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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 1-9371
ALLEGHANY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0283071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
375 Park Avenue, New York, New York 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/752-1356
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 2000, 7,289,071 shares of Common Stock were outstanding, and the
aggregate market value (based upon the closing price of these shares on the New
York Stock Exchange) of the shares of Common Stock of Alleghany Corporation held
by non-affiliates was $1,094,277,388.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part(s) of this Report:
Part
Annual Report to Stockholders of Alleghany I and II
Corporation for the year 1999
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 28, 2000
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ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1999
Table of Contents
Description Page
PART I
Item 1. Business 5
Item 2. Properties 46
Item 3. Legal Proceedings 53
Item 4. Submission of Matters to a Vote of Security Holders 53
Supplemental Item Executive Officers of Registrant 53
PART II
Item 5. Market for Registrant's Common Equity and Related 54
Stockholder Matters
Item 6. Selected Financial Data 54
Item 7. Management's Discussion and Analysis of Financial Condition 54
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 54
Item 8. Financial Statements and Supplementary Data 54
Item 9. Changes in and Disagreements With Accountants on Accounting 55
and Financial Disclosure
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Description Page
PART III
Item 10. Directors and Executive Officers of Registrant 56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and 56
Management
Item 13. Certain Relationships and Related Transactions 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 57
8-K
Signatures 70
Index to Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
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PART I
Item 1. Business.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the
laws of the State of Delaware. In December 1986, Alleghany succeeded to the
business of its parent company, Alleghany Corporation, a Maryland corporation
incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue,
New York, New York 10152 and its telephone number is (212) 752-1356. Alleghany
is engaged, through its subsidiary Underwriters Re Group, Inc. and its
subsidiaries ("Underwriters Re Group"), in the property and casualty reinsurance
and insurance businesses. Alleghany is also engaged, through its subsidiary
Alleghany Asset Management, Inc. ("Alleghany Asset Management") and its
subsidiaries, in the financial services business. In addition, Alleghany is
engaged, through its subsidiaries World Minerals Inc. ("World Minerals"), Celite
Corporation ("Celite") and Harborlite Corporation ("Harborlite") and their
subsidiaries, in the industrial minerals business. Alleghany conducts a steel
fastener importing and distribution business through its subsidiary Heads &
Threads International LLC ("Heads & Threads"). Through its subsidiary Alleghany
Properties, Inc. ("Alleghany Properties"), Alleghany owns and manages properties
in California.
On December 30, 1999, Alleghany entered into an agreement to sell
Underwriters Re Group to Swiss Re America Holding Corporation for $725 million
in cash, subject to adjustment based upon the stockholder's equity of
Underwriters Re Group at the closing date. Alleghany will retain Underwriters Re
Group's London-based Lloyd's operations to be conducted through Alleghany
Underwriting Holdings Ltd. ("AUL London," previously referred to as Venton
Holdings Ltd.). The transaction is expected to close in April 2000.
Until June 17, 1998, Alleghany was also engaged, through its
subsidiaries Chicago Title and Trust Company ("CT&T"), Chicago Title Insurance
Company, Security Union Title Insurance Company and Ticor Title Insurance
Company and their subsidiaries, in the sale and underwriting of title insurance
and in other real estate-related services businesses. On that date, Alleghany
completed the tax-free spin-off of Chicago Title Corporation, the newly formed
holding company of CT&T, to Alleghany stockholders. As a part of the spin-off,
the common stock of Chicago Title Corporation was listed on the New York Stock
Exchange under the symbol "CTZ." On March 20, 2000, Chicago Title Corporation
merged with and into Fidelity National Financial, Inc.
During 1994 and early 1995, Alleghany and its subsidiaries acquired a
substantial number of shares of common stock of Santa Fe Pacific Corporation
("Santa Fe"). On
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September 22, 1995, Santa Fe and Burlington Northern, Inc. merged under a new
holding company named Burlington Northern Santa Fe Corporation ("BNSF"). As a
result of the merger, the shares of Santa Fe beneficially owned by Alleghany
were converted into shares of BNSF. As of March 1, 2000, Alleghany owned
approximately 17.95 million shares of BNSF, or about 3.9 percent of BNSF's
currently outstanding common stock. BNSF is engaged primarily in rail
transportation. BNSF owns one of the largest railroad networks in North America,
providing transportation services to shippers throughout the western two-thirds
of the United States as well as to Canada and Mexico. BNSF has entered into an
agreement to merge with Canadian National Railway Company. The merger, which
remains subject to regulatory approval, is expected to close mid-2001.
In 1999, Alleghany studied a number of potential acquisitions.
Alleghany intends to continue to expand its operations through internal growth
at its subsidiaries as well as through possible operating-company acquisitions
and investments.
Reference is made to Items 7 and 8 of this Report for further
information about the business of Alleghany in 1999. The consolidated financial
statements of Alleghany, incorporated by reference in Item 8 of this Report,
include the accounts of Alleghany and its subsidiaries for all periods
presented.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
General
Underwriters Re Group, Inc. ("URG"), headquartered in Calabasas,
California, is engaged in the property and casualty reinsurance and insurance
businesses, through Underwriters Reinsurance Company ("Underwriters"), its
primary insurance subsidiaries and its London-based Lloyd's operations
(collectively, "Underwriters Re Group"). Underwriters was organized in 1867 as a
primary insurer in New York under the name "Buffalo German Insurance Company."
By 1970, Underwriters had become principally a reinsurer, and in 1977 it changed
its corporate domicile to New Hampshire. Underwriters operates throughout the
United States, including Puerto Rico and the District of Columbia, and Canada,
either as a licensed carrier or accredited reinsurer, and has branch offices in
Chicago, New York and Calabasas.
On December 30, 1999, Alleghany executed a definitive stock purchase
agreement to sell Underwriters Re Group to Swiss Re America Holding Corporation
for $725 million in cash, subject to adjustment based upon the stockholders'
equity of Underwriters Re Group at the closing date. Alleghany will retain the
London-based Lloyd's operations to be conducted through Alleghany Underwriting
Holdings Ltd. ("AUL London"). The transaction, which is subject to regulatory
approvals among other conditions, is expected to close in April 2000. Upon
completion of the transaction, Alleghany will assume or replace the $275 million
letter of credit facility currently
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provided by Underwriters to support the corporate capital provided by AUL London
to the Lloyd's syndicates that it manages.
In light of the pending sale of Underwriters Re Group, this "Property
and Casualty Reinsurance and Insurance Businesses" section is organized as
follows. The section entitled "AUL London" presents information relating to AUL
London, excluding the operations of Underwriters Re Group. The section entitled
"Underwriters Re Group," other than as specifically noted, presents information
relating to Underwriters Re Group, including AUL London.
AUL London
On October 23, 1998, Underwriters acquired AUL London (previously
referred to as Venton Holdings Ltd.) and certain related Bermuda operations for
approximately $181.1 million in cash and Alleghany common stock valued at
approximately $8.9 million. Subsequent to its purchase, the Bermuda operations
were transferred to Underwriters and operated as a branch of Underwriters.
AUL London, through its subsidiaries, is a managing agent and provider
of corporate capital for syndicates in the Lloyd's insurance market. Lloyd's is
a market, not an insurance company, in which individual professional
underwriters accept risks on behalf of competing businesses or syndicates formed
by both individual and corporate members. The members' resources provide the
security behind Lloyd's policies. Considered as a franchise with common
policyholder security, Lloyd's is, according to Standard & Poor's, the world's
second largest commercial insurer and eighth largest reinsurer, operating in
over 100 countries. Lloyd's carries an A (Excellent) rating from A.M. Best
Company, Inc., an independent industry rating organization ("Best's"). According
to Best's, the rating reflects the financial strength, operating performance and
market profile of Lloyd's. The rating applies to the business written by active
underwriting syndicates that have common policyholder security and to all
policies written since the 1993 year of account. Lloyd's also carries an A+
rating from Standard & Poor's.
In 1999, AUL London, through its subsidiaries, managed three Lloyd's
syndicates: Syndicate 376 (non-marine), Syndicate 1183 (marine) and Syndicate
1207 (non-marine), and provided pound sterling 218 million, or 76 percent, of
the capacity of such syndicates. In 1998, AUL London and two affiliated
companies provided approximately pound sterling 155 million, or 63 percent, of
the total capacity of the three syndicates. The remainder of the capacity in
1999 and 1998 was provided by third-party members.
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Following the introduction of corporate capital to the Lloyd's market
in 1994, AUL London pursued a policy of acquiring the capacity held by
third-party members as it became available. In 1999, AUL London acquired the
remaining third-party capacity and merged Syndicates 1207 and 1183 into
Syndicate 376. Beginning with calendar year 2000, AUL London, through its
subsidiaries, will manage a single syndicate and provide 100 percent of the
pound sterling 275 million capacity of such syndicate. AUL London's managing
agent subsidiary is currently the thirteenth-largest managing agent in Lloyd's,
representing about 2.75 percent of the market's 2000 capacity.
Although AUL London is managing a single syndicate for the year 2000,
it continues to manage the three syndicates for the prior open years of account.
Lloyd's operates under a three year "year of account" accounting system.
Typically, each "year of account" of a syndicate is treated as a separate entity
in which risk is underwritten for one year followed by a two-year period of
development. At the end of the three-year period, the "reinsurance to close"
mechanism is triggered whereby the members forming the next year's underwriting
syndicate reinsure the outstanding liabilities of the closing syndicate. After
buying reinsurance to close for a syndicate, profits or losses are declared and
settled.
As a subscription market, Lloyd's has certain unique operating
characteristics. A risk is typically placed with several different insurers
(often including London insurance companies as well as a number of Lloyd's
syndicates) each of which is liable on a several, not joint, basis. Because
there are multiple syndicate participants in a typical insurance policy or
reinsurance treaty placed at Lloyd's, all premium fund collections and claim
payments go through central processing facilities provided by Lloyd's to
facilitate policy signing, netting, settlement, and accounting services for the
syndicates.
Although AUL London assumed the management of Syndicate 376 in 1988 and
Syndicates 1183 and 1207 were established thereafter in 1991 and 1996,
respectively, the information herein relates to business written after 1992
since, in response to its financial crises, Lloyd's created Equitas in 1996 as a
group of companies to reinsure and handle the runoff of pre-1993 non-life
business ceded by Lloyd's syndicates.
Due to the complexity of converting Lloyd's accounting information to
U.S. accounting principles, AUL London's accounts are included in the
consolidated financial statements of Underwriters Re Group and Alleghany on a
one-quarter lag. Therefore, AUL London's results from the date of purchase
through September 30, 1999 are included in Alleghany's consolidated financial
statements for the year ending December 31, 1999.
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General Description of Business
AUL London's insurance and reinsurance operations focus primarily on
specialty commercial lines that AUL London believes provide opportunities for
strong profitability. Through the syndicates it manages, AUL London underwrites
risks across diverse commercial classes, including property (marine and
non-marine) and casualty (such as financial institutions and directors and
officers liability insurance), at varying risk layers from primary coverage to
high layer excess of loss. The majority of AUL London's casualty business is on
a claims-made basis. AUL London's risks are located around the world, with an
emphasis on the United States. Over half of AUL London's business in the 1999
year of account involved insureds located in the United States and risks located
in the United States of non-U.S. insureds. The United Kingdom, Western Europe,
Canada and Australia also contributed substantial amounts of premium income.
In general, property insurance protects the insured against financial
loss arising out of loss of property or its use caused by an insured peril.
Casualty insurance protects the insured against financial loss arising out of
the insured's obligation to others for loss or damage to persons or property.
While both property and casualty insurance may involve a high degree of loss
volatility, property losses are generally reported within a relatively short
time period after the event; in contrast, there tends to be a significant time
lag in the reporting and payment of casualty claims. Consequently, an insurer
generally knows of the losses associated with property risks in a shorter time
than losses associated with casualty risks. Approximately 60 percent of AUL
London's business is property and 40 percent casualty.
Reinsurance is an agreement between two insurance companies in which
one company, the "reinsurer," agrees to indemnify the other company, the
"cedent" or "ceding company," for all or part of the insurance risks
underwritten by the ceding company. Reinsurance provides ceding companies with
three major benefits: (i) it reduces net liability on individual risks, (ii) it
protects against catastrophic losses, and (iii) it helps to maintain acceptable
surplus and reserve ratios. In addition, reinsurance provides the ceding company
with additional underwriting capacity. Ordinarily, a ceding company will enter
into a reinsurance agreement only if it will receive credit for the reinsurance
ceded on its statutory financial statements. In general, such credit is allowed
if the reinsurer meets the licensing and accreditation requirements of the
ceding company's domicile, or the reinsurance obligations are collateralized by
letters of credit, funds withheld or pledged trust agreements.
AUL London writes reinsurance on both an excess of loss and pro rata
basis. Under excess of loss reinsurance contracts, the reinsurer agrees to
reimburse the ceding company for all losses in excess of a predetermined amount
(commonly referred to as the cedent's "retention"), generally up to a
predetermined limit. Excess of loss reinsurance is often written in "layers" or
levels, with one reinsurer (or a group of reinsurers) assuming the risk of loss
on the primary insurance policy in excess of the cedent's retention level
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up to a predetermined level, above which the risk of loss is assumed by another
reinsurer or reverts to the cedent. Under pro rata reinsurance contracts, the
ceding company and reinsurer share the premiums as well as the losses and
expenses of any single risk, or an entire group of risks, based upon
contractually defined rates. Reinsurance written on an excess of loss basis
represented approximately 85 percent of AUL London's net reinsurance written
premiums, with reinsurance written on a pro rata basis representing the balance.
Marketing
AUL London continues to develop strong long term relationships with its
core clients and with the international brokering community in order to
understand the business and offer a fast efficient service. AUL London's
experienced underwriting team is able to respond quickly to market opportunities
and rate changes and, through the Lloyd's franchise, is able to conduct business
in a number of territories around the world. AUL London writes a balance of
insurance and reinsurance business across most of the main classes of insurance.
Underwriting expertise and detailed actuarial analysis are, where appropriate,
brought to bear on the accounts written to maximize potential profitability. In
addition to the traditional classes of business, AUL London is innovative in its
outlook in order to take advantage of new opportunities and meet the ever
changing needs of the business community. Blended programs, covering a number of
risks usually insured separately, and multiple line insurance are offered
utilizing non-standard wording.
In general, Lloyd's syndicates, including those managed by AUL London,
may only access business through Lloyd's brokers. The AUL London-managed
syndicates have strong and long-standing relationships with the principal
brokers in the Lloyd's market. Reflecting the typical level of concentration,
the Aon, Marsh and Willis groups produced a substantial portion of the business
of the AUL London-managed syndicates done in the Lloyd's market. AUL London's
five leading brokers accounted for 62.8% of AUL London's gross written premiums
in 1999. Over this period, the Aon group and the Marsh group accounted for 25.4%
and 22.9%, respectively, and no other broker accounted for more than 10% of such
premiums. Without the replacement of business from other brokers, the
termination of relationships with either one of these brokers could have a
material adverse effect on AUL London's results of operations. No such
terminations are anticipated.
Certain lines of business are less suited to placement through the
larger international brokers, as many of the Lloyd's brokers tend to be. AUL
London has expertise in some of these classes and has established a service
company to develop the business. At present, the service company produces
approximately $10 million of gross written premium from yacht and marina
insurance.
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Underwriting Operations
AUL London has organized its underwriting activities under the
categories of direct and treaty business.
Direct
Direct business generally refers to risks that are individually
underwritten and includes primary insurance and reinsurance. The business is
accepted both facultatively, whereby each individual risk is seen and rated by
an AUL London underwriter, or under facilities such as lineslips, consortia or
binding authorities. Under these facilities, AUL London delegates the authority
to accept business, within specified underwriting criteria, to a third party who
has expertise in that particular class of business. With lineslips and
consortia, the third party will be another Lloyd's syndicate also participating
on each risk accepted and, in the case of binding authorities, the third party
will act as agent of AUL London. In general, such facilities are utilized for
smaller premium business.
