Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION
For the fiscal year ended DECEMBER 31, 1994 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)
Park Avenue Plaza, New York, New York 10055
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/752-1356
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------- -----------------------
Common Stock, $1 par value New York Stock Exchange
6-1/2% Subordinated Exchangeable New York Stock Exchange
Debentures Due June 15, 2014
Securities registered pursuant to Section 12(g) of the Act:
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
As of March 1, 1995, 6,903,381 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 $854,729,702.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part(s) of this Report:
- ---------------------------------------------------- Part
----
Annual Report to Stockholders of Alleghany I and II
Corporation for the year 1994
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 28, 1995
-2-
3
ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1994
Table of Contents
Description Page
----------- ----
PART I
Item 1. Business 5
Item 2. Properties 51
Item 3. Legal Proceedings 58
Item 4. Submission of Matters to a Vote
of Security Holders 62
Supplemental Executive Officers of Registrant 62
Item
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 64
Item 6. Selected Financial Data 64
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 64
Item 8. Financial Statements and Supple-
mentary Data 64
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 64
-3-
4
Description Page
----------- ----
PART III
Item 10. Directors and Executive Officers
of Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain
Beneficial Owners and Management 65
Item 13. Certain Relationships and Related
Transactions 65
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 66
Signatures 84
Index to Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
-4-
5
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 Park
Avenue Plaza, New York, New York 10055 and its telephone number is (212)
752-1356. Alleghany is engaged, through its subsidiaries Chicago Title and
Trust Company ("CT&T"), Chicago Title Insurance Company ("CTI"), Security Union
Title Insurance Company ("Security Union") and Ticor Title Insurance Company
("Ticor Title") and their subsidiaries, in the sale and underwriting of title
insurance and in certain other financial services businesses. Alleghany is also
engaged, through its subsidiary Underwriters Reinsurance Company
("Underwriters"), in the property and casualty reinsurance business. In
addition, Alleghany is engaged, through its subsidiaries World Minerals Inc.
("World Minerals"), Celite Corporation ("Celite") and Harborlite Corporation
("Harborlite") and their subsidiaries, in the industrial minerals business.
Alleghany conducts a steel fastener importing and distribution business through
its Heads and Threads division.
Until October 31, 1994, Alleghany was also engaged, through its
subsidiary Sacramento Savings Bank ("Sacramento Savings") in retail banking. On
that date, Alleghany completed the sale of Sacramento Savings and an ancillary
company to First Interstate Bank of California for a cash purchase price of $331
million. As part of the transaction, Alleghany, through its wholly owned
subsidiary Alleghany Properties, Inc. ("API"), purchased real estate and real
estate-related assets of Sacramento Savings for a purchase price of about $116
million. Alleghany's intention with respect to such assets, the bulk of which
is raw land, is to dispose of them in an orderly fashion, which may take several
years. Based on Alleghany's liquidation plan and anticipated higher carrying
costs for the real estate and real estate-related assets, Alleghany expects to
realize less than $116 million. Accordingly, and in recognition that no general
loss reserves of Sacramento Savings were transferred, Alleghany reduced the
carrying value of such assets by about $20 million, net of related tax benefits.
-5-
6
Pursuant to the requirements of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, Sacramento Savings was subject to
a plan, approved by the Federal Deposit Insurance Corporation, providing for
the complete divestiture of its real estate investments and related business.
As a result of the sale of Sacramento Savings, Alleghany is no longer subject
to such divestiture plan.
During 1994 and early 1995, with temporary borrowings under
Alleghany's revolving credit agreement, the proceeds from the sale of Sacramento
Savings and cash on hand, Alleghany and its subsidiaries acquired a substantial
number of shares of common stock of Santa Fe Pacific Corporation ("Santa Fe").
As of March 1, 1995, Alleghany and its subsidiaries owned about 18.1 million
shares of Santa Fe, or 11.8 percent of the outstanding common stock of Santa Fe
at a cost of $251.3 million and a market price at March 1, 1995 of $381.6
million. Santa Fe operates The Atchison, Topeka and Santa Fe Railway, which
transports a broad range of commodities on routes extending from Chicago to the
Gulf of Mexico and the West Coast.
Alleghany has federal regulatory clearance to make additional
purchases of Santa Fe shares up to 15 percent of Santa Fe's outstanding common
stock. Alleghany's purchase of additional shares of Santa Fe common stock is
dependent upon market conditions, the state of affairs of Santa Fe and of the
businesses in which it is engaged and other factors, and is subject to
applicable laws and to the availability of shares at prices deemed favorable to
Alleghany.
Santa Fe is a party to a merger agreement with Burlington
Northern Inc. ("Burlington"), pursuant to which shareholders of Santa Fe would
receive a minimum of 0.40 shares of Burlington common stock for each share of
Santa Fe common stock. Burlington operates Burlington Northern Railroad, which
is the largest transporter of grain and coal in North America with routes in 25
states and two Canadian provinces. Based on the number of shares of outstanding
common stock of Santa Fe and Burlington as of March 1, 1995, Alleghany would own
approximately 4.8 percent of the combined companies after the merger. The
merger agreement was approved by the stockholders of Santa Fe and Burlington at
their respective special meetings held on February 7, 1995. The merger is
conditioned upon the approval of the Interstate Commerce Commission (the "ICC"),
which recently stated that it plans to announce its decision by August 23, 1995.
-6-
7
On July 31, 1994, Alleghany acquired Montag & Caldwell, Inc.
("Montag & Caldwell"), a privately held investment counseling firm based in
Atlanta, Georgia. The transaction was effected through an exchange of stock,
and was accounted for by Alleghany as a pooling of interests. After
the acquisition, Alleghany contributed Montag & Caldwell to CT&T.
On October 7, 1993, Alleghany acquired approximately 93 percent
of the issued and outstanding capital stock of the holding company which owns
all of the issued and outstanding capital stock of Underwriters for a cash
purchase price of approximately $201 million. Alleghany acquired its 93 percent
interest in the holding company from a holding company formerly owned by The
Continental Corporation, Goldman, Sachs & Co. and certain affiliated investment
partnerships, and members of Underwriters management. Prior to the acquisition
by Alleghany, The Continental Corporation acquired the interests of the Goldman,
Sachs entities for cash and the interests of the members of Underwriters
management for cash and the remaining 7 percent of the issued and outstanding
capital stock of the holding company which owns Underwriters. In December 1994,
Alleghany contributed approximately 6 million shares of Santa Fe common stock,
having an aggregate market value of about $100 million, to the holding company,
which increased Alleghany's equity interest in the holding company to 96.4
percent as of 1994 year-end.
In 1994 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.
Alleghany experienced the following executive officer changes
in 1994 and early 1995. Theodore E. Somerville, formerly Vice President and
General Counsel of Alleghany, retired effective as of December 31, 1994, and
John E. Conway, formerly Vice President, Secretary and Treasurer of Alleghany,
retired effective as of January 31, 1995. Robert M. Hart was appointed Senior
Vice President and General Counsel of Alleghany in September 1994, and was
appointed to the additional office of Secretary effective January 1, 1995. Peter
R. Sismondo, Vice President, Controller and Assistant Secretary of Alleghany,
was appointed to the additional office of Treasurer, effective January 1, 1995.
-7-
8
Reference is made to Items 7 and 8 of this Report for further
information about the business of Alleghany in 1994. 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.
TITLE INSURANCE AND TRUST BUSINESS
Title Operations
- ----------------
CT&T, headquartered in Chicago, is engaged in the sale and
underwriting of title insurance and related services (including abstracting,
searches, and escrow, closing and disbursement services) through CTI, Security
Union, Ticor Title and their title insurance subsidiaries, collectively known as
the CT&T Family of Title Insurers. Organized as an Illinois corporation in
1912, CT&T was acquired, along with CTI, by Alleghany in June 1985. CTI, a
Missouri corporation incorporated in 1961, succeeded to businesses conducted by
predecessor corporations since 1847. Security Union (acquired in 1987) and
Ticor Title (acquired in 1991) were incorporated in California in 1962 and 1965,
respectively, but both were a part of business organizations that had succeeded
to businesses conducted since around the turn of the century.
On March 8, 1991, CT&T acquired Ticor Title Insurance Company
of California (which was Ticor Title's immediate parent prior to its merger into
CTI in September 1992), from Westwood Equities Corporation for a total cash
purchase price of $55.6 million and a promissory note in the principal amount of
$15 million, subject to adjustment. The principal amount of the promissory note
issued by CT&T to Westwood Equities Corporation, which will mature on March 31,
1995, was subject to an increase to $20 million or a decrease to zero based on a
re-evaluation of the title loss reserves of Ticor Title Insurance Company of
California and its subsidiaries as of December 31, 1994. The re-evaluation
consisted of a formula-driven projection of ultimate claims payments on policies
which existed at the date of acquisition, and was based on actual claims
payments through December 31, 1994. Based on the re-evaluation, the principal
amount of the promissory note is zero and, accordingly, Alleghany has excluded
this note from the determination of the purchase price and from its consolidated
financial statements.
-8-
9
The CT&T Family of Title Insurers is the largest title
insurance organization in the world. Each of the principal title insurance
subsidiaries -- CTI, Security Union and Ticor Title -- was assigned a
claims-paying ability rating of "A-" by Standard & Poor's Corporation in 1993
and 1994, confirming the financial strength of the CT&T Family of Title
Insurers. These subsidiaries were rated by Duff & Phelps Credit Rating Co. for
the first time in 1994 and assigned a claims-paying ability of "A". The CT&T
Family of Title Insurers has approximately 250 full-service offices and more
than 3,500 policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands
and Canada. CTI is headquartered in Chicago,
and Security Union and Ticor Title are headquartered in Rosemead, California.
As CT&T's title insurance operations have grown, CT&T has
sought to improve the effectiveness and efficiency of the company as a whole.
One initiative was the development and implementation of Quest for Excellence, a
customer-focused assessment of product quality. This project identified issues
that are important to CT&T's customers in their relationships with CT&T, and
provided training and support to CT&T's personnel to enable them to be more
responsive to their customers' title insurance needs.
In late 1994, CT&T's title insurance operations were realigned
to improve CT&T's service to customers at both the local and national levels.
The CT&T Family of Title Insurers' nationwide network of branch office and
agency operations was restructured into eight geographic areas: the Northeast,
Southeast, Great Lakes, Southwest, Chicago Central, Chicago Metro and Pacific
Northwest regions, and the Western division.
CT&T also restructured its national operations organization in
1994 to address emerging market trends reflecting the increasing importance of
national residential lenders, and regional and national players in the
commercial market. Among these trends is the preference among national
residential lenders for bundled services from suppliers as a means of reducing
costs and enhancing efficiency. Accordingly, a new national Mortgage Services
Unit was established to develop and provide a range of ancillary mortgage
services including appraisals, flood plain certifications, and credit reports.
To meet more effectively the needs of national commercial
customers, the National Business Unit and National Title Services offices were
restructured and now report centrally to an expanded corporate marketing
operation. These offices serve as a one-stop source of title services for both
-9-
10
single-site and multi-site commercial and industrial real estate ventures.
Other business components of the national operations organization include the
National Accounts Unit, a one-stop source for national residential lenders and
low liability commercial accounts; SAFETRANS, which provides one-stop title
services to employee relocation firms; and Heritage American Insurance Services,
a limited general line insurance broker which markets mortgage layoff insurance,
homeowners insurance and mortgage life insurance.
CT&T's title insurance operations in the state of California
have inaugurated Action '95, an ambitious program to create a customer-focused
organization that better insulates CT&T's California operation from market
cycles, while enhancing the operation's profitability and competitive position.
During 1994, Richard P. Toft, who is a Senior Vice President of
Alleghany, President and Chief Executive Officer of CT&T, and Chairman of CTI,
also assumed the vacant office of Chairman of CT&T. Richard L. Pollay, who was
President and Chief Operating Officer of CTI, became President and Chief
Executive Officer of CTI and Vice-Chairman of CT&T.
Trust Operations/Financial Services Group
- -----------------------------------------
CT&T is a qualified Illinois trust company and conducts certain
other financial services businesses through its Financial Services Group. This
group includes Montag & Caldwell, an Atlanta-based investment counseling firm
acquired by Alleghany in July 1994 and subsequently contributed to CT&T. As of
December 31, 1994, CT&T and Montag & Caldwell together managed $7.06 billion in
assets.
The Financial Services Group comprises six businesses, as
follows:
-- The institutional investment management group manages
equity and fixed income institutional assets primarily for employee
benefit plans, foundations and insurance companies.
-- The employee benefits services group offers profit sharing
plans, matching savings plans, money purchase pensions and consulting
services, and 401(k) salary deferral plans to mid-sized companies in
the upper Midwest and South.
-10-
11
-- The personal trust and investment services group provides
investment management and trust and estate planning services primarily
for accounts in the $250,000 to $15 million range.
-- The real estate trust services group offers land trusts
which permit real estate to be conveyed to a trustee while reserving to
the beneficiaries the full management and control of the property.
This group also facilitates tax-deferred exchanges of income-producing
real property.
-- Montag & Caldwell, founded in 1945, manages equity, fixed
income and balanced portfolios for institutional, corporate and
individual investors. As of December 31, 1994, Montag & Caldwell
managed assets totalling $3.22 billion.
-- In December 1993, CT&T received clearance from the
Securities and Exchange Commission to establish a new investment
management company, CT&T Funds. Currently, CT&T Funds offers seven
no-load, open-end mutual funds to the general public: the CT&T
Growth and Income Fund, a fund invested mainly in common stocks, the
Montag & Caldwell Growth Fund, a fund which seeks long-term capital
appreciation, the CT&T Talon Fund, a fund invested mainly in equity
securities, the Montag & Caldwell Balanced Fund, a fund invested in a
combination of equity, fixed income and short-term securities, the CT&T
Intermediate Fixed Income Fund, a fund invested mainly in intermediate
taxable bonds, the CT&T Intermediate Municipal Bond Fund, a fund
invested mainly in intermediate municipal bonds, and the CT&T Money
Market Fund, a fund invested mainly in short-term investments. While
available to the general public, fund marketing is focused on
attracting rollover funds from existing clients in CT&T's 401(k) and
pension fund programs, and marketing to title insurance policyholders
and other company affinity groups.
CT&T also owns Security Trust Company, a California
corporation, which is a full-service trust company offering a wide array of
fiduciary and financial services including tax deferred exchanges, title holding
trusts, personal investments and retirement plan services.
General Description of Title Insurance
- --------------------------------------
The CT&T Family of Title Insurers insures a variety of
interests in real property. For a one-time premium, purchasers
-11-
12
of residential and commercial properties, mortgagees, lessees and others with an
interest in real property, purchase insurance policies to insure against loss
suffered as a result of any encumbrances or other defects in title, as that
title is defined in the policy. Prior to the issuance of a policy, a title
insurer conducts a title search and examination of the property, a process by
which it identifies risks and defines the risks to be assumed by the insurer
under the policy.
To conduct a title search and examination, an agent or employee
of the CT&T Family of Title Insurers reviews various records providing a history
of transfers of interests in the parcel of real estate with respect to which a
policy of title insurance is to be issued. These records are maintained by
local governmental entities, such as counties and municipalities. Title
records, known as title plants, owned by the CT&T Family of Title Insurers are
also used as a reference, allowing complete title searches without resorting to
governmental records. The CT&T Family of Title Insurers' title plants consist
of compilations of land title and deed information copied from public records
dating back many years on properties in various geographical locations. These
title plants are updated daily.
Marketing
- ---------
The CT&T Family of Title Insurers issues title insurance
policies directly through its branch office operations as well as through
policy-issuing independent agents. The CT&T Family of Title Insurers also
sometimes issues policies of insurance in situations where the title search and
examination process is performed by approved attorneys working as independent
contractors.
The primary sources of title insurance business are the major
participants in local real estate markets: attorneys, builders, commercial
banks, thrift institutions, mortgage banks and real estate brokers. Other
significant sources of business are large commercial developers and real estate
brokerage firms operating on a national scale. The title insurance business of
the CT&T Family of Title Insurers is not dependent on one or a few customers.
The title insurance industry is highly sensitive to the volume
of real estate transactions and to interest rate levels. The title industry was
adversely affected by the recession and severely depressed real estate markets
in 1990 and 1991. However, interest rates began to drop in 1992 and in 1993
-12-
13
reached new thirty-year lows. Driven by first-time buyers enticed into the
market by the low interest rates, home sales increased 11.1 percent in 1992, and
3.4 percent in 1993. The 1993 home sales figures came within 5 percent of the
all-time high recorded in 1978, producing record levels of title operations
revenues and pre-tax earnings at CT&T. Low interest rates also resulted in a
high volume of refinancing orders, including a record number of such orders in
the last three quarters of 1993 and the first quarter of 1994. Beginning in
February 1994, the Federal Reserve Board implemented a series of increases in
short-term interest rates in an effort to forestall inflation. This action
brought to an abrupt end one of the longest refinancing surges in history. While
the decline in refinancing activity in 1994 was partially offset by an increase
in revenues from conventional sales and resales and by modest improvement in
commercial real estate activity, the overall industry-wide decline in revenues
and volume of orders from 1993 to 1994 was the steepest downturn the industry
experienced since it began keeping those statistics in the early 1960's.
Interest rates have continued to rise in 1995, further
depressing real estate markets. Thus far in 1995, title orders have been at a
low level and, absent an improvement in real estate markets, CT&T's 1995
earnings are expected to be lower than in 1994. The first priority of CT&T's
management in 1995 will be to keep costs in line with the anticipated reduced
volume of title business.
The business of the CT&T Family of Title Insurers is seasonal,
as housing activity is seasonal. The strongest quarter is typically the third
quarter because there are more home sales and commercial construction during the
summer; the first quarter is typically the weakest quarter. Revenues generally
are recognized by CT&T at the time of the closing of the real estate transaction
with respect to which a title insurance policy is issued; accordingly, there is
typically a lag of about two months between the time that a title insurance
order is placed, at which time work commences, and the time that CT&T recognizes
the revenues associated with the order.
Approximately 70 percent of the revenues of the CT&T Family of
Title Insurers in 1994 are estimated to have been generated by residential real
estate activity, consisting of resales (50 percent), refinancings (6 percent)
and new housing (14 percent). Commercial and industrial real estate activity is
estimated to account for the remaining 30 percent of 1994 revenues, attributable
to initial sales and resales (23 percent) and refinancings (7 percent).
