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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, 1995 File Number 1-9371
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ALLEGHANY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0283071
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
375 Park Avenue, New York, New York 10152
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/752-1356
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
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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, 1996, 7,056,993 shares of Common Stock were outstanding, and the
aggregate market value (based upon the closing price of these shares on the New
York Stock Exchange) of the shares of Common Stock of Alleghany Corporation held
by non-affiliates was $1,104,422,202.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part(s) of this Report:
Part
Annual Report to Stockholders of Alleghany I and II
Corporation for the year 1995
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 26, 1996
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ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1995
Table of Contents
Description Page
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PART I
Item 1. Business 5
Item 2. Properties 55
Item 3. Legal Proceedings 64
Item 4. Submission of Matters to a Vote
of Security Holders 68
Supplemental Executive Officers of Registrant 68
Item
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 70
Item 6. Selected Financial Data 70
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 70
Item 8. Financial Statements and Supple-
mentary Data 70
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 70
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Description Page
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PART III
Item 10. Directors and Executive Officers
of Registrant 71
Item 11. Executive Compensation 71
Item 12. Security Ownership of Certain
Beneficial Owners and Management 71
Item 13. Certain Relationships and Related
Transactions 71
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 72
Signatures 92
Index to Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
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PART I
Item 1. Business.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the
laws of the State of Delaware. In December 1986, Alleghany succeeded to the
business of its parent company, Alleghany Corporation, a Maryland corporation
incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue,
New York, New York 10152 and its telephone number is (212) 752-1356. Alleghany
is engaged, through its 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 other real
estate-related services businesses, and through CT&T's subsidiary, Alleghany
Asset Management, Inc. ("Alleghany Asset Management") and its subsidiaries, in
certain other financial services businesses. Alleghany is also engaged, through
its subsidiary Underwriters Reinsurance Company ("Underwriters"), in the
property and casualty reinsurance and insurance businesses. In addition,
Alleghany is engaged, through its subsidiaries World Minerals Inc. ("World
Minerals"), Celite Corporation ("Celite"), Harborlite Corporation ("Harborlite")
and Europerlite Acquisition Corporation ("Europerlite") 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.
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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"). On
September 22, 1995, Santa Fe and Burlington Northern, Inc. merged under a new
holding company named Burlington Northern Santa Fe Corporation ("BNSF"). As a
result of the merger, 18.06 million shares of Santa Fe beneficially owned by
Alleghany were converted into about 7.43 million shares of common stock of BNSF,
or about 5.2 percent of the outstanding. BNSF is engaged primarily in rail
transportation. BNSF owns the largest railroad network in North America,
providing transportation services to shippers throughout the western two-thirds
of the United States as well as to Canada and Mexico.
On October 7, 1993, Alleghany acquired approximately 93 percent of the
capital stock of the holding company which owns all of the 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
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 owns Underwriters, which increased Alleghany's equity interest in the
holding company to 96.4 percent as of 1994 year-end. Such shares have
subsequently been converted into approximately 2.5 million shares of BNSF common
stock. As of 1995 year-end, Alleghany's equity interest in the holding company
was 96.8 percent of the outstanding.
In 1995, Alleghany studied a number of potential acquisitions.
Alleghany intends to continue to expand its operations through internal growth
at its subsidiaries as well as through possible operating-company acquisitions
and investments.
Reference is made to Items 7 and 8 of this Report for further
information about the business of Alleghany in 1995. 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.
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TITLE INSURANCE, REAL ESTATE-RELATED SERVICES AND FINANCIAL SERVICES BUSINESSES
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, and is headquartered in Chicago. 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. Security Union and Ticor Title are headquartered in Rosemead,
California.
On March 8, 1991, CT&T acquired Ticor Title's immediate parent, Ticor
Title Insurance Company of California (which was merged 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 matured 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 was zero and, accordingly, Alleghany has excluded
this note from the determination of the purchase price and from its consolidated
financial statements.
The CT&T Family of Title Insurers is the largest title insurance
organization in the world, based upon net written premiums in 1994 (the latest
full year for which data is available). 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 (an upgrade
on October 17, 1995 from "A-") and an "A" by Duff & Phelps Credit Rating Co.,
confirming the financial strength of the CT&T Family of Title Insurers. The CT&T
Family of Title Insurers has approximately 250 full-service offices
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and more than 3,500 policy-issuing agents in 49 states, Puerto Rico, the Virgin
Islands, Guam and Canada.
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. 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.
In 1995, CT&T's title insurance operations launched a program to
redesign its internal operations to better focus on customer needs and to
achieve greater operational and cost efficiencies. Title plant and production
facilities are being consolidated in certain markets to provide greater product
consistency, reduce turnaround times, and reduce expenses. Technology
investments are being made to streamline workflow processes and secure
competitive advantages through automation. New training programs are being
developed to help agents and employees sharpen their problem solving abilities
and to heighten their responsiveness to customer needs. Implementation of these
initiatives, which is expected in 1996, will result in a better, more cost
effective alignment of the internal operations of CT&T's title insurance
operations with marketplace demands.
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 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
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
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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 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.
To meet the needs of national commercial customers, the National
Business Unit and National Title Services offices serve as one-stop sources of
title services for both single-site and multi-site commercial and industrial
real estate ventures. Other business components of the national operations
organization include the Unisource unit, a one-stop source for national
residential lenders and low liability commercial accounts; and SAFETRANS, which
provides one-stop title services to employee relocation firms.
The title insurance business of the CT&T Family of Title Insurers is
not dependent on one or a few customers.
Business Conditions; Seasonality
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
reached new thirty-year lows. Driven by first-time buyers enticed into the
market by the low interest rates, home sales increased in those years. Low
interest rates also resulted in a high volume of refinancing orders. Beginning
in February 1994, a series of increases in short-term interest rates
significantly
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reduced the volume of real estate transactions and brought to an abrupt end one
of the longest refinancing surges in history. 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. While total industry-wide results for 1995 have not been tabulated, it
appears that the decline from 1994 to 1995 may have been even steeper. This
trend began to reverse its course in the second half of 1995 when lower rates,
again, prompted an increase in real estate activity.
The business of the CT&T Family of Title Insurers is seasonal, as real
estate activity is seasonal. The strongest quarters are typically the third and
fourth quarters because there are more home sales and commercial and industrial
construction during the summer. 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. Additionally, agency revenues are recognized by CT&T when reported by
the agent and typically lag two or three months from the time realized by the
agent. The fourth quarter is also aided by a higher level of commercial and
industrial transactions, typically representing the desire of commercial
entities to complete transactions by year-end. The first quarter is typically
the weakest quarter.
Approximately 70 percent of the title revenues of the CT&T Family of
Title Insurers in 1995 are estimated to have been generated by residential real
estate activity, consisting of resales (50 percent), refinancings (10 percent)
and new housing (10 percent). Commercial and industrial real estate activity is
estimated to account for the remaining 30 percent of 1995 revenues, attributable
to initial sales and resales (24 percent) and refinancings (6 percent).
Underwriting Operations
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
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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 based on 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.
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.
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Losses and Loss Adjustment Expenses
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 five years of the issuance of such policies.
Losses are reported to CT&T directly by its insured parties or
indirectly through its agents. When a claim is reported, CT&T establishes a
"case" reserve, based upon the best estimate of the total amount necessary to
settle the claim and to provide for allocated loss adjustment expenses ("LAE").
These reserves are periodically adjusted by CT&T based on its evaluation of
subsequent reports regarding the reported claim.
In addition to case reserves, CT&T also maintains incurred but not
reported ("IBNR") reserves for losses that are incurred but not yet reported.
These reserves are particularly significant in long tail lines of insurance,
such as title insurance, for which the claim and the circumstances causing the
claim are separated by a long period of time. Unlike most other types of
insurance, for title insurance, the event giving rise to a possible future
claim, the defect in the title, occurred before issuance of the title insurance
policy, but may not be discovered, if ever, until a future date.
CT&T establishes IBNR reserves by using actuarial principles and
procedures commonly used in the title insurance industry to estimate the
ultimate liability for losses and LAE. The actuarial procedures use historic
claims reporting patterns to predict likely future reporting of claims.
Projections are analyzed in the context of changing economic conditions,
including implicitly recognizing the impact of inflation, business mix, and
other contingent variables, and the projections and related reserves are
modified when appropriate.
IBNR reserves are also established for very large or unusual claims
which might fall outside the normal distribution of expected claims experience.
Reserves for these claims are based on an analysis of the experience of both
CT&T and the industry, generally.
CT&T's reserves are reviewed monthly by management, and tested
semi-annually for adequacy by an independent actuary. CT&T does not discount
its reserves for
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reported or unreported claims for anticipated investment income. Provisions to
reserves are derived directly from premium revenues, based upon anticipated loss
ratios. There are inherent uncertainties in estimating reserves primarily due to
the long-term nature of most title insurance business. Actual losses and LAE may
deviate, perhaps substantially, from reserves on CT&T's financial statements,
which could have a material adverse effect on CT&T's financial condition and
results of operations. Based on current information, CT&T believes reserves for
losses and LAE at December 31, 1995 are adequate.