AUL London's direct business focuses on the traditional marine classes
(hull, cargo, energy, war and liabilities), associated marine classes (political
risks and terrorism), casualty business (professional indemnity, directors &
officers liability, financial institutions and employment practices liability)
and non-marine property. The business is regularly monitored to identify trends
in rating and loss activity in order to maximize potential profits. Direct
business generated approximately $157.7 million, or 62 percent, of AUL London's
net written premiums in 1999.
Treaty
AUL London also provides reinsurance on a treaty basis. Treaty
reinsurance is based on a standing arrangement (a "treaty"), traditionally for a
year (but with longer term arrangements becoming more common), between a cedent
and a reinsurer for the cession and assumption of a certain class of risk
specified in such treaty. Under most treaties, the cedent is obligated to offer,
and the reinsurer is obligated to accept, a specified portion of a class of risk
underwritten by the cedent. Reinsurers assume classes of risk under treaties
without having reviewed each individual risk.
AUL London maintains a disciplined underwriting program, writing a
spread of property treaty reinsurance business, including catastrophe, pro rata
and risk excess business, as well as marine, aviation, satellite and casualty
treaty business. AUL London writes business at various attachment points (i.e.,
dollar levels at which risk is assumed) depending on where the best rewards are
perceived; in recent years there has been an emphasis away from the lower
working layers which suffer from greater loss frequency. AUL London also seeks
to serve as lead or co-lead underwriter on a greater proportion of its business
in order to have more control over the pricing and terms of the risks into which
it enters and thereby achieve better underwriting results. Treaty reinsurance
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generated approximately $96.7 million, or 38 percent, of AUL London's net
written premiums in 1999.
Reinsurance Arrangements
As is customary in the insurance and reinsurance industry, AUL London
reinsures a portion of the risks it underwrites. AUL London buys reinsurance
primarily to manage exposures in its direct and treaty reinsurance businesses.
Reinsurance serves to reduce the exposure to any one policy or physical risk, or
to a catastrophic accumulation of loss in one event, to a level judged to be
commensurate with AUL London's financial resources. It also allows large losses
to be managed over time.
AUL London has reinsurance agreements with a number of domestic and
international reinsurance companies and Lloyd's syndicates. In the event that a
reinsurer is unable to meet its obligations assumed under the reinsurance
agreement, AUL London remains liable for the portion reinsured. Consequently,
AUL London has established a committee to examine the financial strength and
stability of potential reinsurers prior to entering into any arrangements with
them. This committee utilizes the ratings given to reinsurers by Best's and
Standard & Poor's, as well as other specific information available regarding the
financial strength and stability, the classes of business written and the
management strength of the reinsurers. Once placed, AUL London continues to
monitor these factors in addition to the reinsurer's payment performance and
outstanding debt. Generally, AUL London requires that unpaid losses and loss
adjustment expenses be collateralized by letters of credit, funds withheld or
pledged trust agreements. Additionally, commutations may be taken to reduce or
eliminate credit exposure when necessary.
AUL London cedes approximately 30 percent of its direct business income
and 25 percent of its reinsurance treaty income to purchase reinsurance that
protects both frequency and severity of loss. With reinsurance, AUL London
intends to limit its loss from any single event to less than 12.5 percent of its
syndicates' capacity. AUL London purchases a combination of pro-rata, per risk,
per event and aggregate excess of loss protections to cover its business. As of
September 30, 1999, AUL London had reported reinsurance receivables of $210.1
million.
Outstanding Losses and Loss Adjustment Expenses
In many cases, significant periods of time may elapse between the
occurrence of an insured loss, the reporting of such loss to the insurer and the
reinsurer, the insurer's payment of such loss and the subsequent payment by the
reinsurer. To recognize liabilities for unpaid losses (including reinsurance
costs, reinsurance recoverables, premiums receivable and bad debt), insurers and
reinsurers establish "reserves." These reserves are balance sheet liabilities
representing estimates of future amounts needed to
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pay claims and related expenses with respect to insured events which have
occurred (or may occur in the future), including events which have not been
reported to the insurer.
The AUL London-managed syndicates establish reserves for the estimated
unpaid liability for losses and loss expenses for claims of which they are
notified under the terms of its policies and agreements. Such reserves are
determined by AUL London claims personnel (in conjunction with the Lloyd's
Claims Office and other insurers who may be leading a particular risk) based
upon a variety of factors, including an evaluation of the nature of the claim,
the coverage afforded by the policy, the jurisdiction in which the claim is
brought and general economic and social conditions. Additional reserves are
established on an aggregate basis to provide for losses incurred but not yet
reported ("IBNR") and to supplement the overall adequacy of reported case
reserves and estimated expenses of settling such claims, including legal and
other fees and general expenses of administering the claims adjustment process.
AUL London establishes IBNR reserves by using accepted loss reserving standards
and principles to estimate the ultimate liability for losses and loss adjustment
expenses. The process implicitly recognizes the impact of inflation and other
factors that affect claims reporting by taking into account changes in historic
loss reporting patterns and perceived probable trends.
AUL London engages an independent actuarial firm to review the
reserving methods and assumptions of the syndicates. Such reserves are
necessarily based on estimates and therefore the future losses and loss expenses
may differ from such reserves. AUL London reviews its aggregate loss reserves
each year with three quarterly reviews at which AUL London updates its loss
reserves by applying the loss ratios determined in the previous review to earned
premiums to date, less incurred losses reported. AUL London does not discount
its reserves for anticipated investment income. There are inherent uncertainties
in estimating reserves due primarily to the significant periods of time that may
elapse between occurrence of an insured or reinsured loss and reporting and
ultimate settlement of such loss, the diversity of development patterns among
different lines of business and types of reinsurance, and the necessary reliance
on the ceding company for information regarding reinsurance claims. Actual
losses and loss expenses may deviate, perhaps substantially, from reserves in
AUL London's financial statements, which could have a material adverse effect on
AUL London's financial condition and results of operations.
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Changes in Historical Net Loss and LAE Reserves
The reconciliation of beginning and ending reserves for AUL London is
shown below (dollars in thousands):
Reconciliation of Reserves for Losses and LAE
1999
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Reserve, net of reinsurance recoverables, as of October 1, 1998 .. $127,339
Incurred loss, net of reinsurance, related to:
Current year ..................................................... 149,359
Prior years ...................................................... 19,485
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Total incurred loss, net of reinsurance .......................... 168,844
--------
1996 year of account reinsurance to close adjustment ............. 17,830
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Paid loss, net of reinsurance, related to:
Current year ................................................ (30,253)
Prior years ................................................. (52,941)
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Total paid loss, net of reinsurance .............................. (83,194)
--------
Reserve, net of reinsurance recoverables, as of September 30 ..... 230,819
Reinsurance recoverables, as of September 30 ..................... 185,684
--------
Reserve, gross of reinsurance recoverables, as of September 30 ... $416,503
========
Investment Operations
The investment policy of the AUL London-managed syndicates is to
maximize overall return, in accordance with guidelines established by Lloyd's
and Underwriters. With rare exception, Lloyd's syndicates are required to
provide profit distributions to
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members (both individual names and corporate capital providers) annually upon
the close of each three-year underwriting cycle, and portfolio managers engaged
by AUL London to manage the syndicates' portfolios have adopted a conservative
approach to investments. Investments, which are held in trust at Lloyd's,
consist of cash and cash equivalents, bonds issued by governments or public
authorities and high quality corporate bonds.
The following table reflects investment results for the fixed maturity
portfolio of AUL London for the year ended September 30, 1999 (dollars in
thousands):
Investment Results
Net Net Pre-Tax
Pre-Tax After-Tax Realized
Average Investment Investment Gains Effective After-Tax
Period Investments (1) Income (2) Income (3) (Losses) Yield (4) Yield (5)
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Year Ended $171,100 $10,022 $6,514 $(1,673) 5.86% 3.81%
September 30, 1999
(1) Average of amortized cost of fixed maturities portfolio at beginning and
end of period. Fixed maturities include premium trust funds of $167.6
million.
(2) After investment expenses, excluding realized gains or losses from sale
of investments.
(3) Net pre-tax investment income less appropriate income taxes.
(4) Net pre-tax investment income for the period divided by average
investments for the same period.
(5) Net after-tax investment income for the period divided by average
investments for the same period.
Competition
The AUL London-managed syndicates compete for business with other
Lloyd's syndicates, insurers in the U. K. and major international insurers and
reinsurers. On international risks, competition may also come from the domestic
insurers in the country of origin of the insured. Competition is based on many
factors, including underwriting expertise, premiums charged and overall
financial strength.
Competition in the property and casualty insurance and reinsurance
industry has historically been cyclical in nature. Typically, a cycle operates
as follows. The ability of primary insurers and reinsurers to conduct business
is dependent generally upon their ability to purchase reinsurance. A surplus of
reinsurers allows primary insurers to obtain reinsurance more cheaply, thereby
enhancing profits. Enhanced profits increase the number of primary insurers,
which increases competition for business and consequently reduces premium rates.
As premium rates fall, the primary insurance business becomes less profitable
and insurers profit only at the expense of their reinsurers. As reinsurance
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becomes less profitable, the reinsurance market contracts, consequently
increasing reinsurance rates. Reduced insurance rates and increased reinsurance
rates cause the primary insurance market to contract. Competition decreases in a
contracted primary insurance market, allowing insurance rates to increase again,
thereby enhancing profits of primary insurers. The enhanced profitability of
primary insurers is passed on to reinsurers. A profitable reinsurance market
will again lead to a surplus of reinsurers.
The insurance/reinsurance cycle operates at different stages depending
on the class of business involved. The historical pattern of these cycles may
change as the developing global nature of the industry evolves.
Regulation
AUL London's operations in the U.K. are subject to regulation by The
Council of Lloyd's; through its Regulatory Division, Lloyd's establishes rules
and regulations that must be adhered to by all businesses in the Lloyd's market.
These cover such areas as capital adequacy, related party transactions,
ownership and control, underwriting and management controls, standards of
conduct and conflicts of interest. The prior approval of Lloyd's was required
for the acquisition of AUL London by Underwriters in 1998.
Every member of Lloyd's, both corporate and individual, must deposit
capital with Lloyd's in the form of readily-realizable assets, such as cash,
securities, letters of credit or bank or other guarantees, which are held in
trust as additional security for policyholders. The capital requirements are
determined annually for each member by Lloyd's risk-based capital methodology,
subject to a minimum requirement of 45 percent of capacity, and is based on the
nature and quantity of risks. AUL London's underwriting activities are supported
by a $275 million letter of credit facility currently provided by Underwriters
Re Group. The facility will be replaced or assumed by Alleghany upon the sale of
Underwriters Re Group.
Lloyd's is at present primarily self-governing, subject to overall
supervision by the Treasury in the U.K.; however, the U.K. government has
announced the establishment of the Financial Services Authority ("FSA"), a
single independent regulator that will supervise the securities, banking and
insurance industries, including Lloyd's. While the implications of future FSA
regulation are not yet fully known, it is expected that there will be a smooth
transition and a high degree of continuity in the day-to-day regulatory
activities.
Employees
AUL London and its subsidiaries employed 103 persons as of December 31,
1999.
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17
Underwriters Re Group
General Description of Business
Reinsurance
Underwriters writes treaty reinsurance on both a pro rata and excess of
loss basis.
Since 1995, Underwriters has been rated "A+ (Superior)" by Best's.
Best's publications indicate that this rating is assigned to companies which
Best's believes have achieved superior overall performance and have a very
strong ability to meet their obligations over a long period of time. According
to Best's, the rating reflects Underwriters' consistently strong operating
results, solid capitalization and strong presence in the broker market.
Additionally, since 1995 Underwriters has been rated "AA- (Excellent)" by
Standard & Poor's. Standard & Poor's publications indicate that this rating is
assigned to companies with strong capacity to meet policyholders' obligations
under a variety of economic and underwriting conditions. As of December 31,
1999, Underwriters' statutory surplus was $524.6 million.
Primary Insurance
Underwriters Re Group established Commercial Underwriters Insurance
Company ("CUIC") at the end of 1992, acquired Underwriters Insurance Company
("UIC"), an inactive Nebraska insurance company in 1994, and established
Newmarket Underwriters Insurance Company ("NUIC") in 1996. These three property
and casualty insurance companies are rated "A+ (Superior)" by Best's because
Underwriters reinsures a significant share of their business. In 1999, CUIC, UIC
and NUIC generated $135.5 million in direct written premiums and retained net
written premiums of $44.2 million, constituting 6 percent of Underwriters Re
Group's consolidated net written premiums in 1999.
The Center Insurance Services, Inc. ("The Center"), was established in
1995 as a wholly owned subsidiary of URG, and has acted as agent and has
underwritten business on behalf of CUIC, UIC, NUIC and, to a lesser extent,
non-affiliated insurers. During 1999, approximately $65.8 million of gross
written premiums was underwritten by The Center.
International
Representative offices were established in Barbados at the end of 1995
and in London, England in 1996 to capitalize on international underwriting
opportunities. In
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addition, in 1995, Underwriters Re Group made a strategic investment in a
reinsurance company in Barbados.
Marketing
In 1999, Underwriters wrote 65% of its treaty business through
reinsurance brokers. The remaining treaty business was principally reinsurance
of portions of the primary insurance underwritten by subsidiaries of
Underwriters. Underwriters did not write any facultative certificate business in
1999.
Reinsurance brokers regularly approach Underwriters for quotations on
reinsurance being placed on behalf of ceding companies. In 1999, Underwriters
paid brokers $13.4 million in commissions, which represents approximately 2.6%
of its gross written premiums of $506.2 million. Underwriters' five leading
brokers accounted for 51% of Underwriters' gross written premiums in 1999. Over
this period, Guy Carpenter & Co., Inc. and Aon Re Inc. accounted for 21.3% and
11.3%, respectively, of such premiums and no other broker accounted for more
than 10% of such premiums. The brokers that account for relatively large
percentages of gross written premiums tend to vary from year to year. Management
does not believe that the termination of its business with any one broker would
have a material effect on Underwriters Re Group's financial condition or results
of operations.
A significant percentage of Underwriters' gross written premiums are
generally obtained from a relatively small number of ceding companies. In 1999,
approximately 37% of gross written premiums were obtained from Underwriters' ten
largest unaffiliated ceding companies. One of the ceding companies accounted for
14% of such premiums and no other unaffiliated ceding company accounted for more
than 10% of such premiums. The ceding companies that account for relatively
large percentages of gross written premiums tend to vary from year to year.
Management does not believe that the loss of any one ceding company account
would have a material effect on Underwriters Re Group's financial condition or
results of operations.
Underwriting Operations
Treaty reinsurance generated approximately $429 million, or 100%, of
Underwriters' net written premiums in 1999. Reinsurance written on an excess of
loss basis represented approximately 59% of Underwriters' net reinsurance
written premiums, with reinsurance written on a pro rata basis representing the
balance. Property lines represented approximately 52% of Underwriters Re Group's
net written premiums, with the remainder represented by casualty lines. In 1999,
Underwriters Re Group's net written premiums increased $287.2 million, or 65.5%,
from 1998, primarily reflecting the acquisition of AUL London, which recorded
$254.4 million of net premiums written in 1999, and the related Bermuda
operations with net premiums written of $22.9 million.
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19
Underwriters generally wrote up to $2.0 million per reinsurance risk in
1999 on a net basis. In the case of reinsurance of certain clash coverage,
Underwriters has written up to $2.5 million on a net basis and in limited
circumstances has accepted more. The largest net risk assumed in 1999 was $13.2
million. Underwriters Re Group wrote up to $1.0 million per primary insurance
risk in 1999 on a net basis.
