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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, 2002
[ ] 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
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(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
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(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:
Title of each class Name of each exchange on which registered
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
As of March 3, 2003, 7,264,002 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 $1,209,456,333.
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 2002
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 25, 2003
ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 2002
Table of Contents
Description Page
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PART I
Item 1. Business 5
Item 2. Properties 35
Item 3. Legal Proceedings 42
Item 4. Submission of Matters to a Vote of Security Holders 43
Supplemental Item Executive Officers of Registrant 43
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 44
Item 6. Selected Financial Data 47
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 47
Item 8. Financial Statements and Supplementary Data 47
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 48
Description Page
----------- ----
PART III
Item 10. Directors and Executive Officers of Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management 48
Item 13. Certain Relationships and Related Transactions 48
Item 14. Controls and Procedures 49
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 50
Signatures 65
Certifications 67
Index to Financial Statement Schedules 71
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
4
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 Alleghany Insurance Holdings LLC ("AIHL") and
its subsidiaries Capitol Transamerica Corporation ("Capitol Transamerica") and
Platte River Insurance Company ("Platte River"), in the property and casualty
and fidelity and surety insurance businesses. Through its subsidiaries World
Minerals Inc. ("World Minerals"), Celite Corporation ("Celite") and Harborlite
Corporation ("Harborlite") and their subsidiaries, Alleghany is engaged in the
industrial minerals business. Alleghany also 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 January 4, 2002, Alleghany completed the acquisition of Capitol
Transamerica. The total purchase price paid by Alleghany was approximately
$182.0 million. Contemporaneous with the acquisition of Capitol Transamerica,
Alleghany purchased Platte River for approximately $40.0 million. The seller
contractually retained the obligation to pay all of the loss and loss adjustment
expenses liabilities of Platte River that existed at the time of the sale.
Until November 5, 2001, Alleghany was also engaged, through its
subsidiary Alleghany Underwriting Holdings Ltd ("Alleghany Underwriting") and
its subsidiaries, in the global property and casualty insurance and reinsurance
business at Lloyd's of London. On that date, AIHL completed the disposition of
Alleghany Underwriting to Talbot Holdings Ltd., a new Bermuda holding company
formed by certain principals of the Black Diamond Group and the senior
management of Alleghany Underwriting. AIHL recorded an after-tax loss of $50.5
million on the disposition. Consideration for the sale included a warrant which
will entitle AIHL to recover a portion of any residual capital of Alleghany
Underwriting as determined upon the closure of the 2001 Lloyd's year of account.
A nominal value was ascribed to the warrant in computing the loss on the sale of
Alleghany Underwriting. In connection with the sale, AIHL provided a $25.0
million letter of credit to support business written by a new Talbot syndicate
for the 2002
5
Lloyd's year of account while Talbot sought new capital. In December 2002, AIHL
agreed that the capital provided by its letter of credit would support business
written by the syndicate for the 2003 Lloyd's year of account, in exchange for a
reduction of the letter of credit to $15.0 million, which took place in January
2003 as a result of the infusion of new capital into the syndicate. Pursuant to
AIHL's agreement with the syndicate, the syndicate will use its best efforts to
extinguish AIHL's commitment under the reduced letter of credit no later than
June 30, 2005. In light of its disposition, Alleghany Underwriting has been
classified as a discontinued operation.
Until February 1, 2001, Alleghany was also engaged, through its
subsidiary Alleghany Asset Management, Inc. ("Alleghany Asset Management") and
its subsidiaries, in the financial services business. On that date, Alleghany
Asset Management merged with a wholly owned subsidiary of ABN AMRO North America
Holding Company ("ABN AMRO"). Alleghany received cash proceeds of $825.0 million
and recorded an after-tax gain of about $474.8 million, or approximately $64.40
per share, excluding certain expenses relating to the closing of the sale. In
light of the transaction, Alleghany Asset Management has been classified as a
discontinued operation.
Until May 10, 2000, Alleghany was also engaged, through its subsidiary
Underwriters Re Group, Inc. and its subsidiaries ("Underwriters Re Group"), in
the global property and casualty reinsurance and insurance businesses. On that
date, Underwriters Re Group was sold to Swiss Re America Holding Corporation.
Alleghany recorded pre-tax proceeds of approximately $649.0 million in cash. In
connection with the sale, Alleghany paid approximately $187.9 million in cash
(or $25.3125 per share) for the purchase from Underwriters Re Group of 7.425
million shares of Burlington Northern Santa Fe Corporation. Alleghany's pre-tax
gain on the sale was approximately $136.7 million, reflecting additional
adjustments from previously reported figures for the settlement of certain
outstanding obligations of Underwriters Re Group that were assumed by Alleghany
and the final resolution of post-closing purchase price adjustments. The tax on
the gain was approximately $7.1 million, resulting in an after-tax gain on the
sale of $129.6 million. The tax rate on the gain differs from the expected
statutory rate principally due to a difference between the tax and book bases of
Underwriters Re Group. Alleghany retained Underwriters Re Group's London-based
Lloyd's operations conducted through Alleghany Underwriting, which was
subsequently sold on November 5, 2001, as described above.
Until June 17, 1998, Alleghany was also engaged, through its
subsidiaries Chicago Title and Trust Company, Chicago Title Insurance Company,
Security Union Title Insurance Company and Ticor Title Insurance Company and
their subsidiaries ("CT&T"), in the sale and underwriting of title insurance and
in other real estate-related
6
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 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 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
3, 2003, Alleghany owned approximately 16.0 million shares of BNSF, or
approximately 4.3 percent of BNSF's currently outstanding common stock. BNSF
owns one of the largest railroad networks in North America, with 33,000 route
miles covering 28 states and two Canadian provinces.
In 2002, 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 2002. 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.
Alleghany does not maintain a web site and therefore does not post its
annual reports on Form 10-K, its quarterly reports on Form 10-Q and current
reports on Form 8-K on-line. However, stockholders may obtain, free of charge,
copies of such reports upon request to the Secretary of Alleghany. Reports may
also be obtained through the Securities and Exchange Commission's website at
www.sec.gov.
7
PROPERTY AND CASUALTY/FIDELITY AND SURETY INSURANCE BUSINESSES
General Description of Business
AIHL is a holding company for Alleghany's insurance operations which
are conducted primarily through Capitol Transamerica and its subsidiary Capitol
Indemnity Corporation ("Capitol Indemnity"), headquartered in Madison,
Wisconsin. Capitol Transamerica was acquired by Alleghany on January 4, 2002,
for a purchase price of approximately $182.0 million. Contemporaneous with the
acquisition of Capitol Transamerica, AIHL acquired Platte River, a
Nebraska-domiciled property and casualty insurance company, for approximately
$40.0 million. The seller contractually retained the obligation to pay all of
the loss and loss adjustment expenses liabilities of Platte River that existed
at the time of sale. Unless noted, references to AIHL include the operations of
Capitol Transamerica, Capitol Indemnity and Platte River.
Capitol Transamerica, primarily through Capitol Indemnity, writes
specialty lines of property and casualty insurance as well as fidelity and
surety coverages. Capitol Indemnity operates in 37 states with a geographic
concentration in the Midwestern and Plains states. Capitol Indemnity writes
primarily property and casualty insurance for small commercial "main street"
businesses, including barber and beauty shops, bowling alleys, contractors,
manufacturers, and restaurants and taverns. It also writes fidelity and surety
bonds and specialty insurance coverage, including contractor's performance and
payment bonds, license/permit bonds, fiduciary bonds, judicial bonds and
commercial fidelity bonds. Platte River is licensed in 50 states and operates in
conjunction with Capitol Indemnity by providing commercial surety products.
Platte River also offers pricing flexibility in those jurisdictions where both
Capitol Indemnity and Platte River are licensed. The property and casualty
business accounted for approximately 77 percent of gross written premium in
2002, while the fidelity and surety business accounted for the remainder.
AIHL recorded gross written premiums of approximately $148.5 million
and net earned premiums of approximately $125.6 million in 2002. As of December
31, 2002, the statutory surplus of Capitol Indemnity and Platte River was $126.6
million and $27.9 million, respectively.
Capitol Indemnity and Platte River entered into a pooling agreement,
effective as of January 1, 2002, whereby Capitol Indemnity and Platte River
agreed to share their aggregate insurance risks. Under this agreement, Capitol
Indemnity is liable for 90 percent of the shared risks and Platte River is
liable for 10 percent.
8
Capitol Transamerica and Platte River are rated A+ (Superior) by A.M.
Best Company, Inc. ("A.M. Best"), an independent organization that analyzes the
insurance industry.
In general, property insurance protects an 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.
Although 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 those losses associated with casualty risks. In 2002, approximately 36
percent of property and casualty gross written premium was property and 64
percent was casualty.
Surety bonds are three-party agreements in which the issuer of the bond
(the surety) joins with a second party (the principal) in guaranteeing to a
third party (the owner/obligee) the fulfillment of some obligation on the part
of the principal. The surety guarantees fulfillment of the principal's
obligation to the owner/obligee. A surety is generally entitled to recover from
the principal any losses and expenses paid to an owner/obligee. Surety bond
premiums primarily reflect the type and class of risk and related costs
associated with both processing the bond application, evaluating the risks
involved and investigating the principal, including, if necessary, an analysis
of the principal's creditworthiness and ability to perform.
There are three broad types of fidelity and surety products--contract
surety bonds, commercial surety bonds and fidelity bonds. Contract surety bonds
secure a contractor's performance and/or payment obligation with respect to a
construction project and are generally required by federal, state and local
governments for public works projects. Commercial surety bonds include all
surety bonds other than contract surety bonds and cover obligations typically
required by law or regulation, such as license and permit coverage. Fidelity
bonds cover losses arising from employee dishonesty. In 2002, approximately 54
percent of surety and fidelity gross written premium was commercial surety, 43
percent was contract surety and three percent was fidelity.
Marketing
AIHL conducts its insurance business through independent and general
insurance agents located throughout the United States, with a concentration in
the Midwestern and Plains states. At December 31, 2002, AIHL had approximately
1,050 local agents and 23 regional agents licensed to write property and
casualty and fidelity and surety coverages, as well as 550 local agents licensed
only to write surety coverages. The regional agents
9
write very little fidelity and surety business and have full quoting and binding
authority within the parameters of their agency contracts with respect to
property and casualty business they write. Local agents have binding authority
for certain business owner policy products, including workers' compensation, and
non-contract surety products. No agent had writings in excess of 10 percent of
AIHL's gross written premiums in 2002. As part of marketing initiatives
currently underway, AIHL expects that it will reduce its number of agency
relationships in 2003.
