0.1	)		—			(0.1	)		6.3			6.2
Amortization of intangible assets																	0.9			11.7			12.6			—			12.6
Interest expense																	6.7			3.9			10.6			15.1			25.7
(Losses) earnings before income taxes																$	(150.6	)	$	101.4		$	(49.2	)	$	(62.8	)	$	(112.0	)


		Reinsurance Segment								Insurance Segment
Three Months Ended September 30, 2020		Property			Casualty & specialty(1)		Total			RSUI			Cap Specialty			Total			Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	473.3		$	904.7	$	1,378.0		$	410.8		$	111.8		$	522.6		$	1,900.6		$	—	$	1,900.6		$	(9.2	)	$	1,891.4
Net premiums written			375.9			887.3		1,263.2			271.9			102.0			373.9			1,637.1			—		1,637.1			—			1,637.1
Net premiums earned			374.7			832.6		1,207.3			260.4			89.2			349.6			1,556.9			—		1,556.9			—			1,556.9
Net loss and LAE			306.1			553.2		859.3			256.6			57.8			314.4			1,173.7			—		1,173.7			—			1,173.7
Commissions, brokerage and other underwriting expenses			112.4			259.0		371.4			58.8			34.3			93.1			464.5			—		464.5			—			464.5
Underwriting (loss) profit(2)		$	(43.8	)	$	20.4	$	(23.4	)	$	(55.0	)	$	(2.9	)	$	(57.9	)		(81.3	)		—		(81.3	)		—			(81.3	)
Net investment income																				122.7			—		122.7			6.6			129.3
Change in the fair value of equity securities																				103.4			—		103.4			(10.6	)		92.8
Net realized capital gains																				1.7			13.9		15.6			1.1			16.7
Change in allowance for credit losses on available for sale securities																				3.4			—		3.4			—			3.4
Product and service revenues																				8.9			713.8		722.7			1.1			723.8
Other operating expenses																				23.4			643.4		666.8			2.6			669.4
Corporate administration																				0.8			—		0.8			12.1			12.9
Amortization of intangible assets																				0.2			11.0		11.2			—			11.2
Interest expense																				6.8			3.3		10.1			13.2			23.3
Earnings (losses) before income taxes																			$	127.6		$	70.0	$	197.6		$	(29.7	)	$	167.9


		Reinsurance Segment								Insurance Segment
Nine Months Ended September 30, 2021		Property			Casualty & specialty(1)		Total			RSUI		Cap Specialty		Total		Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	1,687.9		$	3,125.0	$	4,812.9		$	1,511.5	$	354.1	$	1,865.6	$	6,678.5		$	—	$	6,678.5		$	(30.2	)	$	6,648.3
Net premiums written			1,346.8			2,971.8		4,318.6			994.2		303.3		1,297.5		5,616.1			—		5,616.1			—			5,616.1
Net premiums earned			1,284.5			2,761.8		4,046.3			896.5		289.2		1,185.7		5,232.0			—		5,232.0			—			5,232.0
Net loss and LAE			1,208.4			1,715.1		2,923.5			614.5		175.2		789.7		3,713.2			—		3,713.2			—			3,713.2
Commissions, brokerage and other underwriting expenses			356.9			868.7		1,225.6			191.3		111.9		303.2		1,528.8			—		1,528.8			—			1,528.8
Underwriting (loss) profit(2)		$	(280.8	)	$	178.0	$	(102.8	)	$	90.7	$	2.1	$	92.8		(10.0	)		—		(10.0	)		—			(10.0	)
Net investment income																	384.7			0.1		384.8			28.6			413.4
Change in the fair value of equity securities																	176.6			—		176.6			4.0			180.6
Net realized capital gains																	44.0			0.7		44.7			1.3			46.0
Change in allowance for credit losses on available for sale securities																	2.2			—		2.2			0.1			2.3
Product and service revenues																	30.1			2,534.7		2,564.8			10.0			2,574.8
Other operating expenses																	50.4			2,302.4		2,352.8			1.7			2,354.5
Corporate administration																	(0.5	)		—		(0.5	)		36.4			35.9
Amortization of intangible assets																	1.8			34.7		36.5			—			36.5
Interest expense																	20.2			11.3		31.5			41.9			73.4
Earnings (losses) before income taxes																$	555.7		$	187.1	$	742.8		$	(36.0	)	$	706.8


		Reinsurance Segment									Insurance Segment
Nine Months Ended September 30, 2020		Property			Casualty & specialty(1)			Total			RSUI			Cap Specialty			Total			Subtotal			Alleghany Capital		Total Segments			Corporate Activities			Consolidated
	($ in millions)
Gross premiums written		$	1,299.2		$	2,560.2		$	3,859.4		$	1,251.3		$	298.5		$	1,549.8		$	5,409.2		$	—	$	5,409.2		$	(26.1	)	$	5,383.1
Net premiums written			1,044.6			2,516.1			3,560.7			816.4			271.7			1,088.1			4,648.8			—		4,648.8			—			4,648.8
Net premiums earned			1,024.8			2,386.5			3,411.3			731.3			253.5			984.8			4,396.1			—		4,396.1			—			4,396.1
Net loss and LAE			827.4			1,672.4			2,499.8			568.5			157.2			725.7			3,225.5			—		3,225.5			—			3,225.5
Commissions, brokerage and other underwriting expenses			314.6			729.6			1,044.2			169.4			102.3			271.7			1,315.9			—		1,315.9			—			1,315.9
Underwriting loss(2)		$	(117.2	)	$	(15.5	)	$	(132.7	)	$	(6.6	)	$	(6.0	)	$	(12.6	)		(145.3	)		—		(145.3	)		—			(145.3	)
Net investment income																					347.8			1.8		349.6			10.3			359.9
Change in the fair value of equity securities																					(176.0	)		—		(176.0	)		(12.0	)		(188.0	)
Net realized capital gains																					36.8			35.3		72.1			(80.4	)		(8.3	)
Change in allowance for credit losses on available for sale securities																					(10.7	)		—		(10.7	)		(0.2	)		(10.9	)
Product and service revenues																					24.4			1,654.3		1,678.7			5.7			1,684.4
Other operating expenses																					66.5			1,567.7		1,634.2			12.2			1,646.4
Corporate administration																					(0.9	)		—		(0.9	)		18.0			17.1
Amortization of intangible assets																					0.6			32.3		32.9			—			32.9
Interest expense																					20.3			11.4		31.7			32.2			63.9
(Losses) earnings before income taxes																				$	(9.5	)	$	80.0	$	70.5		$	(139.0	)	$	(68.5	)

(1)

Primarily consists of the following reinsurance lines of business: directors’ and officers’ liability; errors and omissions liability; general liability; medical malpractice; ocean marine and aviation; auto liability; accident and health; mortgage reinsurance; surety; and credit.

(2)

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, change in the fair value of equity securities, net realized capital gains, change in allowance for credit losses on available for sale securities, product and service revenues, other operating expenses, corporate administration, amortization of intangible assets or interest expense. Underwriting profit does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. Rather, Alleghany believes that underwriting profit enhances the understanding of its reinsurance and insurance segments’ operating results by highlighting net earnings attributable to their underwriting performance. Earnings before income taxes (a GAAP measure) may show a profit despite an underlying underwriting loss. Where underwriting losses persist over extended periods, a reinsurance or an insurance company’s ability to continue as an ongoing concern may be at risk. Therefore, Alleghany views underwriting profit as an important measure in the overall evaluation of performance.

The following table presents identifiable assets, the portion of identifiable assets related to cash and invested assets and equity attributable to Alleghany for Alleghany’s reportable segments and for corporate activities as of September 30, 2021:


	Identifiable Assets		Invested Assets and Cash		Equity Attributable to Alleghany
	($ in millions)
Reinsurance segment	$	19,488.3	$	15,013.5	$	5,227.0
Insurance segment		8,067.4		5,887.2		2,630.8
Subtotal		27,555.7		20,900.7		7,857.8
Alleghany Capital		2,817.4		137.3		1,187.9
Total segments		30,373.1		21,038.0		9,045.7
Corporate activities		1,496.1		1,461.6		(186.2	)
Consolidated	$	31,869.2	$	22,499.6	$	8,859.5

(d) Alleghany Capital Product and Service Revenues

For Alleghany Capital’s industrial and non-industrial operations, product and service revenues (formerly noninsurance revenue) consists of the sale of manufactured goods and services. The following table presents product and service revenues for the Alleghany Capital segment for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	($ in millions)
Industrial(1)	$	427.2	$	324.2	$	1,238.8	$	847.3
Non-Industrial(2)		559.2		389.6		1,295.9		806.9
Corporate & other		—		—		—		0.1
Alleghany Capital	$	986.4	$	713.8	$	2,534.7	$	1,654.3

(1)

For the three and nine months ended September 30, 2021 and 2020, the vast majority of industrial product and service revenues were recognized as goods and services transferred to customers over time.

(2)

For the three and nine months ended September 30, 2021, approximately 43 percent and 52 percent, respectively, of non-industrial product and service revenues were recognized as services transferred to customers over time, with the remainder recognized as goods transferred at a point in time. For the three and nine months ended September 30, 2020, approximately 54 percent and 66 percent, respectively, of non-industrial product and service revenues were recognized as services transferred to customers over time, with the remainder recognized as goods transferred in a point in time.

11. Debt

(a) Senior Notes

On August 13, 2021, Alleghany completed a public offering of $500.0 million aggregate principal amount of its 3.250% senior notes due on August 15, 2051 (the “2051 Senior Notes”). The 2051 Senior Notes are unsecured and unsubordinated general obligations of Alleghany. Interest on the 2051 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2022. The terms of the 2051 Senior Notes permit redemption prior to maturity. The indenture under which the 2051 Senior Notes were issued contains covenants that impose conditions on Alleghany’s ability to create liens on the capital stock of AIHL, TransRe or RSUI. The 2051 Senior Notes were issued at approximately 98.6 percent of par, resulting in proceeds after underwriting discount, commissions and other expenses of $487.5 million, and an effective yield of approximately 3.32 percent. Approximately $5.7 million of underwriting discount, commissions and other expenses were recorded as deferred charges, which are amortized over the life of the 2051 Senior Notes. Alleghany intends to use the net proceeds of this offering for general corporate purposes, which may include the repayment at maturity of the 4.95% senior notes due 2022.

(b) Alleghany Capital Operating Subsidiaries

The debt associated with Alleghany Capital’s operating subsidiaries totaled $485.6 million and $556.9 million as of September 30, 2021 and December 31, 2020, respectively, and is generally used to support working capital needs and to help finance acquisitions. As of September 30, 2021, the $485.6 million included:



$244.2 million of borrowings by Jazwares under its available credit facilities to support its seasonal working capital requirements and borrowings incurred and assumed from its acquisitions in 2019 and 2020;



$69.8 million of borrowings by Wilbert under its available credit facility and term loans;



$67.8 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions, including its acquisition of a controlling interest in two manufacturers of aluminum feed transportation equipment in 2018 and 2019, and borrowings under its available credit facilities;



$34.7 million of borrowings by IPS under its available credit facility and term loans, in part to finance a small acquisition in 2019;



$32.2 million of term loans at Piedmont primarily related to borrowings to finance the acquisition of WPS in 2021;



$24.7 million of term loans at PCT primarily related to borrowings to finance the acquisition of a waterjet orifice and nozzle manufacturer in 2016 and the acquisition of a consumable cutting tool manufacturer in 2019; and



$12.2 million borrowings by W&W|AFCO Steel under its available credit facilities and term loans.

None of the above liabilities are guaranteed by Alleghany or Alleghany Capital. In December 2019, third-party, floating-rate term loans at Concord were repaid and replaced with approximately $33 million of intercompany floating-rate debt funded by the Alleghany parent company. The intercompany debt and related interest expenses are eliminated at the Alleghany consolidated level.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2021 and 2020. This discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, or this “Form 10-Q,” and our audited consolidated financial statements and Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the Annual Report on Form 10-K for the year ended December 31, 2020, or the “2020 Form 10-K.” This discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and particularly under the headings “Risk Factors,” “Business” and “Note on Forward-Looking Statements” contained in Item 1A, Item 1, and Part I of the 2020 Form 10-K, respectively.

References in this Form 10-Q to the “Company,” “Alleghany,” “we,” “us,” and “our” refer to Alleghany Corporation and its consolidated subsidiaries unless the context otherwise requires. In addition, unless the context otherwise requires, references to



“TransRe” are to our wholly-owned reinsurance holding company subsidiary Transatlantic Holdings, Inc. and its subsidiaries;



“AIHL” are to our wholly-owned insurance holding company subsidiary Alleghany Insurance Holdings LLC;



“RSUI” are to our wholly-owned subsidiary RSUI Group, Inc. and its subsidiaries;



“CapSpecialty” are to our wholly-owned subsidiary CapSpecialty, Inc. and its subsidiaries;



“AIHL Re” are to our wholly-owned subsidiary AIHL Re LLC;



“Roundwood” are to our wholly-owned subsidiary Roundwood Asset Management LLC;



“Alleghany Capital” are to our wholly-owned subsidiary Alleghany Capital Corporation and its subsidiaries;



“PCT” are to our wholly-owned subsidiary Precision Cutting Technologies, Inc. and its subsidiaries;



“Kentucky Trailer” are to our majority-owned subsidiary R.C. Tway Company, LLC and its subsidiaries;



“IPS” are to our majority-owned subsidiary IPS-Integrated Project Services, LLC and its subsidiaries;



“Jazwares” are to our majority-owned subsidiary Jazwares, LLC and its subsidiaries and affiliates;



“W&W|AFCO Steel” are to our majority-owned subsidiary WWSC Holdings, LLC and its subsidiaries;



“Concord” are to our majority-owned subsidiary CHECO Holdings, LLC and its subsidiaries;



“Wilbert” are to our majority-owned subsidiary Wilbert Funeral Services, Inc. and its subsidiaries;



“Piedmont” are to our wholly-owned subsidiary Piedmont Manufacturing Group, LLC and its subsidiaries;



“Alleghany Properties” are to our wholly-owned subsidiary Alleghany Properties Holdings LLC and its subsidiaries; and



“SORC” are to our former wholly-owned subsidiary Stranded Oil Resources Corporation and its subsidiaries, which was sold on December 31, 2020.

Note on Forward-Looking Statements

Certain statements contained in this Form 10-Q may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “may,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “potential,” “should” or the negative versions of those words or other comparable words. Forward-looking statements do not relate solely to historical or current facts, rather they are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time. These statements are not guarantees of future performance. These forward-looking statements are based upon Alleghany’s current expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and Alleghany’s future financial condition and results. Factors that could cause these forward-looking statements to differ, possibly materially, from that currently contemplated include:



significant weather-related or other natural or man-made catastrophes and disasters;



the effects of outbreaks of pandemics or contagious diseases, including the length and severity of the current worldwide coronavirus pandemic, known as COVID-19, including its impact on our business;



the cyclical nature of the property and casualty reinsurance and insurance industries;



changes in market prices of our significant equity investments and changes in value of our debt securities portfolio;



adverse loss development for events insured by our reinsurance and insurance subsidiaries in either the current year or prior years;



the long-tail and potentially volatile nature of certain casualty lines of business written by our reinsurance and insurance subsidiaries;



the cost and availability of reinsurance;



the reliance by our reinsurance and insurance operating subsidiaries on a limited number of brokers;



legal, political, judicial and regulatory changes;



increases in the levels of risk retention by our reinsurance and insurance subsidiaries;



changes in the ratings assigned to our reinsurance and insurance subsidiaries;



claims development and the process of estimating reserves;



exposure to terrorist acts and acts of war;



the willingness and ability of our reinsurance and insurance subsidiaries’ reinsurers to pay reinsurance recoverables owed to our reinsurance and insurance subsidiaries;



the uncertain nature of damage theories and loss amounts;



the loss of key personnel of our reinsurance or insurance operating subsidiaries;



fluctuation in foreign currency exchange rates;



the failure to comply with the restrictive covenants contained in the agreements governing our indebtedness;



the ability to make payments on, or repay or refinance, our debt;



risks inherent in international operations; and



difficult and volatile conditions in the global market.

Additional risks and uncertainties include general economic and political conditions, including the effects of a prolonged U.S. or global economic downturn or recession; changes in costs; variations in political, economic or other factors; risks relating to conducting operations in a competitive environment; effects of acquisition and disposition activities, inflation rates, or recessionary or expansive trends; changes in interest rates; extended labor disruptions, civil unrest, or other external factors over which we have no control; changes in our plans, strategies, objectives, expectations, or intentions, which may happen at any time at our discretion; and other factors discussed in the 2020 Form 10-K and subsequent filings with the Securities and Exchange Commission, or the “SEC.” All forward-looking statements speak only as of the date they are made and are based on information available at that time. Alleghany does not undertake any obligation to update or revise any forward-looking statements to reflect subsequent circumstances or events. See Part I, Item 1A, “Risk Factors” of the 2020 Form 10-K for additional information.

