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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, 1996 FILE NUMBER 1-9371
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
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 3, 1997, 7,106,605 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 $1,202,564,518.
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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
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Annual Report to Stockholders of Alleghany Corporation for the year 1996... I and II
Proxy Statement relating to Annual Meeting of Stockholders of Alleghany
Corporation to be held on April 25, 1997................................. III
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ALLEGHANY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
DESCRIPTION PAGE
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PART I
Item 1. Business................................................................. 4
Item 2. Properties............................................................... 31
Item 3. Legal Proceedings........................................................ 34
Item 4. Submission of Matters to a Vote of Security Holders...................... 34
Supplemental
Item Executive Officers of Registrant......................................... 34
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 35
Item 6. Selected Financial Data.................................................. 36
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 36
Item 8. Financial Statements and Supplementary Data.............................. 36
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure............................................................... 36
PART III
Item 10. Directors and Executive Officers of Registrant........................... 36
Item 11. Executive Compensation................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 37
Item 13. Certain Relationships and Related Transactions........................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 37
Signatures............................................................... 45
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 Re Group, Inc. (the "Underwriters Group") and its
subsidiaries, 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. Reference is made to Item 2 of this Report for further information about
the properties held by API.
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, the shares of Santa Fe beneficially owned by Alleghany
were converted into about 7.43 million shares of BNSF, or about 4.8 percent of
BNSF's currently outstanding common stock. BNSF is engaged primarily in rail
transportation. BNSF owns one of the largest railroad networks in North America,
providing transportation services to shippers throughout the western two-thirds
of the United States as well as to Canada and Mexico.
In 1996, 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 1996. The consolidated financial statements
of Alleghany, incorporated by reference in Item 8 of this Report, include the
accounts of Alleghany and its subsidiaries for all periods presented.
TITLE INSURANCE, 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
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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 Pasadena, California.
The CT&T Family of Title Insurers is the largest title insurance
organization in the world, based upon title revenue in 1995 (the latest full
year for which data is available). Each of the principal title insurance
subsidiaries -- CTI, Security Union and Ticor Title -- carries a claims-paying
ability rating of "A" from Standard & Poor's Corporation and from Duff & Phelps
Credit Rating Co., confirming the financial strength of the CT&T Family of Title
Insurers. In addition, Moody's Investors Service has assigned an insurance
financial strength rating of "A2" to CTI, "A3" to Ticor Title and "Baa1" to
Security Union. The CT&T Family of Title Insurers has approximately 300 offices
and more than 3,700 policy-issuing agents in 49 states, Puerto Rico, the Virgin
Islands, Guam, Canada and Mexico.
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 and defines the
risks to be assumed by the insurer under the policy.
To conduct a title search and examination, an agent or employee of the CT&T
Family of Title Insurers reviews various records providing a history of
transfers of interests in the parcel of real estate with respect to which a
policy of title insurance is to be issued. These records are maintained by local
governmental entities, such as counties and municipalities. Title records, known
as title plants, owned by the CT&T Family of Title Insurers are also used as a
reference, allowing complete title searches without resorting to governmental
records. The CT&T Family of Title Insurers' title plants consist of compilations
of land title and deed information copied from public records dating back many
years on properties in various geographical locations. These title plants are
updated daily.
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. CT&T's title
insurance operations continue to institute programs to focus better 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 and to reduce turnaround times and expenses.
Technology investments continue to be made to streamline workflow processes and
to secure competitive advantages through automation. Agents and employees are
being trained to sharpen their problem solving abilities and to heighten their
responsiveness to customer needs. Implementation of these initiatives, which
continues in 1997, is expected to result in better, more cost effective
alignment of the internal operations of CT&T's title insurance operations with
marketplace demands.
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.
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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 National Lenders 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 interest rate levels
and to the volume of real estate transactions. 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 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 and through the first half of
1995 was the steepest downturn the industry experienced since it began keeping
those statistics in the early 1960's. This trend began to reverse its course in
the second half of 1995 when lower rates again prompted an increase in
refinancing and commercial transactions. The refinance volume remained strong in
the first quarter of 1996 but diminished as interest rates leveled off. Interest
rates remained relatively stable for the remainder of 1996 providing an
environment conducive to healthy volumes of real estate construction and resale
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 more 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 69 percent of the title revenues of the CT&T Family of Title
Insurers in 1996 are estimated to have been generated by residential real estate
activity, consisting of resales (43 percent), refinancings (15 percent) and new
housing (11 percent). Commercial and industrial real estate activity is
estimated to account for the remaining 31 percent of 1996 revenues, attributable
to initial sales and resales (25 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 types of insurers. Realized losses generally
result from either judgment errors or mistakes made in the title search and
examination process or the escrow process, or from other problems such as fraud
or incapacity of persons transferring property rights. Operating expenses, on
the other hand, are higher for title insurance companies than for other
companies in the insurance industry. Most title insurers incur considerable
costs relating to the personnel required to process forms, search titles,
collect information on specific properties and prepare title insurance
commitments and policies. Many title insurers also face ongoing costs associated
with the establishment, operation and maintenance of title plants, or, in the
case of smaller regional
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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 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.
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 reserves for losses that
are incurred but not yet reported ("IBNR reserves"). 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, the
event giving rise to a possible future claim under a title insurance policy, the
defect in the title, occurred before issuance of the 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 title insurance 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 anticipated investment income. Provisions to
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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, 1996 are adequate.
REAL ESTATE-RELATED SERVICES
Beginning in 1994, CT&T restructured its national operations organization
to address the increasing importance of national and regional residential
lenders. 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 property evaluations, including traditional appraisals.
Between 1995 and 1996, three acquisitions were completed 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, Credit
Data Reporting Services, Inc., a New York corporation headquartered in Kingston,
New York ("CDRS"), was acquired. CDRS has been in the credit reporting business
since 1941. In July 1996, Market Intelligence, Inc., a Massachusetts corporation
based in Hopkinton, Massachusetts ("Market Intelligence"), was acquired. Market
Intelligence has been in the property evaluation business since 1989.
Federal law requires lenders to determine whether a parcel of real property
pledged to secure a loan is in a flood hazard zone and, since 1995, to monitor
the flood zone status of a mortgaged property for the life of the loan. 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 and of many properties
on an automated basis. NFIS is neither an issuer nor an underwriter of flood
insurance policies.
Mortgage credit reporting is a specialized task which usually 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).
Changes in federal mortgage requirements aimed at lowering closing costs
and technological innovations permit lenders to use other avenues of property
evaluation, in lieu of a traditional full appraisal, for many residential loans.
Market Intelligence provides real estate information services and alternatives
to appraisals nationwide using database research supplemented by a network of
real estate agents that verify computer reports through physical property
inspections.
CT&T also maintains a network of 750 state-licensed contract appraisers
covering all 50 states. Through this network, CT&T offers a full array of
property appraisal products for residential mortgage loans. Property appraisals
for commercial properties are also available on a limited basis.
To integrate CT&T's products and services and to improve the delivery of
such products and services to its customers through one source, CT&T introduced
in late 1996 a new product ordering software system -- OrderNET. OrderNET
enables customers electronically to transmit orders for credit, appraisal, flood
certification and title products services, from one common system and to receive
automated order confirmations, as well as certain products.
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FINANCIAL SERVICES
CT&T's financial services group was restructured in 1995 under Alleghany
Asset Management, Inc., a Delaware corporation and a newly-formed subsidiary of
CT&T. The financial services businesses conducted directly by CT&T were
transferred to The Chicago Trust Company ("Chicago Trust"), an Illinois trust
company acquired by 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, and Chicago
Deferred Exchange Corporation, an Illinois corporation, which facilitates
certain tax-deferred property exchanges.
The following are the significant lines of business of Alleghany Asset
Management:
Institutional Investment Management -- manages equity, fixed income,
and balanced accounts primarily for employee benefit plans, foundations,
endowments, pension plans and insurance companies.
Full Service 401(k) Administration -- provides trustee, plan design,
investment management and other administrative services for companies
primarily in the Midwest and South.
Personal Trust and Investment Services -- provides investment
management and trust and estate planning services.
Real Estate Trust Services -- facilitates tax-deferred exchanges of
income-producing real property, and 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.
CT&T Funds -- a mutual fund family, with total assets of $1.0 billion
as of December 31, 1996, 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 other
401(k) and pension fund programs, third party distribution channels, and
new 401(k) clients.
As of December 31, 1996, Alleghany Asset Management, through its
subsidiaries, managed assets totalling about $14.5 billion.
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.
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The following table reflects investment results for CT&T for the years
ended December 31, 1994, 1995 and 1996 (dollars in thousands):
INVESTMENT RESULTS
NET
PRE-TAX
PRE-TAX AFTER-TAX REALIZED AFTER
AVERAGE INVESTMENT INVESTMENT GAINS EFFECTIVE TAX
PERIOD INVESTMENTS(1) INCOME(2) INCOME(3) (LOSSES) YIELD(4) YIELD(5)
- - ------------------------- -------------- ---------- --------- -------- --------- --------
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%
Year Ended
December 31, 1996...... $836,390 $ 61,808 $43,661 $ 1,436 7.4% 5.2%
- - ---------------
(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.
The following table summarizes the investments of CT&T, excluding cash, as
of December 31, 1996, with all investments carried at fair value in its
financial statements prepared in accordance with generally accepted accounting
principles (dollars in thousands):
INVESTMENTS
AMORTIZED COST
OR COST FAIR VALUE
----------------------- -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ----------
Short-term investments........................ $ 84,715 9.84% $ 84,715 9.78%
Corporate bonds............................... 108,758 12.64% 110,296 12.73%
United States government and government agency
bonds....................................... 224,637 26.10% 227,174 26.21%
Mortgage- and asset-backed securities......... 160,634 18.67% 161,522 18.64%
Municipal bonds............................... 229,280 26.64% 232,114 26.79%
Foreign bonds................................. 2,823 .33% 2,852 .33%
Redeemable preferred stock.................... 8,363 .97% 8,838 1.01%
Other preferred stock......................... 5,754 .67% 5,723 .66%
Equity securities............................. 35,650 4.14% 33,349 3.85%
-------- ---------- -------- ----------
Total............................... $860,614 100.00% $866,583 100.00%
======== ======== ======== ========
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The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, as of December 31, 1996 by the
rating system of the National Association of Insurance Commissioners ("NAIC")
(dollars in thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY NAIC RATING
FAIR VALUE PERCENTAGE
---------- ----------
NAIC 1......................................................... $ 688,313 91.96%
NAIC 2......................................................... 33,725 4.50%
NAIC 3......................................................... 11,650 1.56%
NAIC 6......................................................... 269 .04%
NAIC L & P3 (Preferred stock-redeemable........................ 5,723 .76%
NAIC A, L & P3 (Preferred stock-other)......................... 8,838 1.18%
-------- ------
Total................................................ $ 748,518 100.00%
======== ======
The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, by years until contractual
maturity as of December 31, 1996 (dollars in thousands). Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
LONG-TERM FIXED MATURITY PORTFOLIO BY YEARS UNTIL MATURITY
FAIR VALUE PERCENTAGE
---------- ----------
One year or less*.............................................. $ 142,256 19.0%
Over one through five years.................................... 354,846 47.4%
Over five through ten years.................................... 52,687 7.0%
Over ten years................................................. 37,207 5.0%
Mortgage- and asset-backed..................................... 161,522 21.6%
-------- -----
Total................................................ $ 748,518 100.0%
======== =====
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* Included in this category are $5,723 of preferred stock-other and $8,838 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 $70 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 typically less than 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 1996 year-end. The
duration of the short term and fixed income securities in CT&T's portfolio is
approximately 2.2 years, and is managed within a duration range of 2.0 to 4.0
years. Duration measures a portfolio's sensitivity to change in interest rates;
a change within a range of plus or minus 1% in interest rates would be expected
to result in an inverse change of approximately 2.2% in the value of CT&T's
portfolio. This relatively short portfolio maturity structure is maintained so
that investment income responds to changes in the level of interest rates,
offsetting to some degree the cyclicality of title insurance operations.
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.
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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
1996, 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.
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, NFIS, and Market Intelligence 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 domiciliary jurisdiction, and all
other states in which it is licensed to act in the capacity of investment
advisor.
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EMPLOYEES
At December 31, 1996, CT&T and its subsidiaries had approximately 7,900
employees, including full-time and part-time employees.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
Underwriters Re Group, Inc., formerly known as URC Holdings Corp. ("URG"),
headquartered in Woodland Hills, California, is engaged in the property and
casualty reinsurance and insurance businesses, through Underwriters Reinsurance
Company ("Underwriters") and its primary insurance subsidiaries (collectively,
"Underwriters Re Group"). 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 41 states,
Puerto Rico and the District of Columbia, is accredited as a reinsurer in seven
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 URG, and
thereafter contributed about $51 million in 1993 and $100 million in 1994 to the
capital of Underwriters Re Group. 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, 1996, Underwriters' statutory surplus was $614 million. Alleghany
currently owns about 96.8 percent of the capital stock of URG, and management of
URG owns the remaining 3.2 percent.