-13-
14
Underwriting Operations; Losses and Loss Adjustment Expenses
- ------------------------------------------------------------
While most other forms of insurance provide for the assumption
of risk of loss arising out of unforeseen future events, title insurance serves
to protect the policyholder from the risk of loss from events that predate the
issuance of the policy. This distinction underlies the low claims loss
experience of title insurers as compared with other insurance underwriters.
Realized losses generally result from either judgment errors or mistakes made in
the title search and examination process or the escrow process, or from other
problems such as fraud or incapacity of persons transferring property rights.
Operating expenses, on the other hand, are higher for title insurance companies
than for other companies in the insurance industry. Most title insurers incur
considerable costs relating to the personnel required to process forms, search
titles, collect information on specific properties and prepare title insurance
commitments and policies. Many title insurers also face ongoing costs
associated with the establishment, operation and maintenance of title plants,
or, in the case of smaller regional title insurers, access to title
plants owned by others or employment of abstractors to search public records
on behalf of such regional title insurers.
The CT&T Family of Title Insurers' operations facilitate rapid
communication between field underwriters and the principal office underwriting
staff for dealing with difficult, large or unusual underwriting risks.
Authority levels for field underwriters are set on the basis of an evaluation of
their skills and experience level. The most experienced field underwriters are
required to be involved in the decision to insure difficult, large or unusual
risks. Risks with very high potential liability require approval from higher
levels of the title insurer's management, which may include, dependent upon the
particular risk, the Chief Underwriting Counsel, the General Counsel or senior
executive officers of the title insurer.
Geographic concentration of risk is less significant in
underwriting title insurance coverage than in casualty insurance lines. The
title insurance underwriting process reduces the number of perils which are
covered on an actuarial basis to a minimum through reliance on state public
records acts. However, maintaining geographic diversity spreads the risk of
fraud which may result from regional economic recession, and of claims which are
not readily determinable from public records, such as aboriginal title claims of
Native Americans.
-14-
15
CTI, Security Union and Ticor Title each have generally
restricted the size of any one risk of loss that they will retain to $70
million, $30 million and $50 million, respectively. The title insurers in the
CT&T Family of Title Insurers reinsure risks with each other and with other
title insurance companies in excess of what they are willing to retain. In
addition, the title insurers have purchased reinsurance coverage for individual
losses in excess of $12.5 million, subject to certain exclusions. This coverage
will pay 90 percent of such losses up to $50 million. However, reinsurance
arrangements do not relieve a title insurance company that issues a policy from
its legal liability to the holder of the policy and, thus, the risk of
nonperformance by the assuming reinsurer is borne by the issuer of the policy.
The largest single liability on CT&T's books is its reserve for
title insurance claims. Historical experience with respect to payments made
under title insurance policies indicates that, for policies issued in a given
year, approximately two-thirds of the total projected payments with respect to
such policies are made within four years of the issuance of such policies.
Investment Operations
- ---------------------
Investments held by CT&T or any of its subsidiaries must
comply with the insurance laws of the state of incorporation of the company
holding the investment; relevant states are Illinois, Missouri, California, New
York and Oregon. These laws prescribe the kind, quality and concentration of
investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks and real estate mortgages.
CT&T's current investment strategy is to maximize after-tax
investment income through a high-quality diversified investment portfolio,
consisting primarily of taxable and tax-exempt fixed maturity securities, while
maintaining an adequate level of liquidity.
The duration of the investment portfolio approximates 3.0
years. CT&T may adjust the maturity of its investment portfolio from time to
time as necessary to maintain a reasonable relationship between the maturity of
its liabilities and its portfolio assets.
-15-
16
The following table reflects investment results for CT&T for
the year ended December 31, 1994 (in thousands except percentages):
Investment Results
Net Pre-Tax
Pre-Tax After-Tax Realized After
Average Investment Investment Gains/ Effective Tax
Investment(1) Income(2) Income(3) Losses Yield(4) Yield(5)
------------- ---------- ---------- ----------- --------- --------
$899,246 $51,385 $36,502 ($5,447) 5.7% 4.1%
(1) Average of amortized cost of fixed maturities plus cost of
equity securities at beginning and end of period, excluding
operating cash.
(2) Excludes realized gains or losses from sale of investments.
(3) Pre-tax investment income less appropriate income taxes.
(4) Pre-tax investment income for the period divided by average
investments for the same period.
(5) After-tax investment income for the period divided by average
investments for the same period.
-16-
17
The following table summarizes the investments of CT&T,
excluding cash, as of December 31, 1994, with all investments carried at market
value (in thousands except percentages):
Investments
Amortized Cost
or Cost Market Value
--------------------- ---------------------
Amount Percentage Amount Percentage
Short-term investments $104,766 12.1% $104,766 12.3%
Corporate bonds 119,303 13.8% 115,408 13.6%
United States government and
government agency bonds 201,339 23.2% 198,709 23.4%
Mortgage- and asset-backed
securities 140,829 16.3% 133,429 15.7%
Municipal bonds 234,868 27.1% 231,363 27.3%
Foreign bonds 391 0.0% 356 0.0%
Redeemable preferred stock 5,754 0.7% 5,218 0.7%
Other preferred stock 2,497 0.3% 2,281 0.3%
Equity securities 56,485 6.5% 57,035 6.7%
-------- ----- -------- -----
Total $866,232 100.0% $849,565 100.0%
The following table indicates the composition of the long-term
fixed maturity portfolio, including preferred stock, as of December 31, 1994 by
the rating system of the National Association of Insurance Commissioners
("NAIC") (in thousands except percentages):
Long-Term Fixed Maturity Portfolio by NAIC Rating
Market
Value Percentage
------ ----------
NAIC 1 . . . . . . . . . . . . . . . . . . . . . $617,237 89.9%
NAIC 2 . . . . . . . . . . . . . . . . . . . . . 47,590 6.9%
NAIC 3 . . . . . . . . . . . . . . . . . . . . . 8,902 1.3%
NAIC 4 . . . . . . . . . . . . . . . . . . . . . 5,536 0.8%
NAIC L & P3 (Preferred stock-redeemable) . . . . 5,218 0.8%
NAIC A, L & P3 (Preferred stock-other). . . . . . 2,281 0.3%
-------- -----
Total $686,764 100.0%
-17-
18
The following table indicates the composition of the long-term
fixed maturity portfolio, including preferred stock, by years until maturity as
of December 31, 1994 (in thousands except percentages):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market
Value Percentage
------ ----------
One year or less* . . . . . . . . . . . . . . . . $193,372 28.2%
Over one through five years . . . . . . . . . . . 257,625 37.5%
Over five through ten years . . . . . . . . . . . 58,959 8.6%
Over ten years . . . . . . . . . . . . . . . . . 43,379 6.3%
Mortgage- and asset-backed . . . . . . . . . . . 133,429 19.4%
-------- -----
Total $686,764 100.0%
* Included in this category are $2,281 of preferred stock-other and
$5,218 of preferred stock-redeemable.
The principal tangible asset of CT&T is its investment
portfolio. The entire investment portfolio is classified as available for sale.
CT&T has a conservative investment philosophy with respect to both asset quality
and maturity distribution. CT&T maintains a short-term investment portfolio
ranging from approximately $100 million to $150 million, consisting of top rated
commercial paper (A-1, P-1), highest rated bank CD's, and institutional money
market funds. The average maturity period is approximately 30 days. CT&T's
long-term portfolio consists of top rated tax exempt bonds, United States
Treasury securities, corporate bonds of United States issuers, mortgage backed
securities, and a limited amount of publicly traded common stocks. Average
quality of the long-term portfolio is maintained at a Moody's rating of Aa3 or
higher, with over 97 percent of all securities rated investment grade by Moody's
and less than 1 percent in derivative instruments as of 1994 year-end. The
duration of securities in the long-term portfolio is approximately 3.0 years,
and is managed within a range of 2.3 to 4.0 years. This relatively short
average portfolio maturity is maintained so that investment income responds to
changes in the level of interest rates, offsetting to some degree the
cyclicality of title insurance operations.
-18-
19
CT&T does not specifically match particular assets to related
liabilities, but instead holds the investment portfolio to a shorter maturity
than liabilities. However, asset allocation and bond portfolio maturity are
modified periodically based on the market outlook, interest rates and/or title
insurance operating conditions.
Competition
- -----------
The title insurance industry is competitive throughout the
United States, with large firms such as CT&T's title insurers competing on a
national basis, while smaller firms have significant market shares on a regional
basis. During 1994, CTI, Security Union, Ticor Title, First American Title
Insurance Company, Commonwealth Land Title Insurance Company, Stewart Title
Insurance Co., Fidelity National Title Insurance Co., Lawyers Title Insurance
Corporation and Old Republic Title Insurance Group, Inc. together accounted for
more than 85 percent of the revenues generated by title insurance companies.
The CT&T Family of Title Insurers also competes with abstractors, attorneys
issuing opinions and, in some areas, state land registration systems.
Competition in the title insurance industry is primarily on the basis of
service. In addition, the financial strength of the insurer has become an
increasingly important factor in title insurance purchase decisions,
particularly in multi-site transactions and investment decisions regarding real
estate-related investment vehicles such as real estate investment trusts and
real estate mortgage investment conduits.
In connection with their financial services activities, CT&T
and Montag & Caldwell compete with national, regional and local providers of
financial services. Such competition is chiefly on the basis of service and
investment performance.
Regulation
- ----------
Title insurance companies are subject to regulation and
supervision by state insurance regulators under the insurance statutes and
regulations of states in which they are incorporated. CTI is incorporated in
Missouri, Security Union is incorporated in California and has a title insurance
subsidiary incorporated in Oregon, and Ticor Title is incorporated in California
and has a title insurance subsidiary incorporated in New York. Each of these
companies is also regulated in each jurisdiction in which it is authorized to
write title insurance. Regulation and supervision vary from
-19-
20
state to state, but generally cover such matters as the standards of solvency
which must be met and maintained, the nature of limitations on investments, the
amount of dividends which may be distributed to a parent corporation,
requirements regarding reserves for unearned premiums and losses, the licensing
of insurers and their agents, the approval of policy forms and premium rates,
periodic examinations of title insurers and annual and other reports required to
be filed on the financial condition of title insurance companies.
The Financial Services Group of CT&T acts as a fiduciary, and
is primarily regulated by the State of Illinois Commissioner of Banks and Trust
Companies. Regulation covers such matters as the fiduciary's management
capabilities, the soundness of its policies and procedures, the quality of the
services it renders to the public and the effect of its trust activities on its
financial soundness. Montag & Caldwell, as a registered investment advisor, is
subject to regulation by the Securities and Exchange Commission, the state of
Georgia, its domiciliary jurisdiction, and all other states in which it is
licensed to act in the capacity of investment advisor.
Employees
- ---------
At December 31, 1994, CT&T and its subsidiaries had
approximately 7,650 employees.
PROPERTY AND CASUALTY REINSURANCE BUSINESS
Underwriters, headquartered in Woodland Hills, California,
provides reinsurance to property and casualty insurers and reinsurers.
Underwriters initially was organized in 1867 as a primary insurer in New York
under the name "Buffalo German Insurance Company." By 1970, Underwriters had
become principally a reinsurer, and in 1977 it changed its corporate domicile to
New Hampshire. Underwriters is licensed in 37 states, Puerto Rico and the
District of Columbia, is authorized to engage in business in three additional
states and Canada, and has branch offices in Atlanta, Chicago, Houston, New York
and Woodland Hills.
In early 1987, members of current management joined
Underwriters and shortly thereafter began a program to restructure its
reinsurance portfolio and operations. Among other steps, the restructuring
undertaken by the new management included (i) strengthening Underwriters'
reserves for pre-1987 business and the purchase from The Continental Corporation
of two reinsurance contracts providing coverage for pre-1987 business up to an
-20-
21
aggregate limit of $200 million, (ii) tightening underwriting standards by
initiating a program of pre-underwriting audits of prospective treaty business,
(iii) expanding claims audits to improve monitoring of reported and unreported
claims and (iv) employing actuaries to oversee underwriting activities and
reserve practices. The restructuring contributed to an increase in the
statutory surplus of Underwriters from $130.0 million at 1987 year-end to
$185.0 million at September 30, 1993, after payment of more than $139.5
million in dividends over such period to its parent company.
In October 1993, Alleghany acquired approximately 93 percent of
the holding company which owns Underwriters, and thereafter contributed about
$51 million in 1993 and $100 million in 1994 to the capital of Underwriters.
The capital contribution in 1994 was in the form of about 6 million shares of
Santa Fe common stock. As of December 31, 1994, Underwriters' statutory surplus
was $361 million. Underwriters' management currently owns about 3.6 percent of
the capital stock of the holding company which owns Underwriters.
Underwriters is currently rated "A (Excellent)" by A.M. Best
Company, Inc., an independent insurance industry rating organization ("Best's").
Best's publications indicate that this rating is assigned to companies which
Best's believes have achieved excellent overall performance and have a strong
ability to meet their obligations over a long period of time. According to
Best's, the rating reflects Underwriters' strong capital base, reduced debt
service obligations and operating performance.
Alleghany's acquisition of Underwriters was accounted for as a
purchase and, therefore, the accounts of Underwriters and its results of
operations included in Alleghany's financial statements reflect purchase
accounting adjustments and are not comparable to Underwriters' prior reported
results.
To capitalize on advantageous market conditions for certain
primary insurance business lines and on Underwriters' expertise in specialized
coverages, Underwriters established Commercial Underwriters Insurance Company
("CUIC") at the end of 1992. CUIC is a California property and casualty
insurance company that focuses on specialized primary insurance lines in
California on an admitted basis and in other states on an approved, non-admitted
basis. In 1994, CUIC generated $30 million in gross written premiums.
Underwriters or CUIC retained $14.4 million of such amount, constituting 7
percent of Underwriters' consolidated net written premiums in 1994.
-21-
22
To further expand its ability to market specialized primary
insurance lines in states outside California, Underwriters acquired for $10
million an inactive Nebraska insurance company with licenses to write primary
property and casualty insurance in 31 states and the District of Columbia;
subsequently, the acquired company was renamed Underwriters Insurance Company
("UIC"). In connection with the acquisition, Underwriters was indemnified for
all losses that occurred prior to the acquisition date. A capital contribution
of $100 million was made to UIC, consisting principally of about 5 million
shares of Santa Fe common stock, thereby increasing UIC's statutory surplus to
$112.1 million at 1994 year-end. UIC will focus primarily on specialized
primary insurance lines outside California.
CUIC and UIC are rated "A (Excellent)" by Best's.
General Description of Reinsurance
- ----------------------------------
Reinsurance is an agreement between two insurance companies in
which one company, the "reinsurer," agrees to indemnify the other company, the
"cedent" or "ceding company," for all or part of the insurance risks
underwritten by the ceding company. Reinsurance provides ceding companies with
three major benefits: it reduces net liability on individual risks, protects
against catastrophic losses and helps to maintain acceptable surplus and reserve
ratios. Related to the last of these, reinsurance also provides the ceding
company with additional underwriting capacity. Ordinarily, a ceding company
will enter into a reinsurance agreement only if it will receive credit for the
reinsurance ceded on its statutory financial statements; in general, such credit
is allowed if the reinsurer meets the licensing and accreditation requirements
of the ceding company's domicile, or the reinsurance obligations are
appropriately collateralized.
In general, property insurance protects the insured against
financial loss arising out of loss of property or its use, caused by an insured
peril. Casualty insurance protects the insured against financial loss arising
out of its obligation to others for loss or damage to persons or property.
Property and casualty reinsurance such as that provided by Underwriters protects
the ceding company against loss to the extent of the reinsurance coverage
provided. While both property and casualty reinsurance involve a high degree of
volatility, property losses are generally reported within a relatively short
time period after the event, while there tends to be a greater lag in the
reporting
-22-
23
and payment of casualty claims. Consequently, the ultimate losses associated
with property risks are generally known in a shorter time than losses
associated with casualty risks.
Underwriters provides reinsurance on both a treaty and
facultative basis. Treaty reinsurance is reinsurance based on a standing
arrangement (a "treaty"), usually for a year, between a cedent and reinsurer for
the cession and assumption of risks defined in the treaty. Under most treaties,
the cedent is obligated to offer and the reinsurer is obligated to accept a
specified portion of all such risks originally underwritten by the cedent. Risks
are assumed under treaties without having been individually reviewed.
Facultative reinsurance is the reinsurance of individual risks. Rather than
agreeing to reinsure all or a portion of a class of risk, the reinsurer
separately rates and underwrites each individual risk and is free to accept or
reject each risk offered by the reinsured.
Facultative reinsurance is normally purchased by insurance
companies for risks not covered or covered only in part by their reinsurance
treaties, and for unusual risks. Generally, as the supply of treaty reinsurance
decreases, the demand for facultative reinsurance increases.
Underwriters writes treaty and facultative reinsurance in both
of the major forms, pro rata and excess of loss. The pro rata form is an
agreement in which the ceding company and reinsurer share the premiums as well
as the losses and expenses of a single risk, or an entire group of risks, based
upon an established percentage. Under excess of loss reinsurance, the reinsurer
agrees to reimburse the ceding company for all losses in excess of a
predetermined amount (commonly referred to as the cedent's "retention"),
generally up to a predetermined limit. Excess of loss reinsurance is often
written in layers or levels, with one reinsurer taking the risk from the
cedent's retention level up to an established level, above which the risk is
assumed by another reinsurer or reverts to the cedent. Excess of loss
reinsurance allows the reinsurer to control better the relationship of the
premium charged to the exposures assumed. The reinsurer assuming the risk
immediately above the cedent's retention level is said to write "working layer"
or "low layer" excess of loss reinsurance. A loss that reaches just beyond the
cedent's retention level would create a loss for the lower level reinsurers but
not for the reinsurers on higher levels.
-23-
24
Marketing
- ---------
Underwriters primarily reinsures commercial general, auto and
umbrella liability, professional liability, directors and officers' liability,
workers' compensation, homeowners, marine and aviation and property clash* and
catastrophe risks. Premiums associated with such risks comprised approximately
91 percent of Underwriters gross written premiums for the year ended
December 31, 1994. Underwriters concentrates on coverages requiring
specialized underwriting expertise and a high degree of actuarial analysis.