Retrocessional and Reinsurance Arrangements
Underwriters currently has reinsurance contracts in force which cede to
other reinsurers ("retrocessionaires") risks in excess of Underwriters' net risk
retention. Underwriters has an aggregate reinsurance contract to cover losses up
to $150 million incurred during the period July 1, 1999 through June 30, 2000 in
excess of a 95.44% net loss and loss adjustment expense ratio. Such net loss
ratio is calculated by dividing losses by premiums net of commissions and
brokerage. The contract covers essentially all lines of business written by
Underwriters; however, property catastrophe losses are subject to a sublimit of
$125 million. In 1999, Underwriters ceded losses in the amount of $90 million in
respect of its primary operations and $10 million in respect of AUL London, for
an aggregate of $100 million under similar contracts with such reinsurer
covering prior accident years.
In 1999, Underwriters purchased additional reinsurance to mitigate
property catastrophe exposure; this reinsurance provides a per occurrence limit
of $20 million in excess of $5 million, and an additional $47.5 million on an
aggregate basis in excess of $25 million aggregate retention. Underwriters also
purchases from time to time retrocessional reinsurance in varying amounts for
specific assumed treaties.
Underwriters has two reinsurance contracts with Continental Casualty
Company (the "Continental Contracts") that provide coverage for pre-1987
business up to an aggregate limit of $200.0 million. Underwriters received
payments under these contracts totaling $22.1 million in 1998 and $20.1 million
in 1999, reducing the reinsurance receivable attributable to such contracts from
$65.7 million at year-end 1998 to $45.6 million at year-end 1999. Such
receivable is secured by a trust fund dedicated solely to payments under the
Continental Contracts.
As of December 31, 1999, Underwriters had reported reinsurance
receivables of $632.1 million through retrocessional agreements, including $45.6
million of reinsurance receivables under the Continental Contracts, which were
fully secured as described above, and $329 million (which includes the $100
million of ceded losses described above) due from another reinsurer, 100 percent
of which was secured with a combination of letters of credit and funds withheld.
Although there can be no assurance that such will be the case in future
years, Underwriters' write-offs for unrecoverable reinsurance were negligible in
1999 and 1998.
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20
As of December 31, 1999, Underwriters had an allowance for estimated
unrecoverable reinsurance of $3.4 million.
Outstanding Losses and Loss Adjustment Expenses
When a reinsurance claim is reported by the ceding company,
Underwriters establishes a "case" reserve for the estimated amount of
Underwriters' ultimate payment. Such reserves are based upon the amounts
recommended by the ceding company and are often supplemented by additional
amounts as deemed necessary by Underwriters after Underwriters has evaluated
such claim on the basis of numerous factors, including coverage, liability,
severity of injury or damage, jurisdiction and ability of the ceding company to
evaluate and handle the claim properly. Case reserves are periodically adjusted
by Underwriters based on its evaluation of subsequent reports from and audits of
the ceding companies.
When a primary claim is reported, Underwriters Re Group personnel
establish a "case" reserve based on evaluation of the claim and estimation of
the ultimate payment amount. All primary claims are supervised by Underwriters
Re Group personnel who at times may engage outside counsel or adjusting firms,
if necessary.
Additional reserves are established on an aggregate basis to provide
for losses incurred but not yet reported ("IBNR") to the reinsurer and to
supplement the overall adequacy of reported case reserves and estimated expenses
of settling such claims, including legal and other fees and general expenses of
administering the claims adjustment process ("LAE"). Underwriters Re Group
establishes IBNR reserves by using accepted loss reserving standards and
principles to estimate the ultimate liability for LAE. The process implicitly
recognizes the impact of inflation and other factors that affect claims
reporting by taking into account changes in historic loss reporting patterns and
perceived probable trends.
Underwriters Re Group reviews its aggregate loss reserves at least
twice each year. Between the semi-annual reviews, Underwriters Re Group updates
its loss reserves by applying the loss ratios determined in the previous review
to earned premiums to date, less incurred losses reported. Underwriters Re Group
does not discount its reserves for anticipated investment income. There are
inherent uncertainties in estimating reserves due primarily to the significant
periods of time that may elapse between occurrence of an insured or reinsured
loss and reporting and ultimate settlement of such loss, the diversity of
development patterns among different lines of business and types of reinsurance,
and the necessary reliance on the ceding company for information regarding
reinsurance claims. Actual losses and loss expenses may deviate, perhaps
substantially, from reserves in Underwriters Re Group's financial statements,
which could have a material adverse effect on Underwriters Re Group's financial
condition and results of operations. Based on current information, management
believes reserves for losses and loss expenses at December 31, 1999 are
adequate.
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21
Asbestos and Environmental Impairment Claims Reserves
Underwriters' reserve for losses and loss expenses includes amounts for
various liability coverages related to asbestos and environmental impairment
claims that arose from certain general liability and commercial multiple-peril
coverages. Restrictive asbestos and environmental impairment exclusions were
introduced in late 1986 on both primary and reinsurance contracts, significantly
reducing these exposures for accidents occurring after 1986. Reserves for
asbestos and environmental impairment claims cannot be estimated with
traditional loss reserving techniques because of uncertainties that are greater
than those associated with other types of claims. Factors contributing to those
uncertainties include a lack of historical data, the significant period of time
that has elapsed between the occurrence of the loss and the reporting of that
loss to the ceding company and the reinsurer, uncertainty as to the number and
identity of insureds with potential exposure to such risks, unresolved legal
issues regarding policy coverage, and the extent and timing of any such
contractual liability. Such uncertainties are not likely to be resolved in the
near future.
As with all reinsurance claims, Underwriters establishes case reserves
for both asbestos and environmental impairment excess of loss reinsurance claims
by applying reinsurance contract terms to losses reported by ceding companies,
and analyzing the claims from the first dollar of loss incurred by the primary
insurer. Additionally, ceding companies often report potential losses on a
precautionary basis (a "precautionary notice") to protect their rights under
reinsurance contracts, which generally call for prompt notice to the reinsurer.
Ceding companies, at the time they report such potential losses, advise
Underwriters of the ceding companies' current estimate of the amount of such
loss. Underwriters reviews each of these precautionary notices and, based upon
current information, assesses the likelihood of loss to Underwriters. Such
assessment is one of the factors used in determining the adequacy of IBNR
reserves.
During the three years ended December 31, 1999, the average net loss
payment per claim (open and settled) for asbestos and environmental impairment
exposures (excluding cessions to the Continental Contracts) was $9,242 and
$31,208, respectively, and the highest paid loss was $0.2 million for an
asbestos claim and $1.0 million for an environmental impairment claim, in each
case net of ceded reinsurance (excluding cessions to the Continental Contracts).
All loss payments for asbestos and environmental impairment exposures for the
last three years have been recovered through cessions to the Continental
Contracts. Most claims paid to date have been paid under contracts with varying
levels of retention by the ceding company or insurer. Although the range of
losses paid by Underwriters has been wide, most losses paid have involved dollar
amounts at the lower end of such range.
As of December 31, 1999, Underwriters' case and IBNR reserves (net of
reinsurance, including cessions to the Continental Contracts) totalled
approximately $26.2 million for asbestos liabilities, which includes reserves
for approximately 697 open
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22
claims where cedents have advised Underwriters that they currently expect to
recover from Underwriters. As of December 31, 1999, Underwriters' case and IBNR
reserves (net of reinsurance, including cessions to the Continental Contracts)
totalled about $24.0 million for environmental impairment claims, which includes
reserves for approximately 455 open claims where cedents have advised
Underwriters that they currently expect to recover from Underwriters.
Additionally, ceding companies have submitted 1,586 precautionary notices for
asbestos claims and 4,050 precautionary notices for environmental impairment
claims to Underwriters; however, based on information provided by the ceding
companies and Underwriters' assessment of such claims, Underwriters does not
currently expect the losses with respect to such claims to grow large enough to
reach Underwriters' layer of reinsurance coverage.
The reconciliation of the beginning and ending reserves for unpaid
losses and LAE related to asbestos and environmental impairment claims for the
last three years (net of cessions to the Continental Contracts, but excluding an
additional $9.4 million provision for such claims, discussed in the text
following the tables), is shown below (dollars in thousands):
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23
Reconciliation of Asbestos-Related Claims Reserve for Losses and LAE
1999 1998 1997
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1 ............................. $23,044 $21,172 $17,494
Incurred loss, net of reinsurance ............... 3,119 1,872 3,678
Paid loss, net of reinsurance ................... 0 0 0
------- ------- -------
Reserve, net of reinsurance recoverables,
as of December 31 ........................... 26,163 23,044 21,172
Reinsurance recoverables, as of December 31 ..... 15,642 15,746 14,726
------- ------- -------
Reserve, gross of reinsurance recoverables, as of
December 31 ................................. $41,805 $38,790 $35,898
======= ======= =======
Type of reserve, net of reinsurance
recoverables:
Case ......................................... $ 6,663 $ 3,544 $ 3,172
IBNR ......................................... 19,500 19,500 18,000
------- ------- -------
Total ............................................ $26,163 $23,044 $21,172
======= ======= =======
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Reconciliation of Environmental Impairment Claims Reserve for Losses and LAE
1999 1998 1997
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1 ....................... $23,950 $23,922 $22,600
Incurred loss, net of reinsurance ......... 0 28 1,322
Paid loss, net of reinsurance ............. 0 0 0
------- ------- -------
Reserve, net of reinsurance recoverables,
as of December 31 ..................... 23,950 23,950 23,922
Reinsurance recoverables, as of
December 31 ........................... 1,678 4,222 4,640
------- ------- -------
Reserve, gross of reinsurance recoverables,
as of December 31 ..................... $25,628 $28,172 $28,562
======= ======= =======
Type of reserve, net of reinsurance
recoverables:
Case .................................. $ 9,950 $ 9,950 $10,922
IBNR .................................. 14,000 14,000 13,000
------- ------- -------
Total ..................................... $23,950 $23,950 $23,922
======= ======= =======
Increases to asbestos and environmental impairment claims reserves, if
any, may be covered to varying degrees by Underwriters' existing reinsurance
contracts with its retrocessionaires.
In addition to case and IBNR reserves for asbestos and environmental
impairment claims reported in the tables above, Underwriters carries an
additional reserve for such exposures in its financial statements prepared in
accordance with generally accepted accounting principles ("GAAP"). The amount of
such reserve was $9.4 million as of December 31, 1999, compared with $13.9
million as of December 31, 1998. While there can be no assurance that such total
reserves will be adequate, management believes that Underwriters' total asbestos
and environmental impairment reserves, taking into consideration the additional
GAAP reserves, are a reasonable provision for such claims.
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Changes in Historical Net Loss and LAE Reserves
The following table shows changes in historical net loss and LAE
reserves for Underwriters Re Group for each year since 1989. Reported reserve
development is derived primarily from information included in statutory
financial statements of Underwriters, CUIC, UIC and NUIC. The first line of the
upper portion of the table shows the net reserves at December 31 of each of the
indicated years, representing the estimated amounts of net outstanding losses
and LAE for claims arising during that year and in all prior years that are
unpaid, including losses that have been incurred but not yet reported to
Underwriters Re Group. For the years ended December 31, 1998 and 1999, the first
line also includes the loss reserves associated with the corporate capital
provided by subsidiaries of AUL London to the AUL London-managed syndicates at
Lloyd's. The upper (paid) portion of the table shows the cumulative net amounts
paid as of December 31 of successive years with respect to the net reserve
liability for each year. The lower portion of the table shows the re-estimated
amount of the previously recorded net reserves for each year based on experience
as of the end of each succeeding year. The estimate changes as more information
becomes known about claims for individual years. In evaluating the information
in the table, it should be noted that a reserve amount reported in any period
includes the effect of any subsequent change in such reserve amount. For
example, if a loss was first reserved in 1989 at $100,000 and was determined in
1992 to be $150,000, the $50,000 deficiency would be included in the Cumulative
Redundancy (Deficiency) row shown below for each of the years 1989 through 1992.
Conditions and trends that have affected the development of the net
reserve liability in the past may not necessarily occur in the future.
Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies based on this table. During the mid-1980s, the reinsurance
industry, including Underwriters Re Group, experienced substantial underwriting
losses. Such losses are reflected in the table, beginning with the comparatively
high cumulative deficiencies in the year 1989. The cumulative reserve
deficiencies in the years 1989 through 1992 resulted primarily from prior
increases to asbestos and environmental impairment claims reserves and includes
the $35.8 million reserve strengthening in 1993.
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Changes in Historical Net Reserves for Losses and LAE
(in millions)
Year Ended December 31,
----------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net liability as of the end
of year ........................... $453 $411 $411 $437 $509 $536 $ 628 $ 732 $ 784 $1,008 $1,179
Cumulative amount of net
liability paid as of:
One year later ................. $137 $101 $84 $98 $112 $102 $117 $ 175 $ 134 $ 310 --
Two years later ................ 227 173 161 178 189 167 214 247 276 -- --
Three years later .............. 285 239 214 236 236 220 256 327 -- -- --
Four years later ............... 342 274 254 266 265 252 296 -- -- -- --
Five years later ............... 370 294 276 287 285 278 -- -- -- -- --
Six years later ................ 384 311 287 301 303 -- -- -- -- -- --
Seven years later .............. 396 319 296 310 -- -- -- -- -- -- --
Eight years later .............. 403 326 303 -- -- -- -- -- -- -- --
Nine years later ............... 407 331 -- -- -- -- -- -- -- -- --
Ten years later ................ 407 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated as of:
One year later ................. 457 414 412 483 516 539 629 727 782 1,039 --
Two years later ................ 460 421 455 487 518 538 622 724 785 -- --
Three years later .............. 474 465 460 491 523 531 620 721 -- -- --
Four years later ............... 520 472 469 496 519 530 617 -- -- -- --
Five years later ............... 528 485 469 493 519 526 -- -- -- -- --
Six years later ................ 545 483 468 498 514 -- -- -- -- -- --
Seven years later .............. 544 479 472 492 -- -- -- -- -- -- --
Eight years later .............. 541 485 467 -- -- -- -- -- -- -- --
Nine years later ............... 550 479 -- -- -- -- -- -- -- -- --
Ten years later ................ 541 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy
(Deficiency) ................... $(88) $(68) $(56) $(55) $ (5) $ 10 $ 11 $ 11 $ (1) $ (31) --
Gross Liability-End of Year $861 $940 $1,014 $1,110 $1,159 $1,555 $1,974
Reinsurance Recoverable 352 404 386 378 375 547 795
---- ---- ------ ------ ------ ------ ------
Net Liability - End of Year $509 $536 $ 628 $ 732 $ 784 $1,008 $1,179
==== ==== ====== ====== ====== ====== ======
Gross Re-estimated Liability-Latest $901 $921 $1,068 $1,199 $1,382 $1,802
Re-estimated Recoverable-Latest 387 395 451 477 597 763
---- ---- ------ ------ ------ ------
Net Re-estimated Liability-Latest $514 $526 $ 617 $ 721 $ 785 $1,039
==== ==== ====== ====== ====== ======
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The reconciliation between the reserves reported in the annual
statements filed with state insurance departments in accordance with statutory
accounting practices ("SAP") and those reported in Underwriters Re Group's
consolidated financial statements prepared in accordance with GAAP for the last
three years is shown below (dollars in thousands):
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP Basis
December 31
-------------------------------------------------
1999 1998 1997
---- ---- ----
Statutory Reserves................................... $ 950,920 $ 866,647 $ 765,419
Elimination of Intercompany Reserve (1).............. (12,000) 0 0
AUL London Reserves.................................. 230,820 127,339 0
Additional Mass Action Reserves (2).................. 9,350 13,850 18,850
Reinsurance Recoverables............................. 794,834 546,982 374,801
---------- ---------- ----------
GAAP Reserves........................................ $1,973,924 $1,554,818 $1,159,070
========== ========== ==========
(1) Amount represents the elimination of a statutory reserve relating to a
subsidiary not consolidated on a statutory basis.
