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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9371
ALLEGHANY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0283071
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
375 PARK AVENUE, NEW YORK, NEW YORK 10152
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212/752-1356
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 1999, 7,217,848 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 $1,065,506,208.
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 I and II
the year 1998
Proxy Statement relating to Annual Meeting of Stockholders III
of Alleghany Corporation to be held on April 23, 1999
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ALLEGHANY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
DESCRIPTION PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 29
Item 4. Submission of Matters to a Vote of Security Holders......... 30
Supplemental Item Executive Officers of Registrant............................ 30
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 30
Item 6. Selected Financial Data..................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Item 7A Quantitative and Qualitative Disclosures About Market
Risk...................................................... 31
Item 8. Financial Statements and Supplementary Data................. 31
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 31
PART III
Item 10. Directors and Executive Officers of Registrant.............. 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 31
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 32
Signatures..................................................................... 39
Index to Financial Statement Schedule..........................................
FINANCIAL STATEMENT SCHEDULES..................................................
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES..................
Index to Exhibits..............................................................
EXHIBITS.......................................................................
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PART I
ITEM 1. BUSINESS.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the laws
of the State of Delaware. In December 1986, Alleghany succeeded to the business
of its parent company, Alleghany Corporation, a Maryland corporation
incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue, New
York, New York 10152 and its telephone number is (212) 752-1356. Alleghany is
engaged, through its subsidiary Underwriters Re Group, Inc. ("Underwriters Re
Group") and its subsidiaries, in the property and casualty reinsurance and
insurance businesses. Alleghany is also engaged, through its subsidiary
Alleghany Asset Management, Inc. ("Alleghany Asset Management") and its
subsidiaries, in the financial services business. In addition, Alleghany is
engaged, through its subsidiaries World Minerals Inc. ("World Minerals"), Celite
Corporation ("Celite") and Harborlite Corporation ("Harborlite") and their
subsidiaries, in the industrial minerals business. Alleghany conducts a steel
fastener importing and distribution business through its Heads and Threads
division.
Until June 17, 1998, Alleghany was also engaged, through its subsidiaries
Chicago Title and Trust Company ("CT&T"), Chicago Title Insurance Company,
Security Union Title Insurance Company and Ticor Title Insurance Company and
their subsidiaries, in the sale and underwriting of title insurance and in other
real estate-related services businesses. On that date, Alleghany completed the
tax-free spin-off of Chicago Title Corporation, the newly formed holding company
of CT&T, to Alleghany stockholders. As a part of the spin-off, the common stock
of Chicago Title Corporation was listed on the New York Stock Exchange under the
symbol "CTZ."
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.
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 4.7 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 1998, 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 1998. 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.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
GENERAL
Underwriters Re Group, Inc. ("URG"), formerly known as URC Holdings Corp.,
headquartered in Calabasas, California, is engaged in the property and casualty
reinsurance and insurance businesses, through
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Underwriters Reinsurance Company ("Underwriters") and its primary insurance
subsidiaries (collectively, "Underwriters Re Group"). Underwriters 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
operates throughout the United States, including Puerto Rico and the District of
Columbia, and Canada, either as a licensed carrier or accredited reinsurer, and
has branch offices in Chicago, Houston, New York and Calabasas.
On October 23, 1998, Underwriters acquired Venton Holdings Ltd. ("VHL") for
approximately $181.1 million in cash and Alleghany common stock valued at
approximately $8.9 million. VHL, through its subsidiaries, is a managing agent
and provider of corporate capital for syndicates in the Lloyd's insurance
market, and also has operations in Bermuda. In connection with the purchase,
Underwriters established a letter of credit facility in the amount of $225
million to support the corporate capital provided by VHL to the Lloyd's
syndicates that it manages. The acquisition of VHL and its subsidiaries is
expected to enhance the competitive position of Underwriters Re Group by
providing access to the Lloyd's and Bermuda markets, as well as diversifying the
group's growth and earnings prospects outside the United States.
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 7.4 million shares of BNSF common stock. On October
3, 1997, Alleghany exchanged shares of Alleghany Common Stock for shares of
common stock of URG held by ten employees of URG and representing 2.7 percent of
the outstanding common stock of URG. Alleghany now owns all of the issued and
outstanding shares of common stock of URG. As of December 31, 1998,
Underwriters' statutory surplus was $602.6 million.
Reinsurance
Since 1995, Underwriters has been rated "A+ (Superior)" by A.M. Best
Company, Inc., an independent insurance industry rating organization ("Best's").
Best's publications indicate that such 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' consistently strong operating
results, solid capitalization and strong presence in the broker market.
Additionally, since 1995 Underwriters has been rated "AA- (Excellent)" by
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.
Primary Insurance
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 to capitalize on advantageous
market conditions for certain primary insurance business lines. In connection
with the acquisition of UIC, Underwriters was indemnified for all losses that
occurred prior to the acquisition date. CUIC, UIC and NUIC are rated "A+
(Superior)" by Best's because Underwriters reinsures a significant share of
their business.
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 45 other states, Guam and
the District of Columbia on an approved nonadmitted basis. In 1998, CUIC
generated $82.9 million in direct written premiums and retained net written
premiums of $29.8 million representing 6.8 percent of Underwriters Re Group's
consolidated net written premiums in 1998.
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UIC has licenses to write primary property and casualty insurance in 48
states and the District of Columbia and focuses on marine insurance, primary
liability policies for medium- to large-sized businesses and certain
professional liability coverages. In 1998, UIC generated $57.2 million in direct
written premiums and retained net written premiums of $21.0 million,
constituting 4.8 percent of Underwriters Re Group's consolidated net written
premiums in 1998.
NUIC is licensed to write property and casualty insurance in New Hampshire,
and is qualified on a non-admitted basis in California and New York. Its focus
is on general liability policies for medium to large-sized businesses. In 1998,
NUIC generated $8.6 million in direct written premiums and retained net written
premiums of $3.1 million, constituting 0.7 percent of Underwriters Re Group's
consolidated net written premiums in 1998.