Comment on Non-GAAP Financial Measures

Throughout this Form 10-Q, our analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the U.S., or “GAAP.” Our results of operations have been presented in the way that we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use financial information in evaluating our performance. This presentation includes the use of underwriting profit and adjusted earnings before income taxes, which are “non-GAAP financial measures,” as such term is defined in Item 10(e) of Regulation S-K promulgated by the SEC. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These measures may also be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. A discussion of our calculation and use of these financial measures is provided below.

Underwriting profit is a non-GAAP financial measure for our reinsurance and insurance segments. Underwriting profit represents net premiums earned less net loss and loss adjustment expenses, or “LAE,” and commissions, brokerage and other underwriting expenses, all as determined in accordance with GAAP and does not include: (i) net investment income; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) change in allowance for credit losses on available for sale securities; (v) product and service revenues; (vi) other operating expenses; (vii) corporate administration; (viii) amortization of intangible assets; and (ix) interest expense. We use underwriting profit as a supplement to earnings before income taxes, the most comparable GAAP financial measure, to evaluate the performance of our reinsurance and insurance segments and believe that underwriting profit provides useful additional information to investors because it highlights net earnings attributable to our reinsurance and insurance segments’ 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. A reconciliation of underwriting profit to earnings before income taxes is presented within “Consolidated Results of Operations.”

Adjusted earnings before income taxes is a non-GAAP financial measure for our Alleghany Capital segment. Adjusted earnings before income taxes represents product and service revenues and net investment income less other operating expenses and interest expense, and does not include: (i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) change in allowance for credit losses on available for sale securities; and (v) income taxes. Because adjusted earnings before income taxes excludes amortization of intangible assets, change in the fair value of equity securities, net realized capital gains, change in allowance for credit losses on available for sale securities and income taxes, it provides an indication of economic performance that is not affected by levels of effective tax rates or levels of amortization resulting from acquisition accounting. We use 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 our noninsurance operating subsidiaries and investments. A reconciliation of adjusted earnings before income taxes to earnings before income taxes is presented within “Consolidated Results of Operations.”

Overview

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our stockholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.



Net losses attributable to Alleghany stockholders were $115.0 million in the third quarter of 2021, compared with net earnings of $126.5 million in the third quarter of 2020, and net earnings attributable to Alleghany stockholders were $518.7 million in the first nine months of 2021, compared with net losses of $57.3 million in the first nine months of 2020.



Net investment income increased by 2.9 percent and 14.9 percent in the third quarter and first nine months of 2021, respectively, from the corresponding 2020 periods.



Net premiums written increased by 21.1 percent and 20.8 percent in the third quarter and first nine months of 2021, respectively, from the corresponding 2020 periods.



Underwriting loss was $200.2 million in the third quarter of 2021, compared with $81.3 million in the third quarter of 2020, and underwriting loss was $10.0 million in the first nine months of 2021, compared with $145.3 million in the first nine months of 2020.



The combined ratio for our reinsurance and insurance segments was 110.8 percent in the third quarter of 2021, compared with 105.2 percent in the third quarter of 2020, and 100.2 percent in the first nine months of 2021, compared with 103.2 percent in the first nine months of 2020.



Catastrophe losses, net of reinsurance and including current year losses from the Pandemic, as defined below, were $433.8 million in the third quarter of 2021, compared with $269.8 million in the third quarter of 2020, and $685.9 million in the first nine months of 2021, compared with $616.0 million in the first nine months of 2020.



Net favorable prior accident year loss reserve development, including prior accident year losses from the Pandemic, as defined below, was $62.0 million in the third quarter of 2021, compared with $62.3 million in the third quarter of 2020, and $203.5 million in the first nine months of 2021, compared with $156.0 million in the first nine months of 2020.



Product and service revenues for Alleghany Capital was $986.4 million in the third quarter of 2021, compared with $713.8 million in the third quarter of 2020, and $2,534.7 million in the first nine months of 2021, compared with $1,654.3 million in the first nine months of 2020.



Earnings before income taxes for Alleghany Capital were $101.4 million in the third quarter of 2021, compared with $70.0 million in the third quarter of 2020, and $187.1 million in the first nine months of 2021, compared with $80.0 million in the first nine months of 2020. Adjusted earnings before income taxes were $113.6 million in the third quarter of 2021, compared with $67.1 million in the third quarter of 2020, and $221.1 million in the first nine months of 2021, compared with $77.0 million in the first nine months of 2020.

As of September 30, 2021, we had total assets of $31.9 billion and total stockholders’ equity attributable to Alleghany stockholders of $8.9 billion. As of September 30, 2021, we had consolidated total investments of approximately $21.5 billion, consisting of $15.9 billion invested in debt securities, $3.5 billion invested in equity securities, $0.5 billion invested in commercial mortgage loans, $1.1 billion invested in short-term investments and $0.5 billion invested in other invested assets.

The ongoing COVID-19 global pandemic, or the “Pandemic,” has significantly disrupted many aspects of society, as well as financial markets, and has caused widespread global economic dislocation. Widespread vaccine rollouts in the U.S. occurred earlier in 2021 and are continuing, however, new variants of the virus have emerged, delaying widespread implementation of return-to-office plans. At the parent and subsidiary levels, we have implemented a variety of business continuation and crisis management policies and procedures to reduce the risk of infection to our employees and others.

Among other impacts on the economy, the Pandemic has adversely impacted financial markets, which in turn impacted our investment portfolio in the first nine months of 2020. These impacts are more fully discussed below and throughout our 2020 Form 10-K.

Since early 2020 through September 30, 2021, our reinsurance and insurance segments have incurred significant losses from the Pandemic (in total $430.8 million), most of which was incurred in 2020. We incurred $1.7 million of favorable and $15.6 million of unfavorable prior accident year Pandemic loss reserve development at TransRe in the third quarter and first nine months of 2021, respectively, compared with $51.0 million and $339.0 million of Pandemic-related catastrophe losses, mostly at TransRe, in the third quarter and first nine months of 2020, respectively. The Pandemic losses incurred at TransRe included those from event cancellation coverage for conferences and sporting events as well as other property coverages and, to a lesser extent, the accident and health and trade credit lines of business. Our Pandemic loss estimates were based on information available at the time to us, including an analysis of reported claims, an underwriting review of in-force contracts and other factors requiring considerable judgment. Our loss estimates for Pandemic losses do not reflect judicial, legislative and regulatory risk that could expand coverage beyond the terms of our treaty and policy language, although they do reflect provisions for related legal expenses. Widespread vaccine rollouts in the U.S. occurred earlier in 2021 and are continuing, however, new variants of the virus have emerged. We cannot reasonably estimate the length or severity of the Pandemic, or the extent to which the related disruption may adversely impact our results of operations, financial position and cash flows. Such potential adverse impacts of a prolonged Pandemic on our operations, financial position and cash flows include further declines in our equity securities portfolio, additional credit-related realized and unrealized losses on our debt securities and commercial mortgage portfolios, additional credit losses on our reinsurance recoverables and other receivables, further losses from event cancellation and other coverages from our reinsurance and insurance subsidiaries, increased litigation and impairment of certain Alleghany Capital subsidiary goodwill and intangible assets.

In the third quarter and first nine months of 2021, our reinsurance and insurance segments incurred $433.8 million and $685.9 million of catastrophe losses, respectively. This included $263.5 million from Hurricane Ida, which caused widespread property damage and flooding in August and early September 2021, primarily in Louisiana upon landfall, as well as causing subsequent damage and flooding in portions of the Northeastern and Mid-Atlantic U.S., primarily in New Jersey and New York. In addition, we incurred $113.5 million from severe flooding in Northwestern and Central Europe in July 2021, or "European Floods." Weather-related catastrophe losses in the third quarter and first nine months of 2021 also include losses from other severe weather in Europe and Asia, severe weather and flooding in the Midwestern U.S. and wildfires in California. Catastrophe losses in the first nine months of 2021 also include $245.2 million, related to Winter Storm Uri and other storms, collectively referred to herein as the “Winter Storms.” The Winter Storms caused widespread property damage, flooding and extended power outages in February 2021, primarily in Texas. Our loss estimates for these catastrophes were based on information available at the time, including an analysis of reported claims, an underwriting review of in-force contracts, estimates of losses to the extent covered by applicable policies, and other factors requiring considerable judgment.

In the third quarter of 2020, our reinsurance and insurance segments incurred $218.8 million of weather-related catastrophe losses, including $100.9 million from Hurricane Laura, which caused widespread property damage and flooding in August 2020, primarily in Louisiana and Texas, and $56.5 million from Hurricane Sally, which caused widespread property damage and flooding in September 2020, primarily in Alabama and Florida. Weather-related catastrophe losses in the third quarter of 2020 also include losses from typhoons and flooding in Asia and a derecho in August 2020, which caused widespread property and crop damage, primarily in Iowa, and a hailstorm in Alberta, Canada.

Consolidated Results of Operations

The following table presents our consolidated revenues, costs and expenses and earnings:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021		2020
	($ in millions)
Revenues
Net premiums earned	$	1,842.9		$	1,556.9	$	5,232.0	$	4,396.1
Net investment income		133.0			129.3		413.4		359.9
Change in the fair value of equity securities		(136.1	)		92.8		180.6		(188.0	)
Net realized capital gains		20.1			16.7		46.0		(8.3	)
Change in allowance for credit losses on available for sale securities		0.1			3.4		2.3		(10.9	)
Product and service revenues		1,006.6			723.8		2,574.8		1,684.4
Total revenues		2,866.6			2,522.9		8,449.1		6,233.2

Costs and Expenses
Net loss and loss adjustment expenses		1,513.9			1,173.7		3,713.2		3,225.5
Commissions, brokerage and other underwriting expenses		529.2			464.5		1,528.8		1,315.9
Other operating expenses		891.0			669.4		2,354.5		1,646.4
Corporate administration		6.2			12.9		35.9		17.1
Amortization of intangible assets		12.6			11.2		36.5		32.9
Interest expense		25.7			23.3		73.4		63.9
Total costs and expenses		2,978.6			2,355.0		7,742.3		6,301.7

(Losses) earnings before income taxes		(112.0	)		167.9		706.8		(68.5	)
Income taxes		(28.5	)		30.3		132.6		(21.1	)
Net (losses) earnings		(83.5	)		137.6		574.2		(47.4	)
Net earnings attributable to noncontrolling interests		31.5			11.1		55.5		9.9
Net (losses) earnings attributable to Alleghany stockholders	$	(115.0	)	$	126.5	$	518.7	$	(57.3	)

See Note 10 to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional detail on our segments and corporate activities. The tables below present the results for our segments and for corporate activities for the three and nine months ended September 30, 2021 and 2020:


	Segments
Three Months Ended September 30, 2021	Reinsurance Segment			Insurance Segment			Subtotal			Alleghany Capital			Total Segments			Corporate Activities(1)			Consolidated
	($ in millions)
Gross premiums written	$	1,728.2		$	661.5		$	2,389.7		$	—		$	2,389.7		$	(11.7	)	$	2,378.0
Net premiums written		1,514.6			468.5			1,983.1			—			1,983.1			—			1,983.1

Net premiums earned		1,423.3			419.6			1,842.9			—			1,842.9			—			1,842.9
Net loss and LAE:
Current year (excluding catastrophe losses)		916.9			225.2			1,142.1			—			1,142.1			—			1,142.1
Current year catastrophe losses(2)		371.5			62.3			433.8			—			433.8			—			433.8
Prior years(2)		(57.6	)		(4.4	)		(62.0	)		—			(62.0	)		—			(62.0	)
Total net loss and LAE		1,230.8			283.1			1,513.9			—			1,513.9			—			1,513.9
Commissions, brokerage and other underwriting expenses		424.4			104.8			529.2			—			529.2			—			529.2
Underwriting (loss) profit(3)	$	(231.9	)	$	31.7			(200.2	)		—			(200.2	)		—			(200.2	)
Net investment income								125.0			0.1			125.1			7.9			133.0
Change in the fair value of equity securities								(78.3	)		—			(78.3	)		(57.8	)		(136.1	)
Net realized capital gains								20.7			(0.5	)		20.2			(0.1	)		20.1
Change in allowance for credit losses on available for sale securities								0.1			—			0.1			—			0.1
Product and service revenues								10.4			986.4			996.8			9.8			1,006.6
Other operating expenses								20.8			869.0			889.8			1.2			891.0
Corporate administration								(0.1	)		—			(0.1	)		6.3			6.2
Amortization of intangible assets								0.9			11.7			12.6			—			12.6
Interest expense								6.7			3.9			10.6			15.1			25.7
(Losses) earnings before income taxes							$	(150.6	)	$	101.4		$	(49.2	)	$	(62.8	)	$	(112.0	)

Loss ratio(4):
Current year (excluding catastrophe losses)		64.4	%		53.7	%		62.0	%
Current year catastrophe losses		26.1	%		14.8	%		23.5	%
Prior years		(4.0	%)		(1.0	%)		(3.4	%)
Total net loss and LAE		86.5	%		67.5	%		82.1	%
Expense ratio(5)		29.8	%		25.0	%		28.7	%
Combined ratio(6)		116.3	%		92.5	%		110.8	%


	Segments
Three Months Ended September 30, 2020	Reinsurance Segment			Insurance Segment			Subtotal			Alleghany Capital		Total Segments			Corporate Activities(1)			Consolidated
	($ in millions)
Gross premiums written	$	1,378.0		$	522.6		$	1,900.6		$	—	$	1,900.6		$	(9.2	)	$	1,891.4
Net premiums written		1,263.2			373.9			1,637.1			—		1,637.1			—			1,637.1

Net premiums earned		1,207.3			349.6			1,556.9			—		1,556.9			—			1,556.9
Net loss and LAE:
Current year (excluding catastrophe losses)		776.0			190.2			966.2			—		966.2			—			966.2
Current year catastrophe losses(2)		131.6			138.2			269.8			—		269.8			—			269.8
Prior years(2)		(48.3	)		(14.0	)		(62.3	)		—		(62.3	)		—			(62.3	)
Total net loss and LAE		859.3			314.4			1,173.7			—		1,173.7			—			1,173.7
Commissions, brokerage and other underwriting expenses		371.4			93.1			464.5			—		464.5			—			464.5
Underwriting (loss)(3)	$	(23.4	)	$	(57.9	)		(81.3	)		—		(81.3	)		—			(81.3	)
Net investment income								122.7			—		122.7			6.6			129.3
Change in the fair value of equity securities								103.4			—		103.4			(10.6	)		92.8
Net realized capital gains								1.7			13.9		15.6			1.1			16.7
Change in allowance for credit losses on available for sale securities								3.4			—		3.4			—			3.4
Product and service revenues								8.9			713.8		722.7			1.1			723.8
Other operating expenses								23.4			643.4		666.8			2.6			669.4
Corporate administration								0.8			—		0.8			12.1			12.9
Amortization of intangible assets								0.2			11.0		11.2			—			11.2
Interest expense								6.8			3.3		10.1			13.2			23.3
Earnings (losses) before income taxes							$	127.6		$	70.0	$	197.6		$	(29.7	)	$	167.9

Loss ratio(4):
Current year (excluding catastrophe losses)		64.3	%		54.4	%		62.1	%
Current year catastrophe losses		10.9	%		39.5	%		17.3	%
Prior years		(4.0	%)		(4.0	)%		(4.0	%)
Total net loss and LAE		71.2	%		89.9	%		75.4	%
Expense ratio(5)		30.8	%		26.6	%		29.8	%
Combined ratio(6)		102.0	%		116.5	%		105.2	%


	Segments
Nine Months Ended September 30, 2021	Reinsurance Segment			Insurance Segment			Subtotal			Alleghany Capital		Total Segments			Corporate Activities(1)			Consolidated
	($ in millions)
Gross premiums written	$	4,812.9		$	1,865.6		$	6,678.5		$	—	$	6,678.5		$	(30.2	)	$	6,648.3
Net premiums written		4,318.6			1,297.5			5,616.1			—		5,616.1			—			5,616.1

Net premiums earned		4,046.3			1,185.7			5,232.0			—		5,232.0			—			5,232.0
Net loss and LAE:
Current year (excluding catastrophe losses)		2,612.9			617.9			3,230.8			—		3,230.8			—			3,230.8
Current year catastrophe losses(2)		498.0			187.9			685.9			—		685.9			—			685.9
Prior years(2)		(187.4	)		(16.1	)		(203.5	)		—		(203.5	)		—			(203.5	)
Total net loss and LAE		2,923.5			789.7			3,713.2			—		3,713.2			—			3,713.2
Commissions, brokerage and other underwriting expenses		1,225.6			303.2			1,528.8			—		1,528.8			—			1,528.8
Underwriting (loss) profit(3)	$	(102.8	)	$	92.8			(10.0	)		—		(10.0	)		—			(10.0	)
Net investment income								384.7			0.1		384.8			28.6			413.4
Change in the fair value of equity securities								176.6			—		176.6			4.0			180.6
Net realized capital gains								44.0			0.7		44.7			1.3			46.0
Change in allowance for credit losses on available for sale securities								2.2			—		2.2			0.1			2.3
Product and service revenues								30.1			2,534.7		2,564.8			10.0			2,574.8
Other operating expenses								50.4			2,302.4		2,352.8			1.7			2,354.5
Corporate administration								(0.5	)		—		(0.5	)		36.4			35.9
Amortization of intangible assets								1.8			34.7		36.5			—			36.5
Interest expense								20.2			11.3		31.5			41.9			73.4
Earnings (losses) before income taxes							$	555.7		$	187.1	$	742.8		$	(36.0	)	$	706.8