(2) Amounts represent additional reserves recorded by Underwriters in 1993
for probable asbestos-related and environmental impairment claims
exposure.
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28
The reconciliation of reserves for Underwriters Re Group for the last
three years on a GAAP basis is shown below (dollars in thousands):
Reconciliation of Reserves for Losses and LAE
1999 1998 1997
---- ---- ----
Reserve, net of reinsurance recoverables, as
of January 1 ..................................... $1,007,836 $784,269 $732,456
Incurred loss, net of reinsurance, related to:
Current year .......................................... 516,704 290,513 267,530
Prior years ........................................... 31,755 (2,254) (5,702)
---------- -------- --------
Total incurred loss, net of reinsurance ............... 548,459 288,259 261,828
---------- -------- --------
Paid loss, net of reinsurance, related to:
Current year ..................................... (78,628) (57,788) (35,033)
Prior years ...................................... (316,407) (134,243) (174,982)
---------- -------- --------
Total paid loss, net of reinsurance ................... (395,035) (192,031) (210,015)
---------- -------- --------
AUL London adjustments (1) ............................ 17,830 127,339 0
Reserve, net of reinsurance recoverables, as
of December 31 ................................... 1,179,090 1,007,836 784,269
Reinsurance recoverables, as of December 31 ........... 794,834 546,982 374,801
---------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31 ................................ $1,973,924 $1,554,818 $1,159,070
========== ========== ==========
(1) Represents reinsurance to close adjustment and acquisition date balance,
respectively.
Investment Operations
Investments of Underwriters Re Group must comply with the insurance
laws of New Hampshire, California and Nebraska, the domiciliary states of
Underwriters and NUIC, CUIC, and UIC, respectively, and the other states in
which they are licensed.
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29
These laws prescribe the kind, quality and concentration of investments which
may be made by insurance companies. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal, state
and municipal obligations, corporate bonds, preferred and common stocks and real
estate mortgages.
The following table reflects investment results for the fixed maturity
portfolio of Underwriters Re Group for the years ended December 31, 1999, 1998
and 1997 (dollars in thousands):
Investment Results
Net Net Pre-Tax
Pre-Tax After-Tax Realized
Average Investment Investment Gains Effective After-Tax
Period Investments (1) Income (2) Income (3) (Losses) Yield (4) Yield (5)
- ------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31, 1999 $1,395,412 $83,586 $60,605 $(291) 6.0% 4.3%
Year Ended
December 31, 1998 $1,244,611 $74,895 $54,614 $ 844 6.0% 4.4%
Year Ended
December 31, 1997 $1,147,064 $69,229 $50,239 $(855) 6.0% 4.4%
(1) Average of amortized cost of fixed maturities at beginning and end of
period, excluding operating cash. Fixed maturities include premium trust
funds of $171.4 million and $107.9 million in 1999 and 1998,
respectively.
(2) After investment expenses, excluding realized gains or losses from sale
of investments.
(3) Net pre-tax investment income less appropriate income taxes.
(4) Net pre-tax investment income for the period divided by average
investments for the same period.
(5) Net after-tax investment income for the period divided by average
investments for the same period.
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30
As of December 31, 1999, the equity portfolio of Underwriters Re Group
was carried at a market value of approximately $212.1 million with an original
cost of approximately $135.9 million, and consisted primarily of approximately
7.4 million shares of BNSF common stock. The cost of equities listed in the
table below, $110.1 million, includes the cost paid by Alleghany for the BNSF
common stock prior to its being contributed to Underwriters Re Group. In 1999,
Underwriters Re Group had dividend income of $11.7 million, which included $3.6
million on the BNSF common stock and $7.0 million from another common stock held
in Underwriters Re Group's portfolio.
The following table summarizes the investments of Underwriters Re
Group, excluding cash, as of December 31, 1999, with all investments carried at
fair value (dollars in thousands):
Investments
-----------
Amortized Cost or Cost Fair Value
---------------------------------------------------------------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
Short-term investments ..... $ 122,524 9% $ 122,524 8%
Corporate bonds ............ 360,548 25 349,967 24
United States government and
government agency bonds 96,976 7 95,320 6
Mortgage- and asset-backed
securities ............. 258,966 18 254,443 17
Foreign bonds .............. 25,840 2 24,729 2
Redeemable and auction
preferred stocks ....... 25,727 2 25,875 2
Municipal bonds ............ 410,992 29 404,784 27
Equity securities (1) ...... 110,098 8 212,085 14
Other ...................... 5,883 0 5,798 0
---------- --- ---------- ---
Total .................. $1,417,554 100% $1,495,525 100%
========== === ========== ===
(1) Includes 7,424,469 shares of BNSF common stock at the original cost to
Alleghany.
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31
Competition
Underwriters competes primarily in the United States reinsurance market
with numerous domestic and foreign reinsurers, many of which have greater
financial resources than Underwriters. Underwriters' competitors include
independent reinsurance companies, subsidiaries or affiliates of worldwide
insurance companies, reinsurance departments of certain primary insurance
companies and domestic, European and Asian underwriting syndicates. Competition
in the types of reinsurance in which Underwriters is engaged is based on many
factors, including the perceived overall financial strength of the reinsurer,
premiums charged, contract terms and conditions, services offered, speed of
claims payment, reputation and experience.
The commercial property and casualty insurance industry is highly
competitive on the basis of price and service. Competitors of CUIC, UIC and NUIC
include other primary insurers and new forms of insurance such as alternative
self-insurance mechanisms. Many such competitors have considerably greater
financial resources, greater experience in the insurance industry and offer a
broader line of insurance products than CUIC, UIC and NUIC.
Regulation
Underwriters, CUIC, UIC and NUIC are subject to regulation and
supervision by state insurance regulatory authorities under the insurance
statutes and regulations of states in which they are incorporated (New Hampshire
for Underwriters and NUIC, California for CUIC, and Nebraska for UIC). In
addition, each of these companies is regulated in each jurisdiction in which it
conducts business. Among other things, insurance statutes and regulations
typically limit the amount of dividends that can be paid without prior
regulatory notification and approval, impose restrictions on the amounts and
types of investments that may be held, prescribe solvency standards that must be
met and maintained, require filing of annual or other reports with respect to
financial condition and other matters and provide for periodic company
examinations.
Employees
Underwriters Re Group, excluding AUL London, employed 275 persons as of December
31, 1999.
FINANCIAL SERVICES BUSINESS
Alleghany Asset Management, organized as a Delaware corporation in
1995, conducts a financial services business through its subsidiaries, The
Chicago Trust Company ("Chicago Trust"), a Chicago-based investment firm with
trust powers; Montag & Caldwell, Inc. ("Montag & Caldwell"), an Atlanta-based
investment counseling firm;
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and Chicago Deferred Exchange Corporation ("CDEC"), which facilitates certain
tax-deferred property exchanges. In 1996, Chicago Trust acquired The Chicago
Trust Company of California, formerly Security Trust Company ("CT of
California"), a California trust company, from a subsidiary of CT&T. Alleghany
Asset Management and its subsidiaries, formerly a part of the financial services
group of CT&T, were transferred to Alleghany in June 1998 and were not a part of
the spin-off of CT&T.
Alleghany Asset Management has expanded its product line in the past
few years by adding a small capitalization equity product and acquiring a 40
percent interest in Veredus Asset Management LLC ("Veredus"), a Louisville,
Kentucky-based investment counseling firm in 1998, and acquiring Blairlogie
Capital Management ("Blairlogie"), an Edinburgh, Scotland-based international
equity manager in 1999. Also in 1999, Alleghany Asset Management formed
Alleghany Investment Services, Inc. ("AISI") to administer, market and sell the
Alleghany Funds.
Alleghany Asset Management provides distribution and marketing services
to its investment managers through the 401(k) services offered by Chicago Trust
and the Alleghany Funds, a mutual funds family offering twelve no-load mutual
funds. Chicago Trust's full service 401(k) administration group provides
trustee, plan design, investment management and other administrative services.
Such services are marketed through internal sales forces in Chicago and Atlanta
as well as consultants and brokerage sources. The Alleghany Funds are marketed
primarily through registered investment advisers, broker-dealers and direct
sales to institutional clients, as well as through intermediary services,
including Schwab and Fidelity.
Montag & Caldwell
Founded in 1945, Montag & Caldwell, one of the Southeast's oldest
investment management firms, concentrates on managing large capitalization
equity and balanced portfolios for institutional, mutual fund and high net worth
clients. Montag & Caldwell believes that success in the institutional investment
business is dependent upon a disciplined and consistently applied investment
process translating into outstanding investment results. Montag & Caldwell's
equity results have placed the firm among the top money managers in its
category. Montag & Caldwell's investment returns (net of fees) exceeded the S&P
500 Index for eight of the past ten years.
Montag & Caldwell targets separate accounts of $40 million and higher,
accessed through independent consultants or direct calls to prospective clients.
Its investment expertise is also available through the Alleghany Funds. Montag &
Caldwell advises two of the Alleghany Funds' mutual funds.
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Chicago Trust
Chicago Trust and its predecessors have managed assets for investors
since 1887. Chicago Trust is an investment firm with full trust powers and is
engaged in the businesses of institutional investment management, full service
401(k) administration, and personal trust & investment services.
Chicago Trust specializes in fixed income, large capitalization growth
equity and small capitalization value equity money management for institutional
clients. Chicago Trust's fixed income results have consistently placed Chicago
Trust among the top money managers in its category. Chicago Trust markets its
fixed income and equity products through pension consultants and directly to
plan sponsors. Chicago Trust also advises seven of the Alleghany Funds' mutual
funds.
Chicago Trust's personal trust and investment services business serves
the investment and estate planning needs of individuals and families, mainly in
the greater Chicago area. Chicago Trust believes that the business is
well-positioned to benefit from growth in family wealth and the demographics of
an aging baby boom generation.
Chicago Trust's full service 401(k) business administers assets,
approximately half of which are invested in the Alleghany Funds and collective
funds managed by the subsidiaries of Alleghany Asset Management.
The remainder is invested in third-party managed funds.
Blairlogie
During 1999, Alleghany Asset Management completed its acquisition of 83.25
percent of Blairlogie; the remaining interests in Blairlogie are held by
Blairlogie management. Formed in 1992, Blairlogie is an international equity
manager. Blairlogie's two investment products include an international developed
markets product and an international emerging markets product. Its clients are
based mainly in the United States. Blairlogie manages two of the Alleghany
Funds' mutual funds.
Veredus
Veredus, formed in 1998, is a small capitalization growth equity
manager of which Alleghany Asset Management owns 40 percent. Veredus' investment
products include an aggressive growth equity and a market neutral product. Its
clients include individual and institutional investors. Veredus manages one of
the Alleghany Funds' mutual funds.
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Alleghany Funds
Alleghany Funds had approximately $5.3 billion in assets under
management at December 31, 1999, compared with $3.4 billion at year-end 1998.
The twelve no-load mutual funds consist of seven equity funds, two balanced
funds, two fixed income funds and a money market fund. All of the Funds are
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as investment companies. AISI has administrative, marketing and sales
responsibilities for the Alleghany Funds.
Each of the mutual funds is managed by one of Chicago Trust, Montag &
Caldwell, Blairlogie or Veredus pursuant to a management contract which is
renewable annually by vote of either of such fund's board of trustees (including
a majority of members who are not "interested persons" as defined under the 1940
Act) or such fund's shareholders. All management contracts terminate if assigned
and may be terminated by either party without penalty on 60 days' written
notice. The management contracts for the Alleghany Funds were all renewed for an
additional year in 1999. Under these contracts, Chicago Trust, Montag &
Caldwell, Blairlogie and Veredus are each authorized in its discretion to buy
and sell securities for the accounts of the Alleghany Funds, subject to certain
limitations. To date, no management agreements of Alleghany Asset Management or
any of its subsidiaries with any of the Alleghany Funds have been involuntarily
terminated.
As compensation for its management services, Chicago Trust, Montag &
Caldwell, Blairlogie and Veredus receive management fees from the Alleghany
Funds that range from 0% (when fees are waived) to 0.83% per year of average
daily net assets, depending on the mutual fund. These management fees totalled
approximately $27.7 million and $17.3 million in 1999 and 1998, respectively.
Current information with respect to the Alleghany Funds can be found on
its website, www.alleghanyfunds.com.
CDEC and CT of California
CDEC was established in 1989 and facilitates, with the assistance of
Chicago Trust, tax-deferred exchanges of like-kind property. In 1999, CDEC
facilitated more than 2,500 exchanges. CDEC acts as a qualified intermediary,
holding and investing the cash proceeds from the sale of property relinquished
by a taxpayer in a qualified trust account, of which Chicago Trust acts as
trustee, until replacement property is acquired. CT of California, directly and
through its subsidiary, Chicago Deferred Exchange Corporation of California,
provides tax-deferred property exchange, trust and investment services in
California.
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Marketing
Growth in profitability of Alleghany Asset Management is largely
dependent on growth in assets under management, which results from market
appreciation of existing assets and new business (new clients and additional
investments from existing clients). Approximately 82 percent of Alleghany Asset
Management's assets under management are institutional assets for which
competition is intense and success is driven by investment performance. Both
Montag & Caldwell and Chicago Trust have strong investment records and have
received high ratings in various consultant and mutual fund informational
service databases.
The largest portion of the revenues of Alleghany Asset Management
consists of advisory fees based primarily on the value of assets under
management. Annual rates vary and typically decline as account size increases.
Fees earned from the management of assets for institutional clients represented
approximately 81 percent and 75 percent of the revenues of Alleghany Asset
Management for 1999 and 1998, respectively. As of December 31, 1999, Alleghany
Asset Management, through its subsidiaries, managed assets totaling about $48.6
billion.
The separately managed accounts of Alleghany Asset Management's
investment advisor subsidiaries are managed pursuant to advisory agreements
between the client and the investment advisor. Such agreements are generally
terminable on short notice. The trustees or corporate officials who control such
accounts are usually free to change investment advisors without cumbersome legal
procedures. None of the clients of Alleghany Asset Management's investment
advisor subsidiaries accounted for 10 percent or more of the revenues of
Alleghany Asset Management. Accordingly, the loss of any single client would not
have a material adverse effect on the business of Alleghany Asset Management.
The business of Alleghany Asset Management is not seasonal.
Investment Operations
Investments held by Chicago Trust and CT of California must comply with
the banking laws of the states of Illinois and California, respectively. These
laws prescribe the kind, quality and concentration of investments that may be
made by trust companies. In general, these laws permit investments, within
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds and common stocks.
The current investment strategy of Chicago Trust and CT of California
is to maximize after-tax investment income through a high-quality diversified
investment portfolio, consisting primarily of taxable and tax-exempt fixed
maturity securities, while maintaining an adequate level of liquidity.
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Competition
Alleghany Asset Management and its subsidiaries compete with national,
regional and local providers of financial services, many of which have
substantially greater capital and other resources and some of which offer a
wider range of financial services. Competition is chiefly on the basis of
service and investment performance.
Regulation
As fiduciaries, Chicago Trust is regulated by the State of Illinois
Office of Banks and Real Estate, and CT of California is regulated by the
California Department of Banking. Regulation covers such matters as the
fiduciary's management capabilities, the investment of funds held for its own
account, the soundness of its policies and procedures, the quality of the
services it renders to the public and the effect of its trust activities on its
financial soundness. Montag & Caldwell is a registered investment advisor and is
therefore subject to regulation by the Securities and Exchange Commission, the
state of Georgia, its domiciliary jurisdiction, and all other states in which it
is licensed to act in the capacity of investment advisor. Blairlogie is a
registered investment advisor and is therefore subject to regulation by the
Securities and Exchange Commission, the laws of Scotland, its domiciliary
jurisdiction, the Investment Management Regulatory Organisation Limited (which
regulates the investment management business in the United Kingdom), and all
U.S. states in which it is licensed to act in the capacity of investment
advisor. Veredus is a registered investment advisor and is therefore subject to
regulation by the Securities and Exchange Commission, the state of Kentucky, its
domiciliary jurisdiction, and all other states in which it is licensed to act in
the capacity of investment advisor. As registered investment companies, each of
the funds of the Alleghany Funds is subject to extensive regulation by the
Securities and Exchange Commission, governing all aspects of its operations. In
addition, the Alleghany Funds is also subject to certain limited regulation by
the securities regulators of all 50 states.