The Center Insurance Services, Inc. ("The Center"), was established in 1995
as a wholly owned subsidiary of URG to capitalize on the considerable expertise
of certain individuals in handling specialized classes of primary business. The
Center's four subsidiaries act as agents and underwrite business on behalf of
CUIC, UIC, NUIC and at present, to a lesser extent, non-affiliated insurers.
Business underwritten by The Center includes marine insurance, products
liability insurance, general liability insurance for certain insureds with
self-insured retentions and vehicle service contracts. During 1998,
approximately $79.8 million of gross written premiums was underwritten by The
Center. The Center's subsidiaries have offices in Kennesaw and Roswell, Georgia,
New York, New York and St. Louis, Missouri.
International
Representative offices were established in Barbados at the end of 1995 and
in London, England in 1996 to capitalize on international underwriting
opportunities. In addition, in 1995, Underwriters Re Group made a strategic
investment in a reinsurance company in Barbados.
Venton Holdings Ltd.
Underwriters acquired VHL in October 1998. Due to the complexity of
converting Lloyd's accounting information to U.S. accounting principles, the
consolidated financial statements of Alleghany incorporated by reference in Item
8 of this Report do not include the accounts of VHL, except that Alleghany's
consolidated balance sheet as of December 31, 1998 includes VHL's accounts as of
September 30, 1998, which date is being used as the opening balance sheet date.
VHL's accounts will be included in the consolidated financial statements of
Alleghany on a one-quarter lag. Therefore, VHL's results from the date of
purchase through December 31, 1998 will be included in Alleghany's consolidated
financial statements for the quarter ending March 31, 1999.
VHL participates in the Lloyd's market through its subsidiaries Venton
Underwriting Agencies Ltd. ("Venton"), and Venton Underwriting Ltd. ("VUL").
Venton is a managing agency for three Lloyd's syndicates: Syndicate 376
(non-marine), Syndicate 1183 (marine) and Syndicate 1207 (non-marine). In 1998,
the three syndicates had available capacity of approximately L271 million
(equivalent to a maximum gross premiums written of $580 million); such capacity
increased to L301.8 million for 1999. Venton is currently the thirteenth-largest
managing agency in Lloyd's, representing about 2.9 percent of the market's 1999
capacity. VUL and two affiliated companies are corporate names at Lloyd's which
provide capital to the syndicates managed by Venton, including, on an exclusive
basis, to Syndicate 1207. They provided approximately L169.1 million, or 62.3
percent, of the available capacity of the Venton-managed syndicates for 1998,
and approximately L234.4 million, or 77.7 percent, of such syndicates' available
capacity for 1999, the remainder in each year being supplied by non-affiliated
persons. Corporate capital was first admitted by Lloyd's in 1994 in response to
shortages of capacity due to poor results in the Lloyd's market prior to 1993.
Since then, Venton's strategy has been to increase its proportion of corporate
capital. The following discussion relates to the Venton-managed syndicates in
general, including the participation therein by VUL and its two affiliated
corporate capital providers.
Approximately two-thirds of Venton's 1998 gross premiums written were
generated by its primary insurance operations, with reinsurance comprising the
remaining one-third. Venton's insurance and reinsur-
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ance operations focus on specialty commercial lines that Venton believes provide
opportunities for strong profitability. Through the syndicates it manages,
Venton underwrites risks across diverse commercial classes, including property
(marine and non-marine) and casualty (such as financial institution and
directors and officers liability insurance), at varying risk layers from primary
coverage to high layer excess of loss. The majority of Venton's casualty
business is on a claims-made basis. Venton's risks are located around the world,
primarily in the United States, the United Kingdom, Western Europe, Canada and
Australia. About half of Venton's business in the 1998 year of account involved
insureds located in the United States and risks located in the United States of
non-U.S. insureds.
In general, Lloyd's syndicates, including those managed by Venton, may only
access business through Lloyd's brokers. The Venton-managed syndicates have
strong and long-standing relationships with the principal brokers in the Lloyd's
market. Reflecting the typical level of concentration, Aon, J&H Marsh & McLennan
and Willis Faber produced a substantial portion of the business of the
Venton-managed syndicates done in the Lloyd's market. Without the replacement of
business from other brokers, the termination of relationships with any one of
these brokers could have a material adverse effect on Venton's results of
operations. No such terminations are anticipated.
For certain lines of business, it is possible to utilize a service company
to access and service business from both Lloyd's and non-Lloyd's brokers. Venton
manages two such service companies, Yachtsure Ltd. and Venton Risk Services Ltd.
These companies deal predominantly with Lloyd's brokers but also access business
from non-Lloyd's brokers in the U.K. and overseas.
The Venton-managed syndicates establish reserves for the estimated unpaid
liability for losses and loss expenses for claims made under the terms of its
policies and agreements. Such reserves are determined by Venton claims personnel
based upon a variety of factors, including an evaluation of the nature of the
claim, the coverage afforded by the policy, the jurisdiction in which the claim
is brought and general economic and social conditions. Additional reserves are
established on an aggregate basis to provide for losses incurred but not yet
reported. Venton engages an independent actuarial firm to review the reserving
methods and assumptions of the syndicates. Although such reserves are
necessarily based on estimates and therefore the ultimate losses and loss
expenses may differ from such reserves, the management of Venton believes that
reserves for losses at September 30, 1998 are adequate.
The investment policy of the Venton-managed syndicates is to maximize
overall return, in accordance with guidelines established by Lloyd's and
Underwriters. With rare exception, Lloyd's syndicates are required to provide
profit distributions to members (both individual names and corporate capital
providers) annually upon the close of each three-year underwriting cycle, and
portfolio managers engaged by Venton to manage the syndicates' portfolios have
adopted a conservative approach to investments. Investments, which are held in
trust at Lloyd's, consist mainly of cash and cash equivalents and bonds issued
by governments or public authorities; these investments constituted about 90
percent of the syndicates' total investment portfolio as of September 30, 1998.
