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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, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 1-9371
ALLEGHANY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0283071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
375 Park Avenue, New York, New York 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/752-1356
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $1.00 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 June 30, 2004, 7,675,313 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 $1,724,584,435.
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
Corporation for the year 2004 I and II
Proxy Statement relating to Annual Meeting
of Stockholders of Alleghany Corporation
to be held on April 22, 2005 III
ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 2004
Table of Contents
Description Page
----------- ----
PART I
Item 1. Business 5
Item 2. Properties 35
Item 3. Legal Proceedings 39
Item 4. Submission of Matters to a Vote of Security Holders 39
Supplemental Item Executive Officers of Registrant 39
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Company Purchases of Equity Securities 41
Item 6. Selected Financial Data 41
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 41
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 41
Item 8. Financial Statements and Supplementary Data 41
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 41
Item 9A. Controls and Procedures 42
3
Description Page
----------- ----
PART III
Item 10. Directors and Executive Officers of Registrant 42
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 43
Item 13. Certain Relationships and Related Transactions 46
Item 14. Principal Accountant Fees and Services 46
PART IV
Item 15. Exhibits and Financial Statement Schedules 47
Signatures 69
Index to Financial Statement Schedules 71
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
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PART I
Item 1. Business.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the laws
of the State of Delaware. In December 1986, Alleghany succeeded to the business
of its parent company, Alleghany Corporation, a Maryland corporation
incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue, New
York, New York 10152 and its telephone number is (212) 752-1356. Alleghany is
engaged, through its subsidiary Alleghany Insurance Holdings LLC ("AIHL") and
AIHL's subsidiaries RSUI Group, Inc. ("RSUI"), Capitol Transamerica Corporation
("Capitol Transamerica"), Darwin Professional Underwriters, Inc. ("Darwin") and
Platte River Insurance Company ("Platte River"), in the property and casualty
and fidelity and surety insurance businesses. Through its direct and indirect
subsidiaries Mineral Holdings Inc. and World Minerals Inc. ("World Minerals")
and World Minerals' subsidiaries Celite Corporation ("Celite"), Harborlite
Corporation ("Harborlite") and World Minerals International and their
subsidiaries, Alleghany is engaged in the industrial minerals business. Through
its subsidiary Alleghany Properties LLC ("Alleghany Properties"), Alleghany owns
and manages properties in California.
Until December 31, 2004, Alleghany was also engaged, through its subsidiary
Heads & Threads International LLC ("Heads & Threads"), in the steel fastener
importing and distribution business. On that date, Heads & Threads was merged
with an acquisition vehicle formed by a private investor group led by Heads &
Threads management and Capital Partners, Inc. Alleghany received cash proceeds
of $53.8 million and recorded a pre-tax loss of approximately $1.9 million as a
result of the disposition. Heads & Threads has been classified as a discontinued
operation.
On May 3, 2004, AIHL acquired Darwin National Assurance Company ("DNA")
(formerly known as U.S. AEGIS Energy Insurance Company), an admitted insurance
company domiciled in Delaware, for cash consideration of approximately $20.4
million, $17.1 million of which represented consideration for DNA's investment
portfolio and the balance of which represented consideration for licenses.
On July 1, 2003, AIHL completed the acquisition of Resurgens Specialty
Underwriting, Inc. ("Resurgens Specialty"), a specialty wholesale underwriting
agency, from Royal Group, Inc., a subsidiary of Royal & SunAlliance Insurance
Group plc ("R&SA"), for cash consideration, including capitalized expenditures,
of approximately $116.0 million. Resurgens Specialty became a subsidiary of
RSUI. In connection with the acquisition of Resurgens Specialty, on June 30,
2003, RSUI acquired RSUI Indemnity Company ("RIC") to write admitted business
underwritten by Resurgens
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Specialty, from Swiss Re America Holding Corporation for consideration of
approximately $19.7 million, $13.2 million of which represented consideration
for RIC's investment portfolio and the balance of which represented
consideration for licenses. On September 2, 2003, RIC purchased Landmark
American Insurance Company ("Landmark") to write non-admitted business
underwritten by Resurgens Specialty, from R&SA for cash consideration of $33.9
million, $30.4 million of which represented consideration for Landmark's
investment portfolio and the balance of which represented consideration for
licenses. R&SA provided loss reserve guarantees for all of the loss and loss
adjustment expense liabilities of Landmark that existed at the time of the sale.
RIC and Landmark were further capitalized by Alleghany in an aggregate amount of
approximately $520.0 million.
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, $31.0 million
of which represented consideration for Platte River's investment portfolio and
the balance of which represented consideration for licenses. The seller provided
loss reserve guarantees for all of the loss and loss adjustment expense
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 Alleghany
Underwriting's 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 of this Lloyd's of London insurance operation.
Consideration for the sale included a warrant which entitled AIHL to recover a
portion of any residual capital in 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 2004, it
was determined that there was no reasonable prospect of any residual capital in
Alleghany Underwriting and the warrant was cancelled. 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 Lloyd's year of account while Talbot
sought new capital. AIHL subsequently agreed that the capital provided by its
letter of credit would also support business written by the syndicate for the
2003 and 2004 Lloyd's years of account, in exchange for reductions in the amount
of the letter of credit to $15.0 million in January 2003 and $10.0 million in
December 2003 as a result of the infusion of new capital into the syndicate. In
November 2004, AIHL agreed to the use of its $10.0 million letter of credit by
the Talbot syndicate for the 2005
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Lloyd's year of account, in exchange for the syndicate's agreement to extinguish
AIHL's commitment under the reduced letter of credit no later than June 30,
2006. As a result 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 Alleghany
Asset Management's subsidiaries, in the financial services business. On that
date, Alleghany Asset Management merged into a wholly owned subsidiary of ABN
AMRO North America Holding Company. Alleghany received cash proceeds of $825.0
million and recorded an after-tax gain of approximately $474.8 million, or
approximately $63.14 per share, excluding certain expenses relating to the
closing of the sale. As a result of its disposition, 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. ("Underwriters Re Group") and Underwriters Re
Group's subsidiaries, 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.
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
1, 2005, Alleghany owned 8.0 million shares of BNSF, or approximately 2.1
percent of BNSF's currently outstanding common stock. BNSF owns one of the
largest railroad networks in North America, with 32,000 route miles covering 28
states and two Canadian provinces.
7
In 2004, 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 2004. 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 makes available on its website at www.alleghany.com its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably
practicable after electronically filing or furnishing such material to the
Securities and Exchange Commission. Alleghany's Financial Personnel Code of
Ethics, Code of Business Conduct and Ethics, Corporate Governance Guidelines and
the charters for its Audit, Compensation and Nominating and Governance
Committees are also available on its website. In addition, stockholders may
obtain, free of charge, copies of any of the above reports or documents upon
request to the Secretary of Alleghany.
PROPERTY AND CASUALTY/FIDELITY AND SURETY INSURANCE BUSINESSES
General Description of Business
AIHL is a holding company for Alleghany's property and casualty and
fidelity and surety insurance operations which are conducted through RSUI,
headquartered in Atlanta, Georgia, Capitol Transamerica and Platte River,
headquartered in Madison, Wisconsin and Darwin, headquartered in Farmington,
Connecticut. Unless noted, references to AIHL include the operations of RSUI,
Capitol Transamerica, Platte River and Darwin.
RSUI, which includes the operations of Resurgens Specialty, RIC and
Landmark, underwrites specialty insurance coverages in the property,
umbrella/excess, general liability, directors and officers liability and
professional liability lines of business. RSUI writes business on an admitted
basis primarily through RIC in 47 states where RIC is licensed and subject to
the applicable state's form and rate regulations. RSUI writes business on an
approved, non-admitted basis primarily through Landmark, which, as a
non-admitted company, is not subject to state form and rate regulations and thus
has more flexibility in its rates and coverages for specialized or hard-to-place
risks. As of December 31, 2004, Landmark was approved to write business on a
non-admitted basis in 49 states and on an admitted basis in Oklahoma.
8
RIC and Landmark entered into a quota share arrangement, effective as of
September 1, 2003, whereby Landmark cedes 90.0 percent of all premiums and
losses, net of third party reinsurance, to RIC. As of December 31, 2004, the
statutory surplus of RIC and Landmark was approximately $647.3 million and $56.6
million, respectively. RIC is rated A (Excellent) by A.M. Best Company, Inc.
("A.M. Best"), an independent organization that analyzes the insurance industry,
and Landmark is rated A (Excellent) on a reinsured basis by A.M. Best.
Capitol Transamerica, primarily through its wholly-owned subsidiaries
Capitol Indemnity Corporation ("Capitol Indemnity") and Capitol Specialty
Insurance Corporation ("CSIC"), operates in 49 states and the District of
Columbia, with a geographic concentration in the Midwestern and Plains states.
Capitol Indemnity conducts its business on an admitted basis, and CSIC conducts
its business on an approved, non-admitted basis, through independent and general
insurance agents that write primarily specialty lines of property and casualty
insurance for certain types of businesses or activities, including barber and
beauty shops, bowling alleys, contractors, restaurants and taverns. Capitol
Indemnity also writes fidelity and surety bonds, including contractors'
performance and payment bonds, license/permit bonds, fiduciary bonds, judicial
bonds and commercial fidelity bonds. Capitol Transamerica continuously evaluates
its lines of business and adjusts its products as appropriate. In January 2005,
Capitol Transamerica decided to exit the construction segment of the contract
surety line of business upon completion of a strategic review. Therefore,
commencing in the 2005 first quarter, Capitol Transamerica will not be issuing
additional contract surety bonds in the construction segment, except to the
extent required under applicable law or in certain other limited circumstances.
Capitol Transamerica will continue to manage the run-off from this business line
and is still obligated to pay losses incurred on the construction segment of the
contract surety business written by it prior to exit. Platte River is licensed
in 50 states and the District of Columbia 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 of Capitol Transamerica accounted for
approximately 74.0 percent of gross premiums written in 2004, while the fidelity
and surety business accounted for the remainder. 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 90.0 percent of the
shared risks and Platte River is liable for 10.0 percent. As of December 31,
2004, the statutory surplus of Capitol Indemnity and Platte River was $138.5
million and $29.7 million, respectively. Capitol Indemnity and Platte River are
rated A (Excellent) on a pooled basis by A.M. Best. CSIC, which is
9
party to a quota share arrangement with its parent Capitol Indemnity, is rated A
(Excellent) on a reinsured basis by A.M. Best.
Darwin, which commenced operations in May 2003, is 80.0 percent owned by
AIHL and 20.0 percent owned by certain members of Darwin's management through
participation in a restricted stock plan. Darwin underwrites specialty liability
insurance coverages in the directors and officers liability, errors and
omissions liability and medical malpractice liability lines of business as an
underwriting manager for Platte River and certain subsidiaries of Capitol
Transamerica. In April 2004, AIHL acquired DNA, and as of December 31, 2004, DNA
was licensed to write business in 43 states. DNA and Capitol Indemnity entered
into a quota share arrangement, effective as of July 1, 2004, whereby DNA cedes
90.0 percent of all premiums and losses, net of third party reinsurance, to
Capitol Indemnity. DNA is rated A (Excellent) on a reinsured basis by A.M. Best.
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. In 2004, property insurance
accounted for approximately 45.3 percent and casualty insurance accounted for
approximately 51.7 percent of AIHL's gross premiums written.
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 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 2004, commercial surety
bonds, contract surety bonds and fidelity bonds accounted for
10
approximately 70.0 percent, 26.0 percent and 4.0 percent, respectively, of
AIHL's surety and fidelity gross premiums written.