Real Estate-Related Services
In recent years, mortgage lenders have made significant investments in
technology to reduce costs and shorten the time necessary to originate a
mortgage loan. Increasingly, they are seeking cost efficiencies by requiring
vendors to provide a bundle of services and to deliver them in an electronic
format which is compatible with their automated systems. Such services include
not only the traditional title insurance and escrow services provided by the
CT&T Family of Title Insurers, but new services such as flood certifications,
credit information and appraisals.
Two acquisitions were completed in 1995 that expanded CT&T's real
estate-related services business and improved its ability to service mortgage
lenders. In May 1995, CT&T acquired National Flood Information Services, Inc., a
Delaware corporation based in Arlington, Texas ("NFIS"), which has provided
flood certification services since 1987. In August 1995, Alleghany acquired
Credit Data Reporting Services, Inc., a New York corporation ("CDRS"), in an
exchange of stock, and subsequently contributed the stock of CDRS to CT&T. CDRS
is headquartered in Kingston, New York and has been in the credit reporting
business since 1941.
Federal law requires that lenders check flood maps maintained by the
Federal Emergency Management Agency to determine whether a parcel of real
property pledged to secure a loan is in a flood hazard zone. Property found to
be in a flood hazard zone is required to be covered by flood insurance before it
can be used to secure a loan. NFIS has the ability to check the flood zone
status of any property located in the United States. NFIS is neither an issuer
nor an underwriter of flood insurance policies.
In 1995, Congress instituted a new requirement that lenders monitor
the flood zone status of a mortgaged property for the life of the loan. The
previous requirement was to check the flood zone status only at the time of loan
origination. The new law
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created a significant increase in demand for the services of flood zone
determination companies. To efficiently handle the increased demand, NFIS
recently developed a proprietary system which can determine the flood zone
status of many properties on an automated basis.
Mortgage credit reporting is a specialized task in that the secondary
market requires the obtaining and merging of credit information from at least
two of the three nationally recognized repositories of such information. CDRS
has developed a state-of-the art proprietary system which can receive an order;
obtain, edit and merge credit information from each of the three national
repositories; and report back to the lending institution in a matter of seconds
without human intervention. CDRS can also perform the investigative work
required to verify items appearing on a borrower's mortgage loan application
(e.g., employment, financial assets and disputed credit items).
In addition to these two new businesses, CT&T's National Mortgage
Services ("NMS") unit maintains a network of 750 state-licensed contract
appraisers covering all 50 states. Through this network, NMS offers a full array
of property appraisal products for first and second mortgage residential loans.
Property appraisals for commercial properties are also available on a limited
basis.
To meet the demands of the marketplace for new real estate-related
services, in 1995 CT&T formed a separate business unit, which includes NFIS,
CDRS and NMS. This business unit has responsibility for coordinating the
production and delivery of flood certifications, credit information and
appraisals on a nationwide basis.
Financial Services
CT&T's Financial Services Group was restructured during 1995 under a
new CT&T subsidiary, Alleghany Asset Management, a Delaware corporation. The
financial services businesses conducted directly by CT&T were transferred to a
recently acquired Illinois trust company renamed The Chicago Trust Company
("Chicago Trust"), which became a subsidiary of Alleghany Asset Management. Also
transferred to Alleghany Asset Management were Montag & Caldwell, Inc. ("Montag
& Caldwell"), an Atlanta-based investment counseling firm acquired in July 1994
in an exchange of stock and subsequently contributed by Alleghany to CT&T, and
The Chicago Deferred Exchange Corporation, an Illinois corporation, which
facilitates certain tax-deferred property exchanges.
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The following are the significant lines of business within the
Financial Services Group:
Institutional Investment Management--manages equity, fixed
income, and balanced accounts primarily for employee benefit plans,
foundations, endowments, corporations, insurance companies and
Taft-Hartley plans.
Retirement Trust Resources--administers 401(k) plans, profit
sharing plans, matching savings plan and money purchase pensions, and
provides consulting services, for mid-sized companies primarily in the
Midwest and South.
Personal Trust and Investment Services--provides investment
management and trust and estate planning services primarily for
accounts in the $250,000 to $50 million range.
Real Estate Trust Services--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, and
facilitates tax-deferred exchanges of income-producing real property.
CT&T Funds--a mutual fund family which offers the following
eight no-load, open-end mutual funds:
--Chicago Trust Growth and Income Fund
--Montag & Caldwell Growth Fund
--Chicago Trust Talon Fund
--Montag & Caldwell Balanced Fund
--Chicago Trust Bond Fund
--Chicago Trust Municipal Bond Fund
--Chicago Trust Money Market Fund
--Chicago Trust Asset Allocation Fund
While available to the general public, fund marketing is focused on
specific niches, including rollover funds from existing clients in the
Financial Services Group's 401(k) and pension fund programs, third
party distribution channels, and new 401(k) clients.
As of December 31, 1995, Alleghany Asset Management, through its
subsidiaries, managed assets totalling about $10.3 billion.
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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, as applicable. 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 following table reflects investment results for CT&T for the years
ended December 31, 1993, 1994 and 1995 (dollars in thousands):
Investment Results
Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments (1) Income (2) Income (3) Gains Yield (4) Yield (5)
(Losses)
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Year Ended
December 31, 1993 $939,842 $53,630 $37,160 $3,138 5.7% 4.0%
Year Ended
December 31, 1994 $896,509 $51,385 $36,502 ($5,447) 5.7% 4.1%
Year Ended
December 31, 1995 $836,462 $58,385 $41,342 $3,702 7.0% 4.9%
(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.
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The following table summarizes the investments of CT&T, excluding
cash, as of December 31, 1995, with all investments carried at market value
(dollars in thousands):
Investments
Amortized Cost
or Cost Market Value
------------------------ ------------------------
Amount Percentage Amount Percentage
Short-term investments............... $ 88,100 10.88% $ 88,100 10.58%
Corporate bonds...................... 105,423 13.02% 109,092 13.11%
United States government and 201,190 24.87% 208,484 25.05%
government agency bonds.......
Mortgage- and asset-backed 154,064 19.03% 157,324 18.90%
securities.....................
Municipal bonds...................... 215,318 26.60% 218,606 26.26%
Foreign bonds........................ 384 .04% 373 .04%
Redeemable preferred stock........... 6,363 .79% 6,609 .80%
Other preferred stock................ 5,754 .71% 5,623 .68%
Equity securities.................... 32,832 4.06% 38,130 4.58%
Total.......................... $809,428 100.00% $832,341 100.00%
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The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, as of December 31, 1995 by the
rating system of the National Association of Insurance Commissioners ("NAIC")
(dollars in thousands):
Long-Term Fixed Maturity Portfolio by NAIC Rating
Market Value Percentage
------------ ----------
NAIC 1............................... $643,221 91.09%
NAIC 2............................... 45,985 6.51%
NAIC 3............................... 4,588 .65%
NAIC 6............................... 86 .01%
NAIC L & P3 (Preferred stock-
redeemable).................... 6,609 .94%
NAIC A, L & P3 (Preferred
stock-other)................... 5,622 .80%
-------- -------
Total.......................... $706,111 100.00%
======== =======
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The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, by years until maturity as of
December 31, 1995 (dollars in thousands):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
------------ ----------
One year or less*.................... $146,945 20.8%
Over one through five years.......... 284,690 40.3%
Over five through ten years.......... 68,631 9.7%
Over ten years....................... 48,521 6.9%
Mortgage- and asset-backed........... 157,324 22.3%
Total.......................... $706,111 100.0%
======== ======
* Included in this category are $5,623 of preferred stock-other and
$6,609 of preferred stock-redeemable.
The principal tangible asset of CT&T and its subsidiaries is the
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 certificates of
deposit, and institutional money market funds. The average maturity period of
securities in the short-term portfolio 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 1995 year-end. The
duration of securities in the long-term portfolio is approximately 3.1 years,
and is managed within a range of 2.3 to 4.0 years. This relatively short average
portfolio maturity is maintained so that
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investment income responds to changes in the level of interest rates,
offsetting to some degree the cyclicality of title insurance operations.
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 1995, 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 approximately 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.
Each of the businesses within CT&T's real estate-related services
business unit faces significant competition from other real estate service
providers. Mortgage lenders may choose to produce these services internally
rather than purchase them from outside vendors. Competition is generally on the
basis of service, technological capabilities and price.
Alleghany Asset Management and its subsidiaries compete with national,
regional and local providers of financial services. Such competition is chiefly
on the basis of service and investment performance.
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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 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.
As insurance holding companies, Alleghany and CT&T are also subject to
the insurance regulations of Missouri, California, Oregon and New York. The
acquisition of CTI, Security Union and Ticor Title and their respective title
insurance subsidiaries by Alleghany and/or CT&T was subject to prior approval
from the insurance regulatory authorities in the states in which such title
insurance companies are incorporated. Alleghany, CT&T and their other
subsidiaries, however, are generally not subject to restrictions on their
business activities due to their affiliation with CT&T's title insurance
subsidiaries.
While CDRS and NFIS are not subject to direct regulatory supervision,
federal and state laws governing real estate settlement practices, credit
reporting and flood zone determinations significantly impact their businesses.