Underwriting Operations
The 2002 underwriting results for both the property and casualty and
the fidelity and surety lines of business generated losses in 2002. The
principal driver of the $20.2 million of underwriting losses in 2002, comprised
of $8.2 million for property and casualty and $12.0 million for fidelity and
surety, was the loss reserves development for 2001 and prior accident years. In
2002, prior years' loss reserves development of $17.3 million was recorded,
comprised of $8.9 million for property and casualty and $8.4 million for
fidelity and surety. With respect to 2002 accident year results, AIHL recorded
underwriting losses of $2.3 million, comprised of $3.5 million in losses
generated by fidelity and surety and $1.2 million in underwriting profit
generated by property and casualty.
The strategy of AIHL's insurance operations emphasizes underwriting
profitability. Key elements of this strategy are prudent risk selection,
appropriate pricing and coverage customization. All accounts are reviewed on an
individual basis to determine underwriting acceptability. Capitol Transamerica
and Platte River are subscribers to the Insurance Service Organization ("ISO"),
an insurance reference resource recognized by the insurance industry. All
underwriting procedures, rates and contractual coverage obligations are based on
procedures and data developed by the ISO.
Underwriting acceptability is determined by type of business, claims
experience, length of time in business and business experience, age and
condition of premises occupied and financial stability. Information is obtained
from, among other sources, agent applications, financial reports and on-site
loss control surveys. If an account does not meet predetermined acceptability
parameters, coverage is declined. If an in-force policy becomes unprofitable due
to extraordinary claims activity or inadequate premium levels, a non-renewal
notice is issued in accordance with individual state statutes and rules.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002 (the
"Act") was signed into law by President Bush. The Act establishes a new
temporary federal program under which the federal government will share in
certain losses resulting from acts of terrorism. The Act further requires
insurers that issue property and casualty coverages to
10
make terrorism coverage available. AIHL's insurance operations provide for
terrorism coverage on property and casualty policies pursuant to the Act for an
additional premium equal to three percent of the existing premium on the
applicable policy (if such additional premium is in excess of $40.00) for
policies written prior to February 24, 2003, and additional premium ranging from
three to seven percent of the existing premium (depending upon the location of
the insured) for policies written thereafter.
Reinsurance Arrangements
As is customary in the insurance industry, AIHL's insurance operations
reinsure a portion of the risks they underwrite. Reinsurance provides a primary
insurer such as AIHL 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 additional underwriting capacity.
AIHL's insurance operations have reinsurance agreements with a number
of domestic and international reinsurance companies. In the event that a
reinsurer is unable to meet its obligations assumed under a reinsurance
agreement, Capitol Transamerica remains liable for the portion reinsured. In
general, Capitol Transamerica reinsures individual losses in excess of $1.25
million with various reinsurers in each of its lines of business, except that
Capitol Transamerica reinsures its commercial surety business for individual
losses above $1.0 million with a 10 percent participation above that limit. In
addition, Capitol Transamerica purchases facultative reinsurance coverage for
limits in excess of $6.0 million on property and casualty, $7.0 million on
contract surety and $10 million on commercial surety. Facultative coverage
provides reinsurance for individual risks, where a reinsurer separately rates
and underwrites each individual risk and is free to accept or reject each risk
offered by the primary insurer. Capitol Transamerica does not purchase any stop
loss reinsurance coverage, a form of reinsurance where the reinsurer is liable
for all losses that occur after a specified loss ratio or total dollar amount of
losses has been reached.
As of December 31, 2002, AIHL had reported reinsurance receivables of
$147.5 million due from its reinsurers, $25,000 of which has been deemed
uncollectable. AIHL ceded approximately 10.2 percent of gross written premiums
in 2002 to purchase reinsurance that protects AIHL from severity of loss.
In connection with AIHL's purchase of Platte River, the seller, an A.M.
Best rated A+ insurer, contractually retained the obligation to pay all of the
loss and loss adjustment expenses liabilities in existence at the time of such
acquisition. At December 31, 2002, $142.5 million of such liabilities were
outstanding and were included on AIHL's balance sheet, and AIHL's reinsurance
receivables included a corresponding obligation of the
11
seller. Such loss reserves and reinsurance receivables are expected to decline
over time as losses are paid.
Outstanding Losses and Loss Adjustment Expenses ("LAE")
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 receivables, premiums receivable and bad debt), insurers and
reinsurers establish "reserves." These reserves are balance sheet liabilities
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events which have occurred, including events
which have not been reported to the insurer.
With respect to loss and loss adjustment expenses, Alleghany's
insurance operations establish reserves for unpaid losses under their property
and casualty insurance and fidelity and surety contracts based upon estimates of
the ultimate amounts payable under such contracts related to losses occurring on
or before the date of the balance sheet contained in the applicable financial
statements. As of any balance sheet date, there are claims that have not yet
been reported, and some claims may not be reported for many years after the
loss. As a result, the liability for unpaid losses includes significant
estimates for claims incurred but not yet reported. Additionally, reported
claims are in various stages of the settlement process. Each claim is settled
individually based upon its merits, and certain claims may take years to settle,
especially if legal action is involved.
Alleghany's insurance operations use a variety of techniques that
employ significant judgments and assumptions to establish the liabilities for
unpaid claims recorded at the balance sheet date. Techniques include detailed
statistical analysis of past claim reporting, settlement activity, claim
frequency, internal loss experience and severity data when sufficient
information exists to lend statistical credibility to the analysis. More
subjective techniques are used when statistical data is insufficient or
unavailable. Liabilities also reflect implicit or explicit assumptions regarding
the potential effects of future inflation, judicial decisions, law changes and
recent trends in such factors. Alleghany's insurance operations continually
evaluate the potential for changes in loss estimates, both positive and
negative, and use the results of these evaluations both to adjust recorded
provisions and to adjust underwriting criteria. In addition, it is their
practice to engage an outside actuary to evaluate on a quarterly basis the
adequacy of the loss reserves established.
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Asbestos, Environmental Impairment and Mold Claims Reserves
AIHL's reserve for losses and loss expenses includes amounts for
various liability coverages related to asbestos and environmental impairment
claims that arose from reinsurance of certain general liability and commercial
multiple-peril coverages assumed by Capitol Indemnity in the 1970s. Capitol
Indemnity exited this business in 1976. 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 primary insurer 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.
For the year ended December 31, 2002, net loss payments for asbestos
and environmental impairment exposures were $751,209. As of December 31, 2002,
AIHL's case and IBNR reserves totaled approximately $2.9 million for asbestos
liabilities and approximately $4.4 million for environmental impairment claims.
AIHL has experienced limited mold claims to date and has had an
exclusion for mold claims in its policies since 2002. As of December 31, 2002,
reserves for mold exposure were less than $250,000.
The reserves for unpaid losses and LAE related to asbestos and
environmental impairment claims reported in the annual statements filed with
state insurance departments prepared in accordance with statutory accounting
practices ("SAP") and those reported in AIHL's consolidated financial statements
prepared in accordance with GAAP for the year ended December 31, 2002 were
identical.
13
The reconciliation of the beginning and ending reserves for unpaid
losses and LAE related to asbestos and environmental impairment claims,
excluding any such reserves which are a part of Platte River reserves guaranteed
by the seller of Platte River to Alleghany, for the year ended December 31, 2002
is shown below (in thousands):
Reconciliation of Asbestos-Related Claims Reserves for Losses and LAE
2002
----------
Reserves as of January 1.............................. $ 0
Reserves acquired .................................... 3,244
Paid loss............................................. (300)
----------
Reserves as of December 31............................ $ 2,944
Type of reserves
Case............................................... $ 1,243
IBNR............................................... 1,701
----------
Total................................................. $ 2,944
==========
Reconciliation of Environmental Impairment Claims Reserves for Losses and LAE
2002
----------
Reserves at January 1 ................................ $ 0
Reserves acquired .................................... 4,867
Paid loss............................................. (451)
----------
Reserves as of December 31............................ $ 4,416
==========
Type of reserves
Case............................................... $ 1,865
IBNR............................................... 2,551
----------
Total................................................. $ 4,416
==========
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Net Loss and LAE Reserves
The reconciliation between the net loss and LAE reserves reported in
the annual statements filed with state insurance departments prepared in
accordance with SAP and those reported in AIHL's consolidated financial
statements prepared in accordance with GAAP for the year ended December 31, 2002
is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP
Basis
2002
--------
Statutory reserves..................... $114,925
Reinsurance recoverables............... 144,766(1)
Purchase accounting adjustment......... (1,647)
Funds withheld from ceding companies (2) 427
--------
GAAP reserves.......................... $258,471
========
- -------------------
(1) Excludes $2,713 of current reinsurance receivables, and includes reinsurance
receivables of $142,501 due from the seller of Platte River.
(2) Items defined as reserves for GAAP but separate line items for SAP.
15
The reconciliation of beginning and ending reserves for unpaid losses and LAE
for the year ended December 31, 2002 is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE
2002
--------
Reserves, net of reinsurance recoverables,
as of January 1...................................... $ 0
Reserves acquired, net of reinsurance
recoverables of $179,512............................. 87,176
Incurred loss, net of reinsurance, related to:
Current year......................................... 82,639
Prior years.......................................... 17,869(1)
--------
Total incurred loss, net of reinsurance................. 100,508
--------
Paid loss, net of reinsurance, related to:
Current year......................................... 28,562
Prior years.......................................... 45,417
--------
Total paid loss, net of reinsurance..................... 73,979
--------
Reserves, net of reinsurance recoverables,
as of December 31.................................... 113,705
Reinsurance recoverables, as of December 31............. 144,766(2)
--------
Reserves, gross of reinsurance recoverables,
as of December 31.................................... $258,471
========
- -------------------
(1) Includes $17,320 of prior years' loss reserves development and $549 relating
to amortization which is required to be taken under purchase accounting rules.
(2) Excludes $2,713 of current reinsurance receivables and includes reinsurance
receivables of $142,501 due from the seller of Platte River.
Investment Operations
Investments of AIHL's subsidiaries must comply with the insurance laws
of Wisconsin, the domiciliary state of Capitol Transamerica and Capitol
Indemnity, and Nebraska, the domiciliary state of Platte River, and the other
states in which they are licensed. These laws prescribe the kind, quality and
concentration of investments which may be made by insurance companies. In
general, these laws permit investments, within
16
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds, preferred and common stocks, and real
estate mortgages.