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 a claims-paying ability
rating of "AA-(Excellent)" from Standard & Poor's. Standard & Poor's
publications indicate that this rating is assigned to companies with strong
capacity to meet policyholders' obligations under a variety of economic and
underwriting conditions.
To capitalize on advantageous market conditions for certain primary
insurance business lines and on its expertise in specialized coverages,
Underwriters Re Group established Commercial Underwriters Insurance Company
("CUIC") at the end of 1992, acquired Underwriters Insurance Company ("UIC"), an
inactive Nebraska insurance company in 1994, and established Newmarket
Underwriters Insurance Company ("NUIC") in 1996. CUIC and UIC are rated "A+
(Superior)" by Best's because Underwriters reinsures a significant share of
their business. Similarly, Underwriters will reinsure a significant share of
NUIC's business and, therefore assignment of the same rating is expected.
CUIC is a California property and casualty insurance company that focuses
on specialized primary commercial insurance, individual commercial excess
liability insurance, commercial surplus lines, and specialized personal lines
liability insurance, including excess private passenger liability and
comprehensive personal liability insurance. CUIC conducts its business in
California and New York on an admitted basis and in 40 other states, Guam and
the District of Columbia on an approved nonadmitted basis. In 1996, CUIC
generated $88.5 million in gross written premiums. Underwriters Re Group
retained $52.1 million of such amount constituting 14 percent of Underwriters Re
Group's consolidated net written premiums in 1996.
UIC has licenses to write primary property and casualty insurance in 42
states and the District of Columbia and focuses on primary and umbrella
liability policies for medium- to large-sized businesses. In connection with the
acquisition of UIC, 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, increasing UIC's statutory surplus to $112.1 million at 1994
year-end. In
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1996, UIC generated $4.9 million in gross written premiums, of which
Underwriters Re Group retained $2.3 million, constituting 0.6 percent of
Underwriters Re Group's consolidated net written premiums in 1996.
NUIC is approved to write property and casualty insurance in New Hampshire,
and will focus on general liability and umbrella excess liability policies for
medium- to large-sized businesses.
To capitalize on the considerable expertise of certain individuals in
handling specialized classes of primary business, The Center Insurance Services,
Inc., formerly known as The Underwriting Center, Inc. ("The Center"), was
established in 1995 as a wholly owned subsidiary of URG. The Center's
subsidiaries act as agents and underwrite business on behalf of CUIC, UIC and,
to a lesser extent, non-affiliated insurers. Such subsidiaries also expect to
underwrite business on behalf of NUIC. The focus of The Center includes
specialized products liability insurance, general liability insurance for
certain insureds with significant self-insured retentions, specialized
environmental liability insurance, and marine insurance. During 1996
approximately $43.3 million of gross written premium was underwritten by The
Center, of which Underwriters Re Group retained $22.5 million. The Center has
offices in Kennesaw and Roswell, Georgia and in New York, New York.
To capitalize on international underwriting opportunities, Underwriters Re
Group established representative offices in Barbados at the end of 1995 and in
London, England in 1996. In addition, Underwriters Re Group made strategic
investments in reinsurance companies in Barbados and Bermuda.
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:
(i) it reduces net liability on individual risks, (ii) it protects against
catastrophic losses, and (iii) it helps to maintain acceptable surplus and
reserve ratios. In addition, reinsurance provides the ceding company with
additional underwriting capacity. Ordinarily, a ceding company will enter into a
reinsurance agreement only if it will receive credit for the reinsurance ceded
on its statutory financial statements. In general, such credit is allowed if the
reinsurer meets the licensing and accreditation requirements of the ceding
company's domicile, or the reinsurance obligations are collateralized by letters
of credit, funds withheld or pledged trust agreements.
In general, property insurance protects the insured against financial loss
arising out of loss of property or its use caused by an insured peril. Casualty
insurance protects the insured against financial loss arising out of the
insured's obligation to others for loss or damage to persons or property. While
both property and casualty reinsurance may involve a high degree of loss
volatility, property losses are generally reported within a relatively short
time period after the event; in contrast, there tends to be a significant time
lag in the reporting and payment of casualty claims. Consequently, an insurer
generally knows of the losses associated with property risks in a shorter time
than losses associated with casualty risks.
Underwriters provides reinsurance on both a treaty and a facultative basis.
Treaty reinsurance is based on a standing arrangement (a "treaty"), usually for
a year, between a cedent and a reinsurer for the cession and assumption of a
certain class of risk specified in such treaty. Under most treaties, the cedent
is obligated to offer, and the reinsurer is obligated to accept, a specified
portion of a class of risk underwritten by the cedent. Reinsurers assume classes
of risk under treaties without having reviewed each individual risk.
Alternatively, facultative reinsurance is the reinsurance of individual risks.
Unlike treaty reinsurance, in the case of facultative reinsurance contracts, a
reinsurer separately rates and underwrites each individual risk and is free to
accept or reject each risk offered by the cedent. Facultative reinsurance is
normally purchased by insurance companies for risks not otherwise covered or
covered only in part by their reinsurance treaties, and for unusual risks.
Underwriters writes treaty and facultative reinsurance on both a pro rata
and excess of loss basis. Under pro rata reinsurance contracts, the ceding
company and reinsurer share the premiums as well as the losses and expenses of
any single risk, or an entire group of risks, based upon an established
percentage. Under excess of
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loss reinsurance contracts, the reinsurer agrees to reimburse the ceding company
for all losses in excess of a predetermined amount (commonly referred to as the
cedent's "retention"), generally up to a predetermined limit. Excess of loss
reinsurance is often written in "layers" or levels, with one reinsurer assuming
the risk of loss on the primary insurance policy in excess of the cedent's
retention level up to a predetermined level, above which the risk of loss is
assumed by another reinsurer or reverts to the cedent. Excess of loss
reinsurance allows the reinsurer to better control the relationship of the
premium charged to the related exposure assumed by it. 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 a cedent's retention level would create a loss for such cedent's low
layer reinsurers but would not adversely effect the reinsurers on higher layers.
MARKETING
An important element of Underwriters' strategy is to respond quickly to
market opportunities (such as increased demand or more favorable pricing) by
adjusting the mix of property and casualty business it writes. In recent years,
Underwriters has taken advantage of such market opportunities by increasing its
writings of marine and aviation, property catastrophe, clash, homeowners and
workers' compensation coverages and certain excess and surplus lines.
Underwriters focuses on coverages which require a relatively high degree of
underwriting and actuarial expertise, including certain excess and surplus lines
programs, umbrella liability and directors and officers' liability. Such
expertise is also required for certain business that Underwriters has developed
in nontraditional areas, such as providing capital in combination with
reinsurance and providing reinsurance to alternative risk markets, including
risk retention groups, captives, underwriting syndicates and self-insured funds
and associations. Nontraditional reinsurance may also refer to reinsurance
contracts which limit exposure to loss through the use of aggregate loss limits,
loss ratio caps or other loss containment features. Underwriters believes that
coverages which require high levels of underwriting and actuarial expertise
offer greater potential for favorable results than more general coverages, based
on current market conditions.
In 1996, Underwriters wrote 90% of its treaty business and 92% of its
facultative business through reinsurance brokers. The remaining treaty business
was principally reinsurance of portions of the primary insurance underwritten by
subsidiaries of Underwriters. The remainder of Underwriters' facultative
business was written directly with ceding companies. By working primarily
through brokers, Underwriters does not need to maintain a large sales
organization which, during periods of reduced premium volume, could result in
significant non-productive overhead. In addition, management believes that
submissions from the broker market, including those for certain targeted
specialty coverages, are more numerous and diverse than would be available
through a salaried sales organization. Consequently, Underwriters is able to
exercise greater selectivity than would usually be possible in dealing directly
with ceding companies. As a result of certain of Underwriters' subsidiaries
placing reinsurance on its primary business through reinsurance brokers,
management believes that such brokers may also bring more reinsurance
opportunities to Underwriters.
Reinsurance brokers regularly approach Underwriters for quotations on
reinsurance being placed on behalf of ceding companies. In 1996, Underwriters
paid brokers $10.5 million in commissions, which represents approximately 2% of
its gross written premiums of $434.0 million. Underwriters' five leading
brokers, E.W. Blanch Company, Pegasus Advisors, Inc., Sedgwick Re, Inc., AM-RE
Brokers, Inc. and AON Reinsurance Agency, Inc., accounted for 34% of
Underwriters' gross written premiums in 1996. Over this period, none of the
brokers accounted for 10% or more of such premiums. The brokers that account for
relatively large percentages of gross written premiums tend to vary from year to
year. Management does not believe that the termination of its business with any
one broker would have a material effect on Underwriters Re Group's financial
condition or results of operations.
A significant percentage of Underwriters' gross written premiums are
generally obtained from a relatively small number of ceding companies. In 1996,
approximately 36% of gross written premiums were obtained from Underwriters' ten
largest ceding companies. None of the ceding companies accounted for 10% or more
of such premiums. The ceding companies that account for relatively large
percentages of gross written premiums
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tend to vary from year to year. Management does not believe that the loss of any
one ceding company account would have a material effect on Underwriters Re
Group's financial condition or results of operations.
UNDERWRITING OPERATIONS
Underwriters maintains a disciplined underwriting program with a focus on
generating profitable business rather than on increasing market share.
Underwriters has maintained a defensive underwriting posture by reducing
writings in lines of business that it considers offer inadequate contract terms.
Another factor supporting Underwriters' underwriting discipline is its focus on
low level attachment points (i.e., dollar-levels at which risk is assumed).
While such layers are generally characterized by greater loss frequency, they
are also characterized by lower loss severity and quicker loss settlement than
layers with higher attachment points. Management believes that these factors
result in greater predictability of losses, which improves Underwriters' ability
to analyze its exposure on each contract and to price such exposure
appropriately.
In addition, Underwriters seeks to serve as lead or co-lead underwriter on
its treaties. Management believes that, as lead or co-lead underwriter,
Underwriters, is able to influence more effectively the pricing and terms of the
treaties into which it enters and thereby achieve better underwriting results.
During 1996, Underwriters acted as lead or co-lead underwriter on a majority of
its treaty business.
Treaty reinsurance generated approximately $277.7 million, or 77%, of
Underwriters Re Group's net written premiums in 1996, facultative reinsurance
generated $21.2 million, or 6% of net written premiums, and primary insurance
generated $61.4 million, or 17%, of net written premiums. Casualty lines
represented approximately 72% of Underwriters Re Group's net written premiums,
with the remainder represented by property lines. Reinsurance written on an
excess of loss basis represented approximately 53% of Underwriters' net
reinsurance written premiums, with reinsurance written on a pro rata basis
representing the balance. In 1996, Underwriters Re Group's net written premiums
increased $68.3 million, or 23%, from 1995. A significant part of this growth
was in treaty business considered by Underwriters to be nontraditional.
Management believes that the increase in such premiums is attributable, in part,
to its increased statutory surplus level and upgraded Best's rating, which
enabled it to attract more desirable reinsurance opportunities, and also to
growth in its primary insurance operations.
Underwriters Re Group generally wrote up to $1.0 million per reinsurance
risk in 1996 on a net basis. In the case of reinsurance of certain clash
coverage, Underwriters Re Group has written up to $2.5 million on a net basis
and in limited circumstances has accepted more. With regard to primary
operations, Underwriters Re Group has written up to $1.5 million on a net basis.
The largest net risk assumed in 1996 was $14.0 million.
RETROCESSIONAL AND REINSURANCE 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 the retrocessional agreement,
Underwriters remains liable to its ceding companies for the portion reinsured.
Consequently, the most important factors in Underwriters' selection of
retrocessionaires are financial strength and stability.
Underwriters carefully evaluates potential retrocessionaires, which must
meet the approval of several members of senior management before being engaged.
Once engaged, Underwriters monitors the financial condition of its
retrocessionaires and takes appropriate actions to eliminate or minimize bad
debt exposure. Generally, 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 credit exposure when necessary. Although
there can be no assurance that such will be the case in future years,
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Underwriters' write-offs for unrecoverable reinsurance were negligible in 1996
and 1995. As of December 31, 1996, 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.
Underwriters cedes up to $1.5 million per casualty facultative risk and up to
$1.2 million per property facultative risk. Underwriters also has an aggregate
reinsurance contract to cover losses up to $75.0 million incurred during the
period July 1, 1996 through June 30, 1997 in excess of a 70% 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 $50.0 million. Upon its expiration, management expects to renew this
contract or to enter into a new contract providing similar coverage. In
addition, Underwriters from time to time purchases retrocessional reinsurance in
varying amounts for specific assumed treaties.
Underwriters has two reinsurance contracts with Continental Reinsurance
Corporation International Ltd. (the "Continental Re Reinsurance Contracts") that
provide coverage for pre-1987 business up to an aggregate limit of $200.0
million. Underwriters received quarterly payments under these contracts totaling
$39.1 million in 1995 and $37.6 million in 1996, reducing the reinsurance
receivable attributable to such contracts from $149.1 million at year-end 1995
to $111.5 million at year-end 1996. Such receivable is secured by a combination
of letters of credit and a trust fund dedicated solely to payments under the
Continental Re Reinsurance Contracts.