The Venton-managed syndicates compete for business with other Lloyd's
syndicates and major international insurers and reinsurers. On international
risks, competition may also come from the domestic insurers in the country of
origin of the insured. Competition is based on many factors, including
underwriting expertise, premiums charged and overall financial strength.
Venton's operations in the United Kingdom are subject to regulation by
Lloyd's. Lloyd's Regulatory Division establishes rules and regulations that must
be adhered to by all businesses in the Lloyd's market. These cover such areas as
capital adequacy, related party transactions, ownership and control, standards
of conduct and conflicts of interest. The prior approval of Lloyd's was required
for the acquisition of Venton by Underwriters.
Lloyd's is at present primarily self-governing, subject to overall
supervision by the Treasury in the U.K.; however, the U.K. government has
announced the establishment of the Financial Services Authority as a single
independent regulator that will supervise the securities, bank and insurance
industries, including Lloyd's. The framework for such supervision is currently
under discussion by relevant authorities in the U.K.
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VHL and its subsidiaries employed 94 persons as of December 31, 1998.
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Other than as specifically noted, the following information relating to
Underwriters Re Group and its subsidiaries does not include information relating
to VHL and its subsidiaries.
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 certificate 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 contractually defined
rates. Under excess of 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 affect the reinsurers on
higher layers.
MARKETING
Reinsurance
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
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marine and aviation, property catastrophe, clash, homeowners and workers
compensation coverages and certain excess and surplus lines.
Underwriters concentrates on coverages which require a relatively high
degree of underwriting or 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
or actuarial expertise offer greater potential for favorable results than more
general coverages, based on current market conditions.
In 1998, Underwriters wrote 58% of its treaty business and all of its
facultative certificate business through reinsurance brokers. The remaining
treaty business was principally reinsurance of portions of the primary insurance
underwritten by subsidiaries of Underwriters. 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 their
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 1998, Underwriters
paid brokers $10.0 million in commissions, which represents approximately 2.0%
of its gross written premiums of $505.9 million. Underwriters' five leading
brokers, accounted for 51% of Underwriters' gross written premiums in 1998. Over
this period, Guy Carpenter & Co., Jardin Thompson Graham Ltd. and E.W. Blanch
Company accounted for 14.6%, 11.6% and 10.9% of such premiums, respectively, and
no other broker accounted for more than 10% 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 1998,
approximately 27% of gross written premiums were obtained from Underwriters' ten
largest unaffiliated ceding companies. No unaffiliated ceding company accounted
for more than 10% of such premiums. The ceding companies that account for
relatively large percentages of gross written premiums 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.
Primary Insurance
Insurance is purchased from the primary insurance companies of Underwriters
Re Group through retail and wholesale agents and brokers. These professional
intermediaries are acquainted with the product lines and custom coverage
capabilities of Underwriters Re Group's primary insurance companies, which
generally concentrate on hard to place risks and markets neglected by the
industry. The custom capabilities offered include access to nonadmitted
companies that operate under Underwriters Re Group and carry Underwriters'
Best's rating.
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UNDERWRITING OPERATIONS
Reinsurance
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 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 1998, Underwriters acted as lead or co-lead underwriter on a majority of
its treaty business.
Treaty reinsurance generated approximately $378 million, or 99%, of
Underwriters' net written premiums in 1998. Facultative certificate reinsurance
is no longer a significant source of premiums. Casualty lines represented
approximately 65% 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 50% of Underwriters' net reinsurance
written premiums, with reinsurance written on a pro rata basis representing the
balance. In 1998, Underwriters Re Group's net written premiums increased $24.0
million, or 5.8%, from 1997. Management believes that the increase in such
premiums is attributable primarily to growth in Underwriters Re Group's primary
insurance operations.
Underwriters generally wrote up to $2.0 million per reinsurance risk in
1998 on a net basis. In the case of reinsurance of certain clash coverage,
Underwriters has written up to $2.5 million on a net basis and in limited
circumstances has accepted more. The largest net risk assumed in 1998 was $13.3
million.
Primary Insurance
Underwriters Re Group's underwriting strategy is to identify insurance
opportunities that can be profitably underwritten. Such business is generally in
less competitive segments of the overall insurance marketplace because they
frequently require a higher level of underwriting expertise or are not viewed as
acceptable in conventional markets for some other reason. Many of the classes
and risks underwritten are in otherwise normally accepted categories but are
viewed as nonstandard due to past loss history. Business written that is viewed
as requiring special expertise would include marine insurance, professional
liability and errors and omissions insurance. Risks are underwritten by
employees of the primary companies and by both affiliated and unaffiliated
underwriting agents. Underwriters Re Group wrote up to $1.0 million per primary
insurance risk in 1998 on a net basis.
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.
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11
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,
Underwriters' write-offs for unrecoverable reinsurance were negligible in 1998
and 1997. As of December 31, 1998, Underwriters had an allowance for estimated
unrecoverable reinsurance of $3.4 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
$1.1 million per property facultative risk. Underwriters also has an aggregate
reinsurance contract to cover losses up to $125.0 million incurred during the
period July 1, 1998 through June 30, 1999 in excess of a 98.2% net loss and loss
adjustment expense ratio. Such net loss ratio is calculated by dividing losses
by premiums net of commissions and brokerage. The contract covers essentially
all lines of business written by Underwriters; however, property catastrophe
losses are subject to a sublimit of $100.0 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 Casualty
Company (the "Continental Contracts") that provide coverage for pre-1987
business up to an aggregate limit of $200.0 million. Underwriters received
payments under these contracts totaling $23.7 million in 1997 and $22.1 million
in 1998, reducing the reinsurance receivable attributable to such contracts from
$87.8 million at year-end 1997 to $65.7 million at year-end 1998. Such
receivable is secured by a trust fund dedicated solely to payments under the
Continental Contracts.