Employees
At December 31, 1999, Alleghany Asset Management and its subsidiaries
had approximately 357 employees, including full-time and part-time employees.
INDUSTRIAL MINERALS BUSINESS
On July 31, 1991, a holding company subsidiary of Alleghany acquired
all of Manville Corporation's worldwide industrial minerals business, now
conducted principally through World Minerals. The present chief executive
officer of World Minerals currently owns an equity interest, including
outstanding options, of about 6.6 percent of World Minerals' immediate parent
company.
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World Minerals, headquartered in Santa Barbara, California, is
principally engaged in the mining, production and sale of two industrial
minerals, diatomite and perlite.
Diatomite
World Minerals conducts its diatomite business through Celite. Celite
is believed to be the world's largest producer of filter-aid grade diatomite,
which it markets worldwide under the Celite(R) and Kenite(R) brand names; Celite
also markets filter-aid grade diatomite in Europe under the Primisil(R) brand
name and in Latin America and other areas under the Diactiv(R) brand name.
Diatomite is a silica-based mineral consisting of the fossilized
remains of microscopic freshwater or marine plants. Diatomite's primary
applications are in filtration and as a functional filler. Filtration accounts
for the majority of the worldwide diatomite market and for over 50 percent of
Celite's diatomite sales. Diatomite is used as a filter aid in the production of
beer, food, juice, wine, water, sweeteners, fats and oils, pharmaceuticals,
chemicals, lubricants and petroleum. Diatomite is used as a filler, mainly in
paints, and as an anti-block agent in plastic film.
In addition to diatomite, Celite also produces calcium silicate
products and magnesium silicate products, which are sold worldwide under the
MicroCel(R) and Celkate(R) brand names (except in portions of Europe where
calcium silicate products are sold under the Calflo(R) brand name). These
products, which have high surface area and adsorption and absorption
capabilities, are used to convert liquid, semi-solid and sticky ingredients into
dry, free-flowing powders in the production of rubber, sweeteners, flavorings
and pesticides.
Celite has its world headquarters in Lompoc, California and owns,
directly or through wholly owned subsidiaries, diatomite mines and/or processing
plants in Lompoc, California; Quincy, Washington; Murat, France; Alicante,
Spain; Arica, Chile; Arequipa, Peru; Ayacucho, Peru; Tuxpan, Mexico; and
Guadalajara, Mexico. Celite also owns 48.6 percent of Kisilidjan, h.f., a joint
venture with the Government of Iceland which mines and processes diatomite from
Lake Myvatn in Iceland. In 1995, World Minerals, through various subsidiaries of
Celite, acquired controlling interests in three joint ventures which are engaged
in the mining and processing of diatomite in Jilin Province, Peoples Republic of
China ("PRC").
Perlite
On September 25, 1998, Harborlite and Europerlite Acquisition Corp.
merged and World Minerals now conducts its worldwide perlite business through
Harborlite.
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World Minerals believes that Harborlite is the world's largest producer
of perlite filter aids and that Harborlite, which is also engaged in the
business of selling perlite ore, is one of the world's largest merchant
producers of perlite ore. These products are marketed worldwide under the
Harborlite(R) and Europerl(R) brand names.
Perlite is a volcanic rock which contains between 2 percent and 5
percent natural combined water. When heated rapidly, the natural combined water
turns explosively to steam and the perlite ore "pops" in a manner similar to
popcorn, expanding up to twenty times its original volume and creating a soft
material with large surface area and correspondingly low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine and is
sold primarily to companies that expand it in their own expansion plants and use
it in the manufacture of roofing board, formed pipe insulation and acoustical
ceiling tile. Perlite ore for filter aid and certain filler applications is
mined at Harborlite's Superior, Arizona mine and is expanded at Harborlite's six
expansion plants located within the United States. Expanded perlite is also
produced at Harborlite's European expansion plants at Hessle, United Kingdom and
Wissembourg, France, Barcelona, Spain and Milan, Italy, from perlite ore
obtained from Harborlite's perlite mine at Dikili, Turkey and from merchant ore
producers in Europe. Most of the expanded perlite is used as a filter aid in the
brewing, food, wine, sweetener, pharmaceutical, chemical and lubricant
industries, or as a filler and insulating medium in various construction
applications.
On October 31, 1995, World Minerals acquired control of all of the
outstanding capital stock of two privately owned perlite filter aid companies
with operations in Italy and Spain, respectively, and a privately owned perlite
sales company in Spain. These are now part of Harborlite.
Harborlite has its world headquarters in Lompoc, California and owns,
directly or through wholly-owned subsidiaries, a perlite mine and mill in No
Agua, New Mexico, a perlite loading facility in Antonito, Colorado, a perlite
mine and a mill in Superior, Arizona, a perlite mine and mill in Dikili, Turkey,
a perlite deposit in Central Mexico, and perlite expansion facilities in
Escondido, California; Green River, Wyoming; LaPorte, Texas; Youngsville, North
Carolina; Vicksburg, Michigan; Quincy, Florida; Wissembourg, France; Hessle,
England; Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining
and processing operations in eleven countries. In 1999, approximately 43 percent
of World Minerals' revenues (equal to 6.5 percent of Alleghany's consolidated
revenues) were generated by foreign operations, and an additional 14 percent of
World Minerals' revenues were generated by export sales from the United States.
While World Minerals believes that the international scope of its operations
gives it unique competitive advantages, international operations can be subject
to additional risks, such as currency fluctuations, changes in foreign legal
requirements and political instability. World
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Minerals closely monitors its methods of operating in each country and adopts
strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency
fluctuation by, among other things, causing its subsidiaries to declare and pay
dividends whenever feasible, and having its foreign subsidiaries invoice their
export customers in United States dollars or other "hard currencies." World
Minerals' foreign operations do not subject Alleghany to a material risk from
foreign currency fluctuation.
Celite's largest diatomite mine and plant is located near Lompoc,
California. All additional diatomite supplies are currently obtained by Celite
from its mines in the state of Washington, in France, Spain, Mexico, Chile, Peru
and PRC, and from the Lake Myvatn mine in Iceland (although environmental
regulations and volcanic and seismic activity may adversely affect future
production at Lake Myvatn). Celite believes that diatomite reserves at each
site, except France and Iceland, are generally sufficient to last for at least
20 more years at the current rate of utilization. Celite enhanced its reserves
at Lompoc, California in 1998 through the acquisition of rights to two diatomite
mines formerly controlled by a competitor, following such competitor's decision
to close its Lompoc-based diatomite business.
Harborlite obtains perlite ore in the United States from its No Agua
and Superior mines, and believes that its perlite ore reserves at each site are
sufficient to last at least 20 more years at the current rate of utilization.
The perlite used by Harborlite for expansion in Europe is obtained from
Harborlite's Dikili mine and from third parties in Europe. Ore reserves at
Harborlite's Dikili mine are believed to be sufficient to last at least 20 more
years at the current rate of utilization.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally supplied diatomite.
World Minerals' operating subsidiaries experienced no interruption in
raw material availability in 1999. Barring unforeseen circumstances, World
Minerals anticipates no such interruptions in 2000. Celite and Harborlite
believe that they have taken reasonable precautions for the continuous supply of
their critical raw materials.
Many of Celite's and Harborlite's operations use substantial amounts of
energy, including electricity, fuel oil, natural gas and propane. Celite and
Harborlite have supply contracts for most of their energy requirements. Most of
such contracts are for one year or less. Celite and Harborlite have not
experienced any energy shortages and they believe that they have taken
reasonable precautions to ensure that their energy needs will be met, barring
any unusual or unpredictable developments.
From the time World Minerals began operations in 1991, none of its
customers accounted for 10 percent or more of World Minerals' annual sales.
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World Minerals presently owns, controls or holds licenses either
directly or through its subsidiaries to approximately 16 United States and 81
foreign patents and patent applications. While World Minerals considers all of
its patents and licenses to be valuable, World Minerals believes that none of
its patents or licenses is by itself material to its business.
World Minerals normally maintains approximately a one- to four-week
supply of inventory on certain products due to production lead times. Although
diatomite mining activities at Celite's principal mine in Lompoc, California may
be suspended during periods of heavy rainfall, World Minerals believes that,
because of the stockpiling of ore during dry periods, such suspensions do not
materially affect the supply of inventory. Barring unusual circumstances, World
Minerals does not experience backlogs of orders. World Minerals' business is not
seasonal to any material degree.
World Minerals' domestic and international operations have been
consolidated into a single, centrally managed worldwide business under the
direction of a highly capable management team. Since 1993, financial systems and
controls have been upgraded, and the Celite and Harborlite sales, operations and
financial groups have been consolidated to improve efficiency and take advantage
of synergies. World Minerals acts as the sales agent for both Celite and
Harborlite in the United States and procures orders from customers and
distributors on their behalf. World Minerals also distributes Celite's and
Harborlite's products in Europe to dealers, distributors and end users on
Celite's and Harborlite's behalf.
World Minerals has research and development, environmental control and
quality control laboratories at its Lompoc production facilities and quality
control laboratories at each of its other production facilities. In 1999, World
Minerals spent approximately $2.1 million on company-sponsored research and
technical services (in addition to amounts spent on engineering and exploration)
related to the development and improvement of its products and services.
Competition
World Minerals believes that Celite is the world's largest producer of
filter-aid grade diatomite. The remainder of the market is shared by Celite's
four major competitors: Eagle-Picher Minerals (United States), Grefco (United
States), CECA (France) and Showa (Japan), and a number of smaller competitors.
World Minerals believes that Harborlite is the world's largest producer
of perlite filter aids and is one of the world's largest merchant producers of
perlite ore. Harborlite has two large competitors in the expanded perlite
market, Grefco and CECA, and many smaller competitors. Harborlite also has two
large competitors in the merchant perlite ore market, Grefco and Silver &
Baryte, and numerous smaller competitors.
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The filter aid products of Celite and Harborlite compete with other
filter aids, such as cellulose, and other filtration technologies, such as
crossflow and centrifugal separation. Celite's silicates compete with a wide
variety of other synthetic mineral products.
In all of World Minerals' businesses, competition is principally on the
basis of service, product quality and performance, warranty terms, speed and
reliability of delivery, availability of the product and price.
Regulation
All of Celite's and Harborlite's domestic operations are subject to a
variety of federal, state and local environmental laws and regulations. These
laws and regulations establish potential liability for costs incurred in
cleaning up waste sites and impose limitations on atmospheric emissions,
discharges to domestic waters, and disposal of hazardous materials. Certain
state and local jurisdictions have adopted regulations that may be more
stringent than corresponding federal regulations. Celite and Harborlite believe
that the impact of environmental regulation on their respective operating
results has been minimal due to their environmental compliance programs;
however, Celite and Harborlite cannot predict the potential future impact of
such regulations, given the increasing number and complexity, and changing
character, of such regulations.
Moreover, federal and state laws governing disposal of wastes impact
customers who must dispose of used filter-aid materials. World Minerals works
with its customers to implement disposal strategies to minimize the impact of
these disposal regulations.
The domestic mining operations of Celite and Harborlite are subject to
regulation by the Mine Safety and Health Administration ("MSHA"). This agency
establishes health and safety standards relating to noise, respiratory
protection and dust for employee work environments in the mining industry.
Celite's and Harborlite's domestic production facilities which are not under the
jurisdiction of MSHA are subject to regulation by the Occupational Safety and
Health Administration ("OSHA"), which establishes regulations regarding, among
other things, workplace conditions, and exposure to dust and noise. In addition,
certain state agencies exercise concurrent jurisdiction in these areas. During
1997, both MSHA and OSHA announced special emphasis programs to reduce the
incidence of silicosis in the workplace. Due to Celite's industrial hygiene and
monitoring programs, Celite does not expect these special emphasis programs to
impact its business in any material way.
World Minerals maintains a staff of experienced environmental, safety
and industrial hygiene professionals who assist plant personnel in complying
with environmental, health and safety regulations. Its environmental, safety and
industrial hygiene audit group also performs routine internal audits and reviews
of World Minerals' plant facilities worldwide. Due to these programs and
responsible management at the
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local plant level, compliance with such regulations has been facilitated and the
financial impact of such regulations on operating results has been minimal.
Certain products of Celite and Harborlite are subject to the Hazard
Communication Standard promulgated by OSHA, which requires Celite and Harborlite
to disclose the hazards of those products to employees and customers. Celite's
diatomite products and certain of Harborlite's products contain varying amounts
of crystalline silica, a mineral which is among the most common found on earth.
In 1997, the International Agency for Research on Cancer ("IARC") reclassified
the inhalation of crystalline silica from occupational sources from "probably
carcinogenic to humans" to a category reflecting "sufficient evidence of human
carcinogenicity." Celite and Harborlite provide required warning labels on their
products containing in excess of 0.1 percent respirable crystalline silica,
advising customers of the IARC designation and providing recommended safety
precautions. Such requirements also mandate that industrial customers who
purchase diatomite or perlite for use as a filler in their products label such
products to disclose hazards which may result from the inclusion of crystalline
silica-based fillers, if such products contain in excess of 0.1 percent of
crystalline silica by volume. Due to labeling concerns, some manufacturers of
paint may be considering the use of other fillers in place of Celite's products.
However, Celite believes that the loss of these customers would not have a
material adverse effect on its operating results. Several states have also
enacted or adopted "right to know" laws or regulations, which seek to expand the
federal Hazard Communication Standard to include providing notice of hazards to
the general public, as well as to employees and customers.
Celite, through the industry-sponsored International Diatomite
Producers Association ("IDPA"), has participated in funding several studies to
examine in more detail the cancer risk to humans from occupational exposure to
crystalline silica. One such study, conducted by the University of Washington on
diatomite workers in Lompoc, California (the "Washington Study") found a modest
increase in lung cancer deaths in the cohort compared with national rates
(indicated by a standardized mortality ratio ("SMR") equal to 1.43). The
standardized mortality ratio compares the number of expected cancer deaths in
the cohort with 1, representing the number of cancer deaths in the population at
large. The study also found an increase in non-malignant respiratory disease
("NMRD") (SMR equal to 2.59); this finding was expected because the NMRD
category included silicosis resulting from exposures in past decades.
After the publication of the Washington Study, Celite conducted its own
review of the portion of the cohort representing the Lompoc plant and found that
more workers in this portion of the cohort may have been exposed to asbestos,
prior to World Minerals' purchase of the Lompoc plant, than originally thought.
Since exposure to asbestos has been found to cause lung cancer and respiratory
disease, this finding has raised concern that the Washington Study may have
overstated the adverse health effects of exposure to crystalline silica. IDPA
engaged an epidemiologist and an industrial hygienist to
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examine the cohort to determine whether asbestos exposure was properly accounted
for in the Washington Study's results. The final IDPA report (the "Asbestos
Study") was issued in December 1994 and found:
"Although asbestos operations were small relative to the
diatomaceous earth operations, analyses in this report showed that
exposure to asbestos by workers was relatively common. For example, the
number of cohort members who were ever definitely, probably or possibly
exposed to asbestos was shown to involve approximately 60 percent of
the cohort. Even when only men employed in jobs definitely exposed to
asbestos for more than [one] year in the period 1950-1977 were
considered, more than 8 percent of the cohort had held such jobs."
The Asbestos Study's authors called for further analyses which fully take into
account the results of their study stating "[t]he interpretation of the
silica-lung cancer risk relationships based on the [Lompoc] cohort should await
the outcome of such analyses."