Loss ratio(4):
Current year (excluding catastrophe losses)		64.5	%		52.2	%		61.8	%
Current year catastrophe losses		12.3	%		15.8	%		13.1	%
Prior years		(4.6	%)		(1.4	%)		(3.9	%)
Total net loss and LAE		72.2	%		66.6	%		71.0	%
Expense ratio(5)		30.3	%		25.6	%		29.2	%
Combined ratio(6)		102.5	%		92.2	%		100.2	%


	Segments
Nine Months Ended September 30, 2020	Reinsurance Segment			Insurance Segment			Subtotal			Alleghany Capital		Total Segments			Corporate Activities(1)			Consolidated
	($ in millions)
Gross premiums written	$	3,859.4		$	1,549.8		$	5,409.2		$	—	$	5,409.2		$	(26.1	)	$	5,383.1
Net premiums written		3,560.7			1,088.1			4,648.8			—		4,648.8			—			4,648.8

Net premiums earned		3,411.3			984.8			4,396.1			—		4,396.1			—			4,396.1
Net loss and LAE:
Current year (excluding catastrophe losses)		2,237.3			528.2			2,765.5			—		2,765.5			—			2,765.5
Current year catastrophe losses(2)		419.7			196.3			616.0			—		616.0			—			616.0
Prior years(2)		(157.2	)		1.2			(156.0	)		—		(156.0	)		—			(156.0	)
Total net loss and LAE		2,499.8			725.7			3,225.5			—		3,225.5			—			3,225.5
Commissions, brokerage and other underwriting expenses		1,044.2			271.7			1,315.9			—		1,315.9			—			1,315.9
Underwriting (loss)(3)	$	(132.7	)	$	(12.6	)		(145.3	)		—		(145.3	)		—			(145.3	)
Net investment income								347.8			1.8		349.6			10.3			359.9
Change in the fair value of equity securities								(176.0	)		—		(176.0	)		(12.0	)		(188.0	)
Net realized capital gains								36.8			35.3		72.1			(80.4	)		(8.3	)
Change in allowance for credit losses on available for sale securities								(10.7	)		—		(10.7	)		(0.2	)		(10.9	)
Product and service revenues								24.4			1,654.3		1,678.7			5.7			1,684.4
Other operating expenses								66.5			1,567.7		1,634.2			12.2			1,646.4
Corporate administration								(0.9	)		—		(0.9	)		18.0			17.1
Amortization of intangible assets								0.6			32.3		32.9			—			32.9
Interest expense								20.3			11.4		31.7			32.2			63.9
(Losses) earnings before income taxes							$	(9.5	)	$	80.0	$	70.5		$	(139.0	)	$	(68.5	)

Loss ratio(4):
Current year (excluding catastrophe losses)		65.6	%		53.7	%		62.8	%
Current year catastrophe losses		12.3	%		19.9	%		14.0	%
Prior years		(4.6	%)		0.1	%		(3.5	%)
Total net loss and LAE		73.3	%		73.7	%		73.3	%
Expense ratio(5)		30.6	%		27.6	%		29.9	%
Combined ratio(6)		103.9	%		101.3	%		103.2	%

(1)

Includes elimination of minor reinsurance activity between segments.

(2)

Prior years in the three and nine months ended September 30, 2021 includes $1.7 million of favorable and $15.6 million unfavorable, respectively, prior accident year Pandemic loss reserve development at our reinsurance segment. Current year catastrophe losses in the three and nine months ended September 30, 2020 includes $51.0 million and $339.0 million, respectively, of Pandemic-related losses incurred mostly at our reinsurance segment.

(3)

(4)

The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.

(5)

The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.

(6)

The combined ratio is the sum of the loss ratio and the expense ratio, all as determined in accordance with GAAP. The combined ratio represents the percentage of each premium dollar a reinsurance or an insurance company has to spend on net loss and LAE, and commissions, brokerage and other underwriting expenses.

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Premiums. The following table presents our consolidated premiums:


	Three Months Ended September 30,				Percent			Nine Months Ended September 30,				Percent
	2021		2020		Change			2021		2020		Change
	($ in millions)
Premiums written:
Gross premiums written	$	2,378.0	$	1,891.4		25.7	%	$	6,648.3	$	5,383.1		23.5	%
Net premiums written		1,983.1		1,637.1		21.1	%		5,616.1		4,648.8		20.8	%
Net premiums earned		1,842.9		1,556.9		18.4	%		5,232.0		4,396.1		19.0	%

The increases in gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods are attributable to growth at our reinsurance and insurance segments. The increases at our reinsurance segment primarily reflect improving rates overall and growth in various professional liability lines of business in the U.S., higher gross premiums written from a certain large whole account quota share treaty, or the “Quota Share Treaty,” and, to a lesser extent, the impact of changes in foreign exchange rates. The increase in gross premiums written in the first nine months of 2021 also reflects growth in the agriculture lines of business. Gross premiums written from the Quota Share Treaty, which in 2021 include the impact of a recent business acquisition by the cedant, were $273.8 million and $643.4 million in the third quarter and first nine months of 2021, respectively, compared with $192.2 million and $501.6 million in the third quarter and first nine months of 2020, respectively. The increases in insurance segment gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect growth in most of RSUI’s lines of business due to increases in business opportunities, higher rates and improved general market conditions.

The increases in net premiums earned in the third quarter and first nine months of 2021 from the corresponding 2020 periods reflect growth in reinsurance and insurance segment gross premiums written in recent quarters, partially offset by higher ceded premiums earned.

A detailed comparison of premiums by segment for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Net loss and LAE. The following table presents our consolidated net loss and LAE:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Net loss and LAE:
Current year (excluding catastrophe losses)	$	1,142.1		$	966.2			18.2	%	$	3,230.8		$	2,765.5			16.8	%
Current year catastrophe losses		433.8			269.8			60.8	%		685.9			616.0			11.3	%
Prior years		(62.0	)		(62.3	)		(0.5	%)		(203.5	)		(156.0	)		30.4	%
Total net loss and LAE	$	1,513.9		$	1,173.7			29.0	%	$	3,713.2		$	3,225.5			15.1	%

Loss ratio:
Current year (excluding catastrophe losses)		62.0	%		62.1	%					61.8	%		62.8	%
Current year catastrophe losses		23.5	%		17.3	%					13.1	%		14.0	%
Prior years		(3.4	%)		(4.0	%)					(3.9	%)		(3.5	%)
Total net loss and LAE		82.1	%		75.4	%					71.0	%		73.3	%

The increase in net loss and LAE in the third quarter of 2021 from the third quarter of 2020 primarily reflects higher catastrophe losses and the impact of increases in net premiums earned, as discussed above. The increase in net losses and LAE in the first nine months of 2021 from the first nine months of 2020 primarily reflects the impact of increases in net premiums earned and higher catastrophe losses, as discussed above, partially offset by more favorable prior accident year loss reserve development and a modestly lower overall current year loss ratio excluding catastrophe losses.

A detailed comparison of net loss and LAE by segment for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Commissions, brokerage and other underwriting expenses. The following table presents our consolidated commissions, brokerage and other underwriting expenses:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Commissions, brokerage and other underwriting expenses	$	529.2		$	464.5			13.9	%	$	1,528.8		$	1,315.9			16.2	%

Expense ratio		28.7	%		29.8	%					29.2	%		29.9	%

The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, as discussed above, and to a lesser extent, higher short-term incentive compensation expense accruals, partially offset by slightly lower overall commission rates.

A detailed comparison of commissions, brokerage and other underwriting expenses by segment for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Underwriting profit. The following table presents our consolidated underwriting profit (loss):


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Underwriting loss	$	(200.2	)	$	(81.3	)		146.2	%	$	(10.0	)	$	(145.3	)		(93.1	%)

Combined ratio		110.8	%		105.2	%					100.2	%		103.2	%

The increase in underwriting loss in the third quarter of 2021 from the third quarter of 2020 primarily reflects higher catastrophe losses, as discussed above. The decrease in underwriting loss in the first nine months of 2021 from the first nine months of 2020 primarily reflects significant Pandemic-related catastrophe losses in the first nine months of 2020, more favorable prior accident year loss reserve development and modestly lower overall current year loss ratio excluding catastrophe losses in the first nine months of 2021, partially offset by higher weather-related catastrophe losses in the first nine months of 2021, all as discussed above.

A detailed comparison of underwriting profit by segment for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Investment results. The following table presents our consolidated investment results:


	Three Months Ended September 30,					Percent			Nine Months Ended September 30,					Percent
	2021			2020		Change			2021		2020			Change
	($ in millions)
Net investment income	$	133.0		$	129.3		2.9	%	$	413.4	$	359.9			14.9	%
Change in the fair value of equity securities		(136.1	)		92.8		(246.7	%)		180.6		(188.0	)		(196.1	%)
Net realized capital gains		20.1			16.7		20.4	%		46.0		(8.3	)		(654.2	%)
Change in allowance for credit losses on available for sale securities		0.1			3.4		(97.1	%)		2.3		(10.9	)		(121.1	%)

The increases in net investment income in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher dividend income, partially offset by lower interest income. The increases in dividend income reflect an increased allocation to higher-yielding stocks and, for the first nine months, a large special dividend received in the second quarter of 2021 from a mutual fund. Lower interest income reflects the impact of low reinvestment yields on debt securities and lower yields on short-term investment and floating-rate debt securities.

The increase in net investment income in the first nine months of 2021 also reflects higher partnership income. Our partnership income in the first nine months of 2021 reflects appreciation in a certain partnership that has exposure to cryptocurrencies as well as gains in certain other partnerships being partially offset by losses in certain partnerships with catastrophe loss exposure. Our partnership income in the first nine months of 2020 reflected the impact of the Pandemic on lower-quality debt securities held by certain of our investment partnerships.

The change in the fair value of equity securities in the third quarter of 2021 reflects the depreciation in the value of our equity securities portfolio, primarily from our holdings in the materials and industrials sectors. The change in the fair value of equity securities in first nine months of 2021 reflects appreciation in the value of our equity securities portfolio, primarily from our holdings

in the financial, healthcare and technology sectors, partially offset by depreciation in the materials sector. The change in the fair value of equity securities in the first nine months of 2020 reflects depreciation in the value of our equity securities portfolio due primarily to the impact of the Pandemic and related economic and financial market disruptions. The change in the fair value of equity securities in the third quarter of 2020 reflects a partial recovery of the equity markets and our equity securities portfolio, as concerns about the Pandemic moderated.

Net realized capital gains in the third quarter and first nine months of 2021 primarily reflect the sale of debt securities. Net realized capital gains in the third quarter of 2020 primarily reflect a gain of $13.8 million on a partial settlement and remeasurement of fair value of certain outstanding contingent consideration liabilities by Alleghany Capital in connection with its 2018 acquisition of Concord (the “Concord Settlement Gain”) and gains from sales of our debt securities, partially offset by impairment charges of $1.6 million from write-downs of SORC oil field assets. Net realized capital losses in the first nine months of 2020 primarily reflect impairment charges of $76.0 million from the write-down of SORC oil field assets and a $7.1 million realized loss as a result of an early redemption of certain senior notes as of January 15, 2020, partially offset by gains from sales of our debt securities, the $13.8 million Concord Settlement Gain, a gain of $16.3 million on April 1, 2020 in connection with Alleghany Capital’s acquisition of an additional approximately 55 percent of Wilbert that it did not previously own, and the remeasurement of its pre-existing approximately 45 percent equity ownership to estimated fair value (the “Wilbert Remeasurement Gain”) and a $5.0 million realized gain from a reduction of certain contingent consideration liabilities.

The changes in allowance for credit losses on available-for-sale, or “AFS,” securities in the third quarter and first nine months of 2021 reflect $0.1 million and $2.3 million, respectively, reductions of credit losses on AFS securities, primarily from debt security sales. The change in allowance for credit losses on AFS securities in the first nine months of 2020 reflects $10.9 million of unrealized losses on debt securities, primarily related to the energy sector and lower-quality corporate bonds in other sectors due to a significant decline in their fair value relative to their amortized cost. The $10.9 million is net of a $3.4 million reduction of credit losses on AFS securities in the third quarter of 2020, arising primarily from improved bond market conditions and bond sales.

A detailed comparison of investment results for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Product and service revenues and expenses. The following table presents our consolidated product and service revenues and expenses:


	Three Months Ended September 30,				Percent			Nine Months Ended September 30,				Percent
	2021		2020		Change			2021		2020		Change
	($ in millions)
Product and service revenues	$	1,006.6	$	723.8		39.1	%	$	2,574.8	$	1,684.4		52.9	%

Other operating expenses		891.0		669.4		33.1	%		2,354.5		1,646.4		43.0	%
Corporate administration		6.2		12.9		(51.9	%)		35.9		17.1		109.9	%
Amortization of intangible assets		12.6		11.2		12.5	%		36.5		32.9		10.9	%
Interest expense		25.7		23.3		10.3	%		73.4		63.9		14.9	%

Product and service revenues and Other operating expenses. Product and service revenues (formerly noninsurance revenue) and other operating expenses primarily include sales and expenses associated with our Alleghany Capital segment. Other operating expenses also includes long-term incentive compensation accruals at our reinsurance and insurance segments, which totaled $17.0 million and $18.7 million in the third quarter of 2021 and 2020, respectively, and $48.2 million and $51.2 million in the first nine months of 2021 and 2020, respectively. The decrease in long-term incentive compensation accruals at our reinsurance and insurance segments in the third quarter of 2021 from the third quarter of 2020 primarily reflect the decrease in expected payouts arising from lower underwriting and investment results, as discussed above. The decrease in the first nine months of 2021 from the first nine months of 2020 primarily reflect the reduction in expected payouts arising from the departure of the former TransRe chief executive officer in the second quarter of 2021, partially offset by an increase in expected payouts arising from improved underwriting and investment results, as discussed above.

The increases in product and service revenues and other operating expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher revenue at Jazwares and W&W|AFCO Steel. In addition, the third quarter and first nine months of 2020 reflect the cost of Pandemic-related customer site closures and additional safety measures. The increases in product and service revenues and other operating expenses in the first nine months of 2021 also reflect higher revenue at IPS as well as the impact of Wilbert’s April 1, 2020 and Piedmont's May 10, 2021 inclusion in our consolidated results. The increases in other operating expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods also reflect increases in long-term incentive compensation accruals at Alleghany Capital’s corporate operations, partially offset by decreases in long-term incentive compensation accruals at our reinsurance and insurance segments, as discussed above.

Reinsurance segment product and service revenues include fees arising from the July 2016 agreement with General Reinsurance Corporation, a wholly-owned subsidiary of Berkshire Hathaway Inc., for TransRe to act as exclusive underwriting manager on behalf of General Reinsurance Corporation for U.S. and Canadian property and casualty treaty reinsurance business produced by brokers and intermediaries. This five year agreement expired in July 2021. These fees are recognized as revenue on a pro rata basis over the term of the underlying reinsurance contracts.

Corporate administration. The decrease in corporate administration expense in the third quarter of 2021 from the third quarter of 2020 reflects lower Alleghany parent company long-term incentive compensation accruals and the increase in corporate administration expense in the first nine months of 2021 from the first nine months of 2020 periods reflects higher Alleghany parent company long-term incentive compensation accruals.

Amortization of intangible assets. The increases in amortization expense in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of recent acquisitions by Alleghany Capital and its subsidiaries, as further discussed below.

Interest expense. The increases in interest expense in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the issuance of certain senior notes on August 13, 2021, or the "2051 Senior Notes." See Note 11(a) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information on the 2051 Senior Notes. The increase in the first nine months from the corresponding period in 2020 was also impacted by the issuance of certain Alleghany senior notes on May 18, 2020. See Note 8(a) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for further information.

A detailed comparison of product and service revenues and expenses for the third quarter and first nine months of 2021 and 2020 is contained in the following pages.