Marketing
At December 31, 2004, RSUI conducted its insurance business through
approximately 147 independent wholesale insurance brokers located throughout the
United States and two managing general agents. RSUI's wholesale brokers are
appointed on an individual basis based on management's appraisal of expertise
and experience, and only specific locations of a wholesale broker's operations
may be appointed to distribute RSUI's products. Producer agreements which
stipulate premium collection, payment terms and commission arrangements are in
place with each wholesale broker. No wholesale broker holds underwriting, claims
or reinsurance authority, with the exception of binding authority arrangements
with two wholesale brokers for small, specialized coverages. RSUI's top five
producing wholesale brokers accounted for approximately 47.0 percent of gross
premiums written by RSUI in 2004. RSUI's top two producing wholesale brokers,
Swett & Crawford Group and CRC Insurance Services, accounted for, in the
aggregate, approximately 30.0 percent of AIHL's gross premiums written in 2004,
with Swett & Crawford accounting for 18.0 percent and CRC accounting for 12.0
percent.
Capitol Transamerica 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, 2004, Capitol
Transamerica had approximately 750 independent agents and 32 general agents
licensed to write property and casualty and fidelity and surety coverages, as
well as approximately 355 independent agents licensed only to write surety
coverages. The general agents write very little fidelity and surety business and
have full quoting and binding authority within the parameters of their agency
contracts with respect to the property and casualty business that 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 10.0 percent of AIHL's gross premiums written in 2004.
During 2004, Darwin conducted its insurance business primarily through a
selective distribution network of approximately 117 independent wholesale and
specialty retail insurance brokers who bound business with Darwin. No brokers
had writings in excess of 10.0 percent of AIHL's gross premiums written in 2004.
Underwriting Operations
RSUI's underwriting philosophy is based on handling only product lines in
which its underwriters have strong underwriting expertise. RSUI generally
focuses on higher severity, lower frequency specialty risks that can be
effectively "desk underwritten"
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without the need for inspection or engineering reviews. RSUI tracks underwriting
results for each of its underwriters and believes that the underwriting systems
and applications it has in place facilitate efficient underwriting and high
productivity levels. Underwriting authority is delegated on a "top-down" basis
ultimately to individual underwriters based on experience and expertise. Such
authority is in writing and addresses maximum limits, excluded classes and
coverages and premium size referral. Referral to a product line manager is
required for risks exceeding an underwriter's authority. RSUI applies extensive
risk control techniques to ensure that catastrophe exposures remain within
specified parameters. On a monthly basis, RSUI models estimated losses from a
250-year event and sets its maximum risk level exposures based on this estimate.
Underwriting guidelines are implemented and adjusted to maintain the estimated
maximum exposure within the pre-established limits. The modeled exposure
estimates are also used to structure various quota share reinsurance and
catastrophe excess of loss reinsurance covers to protect RSUI's surplus from
unexpected catastrophic events.
Capitol Transamerica's underwriting strategy 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. Capitol Transamerica determines
underwriting acceptability 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.
Darwin's underwriting strategy focuses on long-term consistent underwriting
profitability. The key elements of this strategy are an underwriting approach
focused on disciplined analysis, appropriate pricing based on the actual risk
and attachment level and the granting of appropriate coverage, accompanied by
multi-level underwriting and actuarial reviews of accounts. Formal rating
strategies and plans have been adopted for each line of business based upon
filed rating plans and industry results. Darwin determines underwriting
acceptability by type of business, company experience, claims experience,
experience of the insured's management team, financial stability and other
relevant factors. Information is obtained from, among other sources, application
forms, underlying insurance coverage, company policies and procedures, loss
experience, financial condition, public disclosures and interviews with the
insured's management
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team. If an account does not meet acceptability parameters, coverage is
declined. Prior to renewal, claims activity is reviewed to ensure that
profitability assumptions were correct and the information obtained during the
initial underwriting of the insured is updated.
Terrorism Risk Insurance Act of 2002
The Terrorism Risk Insurance Act of 2002 (the "Terrorism Act") established
a program under which the federal government will reimburse insurers for losses
arising from certain acts of foreign terrorism. The Terrorism Act requires that
all licensed insurers must offer terrorism coverage on most commercial lines of
business. Under the program, an act must be certified by the U.S. Secretary of
the Treasury for it to constitute an act of terrorism. The definition of
terrorism excludes domestic acts of terrorism or acts of terrorism committed in
the course of a war declared by Congress. Losses arising out of the act of
terrorism must exceed $5.0 million. If an event is certified as an act of
terrorism, the federal government will reimburse the industry for losses up to
an aggregate limit of $100.0 billion in any year. Each insurer is responsible
for a deductible based on a percentage of direct premiums earned in the previous
calendar year. For losses in excess of the deductible, the federal government
will reimburse 90.0 percent of the insurer's loss, up to the insurer's
proportionate share of the $100.0 billion.
In 2005, AIHL's deductible will be 15.0 percent of its direct premiums
earned in 2004, or approximately $193.7 million. AIHL's terrorism exposure is
substantially attributable to RSUI. In general, RSUI's casualty reinsurance
programs provide coverage for domestic and foreign acts of terrorism, while
RSUI's property reinsurance programs do not provide coverage for foreign acts of
terrorism. The cost of property reinsurance in the marketplace has increased
significantly in recent years and reinsurance capacity for terrorism exposures
is limited and expensive. As a result, RSUI retains such exposures on a net
basis, subject to the Terrorism Act coverage, for property policies containing
terrorism coverage. Approximately 10.0 percent of all policies, and
approximately 17.0 percent of all property policies, written by RSUI in 2004
contained coverage for domestic and foreign acts of terrorism. RSUI uses various
underwriting strategies to mitigate its exposure to terrorism losses.
Outstanding Losses and Loss Adjustment Expenses ("LAE")
Alleghany's insurance operations establish reserves on their balance sheets
for unpaid losses and LAE related to their property and casualty insurance and
fidelity and surety contracts. As of any balance sheet date, historically there
have been claims that have not yet been reported, and some claims are not
reported for many years after the date a loss occurs. As a result of this
historical pattern, the liability for unpaid losses and
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LAE includes significant estimates for claims incurred but not yet reported,
known as "IBNR." 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. As a result, the liabilities for unpaid losses and LAE include
significant judgments, assumptions and estimates made by management relating to
the ultimate losses that will arise from the claims. Due to the inherent
uncertainties in the process of establishing these liabilities, the actual
ultimate loss from a claim is likely to differ, perhaps materially, from the
liability initially recorded and could be material to the results of Alleghany's
operations.
Alleghany's insurance operations use a variety of techniques that employ
significant judgments and assumptions to establish the liabilities for unpaid
losses and LAE recorded at the balance sheet date. These techniques include
detailed statistical analyses of past claim reporting, settlement activity,
claim frequency, internal loss experience, changes in pricing or coverages 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. These liabilities also reflect implicit or explicit
assumptions regarding the potential effects of future inflation, judicial
decisions, changes in laws and recent trends in such factors as well as a number
of actuarial assumptions that vary across Alleghany's insurance operations and
across lines of business. This data is analyzed by line of business, coverage
and accident year, as appropriate.
As noted above, as of any balance sheet date, all claims that have occurred
have not yet been reported to Alleghany's insurance operations, and if reported
may not have been settled. The time period between the occurrence of a loss and
the time it is settled by the insurer is referred to as the "claim tail."
Property claims usually have a fairly short claim tail and, absent claim
litigation, are reported and settled within no more than a few years of the
balance sheet date. For short tail lines, the process of recording quarterly and
annual liabilities for unpaid losses and LAE is primarily focused on maintaining
an appropriate reserve level for reported claims and IBNR, rather than
determining an expected loss ratio for the current business. In conformity with
generally accepted accounting principles ("GAAP"), Alleghany's insurance
operations are not permitted to establish IBNR reserves for catastrophe losses
that have not occurred. Therefore, losses related to a significant catastrophe
or accumulation of catastrophes in any reporting period could have a material,
negative impact on Alleghany's results during such period. Casualty claims can
have a very long claim tail, occasionally extending for decades. In addition,
casualty claims are more susceptible to litigation and the legal environment and
can be significantly affected by changing contract interpretations, all of which
contribute to extending the claim tail. For long tail casualty lines of
business, estimation of ultimate liabilities for unpaid losses and LAE is a more
complex process and depends on a number of factors, including the line and
volume of the business involved.
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The loss reserve review processes of Alleghany's insurance operations use
actuarial methods and underlying assumptions that vary by company and line of
business and produce ranges from which the operations select the carried reserve
for each class of business. The actuarial methods used by Alleghany's insurance
operations include the Incurred Development method, Paid Development method,
Bornhuetter-Ferguson method for both paid and incurred, Balanced Incurred method
and Ultimate Incurred times Ultimate Claims method. Each of AIHL's insurance
operations establish their best estimate for liabilities for unpaid losses and
LAE. Because of the high level of uncertainty regarding the setting of
liabilities for unpaid losses and LAE, it is the practice of each of Alleghany's
insurance operations to engage, at least annually, an outside actuary to
evaluate, and opine on, the reasonableness of these liabilities. Although
Alleghany is unable at this time to determine whether additional reserves, which
could have a material impact upon its financial condition, results of operations
and cash flows, may be necessary in the future, Alleghany believes that the
reserves for unpaid losses and LAE established by its insurance operations are
adequate as of December 31, 2004.
Alleghany's insurance operations continually evaluate the potential for
changes, both positive and negative, in their estimates of such liabilities and
use the results of these evaluations to adjust both recorded liabilities and
underwriting criteria. With respect to liabilities for unpaid losses and LAE
established in prior years, such liabilities are periodically analyzed and their
expected ultimate cost adjusted, where necessary, to reflect positive or
negative development in loss experience and new information, including, for
certain catastrophic events, revised industry estimates of the magnitude of a
catastrophe. Adjustments to previously recorded liabilities for unpaid losses
and LAE, both positive and negative, are reflected in Alleghany's financial
results in the periods in which such adjustments are made and are referred to as
prior year reserve development.
Changes in Historical Net Loss and LAE Reserves
The following table shows changes in historical net loss and LAE reserves
for AIHL for each year since 2002. Reported reserve development is derived
primarily from information included in statutory financial statements of RSUI,
Capitol Transamerica, Platte River and Darwin. The first line of the upper
portion of the table shows the net reserves at December 31 of each of the
indicated years, representing the estimated amounts of net outstanding losses
and LAE for claims arising during that year and in all prior years that are
unpaid, including losses that have been incurred but not yet reported to AIHL's
insurance operations. The upper (paid) portion of the table shows the cumulative
net amounts paid as of December 31 of successive years with respect to the net
reserve liability for each year. The lower portion of the table shows the
re-estimated amount of the previously recorded net reserves for each year based
on experience as of the end of each succeeding year. The estimate changes as
more information becomes
15
known about claims for individual years. In evaluating the information in the
table, it should be noted that a reserve amount reported in any period includes
the effect of any subsequent change in such reserve amount. For example, if a
loss was first reserved in 2002 at $100,000 and was determined in 2004 to be
$150,000, the $50,000 deficiency would be included in the Cumulative Redundancy
(Deficiency) row shown below for each of the years 2002 through 2004.
Conditions and trends that have affected the development of the net reserve
liability in the past may not necessarily occur in the future. Accordingly, it
is not appropriate to extrapolate future redundancies or deficiencies based on
this table.
