Compounders Podcast

My guest on the show today is Weston Hicks, the CEO of Alleghany Corporation. Alleghany is a Fortune 500, $9.3B market cap company that focuses primarily on the insurance and re-insurance industry. Weston became CEO all the way back in late 2004 and since then, the company has grown its book value significantly and, like a mini-Berkshire Hathaway, has built up an interesting portfolio of non-insurance businesses that includes everything from a machine tool company to a toy company. And the Berkshire parallels don’t end there. Weston is a value investor at heart and is well known for his eclectic shareholder letters where he dives deep into the insurance industry and the capital markets as a whole. Weston was a key driver of the company’s 2011 transformational merger with TransRe, a deal that established Alleghany as a global insurance powerhouse. After close to 20 years with the company, Weston will be retiring at the end of this year. So, I thought it would be a great opportunity to talk to Weston before he officially leaves the CEO seat and get his insights and perspectives, on a variety of topics, including: - His thoughts on what makes a compounder - The benefits and the setbacks associated with the merger with TransRe - How to compensate people and establish a competitive advantage within the insurance industry - The emergence of ESG and how that impacts a company that underwrites catastrophe risks Click the timestamp to jump to each answer: 3:40 – Introduction and the transformational merger with TransRe 7:50 – Weston’s plan as CEO (why the diversification into reinsurance) 9:50 – What made TransRe such a compelling opportunity 11:30 – The difficulties of M&A and why Alleghany is unique as a company 13:30 – The big surprises from the TransRe deal 14:55 – Looking back on the TransRe transaction 10 years later 17:50 – The impact of new competition moving into reinsurance 20:24 – What makes insurance companies such effective compounders 23:19 – Compensation as a lever for performance 25:40 – The history of Alleghany’s investment strategy 28:11 – How involved the board is in capital allocation 32:00 – Alleghany’s capital allocation strategy, investing North Star, and inevitable missteps 36:20 – Alleghany Capital and family run businesses 40:47 – Growing Alleghany Capital & the insurance business 43:17 – Weston’s approach to growing shareholder wealth 48:30 – Hiring, compensation, and employee retention 52:08 – The emergence of ESG 57:20 – Why Alleghany utilizes special dividends 61:20 – Alleghany’s exceptional stock growth 64:40 – What about Alleghany makes Weston so comfortable stepping away 67:50 – Areas where Alleghany has had to adapt 70:25 – What is the most misunderstood aspect of Alleghany? To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on twitter at @InoculatedInves and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire.  iTunes: https://apple.co/3xlUvPY Spotify: https://spoti.fi/3jxkxLl Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms. All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.

Welcome to the Compounders Podcast, where we explore the anatomy of public company wealth creation stories. On this show, we invite you to be a fly on the wall for the actual conversations professional investors have with public company CEOs. Through a series of interviews, we will learn about how to create a compounder—a sustainable company whose success builds upon itself—by hearing about the real-life experiences of leaders who run smaller-cap public companies. I’m your host, Ben Claremon, a partner and portfolio manager at Cove Street Capital. In these conversations, I interview public company senior executives by posing the exact type of questions I ask as part of Cove Street’s diligence process. By talking to people who operate within a wide variety of industries, we will dig into the holistic aspects of company building that you are not going to hear anywhere else. Whether you are a professional investor, founder or someone who is simply interested in business, we think this podcast has something for you. To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on Twitter at @InoculatedInves and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire.  Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms.  All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.