As of December 31, 1998, Underwriters had reported reinsurance receivables
of $491.2 million through retrocessional agreements, including $65.7 million of
reinsurance receivables under the Continental Contracts, which was fully secured
as described above, and $218 million due from another reinsurer, 98.7 percent of
which was 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 reinsurance 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.
When a primary claim is reported, Underwriters Re Group personnel establish
a "case" reserve based on evaluation of the claim and estimation of the ultimate
payment amount. All primary claims are supervised by Underwriters Re Group
personnel who at times may engage outside counsel or adjusting firms, if
necessary.
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12
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 Re Group 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 Re Group reviews its aggregate loss reserves at least twice
each year. Between the semi-annual reviews, Underwriters Re Group updates its
loss reserves by applying the loss ratios determined in the previous review to
earned premiums to date, less incurred losses reported. Underwriters Re Group
does not discount its reserves for anticipated investment income. There are
inherent uncertainties in estimating reserves due primarily to the significant
periods of time that may elapse between occurrence of an insured or reinsured
loss and reporting and ultimate settlement of such loss, 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
reinsurance claims. Actual losses and loss expenses may deviate, perhaps
substantially, from reserves in Underwriters Re Group financial statements,
which could have a material adverse effect on Underwriters Re Group financial
condition and results of operations. Based on current information, management
believes reserves for losses and loss expenses at December 31, 1998 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 $2.9 million per year) for the last three years. The per year
figures are net of reinsurance, including the Continental 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
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based on Underwriters' assessment of precautionary notices and a review of
aggregate reported losses (approximately $1.5 million per year) for the last
three years. The per year figures are net of reinsurance, including the
Continental Contracts.
During the three years ended December 31, 1998, the average net loss
payment per claim (open and settled) for asbestos and environmental impairment
exposures (excluding cessions to the Continental Contracts) was $17,250 and
$33,300, respectively, and the highest paid loss was $0.7 million for an
asbestos claim and $1.0 million for an environmental impairment claim, in each
case net of ceded reinsurance (excluding cessions to the Continental Contracts).
All loss payments for asbestos and environmental impairment exposures for the
last three years have been recovered through cessions to the Continental
Contracts. Most claims paid to date have been paid under contracts with varying
levels of retention by the ceding company or insurer. Although the range of
losses paid by Underwriters has been wide, most losses paid have involved dollar
amounts at the lower end of such range.
As of December 31, 1998, Underwriters' case and IBNR reserves (net of
reinsurance, including cessions to the Continental Contracts) totaled
approximately $23.0 million for asbestos liabilities, which includes reserves
for approximately 694 open claims where cedents have advised Underwriters that
they currently expect to recover from Underwriters. As of December 31, 1998,
Underwriters' case and IBNR reserves (net of reinsurance, including cessions to
the Continental Contracts) totaled about $24.0 million for environmental
impairment claims, which includes reserves for approximately 438 open claims
where cedents have advised Underwriters that they currently expect to recover
from Underwriters. Additionally, ceding companies have submitted 1,591
precautionary notices for asbestos claims and 4,530 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 Contracts, but excluding an
additional $13.9 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
1998 1997 1996
------- ------- -------
Reserve, net of reinsurance recoverables, as of
January 1........................................... $21,172 $17,494 $14,494
Incurred loss, net of reinsurance..................... 1,872 3,678 3,000
Paid loss, net of reinsurance......................... 0 0 0
------- ------- -------
Reserve, net of reinsurance recoverables, as of
December 31......................................... 23,044 21,172 17,494
Reinsurance recoverables, as of December 31........... 15,746 14,726 15,176
------- ------- -------
Reserve, gross of reinsurance recoverables, as of
December 31......................................... $38,790 $35,898 $32,670
======= ======= =======
Type of reserve, net of reinsurance recoverables:
Case................................................ $ 3,544 $ 3,172 $ 4,494
IBNR................................................ 19,500 18,000 13,000
------- ------- -------
Total................................................. $23,044 $21,172 $17,494
======= ======= =======
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RECONCILIATION OF ENVIRONMENTAL IMPAIRMENT CLAIMS RESERVE FOR LOSSES AND LAE
1998 1997 1996
------- ------- -------
Reserve, net of reinsurance recoverables, as of
January 1........................................... $23,922 $22,600 $19,600
Incurred loss, net of reinsurance..................... 28 1,322 3,000
Paid loss, net of reinsurance......................... 0 0 0
------- ------- -------
Reserve, net of reinsurance recoverables, as of
December 31......................................... 23,950 23,922 22,600
Reinsurance recoverables, as of December 31........... 4,222 4,640 4,939
------- ------- -------
Reserve, gross of reinsurance recoverables, as of
December 31......................................... $28,172 $28,562 $27,539
======= ======= =======
Type of reserve, net of reinsurance recoverables:
Case................................................ $ 9,950 $10,922 $ 9,600
IBNR................................................ 14,000 13,000 13,000
------- ------- -------
Total................................................. $23,950 $23,922 $22,600
======= ======= =======
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 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 $13.9 million as of December 31, 1998, compared with $18.9
million as of December 31, 1997. 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 1988. Reported reserve development
is derived primarily from information included in statutory financial statements
of Underwriters, CUIC, UIC and NUIC. 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.
For the year ended December 31, 1998, the first line also includes the loss
reserves associated with the corporate capital provided by VUL and two
affiliated companies to the Venton-managed syndicates at Lloyd's. 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 1988 at $100,000 and was determined in 1991 to be $150,000,
the $50,000 deficiency would be included in the Cumulative Redundancy
(Deficiency) row shown below for each of the years 1988 through 1990.
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 1988. The cumulative reserve deficiencies in the years
1988 through 1992 primarily resulted from prior increases to asbestos and
environmental impairment claims reserves and includes the $35.8 million reserve
strengthening in 1993.