Income taxes. The following table presents our consolidated income tax expense:


	Three Months Ended September 30,					Percent			Nine Months Ended September 30,						Percent
	2021			2020		Change			2021			2020			Change
	($ in millions)
Income taxes	$	(28.5	)	$	30.3		(194.1	%)	$	132.6		$	(21.1	)		(728.4	%)

Effective tax rate										18.8	%		30.8	%

The income tax benefit in the third quarter of 2021 compared with the income tax expense in the third quarter of 2020 primarily reflects losses before income taxes in the third quarter of 2021 compared with earnings before income taxes in the third quarter of 2020, as further discussed below. The income tax expense in the first nine months of 2021 compared with the income tax benefit in the first nine months of 2020 reflects earnings before income taxes in the first nine months of 2021 compared with losses before income taxes in the first nine months of 2020, as further discussed below

The effective tax rate in the first nine months of 2021, expressed as an expense, represents an estimate of the annual effective tax rate, comprised of the 21.0 percent federal income tax rate less 2.2 percent of projected permanent tax benefits, net of state and foreign tax rates and certain other adjustments. The effective tax rate in the first nine months of 2020 was calculated based on actual results through September 30, 2020 because management was not able to reliably estimate the annual effective tax rate in light of the significant losses incurred. Therefore, the effective tax rate in the first nine months of 2020, expressed as a benefit, represents the actual effective rate, comprised of the 21.0 percent federal income tax rate plus 9.8 percent of actual permanent tax benefits, net of state and foreign tax rates and certain other adjustments. Permanent tax benefits primarily include tax exempt interest income and dividends-received deductions. The relatively high effective tax rate in the first nine months of 2020 reflects the increased effect of permanent tax benefits on an effective tax rate basis due to the relatively modest amount of losses before income taxes.

Net earnings. The following table presents our consolidated earnings:


	Three Months Ended September 30,					Percent			Nine Months Ended September 30,					Percent
	2021			2020		Change			2021		2020			Change
	($ in millions)
(Losses) earnings before income taxes	$	(112.0	)	$	167.9		(166.7	%)	$	706.8	$	(68.5	)		(1,131.8	%)
Net earnings attributable to noncontrolling interests		31.5			11.1		183.8	%		55.5		9.9			460.6	%
Net (losses) earnings attributable to Alleghany stockholders		(115.0	)		126.5		(190.9	%)		518.7		(57.3	)		(1,005.2	%)

The losses before income taxes and net losses attributable to Alleghany stockholders in the third quarter of 2021 compared with the earnings before income taxes and net earnings attributable to Alleghany stockholders in the third quarter of 2020 primarily reflect

depreciation in the value of our equity securities portfolio in the third quarter of 2021 compared with appreciation in the value of our equity securities portfolio in the third quarter of 2020, and higher catastrophe losses, partially offset by improved results at Alleghany Capital, all as discussed above.

The earnings before income taxes and net earnings attributable to Alleghany stockholders in the first nine months of 2021 compared with the losses before income taxes and net losses attributable to Alleghany stockholders in the first nine months of 2020 primarily reflect the impact of appreciation in the value of our equity securities portfolio in the first nine months of 2021 compared with significant, Pandemic-driven depreciation in the first nine months of 2020 and, to a lesser extent, significantly improved underwriting results, significantly improved results at Alleghany Capital, and the impact of impairment charges from the write-down of SORC oil field assets in 2020, all as discussed above.

The increase in net earnings attributable to noncontrolling interests in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect significantly improved results at Alleghany Capital. In addition, we accrete redeemable noncontrolling interests up to their future estimated redemption value (see Note 1(a) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, "Financial Statements and Supplementary Data" of the 2020 Form 10-K for further information). The increase in net earnings attributable to noncontrolling interests in the third quarter and first nine months of 2021 also reflects higher accretion from increased estimated future redemption values.

The significantly improved results at Alleghany Capital in the third quarter and first nine months of 2021 were due to subsidiaries' higher revenues and improved margins, particularly at Jazwares, W&W|AFCO Steel and IPS, reflecting higher backlogs and the reduced impact of Pandemic-related customer site closures and additional safety measures, which negatively impacted margins in the third quarter and first nine months of 2020.

Reinsurance Segment Underwriting Results

The reinsurance segment is composed of TransRe’s property, and casualty & specialty (formerly casualty & other) lines of business. TransRe writes a modest amount of property and casualty insurance business, which is included in the reinsurance segment. For a more detailed description of our reinsurance segment, see Part I, Item 1, “Business—Segment Information—Reinsurance Segment” of the 2020 Form 10-K.

The following tables present the underwriting results of the reinsurance segment:


Three Months Ended September 30, 2021	Property			Casualty & specialty(1)			Total
	($ in millions)
Gross premiums written	$	617.2		$	1,111.0		$	1,728.2
Net premiums written		467.9			1,046.7			1,514.6

Net premiums earned		474.3			949.0			1,423.3
Net loss and LAE:
Current year (excluding catastrophe losses)		277.3			639.6			916.9
Current year catastrophe losses		350.0			21.5			371.5
Prior years		(16.1	)		(41.5	)		(57.6	)
Total net loss and LAE		611.2			619.6			1,230.8
Commissions, brokerage and other underwriting expenses		124.0			300.4			424.4
Underwriting (loss) profit(2)	$	(260.9	)	$	29.0		$	(231.9	)

Loss ratio(3):
Current year (excluding catastrophe losses)		58.5	%		67.4	%		64.4	%
Current year catastrophe losses		73.8	%		2.3	%		26.1	%
Prior years		(3.4	%)		(4.4	%)		(4.0	%)
Total net loss and LAE		128.9	%		65.3	%		86.5	%
Expense ratio(4)		26.1	%		31.7	%		29.8	%
Combined ratio(5)		155.0	%		97.0	%		116.3	%


Three Months Ended September 30, 2020	Property			Casualty & specialty(1)			Total
	($ in millions)
Gross premiums written	$	473.3		$	904.7		$	1,378.0
Net premiums written		375.9			887.3			1,263.2

Net premiums earned		374.7			832.6			1,207.3
Net loss and LAE:
Current year (excluding catastrophe losses)		206.9			569.1			776.0
Current year catastrophe losses		114.3			17.3			131.6
Prior years		(15.1	)		(33.2	)		(48.3	)
Total net loss and LAE		306.1			553.2			859.3
Commissions, brokerage and other underwriting expenses		112.4			259.0			371.4
Underwriting (loss) profit(2)	$	(43.8	)	$	20.4		$	(23.4	)

Loss ratio(3):
Current year (excluding catastrophe losses)		55.2	%		68.4	%		64.3	%
Current year catastrophe losses		30.5	%		2.1	%		10.9	%
Prior years		(4.0	%)		(4.0	%)		(4.0	%)
Total net loss and LAE		81.7	%		66.5	%		71.2	%
Expense ratio(4)		30.0	%		31.1	%		30.8	%
Combined ratio(5)		111.7	%		97.6	%		102.0	%


Nine Months Ended September 30, 2021	Property			Casualty & specialty(1)			Total
	($ in millions)
Gross premiums written	$	1,687.9		$	3,125.0		$	4,812.9
Net premiums written		1,346.8			2,971.8			4,318.6

Net premiums earned		1,284.5			2,761.8			4,046.3
Net loss and LAE:
Current year (excluding catastrophe losses)		741.3			1,871.6			2,612.9
Current year catastrophe losses		473.2			24.8			498.0
Prior years		(6.1	)		(181.3	)		(187.4	)
Total net loss and LAE		1,208.4			1,715.1			2,923.5
Commissions, brokerage and other underwriting expenses		356.9			868.7			1,225.6
Underwriting (loss) profit(2)	$	(280.8	)	$	178.0		$	(102.8	)

Loss ratio(3):
Current year (excluding catastrophe losses)		57.7	%		67.8	%		64.5	%
Current year catastrophe losses		36.8	%		0.9	%		12.3	%
Prior years		(0.5	%)		(6.6	%)		(4.6	%)
Total net loss and LAE		94.0	%		62.1	%		72.2	%
Expense ratio(4)		27.8	%		31.5	%		30.3	%
Combined ratio(5)		121.8	%		93.6	%		102.5	%


Nine Months Ended September 30, 2020	Property			Casualty & specialty(1)			Total
	($ in millions)
Gross premiums written	$	1,299.2		$	2,560.2		$	3,859.4
Net premiums written		1,044.6			2,516.1			3,560.7

Net premiums earned		1,024.8			2,386.5			3,411.3
Net loss and LAE:
Current year (excluding catastrophe losses)		579.4			1,657.9			2,237.3
Current year catastrophe losses		322.8			96.9			419.7
Prior years		(74.8	)		(82.4	)		(157.2	)
Total net loss and LAE		827.4			1,672.4			2,499.8
Commissions, brokerage and other underwriting expenses		314.6			729.6			1,044.2
Underwriting (loss)(2)	$	(117.2	)	$	(15.5	)	$	(132.7	)

Loss ratio(3):
Current year (excluding catastrophe losses)		56.5	%		69.5	%		65.6	%
Current year catastrophe losses		31.5	%		4.1	%		12.3	%
Prior years		(7.3	%)		(3.5	%)		(4.6	%)
Total net loss and LAE		80.7	%		70.1	%		73.3	%
Expense ratio(4)		30.7	%		30.6	%		30.6	%
Combined ratio(5)		111.4	%		100.7	%		103.9	%

(1)

(2)

(3)

The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.

(4)

The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.

(5)

Reinsurance Segment: Premiums. The following table presents premiums for the reinsurance segment:


	Three Months Ended September 30,				Percent			Nine Months Ended September 30,				Percent
	2021		2020		Change			2021		2020		Change
	($ in millions)
Property
Premiums written:
Gross premiums written	$	617.2	$	473.3		30.4	%	$	1,687.9	$	1,299.2		29.9	%
Net premiums written		467.9		375.9		24.5	%		1,346.8		1,044.6		28.9	%
Net premiums earned		474.3		374.7		26.6	%		1,284.5		1,024.8		25.3	%
Casualty & specialty
Premiums written:
Gross premiums written	$	1,111.0	$	904.7		22.8	%	$	3,125.0	$	2,560.2		22.1	%
Net premiums written		1,046.7		887.3		18.0	%		2,971.8		2,516.1		18.1	%
Net premiums earned		949.0		832.6		14.0	%		2,761.8		2,386.5		15.7	%
Total
Premiums written:
Gross premiums written	$	1,728.2	$	1,378.0		25.4	%	$	4,812.9	$	3,859.4		24.7	%
Net premiums written		1,514.6		1,263.2		19.9	%		4,318.6		3,560.7		21.3	%
Net premiums earned		1,423.3		1,207.3		17.9	%		4,046.3		3,411.3		18.6	%

Property. The increases in gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect generally improving rates, higher gross premiums written from the Quota Share Treaty and higher reinstatement premiums due to the large catastrophe events in the third quarter of 2021 and, to a lesser extent, the impact of changes in foreign exchange rates. The increase in gross premiums written in the first nine months of 2021 also reflects growth in the agriculture lines of business. Gross premiums written related to the Quota Share Treaty, which in 2021 include the impact of a recent business acquisition by the cedant, were $118.8 million and $80.0 million in the third quarter of 2021 and 2020, respectively, and were $275.6 million and $207.0 million in the first nine months of 2021 and 2020, respectively. Excluding the impact of changes in foreign currency exchange rates, gross premiums written increased 30.0 percent in the third quarter of 2021 from the third quarter of 2020, and increased 28.4 percent in the first nine months of 2021 from the first nine months of 2020.

The increases in net premiums earned in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher gross premiums written and, to a lesser extent, the impact of changes in foreign currency exchange rates, partially offset by higher ceded premiums earned from expanded retrocessional coverage. Excluding the impact of changes in foreign currency exchange rates, net premiums earned increased by 26.2 percent in the third quarter of 2021 from the third quarter of 2020, and increased 23.5 percent in the first nine months of 2021 from the first nine months of 2020.

Casualty & specialty. The increases in gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect improving rates overall and growth in various professional liability lines of business in the U.S., higher gross premiums written from the Quota Share Treaty and, to a lesser extent, the impact of changes in foreign exchange rates. Gross premiums written from the Quota Share Treaty, which in 2021 include the impact of a recent business acquisition by the cedant, were $155.0 million in the third quarter of 2021 compared with $112.2 million in the third quarter of 2020, and were $367.8 million in the first nine months of 2021 compared with $294.6 million in the first nine months of 2020. Excluding the impact of changes in foreign currency exchange rates, gross premiums written increased by 22.5 percent in the third quarter of 2021 from the third quarter of 2020, and increased 20.9 percent in the first nine months of 2021 from the first nine months of 2020.

The increases in net premiums earned in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher gross premiums written and, to a lesser extent, the impact of changes in foreign currency exchange rates, partially offset by higher ceded premiums earned from expanded retrocessional coverage. Excluding the impact of changes in foreign currency exchange rates, net premiums earned increased by 13.7 percent in the third quarter of 2021 from the third quarter of 2020, and increased 14.5 percent in the first nine months of 2021 from the first nine months of 2020.

Reinsurance Segment: Net loss and LAE. The following table presents net loss and LAE for the reinsurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Property
Net loss and LAE:
Current year (excluding catastrophe losses)	$	277.3		$	206.9			34.0	%	$	741.3		$	579.4			27.9	%
Current year catastrophe losses		350.0			114.3			206.2	%		473.2			322.8			46.6	%
Prior years		(16.1	)		(15.1	)		6.6	%		(6.1	)		(74.8	)		(91.8	%)
Total net loss and LAE	$	611.2		$	306.1			99.7	%	$	1,208.4		$	827.4			46.0	%

Loss ratio:
Current year (excluding catastrophe losses)		58.5	%		55.2	%					57.7	%		56.5	%
Current year catastrophe losses		73.8	%		30.5	%					36.8	%		31.5	%
Prior years		(3.4	%)		(4.0	%)					(0.5	%)		(7.3	%)
Total net loss and LAE		128.9	%		81.7	%					94.0	%		80.7	%
Casualty & specialty
Net loss and LAE:
Current year (excluding catastrophe losses)	$	639.6		$	569.1			12.4	%	$	1,871.6		$	1,657.9			12.9	%
Current year catastrophe losses		21.5			17.3			24.3	%		24.8			96.9			(74.4	%)
Prior years		(41.5	)		(33.2	)		25.0	%		(181.3	)		(82.4	)		120.0	%
Total net loss and LAE	$	619.6		$	553.2			12.0	%	$	1,715.1		$	1,672.4			2.6	%

Loss ratio:
Current year (excluding catastrophe losses)		67.4	%		68.4	%					67.8	%		69.5	%
Current year catastrophe losses		2.3	%		2.1	%					0.9	%		4.1	%
Prior years		(4.4	%)		(4.0	%)					(6.6	%)		(3.5	%)
Total net loss and LAE		65.3	%		66.5	%					62.1	%		70.1	%
Total
Net loss and LAE:
Current year (excluding catastrophe losses)	$	916.9		$	776.0			18.2	%	$	2,612.9		$	2,237.3			16.8	%
Current year catastrophe losses		371.5			131.6			182.3	%		498.0			419.7			18.7	%
Prior years		(57.6	)		(48.3	)		19.3	%		(187.4	)		(157.2	)		19.2	%
Total net loss and LAE	$	1,230.8		$	859.3			43.2	%	$	2,923.5		$	2,499.8			16.9	%

Loss ratio:
Current year (excluding catastrophe losses)		64.4	%		64.3	%					64.5	%		65.6	%
Current year catastrophe losses		26.1	%		10.9	%					12.3	%		12.3	%
Prior years		(4.0	%)		(4.0	%)					(4.6	%)		(4.6	%)
Total net loss and LAE		86.5	%		71.2	%					72.2	%		73.3	%

Property. The increases in net loss and LAE in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher catastrophe losses and, to a lesser extent, the impact of higher net premiums earned and unfavorable prior accident year loss reserve development on Pandemic losses in the third quarter and first nine months of 2021.

Catastrophe losses in the third quarter and first nine months of 2021 include $203.1 million from Hurricane Ida, $104.8 million from the European Floods and $36.7 million from severe weather in Europe and Asia. Catastrophe losses in the third quarter and first nine months of 2021 also include $5.4 million and $128.6 million, respectively, of losses related to the Winter Storms. Catastrophe losses in the third quarter and first nine months of 2020 include $34.5 million and $222.8 million, respectively, of Pandemic-related catastrophe losses, as discussed above, as well as $44.5 million from Hurricane Laura. Weather-related catastrophe losses in the third quarter of 2020 also include losses from typhoons and flooding in Asia and a derecho in August 2020, which caused widespread property and crop damage, primarily in Iowa, and a hailstorm in Alberta Canada. Catastrophe losses in the first nine months of 2020 also include $20.1 million from an earthquake in Puerto Rico.

Net loss and LAE in the third quarter and first nine months of 2021 and 2020 include (favorable) unfavorable prior accident year loss reserve development as presented in the table below:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	($ in millions)
Catastrophe events (excluding Pandemic)	$	(11.2	)	(1)	$	4.6			$	(14.2	)	(2)	$	(27.3	)	(3)
Pandemic		15.1				—				62.7				—
Non-catastrophe		(20.0	)	(4)		(19.7	)	(5)		(54.6	)	(4)		(47.5	)	(5)
Total	$	(16.1	)		$	(15.1	)		$	(6.1	)		$	(74.8	)

(1)

Primarily reflects favorable prior accident year loss reserve development related to catastrophe losses in the 2018 accident year.

(2)

(3)

Primarily reflects favorable prior accident year loss reserve development related to Typhoon Hagibis in the 2019 accident year and, to a lesser extent, catastrophic events in the 2018 accident year.

(4)

Primarily reflects favorable prior accident year loss reserve development related to the 2019 and 2020 accident years.