As of December 31, 1996, Underwriters had reported reinsurance receivables
of $392.2 million through retrocessional agreements, including $111.5 million of
reinsurance receivables under the Continental Re Reinsurance Contracts, which
was fully secured as described above, and $127.9 million due from another
reinsurer, which was 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 such loss to the insurer and the
reinsurer, the insurer's payment of such loss and the subsequent payment by the
reinsurer. To recognize liabilities for unpaid losses, insurers and reinsurers
establish "reserves." These reserves are balance sheet liabilities representing
estimates of future amounts needed to pay claims and related expenses with
respect to insured events which have occurred, including events which have not
been reported to the insurer.
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
often supplemented by additional amounts as deemed necessary by Underwriters
after Underwriters has evaluated such claim on the basis of numerous factors,
including coverage, liability, severity of injury or damage, jurisdiction and
ability of the ceding company to evaluate and handle the claim properly. In many
cases Underwriters establishes case reserves even if the ceding company believes
that Underwriters will have no ultimate liability. Underwriters always
establishes a case reserve in an amount at least equal to that recommended by
the ceding company. Case reserves are periodically adjusted by Underwriters
based on its evaluation of subsequent reports from and audits of the ceding
companies.
Additional reserves are established on an aggregate basis to provide for
losses incurred but not yet reported ("IBNR") to the reinsurer and to supplement
the overall adequacy of reported case reserves and estimated expenses of
settling such claims, including legal and other fees and general expenses of
administering the claims adjustment process. Underwriters establishes IBNR
reserves by using accepted loss reserving standards and principles to estimate
the ultimate liability for LAE. The process implicitly recognizes the impact of
inflation and other factors that affect claims reporting by taking into account
changes in historic loss reporting patterns and perceived probable trends.
Underwriters reviews its 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
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anticipated investment income. There are inherent uncertainties in estimating
reserves primarily due to the long-term nature of most reinsurance, 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 loss expenses may deviate, perhaps
substantially, from reserves in Underwriters' financial statements, which could
have a material adverse effect on Underwriters' financial condition and results
of operations. Based on current information, management believes reserves for
losses and loss expenses at December 31, 1996 are adequate.
Asbestos and Environmental Impairment Claims Reserves
Underwriters' reserve for losses and loss expenses includes amounts for
various liability coverages related to asbestos and environmental impairment
claims that arose from certain general liability and commercial multiple-peril
coverages. Restrictive asbestos and environmental impairment exclusions were
introduced in late 1986 on both primary and reinsurance contracts, significantly
reducing these exposures for accidents occurring after 1986. Reserves for
asbestos and environmental impairment claims cannot be estimated with
traditional loss reserving techniques because of uncertainties that are greater
than those associated with other types of claims. Factors contributing to those
uncertainties include a lack of historical data, the significant period of time
that has elapsed between the occurrence of the loss and the reporting of that
loss to the ceding company and the reinsurer, uncertainty as to the number and
identity of insureds with potential exposure to such risks, unresolved legal
issues regarding policy coverage, and the extent and timing of any such
contractual liability. Such uncertainties are not likely to be resolved in the
near future.
As with all reinsurance claims, Underwriters establishes case reserves for
both asbestos and environmental impairment excess of loss reinsurance claims by
applying reinsurance contract terms to losses reported by ceding companies, and
analyzing from the first dollar of loss incurred by the primary insurer.
Additionally, ceding companies often report potential losses on a precautionary
basis (a "precautionary notice") to protect their rights under reinsurance
contracts, which generally call for prompt notice to the reinsurer. Ceding
companies, at the time they report such potential losses, advise Underwriters of
the ceding companies' current estimate of the amount of such loss. Underwriters
reviews each of these precautionary notices and, based upon current information,
assesses the likelihood of loss to Underwriters. Such assessment is one of the
factors used in determining the adequacy of IBNR reserves.
For asbestos claims, Underwriters closely reviews precautionary notices
which concern any named insured previously linked to large asbestos exposure (a
"target defendant"). If the named insured is a "target defendant," Underwriters
assumes there is a probability of loss even if the named ceding company has not
itself reported reserves. IBNR reserves are recorded based on this review, as
well as an additional subjective evaluation of the aggregate reported losses
(approximately $3.6 million per year) and paid losses (approximately $1.1
million per year) for the last three years. The per year figures are net of
reinsurance, including the Continental Re Reinsurance Contracts.
For environmental impairment claims, Underwriters establishes case reserves
and reviews precautionary notices as described above. Ultimate environmental
impairment claims exposure is especially uncertain because of the problematic
apportionment of clean-up costs under federal and state laws, 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
$3.2 million per year) and paid losses (approximately $0.1 million per year) for
the last three years. The per year figures are net of reinsurance, including the
Continental Re Reinsurance Contracts.
During the three years ended December 31, 1996, the average net loss
payment per claim (open and settled) for asbestos and environmental impairment
exposures (excluding cessions to the Continental Re Reinsurance Contracts) was
$25,000 and $22,000, respectively, and the highest paid loss was $1.0 million
for an asbestos claim and $0.4 million for an environmental impairment claim, in
each case net of ceded reinsurance (excluding cessions to the Continental Re
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
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range of losses paid by Underwriters has been wide, most losses paid have
involved dollar amounts at the lower end of such range.
As of December 31, 1996, Underwriters' case and IBNR reserves (net of
reinsurance, including cessions to the Continental Re Reinsurance Contracts)
totalled approximately $17.5 million for asbestos liabilities, which includes
reserves for approximately 917 open claims where cedents have advised
Underwriters that they currently expect to recover from Underwriters. As of
December 31, 1996, Underwriters' case and IBNR reserves (net of reinsurance,
including cessions to the Continental Re Reinsurance Contracts) totalled about
$22.6 million for environmental impairment claims, which includes reserves for
approximately 628 open claims where cedents have advised Underwriters that they
currently expect to recover from Underwriters. Additionally, ceding companies
have submitted 1,261 precautionary notices for asbestos claims and 7,107
precautionary notices for environmental impairment claims to Underwriters;
however, based on information provided by the ceding companies and Underwriters'
assessment of such claims, Underwriters does not currently expect the losses
with respect to such claims to grow large enough to reach Underwriters' layer of
reinsurance coverage.
The reconciliation of the beginning and ending reserves for unpaid losses
and LAE related to asbestos and environmental impairment claims for the last
three years (net of cessions to the Continental Re Reinsurance Contracts, but
excluding an additional $27.4 million provision for such claims, discussed in
the text following the tables), is shown below (dollars in thousands):
RECONCILIATION OF ASBESTOS-RELATED CLAIMS RESERVE FOR LOSSES AND LAE
1996 1995 1994
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Reserve, net of reinsurance recoverables, as of January 1..... $14,494 $10,136 $10,000
Incurred loss, net of reinsurance............................. 3,000 4,358 3,505
Paid loss, net of reinsurance................................. 0 0 (3,369)
------- ------- -------
Reserve, net of reinsurance recoverables, as of December 31... 17,494 14,494 10,136
Reinsurance recoverables, as of December 31................... 15,176 17,506 32,487
------- ------- -------
Reserve, gross of reinsurance recoverables, as of December
31.......................................................... $32,670 $32,000 $42,623
======= ======= =======
Type of Reserve, net of reinsurance recoverables:
Case........................................................ $ 4,494 $ 4,494 $ 136
IBNR........................................................ 13,000 10,000 10,000
------- ------- -------
Total.................................................... $17,494 $14,494 $10,136
======= ======= =======
RECONCILIATION OF ENVIRONMENTAL IMPAIRMENT CLAIMS RESERVE FOR LOSSES AND LAE
1996 1995 1994
------- ------- -------
Reserve, net of reinsurance recoverables, as of January 1..... $19,600 $16,198 $12,879
Incurred loss, net of reinsurance............................. 3,000 3,402 3,074
Paid loss, net of reinsurance................................. 0 0 245
------- ------- -------
Reserve, net of reinsurance recoverables, as of December 31... 22,600 19,600 16,198
Reinsurance recoverables, as of December 31................... 4,939 12,896 17,994
------- ------- -------
Reserve, gross of reinsurance recoverables, as of December
31.......................................................... $27,539 $32,496 $34,192
======= ======= =======
Type of Reserve, net of reinsurance recoverables:
Case........................................................ $ 9,600 $ 9,600 $ 6,198
IBNR........................................................ 13,000 10,000 10,000
------- ------- -------
Total.................................................... $22,600 $19,600 $16,198
======= ======= =======
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Increases to asbestos and environmental impairment claims reserves, if any,
may be covered to varying degrees by Underwriters' existing reinsurance
contracts with its retrocessionaires.
In addition to the case and IBNR reserves for asbestos and environmental
impairment claims reported in the tables above, Underwriters carries an
additional reserve for such exposures in its financial statements prepared in
accordance with generally accepted accounting principles ("GAAP"). The amount of
such reserve was $27.4 million as of December 31, 1996, compared with $32.4
million as of December 31, 1995. While there can be no assurance that such total
reserves will be adequate, management believes that Underwriters' total asbestos
and environmental impairment reserves, taking into consideration the additional
GAAP reserves, are a reasonable provision for such claims.
Changes in Historical Net Loss and LAE Reserves
The following table shows changes in historical net loss and LAE reserves
for Underwriters Re Group for each year since 1986. Reported reserve development
is derived primarily from information included in statutory financial statements
of Underwriters, CUIC and UIC. The first line of the upper portion of the table
shows the net reserves at December 31 of each of the indicated years,
representing the estimated amounts of net outstanding losses and LAE for claims
arising during that year and in all prior years that are unpaid, including
losses that have been incurred but not yet reported to Underwriters Re Group.
The upper (paid) portion of the table shows the cumulative net amounts paid as
of December 31 of successive years with respect to the net reserve liability for
each year. The lower portion of the table shows the re-estimated amount of the
previously recorded net reserves for each year based on experience as of the end
of each succeeding year. The estimate changes as more information becomes known
about claims for individual years. In evaluating the information in the table,
it should be noted that a reserve amount reported in any period includes the
effect of any subsequent change in such reserve amount. For example, if a loss
was first reserved in 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-1980s, the reinsurance industry, including
Underwriters Re Group, experienced substantial underwriting losses. Such losses
are reflected in the table, beginning with the comparatively high cumulative
deficiencies in the year 1986. The cumulative reserve deficiencies in the years
1988 through 1992 primarily resulted from the $35.8 million reserve
strengthening in 1993, along with prior increases to asbestos and environmental
impairment claims reserves.
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CHANGES IN HISTORICAL NET RESERVES FOR LOSSES AND LAE
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
----- ----- ----- ---- ---- ---- ---- ---- ---- ------ ------
Net liability as of the end of
year*......................... $ 359 $ 470 $ 461 $453 $411 $411 $437 $509 $536 $ 628 $ 732
Cumulative amount of net
liability paid as of:
One year later................ $ 94 $ 116 $ 119 $137 $101 $ 84 $ 98 $112 $102 $ 117 --
Two years later............... 193 208 242 227 173 161 178 189 167 -- --
Three years later............. 277 330 306 285 239 214 236 236 -- -- --
Four years later.............. 375 380 348 342 274 254 266 -- -- -- --
Five years later.............. 407 416 394 370 294 276 -- -- -- -- --
Six years later............... 423 458 414 384 311 -- -- -- -- -- --
Seven years later............. 460 475 425 396 -- -- -- -- -- -- --
Eight years later............. 471 483 434 -- -- -- -- -- -- -- --
Nine years later.............. 475 489 -- -- -- -- -- -- -- -- --
Ten years later............... 478 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated as
of:
One year later................ 439 481 454 457 414 412 483 516 539 629 --
Two years later............... 449 473 457 460 421 455 487 518 538 -- --
Three years later............. 441 476 462 474 465 460 491 523 -- -- --
Four years later.............. 444 478 492 520 472 469 496 -- -- -- --
Five years later.............. 445 516 538 528 485 469 -- -- -- -- --
Six years later............... 484 562 548 545 483 -- -- -- -- -- --
Seven years later............. 531 572 568 544 -- -- -- -- -- -- --
Eight years later............. 539 591 567 -- -- -- -- -- -- -- --
Nine years later.............. 554 591 -- -- -- -- -- -- -- -- --
Ten years later............... 554 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy
(Deficiency)................ $(195) $(121) $(106) $(91) $(72) $(58) $(59) $(14) $ (2) $ (1) --
Gross Liability -- End of
Year.......................... $861 $940 $1,014 $1,110
Reinsurance Recoverable......... 352 404 386 378
---- ---- ------ ------
Net Liability -- End of Year.... 509 536 $ 628 $ 732
==== ==== ====== ======
Gross Re-estimated Liability --
Latest........................ 931 968 1,086
Re-estimated
Recoverable -- Latest......... 408 430 457
---- ---- ------
Net Re-estimated
Liability -- Latest........... $523 $538 $ 629
==== ==== ======
- - ---------------
* Amounts for 1986 were determined in accordance with statutory accounting
principles.
