Alleghany’s Pillar Capital income dented again by 2017 catastrophes

Financial services insurance and reinsurance group Alleghany Corporation has continued to experience negative impacts from the 2017 hurricanes and catastrophe events through its equity investments in specialist insurance and reinsurance linked ILS asset manager Pillar Capital and its funds.

Alleghany Corporation and its reinsurance entity TransRe have an ownership stake and investments in specialist ILS manager Pillar Capital and its ILS funds, so reports the contribution this investment makes to its income each quarter.

Since the major catastrophe losses of 2017 the investment has largely been negative, as the initial losses are realised and flow through, but also it seems as the loss creep that has been widely reported with the 2017 hurricanes continues as well.

For the third-quarter of 2018 Alleghany reported that its partnership income, “includes losses incurred on our equity interests in Pillar Capital Holdings Limited, or “Pillar Holdings,” and related funds arising from significant catastrophe losses incurred in August and September 2017.”

Alleghany reports that its Pillar investment income was -$0.8 million for Q3 2018 and positive $1.2 million for the first nine months of this year.

That’s significantly better than the -$9.4 million impact from its Pillar Capital investments that Alleghany reported for Q3 of 2017 and the -$2.9 million it reported for the first nine months of last year.

But the continued realisation of losses in ILS funds from the events of a year ago is evident in Alleghany’s results, which is perhaps not surprising given Pillar Capital’s investment strategies are focused on global property catastrophe exposures and with its focus on the collateralized reinsurance side of the market.

The cause of the negative investment income for Q3 2018 is most likely due to the loss creep associated with hurricane Irma, which affected many private ILS and collateralized reinsurance strategies during the last quarter.

However, the fact that Alleghany is reporting positive investment income from the Pillar Capital investment for the first nine months is positive and suggests that once the uncertainty from Irma is out of the way we should see these figures recover.

It’s also perhaps encouraging that Alleghany did not mention any impacts to its Pillar investments from catastrophe losses that occurred in Q3, such as hurricane Florence in the U.S. and typhoon Jebi or Trami in Japan.

That suggests that ILS manager Pillar Capital did not have significant exposure to these specific loss events.

TransRe has had an ownership stake in Pillar since 2012 ,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 investments in Pillar Capital and its ILS funds was put at $201.3 million at the end of September, net of returns of capital.