Changes in Historical Net Reserves for Losses and LAE
Years Ended December 31,
--------------------------------
2002 2003 2004
-------- -------- ----------
(in thousands)
Net liability as of the end of year ............. $113,705 $275,962 $ 640,920
Cumulative amount of net liability paid as of:
One year later ............................... 47,396 72,604 --
Two years later .............................. 80,557 -- --
Net liability re-estimated as of:
One year later ............................... 133,962 268,663 --
Two years later .............................. 147,964 -- --
Cumulative Redundancy (Deficiency) ........... (33,989) 7,300 --
Gross Liability-End of Year ..................... $258,471 $437,994 $1,232,337
Less: Reinsurance Recoverable ................... 144,766 162,032 591,417
-------- -------- ----------
Net Liability-End of Year ....................... $113,705 $275,962 $ 640,920
======== ======== ==========
Gross Re-estimated Liability-Latest ............. $220,360 $387,544 --
Re-estimated Recoverable-Latest ................. 72,666 142,422 --
-------- --------
Net Re-estimated Liability-Latest ............... $147,694 $245,122 --
======== ========
Gross Cumulative Redundancy (Deficiency) ........ $ 38,111 $ 50,450 --
16
Net Loss and LAE Reserves
The reconciliation between the aggregate net loss and LAE reserves of AIHL
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 last three years is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP Basis
2004 2003 2002
---------- -------- --------
Statutory reserves ............... $ 642,017 $277,281 $114,925
Reinsurance recoverables ......... 591,417 162,032 144,766
Purchase accounting adjustment ... (1,097) (1,319) (1,220)
---------- -------- --------
GAAP reserves .................... $1,232,337 $437,994 $258,471
========== ======== ========
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 SAP and those reported
in AIHL's consolidated financial statements prepared in accordance with GAAP for
the year ended December 31, 2004 were identical.
The reconciliation of beginning and ending aggregate reserves for unpaid
losses and LAE of AIHL for the last three years is shown below (in thousands):
17
Reconciliation of Reserves for Losses and LAE
2004 2003 2002
---------- -------- --------
Reserves as of January 1 ......................................... $ 437,994 $258,471 $ --
Reserves acquired ................................................ -- 14,573 266,688
Less: reinsurance recoverables ................................... 162,032 159,766 179,512
---------- -------- --------
Net reserves ..................................................... 275,962 113,278 87,176
---------- -------- --------
Incurred loss, net of reinsurance, related to:
Current year .................................................. 547,868 229,519 82,639
Prior years ................................................... (7,299) 20,683 17,869
---------- -------- --------
Total incurred loss, net of reinsurance .......................... 540,569 250,202 100,508
---------- -------- --------
Paid loss, net of reinsurance, related to:
Current year .................................................. 103,033 40,122 28,562
Prior years ................................................... 72,578 47,396 45,417
---------- -------- --------
Total paid loss, net of reinsurance .............................. 175,611 87,518 73,979
---------- -------- --------
Reserves, net of reinsurance recoverables, as of December 31 ..... 640,920 275,962 113,705
Reinsurance recoverables, as of December 31(1) ................... 591,417 162,032 144,766
---------- -------- --------
Reserves, gross of reinsurance recoverables, as of December 31 ... $1,232,337 $437,994 $258,471
========== ======== ========
- ----------
(1) Balance of reinsurance recoverables excludes:
2004 2003 2002
------- ------- ------
(in thousands)
Current reinsurance recoverables $31,908 $12,067 $2,713
and includes:
2004 2003 2002
------- ------- --------
Reinsurance recoverables from:
Seller of Platte River $71,956 $91,950 $142,501
Seller of Landmark $23,718 $37,261 $ --
18
Asbestos, Environmental Impairment and Mold Claims Reserves
AIHL's reserves for losses and LAE include 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 between 1969 and 1976. 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 periods of time that often elapse between the occurrence of an
insured loss and the reporting of that loss to the ceding company and the
reinsurer, uncertainty as to the number and identity of insureds with potential
exposure to such risks, unresolved legal issues regarding policy coverage, and
the extent and timing of any such contractual liability. Loss reserve estimates
for such environmental and asbestos exposures include case reserves, which also
reflect reserves for legal and other LAE and IBNR reserves. IBNR reserves are
determined based upon Capitol Transamerica's historic general liability exposure
base and policy language, previous environmental and loss experience and the
assessment of current trends of environmental law, environmental clean up costs,
asbestos liability law and judgmental settlements of asbestos liabilities.
For both asbestos and environmental excess of loss reinsurance claims,
Capitol Transamerica establishes case reserves by applying reinsurance contract
terms to losses reported by ceding companies, analyzing from the first dollar of
loss incurred by the primary insurer. In establishing the liability for claims
for asbestos related liability and for environmental impairment claims,
management considers facts currently known and the current state of the law and
coverage litigation. Additionally, ceding companies often report potential
losses on a precautionary basis to protect their rights under the reinsurance
arrangement, which generally calls for prompt notice to the reinsurer. Ceding
companies, at the time they report such potential losses, advise Capitol
Transamerica of the ceding companies' current estimate of the extent of such
loss. Capitol Transamerica's claims department reviews each of the precautionary
claims notices and, based upon current information, assesses the likelihood of
loss to Capitol Transamerica. Such assessment is one of the factors used in
determining the adequacy of the recorded asbestos and environmental reserves.
Promptly after its acquisition by Alleghany in January 2002, Capitol
Transamerica's management commenced a program to settle, or position for
commutation, Capitol Indemnity's assumed reinsurance treaties and make
appropriate payments on a timely basis when deemed necessary. Since January
2002, Capitol Indemnity has experienced an increase in paid losses on its
assumed reinsurance runoff related to such treaties, which was initially
attributed to this change in Capitol Transamerica's settlement philosophy. Upon
completion in 2003 of an actuarial study
19
undertaken by management, it was determined that the increase in paid losses
related to the treaties reflected developments in the underlying claims
environment, particularly with respect to asbestos related claims, and,
accordingly, Capitol Transamerica strengthened its reserves related to such
assumed reinsurance coverages in the amount of $20.7 million.
For the year ended December 31, 2004, the aggregate net loss and LAE
payments for asbestos and environmental impairment claims of Capitol
Transamerica were $1.7 million, compared with $3.6 million in 2003. As of
December 31, 2004, reserves of Capitol Transamerica totaled approximately $19.4
million for asbestos liabilities and approximately $7.1 million for
environmental liabilities, resulting in aggregate asbestos and environmental
reserves of $26.5 million. Such aggregate reserves are approximately 13.3 times
the average paid claims for the prior three-year period. Although Alleghany is
unable at this time to determine whether additional reserves, which could have a
material impact upon its results of operations, may be necessary in the future,
Alleghany believes that Capitol Transamerica's asbestos and environmental
reserves are adequate as of December 31, 2004.
The reconciliation of the beginning and ending aggregate reserves for
unpaid losses and LAE related to asbestos and environmental impairment claims of
AIHL for the years 2002 through 2004 is shown below (in thousands):
Reconciliation of Asbestos-Related Claims Reserves for Losses and LAE
2004 2003 2002
------- ------- ------
Reserves as of January 1 ..... $24,781 $ 2,944 $ --
Losses and LAE incurred ...... (4,227) 24,985 3,244
Paid losses .................. (1,212) (3,148) (300)
------- ------- ------
Reserves as of December 31 ... $19,342 $24,781 $2,944
======= ======= ======
Type of reserves
Case ...................... $ 4,548 $ 4,039 $1,243
IBNR ...................... 14,794 20,742 1,701
------- ------- ------
Total ........................ $19,342 $24,781 $2,944
======= ======= ======
20
Reconciliation of Environmental Impairment Claims Reserves for Losses and LAE
2004 2003 2002
------ ------ ------
Reserves as of January 1 .... $3,335 $4,416 $ --
Losses and LAE incurred ...... 4,227 (658) 4,867
Paid losses .................. (444) (423) (451)
------ ------ ------
Reserves as of December 31 ... $7,118 $3,335 $4,416
====== ====== ======
Type of reserves
Case ...................... $1,674 $ 552 $1,865
IBNR ...................... 5,444 2,783 2,551
------ ------ ------
Total ........................ $7,118 $3,335 $4,416
====== ====== ======
In 2004, management performed a review of various assumed reinsurance
treaties and concluded that a re-allocation of reserves totaling $4,227,000
should be made from the asbestos loss reserve to the environmental claims loss
reserve. AIHL's subsidiaries have experienced limited mold claims to date and
have exclusions for mold claims in their policies. As of December 31, 2004,
AIHL's operating units had no reserves for mold exposure.
Competition
The property and casualty businesses of RSUI and Darwin compete on a
national basis, as does the fidelity and surety business of Capitol
Transamerica. Capitol Transamerica's property and casualty business competes on
a regional basis with a primary focus on the Midwestern and Plains states.
Competitors of each of AIHL's subsidiaries 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 do
AIHL's subsidiaries.
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
21
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.
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 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 generally will again lead to a surplus of
reinsurers.
The dynamics of the surety industry are also cyclical, partly for the same
reasons as the property and casualty business described above. Typically, the
cycles of surety business and property and casualty business run independent of
each other. Currently, the surety industry is experiencing a flattening of price
increases for primary coverages after two years of rising prices. The price
increases have been driven by catastrophic losses for both primary writers and
reinsurers, with the reinsurers sustaining the bulk of the losses. These losses
have caused several large primary writers and reinsurers to exit the surety
marketplace, creating opportunity for primary writers that can continue to
obtain reinsurance at reasonable rates from the remaining reinsurers as a result
of favorable loss histories.
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
22
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 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.
Insurance companies are required to report their financial condition and
results of operation 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, 2004,
the total adjusted capital of each of AIHL's insurance subsidiaries exceeded the
minimum levels required under RBC rules and each 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, with each ratio having an established "usual range" of
results. The IRIS ratios assist state insurance departments in executing their
statutory mandate to oversee the financial condition of insurance companies. A
ratio falling outside the usual range is not considered a failing result;
rather, unusual values are viewed as part of the regulatory early monitoring
system. Furthermore, in some years, it may not be unusual for financially sound
companies to have several ratios with results outside the usual ranges. The NAIC
reports the ratios to state insurance departments who may then contact a company
if four or more its ratios fall outside the NAIC's usual ranges. Based upon
calculations as of December 31, 2004, Landmark and Capitol Indemnity had four or
more of their ratios falling outside the usual ranges.
23
AIHL's 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 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 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's subsidiaries employed 634 persons as of December 31, 2004, 336 of
whom were at RSUI and its subsidiaries, 243 of whom were at Capitol Transamerica
and its subsidiaries and 55 of whom were at Darwin.
24
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. 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 domestic diatomite business (as well as a
portion of its overseas diatomite business) through its Celite Corporation
subsidiary. World Minerals is in the process of transferring most of Celite
Corporation's overseas diatomite business to a separate wholly owned subsidiary
of World Minerals. Celite Corporation, its diatomite subsidiaries, and the other
overseas diatomite subsidiaries of World Minerals (collectively, "Celite") are
believed to be collectively the world's largest producer of filter-aid grade
diatomite, which is marketed 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 50.0 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 Santa Barbara, California and owns
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
addition, World Minerals, through various subsidiaries of Celite, owns
controlling interests in three joint ventures of which two are
25
active and 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. Production ceased at this mine
in 2004. Also in 2001, Celite acquired the diatomite business, including a plant
and mining properties, in and around Fernley, Nevada from CR Minerals, LLC.