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The reconciliation between the reserves reported in the annual statements
filed with state insurance departments in accordance with statutory accounting
practices ("SAP") and those reported in Underwriters Re Group's consolidated
financial statements prepared in accordance with GAAP for the last three years
is shown below (in thousands):
RECONCILIATION OF RESERVES FOR LOSSES AND LAE FROM SAP BASIS TO GAAP BASIS
DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- --------
Statutory Reserves........................................ $ 705,105 $ 596,070 $500,567
Additional Mass Action Reserves(1)........................ 27,350 32,350 35,750
Reinsurance Recoverables.................................. 377,565 385,580 404,210
---------- ---------- --------
GAAP Reserves............................................. $1,110,020 $1,014,000 $940,527
========== ========== ========
- - ---------------
(1) Amount represents additional reserves recorded by Underwriters in 1993 for
probable asbestos-related and environmental impairment claims exposure.
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
1996 1995 1994
---------- ---------- ---------
Reserve, net of reinsurance recoverables, as of January
1.................................................... $ 628,420 $ 536,317 $ 509,375
Incurred Loss, net of reinsurance, related to:
Current year......................................... 242,332 200,543 146,426
Prior years.......................................... 1,393 2,565 6,630
---------- ---------- --------
Total Incurred Loss, net of reinsurance................ 243,725 203,108 153,056
---------- ---------- --------
Paid Loss, net of reinsurance, related to:
Current year......................................... (23,342) (9,239) (13,826)
Prior years.......................................... (116,348) (101,766) (112,288)
---------- ---------- --------
Total Paid Loss, net of reinsurance.................... (139,690) (111,005) (126,114)
---------- ---------- --------
Reserve, net of reinsurance recoverables, as of
December 31.......................................... 732,455 628,420 536,317
Reinsurance recoverables, as of December 31............ 377,565 385,580 404,210
---------- ---------- --------
Reserve, gross of reinsurance recoverables, as of
December 31.......................................... $1,110,020 $1,014,000 $ 940,527
========== ========== ========
INVESTMENT OPERATIONS
Investments of Underwriters Re Group must comply with the insurance laws of
New Hampshire, California and Nebraska, the domiciliary states of Underwriters
and NUIC, CUIC, and UIC, respectively, and the other states in which they are
licensed. These laws prescribe the kind, quality and concentration of
investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks and real estate mortgages.
Underwriters Re Group's investment strategy is to match the average
duration of its high-quality diversified fixed maturity portfolio to the average
adjusted duration of its liabilities 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. Underwriters Re Group's average adjusted duration of liabilities is
currently estimated to be four years and is re-estimated from time to time.
Securities may be sold from time to time to take advantage of investment
opportunities created by changing interest rates, prepayments, tax and credit
considerations or other factors. Underwriters Re Group's entire fixed maturity
portfolio has been designed to
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enable management to react to such opportunities or to circumstances that could
result in a mismatch between the duration of such portfolio assets and the
duration of liabilities and, as such, is classified as available for sale.
The following table reflects investment results for the fixed maturity
portfolio of Underwriters Re Group for the years ended December 31, 1994, 1995
and 1996 (dollars in thousands):
INVESTMENT RESULTS
NET NET
PRE-TAX AFTER-TAX PRE-TAX
AVERAGE INVESTMENT INVESTMENT REALIZED EFFECTIVE AFTER-TAX
PERIOD INVESTMENTS(1) INCOME(2) INCOME(3) LOSSES YIELD(4) YIELD(5)
- - -------------------------- -------------- ---------- ---------- ------- --------- ---------
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%
Year Ended
December 31, 1996....... $984,345 $ 59,542 $ 42,971 $ (94) 6.0% 4.4%
- - ---------------
(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 divided by average investments
for the same period.
(5) Net after-tax investment income for the period divided by average
investments for the same period.
As of December 31, 1996, the equity portfolio of Underwriters Re Group was
carried at a market value of approximately $252.2 million with an original cost
of approximately $137.5 million, and consisted primarily of approximately 2.5
million shares of BNSF common stock. The cost of equities listed in the table
below, $111.7 million, includes the cost paid by Alleghany for the BNSF common
stock prior to being contributed to Underwriters Re Group. In 1996, Underwriters
Re Group realized a gain of $1.0 million related to the sale of equity
securities and had dividend income of $3.6 million therefrom.
The following table summarizes the investments of Underwriters Re Group,
excluding cash, as of December 31, 1996, with all investments carried at fair
value (dollars in thousands):
INVESTMENTS
AMORTIZED COST
OR COST FAIR VALUE
------------------------- -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ---------- ----------
Short-term investments....................... $ 132,136 11% $ 132,136 10%
Corporate bonds.............................. 237,837 19 235,953 17
United States government and government
agency bonds............................... 95,436 8 95,016 7
Mortgage- and asset-backed securities........ 320,620 26 322,861 24
Foreign bonds................................ 18,342 1 17,783 1
Redeemable preferred stocks.................. 21,058 2 21,600 2
Municipal bonds.............................. 294,696 24 295,219 21
Equity securities (1)........................ 111,676 9 252,207 18
---------- --- ---------- ---
Total.............................. $1,231,801 100% $1,372,775 100%
========= ======== ========= ========
- - ---------------
(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, 1996 (dollars in
thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY MOODY'S RATING
FAIR VALUE PERCENTAGE
---------- ----------
Aaa.................................................................... $ 529,934 53%
Aa..................................................................... 174,507 18
A...................................................................... 205,983 21
Baa.................................................................... 57,082 6
Ba..................................................................... 20,926 2
---------- ---
Total........................................................ $ 988,432 100%
======== ========
The following table indicates the composition of the long-term fixed
maturity portfolio by years until contractual maturity as of December 31, 1996
(dollars in thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY YEARS UNTIL MATURITY
FAIR VALUE PERCENTAGE
---------- ----------
One year or less....................................................... $ 47,902 5%
Over one through five years............................................ 215,320 22
Over five through ten years............................................ 237,993 24
Over ten years......................................................... 164,356 17
Mortgage- and asset-backed securities.................................. 322,861 32
---------- ---
Total............................................................. $ 988,432 100%
======== ========
COMPETITION
Underwriters competes primarily in the United States reinsurance market
with numerous foreign and domestic reinsurers, many of which have greater
financial resources than Underwriters. Underwriters' competitors include
independent reinsurance companies, subsidiaries or affiliates of worldwide
insurance companies, reinsurance departments of certain primary insurance
companies and domestic, European and Asian underwriting syndicates. Competition
in the types of reinsurance in which Underwriters is engaged is based on many
factors, including the perceived overall financial strength of the reinsurer,
premiums charged, contract terms and conditions, services offered, speed of
claims payment, reputation and experience.
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. Management believes this competitive cycle, which may
affect particular market segments at different times, is a critical factor
affecting reinsurance profitability over time. There can be 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.
To enhance Underwriters' financial strength, Alleghany, through URG,
contributed approximately $51 million in cash and equity securities in 1993 and
$100 million in equity securities in 1994 to the capital of Underwriters.
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 reinsurance buyers to
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purchase coverage from larger and more financially secure reinsurers. In 1996,
URG issued $200 million principal amount of 7 7/8% Senior Notes due 2006. Of the
net proceeds of the offering, $120 million was contributed to the capital of
Underwriters, $50 million was used to repay indebtedness under URG's credit
agreement and the remainder is being used for general corporate purposes.
According to the Reinsurance Association of America, at December 31, 1996 there
were 41 domestic professional reinsurers, and Underwriters was the nation's
tenth-largest in terms of statutory surplus and seventeenth-largest in terms of
net written premiums.
The commercial property and casualty insurance industry is highly
competitive on the basis of price and service. CUIC's, UIC's and NUIC's
competitors include other primary insurers and new forms of insurance
organizations such as alternative self-insurance mechanisms. Many such
competitors have considerably greater financial resources, greater experience in
the insurance industry and offer a broader line of insurance products than CUIC,
UIC and NUIC.
REGULATION
Underwriters, CUIC, UIC and NUIC are subject to regulation and supervision
by state insurance regulatory authorities under the insurance statutes and
regulations of states in which they are incorporated (New Hampshire for
Underwriters and NUIC, California for CUIC, and Nebraska for UIC). In addition,
each of these companies is regulated in each jurisdiction in which it conducts
business. Among other things, insurance statutes and regulations typically limit
the amount of dividends that can be paid without prior regulatory notification
and approval, impose restrictions on the amounts and types of investments that
may be held, prescribe solvency standards that must be met and maintained,
require filing of annual or other reports with respect to financial condition
and other matters and provide for periodic company examinations.
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 Center is subject to regulation and supervision by state insurance
regulators in the states in which its subsidiary is licensed as an insurance
agency (Georgia and New York). Such regulations address the solicitation and
effectuation of insurance in such states and impose certain requirements
relating to, among other things, countersignatures, continuing education and
maintenance of trust accounts.
State insurance holding company statutes provide a regulatory mechanism
designed to protect the financial condition of domestic insurance companies
operating as subsidiaries of holding companies. All holding company statutes
require disclosure and, in some instances, prior approval of significant
transactions between a domestic insurance company and its affiliates. Holding
company statutes also may require, among other things, prior approval of any
acquisition of control of a domestic insurance company. As an insurance holding
company, Alleghany is subject to such regulations in New Hampshire, California
and Nebraska. The acquisition of Underwriters, CUIC and UIC by Alleghany was
subject to prior approval from the insurance regulatory authorities in the
states in which such companies are incorporated. Alleghany and its other
subsidiaries, however, are generally not otherwise subject to restrictions on
their business activities due to their affiliation with Underwriters, CUIC, UIC
and NUIC.
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 Insurance Commissioners.
The RBC requirements attempt to assess a property and casualty company's
statutory capital and surplus needs, taking into account the risk
characteristics of the companies' investments and products, by measuring the
following risks: (i) underwriting, which encompasses the risk of adverse loss
developments and inadequate pricing, (ii) declines in asset values arising from
credit risks and (iii) declines in asset values arising from investment risks.
The ratio of a company's total adjusted capital to its risk based capital
provides regulators with an early warning tool to identify weakly capitalized
companies for purposes of initiating corrective action. At
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December 31, 1996, each of Underwriters, CUIC, UIC and NUIC had surplus well in
excess of the risk based capital thresholds that would require any corrective
action.
EMPLOYEES
Underwriters Re Group employed 218 persons as of December 31, 1996.
INDUSTRIAL MINERALS BUSINESS
On July 31, 1991, a holding company subsidiary of Alleghany acquired all of
Manville Corporation's worldwide industrial minerals business, now conducted
principally through World Minerals. The present chief executive officer of World
Minerals currently owns an equity interest, including outstanding options, of
about 6.6 percent of World Minerals' immediate parent company.
World Minerals, headquartered in Santa Barbara, California, is principally
engaged in the mining, production and sale of two industrial minerals, diatomite
and perlite:
Diatomite
World Minerals conducts its diatomite business through Celite.
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"). The three joint ventures are in the start-up phase of production.
Celite is believed to be the world's largest producer of filter-aid grade
diatomite, which it markets worldwide under the Celite(R) and Kenite(R) brand
names; Celite also markets filter-aid grade diatomite in Europe under the
Primisil(R) brand name and in Latin America and other areas under the Diactiv(R)
brand name.
Diatomite is a silica-based mineral consisting of the fossilized remains of
microscopic freshwater or marine plants. Diatomite's primary applications are in
filtration and as a functional filler. Filtration accounts for the majority of
the worldwide diatomite market and for over 50 percent of Celite's diatomite
sales. Diatomite is used as a filter aid in the production of beer, food, juice,
wine, water, sweeteners, fats and oils, pharmaceuticals, chemicals, lubricants
and petroleum. Diatomite is used as a filler, mainly in paints, and as an
anti-block agent in plastic film.
In addition to diatomite, Celite also produces calcium silicate products
and magnesium silicate products, which are sold worldwide under the MicroCel(R)
and Celkate(R) brand names (except in portions of Europe where calcium silicate
products are sold under the Calflo(R) brand name). These products, which have
high surface area and adsorption and absorption capabilities, are used to
convert liquid, semi-solid and sticky ingredients into dry, free-flowing powders
in the production of rubber, sweeteners, flavorings and pesticides.
Celite has its world headquarters in Lompoc, California and owns, directly
or through wholly owned subsidiaries, diatomite mines and/or processing plants
in Lompoc, California; Quincy, Washington; Murat, France; Alicante, Spain;
Arica, Chile; Arequipa, Peru; 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 owns
controlling interests in three joint ventures which mine and process diatomite
in Jilin Province, PRC.
Perlite
World Minerals conducts its perlite business through Harborlite and
Europerlite.
World Minerals believes that its Harborlite and Europerlite subsidiaries
are, in the aggregate, the world's largest producers 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.