NMS is a unit within CTI and is therefore subject to supervision by insurance
industry regulators.
Acting as fiduciaries, CT&T and Chicago Trust are primarily regulated
by the State of Illinois Commissioner of Banks and Trust Companies. Regulation
covers such matters as the fiduciary's management capabilities, the investment
of funds held for its own account, the soundness of its policies and procedures,
the quality of the services it renders to the public and the effect of its trust
activities on its financial soundness. Montag & Caldwell is a registered
investment advisor and is therefore subject to regulation by the Securities and
Exchange Commission, the state of Georgia, its
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domiciliary jurisdiction, and all other states in which it is licensed to act
in the capacity of investment advisor.
Employees
At December 31, 1995, CT&T and its subsidiaries had approximately 7,553
employees.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
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 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, which was subsequently converted into approximately 2.5 million
shares of BNSF common stock. As of December 31, 1995, Underwriters' statutory
surplus was $458 million. Underwriters' management currently owns about 3.2
percent of the capital stock of the holding company which owns Underwriters.
In 1995, Underwriters was upgraded from "A (Excellent)" to "A+
(Superior)" by A.M. Best Company, Inc., an independent insurance industry rating
organization ("Best's"). Best's publications indicate that the higher rating is
assigned to companies which Best's believes have achieved superior overall
performance and have a very strong ability to meet their obligations over a long
period of time. According to Best's, the rating reflects Underwriters' strong
operating earnings, solid internal capital generation and forward market
momentum.
Additionally, during 1995 Underwriters received an initial
claims-paying ability rating of "AA- (Excellent)" from Standard & Poor's.
Standard & Poor's publications
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indicate that this rating is assigned to companies with strong capacity to meet
policyholders obligations under a variety of economic and underwriting
conditions.
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 commercial insurance,
individual commercial excess liability insurance and specialized personal lines
liability insurance, including excess private passenger liability and
comprehensive personal liability insurance. CUIC conducts its business in
California on an admitted basis and in 31 other states, Guam and the District of
Columbia on an approved, non-admitted basis. In 1995, CUIC generated $52 million
in gross written premiums. Underwriters or CUIC retained $27 million of such
amount, constituting 9 percent of Underwriters' consolidated net written
premiums in 1995.
To further expand its ability to market specialized primary insurance
lines, in 1994, Underwriters acquired an inactive Nebraska insurance company,
which was subsequently 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, which was subsequently converted to approximately 2.1
million shares of BNSF common stock. UIC's statutory surplus was $112.1 million
at 1994 year-end.
UIC has licenses to write primary property and casualty insurance in 33
states and the District of Columbia and will initially focus on primary and
umbrella liability policies for medium- to large-sized businesses.
CUIC and UIC are also rated "A+ (Superior)" by Best's.
To capitalize on the considerable expertise of certain individuals in
handling specialized classes of primary business, The Underwriting Center, Inc.
("The Underwriting Center") was established in 1995 as a wholly owned subsidiary
of the
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holding company which owns Underwriters. The focus of The Underwriting Center
includes specialized products liability insurance, general liability insurance
for certain insureds with significant self-insured retentions, and specialized
environmental liability insurance. A subsidiary of The Underwriting Center acts
as an agent and underwrites business on behalf of CUIC and, to a lesser extent,
non-affiliated insurers. Such subsidiary also expects to underwrite business on
behalf of UIC in the future. During 1995, approximately $19.0 million of gross
written premium was underwritten by The Underwriting Center. The Underwriting
Center has offices in Baltimore, Maryland; Kennesaw and Roswell, Georgia; and
New York, New York.
To provide international underwriting opportunities to Underwriters,
URC International, Inc., was established at the end of 1995 as a wholly owned
subsidiary of the holding company which owns Underwriters.
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. 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; in contrast, there tends to be a greater lag in the reporting and payment
of casualty claims. Consequently, the losses associated with property risks are
generally known in a shorter time than losses associated with casualty risks.
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Underwriters provides reinsurance on both a treaty and facultative
basis. Treaty reinsurance is 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.
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 layers.
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
93 percent of Underwriters gross
- --------
*An excess of loss reinsurance policy covering losses arising from a
single set of circumstances covered by more than one primary insurance policy.
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written premiums for the year ended December 31, 1995. 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. Underwriters writes certain unusual professional,
environmental, directors and officers' liability and catastrophe coverages,
again in the belief that these coverages offer greater potential for favorable
results than more general coverages, based on current premium rates.
Underwriters' business is not seasonal.
Underwriters writes 91 percent of its treaty business and 63 percent of
its facultative business through reinsurance brokers. The remaining treaty
business is principally reinsurance by Underwriters of a significant portion of
the primary insurance written by The Underwriting Center. The remainder of its
facultative business is written directly with ceding companies. By working
primarily through brokers and The Underwriting Center, Underwriters does not
need to maintain a large sales organization which, during periods of reduced
premium volume, could comprise a significant and nonproductive part of overhead.
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 for quotations on
reinsurance being placed on behalf of the ceding companies. In 1995,
Underwriters paid brokers $10.8 million in commissions, which represents 3
percent of its gross written premiums of $385 million. Underwriters' five
leading brokers, Holborn Agency, E.W. Blanch Company, Guy Carpenter & Co., AM-RE
Brokers, Inc. and AON Reinsurance Agency, Inc., accounted for 35 percent of
Underwriters' gross written premiums in 1995. None of the brokers accounted for
10 percent or more of such premiums. The brokers that account for relatively
large percentages of gross written premiums tend to vary from year to year.
While Underwriters has generally been successful in replacing brokers, there can
be no assurance that it will continue to do so in the future. Underwriters does
not believe that the loss of any one broker would have a material effect on
Underwriters' financial condition or results of operation.
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A significant percentage of Underwriters' gross written premiums are
generally obtained from a relatively small number of ceding companies. In 1995,
approximately 46 percent of gross written premiums were obtained from
Underwriters' ten largest ceding companies. None of the ceding companies
accounted for 10 percent or more of such premiums. The ceding companies that
account 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
continue 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 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 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 1995, Underwriters was a lead or co-lead
reinsurer on a majority of its treaty business.
Treaty operations generated approximately $228.6 million or 78 percent
of Underwriters' consolidated net written premiums in 1995. Casualty lines
treaties represented approximately 66 percent of total treaty net written
premiums with the remainder represented by property lines treaties.
Approximately 86 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 1995, treaty net written
premiums increased 61 percent, or $87 million, from 1994. Underwriters believes
that the increase in such premiums is at least partly attributable to its
increased statutory
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surplus level and upgraded Best's rating, which enabled it to attract more
desirable reinsurance opportunities.
Underwriters' treaty department generally wrote up to $1.0 million per
risk in 1995 on a net basis. In the case of certain clash coverage, Underwriters
has written up to $2.5 million on a net basis and in limited circumstances has
accepted more. The largest net risk assumed in 1995 was $14.0 million.
Facultative operations generated approximately $36.3 million or 12
percent of Underwriters' consolidated net written premiums in 1995. Casualty
risks represented 89 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 decreased 19 percent, or $8.3
million, from 1994 due to the continuing soft market for casualty facultative
reinsurance and Underwriters' decision to decline unprofitable business.
In 1995, Underwriters offered gross casualty facultative underwriting
capacity of $2.5 million, with a net retention of $1.75 million. Underwriters
has a $2.0 million gross property facultative underwriting capacity with a net
retention of $0.7 million.
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. In the event that a retrocessionaire is
unable to meet its obligations assumed under a retrocessional agreement,
Underwriters remains liable to its ceding companies for the portion reinsured.
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
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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 not regulated by domestic insurance regulatory authorities
be collateralized by letters of credit, funds withheld or pledged trust
agreements. Additionally, commutations may be taken to reduce or eliminate
exposure when necessary. Underwriters did not experience any significant
difficulty with retrocessionaires fulfilling their obligations in 1995, 1994 and
1993. As of December 31, 1995, Underwriters had an allowance for estimated
unrecoverable reinsurance of $2.1 million.
Underwriters currently has reinsurance contracts in force which cede to
retrocessionaires risks in excess of Underwriters' net risk retention, ceding up
to $0.75 million per casualty facultative risk and up to $1.3 million per
property facultative risk. Underwriters also has an aggregate reinsurance
contract to cover losses up to $50 million, incurred during the period July 1,
1995 through June 30, 1996 in excess of a 72 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
$40 million. Also, Underwriters from time to time purchases retrocessional
reinsurance in varying amounts for specific assumed treaties.
Underwriters has two reinsurance contracts with a subsidiary of
Continental Insurance Group (the "Continental reinsurance contracts") that
provide coverage for pre-1987 business up to an aggregate limit of $200
million. Underwriters began receiving quarterly payments under these contracts
in 1994 reducing the reinsurance receivable from $200 million to $149.1 million
at year-end 1995. Such receivable is secured by a combination of letters of
credit and a trust fund dedicated solely to payments under the Continental
reinsurance contracts.