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, and from its joint ventures in China. Celite believes that its
diatomite reserves in California, Washington, Nevada, Mexico, Chile, Peru, Spain
and China are generally sufficient to last for at least 20 more years at current
rates of production. In 2004 broadened crude specifications, improved plant
processes and exploration programs improved mineral assets at Lompoc and Spain
to 20 years. France has ten to fifteen years mine life, and access to a new
deposit requiring permitting. China is securing mine permits on adjacent land
for an additional 20 year supply. Celite has substantial ore reserves at several
of its mines and sufficient plant capacities that enable it, if necessary, to
supply customers from different locations.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally supplied diatomite.
Perlite
World Minerals conducts its domestic perlite business (as well as a portion
of its overseas perlite business) through its Harborlite Corporation subsidiary.
World Minerals is in the process of transferring most of Harborlite
Corporation's overseas perlite business to a separate wholly owned subsidiary of
World Minerals. World Minerals believes that Harborlite Corporation and the
other overseas perlite subsidiaries of World Minerals (collectively,
"Harborlite") are the world's largest producers 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 and 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,
26
expanding up to twenty times its original volume and creating a soft material
with large surface area and correspondingly low density.
Harborlite has its world headquarters in Santa Barbara, California and owns
or operates 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;
Barcelona, Spain; Milan, Italy; Santiago, Chile; and Paulinia, Brazil.
The Perlite ore mined at Harborlite's No Agua, New Mexico mine 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 in the United States. Expanded perlite is also produced
at Harborlite's European expansion plants at 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. In the 2003 fourth quarter, Harborlite announced the closing of its
Hessle, United Kingdom expansion plant, which had been acquired in 2000, and the
plant was sold during 2004. Harborlite's Chilean plant expands perlite obtained
from its own deposits in Chile and its Brazil plant expands perlite ore obtained
from Harborlite's Turkish mines. 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, a Harborlite subsidiary completed the acquisition of a small
perlite expansion business in Spain, which has been merged into the existing
Harborlite business in that country.
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
the perlite mining and expansion business in Chile and the perlite expansion
business in Brazil.
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 and Brazil is
obtained from Harborlite's two mines in Turkey and from third parties in Europe.
Ore reserves at the Turkish mines are believed to be sufficient to last at least
20 more years at the current rates of production. Ore reserves at
27
Harborlite's Chilean mine are facing urban pressures. Additional reserves are
being tested at other locations in Chile to ensure a 20 year supply.
World Minerals conducts its business on a worldwide basis, with mining and
processing operations in ten countries. In 2004, approximately 49.0 percent of
World Minerals' revenues (equal to 11.3 percent of Alleghany's consolidated
revenues) were generated by foreign operations, and an additional 12.0 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.
As a result, World Minerals' foreign operations do not subject Alleghany to a
material risk from foreign currency fluctuation.
World Minerals' operating subsidiaries experienced no interruptions in raw
materials availability in 2004. Barring unforeseen circumstances, World Minerals
anticipates no such interruptions in 2005. 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 in California as a result of electricity shortages. The electricity
shortages did not extend beyond 2001, but higher electricity and natural gas
prices are expected to continue for the foreseeable future. Celite and
Harborlite have supply contracts for most of their energy requirements, most of
which extend 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 10.0 percent or more of World Minerals' annual sales.
World Minerals presently owns, controls or holds licenses either directly
or through its subsidiaries to approximately 22 United States and 112 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.
28
World Minerals normally maintains approximately a one- to four-week supply
of inventory on certain products due to production lead times. Although
diatomite mining activities at Celite's principal mine in Lompoc, California may
be suspended during periods of heavy rainfall, World Minerals believes that,
because of the stockpiling of ore during dry periods, such suspensions do not
materially affect the supply of inventory. Barring unusual circumstances, World
Minerals does not experience backlogs of orders. World Minerals' business is not
seasonal to any material degree.
In order to bring more focused attention to the unique business 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. 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 2004, World Minerals
spent approximately $2.4 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, compared with
approximately $2.3 million in 2003 and approximately $3.0 million in 2002. World
Minerals embarked on a major project to upgrade its information technology
capabilities in 2000. During 2004, World Minerals began the implementation of a
worldwide enterprise resource planning software system. It is expected that the
implementation process will continue into 2006.
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), CECA (France),
Showa (Japan) and Grefco (United States), 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, Silver & Baryte (Greece)
and Grefco, 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.
29
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.
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.
30
Certain products of Celite and Harborlite are subject to the Hazard
Communication Standard promulgated by OSHA, which requires Celite and Harborlite
to disclose the hazards of those products to employees and customers. Celite's
diatomite products and certain of Harborlite's products contain varying amounts
of crystalline silica, a mineral which is among the most common found on earth.
In 1997, the International Agency for Research on Cancer ("IARC") reclassified
the inhalation of crystalline silica from occupational sources from "probably
carcinogenic to humans" to a category reflecting "sufficient evidence of human
carcinogenicity." Celite and Harborlite provide required warning labels on their
products containing in excess of 0.1 percent respirable crystalline silica,
advising customers of the IARC designation and providing recommended safety
precautions. Such requirements also mandate that industrial customers who
purchase diatomite or perlite for use as a filler in their products label such
products to disclose hazards which may result from the inclusion of crystalline
silica-based fillers, if such products contain in excess of 0.1 percent of
crystalline silica by volume, 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. 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
31
crystalline silica. IDPA engaged an epidemiologist and an industrial hygienist
to examine the cohort to determine whether asbestos exposure was properly
accounted for in the Washington Study's results. The final IDPA report (the
"Asbestos Study") was issued in December 1994 and found:
"Although asbestos operations were small relative to the diatomaceous
earth operations, analyses in this report showed that exposure to asbestos
by workers was relatively common. For example, the number of cohort members
who were ever definitely, probably or possibly exposed to asbestos was
shown to involve approximately 60 percent of the cohort. Even when only men
employed in jobs definitely exposed to asbestos for more than [one] year in
the period 1950-1977 were considered, more than 8 percent of the cohort had
held such jobs."
The Asbestos Study's authors called for further analyses which fully take into
account the results of their study stating "[t]he interpretation of the
silica-lung cancer risk relationships based on the [Lompoc] cohort should await
the outcome of such analyses."
The results of the Asbestos Study were analyzed by the authors of the
Washington Study. They did not agree that asbestos was a likely confounder of
the results of the initial study.
In 1996, the Washington Study's authors, in association with researchers
from Tulane University, conducted a seven-year follow-up study of the Lompoc
cohort. The follow-up study, funded by a grant from the National Institute for
Occupational Safety and Health, reported a lower SMR for the cohort (1.29 vs.
1.43), a weakened dose response relationship (which may suggest a less
conclusive indication of a causative relationship between occupational exposure
to crystalline silica 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/m3 over the
working lifetime of the workers has not been appreciably different than in
non-exposed populations.
The various agreements covering the purchase of the business of Celite in
1991 provide for the indemnification of the holding company subsidiary of
Alleghany which acquired Celite by the various selling Manville entities in
respect of any environmental and health claims arising from the operations of
the business of Celite prior to its acquisition by the holding company
subsidiary. Such commitments of the selling Manville entities will terminate on
July 31, 2006 with respect to claims first asserted thereafter.
32
Employees
As of December 31, 2004, World Minerals and its consolidated subsidiaries
had approximately 1,591 employees worldwide, including 1,129 at Celite and 267
at Harborlite. Approximately 342 of Celite's employees and 40 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.
33
REAL ESTATE BUSINESS
Headquartered in Sacramento, California, Alleghany Properties owns and
manages properties in the Sacramento region of California. Such properties
include improved and unimproved commercial land and commercial and residential
lots. The majority of these properties are located in the City of Sacramento in
the planned community of North Natomas. A considerable amount of activity from
developers has occurred in the North Natomas area since 1998, including the
construction of more than 10,000 single family homes, 3,100 apartment units,
office buildings and several fully-leased regional retail shopping centers.
Participating in this growth, Alleghany Properties has sold over 372 acres of
residential land and 55 acres of commercial property.
At December 31, 2004, Alleghany Properties had four employees.
34
Item 2. Properties.
Alleghany's headquarters is located in leased office space of approximately
16,000 square feet at 375 Park Avenue in New York City.
RSUI leases approximately 115,000 square feet of office space in Atlanta,
Georgia for its headquarters and approximately 34,000 square feet of office
space in Sherman Oaks, California. Capitol Transamerica leases approximately
50,000 square feet of office space in Madison, Wisconsin for its and Platte
River's headquarters. Darwin leases approximately 12,500 square feet of office
space in Farmington, Connecticut for its headquarters.
World Minerals' headquarters is located in leased premises of approximately
13,000 square feet in Santa Barbara, California. On July 31, 1991, a holding
company subsidiary of Alleghany acquired all of Manville Corporation's worldwide
non-asbestos industrial minerals business (including the Lompoc, Guadalajara and
No Agua mining operations discussed below) for a total purchase price of
approximately $144.0 million. The acquired industrial minerals business is now
conducted principally through World Minerals. The significant mining operations
of Celite (constituting an aggregate of 77.0 percent of the annual diatomite
produced) and Harborlite (constituting an aggregate of 89.0 percent of the
annual perlite produced) are described below.
Lompoc, CA. Celite's largest mine in terms of tonnage produced is located
at 2500 Miguelito Road, Lompoc, California on property immediately adjacent to
the City of Lompoc, California, and accessed via public roads and highways. The
mine, which is an open-pit mine, celebrated its 100th anniversary of production
in 1993 and has been in continuous operation for more than 60 years. The Lompoc
property consists of approximately 8,700 acres, of which 5,000 acres are owned
and 3,700 acres consist of property on which Celite has leased mineral rights
from non-governmental third parties. All of the mining and mining operations are
currently conducted on 2,500 acres of the owned property, with 2,500 acres of
such property undeveloped. With respect to the mineral rights leases, such
leases are long-term (in excess of ten years) provided that Celite pays annual
minimum holding royalties and are not material to the current mining operations
of Celite.
Celite extracted, through surface mining, a total of approximately 297,000
tons of diatomaceous earth from the Lompoc property in 2004 and, on average, has
extracted a total of approximately 300,000 tons of diatomaceous earth from the
Lompoc property each year for the past three years, or approximately 46.0
percent of World Minerals' total diatomaceous earth production. This
diatomaceous earth is processed at the Lompoc production facility which has
approximately 1.0 million square feet of space, 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
35
departments and Celite's quality control laboratories. The plant and equipment
are maintained by a full-time maintenance department and operate on regular
replacement and repair cycles. The power sources used by the mining operations
are natural gas and electricity.
Celite believes that its proven and probable recoverable ore reserves of
diatomaceous earth at the Lompoc property are approximately 8.6 million tons, of
which approximately 72.0 percent consists of bright diatomite and approximately
28.0 percent consists of organically dark diatomite, which contains higher
sulfur content than bright diatomite, based on estimates by the mining and
exploration personnel employed by Celite. The Lompoc property's annual
utilization of dark ore diatomite is capped at approximately 20.0 percent using
current plant equipment due to air emission standards. Exploration programs have
identified a potential 6.0 million tons of bright reserves in addition to the
8.6 million of proven and probable reserves of diatomaceous earth, at the Lompoc
property.
Quincy, Washington. Celite's second largest mine in terms of tonnage
produced is located at 16419 Road 10.5 Northwest in Quincy, Washington and is
accessed via public roads and highways. The mine, plant and equipment were
acquired in 1991 from Witco Corporation for a purchase price of $10.0 million.