(5)

Primarily reflects favorable prior accident year loss reserve development in recent accident years.

The favorable prior accident year loss reserve development in the third quarter and first nine months of 2021 and 2020 reflects favorable loss emergence compared with loss emergence patterns assumed in prior periods. The favorable prior accident year loss reserve development in the first nine months of 2021 did not impact assumptions used in estimating TransRe’s loss and LAE liabilities for business earned in the first nine months of 2021.

Casualty & specialty. The increases in net loss and LAE in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, partially offset by higher favorable prior accident year loss reserve development. The third quarter and first nine months of 2021 included significant favorable prior accident year loss reserve development on Pandemic losses. The increase in net loss and LAE in the first nine months of 2021 from the first nine months of 2020 was also partially offset by significant Pandemic losses incurred in the first nine months of 2020.

Catastrophe losses in the third quarter and first nine months of 2021 include $19.5 million from Hurricane Ida and $1.0 million from European Floods. Catastrophe losses in the third quarter and first nine months of 2021 also include $0.8 million and $4.1 million, respectively, of losses related to the Winter Storms. Pandemic-related catastrophe losses totaled $13.5 million and $92.9 million in the third quarter and first nine months of 2020, respectively. Catastrophe losses in the third quarter of 2020 also include $3.4 million from Hurricane Laura and $0.4 million from other events.

Net loss and LAE in the third quarter and first nine months of 2021 and 2020 include (favorable) unfavorable prior accident year loss reserve development as presented in the table below:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	($ in millions)
Catastrophe events (excluding Pandemic)	$	(1.5	)		$	0.4			$	(2.7	)		$	(2.1	)
Pandemic		(16.8	)			—				(47.1	)			—
Non-catastrophe		(23.2	)	(1)		(33.6	)	(2)		(131.5	)	(1)		(80.3	)	(3)
Total	$	(41.5	)		$	(33.2	)		$	(181.3	)		$	(82.4	)

(1)

(2)

Primarily reflects favorable prior accident year loss reserve development in the shorter-tailed lines of business in the 2018 and 2019.

(3)

Reinsurance Segment: Commissions, brokerage and other underwriting expenses. The following table presents commissions, brokerage and other underwriting expenses for the reinsurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Property
Commissions, brokerage and other underwriting expenses	$	124.0		$	112.4			10.3	%	$	356.9		$	314.6			13.4	%

Expense ratio		26.1	%		30.0	%					27.8	%		30.7	%

Casualty & specialty
Commissions, brokerage and other underwriting expenses	$	300.4		$	259.0			16.0	%	$	868.7		$	729.6			19.1	%

Expense ratio		31.7	%		31.1	%					31.5	%		30.6	%

Total
Commissions, brokerage and other underwriting expenses	$	424.4		$	371.4			14.3	%	$	1,225.6		$	1,044.2			17.4	%

Expense ratio		29.8	%		30.8	%					30.3	%		30.6	%

Property. The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, as discussed above, and higher annual incentive accruals, partially offset by lower commission rates impacted in part by higher reinstatement premiums in the third quarter of 2021, as discussed above.

Casualty & specialty. The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, as discussed above, and higher annual incentive compensation accruals.

Reinsurance Segment: Underwriting profit. The following table presents underwriting profit (loss) for the reinsurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
Property
Underwriting (loss)	$	(260.9	)	$	(43.8	)		495.7	%	$	(280.8	)	$	(117.2	)		139.6	%

Combined ratio		155.0	%		111.7	%					121.8	%		111.4	%

Casualty & specialty
Underwriting profit (loss)	$	29.0		$	20.4			42.2	%	$	178.0		$	(15.5	)		(1,248.4	%)

Combined ratio		97.0	%		97.6	%					93.6	%		100.7	%

Total
Underwriting (loss)	$	(231.9	)	$	(23.4	)		891.0	%	$	(102.8	)	$	(132.7	)		(22.5	%)

Combined ratio		116.3	%		102.0	%					102.5	%		103.9	%

Property. The increases in underwriting loss in the third quarter and first nine months of 2021 from the corresponding 2020 periods, primarily reflects higher catastrophe losses and, to a lesser extent, unfavorable prior accident year loss reserve development related to the Pandemic in the third quarter and first nine month of 2021, all as discussed above.

Casualty & specialty. The increase in underwriting profit in the third quarter of 2021 from the third quarter of 2020, and the underwriting profit in the first nine months of 2021 compared with the underwriting loss in the first nine months of 2020 primarily reflect higher net premiums earned and higher favorable prior accident year loss reserve development in the third quarter and first nine month of 2021, all as discussed above. In addition, the underwriting loss in the first nine months of 2020 reflects the impact of significant Pandemic catastrophe losses.

Insurance Segment Underwriting Results

The insurance segment is composed of AIHL’s RSUI and CapSpecialty operating subsidiaries. RSUI also writes a modest amount of assumed reinsurance business, which is included in the insurance segment. For a more detailed description of our insurance segment, see Part I, Item 1, “Business—Segment Information—Insurance Segment” of the 2020 Form 10-K.

The underwriting results of the insurance segment are presented below:


Three Months Ended September 30, 2021	RSUI			CapSpecialty			Total
	($ in millions)
Gross premiums written	$	533.1		$	128.4		$	661.5
Net premiums written		358.0			110.5			468.5

Net premiums earned		316.6			103.0			419.6
Net loss and LAE:
Current year (excluding catastrophe losses)		164.7			60.5			225.2
Current year catastrophe losses		61.6			0.7			62.3
Prior years		(6.8	)		2.4			(4.4	)
Total net loss and LAE		219.5			63.6			283.1
Commissions, brokerage and other underwriting expenses		66.5			38.3			104.8
Underwriting profit(1)	$	30.6		$	1.1		$	31.7

Loss ratio(2):
Current year (excluding catastrophe losses)		51.9	%		58.8	%		53.7	%
Current year catastrophe losses		19.5	%		0.7	%		14.8	%
Prior years		(2.1	%)		2.3	%		(1.0	%)
Total net loss and LAE		69.3	%		61.8	%		67.5	%
Expense ratio(3)		21.0	%		37.2	%		25.0	%
Combined ratio(4)		90.3	%		99.0	%		92.5	%


Three Months Ended September 30, 2020	RSUI			CapSpecialty			Total
	($ in millions)
Gross premiums written	$	410.8		$	111.8		$	522.6
Net premiums written		271.9			102.0			373.9

Net premiums earned		260.4			89.2			349.6
Net loss and LAE:
Current year (excluding catastrophe losses)		136.5			53.7			190.2
Current year catastrophe losses		134.6			3.6			138.2
Prior years		(14.5	)		0.5			(14.0	)
Total net loss and LAE		256.6			57.8			314.4
Commissions, brokerage and other underwriting expenses		58.8			34.3			93.1
Underwriting (loss)(1)	$	(55.0	)	$	(2.9	)	$	(57.9	)

Loss ratio(2):
Current year (excluding catastrophe losses)		52.4	%		60.1	%		54.4	%
Current year catastrophe losses		51.7	%		4.0	%		39.5	%
Prior years		(5.6	%)		0.6	%		(4.0	%)
Total net loss and LAE		98.5	%		64.7	%		89.9	%
Expense ratio(3)		22.6	%		38.5	%		26.6	%
Combined ratio(4)		121.1	%		103.2	%		116.5	%


Nine Months Ended September 30, 2021	RSUI			CapSpecialty			Total
	($ in millions)
Gross premiums written	$	1,511.5		$	354.1		$	1,865.6
Net premiums written		994.2			303.3			1,297.5

Net premiums earned		896.5			289.2			1,185.7
Net loss and LAE:
Current year (excluding catastrophe losses)		447.3			170.6			617.9
Current year catastrophe losses		186.0			1.9			187.9
Prior years		(18.8	)		2.7			(16.1	)
Total net loss and LAE		614.5			175.2			789.7
Commissions, brokerage and other underwriting expenses		191.3			111.9			303.2
Underwriting profit(1)	$	90.7		$	2.1		$	92.8

Loss ratio(2):
Current year (excluding catastrophe losses)		49.9	%		59.0	%		52.2	%
Current year catastrophe losses		20.7	%		0.7	%		15.8	%
Prior years		(2.1	%)		0.9	%		(1.4	%)
Total net loss and LAE		68.5	%		60.6	%		66.6	%
Expense ratio(3)		21.3	%		38.7	%		25.6	%
Combined ratio(4)		89.8	%		99.3	%		92.2	%


Nine Months Ended September 30, 2020	RSUI			CapSpecialty			Total
	($ in millions)
Gross premiums written	$	1,251.3		$	298.5		$	1,549.8
Net premiums written		816.4			271.7			1,088.1

Net premiums earned		731.3			253.5			984.8
Net loss and LAE:
Current year (excluding catastrophe losses)		376.6			151.6			528.2
Current year catastrophe losses		191.4			4.9			196.3
Prior years		0.5			0.7			1.2
Total net loss and LAE		568.5			157.2			725.7
Commissions, brokerage and other underwriting expenses		169.4			102.3			271.7
Underwriting (loss)(1)	$	(6.6	)	$	(6.0	)	$	(12.6	)

Loss ratio(2):
Current year (excluding catastrophe losses)		51.4	%		59.8	%		53.7	%
Current year catastrophe losses		26.2	%		1.9	%		19.9	%
Prior years		0.1	%		0.3	%		0.1	%
Total net loss and LAE		77.7	%		62.0	%		73.7	%
Expense ratio(3)		23.2	%		40.3	%		27.6	%
Combined ratio(4)		100.9	%		102.3	%		101.3	%

(1)

(2)

The loss ratio is derived by dividing the amount of net loss and LAE by net premiums earned, all as determined in accordance with GAAP.

(3)

The expense ratio is derived by dividing the amount of commissions, brokerage and other underwriting expenses by net premiums earned, all as determined in accordance with GAAP.

(4)

Insurance Segment: Premiums. The following table presents premiums for the insurance segment:


	Three Months Ended September 30,				Percent			Nine Months Ended September 30,				Percent
	2021		2020		Change			2021		2020		Change
	($ in millions)
RSUI
Premiums written:
Gross premiums written	$	533.1	$	410.8		29.8	%	$	1,511.5	$	1,251.3		20.8	%
Net premiums written		358.0		271.9		31.7	%		994.2		816.4		21.8	%
Net premiums earned		316.6		260.4		21.6	%		896.5		731.3		22.6	%
CapSpecialty
Premiums written:
Gross premiums written	$	128.4	$	111.8		14.8	%	$	354.1	$	298.5		18.6	%
Net premiums written		110.5		102.0		8.3	%		303.3		271.7		11.6	%
Net premiums earned		103.0		89.2		15.5	%		289.2		253.5		14.1	%
Total
Premiums written:
Gross premiums written	$	661.5	$	522.6		26.6	%	$	1,865.6	$	1,549.8		20.4	%
Net premiums written		468.5		373.9		25.3	%		1,297.5		1,088.1		19.2	%
Net premiums earned		419.6		349.6		20.0	%		1,185.7		984.8		20.4	%

RSUI. The increases in gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect growth in most lines of business due to increases in business opportunities, higher rates and improved general market conditions, particularly in the directors’ and officers’ liability, property, professional liability and umbrella/excess lines of business.

The increases in net premiums earned in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect increases in gross premiums written in recent quarters, partially offset by higher ceded premiums earned related to the growth in the heavily reinsured property lines of business.

CapSpecialty. The increases in gross premiums written in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect growth in the professional liability and other specialty casualty lines of business and, to a lesser extent, growth in the surety lines of business, partially offset by a curtailment of certain unprofitable broker relationships and declines in property and healthcare lines of business. Growth in the professional liability and other specialty casualty lines of business reflect increases in business opportunities and higher rates.

Insurance Segment: Net loss and LAE. The following table presents net loss and LAE for the insurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
RSUI
Net loss and LAE:
Current year (excluding catastrophe losses)	$	164.7		$	136.5			20.7	%	$	447.3		$	376.6			18.8	%
Current year catastrophe losses		61.6			134.6			(54.2	%)		186.0			191.4			(2.8	%)
Prior years		(6.8	)		(14.5	)		(53.1	%)		(18.8	)		0.5			(3,860.0	%)
Total net loss and LAE	$	219.5		$	256.6			(14.5	%)	$	614.5		$	568.5			8.1	%

Loss ratio:
Current year (excluding catastrophe losses)		51.9	%		52.4	%					49.9	%		51.4	%
Current year catastrophe losses		19.5	%		51.7	%					20.7	%		26.2	%
Prior years		(2.1	%)		(5.6	%)					(2.1	%)		0.1	%
Total net loss and LAE		69.3	%		98.5	%					68.5	%		77.7	%
CapSpecialty
Net loss and LAE:
Current year (excluding catastrophe losses)	$	60.5		$	53.7			12.7	%	$	170.6		$	151.6			12.5	%
Current year catastrophe losses		0.7			3.6			(80.6	%)		1.9			4.9			(61.2	%)
Prior years		2.4			0.5			380.0	%		2.7			0.7			285.7	%
Total net loss and LAE	$	63.6		$	57.8			10.0	%	$	175.2		$	157.2			11.5	%

Loss ratio:
Current year (excluding catastrophe losses)		58.8	%		60.1	%					59.0	%		59.8	%
Current year catastrophe losses		0.7	%		4.0	%					0.7	%		1.9	%
Prior years		2.3	%		0.6	%					0.9	%		0.3	%
Total net loss and LAE		61.8	%		64.7	%					60.6	%		62.0	%
Total
Net loss and LAE:
Current year (excluding catastrophe losses)	$	225.2		$	190.2			18.4	%	$	617.9		$	528.2			17.0	%
Current year catastrophe losses		62.3			138.2			(54.9	%)		187.9			196.3			(4.3	%)
Prior years		(4.4	)		(14.0	)		(68.6	%)		(16.1	)		1.2			(1,441.7	%)
Total net loss and LAE	$	283.1		$	314.4			(10.0	%)	$	789.7		$	725.7			8.8	%

Loss ratio:
Current year (excluding catastrophe losses)		53.7	%		54.4	%					52.2	%		53.7	%
Current year catastrophe losses		14.8	%		39.5	%					15.8	%		19.9	%
Prior years		(1.0	%)		(4.0	%)					(1.4	%)		0.1	%
Total net loss and LAE		67.5	%		89.9	%					66.6	%		73.7	%

RSUI. The decrease in net loss and LAE in the third quarter of 2021 from the third quarter of 2020 primarily reflects lower catastrophe losses, partially offset by the impact of higher net premiums earned and lower favorable prior accident year loss reserve development.

The increase in net loss and LAE in the first nine months of 2021 from the first nine months of 2020 primarily reflects the impact of higher net premiums earned, partially offset by favorable prior accident year loss reserve development compared with unfavorable prior accident year loss reserve development in the first nine months of 2020, and a lower overall current year loss ratio excluding catastrophe losses.

Catastrophe losses in the third quarter and first nine months of 2021 include $40.9 million from Hurricane Ida and $7.7 million from the European Floods. Catastrophe losses in the first nine months of 2021 also include $111.5 million of losses related to the Winter Storms. The remaining catastrophe losses in the first nine months of 2021 relate to severe weather and flooding in the Midwestern U.S. in the spring and summer of 2021 and, to a lesser extent, wildfires in California.

Catastrophe losses in the third quarter and first nine months of 2020 include $56.5 million from Hurricane Sally and $53.0 million from Hurricane Laura. Catastrophe losses in the first nine months of 2020 also include $20.3 million of Pandemic losses, which primarily relate to business interruption and related estimated legal expenses. The remaining catastrophe losses in the first nine months of 2020 relate primarily to severe weather and flooding in the Southeastern U.S. and a tornado in Tennessee.

Net loss and LAE in the third quarter and first nine months of 2021 and 2020 include (favorable) unfavorable prior accident year loss reserve development as presented in the table below:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	($ in millions)
Casualty	$	(3.2	)	(1)	$	(6.6	)	(2)	$	(6.9	)	(1)	$	8.9		(3)
Property and other		(3.6	)	(4)		(7.9	)	(5)		(11.9	)	(4)		(8.4	)	(5)
Total	$	(6.8	)		$	(14.5	)		$	(18.8	)		$	0.5

(1)

Primarily reflects favorable prior accident year loss reserve development in in the umbrella/excess lines of business in the 2007 through 2015 accident years, partially offset by unfavorable prior accident year loss reserve development in the directors' and officers' liability lines of business in the 2013 and 2014 accident years and the binding authority lines of business in the 2011 through 2013 accident years.

(2)

(3)

(4)

(5)

The favorable prior accident year loss reserve development in the third quarter and first nine months of 2021 and in the third quarter of 2020 and unfavorable prior accident year loss development in the first nine months of 2020 reflect favorable and unfavorable loss emergence, respectively, compared with loss emergence patterns assumed in prior periods. The favorable prior accident year loss reserve development in the first nine months of 2021 did not impact assumptions used in estimating RSUI’s loss and LAE liabilities for business earned in the first nine months of 2021.