As of December 31, 1995, Underwriters had reported reinsurance
receivables of $399.8 million through retrocessional agreements, including
$149.1 million of reinsurance receivables under the Continental reinsurance
contracts. In addition, $106.4 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, the insurer's payment of that loss and subsequent payments by the
reinsurer. To recognize liabilities
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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
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, 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 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
reinsurer and to supplement the overall adequacy of reported case reserves and
estimated expenses of settling such claims, including legal and other fees and
general expenses of administering the claims adjustment process. Underwriters
establishes IBNR reserves by using accepted loss reserving standards and
principles to estimate the ultimate liability for losses and loss adjustment
expenses ("LAE"). The process implicitly recognizes the impact of inflation and
other factors that affect claims reporting by taking into account changes in
historic loss reporting patterns and perceived probable trends.
Underwriters performs reviews of aggregate loss reserves at least twice
each year. Between the semi-annual reviews, Underwriters updates its loss
reserves by applying the loss ratios determined in the previous review to earned
premiums to date, less incurred losses reported. Underwriters does not discount
its reserves for reported or unreported claims 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 company 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'
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financial condition and results of operations. Based on current information,
Underwriters believes reserves for losses and LAE at December 31, 1995 are
adequate.
Underwriters' reserve for losses and LAE 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 period of time
that has elapsed between the occurrence of the loss and the reporting of that
loss to the ceding company and the reinsurer, uncertainty as to the number and
identity of insureds with potential exposure to such risks, unresolved legal
issues regarding policy coverage, and the extent and timing of any such
contractual liability. Such uncertainties are not likely to be resolved in the
near future.
As with all reinsurance claims, Underwriters establishes case reserves
for both asbestos and environmental excess of loss 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 (a "precautionary notice") to protect their rights under reinsurance
contracts, which generally call for prompt notice to the reinsurer. Ceding
companies, at the time they report such potential losses, advise Underwriters of
the ceding companies' current estimate of the extent of such loss. Underwriters
reviews each of these precautionary notices and, based upon current information,
assesses the likelihood of loss to Underwriters. Such assessment is one of the
factors used in determining the adequacy of IBNR reserves.
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 $4.0 million per year) and paid losses (approximately $2.2
million per year) for the last three years. The per year figures are net of
reinsurance, including the Continental reinsurance contracts.
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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' assessment of precautionary notices and a review of aggregate
reported losses (approximately $4.6 million per year) and paid losses
(approximately $0.5 million per year) for the last three years. The per year
figures are net of reinsurance, including the Continental reinsurance contracts.
During the three years ended December 31, 1995, the average net loss
payment per claim (open and settled) for asbestos and environmental exposures,
excluding cessions to the Continental reinsurance contracts, was $25,000 and
$18,000, respectively, and the highest paid loss was $1.9 million for an
asbestos claim and $0.6 million for an environmental claim, in each case net of
ceded reinsurance (excluding cessions to the Continental reinsurance contracts).
Most claims paid to date have been paid under contracts with varying levels of
retention by the ceding company or insurer. Although the range of losses paid by
Underwriters has been wide, most losses paid involve lower dollar amounts.
As of December 31, 1995, Underwriters' case and IBNR reserves (net of
reinsurance, including cessions to the Continental reinsurance contracts)
totalled about $14.5 million for asbestos-related liabilities, which includes
reserves for approximately 833 open claims where cedents have advised
Underwriters that they currently expect to recover from Underwriters. As of
December 31, 1995, Underwriters' case and IBNR reserves (net of reinsurance,
including cessions to the Continental reinsurance contracts) totalled about
$19.6 million for environmental impairment claims, which includes reserves for
approximately 613 open claims where cedents have advised Underwriters that they
currently expect to recover from Underwriters. Additionally, ceding companies
have submitted about 1,059 precautionary notices for asbestos-related claims and
7,612 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 (net of cessions to the Continental reinsurance contracts, but
excluding an additional $35.8
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million provision 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
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 10,136 $ 10,000 $ 9,000
Incurred loss, net of reinsurance......................... 4,358 3,505 4,173
Paid loss, net of reinsurance............................. 0 (3,369) (3,173)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 14,494 10,136 10,000
Reinsurance recoverables, as of December 31............... 23,858 32,487 21,560
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 38,352 $ 42,623 $ 31,560
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 4,494 $ 136 $ 0
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 14,494 $ 10,136 $ 10,000
======== ======== ========
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Reconciliation of Environmental Impairment Claims Reserve for Losses and LAE
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 16,198 $ 12,879 $ 7,256
Incurred loss, net of reinsurance......................... 3,402 3,074 7,230
Paid loss, net of reinsurance............................. 0 245 (1,607)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 19,600 16,198 12,879
Reinsurance recoverables, as of December 31............... 12,896 17,994 14,803
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 32,496 $ 34,192 $ 27,682
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 9,600 $ 6,198 $ 2,879
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 19,600 $ 16,198 $ 12,879
======== ======== ========
Increases to asbestos-related and environmental impairment claims
reserves, if any, would be covered to varying degrees, if at all, 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
carried an additional reserve for such exposures in their financial statements
prepared in accordance with generally accepted accounting principles ("GAAP").
The amount of such reserve was $32.4 million as of December 31, 1995, compared
with $35.8 million as of December 31, 1994. Taking into consideration these
additional reserves, Underwriters believes that its total asbestos-related and
environmental impairment reserves are a reasonable provision for such claims.
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The table below shows changes in historical net loss and LAE reserves
for Underwriters for each year since 1985. 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, 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 the net
reserve liability in the past may not necessarily occur in the future.
Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies based on this table. During the mid-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 1985-86. The $35.8 million reserve
strengthening in 1993, along with prior increases to asbestos-related and
environmental impairment reserves, was the primary cause of the cumulative
reserve deficiencies in the years 1988-92.
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Changes in Historical Net Reserves for Losses and LAE
(in millions)
Year Ended December 31,
-------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net liability as of the end
of year*........................... $ 279 $ 359 $ 470 $ 461 $453 $411 $411 $437 $509 $536 $ 628
Cumulative amount of net
liability paid as of:
One year later.................. $ 80 $ 94 $ 116 $ 119 $137 $101 $ 84 $ 98 $112 $102 --
Two years later................. 161 193 208 242 227 173 161 178 189 -- --
Three years later............... 258 277 330 306 285 239 214 236 -- -- --
Four years later................ 341 375 380 348 342 274 254 -- -- -- --
Five years later................ 389 407 416 394 370 294 -- -- -- -- --
Six years later................. 404 423 458 414 384 -- -- -- -- -- --
Seven years later............... 413 460 475 425 -- -- -- -- -- -- --
Eight years later............... 445 471 483 -- -- -- -- -- -- -- --
Nine years later................ 454 475 -- -- -- -- -- -- -- -- --
Ten years later................. 458 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated
as of:
One year later.................. 341 439 481 454 457 414 412 483 516 539 --
Two years later................. 426 449 473 457 460 421 455 487 518 -- --
Three years later............... 432 441 476 462 474 465 460 491 -- -- --
Four years later................ 428 444 478 492 520 472 469 -- -- -- --
Five years later................ 426 445 516 538 528 485 -- -- -- -- --
Six years later................. 427 484 562 548 545 -- -- -- -- -- --
Seven years later............... 454 531 572 568 -- -- -- -- -- -- --
Eight years later............... 495 539 591 -- -- -- -- -- -- -- --
Nine years later................ 498 554 -- -- -- -- -- -- -- -- --
Ten years later................. 511 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy
(Deficiency)................. $(232) $(195) $(121) $(107) $(92) $(74) $(58) $(54) $ (9) $(3) --
Gross Liability-End of Year $861 $940 $1,014
Reinsurance Recoverable 352 404 386
---- ---- ------
Net Liability - End of Year 509 536 $ 628
==== ==== ======
Gross Re-estimated Liability-Latest 959 953
Re-estimated Recoverable-Latest 441 414
---- ----
Net Re-estimated Liability-Latest $518 $539
==== ====
*Amounts for 1985-1986 were determined in accordance with statutory accounting
principles.
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The reconciliation between the reserves reported in the annual
statement filed with state insurance departments in accordance with statutory
accounting practices ("SAP") and those reported in Underwriters' consolidated
financial statements prepared in accordance with GAAP for the last three years
is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP Basis
December 31
--------------------------------------------------
1995 1994 1993
---- ---- ----
Statutory Reserves........................................ $ 596,070 $500,567 $473,625
Additional Mass Action Reserves (1)....................... 32,350 35,750 35,750
Reinsurance Recoverables.................................. 385,580 404,210 351,829
---------- -------- --------
GAAP Reserves............................................. $1,014,000 $940,527 $861,204
========== ======== ========
(1) Amount represents additional reserves recorded by Underwriters in 1993
for probable asbestos-related and environmental impairment claims
exposure.