The mine, which is an open-pit mine, has been in continuous operation for more
than 50 years. The Quincy property consists of approximately 3,500 acres, 500
acres of which are owned and 3,000 acres of which consist of six separate
parcels with respect to which Celite has leased mineral rights from
non-governmental third parties. Approximately 85.0 percent of the current mining
operations occur on the leased parcels. The remaining terms of the active
mineral rights leases vary from two to fifteen years provided that Celite pays
annual minimum holding royalties and production royalties, where applicable.
Celite has no reason to believe that such leases will not be renewed on
commercially reasonable terms.
Celite extracted, through surface mining, a total of approximately 136,000
tons of diatomaceous earth from the Quincy property in 2004 and, on average, has
extracted a total of approximately 100,000 tons of diatomaceous earth from this
property each year for the past three years, or approximately 15.0 percent of
its total diatomaceous earth production. This diatomaceous earth is processed at
the Quincy production facility which has approximately 60,941 square feet of
space and has a rated capacity in excess of 85,000 tons annually. The plant and
equipment are maintained by a full-time maintenance department and operate on
regular replacement and repair cycles. The power sources of the mining
operations are natural gas and electricity.
Celite believes that its proven and probable recoverable reserves of
diatomaceous earth at the Quincy property are approximately 3.1 million tons,
based on estimates by the mining and exploration personnel employed by Celite.
36
Guadalajara, Mexico. Celite's third largest mine in terms of tonnage
produced is located at Almeria, S.A. de C.V., Jose A. Torres 400, General Andres
Figueroa, KM 55 Carretera Guadalajara-CD Guzman, Jalisco, Mexico C.P. 44910
approximately 45 kilometers south of Guadalajara, Mexico and is accessed via
public roads and highways. The mine, which is an open-pit mine, has been in
continuous operation for more than 40 years. The Guadalajara mining activity is
conducted on approximately 12,500 acres of government granted mineral
concessions. The active concessions continue for a period of at least 20 years,
provided Celite continues mining above minimum required production amounts,
makes annual payments of concession taxes, meets certain environmental
conditions and provides required extraction reports. The processing facility is
located on approximately 110 acres of company owned property.
Celite extracted, through surface mining, a total of approximately 105,000
tons of diatomaceous earth from the Guadalajara property in 2004 and, on
average, has extracted a total of approximately 88,000 tons of diatomaceous
earth from this property each year for the past three years, or approximately
16.0 percent of its total diatomaceous earth production. This diatomaceous earth
is processed at the Guadalajara production facility which has approximately
116,000 square feet of space and has a rated capacity in excess of 60,000 tons
annually. The plant and equipment are maintained by a full-time maintenance
department and operate on regular replacement and repair cycles. The power
sources of the mining operations are diesel oil and electricity.
Celite believes that its proven and probable recoverable reserves of
diatomaceous earth at the Guadalajara property are approximately 5.7 million
tons, based on estimates by the mining and exploration personnel employed by
Celite.
Perlite
No Agua, New Mexico. Harborlite's largest mine in terms of tonnage produced
is located on U.S. Highway 285 in No Agua, New Mexico and is accessed via public
roads and highways. The mine, which is an open-pit mine, has been in continuous
operation for more than 40 years. The No Agua property consists of approximately
1,579 acres of property owned by Harborlite, of which approximately 350 acres
are developed.
Harborlite extracted, through surface mining, a total of approximately
302,000 tons of perlite from the No Agua property in 2004 and, on average, has
extracted a total of approximately 250,000 tons of perlite from this property
each year for the past three years, or approximately 54.0 percent of its total
perlite production. This perlite is crushed and screened at the No Agua facility
which has approximately 41,000 square feet of space and has a rated capacity in
excess of 250,000 tons annually. The plant and equipment are fully maintained by
a full-time maintenance department and operate on regular replacement and repair
cycles. The power sources are diesel fuel and electricity.
37
Harborlite believes that its proven and probable recoverable reserves of
perlite at the No Agua property are approximately 31.6 million tons, based on
estimates by the mining and exploration personnel employed by Harborlite.
Dikili, Turkey. Harborlite's second largest mine in terms of tonnage
produced is located at Izmir-Cannakkale Karayolli 110 km. Kaynarca Mevkii, 35880
Dikili-Izmir, near Dikili, Turkey and is accessed via public roads and highways.
The Dikili property and mine were acquired in 1995 for a purchase price of $4.0
million from EGE Endustri Mineralleri Sanayi A.S. The mine, which is an open-pit
mine developed by Harborlite, has been in continuous operation for more than
nine years. The Dikili property consists of approximately 20 square kilometers,
of which approximately 10 acres is owned and the remainder is utilized pursuant
to government granted mineral concessions. The mine site is located on the
leased portion and the plant on the owned portion. The terms of the government
granted concessions range from ten to thirty years and are renewable provided
that Harborlite makes annual concession fee payments or production royalty
payments where applicable and provides required production reports to the mining
agency of the Turkish government.
Harborlite extracted, through surface mining, a total of approximately
95,000 tons of perlite from the Dikili property in 2004 and, on average, has
extracted a total of approximately 100,000 tons of perlite from this property
each year for the past three years, or approximately 23.0 percent of its total
perlite production. This perlite is crushed and screened at the Dikili facility
which has approximately 63,000 square feet of space and has a rated capacity in
excess of 115,000 tons annually. The plant and equipment are maintained by a
full-time maintenance department and operate on regular replacement and repair
cycles. The power sources are diesel, olive seeds and electricity.
Harborlite believes that its proven and probable reserves of perlite at the
Dikili property are approximately 4.5 million tons. Recoverable reserve
estimates are 25.0 percent lower due to loss of product during mining and plant
operations, based on estimates by the mining and exploration personnel employed
by Harborlite.
Superior, Arizona. Harborlite's third largest mine in terms of tonnage
produced is located at 45156 Silver King Road in Superior, Arizona and is
accessed via public roads and highways. This open-pit mine, along with the
perlite expansion plants located in the United States, was acquired in 1992 for
a purchase price of $15.8 million from a private, individual landowner and has
been in continuous operation for more than 40 years. The Superior property
consists of approximately 2,000 acres, of which approximately 200 acres are
owned. The remaining 1,800 acres consists of U.S. Forest Service property on
which Harborlite holds unpatented mining claims. Of the total acreage of the
property, the active mine consists of approximately 100 acres, plant and
equipment is on approximately 20 acres and approximately 1,880 acres are
undeveloped.
38
Harborlite extracted, through surface mining, a total of approximately
59,000 tons of perlite from the Superior property in 2004 and, on average, has
extracted a total of approximately 55,000 tons of perlite from this property
each year for the past three years, or approximately 12.0 percent of its total
perlite production. This perlite is crushed and screened at the Superior
facility which has approximately 7,000 square feet of space and has a rated
capacity in excess of 70,000 tons annually. The plant and equipment are fully
maintained by a full-time maintenance department and operate on regular
replacement and repair cycles. The power sources are natural gas and
electricity.
Harborlite believes that its proven and probable recoverable reserves of
perlite at the Superior property are approximately 3.1 million tons, based on
estimates by the mining and exploration personnel employed by Harborlite.
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 GAAP, for estimated losses to
be incurred in such litigation and claims, including legal costs. In the opinion
of management, such provision is adequate under GAAP as of December 31, 2004.
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 2004.
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:
39
Current Position Business Experience
Name Age (date elected) During Last 5 Years
---- --- ---------------- -------------------
F.M. Kirby 85 Chairman of the Board (since Chairman of the Board, Alleghany.
1967)
Weston M. Hicks 48 President, chief executive Executive Vice President, Alleghany (from October
officer (since December 2004) 2002 to December 2004); Executive Vice President
and Chief Financial Officer, The Chubb Corporation
(from June 2001 to October 2002); Chief Financial
Officer, The Chubb Corporation (from May 2001 to
October 2002); Senior Vice President and Financial
Assistant to the Chairman, The Chubb Corporation
(March 2001 to May 2001); 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 72 Senior Vice President and Senior Vice President and chief financial officer,
chief financial officer (since Alleghany.
1989)
Robert M. Hart 60 Senior Vice President, General Senior Vice President, General Counsel and
Counsel (since 1994) and Secretary, Alleghany.
Secretary (since 1995)
James P. Slattery 53 Senior Vice President - Senior Vice President - Insurance, Alleghany;
Insurance (since 2002) President, JPS & Co., LLC (from April 2001); Chief
Operating Officer and Deputy Chief Executive
Officer, Swiss Reinsurance America Corporation
(from November 1999 to April 2001); Senior Vice
President - Swiss Re (from 1983 to 1999).
40
Peter R. Sismondo 49 Vice President, Controller, Vice President, Controller, Treasurer,
Assistant Secretary, principal Assistant Secretary and principal
accounting officer (since accounting officer, Alleghany.
1989) and Treasurer (since
1995)
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 46 of Alleghany's Annual Report to
Stockholders for the year 2004, filed as Exhibit 13 hereto.
Item 6. Selected Financial Data.
The information required by this Item 6 is incorporated by reference from
page 46 of Alleghany's Annual Report to Stockholders for the year 2004, 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 10 through 20, 22 through 44, 48 through 51 and 54 of Alleghany's Annual
Report to Stockholders for the year 2004, 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 52 through 54 of Alleghany's Annual Report to Stockholders for the year
2004, 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 56 through 78 of Alleghany's Annual Report to Stockholders for the year
2004, filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
41
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Alleghany carried out an evaluation, under the supervision and with the
participation of its management, including the Chief Executive Officer (the
"CEO") and the Chief Financial Officer (the "CFO"), of the effectiveness of the
design and operation of Alleghany's disclosure controls and procedures as of the
end of the period covered by this Form 10-K Report pursuant to Rule 13a-15
promulgated under the Securities Exchange Act of 1934. Based on that evaluation,
Alleghany's management, including the CEO and CFO, concluded that Alleghany's
disclosure controls and procedures were effective as of such date in timely
alerting them to material information required to be included in Alleghany's
periodic reports required to be filed with the Securities and Exchange
Commission. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
Management's Report on Internal Control over Financial Reporting
Management's report on internal control over financial reporting required
by this Item 9A is incorporated by reference from pages 55 and 79 of Alleghany's
Annual Report to Stockholders for the year 2004, filed as Exhibit 13 hereto.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during
the quarter ended December 31, 2004 that materially affected, or are reasonably
likely to materially affect, Alleghany's internal control over financial
reporting.
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 4 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 22, 2005. Information concerning compliance with the reporting
requirements under Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from page 13 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 22, 2005.
42
In September 2003, the Board of Directors of Alleghany adopted a Financial
Personnel Code of Ethics (the "Financial Personnel Code of Ethics") applicable
to its chief executive officer, chief financial officer, chief accounting
officer and vice president for tax matters that complies with the requirements
of Item 406 of Regulation S-K under the Securities Exchange Act of 1934, as
amended. The Financial Personnel Code of Ethics supplements Alleghany's Code of
Business Conduct and Ethics, adopted by the Board of Directors of Alleghany in
September 2003, which is applicable to all employees of Alleghany and its
directors. A copy of the Financial Personnel Code of Ethics was filed as an
Exhibit to Alleghany's annual report on Form 10-K for the year ended December
31, 2003. The Financial Personnel Code of Ethics and the Code of Business
Conduct and Ethics are available on Alleghany's website at www.alleghany.com or
may be obtained, free of charge, upon request to the Secretary of Alleghany.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference from
pages 13 through 25 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 22, 2005.