CapSpecialty. The increases in net loss and LAE in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned and higher unfavorable prior accident year loss reserve development, partially offset by lower catastrophe losses and lower current year loss ratios excluding catastrophe losses.

Net loss and LAE in the third quarter and first nine months of 2021 includes unfavorable prior accident year loss reserve development primarily in the healthcare and construction liability lines of business in the 2015 through 2017 accident years.

Insurance Segment: Commissions, brokerage and other underwriting expenses. The following table presents commissions, brokerage and other underwriting expenses for the insurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
RSUI
Commissions, brokerage and other underwriting expenses	$	66.5		$	58.8			13.1	%	$	191.3		$	169.4			12.9	%

Expense ratio		21.0	%		22.6	%					21.3	%		23.2	%

CapSpecialty
Commissions, brokerage and other underwriting expenses	$	38.3		$	34.3			11.7	%	$	111.9		$	102.3			9.4	%

Expense ratio		37.2	%		38.5	%					38.7	%		40.3	%

Total
Commissions, brokerage and other underwriting expenses	$	104.8		$	93.1			12.6	%	$	303.2		$	271.7			11.6	%

Expense ratio		25.0	%		26.6	%					25.6	%		27.6	%

RSUI. The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, as discussed above and, to a lesser extent, higher short-term incentive compensation expense accruals, partially offset by lower overall commission rates.

CapSpecialty. The increases in commissions, brokerage and other underwriting expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the impact of higher net premiums earned, as discussed above and, to a lesser extent, investments in technology and higher short-term incentive compensation expense accruals.

Insurance Segment: Underwriting profit. The following table presents our underwriting profit (loss) for the insurance segment:


	Three Months Ended September 30,						Percent			Nine Months Ended September 30,						Percent
	2021			2020			Change			2021			2020			Change
	($ in millions)
RSUI
Underwriting profit (loss)	$	30.6		$	(55.0	)		(155.6	%)	$	90.7		$	(6.6	)		(1,474.2	%)

Combined ratio		90.3	%		121.1	%					89.8	%		100.9	%

CapSpecialty
Underwriting profit (loss)	$	1.1		$	(2.9	)		(137.9	%)	$	2.1		$	(6.0	)		(135.0	%)

Combined ratio		99.0	%		103.2	%					99.3	%		102.3	%

Total
Underwriting profit (loss)	$	31.7		$	(57.9	)		(154.7	%)	$	92.8		$	(12.6	)		(836.5	%)

Combined ratio		92.5	%		116.5	%					92.2	%		101.3	%

RSUI. The underwriting profit in the third quarter of 2021 compared with the underwriting loss in the third quarter of 2020 primarily reflects lower catastrophe losses, as discussed above.

The underwriting profit in the first nine months of 2021 compared with the underwriting loss in the first nine months of 2020 primarily reflects favorable prior accident year loss reserve development compared with unfavorable prior accident year loss reserve development in the first nine months of 2020 and, to a lesser extent, a lower expense ratio and a lower overall current year loss ratio excluding catastrophe losses, lower catastrophe losses and the impact of higher net premiums earned, all as discussed above.

CapSpecialty. The underwriting profit in the third quarter and first nine months of 2021 compared with the underwriting losses in the corresponding 2020 periods primarily reflect lower catastrophe losses, lower expense ratios and lower overall current year loss ratios excluding catastrophe losses, partially offset by higher unfavorable prior accident year loss reserve development, all as discussed above.

Investment Results for the Reinsurance and Insurance Segments

The following table presents the investment results for our reinsurance and insurance segments:


	Three Months Ended September 30,					Percent			Nine Months Ended September 30,					Percent
	2021			2020		Change			2021		2020			Change
	($ in millions)
Net investment income	$	125.0		$	122.7		1.9	%	$	384.7	$	347.8			10.6	%
Change in the fair value of equity securities		(78.3	)		103.4		(175.7	%)		176.6		(176.0	)		(200.3	%)
Net realized capital gains		20.7			1.7		1,117.6	%		44.0		36.8			19.6	%
Change in allowance for credit losses on available for sale securities		0.1			3.4		(97.1	%)		2.2		(10.7	)		(120.6	%)

Net investment income. The increases in net investment income in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher dividend income, partially offset by lower interest income. The increases in dividend income reflect an increased allocation to higher-yielding stocks and, for the first nine months, a large special dividend received in the second quarter from a mutual fund. Lower interest income reflects the impact of low reinvestment yields on debt securities and lower yields on short-term investment and floating-rate debt securities.

The increase in net investment income in the first nine months of 2021 also reflects higher partnership income. Our partnership income in the first nine months of 2021 reflects gains in certain partnerships being partially offset by losses in other certain partnerships with catastrophe loss exposure. Our partnership income in the first nine months of 2020 reflected the impact of the Pandemic on lower-quality debt securities held by certain of our investment partnerships.

Change in the fair value of equity securities. The change in the fair value of equity securities in the third quarter of 2021 reflects the depreciation in the value of our equity securities portfolio, primarily from our holdings in the materials and industrials sectors. The change in the fair value of equity securities in first nine months of 2021 reflects appreciation in the value of our equity securities portfolio, primarily from our holdings in the financial, healthcare and technology sectors, partially offset by depreciation in the materials sector. The change in the fair value of equity securities in the first nine months of 2020 reflects depreciation in the value of our equity securities portfolio due primarily to the impact of the Pandemic and related economic and financial market disruptions. The change in the fair value of equity securities in the third quarter of 2020 reflects a partial recovery of the equity markets and our equity securities portfolio, as concerns about the Pandemic moderated.

Net realized capital gains. The increases in net realized capital gains in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher gains realized from the sale of our debt securities.

Change in allowance for credit losses on available for sale securities. The changes in allowance for credit losses on AFS in the third quarter and first nine months of 2021 primarily reflect reductions of credit losses on AFS securities from bond sales of $0.1 million and $2.2 million, respectively. The change in allowance for credit losses on AFS securities in the first nine months of 2020 reflects $10.7 million of unrealized losses on debt securities, primarily related to the energy sector and lower-quality corporate bonds in other sectors due to a significant decline in their fair value relative to their amortized cost. The $10.7 million is net of a $3.4 million reduction of credit losses on AFS securities in the third quarter of 2020, arising primarily from improved bond market conditions and bond sales.

See Note 3 to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional detail on credit losses, credit quality and gross unrealized investment losses for debt securities as of and for the three and nine months ended September 30, 2021.

Alleghany Capital Segment Results

The Alleghany Capital segment consists of: (i) industrial operations conducted through PCT, Kentucky Trailer, W&W|AFCO Steel, Wilbert and, beginning May 10, 2021, Piedmont; (ii) non-industrial operations conducted through IPS, Jazwares and Concord; and (iii) corporate operations at the Alleghany Capital level, which include hotel development projects.

On May 10, 2021, Piedmont, a newly-formed subsidiary of Alleghany Capital, acquired Wilbert, Inc., doing business as Wilbert Plastic Services, or “WPS.” WPS is a provider of injection molded and thermoformed parts and multi-component assemblies for original equipment manufacturer customers in a range of end-markets, headquartered in Belmont, North Carolina. See Note 10(a) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for further information on this acquisition.

On April 1, 2020, Alleghany Capital acquired an additional approximately 55 percent of Wilbert it previously did not own, bringing its equity interest in Wilbert to approximately 100 percent, and as of that date, the results of Wilbert were included in our consolidated results. Prior to April 1, 2020, Wilbert was accounted for under the equity method of accounting and was included in other assets.

The following table presents the results of the Alleghany Capital segment for the third quarter and first nine months of 2021 and 2020:


	Three Months Ended September 30, 2021												Three Months Ended September 30, 2020
	Industrial			Non- industrial			Corp. & other			Total			Industrial			Non- industrial			Corp. & other			Total
	($ in millions)
Product and service revenues(1)	$	427.2		$	559.2		$	—		$	986.4		$	324.2		$	389.6		$	—		$	713.8
Net investment income		—			0.1			—			0.1			—			—			—			—
Net realized capital gains		(0.4	)		(0.1	)		—			(0.5	)		0.3			(0.1	)		13.7			13.9
Total revenues	$	426.8		$	559.2		$	—		$	986.0		$	324.5		$	389.5		$	13.7		$	727.7
Other operating expenses(1)		386.7			478.5			3.8			869.0			291.2			348.0			4.2			643.4
Amortization of intangible assets		4.7			7.0			—			11.7			4.0			7.0			—			11.0
Interest expense		2.2			1.6			0.1			3.9			2.0			1.5			(0.2	)		3.3
Earnings (losses) before income taxes	$	33.2		$	72.1		$	(3.9	)	$	101.4		$	27.3		$	33.0		$	9.7		$	70.0

Earnings (losses) before income taxes	$	33.2		$	72.1		$	(3.9	)	$	101.4		$	27.3		$	33.0		$	9.7		$	70.0
Less: net realized capital gains		0.4			0.1			—			0.5			(0.3	)		0.1			(13.7	)		(13.9	)
Add: amortization of intangible assets		4.7			7.0			—			11.7			4.0			7.0			—			11.0
Adjusted earnings (losses) before income taxes(2)	$	38.3		$	79.2		$	(3.9	)	$	113.6		$	31.0		$	40.1		$	(4.0	)	$	67.1


	Nine Months Ended September 30, 2021												Nine Months Ended September 30, 2020
	Industrial			Non- industrial			Corp. & other			Total			Industrial			Non- industrial			Corp. & other			Total
	($ in millions)
Product and service revenues(1)	$	1,238.8		$	1,295.9		$	—		$	2,534.7		$	847.3		$	806.9		$	0.1		$	1,654.3
Net investment income		—			0.1			—			0.1			1.8			—			—			1.8
Net realized capital gains		(0.1	)		0.8			—			0.7			5.6			(0.4	)		30.1			35.3
Total revenues	$	1,238.7		$	1,296.8		$	—		$	2,535.5		$	854.7		$	806.5		$	30.2		$	1,691.4
Other operating expenses(1)		1,131.2			1,157.6			13.6			2,302.4			799.7			759.6			8.4			1,567.7
Amortization of intangible assets		13.2			21.5			—			34.7			11.4			20.9			—			32.3
Interest expense		6.3			4.8			0.2			11.3			6.5			5.6			(0.7	)		11.4
Earnings (losses) before income taxes	$	88.0		$	112.9		$	(13.8	)	$	187.1		$	37.1		$	20.4		$	22.5		$	80.0

Earnings (losses) before income taxes	$	88.0		$	112.9		$	(13.8	)	$	187.1		$	37.1		$	20.4		$	22.5		$	80.0
Less: net realized capital gains		0.1			(0.8	)		—			(0.7	)		(5.6	)		0.4			(30.1	)		(35.3	)
Add: amortization of intangible assets		13.2			21.5			—			34.7			11.4			20.9			—			32.3
Adjusted earnings (losses) before income taxes(2)	$	101.3		$	133.6		$	(13.8	)	$	221.1		$	42.9		$	41.7		$	(7.6	)	$	77.0

(1)

For industrial and non-industrial operations: (i) product and service revenues consists of the sale of manufactured goods and services; and (ii) other operating expenses consist of the cost of goods and services sold and selling, general and administrative expenses. Other operating expenses also include finders’ fees, legal and accounting costs and other transaction-related expenses of $2.2 million and $0.4 million for the third quarter of 2021 and 2020, respectively, and $4.1 million and $4.8 million in the first nine months of 2021 and 2020, respectively.

(2)

Adjusted earnings before income taxes is a non-GAAP financial measure and does not replace earnings before income taxes determined in accordance with GAAP as a measure of profitability. See “Comment on Non-GAAP Financial Measures” herein for additional detail on the presentation of our results of operations. Adjusted earnings before income taxes represents product and service revenues and net investment income less other operating expenses and interest expense and does not include: (i) amortization of intangible assets; (ii) change in the fair value of equity securities; (iii) net realized capital gains; (iv) change in allowance for credit losses on available for sale securities; and (v) income taxes.

The changes in Alleghany Capital’s equity for the three and nine months ended September 30, 2021 and 2020 are presented in the table below:


	Three Months Ended September 30,
	2021												2020
	Industrial			Non- industrial			Corp. & other			Total			Industrial			Non- industrial			Corp. & other			Total
	($ in millions)
Equity, beginning of period	$	691.5		$	475.6		$	(31.3	)	$	1,135.8		$	607.0		$	460.4		$	(54.2	)	$	1,013.2
Earnings (losses) before income taxes		33.2			72.1			(3.9	)		101.4			27.3			33.0			9.7			70.0
Income taxes(1)		(1.9	)		(1.7	)		(12.1	)		(15.7	)		(3.8	)		—			(8.9	)		(12.7	)
Net earnings attributable to noncontrolling interests(2)		(5.3	)		(26.2	)		—			(31.5	)		(2.6	)		(8.5	)		—			(11.1	)
Capital contributions (returns of capital) and other		(22.6	)		(16.0	)		36.5			(2.1	)		(12.7	)		(3.4	)		16.6			0.5
Equity, end of period	$	694.9		$	503.8		$	(10.8	)	$	1,187.9		$	615.2		$	481.5		$	(36.8	)	$	1,059.9


	Nine Months Ended September 30,
	2021												2020
	Industrial			Non- industrial			Corp. & other(1)			Total(1)			Industrial			Non- industrial			Corp. & other(1)			Total(1)
	($ in millions)
Equity, beginning of period	$	629.5		$	482.7		$	(3.1	)	$	1,109.1		$	523.3		$	410.6		$	(33.0	)	$	900.9
Earnings (losses) before income taxes		88.0			112.9			(13.8	)		187.1			37.1			20.4			22.5			80.0
Income taxes(1)		(4.7	)		(3.7	)		(24.5	)		(32.9	)		(4.4	)		(0.1	)		(7.4	)		(11.9	)
Net earnings attributable to noncontrolling interests(2)		(13.9	)		(41.5	)		—			(55.4	)		(3.6	)		(6.3	)		—			(9.9	)
Capital contributions (returns of capital) and other(3)		(4.0	)		(46.6	)		30.6			(20.0	)		62.8			56.9			(18.9	)		100.8
Equity, end of period	$	694.9		$	503.8		$	(10.8	)	$	1,187.9		$	615.2		$	481.5		$	(36.8	)	$	1,059.9

(1)

Federal income taxes for most Alleghany Capital subsidiaries are incurred at the Alleghany Capital corporate level. Estimated federal income tax (expense) benefit incurred at the Alleghany Capital corporate level attributable to industrial and non-industrial operations for the three months ended September 30, 2021 was ($6.9) million and ($15.2) million, respectively, and for the three months ended September 30, 2020 was ($5.8) million and ($6.9) million, respectively, and for the nine months ended September 30, 2021 ($18.3) million and ($23.7) million, respectively, and for the nine months ended September 30, 2020 was ($7.5) million and ($4.3) million, respectively.

(2)

During the first nine months of 2021, the noncontrolling interests outstanding were approximately as follows: Kentucky Trailer - 23 percent; W&W|AFCO Steel - 20 percent; IPS - 15 percent; Jazwares - 24 percent; and Concord - 15 percent.

(3)

For the nine months ended September 30, 2021, represents returns of capital partially offset by capital contributions that reflect funding provided by Alleghany Capital to Piedmont for its May 10, 2021 purchase of WPS. For the nine months ended September 30, 2020, capital contributions primarily reflect funding provided by: (i) Alleghany Capital to PCT for its acquisition of a manufacturer of high-performance carbide end mills in March 2020; (ii) Alleghany Capital to Jazwares for its acquisition of a plush toy manufacturer that closed on April 1, 2020; and (iii) Alleghany to Alleghany Capital for its purchase of an additional approximately 55 percent of Wilbert it previously did not own that closed on April 1, 2020.

Product and service revenues. The increases in product and service revenues in the third quarter and first nine months of 2021 from the corresponding 2020 periods reflect higher revenue from non-industrial and industrial subsidiaries.

The increases in non-industrial product and service revenues primarily reflect higher sales at Jazwares due to strong customer demand across its portfolio of licenses and brands, including those from its April 1, 2020 acquisition of Kelly Toy Holding, LLC, or "Kelly Toy." To a lesser extent, the increase in non-industrial revenue also reflects higher revenue at IPS and Concord. Higher revenue at IPS reflects the realization of a much higher backlog and higher employee utilization in the third quarter and first nine months of 2021, and Pandemic-related project delays and safety measures undertaken in the third quarter and first nine months of 2020. Higher revenue at Concord reflects a significantly reduced Pandemic-related impact on revenues and margins.

The increases in industrial product and service revenues primarily reflect higher revenue at W&W|AFCO Steel and, to a lesser extent, the impact of Piedmont’s acquisition of WPS on May 10, 2021. The increases in industrial product and service revenues in the first nine months of 2021 also include the impact of Wilbert’s April 1, 2020 inclusion in our consolidated results. The higher revenue at W&W|AFCO Steel reflects the realization of a strong backlog with higher man-hours worked, the timing of revenue recognition on certain large construction projects and the reduced impact of Pandemic-related site closures and safety measures.

Net investment income. Net investment income in the first nine months of 2020 reflected equity-method income from Wilbert, which ceased upon Wilbert’s April 1, 2020 inclusion in our consolidated results.