AIHL's investment strategy is to provide sufficient cash flow to meet
its obligations while maximizing its after-tax rate of return. Securities may be
sold from time to time to take advantage of investment opportunities created by
changing interest rates, prepayments, tax and credit considerations or other
factors. AIHL's fixed maturity portfolio has been designed to enable management
to react to such opportunities or to circumstances that could result in a
mismatch between the duration of such portfolio assets and the duration of
liabilities and, as such, is classified as available for sale.
The following table reflects investment results for the fixed maturity
portfolio of AIHL and its subsidiaries, on a consolidated basis, for the year
ended December 31, 2002 (in thousands except for percentages):
Investment Results
Net Net Pre-Tax After-
Average Pre-Tax After-Tax Realized Tax
Investments Investment Investment Gains Effective Yield
(1) Income (2) Income (3) (Losses) Yield (4) (5)
- ----------------------------------------------------------------------------------------
$155,857 $7,619 $5,905 $(470) 4.89% 3.79%
- -------------------
(1) Average of amortized cost of fixed maturities portfolio at beginning and
end of period.
(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.
As of December 31, 2002, the equity portfolio of AIHL and its
subsidiaries, on a consolidated basis, was carried at a fair value of
approximately $132.6 million with an original cost of approximately $78.3
million. In 2002, AIHL realized a loss of $10.9 million on sales of equity
securities and had dividend income on its portfolio of $4.4 million.
17
The following table summarizes the investments of AIHL and its
subsidiaries on a consolidated basis, excluding cash, as of December 31, 2002,
with all investments carried at fair value (in thousands except for
percentages):
Investments
-----------------
Amortized Cost or Cost Fair Value
-------------------------- --------------------------
Amount Percentage Amount Percentage
-------- ---------- -------- ----------
Short-term investments...................... $ 55,645 18.1% $ 55,645 15.2%
Corporate bonds............................. 24,411 8.0% 25,057 6.9%
United States government and government
agency bonds............................. 32,763 10.7% 33,955 9.3%
Mortgage- and asset-backed securities....... 3,353 1.1% 3,407 0.9%
Municipal bonds............................. 112,207 36.6% 115,117 31.5%
Equity securities .......................... 78,336 25.5% 132,588 36.2%
-------- ----- -------- -----
Total.................................... $306,715 100.0% $365,769 100.0%
======== ===== ======== =====
The following table indicates the composition of the long-term fixed
maturity portfolio by Moody's rating as of December 31, 2002 (in thousands
except for percentages):
Long-Term Fixed Maturity Portfolio by Moody's Rating
Fair Value Percentage
---------- ----------
Aaa............................................. $ 90,571 51.0%
Aa.............................................. 60,361 34.0%
A .............................................. 4,216 2.4%
Baa............................................. 5,436 3.1%
Non-rated....................................... 16,952 9.5%
-------- -----
Total..................................... $177,536 100.0%
======== =====
The following table indicates the composition of the long-term fixed
maturity portfolio by years until contractual maturity as of December 31, 2002
(in thousands except for percentages):
18
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Amortized Fair
Cost Value Percentage
--------- -------- ----------
One year or less.................................... $ 2,479 $ 2,491 1.4%
Over one through five years......................... 57,725 59,580 33.6%
Over five through ten years......................... 21,345 21,667 12.2%
Over ten years...................................... 87,832 90,391 50.9%
Mortgage- and asset-backed securities............... 3,353 3,407 1.9%
--------- -------- -----
Total......................................... $ 172,734 $177,536 100.0%
========= ======== =====
AIHL continually monitors the difference between cost and the estimated
fair value of its investments, which involves uncertainty as to whether declines
in value are temporary in nature. If AIHL believes a decline in the value of a
particular investment is temporary, it records the decline as an unrealized loss
in shareholder's equity. If the decline is believed to be "other than
temporary," it is written down to the carrying value of the investment and a
realized loss is recorded on AIHL's statement of operations. Management's
assessment of a decline in value includes its current judgment as to the
financial position and future prospects of the entity that issued the investment
security. If that judgment changes in the future, AIHL may ultimately record a
realized loss after having originally concluded that the decline in value was
temporary.
The following table summarizes, for all securities in an unrealized
loss position at December 31, 2002, the aggregate fair value and gross
unrealized loss by length of time those securities have been continuously in an
unrealized loss position (in thousands):
19
Gross
Unrealized
Fair Value Loss
---------- ----------
Fixed maturities:
0 - 6 months............................... $ 0 $ 0
7 - 12 months.............................. 23,854 749
Over 12 months............................. 0 0
------- ------
Total................................... $23,854 $ 749
======= ======
Equities:
0 - 6 months............................... $24,465 $1,966
7 - 12 months.............................. 6,757 678
Over 12 months............................. 0 0
------- ------
Total................................... $31,222 $2,644
======= ======
Competition
Except for regulatory considerations, there are virtually no barriers
to entry into the insurance industry. Competition may be domestic or foreign,
and competitors are not necessarily required to be licensed by various state
insurance departments. The number of competitors within the industry is not
known. The commercial property and casualty insurance and fidelity and surety
insurance industries are highly competitive, competing on the basis of
reliability, financial strength and stability, ratings, underwriting
consistency, service, business ethics, price, performance, capacity, policy
terms and coverage conditions.
AIHL's property and casualty business competes on a regional basis,
whereas AIHL's fidelity and surety business competes on a national basis.
Competitors include other primary insurers and new forms of insurance such as
alternative self-insurance mechanisms. Many such competitors have considerably
greater financial resources and greater experience in the insurance industry,
and offer a broader line of insurance products than Capitol Transamerica and
Platte River.
Competition in the property and casualty insurance business has
historically been cyclical in nature. Typically, a cycle operates as follows.
The ability of primary insurers 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
20
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 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 can be shared with reinsurers depending on the terms of the individual
reinsurance agreements. A profitable reinsurance market will again lead to a
surplus of reinsurers.
The insurance 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.
Although the fidelity and surety industry has experienced slow premium
growth, competition has increased as a result of ten years of profitable
underwriting experience. This competition has typically manifested itself
through reduced premium rates and greater tolerance for relaxation of
underwriting standards. Management believes such competition will continue.
The Gramm-Leach-Bliley Act of 1999 removed many federal and state law
barriers to affiliations between insurers, banks, securities firms and other
financial services providers. This legislation and similar initiatives may lead
to increased consolidation and competition in the insurance industry.
Regulation
AIHL is subject to the insurance holding company laws of several
states. Certain dividends and distributions by an insurance subsidiary are
subject to approval by the insurance regulators of the domiciliary state of such
subsidiary. Other significant transactions between an insurance subsidiary and
its holding company or other subsidiaries of the holding company may require
approval by insurance regulators in the domiciliary state of each of the
insurance subsidiaries participating in such transactions.
AIHL's insurance subsidiaries are subject to regulation in their
domiciliary states as well as in the other states in which they do business.
Such regulation pertains to matters such as approving policy forms and various
premium rates, licensing agents, granting and revoking licenses to transact
business, and regulating trade practices. The majority of AIHL's insurance
operations are in states requiring prior approval by regulators before proposed
rates for property or casualty or fidelity or surety insurance policies may be
implemented. Insurance regulatory authorities perform periodic examinations of
an insurer's market conduct and other affairs.
21
Insurance companies are required to report their financial condition
and results in accordance with statutory accounting principles prescribed or
permitted by state insurance regulators in conjunction with the National
Association of Insurance Commissioners (the "NAIC"). State insurance regulators
also prescribe the form and content of statutory financial statements, perform
periodic financial examinations of insurers, set minimum reserve and loss ratio
requirements, establish standards for the types and amounts of investments, and
require minimum capital and surplus levels. Such statutory capital and surplus
requirements include risk-based capital ("RBC") rules promulgated by the NAIC.
These RBC standards are intended to assess the level of risk inherent in an
insurance company's business and consider items such as asset risk, credit risk,
underwriting risk and other business risks relevant to its operations. In
accordance with RBC formulas, a company's RBC requirements are calculated and
compared to its total adjusted capital to determine whether regulatory
intervention is warranted. At December 31, 2002, the total adjusted capital of
each of AIHL's insurance subsidiaries exceeded the minimum levels required under
RBC rules and had excess capacity to write additional premiums in relation to
these requirements.
The NAIC annually calculates certain statutory financial ratios for
most insurance companies in the United States. These calculations are known as
the Insurance Regulatory Information System ("IRIS") ratios. There presently are
twelve IRIS ratios. The primary purpose of the ratios is to provide an "early
warning" of any negative developments. The NAIC reports the ratios to state
regulators who may then contact the companies if three or more ratios fall
outside the NAIC's "usual ranges." Based upon calculations as of December 31,
2002, none of AIHL's insurance subsidiaries had more than three IRIS ratios
outside the usual ranges.
AIHL's insurance subsidiaries are required under the guaranty fund laws
of most states in which they transact business to pay assessments up to
prescribed limits to fund policyholder losses or liabilities of insolvent
insurance companies. AIHL's insurance subsidiaries also are required to
participate in various involuntary pools, principally involving workers'
compensation and windstorms. In most states, the involuntary pool participation
of AIHL's insurance subsidiaries is in proportion to their voluntary writings of
related lines of business in such states.
In addition to the regulatory requirements described above, a number of
current and pending legislative and regulatory measures may significantly affect
the insurance business in a variety of ways. These measures include, among other
things, tort reform, consumer privacy requirements and financial services
deregulation initiatives.
Employees
AIHL and its subsidiaries employed 291 persons as of December 31, 2002.
22
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 former Chairman of the Board
of World Minerals, who is still a member of the Board of Directors, currently
owns an equity interest, including outstanding options, of about 6.3 percent of
World Minerals' immediate parent company.
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), Diafil(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; Fernley, Nevada; Murat,
France; Alicante, Spain; Arica, Chile; Arequipa, Peru; Ayacucho, Peru; Tuxpan,
Mexico; and Guadalajara, Mexico. In 1995, World Minerals, through various
subsidiaries of Celite, acquired controlling
23
interests in two joint ventures which are engaged in the mining and processing
of diatomite in Jilin Province, People's Republic of China ("PRC").
In 2001, Celite sold its 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, to Allied EFA. Following the sale, Celite retained the
exclusive right to sell the diatomite products produced from the Icelandic mine
as long as such products continue to be produced. Also in 2001, Celite acquired
a diatomite business, including a plant and mining properties, in and around
Fernley, Nevada from CR Minerals, LLC.