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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
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 536,317 $ 509,375 $ 436,601
Incurred Loss, net of reinsurance,
related to:
Current year....................................... 200,543 146,426 143,723
Prior years........................................ 2,565 6,630 46,404
---------- --------- ---------
Total Incurred Loss, net of reinsurance................... 203,108 153,056 190,127
---------- --------- ---------
Paid Loss, net of reinsurance, related to:
Current year....................................... (9,239) (13,826) (19,640)
Prior years........................................ (101,766) (112,288) (97.713)
---------- --------- ---------
Total Paid Loss, net of reinsurance....................... (111,005) (126,114) (117,353)
---------- --------- ---------
Reserve, net of reinsurance recoverables,
as of December 31.................................. 628,420 536,317 509,375
Reinsurance recoverables, as of December 31............... 385,580 404,210 351,829
---------- --------- ---------
Reserve, gross of reinsurance
recoverables, as of December 31.................... $1,014,000 $ 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
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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 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 by
adjusting the average duration of liabilities to reflect anticipated cash flows
from writings of future business. 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
years ended December 31, 1994 and 1995 (dollars in thousands):
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%
Year Ended
December 31, 1995 $797,132 $50,173 $36,113 $5,476 5.9% 4.5%
(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.
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As of December 31, 1995, the equity portfolio of Underwriters was
carried at a market value of approximately $210.4 million with an original cost
of approximately $114.7 million, and consisted primarily of approximately 2.5
million shares of BNSF common stock. The cost of equities listed in the table
below, $88.9 million, represents the cost paid by Alleghany prior to being
contributed to Underwriters. In 1995, Underwriters realized a gain of $0.1
million related to the sale of equity securities and had dividend income of $3.3
million therefrom.
The following table summarizes the investments of Underwriters,
excluding cash, as of December 31, 1995, with all investments carried at market
value (dollars in thousands):
Investments
Amortized Cost
or Cost Market Value
-----------------------------------------------------------
Amount Percentage Amount Percentage
Short-term investments..................... $126,944 14% $126,944 12%
Corporate bonds............................ 142,171 15 142,658 13
United States government and
government agency bonds............. 38,009 4 38,510 4
Mortgage- and asset-backed
securities.......................... 283,797 30 287,941 27
Foreign bonds.............................. 16,259 2 16,429 1
Redeemable preferred stocks................ 18,773 2 18,679 2
Municipal bonds............................ 222,611 24 222,093 21
Equity securities (1)...................... 88,889 9 210,382 20
-------- ---- ---------- ----
Total............................... $937,453 100% $1,063,636 100%
======== ==== ========== ====
(1) Includes 2,474,823 shares of BNSF common stock at the original cost to
Alleghany.
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The following table indicates the composition of the long-term fixed
maturity portfolio by Moody's rating as of December 31, 1995 (dollars in
thousands):
Long-Term Fixed Maturity Portfolio by Moody's Rating
Market Value Percentage
------------ ----------
Aaa....................................................... $406,448 56%
Aa........................................................ 135,165 19
A......................................................... 146,535 20
Baa....................................................... 27,924 4
Ba........................................................ 10,238 1
-------- ---
Total............................................ $726,310 100%
======== ===
The following table indicates the composition of the long-term fixed
maturity portfolio by years until maturity as of December 31, 1995 (dollars in
thousands):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
------------ ----------
One year or less.......................................... $ 16,266 2%
Over one through five years............................... 128,178 18
Over five through ten years............................... 153,822 21
Over ten years............................................ 140,103 19
Mortgage- and asset-backed securities..................... 287,941 40
-------- ---
Total............................................ $726,310 100%
======== ===
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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 decrease in premium rates.
As the cycle continues, assuming loss experience is consistent, these
declining premium rates eventually 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 is no
assurance 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 at times is 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
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.
To enhance Underwriters' financial strength, Alleghany, through the
holding company which owns Underwriters, contributed a total of approximately
$151 million in cash and equity securities to the capital of Underwriters in
1993 and 1994. Underwriters' enhanced financial strength has allowed it to
benefit from the continuing trend toward consolidation in the domestic
reinsurance market, resulting from the tendency of
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reinsurance buyers to purchase coverage from larger and more financially secure
reinsurers. According to the Reinsurance Association of America, at December 31,
1995, there were 56 domestic professional reinsurers, and Underwriters was the
nation's eleventh-largest in terms of statutory surplus and fourteenth-largest
in terms of net premiums written.
The commercial property and casualty insurance industry is highly
competitive chiefly on the basis of price and service. CUIC's competitors
include other primary insurers and new forms of insurance organizations such as
alternative self-insurance mechanisms. Many of CUIC's competitors have
considerably greater financial resources, greater experience in the insurance
industry and offer a broader line of insurance products than CUIC.
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 that may be held, prescribe solvency
standards that must be met and maintained, require filing of annual or other
reports with respect to financial condition and other matters and provide for
periodic 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 have an effect on the rates that can be charged by
reinsurers.
The Underwriting Center is subject to regulation and supervision by the
state insurance regulators in the states in which its subsidiary is licensed as
an insurance agency (Maryland, Georgia and New York). Such regulations address
the solicitation and effectuation of insurance in such states and impose certain
requirements relating to,
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among others things, countersignatures, continuing education and maintenance of
trust accounts.
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, 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. At
December 31, 1995, 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.
Employees
Underwriters employed 193 persons as of December 31, 1995.
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 capitalized expenses. The present chief executive officer of World
Minerals currently owns an equity interest, including outstanding options, of
about 6.6 percent of World Minerals' immediate parent company.
World Minerals is principally engaged in the production and sale of two
industrial minerals, diatomite and perlite:
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Diatomite
World Minerals conducts its diatomite business through its Celite
subsidiary.
In 1995, World Minerals, through various subsidiaries of Celite,
acquired controlling interests in three joint ventures which are engaged in the
mining and processing of diatomite in Jilin Province, Peoples Republic of China
("PRC"). Two of the three joint ventures are in the start-up phase of
production and the third is under construction.
Celite is believed to be the world's largest producer of filter-aid
grade diatomite, which it markets worldwide under the Celite(R) and Kenite(R)
brand names; Celite also markets filter-aid grade diatomite in Europe under the
Primisil(R) brand name and in Latin America and other areas under the Diactiv(R)
brand name. Celite also produces calcium silicate products and magnesium
silicate products, which are sold worldwide under the MicroCel(R) and Celkate(R)
brand names (except in portions of Europe where calcium silicate products are
sold under the Calflo(R) brand name).
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; it is used as a filler, mainly in paints,
and 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.
Perlite
World Minerals conducts its perlite business through its Harborlite and
Europerlite subsidiaries.
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On November 16, 1992, New Harborlite Corporation ("Harborlite"), a
newly formed subsidiary of World Minerals, acquired all of the 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.
On October 31, 1995, World Minerals, through its Europerlite
subsidiary, acquired control of all of the capital stock of two privately owned
perlite filter aid companies with operations in Italy and Spain, respectively,
and a privately owned perlite sales company in Spain.
World Minerals believes that Harborlite and Europerlite are, in the
aggregate, the world's largest producer of perlite filter aids and that
Harborlite, which is also engaged in the business of selling perlite ore, is the
world's largest merchant producer of perlite ore. These products are marketed
worldwide under the Harborlite(R) and Europerl(R) brand names.
Perlite is a volcanic rock which contains between 2 percent and 5
percent natural combined water. When heated rapidly, the natural combined water
turns explosively to steam and the perlite ore "pops" in a manner similar to
popcorn, expanding up to twenty times its original volume and creating a soft
material with large surface area and correspondingly low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine and is
sold to companies that expand it in their own expansion plants and use it
primarily 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 six expansion plants located within the United States.
Expanded perlite is also produced at Harborlite's expansion plants in Hessle,
United Kingdom and Wissembourg, France and Europerlite's expansion plants in
Barcelona, Spain and Milan, Italy, from perlite ore obtained from Harborlite's
perlite mine in Dikili, Turkey and from merchant ore producers in Europe. Most
of the expanded perlite is used as a filter aid in the brewing, food, wine,
sweetener, pharmaceutical, chemical and lubricant industries, or as a filler and
insulating medium in various construction applications.
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47
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 and
controlling interests in three joint ventures which mine and process diatomite
in Jilin Province, PRC.
Harborlite is currently relocating its world headquarters to Houston,
Texas and owns a perlite mine and mill in No Agua, New Mexico; Superior,
Arizona; and Dikili, Turkey; a perlite loading facility in Antonito, Colorado;
and perlite expansion facilities in Escondido, California; Green River, Wyoming;
Laporte, Texas; Youngsville, North Carolina; Vicksburg, Michigan; Quincy,
Florida; Wissembourg, France; and Hessle, England.
Europerlite has its world headquarters in Lompoc, California and owns
perlite expansion plants in Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining
and processing operations in ten countries. In 1995, approximately 37 percent of
World Minerals' revenues (equal to 3.7 percent of Alleghany's consolidated
revenues from continuing operations) were generated by foreign operations, and
an additional 13 percent of World Minerals' revenues were generated by export
sales from the United States. While World Minerals believes that the
international scope of its operations gives it unique competitive advantages,
international operations can be subject to additional risks, such as currency
fluctuations, changes in foreign legal requirements and political instability.
World Minerals closely monitors its methods of operating in each country and
adopts strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency
fluctuation by, among other things, having its foreign subsidiaries declare and
pay dividends whenever feasible and invoice their export customers in United
States dollars or other "hard currencies." World Minerals' foreign operations do
not subject Alleghany to a material risk from foreign currency fluctuation.