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CHANGES IN HISTORICAL NET RESERVES FOR LOSSES AND LAE
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----- ---- ---- ---- ---- ---- ---- ------ ------ ------ ------
Net liability as of the end of year....... $ 461 $453 $411 $411 $437 $509 $536 $ 628 $ 732 $ 784 $1,000
Cumulative amount of net liability paid as
of:
One year later.......................... $ 119 $137 $101 $ 84 $ 98 $112 $102 $ 117 $ 175 $ 134 --
Two years later......................... 242 227 173 161 178 189 167 214 247 -- --
Three years later....................... 306 285 239 214 236 236 220 256 -- -- --
Four years later........................ 348 342 274 254 266 265 252 -- -- -- --
Five years later........................ 394 370 294 276 287 285 -- -- -- -- --
Six years later......................... 414 384 311 287 301 -- -- -- -- -- --
Seven years later....................... 425 396 319 296 -- -- -- -- -- -- --
Eight years later....................... 434 403 326 -- -- -- -- -- -- -- --
Nine years later........................ 440 407 -- -- -- -- -- -- -- -- --
Ten years later......................... 440 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated as of:
One year later.......................... 454 457 414 412 483 516 539 629 727 782 --
Two years later......................... 457 460 421 455 487 518 538 622 724 -- --
Three years later....................... 462 474 465 460 491 523 531 620 -- -- --
Four years later........................ 492 520 472 469 496 519 530 -- -- -- --
Five years later........................ 538 528 485 469 493 519 -- -- -- -- --
Six years later......................... 548 545 483 468 498 -- -- -- -- -- --
Seven years later....................... 568 544 479 472 -- -- -- -- -- -- --
Eight years later....................... 567 541 485 -- -- -- -- -- -- -- --
Nine years later........................ 567 550 -- -- -- -- -- -- -- -- --
Ten years later......................... 573 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy (Deficiency)...... $(112) $(97) $(74) $(61) $(61) $(10) $ 6 $ 8 $ 8 $ 2 --
Gross Liability -- End of Year............ $861 $940 $1,014 $1,110 $1,159 $1,555
Reinsurance Recoverable................... 352 404 386 378 375 555
---- ---- ------ ------ ------
Net Liability -- End of Year.............. $509 $536 $ 628 $ 732 $ 784 $1,000
==== ==== ====== ====== ======
Gross Re-estimated Liability -- Latest.... $921 $934 $1,056 $1,165 $1,280
Re-estimated Recoverable -- Latest........ 402 404 436 441 498
---- ---- ------ ------
Net Re-estimated Liability -- Latest...... $519 $530 $ 620 $ 724 $ 782
==== ==== ====== ======
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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 (including
Venton) 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
--------------------------------------
1998 1997 1996
---------- ---------- ----------
Statutory Reserves............................. $ 866,647 $ 765,419 $ 705,106
Venton Reserves................................ 119,905 0 0
Additional Mass Action Reserves(1)............. 13,850 18,850 27,350
Reinsurance Recoverables....................... 554,416 374,801 377,564
---------- ---------- ----------
GAAP Reserves.................................. $1,554,818 $1,159,070 $1,110,020
========== ========== ==========
- ---------------
(1) Amount represents additional reserves recorded by Underwriters in 1993 for
probable asbestos-related and environmental impairment claims exposure.
The reconciliation of reserves for Underwriters Re Group (including Venton)
for the last three years on a GAAP basis is shown below (in thousands):
RECONCILIATION OF RESERVES FOR LOSSES AND LAE
1998 1997 1996
---------- ---------- ----------
Reserve, net of reinsurance recoverables, as of
January 1.................................... $ 784,269 $ 732,456 $ 628,420
Incurred loss, net of reinsurance, related to:
Current year................................. 290,513 267,530 242,332
Prior years.................................. (2,254) (5,702) 1,393
---------- ---------- ----------
Total incurred loss, net of reinsurance........ 288,259 261,828 243,725
---------- ---------- ----------
Paid loss, net of reinsurance, related to:
Current year................................. (57,788) (35,033) (23,341)
Prior years.................................. (134,243) (174,982) (116,348)
---------- ---------- ----------
Total paid loss, net of reinsurance............ (192,031) (210,015) (139,689)
---------- ---------- ----------
Venton reserves, net of reinsurance
recoverables, as of September 30............. 119,905 0 0
Reserve, net of reinsurance recoverables, as of
December 31.................................. 1,000,402 784,269 732,456
Reinsurance recoverables, as of December 31.... 554,416 374,801 377,564
---------- ---------- ----------
Reserve, gross of reinsurance recoverables, as
of December 31............................... $1,554,818 $1,159,070 $1,110,020
========== ========== ==========
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.
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17
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 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, 1998, 1997
and 1996 (dollars in thousands):
INVESTMENT RESULTS
NET NET PRE-TAX
PRE-TAX AFTER-TAX REALIZED
AVERAGE INVESTMENT INVESTMENT GAINS EFFECTIVE AFTER-TAX
PERIOD INVESTMENTS(1) INCOME(2) INCOME(3) (LOSSES) YIELD(4) YIELD(5)
- ------ --------------- ---------- ---------- -------- --------- ---------
Year Ended December 31,
1998.................... $1,244,611 $74,895 $54,614 $ 844 6.0% 4.4%
Year Ended December 31,
1997.................... $1,147,064 $69,229 $50,239 $(855) 6.0% 4.4%
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, 1998, the equity portfolio of Underwriters Re Group was
carried at a market value of approximately $290.0 million with an original cost
of approximately $135.5 million, and consisted primarily of approximately 7.4
million shares of BNSF common stock. The cost of equities listed in the table
below, $109.7 million, includes the cost paid by Alleghany for the BNSF common
stock prior to being contributed to Underwriters Re Group. In 1998, Underwriters
Re Group realized a gain of $6.6 million related to the sale of equity
securities and had dividend income of $6.6 million therefrom.