An important element of Underwriters' marketing strategy is to
respond quickly to market opportunities (such as increased demand or more
favorable pricing) by adjusting the mix of the different lines of property and
casualty business it writes. As an example, between 1989 and 1994, the worldwide
reinsurance industry experienced unusual catastrophic losses, in terms of both
frequency and severity, from a variety of natural disasters, including
Hurricanes Hugo, Andrew and Iniki, and the Northridge earthquake. This extended
period of unusual catastrophic losses has caused many reinsurers to reduce
the amount of property catastrophe coverage they are prepared to write. The
reduction in capacity has led to improved terms available in the reinsurance
market for such risks. Underwriters has increased its writings and retentions of
this business because it believes that substantial increases in premium rates
for property catastrophe coverage, combined, in certain instances, with higher
deductibles retained by ceding companies, have improved the risk/reward
relationship on such coverage. Underwriters also writes certain unusual
professional, environmental and directors and officers' liability risks, again
in the belief that these risks offer greater potential for favorable results
than more general risks, based on current premium rates. Underwriters' business
is not seasonal.
Underwriters writes almost all of its treaty business and 70
percent of its facultative business through reinsurance brokers. The remainder
of its facultative business is written directly with ceding companies. By
working primarily through brokers, Underwriters does not need to maintain a
large sales organization which, during periods of reduced premium volume, could
comprise a significant and non-productive part of overhead.
- ------------------------------
* An excess of loss reinsurance policy covering losses arising from a
single set of circumstances covered by more than one primary insurance
policy.
-24-
25
In addition, Underwriters believes that submissions from the broker market,
including certain targeted specialty coverages, are more numerous and diverse
than would be available through a salaried sales organization, and Underwriters
is able to exercise greater selectivity than would usually be possible in
dealing directly with ceding companies.
Reinsurance brokers regularly approach Underwriters and others
for quotations on reinsurance being placed on behalf of the ceding companies. In
1994, Underwriters paid brokers $9 million in commissions, which represents 3
percent of its gross written premiums of $265 million. Underwriters' five
leading brokers, Pegasus Advisors, Inc., Guy Carpenter & Co., AM-RE Brokers,
Inc., Willcox, Inc. and Sedgwick Payne Company, accounted for 42 percent of
Underwriters' gross written premiums in 1994. Pegasus Advisors, Inc. alone
accounted for 11 percent of such premiums; none of the other brokers accounted
for 10 percent or more of such premiums. However, loss of all or a substantial
portion of the business provided by these five brokers could have a material
adverse effect on the results of operations of Underwriters.
A significant percentage of Underwriters' gross written
premiums are generally obtained from a relatively small number of ceding
companies. In 1994, approximately 52 percent of gross written premiums were
obtained from Underwriters' ten largest ceding companies. Due to the nature of
Underwriters' business, the ceding companies accounting for relatively large
percentages of gross written premiums tend to vary from year to year. While
Underwriters has generally been successful in replacing accounts that have not
been renewed, there can be no assurance that it will be able to do so in the
future. Underwriters does not believe that the loss of any one ceding company
account would have a material effect on Underwriters' financial condition or
results of operations.
Underwriting Operations
- -----------------------
Underwriters maintains a disciplined underwriting strategy with
a focus on generating profitable business rather than on increasing market
share. Underwriters has maintained a defensive underwriting posture by
withdrawing from lines of business that it considers to offer inadequate
contract terms. Underwriters' underwriting discipline is enhanced by its focus
on excess of loss casualty reinsurance with low level attachment points (i.e.,
dollar-levels at which risk is assumed). Such layers are characterized by
greater loss frequency, lower loss severity and quicker loss settlement than
layers with higher
-25-
26
attachment points. Underwriters believes that these factors
result in greater predictability of losses, which improves Underwriters' ability
to analyze its exposures and price them appropriately.
Underwriters seeks to serve as lead or co-lead reinsurer on its
treaties. As lead or co-lead reinsurer, Underwriters believes that it is able
to more effectively influence the pricing and terms of the treaties and achieve
better underwriting results. During 1994, Underwriters was a lead or co-lead
reinsurer on a majority of its treaty business.
Treaty operations generated approximately $141.6 million or 71
percent of Underwriters' consolidated net written premiums in 1994. Casualty
lines treaties represented approximately 68 percent of total treaty net written
premiums with the remainder represented by property lines treaties.
Approximately 71 percent of total treaty net written premiums
represented treaty reinsurance written on an excess of loss basis and the
balance represented treaty reinsurance written on a pro rata basis. In 1994,
treaty net written premiums increased 7 percent from 1993 due to the increased
writing of property catastrophe, clash coverage and certain excess and surplus
lines.
Underwriters' treaty department generally wrote up to
$1 million per risk in 1994. In the case of certain clash coverage,
Underwriters' treaty department has written up to $2.5 million on a net basis
and in limited circumstances has accepted more. The largest net risk assumed
in 1994 was $14 million.
Facultative operations generated approximately $44.6 million or
22 percent of Underwriters' consolidated net written premiums in 1994. Casualty
risks represented 92 percent of total facultative net written premiums with
property risks comprising the remainder. Over 90 percent of total facultative
net written premiums represented facultative reinsurance written on an excess of
loss basis and the balance represented facultative reinsurance written on a pro
rata basis. Facultative net written premiums increased 7 percent, or $3.1
million, from 1993.
In 1994, Underwriters offered gross casualty facultative
underwriting capacity of $2.5 million, with a net retention of $1.6 million.
Underwriters has a $2 million gross property facultative underwriting capacity
with a net retention of $0.6 million.
-26-
27
Retrocessional Arrangements
- ---------------------------
A reinsurer often reinsures some of its risk with other
reinsurers ("retrocessionaires") pursuant to retrocessional agreements, and pays
such retrocessionaires a portion of the premiums it receives. Reinsurance
companies enter into retrocessional agreements for the same reasons that primary
insurers purchase reinsurance.
Underwriters has retrocessional agreements with a number of
domestic and international reinsurance companies. Retrocessional contracts do
not relieve Underwriters from its obligations to ceding companies and
Underwriters remains liable to its ceding companies for the portion
reinsured to the extent that any retrocessionaire does not meet the obligations
assumed under the retrocessional agreements. Consequently, one of the most
important factors in Underwriters' selection of retrocessionaires is financial
strength.
Underwriters carefully evaluates potential retrocessionaires,
and, once engaged, monitors the financial condition of such retrocessionaires
and takes appropriate actions to eliminate or minimize bad debt exposure. As a
general rule, Underwriters requires that unpaid losses and loss adjustment
expenses for non-admitted reinsurers that are unregulated by United States
insurance regulatory authorities be collateralized by letters of credit, funds
withheld or pledged trust agreements. Actions such as drawdowns of letters of
credit provided as collateral, cessation of relationships and commutations may
be taken to reduce or eliminate exposure when necessary. Because of these
precautions, Underwriters did not experience any significant difficulty with
retrocessionaires fulfilling their obligations in 1994 and 1993. As of December
31, 1994, Underwriters had an allowance for estimated unrecoverable reinsurance
of $1.8 million.
Underwriters currently has reinsurance contracts in force which
cede to retrocessionaires risks in excess of Underwriters' net risk retention,
ceding up to $0.9 million per casualty facultative risk and up to $1.4 million
per property facultative risk. Underwriters also has an aggregate reinsurance
contract to cover losses, up to $40 million, incurred during the period July 1,
1994 through June 30, 1995 in excess of a 75 percent loss and loss adjustment
expense ratio. The contract covers essentially all lines of business written by
Underwriters; however, property catastrophe losses are subject to a sublimit of
$30 million. Also, Underwriters from time to time purchases retrocessional
reinsurance in varying amounts for specific assumed treaties.
-27-
28
As of December 31, 1994, Underwriters had reported reinsurance
receivables of $422.7 million through retrocessional agreements, including
$188.2 million of reinsurance receivables under the $200 million aggregate
excess of loss reinsurance contracts with a subsidiary of Continental
Insurance Group. The $188.2 million reinsurance receivable is secured by a
combination of letters of credit and a trust fund dedicated solely to
payments under the two reinsurance contracts. In addition, $85.7 million is due
from another reinsurer, which amount is fully secured with a combination of
letters of credit and funds withheld.
Outstanding Losses and Loss Adjustment Expenses
- -----------------------------------------------
In many cases, significant periods of time may elapse between
the occurrence of an insured loss, the reporting of the loss to the insurer and
the reinsurer and the insurer's payment of that loss and subsequent payments by
the reinsurer. To recognize liabilities for unpaid losses, insurers and
reinsurers establish "reserves," which are balance sheet liabilities
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events which have occurred, including events
which have not been reported to the insurer.
When a claim is reported by the ceding company, Underwriters'
claims department establishes a "case" reserve for the estimated amount of
Underwriters' ultimate payment. Such reserves are based upon the amounts
recommended by the ceding company and are supplemented by additional amounts as
deemed necessary by Underwriters' claims department, after an evaluation of
numerous factors including coverage, liability, severity of injury or damage,
jurisdiction and ability of the ceding company to evaluate and handle the claim
properly. In many cases Underwriters establishes case reserves even when the
ceding company believes the reinsurer has no liability. In no instance is the
case reserve established by Underwriters less than that suggested by the ceding
company. These reserves are periodically adjusted by Underwriters' claims
department based on its evaluation of subsequent reports from and audits of the
ceding company.
Incurred but not reported ("IBNR") reserves are established on
an aggregate basis to provide for losses incurred but not yet reported to the
insurer and to supplement the overall adequacy of reported case reserves and
estimated expenses of settling such claims, including legal and other fees and
general expenses of administering the claims adjustment process. Underwriters
establishes IBNR reserves by using generally accepted
-28-
29
actuarial reserving techniques to estimate the ultimate liability for losses
and loss adjustment expenses ("LAE"). The process provides implicit recognition
of the impact of inflation and other factors that affect claims reporting by
taking into account changes in historic loss reporting patterns and perceived
probable trends.
Underwriters' actuarial department performs reviews of
aggregate loss reserves at least twice each year. Between the semi-annual
reviews, Underwriters uses an updating system which applies the loss ratios
determined in the previous review to earned premiums to date, less incurred
losses reported. Underwriters does not discount any of its reserves for
reported or unreported claims in any line of its business for anticipated
investment income. There are inherent uncertainties in estimating reserves
primarily due to the long-term nature of most reinsurance business, the
diversity of development patterns among different lines of business and types of
reinsurance, and the necessary reliance on the ceding insurer for information
regarding claims. Actual losses and LAE may deviate, perhaps substantially, from
reserves on Underwriters' financial statements, which could have a material
adverse effect on Underwriters' financial condition and results of operations.
Based upon current information, Underwriters' believes reserves for losses and
LAE at December 31, 1994 are a reasonable provision for such losses and LAE.
Underwriters' reserve for unpaid losses and loss adjustment
expenses include amounts for various liability coverages related to
asbestos and environmental impairment claims that arose from general liability
and certain commercial multiple-peril coverages. Restrictive asbestos and
environmental impairment exclusions were introduced in late 1986 on both primary
and reinsurance contracts, significantly reducing these exposures for accidents
occurring after 1986. Reserves for asbestos and environmental impairment claims
cannot be estimated with traditional loss reserving techniques because of
uncertainties that are greater than those associated with other types of
claims. Factors contributing to those uncertainties include a lack of
historical data, the significant 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. Such uncertainties are not likely to be resolved in the near future.
As with all reinsurance claims, Underwriters establishes case
reserves for both asbestos and environmental excess of loss
-29-
30
reinsurance claims, by applying reinsurance contract terms to losses reported by
ceding companies, analyzing from the first dollar of loss incurred by the
primary insurer. Additionally, ceding companies often report potential losses
on a precautionary basis to protect their rights under the reinsurance
arrangements (a "precautionary notice"), which generally call for prompt notice
to the reinsurer. Ceding companies, at the time they report such potential
losses, advise Underwriters of the ceding companies' current estimate of the
extent of such loss. Underwriters' Claims Department reviews each of these
precautionary notices and, based upon current information, assesses the
likelihood of loss to Underwriters. Such assessment is one of the factors used
in determining the adequacy of IBNR reserves.
For asbestos claims, emphasis is placed on a review of
precautionary notices with a named insured previously linked to large asbestos
exposure (a "target defendant"). If the named insured is a "target defendant,"
Underwriters considers there is a probability of loss even if the named ceding
company has not reported reserves. IBNR reserves are recorded based on this
review, as well as the additional subjective consideration of the aggregate
reported losses (approximately $7 million per year) and paid losses
(approximately $3 million per year) for the last three years.
For environmental claims, Underwriters establishes case
reserves and reviews precautionary notices as described above. Ultimate
environmental claims exposure is especially uncertain because of the problematic
apportionment of clean-up costs, the uncertain enforceability of contract
exclusions and the lack of specific "target defendants." IBNR reserves are
recorded based on Underwriters' Claims Department's assessment of precautionary
notices and a review of historical calendar-year reported losses (approximately
$4.6 million per year) and paid losses (approximately $1 million per year) for
the last three years.
During the three years ended December 31, 1994, the average net
loss payment per claim (open and settled) for asbestos and environmental
exposures was $19,000 and $16,000, respectively, and the highest paid loss was
$0.5 million for an asbestos claim and $0.6 million for an environmental claim,
in each case net of ceded reinsurance. Most claims paid to date have
been paid under excess of loss contracts with varying levels of retention by the
ceding company. Although the range of losses paid by Underwriters has been
wide, the frequency is more heavily weighted to lower dollar amounts.
-30-
31
As of December 31, 1994, Underwriters' net case and IBNR
reserves totaled about $34.2 million for asbestos-related liabilities,
which includes reserves for approximately 810 open claims where cedents have
advised Underwriters that they currently expect to recover from Underwriters.
As of December 31, 1994, Underwriters' net case and IBNR reserves totaled about
$25.6 million for environmental impairment claims, which includes reserves
for approximately 505 open claims where cedents have advised Underwriters that
they currently expect to recover from Underwriters. Additionally, ceding
companies have submitted about 1,200 precautionary notices for asbestos-related
claims and 8,700 precautionary notices for environmental impairment claims to
Underwriters; however, based on information provided by the ceding companies
and Underwriters' assessment of such claims, Underwriters does not expect such
underlying losses to grow large enough to reach Underwriters' layer of
reinsurance coverage.
The reconciliation of the beginning and ending reserves for
unpaid losses and LAE related to asbestos and environmental impairment claims
for the last three years (excluding an additional $35.8 million reserve for such
claims, discussed in the text following the tables) is shown below (in
thousands):
Reconciliation of Asbestos-Related
Claims Reserve for Losses and LAE
1994 1993 1992
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1 . . . . . . . . . . . . . . . . . . . $ 30,303 $ 26,719 $ 22,355
Incurred Loss, net of reinsurance . . . . . . . . . . . . 8,390 6,757 6,737
Paid Loss, net of reinsurance . . . . . . . . . . . . . . (4,492) (3,173) (2,373)
-------- -------- --------
Reserve, net of reinsurance recoverables,
as of December 31 . . . . . . . . . . . . . . . . . . 34,201 30,303 $ 26,719
========
Reinsurance recoverables, as of December 31 . . . . . . . 8,422 1,257
-------- --------
Reserve, gross of reinsurance recoverables,
as of December 31 . . . . . . . . . . . . . . . . . . $ 42,623 $ 31,560
======== ========
Type of Reserve, net of reinsurance
recoverable:
Case . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,201 $ 20,303 $ 17,719
IBNR . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000 9,000
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,201 $ 30,303 $ 26,719
======== ======== ========
-31-
32
Reconciliation of Environmental Impairment
Claims Reserve for Losses and LAE
1994 1993 1992
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1 . . . . . . . . . . . . . . . . . . . $ 22,281 $ 16,658 $ 14,568
Incurred Loss, net of reinsurance . . . . . . . . . . . . 3,074 7,230 3,378
Paid Loss, net of reinsurance . . . . . . . . . . . . . . 245 (1,607) (1,288)
-------- -------- --------
Reserve, net of reinsurance recoverables,
as of December 31 . . . . . . . . . . . . . . . . . . 25,600 22,281 $ 16,658
========
Reinsurance recoverables, as of December 31 . . . . . . . 8,592 5,401
-------- --------
Reserve, gross of reinsurance recoverables,
as of December 31 . . . . . . . . . . . . . . . . . . $ 34,192 $ 27,682
======== ========
Type of Reserve, net of reinsurance
recoverable:
Case . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,600 $ 12,281 $ 10,658
IBNR . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000 6,000
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,600 $ 22,281 $ 16,658
======== ======== ========
Increases to asbestos-related and environmental impairment
claims reserves, if any, would be covered to varying degrees by Underwriters'
existing reinsurance contracts with its retrocessionaires.
In addition to the case and IBNR reserves for asbestos-related
and environmental impairment claims reported in the tables above, Underwriters
carries an additional $35.8 million in reserves, determined in accordance with
generally accepted accounting principles ("GAAP"), for such exposures. Taking
into consideration these additional reserves, Underwriters believes that its
total asbestos-related and environmental impairment reserves are a reasonable
provision for such claims.
The table below shows changes in historical net loss and LAE
reserves for Underwriters for each year since 1984. Reported reserve development
is derived primarily from information included in Underwriters' statutory
financial statements. 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,
-32-
33
including losses that have been incurred but not yet reported to Underwriters.
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 (liability re-estimated) portion of the table shows the
re-estimated amount of the previously recorded net reserves for each year based
on experience as of the end of each succeeding year. The estimate changes as
more information becomes known about claims for individual years. In
evaluating the information in the table, it should be noted that a reserve
amount reported in any period includes the effect of any subsequent change in
such reserve amount. For example, if a loss was first reserved in 1987 at
$100,000 and was determined in 1990 to be $150,000, the $50,000 deficiency would
be included in the Cumulative Redundancy (Deficiency) row shown below for each
of the years 1987 through 1989.
