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Alleghany (Y) Beats on Both Top and Bottom Lines in Q3

Alleghany Corporation Y reported third-quarter 2017 loss of $22.03 per share, narrower than the Zacks Consensus Estimate of a loss of $28.83. The bottom line compared unfavorably with $9.44 earned in the year-ago quarter.

The company suffered due to huge cat loss in the quarter.

 

Alleghany Corporation Price, Consensus and EPS Surprise

 

Including one-time items, the company reported net loss of $20.90 per share, which compared unfavorably with $10.09 per share earned in the year-ago quarter.

Operational Update

Operating revenues of $1.6 billion fell 1.8% year over year due to lower premiums earned and investment income. The top line however, surpassed the Zacks Consensus Estimate of $1.3 billion by 14.3%.

Net premiums written increased 1.9% year over year to $1.3 billion.

Net investment income came in at $104.7 million in the quarter, down 13.2% year over year. The decrease is attributable to adverse results from collateralized reinsurance funds, which were also hurt by third-quarter catastrophe events.

Total expenses surged 57% year over year to $2.2 billion, largely due to increase in net loss and loss adjustment expenses.

Catastrophe loss of $491 million was wider than $21-million loss in the year-ago quarter.

Underwriting loss of $65.4 million compared unfavorably with underwriting income of $111.9 million in the year-ago quarter. Combined ratio deteriorated to 152.4% from 91% in the year-ago quarter.

Segment Update

Reinsurance Segment: Net premiums written increased 1.2% to $978.5 million, driven by reinstatement premiums written related to significant catastrophe loss that occurred in the reported quarter.

Underwriting loss was $474.9 million versus $74.1 million income in the year-ago quarter.

Insurance Segment: Net premiums written increased 4.4% to $281.8 million, driven by sustained growth at PacificComp and CapSpecialty. Underwriting loss was $175.5 million versus $37.8 million income in the year-ago quarter.

Financial Update

Alleghany exited the quarter with cash of $701.8 million compared with $594 million at the end of 2016.

Debt balance of $1.5 billion inched up 0.7% from December 2016-end level.

Allegheny’s shareholder equity at the end of the quarter was $8.2 billion compared with $7.9 billion at 2016-end level.

Book value per share was $532.40 as of Sep 30, 2017, up 3.3% from Dec 31, 2016, driven by strong equity and moderate bond market returns.

Net cash from operations totaled $426 million in the first nine months of 2017, down 25.7% year over year.

Alleghany bought back shares worth 8.5 million and has $370.7 million remaining under its authorization.

Divestiture

In September, Alleghany has signed an agreement to divest its Pacific Compensation Insurance Company to Copper Point Mutual Insurance Company for a total cash consideration of $150 million. The transaction is expected to close at the end of this year.

Zacks Rank

Alleghany carries a Zacks Rank #4 (Sell).

You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported third-quarter earnings so far, the bottom line of The Progressive Corporation PGR, The Travelers Companies, Inc. TRV and RLI Corp. RLI beat the respective Zacks Consensus Estimate.

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