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Perlite is a volcanic rock which contains between 2 percent and 5 percent
natural combined water. When heated rapidly, the natural combined water turns
explosively to steam and the perlite ore "pops" in a manner similar to popcorn,
expanding up to twenty times its original volume and creating a soft material
with large surface area and correspondingly low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine and is sold
primarily to companies that expand it in their own expansion plants and use it
in the manufacture of roofing board, formed pipe insulation and acoustical
ceiling tile. Perlite ore for filter aid and certain filler applications is
mined at Harborlite's Superior, Arizona mine and is expanded at Harborlite's six
expansion plants located within the United States. Expanded perlite is also
produced at Harborlite's European expansion plants at Hessle, United Kingdom and
Wissembourg, France and Europerlite's expansion plants at Barcelona, Spain and
Milan, Italy, from perlite ore obtained from Harborlite's Turkish perlite mine
at Dikili, Turkey and from merchant ore producers in Europe. Most of the
expanded perlite is used as a filter aid in the brewing, food, wine, sweetener,
pharmaceutical, chemical and lubricant industries, or as a filler and insulating
medium in various construction applications.
On October 31, 1995, World Minerals, through Europerlite, acquired control
of all of the outstanding capital stock of two privately owned perlite filter
aid companies with operations in Italy and Spain, respectively, and a privately
owned perlite sales company in Spain.
Harborlite has its world headquarters in Lompoc, California and owns a
perlite mine and mill in No Agua, New Mexico, a perlite loading facility in
Antonito, Colorado, a perlite mine and a mill in Superior, Arizona, a perlite
mine and mill in Dikili, Turkey, 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 also 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 1996, approximately 44 percent of
World Minerals' revenues (equal to 4.2 percent of Alleghany's consolidated
revenues) were generated by foreign operations, and an additional 11.5 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, causing its subsidiaries to declare and pay
dividends whenever feasible, and having its foreign subsidiaries invoice their
export customers in United States dollars or other "hard currencies." World
Minerals' foreign operations do not subject Alleghany to a material risk from
foreign currency fluctuation.
Celite's largest diatomite mine and plant is located near Lompoc,
California. All additional diatomite supplies are currently obtained by Celite
from its mines in the state of Washington, in France, Spain, Mexico, Chile,
Peru, and PRC, and from the Lake Myvatn mine in Iceland (although environmental
regulations and 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, except at its Quincy, Washington mine where reserves are estimated
to last for another 15 years at current utilization rates. Celite is conducting
active drilling activities to identify additional quality reserves in the area
and expects to be able to increase reserve estimates for Quincy by the end of
1997.
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. Ore
reserves at Harborlite's Dikili mine are believed to be sufficient to last at
least 20 more years at the current rate of utilization.
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Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally produced diatomite.
World Minerals' operating subsidiaries experienced no interruption in raw
material availability in 1996, and barring unforeseen circumstances anticipate
no such interruption in 1997. While there can be no assurance that adequate
supplies of all raw materials will be available in the future, Celite,
Harborlite and Europerlite 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 to be valuable, World Minerals believes that none of its patents is by
itself material to its business.
World Minerals normally maintains approximately a one- to four-week supply
of inventory on certain products due to production lead times. Although
diatomite mining activities at Celite's principal mine in Lompoc, California may
be suspended during periods of heavy rainfall, World Minerals believes that,
because of the stockpiling of ore during dry periods, such suspensions do not
materially affect the supply of inventory. Barring unusual circumstances, World
Minerals does not experience backlogs of orders. World Minerals' business is not
seasonal to any material degree.
Programs instituted by management from 1991 through 1993 have strengthened
World Minerals. Domestic and international operations are now consolidated into
a single, centrally managed worldwide business under the direction of a highly
capable management team. Since 1993, financial systems and controls have been
upgraded, and the Celite, Europerlite and Harborlite sales, operations and
financial groups have been consolidated to improve efficiency and take advantage
of synergies. World Minerals acts as the sales agent for both Celite and
Harborlite in the United States and procures orders from customers and
distributors on their behalf. Beginning in 1997, World Minerals will also
distribute Harborlite's and Europerlite's products in Europe to dealers,
distributors and end users on Harborlite's and Europerlite's behalf.
World Minerals has research and development, environmental control and
quality control laboratories at its Lompoc production facilities and quality
control laboratories at each of its other production facilities. In 1996, World
Minerals spent approximately $2.9 million on company-sponsored research and
technical services (in addition to amounts spent on engineering and exploration)
related to the development and improvement of its products and services.
COMPETITION
World Minerals believes that Celite is the world's largest producer of
filter-aid grade diatomite. The remainder of the market is shared by Celite's
four major competitors: Eagle-Picher Minerals (United States), Grefco (United
States), CECA (France) and Showa (Japan), and a number of smaller competitors.
World Minerals believes that Harborlite 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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The filter aid products of Celite, Europerlite and Harborlite compete with
other filter aids, such as cellulose, and other filtration technologies, such as
crossflow and centrifugal separation. Celite's silicates compete with a wide
variety of other synthetic mineral products.
In all of World Minerals' businesses, competition is principally on the
basis of service, product quality and performance, warranty terms, speed and
reliability of delivery, availability of the product and price.
REGULATION
All of Celite's and Harborlite's domestic operations are subject to a
variety of federal, state and local environmental laws and regulations. These
laws and regulations establish potential liability for costs incurred in
cleaning up waste sites and impose limitations on atmospheric emissions,
discharges to domestic waters, and disposal of hazardous materials. Certain
state and local jurisdictions have adopted regulations that may be more
stringent than corresponding federal regulations. Celite and Harborlite believe
that the impact of environmental regulation on their respective operating
results has been minimal due to their environmental compliance programs;
however, Celite and Harborlite cannot predict the potential future impact of
such regulations, given the increasing number and complexity, and changing
character, of such regulations.
Moreover, federal and state laws governing disposal of wastes impact
customers who must dispose of used filter-aid materials. World Minerals works
with its customers to implement disposal strategies to minimize the impact of
these disposal regulations.
The domestic mining operations of Celite and Harborlite are subject to
regulation by the Mine Safety and Health Administration ("MSHA"). This agency
establishes health and safety standards relating to noise, respiratory
protection and dust for employee work environments in the mining industry.
Celite's and Harborlite's domestic production facilities which are not under the
jurisdiction of MSHA are subject to regulation by the Occupational Safety and
Health Administration ("OSHA"), which establishes regulations regarding, among
other things, workplace conditions, and exposure to dust and noise. In addition,
certain state agencies exercise concurrent jurisdiction in these areas. During
1996, both MSHA and OSHA announced special emphasis programs to reduce the
incidence of silicosis in the workplace. Due to Celite's industrial hygiene and
monitoring programs, Celite does not expect these special emphasis programs to
impact its business in any material way.
World Minerals maintains a staff of experienced environmental and
industrial hygiene professionals who assist plant personnel in complying with
environmental, health and safety regulations. This group also performs routine
internal audits and reviews of World Minerals' plant facilities worldwide. Due
to these programs and responsible management at the local plant level,
compliance with such regulations has been facilitated and the financial impact
of such regulations on operating results has been minimal.
Certain products of Celite and Harborlite are subject to the Hazard
Communication Standard promulgated by OSHA, which requires Celite and Harborlite
to disclose the hazards of those products to employees and customers. Celite's
diatomite products and certain of Harborlite's products contain varying amounts
of crystalline silica, a mineral which is among the most common found on earth.
In 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." In late 1996, a working group of IARC reconsidered the issue
of crystalline silica and recommended reclassifying the inhalation of
crystalline silica from occupational sources from Group 2A, "probably
carcinogenic to humans" to Group 1, "carcinogenic to humans." The new
classification will be published in mid-1997 in a new IARC monograph. Since
1987, Celite and Harborlite have provided required warning labels on their
products containing in excess of 0.1 percent respirable crystalline silica,
advising customers of the IARC designation and providing recommended safety
precautions. Such requirements also mandate that industrial customers who
purchase diatomite or perlite for use as a filler in their products label such
products to disclose hazards which may result from the inclusion of crystalline
silica-based fillers, if such products contain in excess of 0.1 percent of
crystalline silica by volume. Due to labelling concerns, some manufacturers of
paint may be considering the use of other fillers in place of Celite's products.
However, Celite believes that the loss of these
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customers would not have a material adverse effect on its operating results.
Several states have also enacted or adopted "right to know" laws or regulations,
which seek to expand the federal Hazard Communication Standard to include
providing notice of hazards to the general public, as well as to employees and
customers.
Celite, through the industry-sponsored International Diatomite Producers
Association ("IDPA"), has participated in funding several studies to examine in
more detail the cancer risk to humans from occupational exposure to crystalline
silica. One such study, conducted by the University of Washington on diatomite
workers in Lompoc, California (the "Washington Study") found a modest increase
in lung cancer deaths in the cohort compared with national rates (indicated by a
standardized mortality ratio ("SMR") equal to 1.43). The standardized mortality
ratio compares the number of expected cancer deaths in the cohort with 1,
representing the number of cancer deaths in the population at large. The study
also found an increase in non-malignant respiratory disease ("NMRD") (SMR equal
to 2.59); this finding was expected because the NMRD category included silicosis
resulting from exposures in past decades.
After the publication of the Washington Study, Celite conducted its own
review of the portion of the cohort representing the Lompoc plant and found that
more workers in this portion of the cohort may have been exposed to asbestos,
prior to World Minerals' purchase of the Lompoc plant, than originally thought.
Since exposure to asbestos has been found to cause lung cancer and respiratory
disease, this finding has raised concern that the Washington Study may have
overstated the adverse health effects of exposure to crystalline silica. IDPA
engaged an epidemiologist and an industrial hygienist to examine the cohort to
determine whether asbestos exposure was properly accounted for in the Washington
Study's results. The final IDPA report (the "Asbestos Study") was issued in
December 1994 and found:
"Although asbestos operations were small relative to the diatomaceous
earth operations, analyses in this report showed that exposure to asbestos
by workers was relatively common. For example, the number of cohort members
who were ever definitely, probably or possibly exposed to asbestos was
shown to involve approximately 60 percent of the cohort. Even when only men
employed in jobs definitely exposed to asbestos for more than [one] year in
the period 1950-1977 were considered, more than 8 percent of the cohort had
held such jobs."
The Asbestos Study's authors called for further analyses which fully take into
account the results of their study stating "[t]he interpretation of the
silica-lung cancer risk relationships based on the [Lompoc] cohort should await
the outcome of such analyses."
The results of the Asbestos Study were analyzed by the authors of the
Washington Study. They did not agree that asbestos was a likely confounder of
the results of the initial study.
In 1996, the Washington Study's authors, in association with researchers
from Tulane University, conducted a seven year follow-up study of the Lompoc
cohort. The follow-up study, funded by a grant from the National Institute for
Occupational Safety and Health, reported a lower SMR for the cohort (1.29 vs.
1.43), a weakened dose response relationship, which may suggest a less
conclusive indication of a causative relationship between occupational exposure
and cancer deaths, and a continued absence of excess lung cancers in workers
hired after 1960. An additional aspect of the study, which seeks to compare
results of the cohort study to radiographic readings of the workers, is ongoing.
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, 1996, World Minerals had 117 employees, all located in
the United States, Celite had about 1,383 employees worldwide, and Harborlite
had about 191 employees worldwide. Europerlite had about 71 employees, all
located in Europe. Approximately 346 of Celite's employees and 41 of
Harborlite's employees in the United States are covered by collective bargaining
agreements. During 1996, Celite agreed to a new six-year collective bargaining
agreement with its largest union, representing production workers at its
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Lompoc, California mine and plant. Also in 1996, Harborlite agreed to a new
four-year agreement with the union representing its No Agua/Antonito mine and
mill workers. 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 one of the nation's leading importers and
distributors of 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' 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, the effective date of
which has been postponed to 1997, will increase costs.
At December 31, 1996, Heads and Threads had about 165 employees.
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 leased premises of
about 45,000 square feet in Pasadena, California. CT&T and its subsidiaries own
or lease buildings or office space in approximately 522 locations throughout the
United States, primarily for CTI, Security Union and Ticor Title full-service
and satellite branch office operations.
In 1996, URG agreed to lease approximately 45,000 square feet of office
space for its headquarters in Calabasas, California. The lease term is expected
to begin in late 1997 upon completion of construction and relocation. Currently,
URG 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 space, 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
three branch offices of The 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
13,000 square feet in Santa Barbara, California. Celite, Harborlite, Europerlite
and certain departments of World Minerals share 16,800 square feet of leased
premises in Lompoc, California.
A description of the major plants and properties owned and operated by
Celite, 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 Santa Barbara and Lompoc, California, the Nanterre,
France, and Izmir, Turkey, 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 aids,
Production facility; 17 multi-story production fillers, silicates and
buildings; 5 one-story warehouse buildings; 6 one-story specialty products
laboratory buildings; 4 multi-story bulk handling
buildings; 6 one-story office buildings; 2 one-story
lunch and locker-room buildings; and 10 one-story
shops.