Conditions and trends that have affected the development of
liability in the past may not necessarily occur in the future. Accordingly, it
is not be appropriate to extrapolate future redundancies or deficiencies based
on this table. During the mid-1980's, the reinsurance industry, including
Underwriters, experienced substantial underwriting losses. Such losses are
reflected in the table, beginning with the comparatively high cumulative
deficiencies in the years 1984-86. The $35.8 million reserve strengthening,
along with prior increases to asbestos-related and environmental impairment
reserves, was the primary cause of the cumulative reserve deficiencies in the
years 1988-93.
-33-
34
Changes in Historical Net Reserves for Loses and LAE (in millions)
Year Ended December 31,
-------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net liabiity as of the end
of year* .............................. $ 179 $ 279 $ 359 $ 470 $ 461 $ 453 $ 411 $ 411 $ 437 $ 509 $ 536
Cumulative amount of net
liability paid as of
One year later..................... $ 63 $ 80 $ 94 $ 116 $ 119 $ 137 $ 101 $ 84 $ 98 $ 112 -
Two years later.................... 130 161 193 208 242 227 173 161 178 - -
Three years later.................. 192 258 277 330 306 285 239 214 - - -
Four years later................... 260 341 375 380 348 342 274 - - - -
Five years later................... 318 389 407 416 394 370 - - - - -
Six years later.................... 359 404 423 458 414 - - - - - -
Seven years later.................. 373 413 460 475 - - - - - - -
Eight years later.................. 381 445 471 - - - - - - - -
Nine years later................... 404 454 - - - - - - - - -
Ten years later.................... 409 - - - - - - - - - -
Net liability re-estimated as of:
One year later..................... 237 341 439 481 454 457 414 412 483 516 -
Two years later.................... 314 426 449 473 457 460 421 455 487 - -
Three years later.................. 394 432 441 476 462 474 465 460 - - -
Four years later................... 400 428 444 478 492 520 472 - - - -
Five years later................... 396 426 445 516 538 528 - - - - -
Six years later.................... 394 427 484 562 548 - - - - - -
Seven years later.................. 395 454 531 572 - - - - - - -
Eight years later.................. 410 495 539 - - - - - - - -
Nine years later................... 447 498 - - - - - - - - -
Ten years later.................... 449 - - - - - - - - - -
Cumulative Redundancy
(Deficiency)....................... $(270) $(219) $(180) $(102) $(87) $(75) ($61) $(49) $(50) $ (7) -
Gross Liability - End of Year $861 $940
Reinsurance Recoverable 352 404
---- ----
Net Liability - End of Year 509 $536
==== ====
Gross Re-estimated Liability -Latest 881
Re-estimated Recoverable - Latest 365
----
Net Re-estimated Liability - Latest $516
====
__________________
* Amounts for 1984-1986 were determined in accordance with statutory accounting
principles.
-34-
35
The reconciliation between reserves determined in accordance
with statutory accounting practices ("SAP") and reserves determined 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
December 31,
------------------------------------
1994 1993 1992
---- ---- ----
Statutory Reserves . . . . . . . . . . . . . . . $500,567 $473,625 $424,205
Reinsurance Deposits(1) . . . . . . . . . . . . . 0 0 12,396
Additional Mass Action Reserves(2) . . . . . . . 35,750 35,750 0
Reinsurance Recoverables. . . . . . . . . . . . . 404,210 351,829 352,073
-------- -------- --------
GAAP Reserves . . . . . . . . . . . . . . . . . . $940,527 $861,204 $788,674
======== ======== ========
___________________
(1) Amount relates to multiple-year retrospectively-rated contracts (i.e.,
contracts that provide for premium adjustments or changes in future
coverage based on loss experience), which were written by Underwriters in
1992 and prior years in the normal course of business consistent with
industry practice and were classified as ceded reserves on a statutory
basis. GAAP requires that such contracts be accounted for as deposits.
(2) Amount represents additional reserves recorded by Underwriters in 1993 for
probable asbestos-related and environmental impairment claims exposure.
-35-
36
The reconciliation of reserves for the last three years on a
GAAP basis is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE
1994 1993 1992
---- ---- ----
Reseve, net of reinsurance recoverables,
as of January 1 . . . . . . . . . . . . . . . . . . . . . $ 509,375 $ 436,601 $ 410,805
Incurred Loss, net of reinsurance, related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . 146,426 143,723 121,504
Prior years . . . . . . . . . . . . . . . . . . . . . . . 6,630 46,404 1,376
--------- --------- ---------
Total Incurred Loss, net of reinsurance . . . . . . . . . . 153,056 190,127 122,880
--------- --------- ---------
Paid Loss, net of reinsurance, related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . (13,826) (19,640) (12,954)
Prior years . . . . . . . . . . . . . . . . . . . . . . . (112,288) (97,713) (84,130)
--------- --------- ---------
Total Paid Loss, net of reinsurance . . . . . . . . . . . . (126,114) (117,353) (97,084)
--------- --------- ---------
Reserve, net of reinsurance recoverables,
as of December 31 . . . . . . . . . . . . . . . . . . . . 536,317 509,375 $ 436,601
=========
Reinsurance recoverables, as of December 31 . . . . . . . . 404,210 351,829
--------- ---------
Reserve, gross of reinsurance
recoverables, as of December 31 . . . . . . . . . . . . . $ 940,527 $ 861,204
========= =========
Investment Operations
- ---------------------
Underwriters' investments must comply with the insurance laws
of New Hampshire, California and Nebraska, the domiciliary states of
Underwriters, CUIC and UIC, respectively, and the other states in which they are
licensed. These laws prescribe the kind, quality and concentration of
investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks and real estate mortgages.
Underwriters' investment strategy is to match the average
duration of its high-quality diversified fixed maturity portfolio to the
average adjusted duration of its liabilities, which approximates 4.5 years,
and to provide sufficient cash flow to meet its obligations while maximizing
its after-tax rate of return. The average adjusted duration of liabilities is
estimated
-36-
37
by adjusting the average duration of liabilities by an appropriate amount to
reflect anticipated cash flows. Securities may be sold to take advantage of
investment opportunities created by changing interest rates, prepayments, tax
and credit considerations or other factors. The entire fixed maturity
portfolio is designed to be able to react to such opportunities or other
situations that may otherwise result in a mismatch between the duration of
assets and liabilities and as such is classified as available for sale.
The following table reflects investment results for the fixed
maturity portfolio of Underwriters for the three months ended December 31, 1993
and the year ended December 31, 1994 (in thousands except percentages):
Investment Results
Net Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments(1) Income(2) Income(3) Losses Yield(4) Yield(5)
------ -------------- ---------- ---------- -------- --------- --------
Three Months Ended
December 31, 1993 $ 728,478 $ 10,390 $ 7,943 $ 2,381 5.7% 4.4%
Year Ended
December 31, 1994 $ 748,681 $ 41,226 $ 32,465 $ 6,115 5.5% 4.3%
(1) Average of amortized cost of fixed maturities at beginning and end of
period, excluding operating cash.
(2) After investment expenses, excluding realized gains or losses from sale of
investments.
(3) Net pre-tax investment income less appropriate income taxes.
(4) Net pre-tax investment income for the period, annualized for the three
months ended December 31, 1993, divided by average investments for the
same period.
(5) Net after-tax investment income for the period, annualized for the three
months ended December 31, 1993, divided by average investments for the
same period.
As of December 31, 1994, the equity portfolio of Underwriters
was carried at a market value of approximately $125.1 million with an
original cost of approximately $118.5 million, and consisted primarily of
6,015,038 shares of the common stock of Santa Fe. In 1994, Underwriters
did not realize any gains or losses from the sale of equity securities, or
receive any dividends therefrom.
-37-
38
The following table summarizes the investments of Underwriters,
excluding cash, as of December 31, 1994, with all investments carried at
market value (in thousands except percentages):
Investments
Amortized Cost
or Cost Market Value
---------------------- -------------------------
Amount Percentage Amount Percentage
Short term investments . . . . . . . . . $ 54,248 6% $ 54,248 7%
Corporate Bonds . . . . . . . . . . . . . 108,496 13 100,874 13
United States government and
government agency bonds . . . . . . . 38,575 4 34,319 4
Mortgage- and asset-backed securities . . 216,132 25 200,157 25
Foreign bonds . . . . . . . . . . . . . . 21,757 2 19,743 2
Redeemable preferred stocks . . . . . . . 16,116 2 14,912 2
Municipal bonds . . . . . . . . . . . . . 290,376 34 262,740 32
Equity securities(1) . . . . . . . . . . 118,577 14 125,090 15
-------- --- -------- ---
Total $864,277 100% $812,083 100%
======== === ======== ===
(1) Amount includes 6,015,038 shares of the common stock of Santa Fe.
The following table indicates the composition of the long-term
fixed maturity portfolio by Moody's rating as of December 31, 1994 (in
thousands except percentages):
Long-Term Fixed Maturity Portfolio by Moody's Rating
Market
Value Percentage
-------- ----------
Aaa $383,485 61%
Aa 115,660 18
A 108,203 17
Baa 25,397 4
-------- ---
Total $632,745 100%
======== ===
-38-
39
The following table indicates the composition of the long-term
fixed maturity portfolio by years until maturity as of December 31, 1994
(in thousands except percentages):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market
Value Percentage
------ ----------
One year or less . . . . . . . . $ 18,139 3%
Over one through five years . . . 73,437 11
Over five through ten years . . . 133,050 21
Over ten years . . . . . . . . . 207,959 33
Mortgage- and asset-backed
securities . . . . . . . . . . . 200,160 32
-------- ---
Total $632,745 100%
======== ===
Competition
- -----------
Competition in the property and casualty reinsurance industry
has historically been cyclical in nature. Typically, a cycle begins with
attractive premium rates for reinsurance, which cause increased writing by
existing reinsurers and the entrance into the market of new reinsurers.
Competition within the market continues to grow, resulting in a decline in
premium rates. As the cycle continues, these decreased premium rates, in
conjunction with a combination of fluctuations in interest rates, catastrophic
events and general economic conditions, usually result in a period of
underwriting losses. Such losses in turn cause reinsurers to slow or stop
writing reinsurance or to withdraw from the market altogether, which results in
decreased competition and a subsequent increase in premium rates. Underwriters
believes this competitive cycle, which may affect particular market segments at
different times, is a critical factor affecting reinsurance profitability over
time. There are no assurances that historical trends in the property and
casualty reinsurance industry will continue or that Underwriters will be able to
accurately anticipate any such trends.
The property and casualty reinsurance business is competitive
or highly competitive, depending upon the cycle described above. Underwriters
competes primarily in the United States reinsurance market with numerous foreign
and domestic reinsurers, many of which have greater financial resources than
-39-
40
Underwriters. Competition in the types of reinsurance in which Underwriters is
engaged is based on many factors, including the perceived overall financial
strength of the reinsurer, premiums charged, contract terms and conditions,
services offered, speed of claims payment, reputation and experience.
Underwriters' competitors include independent reinsurance
companies, subsidiaries or affiliates of established worldwide insurance
companies, reinsurance departments of certain primary insurance companies and
domestic, European and Asian underwriting syndicates.
According to the Reinsurance Association of America, at
December 31, 1994, there were fifty-two domestic professional reinsurers, and
Underwriters was the nation's twelfth-largest in terms of statutory surplus and
nineteenth-largest in terms of net premiums written.
Regulation
- ----------
Underwriters, CUIC and UIC are subject to regulation and
supervision by state insurance regulators under the insurance statutes and
regulations of states in which they are incorporated (New Hampshire, California
and Nebraska, respectively). In addition, each of these companies is regulated
in each jurisdiction in which it conducts business. Among other things,
insurance statutes and regulations typically limit the amount of dividends that
can be paid without prior regulatory notification and approval, impose
restrictions on the amounts and types of investments Underwriters, CUIC and UIC
may hold, prescribe solvency standards that must be met and maintained, require
filing of annual or other reports with respect to financial condition and other
matters and provide for periodic examinations of Underwriters, CUIC and UIC.
The terms and conditions of reinsurance agreements generally
are not subject to regulation by any governmental authority with respect to
rates or policy terms. These agreements contrast with primary insurance
policies and agreements, the rates and policy terms of which are generally
closely regulated by state insurance departments. As a practical matter,
however, the rates charged by primary insurers do have an effect on the rates
that can be charged by reinsurers.
As an insurance holding company, Alleghany is also subject to
the insurance regulations of New Hampshire, California and Nebraska. Each
state required prior regulatory approval of Alleghany's acquisition of
Underwriters, CUIC and UIC,
-40-
41
respectively. Alleghany and its other subsidiaries, however, are generally not
subject to restrictions on their business activities due to their
affiliation with Underwriters.
Beginning with the 1994 year end statutory financial
statements, the insurance laws of New Hampshire, California and Nebraska imposed
risk-based capital ("RBC") requirements on property and casualty insurers and
reinsurers, based on a model adopted by the National Association of Independent
Insurers. The RBC laws, and the instructions thereunder, attempt to measure a
property and casualty company's statutory capital and surplus needs, taking into
account the risk characteristics of the companies' investments and products. The
RBC laws provide for four different levels of regulatory attention, dependent
upon the ratio of a company's total adjusted capital to its risk-based capital
(the "RBC ratio"), providing regulators with an early warning tool to identify
weakly capitalized companies for purposes of initiating further regulatory
action. Management believes that comparisons of estimated RBC ratios of
property and casualty insurers and reinsurers will become generally available.
Principally because of the RBC requirements associated with their investments,
Underwriters, CUIC and UIC believe that their RBC ratios are better than those
of many of their competitors in the property and casualty industry. Each of
Underwriters, CUIC and UIC had RBC ratios well in excess of the first level at
which regulatory attention under such laws would be warranted.
In October 1994, the National Association of Insurance
Commissioners issued a revision, effective January 1, 1995, to the statutory
practices of accounting for reinsurance contracts. Under the new guidance,
accounting for the risk transfer provisions of reinsurance contracts on a
statutory basis will be substantially similar to generally accepted accounting
principles.
Employees
- ---------
Underwriters employed 164 persons as of December 31, 1994.
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, at a cost of about $144
million, including
-41-
42
capitalized expenses. The present chief executive officer of World Minerals
currently owns an equity interest of about 6.2 percent of World Minerals'
immediate parent company.
On November 16, 1992, New Harborlite Corporation
("Harborlite"), a newly formed subsidiary of World Minerals, acquired all of the
outstanding capital stock of Harborlite Corporation ("Old Harborlite"), a
privately owned perlite filter-aid company, for cash and non-voting preferred
stock of Harborlite. All of World Minerals' pre-existing perlite operations
were transferred to Harborlite, and Old Harborlite was merged into Harborlite,
which was then renamed Harborlite Corporation.
Accordingly, World Minerals conducts its industrial minerals
business through its subsidiaries, Celite and Harborlite:
Celite
------
Celite is believed to be the world's largest producer of
filter-grade diatomite, which it markets worldwide under the
Celite(registered trademark) and Kenite(registered trademark) brand
names; Celite also markets filter grade diatomite in Europe under the
Primisil(registered trademark) brand name and in Latin America and
other areas under the Diactiv(registered trademark) brand name.
Celite also produces calcium silicate products and magnesium silicate
products, which are sold worldwide under the MicroCel(registered
trademark) and Celkate(registered trademark) brand names (except in
portions of Europe where calcium silicate products are sold under the
Calflo(registered trademark) brand name).
Diatomite is a silica-based mineral consisting of the
fossilized remains of microscopic freshwater or marine plants.
Diatomite's primary applications are in filtration and as a functional
filler. Filtration accounts for the majority of the worldwide
diatomite market and for over 50 percent of Celite's diatomite sales.
Diatomite is used as a filter aid in the production of beer, food,
juice, wine, water, sweeteners, fats and oils, pharmaceuticals,
chemicals, lubricants and petroleum. Diatomite is used as a filler,
mainly in paints. Diatomite is also used as an anti-block agent in
plastic film.
Celite's calcium and magnesium silicate 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. Celite's calcium and magnesium silicate products
are used in the production of rubber, sweeteners, flavorings and
pesticides.
-42-
43
Harborlite
----------
Harborlite, which began operations on November 16, 1992,
carries on the business of Old Harborlite and the perlite production
businesses formerly conducted by Celite.
World Minerals believes that Harborlite is one of the world's
largest producers of perlite filter aids and a significant producer of
perlite ore. These products are marketed worldwide under the
Harborlite(registered trademark) brand name. Perlite is a volcanic
rock which contains between 2 percent and 5 percent natural combined
water. When heated rapidly, the natural combined water turns
explosively to steam and the perlite ore "pops" in a manner similar
to popcorn, expanding up to twenty times its original volume and
creating a soft material with large surface area and correspondingly
low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine
and is sold primarily to companies that expand it in their own
expansion plants and use it in the manufacture of roofing board, formed
pipe insulation and acoustical ceiling tile. Perlite ore for
filter-aid and certain filler applications is mined at Harborlite's
Superior, Arizona mine and is expanded at one of Harborlite's seven
expansion plants located within the United States. Expanded perlite is
also produced at Harborlite's two expansion plants in Europe from
perlite ore obtained from European and Middle Eastern suppliers. Most
of Harborlite's 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.
World Minerals directs its business from its world headquarters
in Lompoc, California. Its Celite subsidiary also has its world headquarters in
Lompoc, California and owns, directly or through wholly owned subsidiaries,
diatomite mines and processing plants in Lompoc, California; Quincy, Washington;
Murat, France; Alicante, Spain; Arica, Chile; and Guadalajara, Mexico. Celite
also owns 48.6 percent of Kisilidjan, h.f., a joint venture with the Government
of Iceland which mines and processes diatomite from Lake Myvatn in Iceland.
Harborlite has its world headquarters in Vicksburg, Michigan
and owns a perlite mine and mill in No Agua, New Mexico, a perlite loading
facility in Antonito, Colorado, a perlite mine
-43-
44
and a mill in Superior, Arizona and perlite expansion facilities in Escondido,
California; Green River, Wyoming; Laporte and Fort Worth, Texas; Reserve,
Louisiana; Vicksburg, Michigan; Quincy, Florida; Wissembourg, France; and
Hessle, England.
World Minerals conducts certain of its operations in foreign
countries. In 1994, approximately 32 percent of World Minerals' revenues (equal
to 3 percent of Alleghany's consolidated revenues from continuing operations)
were generated by foreign operations, and an additional 14 percent of World
Minerals' revenues were generated by export sales from the United States.