The information set forth beginning on the bottom of page 25 through page 33 of
Alleghany's Proxy Statement, filed or to be filed in connection with its Annual
Meeting of Stockholders to be held on April 22, 2005, is not "filed" as a part
hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2004,
relating to the equity compensation plans of Alleghany under which equity
securities of Alleghany are authorized for issuance:
43
(C)
NUMBER OF
(A) SECURITIES REMAINING
NUMBER OF (B) AVAILABLE FOR FUTURE
SECURITIES TO BE WEIGHTED- ISSUANCE UNDER
ISSUED UPON AVERAGE EXERCISE EQUITY
EXERCISE OF PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED
PLAN CATEGORY AND RIGHTS AND RIGHTS IN COLUMN(A))
- ----------------------------- ----------------- ----------------- --------------------
Equity compensation plans
approved by security
holders(1) ............... 86,469(2) $148.78 796,255
Equity compensation plans not
approved by security
holders(3) ............... 23,459 $138.71 10,440
------- ------- -------
Total ....................... 109,928 806,695
======= =======
- ----------
(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
(the "1993 Plan")and (v) the 2002 Long-Term Incentive Plan (the "2002
Plan"). The 2000 Directors' Stock Option Plan, which provided for the
annual grant of an option to purchase 1,000 shares of Common Stock (subject
to antidilution adjustments) to each director who was not an employee of
the Company or any of its subsidiaries, expired on December 31, 2004 and
therefore no shares of Common Stock remain available for future grants. As
of December 31, 2004, options to purchase 86,469 shares of Common Stock
(subject to antidilution adjustments) were outstanding. The Directors'
Equity Plan, which provides for the payment of a non-employee director's
annual retainer for service as a director one-half in shares of Common
Stock (which are not subject to any forfeiture or transfer restrictions)
and one-half in cash, is due to expire on December 31, 2005. In December
2004, the Board of Directors adopted the 2005 Directors' Stock Plan (the
"2005 Directors' Plan"), effective upon stockholder approval. Upon such
stockholder approval, the Directors' Equity Plan will be terminated and no
more grants of Common Stock will be made. Under the 2005 Directors' Plan, a
maximum of 50,000 shares of Common Stock, which are not included in the
above table, may be issued to non-
44
employee directors and/or purchased pursuant to stock options granted
thereunder, subject to antidilution and other adjustments in certain events
specified in the 2005 Directors' Plan. Such shares of Common Stock may be
original issue shares of Common Stock, treasury stock, shares of Common
Stock purchased in the open market or otherwise.
(2) This amount does not include 49,783 performance shares outstanding under
the 1993 Plan and 98,333 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.
(3) These plans consist of: (i) the Subsidiary Directors' Stock Option Plan
(the "Subsidiary Option Plan") and (ii) 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 selected 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, 2004, options to purchase 7,752 shares of Alleghany's Common
Stock (subject to adjustment by reason of any stock split, stock dividend
or other similar event) were outstanding. The Subsidiary Option Plan
expired on July 31, 2003 and therefore no shares of Alleghany's Common
Stock remain available for future grants. 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. 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, 2004, options to purchase 20,728 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 1997 Plan, options expire if they are not
45
exercised prior to the earliest of (i) the tenth anniversary of the date of
grant of the original warrant or option, (ii) three months after
termination of the optionee's employment for any reason except death or a
permanent disability, or (iii) one year after termination of the optionee's
employment by reason of death or permanent disability.
The additional information required by this Item 12 is incorporated by
reference from pages 1 through 4, and from pages 11 through 13, of Alleghany's
Proxy Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 22, 2005.
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 22, 2005.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated by reference from
pages 43 and 44 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 22, 2005.
46
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and its subsidiaries,
together with the report thereon of KPMG LLP, independent registered public
accounting firm, are incorporated by reference from the Annual Report to
Stockholders for the year 2004 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 registered public accounting firm, 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.
3.02 By-laws of Alleghany, as amended September 21, 2004, filed as
Exhibit 3.2 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004, 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.
47
*10.02 Alleghany 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(a) Alleghany 1993 Long-Term Incentive Plan, as amended and
restated effective as of January 1, 1994, filed as Exhibit
10.06(b) to Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by reference.
*10.03(b) 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.
*10.05 Alleghany Retirement Plan, amended and restated as of July 1,
2004.
*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.
*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.
48
*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, as amended,
effective January 1, 2005.
*10.11(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.
*10.11(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.
*10.11(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.
- ----------
* Compensatory plan or arrangement.
49
*10.11(d) Restricted Stock Award Agreement, dated December 31, 2004,
between Alleghany and Weston M. Hicks.
*10.12 Description of compensatory arrangements between Alleghany and
John J. Burns, Jr., filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2004, is incorporated herein by reference.
*10.13 Description of compensatory arrangements between Alleghany and
its directors.
*10.14 Description of compensatory arrangements between Alleghany and
its named executive officers, as defined by Item 402(a)(3) of
Regulation S-K.
10.15(a) Credit Agreement, dated as of July 28, 2004, among Alleghany,
the banks which are signatories thereto, Wachovia Bank,
National Association as administrative agent for the banks,
U.S. Bank National Association as syndication agent for the
banks, and LaSalle Bank National Association and HSBC Bank USA,
National Association, as documentation agents for the banks
(the "Credit Agreement"), filed as Exhibit 10.4 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, is incorporated herein by reference.
10.15(b) List of Contents of Exhibits and Schedules to the Credit
Agreement. The Company agrees to furnish supplementally a copy
of any omitted exhibit or schedule to the Securities and
Exchange Commission upon request.
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.
- ----------
* Compensatory plan or arrangement.
50
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.
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.
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.
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.
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. Alleghany agrees to
furnish supplementally a copy of any omitted exhibit or
schedule to the Securities and Exchange Commission upon
request.
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.
51
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. Alleghany
agrees to furnish supplementally a copy of any omitted exhibit
or schedule to the Securities and Exchange Commission upon
request.
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.
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. Alleghany agrees to
furnish supplementally a copy of any omitted exhibit or
schedule to the Securities and Exchange Commission upon
request.
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.
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.
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. Alleghany agrees to furnish
supplementally a copy of any omitted exhibit or schedule to the
Securities and Exchange Commission upon request.
52
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.
10.21(a) Credit Agreement dated as of March 12, 2003 among Mineral
Holdings, Inc., World Minerals, designated subsidiary
borrowers, the Banks named therein and Union Bank of
California, N.A., as Sole Lead Arranger, 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, 2003, 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, 2003, 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.
10.21(c) Subordination Agreement dated as of March 12, 2003 between
Alleghany and Union Bank of California, N.A., as Administrative
Agent and Collateral Agent, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003, 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.
53
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. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit or schedule to the Securities and
Exchange Commission upon request.
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. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit or schedule to the Securities and
Exchange Commission upon request.
54
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.
Alleghany agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Securities and Exchange
Commission upon request.
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.
55
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) 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.
10.27(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. Alleghany
agrees to furnish supplementally a copy of any omitted exhibit
or schedule to the Securities and Exchange Commission upon
request.
10.28(a) Acquisition Agreement, dated as of June 6, 2003, by and between
Royal Group, Inc. and AIHL (the "Resurgens Specialty
Acquisition Agreement"), filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, is incorporated herein by reference.
56
10.28(b) List of Contents of Exhibits and Schedules to the Resurgens
Specialty Acquisition Agreement, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, 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.
10.29 Assignment and Assumption Agreement, dated as of June 30, 2003,
by and between AIHL and RSUI (regarding the transfer of rights
under the Resurgens Specialty Acquisition Agreement), filed as
Exhibit 10.3 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, is incorporated herein by
reference.
10.30(a) Quota Share Reinsurance Agreement, dated as of July 1, 2003, by
and between Royal Indemnity Company and RIC (the "Royal
Indemnity Company Quota Share Reinsurance Agreement"), filed as
Exhibit 10.4 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, is incorporated herein by
reference.
10.30(b) List of Contents of Exhibits and Schedules to the Royal
Indemnity Company Quota Share Reinsurance Agreement, filed as
Exhibit 10.5 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, 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.
10.31(a) Quota Share Reinsurance Agreement, dated as of July 1, 2003, by
and between Royal Surplus Lines Insurance Company and RIC (the
"Royal Surplus Lines Insurance Company Quota Share Reinsurance
Agreement"), filed as Exhibit 10.6 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, is
incorporated herein by reference.
57
10.31(b) List of Contents of Exhibits and Schedules to the Royal Surplus
Lines Insurance Company Quota Share Reinsurance Agreement,
filed as Exhibit 10.7 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, 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.
10.32(a) Quota Share Reinsurance Agreement, dated as of July 1, 2003, by
and between Landmark and RIC (the "Landmark Quota Share
Reinsurance Agreement"), filed as Exhibit 10.8 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, is incorporated herein by reference.
10.32(b) List of Contents of Exhibits and Schedules to the Landmark
Quota Share Reinsurance Agreement, filed as Exhibit 10.9 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, 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.
10.33(a) Administrative Services Agreement, dated as of July 1, 2003, by
and among Royal Indemnity Company, Resurgens Specialty and RIC
(the "Royal Indemnity Company Administrative Services
Agreement"), filed as Exhibit 10.10 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, is
incorporated herein by reference.
10.33(b) List of Contents of Exhibits and Schedules to the Royal
Indemnity Company Administrative Services Agreement, filed as
Exhibit 10.11 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, 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.
58
10.34(a) Administrative Services Agreement, dated as of July 1, 2003, by
and among Royal Surplus Lines Insurance Company, Resurgens
Specialty and RIC (the "Royal Surplus Lines Insurance Company
Administrative Services Agreement"), filed as Exhibit 10.12 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.34(b) List of Contents of Exhibits and Schedules to the Royal Surplus
Lines Insurance Company Administrative Services Agreement,
filed as Exhibit 10.13 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, 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.
10.35(a) Administrative Services Agreement, dated as of July 1, 2003, by
and among Royal Insurance Company of America, Resurgens
Specialty and RIC (the "Royal Insurance Company of America
Administrative Services Agreement"), filed as Exhibit 10.14 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.35(b) List of Contents of Exhibits and Schedules to the Royal
Insurance Company of America Administrative Services Agreement,
filed as Exhibit 10.15 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, 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.
10.36(a) Administrative Services Agreement, dated as of July 1, 2003, by
and among Landmark, Resurgens Specialty and RIC (the "Landmark
Administrative Services Agreement"), filed as Exhibit 10.16 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
59
10.36(b) List of Contents of Exhibits and Schedules to the Landmark
Administrative Services Agreement, filed as Exhibit 10.17 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, 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.
10.37(a) Trust Agreement, dated as of July 1, 2003, by and among Royal
Indemnity Company, Royal Surplus Lines Insurance Company,
Landmark, RIC and LaSalle Bank National Association, as Trustee
(the "Trust Agreement"), filed as Exhibit 10.18 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, is incorporated herein by reference.
10.37(b) Amendment, dated as of September 2, 2003, amending the Trust
Agreement, filed as Exhibit 10.7 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003,
is incorporated herein by reference.
10.38(a) Assignment of Net Premium Receivables, dated as of July 1,
2003, by and between LaSalle Bank National Association and
Royal Indemnity Company, Royal Surplus Lines Insurance Company
and Landmark ("Assignment of Receivables"), filed as Exhibit
10.19 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, is incorporated herein by
reference.