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The following table summarizes the investments of Underwriters Re Group,
excluding cash, as of December 31, 1998, with all investments carried at fair
value (dollars in thousands):
INVESTMENTS
----------------------------------------------------
AMORTIZED COST OR COST FAIR VALUE
------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ---------- ----------
Short-term investments....................... $ 108,388 8% $ 108,388 7%
Corporate bonds.............................. 278,283 21 285,539 19
United States government and government
agency bonds............................... 126,641 10 129,330 8
Mortgage- and asset-backed securities........ 275,308 21 284,155 19
Foreign bonds................................ 26,146 2 25,809 2
Redeemable and auction preferred stocks...... 21,618 2 22,243 1
Municipal bonds.............................. 371,371 28 383,253 25
Equity securities(1)......................... 109,643 8 290,029 19
---------- --- ---------- ---
Total.............................. $1,317,398 100% $1,528,746 100%
========== === ========== ===
- ---------------
(1) Includes 7,424,469 shares of BNSF common stock at the original cost to
Alleghany.
The following table indicates the composition of the long-term fixed
maturity portfolio by Moody's rating as of December 31, 1998 (dollars in
thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY MOODY'S RATING
FAIR VALUE PERCENTAGE
---------- ----------
Aaa.................................................. $ 567,843 50%
Aa................................................... 184,426 16
A.................................................... 266,658 24
Baa.................................................. 82,865 7
Ba................................................... 21,155 2
Non-rated............................................ 7,382 1
---------- ---
Total...................................... $1,130,329 100%
========== ===
The following table indicates the composition of the long-term fixed
maturity portfolio by years until contractual maturity as of December 31, 1998
(dollars in thousands):
LONG-TERM FIXED MATURITY PORTFOLIO BY YEARS UNTIL MATURITY
FAIR VALUE PERCENTAGE
---------- ----------
One year or less..................................... $ 58,645 5%
Over one through five years.......................... 335,358 30
Over five through ten years.......................... 327,901 29
Over ten years....................................... 124,270 11
Mortgage- and asset-backed securities................ 284,155 25
---------- ---
Total...................................... $1,130,329 100%
========== ===
COMPETITION
Underwriters competes primarily in the United States reinsurance market
with numerous domestic and foreign reinsurers, many of which have greater
financial resources than Underwriters. Underwriters' competitors include
independent reinsurance companies, subsidiaries or affiliates of worldwide
insurance companies,
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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 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, 1998 there were 38 domestic
professional reinsurers, and Underwriters was the nation's tenth-largest in
terms of statutory surplus and thirteenth-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.
Each of the operating subsidiaries of 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. 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.
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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, generally are 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 December 31, 1998,
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 367 persons as of December 31, 1998.
FINANCIAL SERVICES BUSINESS
Alleghany Asset Management, organized as a Delaware corporation in 1995,
conducts a financial services business through its subsidiaries, The Chicago
Trust Company ("Chicago Trust"), a Chicago-based investment firm with trust
powers, Montag & Caldwell, Inc. ("Montag & Caldwell"), an Atlanta-based
investment counseling firm acquired in July 1994, and Chicago Deferred Exchange
Corporation ("CDEC"), which facilitates certain tax-deferred property exchanges.
In 1996, Chicago Trust acquired Security Trust Company ("Security Trust"), a
California trust company, from a subsidiary of CT&T. Alleghany Asset Management
and its subsidiaries, formerly a part of the financial services group of CT&T,
were transferred to Alleghany in June 1998 and were not a part of the spin-off
of CT&T.
During 1998, Alleghany Asset Management expanded its product line by adding
a small capitalization value equity product and acquiring a 40 percent interest
in Veredus Asset Management LLC ("Veredus"), a Louisville, Kentucky based small
capitalization growth equity manager with about $100 million in assets under
management. In addition, Alleghany Asset Management entered into a definitive
agreement to acquire Blairlogie Capital Management, an Edinburgh, Scotland based
investment manager that manages approximately $800 million in assets,
principally in non-U.S. equities. Blairlogie would provide Alleghany Asset
Management with its first international investment manager.
Alleghany Asset Management provides distribution and marketing services to
its investment managers through the 401(k) services offered by Chicago Trust and
the Alleghany Funds, a mutual funds family offering ten no-load mutual funds.
Chicago Trust's full service 401(k) administration group provides trustee, plan
design, investment management and other administrative services. Such services
are marketed through internal sales forces in Chicago and Atlanta as well as
consultants and brokerage sources. The Alleghany Funds are marketed primarily
through registered investment advisers, broker-dealers and direct sales to
institutional clients, as well as through intermediary services, including
Schwab and Fidelity.
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Montag & Caldwell
Founded in 1945, Montag & Caldwell, one of the Southeast's oldest
investment management firms, concentrates on managing large capitalization
growth equity and balanced portfolios for institutional, mutual fund and high
net worth clients. Montag & Caldwell believes that success in the institutional
investment business is dependent upon a disciplined and consistently applied
investment process translating into outstanding investment results. Montag &
Caldwell's equity results have consistently placed the firm among the top money
managers in its category.
Montag & Caldwell targets separate accounts of $40 million and higher,
accessed through independent consultants or direct calls to prospective clients.
Its investment expertise is also available through the Alleghany Funds. Montag &
Caldwell advises two of the Alleghany Funds' mutual funds.
Chicago Trust
Chicago Trust and its predecessors have managed assets for investors since
1887. Chicago Trust is an investment firm with full trust powers engaged in the
following lines of business: institutional investment management, full service
401(k) administration, personal trust and investment services and administration
of the Alleghany Funds.
Chicago Trust specializes in fixed income and large capitalization equity
money management for institutional clients. Chicago Trust's fixed income results
have consistently placed Chicago Trust among the top money managers in its
category. Chicago Trust markets its fixed income and equity products through
pension consultants and directly to plan sponsors. Chicago Trust also advises
seven of the Alleghany Funds' mutual funds.
Chicago Trust's personal trust and investment services business serves the
investment and estate planning needs of individuals and families, mainly in the
metropolitan Chicago area. Chicago Trust believes that the business is
well-positioned to benefit from growth in family wealth and the demographics of
an aging baby boom generation.