The results of the Asbestos Study were analyzed by the authors of the
Washington Study. They did not agree that asbestos was a likely confounder of
the results of the initial study.
In 1996, the Washington Study's authors, in association with
researchers from Tulane University, conducted a seven year follow-up study of
the Lompoc cohort. The follow-up study, funded by a grant from the National
Institute for Occupational Safety and Health, reported a lower SMR for the
cohort (1.29 vs. 1.43), a weakened dose response relationship, which may suggest
a less conclusive indication of a causative relationship between occupational
exposure and cancer deaths, and a continued absence of excess lung cancers in
workers hired after 1960. Data errors later discovered in the follow-up study
reduced the final SMR to 1.22 and further weakened the dose response
relationship. An additional aspect of the study, which sought to compare results
of the cohort study to radiographic readings of the workers, confirmed that the
risk of silicosis to workers hired since 1950 and exposed to a cumulative
crystalline silica exposure equal to or less than 3 mg/m3 over the working
lifetime of the workers has not been appreciably different than in non-exposed
populations.
The various agreements covering the purchase of the business of Celite
in 1991 provide for the indemnification of the holding company subsidiary of
Alleghany which acquired Celite by the various selling Manville entities in
respect of any environmental and health claims arising from the operations of
the business of Celite prior to its acquisition by the holding company
subsidiary.
Employees
As of December 31, 1999, World Minerals had 192 employees worldwide,
Celite had about 1,268 employees worldwide, and Harborlite had about 250
employees
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worldwide. Approximately 374 of Celite's employees and 45 of Harborlite's
employees in the United States are covered by collective bargaining agreements.
All of the collective bargaining agreements covering workers at Celite and
Harborlite are in full force and effect.
STEEL FASTENER BUSINESS
The Heads and Threads division of Alleghany was reorganized in 1999 as
Heads & Threads International LLC, after its acquisition of Gardenbolt
International Corp. Now headquartered in Sayreville, New Jersey, Heads & Threads
is believed to be one of the nation's leading importers and distributors of
steel fasteners. Heads & Threads imports and sells commercial fasteners -- nuts,
bolts, screws, washers and other fasteners -- for resale to distributors and
fastener manufacturers through multiple distribution centers primarily providing
same day or next day delivery. The strength of Heads & Threads lies in its long
years of association with suppliers and customers, and its breadth of product
line.
With the acquisition of Gardenbolt International Corp. in 1998, Heads &
Threads substantially increased its size and its presence in East Coast markets.
Heads & Threads also completed in 1998 the installation and implementation of a
new fully-integrated, enterprise-wide computer system which has enhanced the
functionality of all areas of Heads & Threads' business operations, including
order processing, sales and inventory management, transportation services and
accounting and finance. In 1999, Heads & Threads entered into an agreement to
purchase Reynolds Fasteners, Inc., a distributor of fasteners headquartered in
Edison, New Jersey. The transaction is expected to close in March 2000. With the
acquisition of Reynolds Fasteners, Inc., Heads & Threads will double its current
size.
Beginning in 1999 and continuing into 2000, Heads & Threads has pursued
a cost reduction program. A major part of this program has been the closing of
some of Heads & Threads' satellite sales offices and warehouses in order to
operate out of larger state-of-the-art distribution centers, allowing Heads &
Threads to consolidate inventory and provide higher service levels to its
customers.
Since Heads & Threads imports virtually all of its fasteners, it is
necessary to forecast inventory requirements from six months to a year in
advance to allow time for shipments to reach their destinations in the United
States. In addition, Heads & Threads' costs are subject to fluctuations in
foreign currency and import duties. Increases in import duties may result from
determinations by United States federal agencies that foreign countries are
violating United States laws or intellectual property rights, or are following
restrictive import policies. Heads & Threads' operations do not subject
Alleghany to a material risk from fluctuations in foreign currency or import
duties.
-44-
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At December 31, 1999, Heads and Threads had about 209 employees.
REAL ESTATE BUSINESS
Headquartered in Sacramento, California, Alleghany Properties owns and
manages, among other real estate and real estate-related assets, 21 properties
in California. Such properties are comprised primarily of improved and
unimproved commercial land and commercial and residential lots. A major portion
of the real estate assets of Alleghany Properties are located in North Natomas,
the only large undeveloped area in the City of Sacramento. Development in the
area was delayed until the resolution in 1998 of flood plan zoning and wildlife
habitat issues. The area experienced considerable growth in its first season of
development activity, including more than a dozen residential projects, office
buildings and a fully-leased retail shopping center. Contributing to the growth,
Alleghany Properties sold approximately 450 residential lots and a multi-family
site accommodating more than 270 apartment units.
At December 31, 1999, Alleghany Properties had 4 employees.
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Item 2. Properties.
Alleghany's headquarters is located in leased office space of about
11,000 square feet at 375 Park Avenue in New York City.
Chicago Trust leases about 60,000 square feet at 171 North Clark Street
in Chicago, Illinois. Montag & Caldwell leases approximately 23,400 square feet
in Atlanta, Georgia. CT of California leases approximately 8,400 square feet in
San Diego, California. Blairlogie leases approximately 4,900 square feet in
Edinburgh, Scotland.
URG leases approximately 45,000 square feet of office space for its
headquarters in Calabasas, California. CUIC leases about 19,700 square feet of
office space. AUL London is leasing approximately 13,000 square feet of office
space in London.
World Minerals' headquarters is located in leased premises of
approximately 13,000 square feet in Santa Barbara, California. Celite,
Harborlite and certain departments of World Minerals share 16,800 square feet of
leased premises in Lompoc, California.
A description of the major plants and properties owned and operated by
Celite and Harborlite is set forth below. All of the following properties are
owned, with the exception of Plant # 1 at Quincy, Washington, the headquarters
offices at Santa Barbara and Lompoc, California, the Nanterre, France, Santiago,
Chile and Izmir, Turkey offices and the plant at Wissembourg, France, which are
leased.
-46-
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
CELITE:
- -------
Lompoc, CA 997,410 Diatomite filter aids, fillers,
Production facility; silicates and specialty products
18 multi-story production buildings;
5 one-story warehouse buildings; 6
one-story laboratory buildings;
4 multi-story bulk handling buildings;
6 one-story office buildings; 2
one-story lunch and locker-room
buildings; and 10 one-story shops.
Lompoc, CA 16,800 Administrative office
1 one-story building; and 3 units
within 1 one-story building.
Quincy, WA 60,941 Diatomite filter aids and fillers
Production facility;
Plant #1-1 multi-story production
building and 7 one-story buildings.
Plant #2-1 multi-story production
building and 6 one-story buildings.
Murat, Department of Cantal, France 77,000 Diatomite filter aids
Production facility;
1 one-story manufacturing building;
2 one-story warehouses; and 1
one-story office building.
Nanterre, France 6,600 Sales and administrative offices
1 single floor.
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
Guadalajara, Mexico 116,610 Diatomite filter aids and fillers
Production facility;
2 multi-story production buildings;
2 multi-story pollution-control
buildings; and 20 one-story
buildings.
Mexico City, Mexico 2,700 Sales and administrative offices
1 single floor condominium.
Arica, Chile 50,000 Diatomite filter aids
Production facility;
1 calcined line; 1 administration
building; 1 laboratory; 1 warehouse
building; 1 changing room building;
1 maintenance workshop; and 1
product warehouse.
Santiago, Chile 2,500 Offices
1 single floor in a multi-story,
rented office building.
Alicante, Spain 70,777 Diatomite filter aids and fillers
Production facility;
2 multi-story manufacturing
buildings; 3 one-story warehouses; 2
one-story office buildings; 1
two-story laboratory; and 3
miscellaneous buildings.
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
Changbai County, 95,000 Diatomite filter aids
Jilin Province, PRC
Production facility;
1 multi-story processing facility; 4
one-story warehouse buildings; 1
multi-story office building; and 4
one-story miscellaneous buildings.
Linjiang County, 74,665 Diatomite filter aids
Jilin Province, PRC
Production facility;
1 multi-story production facility; 1
two-story office building; 3
one-story warehouse buildings; and 3
one-story miscellaneous buildings.
Linjiang County, 142,000 Diatomite filter aids
Jilin Province, PRC
Production facility;
3 multi-story production facilities;
1 one-story office building; 2
one-story warehouse buildings; and 5
one-story miscellaneous buildings.
HARBORLITE:
- ----------
Antonito, CO 9,780 Warehouse facilities for perlite
1 one-story manufacturing building ore
and warehouse; 1 one-story office
building; and 1 one-story warehouse.
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
No Agua, NM 40,550 Perlite ore
Production facility;
1 six-story mill building; 1
one-story office and shop building;
and 8 miscellaneous one-story
buildings.
Superior, AZ 6,900 Perlite ore
Production facility;
1 one-story warehouse building; and
1 one-story office building.
Escondido, CA 8,450 Perlite filter aids
1 one-story warehouse building; and
1 one-story office building.
Green River, WY 17,300 Perlite filter aids
1 one-story warehouse building; and
1 one-story office building.
Vicksburg, MI 25,050 Perlite filter aids
2 one-story warehouse buildings; and
1 one-story office building.
Youngsville, NC 22,500 Perlite filter aids
1 one-story warehouse building; 1
one-story manufacturing building;
and 1 one-story office building.
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
Quincy, FL 18,450 Perlite filter aids
1 one-story warehouse building; 1
one-story manufacturing building;
and 1 one-story office building.
LaPorte, TX 23,000 Perlite filter aids and fillers
1 one-story expansion warehouse and
office building.
Wissembourg, France 5,000 Perlite filter aids and fillers
a portion of 1 multi-story
production and warehouse building.
Hessle, Humberside, 36,700 Perlite filter aids and fillers
United Kingdom
1 one-story manufacturing building;
and 1 two-story office building.
Dikili, Turkey 63,200 Perlite crushing mill
Production facility;
1 four-story manufacturing building;
1 one-story warehouse building; 1
one-story raw material warehouse; 1
one-story office building; and 1
one-story maintenance shop.
Izmir, Turkey 1,000 Sales and administrative offices
1 single floor.
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Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- ------
Barcelona, Spain 70,300 Perlite filter aids and fillers
Production facility;
1 one-story manufacturing and
warehouse building; 1 one-story raw
material warehouse; and 1 two-story
office building.
Milan, Italy 68,600 Perlite filter aids
Production facility;
1 one-story manufacturing/ warehouse
building; 1 one-story raw material
warehouse; and 1 two-story office
building.
WORLD MINERALS:
- --------------
Santa Barbara, CA 13,000 Headquarters office
1 one-story rented building.
Celite's largest mine is located on owned property immediately adjacent
to the City of Lompoc, California, and is the site of one of the most unusual
marine diatomite deposits in the world. The mine celebrated its 100th
anniversary of production in 1993 and has been in continuous operation for more
than 60 years. Reserves are believed to be sufficient for the operation of the
plant for at least 20 more years at the current rate of utilization. The Lompoc
production facility has a rated capacity in excess of 200,000 tons annually and
currently supplies more than 25 different grades of products to the filtration
and filler markets. The facility also houses World Minerals' research and
development, and health, safety and environmental departments and Celite's
quality control laboratories.
World Minerals, Celite and Harborlite also lease warehouses, office space and
other facilities in the United States and abroad. A joint venture between Celite
and the Government of Iceland has rights to mine diatomaceous earth in sections
of Lake Myvatn, Iceland, and Celite's joint ventures in PRC have rights to mine
diatomaceous earth in sections of Jilin Province, PRC.
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Item 3. Legal Proceedings.
Alleghany's subsidiaries are parties to pending litigation and claims
in connection with the ordinary course of their businesses. Each such subsidiary
makes provision on its books, in accordance with generally accepted accounting
principles, for estimated losses to be incurred in such litigation and claims,
including legal costs. In the opinion of management, such provision is adequate
under generally accepted accounting principles as of December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
Supplemental Item. Executive Officers of Registrant.
The name, age, current position, date elected and five-year business
history of each executive officer of Alleghany are as follows:
Current Position Business Experience
Name Age (date elected) During Last 5 Years
- ---- --- -------------- -------------------
F.M. Kirby 80 Chairman of the Board (since 1967) Chairman of the Board, Alleghany.
John J. Burns, Jr. 68 President, chief operating officer President, chief operating officer
(since 1977) and chief executive and chief executive officer,
officer (since 1992) Alleghany.
David B. Cuming 67 Senior Vice President and chief Senior Vice President and chief
financial officer (since 1989) financial officer, Alleghany.
Robert M. Hart 55 Senior Vice President, General Counsel Senior Vice President, General
(since 1994) and Secretary (since 1995) Counsel and Secretary, Alleghany.
Peter R. Sismondo 44 Vice President, Controller, Assistant Vice President, Controller,
Secretary, principal accounting Treasurer, Assistant Secretary and
officer (since 1989) and Treasurer principal accounting officer,
(since 1995) Alleghany.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required by this Item with respect to the market price
of and dividends on Alleghany's common stock and related stockholder matters is
incorporated by reference from page 26 of Alleghany's Annual Report to
Stockholders for the year 1999, filed as Exhibit 13 hereto.
Recent Sales of Unregistered Securities.
Other than unregistered issuances of Alleghany common stock previously
reported in Alleghany's Quarterly Reports on Form 10-Q for the quarters ending
March 31, 1999, June 30, 1999 and September 30, 1999, such issuances that did
not involve a sale consisting of issuances of common stock and other securities
pursuant to employee incentive plans and the sale described above, Alleghany did
not sell any Alleghany common stock during 1999 that was not registered under
the Securities Act.
Item 6. Selected Financial Data.
The information required by this Item 6 is incorporated by reference
from page 26 of Alleghany's Annual Report to Stockholders for the year 1999,
filed as Exhibit 13 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item 7 is incorporated by reference
from pages 3, 5, 7 through 9, 11 through 13, 15 through 17, 19 through 20, 23
and 28 through 30, of Alleghany's Annual Report to Stockholders for the year
1999, filed as Exhibit 13 hereto.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this Item 7A is incorporated by reference
from pages 30 through 31 of Alleghany's Annual Report to Stockholders for the
year 1999, filed as Exhibit 13 hereto.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference
from pages 32 through 48 of Alleghany's Annual Report to Stockholders for the
year 1999, filed as Exhibit 13 hereto.
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Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of Registrant.
As permitted by General Instruction G(3), information concerning the
executive officers of Alleghany is set forth as a supplemental item included in
Part I of this Form 10-K Report under the caption "Executive Officers of
Registrant." Information concerning the directors of Alleghany is incorporated
by reference from pages 5 through 8 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 28, 2000. Information concerning compliance with the reporting
requirements under Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from page 10 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 28, 2000.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference
from pages 12 through 17 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 28, 2000.
The information set forth beginning with the middle of page 17 through page 23
of Alleghany's Proxy Statement, filed or to be filed in connection with its
Annual Meeting of Stockholders to be held on April 28, 2000, is not "filed" as a
part hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 is incorporated by reference
from pages 2 through 4, and from pages 9 through 10, of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 28, 2000.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference
from page 12 of Alleghany's Proxy Statement, filed or to be filed in connection
with its Annual Meeting of Stockholders to be held on April 28, 2000.
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57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and subsidiaries,
together with the report thereon of KPMG LLP, independent certified public
accountants, are incorporated by reference from the Annual Report to
Stockholders for the year 1999 into Item 8 of this Report.
2. Financial Statement Schedules.
The schedules relating to the consolidated financial statements of
Alleghany and subsidiaries, together with the report thereon of KPMG LLP,
independent certified public accountants, are detailed in a separate index
herein.
3. Exhibits.
The following are filed as exhibits to this Report:
Exhibit Number Description
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany,
as amended by Amendment accepted and received for
filing by the Secretary of State of the State of
Delaware on June 23, 1988, filed as Exhibit 20 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
3.02 By-Laws of Alleghany as amended April 18, 1995, filed
as Exhibit 3.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated herein by reference.