World Minerals minimizes its exposure to the risk of foreign
currency fluctuation by, among other things, declaring and paying dividends
whenever feasible, and having its foreign subsidiaries invoice their export
customers in United States dollars or other "hard currencies." World Minerals'
foreign operations do not subject Alleghany to a material risk from foreign
currency fluctuation. The recent Mexican currency crisis is illustrative.
Celite owns a diatomite mine and processing plant in Mexico through a Mexican
subsidiary. The decline in value of the Mexican peso, which began in late
December 1994, did not have any significant impact on World Minerals' 1994
earnings, and is not expected to have a significant impact on 1995 earnings
primarily because almost half of the customers of the Mexican subsidiary are
billed in United States dollars.
Celite's largest diatomite mine and plant is located near
Lompoc, California. All additional diatomite supplies are currently obtained by
Celite from its mines in the state of Washington, France, Spain, Mexico, Chile
and from the Lake Myvatn mine in Iceland (although environmental regulations and
seismic activity may adversely affect future production at Lake Myvatn). Celite
believes that its diatomite reserves at each site are generally sufficient to
last for at least 20 more years at the current rate of utilization.
Harborlite obtains perlite ore from its No Agua and Superior
mines, and believes that its perlite ore reserves at each site are sufficient to
last at least 20 more years at the current rate of utilization. The perlite
used by Harborlite for expansion in Europe is obtained from third parties in
Europe and the Middle East.
Celite's silicate products are produced from purchased
magnesium and calcium compounds and internally produced diatomite.
-44-
45
World Minerals experienced no interruption in raw material
availability in 1994, and barring unforeseen circumstances anticipates no such
interruption in 1995. While there can be no assurance that adequate supplies of
all raw materials will be available in the future, Celite and Harborlite believe
that they have taken reasonable precautions for the continuous supply of their
critical raw materials.
Many of Celite's and Harborlite's operations use substantial
amounts of energy, including electricity, fuel oil, natural gas, and propane.
Celite and Harborlite have supply contracts for most of their energy
requirements. Most of such contracts are for one year or less. Celite and
Harborlite have not experienced any energy shortages and they believe that they
have taken reasonable precautions to ensure that their energy needs will be met,
barring any unusual or unpredictable developments.
From the time World Minerals began operations in 1991, none of
its customers accounted for 10 percent or more of World Minerals' annual sales.
World Minerals presently owns, controls or holds licenses
either directly or through its subsidiaries to approximately 15 United States
and 33 foreign patents and patent applications. While World Minerals considers
all of its patents and licenses to be valuable, World Minerals believes that
none of its patents or licenses is by itself material to its business.
World Minerals normally maintains approximately a one- to
three-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.
Programs instituted by management from 1991 through 1993 have
strengthened World Minerals. Domestic and international operations are now
consolidated into a single, centrally managed worldwide business under the
direction of a highly capable management team. Financial systems and controls
have been upgraded, and the Celite and Harborlite sales forces have been
consolidated to improve efficiency and take advantage of synergies. World
Minerals acts as the sales agent for both Celite
-45-
46
and Harborlite in the United States and procures orders from customers and
distributors on their behalf. Celite distributes Harborlite's products in Europe
to dealers, distributors and end users on Harborlite's behalf.
World Minerals has research and development, environmental
control and quality control laboratories at its Lompoc production facilities and
quality control laboratories at each of its other production facilities. In
1994, World Minerals spent approximately $900,000 on company-sponsored research
and technical services (in addition to amounts spent on engineering and
exploration) related to the development and improvement of its products and
services.
Competition
- -----------
World Minerals believes that Celite is the world's largest
producer of filter grade diatomite. The remainder of the market is shared by
Celite's four major competitors: Eagle-Picher Minerals (United States), Grefco
(United States), CECA (France) and Showa (Japan), and a number of smaller
competitors. Celite's silicates compete with a wide variety of other synthetic
mineral products.
World Minerals believes that Harborlite is one of the world's
largest producers of perlite filter aids and is a significant producer of
perlite ore. Harborlite has two large competitors in the expanded perlite
market, Grefco and CECA, and many smaller competitors. Competition is
principally on the basis of service, product quality and performance, warranty
terms, speed and reliability of delivery, availability of the product and price.
Celite's and Harborlite's filter-aid products compete with
other filter aids, such as cellulose, and other filtration technologies, such as
crossflow and centrifugal separation.
Regulation
- ----------
All of Celite's and Harborlite's domestic operations are
subject to a variety of federal, state and local environmental laws and
regulations. These laws and regulations establish potential liability for costs
incurred in cleaning up waste sites and impose limitations on atmospheric
emissions, discharges to domestic waters, and disposal of hazardous materials.
Certain state and local jurisdictions have adopted regulations that may be more
stringent than corresponding federal regulations. Celite and Harborlite believe
that the impact of environmental regulation on
-46-
47
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 for employee work
environments in the mining industry. MSHA promulgates regulations relating to
noise, respiratory protection and dust. 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.
World Minerals maintains a staff of experienced environmental
and industrial hygiene professionals who assist plant personnel in complying
with environmental, health and safety regulations. This group also performs
routine internal audits and reviews of World Minerals' plant facilities
worldwide. Due to these programs and responsible management at the local plant
level, compliance with such regulations has been facilitated and the financial
impact of such regulations on operating results has been minimal.
Certain products of Celite and Harborlite are subject to the
Hazard Communication Standard promulgated by OSHA, which requires Celite and
Harborlite, respectively, to disclose the hazards of their products to employees
and customers. Celite's diatomite products and certain of Harborlite's products
contain varying amounts of crystalline silica, a substance which is among the
most common found on earth. In 1987, the International Agency for Research on
Cancer ("IARC") issued a report, which was supplemented in 1988, designating
crystalline silica as "probably carcinogenic to humans," which is a tentative
classification falling between "probably not carcinogenic to humans" and
"sufficient evidence of human carcinogenicity." Celite and Harborlite therefore
provide required warning labels on their
-47-
48
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. Therefore, some manufacturers of paint may be
considering the use of other fillers in place of Celite's products. However,
Celite believes that the loss of these customers would not have a material
adverse effect on its operating results. Several states have also enacted or
adopted "right to know" laws or regulations, which seek to expand the federal
Hazard Communication Standard to include providing notice of hazards to the
general public, as well as to employees and customers.
The 1987 IARC designation has been the subject of controversy
and continued study. 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 crystalline
silica. One such study, conducted by the University of Washington, found a
modest increase in lung cancer deaths in the cohort compared with national rates
(indicated by a standardized mortality ratio ("SMR") equal to 1.43). The
standardized mortality ratio compares the number of cancer deaths in the cohort
with 1, representing the number of cancer deaths in the population at large. The
study also found an increase in non-malignant respiratory disease ("NMRD") (SMR
equal to 2.59); this finding was expected because the NMRD category included
silicosis resulting from exposures in past decades.
After the publication of the Washington study, Celite conducted
its own review of the portion of the cohort representing the Lompoc plant and
found that more workers in this portion of the cohort may have been exposed to
asbestos than originally thought. Since exposure to asbestos has been found to
cause lung cancer and respiratory disease, this finding has raised concern that
the Washington study may have overstated the adverse health effects of exposure
to crystalline silica. IDPA engaged an epidemiologist and an industrial
hygienist to examine the cohort to determine whether asbestos exposure was fully
accounted for in the Washington study's results. The final IDPA report was
issued in December 1994 and found:
"Although asbestos operations were small relative to the
diatomaceous earth operations, analyses in this report
-48-
49
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 study's authors called for further analyses which fully take into account
the results of the study stating "[t]he interpretation of the silica-lung cancer
risk relationships based on the [Lompoc] cohort should await the outcome of such
analyses."
Certain other cohort mortality studies of workers
occupationally exposed to crystalline silica, including a study of gold miners
in North Dakota, have found no statistically significant increases in lung
cancer compared with national populations. The issue remains subject to
considerable debate.
The various agreements covering the purchase of the business of
Celite in 1991 provide for the indemnification of the holding company subsidiary
of Alleghany which acquired Celite by the various selling Manville entities in
respect of any environmental and health claims arising from the operations of
the business of Celite prior to its acquisition by the holding company
subsidiary.
Employees
- ---------
During 1994, World Minerals reorganized and centralized much of
the sales and administrative functions formerly performed at the operating
subsidiary level. As of December 31, 1994, World Minerals had 114 employees,
all located in the United States, Celite had a total of about 798 employees
worldwide, and Harborlite had a total of about 212 employees worldwide.
Approximately 339 of Celite's employees and 36 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. The collective bargaining agreement governing 53
hourly production workers at Celite's facility at Quincy, Washington is
scheduled to expire in October 1995.
-49-
50
STEEL FASTENER BUSINESS
The Heads and Threads division of Alleghany, headquartered in
Northbrook, Illinois, is believed to be the nation's leading distributor of
imported steel fasteners. Heads and Threads imports and sells commercial
fasteners - nuts, bolts, screws and washers - for resale to fastener
manufacturers and distributors through a network of sales offices and warehouses
located in sixteen states. The strength of Heads and Threads lies in its five
major warehouses and fourteen regional satellite warehouses, long years of
association with suppliers and customers, and ability to control operating
costs.
Since Heads and Threads imports virtually all of its fasteners,
it is necessary to forecast inventory requirements from six months to a year in
advance to allow time for shipments to reach their destinations in the United
States. In addition, Heads and Threads' costs are subject to foreign currency
fluctuations and increases in import duties, which may result from
determinations by United States federal agencies that foreign countries are
violating United States laws or intellectual property rights, or are following
restrictive import policies. Heads and Threads operations do not subject
Alleghany to a material risk from foreign currency fluctuation or increased
import duties.
The earthquake in Japan in January 1995, coupled with indigenous
material cost increases, have caused Taiwanese manufacturers, the main source of
supply for Heads and Threads, to increase their prices. Some shortages have
also developed. These are expected to be offset by other marketing factors.
Rules that have been proposed to implement the Fastener Quality Assurance Act,
which became law in late 1990 but has not yet gone into effect, also may
increase costs.
At December 31, 1994, Heads and Threads had about 165 employees.
-50-
51
Item 2. Properties
----------
Alleghany's headquarters is located in leased office space of
about 10,000 square feet at Park Avenue Plaza in New York City.
CT&T and CTI lease about 278,000 square feet for their
headquarters operations in the Chicago Title and Trust Center, a 49-story office
complex at 171 North Clark Street in Chicago, Illinois.
Ticor Title's and Security Union's headquarters are in
company-owned premises of about 180,000 square feet in Rosemead, California.
CT&T and its subsidiaries own or lease buildings or office space in
approximately 425 locations throughout the United States, primarily for CTI,
Security Union and Ticor Title full-service and satellite branch office
operations.
Underwriters leases about 27,000 square feet of office space for
its headquarters operations in Woodland Hills, California. All of its five
branch office locations are also in leased spaces, ranging in size from about
3,200 square feet to 6,200 square feet. CUIC leases about 9,400 square feet of
office space.
World Minerals' headquarters is located in leased premises of
approximately 17,300 square feet in Lompoc, California, which it shares with
Celite. Harborlite's headquarters is located at its Vicksburg, Michigan plant.
A description of the major plants and properties owned and
operated by Celite and Harborlite is set forth below. All of the following
properties are owned, with the exception of Plant # 1 at Quincy, Washington, the
headquarters offices at Lompoc, California, the Rueil, France and Santiago,
Chile offices, and the plant at Wissembourg, France, which are leased.
-51-
52
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
CELITE:
- -------
Lompoc, CA 961,410 Diatomite filter
Production facility; aids, fillers,
17 multi-story production silicates and
buildings; 5 one- specialty
story warehouse products
buildings; 6 one-
story laboratory
buildings; 4 multi-
story bulk handling
buildings; 6 one-
story office buildings;
2 one-story lunch and
locker-room buildings;
and 10 one-story shops.
Lompoc, CA 17,300 Headquarters
1 one-story building; offices
3 units within
1 one-story building.
Quincy, WA 60,941 Diatomite filter
Production facility; Plant aids and fillers
#1-1 multi-story
production building and
7 one-story buildings.
Plant #2-1 multi-
story production
building and 6 one-
story buildings.
Murat, Department
of Cantal, France 77,000 Diatomite filter
Production facility; aids
1 one-story
manufacturing
building; 2 one-
story warehouses;
and 1 one-story
office building.
Rueil, France 10,000 Sales and
1 single floor. administrative
offices
-52-
53
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
Guadalajara, Mexico 116,610 Diatomite filter
Production facility; aids and fillers
2 multi-story production
buildings; 2 multi-story
pollution-control
buildings; and 20
one-story buildings.
Mexico City, Mexico 2,700 Offices
1 single floor
condominium.
Arica, Chile 50,000 Diatomite
Production facility; Filter Aids
1 calcined line;
1 natural line;
1 administration
building; 1 laboratory;
1 warehouse building; 1
changing room building;
1 maintenance workshop; and
1 product warehouse.
Santiago, Chile 1,682 Offices
1 single floor in
a multi-story, rented
office building.
Alicante, Spain 69,410 Diatomite filter
Production facility; aids and fillers
2 multi-story manufac-
turing buildings;
3 one-story ware-
houses; 2 one-story
office buildings;
and 3 miscellaneous
buildings.
-53-
54
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
HARBORLITE:
- -----------
Antonito, CO 9,780 Warehouse
1 one-story manu- facilities for
facturing building perlite ore
and warehouse; 1 one-
story office building;
and 1 one-story ware-
house.
No Agua, NM 40,550 Perlite ore
Production facility;
1 six-story mill
building; 1 one-
story office and
shop building; and
8 miscellaneous one-
story buildings.
Superior, AZ 6,900 Perlite ore
Production facility;
1 one-story
warehouse building; and
1 one-story office
building.
Escondido, CA 8,450 Perlite filter
1 one-story aids
warehouse building;
and 1 one-story office
building.
Green River, WY 17,300 Perlite filter
1 one-story aids
warehouse building;
and 1 one-story office
building.
Vicksburg, MI 25,050 Perlite filter
2 one-story aids
warehouse buildings;
and 1 one-story office
building.
-54-
55
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
Fort Worth, TX 15,000 Perlite filter
1 one-story warehouse aids
building; 1 one-story
manufacturing building;
and 1 one-story office
building.
Quincy, FL 18,450 Perlite filter
1 one-story warehouse aids
building; 1 one-story
manufacturing building;
and 1 one-story office
building.
Wissembourg, France 50,000 Perlite filter
1 multi-story aids and fillers
production and ware-
house building.
Hessle, Humberside,
United Kingdom 36,700 Perlite filter
1 one-story aids and fillers
manufacturing
building; and 1
two-story office
building.
LaPorte, Texas 18,000 Perlite filter
1 one-story as of 1/17/95 aids, cryogenics
expansion warehouse (being expanded) and fillers
and office building.
Reserve, Louisiana 11,440 Perlite filter
1 one-story aids and
expansion warehouse cryogenics
and office building.
World Minerals' largest mine is located on Celite-owned property
immediately adjacent to the City of Lompoc, California, and is the site of one
of the most unusual marine diatomite deposits in the world. The mine
celebrated its 100th anniversary of production in 1993 and has been in
continuous operation for more than 60 years. Reserves are believed to be
sufficient for the operation of the plant for at least 20 more
-55-
56
years at the current rate of utilization. The Lompoc production facility has
a rated capacity in excess of 200,000 tons annually and currently supplies more
than 25 different grades of products to the filtration and filler markets. The
facility also houses World Minerals' research and development, and health,
safety and environmental departments and Celite's quality control laboratories.
Celite and Harborlite also lease warehouses, office space and
other facilities in the United States and abroad. A joint venture between
Celite and the Government of Iceland has mining rights to mine diatomaceous
earth in sections of Lake Myvatn, Iceland.
The operations of Alleghany's Heads and Threads division are
conducted in 16 states at 19 locations. There are either warehouses, or
combined warehouses and sales offices, at such locations; two locations are
owned and the remainder are leased. Heads and Threads' headquarters in
Northbrook, Illinois is owned by Alleghany.
API's headquarters is located in leased premises of approximately
3,630 square feet in Sacramento, California. API or its subsidiary owns 52
properties in fee (four of which are subject to a first deed of trust), and
one additional property for which foreclosure is probable but has not yet
occurred, in California. Such properties are comprised of improved and
unimproved commercial land (office, retail and industrial), improved and
unimproved commercial and residential lots, and office, retail, commercial and
residential buildings. In addition, the following properties are held by
joint ventures in dissolution in which API has an interest, but the
liquidation of such joint ventures has not yet been completed. API intends to
dispose of all of these properties in an orderly fashion, which may take
several years.
Location Approximate Acreage Property Type
- -------- ------------------- -------------
Roseville, 22.7 acres Unimproved land
California (commercial/
residential)
Roseville, 112.3 acres Unimproved land
California (commercial/
(subject to a first residential)
deed of trust)
-56-
57
Location Approximate Acreage Property Type
- -------- ------------------- -------------
Folsom, 8.20 acres Unimproved land
California (commercial/
office/retail)
Sacramento, 215.8 acres Unimproved land
California (commercial/
residential)
Sacramento, 249 acres Unimproved land
California (residential)
Sacramento, 136 acres Unimproved land
California (commercial/
residential)
Alleghany also owns one truck terminal property in Ohio which is
being held for sale, and which has been leased from time to time on an interim
basis.
-57-
58
Item 3. Legal Proceedings.
A. On January 7, 1985, the Federal Trade Commission (the
"FTC") filed a complaint alleging that six of the largest title insurance
companies, including CTI, Security Union and Ticor Title, violated Section 5 of
the Federal Trade Commission Act. The violation was alleged with respect to the
companies' participation in title insurance rating bureaus in thirteen states,
to the extent those rating bureaus had proposed for state regulatory approval
rates relating to title search and examination services and settlement services
performed in connection with the issuance of title insurance policies. After
proceedings before an administrative law judge and the FTC, the FTC issued an
opinion and order dated September 19, 1989, finding a violation of the Federal
Trade Commission Act in six states. Subsequent appeals in the United States
Court of Appeals for the Third Circuit and the United States Supreme Court
resulted in an affirmance of the FTC order as to four states. The FTC issued a
modified order dated April 22, 1994, to conform to the results of these appeals.