Perlite
World Minerals conducts its worldwide perlite business through
Harborlite. 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 two percent to five
percent natural combined water. When heated rapidly, the natural combined water
turns explosively into 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;
Wissembourg, France; Barcelona, Spain and Milan, Italy; from perlite ore
obtained from Harborlite's perlite mines at Dikili, Turkey and in Central
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.
In 2000, Harborlite subsidiaries completed the acquisition of small
perlite expansion businesses in the United Kingdom and Spain, which have been
merged into existing Harborlite businesses in those countries.
24
In 2001, Harborlite acquired a small perlite expansion business in
Spain, which was merged into Harborlite's existing operations in Spain, and
acquired additional perlite ore reserves in Central Turkey. In 2002, Harborlite
acquired a perlite mining and expansion business in Chile and a perlite
expansion business in Brazil.
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 deposit in Utah; a perlite mine
and mill in Dikili, Turkey; perlite deposits in Central Mexico and Central
Turkey; 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; Milan,
Italy; Santiago, Chile; and Paulinia, Brazil.
World Minerals conducts its business on a worldwide basis, with mining
and processing operations in eleven countries. In 2002, approximately 45 percent
of World Minerals' revenues (equal to 20 percent of Alleghany's consolidated
revenues) were generated by foreign operations, and an additional 12 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 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, requiring its non-European foreign
subsidiaries to invoice their export customers in United States dollars and
causing all of its subsidiaries to declare and pay dividends whenever feasible.
World Minerals' foreign operations do not subject Alleghany to a material risk
from foreign currency fluctuation.
Celite's largest diatomite plant and mine is located near Lompoc,
California. Celite currently obtains all additional diatomite supplies from its
mines in the states of Washington and Nevada and in France, Spain, Mexico, Chile
and Peru, from its joint ventures in China and from its former joint venture in
Iceland. Celite believes that its diatomite reserves in Washington, Nevada,
Mexico, Chile, Peru, and China are generally sufficient to last for at least 20
more years at current rates of production. Reserves are less than 20 years for
some ore types at Lompoc, France and Spain. Since Celite has substantial
reserves at several locations and sufficient plant capacity at all locations, a
flexible ore source program is under development to spread sales and achieve a
minimum of 20 years of reserves at all locations. If successful, this will also
improve customers' supply options.
25
Harborlite obtains perlite ore in the United States from its No Agua
and Superior mines, and believes that its perlite ore reserves at each of these
sites are sufficient to last at least 20 more years at the current rates of
production. The perlite used by Harborlite for expansion in Europe is obtained
from Harborlite's two mines in Turkey and from third parties in Europe. Ore
reserves at both Turkish mines are believed to be sufficient to last at least 20
more years at the current rates of production. Ore reserves at Harborlite's
Chilean mine is believed to be sufficient to last at least 20 more years at the
current rates of production.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally supplied diatomite.
World Minerals' operating subsidiaries experienced no interruptions in
raw materials availability in 2002. Barring unforeseen circumstances, World
Minerals anticipates no such interruptions in 2003. 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. In 2001,
Celite and Harborlite experienced the effects of unprecedented increases in the
costs of electricity (particularly in California) and natural gas, and temporary
shutdowns as a result of electricity shortages experienced in California. The
electricity shortages did not extend into 2002, but higher electricity prices
and the potential for shortages are expected to continue until the energy crisis
in California is resolved. 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 outside of
California 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.
World Minerals presently owns, controls or holds licenses either
directly or through its subsidiaries to approximately 17 United States and 96
foreign patents and patent applications. Although 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
26
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.
In order to bring more focused attention to the unique needs of various
areas of the world, World Minerals reorganized the management of its business in
2000 into three regional sectors. Sales, operations and finance functions are
now managed on a regional basis. Administrative, technical and support services
are provided to the regional sectors by World Minerals. Also in 2000, World
Minerals embarked on a major project to upgrade its information technology
capabilities, a process that will continue into 2003 or 2004.
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 2002, World
Minerals spent approximately $3.0 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
(Greece), and numerous smaller competitors.
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, product availability and price.
27
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 regulations 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 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
28
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, except in the case of non-calcined diatomaceous earth where labeling is
only required in cases where the crystalline silica level exceeds 1 percent. Due
to labeling concerns, some manufacturers of paint may be considering the use of
other fillers in place of Celite's products. In such cases, Celite has actively
worked with the customers to switch to alternative 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 SMR
compares the number of expected cancer deaths in the cohort with 1, which
represents 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 examine the cohort to
determine whether asbestos exposure was properly accounted for
29
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 cancer 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/m(3) 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.
30
Employees
As of December 31, 2002, World Minerals had 185 employees worldwide,
Celite had about 1,105 employees worldwide, and Harborlite had about 305
employees worldwide. Approximately 307 of Celite's employees and 37 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.
WHOLESALE STEEL FASTENER BUSINESS
Heads & Threads, headquartered in Sayreville, New Jersey, is one of the
nation's leading importers and distributors of steel fasteners. The Heads and
Threads division (owned by Alleghany since 1974) was reorganized in 1999 as
Heads & Threads International LLC. Heads & Threads imports and sells commercial
fasteners - nuts, bolts, screws, washers, sockets, and anchors - for resale
through distributors and packagers that serve original equipment manufacturers,
maintenance and repair operators and construction and retail customers. Heads &
Threads has four distribution centers and nine warehouses serving major
metropolitan areas with same day or next day delivery. Heads & Threads also has
a packaging operation that distributes small packages through its Atlas
division.
In 1998, Heads & Threads acquired Gardenbolt International Corp,
substantially increasing its size and presence in East Coast markets and adding
a complementary direct from mill/stock for release business to its existing
stock business. In April 2000, Heads & Threads acquired the assets of Reynolds
Fasteners Inc., effectively doubling the size of Heads & Threads. Reynolds, a
wholesale distributor of fasteners headquartered in Edison, New Jersey,
conducted a stock business through twelve sales offices and warehouses
nationwide. In November 2000, Heads & Threads acquired the assets of the Atlas
Screw & Specialty Division of Pawtucket Fasteners Inc. Atlas, headquartered in
New Bedford, Massachusetts, was a relatively small wholesale distributor of
fasteners, selling product in small package quantities primarily in the eastern
United States.
As a result of these three acquisitions, Heads & Threads underwent a
significant restructuring of corporate staff and operations. Centralized
functions, including purchasing, accounting, quality control and traffic, were
moved from its former headquarters in the Chicago area to Sayreville, New
Jersey. Multiple sales offices and warehouses were consolidated into a single
facility in each market served. New state of the art distribution centers were
opened in the Chicago, Atlanta, and Los Angeles markets. Significant staff cuts
were made to eliminate redundancies. Five additional
31
Heads & Threads operating facilities were closed and staff count was further
reduced in 2001 as a result of sales territory consolidation and a strategic
realignment of the nationwide distribution network. These operating facilities
were located in the St. Louis, Minneapolis, Cincinnati, Miami and Denver
metropolitan areas. Charges of $11.1 million were taken in 2001 related to this
restructuring, which was completed in 2001. No material restructuring charges
were incurred in 2002.
The business is conducted under the Heads & Threads name. The
Gardenbolt and Reynolds names were used during a transition period immediately
following the acquisitions, but are no longer being used. The Atlas name
continues to be used in the market. While Heads & Threads considers all of its
trademarks and licenses to be valuable, Heads & Threads believes that none is by
itself material to its business.
Heads & Threads' operations are divided into three businesses - stock,
direct from mill/stock for release, and packaged. Through its stock business,
product is purchased by Heads & Threads in anticipation of demand and warehoused
in its facilities throughout the United States. Customer purchases tend to be of
relatively small quantities for same day or next day delivery. This segment
represented approximately 87 percent of Heads & Threads' business in 2002. The
direct from mill/stock for release business involves large quantities of
standard or specialty product purchased by Heads & Threads specifically for a
customer order, which is shipped directly from the manufacturer to the customer
(direct from mill) or warehoused in a Heads & Threads facility and shipped to
the customer over time, with a definitive end date (stock for release). The
direct from mill/stock for release segment represented approximately nine
percent of Heads & Threads' business in 2002. The packaged business, which was
acquired in the Atlas transaction, comprises small pack quantities sold to
distributors and mill supply houses. Sales in the packaged business segment
represented approximately four percent of Heads & Threads' business in 2002.
Heads & Threads experiences a moderate reduction in sales in July and
December related to distributor and end user shutdowns, vacations, and holidays.
The business is not otherwise seasonal in nature.
Since Heads & Threads imports the vast majority 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. Heads & Threads is required to maintain a six- to eight-month supply of
inventory due to the long lead times and customer requirements for immediate
delivery. Because of the large inventories it is required to hold and the price
sensitivity of the markets it serves, Heads & Threads' margins can be adversely
affected when product replacement costs, and therefore, selling prices, change
quickly or dramatically. In 1998, 1999 and 2001, margins were negatively
32
affected by significant replacement cost decreases in product manufactured
overseas resulting in lower selling prices. These cost decreases were a result
of excess capacity and a strong U.S. dollar. During 2002, replacement costs
began to increase; however, due to the long lead times noted above, these cost
increases had not significantly impacted average inventory cost as of December
31, 2002.
Heads & Threads has multiple suppliers for most of the items it
distributes, although preferred suppliers are used to facilitate quality
control. Heads and Threads' supply chain could be adversely affected by
political instability or conflicts involving Heads & Threads' principal
supplying countries, particularly China and Taiwan. Heads & Threads did not
experience any product supply disruptions in 2002 which had a material, adverse
impact on its operations. Barring unforeseen circumstances, Heads & Threads
anticipates no such disruptions in 2003.
Heads & Threads believes that its strength lies in its product
coverage, logistics capabilities (procurement, storage and distribution of
product), and longtime customer and supplier relationships. Heads & Threads
imports and sells commercial fasteners for resale through distributors and
packagers that serve original equipment manufacturers, maintenance and repair
operators and construction and retail customers. As of December 31, 2002, Heads
& Threads' total number of active customer accounts (defined as accounts having
purchase activity within the last 90 days) was approximately 2,650. None of
Heads & Threads' customers accounted for 10 percent or more of Heads & Threads'
annual sales in 2002.
At December 31, 2002, Heads & Threads had a customer order backlog of
$7.9 million, primarily related to its direct from mill/stock for release
business. The entire backlog is expected to be filled in 2003.