Chicago Trust's full service 401(k) business administers assets,
approximately half of which are invested in the Alleghany Funds and collective
funds managed by the subsidiaries of Alleghany Asset Management, and the
remainder of which is invested in third-party managed funds.
Alleghany Funds
Alleghany Funds had approximately $3.4 billion in assets under management
at December 31, 1998, compared with $1.9 billion at year-end 1997. Montag &
Caldwell Growth Fund and The Chicago Trust Growth & Income Fund experienced the
greatest increase in assets under management from year-end 1997 to 1998. The ten
no-load mutual funds consist of five equity funds, two balanced funds, two fixed
income funds and a money market fund. All of the funds are registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as investment
companies.
Each of the mutual funds is managed by one of Chicago Trust, Montag &
Caldwell or Veredus pursuant to a management contract which is renewable
annually by vote of either of such fund's board of trustees (including a
majority of members who are not "interested persons" as defined under the 1940
Act) or such fund's shareholders. All management contracts terminate if assigned
and may be terminated by either party without penalty on 60 days' written
notice. The management contracts for the Alleghany Funds were all renewed for an
additional year in 1998. Under these contracts, Chicago Trust, Montag & Caldwell
and Veredus, respectively, is authorized in its discretion to buy and sell
securities for the accounts of the Alleghany Funds, subject to certain
limitations. To date, no management agreements of Alleghany Asset Management or
any of its subsidiaries with any of the Alleghany Funds have been involuntarily
terminated.
As compensation for its management services, Chicago Trust, Montag &
Caldwell and Veredus, respectively, receives management fees from the Alleghany
Funds that range from 0% to 0.8% per year of average daily net assets depending
on the mutual fund. For 1998 and 1997, Alleghany Asset Management
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received revenues from management fees from the Alleghany Funds of approximately
$17.3 million and $9.2 million, respectively. The assets of the Alleghany Funds
are managed by the same investment professionals who manage Alleghany Asset
Management's accounts of institutional and high net-worth individuals.
Current information with respect to the Alleghany Funds can be found on its
website, www.alleghanyfunds.com.
CDEC and Security Trust
CDEC was established in 1989 and facilitates, with the assistance of
Chicago Trust, tax-deferred exchanges of like-kind property. In 1998, CDEC
facilitated more than 2,200 exchanges. CDEC acts as a qualified intermediary,
holding and investing the cash proceeds from the sale of property relinquished
by a taxpayer in a qualified trust account, of which Chicago Trust acts as
trustee, until replacement property is acquired. Security Trust provides trust,
investment and tax-deferred property exchange services in California.
MARKETING
Growth in profitability of Alleghany Asset Management is largely dependent
on growth in assets under management, which results from market appreciation of
existing assets and new business (new clients and additional investments from
existing clients). Approximately 85 percent of Alleghany Asset Management's
assets under management are for institutional clients where competition is
intense and success is driven by investment performance. Both Montag & Caldwell
and Chicago Trust have strong investment records and have received high ratings
in various consultant and mutual fund informational service data bases.
The largest portion of the revenues of Alleghany Asset Management consists
of advisory fees based primarily on the value of assets under management. Annual
rates vary and typically decline as account size increases. Fees earned from the
management of assets for institutional clients represented approximately 75% and
69% of the revenues of Alleghany Asset Management for 1998 and 1997,
respectively. As of December 31, 1998, Alleghany Asset Management, through its
subsidiaries, managed assets totaling about $35.6 billion.
The separately managed accounts of Alleghany Asset Management are managed
pursuant to advisory agreements between the client and Alleghany Asset
Management. Such agreements are generally terminable on short notice. The
trustees or corporate officials who control such accounts are usually free to
change investment advisers without cumbersome legal procedures. None of the
clients of Alleghany Asset Management accounted for 10 percent or more of the
revenues of Alleghany Asset Management. Accordingly, the loss of any single
client would not have a material adverse effect on the business of Alleghany
Asset Management. The business of Alleghany Asset Management is not seasonal.
INVESTMENT OPERATIONS
Investments held by Chicago Trust and Security Trust must comply with the
banking laws of the states of Illinois and California. These laws prescribe the
kind, quality and concentration of investments which may be made by trust
companies. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds and common stocks.
Chicago Trust's and Security Trust'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.
COMPETITION
Alleghany Asset Management and its subsidiaries compete with national,
regional and local providers of financial services, many of which have
substantially greater capital and other resources and some of which offer a
wider range of financial services. Competition is chiefly on the basis of
service and investment performance.
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REGULATION
Acting as fiduciaries, Chicago Trust is regulated by the State of Illinois
Office of Banks and Real Estate, and Security Trust is regulated by the
California Department of Banking. 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. As registered
investment companies, each of the funds of the Alleghany Funds is subject to
extensive regulation by the Securities and Exchange Commission, governing all
aspects of its operations. In addition, the Alleghany Funds are also subject to
certain limited regulation by the securities regulators in all 50 states.
EMPLOYEES
At December 31, 1998, Alleghany Asset Management and its subsidiaries had
approximately 315 employees, including full-time and part-time employees.
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. 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. 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").
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Perlite
On September 25, 1998, Harborlite and Europerlite Acquisition Corp. merged
and World Minerals now conducts its worldwide perlite business through
Harborlite.
World Minerals believes that Harborlite is the world's largest producer of
perlite filter aids and that Harborlite, which is also engaged in the business
of selling perlite ore, is one of the world's largest merchant producers of
perlite ore. These products are marketed worldwide under the Harborlite(R) and
Europerl(R) brand names.
Perlite is a volcanic rock which contains between 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, Barcelona, Spain and Milan, Italy, from perlite ore
obtained from Harborlite's 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 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. These are now part of Harborlite.
