2018 catastrophes hit Alleghany’s income from ILS manager Pillar Capital

Financial services insurance and reinsurance group Alleghany Corporation reported a negative investment income hit from its equity investments in specialist insurance and reinsurance linked ILS asset manager Pillar Capital and its funds for 2018.

In fact the 2018 catastrophe losses appear to have hit the investment harder than those in 2017, as Alleghany reported that its investment income from Pillar Capital Holdings Limited and its related ILS funds was -$6.5 million for the full-year 2018, down from -$1.7 million for full-year 2017.

Alleghany Corporation and its reinsurance company TransRe took ownership stakes and made investments in specialist ILS manager Pillar Capital and its ILS funds back in 2012, so Alleghany reports the contribution these investments make to its income every quarter.

The final quarter of 2018 saw a significant hit come through from these investments, which will likely be due to the impacts of the California wildfires and also hurricane Michael, which were both Q4 2018 catastrophe loss events.

Alleghany reported that its Pillar ILS investment income was -$7.7 million for Q4 2018, significantly down on the positive $1.2 million of investment income reported from Pillar in the prior year quarter.

Some of the loss in Q4 2018 may also be due to the ongoing loss creep that many other ILS and collateralized reinsurance strategies have suffered through recent weeks as well.

Alleghany acknowledged the impacts of catastrophes to these investment income results saying, “The decrease in net investment income in the fourth quarter of 2018 primarily reflects negative returns from certain partnership investments impacted by significant catastrophe losses in the quarter.”

This must refer to Pillar and the negative investment income reported is not really surprising at all, given Pillar Capital’s investment strategies are focused on global property catastrophe exposures and its focus is on the private collateralized reinsurance side of the ILS market.

For a comparison, in a year with little in the way of catastrophe losses such as 2016, Alleghany reported $15.8 million of investment income earned from ILS manager Pillar Capital.

TransRe has had its ownership stake in Pillar for a number of years now, when it invested $175 million and Alleghany $25 million into Pillar Capital’s limited partnership, ILS and reinsurance-linked investment funds.

The value of Alleghany’s total investments in Pillar Capital and its ILS funds was put at $193.6 million at the end of 2018, net of returns of capital. That’s down slightly from the $201.3 million reported at the end of September 2018, likely also reflecting loss impacts as well as returns of capital at the end of the year.