Lompoc, CA............................................. 16,800 Headquarters offices
1 one story building; 3 units within 1 one-story
building.
Quincy, WA............................................. 60,941 Diatomite filter aids
Production facility; Plant #1-1 multi-story production and fillers
building and 7 one-story buildings. Plant #2-1
multi-story production building and 6 one-story
buildings.
Murat, Department of Cantal, France.................... 77,000 Diatomite filter aids
Production facility; 1 one-story manufacturing
building; 2 one-story warehouses; and 1 one-story
office building.
Nanterre, France....................................... 6,000 Sales and
1 single floor. administrative offices
Guadalajara, Mexico.................................... 116,610 Diatomite filter aids
Production facility; 2 multi-story production and fillers
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 filter aids
Production facility; 1 calcined line; 1 natural line; 1
administration building; 1 laboratory; 1 warehouse
building; 1 changing room building; 1 maintenance
workshop; and 1 product warehouse.
Santiago, Chile........................................ 1,682 Offices
1 single floor in a multi-story, rented office building
Alicante, Spain........................................ 70,777 Diatomite filter aids
Production facility; 2 multi-story manufacturing and fillers
buildings; 3 one-story warehouses; 2 one-story office
buildings; 1 two-story laboratory; and 3 miscellaneous
buildings.
Changbai County, Jilin Province, PRC................... 95,000 Diatomite filter 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, Jilin Province, PRC................... 74,665 Diatomite filter aids
Production facility; 1 multi-story production facility;
1 two-story office building; 3 one-story warehouse
buildings; and 3 one-story miscellaneous buildings.
Linjiang County, Jilin Province, PRC................... 142,000 Diatomite filter aids
Production facility; 3 multi-story production
facilities; 1 one-story office building; 2 one-story
warehouse buildings; and 5 one-story miscellaneous
buildings.
HARBORLITE:
Antonito, CO........................................... 9,780 Warehouse facilities
1 one-story manufacturing building and warehouse; 1 for perlite ore
one-story office building; and 1 one-story warehouse.
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.
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LOCATION AND APPROXIMATE PRODUCT
NATURE OF PROPERTY SQUARE FOOTAGE OR USE
- - ------------------------------------------------------- -------------- -----------------------
Superior, AZ........................................... 6,900 Perlite ore
Production facility; 1 one-story warehouse building;
and 1 one-story office building.
Escondido, CA.......................................... 8,450 Perlite filter aids
1 one-story warehouse building; and 1 one-story office
building.
Green River, WY........................................ 17,300 Perlite filter aids
1 one-story warehouse building; and 1 one-story office
building.
Vicksburg, MI.......................................... 25,050 Perlite filter aids
2 one-story warehouse buildings; and 1 one-story office
building.
Youngsville, NC........................................ 22,500 Perlite filter aids
1 one-story warehouse building; 1 one-story
manufacturing building; and 1 one-story office
building.
Quincy, FL............................................. 18,450 Perlite filter aids
1 one-story warehouse building; 1 one-story
manufacturing building; and 1 one-story office
building.
LaPorte, TX............................................ 23,000 Perlite filter aids and
1 one-story expansion warehouse and office building. fillers
Wissembourg, France.................................... 5,000 Perlite filter aids and
a portion of 1 multi-story production and warehouse fillers
building.
Hessle, Humberside,.................................... 36,700 Perlite filter aids and
United Kingdom 1 one-story manufacturing building; and fillers
1 two-story office building.
Dikili, Turkey......................................... 63,200 Perlite crushing mill
Production facility; 1 four-story manufacturing
building; 1 one-story warehouse building; 1 one-story
raw material warehouse; 1 one-story office building;
and 1 one-story maintenance shop.
Izmir, Turkey.......................................... 1,000 Sales and
1 single-floor administrative office
EUROPERLITE:
Barcelona, Spain....................................... 70,300 Perlite filter aids and
Production facility; 1 one-story manufacturing and fillers
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
Celite's largest mine is located on owned property immediately adjacent to
the City of Lompoc, California, and is the site of one of the most unusual
marine diatomite deposits in the world. The mine celebrated its 100th
anniversary of production in 1993 and has been in continuous operation for more
than 60 years. Reserves are believed to be sufficient for the operation of the
plant for at least 20 more years at the current rate of utilization. The Lompoc
production facility has a rated capacity in excess of 200,000 tons annually and
currently supplies more than 25 different grades of products to the filtration
and filler markets. The facility also houses World Minerals' research and
development, and health, safety and environmental departments and Celite's
quality control laboratories.
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
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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 2,500
square feet in Sacramento, California. API or its subsidiary owns 30 properties
in fee in California. Such properties are comprised of improved and unimproved
commercial land (office, retail and industrial), improved and unimproved
commercial and residential lots, and office, retail, commercial and residential
buildings. In addition, the following properties are held by joint ventures in
dissolution in which API has an interest, but the liquidation of such joint
ventures has not yet been completed. API intends to dispose of all of these
properties in an orderly fashion, which may take several years.
LOCATION APPROXIMATE ACREAGE PROPERTY TYPE
- - ------------------------------------------ ------------------- ---------------------------
Roseville, California..................... 15.7 acres Unimproved land
(commercial/residential)
Roseville, California (subject to a first Unimproved land
deed of trust).......................... 112.3 acres (commercial/residential)
Folsom, California........................ 7.4 acres Unimproved land
(commercial/office/retail)
Sacramento, California.................... 215.8 acres Unimproved land
(commercial/residential)
Sacramento, California.................... 136.0 acres Unimproved land
(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.
ITEM 3. LEGAL PROCEEDINGS.
A. The federal tax returns of the Alleghany group for the tax years 1991
and 1992 were audited by the Internal Revenue Service ("IRS"), and 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. Based upon discussions with the IRS Appeals Office,
Alleghany believes it has preliminarily settled the proposed adjustments for an
aggregate additional tax liability of about $0.4 million for such years.
B. 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, 1996.
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 1996.
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:
NAME AGE CURRENT POSITION BUSINESS EXPERIENCE DURING LAST 5 YEARS
- - --------------------- --- --------------------------- ---------------------------------------
F.M. Kirby........... 77 Chairman of the Board Chairman of the Board, Alleghany;
Chairman of the Board and chief
executive officer, Alleghany, prior to
July 1992.
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NAME AGE CURRENT POSITION BUSINESS EXPERIENCE DURING LAST 5 YEARS
- - --------------------- --- --------------------------- ---------------------------------------
John J. Burns, Jr.... 65 President, chief executive President, chief executive officer and
officer and chief operating chief operating officer, Alleghany
officer since July 1992; President and chief
operating officer, Alleghany, prior
thereto.
David B. Cuming...... 64 Senior Vice President and Senior Vice President and chief
chief financial officer financial officer, Alleghany.
Robert M. Hart....... 52 Senior Vice President, Senior Vice President and General
General Counsel and Counsel since September 1994 and
Secretary Secretary since January 1995; Partner,
Donovan Leisure Newton & Irvine, prior
thereto.
Peter R. Sismondo.... 41 Vice President, Controller, Vice President, Controller, Treasurer,
Treasurer, Assistant Assistant Secretary and principal
Secretary and principal accounting officer, Alleghany, since
accounting officer January 1995; Vice President,
Controller, Assistant Secretary and
principal accounting officer,
Alleghany, prior thereto.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item with respect to the market price of
and dividends on Alleghany's common stock and related stockholder matters is
incorporated by reference from page 5 of Alleghany's Annual Report to
Stockholders for the year 1996, filed as Exhibit 13 hereto.
RECENT SALES OF UNREGISTERED SECURITIES
On January 10, 1996, Alleghany issued 1,126 shares of common stock to S.
Arnold Zimmerman, a former director of Alleghany, upon the exercise of an option
to purchase 1,000 shares of Alleghany common stock, subject to adjustment for
stock dividends, at an exercise price of $77.2522 per share, or $86,985.97 in
the aggregate, granted to Mr. Zimmerman on May 1, 1989 pursuant to the Alleghany
Corporation Amended and Restated Directors' Stock Option Plan. The sale of the
common stock was exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) thereof, as a
transaction not involving a public offering.
On May 10, 1996, Alleghany issued an aggregate of 469 shares of Alleghany
common stock to seven non-employee directors of Alleghany pursuant to the
Alleghany Corporation Directors' Equity Compensation Plan representing one-half
of the value of each director's retainer for the following twelve month's
service as a director, exclusive of any per meeting fees, committee fees or
expense reimbursements. The sale of the common stock was exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof, as a
transaction not involving a public offering.
On July 9, 1996, Alleghany issued 12,415 shares of Alleghany common stock
to each of Robert F. Sennott, Jr., Mark P. Sennott and Bryant P. Linares for an
aggregate consideration valued at $7,259,044 in connection with an acquisition.
The sale of the common stock was exempt from registration under the Securities
Act, pursuant to Section 4(2) thereof, as a transaction not involving a public
offering. The resale of such shares of common stock was subsequently registered
in Alleghany's Registration Statement on Form S-3 (Registration No. 333-9881).
On August 21, 1996, Alleghany issued an aggregate of 2,230 shares of common
stock to S. Arnold Zimmerman, a former director of Alleghany, 1,126 shares upon
the exercise of an option to purchase 1,000 shares of Alleghany common stock,
subject to adjustment for stock dividends, at an exercise price of $75.5331 per
share, or $85,050.27 in the aggregate, and 1,104 shares of common stock upon the
exercise of an option to
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purchase 1,000 shares of Alleghany common stock, subject to adjustment for stock
dividends, at an exercise price of $86.8369 per share, or $95,867.94 in the
aggregate, granted to Mr. Zimmerman on May 7, 1990 and April 29, 1991,
respectively, pursuant to the Alleghany Corporation Amended and Restated
Directors' Stock Option Plan. The sale of the common stock was exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof, as a
transaction not involving a public offering.
On September 12, 1996, Alleghany issued 16,855, 8,396 and 6,313 shares of
Alleghany common stock to Mike A. Leprino, Nancy A. Leprino and Donald C. Ford,
respectively, for an aggregate consideration valued at $6,000,000 in connection
with an acquisition. The sale of common stock was exempt from registration under
the Securities Act, pursuant to Section 4(2) thereof, as a transaction not
involving a public offering. The resale of such shares of common stock was
subsequently registered in Alleghany's Registration Statement on Form S-3
(Registration No. 333-13971).
The above does not include unregistered issuances of Alleghany common stock
that did not involve a sale consisting of a stock dividend paid in April 1996
and issuances of common stock and other securities pursuant to employee
incentive plans.
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 1996, 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 8 through 17, and from pages 20 and 21, of
Alleghany's Annual Report to Stockholders for the year 1996, filed as Exhibit 13
hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is incorporated by reference from
pages 22 through 37 of Alleghany's Annual Report to Stockholders for the year
1996, filed as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
As permitted by General Instruction G(3), information concerning the
executive officers of Alleghany is set forth as a supplemental item included in
Part I of this Form 10-K Report under the caption "Executive Officers of
Registrant." Information concerning the directors of Alleghany is incorporated
by reference from pages 5 through 9 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 25, 1997. 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 12 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 25, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by reference from
pages 12 through page 21 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 25, 1997.
The information set forth beginning with the first full paragraph of page 21
through
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page 27 of Alleghany's Proxy Statement, filed or to be filed in connection with
its Annual Meeting of Stockholders to be held on April 25, 1997, is not "filed"
as a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated by reference from
pages 1 through 5, and from pages 11 through 12, of Alleghany's Proxy Statement,
filed or to be filed in connection with its Annual Meeting of Stockholders to be
held on April 25, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated by reference from
page 14 of Alleghany's Proxy Statement, filed or to be filed in connection with
its Annual Meeting of Stockholders to be held on April 25, 1997.
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 1996 into Item 8 of this Report.
2. Financial Statement Schedules.
The schedules relating to the consolidated financial statements of
Alleghany and subsidiaries, together with the report thereon of KPMG Peat
Marwick LLP, independent certified public accountants, are detailed in a
separate index herein.
3. Exhibits.
The following are filed as exhibits to this Report:
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
3.01 Restated Certificate of Incorporation of Alleghany, as amended by Amendment
accepted and received for filing by the Secretary of State of the State of
Delaware on June 23, 1988, filed as Exhibit 20 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1988, is incorporated
herein by reference (Securities and Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended 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.
37
38
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
*10.02 Alleghany Corporation Deferred Compensation Plan as amended and restated as
of December 15, 1992, filed as Exhibit 10.03 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1992, is incorporated herein by
reference.
*10.03(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).
*10.03(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).
*10.04 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.
*10.05 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).
*10.06(a) Trust Agreement Amendment made as of July 8, 1994 between Alleghany and
Chemical Bank, filed as Exhibit 10.08(a) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated herein by
reference.
*10.06(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.
*10.06(c) Amendments to Alleghany Retirement Plan, effective as of January 1, 1996,
filed as Exhibit 10.1 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by reference.
*10.07 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 (Securities and Exchange Commission File No. 1-9371).
