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TransRe posts Q2 underwriting loss as Alleghany’s CR hits 102.8%

5th August 2020 - Author: Luke Gallin

Alleghany Corporation has reported an underwriting loss of $39.5 million for the second-quarter of 2020 as its reinsurance arm, TransRe fell to an underwriting loss of more than $30 million on the back of COVID-19-related losses of $115 million.

TransReTransRe’s Q2 underwriting loss compares with a gain of $75.9 million in the prior year quarter and, for H1 2020, the reinsurer fell to an underwriting loss of $109.2 million, against a gain of $115.9 million a year earlier.

The company’s combined ratio deteriorated to 102.9% in Q2 2020 and 104.9% in H1 2020, reflecting significant catastrophe losses, mostly related to the ongoing COVID-19 pandemic.

In Q2, TransRe has reported pandemic-related losses of $115 million and for the first six months of the year, this figure stands at $268 million. According to the firm, the losses relate to event postponement and cancellation coverage for conferences, sporting events and other property covers, as well as some increased loss provisions for guaranty business.

TransRe warns that despite a thorough review of its potential exposure to the pandemic, these loss provision do not account for legislative, judicial or regulatory actions that aim to mandate or expand coverage. The firm adds that based on current available information, estimated exposed limits remaining on this portfolio, net of provisions, are roughly $25 million for first and second quarter events, $35 million for third and fourth quarter events, and $70 million for events scheduled throughout next year.

RMS

“Ultimate losses will depend on when restrictions on gatherings are lifted, whether events can be rescheduled and how far in advance an event is postponed or cancelled,” says Alleghany.

Net premiums written also declined at TransRe n Q2 by 2.4% to $1.086 billion, which the firm attributes to automobile-related premium rebates as a result of the pandemic. In H1 2020, the reinsurer saw its net premiums written jump by 3.5% to just under $2.3 billion, reflecting growth in most business lines and improving rates in reinsurance amid a hardening marketplace.

Commenting on the performance of TransRe and RSUI, Alleghany’s primary insurance arm, President and Chief Executive Officer (CEO) of Alleghany, Weston Hicks, said: “Alleghany recognized $135 million of COVID-19 related underwriting losses in the second quarter primarily driven by TransRe, including most significantly, additional event cancellation losses and an estimate for international property business interruption claims.

“Underlying performance at TransRe and RSUI was good, and leading indicators improved in the quarter. RSUI’s net premiums written grew 21.5%, helped by mid-teen rate increases in its property, management liability, professional liability and umbrella lines.

“TransRe’s topline was impacted by COVID-19 related premium rebates in the automobile lines of business; however, excluding these lines, net premiums written grew 6% in the quarter as TransRe benefited from an improving domestic insurance market and, to a lesser degree, peak zone catastrophe pricing. CapSpecialty also had positive momentum in the quarter with growth in net premiums written, reflecting higher rates and new opportunities in its professional and healthcare lines.”

Overall, Alleghany has reported an underwriting loss of $39.5 million for the second-quarter of 2020, and a loss of $63.9 million for the first six months of the year. The company’s combined ratio for Q2 reached 102.8% compared with 91.6% a year earlier and for H1 2020, Alleghany’s combined ratio stands at 102.3%, against 92.5% in H1 2019.

The underwriting loss in Q2 2020 includes $165 million of catastrophe losses, primarily related to the ongoing COVID-19 pandemic.

In total, Alleghany’s net premiums written increased by 2.2% in Q2 2020 to $1.478 billion, and by 6.3% in H1 2020 to $3.011 billion, when compared with the prior year periods.

“Although Alleghany Capital companies’ revenues and margins were impacted by the sharp decline in economic activity in the second quarter as well as customer and project site closures and delays, most companies have improving momentum entering the second half of 2020. In particular, W&W|AFCO Steel’s backlog has grown to record levels, with good diversity of major projects.

“Furthermore, IPS’s pipeline has increased significantly driven by global spending on biopharmaceutical projects, including potential vaccines and treatments for COVID-19. Overall, because of Jazwares’ seasonality, which has been exacerbated this year by COVID-19 and related restrictions, we expect Alleghany Capital’s earnings in the second half to improve meaningfully from the first half,” said Hicks.

In Q2, Alleghany’s investment income fell by 16.8% to $119 million and in H1 2020, the firm has recorded investment income of $231 million, which is down 13.2% on the same period in 2019.

“We continue to see the potential for significant downside risk in investment markets and took steps to further defensively position our consolidated investment portfolio in the second quarter including reducing our allocation to equity securities to under 20% of stockholders’ equity and building a small position in gold-linked equities.

“Additionally, given the strength of our balance sheet, strong outlook for our businesses and current stock valuation, we intend to resume our share repurchase program,” concluded Hicks.

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