Celite's largest diatomite mine and plant is located in Lompoc,
California. All additional diatomite supplies are currently obtained by Celite
from its mines in the state of
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Washington, France, Spain, Mexico, Chile, PRC 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 in the United States from its No Agua
and Superior mines, and believes that its perlite ore reserves at each site are
sufficient to last at least 20 more years at the current rate of utilization.
The perlite used by Harborlite and Europerlite for expansion in Europe is
obtained from Harborlite's Dikili mine and from third parties in Europe.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally produced diatomite.
World Minerals experienced no interruption in raw material availability
in 1995, and barring unforeseen circumstances anticipates no such interruption
in 1996. While there can be no assurance that adequate supplies of all raw
materials will be available in the future, Celite, Europerlite and Harborlite
believe that they have taken reasonable precautions for the continuous supply of
their critical raw materials.
Many of Celite's, Europerlite's and Harborlite's operations use
substantial amounts of energy, including electricity, fuel oil, natural gas, and
propane. Celite, Europerlite and Harborlite have supply contracts for most of
their energy requirements. Most of such contracts are for one year or less.
Celite, Europerlite 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 25 United States and 41
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.
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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. Financial systems and controls have been upgraded,
and the Celite, Harborlite and Europerlite sales forces have been consolidated
to improve efficiency and take advantage of synergies. World Minerals acts as
the sales agent for both Celite and Harborlite in the United States and procures
orders from customers and distributors on their behalf. Celite distributes
Harborlite's products in Europe to dealers, distributors and end users on
Harborlite's behalf. Europerlite sells its products in Europe to dealers,
distributors and end users.
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 1995, World
Minerals spent approximately $1.0 million on company-sponsored research and
technical services (in addition to amounts spent on engineering and exploration)
related to the development and improvement of its products and services.
Competition
World Minerals believes that Celite is the world's largest producer of
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 and Europerlite are, in the
aggregate, the world's largest producer of perlite filter aids and that
Harborlite, which is also engaged in the business of selling perlite ore, is the
world's largest merchant producer of perlite ore. Harborlite and Europerlite
each have two large competitors in the expanded perlite market, Grefco and CECA,
and many smaller competitors.
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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. The filter aid products of Celite,
Europerlite and Harborlite also 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 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
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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
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.
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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 showed that
exposure to asbestos by workers was relatively common. For example,
the number of cohort members who were ever definitely, probably or
possibly exposed to asbestos was shown to involve approximately 60
percent of the cohort. Even when only men employed in jobs definitely
exposed to asbestos for more than [one] year in the period 1950-1977
were considered, more than 8 percent of the cohort had held such jobs."
The asbestos study's authors called for further analyses which fully take into
account the results of their study stating "[t]he interpretation of the
silica-lung cancer risk relationships based on the [Lompoc] cohort should await
the outcome of such analyses."
During 1995, the results of the asbestos study were analyzed by the
authors of the Washington study. In a report to the Office of Pollution
Prevention and Toxics of the U.S. Environmental Protection Agency by the IDPA
reporting on the results of the reanalysis, the IDPA reported:
"The lung cancer SMR for the group with no asbestos exposure
was 1.13 (95% CI, 0.73-1.69); for the group with any asbestos exposure
it was 1.78 (95% CI, 1.18-2.57). The cross-classified SMR results were
numerically unstable because of the small numbers of observed lung
cancers.
* * *
"In summary, the additional information gained from an
in-depth assessment of possible exposures to asbestos experienced by
the cohort has lead to re-analysis of the original study report. Some
of the excess lung cancer risk reported
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previously (Checkoway et al., 1993) can be attributed to asbestos
exposure and the remaining numbers are weaker and lacking in
statistical significance."
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
As of December 31, 1995, World Minerals had 115 employees, all located
in the United States, Celite had a total of about 1,153 employees worldwide,
and Harborlite had a total of about 212 employees worldwide. Europerlite had a
total of about 71 employees, all located in Europe. Approximately 346 of
Celite's employees and 40 of Harborlite's employees in the United States are
covered by collective bargaining agreements. All of the collective bargaining
agreements covering workers at Celite and Harborlite are in full force and
effect.
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, washers and other fasteners - 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'
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costs are subject to fluctuations in foreign currency and import duties.
Increases in import duties may result from determinations by United States
federal agencies that foreign countries are violating United States laws or
intellectual property rights, or are following restrictive import policies.
Heads and Threads operations do not subject Alleghany to a material risk from
fluctuations in foreign currency or import duties.
Regulations implementing the Fastener Quality Act, which are to become
effective in 1996, will increase costs.
At December 31, 1995, Heads and Threads had about 165 employees.
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Item 2. Properties.
Alleghany's headquarters is located in leased office space of about
11,000 square feet at 375 Park Avenue in New York City.
CT&T and CTI lease about 282,000 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. It is
anticipated that these headquarters will be moved to a leased location in
Pasadena, California in April 1996 as the building in Rosemead, California is
currently being marketed for sale. CT&T and its subsidiaries own or lease
buildings or office space in approximately 452 locations throughout the United
States, primarily for CTI, Security Union and Ticor Title full-service and
satellite branch office operations.
Underwriters leases about 29,000 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 3,000
square feet to 6,700 square feet. CUIC leases about 9,400 square feet of
office space. All four of the branch offices of The Underwriting Center are
also in leased space, ranging in size from about 1,100 square feet to 4,600
square feet.
World Minerals' headquarters is located in leased premises of
approximately 17,300 square feet in Lompoc, California, which it shares with
Celite and Europerlite. Harborlite's headquarters is presently relocating to
Houston, Texas.
A description of the major plants and properties owned and operated by
Celite, Europerlite 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.
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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.
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Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
Murat, Department 77,000 Diatomite filter
of Cantal, France aids
Production facility;
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
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.
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Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
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.
Changbai County, 205,985 Diatomite filter
Jilin Province, PRC aids
Production facility;
1 multi-story processing
facility; 4 one-story
warehouse buildings;
1 multi-story office building;
and 4 one-story miscellaneous
buildings.
Linjiang County, 74,665 Diatomite filter
Jilin Province, PRC aids
Production facility;
1 multi-story production
facility; 1 two-story office
building; 3 one-story
warehouse buildings; and
3 one-story miscellaneous
buildings.
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Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
Linjiang County, under Diatomite filter
Jilin Province, PRC construction aids
Production facility.
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.
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Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
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.
Youngsville, NC 22,500 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.
LaPorte, TX 23,000 Perlite filter
1 one-story aids and
expansion warehouse fillers
and office building.
Wissembourg, France 50,000 Perlite filter
1 multi-story aids and fillers
production and ware-
house building.
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Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
Hessle, Humberside,
United Kingdom 36,700 Perlite filter
1 one-story aids and fillers
manufacturing
building; and 1
two-story office
building.
Dikili, Turkey 63,200 Perlite crushing
Production facility; mill
1 four-story manu-
facturing building;
1 one-story warehouse
building; 1 one-story raw
material warehouse; 1
one-story office building;
and 1 one-story
maintenance shop.
EUROPERLITE:
- ------------
Barcelona, Spain 70,300 Perlite filter aids
Production facility; and fillers
1 one-story manufacturing
warehouse building;
1 one-story raw material
warehouse; and 1 two-story
office building.
Milan, Italy 68,600 Perlite filter aids
Production facility;
1 one-story manufacturing/
warehouse building; 1
one-story raw material
warehouse; and 1 two-story
office building.
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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 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 and Celite's joint ventures in PRC have mining
rights to mine diatomaceous earth in sections of Jilin Province, PRC.
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 38
properties in fee and two additional properties 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.
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Location Approximate Acreage Property Type
- -------- ------------------- -------------
Roseville, 15.7 acres Unimproved land
California (commercial/
residential)
Roseville, 112.3 acres Unimproved land
California (commercial/
(subject to a residential)
first deed of
trust)
Folsom, 7.4 acres Unimproved land
California (commercial/
office/retail)
Sacramento, 215.8 acres Unimproved land
California (commercial/
residential)
Sacramento, 136.0 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.
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64
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.
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
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65
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 have become effective upon final approval of the
Court. Subsequently, the attorneys for the plaintiffs advised the Court that
they were unable to continue to support the settlement as in the best interests
of the settlement class; the title insurance companies stated their belief that
the settlement agreement was binding upon the plaintiffs and their counsel and
that the agreement was in the best interests of the settlement class.
On April 21, 1994, prior to the filing of the settlement agreement
with the District Court in Arizona, 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 did not act upon the settlement
agreement and, on March 28, 1995, the Court deferred further action to allow
the parties to reach agreement on a global settlement of the foregoing actions.
The parties subsequently filed a global settlement with the Court, to which the
Court has given its preliminary approval, entering a Preliminary Settlement
Order dated June 19, 1995.
