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Property business has had poor underwriting results over the last five years: Alleghany’s Hicks


Alleghany’s chief executive Weston Hicks said the property business has had poor underwriting results over the last five years as prices haven’t matched risk exposures in the segment.

“We believe that most insurers in the property insurance business have earned poor underwriting returns over the past five years,” Hicks said in his final letter to shareholders before retiring as CEO.

“While our insurance and reinsurance subsidiaries performed an essential function to society by absorbing these losses, we do not believe that they have done so at prices that allow them to earn a fair rate of return on the capital required to support these risks,” he added.

In the letter, the CEO said underpriced property risks have been rising mostly in the reinsurance industry.

The executive disclosed that, to address these issues, Alleghany will reduce capacity for catastrophe-exposed property exposures unless prices improve in the segment.

Hicks noted, however, that Alleghany’s underwriting profit before natural catastrophe and Pandemic losses for the first nine months of 2021 has approximately doubled from the level of 2019, approaching $1bn on an annualized basis this year.

“But with natural catastrophe losses approaching $700mn so far in 2021, results have been unsatisfactory,” he said, adding that “With a number of initiatives underway to improve our catastrophe risk profile, I expect that Alleghany will likely see significantly improved underwriting results in the year ahead.”

Commenting on TransRe’s underwriting results over the last years, the executive said that from 2012 –when the subsidiary was acquired – to 2017, the property and casualty insurance industry enjoyed several years of relatively low catastrophe losses, leading to a more competitive market in the following years.

“The result was that our underwriting profit [at TransRe] before catastrophe losses, which was $690mn in 2012, steadily declined to a low of $433mn by 2019,” he said.

During the third quarter of 2021, the underwriting loss at Alleghany grew to $200mn, up from $81mn last year, as $372mn in catastrophe losses at TransRe outweighed a $32mn overall underwriting gain in Alleghany’s insurance operations.

TransRe fell to a $232mn underwriting loss overall, with the $262mn underwriting loss its property division offsetting a $29mn gain in casualty and specialty. The loss at TransRe in the quarter grew from the $23mn loss it had a year ago.

But in Q3 Alleghany posted net premiums written of $1.98bn, 21.1% higher than the prior-year quarter, driven largely by improving market conditions, while TransRe’s net premiums written increased by 19.9% in the third quarter to $1.5bn, reflecting overall rate increases and growth in the US professional liability and agriculture lines of business.

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