*10.08 Description of Alleghany Group Long Term Disability Plan effective as of
July 1, 1995, field as Exhibit 10.10 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
*10.09 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.
*10.10 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.
*10.11 Alleghany Non-Employee Directors' Retirement Plan effective July 1, 1990,
filed as Exhibit 10.1 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
- - ---------------
* Compensatory plan or arrangement.
38
39
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
*10.12(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.
*10.12(b) Description of long-term incentive arrangement between Alleghany and Paul F.
Woodberry, filed as Exhibit 10.21(b) to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
10.13 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.
10.14(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).
10.14(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).
10.14(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).
10.15 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).
10.16 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).
10.17(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.
10.17(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.
10.18(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.
10.18(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.
- - ---------------
* Compensatory plan or arrangement
39
40
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
10.19(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.
10.19(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.
10.19(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.
10.19(d) Amendment No. 2 to Alleghany Properties Note Purchase Agreement dated as of
November 6, 1995 among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany Properties Note Purchase
Agreement, filed as Exhibit 10.28(d) to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
10.20 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.
10.21(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).
10.21(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).
10.21(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).
10.21(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).
40
41
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
10.22(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).
10.22(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).
10.22(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 (Securities and Exchange Commission File
No. 1-9371).
10.22(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.
10.22(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 (Securities and Exchange
Commission File No. 1-9371).
10.22(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.
10.23(a) Stock Purchase Agreement dated as of July 1, 1991 among Celite Holdings
Corporation, Celite Corporation and Manville International, B.V. (the
"Celite Stock Purchase Agreement"), filed as Exhibit 10.2(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.23(b) List of Contents of Exhibits and Schedules to the Celite Stock Purchase
Agreement, filed as Exhibit 10.2(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No. 1-9371).
10.24(a) Joint Venture Stock Purchase Agreement dated as of July 1, 1991 among Celite
Holdings Corporation, Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"), filed as Exhibit 10.3(a)
to Alleghany's Quarterly Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.24(b) List of Contents of Exhibits and Schedules to the Celite Joint Venture Stock
Purchase Agreement, filed as Exhibit 10.3(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No. 1-9371).
41
42
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
10.25(a) Asset Purchase Agreement dated as of July 1, 1991 among Celite Holdings
Corporation, Celite Corporation and Manville Sales Corporation (the "Celite
Asset Purchase Agreement"), filed as Exhibit 10.4(a) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.25(b) List of Contents of Exhibits and Schedules to the Celite Asset Purchase
Agreement, filed as Exhibit 10.4(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No. 1-9371).
10.25(c) Amendment No. 1 dated as of July 31, 1991 to the Celite Asset Purchase
Agreement, filed as Exhibit 10.32(c) to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No. 1-9371).
10.26(a) Acquisition Related Agreement dated as of July 1, 1991, by and between
Celite Holdings Corporation, Celite Corporation and Manville Corporation
(the "Celite Acquisition Related Agreement"), filed as Exhibit 10.5(a) to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.26(b) List of Contents of Exhibits to the Celite Acquisition Related Agreement,
filed as Exhibit 10.5(b) to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1991, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.26(c) Amendment dated as of July 31, 1991 to Celite Acquisition Related Agreement,
filed as Exhibit 10.33(c) to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1991, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.27(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, filed as Exhibit
10.36(a) to Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10.27(b) List of Contents of Exhibits and Annexes to World Minerals Credit Agreement,
filed as Exhibit 10.36(b) to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference.
10.27(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 (Securities and Exchange Commission File No. 1-9371).
10.27(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 (Securities and
Exchange Commission File No. 1-9371).
10.28(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 (Securities and Exchange Commission File
No. 1-9371).
42
43
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
10.28(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 (Securities and
Exchange Commission File No. 1-9371).
10.28(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.
10.29(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 (Securities and Exchange
Commission File No. 1-9371).
10.29(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 (Securities and Exchange Commission File No. 1-9371).
10.30(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.
10.30(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.
10.30(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.
10.30(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.
10.30(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.
10.30(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.
10.30(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, filed as Exhibit 10.39(g) to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
10.30(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.
43
44
EXHIBIT NUMBER DESCRIPTION
- - -------------- ----------------------------------------------------------------------------
10.30(i) Credit Agreement dated as of October 23, 1996 among URC Holdings Corp. (now
known as Underwriters Re Group, Inc.) the Lenders named therein and The
First National Bank of Chicago, as Agent, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, is incorporated herein by reference.
10.30(j) Indenture dated as of June 25, 1996 between URC Holdings Corp. (now known as
Underwriters Re Group, Inc.) and The First National Bank of Chicago, as
trustee, relating to the 7 7/8% Senior Notes due 2006.
10.31(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.33-62477), is
incorporated herein by reference.
10.31(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. 33-62477), is incorporated herein by reference.
10.32(a) Agreement and Plan of Merger, dated as of July 1, 1996, among Market
Intelligence, Inc. ("Market Intelligence"), Alleghany Acquisition
Corporation, Alleghany and each of the shareholders of Market Intelligence
(the "Market Intelligence Merger Agreement"), filed as Exhibit 2.1 to
Alleghany's Registration Statement on Form S-3 (Registration No. 333-9881),
is incorporated herein by reference.
10.32(b) List of Contents of Exhibits to the Market Intelligence Merger Agreement,
filed as Exhibit 2.2 to Alleghany's Registration Statement on Form S-3
(Registration No. 333-9881), is incorporated herein by reference.
10.33(a) Agreement and Plan of Merger dated as of August 22, 1996 among Chicago Title
of Colorado, Inc. ("CT of Colorado"), Alleghany Acquisition Corporation,
Alleghany and each of the shareholders of CT of Colorado (the "CT of
Colorado Merger Agreement"), filed as Exhibit 2.1 to Alleghany's
Registration Statement on Form S-3 (Registration No. 333-13971), is
incorporated herein by reference.
10.33(b) List of Contents of Exhibits to the CT of Colorado Merger Agreement, filed
as Exhibit 2.2 to Alleghany's Registration Statement on Form S-3
(Registration No. 333-13971), is incorporated herein by reference.
13 Pages 1 through 3, page 5, pages 8 through 17, and pages 20 through 37 of
the Annual Report to Stockholders of Alleghany for the year 1996.
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),
Form S-3 (Registration No. 33-62477), Form S-3 (Registration No. 333-9981)
and Form S-3 (Registration No. 333-13971).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Alleghany did not file any reports on Form 8-K during the fourth quarter of
1996.
44
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLEGHANY CORPORATION
--------------------------------------
(Registrant)
Date: March 18, 1997 By /s/ JOHN J. BURNS, JR.
-------------------------------------------
John J. Burns, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 18, 1997 By /s/ JOHN J. BURNS, JR.
-------------------------------------------
John J. Burns, Jr.
President and Director
(principal executive officer)
Date: March 18, 1997 By /s/ DAN R. CARMICHAEL
-------------------------------------------
Dan R. Carmichael
Director
Date: March 18, 1997 By /s/ DAVID B. CUMING
-------------------------------------------
David B. Cuming
Senior Vice President
(principal financial officer)
Date: March 18, 1997 By /s/ ALLAN P. KIRBY, JR.
-------------------------------------------
Allan P. Kirby, Jr.
Director
Date: March 18, 1997 By /s/ F.M. KIRBY
-------------------------------------------
F.M. Kirby
Chairman of the Board and Director
45
46
Date: March 18, 1997 By /s/ WILLIAM K. LAVIN
-----------------------------------------------
William K. Lavin
Director
Date: March 18, 1997 By /s/ ROGER NOALL
-------------------------------------------
Roger Noall
Director
Date: March 18, 1997 By /s/ PETER R. SISMONDO
-------------------------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant Secretary
(principal accounting officer)
Date: March 18, 1997 By /s/ JAMES F. WILL
-------------------------------------------
James F. Will
Director
Date: March 18, 1997 By /s/ PAUL F. WOODBERRY
-------------------------------------------
Paul F. Woodberry
Director
46
47
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS
IN RELATED PARTIES
II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
III SUPPLEMENTARY INSURANCE INFORMATION
IV REINSURANCE
VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted since they are not required, are not
applicable, or the required information is set forth in the financial statements
or notes thereto.
48
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(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..................... $ 704,688 $ 708,846 $ 708,846
States, municipalities and political
subdivisions................................. 523,976 527,333 527,333
Foreign governments............................ 21,946 21,427 21,427
All other corporate bonds...................... 442,454 443,184 443,184
Certificates of deposit............................. 11,363 11,363 11,363
Redeemable preferred stock.......................... 35,174 36,161 36,161
---------- ---------- ----------
Fixed maturities.......................... 1,739,601 $1,748,314 1,748,314
---------- ----------
==========
Equity securities:
Common stocks:
Banks, trust, and insurance companies.......... 31,753 $ 32,734 32,734
Industrial, miscellaneous, and all other....... 296,691 682,134 682,134
---------- ---------- ----------
Total equity securities................... 328,444 $ 714,868 714,868
---------- ----------
==========
Other long-term investments......................... 12,231 12,231
Short-term investments.............................. 238,704 238,704
---------- ----------
Total investments......................... $2,318,980 $ 2,714,117
========== ==========
49
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
1996 1995
---------- ----------
ASSETS
Investment securities (Cost: 1996 $209,943; 1995 $208,011).......... $ 452,495 $ 410,966
Cash................................................................ 1,855 832
Accounts and other receivables, less allowances..................... 18,158 19,042
Property and equipment -- at cost, less accumulated depreciation.... 2,440 2,436
Other assets........................................................ 29,378 33,078
Investment in consolidated subsidiaries............................. 1,133,499 1,067,229
---------- ----------
$1,637,825 $1,533,583
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities................................................... $ 78,043 $ 88,702
Net deferred tax liability.......................................... 117,399 105,115
Long-term debt...................................................... 19,123 19,123
---------- ----------
Total liabilities......................................... 214,565 212,940
Commitments and contingent liabilities..............................
Common stockholders' equity......................................... 1,423,260 1,320,643
---------- ----------
$1,637,825 $1,533,583
========== ==========
See accompanying Notes to Condensed Financial Statements.
50
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
1996 1995 1994
-------- -------- --------
Revenues:
Interest, dividend and other income...................... $ 58,647 $ 59,967 $ 62,302
Net gain on investment transactions...................... 801 37,836 23,403
-------- -------- --------
Total revenues................................... 59,448 97,803 85,705
-------- -------- --------
Costs and Expenses:
Interest expense......................................... 3,444 5,832 7,743
General and administrative............................... 67,192 69,694 71,354
-------- -------- --------
Total costs and expenses......................... 70,636 75,526 79,097
-------- -------- --------
Operating (loss) income.......................... (11,188) 22,277 6,608
Equity in earnings of consolidated subsidiaries............ 138,270 98,799 86,386
-------- -------- --------
Earnings from continuing operations, before income
taxes................................................. 127,082 121,076 92,994
Income taxes............................................... 40,034 35,776 24,622
-------- -------- --------
Earnings from continuing operations...................... 87,048 85,300 68,372
Discontinued operations:
Earnings from discontinued operations, net of tax........ 0 0 6,265
Gain on sale of Sacramento Savings, net of tax........... 0 0 62,869
-------- -------- --------
Net earnings..................................... $ 87,048 $ 85,300 $137,506
======== ======== ========
See accompanying Notes to Condensed Financial Statements.
51
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations................................ $ 87,048 $ 85,300 $ 68,372
Adjustments to reconcile earnings from continuing operations to
cash provided by (used in) continuing operations:
Depreciation and amortization.................................... 463 539 661
Net gain on investment transactions.............................. (801) (37,836) (23,403)
Decrease (increase) in accounts and other receivables, less 884 (1,852) (773)
allowances.....................................................
Decrease (increase) in other assets.............................. 3,554 (2,973) (2,862)
(Decrease) increase in other liabilities......................... (8,436) 25,811 (2,927)
Equity in undistributed net earnings of consolidated (96,016) (69,859) (63,812)
subsidiaries...................................................
-------- -------- --------
Net adjustments.................................................. (100,352) (86,170) (93,116)
-------- -------- --------
Cash used in continuing operations............................... (13,304) (870) (24,744)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments.......................................... (7,502) (92,005) (331,992)
Sales of investments............................................. 6,469 124,110 135,159
Capital contributions to consolidated subsidiaries............... (446) (33,700) (4,320)
Capital contributions to discontinued operations................. 0 0 (4,000)
Cash dividends from consolidated subsidiaries.................... 31,040 69,216 73,039
Purchases of property and equipment.............................. (333) (354) (164)
Disposition of property and equipment............................ 18 1 4
Proceeds from sale of Sacramento Savings, net of expenses........ 0 0 316,348
Purchase of real estate and real estate related assets related to 0 0 (116,089)
the sale of Sacramento Savings.................................