Pursuant to the terms of the proposed global settlement, class members
will be provided with a number of benefits, including the option to receive
cash payments from the title insurance companies named in the Arizona and
Wisconsin actions, not to exceed in the aggregate $1,996,613 in Arizona and
$2,070,326 in Wisconsin; an increase in the face amount of title insurance
policies purchased from the title insurance companies reflecting the impact of
inflation since January 1, 1981; and the last $5,000 of future insurance
coverage at no cost on any new title insurance policy for property in Arizona
or
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66
Wisconsin purchased from any of such title insurance companies within the
one-year period following final Court approval of the settlement. The
settlement also contemplates that the title insurance companies will pay
attorneys' fees of the plaintiffs and the costs of administering the
settlement.
In July 1995, pursuant to an order of the Court, notice of the
settlement was given to the class by publication. No member of the plaintiff
class commented upon or requested to opt out of the settlement, and the period
for such comment or request closed on September 15, 1995. The plaintiffs filed
for their attorneys' fees and costs on or about September 22, 1995. The Court
held a hearing on October 10, 1995, at which the fairness of the settlement was
considered and members of the plaintiff class were given an opportunity to be
heard. No class member appeared at the hearing. On October 30, 1995, the
Court issued an order certifying the plaintiff class for all purposes.
The parties have affirmed to the Court their support of the settlement
agreement; however, disputes arose regarding the valuation of the settlement
benefits and various matters pertaining to the plaintiffs' petitions for
attorneys' fees and costs. The parties have filed briefs with the Court on the
areas of disagreement. The defendants have reached an agreement regarding
attorneys' fees and costs with the plaintiffs who initiated the Arizona action,
and the parties have submitted such agreement for the approval of the Court.
The Court has yet to act in this regard. No agreement has been reached with
the plaintiffs who initiated the Wisconsin action.
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. The federal tax returns of the Alleghany group for the tax years
1991 and 1992 are being audited by the Internal Revenue Service ("IRS"). By
letter dated December 27, 1995, the IRS proposed adjustments to the Alleghany
group's federal income tax liability for the 1988, 1991 and 1992 tax years
totalling about $6.7 million.
Among the positions taken by the IRS is a proposal to disallow a
deduction of approximately $6.2 million in the 1992 tax year, representing the
"imputed" interest portion of a payment made by Alleghany to Lincoln National
Corporation ("Lincoln") of Lincoln's share of a litigation recovery pursuant to
the terms of the agreement between
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67
them relating to Alleghany's acquisition of CT&T in 1985. The proposed
adjustment is based on the IRS's position that the statute under which the
deduction was claimed is inoperative in the absence of regulations required to
be promulgated by the IRS. Independent counsel for Alleghany believes that
this position has little merit.
The IRS also proposed to disallow about $3.3 million of bad debt
deductions claimed by Ticor Title and its subsidiaries (the "Ticor Group")
after CT&T's acquisition of the Ticor Group in 1991. The IRS has taken the
position that the Ticor Group failed to demonstrate that the receivables giving
rise to the bad debts were not worthless earlier than the period in which the
bad debt deductions were claimed. Alleghany does not intend to challenge the
position of the IRS with respect to deductions aggregating about $1 million,
and is currently evaluating its response with respect to the remainder. To the
extent that an adjustment proposed by the IRS in respect of these bad debt
deductions is made, the pre-acquisition net operating loss carryforward of the
Ticor Group should be increased by an amount which corresponds to the reduction
in such bad debt deductions.
In addition, the IRS proposed adjustments increasing taxable income
for the 1991 and 1992 tax years by a total of about $7.1 million, as a result
of a reallocation of the purchase price among various assets acquired by
Alleghany and subsequently contributed to Celite upon its formation. An
independent appraiser has been retained to evaluate the original appraisal
obtained by Alleghany and the IRS's proposed reallocation.
Alleghany is currently evaluating the legal and factual bases of the
proposed adjustments and intends to file a protest with the IRS Appeals Office
in New York City.
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, 1995.
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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 1995.
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 76 Chairman of Chairman of the
the Board Board, Alleghany;
Chairman of the
Board and chief executive
officer, Alleghany, prior
to July 1992.
John J. 64 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.
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Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
David B. 63 Senior Vice Senior Vice
Cuming President President and
and chief chief financial
financial officer, Alleghany.
officer
Robert M. Hart 51 Senior Vice Senior Vice President
President, General and General Counsel
Counsel and since September 1994
Secretary and Secretary since January 1995; Partner,
Donovan Leisure Newton & Irvine, prior thereto.
Peter R. Sismondo 40 Vice President, Vice President,
Controller, Controller, Treasurer,
Treasurer, Assistant Secretary
Assistant and principal
Secretary and accounting officer,
principal Alleghany,
accounting officer since January
1995; Vice President,
Controller, Assistant
Secretary and
principal accounting
officer, Alleghany,
prior thereto.
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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 5 of Alleghany's Annual Report to Stockholders for the year 1995,
filed as Exhibit 13 hereto.
Item 6. Selected Financial Data.
The information required by this Item 6 is incorporated by reference
from page 5 of Alleghany's Annual Report to Stockholders for the year 1995,
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 1 through 3, from pages 6 through 14, and from pages 16 and 17, of
Alleghany's Annual Report to Stockholders for the year 1995, 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 18 through 35 of Alleghany's Annual Report to Stockholders for the
year 1995, filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of Registrant.
As permitted by General Instruction G(3), information concerning the
executive officers of Alleghany is set forth as a supplemental item included in
Part I of this Form 10-K Report under the caption "Executive Officers of
Registrant." Information concerning the directors of Alleghany is incorporated
by reference from pages 5 through 8 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 26, 1996. 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 26, 1996.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference
from pages 12 through the first two lines of page 26 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 26, 1996. The information set forth beginning
on page 26 through the first [half of] page 34 of Alleghany's Proxy Statement,
filed or to be filed in connection with its Annual Meeting of Stockholders to
be held on April 26, 1996, 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 4, and from pages 10 and 11, of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 26, 1996.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference
from pages 24 and 25 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 26,
1996.
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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 1995 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).
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3.02 By-Laws of Alleghany as amended April 18, 1995,
filed as Exhibit 3.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated herein by reference .
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).
*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.
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*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, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1994, is incorporated
herein by reference.
*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).
- ----------------------------------
* Compensatory plan or arrangement.
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*10.06 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.07 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) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated
on March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.09 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 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995.
- ----------------------------------
* Compensatory plan or arrangement.
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*10.11 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
*10.14(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.
*10.14(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.
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*10.14(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.
*10.15 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.
*10.16 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.
*10.17 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.
- ----------------------------------
* Compensatory plan or arrangement.
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*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, filed as
Exhibit 10.19 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*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
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
- ----------------------------------
* Compensatory plan or arrangement.
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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).
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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.
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10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
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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).
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 (Securities and Exchange
Commission File No. 1-9371).
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 (Securities
and Exchange Commission File No. 1-9371).
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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 (Securities and Exchange
Commission File No. 1-9371).
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 (Securities and
Exchange Commission File No. 1-9371).
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 (Securities and Exchange Commission File
No. 1-9371).
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.
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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,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
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.
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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.
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.
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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) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) 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(d) 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.
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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.
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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.
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.
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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.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto and
Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
10.39(i) Credit Agreement dated as of November 16, 1992
(the "Underwriters Credit Agreement") among
Underwriters Re Corporation, a predecessor of URC
Holdings Corp., the lenders named therein and The
First National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment Number One to Underwriters Credit
Agreement dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
-89-
90
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
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. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
-90-
91
28(p) 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 did not file any reports on Form 8-K during the fourth quarter
of 1995.
-91-
92
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 22, 1996 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 22, 1996 By /s/ John J. Burns, Jr.
-------------- ---------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: March 22, 1996 By /s/ Dan R. Carmichael
-------------- --------------------------
Dan R. Carmichael
Director
Date: March 22, 1996 By /s/ David B. Cuming
-------------- ---------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 22, 1996 By /s/ Allan P. Kirby, Jr.
-------------- ---------------------------
Allan P. Kirby, Jr.
Director
-92-
93
Date: March 22, 1996 By /s/ F.M. Kirby
-------------- ---------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 22, 1996 By /s/ William K. Lavin
-------------- ---------------------------
William K. Lavin
Director
Date: March 22, 1996 By /s/ Peter R. Sismondo
-------------- ---------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 22, 1996 By /s/ John E. Tobin
-------------- ---------------------------
John E. Tobin
Director
Date: March 22, 1996 By /s/ James F. Will
-------------- ---------------------------
James F. Will
Director
Date: March 22, 1996 By /s/ Paul F. Woodberry
-------------- ---------------------------
Paul F. Woodberry
Director
Date: March 22, 1996 By /s/ S. Arnold Zimmerman
-------------- ---------------------------
S. Arnold Zimmerman
Director
-93-
94
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.
