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Alleghany (Y) Q1 Earnings Beat on Solid TransRe Underwriting

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Alleghany Corporation Y reported first-quarter 2018 operating earnings of $11.24 per share, which surpassed the Zacks Consensus Estimate of $8.16 by 37.7%. Moreover, the bottom line surged 48.2% from the year-ago quarter.

Alleghany Corporation Price, Consensus and EPS Surprise


Alleghany Corporation Price, Consensus and EPS Surprise | Alleghany Corporation Quote


The company reported net earnings $ 11.04 per share in the reported quarter, which improved 14.2% from the year-ago quarter.

The quarter under review benefited from a solid underwriting performance at TransRe, a non-recurring gain related to the conversion of Ares partnership interest, decreased corporate administration expenses as well as lower tax. However, lower underwriting profits at RSUI partially offset this upside.

Operational Update

Revenues for the first quarter declined 3.4% from the year-ago quarter to 1.6 billion.

Net premiums written inched up 1.6% year over year to $1253.3 million.

Net investment income came in at $124.1 million in the quarter under review, up 7.4% year over year. This improvement is driven by higher dividend income, stemming from a rise in the size of equity portfolio as well as higher interest income. However, this was partially offset by higher performance-based investment fees from the company’s outside investment advisors.

Underwriting profit increased 29.1% year over year to $130.9 million.

Corporate administration expenses lowered 53.8% to $7.8 million.

Segment Update

Reinsurance Segment: Net premiums written increased 5% to $997million owing to the impact of changes in foreign currency exchange rates as well as increased writings in the U.S. casualty lines. However, this was partially offset by a decline in premiums written related to a large whole-account quota share treaty.

Underwriting profit was $98.8 million, soaring 85% from the year-ago quarter. The segment’s first-quarter combined ratio improved by 460 basis points to 89.7%, reflecting an increase in favorable prior-accident year loss reserve development.

Insurance Segment: Net premiums written were down 9.7 % to $256.3 million, due to the sale of PacificComp in the fourth quarter of 2017. However, growth at CapSpecialty and RSUI limited this downside. Underwriting profit of $32.1 million was down 33.1% from the year-ago quarter. The combined ratio of the reported segment deteriorated 400 basis points to 87%, attributable to higher non-catastrophe property loss incurred by RSUI.

Financial Update

Alleghany exited the first quarter with cash of $711.04 million, down from $838.38 million at the end of 2017.

Debt balance of $1.54 billion inched up 3.8% from 2017-end level.

Allegheny’s shareholder equity at the end of the first quarter declined 1.6% to $8.4 billion from $8.5 billion as of Dec 31, 2017.

Book value per share was $545.07 as of Mar 31, 2018, down 1.5% from the level as of Dec 31, 2017. This was driven by a decline in the carrying value of a fixed income investment portfolio because of improving interest rates.

Share Repurchase and Dividend Update

In the reported quarter, Alleghany bought back 35,072 shares worth $21.3million. As of Mar 31, 2018, the company had $341.9 million remaining under its share repurchase authorization.

During the first quarter, the board of directors approved a special dividend of $10 per share to shareholders of record as of Mar 5, 2018. The dividends were paid at a value of $154 million.

Zacks Rank

Alleghany carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry, which have already reported first-quarter earnings so far, the bottom line of The Progressive Corporation PGR, MGIC Investment Corporation MTG and RLI Corp. RLI beat the respective Zacks Consensus Estimate.

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