By that order CTI, Security Union and Ticor Title are prohibited in Connecticut,
Wisconsin, Arizona and Montana, from discussing, proposing, setting or filing
any rates for title search and examination services through a rating bureau,
except where such activity is engaged in pursuant to clearly articulated and
affirmatively expressed state policy and where such activity is actively
supervised by a state regulatory body. CT&T experienced no practical adverse
consequences from this order since its title insurance subsidiaries are not
engaged in any types of activities proscribed thereby.
Beginning shortly after the filing of the FTC complaint in 1985,
a series of private suits brought under Section 1 of the Sherman Act and based
on the matters alleged in the FTC proceedings, seeking treble damages and other
relief against the same six title insurance companies, were filed in a number of
federal district courts. These actions were consolidated in the United States
District Court for the Eastern District of Pennsylvania. In June 1986, that
Court issued a final judgment approving a class action settlement of the
asserted claims, in consideration of the defendant companies providing class
members with enhanced title insurance coverage, discounts on future purchases of
title insurance, and other benefits. Additional federal and state civil actions
subsequently were filed seeking damages and injunctive relief on the basis of
the same matters complained of in the suits subject to the class settlement. A
number of such later actions were dismissed; however, two such actions are
currently pending.
-58-
59
In December 1992, the United States Court of Appeals for the
Ninth Circuit reversed the dismissal of damage claims asserted in one such
pending case filed in the United States District Court for the District of
Arizona, ruling that the prior class settlement did not bar the assertion of the
plaintiffs' damage claims challenging rating bureau activity in Arizona and
Wisconsin. The United States Supreme Court granted the title insurers' petition
for a writ of certiorari to review the decision of the Court of Appeals on this
issue in October 1993, but, after full argument by the parties on the merits of
the case, dismissed the writ as improvidently granted. In June 1994, counsel for
the plaintiffs and the defendants filed with the District Court in Arizona a
definitive written agreement embodying terms for a proposed class action
settlement of the asserted claims, which would become effective upon final
approval of the Court. Under those terms, eligible class members would
have the option to receive cash payments from the six title insurance companies,
not to exceed in the aggregate $1,225,200 in Arizona and $1,587,326 in
Wisconsin. Eligible class members who do not elect the cash option would
receive an increase in the face amount of any title insurance policy purchased
from the title insurers reflecting the impact of inflation since January 1,
1981, and would not be charged for the last $5,000 of insurance covered on any
new title insurance policy for property in Arizona or Wisconsin purchased from
any of such title insurers within the one year period following Court approval
of the settlement. The settlement also contemplates that the title insurance
companies would pay plaintiffs' attorneys fees and the costs of administering
the settlement. Since the filing of the settlement agreement with the Court, the
attorneys for the plaintiffs have told the Court that they are unable to
continue to support the settlement as in the best interests of the class; the
title insurance companies have stated their belief that the settlement
agreement is binding upon the plaintiffs and their counsel and that the
agreement is in the best interests of the settlement class.
On April 21, 1994, a separate class action suit seeking treble
damages was filed in the United States District Court for the Eastern District
of Wisconsin, asserting federal antitrust claims against the same six defendants
and a number of additional title insurers arising from Wisconsin rating bureau
activity. On October 11, 1994, the Wisconsin suit was transferred to and
consolidated with the suit in the United States District Court in Arizona. The
District Court in Arizona has yet to act upon the settlement agreement or the
issues that have arisen since the settlement agreement was jointly presented to
the Court. Discussions among the parties and the Court are continuing.
-59-
60
The Stock Purchase Agreement between Alleghany and Lincoln
National Corporation, among other parties, dated as of June 18, 1985, provides
for the indemnification of Alleghany by Lincoln National Corporation in respect
of a portion of any liability resulting from the foregoing FTC and private
actions and in respect of certain other pending or potential claims against CT&T
and its subsidiaries.
B. Alleghany entered into a consent agreement with the FTC
effective July 22, 1991, which settled certain antitrust objections raised by
the FTC in respect of the acquisition of Ticor Title Insurance Company of
California ("Ticor Title of California") by CT&T. The consent agreement
provides for the divestiture by CT&T after its acquisition of Ticor Title of
California of (i) one of the two title plants owned by subsidiaries of CT&T
serving each of three Illinois counties, three Indiana counties, two Washington
counties and one California county; and (ii) one of the two back plants owned by
subsidiaries of CT&T serving each of six California counties and one county in
each of Illinois, Indiana and Tennessee. A back plant is a title plant that is
no longer being updated on a daily or regular basis. For a period of ten years
from its effective date, the consent agreement prohibits Alleghany or any of its
subsidiaries from acquiring an ownership interest or assets in certain named
title insurance companies, or in any entity that has a direct or indirect
ownership interest in a title plant or back plant that services the counties
with respect to which divestiture of such a plant was ordered, without the prior
approval of the FTC. For the same period, Alleghany or any of its subsidiaries
is required to give prior notification to the FTC of any acquisitions of an
ownership interest in a title plant or back plant serving the same county as a
plant already owned by Alleghany or any of its subsidiaries. There is an
exception to the prior approval or notice requirements which generally would
apply to acquisitions solely for the purpose of investment of up to 3 percent of
the shares of a publicly traded corporation. Also, acquisitions of shares of a
publicly traded corporation are not subject to the prior approval or notice
requirements solely by reason of the ownership by such corporation of less than
5 percent of the shares of the named title companies.
The consent agreement required divestiture of the plants by July
23, 1992, and provides that the FTC may appoint a trustee and seek civil
penalties and other relief if Alleghany failed to accomplish the divestitures
by such date. As of July 21, 1992, Alleghany had received the FTC's approval
for divestiture in four markets and had applications pending with respect to
the remaining fourteen markets. On that date, Alleghany submitted a motion to
-60-
61
the FTC to extend the time within which to complete the divestitures. On
September 24, 1992, the FTC denied Alleghany's motion, advising that it had
"not determined whether, or what, enforcement action would be warranted for
[Alleghany's] failure to meet the July 23 deadline." As of the date hereof,
applications with respect to all markets have been approved by the FTC, and all
divestiture transactions have closed. On September 28, 1993, the staff of the
Bureau of Competition of the FTC invited Alleghany to "address why [the Bureau]
should not recommend that the [FTC] seek civil penalties, or what an
appropriate penalty might be. . . ." On December 10, 1993, Alleghany submitted
a response demonstrating its good faith in the fulfillment of its divestiture
obligations to support its position that no penalties should be imposed. The
staff of the Bureau of Competition subsequently informally advised Alleghany
that it will not recommend that the FTC seek any penalties. To Alleghany's
best knowledge, the FTC will not formally advise Alleghany that no civil
penalties or other relief will be sought with respect to Alleghany's failure to
fulfill its obligations under the consent agreement. However, Alleghany's
outside counsel has received informal assurances from the FTC that such
penalties or other relief will not be pursued by the FTC.
C. Alleghany's subsidiaries and division are parties to pending
litigation and claims in connection with the ordinary course of their
businesses. Each such operating unit makes provision on its books, in
accordance with generally accepted accounting principles, for estimated losses
to be incurred in such litigation and claims, including legal costs. In the
opinion of management, such provision is adequate under generally accepted
accounting principles as of December 31, 1994.
-61-
62
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 1994.
Supplemental Item. Executive Officers of Registrant.
---------------------------------
The name, age, current position, date elected and five-year
business history of each executive officer of Alleghany are as follows:
Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
F.M. Kirby 75 Chairman of Chairman of the
the Board Board, Alleghany;
Chairman of the
Board and chief
executive officer,
Alleghany, prior
to July 1992.
John J. 63 President, President, chief
Burns, Jr. chief executive officer
executive and chief operating
officer officer, Alleghany
and chief since July 1992;
operating President and
officer chief operating
officer, Alleghany,
prior thereto.
David B. 62 Senior Vice Senior Vice
Cuming President President and
and chief chief financial
financial officer, Alleghany,
officer since December 1989;
Vice President,
Alleghany, prior
thereto.
-62-
63
Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
Robert M. Hart 50 Senior Vice Senior Vice President
President, General and General Counsel
Counsel and since September 1994
Secretary and Secretary since
January 1, 1995;
Partner, Donovan
Leisure Newton &
Irvine, prior
thereto.
Richard P. 58 Senior Vice Senior Vice
Toft President; President, Alleghany,
Chairman, since March 1990;
President and Chairman, President
Chief Executive and Chief Executive
Officer, CT&T; Officer, CT&T, since
Chairman, Chicago January 1994;
Title Insurance President and Chief
Company Executive Officer,
CT&T, prior thereto;
Chairman, Chicago
Title Insurance
Company, since
January 1994;
Chairman and Chief
Executive Officer,
Chicago Title
Insurance Company,
prior thereto.
Peter R. Sismondo 39 Vice President, Vice President,
Controller, Controller,
Treasurer, Treasurer,
Assistant Assistant Secretary
Secretary and and principal
principal accounting officer,
accounting officer Alleghany,
since January 1,
1995; Vice President,
Controller, Assistant
Secretary and
principal accounting
officer, Alleghany,
prior thereto.
-63-
64
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
--------------------------------------------------------------
Matters.
--------
The information required by this Item 5 is incorporated by
reference from page 19 of Alleghany's Annual Report to Stockholders for the year
1994, filed as Exhibit 13 hereto.
Item 6. Selected Financial Data.
------------------------
The information required by this Item 6 is incorporated by
reference from page 19 of Alleghany's Annual Report to Stockholders for the year
1994, 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 2 through 4, from pages 6 through 15, and from pages 20 and
21, of Alleghany's Annual Report to Stockholders for the year 1994, 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 22 through 41 of Alleghany's Annual Report to Stockholders
for the year 1994, filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
-64-
65
PART III
Item 10. Directors and Executive Officers of Registrant.
-----------------------------------------------
As permitted by General Instruction G(3), information concerning the
executive officers of Alleghany is set forth as a supplemental item included in
Part I of this Form 10-K Report under the caption "Executive Officers of
Registrant." Information concerning the directors of Alleghany is incorporated
by reference from pages 5 through 8 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 28, 1995. 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 3 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 28, 1995.
Item 11. Executive Compensation.
-----------------------
The information required by this Item 11 is incorporated by reference
from pages 11 through 26 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 28, 1995.
The information set forth beginning on page 27 through the first paragraph on
page 36 of Alleghany's Proxy Statement, filed or to be filed in connection with
its Annual Meeting of Stockholders to be held on April 28, 1995, is not "filed"
as a part hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information required by this Item 12 is incorporated by reference
from pages 1 through 5, and from pages 9 and 10, of Alleghany's Proxy Statement,
filed or to be filed in connection with its Annual Meeting of Stockholders to be
held on April 28, 1995.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information required by this Item 13 is incorporated by reference
from page 25 of Alleghany's Proxy Statement, filed or to be filed in connection
with its Annual Meeting of Stockholders to be held on April 28, 1995.
-65-
66
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements.
---------------------
The consolidated financial statements of Alleghany and subsidiaries,
together with the report thereon of KPMG Peat Marwick LLP, independent certified
public accountants, are incorporated by reference from the Annual Report to
Stockholders for the year 1994 into Item 8 of this Report.
2. Financial Statement Schedules.
------------------------------
The schedules relating to the consolidated financial statements of
Alleghany and subsidiaries, together with the report thereon of KPMG Peat
Marwick LLP, independent certified public accountants, are detailed in a
separate index herein.
3. Exhibits.
---------
The following are filed as exhibits to this Report:
Exhibit Number Description
- ------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany, as
amended by Amendment accepted and received for filing
by the Secretary of State of the State of Delaware on
June 23, 1988, filed as Exhibit 20 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended January 16, 1995.
-66-
67
4.01 Indenture dated as of June 15, 1989 between Alleghany
and Pittsburgh National Bank, as Trustee, relating to
the 6-1/2% Subordinated Exchangeable Debentures due
June 15, 2014 (the "Debentures"), including the form
of Debenture, filed as Exhibit 4.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
4.02 Escrow Agreement dated as of June 15, 1989 between
Alleghany and Pittsburgh National Bank, as Escrow
Agent, for the escrow of common shares of American
Express Company for which the Debentures are
exchangeable, filed as Exhibit 4.2 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
*10.02(a) Agreement dated as of December 22, 1993 between
Alleghany and David B. Cuming, filed as Exhibit
10.02(a) to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated
herein by reference. Agreements dated as of December
22, 1993 between Alleghany and each of F.M. Kirby,
John J. Burns, Jr., Richard P. Toft, Theodore E.
Somerville, John E. Conway and Peter R. Sismondo were
omitted pursuant to Instruction 2 of Item 601 of
Regulation S-K.
- -----------------------
* Compensatory plan or arrangement.
-67-
68
*10.02(b) Agreement dated as of December 15, 1993 between CT&T
and Richard P. Toft, filed as Exhibit 10.02(b) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by
reference.
*10.03 Agreement dated August 18, 1994 between Alleghany and
Theodore E. Somerville.
*10.04 Alleghany Corporation Deferred Compensation Plan as
amended and restated as of December 15, 1992, filed as
Exhibit 10.03 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted on
March 16, 1983, filed as Exhibit 10.24 to the Annual
Report on Form 10-K of Alleghany Corporation, a
Maryland corporation and the predecessor of Alleghany
("Old Alleghany"), for the year ended December 31,
1982, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.05(b) Description of amendments to the Alleghany 1983
Long-Term Incentive Plan as adopted on December 30,
1986, filed as Exhibit 10.05(b) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1986, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
*10.06(a) Alleghany 1993 Long-Term Incentive Plan adopted and
effective as of January 1, 1993, filed as Exhibit
10.05 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1992, is incorporated
herein by reference.
- ----------------------
* Compensatory plan or arrangement.
-68-
69
*10.06(b) Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994 (subject
to the approval of Alleghany's stockholders).
*10.07 Alleghany Supplemental Death Benefit Plan dated as of
May 15, 1985 and effective as of January 1, 1985,
filed as Exhibit 10.08 to Old Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.08(a) Alleghany Retirement Plan effective as of January 1,
1989, as adopted on April 18, 1989, filed as Exhibit
10.2 to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1989, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
*10.08(b) Trust Agreement dated as of January 1, 1989 between
Alleghany and Bankers Trust Company, filed as Exhibit
10.5(b) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is incorporated
herein by reference.
*10.08(c) Alleghany Retirement Plan, as amended and restated on
March 14, 1995.
*10.09 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, is
incorporated herein by reference.
- -----------------------
* Compensatory plan or arrangement.
-69-
70
*10.10 Alleghany Amended and Restated Directors' Stock Option
Plan effective as of April 20, 1993 (provided that
options granted thereunder prior to the approval of
Alleghany's stockholders were conditioned upon such
approval), 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.
*10.11 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995 (subject to the
approval of Alleghany's stockholders).
*10.12 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein by
reference.
*10.13(a) Employment Agreement dated as of January 1, 1992, and
Amendment to Employment Agreement dated as of January
1, 1993, among CT&T, Alleghany and Richard P. Toft,
filed as Exhibit 10.12 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.13(b) Second Amendment to Employment Agreement dated as of
January 1, 1994, among CT&T, Alleghany and Richard P.
Toft, filed as Exhibit 10.11(b) of Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1993 is incorporated herein by reference.
- -----------------------
* Compensatory plan or arrangement.
-70-
71
*10.13(c) Third Amendment to Employment Agreement dated as of
October 31, 1994, among CT&T, Alleghany and Richard P.
Toft, filed as Exhibit 10.1 of Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1994, is incorporated herein by reference.
*10.14 Split/Owner "Split Dollar" Life Insurance Plan
Assignment dated March 19, 1986 by and between Richard
P. Toft and CT&T, filed as Exhibit 10.10(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
*10.15 Description of CT&T Presidents' Plan, adopted and
effective as of July 1, 1985 and as amended as of
January 26, 1993, filed as Exhibit 10.14 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1992, is incorporated herein by
reference.
*10.16 CT&T Performance Unit Incentive Plan, adopted and
effective as of July 1, 1985, restated as the CT&T
Performance Unit Incentive Plan of 1989, effective as
of July 1, 1990, filed as Exhibit 10.12 to Alleghany's
Annual Report on Form 10-K for the year ended December
31, 1990, is incorporated herein by reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of
1992, adopted and effective as of January 1, 1992, as
amended and restated effective January 1, 1993, filed
as Exhibit 10.15 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.
-71-
72
*10.18 Description of CT&T Quality Business Management
Incentive Program for the Presidents of CT&T and
Chicago Title Insurance Company, effective as of
January 1, 1989, as amended as of January 1, 1992,
filed as Exhibit 10.16 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
*10.19 CT&T Excess Benefits Pension Plan, effective January
1, 1987, as amended by First Amendment to CT&T Excess
Benefits Pension Plan dated May 5, 1994, effective as
of January 1, 1994.
*10.20 CT&T Executive Salary Continuation Plan effective as
of January 1, 1979, as adopted on August 23, 1978,
filed as Exhibit 10.15 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
*10.21(a) Description of compensatory arrangement between
Alleghany Financial Inc. and Paul F. Woodberry.
*10.21(b) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of July 9,
1991 among Alleghany, Chemical Bank and Manufacturers
Hanover Trust Company, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, is incorporated herein by
reference.
- ----------------------
* Compensatory plan or arrangement.
-72-
73
10.23(a) Stock Purchase Agreement dated as of June 18, 1985 by
and among Old Alleghany, Alleghany, Alleghany Capital
Corporation and Lincoln National Corporation (the
"CT&T Stock Purchase Agreement"), filed
as Exhibit (2)(i) to Old Alleghany's Current Report
on Form 8-K dated July 11, 1985, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock
Purchase Agreement, filed as Exhibit (2)(ii) to Old
Alleghany's Current Report on Form 8-K dated July 11,
1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T
Stock Purchase Agreement, filed as Exhibit 10.12(c) to
Old Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1985, is incorporated herein
by reference (Securities and Exchange Commission File
No. 1-9371).