Net realized capital gains. Net realized capital gains in the third quarter and first nine months of 2021 primarily reflect modest gains from certain foreign currency exchange rate impacts and sales of equipment. Net realized capital gains in the third quarter and first nine months of 2020 include a $13.8 million gain on a partial settlement and remeasurement of fair value of certain outstanding contingent consideration liabilities by Alleghany Capital in connection with its 2018 acquisition of Concord. Net realized capital gains in the first nine months of 2020 also include: (i) a $16.3 million gain on April 1, 2020 in connection with Alleghany Capital’s acquisition of an additional approximately 55 percent of Wilbert that it did not previously own, and the remeasurement of its pre-existing approximately 45 percent equity ownership to its estimated fair value; and (ii) a $5.0 million gain from a reduction of certain contingent consideration liabilities at the PCT-level in connection with its acquisition of a provider of high-performance solid carbide end mills in June 2019.

Other operating expenses. The increases in other operating expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect an increase in costs related to higher revenues in non-industrial and industrial operations, as discussed above and, to a lesser extent, higher supply chain costs at Jazwares, partially offset by lower costs of Pandemic-related safety measures. In addition, the increase in other operating expenses in the first nine months of 2021 reflected an increase in long-term incentive compensation accruals in Alleghany Capital’s corporate operations.

Amortization of intangible assets. The increase in amortization expense in the third quarter of 2021 from the third quarter of 2020 primarily reflects the May 10, 2021 Piedmont acquisition of WPS. The increase in amortization expense in the first nine months of 2021 from the first nine months of 2020 also reflects the April 1, 2020 Kelly Toy acquisition by Jazwares and Wilbert’s April 1, 2020 inclusion in our consolidated results.

Earnings (losses) before income taxes. The increases in earnings before income taxes in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect higher non-industrial and industrial earnings, partially offset by lower realized capital gains, as discussed above. The increases in non-industrial earnings before income taxes in the third quarter and first nine months of 2021 primarily reflect an increase in sales and margins at Jazwares, and to a lesser extent, an increase in revenue and margins at IPS and Concord, all as discussed above. Higher industrial earnings before income taxes in the third quarter and first nine months of 2021 primarily reflect increases in revenue and margins at W&W|AFCO Steel, as discussed above. To a lesser extent, higher earnings before income taxes in the first nine months of 2021 also reflect the impact of Wilbert’s April 1, 2020 inclusion in our consolidated results, as discussed above.

Corporate Activities Results

The primary components of corporate activities are Alleghany Properties, activities at the Alleghany parent company and, prior to its December 31, 2020 sale, SORC. The following table presents the results for corporate activities:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	($ in millions)
Net premiums earned	$	—		$	—		$	—		$	—
Net investment income		7.9			6.6			28.6			10.3
Change in the fair value of equity securities		(57.8	)		(10.6	)		4.0			(12.0	)
Net realized capital gains		(0.1	)		1.1			1.3			(80.4	)
Change in allowance for credit losses on available for sale securities		—			—			0.1			(0.2	)
Product and service revenues		9.8			1.1			10.0			5.7
Total revenues		(40.2	)		(1.8	)		44.0			(76.6	)

Net loss and loss adjustment expenses		—			—			—			—
Commissions, brokerage and other underwriting expenses		—			—			—			—
Other operating expenses		1.2			2.6			1.7			12.2
Corporate administration		6.3			12.1			36.4			18.0
Amortization of intangible assets		—			—			—			—
Interest expense		15.1			13.2			41.9			32.2
(Losses) before income taxes	$	(62.8	)	$	(29.7	)	$	(36.0	)	$	(139.0	)

Net investment income. The increase in net investment income in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflects appreciation in a certain partnership that has exposure to cryptocurrencies. In addition, dividend income was higher in the third quarter and first nine months of 2021 than the comparable 2020 periods, reflecting an increased allocation to higher-yielding stocks.

Change in the fair value of equity securities. The change in the fair value of equity securities in the third quarter of 2021 reflects the depreciation in the value of our equity securities at the Alleghany parent company-level, primarily from our holdings in the materials sector. The change in the fair value of equity securities in first nine months of 2021 reflects appreciation in the value of our equity securities at the Alleghany parent company-level, primarily from our holdings in the financial, healthcare and technology sectors, partially offset by depreciation in the materials sector. The change in the fair value of equity securities in the third quarter of 2020 reflects depreciation in the value of equity securities at the Alleghany parent-company-level, primarily in the materials sector. The change in the fair value of equity securities in first nine months of 2020 also reflects a significant depreciation in the value of equity securities at the Alleghany parent company-level due primarily to the impact of the Pandemic, as discussed above.

Net realized capital gains. The modest net realized capital gains and losses in the third quarter and first nine months of 2021 reflect the sale of debt securities. The net realized capital gains in the third quarter of 2020 primarily reflect gains from the sale of debt securities partially offset by $1.6 million from the write-down of SORC’s oil field assets. The net realized capital losses in the first nine months of 2020 primarily reflect $76.0 million from the write-down of SORC oil field assets. SORC’s oil field assets were held for sale and consequently, were written down to estimated fair value, which reflects a significant decline in oil prices, less costs to sell. In the third quarter of 2020, certain of SORC’s oil field assets were sold at values that approximated their reduced carrying value. The net realized capital losses in the first nine months of 2020 also include a $7.1 million realized loss as a result of an early redemption of certain senior notes as of January 15, 2020. See Note 11(a) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information on this early redemption.

Product and service revenues and other operating expenses. The increases in product and service revenues in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflects property sales at Alleghany Properties of

approximately $9.8 million in the third quarter of 2021, partially offset by the absence of energy sales arising from the sale of SORC as of December 31, 2020.

The decreases in other operating expenses in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the absence of operating costs arising from the sale of SORC as of December 31, 2020.

Corporate administration. The decrease in corporate administration expense in the third quarter of 2021 from the third quarter of 2020 reflects lower Alleghany parent company long-term incentive compensation accruals arising primarily from the impact of depreciation in Alleghany share price compared with appreciation in the third quarter of 2020. The increase in corporate administration expense in the first nine months of 2021 from the first nine months of 2020 reflects higher Alleghany parent company long-term incentive compensation accruals arising primarily from appreciation in Alleghany stock price, compared with significant, Pandemic-driven depreciation of Alleghany stock price in the first nine months of 2020.

Interest expense. The increases in interest expense in the third quarter and first nine months of 2021 from the corresponding 2020 periods primarily reflect the issuance of the 2051 Senior Notes. The increase in the first nine months of 2021 from the first nine months of 2020 was also impacted by the issuance of certain Alleghany senior notes on May 18, 2020. See Note 8(a) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for further information.

Earnings (losses) before income taxes. The increase in losses before income taxes in the third quarter of 2021 from the third quarter of 2020 primarily reflects higher depreciation in the value of equity securities at the Alleghany parent company-level in the third quarter of 2021, partially offset by higher product and service revenues and lower corporate administration expenses, all as discussed above.

The decrease in losses before income taxes in the first nine months of 2021 from the first nine months of 2020 primarily reflects the impairment charges from the write-downs of SORC oil field assets in the first nine months of 2020, as discussed above.

Reserve Review Process

Our reinsurance and insurance subsidiaries analyze, at least quarterly, liabilities for unpaid loss and LAE established in prior years and adjust their expected ultimate cost, where necessary, to reflect favorable or unfavorable development in loss experience and new information, including, for certain catastrophe events, revised industry estimates of the magnitude of a catastrophe. Adjustments to previously recorded liabilities for unpaid loss and LAE, both favorable and unfavorable, are reflected in our financial results in the periods in which these adjustments are made and are referred to as prior accident year loss reserve development. The following table presents the reserves established in connection with the loss and LAE of our reinsurance and insurance segments on a gross and net basis by line of business. These reserve amounts represent the accumulation of estimates of ultimate loss (including for losses that have been incurred but not reported) and LAE.


	As of September 30, 2021								As of December 31, 2020
	Gross Loss and LAE Reserves			Reinsurance Recoverables on Unpaid Losses			Net Loss and LAE Reserves		Gross Loss and LAE Reserves			Reinsurance Recoverables on Unpaid Losses			Net Loss and LAE Reserves
	($ in millions)
Reinsurance Segment
Property	$	2,796.0		$	(737.6	)	$	2,058.4	$	2,086.0		$	(480.0	)	$	1,606.0
Casualty & specialty(1)		8,062.5			(387.0	)		7,675.5		7,728.0			(350.7	)		7,377.3
		10,858.5			(1,124.6	)		9,733.9		9,814.0			(830.7	)		8,983.3
Insurance Segment
Property		605.9			(207.0	)		398.9		585.6			(222.1	)		363.5
Casualty(2)		2,778.1			(716.9	)		2,061.2		2,441.4			(640.1	)		1,801.3
Workers' Compensation		1.9			—			1.9		2.3			—			2.3
All other(3)		185.3			(82.4	)		102.9		197.6			(81.1	)		116.5
		3,571.2			(1,006.3	)		2,564.9		3,226.9			(943.3	)		2,283.6
Eliminations		(74.8	)		74.8			—		(70.3	)		70.3			—
Total	$	14,354.9		$	(2,056.1	)	$	12,298.8	$	12,970.6		$	(1,703.7	)	$	11,266.9

(1)

(2)

Primarily consists of the following direct lines of business: umbrella/excess; directors’ and officers’ liability; professional liability; and general liability.

(3)

Primarily consists of commercial multi-peril and surety lines of business, as well as loss and LAE reserves for terminated lines of business and loss reserves acquired in connection with prior acquisitions for which the sellers provided loss reserve guarantees.

Changes in Gross and Net Loss and LAE Reserves between September 30, 2021 and December 31, 2020. Gross and net loss and LAE reserves as of September 30, 2021 increased from December 31, 2020, primarily reflecting the impact of growing net premiums earned and catastrophe losses incurred in the first nine months of 2021, partially offset by payments on catastrophe losses incurred primarily in 2017 through 2020, and net favorable prior accident year loss reserve development, all as discussed above.

Reinsurance Recoverables

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 premiums writings and risk capacity without requiring additional capital. Our reinsurance and insurance subsidiaries generally purchase reinsurance and retrocessional coverages from highly-rated third-party reinsurers or on a collateralized basis. 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.

As of September 30, 2021, our reinsurance and insurance subsidiaries had total reinsurance recoverables of $2,187.6 million, consisting of $2,056.1 million of ceded outstanding loss and LAE and $134.4 million of recoverables on paid losses, less $2.9 million of an allowance for credit losses. See Note 4 to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information on: (i) the reinsurance purchased by our reinsurance and insurance subsidiaries; (ii) the allowance for credit losses; (iii) the concentration of our reinsurance recoverables; and (iv) the ratings profile of our reinsurers.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that directly affect our reported financial condition and operating performance. More specifically, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying value of assets and liabilities and reported revenues and expenses that are not readily apparent from other sources. Actual results may differ materially from reported results to the extent that estimates and assumptions prove to be inaccurate.

We believe our most critical accounting estimates are those with respect to the liability for unpaid loss and LAE reserves, fair value measurements of certain financial assets, change in allowance for credit losses on available for sale securities, goodwill and other intangible assets and reinsurance premium revenues, as they require management’s most significant exercise of judgment on both a quantitative and qualitative basis. The accounting estimates that result require the use of assumptions about certain matters that are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our financial condition, results of operations and cash flows would be affected, possibly materially.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of the 2020 Form 10-K for a more complete description of our critical accounting estimates.

Financial Condition

Alleghany Parent Company-Level

General. In general, we follow a policy of maintaining a relatively liquid financial position at our unrestricted holding companies. This policy has permitted us to expand our operations through internal growth at our subsidiaries and through acquisitions of, or substantial investments in, operating companies. As of September 30, 2021, we held total marketable securities and cash of $1,682.1 million, compared with $1,123.7 million as of December 31, 2020. The increase in marketable securities and cash in the first nine months of 2021 primarily reflects the net proceeds from the issuance of the 2021 Senior Notes, receipt of dividends by TransRe and RSUI and appreciation in the value of holding company-level equity securities portfolio, partially offset by contributions to Alleghany Capital to fund the acquisition of WPS, as discussed above, repurchases of shares of our common stock, as discussed below, and additional investments in certain partnerships at the Alleghany parent company-level.

The $1,682.1 million is composed of $1,282.2 million at the Alleghany parent company, $317.7 million at AIHL and $82.2 million at the TransRe holding company. We also hold certain non-marketable investments at our unrestricted holding companies. We believe that we have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of our business, and we had no material commitments for capital expenditures as of September 30, 2021.

Stockholders’ equity attributable to Alleghany stockholders was approximately $8.9 billion as of September 30, 2021, compared with approximately $8.8 billion as of December 31, 2020. The increase in stockholders’ equity in the first nine months of 2021 primarily reflects net earnings, as discussed above, partially offset by depreciation in the value of our debt securities portfolio

and repurchases of our common stock, all as discussed below. As of September 30, 2021, we had 13,749,136 shares of our common stock outstanding, compared with 14,041,180 shares of our common stock outstanding as of December 31, 2020.

Debt. On August 13, 2021, we completed a public offering of $500.0 million aggregate principal amount of our 3.250% 2051 Senior Notes due on August 15, 2051. The 2051 Senior Notes are unsecured and unsubordinated general obligations of Alleghany. Interest on the 2051 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2022. The terms of the 2051 Senior Notes permit redemption prior to maturity. The indenture under which the 2051 Senior Notes were issued contains covenants that impose conditions on our ability to create liens on the capital stock of AIHL, TransRe or RSUI. The 2051 Senior Notes were issued at approximately 98.6 percent of par, resulting in proceeds after underwriting discount, commissions and other expenses of $487.5 million, and an effective yield of approximately 3.32 percent. Approximately $5.7 million of underwriting discount, commissions and other expenses were recorded as deferred charges, which are amortized over the life of the 2051 Senior Notes. We intend to use the net proceeds of this offering for general corporate purposes, which may include the repayment at maturity of our 4.95% senior notes due 2022. See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for additional information on the 4.95% senior notes due 2022.

On May 18, 2020, we completed a public offering of $500.0 million aggregate principal of our 3.625% senior notes due on May 15, 2030. On September 9, 2014, we completed a public offering of $300.0 million aggregate principal amount of our 4.90% senior notes due on September 15, 2044. On June 26, 2012, we completed a public offering of $400.0 million aggregate principal amount of our 4.95% senior notes due on June 27, 2022. On September 20, 2010, we completed a public offering of $300.0 million aggregate principal amount of our 5.625% senior notes due on September 15, 2020, and on January 15, 2020, we redeemed these senior notes. See Note 8(a) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for additional information on our senior notes and our early redemption of debt.

Credit Agreement. On July 31, 2017, we entered into a five-year credit agreement, or the “Credit Agreement,” with certain lenders party thereto, which provides for an unsecured revolving credit facility in an aggregate principal amount of up to $300.0 million. The credit facility is scheduled to expire on July 31, 2022, unless earlier terminated. Borrowings under the Credit Agreement will be available for working capital and general corporate purposes, including permitted acquisitions and repurchases of common stock. Borrowings under the Credit Agreement bear a floating rate of interest based in part on our credit rating, among other factors. The Credit Agreement contains representations, warranties and covenants customary for bank loan facilities of this nature.

There were no borrowings under the Credit Agreement from inception through September 30, 2021.

Common Stock Repurchases. In June 2018, our Board of Directors authorized the repurchase of shares of our common stock at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million. In September 2019, our Board of Directors authorized, upon the completion of the program authorized in 2018, the repurchase of additional shares of our common stock at such times and at prices as management determines to be advisable, up to an aggregate of $500.0 million. As of September 30, 2021, we had $242.0 million remaining in the aggregate under our share repurchase authorizations.

The following table presents the shares of our common stock that we repurchased in the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Shares repurchased		139,670		131,414		295,411		193,954
Cost of shares repurchased (in millions)	$	91.3	$	70.0	$	190.4	$	114.3
Average price per share repurchased	$	653.85	$	532.59	$	644.66	$	589.10

Special Dividend. In February 2020, our Board of Directors declared a special dividend of $15.00 per share for stockholders of record on March 5, 2020. On March 16, 2020, we paid dividends to stockholders totaling $215.0 million.

Investments in Certain Variable Interest Entities. In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings, Limited, or “Pillar Holdings,” a Bermuda-based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe and, to a lesser extent, AIHL invested in limited partnership funds managed by Pillar Holdings, or the “Funds.” We have concluded that both Pillar Holdings and the Funds, or collectively, the “Pillar Investments,” represent variable interest entities and that we are not the primary beneficiary, as we do not have the ability to direct the activities that most significantly impact each entity’s economic performance. Therefore, the Pillar Investments are not consolidated and are accounted for under the equity method of accounting. See Note 3(h) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information on Pillar Investments as of September 30, 2021.

See Note 9(d) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for further information regarding certain variable interest entities.

