Alleghany’s investments will steer it through hard market, says president

Alleghany president Weston Hicks bets on investments outside of re/insurance to boost profitability. Hicks sees little upside from buying back shares, and the company’s $1 billion in relatively liquid assets gives it the flexibility to take advantages of opportunities such as market hardening, if they come to fruition.

Hicks believes that cracks are beginning to show in the industry’s reserves, which along with other capital-depleting challenges has the potential to reset rates pretty much overnight. He suggests the liquidity of his investments will be able to steer Alleghany through the resulting hard market.

Against a backdrop where good returns can be tough to come by, many reinsurers who are unable to identify profitable opportunities have been returning money to shareholders.

Reinsurers such as Munich Re and Swiss Re have been returning greater amount of capital to shareholders via share buyback schemes, and both are increasing their dividends.

Although Alleghany has completed significant repurchases of stock in the past, Hicks told Intelligent Insurer that Alleghany has not done so in recent years.

Alleghany owns multiple re/insurance businesses including reinsurer TransRe, wholesale insurer RSUI Group, speciality lines player CapSpecialty and Pacific Compensation Insurance Company, a workers’ compensation insurer.

However, it now owns majority stakes in several companies completely unconnected to the world of risk transfer—an oil exploration company, a manufacturer of precision machine tools, a manufacturer of trailers, a technical service provider focused on the global pharmaceutical and biotechnology industries, and a toy and consumer electronics company.

Hicks suggests that while moving into industries outside of Alleghany’s expertise is risky, a diverse portfolio provides much-needed diversification and protection from the cyclical nature of risk transfer.

“There is a risk moving into industries we do not understand, but the return on capital in some of these sectors is higher than insurance or reinsurance at present and that offers us great strategic benefits,” he said.

For a wider view on Alleghany’s strategy and Hicks’ take on the re/insurance market, click here.

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