10.24 Distribution Agreement dated as of May 1, 1987 between
Alleghany and MSL Industries, Inc., filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1987, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.25 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between Alleghany
and MSL Industries, Inc., filed as Exhibit 10.22 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1987, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
-73-
74
10.26(a) Agreement and Plan of Merger dated as of April 29,
1994 among Montag & Caldwell Associates, Inc.,
Alleghany Acquisition Corporation, Alleghany and the
Shareholders of Montag & Caldwell Associates, Inc.
(the "Montag & Caldwell Acquisition Agreement"),
filed as Exhibit 10.1(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1994, is incorporated herein by reference.
10.26(b) List of Contents of Exhibits to the Montag & Caldwell
Acquisition Agreement, filed as Exhibit 10.1(b) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, is incorporated herein
by reference.
10.27(a) Stock Purchase Agreement dated as of May 18, 1994 by
and between First Interstate Bank of California and
Alleghany (the "Sacramento Savings Stock Purchase
Agreement"), filed as Exhibit 10.1(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, is incorporated herein by reference.
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, is
incorporated herein by reference.
-74-
75
10.28(a) Note Purchase Agreement dated as of January 15, 1995
by and among Alleghany Properties, Inc., Alleghany and
Hartford Life Insurance Company Seperate Account CRC
(the "Alleghany Properties Note Purchase Agreement").
Agreements dated as of January 15, 1995 among
Alleghany Properties, Inc., Alleghany and each of
Transamerica Life Insurance & Annuity Company,
Transamerica Occidental Life Insurance Company, United
of Omaha Life Insurance Company, Mutual of Omaha
Insurance Company, The Lincoln National Life
Insurance Company, Knights of Columbus and Woodmen
Accident and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement which are
not being filed herewith. Alleghany hereby agrees to
furnish to the Commission supplementally a copy of any
omitted Annex or Exhibit upon request.
10.29 Letter agreement dated January 24, 1995 among
Alleghany, Santa Fe Pacific Corporation and Burlington
Northern Inc., filed as Exhibit 2 to Amendment No. 3
to Alleghany's Schedule 13D relating to Santa Fe
Pacific Corporation dated January 24, 1995, is
incorporated herein by reference.
10.30(a) Installment Sales Agreement dated December 8, 1986 by
and among Alleghany, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Merrill Lynch & Co., Inc.,
filed as Exhibit 10.10 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1986, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
-75-
76
10.30(b) Intercreditor and Collateral Agency Agreement dated as
of August 1, 1990 among Manufacturers Hanover Trust
Company, 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, 1990, is incorporated herein by
reference.
10.30(c) Interest Rate and Currency Exchange Agreement dated as
of August 14, 1990 between Barclays Bank PLC and
Alleghany Funding Corporation, and related
Confirmation dated August 13, 1990 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, 1990,
are incorporated herein by reference.
10.30(d) Indenture dated as of August 1, 1990 between Alleghany
Funding Corporation and Manufacturers Hanover Trust
Company, filed as Exhibit 10.3 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, is incorporated herein by
reference.
10.31(a) Acquisition Agreement dated as of November 29, 1990 by
and between CT&T and Westwood Equities Corporation
(the "Ticor Acquisition Agreement"), filed as Exhibit
(2)(i) to Alleghany's Current Report on Form 8-K dated
December 21, 1990, is incorporated herein by
reference.
10.31(b) List of Contents of Schedules to the Ticor Acquisition
Agreement, filed as Exhibit 2(ii) to Alleghany's
Current Report on Form 8-K dated December 21, 1990,
is incorporated herein by reference.
-76-
77
10.31(c) Amendment to the Ticor Acquisition Agreement dated as
of January 9, 1991 by and between CT&T and Westwood
Equities Corporation, filed as Exhibit (2)(iii) to
Alleghany's Current Report on Form 8-K dated March 21,
1991, is incorporated herein by reference.
10.31(d) Amended and Restated Credit Agreement dated as of
December 30, 1993 among CT&T, certain commercial
lending institutions and Continental Bank, N.A. as
agent, filed as Exhibit 10.28(d) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference.
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate
swap effective May 6, 1991, filed as Exhibit
10.2 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1991, is incorporated
herein by reference.
10.31(f) Letter Agreement dated December 13, 1994 between CT&T
and Bank of America Illinois (previously known as
Continental Bank) relating to the transfer of
Continental Bank's risk management business to Bank of
America National Trust and Savings Association.
10.32(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.
-77-
78
10.32(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.
10.33(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.
10.33(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.
10.34(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.
10.34(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.
10.34(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.
-78-
79
10.35(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.
10.35(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.
10.35(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.
10.36(a) Credit Agreement dated as of December 20, 1991 among
Celite Holdings Corporation, Celite, Bank of America
National Trust and Savings Association and Chemical
Bank (the "Celite Credit Agreement"), filed as Exhibit
10.35(a) to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated
herein by reference.
10.36(b) List of Contents of Exhibits and Annexes to the Celite
Credit Agreement which are not being filed herewith,
filed as Exhibit 10.35(b) to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
-79-
80
10.36(c) Amendment No. 1 dated January 24, 1992 to the Celite
Credit Agreement, filed as Exhibit 10.36 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.36(d) Letter Agreement dated January 23, 1992 between Celite
and Bank of America National Trust and Savings
Association relating to an interest rate swap
effective January 16, 1992, filed as Exhibit 10.37 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.36(e) Letter Agreement dated January 13, 1992 between Celite
and Chemical Bank relating to an interest rate swap
effective January 13, 1992, filed as Exhibit 10.38 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to Alleghany's
Annual Report on Form 10-K for the year ended December
31, 1991, is incorporated herein by reference.
10.37(b) Amendment dated as of March 17, 1992 to the Standstill
Agreement, filed as Exhibit 10.39(f) to Alleghany's
Annual Report on Form 10-K for the year ended December
31, 1991, is incorporated herein by reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17, 1992,
filed as Exhibit 10.1 to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992, is
incorporated herein by reference.
-80-
81
10.38(a) Stock Purchase Agreement dated as of October 31, 1991
among Associated Insurance Companies, Inc., Alleghany
and The Shelby Insurance Group, Inc. (the "Shelby
Stock Purchase Agreement"), filed as Exhibit 10.1(a)
to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991, is incorporated
herein by reference.
10.38(b) List of Contents of Exhibits and Schedules to the
Shelby Stock Purchase Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, is
incorporated herein by reference.
10.39(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman, Sachs
& Co. and certain funds which Goldman, Sachs & Co.
either control or of which they are general partner,
Underwriters Re Holdings Corp. and Underwriters Re
Corporation, filed as Exhibit 10.3(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(c) Stock Purchase Related Agreement dated as of July 28,
1993 (the "Underwriters Stock Purchase Related
Agreement") among certain persons named therein and
Alleghany, filed as Exhibit 10.3(c) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
-81-
82
10.39(d) List of Exhibits and Schedules to the Underwriters
Stock Purchase Related Agreement, filed as Exhibit
10.3(d) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993, is incorporated
herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as Exhibit
10.1(a) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, is
incorporated herein by reference.
10.39(f) Amendment to Underwriters Stock Purchase Related
Agreement made as of October 7, 1993 among certain
persons named therein and Alleghany, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, is
incorporated herein by reference.
13 Pages 2 through 4, pages 6 through 15, and pages 19
through 41 of the Annual Report to Stockholders of
Alleghany for the year 1994.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent
certified public accountants, to the incorporation by
reference of their reports relating to the financial
statements and related schedules of Alleghany and
subsidiaries in Alleghany's Registration Statements
on Form S-8 (Registration No. 27598) and Form S-3
(Registration No. 55707).
27 Financial Data Schedule.
-82-
83
28 Information from reports furnished to state insurance
regulatory authorities by Underwriters Reinsurance
Company, Commercial Underwriters Insurance Company,
and Underwriters Insurance Company is filed under
cover of Form SE, pursuant to Rule 311(c) of
Regulation S-T.
(b) Reports on Form 8-K.
--------------------
Alleghany filed a report on Form 8-K dated December 29, 1994, to
report in Item 5 additional information to that appearing in Alleghany's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 relating
to the real estate and real estate-related assets purchased by Alleghany
Properties, Inc. in connection with the sale of Alleghany's retail banking
subsidiary, Sacramento Savings Bank.
-83-
84
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 17, 1995 By /s/ John J. Burns, Jr.
-------------- ---------------------------------
John J. Burns, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: March 17, 1995 By /s/ John J. Burns, Jr.
-------------- ---------------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: March 17, 1995 By /s/ Dan R. Carmichael
-------------- ---------------------------------
Dan R. Carmichael
Director
Date: March 17, 1995 By /s/ David B. Cuming
-------------- ---------------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 17, 1995 By /s/ Allan P. Kirby, Jr.
-------------- ---------------------------------
Allan P. Kirby, Jr.
Director
Date: March 17, 1995 By /s/ F.M. Kirby
-------------- ---------------------------------
F.M. Kirby
Chairman of the Board
and Director
-84-
85
Date: March 17, 1995 By /s/ William K. Lavin
-------------- --------------------------------
William K. Lavin
Director
Date: March 17, 1995 By /s/ Peter R. Sismondo
-------------- --------------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 17, 1995 By /s/ John E. Tobin
-------------- --------------------------------
John E. Tobin
Director
Date: March 17, 1995 By /s/ James F. Will
-------------- --------------------------------
James F. Will
Director
Date: March 17, 1995 By /s/ Paul F. Woodberry
-------------- --------------------------------
Paul F. Woodberry
Director
Date: March 17, 1995 By /s/ S. Arnold Zimmerman
-------------- --------------------------------
S. Arnold Zimmerman
Director
-85-
86
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED
PARTIES
III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
V SUPPLEMENTARY INSURANCE INFORMATION
VI REINSURANCE
X SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted since they are not required, are not
applicable, or the required information is set forth in the financial
statements or notes thereto.
87
SCHEDULE I
----------
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
(in thousands)
Amount at which
shown in the
Type of Investment Cost Value Balance Sheet
- --------------------------------------------------------------------------------------------------
Fixed maturities:
Bonds:
United States Government
and government agencies
and authorities $ 538,315 $ 512,317 $ 512,317
States, municipalities and
political subdivisions 525,208 494,104 494,104
Foreign governments 23,847 21,802 21,802
All other corporate bonds 284,696 268,875 268,875
Certificates of deposit 64,832 64,832 64,832
Redeemable preferred stock 30,366 28,411 28,411
---------- ---------- ----------
Total fixed maturities 1,467,264 $1,390,341 1,390,341
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust, and insurance
companies 13,153 $ 13,525 13,525
Industrial, miscellaneous,
and all other 249,139 343,695 343,695
---------- ---------- ----------
Total equity securities 262,292 $ 357,220 357,220
---------- ========== ----------
Other long-term investments 3,996 3,996
Short-term investments 184,177 184,177
---------- ----------
Total investments $1,917,729 $1,935,734
========== ==========
88
SCHEDULE III
------------
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(in thousands)
1994 1993
-------------------------------
ASSETS
Investment securities
(Cost: 1994 $205,094; 1993 $51,049) $ 264,433 $ 81,250
Cash 1,495 2,456
Accounts and other receivables, less allowances 17,190 11,828
Property and equipment - at cost, less
accumulated depreciation 2,375 2,523
Other assets 30,352 28,141
Investment in Sacramento Savings 0 200,338
Investment in other consolidated subsidiaries 906,984 741,509
-------------------------------
$1,222,829 $1,068,045
===============================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities $ 122,913 $ 73,588
Long-term debt 78,723 78,723
--------------------------------
Total liabilities 201,636 152,311
Commitments and contingent liabilities
Common stockholders' equity 1,021,193 915,734
-------------------------------
$1,222,829 $1,068,045
===============================
See accompanying Notes to Condensed Financial Statements.
89
SCHEDULE III
------------
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1994
(in thousands)
1994 1993 1992
------------------------------------------
Revenues:
Interest, dividend and other income $ 62,302 $55,305 $55,526
Net gain on investment transactions 23,403 13,376 4,864
------------------------------------------
Total revenues 85,705 68,681 60,390
------------------------------------------
Costs and Expenses:
Interest expense 7,743 6,401 6,922
General and administrative 71,354 64,888 59,143
------------------------------------------
Total costs and expenses 79,097 71,289 66,065
------------------------------------------
Operating income (loss) 6,608 (2,608) (5,675)
Equity in earnings of consolidated subsidiaries 86,386 92,111 91,190
------------------------------------------
Earnings from continuing operations,
before income taxes 92,994 89,503 85,515
Income taxes 24,622 8,654 41,149
------------------------------------------
Earnings from continuing operations 68,372 80,849 44,366
Discontinued operations:
Earnings from discontinued operations,
net of tax 6,265 16,703 20,255
Gain on sale of Sacramento Savings, net of tax 62,869 0 0
------------------------------------------
Earnings before cumulative effect of a
change in accounting for income taxes 137,506 97,552 64,621
Cumulative effect on prior years of a change
in accounting for income taxes 0 0 3,760
Equity in cumulative effect on prior years
of a change in accounting for income
taxes of consolidated subsidiaries 0 0 4,456
------------------------------------------
Net earnings $137,506 $97,552 $72,837
==========================================
See accompanying Notes to Condensed Financial Statements.
90
SCHEDULE III
------------
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(in thousands)
1994 1993 1992
--------------------------------------------
Cash flows from operating activities:
Earnings from continuing operations $ 68,372 $ 80,849 $ 44,366
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 661 731 696
Net gain on investment transactions (23,403) (13,376) (4,864)
Increase in accounts and other receivables, less allowances (773) (5,160) (522)
(Increase) decrease in other assets (2,862) 1,573 637
Increase in other liabilities (2,927) (20,407) (16,905)
Equity in net earnings of consolidated subsidiaries (63,812) (62,976) (57,923)
--------------------------------------------
Net adjustments (93,116) (99,615) (78,881)
--------------------------------------------
Cash used in continuing operations (24,744) (18,766) (34,515)
--------------------------------------------
Cash flows from investing activities:
Purchase of investments (331,992) (190,482) (358,945)
Maturities of investments 0 160,670 288,410
Sales of investments 135,159 79,103 119,865
Capital contributions to consolidated subsidiaries (4,320) (55,923) 0
Capital contributions to discontinued operations (4,000) (1,575) 0
Cash dividends from consolidated subsidiaries 73,039 237,482 2,237
Purchases of property and equipment (164) (243) (283)
Disposition of property and equipment 4 45 39
Proceeds from sale of Sacramento Savings, net of expenses 316,348 0 0
Purchase of real estate and real estate related assets
related to the sale of Sacramento Savings (116,089) 0 0
Purchase of Underwriters Re 0 (203,865) 0
--------------------------------------------
Net cash provided by investing activities 67,985 25,212 51,323
--------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (341,000) 0 (16,000)
Proceeds of long-term debt 307,000 0 0
Purchase of treasury shares (10,127) (7,897) (1,240)
Common stock distributions (75) 1,753 489
--------------------------------------------
Net cash used in financing activities (44,202) (6,144) (16,751)
--------------------------------------------
Net (decrease) increase in cash (961) 302 57
Cash at beginning of year 2,456 2,154 2,097
--------------------------------------------
Cash at end of year $ 1,495 $ 2,456 $ 2,154
============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 7,869 $ 6,401 $ 6,868
Income taxes $ 44,226 $ 46,236 $ 33,949
Supplemental disclosure of noncash investing and financing activities:
In 1994, Alleghany made a noncash capital contribution of $76,478 to its
consolidated subsidiaries by contributing investment securities with a cost
basis of $74,213, a newly acquired company with a cost basis of $1,900 and
a partnership interest with a cost basis of $365. The Company contributed
the real estate and real estate related assets of $116,089 purchased in
connection with the sale of Sacramento Savings net of additional reserves
to a consolidated subsidiary. In addition, in connection with dissolving a
previously consolidated subsidiary, the Company relieved said subsidiary
of $34,250 of its long term debt and received from said subsidiary
investment securities with a cost basis of $5,209.
In 1993, Alleghany made a noncash capital contribution of $16,315 to its
consolidated subsidiaries and discontinued operations by contributing a
partnership interest with a cost basis of $2,525 and investment securities
with a cost of $13,790.
See accompanying Notes to Condensed Financial Statements.
91
SCHEDULE III
------------
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
1. INVESTMENT IN CONSOLIDATED SUBSIDIARIES. Reference is made to Notes 2
and 3 of the Notes to Consolidated Financial Statements incorporated herein by
reference for information regarding the acquisition of Underwriters Re
and Montag & Caldwell, Inc., and the sale of Sacramento Savings Bank.
2. LONG-TERM DEBT. Reference is made to Note 7 of the Notes to
Consolidated Financial Statements incorporated herein by reference for
information regarding the significant provisions of long-term debt of Alleghany.
Included in long-term debt in the accompanying condensed balance sheets is
$19,123 in 1994 and 1993 of intercompany notes payable due to Alleghany Funding.
3. INCOME TAXES. Reference is made to Note 8 of the Notes to Consolidated
Financial Statements incorporated herein by reference regarding the Company's
adoption of FASB Statement No. 109.
4. COMMITMENTS AND CONTINGENCIES. Reference is made to Note 12 of the
Notes to Consolidated Financial Statements incorporated herein by reference.
5. STOCKHOLDERS' EQUITY. Reference is made to Note 9 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.
6. RECLASSIFICATION. Certain prior year amounts have been reclassified to
conform to the 1994 presentation.
92
SCHEDULE V
----------
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
AT DECEMBER 31
--------------------------------------------------
FUTURE
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE
- ---- ------- --------------------------------------------------
1994 Title $0 $536,068 $0 $0
==================================================
Property
and casualty
reinsurance $11,325 $940,527 $52,828 $0
==================================================
1993 Title $0 $523,123 $0 $0
==================================================
Property
and casualty
reinsurance ** $10,363 $861,204 $49,078 $0
==================================================
1992 Title $0 $512,452 $0 $0
==================================================
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED
NET AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
YEAR SEGMENT REVENUE * INCOME * EXPENSES * COSTS EXPENSES* WRITTEN
- ---- ------- -----------------------------------------------------------------------------------
1994 Title $1,162,207 $39,850 $94,845 $0 $1,138,921 $0
===================================================================================
Property
and casualty
reinsurance $190,279 $41,226 $153,056 $962 $52,645 $200,596
===================================================================================
1993 Title $1,236,165 $37,736 $121,864 $0 $1,177,507 $0
===================================================================================
Property
and casualty
reinsurance ** $32,703 $10,390 $25,131 $1,194 $5,309 $36,172
===================================================================================
1992 Title $1,125,906 $41,022 $109,235 $0 $1,075,259 $0
===================================================================================
* Does not include Alleghany Corporation or Chicago Title and Trust Company's
trust and escrow operations.