10.38(b) Amendment, dated as of September 2, 2003, amending the
Assignment of Receivables, filed as Exhibit 10.8 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2003, is incorporated herein by reference. 10.39(a)
Assignment of Reinsurance Recoverables, dated as of July 1,
2003, by and among RIC, LaSalle Bank National Association and
Royal Indemnity Company, Royal Surplus Lines Insurance Company
and Landmark ("Assignment of Recoverables"), filed as Exhibit
10.20 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, is incorporated herein by
reference.
10.39(a) Assignment of Reinsurance Recoverables, dated as of July 1,
2003, by and among RIC, LaSalle Bank National Association and
Royal Indemnity Company, Royal Surplus Lines Insurance Company
and Landmark ("Assignment of Recoverables"), filed as Exhibit
10.20 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, is incorporated herein by
reference.
60
10.39(b) Amendment, dated as of September 2, 2003, amending the
Assignment of Recoverables, filed as Exhibit 10.9 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003, is incorporated herein by reference.
10.40 Administrative Services Intellectual Property License
Agreement, dated as of July 1, 2003, by and between Royal
Indemnity Company and Resurgens Specialty (entered into
pursuant to the Royal Indemnity Company Administrative Services
Agreement), filed as Exhibit 10.21 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, is
incorporated herein by reference.
10.41 Administrative Services Intellectual Property License
Agreement, dated as of July 1, 2003, by and between Royal
Indemnity Company and Resurgens Specialty (entered into
pursuant to the Royal Surplus Lines Insurance Company
Administrative Services Agreement), filed as Exhibit 10.22 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.42 Administrative Services Intellectual Property License
Agreement, dated as of July 1, 2003, by and between Royal
Indemnity Company and Resurgens Specialty (entered into
pursuant to the Royal Insurance Company of America
Administrative Services Agreement), filed as Exhibit 10.23 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.43 Administrative Services Intellectual Property License
Agreement, dated as of July 1, 2003, by and between Royal
Indemnity Company and Resurgens Specialty (entered into
pursuant to the Landmark Administrative Services Agreement),
filed as Exhibit 10.24 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, is incorporated
herein by reference.
61
10.44(a) Claims Servicing Agreement, dated as of July 1, 2003, by and
among RIC, Royal Indemnity Company, Royal Surplus Lines
Insurance Company, Landmark, Royal Insurance Company of
America, American and Foreign Insurance Company, Globe
Indemnity Company, Safeguard Insurance Company and Phoenix
Assurance Company of New York (the "Claims Servicing
Agreement"), filed as Exhibit 10.25 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, is
incorporated herein by reference.
10.44(b) List of Contents of Exhibits and Schedules to the Claims
Servicing Agreement, filed as Exhibit 10.26 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, 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.
10.45 Claims Servicing Information Technology License Agreement,
dated as of July 1, 2003, by and between Royal Indemnity
Company and RIC, filed as Exhibit 10.27 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, is incorporated herein by reference.
10.46(a) Renewal Rights Agreement, dated as of July 1, 2003, by and
among Landmark, Royal Indemnity Company, Royal Surplus Lines
Insurance Company, Royal Insurance Company of America and AIHL
(the "Renewal Rights Agreement"), filed as Exhibit 10.28 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.46(b) List of Contents of Exhibits to the Renewal Rights Agreement,
filed as Exhibit 10.29 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003, 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.
62
10.47(a) Transition Services Agreement, dated as of July 1, 2003, by and
among Royal Group, Inc., RSUI and Resurgens Specialty (the
"Transition Services Agreement"), filed as Exhibit 10.30 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.47(b) List of Contents of Schedules to the Transition Services
Agreement, filed as Exhibit 10.31 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, 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.
10.48 Transitional Trademark License Agreement, dated as of July 1,
2003, by and among R&SA, Resurgens Specialty and RSA Surplus
Lines Insurance Services, Inc, filed as Exhibit 10.32 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.49 Employee Leasing Agreement, dated as of July 1, 2003, by and
between Royal Indemnity Company and RIC, filed as Exhibit 10.33
to Alleghany's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, is incorporated herein by reference.
10.50(a) Managing General Agency Agreement, dated as of July 1, 2003, by
and among Resurgens Specialty, as Managing General Agent, Royal
Indemnity Company, Royal Surplus Lines Insurance Company, Royal
Insurance Company of America and Landmark (the "Managing
General Agency Agreement"), filed as Exhibit 10.34 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.50(b) List of Contents of Exhibits to the Managing General Agency
Agreement, filed as Exhibit 10.35 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, 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.
63
10.51(a) Stock Purchase Agreement, dated as of July 1, 2003, by and
between AIHL and Royal Group, Inc. (the "RSA Surplus Lines
Insurance Services, Inc. Stock Purchase Agreement"), filed as
Exhibit 10.36 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003, is incorporated herein by
reference.
10.51(b) List of Contents of Exhibits and Schedules to the RSA Surplus
Lines Insurance Services, Inc. Stock Purchase Agreement, filed
as Exhibit 10.37 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003, 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.
10.52 Assignment and Assumption of Liabilities Agreement, dated as of
July 1, 2003, by and between RSA Surplus Lines Insurance
Services, Inc. and Royal Indemnity Company, filed as Exhibit
10.38 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, is incorporated herein by
reference.
10.53 Assignment and Assumption Agreement, dated as of July 1, 2003,
by and between AIHL and RSUI, filed as Exhibit 10.39 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.54 Assignment and Assumption Agreement, dated as of July 1, 2003,
by and between AIHL and RSUI, filed as Exhibit 10.40 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.55 Assignment and Assumption Agreement, dated as of July 1, 2003,
by and between AIHL and RSUI, filed as Exhibit 10.41 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
64
10.56(a) Stock Purchase Agreement, dated as of June 6, 2003, by and
between AIHL and Guaranty National Insurance Company (the
"Landmark Stock Purchase Agreement"), filed as Exhibit 10.42 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.56(b) List of Contents of Exhibits and Schedules to the Landmark
Stock Purchase Agreement, filed as Exhibit 10.43 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, 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.
10.57(a) Stock Purchase Agreement, dated as of June 12, 2003, by and
between Swiss Re America Holding Corporation and RSUI (the "RIC
Stock Purchase Agreement"), filed as Exhibit 10.44 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is incorporated herein by reference.
10.57(b) List of Contents of Exhibits and Schedules to the RIC Stock
Purchase Agreement, filed as Exhibit 10.45 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, 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.
10.58 Assignment and Assumption Agreement, dated as of July 1, 2003,
by and between AIHL and RIC (regarding the transfer of rights
under the Landmark Stock Purchase Agreement), filed as Exhibit
10.1 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, is incorporated herein by
reference.
10.59(a) RIC (Landmark) Quota Share Reinsurance Agreement, dated as of
September 2, 2003, by and between Landmark and Royal Indemnity
Company (the "Royal Indemnity Company (Landmark) Quota Share
Reinsurance Agreement"), filed as Exhibit 10.2 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2003, is incorporated herein by reference.
65
10.59(b) List of Contents of Exhibits and Schedules to the Royal
Indemnity Company (Landmark) Quota Share Reinsurance Agreement,
filed as Exhibit 10.3 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 2003, 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.
10.60(a) RIC (Landmark) Administrative Services Agreement, dated as of
September 2, 2003, by and between Royal Indemnity Company and
Landmark (the "Royal Indemnity Company (Landmark)
Administrative Services Agreement"), filed as Exhibit 10.4 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003, is incorporated herein by reference.
10.60(b) List of Contents of Exhibits and Schedules to the Royal
Indemnity Company (Landmark) Administrative Services Agreement,
filed as Exhibit 10.5 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 2003, 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.
10.61 Assumption of Liabilities Agreement, dated as of September 2,
2003, by and between Landmark and Royal Indemnity Company,
filed as Exhibit 10.6 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 2003, is incorporated
herein by reference.
10.62(a) Stock Purchase Agreement, dated as of January 30, 2004, by and
among AIHL, Aegis Holding Inc. and Associated Electric & Gas
Insurance Services Limited Landmark and Royal Indemnity Company
("Aegis Stock Purchase Agreement"), filed as Exhibit 10.65 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 2003, is incorporated herein by reference.
10.62(b) List of Contents of Exhibits and Schedules to the Aegis Stock
Purchase Agreement. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit or schedule to the Securities and
Exchange Commission upon request, filed as Exhibit 10.66 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 2003, is incorporated herein by reference.
66
10.63 Closing Agreement, dated May 3, 2004, by and among Darwin
Group, Inc., Aegis Holding Inc. and Associated Electric & Gas
Insurance Services Limited, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004, is incorporated herein by reference.
10.64 Trust Agreement, dated as of June 10, 2004, by and among Royal
Indemnity Company, Royal Surplus Lines Insurance Company, RSUI
Indemnity Company and The Bank of New York, as Trustee, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, is incorporated herein by
reference.
10.65 Assignment of Net Premium Receivables, dated as of June 10,
2004, by and among The Bank of New York, Royal Indemnity
Company and Royal Surplus Lines Insurance Company, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004, is incorporated herein by
reference.
10.66 Assignment of Reinsurance Recoverables, dated as of June 10,
2004, by and among RSUI Indemnity Company, The Bank of New
York, Royal Indemnity Company and Royal Surplus Lines Insurance
Company, filed as Exhibit 10.3 to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004, is
incorporated herein by reference.
10.67(a) Agreement and Plan of Merger, dated as of December 23, 2004,
among HTI Acquisition LLC, Heads & Threads and Alleghany (the
"Heads & Threads Merger Agreement").
10.67(b) List of Contents of Exhibits and Schedules to the Heads &
Threads Merger Agreement. Alleghany agrees to furnish
supplementally a copy of any omitted exhibit or schedule to the
Securities and Exchange Commission upon request.
10.68(a) Stock Purchase Agreement, dated as of January 31, 2005, by and
among Darwin National Assurance Company and Ulico Casualty
Company ("Ulico Stock Purchase Agreement").
10.68(b) List of Contents of Exhibits and Schedules to the Ulico Stock
Purchase Agreement. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit or schedule to the Securities and
Exchange Commission upon request.
67
13 Pages 10 through 20, 22 through 44, 46 and 48 through 79, of
the Annual Report to Stockholders of Alleghany for the year
2004.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG LLP, independent registered public accounting
firm, to the incorporation by reference of its reports relating
to the financial statements the related schedules of Alleghany
and subsidiaries and its attestation report 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).
31.1 Certification of the Chief Executive Officer of Alleghany
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of Alleghany
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer of Alleghany
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit
shall not be deemed "filed" as a part of this Annual Report on
Form 10-K.
32.2 Certification of the Chief Financial Officer of Alleghany
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit
shall not be deemed "filed" as a part of this Annual Report on
Form 10-K.
68
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 8, 2005 By /s/ Weston M. Hicks
-------------------------------------
Weston M. Hicks
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 8, 2005 By /s/ Rex D. Adams
-------------------------------------
Rex D. Adams
Director
Date: March 8, 2005 By /s/ John J. Burns, Jr.
-------------------------------------
John J. Burns, Jr.
Vice Chairman of the Board
and Director
Date: March 8, 2005 By
-------------------------------------
Dan R. Carmichael
Director
Date: March 8, 2005 By /s/ David B. Cuming
-------------------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 8, 2005 By /s/ Weston M. Hicks
-------------------------------------
Weston M. Hicks
President and Director
(principal executive
officer)
69
Date: March 8, 2005 By /s/ Thomas S. Johnson
-------------------------------------
Thomas S. Johnson
Director
Date: March 8, 2005 By /s/ Allan P. Kirby, Jr.
-------------------------------------
Allan P. Kirby, Jr.