Investments in Commercial Mortgage Loans. As of September 30, 2021 and December 31, 2020, the carrying value of our commercial mortgage loan portfolio was $543.4 million and $670.2 million, respectively, representing the unpaid principal balance on the loans, less allowance for credit losses. See Note 3(i) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional detail on the ratings of our commercial mortgage portfolio as of September 30, 2021.

Subsidiaries

Financial strength is also a high priority of our subsidiaries, whose assets stand behind their financial commitments to their customers and vendors. We believe that our subsidiaries have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of their businesses. Our subsidiaries had no material commitments for capital expenditures as of September 30, 2021.

The obligations and cash outflow of our reinsurance and insurance subsidiaries include claim settlements, commission expenses, administrative expenses, purchases of investments and interest and principal payments on TransRe’s 8.00% senior notes due on November 30, 2039. In addition to premium collections, cash inflow is obtained from interest and dividend income, maturities and sales of investments and reinsurance recoveries. Because cash inflow from premiums is received in advance of cash outflow required to settle claims, our reinsurance and insurance operating units accumulate funds which they invest pending the need for liquidity. As the cash needs of a reinsurance or an insurance company can be unpredictable due to the uncertainty of the claims settlement process, the portfolios of our reinsurance and insurance subsidiaries consist primarily of debt securities and short-term investments to ensure the availability of funds and maintain a sufficient amount of liquid securities.

Included in Alleghany Capital is debt associated with its operating subsidiaries, which totaled $485.6 million as of September 30, 2021, which is generally used to support working capital needs and to help finance acquisitions. The $485.6 million included:



$69.8 million of borrowings by Wilbert under its available credit facility and term loans;



$67.8 million of term loans at Kentucky Trailer primarily related to borrowings to finance small acquisitions, including its acquisition of controlling interests in two manufacturers of aluminum feed transportation equipment in 2018 and 2019, and borrowings under its available credit facilities;



$34.7 million of borrowings by IPS under its available credit facility and term loans, in part to finance a small acquisition in 2019;



$32.2 million of term loans at Piedmont primarily related to borrowings to finance the acquisition of WPS in 2021;a



$12.2 million of borrowings by W&W|AFCO Steel under its available credit facilities and term loans.

None of these liabilities are guaranteed by Alleghany or Alleghany Capital. In December 2019, third-party, floating-rate term loans at Concord were repaid and replaced with approximately $33 million of intercompany floating-rate debt funded by the Alleghany parent company. The intercompany debt and related interest expenses are eliminated at the Alleghany consolidated level.

Hotel Development Commitments. Commencing in 2020, Alleghany Capital invested $0.7 million in certain hotel development projects. The projects are conducted through certain limited liability entities, which are variable interest entities, to which we are not

the primary beneficiary. As of September 30, 2021, we guaranteed up to $5.3 million of debt of these entities to certain third-party lenders for which we receive a fee.

Consolidated Investment Holdings

Investment Strategy and Holdings. Our investment strategy seeks to avoid permanent loss of capital and maintain appropriate levels of liquidity while maximizing long-term risk-adjusted, after-tax returns. Our investment decisions are guided mainly by the nature and timing of expected liability payouts, management’s forecast of cash flows and the possibility of unexpected cash demands, such as, to satisfy claims due to catastrophe losses. Our consolidated investment portfolio consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The overall credit quality of the debt securities portfolio is measured using the lowest rating of three large, reputable rating agencies. In this regard, the overall weighted-average credit quality rating of our debt securities portfolio as of September 30, 2021 and December 31, 2020 was AA-. Although a portion of Alleghany’s debt securities is insured by third-party financial guaranty insurance companies, which consist predominantly of municipal bonds, the impact of such insurance was not significant to the debt securities credit quality rating as of September 30, 2021. See Note 3(f) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional detail on the ratings of our debt securities portfolio as of September 30, 2021.

Our debt securities portfolio has been designed to enable management to react to investment opportunities created by changing interest rates, prepayments, tax and credit considerations or other factors, or to circumstances that could result in a mismatch between the desired duration of debt securities and the duration of liabilities and, as such, is classified as available for sale.

Effective duration measures a portfolio’s fair value sensitivity to changes in interest rates. Shorter lengths of time to maturity are generally associated with shorter duration and less sensitivity to changes in market yields. As such, duration generally falls as time passes, all else being equal. Furthermore, a portfolio’s duration can also be impacted by adjustments made to the composition of the portfolio as well as changes in the level of market yields. As yields rise (fall), duration generally decreases (increases). As of September 30, 2021 and December 31, 2020, our debt securities portfolio had an effective duration of approximately 4.4 years and 4.3 years, respectively. We may increase our effective duration by increasing the proportion of our debt securities portfolio held in securities with longer-dated maturities (for example, maturities of more than five years) should the yields of these securities provide, in our judgment, sufficient compensation for their increased risk. We do not believe that this strategy would reduce our ability to meet ongoing claim payments or to respond to significant catastrophe losses. See Note 3(b) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for detail on the contractual maturities of our consolidated debt securities portfolio.

In the event paid losses accelerate beyond the ability of our reinsurance and insurance subsidiaries to fund these paid losses from current cash balances, current operating cash flow, dividend and interest receipts and security maturities, we would need to liquidate a portion of our investment portfolio, make capital contributions to our reinsurance and insurance subsidiaries, and/or arrange for financing. Strains on liquidity could result from: (i) the occurrence of several significant catastrophe events in a relatively short period of time; (ii) the sale of investments into a depressed marketplace to fund these paid losses; (iii) the uncollectibility of reinsurance recoverables on these paid losses; (iv) the significant decrease in the value of collateral supporting reinsurance recoverables; or (v) a significant reduction in our net premium collections.

We may, from time to time, make significant investments in the common stock of a public company, subject to limitations imposed by applicable regulations.

On a consolidated basis, as of September 30, 2021, our invested assets increased to approximately $21.5 billion from approximately $20.2 billion as of December 31, 2020, primarily reflecting net proceeds from the issuance of our 2051 Senior Notes, appreciation in the value of our equity securities portfolio, as discussed above, and cash flows from operating activities, partially offset by depreciation in the value of our debt securities portfolio, repurchases of shares of our common stock and contributions to Alleghany Capital to fund the acquisition of WPS, as discussed above. The depreciation in the value of our debt securities portfolio reflects an increase in risk-free interest rates in the first nine months of 2021.

Fair Value. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between willing, able and knowledgeable market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. In addition, a three-tiered hierarchy for inputs is used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are market participant assumptions based on market data obtained from sources independent of the reporting entity. Unobservable inputs are the reporting entity’s own assumptions about market participant assumptions based on the best information available under the circumstances. In assessing the appropriateness of using observable inputs in making our fair value determinations, we consider whether the market for a particular security is “active” or “inactive” based on all the relevant facts and circumstances. A market may be considered to be inactive if there are relatively few recent transactions or if there is a significant decrease in market volume. Furthermore, we consider whether observable transactions are “orderly” or not. We do not consider a transaction to be orderly if there is evidence of a forced liquidation or other distressed condition; as such, little or no weight is given to that transaction as an indicator of fair value. See Note 1 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K for additional information on our accounting policy on fair value.

The following table presents the carrying values and estimated fair values of our consolidated financial instruments as of September 30, 2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
	($ in millions)
Assets
Investments (excluding equity method investments and loans)(1)	$	20,417.0	$	20,417.0	$	19,051.9	$	19,051.9

Liabilities
Senior notes and other debt(2)	$	2,552.2	$	2,850.4	$	2,135.9	$	2,468.7

(1)

(2)

See Note 2 to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information on our financial instruments measured at fair value and the level of the fair value hierarchy of inputs used as of September 30, 2021 and December 31, 2020.

Municipal Bonds. The following table provides the fair value of our municipal bonds as of September 30, 2021, categorized by state and revenue source. Special revenue bonds are debt securities for which the payment of principal and interest is available solely from the cash flows of the related projects. As issuers of revenue bonds do not have the ability to draw from tax revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than general obligation bonds.


	Special Revenue
State	Education		Hospital		Housing		Lease Revenue		Special Tax		Transit		Utilities		All Other Sources		Total Special Revenue		Total General Obligation		Total Fair Value
	($ in millions)
New York	$	0.8	$	—	$	2.6	$	8.7	$	122.5	$	64.2	$	48.6	$	—	$	247.4	$	11.8	$	259.2
Texas		13.2		—		0.1		11.3		3.2		23.8		86.8		1.9		140.3		79.4		219.7
California		4.4		37.8		2.2		9.6		—		9.6		50.3		4.9		118.8		72.3		191.1
Massachusetts		16.1		5.7		11.6		—		42.4		1.3		20.7		0.3		98.1		64.1		162.2
Pennsylvania		6.3		0.9		11.5		—		—		35.2		8.3		31.5		93.7		39.4		133.1
Ohio		34.7		1.2		2.9		1.2		2.2		8.8		20.3		9.2		80.5		30.4		110.9
Washington		—		—		1.8		—		—		6.7		33.9		2.3		44.7		52.5		97.2
Florida		—		0.3		2.6		—		18.9		43.7		8.5		9.6		83.6		11.0		94.6
Michigan		4.2		12.8		2.0		10.4		12.7		—		—		4.8		46.9		18.3		65.2
Colorado		14.9		—		—		11.0		—		2.7		7.1		—		35.7		28.4		64.1
All other states		76.7		56.6		35.0		75.0		92.1		67.2		167.5		88.0		658.1		198.1		856.2
Total	$	171.3	$	115.3	$	72.3	$	127.2	$	294.0	$	263.2	$	452.0	$	152.5	$	1,647.8	$	605.7		2,253.5
Total advanced refunded / escrowed maturity funds																						355.0
Total municipal bonds																					$	2,608.5

Recent Accounting Standards

For a discussion of recently adopted accounting standards, see Note 1(c) to Notes to Unaudited Consolidated Financial Statements set forth in Part I, Item 1, “Financial Statements” of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of loss from adverse changes in market prices and rates. The primary market risk related to our debt securities is the risk of loss associated with adverse changes in interest rates. We hold our debt securities as AFS. Any changes in the fair value in these securities, net of tax, would be recorded as a component of other comprehensive income. However, if a decline in fair value relative to cost is believed to be other than temporary, a loss is generally recorded on our statement of earnings. We also invest in equity securities which are subject to fluctuations in market value. In addition, significant portions of our assets (principally investments) and liabilities (principally loss and LAE reserves and unearned premiums) are exposed to changes in foreign currency exchange rates. The net change in the carrying value of assets and liabilities denominated in foreign currencies is generally recorded as a component of other comprehensive income.

The sensitivity analyses presented below provide only a limited, point-in-time view of the market risk of our financial instruments. The actual impact of changes in market interest rates, equity market prices and foreign currency exchange rates may differ significantly from those shown in these sensitivity analyses. The sensitivity analyses are further limited because they do not consider any actions we could take in response to actual and/or anticipated changes in equity market prices, market interest rates or foreign currency exchange rates. In addition, these sensitivity analyses do not provide weight to risks related to market issues such as liquidity and the credit worthiness of investments.

Interest Rate Risk

The primary market risk for our debt securities is interest rate risk at the time of refinancing. We monitor the interest rate environment to evaluate reinvestment and refinancing opportunities. We generally do not use derivatives to manage market and interest rate risks. The table below presents a sensitivity analysis as of September 30, 2021 of our (i) consolidated debt securities and (ii) senior notes and other debt, which are sensitive to changes in interest rates. Sensitivity analysis is defined as the measurement of potential change in future earnings, fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates over a selected time period. In the sensitivity analysis model below, we use a +/- 300 basis point range of change in interest rates to measure the hypothetical change in fair value of the financial instruments included in the analysis. The change in fair value is determined by calculating hypothetical September 30, 2021 ending prices based on yields adjusted to reflect a +/- 300 basis point range of change in interest rates, comparing these hypothetical ending prices to actual ending prices, and multiplying the difference by the par outstanding. The selected hypothetical changes in interest rates do not reflect what could be the potential best or worst case scenarios.


	-300		-200		-100		0		100			200			300
	($ in millions)
Assets:
Debt securities, fair value	$	18,226.3	$	17,357.4	$	16,588.6	$	15,884.9	$	15,200.3		$	14,542.6		$	13,927.9
Estimated change in fair value		2,341.4		1,472.5		703.7		—		(684.6	)		(1,342.3	)		(1,957.0	)

Liabilities:
Senior notes and other debt, fair value	$	3,841.5	$	3,445.2	$	3,119.7	$	2,850.4	$	2,625.3		$	2,435.9		$	2,275.4
Estimated change in fair value		991.1		594.8		269.3		—		(225.1	)		(414.5	)		(575.0	)

Equity Risk

Our equity securities are subject to fluctuations in market value. The table below presents our equity market price risk and reflects the effect of a hypothetical increase or decrease in market prices as of September 30, 2021 on the estimated fair value of our consolidated equity portfolio. The selected hypothetical price changes do not reflect what could be the potential best or worst case scenarios.


As of September 30, 2021
($ in millions)
Fair Value		Hypothetical Price Change	Estimated Fair Value After Hypothetical Change in Price		Hypothetical Percentage Increase (Decrease) in Stockholders' Equity
$	3,471.7	20% Increase	$	4,166.0		6.2%
		20% Decrease		2,777.4		(6.2%)

In addition to debt and equity securities, we invest in several partnerships which are subject to fluctuations in market value. Our partnership investments are included in other invested assets and are accounted for at fair value or using the equity method, and had a carrying value of $378.9 million as of September 30, 2021.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the potential change in value arising from changes in foreign currency exchange rates. Our reinsurance operations located in foreign countries maintain some or all of their capital in their local currency and conduct business in their local currency, as well as the currencies of the other countries in which they operate. To mitigate this risk, we maintain investments denominated in certain foreign currencies in which the claims payments will be made. As of September 30, 2021, the largest foreign currency net liability exposure for these foreign operations were the Chinese Yuan, British Pound and Japanese Yen and the largest foreign currency net asset exposures for these foreign operations were the Canadian Dollar and Australian Dollar. The table below presents our foreign currency exchange rate risk and shows the effect of a hypothetical increase or decrease in foreign currency exchange rates against the U.S. Dollar as of September 30, 2021 on the estimated net carrying value of our foreign currency denominated assets, net of our foreign currency denominated liabilities. The selected hypothetical changes do not reflect what could be the potential best or worst case scenarios.


As of September 30, 2021
($ in millions)
Estimated Fair Value		Hypothetical Price Change	Estimated Fair Value After Hypothetical Change in Price	Hypothetical Percentage Increase (Decrease) in Stockholders' Equity
$(236.5)	(1)	20% Increase	($283.8)	(0.4%)
		20% Decrease	(189.2)	0.4%

(1)

Denotes a net liability position as of September 30, 2021.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, or “CEO,” and our Chief Financial Officer, or “CFO,” of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of that date to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and timely reported as specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow for timely decisions regarding required disclosure. Our disclosure controls and procedures were designed to provide such assurance; however, we note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting

No changes occurred during the quarter ended September 30, 2021 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

Certain of our subsidiaries are parties to pending litigation and claims in connection with the ordinary course of their businesses. Each such subsidiary makes provisions for estimated losses to be incurred in such litigation and claims, including legal costs. We believe such provisions are adequate and do not believe that any pending litigation will have a material adverse effect on our consolidated results of operations, financial position or cash flows. See Note 12(a) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2020 Form 10-K.

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors” of the 2020 Form 10-K. Please refer to that section for disclosures regarding what we believe are the more significant risks and uncertainties related to our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents our common stock repurchases for the quarter ended September 30, 2021:


	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(1) (in millions)
July 1 to July 31		26,136	$	663.46		26,136	$	316.0
August 1 to August 31		38,092		682.32		38,092		290.0
September 1 to September 30		75,442		636.15		75,442		242.0
Total		139,670		653.85		139,670

(1)

In June 2018, our Board of Directors authorized the repurchase of shares of our common stock, at such times and at prices as management determines to be advisable, up to an aggregate of $400.0 million. In September 2019, our Board of Directors authorized, upon the completion of the previously announced program, the repurchase of additional shares of our common stock at such times and at prices as management determines to be advisable, up to an aggregate of $500.0 million.

Item 6. Exhibits.


Exhibit Number		Description

4.1		Fifth Supplemental Indenture, dated as of August 13, 2021, by and between Alleghany Corporation and The Bank of New York Mellon, as Trustee, including the form of the Senior Notes attached as Exhibit A thereto, filed as Exhibit 4.1 to Alleghany’s Current Report on Form 8-K filed on August 13, 2021, is incorporated herein by reference.

31.1		Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) of the Exchange Act.

31.2		Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) of the Exchange Act.

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed “filed” as a part of this Form 10-Q.

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed “filed” as a part of this Form 10-Q.

101		Interactive Data Files formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020; (ii) Consolidated Statements of Earnings and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020; (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020; and (v) Notes to Unaudited Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ALLEGHANY CORPORATION
	(Registrant)

Date: November 4, 2021	By:	/s/ Kerry J. Jacobs
		Kerry J. Jacobs
		Executive Vice President and Chief Financial Officer
		(principal financial officer)