-------- -------- --------
Net cash provided by investing activities...................... 29,246 67,268 67,985
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt............................. (35,000) (129,600) (341,000)
Proceeds of long-term debt....................................... 35,000 70,000 307,000
Other, net....................................................... (14,919) (7,461) (10,202)
-------- -------- --------
Net cash used in financing activities.......................... (14,919) (67,061) (44,202)
-------- -------- --------
Net increase (decrease) in cash................................ 1,023 (663) (961)
Cash at beginning of year.......................................... 832 1,495 2,456
-------- -------- --------
CASH AT END OF YEAR................................................ $ 1,855 $ 832 $ 1,495
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest....................................................... $ 3,443 $ 5,982 $ 7,869
Income taxes................................................... $ 54,822 $ 11,979 $ 44,226
- - ---------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1996, Alleghany made a noncash capital contribution to its consolidated
subsidiaries by contributing two newly-acquired companies with a combined
cost basis of $994.
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.
See accompanying Notes to Condensed Financial Statements.
52
SCHEDULE II
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. INVESTMENT IN CONSOLIDATED SUBSIDIARIES. Reference is made to Note 2
of the Notes to Consolidated Financial Statements incorporated herein by
reference for information regarding the sale of Sacramento Savings Bank.
2. LONG-TERM DEBT. Reference is made to Note 6 of the Notes to
Consolidated Financial Statements incorporated herein by reference for
information regarding the significant provisions of the revolving credit loan
agreement of Alleghany. Included in long-term debt in the accompanying condensed
balance sheets is $19,123 in 1996 and 1995 of intercompany notes payable due to
Alleghany Funding.
3. INCOME TAXES. Reference is made to Note 7 of the Notes to Consolidated
Financial Statements incorporated herein by reference.
4. COMMITMENTS AND CONTINGENCIES. Reference is made to Note 10 of the
Notes to Consolidated Financial Statements incorporated herein by reference.
5. STOCKHOLDERS' EQUITY. Reference is made to Note 8 of the Notes to
Consolidated Financial Statements incorporated herein by reference with respect
to stockholders' equity and surplus available for dividend payments to Alleghany
from its subsidiaries.
53
SCHEDULE III
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
FOR THE YEAR ENDED
AT DECEMBER 31
---------------------------------------------- DECEMBER 31
FUTURE -----------------------
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND NET
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME
- - ---- ------------------------------------------- ----------- ---------- -------- -------- ---------- ----------
1996 Title...................................... $ 0 $ 532,923 $ 0 $0 $1,098,875 $ 49,395
====== ========== ====== == ==========
Property and casualty reinsurance.......... $20,771 $1,110,020 $95,472 $0 $ 346,777 $ 63,184
====== ========== ====== == ==========
1995 Title...................................... $ 0 $ 529,915 $ 0 $0 $ 953,364 $ 45,361
====== ========== ====== == ==========
Property and casualty reinsurance.......... $16,951 $1,014,000 $74,561 $0 $ 277,507 $ 50,173
====== ========== ====== == ==========
1994 Title...................................... $ 0 $ 536,068 $ 0 $0 $1,162,207 $ 39,850
====== ========== ====== == ==========
Property and casualty reinsurance.......... $11,325 $ 940,527 $52,828 $0 $ 190,279 $ 41,226
====== ========== ====== == ==========
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED
AND POLICY OTHER
SETTLEMENT ACQUISITION OPERATING PREMIUMS
YEAR EXPENSES COSTS EXPENSES WRITTEN
- - ---- ---------- ------------ ---------- --------
1996 $ 83,023 $ 0 $1,131,199 $ 0
====== ======== ====== ==========
$243,725 $ 88,895 $ 40,373 $360,305
====== ======== ====== ==========
1995 $ 81,385 $ 0 $ 989,775 $ 0
====== ======== ====== ==========
$203,108 $ 63,617 $ 29,833 $291,995
====== ======== ====== ==========
1994 $ 94,845 $ 0 $1,138,921 $ 0
====== ======== ====== ==========
$153,056 $ 38,883 $ 24,200 $200,596
====== ======== ====== ==========
54
SCHEDULE IV
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- - ---- ----------------------- ---------- --------- ---------- ---------- ----------
1996 Title premiums......... $1,101,294 $ 4,579 $ 2,160 $1,098,875 0.20%
========== ======= ======== ========== ======
Property and casualty
reinsurance premiums... $ 85,437 $65,968 $327,308 $ 346,777 94.39%
========== ======= ======== ========== ======
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%
========== ======= ======== ========== ======
55
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(IN THOUSANDS)
CLAIMS
AND
DISCOUNT, CLAIM
IF ANY, ADJUSTMENT
DEDUCTED EXPENSES
RESERVES IN INCURRED
FOR RESERVES RELATED
UNPAID FOR UNPAID TO
DEFERRED CLAIMS CLAIMS --------
POLICY AND CLAIM AND CLAIM NET (1)
ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT CURRENT
AFFILIATION WITH REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME YEAR
- - ---------------------------------------- ----------- ---------- ---------- -------- -------- ---------- --------
1996
Consolidated property-casualty
entities.............................. $20,771 $1,110,020 $0 $95,472 $346,777 $ 63,184 $242,332
======= ========== ======= ======== ======= ======== ======
1995
Consolidated property-casualty
entities.............................. $16,951 $1,014,000 $0 $74,561 $277,507 $ 50,173 $199,783
======= ========== ======= ======== ======= ======== ======
1994
Consolidated property-casualty
entities.............................. $11,325 $ 940,527 $0 $52,828 $190,279 $ 41,226 $146,416
======= ========== ======= ======== ======= ======== ======
AMORTIZATION PAID
OF DEFERRED CLAIMS
(2) POLICY AND CLAIM
PRIOR ACQUISITION ADJUSTMENT PREMIUMS
AFFILIATION WITH REGISTRANT YEAR COSTS EXPENSES WRITTEN
- - ---------------------------------------- ------ ------------ ---------- --------
1996
Consolidated property-casualty
entities.............................. $1,393 $ 88,895 $139,689 $360,305
======= ======== ======== ========
1995
Consolidated property-casualty
entities.............................. $3,325 $ 63,617 $111,005 $291,995
======= ======== ======== ========
1994
Consolidated property-casualty
entities.............................. $6,630 $ 38,883 $126,114 $200,596
======= ======== ======== ========
56
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 19, 1997, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of earnings, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996 as contained in the 1996 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Annual Report on Form 10-K for the year 1996. 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 statements schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements schedules based on our audits.
In our opinion, such financial statements schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
New York, New York
February 19, 1997
57
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.
*10.02 Alleghany Corporation Deferred Compensation Plan as amended
and restated as of December 15, 1992, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
*10.03(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.
58
*10.03(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).
*10.04 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.
*10.05 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).
*10.06(a) Trust Agreement Amendment made as of July 8, 1994 between
Alleghany and Chemical Bank, filed as Exhibit 10.08(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.06(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.
*10.06(c) Amendments to Alleghany Retirement Plan, effective as of
January 1, 1996, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, is incorporated herein by reference.
*10.07 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 (Securities and Exchange Commission File No.
1-9371).
- - ----------
* Compensatory plan or arrangement.
59
*10.08 Description of Alleghany Group Long Term Disability Plan
effective as of July 1, 1995, field as Exhibit 10.10 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.09 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.
*10.10 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.
*10.11 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).
*10.12(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.
*10.12(b) Description of long-term incentive arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit 10.21(b) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10.13 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.
60
10.14(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).
10.14(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).
10.14(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).
10.15 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).
10.16 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).
10.17(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.
61
10.17(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.
10.18(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.
10.18(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.
10.19(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.
10.19(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.
62
10.19(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.
10.19(d) Amendment No. 2 to Alleghany Properties Note Purchase
Agreement dated as of November 6, 1995 among Alleghany,
Alleghany Properties, Inc. and the Purchasers listed on Annex
1 to the Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(d) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1995, is incorporated herein
by reference.
10.20 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.
10.21(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).
10.21(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).
63
10.21(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).
10.21(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).
10.22(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).
10.22(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).
10.22(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 (Securities and Exchange Commission File
No. 1-9371).
10.22(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.
64
10.22(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 (Securities and
Exchange Commission File No. 1-9371).
10.22(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.
10.23(a) Stock Purchase Agreement dated as of July 1, 1991 among Celite
Holdings Corporation, Celite Corporation and Manville
International, B.V. (the "Celite Stock Purchase Agreement"),
filed as Exhibit 10.2(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is incorporated
herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.23(b) List of Contents of Exhibits and Schedules to the Celite Stock
Purchase Agreement, filed as Exhibit 10.2(b) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.24(a) Joint Venture Stock Purchase Agreement dated as of July 1,
1991 among Celite Holdings Corporation, Celite Corporation and
Manville Corporation (the "Celite Joint Venture Stock Purchase
Agreement"), filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
65
10.24(b) List of Contents of Exhibits and Schedules to the Celite Joint
Venture Stock Purchase Agreement, filed as Exhibit 10.3(b) to
Alleghany's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1991, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
10.25(a) Asset Purchase Agreement dated as of July 1, 1991 among Celite
Holdings Corporation, Celite Corporation and Manville Sales
Corporation (the "Celite Asset Purchase Agreement"), filed as
Exhibit 10.4(a) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
10.25(b) List of Contents of Exhibits and Schedules to the Celite Asset
Purchase Agreement, filed as Exhibit 10.4(b) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.25(c) Amendment No. 1 dated as of July 31, 1991 to the Celite Asset
Purchase Agreement, filed as Exhibit 10.32(c) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.26(a) Acquisition Related Agreement dated as of July 1, 1991, by and
between Celite Holdings Corporation, Celite Corporation and
Manville Corporation (the "Celite Acquisition Related
Agreement"), filed as Exhibit 10.5(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.26(b) List of Contents of Exhibits to the Celite Acquisition Related
Agreement, filed as Exhibit 10.5(b) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
66
10.26(c) Amendment dated as of July 31, 1991 to Celite Acquisition
Related Agreement, filed as Exhibit 10.33(c) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.27(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, filed as Exhibit
10.36(a) to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated herein by
reference.
10.27(b) List of Contents of Exhibits and Annexes to World Minerals
Credit Agreement, filed as Exhibit 10.36(b) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10.27(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 (Securities and Exchange Commission File
No. 1-9371).
10.27(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 (Securities and Exchange
Commission File No. 1-9371).
10.28(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 (Securities and Exchange Commission File No.
1-9371).
67
10.28(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 (Securities and Exchange
Commission File No. 1-9371).
10.28(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.
10.29(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 (Securities and Exchange
Commission File No. 1-9371).
10.29(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 (Securities and
Exchange Commission File No. 1-9371).
10.30(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.
10.30(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.
68
10.30(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.
10.30(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.
10.30(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.
10.30(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.
10.30(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, filed as Exhibit
10.39(g) to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated herein by
reference.
10.30(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.
69
10.30(i) Credit Agreement dated as of October 23, 1996 among URC
Holdings Corp. (now known as Underwriters Re Group, Inc.) the
Lenders named therein and The First National Bank of Chicago,
as Agent, filed as Exhibit 10.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996,
is incorporated herein by reference.
10.30(j) Indenture dated as of June 25, 1996 between URC Holdings Corp.
(now known as Underwriters Re Group, Inc.) and The First
National Bank of Chicago, as trustee, relating to the 7-7/8%
Senior Notes due 2006.
10.31(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.33-62477),
is incorporated herein by reference.
10.31(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. 33-62477), is
incorporated herein by reference.
10.32(a) Agreement and Plan of Merger, dated as of July 1, 1996, among
Market Intelligence, Inc. ("Market Intelligence"), Alleghany
Acquisition Corporation, Alleghany and each of the
shareholders of Market Intelligence (the "Market Intelligence
Merger Agreement"), filed as Exhibit 2.1 to Alleghany's
Registration Statement on Form S-3 (Registration No.
333-9881), is incorporated herein by reference.
10.32(b) List of Contents of Exhibits to the Market Intelligence Merger
Agreement, filed as Exhibit 2.2 to Alleghany's Registration
Statement on Form S-3 (Registration No. 333-9881), is
incorporated herein by reference.
70
10.33(a) Agreement and Plan of Merger dated as of August 22, 1996 among
Chicago Title of Colorado, Inc. ("CT of Colorado"), Alleghany
Acquisition Corporation, Alleghany and each of the
shareholders of CT of Colorado (the "CT of Colorado Merger
Agreement"), filed as Exhibit 2.1 to Alleghany's Registration
Statement on Form S-3 (Registration No. 333-13971), is
incorporated herein by reference.
10.33(b) List of Contents of Exhibits to the CT of Colorado Merger
Agreement, filed as Exhibit 2.2 to Alleghany's Registration
Statement on Form S-3 (Registration No. 333-13971), is
incorporated herein by reference.
13 Pages 1 through 3, page 5, pages 8 through 17, and pages 20
through 37 of the Annual Report to Stockholders of Alleghany
for the year 1996.
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), Form S-3 (Registration No.
33-62477), Form S-3 (Registration No. 333-9981) and Form S-3
(Registration No. 333-13971).
27 Financial Data Schedule.