Direct competitors include master distributors (distributors that
distribute to other distributors), domestic and Canadian manufacturers, direct
mill brokers, and repackagers. Indirect competitors include distributors,
foreign fastener manufacturers, trading companies, and suppliers of alternative
fastening solutions (other metals, plastics, and adhesives). Competition is
principally based on product availability and quality, price, delivery and
service.
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.
33
At December 31, 2002, Heads & Threads had 241 employees.
REAL ESTATE BUSINESS
Headquartered in Sacramento, California, Alleghany Properties owns and
manages real estate and real estate-related assets in the Sacramento region of
California. Such properties are comprised of improved and unimproved commercial
land and residential lots. A major portion of these properties are located in
North Natomas, the only large undeveloped area in the City of Sacramento.
Development in the area had been delayed by flood plan zoning and wildlife
habitat issues; however, the area experienced considerable development activity
beginning in 1998, including residential projects, office buildings and retail
shopping centers. Participating in the growth from 1998 through the present,
Alleghany Properties sold over 300 acres of residential land and several parcels
of commercial property. Further development on some of the properties in the
North Natomas area may be delayed until a new Environmental Impact Statement is
prepared and approved in response to an adverse decision regarding endangered
species permits for the area. However, Alleghany Properties believes it has
sufficient land inventory not affected by this delay to continue development and
sales for several years.
At December 31, 2002, Alleghany Properties had five employees.
34
Item 2. Properties.
Alleghany's headquarters is located in leased office space of about
16,000 square feet at 375 Park Avenue in New York City.
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 the following sites, which are leased: Plant # 1 at
Quincy, Washington; the plant site at Fernley, Nevada; the headquarters of World
Minerals at Santa Barbara; headquarters of Celite and Harborlite at Lompoc,
California; the offices at Nanterre, France; Beijing, PRC; Santiago, Chile; and
Izmir, Turkey; and the plant at Wissembourg, France.
Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- -------
CELITE:
- -------
Lompoc, CA 997,410 Diatomite filter aids,
Production facility; fillers,silicates and
18 multi-story production specialty products
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.
35
Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- -------
Quincy, WA 60,941 Diatomite filter aids and
Production facility; fillers
Plant #1-1 multi-story
production building and 7
one-story buildings.
Plant #2-1 multi-story
production building and 6
one-story buildings.
Fernley, NV 21,200 Diatomite filters
Production facility; 1 five-
story processing building;
1 one-story warehouse and
office building; 1 one-story
warehouse, office and
packaging building; 1 one-
story truck shed; 1 one-
story maintenance shop;
and 1 one-story lab.
Murat, Department of 77,000 Diatomite filter aids
Cantal, France
Production facility;
1 one-story manufacturing
building; 2 one-story
warehouses; and 1 one-
story office building.
Nanterre, France 6,600 Sales and administrative
1 single floor in a multi-story, offices
rental office building.
Guadalajara, Mexico 116,610 Diatomite filter aids and
Production facility; fillers
2 multi-story production
buildings; 2 multi-story
pollution-control buildings;
and 20 one-story buildings.
36
Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- --------
Mexico City, Mexico 2,700 Sales and administrative
1 single floor condominium. offices
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, rental 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.
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.
37
Location and Approximate Product
Nature of Property Square Footage or Use
------------------ -------------- -------
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.
Beijing, PRC 2,700 Offices
1 single floor in a multi-
story, rental office
building.
HARBORLITE:
- ----------
Antonito, CO 9,780 Warehouse facilities for
1 one-story manufacturing perlite ore
building and warehouse; 1
one-story office building;
and 1 one-story warehouse.
38
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.
39
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
1 single floor in a rental offices
office building.
40
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.
El Ejido, Spain 21,520 Perlite fillers
1 one-story manufacturing
building; 1 one-story
warehouse; and 1 one-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.
Santiago, Chile 26,000 Perlite expansion facility
Production facility;
1 ore crushing station; 1
classification and drying
line; 3 expansion lines; 1
administration building; 2
product warehouse
buildings; 1 laboratory; 1
employee locker facility.
Paulinia, Brazil 21,520 Perlite expansion facility
1 expansion line; 1
maintenance workshop; 1
laboratory; 1
administration building; 1
warehouse; 3 ore silos; 1
employee locker facility.
41
WORLD MINERALS:
Santa Barbara, CA
1 one-story rented building. 13,000 Headquarters office
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. The Lompoc production facility has a rated capacity in excess of
200,000 tons annually and currently supplies more than 25 different grades of
diatomite 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. Celite's joint
ventures in the PRC have rights to mine diatomaceous earth in sections of Jilin
Province, PRC.
Heads & Threads leases approximately 12,000 square feet of office space
in Sayreville, New Jersey for its headquarters. All of its four distribution
centers, one packaging operation and nine warehouses are also in leased space,
ranging in size from about 20,000 square feet to 165,000 square feet. In
addition, Heads & Threads leases seven facilities that it no longer uses in
operations. Six are generating rental income from subleases and one is vacant.
These leases expire in 2003 (3), 2004 (3), and 2008 (1).
Capitol Transamerica leases approximately 50,000 square feet of office
space in Madison, Wisconsin for its and Platte River's headquarters.
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, 2002.
42
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 2002.
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 83 Chairman of the Board (since 1967) Chairman of the Board, Alleghany.
John J. Burns, Jr. 71 President, chief operating officer President, chief operating officer
(since 1977) and chief executive and chief executive officer,
officer (since 1992) Alleghany.
Weston M. Hicks 46 Executive Vice President (since Executive Vice President,
October 2002) Alleghany; Executive Vice
President and CFO, the Chubb
Corporation (from March 2001 to
October 2002); Senior Research
Analyst and Managing Director,
J.P. Morgan Securities (from
February 1999 to March 2001);
Senior Research Analyst, Sanford
C. Bernstein & Co., Inc. (from
March 1991 to February 1999).
David B. Cuming 70 Senior Vice President and chief Senior Vice President and chief
financial officer (since 1989) financial officer, Alleghany.
Robert M. Hart 58 Senior Vice President, General Counsel Senior Vice President, General
(since 1994) and Secretary (since 1995) Counsel and Secretary, Alleghany.
Peter R. Sismondo 47 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.
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 2002, filed as Exhibit 13 hereto.
44
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2002,
relating to equity compensation plans of Alleghany pursuant to which grants of
options, restricted stock, restricted stock units or other rights to acquire
shares may be granted from time to time.
(c)
NUMBER OF
SECURITIES
REMAINING
(a) AVAILABLE FOR
NUMBER OF (b) FUTURE ISSUANCE
SECURITIES TO BE WEIGHTED- UNDER EQUITY
ISSUED UPON AVERAGE EXERCISE COMPENSATION
EXERCISE OF PRICE OF PLANS (EXCLUDING
OUTSTANDING OUTSTANDING SECURITIES
OPTIONS, WARRANTS PTIONS, WARRANTS REFLECTED IN
PLAN CATEGORY AND RIGHTS AND RIGHTS COLUMN(a))
- ------------------------------- ----------------- ----------------- ----------------
Equity compensation plans
approved by security
holders(1).................. 80,869(2) $ 144.27 1,138,071
Equity compensation plans not
approved by security
holders(3).................. 124,613 $ 85.71 10,034
------- --------- ---------
Total.......................... 205,482(2) -- 1,148,105
======= ========= =========
- -------------------
(1) These plans consist of: (i) the Amended and Restated Directors' Stock
Option Plan, (ii) the 2000 Directors' Stock Option Plan, (iii) the
Directors' Equity Compensation Plan, (iv) the 1993 Long-Term Incentive
Plan and (v) the 2002 Long-Term Incentive Plan.
(2) This amount does not include 130,599 performance shares outstanding
under the 1993 Plan and 38,990.3 performance shares outstanding under
the 2002 Plan. Performance shares do not have an exercise price because
their value is dependent upon the achievement of certain performance
goals over a period of time. Performance shares are typically paid
one-half in cash and one-half in Common Stock.
45
(3) These plans consist of: (i) the Subsidiary Directors' Stock Option Plan
(the "Subsidiary Option Plan"), (ii) the Underwriters Re Group, Inc.
1998 Stock Option Plan (the "URG 1998 Plan") and (iii) the Underwriters
Re Group, Inc. 1997 Stock Option Plan (the "URG 1997 Plan"). Under the
Subsidiary Option Plan, which was adopted on July 21, 1998, the
Compensation Committee of Alleghany's Board of Directors selects
non-employee directors of Alleghany's subsidiaries to receive grants of
nonqualified stock options. Not more than 25,000 shares of Common Stock
(subject to adjustment by reason of any stock split, stock dividend or
other similar event) will be issued pursuant to options granted under
the Subsidiary Option Plan. As of December 31, 2002, options to
purchase 10,614 shares of Alleghany's Common Stock (subject to
adjustment by reason of any stock split, stock dividend or other
similar event) were outstanding, and 10,034 shares of Alleghany's
Common Stock (subject to adjustment by reason of any stock split, stock
dividend or other similar event) remained available for future option
grants under the Subsidiary Option Plan. Each option has a term of 10
years from the date it is granted. One-third of the total number of
shares of Common Stock covered by each option becomes exercisable each
year beginning with the first anniversary of the date it is granted;
however, an option automatically becomes exercisable in full when the
non-employee subsidiary director ceases to be a non-employee subsidiary
director for any reason other than death. If an optionholder dies while
holding options that have not been fully exercised, his or her
executors, administrators, heirs or distributees, as the case may be,
may exercise those options which the decedent could have exercised at
the time of death within one year after the date of such death. The
Subsidiary Option Plan expires on July 31, 2003. Under the URG 1998
Plan, which was adopted on or about October 23, 1998, options were
granted to certain employees of Venton Holdings Ltd. ("Venton") in
exchange for warrants or options to purchase Venton shares upon the
acquisition of Venton in October 1998 by Underwriters Re Group, Inc.
("URG"), a wholly owned subsidiary of Alleghany until May 2000, when it
was sold to Swiss Re America Holding Corporation. As of December 31,
2002, options to purchase 12,023 shares of Alleghany's Common Stock
(subject to adjustment by reason of any stock split, stock dividend or
other similar event) were outstanding, and no shares of Alleghany's
Common Stock remained available for future grants, under the URG 1998
Plan. Under the URG 1997 Plan, which was adopted on September 17, 1997,
options were granted to certain members of URG management in exchange
for options to purchase shares of URG. As of December 31, 2002, options
to purchase 101,976 shares of Alleghany's Common Stock (subject to
adjustment by reason of any stock split, stock dividend or other
similar event) were outstanding, and no shares of Alleghany's Common
Stock remained available for future option grants, under the URG 1997
Plan. Under the URG 1998 Plan and the URG 1997 Plan, options
46
expire if they are not exercised prior to the earliest of (i) the tenth
anniversary of the date of grant of the original warrant or option to
purchase Venton or URG common stock, (ii) three months after
termination of the optionee's employment with Venton or URG or a
subsidiary for any reason except death or a permanent disability, or
(iii) one year after termination of the optionee's employment with
Venton or URG or a subsidiary by reason of death or permanent
disability.