Director
Date: March 8, 2005 By /s/ F.M. Kirby
-------------------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 8, 2005 By /s/ William K. Lavin
-------------------------------------
William K. Lavin
Director
Date: March 8, 2005 By /s/ Roger Noall
-------------------------------------
Roger Noall
Director
Date: March 8, 2005 By /s/ Peter R. Sismondo
-------------------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 8, 2005 By /s/ James F. Will
-------------------------------------
James F. Will
Director
70
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS - OTHER THAN IN RELATED PARTIES
II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
III SUPPLEMENTARY INSURANCE INFORMATION
IV REINSURANCE
V VALUATION AND QUALIFYING ACCOUNTS
VI SUPPLEMENTAL INFORMATION CONCERNING INSURANCE OPERATIONS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2004
(in thousands)
AMOUNT AT
WHICH SHOWN
IN THE
FAIR BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ------------------ ---------- ---------- -----------
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities $ 93,469 $ 92,760 $ 92,760
States, municipalities and political subdivisions 573,779 575,236 575,236
Foreign governments 0 0 0
Mortgage backed securities 237,883 237,799 237,799
All other bonds 273,851 273,415 273,415
Redeemable preferred stock 0 0 0
---------- ---------- ----------
Fixed maturities $1,178,982 $1,179,210 $1,179,210
---------- ---------- ----------
Equity securities:
Common stocks:
Banks, trust, and insurance companies $ 63,692 $ 104,558 $ 104,558
Public utilities 6,960 8,199 8,199
Industrial, miscellaneous, and all other 219,945 532,427 532,427
---------- ---------- ----------
Equity securities $ 290,597 $ 645,184 $ 645,184
---------- ---------- ----------
Short-term investments 378,452 378,452 378,452
---------- ---------- ----------
Total investments $1,848,031 $2,202,846 $2,202,846
========== ========== ==========
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(in thousands)
2004 2003
---------- ----------
Assets
Equity securities (cost: 2004 $140,345; 2003 $123,846) $ 446,355 $ 293,053
Debt securities (cost: 2004 $11,096; 2003 $15,322) 11,096 15,309
Short-term investments 80,948 81,880
Cash 2,069 1,950
Notes receivable -- 140
Accounts receivable 3,206 1,415
Property and equipment - at cost, net of accumulated depreciation 189 155
Other assets 6,854 4,598
Deferred tax assets 18,047 11,487
Investment in subsidiary classified as discontinued operation -- 51,736
Current tax receivable 1,881 --
Investment in subsidiaries 1,407,176 1,277,537
---------- ----------
$1,977,821 $1,739,260
========== ==========
Liabilities and common stockholders' equity
Current taxes payable $ -- $ 17,978
Other liabilities 51,920 35,928
Deferred tax liabilities 150,678 103,409
Long-term debt 19,123 19,123
---------- ----------
Total liabilities 221,721 176,438
Stockholders' equity 1,756,100 1,562,822
---------- ----------
$1,977,821 $1,739,260
========== ==========
See accompanying Notes to Condensed Financial Statements.
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 2004
(in thousands)
2004 2003 2002
-------- -------- -------
Revenues:
Interest, dividend and other income $ 7,661 $ 11,894 $21,490
Net gain on investment transactions 2,392 96,748 48,132
-------- -------- -------
Total revenues 10,053 108,642 69,622
-------- -------- -------
Costs and Expenses:
Interest expense 2,618 2,660 2,556
General and administrative 40,215 34,770 25,593
-------- -------- -------
Total costs and expenses 42,833 37,430 28,149
-------- -------- -------
Operating (loss) profit (32,780) 71,212 41,473
Equity in earnings of consolidated subsidiaries 202,907 174,088 13,495
-------- -------- -------
Earnings from continuing operations, before income taxes 170,127 245,300 54,968
Income taxes 52,179 79,112 1,583
-------- -------- -------
Earnings from continuing operations 117,948 166,188 53,385
(Loss) earnings from discontinued operations
(including loss on disposal of $1,950 in 2004) (1,033) (4,933) 2,436
Income taxes (benefit) (781) (1,123) 1,008
-------- -------- -------
(Loss) earnings from discontinued operations (252) (3,810) 1,428
-------- -------- -------
Net earnings $117,696 $162,378 $54,813
======== ======== =======
See accompanying Notes to Condensed Financial Statements.
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2004
(in thousands)
2004 2003 2002
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 117,948 $ 166,188 $ 53,385
Adjustments to reconcile earnings to cash provided by (used in) operations:
Equity in undistributed net (earnings) losses of consolidated subsidiaries (134,129) (114,077) 9,717
Capital contributions to consolidated subsidiaries (20,547) (366,747) (17,776)
Distributions from consolidated subsidiaries 8,459 58,217 248,220
Depreciation and amortization 1,165 743 47
Net gain on investment transactions and sales of subsidiaries (2,392) (96,748) (48,132)
Tax benefit on stock options exercised 1,317 4,267 1,188
Decrease in accounts receivable (205) 389 64
Increase in notes receivable -- -- (140)
Decrease (increase) in other assets (1,589) (133) 2,094
Increase (decrease) in other liabilities and taxes payable (11,136) 21,352 (253,020)
--------- --------- ---------
Net adjustments (159,057) (492,737) (57,738)
--------- --------- ---------
Net cash (used in) provided by operations (41,109) (326,549) (4,353)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (16,499) (55,930) (712,771)
Sales of investments 5,008 334,061 375,396
Purchases of property and equipment (76) (36) (100)
Net change in short-term investments 932 (11,803) 585,427
Proceeds from the sale of subsidiaries,net of cash disposed 53,403 -- --
Acquisition of subsidiaries, net of cash acquired -- -- (221,056)
Other, net (677) 66,016 --
--------- --------- ---------
Net cash provided by investing activities 42,091 332,308 26,896
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock acquisitions -- (287) (28,731)
Net cash provided to discontinued operations (2,230) -- --
Other, net 1,367 (6,235) 8,175
--------- --------- ---------
Net cash used in financing activities (863) (6,522) (20,556)
--------- --------- ---------
Net (decrease) increase in cash 119 (763) 1,987
Cash at beginning of year 1,950 2,713 726
--------- --------- ---------
Cash at end of year $ 2,069 $ 1,950 $ 2,713
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ -- $ 1,967 $ 1,912
Income taxes $ 105,001 $ 10,244 $ 45,504
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 is
$19,123 in 2004 and 2003 of inter-company notes payable to Alleghany Funding.
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, FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------- ----------------------------------
FUTURE
POLICY OTHER BENEFITS,
BENEFITS, POLICY CLAIMS,
DEFERRED LOSSES, CLAIMS LOSSES
POLICY CLAIMS GROSS AND NET NET AND
ACQUISITION AND LOSS UNEARNED BENEFITS EARNED INVESTMENT SETTLEMENT
YEAR LINE OF BUSINESS COSTS EXPENSES PREMIUMS PAYABLE PREMIUMS INCOME* EXPENSES
- ---- ---------------- ----------- ---------- -------- -------- -------- ---------- ----------
2004 Property
and Casualty
Insurance $56,165 $1,232,337 $751,131 $0 $805,417 $127,678 $540,569
------- ---------- -------- --- -------- -------- --------
2003 Property
and Casualty
Insurance $47,282 $ 437,994 $644,068 $0 $430,914 $ 80,617 $250,202
------- ---------- -------- --- -------- -------- --------
2002 Property
and Casualty
Insurance $22,547 $ 258,471 $ 64,115 $0 $125,649 $ 2,442 $100,508
------- ---------- -------- --- -------- -------- --------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
AMORTIZATION
OF DEFERRED COMMISSIONS
POLICY OTHER AND NET
ACQUISITION OPERATING BROKERAGE PREMIUMS
YEAR LINE OF BUSINESS COSTS EXPENSES EXPENSES WRITTEN
- ---- ---------------- ------------ --------- ----------- --------
2004 Property
and Casualty
Insurance $62,190 $79,308 $77,238 $857,195
------- ------- ------- --------
2003 Property
and Casualty
InsurancE $43,035 $14,346 $69,154 $782,475
------- ------- ------- --------
2002 Property
and Casualty
Insurance $ 6,229 $12,377 $29,100 $131,524
------- ------- ------- --------
* Includes net gain on investment transactions.
SCHEDULE IV
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 2004
(in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
LINE OF BUSINESS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ---------------- ---------- --------- ---------- -------- ----------
Property
and casualty $1,291,242 $585,818 $ 99,993 $805,417 12.4%
---------- -------- -------- -------- ----
Property
and casualty $ 262,045 $ 95,299 $264,168 $430,914 61.3%
---------- -------- -------- -------- ----
Property
and casualty $ 140,340 $ 16,716 $ 2,025 $125,649 1.6%
---------- -------- -------- -------- ----
SCHEDULE V
ALLEGHANY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Charged to Charged to
Balance at costs and other Deductions Balance at
YEAR Description January 1, expenses accounts describe December 31,
- ---- --------------------------- ---------- ---------- ---------- ---------- ------------
2004 Allowance for uncollectible
reinsurance recoverables $ -- -- -- -- $ --
--- --- --- --- ---
Allowance for uncollectible
premiums receivable $659 (81) -- -- $578
--- --- --- --- ---
2003 Allowance for uncollectible
reinsurance recoverables $ -- -- -- -- $ --
--- --- --- --- ---
Allowance for uncollectible
premiums receivable $618 41 -- -- $659
--- --- --- --- ---
2002 Allowance for uncollectible
reinsurance recoverables $ -- -- -- -- $ --
--- --- --- --- ---
Allowance for uncollectible
premiums receivable $ -- 618 -- -- $618
--- --- --- --- ---
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING INSURANCE OPERATIONS
(in thousands)
AT DECEMBER 31,
-------------------------------------------------
DISCOUNT,
IF ANY,
RESERVES DEDUCTED
FOR IN RESERVES
UNPAID FOR UNPAID FOR THE YEAR ENDED DECEMBER 31,
DEFERRED CLAIMS CLAIMS -------------------------------
POLICY AND CLAIM AND CLAIM GROSS NET NET
ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT
YEAR LINE OF BUSINESS COSTS EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME *
- ---- ---------------- ----------- ---------- ----------- -------- -------- ----------
2004 Property and
Casualty $56,165 $1,232,337 $0 $751,131 $805,417 $127,678
------- ---------- --- -------- -------- --------
2003 Property and
Casualty $47,282 $ 437,994 $0 $644,068 $430,914 $ 80,617
------- ---------- --- -------- -------- --------
2002 Property and
Casualty $22,547 $ 258,471 $0 $ 64,115 $125,649 $ 2,442
------- ---------- --- -------- -------- --------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
CLAIMS
AND CLAIM
ADJUSTMENT
EXPENSES
INCURRED
RELATED TO AMORTIZATION
------------------- OF DEFERRED PAID CLAIMS
(1) (2) POLICY AND CLAIM NET
CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
YEAR LINE OF BUSINESS YEAR YEAR COSTS EXPENSES WRITTEN
- ---- ---------------- -------- -------- ------------ ----------- --------
2004 Property and
Casualty $547,868 ($7,299) $62,190 $175,611 $857,195
-------- -------- ------- -------- --------
2003 Property and
Casualty $229,519 $ 20,683 $43,035 $ 87,518 $782,475
-------- -------- ------- -------- --------
2002 Property and
Casualty $ 82,639 $ 17,869 $ 6,229 $ 73,979 $131,524
-------- -------- ------- -------- --------
* Includes net gain on Investment transactions.