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
- --------
* Compensatory plan or arrangement.
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58
*10.02 Alleghany Corporation Deferred Compensation Plan, as
amended and restated as of December 15, 1992, filed
as Exhibit 10.03 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.03 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.04 Alleghany Supplemental Death Benefit Plan dated as of
May 15, 1985 and effective as of January 1, 1985,
filed as Exhibit 10.08 to Old Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1985, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
*10.05(a) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank, filed as Exhibit
10.08(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated
herein by reference.
*10.05(b) Alleghany Retirement Plan, as amended and restated on
March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.05(c) Amendments to Alleghany Retirement Plan, effective as
of January 1, 1996, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein
by reference.
*10.05(d) Amendments to Alleghany Retirement Plan, effective as
of January 1, 1998, filed as Exhibit 10.05(d) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1997, are incorporated herein by
reference.
- --------
* Compensatory plan or arrangement.
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*10.06 Alleghany Retirement COLA Plan dated and effective as
of January 1, 1992, as adopted on March 17, 1992,
filed as Exhibit 10.7 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1991, are
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
*10.07 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995, filed as Exhibit
10.10 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1995, is incorporated
herein by reference.
*10.08 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.09 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.10 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.11(a) Revolving Credit Loan Agreement dated as of June 14,
1995 among Alleghany and Chemical Bank, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
- --------
* Compensatory plan or arrangement.
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60
10.11(b) First Amendment dated as of April 8, 1998, to the
Revolving Credit Loan Agreement dated as of June 14,
1995, among Alleghany and Chase Manhattan Bank
(formerly known as Chemical Bank), filed as Exhibit
10.1 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, is incorporated
herein by reference.
10.12(a) Distribution Agreement dated as of June 16, 1998 by
and between Alleghany Corporation and Chicago Title
Corporation (the "Spin-Off Distribution Agreement"),
filed as Exhibit 2.1(a) to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein
by reference (Securities and Exchange Commission File
No. 001-13995).
10.12(b) List of Contents of Exhibits to the Spin-Off
Distribution Agreement, filed as Exhibit 2.1(b) to
Chicago Title Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and
Exchange Commission File No. 001-13995).
10.12(c) Tax Sharing Agreement dated as of June 17, 1998 by
and among Alleghany Corporation and Chicago Title
Corporation, filed as Exhibit 10.2 to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein
by reference (Securities and Exchange Commission File
No. 001-13995).
10.13 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed as
Exhibit 10.21 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
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61
10.14 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between Alleghany
and MSL Industries, Inc., filed as Exhibit 10.22 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1987, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.15(a) Stock Purchase Agreement dated as of May 18, 1994 by
and between First Interstate Bank of California and
Alleghany (the "Sacramento Savings Stock Purchase
Agreement"), filed as Exhibit 10.1(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, is incorporated herein by reference.
10.15(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, is
incorporated herein by reference.
10.16(a) Note Purchase Agreement dated as of January 15, 1995
by and among Alleghany Properties, Inc., Alleghany
and Hartford Life Insurance Company Separate Account
CRC (the "Alleghany Properties Note Purchase
Agreement"), filed as Exhibit 10.28(a) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1994, is incorporated herein by
reference. Agreements dated as of January 15, 1995
among Alleghany Properties, Inc., Alleghany and each
of Transamerica Life Insurance & Annuity Company,
Transamerica Occidental Life Insurance Company,
United of Omaha Life Insurance Company, Mutual of
Omaha Insurance Company, The Lincoln National Life
Insurance Company, Knights of Columbus and Woodmen
Accident and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
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10.16(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
10.16(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among Alleghany,
Alleghany Properties, Inc. and the Purchasers listed
on Annex 1 to the Alleghany Properties Note Purchase
Agreement, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, is incorporated herein by
reference.
10.16(d) Amendment No. 2 to Alleghany Properties Note Purchase
Agreement dated as of November 6, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as Exhibit
10.28(d) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated
herein by reference.
10.16(e) Third Amendment to Alleghany Properties Note Purchase
Agreement dated as of December 11, 1998 by and among
Alleghany, Alleghany Properties, Inc., Hartford Life
Insurance Company, Transamerica Life Insurance &
Annuity Company, Transamerica Occidental Life
Insurance Company, United of Omaha Life Insurance
Company, Mutual of Omaha Insurance Company, The
Lincoln National Life Insurance company, Knights of
Columbus and Woodmen Accident and Life Company, filed
as Exhibit 10.17(e) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference.
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10.17(a) Note Purchase Agreement dated as of December 11, 1998
by and among Alleghany Properties, Inc., Alleghany
and United of Omaha Life Insurance Company (the
"Alleghany Properties 1998 Note Purchase Agreement"),
filed as Exhibit 10.18(a) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference. Agreements
dated as of December 11, 1998 among Alleghany
Properties, Inc., Alleghany and each of Companion
Life Insurance Company, Hartford Life Insurance
Company, The Lincoln National Life Insurance Company,
and First Penn-Pacific Life Insurance Company are
omitted pursuant to Instruction 2 of Item 601 of
Regulation S-K.
10.17(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties 1998 Note Purchase Agreement,
filed as Exhibit 10.18(b) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10.18(a) Installment Sales Agreement dated December 8, 1986 by
and among Alleghany, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Merrill Lynch & Co., Inc.,
filed as Exhibit 10.10 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1986, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.18(b) Intercreditor and Collateral Agency Agreement dated
as of October 20, 1997 among The Chase Manhattan
Bank, Barclays Bank PLC and Alleghany Funding
Corporation, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
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64
10.18(c) Master Agreement dated as of October 20, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation,
and related Amended Confirmation dated October 24,
1997 between Barclays Bank PLC and Alleghany Funding
Corporation, filed as Exhibit 10.2 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, are incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.18(d) Indenture dated as of October 20, 1997 between
Alleghany Funding Corporation and The Chase Manhattan
Bank, filed as Exhibit 10.3 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1997, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.19(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite Corporation
and Manville International, B.V. (the "Celite Stock
Purchase Agreement"), filed as Exhibit 10.2(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.19(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.20(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
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65
10.21(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement, filed
as Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.21(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite Corporation
and Manville Sales Corporation (the "Celite Asset
Purchase Agreement"), filed as Exhibit 10.4(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.21(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.21(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.22(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
-65-
66
10.22(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.22(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.23(a) Credit Agreement dated as of March 17, 1999 among
Mineral Holdings Inc., World Minerals Inc., the Banks
named therein and The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent (the "World
Minerals Credit Agreement"), filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, is incorporated herein
by reference.
10.23(b) List of Contents of Exhibits, Annexes and Schedules
to the World Minerals Credit Agreement, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.23(c) Subordination Agreement dated as of March 17, 1999,
among Alleghany Corporation and The Chase Manhattan
Bank, filed as Exhibit 10.3 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1999, is incorporated herein by reference.
-66-
67
10.24(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs &
Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit 10.3(a)
to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, is incorporated herein
by reference.
10.24(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.25 Indenture dated as of June 25, 1996 between URC
Holdings Corp. (now known as Underwriters Re Group,
Inc.) and The First National Bank of Chicago, as
trustee, relating to the 7-7/8% Senior Notes due
2006, filed as Exhibit 10.30(j) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10.26(a) Credit Agreement dated as of November 1, 1999 by and
among Underwriters Re Group, Inc., Underwriters
Reinsurance Company and Venton Underwriting Limited
as Borrowers; Venton Underwriting Limited, Talbot
Underwriting Limited, Underwriters Re Capital Ltd.,
Underwriters Reinsurance Company and certain of the
wholly-owned subsidiaries of Underwriters Reinsurance
Company as Account Parties; Underwriters Re Group,
Inc. and Underwriters Reinsurance Company as
Guarantors; the Banks parties thereto from time to
time; Mellon Bank, N.A. as Issuing Bank, as
Administrative Agent and as Co-Arranger; Dresdner
Bank AG, New York Branch and Grand Cayman Branch, as
Documentation Agent; Dresdner Kleinwort Benson North
America LLC as Co-Arranger; and First Union National
Bank as Syndication Agent (the "Underwriters Credit
Agreement").
-67-
68
10.26(b) List of Contents of Exhibits to the Underwriters
Credit Agreement. Alleghany agrees to furnish
supplementally a copy of any omitted exhibit to the
Securities and Exchange Commission upon request.
10.27(a) Agreement and Plan of Amalgamation dated as of July
30, 1998 by and among Underwriters Reinsurance
Company, Underwriters Acquisition Company Ltd. and
Venton Holdings Ltd. (the "Amalgamation Agreement"),
filed as Exhibit 10.28(a) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10.27(b) List of Contents of Exhibits to the Amalgamation
Agreement, filed as Exhibit 10.28(b) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by
reference.
10.27(c) Amendment No. 1 dated as of September 24, 1998 to the
Amalgamation Agreement (the "Amalgamation Amendment
No. 1"), filed as Exhibit 10.28(c) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by
reference.
10.27(d) List of Contents of Exhibits to the Amalgamation
Amendment No. 1, filed as Exhibit 10.28(d) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1998, is incorporated herein by
reference.
10.28 Stock Purchase Agreement dated as of December 30,
1999 by and between Alleghany and Swiss Re America
Holding Corporation, filed as Exhibit 99.1 to
Alleghany's Current Report on Form 8-K dated December
30, 1999, is incorporated herein by reference.
13 Pages 3, 5, 7 through 9, 11 through 13, 15 through
17, 19 through 20, 23, 26 and 28 through 48 of the
Annual Report to Stockholders of Alleghany for the
year 1999.
-68-
69
21 List of subsidiaries of Alleghany.
23 Consent of KPMG LLP, independent certified public
accountants, to the incorporation by reference of
their reports relating to the financial statements
and related schedules of Alleghany and subsidiaries
in Alleghany's Registration Statements on Form S-8
(Registration No. 333-37237), Form S-8 (Registration
No. 333-57133), Form S-8 (Registration No.
333-76159), Form S-3 (Registration No. 33-55707),
Form S-3 (Registration No. 33-62477), Form S-3
(Registration No. 333-09881), and Form S-3
(Registration No. 333-13971).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Alleghany did not file any reports on Form 8-K during the fourth
quarter of 1999.
-69-
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLEGHANY CORPORATION
---------------------
(Registrant)
Date: March 21, 2000 By /s/ John J. Burns, Jr.
-------------- ---------------------------------------
John J. Burns, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 21, 2000 By /s/ Rex D. Adams
-------------- ----------------------------------------
Rex D. Adams
Director
Date: March 21, 2000 By /s/ John J. Burns, Jr.
-------------- ----------------------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: March 21, 2000 By /s/ Dan R. Carmichael
-------------- ----------------------------------------
Dan R. Carmichael
Director
Date: March 21, 2000 By /s/ David B. Cuming
-------------- ----------------------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 21, 2000 By /s/ Thomas S. Johnson
-------------- ----------------------------------------
Thomas S. Johnson
Director
-70-
71
Date: March 21, 2000 By /s/ Allan P. Kirby, Jr.
-------------- ----------------------------------------
Allan P. Kirby, Jr.
Director
Date: March 21, 2000 By /s/ F.M. Kirby
-------------- ----------------------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 21, 2000 By /s/ William K. Lavin
-------------- ----------------------------------------
William K. Lavin
Director
Date: March 21, 2000 By /s/ Roger Noall
-------------- ----------------------------------------
Roger Noall
Director
Date: March 21, 2000 By /s/ Peter R. Sismondo
-------------- ---------------------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 21, 2000 By /s/ James F. Will
-------------- ----------------------------------------
James F. Will
Director
-71-
72
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED
PARTIES
II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
III SUPPLEMENTARY INSURANCE INFORMATION
IV REINSURANCE
VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted since they are not required, are not applicable,
or the required information is set forth in the financial statements or notes
thereto.
73
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(in thousands)
Amount at
which shown
in the
Fair Balance
Type of Investment Cost Value Sheet
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities $287,803 $282,589 $282,589
States, municipalities and political subdivisions 419,446 413,128 413,128
Foreign governments 25,840 24,729 24,729
Public utilities 45,742 45,306 45,306
All other corporate bonds 388,454 377,168 377,168
Redeemable preferred stock 25,727 25,875 25,875
--------------------- ------------------ ----------------------
Fixed maturities 1,193,012 $1,168,795 1,168,795
--------------------- ================== ----------------------
Equity securities:
Common stocks:
Banks, trust, and insurance companies 16,000 $16,000 16,000
Industrial, miscellaneous, and all other 224,623 454,104 454,104
--------------------- ------------------ ----------------------
Equity securities 240,623 $470,104 470,104
--------------------- ================== ----------------------
Other long-term investments 11,110 11,050
Short-term investments 277,798 277,798
--------------------- ----------------------
Total investments $1,722,543 $1,927,747
===================== ======================
74
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(in thousands)
1999 1998
-----------------------------------------------
Assets
Equity securities (cost: 1999 $131,398; 1998 $207,573) $258,871 $534,296
Short-term investments 120,514 284
Cash (110) 999
Accounts and other receivables, less allowances 5,782 27,992
Property and equipment - at cost, less accumulated depreciation 141 4,866
Other assets 8,571 47,347
Investment in consolidated subsidiaries 892,533 898,450
===============================================
$1,286,302 $1,514,234
-----------------------------------------------
Liabilities and common stockholders' equity
Other liabilities $56,767 $66,438
Net deferred tax liability 90,440 140,686
Long-term debt 31,198 59,682
-----------------------------------------------
Total liabilities 178,405 266,806
Commitments and contingent liabilities
Common stockholders' equity 1,107,897 1,247,428
-----------------------------------------------
$1,286,302 $1,514,234
===============================================
See accompanying Notes to Condensed Financial Statements.
75
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)
1999 1998 1997
------------------------------------------------------------
Revenues:
Interest, dividend and other income $9,530 $73,477 $61,362
Net gain (loss) on investment transactions 85,174 318 (11,280)
------------------------------------------------------------
Total revenues 94,704 73,795 50,082
------------------------------------------------------------
Costs and Expenses:
Interest expense 4,397 6,597 4,466
General and administrative 17,632 91,934 73,908
------------------------------------------------------------
Total costs and expenses 22,029 98,531 78,374
------------------------------------------------------------
Operating gain (loss) 72,675 (24,736) (28,292)
Equity in earnings of consolidated subsidiaries 89,229 115,752 93,522
------------------------------------------------------------
Earnings from continuing operations, before income taxes 161,904 91,016 65,230
Income taxes 61,799 27,635 13,830
------------------------------------------------------------
Earnings from continuing operations 100,105 63,381 51,400
Earnings from discontinued operations, net of tax 0 32,725 54,267
------------------------------------------------------------
Net earnings $100,105 $96,106 $105,667
============================================================
See accompanying Notes to Condensed Financial Statements.