95
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(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 $ 582,170 $ 596,614 $ 596,614
States, municipalities and political subdivisions 437,928 440,698 440,698
Foreign governments 17,896 18,116 18,116
Public utilities 18,856 18,760 18,760
All other corporate bonds 322,376 327,322 327,322
Certificates of deposit 20,587 20,587 20,587
Redeemable preferred stock 30,889 30,911 30,911
---------- ---------- ----------
Total fixed maturities 1,430,702 $1,453,008 1,453,008
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust, and insurance companies 8,909 $ 11,287 $ 11,287
Industrial, miscellaneous, and all other 299,301 626,669 626,669
---------- ---------- ----------
Total equity securities 308,210 $ 637,956 637,956
---------- ========== ----------
Other long-term investments 9,813 9,813
Short-term investments 236,961 236,961
---------- ----------
Total investments $1,985,686 $2,337,738
========== ==========
96
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(in thousands)
1995 1994
=========================
ASSETS
Investment securities
(Cost: 1995 $208,011; 1994 $205,094) $ 410,966 $ 264,433
Cash 832 1,495
Accounts and other receivables, less allowances 19,042 17,190
Property and equipment - at cost, less accumulated depreciation 2,436 2,375
Other assets 33,078 30,352
Investment in consolidated subsidiaries 1,067,229 906,984
-------------------------
$1,533,583 $1,222,829
=========================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities $ 88,702 $ 61,242
Net deferred tax liability 105,115 61,671
Long-term debt 19,123 78,723
-------------------------
Total liabilities 212,940 201,636
Commitments and contingent liabilities
Common stockholders' equity 1,320,643 1,021,193
-------------------------
$1,533,583 $1,222,829
=========================
See accompanying Notes to Condensed Financial Statements.
97
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
1995 1994 1993
==================================================
Revenues:
Interest, dividend and other income $ 59,967 $ 62,302 $55,305
Net gain on investment transactions 37,836 23,403 13,376
--------------------------------------------------
Total revenues 97,803 85,705 68,681
--------------------------------------------------
Costs and Expenses:
Interest expense 5,832 7,743 6,401
General and administrative 69,694 71,354 64,888
--------------------------------------------------
Total costs and expenses 75,526 79,097 71,289
--------------------------------------------------
Operating income (loss) 22,277 6,608 (2,608)
Equity in earnings of consolidated subsidiaries 98,799 86,386 92,111
--------------------------------------------------
Earnings from continuing operations, before income taxes 121,076 92,994 89,503
Income taxes 35,776 24,622 8,654
--------------------------------------------------
Earnings from continuing operations 85,300 68,372 80,849
Discontinued operations:
Earnings from discontinued operations, net of tax 0 6,265 16,703
Gain on sale of Sacramento Savings, net of tax 0 62,869 0
--------------------------------------------------
Net earnings $ 85,300 $137,506 $97,552
==================================================
See accompanying Notes to Condensed Financial Statements.
98
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
1995 1994 1993
====================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 539 661 731
Net gain on investment transactions (37,836) (23,403) (13,376)
Increase in accounts and other receivables, less allowances (1,852) (773) (5,160)
(Increase) decrease in other assets (2,973) (2,862) 1,573
Increase (decrease) in other liabilities 25,811 (2,927) (20,407)
Equity in net earnings of consolidated subsidiaries (69,859) (63,812) (62,976)
----------------------------------------------------
Net adjustments (86,170) (93,116) (99,615)
----------------------------------------------------
Cash used in continuing operations (870) (24,744) (18,766)
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (92,005) (331,992) (190,482)
Maturities of investments 0 0 160,670
Sales of investments 124,110 135,159 79,103
Capital contributions to consolidated subsidiaries (33,700) (4,320) (55,923)
Capital contributions to discontinued operations 0 (4,000) (1,575)
Cash dividends from consolidated subsidiaries 69,216 73,039 237,482
Purchases of property and equipment (354) (164) (243)
Disposition of property and equipment 1 4 45
Proceeds from sale of Sacramento Savings, net of expenses 0 316,348 0
Purchase of real estate and real estate related assets
related to the sale of Sacramento Savings 0 (116,089) 0
Purchase of Underwriters Re 0 0 (203,865)
----------------------------------------------------
Net cash provided by investing activities 67,268 67,985 25,212
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (129,600) (341,000) 0
Proceeds of long-term debt 70,000 307,000 0
Purchase of treasury shares (7,605) (10,127) (7,897)
Common stock distributions 144 (75) 1,753
----------------------------------------------------
Net cash used in financing activities (67,061) (44,202) (6,144)
----------------------------------------------------
Net (decrease) increase in cash (663) (961) 302
Cash at beginning of year 1,495 2,456 2,154
----------------------------------------------------
CASH AT END OF YEAR $ 832 $ 1,495 $ 2,456
====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,982 $ 7,869 $ 6,401
Income taxes $ 11,979 $ 44,226 $ 46,236
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, Alleghany made a noncash capital contribution to its consolidated
subsidiaries by contributing a newly acquired company with a cost basis of
$4,480.
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.
99
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 Credit Data Reporting Services, Montag & Caldwell, Inc., and
Underwriters Re 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 1995 and 1994 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.
4. COMMITMENTS AND CONTINGENCIES. Reference is made to Note 11
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.
100
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
====== ============= ==================================================
1995 Title $ 0 $ 529,915 $ 0 $0
==================================================
Property
and casualty
reinsurance $16,951 $1,014,000 $74,561 $0
==================================================
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
==================================================
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
====== ============= ==============================================================================
1995 Title $ 953,364 $45,361 $ 81,385 $ 0 $ 989,775 $ 0
==============================================================================
Property
and casualty
reinsurance $ 277,507 $50,173 $203,108 $63,617 $ 29,833 $291,995
==============================================================================
1994 Title $1,162,207 $39,850 $ 94,845 $ 0 $1,138,921 $ 0
==============================================================================
Property
and casualty
reinsurance $ 190,279 $41,226 $153,056 $38,883 $ 24,200 $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 $ 6,020 $ 6,406 $ 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.
101
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
==== ====================== =========================================================================
1995 Title premiums $ 953,364 $ 5,872 $ 2,012 $ 949,504 0.21%
=========================================================================
Property and casualty
reinsurance premiums $ 42,413 $ 85,234 $ 320,328 $ 277,507 115.43%
=========================================================================
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%
=========================================================================
* 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.
102
SCHEDULE X
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
DISCOUNT,
IF ANY,
RESERVES DEDUCTED CLAIMS AND CLAIM
FOR IN RESERVES ADJUSTMENT EXPENSES
UNPAID FOR UNPAID INCURRED RELATED TO
DEFERRED CLAIMS CLAIMS -------------------
AFFILIATION POLICY AND CLAIM AND CLAIM NET (1) (2)
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME YEAR YEAR
============ ==================================================================================================
1995
Consolidated
property-
casualty
entities $ 16,951 $1,014,000 $0 $74,561 $277,507 $50,173 $199,783 $3,325
===============================================================================================
1994
Consolidated
property-
casualty
entities $ 11,325 $ 940,527 $0 $52,828 $190,279 $41,226 $146,416 $6,630
===============================================================================================
1993
Consolidated
property-
casualty
entities * $ 10,363 $ 861,204 $0 $49,078 $ 32,703 $10,390 $ 25,131 $ 0
===============================================================================================
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION POLICY AND CLAIM
WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
============ ====================================
1995
Consolidated
property-
casualty
entities $63,617 $111,005 $291,995
====================================
1994
Consolidated
property-
casualty
entities $38,883 $126,114 $200,596
====================================
1993
Consolidated
property-
casualty
entities * $ 6,020 $ 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.
103
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 22, 1996, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 1995 and 1994, 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, 1995 as contained in the 1995 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 year 1995. 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" at December 31, 1993.
/s/ KPMG Peat Marwick LLP
New York, New York
February 22, 1996
104
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany, as
amended by Amendment accepted and received for filing
by the Secretary of State of the State of Delaware on
June 23, 1988, filed as Exhibit 20 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended April 18, 1995, filed
as Exhibit 3.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, is
incorporated herein by reference .
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).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
- -------------------
* Compensatory plan or arrangement.
105
*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, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1994, is incorporated herein
by reference.
*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).
- ------------------------
* Compensatory plan or arrangement.
-2-
106
*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 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.07 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) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated on
March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.09 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 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995.
- ------------------------
* Compensatory plan or arrangement.
-3-
107
*10.11 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
*10.14(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.
*10.14(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.
*10.14(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.
- -----------------------
* Compensatory plan or arrangement.
-4-
108
*10.15 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.
*10.16 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.
*10.17 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, filed as Exhibit
10.19 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
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* Compensatory plan or arrangement.
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*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
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10.23(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).
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* Compensatory plan or arrangement.
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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).
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.
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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.
10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
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10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
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).
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 (Securities and Exchange
Commission File No. 1-9371).
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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 (Securities and
Exchange Commission File No. 1-9371).
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 (Securities and Exchange
Commission File No. 1-9371).
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 (Securities and
Exchange Commission File No. 1-9371).
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 (Securities and Exchange Commission File
No. 1-9371).
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.
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114
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,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
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.
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115
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.
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.
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116
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) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) 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(d) 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.
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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 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.
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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.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto
and Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
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10.39(i) Credit Agreement dated as of November 16, 1992 (the
"Underwriters Credit Agreement") among Underwriters
Re Corporation, a predecessor of URC Holdings
Corp., the lenders named therein and The First
National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment No. One to Underwriters Credit Agreement
dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
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13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
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. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
28(p) 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.
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