Recent Sales of Unregistered Securities.
Other than unregistered issuances of Common Stock previously reported in
Alleghany's Quarterly Reports on Form 10-Q for the quarters ending June 30, 2002
and September 30, 2002, and such issuances that did not involve a sale
consisting of issuances of common stock and other securities pursuant to
employee incentive plans, Alleghany did not sell any Common Stock during 2002
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 2002,
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 5 through 10, 13 through 15, 17 through 19, 21 through 24 and 28
through 30 of Alleghany's Annual Report to Stockholders for the year 2002, 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 2002, 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 2002, filed as Exhibit 13 hereto.
47
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
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 9 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 25, 2003. Information concerning compliance with the reporting
requirements under Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from pages 10 through 11 of Alleghany's
Proxy Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 25, 2003.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference
from pages 13 through 20 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 25, 2003.
The information set forth beginning with the bottom of page 20 through page 28
of Alleghany's Proxy Statement, filed or to be filed in connection with its
Annual Meeting of Stockholders to be held on April 25, 2003, 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 25, 2003.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference
from page 8 of Alleghany's Proxy Statement, filed or to be filed in connection
with its Annual Meeting of Stockholders to be held on April 25, 2003.
48
Item 14. Controls and Procedures
An evaluation was performed under the supervision, and with the
participation, of Alleghany's management, including the chief executive officer
and chief financial officer, of the effectiveness of the design and operation of
Alleghany's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934, as amended) as of a date (the
"Evaluation Date") within 90 days prior to the filing date of this report. Based
upon that evaluation, the chief executive officer and chief financial officer
concluded that, as of the Evaluation Date, Alleghany's disclosure controls and
procedures were effective in timely alerting them to the material information
relating to Alleghany required to be included in its periodic SEC filings. There
have been no significant changes in Alleghany's internal controls or in other
factors that could significantly affect internal controls subsequent to the
Evaluation Date.
49
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and its
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 2002 into Item 8 of this Report.
2. Financial Statement Schedules.
The schedules relating to the consolidated financial statements of
Alleghany and its 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 Corporation, as
amended September 17, 2002, filed as
Exhibit 3.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter
ended September 30, 2002, 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.
50
*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 2002 Long-Term Incentive Plan,
adopted and effective April 26, 2002,
filed as Exhibit A to Alleghany's Proxy
Statement, filed in connection with its
Annual Meeting of Stockholders held on
April 26, 2002, 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.
51
*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(a) 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.
*10.08(b) Alleghany 2000 Directors' Stock Option
Plan effective April 28, 2000, filed as
Exhibit A to Alleghany's Proxy
Statement, filed in connection with its
Annual Meeting of Stockholders held on
April 28, 2000, 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).
- ----------------------------------------
* Compensatory plan or arrangement.
52
10.11(a) 364-Day Revolving Credit Agreement,
dated as of June 14, 2002, by and
between Alleghany, the banks which are
signatories thereto, and U.S Bank
National Association, as agent for the
banks (the "364-Day Revolving Credit
Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30,
2002, is incorporated herein by
reference.
10.11(b) List of Contents of Exhibits and
Schedules to the 364-Day Revolving
Credit Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June
30, 2002, is incorporated herein by
reference. Alleghany agrees to furnish
supplementally a copy of any omitted
exhibit or schedule to the Securities
and Exchange Commission upon request.
10.11(c) Three-Year Revolving Credit Agreement,
dated as of June 14, 2002, by and
between Alleghany Corporation, the banks
which are signatories thereto, and U.S
Bank National Association, as agent for
the banks (the "Three-Year Revolving
Credit Agreement"), filed as Exhibit
10.2(a) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June
30, 2002, is incorporated herein by
reference.
10.11(d) List of Contents of Exhibits and
Schedules to the Three-Year Revolving
Credit Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June
30, 2002, is incorporated herein by
reference. Alleghany agrees to furnish
supplementally a copy of any omitted
exhibit or schedule to the Securities
and Exchange Commission upon request.
10.12(a) Distribution Agreement dated as of June
16, 1998 by and between Alleghany 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).
53
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 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) 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.
54
10.15(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.
10.16(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).
10.16(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).
10.16(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).
10.16(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).
55
10.17(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).
10.17(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).
10.18(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).
10.18(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).
10.19(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).
56
10.19(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).
10.19(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).
10.20(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).
10.20(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).
10.20(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).
57
10.21(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.
10.21(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.
10.21(c) Subordination Agreement dated as of
March 17, 1999, among Alleghany 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.
10.21(d) Amendment dated as of September 1, 2001
to the World Minerals Credit Agreement,
filed as Exhibit 10.21(d) to Alleghany's
Annual Report on Form 10-K for the year
ended December 31, 2001, is incorporated
herein by reference.
10.22(a) 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.
10.22(b) Closing Agreement, dated May 10, 2000,
by and between Swiss Re America Holding
Corporation and Alleghany, filed as
Exhibit 99.2 to Alleghany's Current
Report on Form 8-K dated May 25, 2000,
is incorporated herein by reference.
58
10.23 Agreement, effective as of December 20,
2000, by and among Alleghany,
Underwriters Reinsurance Company and
London Life and Casualty Reinsurance
Corporation, filed as Exhibit 10.23 to
Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2000, is
incorporated herein by reference.
10.24(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.
10.24(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.
10.24(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.
10.24(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.
59
10.25(a) Credit Agreement dated as of August 14,
2000, by and among Alleghany
Underwriting Ltd, Alleghany Underwriting
Capital Ltd, Talbot Underwriting
Limited, and Alleghany Underwriting
Capital (Bermuda) Ltd, as Borrowers and
Account Parties; Alleghany, as
Guarantor; the Banks parties thereto
from time to time; Mellon Bank, N.A., as
Issuing Bank, as Administrative Agent
and as Arranger; National Westminster
Bank plc, as Syndication Agent and ING
Bank, N.V., as Managing Agent (the
"Alleghany Underwriting Credit
Agreement"), filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2000, is incorporated herein by
reference.
10.25(b) List of Contents of Exhibits and
Schedules to the Alleghany Underwriting
Credit Agreement, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2000, is incorporated herein by
reference.
10.25(c) First Amendment to Credit Agreement
dated as of February 1, 2001, by and
among Alleghany Underwriting Ltd,
Alleghany Underwriting Capital Ltd,
Talbot Underwriting Limited, Alleghany
Underwriting Capital (Bermuda) Ltd,
Alleghany, Alleghany Insurance Holdings
LLC, the Banks and Agents which have
signed the signature pages thereto, and
Mellon Bank, N.A., as Bank, as Issuing
Bank and as Administrative Agent for the
Banks and the Issuing Bank, filed as
Exhibit 10.25(c) to Alleghany's Annual
Report on Form 10-K for the year ended
December 31, 2000, is incorporated
herein by reference.
10.25(d) Purchase Agreement dated as of October
31, 2001 by and between Alleghany
Insurance Holdings LLC and Talbot
Holdings Ltd, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2001, is incorporated herein by
reference.
60
10.26(a) Agreement and Plan of Merger, dated as
of October 18, 2000, by and among ABN
AMRO North America Holding Company,
Alleghany Asset Management, Inc. and
Alleghany, filed as Exhibit 2.1 to
Alleghany's Current Report on Form 8-K
dated October 23, 2000, is incorporated
herein by reference.
10.26(b) Amendment to the Agreement and Plan of
Merger dated as of January 17, 2001, by
and among ABN AMRO North America Holding
Company, Alleghany Asset Management,
Inc. and Alleghany, filed as Exhibit 2.2
to Alleghany's Current Report on Form
8-K dated February 14, 2001, is
incorporated herein by reference.
10.26(c) Closing Agreement dated as of February
1, 2001, by and among ABN AMRO North
America Holding Company, Alleghany Asset
Management, Inc. and Alleghany, filed as
Exhibit 2.3 to Alleghany's Current
Report on Form 8-K dated February 14,
2001, is incorporated herein by
reference.
10.27(a) Asset Purchase Agreement dated as of
April 3, 2000 by and among Heads &
Threads, Acktion Corporation and
Reynolds Fasteners, Inc. (the "Heads &
Threads Asset Purchase Agreement"),
filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, is
incorporated herein by reference.
10.27(b) List of Contents of Schedules to the
Heads & Threads Asset Purchase
Agreement, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31,
2000, is incorporated herein by
reference.
10.28(a) Credit Agreement dated as of April 3,
2000 among Heads & Threads, various
lending institutions, and American
National Bank and Trust Company of
Chicago, as Agent (the "Heads & Threads
Credit Agreement"), filed as Exhibit
10.3 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended March
31, 2000, is incorporated herein by
reference.
61
10.28(b) List of Contents of Schedules and
Exhibits to the Heads & Threads Credit
Agreement, filed as Exhibit 10.4 to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31,
2000, is incorporated herein by
reference.
10.28(c) First Amendment dated as of April 28,
2000 to the Heads & Threads Credit
Agreement, filed as Exhibit 10.28(c) to
Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2000, is
incorporated herein by reference.
10.28(d) Second Amendment dated as of November
27, 2000 to the Heads & Threads Credit
Agreement, filed as Exhibit 10.28(d) to
Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2000, is
incorporated herein by reference.
10.28(e) Third Amendment dated as of March 19,
2001 to Credit Agreement dated as of
April 3, 2000 among Heads & Threads,
various lending institutions, and
American National Bank and Trust Company
of Chicago, as Agent, filed as Exhibit
10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended March
31, 2001, is incorporated herein by
reference.
10.28(f) Fourth Amendment to Credit Agreement
dated as of August 14, 2001, and Waiver
by and between Heads & Threads, various
lending institutions, and American
National Bank and Trust Company of
Chicago, as Agent, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2001, is incorporated herein by
reference.