76
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)
1999 1998 1997
------------------------------------------------------
Cash flows from operating activities
Earnings from continuing operations $100,105 $63,381 $51,400
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 23 894 501
Net (gain) loss on investment transactions (85,174) (318) 11,280
Decrease (increase) in accounts and other receivables, less allowances 9,629 (7,432) (2,402)
Decrease (increase) in other assets 1,387 (15,327) (2,874)
Increase (decrease) in other liabilities 15,412 (8,562) (7,375)
Other operating, net (5) 471 1,226
Equity in undistributed net earnings of consolidated subsidiaries (60,616) (79,071) (64,007)
------------------------------------------------------
Net adjustments (119,344) (109,345) (63,651)
------------------------------------------------------
Cash used in operating activities (19,239) (45,964) (12,251)
------------------------------------------------------
Cash flows from investing activities
Purchase of investments (6,777) (195) (100,221)
Sales of investments 168,132 7,015 53,390
Capital contributions to consolidated subsidiaries (11,050) (263) (1,171)
Cash dividends from consolidated subsidiaries 20,202 61,826 14,362
Purchase of property and equipment 10 (2,613) (976)
Disposition of property and equipment 0 0 0
Net change in short-term investments (120,507) 3,942 21,933
------------------------------------------------------
Net cash provided by (used in) investing activities 50,010 69,712 (12,683)
------------------------------------------------------
Cash flows from financing activities
Principal payments on long-term debt (56,300) (100,800) (69,425)
Proceeds of long-term debt 38,100 125,359 85,425
Cash provided by discontinued operations 0 3,903 18,805
Net cash transferred to subsidiary (358) 0 0
Other, net (13,322) (51,211) (11,726)
------------------------------------------------------
Net cash (used in) provided by financing activities (31,880) (22,749) 23,079
------------------------------------------------------
Net (decrease) increase in cash (1,109) 999 (1,855)
Cash at beginning of year 999 0 1,855
------------------------------------------------------
Cash at end of year ($110) $999 $0
======================================================
Supplemental disclosures of cash flow information
Cash paid during the year for interest $5,374 $5,147 $4,869
Cash paid during the year for income taxes $16,455 $56,112 $34,100
Supplemental disclosure of noncash investing and financing activities
Book value of spin-off of Chicago Title and Trust Company $0 $413,767 $0
See accompanying Notes to Condensed Financial Statements.
77
SCHEDULE II
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
1. Investment in Consolidated Subsidiaries. Reference is made to Note 2 of the
Notes to Consolidated Financial Statements incorporated herein by reference for
information regarding the spin-off of Chicago Title and Trust.
2. Long-Term Debt. Reference is made to Note 6 of the Notes to Consolidated
Financial Statements incorporated herein by reference for information regarding
the significant provisions of the revolving credit loan agreement of Alleghany.
Included in long-term debt in the accompanying condensed balance sheets is
$19,123 and $12,075 in 1999 and 1998 of intercompany notes payable to Alleghany
Funding and World Minerals, respectively.
3. Income Taxes. Reference is made to Note 7 of the Notes to Consolidated
Financial Statements incorporated herein by reference.
4. Commitments and Contingencies. Reference is made to Note 13 of the Notes to
Consolidated Financial Statements incorporated herein by reference.
5. Stockholders' Equity. Reference is made to Note 8 of the Notes to
Consolidated Financial Statements incorporated herein by reference with respect
to stockholders' equity and surplus available for dividend payments to Alleghany
from its subsidiaries.
78
SCHEDULE III
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
AT DECEMBER 31
--------------------------------------------------------------------------------------
FUTURE
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE
- ---------- --------------------- --------------------------------------------------------------------------------------
1999 Property
and casualty
reinsurance $97,593 $1,973,924 $419,608 $0
======================================================================================
1998 Property
and casualty
reinsurance $93,397 $1,554,818 $389,603 $0
======================================================================================
1997 Property
and casualty
reinsurance $29,644 $1,159,070 $136,288 $0
======================================================================================
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED
NET AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
YEAR SEGMENT REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
- ------- ------------------ -------------------------------------------------------------------------------------------------
1999 Property
and casualty
reinsurance $719,846 $95,194 $548,459 $172,527 $86,663 $725,436
=================================================================================================
1998 Property
and casualty
reinsurance $420,809 $80,404 $288,259 $113,170 $54,805 $438,162
=================================================================================================
1997 Property
and casualty
reinsurance $376,672 $75,531 $261,828 $94,444 $51,769 $414,191
=================================================================================================
79
SCHEDULE IV
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1999
(in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- --------- -------------- ----------------------------------------------------------------------- ----------
1999 Property
and casualty
reinsurance
premiums $312,839 $182,683 $589,690 $719,846 82%
======================================================================= ==========
1998 Property
and casualty
reinsurance
premiums $144,812 $110,377 $386,374 $420,809 92%
======================================================================= ==========
1997 Property
and casualty
reinsurance
premiums $112,158 $88,416 $352,930 $376,672 94%
======================================================================= ==========
80
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
DISCOUNT,
IF ANY,
RESERVES DEDUCTED
FOR IN RESERVES
UNPAID FOR UNPAID
DEFERRED CLAIMS CLAIMS
AFFILIATION POLICY AND CLAIM AND CLAIM NET
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME
- ----------------- ---------------------------------------------------------------------------------------------------------------
1999
Consolidated
property-casualty
entities $97,593 $1,973,924 $0 $419,608 $719,846 $95,194
===============================================================================================================
1998
Consolidated
property-casualty
entities $93,397 $1,554,818 $0 $389,603 $420,809 $80,404
===============================================================================================================
1997
Consolidated
property-casualty
entities $29,644 $1,159,070 $0 $136,288 $376,672 $75,531
===============================================================================================================
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
INCURRED RELATED TO AMORTIZATION
----------------------------------------- OF DEFERRED PAID CLAIMS
AFFILIATION (1) (2) POLICY AND CLAIM
WITH CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT YEAR YEAR COSTS EXPENSES WRITTEN
- ----------------- ---------------------------------------------------------------------------------------------------------------
1999
Consolidated
property-casualty
entities $516,704 $31,755 $172,527 $395,035 $725,436
===============================================================================================================
1998
Consolidated
property-casualty
entities $290,513 ($2,254) $113,170 $192,031 $438,162
===============================================================================================================
1997
Consolidated
property-casualty
entities $267,530 ($5,702) $94,444 $210,015 $414,191
===============================================================================================================
81
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 28, 2000, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of earnings, changes in common stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999 as contained in the 1999 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Annual Report on Form 10-K for the year 1999. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statements schedules as listed in the
accompanying index. These financial statements schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements schedules based on our audits.
In our opinion, such financial statements schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 28, 2000
82
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany,
as amended by Amendment accepted and received for
filing by the Secretary of State of the State of
Delaware on June 23, 1988, filed as Exhibit 20 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
3.02 By-Laws of Alleghany as amended April 18, 1995, filed
as Exhibit 3.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated herein by reference.
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
*10.02 Alleghany Corporation Deferred Compensation Plan, as
amended and restated as of December 15, 1992, filed
as Exhibit 10.03 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.03 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.04 Alleghany Supplemental Death Benefit Plan dated as of
May 15, 1985 and effective as of January 1, 1985,
filed as Exhibit 10.08 to Old Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1985, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
- --------
* Compensatory plan or arrangement.
83
*10.05(a) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank, filed as Exhibit
10.08(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated
herein by reference.
*10.05(b) Alleghany Retirement Plan, as amended and restated on
March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.05(c) Amendments to Alleghany Retirement Plan, effective as
of January 1, 1996, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein
by reference.
*10.05(d) Amendments to Alleghany Retirement Plan, effective as
of January 1, 1998, filed as Exhibit 10.05(d) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1997, are incorporated herein by
reference.
*10.06 Alleghany Retirement COLA Plan dated and effective as
of January 1, 1992, as adopted on March 17, 1992,
filed as Exhibit 10.7 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1991, are
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
*10.07 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995, filed as Exhibit
10.10 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1995, is incorporated
herein by reference.
*10.08 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
- --------
* Compensatory plan or arrangement.
84
*10.09 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.10 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.11(a) Revolving Credit Loan Agreement dated as of June 14,
1995 among Alleghany and Chemical Bank, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10.11(b) First Amendment dated as of April 8, 1998, to the
Revolving Credit Loan Agreement dated as of June 14,
1995, among Alleghany and Chase Manhattan Bank
(formerly known as Chemical Bank), filed as Exhibit
10.1 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, is incorporated
herein by reference.
10.12(a) Distribution Agreement dated as of June 16, 1998 by
and between Alleghany Corporation and Chicago Title
Corporation (the "Spin-Off Distribution Agreement"),
filed as Exhibit 2.1(a) to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein
by reference (Securities and Exchange Commission File
No. 001-13995).
10.12(b) List of Contents of Exhibits to the Spin-Off
Distribution Agreement, filed as Exhibit 2.1(b) to
Chicago Title Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and
Exchange Commission File No. 001-13995).
- --------
* Compensatory plan or arrangement.
85
10.12(c) Tax Sharing Agreement dated as of June 17, 1998 by
and among Alleghany Corporation and Chicago Title
Corporation, filed as Exhibit 10.2 to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein
by reference (Securities and Exchange Commission File
No. 001-13995).
10.13 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed as
Exhibit 10.21 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.14 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between Alleghany
and MSL Industries, Inc., filed as Exhibit 10.22 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1987, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.15(a) Stock Purchase Agreement dated as of May 18, 1994 by
and between First Interstate Bank of California and
Alleghany (the "Sacramento Savings Stock Purchase
Agreement"), filed as Exhibit 10.1(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, is incorporated herein by reference.
10.15(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, is
incorporated herein by reference.
86
10.16(a) Note Purchase Agreement dated as of January 15, 1995
by and among Alleghany Properties, Inc., Alleghany
and Hartford Life Insurance Company Separate Account
CRC (the "Alleghany Properties Note Purchase
Agreement"), filed as Exhibit 10.28(a) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1994, is incorporated herein by
reference. Agreements dated as of January 15, 1995
among Alleghany Properties, Inc., Alleghany and each
of Transamerica Life Insurance & Annuity Company,
Transamerica Occidental Life Insurance Company,
United of Omaha Life Insurance Company, Mutual of
Omaha Insurance Company, The Lincoln National Life
Insurance Company, Knights of Columbus and Woodmen
Accident and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.16(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
10.16(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among Alleghany,
Alleghany Properties, Inc. and the Purchasers listed
on Annex 1 to the Alleghany Properties Note Purchase
Agreement, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, is incorporated herein by
reference.
10.16(d) Amendment No. 2 to Alleghany Properties Note Purchase
Agreement dated as of November 6, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as Exhibit
10.28(d) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated
herein by reference.
87
10.16(e) Third Amendment to Alleghany Properties Note Purchase
Agreement dated as of December 11, 1998 by and among
Alleghany, Alleghany Properties, Inc., Hartford Life
Insurance Company, Transamerica Life Insurance &
Annuity Company, Transamerica Occidental Life
Insurance Company, United of Omaha Life Insurance
Company, Mutual of Omaha Insurance Company, The
Lincoln National Life Insurance company, Knights of
Columbus and Woodmen Accident and Life Company, filed
as Exhibit 10.17(e) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference.
10.17(a) Note Purchase Agreement dated as of December 11, 1998
by and among Alleghany Properties, Inc., Alleghany
and United of Omaha Life Insurance Company (the
"Alleghany Properties 1998 Note Purchase Agreement"),
filed as Exhibit 10.18(a) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference. Agreements
dated as of December 11, 1998 among Alleghany
Properties, Inc., Alleghany and each of Companion
Life Insurance Company, Hartford Life Insurance
Company, The Lincoln National Life Insurance Company,
and First Penn-Pacific Life Insurance Company are
omitted pursuant to Instruction 2 of Item 601 of
Regulation S-K.
10.17(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties 1998 Note Purchase Agreement,
filed as Exhibit 10.18(b) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10.18(a) Installment Sales Agreement dated December 8, 1986 by
and among Alleghany, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Merrill Lynch & Co., Inc.,
filed as Exhibit 10.10 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1986, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
88
10.18(b) Intercreditor and Collateral Agency Agreement dated
as of October 20, 1997 among The Chase Manhattan
Bank, Barclays Bank PLC and Alleghany Funding
Corporation, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.18(c) Master Agreement dated as of October 20, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation,
and related Amended Confirmation dated October 24,
1997 between Barclays Bank PLC and Alleghany Funding
Corporation, filed as Exhibit 10.2 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, are incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.18(d) Indenture dated as of October 20, 1997 between
Alleghany Funding Corporation and The Chase Manhattan
Bank, filed as Exhibit 10.3 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1997, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.19(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite Corporation
and Manville International, B.V. (the "Celite Stock
Purchase Agreement"), filed as Exhibit 10.2(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.19(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
89
10.20(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
10.21(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement, filed
as Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.21(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite Corporation
and Manville Sales Corporation (the "Celite Asset
Purchase Agreement"), filed as Exhibit 10.4(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.21(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.21(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
90
10.22(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.22(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.22(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.23(a) Credit Agreement dated as of March 17, 1999 among
Mineral Holdings Inc., World Minerals Inc., the Banks
named therein and The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent (the "World
Minerals Credit Agreement"), filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, is incorporated herein
by reference.
10.23(b) List of Contents of Exhibits, Annexes and Schedules
to the World Minerals Credit Agreement, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.23(c) Subordination Agreement dated as of March 17, 1999,
among Alleghany Corporation and The Chase Manhattan
Bank, filed as Exhibit 10.3 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1999, is incorporated herein by reference.
91
10.24(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs &
Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit 10.3(a)
to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, is incorporated herein
by reference.
10.24(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.25 Indenture dated as of June 25, 1996 between URC
Holdings Corp. (now known as Underwriters Re Group,
Inc.) and The First National Bank of Chicago, as
trustee, relating to the 7-7/8% Senior Notes due
2006, filed as Exhibit 10.30(j) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10.26(a) Credit Agreement dated as of November 1, 1999 by and
among Underwriters Re Group, Inc., Underwriters
Reinsurance Company and Venton Underwriting Limited
as Borrowers; Venton Underwriting Limited, Talbot
Underwriting Limited, Underwriters Re Capital Ltd.,
Underwriters Reinsurance Company and certain of the
wholly-owned subsidiaries of Underwriters Reinsurance
Company as Account Parties; Underwriters Re Group,
Inc. and Underwriters Reinsurance Company as
Guarantors; the Banks parties thereto from time to
time; Mellon Bank, N.A. as Issuing Bank, as
Administrative Agent and as Co-Arranger; Dresdner
Bank AG, New York Branch and Grand Cayman Branch, as
Documentation Agent; Dresdner Kleinwort Benson North
America LLC as Co-Arranger; and First Union National
Bank as Syndication Agent (the "Underwriters Credit
Agreement").
92
10.26(b) List of Contents of Exhibits to the Underwriters
Credit Agreement. Alleghany agrees to furnish
supplementally a copy of any omitted exhibit to the
Securities and Exchange Commission upon request.
10.27(a) Agreement and Plan of Amalgamation dated as of July
30, 1998 by and among Underwriters Reinsurance
Company, Underwriters Acquisition Company Ltd. and
Venton Holdings Ltd. (the "Amalgamation Agreement"),
filed as Exhibit 10.28(a) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10.27(b) List of Contents of Exhibits to the Amalgamation
Agreement, filed as Exhibit 10.28(b) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by
reference.
10.27(c) Amendment No. 1 dated as of September 24, 1998 to the
Amalgamation Agreement (the "Amalgamation Amendment
No. 1"), filed as Exhibit 10.28(c) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by
reference.
10.27(d) List of Contents of Exhibits to the Amalgamation
Amendment No. 1, filed as Exhibit 10.28(d) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1998, is incorporated herein by
reference.
10.28 Stock Purchase Agreement dated as of December 30,
1999 by and between Alleghany and Swiss Re America
Holding Corporation, filed as Exhibit 99.1 to
Alleghany's Current Report on Form 8-K dated December
30, 1999, is incorporated herein by reference.
13 Pages 3, 5, 7 through 9, 11 through 13, 15 through
17, 19 through 20, 23, 26 and 28 through 48 of the
Annual Report to Stockholders of Alleghany for the
year 1999.
21 List of subsidiaries of Alleghany.
93
23 Consent of KPMG LLP, independent certified public
accountants, to the incorporation by reference of
their reports relating to the financial statements
and related schedules of Alleghany and subsidiaries
in Alleghany's Registration Statements on Form S-8
(Registration No. 333-37237), Form S-8 (Registration
No. 333-57133), Form S-8 (Registration No.
333-76159), Form S-3 (Registration No. 33-55707),
Form S-3 (Registration No. 33-62477), Form S-3
(Registration No. 333-09881), and Form S-3
(Registration No. 333-13971).
27 Financial Data Schedule.