Cat losses & COVID hit TransRe and Alleghany, but growth persists

Alleghany Corporation and its reinsurance underwriting subsidiary TransRe highlighted elevated natural catastrophe losses and further impacts from the COVID-19 pandemic have driven them to underwriting losses, in third-quarter reporting.

At the same time, the group has grown its insurance and reinsurance premiums underwritten by 15.8% and 9.5% in the third quarter and first nine months of 2020, respectively.

The Alleghany Corporation-wide underwriting loss for Q3 2020 was $81 million, resulting in a combined ratio of 105.2%, compared with an underwriting profit of $33 million and a combined ratio of 97.6% for the third quarter of 2019.

These underwriting losses were largely driven by $270 million of catastrophe losses, largely due to Hurricane Laura ($101 million), Hurricane Sally ($57 million) and the ongoing COVID-19 global pandemic ($51 million).

The underwriting loss for the first nine months of 2020 was $145 million, with a combined ratio of 103.2% and driven by $616 million of catastrophe losses, largely pandemic related as well as the two hurricanes in Q3.

Weston Hicks, President and chief executive officer of Alleghany, commented, “Alleghany grew book value per share 2.6% in the third quarter reflecting good investment performance and strong earnings from Alleghany Capital, partially offset by catastrophe driven underwriting losses.

“Alleghany recognized catastrophe losses of approximately $270 million in the third quarter resulting primarily from Hurricanes Laura and Sally, and also including additional provisions related to the Pandemic and a myriad of other weather-related events. Excluding the catastrophe losses, underlying underwriting performance at the (re)insurance subsidiaries was good, reflecting an ex-cat combined ratio of 87.9%.

“Consolidated net premiums written increased 16% as all three (re)insurance companies benefited from rate increases and generally improving market conditions. In particular, RSUI’s net premiums written grew 27% in the quarter and reflected renewal rate increases above 15% in most significant product lines.”

TransRe’s reinsurance business has been hurt by the catastrophes and pandemic losses, with the unit falling to a $23.4 million underwriting loss for Q3.

Alleghany explained that in its reinsurance unit, TransRe’s combined ratios were 102.0% and 103.9% for the third quarter and first nine months of 2020, respectively, compared with 99.5% and 96.2% for the corresponding periods of 2019, respectively.

These higher losses suggest that TransRe’s quota share arrangements, some of which are with third-party investors and insurance-linked securities (ILS) funds, may have helped to moderate its loss experience, with investors taking a share of losses, perhaps also through its Pangaea collateralized sidecar vehicle.

TransRe’s catastrophe losses from COVID-19 were $48 million and $316 million for the third quarter and first nine months of 2020, respectively, as well as $48 million from Hurricane Laura.

The reinsurer was also affected by severe weather losses in the third quarter, with impacts from typhoons and flooding in Asia and the US midwest derecho in August 2020.

TransRe’s third-party capital relationships likely assisted with the claims burden through 2020, potentially also on some of the reinsurers pandemic related losses which could have been shared through some proportional arrangements, particularly any business interruption related exposure TransRe had due to COVID-19.