** On October 7, 1993, the Company acquired URC Holdings Corp., whose principal
subsidiary is Underwriters Reinsurance Company. The acquisition for accounting
purposes was effective as of October 1, 1993. Accordingly, results of operations
are from October 1, 1993.
93
SCHEDULE VI
-----------
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1994
(in thousands)
CEDED ASSUMED PERCENTAGE
TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ---- ------- --------------------------------------------------------------------------
1994 Title premiums $1,162,207 $5,250 $2,771 $1,159,728 0.24%
Property and
casualty
reinsurance
premiums $ 8,821 $69,299 $250,757 $190,279 131.78%
==========================================================================
1993 Title premiums $1,236,165 $5,547 $1,865 $1,232,483 0.15%
==========================================================================
Property and
casualty
reinsurance
premiums * $ 4,218 $9,994 $38,479 $32,703 117.66%
==========================================================================
1992 Title premiums $1,125,906 $7,079 $2,116 $1,120,943 0.19%
==========================================================================
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal
subsidiary is Underwriters Reinsurance Company. The acquisition, for accounting
purposes, was effective as of October 1, 1993. Accordingly, results of
operations are from October 1, 1993.
94
SCHEDULE X
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
DISCOUNT,
IF ANY,
RESERVES DEDUCTED
FOR IN RESERVES
UNPAID FOR UNPAID
DEFERRED CLAIMS CLAIMS
AFFILIATION POLICY AND CLAIM AND CLAIM NET
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME
- ----------- -------------------------------------------------------------------------
1994
Consolidated
property-
casualty
entities $11,325 $940,527 $0 $52,828 $190,279 $41,226
===================================================================
1993
Consolidated
property-casualty
entities* $10,363 $861,204 $0 $49,078 $ 32,703 $10,390
===================================================================
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
INCURRED RELATED TO AMORTIZATION
------------------- OF DEFERRED PAID CLAIMS
AFFILIATION (1) (2) POLICY AND CLAIM
WITH CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT YEAR YEAR COSTS EXPENSES WRITTEN
- ----------- -------------------------------------------------------------
1994
Consolidated
property-
casualty
entities $146,416 $6,630 $ 962 $126,114 $200,596
=============================================================
1993
Consolidated
property-casualty
entities* $ 25,131 $ 0 $1,194 $ 27,876 $ 36,172
=============================================================
* On October 7, 1993, the Company acquired URC Holdings Corp., whose
principal subsidiary is Underwriters Reinsurance Company. The acquisition, for
accounting purposes, was effective as of October 1, 1993. Accordingly, results
of operations are from October 1, 1993.
95
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 28, 1995, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of earnings, changes in common
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1994 as contained in the 1994 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1994. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" and No. 109, "Accounting for Income Taxes" at
December 31, 1993 and in 1992, respectively.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 28, 1995
96
ALLEGHANY CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany, as
amended by Amendment accepted and received for filing by
the Secretary of State of the State of Delaware on June
23, 1988, filed as Exhibit 20 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1988,
is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended January 16, 1995.
4.01 Indenture dated as of June 15, 1989 between Alleghany and
Pittsburgh National Bank, as Trustee, relating to the
6-1/2% Subordinated Exchangeable Debentures due June 15,
2014 (the "Debentures"), including the form of Debenture,
filed as Exhibit 4.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1989, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
4.02 Escrow Agreement dated as of June 15, 1989 between
Alleghany and Pittsburgh National Bank, as Escrow Agent,
for the escrow of common shares of American Express
Company for which the Debentures are exchangeable, filed
as Exhibit 4.2 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1989, is incorporated
herein by reference (Securities and Exchange Commission
File No. 1-9371).
97
*10.01 Description of Alleghany Management Incentive Plan, filed
as Exhibit 10.01 to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated
herein by reference.
*10.02(a) Agreement dated as of December 22, 1993 between Alleghany
and David B. Cuming, filed as Exhibit 10.02(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
Agreements dated as of December 22, 1993 between Alleghany
and each of F.M. Kirby, John J. Burns, Jr., Richard P.
Toft, Theodore E. Somerville, John E. Conway and Peter R.
Sismondo were omitted pursuant to Instruction 2 of Item
601 of Regulation S-K.
*10.02(b) Agreement dated as of December 15, 1993 between CT&T and
Richard P. Toft, filed as Exhibit 10.02(b) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by reference.
*10.03 Agreement dated August 18, 1994 between Alleghany and
Theodore E. Somerville.
*10.04 Alleghany Corporation Deferred Compensation Plan as
amended and restated as of December 15, 1992, filed as
Exhibit 10.03 to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1992, is incorporated
herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted on
March 16, 1983, filed as Exhibit 10.24 to the Annual
Report on Form 10-K of Alleghany Corporation, a Maryland
corporation and the predecessor
__________________________________
* Compensatory plan or arrangement.
-2-
98
of Alleghany ("Old Alleghany"), for the year ended
December 31, 1982, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.05(b) Description of amendments to the Alleghany 1983 Long-Term
Incentive Plan as adopted on December 30, 1986, filed as
Exhibit 10.05(b) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1986, is incorporated
herein by reference (Securities and Exchange Commission
File No. 1-9371).
*10.06(a) Alleghany 1993 Long-Term Incentive Plan adopted and
effective as of January 1, 1993, filed as Exhibit 10.05 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
*10.06(b) Alleghany 1993 Long-Term Incentive Plan, as amended and
restated effective as of January 1, 1994 (subject to the
approval of Alleghany's stockholders).
*10.07 Alleghany Supplemental Death Benefit Plan dated as of May
15, 1985 and effective as of January 1, 1985, filed as
Exhibit 10.08 to Old Alleghany's Annual Report on Form
10-K for the year ended December 31, 1985, is incorporated
herein by reference (Securities and Exchange Commission
File No. 1-9371).
*10.08(a) Alleghany Retirement Plan effective as of January 1, 1989,
as adopted on April 18, 1989, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1989, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
__________________________________
* Compensatory plan or arrangement.
-3-
99
*10.08(b) Trust Agreement dated as of January 1, 1989 between
Alleghany and Bankers Trust Company, filed as Exhibit
10.5(b) to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1991, is incorporated herein by
reference.
*10.08(c) Alleghany Retirement Plan, as amended and restated on
March 14, 1995.
*10.09 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, is incorporated herein
by reference.
*10.10 Alleghany Amended and Restated Directors' Stock Option
Plan effective as of April 20, 1993 (provided that options
granted thereunder prior to the approval of Alleghany's
stockholders were conditioned upon such approval), 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.
*10.11 Alleghany Directors' Equity Compensation Plan, effective
as of January 16, 1995 (subject to the approval of
Alleghany's stockholders).
*10.12 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, is incorporated herein by reference.
__________________________________
* Compensatory plan or arrangement.
-4-
100
*10.13(a) Employment Agreement dated as of January 1, 1992, and
Amendment to Employment Agreement dated as of January 1,
1993, among CT&T, Alleghany and Richard P. Toft, filed as
Exhibit 10.12 to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1992, is incorporated
herein by reference.
*10.13(b) Second Amendment to Employment Agreement dated as of
January 1, 1994, among CT&T, Alleghany and Richard P.
Toft, filed as Exhibit 10.11(b) of Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1993
is incorporated herein by reference.
*10.13(c) Third Amendment to Employment Agreement dated as of
October 31, 1994, among CT&T, Alleghany and Richard P.
Toft, filed as Exhibit 10.1 of Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994, is incorporated herein by reference.
*10.14 Split/Owner "Split Dollar" Life Insurance Plan Assignment
dated March 19, 1986 by and between Richard P. Toft and
CT&T, filed as Exhibit 10.10(c) to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
*10.15 Description of CT&T Presidents' Plan, adopted and
effective as of July 1, 1985 and as amended as of January
26, 1993, filed as Exhibit 10.14 to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1992,
is incorporated herein by reference.
__________________________________
* Compensatory plan or arrangement.
-5-
101
*10.16 CT&T Performance Unit Incentive Plan, adopted and
effective as of July 1, 1985, restated as the CT&T
Performance Unit Incentive Plan of 1989, effective as of
July 1, 1990, filed as Exhibit 10.12 to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1990,
is incorporated herein by reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of 1992,
adopted and effective as of January 1, 1992, as amended
and restated effective January 1, 1993, filed as Exhibit
10.15 to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1993, is incorporated herein by
reference.
*10.18 Description of CT&T Quality Business Management Incentive
Program for the Presidents of CT&T and Chicago Title
Insurance Company, effective as of January 1, 1989, as
amended as of January 1, 1992, filed as Exhibit 10.16 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
*10.19 CT&T Excess Benefits Pension Plan, effective January 1,
1987, as amended by First Amendment to CT&T Excess
Benefits Pension Plan dated May 5, 1994, effective as of
January 1, 1994.
*10.20 CT&T Executive Salary Continuation Plan effective as of
January 1, 1979, as adopted on August 23, 1978, filed as
Exhibit 10.15 to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1990, is incorporated
herein by reference.
__________________________________
* Compensatory plan or arrangement.
-6-
102
*10.21(a) Description of compensatory arrangement between Alleghany
Financial Inc. and Paul F. Woodberry.
*10.21(b) Description of compensatory arrangement between Alleghany
and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of July 9, 1991
among Alleghany, Chemical Bank and Manufacturers Hanover
Trust Company, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1991, is incorporated herein by reference.
10.23(a) Stock Purchase Agreement dated as of June 18, 1985 by and
among Old Alleghany, Alleghany, Alleghany Capital
Corporation and Lincoln National Corporation (the "CT&T
Stock Purchase Agreement"), filed as Exhibit (2)(i) to Old
Alleghany's Current Report on Form 8-K dated July 11,
1985, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock Purchase
Agreement, filed as Exhibit (2)(ii) to Old Alleghany's
Current Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T Stock
Purchase Agreement, filed as Exhibit 10.12(c) to Old
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
__________________________________
* Compensatory plan or arrangement.
-7-
103
10.24 Distribution Agreement dated as of May 1, 1987 between
Alleghany and MSL Industries, Inc., filed as Exhibit 10.21
to Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1987, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
10.25 Amendment to Distribution Agreement dated June 29, 1987,
effective as of May 1, 1987, between Alleghany and MSL
Industries, Inc., filed as Exhibit 10.22 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1987, is incorporated herein by reference. (Securities and
Exchange Commission File No. 1-9371)
10.26(a) Agreement and Plan of Merger dated as of April 29, 1994
among Montag & Caldwell Associates, Inc., Alleghany
Acquisition Corporation, Alleghany and the Shareholders of
Montag & Caldwell Associates, Inc. (the "Montag & Caldwell
Acquisition Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, is incorporated herein by reference.
10.26(b) List of Contents of Exhibits to the Montag & Caldwell
Acquisition Agreement, filed as Exhibit 10.1(b) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, is incorporated herein by reference.
10.27(a) Stock Purchase Agreement dated as of May 18, 1994 by and
between First Interstate Bank of California and Alleghany
(the "Sacramento Savings Stock Purchase Agreement"), filed
as Exhibit 10.1(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, is incorporated
herein by reference.
-8-
104
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, is incorporated
herein by reference.
10.28(a) Note Purchase Agreement dated as of January 15, 1995 by
and among Alleghany Properties, Inc., Alleghany and
Hartford Life Insurance Company Seperate Account CRC (the
"Alleghany Properties Note Purchase Agreement").
Agreements dated as of January 15, 1995 among Alleghany
Properties, Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica Occidental Life
Insurance Company, United of Omaha Life Insurance Company,
Mutual of Omaha Insurance Company, The Lincoln National
Life Insurance Company, Knights of Columbus and Woodmen
Accident and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the Alleghany
Properties Note Purchase Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted Annex or
Exhibit upon request.
10.29 Letter agreement dated January 24, 1995 among Alleghany,
Santa Fe Pacific Corporation and Burlington Northern Inc.,
filed as Exhibit 2 to Amendment No. 3 to Alleghany's
Schedule 13D relating to Santa Fe Pacific Corporation
dated January 24, 1995, is incorporated herein by
reference.
-9-
105
10.30(a) Installment Sales Agreement dated December 8, 1986 by and
among Alleghany, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch & Co., Inc., filed as
Exhibit 10.10 to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1986, is incorporated
herein by reference (Securities and Exchange Commission
File No. 1-9371).
10.30(b) Intercreditor and Collateral Agency Agreement dated as of
August 1, 1990 among Manufacturers Hanover Trust Company,
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, 1990, is
incorporated herein by reference.
10.30(c) Interest Rate and Currency Exchange Agreement dated as of
August 14, 1990 between Barclays Bank PLC and Alleghany
Funding Corporation, and related Confirmation dated August
13, 1990 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, 1990, are incorporated herein by reference.
10.30(d) Indenture dated as of August 1, 1990 between Alleghany
Funding Corporation and Manufacturers Hanover Trust
Company, filed as Exhibit 10.3 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1990, is incorporated herein by reference.
-10-
106
10.31(a) Acquisition Agreement dated as of November 29, 1990 by and
between CT&T and Westwood Equities Corporation (the "Ticor
Acquisition Agreement"), filed as Exhibit (2)(i) to
Alleghany's Current Report on Form 8-K dated December 21,
1990, is incorporated herein by reference.
10.31(b) List of Contents of Schedules to the Ticor Acquisition
Agreement, filed as Exhibit 2(ii) to Alleghany's Current
Report on Form 8-K dated December 21, 1990, is
incorporated herein by reference.
10.31(c) Amendment to the Ticor Acquisition Agreement dated as of
January 9, 1991 by and between CT&T and Westwood Equities
Corporation, filed as Exhibit (2)(iii) to Alleghany's
Current Report on Form 8-K dated March 21, 1991, is
incorporated herein by reference.
10.31(d) Amended and Restated Credit Agreement dated as of December
30, 1993 among CT&T, certain commercial lending
institutions and Continental Bank, N.A. as agent, filed as
Exhibit 10.28(d) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated
herein by reference.
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate swap
effective May 6, 1991, filed as Exhibit 10.2 to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1991, is incorporated herein by reference.
-11-
107
10.31(f) Letter Agreement dated December 13, 1994 between CT&T and
Bank of America Illinois (previously known as Continental
Bank) relating to the transfer of Continental Bank's risk
management business to Bank of America National Trust and
Savings Association.
10.32(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.
10.32(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.
10.33(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.
10.33(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.
-12-
108
10.34(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.
10.34(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.
10.34(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.
10.35(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.
10.35(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.
10.35(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.
-13-
109
10.36(a) Credit Agreement dated as of December 20, 1991 among
Celite Holdings Corporation, Celite, Bank of America
National Trust and Savings Association and Chemical Bank
(the "Celite Credit Agreement"), filed as Exhibit 10.35(a)
to Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.36(b) List of Contents of Exhibits and Annexes to the Celite
Credit Agreement which are not being filed herewith, filed
as Exhibit 10.35(b) to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is incorporated
herein by reference.
10.36(c) Amendment No. 1 dated January 24, 1992 to the Celite
Credit Agreement, filed as Exhibit 10.36 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
10.36(d) Letter Agreement dated January 23, 1992 between Celite and
Bank of America National Trust and Savings Association
relating to an interest rate swap effective January 16,
1992, filed as Exhibit 10.37 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
10.36(e) Letter Agreement dated January 13, 1992 between Celite and
Chemical Bank relating to an interest rate swap effective
January 13, 1992, filed as Exhibit 10.38 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
-14-
110
10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
10.37(b) Amendment dated as of March 17, 1992 to the Standstill
Agreement, filed as Exhibit 10.39(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17, 1992,
filed as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992, is
incorporated herein by reference.
10.38(a) Stock Purchase Agreement dated as of October 31, 1991
among Associated Insurance Companies, Inc., Alleghany and
The Shelby Insurance Group, Inc. (the "Shelby Stock
Purchase Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991, is incorporated herein by
reference.
10.38(b) List of Contents of Exhibits and Schedules to the Shelby
Stock Purchase Agreement, filed as Exhibit 10.1(b) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991, is incorporated herein by
reference.
10.39(a) Stock Purchase Agreement dated as of July 28, 1993 (the
"Underwriters Stock Purchase Agreement") among Alleghany,
The Continental Corporation, Goldman, Sachs & Co. and
certain funds which Goldman, Sachs & Co. either control or
of which they are general partner, Underwriters Re
-15-
111
Holdings Corp. and Underwriters Re Corporation, filed as
Exhibit 10.3(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is incorporated
herein by reference.
10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as Exhibit
10.3(b) to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, is incorporated herein by
reference.
10.39(c) Stock Purchase Related Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Related Agreement")
among certain persons named therein and Alleghany, filed
as Exhibit 10.3(c) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is incorporated
herein by reference.
10.39(d) List of Exhibits and Schedules to the Underwriters Stock
Purchase Related Agreement, filed as Exhibit 10.3(d) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, is incorporated herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as Exhibit
10.1(a) to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993, is incorporated
herein by reference.
10.39(f) Amendment to Underwriters Stock Purchase Related Agreement
made as of October 7, 1993 among certain persons named
therein and Alleghany, filed as Exhibit 10.1(b) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, is incorporated herein by
reference.
-16-
112
13 Pages 2 through 4, pages 6 through 15, and pages 19
through 41 of the Annual Report to Stockholders of
Alleghany for the year 1994.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent certified
public accountants, to the incorporation by reference of
their reports relating to the financial statements and
related schedules of Alleghany and subsidiaries in
Alleghany's Registration Statements on Form S-8
(Registration No. 27598) and Form S-3 (Registration No.
55707).
27 Financial Data Schedule.
28 Information from reports furnished to state insurance
regulatory authorities by Underwriters Reinsurance
Company, Commercial Underwriters Insurance Company, and
Underwriters Insurance Company is filed under cover of
Form SE, pursuant to Rule 311(c) of Regulation S-T.
-17-