10.28(g) Fifth Amendment to Credit Agreement
dated as of November 26, 2001 by and
between Heads & Threads, various lending
institutions, and American National Bank
and Trust Company of Chicago, as Agent,
filed as Exhibit 10.28(g) to Alleghany's
Annual Report on Form 10-K for the year
ended December 31, 2001, is incorporated
herein by reference.
62
10.28(h) Sixth Amendment to Credit Agreement
dated as of December 27, 2001 by and
between Heads & Threads, various lending
institutions, and American National Bank
and Trust Company of Chicago, as Agent,
filed as Exhibit 10.28(h) to Alleghany's
Annual Report on Form 10-K for the year
ended December 31, 2001, is incorporated
herein by reference.
10.29(a) Agreement and Plan of Merger dated as of
July 20, 2001 by and among Capitol
Transamerica, ABC Acquisition Corp. and
Alleghany (the "Capitol Transamerica
Merger Agreement"), filed as Exhibit
10.1(a) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June
30, 2001, is incorporated herein by
reference.
10.29(b) List of Contents of Exhibits and
Schedules to the Capitol Transamerica
Merger Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June
30, 2001, is incorporated herein by
reference.
10.30(a) Employment Agreement, dated October 7,
2002, between Alleghany and Weston M.
Hicks, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2002, is incorporated herein by
reference.
10.30(b) Restricted Stock Award Agreement, dated
October 7, 2002, between Alleghany and
Weston M. Hicks, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30,
2002, is incorporated herein by
reference.
10.30(c) Restricted Stock Unit Matching Grant
Agreement, dated October 7, 2002,
between Alleghany and Weston M. Hicks,
filed as Exhibit 10.3 to Alleghany's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, is
incorporated herein by reference.
13 Pages 5 through 10, 13 through 15, 17
through 19, 21 through 24, 26 and 28 through
48 of the Annual Report to Stockholders
of Alleghany for the year 2002.
63
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. 333-76159),
Form S-8 (Registration No. 333-76996),
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).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 2002.
64
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 18, 2003 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 18, 2003 By /s/ Rex D. Adams
----------------------------
Rex D. Adams
Director
Date: March 18, 2003 By /s/ John J. Burns, Jr.
----------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: By
----------------------------
Dan R. Carmichael
Director
Date: March 18, 2003 By /s/ David B. Cuming
----------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 18, 2003 By /s/ Thomas S. Johnson
----------------------------
Thomas S. Johnson
Director
65
Date: March 18, 2003 By /s/ Allan P. Kirby,Jr.
----------------------------
Allan P. Kirby, Jr.
Director
Date: March 18, 2003 By /s/ F.M. Kirby
----------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 18, 2003 By /s/ William K. Lavin
----------------------------
William K. Lavin
Director
Date: March 18, 2003 By /s/ Roger Noall
----------------------------
Roger Noall
Director
Date: March 18, 2003 By /s/ Peter R. Sismondo
----------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 18, 2003 By /s/ James F. Will
----------------------------
James F. Will
Director
66
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, John J. Burns, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Alleghany
Corporation (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
67
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 18, 2003
/s/ JOHN J. BURNS, JR.
-----------------------
John J. Burns, Jr.
President and chief executive officer
68
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, David B. Cuming, certify that:
1. I have reviewed this annual report on Form 10-K of Alleghany
Corporation (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
69
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 18, 2003
/s/ DAVID B. CUMING
--------------------
David B. Cuming
Senior Vice President and chief financial officer
70
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
III SUPPLEMENTARY INSURANCE INFORMATION
IV REINSURANCE
VI SUPPLEMENTAL INFORMATION CONCERNING 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.
71
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(in thousands)
2002 2001
-----------------------
Assets
Equity securities (cost: 2002 $160,259; 2001 $185,744) $ 352,691 $ 447,516
Debt securities (cost: 2002 $397,833) 402,664 --
Short-term investments 165,432 750,859
Cash 2,713 726
Notes receivable 140 --
Accounts receivable 2,003 2,067
Property and equipment - at cost, less accumulated depreciation 174 121
Other assets 4,588 6,682
Investment in subsidiaries 623,708 623,356
-----------------------
$1,554,113 $1,831,327
=======================
Liabilities and common stockholders' equity
Current taxes payable $ 25,064 $ 285,027
Other liabilities 43,547 36,604
Net deferred tax liability 74,962 87,916
Long-term debt 31,198 31,198
-----------------------
Total liabilities 174,771 440,745
Commitments and contingent liabilities
Common stockholders' equity 1,379,342 1,390,582
-----------------------
$1,554,113 $1,831,327
=======================
See accompanying Notes to Condensed Financial Statements.
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 2002
(in thousands)
2002 2001 2000
----------------------------------------
Revenues:
Interest, dividend and other income $ 21,490 $ 38,044 $ 32,077
Net gain on sale of subsidiary -- 775,906 136,734
Net gain on investment transactions 48,132 806 10,045
----------------------------------------
Total revenues 69,622 814,756 178,856
----------------------------------------
Costs and Expenses:
Interest expense 2,556 2,664 3,002
General and administrative 25,593 47,105 23,220
----------------------------------------
Total costs and expenses 28,149 49,769 26,222
----------------------------------------
Operating profit 41,473 764,987 152,634
Equity in earnings (loss) of consolidated subsidiaries 15,931 (230,608) 11,054
----------------------------------------
Earnings before income taxes 57,404 534,379 163,688
Income taxes 2,591 103,816 16,636
----------------------------------------
Earnings from continuing operations 54,813 430,563 147,052
Losses from discontinued operations, net of tax -- (206,333) (78,195)
----------------------------------------
Net earnings $ 54,813 $ 224,230 $68,857
========================================
See accompanying Notes to Condensed Financial Statements.
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2002
(in thousands)
2002 2001 2000
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations $ 54,813 $ 430,563 $ 147,052
Adjustments to reconcile net earnings to cash provided by (used in) operations:
Depreciation and amortization 47 40 44
Net gain on investment transactions and sales of subsidiaries (48,132) (475,613) (146,780)
Tax benefit on stock options exercised 1,188 816 3,127
Decrease in accounts receivable 64 3,582 133
(Increase) decrease in notes receivable (140) -- --
Decrease (increase) in other assets 2,094 2,177 (288)
(Decrease) Increase in other liabilities and taxes payable (253,020) 274,732 (32,784)
Equity in undistributed net earnings of consolidated subsidiaries 8,289 36,492 (5,357)
------------------------------------------
Net adjustments (289,610) (157,774) (181,905)
------------------------------------------
Cash (used in) provided by operations (234,797) 272,789 (34,853)
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (712,771) (15,099) (45,587)
Sales of investments 375,396 46,823 43,903
Capital contributions to consolidated subsidiaries (17,776) (110,218) (20,587)
Distributions from consolidated subsidiaries 248,220 54,964 5,970
Purchases of property and equipment (100) (44) (20)
Net change in short-term investments 585,427 (413,756) (216,590)
Proceeds from the sale of subsidiaries,net of cash disposed -- 531,477 385,744
Acquisition of subsidiaries, net of cash acquired (221,056) -- --
------------------------------------------
Net cash used investing activities 257,340 94,147 152,833
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock acquisitions (28,731) (12,576) (86,245)
Net cash provided to discontinued operations -- (344,915) (33,744)
Other, net 8,175 (10,141) 3,541
------------------------------------------
Net cash used in financing activities (20,556) (367,632) (116,448)
------------------------------------------
Net increase (decrease) in cash 1,987 (696) 1,532
Cash at beginning of period 726 1,422 (110)
------------------------------------------
Cash at end of period $ 2,713 $ 726 $ 1,422
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,912 $ 1,912 $ 2,072
Income taxes $ 45,504 $ 250 $ 59,073
See accompanying Notes to Condensed Financial Statements.
SCHEDULE II
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
1. Investment in Consolidated Subsidiaries. Reference is made to Note 1 of
the Notes to Consolidated Financial Statements incorporated herein by reference.
2. Long-Term Debt. Reference is made to Note 8 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 are $19,123 and $12,075 in 2002 and 2001 of inter-company notes
payable to Alleghany Funding and World Minerals, respectively.
3. Income Taxes. Reference is made to Note 9 of the Notes to Consolidated
Financial Statements incorporated herein by reference.
4. Commitments and Contingencies. Reference is made to Note 15 of the
Notes to Consolidated Financial Statements incorporated herein by reference.
5. Stockholders' Equity. Reference is made to Note 10 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.
SCHEDULE III
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
AT DECEMBER 31, 2002
--------------------------------------------------
FUTURE
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS
SEGMENT COST EXPENSES PREMIUMS PAYABLE
- ---------------------------------------------------------------------
Property
And Casualty
Insurance $ 17,550 $244,144 $ 49,916 --
Fidelity
And Surety
Insurance 4,997 14,327 14,199 --
AIHL,
Other -- -- -- --
-------- -------- -------- --------
Total $ 22,547 $258,471 $ 64,115 --
======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED COMMISSIONS
NET AND POLICY OTHER AND
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING BROKERAGE PREMIUMS
SEGMENT REVENUE INCOME EXPENSES COSTS EXPENSES EXPENSES WRITTEN
- ---------------------------------------------------------------------------------------------------------------------
Property
And Casualty
Insurance $100,861 $ 8,644 $ 85,100 $ 2,798 $ 4,845 $ 11,292 $100,063
Fidelity
And Surety
Insurance 24,788 2,360 15,408 3,431 17,633 17,808 31,461
AIHL,
Other -- (8,562) -- -- (3,872) -- --
--------------------------------------------------------------------------------------------------
Total $125,649 $ 2,442 $100,508 $ 6,229 $ 18,606 $ 29,100 $131,524
==================================================================================================
SCHEDULE IV
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
YEAR ENDED DECEMBER 31, 2002
(in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------- ---------------------------------------------- ----------
Property
and casualty
reinsurance
premiums $114,788 $ 14,023 $ 96 $100,861 0.095%
Fidelity
and Surety
reinsurance
premiums 25,552 2,693 1,929 24,788 7.782%
-----------------------------------------------
Total $140,340 $ 16,716 $ 2,025 $125,649 1.612%
=============================================== =====
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING INSURANCE OPERATIONS
(in thousands)
AT DECEMBER 31, 2002
-------------------------------------------------
DISCOUNT,
IF ANY,
RESERVES DEDUCTED
FOR IN RESERVES
UNPAID FOR UNPAID
DEFERRED CLAIMS CLAIMS
POLICY AND CLAIM AND CLAIM
ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED
SEGMENT COST EXPENSES EXPENSES PREMIUMS
------- ----------- ---------- ----------- --------
Property
and Casualty $17,550 $244,144 -- $49,916
Fidelity
and Surety
Insurance 4,997 14,327 -- 14,199
AIHL,
Other -- -- -- --
------- -------- ----- -------
Total $22,547 $258,471 -- $64,115
======= ======== ===== =======
FOR THE YEAR ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------------
CLAIMS
AND CLAIM
ADJUSTMENT
EXPENSES
INCURRED
RELATED TO AMORTIZATION
---------------- OF DEFERRED PAID CLAIMS
NET (1) (2) POLICY AND CLAIM
EARNED INVESTMENT CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
SEGMENT PREMIUMS INCOME YEAR YEAR COSTS EXPENSES WRITTEN
------- -------- ---------- ------- ----- ------------ ----------- --------
Property
and Casualty $100,861 $ 8,644 $67,013 $ 9,347 $2,798 $55,832 $100,063
Fidelity
and Surety
Insurance 24,788 2,360 15,626 8,522 3,431 18,147 31,461
AIHL,
Other -- (8,562) -- -- -- -- --
-------- ------- ------- ------- ------ ------- --------
Total $125,649 $ 2,442 $82,639 $17,869 $6,229 $73,979 $131,524
======== ======= ======= ======= ====== ======= ========
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 25, 2003, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 2002 and 2001 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, 2002 as contained in the 2002 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 2002. 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.
KPMG LLP
New York, New York
February 25, 2003
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 Corporation, as amended
September 17, 2002, filed as Exhibit 3.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, 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 2002 Long-Term Incentive Plan, adopted
and effective April 26, 2002, filed as Exhibit A
to Alleghany's Proxy Statement, filed in
connection with its Annual Meeting of Stockholders
held on April 26, 2002, 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.
*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.
- --------
* Compensatory plan or arrangement.
*10.08(a) 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.
*10.08(b) Alleghany 2000 Directors' Stock Option Plan
effective April 28, 2000, filed as Exhibit A to
Alleghany's Proxy Statement, filed in connection
with its Annual Meeting of Stockholders held on
April 28, 2000, 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) 364-Day Revolving Credit Agreement, dated as of
June 14, 2002, by and between Alleghany, the banks
which are signatories thereto, and U.S Bank
National Association, as agent for the banks (the
"364-Day Revolving Credit Agreement"), filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, is
incorporated herein by reference.
10.11(b) List of Contents of Exhibits and Schedules to the
364-Day Revolving Credit Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, is
incorporated herein by reference. Alleghany agrees
to furnish supplementally a copy of any omitted
exhibit or schedule to the Securities and Exchange
Commission upon request.
10.11(c) Three-Year Revolving Credit Agreement, dated as of
June 14, 2002, by and between Alleghany
Corporation, the banks which are signatories
thereto, and U.S Bank National Association, as
agent for the banks (the "Three-Year Revolving
Credit Agreement"), filed as Exhibit 10.2(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, is incorporated
herein by reference.
10.11(d) List of Contents of Exhibits and Schedules to the
Three-Year Revolving Credit Agreement, filed as
Exhibit 10.2(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, is
incorporated herein by reference. Alleghany agrees
to furnish supplementally a copy of any omitted
exhibit or schedule to the Securities and Exchange
Commission upon request.
10.12(a) Distribution Agreement dated as of June 16, 1998
by and between Alleghany 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 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) 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.
10.15(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.
10.16(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).
10.16(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).
10.16(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).
10.16(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).
10.17(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).
10.17(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).
10.18(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).
10.18(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).
10.19(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).
10.19(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).
10.19(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).
10.20(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).
10.20(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).
10.20(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).
10.21(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.
10.21(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.
10.21(c) Subordination Agreement dated as of March 17,
1999, among Alleghany 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.
10.21(d) Amendment dated as of September 1, 2001 to the
World Minerals Credit Agreement, filed as Exhibit
10.21(d) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2001, is
incorporated herein by reference.
10.22(a) 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.
10.22(b) Closing Agreement, dated May 10, 2000, by and
between Swiss Re America Holding Corporation and
Alleghany, filed as Exhibit 99.2 to Alleghany's
Current Report on Form 8-K dated May 25, 2000, is
incorporated herein by reference.
10.23 Agreement, effective as of December 20, 2000, by
and among Alleghany, Underwriters Reinsurance
Company and London Life and Casualty Reinsurance
Corporation, filed as Exhibit 10.23 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 2000, is incorporated herein by
reference.
10.24(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.
10.24(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.
10.24(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.
10.24(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.
10.25(a) Credit Agreement dated as of August 14, 2000, by
and among Alleghany Underwriting Ltd, Alleghany
Underwriting Capital Ltd, Talbot Underwriting
Limited, and Alleghany Underwriting Capital
(Bermuda) Ltd, as Borrowers and Account Parties;
Alleghany, as Guarantor; the Banks parties thereto
from time to time; Mellon Bank, N.A., as Issuing
Bank, as Administrative Agent and as Arranger;
National Westminster Bank plc, as Syndication
Agent and ING Bank, N.V., as Managing Agent (the
"Alleghany Underwriting Credit Agreement"), filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30,
2000, is incorporated herein by reference.
10.25(b) List of Contents of Exhibits and Schedules to the
Alleghany Underwriting Credit Agreement, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30,
2000, is incorporated herein by reference.
10.25(c) First Amendment to Credit Agreement dated as of
February 1, 2001, by and among Alleghany
Underwriting Ltd, Alleghany Underwriting Capital
Ltd, Talbot Underwriting Limited, Alleghany
Underwriting Capital (Bermuda) Ltd, Alleghany,
Alleghany Insurance Holdings LLC, the Banks and
Agents which have signed the signature pages
thereto, and Mellon Bank, N.A., as Bank, as
Issuing Bank and as Administrative Agent for the
Banks and the Issuing Bank, filed as Exhibit
10.25(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2000, is
incorporated herein by reference.
10.25(d) Purchase Agreement dated as of October 31, 2001 by
and between Alleghany Insurance Holdings LLC and
Talbot Holdings Ltd, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, is incorporated
herein by reference.
10.26(a) Agreement and Plan of Merger, dated as of October
18, 2000, by and among ABN AMRO North America
Holding Company, Alleghany Asset Management, Inc.
and Alleghany, filed as Exhibit 2.1 to Alleghany's
Current Report on Form 8-K dated October 23, 2000,
is incorporated herein by reference.
10.26(b) Amendment to the Agreement and Plan of Merger
dated as of January 17, 2001, by and among ABN
AMRO North America Holding Company, Alleghany
Asset Management, Inc. and Alleghany, filed as
Exhibit 2.2 to Alleghany's Current Report on Form
8-K dated February 14, 2001, is incorporated
herein by reference.
10.26(c) Closing Agreement dated as of February 1, 2001, by
and among ABN AMRO North America Holding Company,
Alleghany Asset Management, Inc. and Alleghany,
filed as Exhibit 2.3 to Alleghany's Current Report
on Form 8-K dated February 14, 2001, is
incorporated herein by reference.
10.27(a) Asset Purchase Agreement dated as of April 3, 2000
by and among Heads & Threads, Acktion Corporation
and Reynolds Fasteners, Inc. (the "Heads & Threads
Asset Purchase Agreement"), filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, is incorporated
herein by reference.
10.27(b) List of Contents of Schedules to the Heads &
Threads Asset Purchase Agreement, filed as Exhibit
10.2 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000, is
incorporated herein by reference.
10.28(a) Credit Agreement dated as of April 3, 2000 among
Heads & Threads, various lending institutions, and
American National Bank and Trust Company of
Chicago, as Agent (the "Heads & Threads Credit
Agreement"), filed as Exhibit 10.3 to Alleghany's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, is incorporated herein by
reference.
10.28(b) List of Contents of Schedules and Exhibits to the
Heads & Threads Credit Agreement, filed as Exhibit
10.4 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000, is
incorporated herein by reference.
10.28(c) First Amendment dated as of April 28, 2000 to the
Heads & Threads Credit Agreement, filed as Exhibit
10.28(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 2000, is
incorporated herein by reference.
10.28(d) Second Amendment dated as of November 27, 2000 to
the Heads & Threads Credit Agreement, filed as
Exhibit 10.28(d) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 2000, is
incorporated herein by reference.
10.28(e) Third Amendment dated as of March 19, 2001 to
Credit Agreement dated as of April 3, 2000 among
Heads & Threads, various lending institutions, and
American National Bank and Trust Company of
Chicago, as Agent, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, is incorporated
herein by reference.
10.28(f) Fourth Amendment to Credit Agreement dated as of
August 14, 2001, and Waiver by and between Heads &
Threads, various lending institutions, and
American National Bank and Trust Company of
Chicago, as Agent, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, is incorporated
herein by reference.
10.28(g) Fifth Amendment to Credit Agreement dated as of
November 26, 2001 by and between Heads & Threads,
various lending institutions, and American
National Bank and Trust Company of Chicago, as
Agent, filed as Exhibit 10.28(g) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 2001, is incorporated herein by
reference.
10.28(h) Sixth Amendment to Credit Agreement dated as of
December 27, 2001 by and between Heads & Threads,
various lending institutions, and American
National Bank and Trust Company of Chicago, as
Agent, filed as Exhibit 10.28(h) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 2001, is incorporated herein by
reference.
10.29(a) Agreement and Plan of Merger dated as of July 20,
2001 by and among Capitol Transamerica, ABC
Acquisition Corp. and Alleghany (the "Capitol
Transamerica Merger Agreement"), filed as Exhibit
10.1(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2001, is
incorporated herein by reference.
10.29(b) List of Contents of Exhibits and Schedules to the
Capitol Transamerica Merger Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, is
incorporated herein by reference.
10.30(a) Employment Agreement, dated October 7, 2002,
between Alleghany and Weston M. Hicks, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30,
2002, is incorporated herein by reference.
10.30(b) Restricted Stock Award Agreement, dated October 7,
2002, between Alleghany and Weston M. Hicks, filed
as Exhibit 10.2 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30,
2002, is incorporated herein by reference.
10.30(c) Restricted Stock Unit Matching Grant Agreement,
dated October 7, 2002, between Alleghany and
Weston M. Hicks, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, is incorporated
herein by reference.
13 Pages 5 through 10, 13 through 15, 17 through 19,
21 through 24 and 26 through 48 of the Annual
Report to Stockholders of Alleghany for the year
2002.
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. 333-76159),
Form S-8 (Registration No. 333-76996), 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).