Harborlite has its world headquarters in Lompoc, California and owns,
directly or through wholly-owned subsidiaries, a perlite mine and mill in No
Agua, New Mexico, a perlite loading facility in Antonito, Colorado, a perlite
mine and a mill in Superior, Arizona, a perlite mine and mill in Dikili, Turkey,
a perlite deposit in Central Mexico, and perlite expansion facilities in
Escondido, California; Green River, Wyoming; Laporte, Texas; Youngsville, North
Carolina; Vicksburg, Michigan; Quincy, Florida; Wissembourg, France; Hessle,
England; Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining and
processing operations in eleven countries. In 1998, approximately 43 percent of
World Minerals' revenues (equal to 9.4 percent of Alleghany's consolidated
revenues) were generated by foreign operations, and an additional 13 percent of
World Minerals' revenues were generated by export sales from the United States.
While World Minerals believes that the international scope of its operations
gives it unique competitive advantages, international operations can be subject
to additional risks, such as currency fluctuations, changes in foreign legal
requirements and political instability. World Minerals closely monitors its
methods of operating in each country and adopts strategies responsive to
changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency
fluctuation by, among other things, 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. During 1998, the currency turmoil in Asia did not
have a material adverse effect on World Minerals' results and it is not
currently expected that such turmoil will have a material adverse impact on
World Minerals' earnings in 1999.
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 volcanic and seismic activity may adversely affect future
production at Lake Myvatn). Celite believes that diatomite reserves at each site
(including its Quincy, Washington mine upon completion of drilling programs
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and process improvements in 1999) are generally sufficient to last for at least
20 more years at the current rate of utilization. Celite enhanced its reserves
at Lompoc, California in 1998 through the acquisition of rights to two diatomite
mines formerly controlled by a competitor, following such competitor's decision
to close its Lompoc-based diatomite business.
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 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.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally supplied diatomite.
World Minerals' operating subsidiaries experienced no interruption in raw
material availability in 1998, except that severe El Nino-related storms in the
spring of 1998, which produced record rainfall totals in Santa Barbara County,
created some flooding conditions at Celite's Lompoc mine and resulted in higher
production costs and some delay in raw material availability. Barring unforeseen
circumstances, World Minerals anticipates no such interruptions in 1999. Celite
and Harborlite believe that they have taken reasonable precautions for the
continuous supply of their critical raw materials.
Many of Celite's and Harborlite's operations use substantial amounts of
energy, including electricity, fuel oil, natural gas, and propane. Celite and
Harborlite have supply contracts for most of their energy requirements. Most of
such contracts are for one year or less. Celite and Harborlite have not
experienced any energy shortages and they believe that they have taken
reasonable precautions to ensure that their energy needs will be met, barring
any unusual or unpredictable developments.
From the time World Minerals began operations in 1991, none of its
customers accounted for 10 percent or more of World Minerals' annual sales.
World Minerals presently owns, controls or holds licenses either directly
or through its subsidiaries to approximately 20 United States and 48 foreign
patents and patent applications. While World Minerals considers all of its
patents and licenses to be valuable, World Minerals believes that none of its
patents or licenses is by itself material to its business.
World Minerals normally maintains approximately a one- to 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. The unusually severe El Nino-related
storms, however, did create brief interruptions during the early part of 1998.
Barring unusual circumstances, World Minerals does not experience backlogs of
orders. World Minerals' business is not seasonal to any material degree.
World Minerals' domestic and international operations have been
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 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. World Minerals also distributes Celite's and
Harborlite's products in Europe to dealers, distributors and end users on
Celite's and Harborlite's behalf.
World Minerals has research and development, environmental control and
quality control laboratories at its Lompoc production facilities and quality
control laboratories at each of its other production facilities. In 1998, World
Minerals spent approximately $2.6 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.
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COMPETITION
World Minerals believes that Celite is the world's largest producer of
filter-aid grade diatomite. The remainder of the market is shared by Celite's
four major competitors: Eagle-Picher Minerals (United States), Grefco (United
States), CECA (France) and Showa (Japan), and a number of smaller competitors.
World Minerals believes that Harborlite is the world's largest producer of
perlite filter aids and is one of the world's largest merchant producers of
perlite ore. Harborlite has two large competitors in the expanded perlite
market, Grefco and CECA, and many smaller competitors. Harborlite also has two
large competitors in the merchant perlite ore market, Grefco and Silver &
Baryte, and numerous smaller competitors.
The filter aid products of Celite and Harborlite compete with other filter
aids, such as cellulose, and other filtration technologies, such as crossflow
and centrifugal separation. Celite's silicates compete with a wide variety of
other synthetic mineral products.
In all of World Minerals' businesses, competition is principally on the
basis of service, product quality and performance, warranty terms, speed and
reliability of delivery, 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
1997, both MSHA and OSHA announced special emphasis programs to reduce the
incidence of silicosis in the workplace. Due to Celite's industrial hygiene and
monitoring programs, Celite does not expect these special emphasis programs to
impact its business in any material way.
World Minerals maintains a staff of experienced environmental, safety and
industrial hygiene professionals who assist plant personnel in complying with
environmental, health and safety regulations. Its environmental, safety and
industrial hygiene audit group also performs routine internal audits and reviews
of World Minerals' plant facilities worldwide. Due to these programs and
responsible management at the local plant level, compliance with such
regulations has been facilitated and the financial impact of such regulations on
operating results has been minimal.
Certain products of Celite and Harborlite are subject to the Hazard
Communication Standard promulgated by OSHA, which requires Celite and Harborlite
to disclose the hazards of those products to employees and customers. Celite's
diatomite products and certain of Harborlite's products contain varying amounts
of crystalline silica, a mineral which is among the most common found on earth.
In 1997, the International Agency for Research on Cancer ("IARC") reclassified
the inhalation of crystalline silica from occupational sources from "probably
carcinogenic to humans" to a category reflecting "sufficient evidence of human
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carcinogenicity." Celite and Harborlite provide required warning labels on their
products containing in excess of 0.1 percent respirable crystalline silica,
advising customers of the IARC designation and providing recommended safety
precautions. Such requirements also mandate that industrial customers who
purchase diatomite or perlite for use as a filler in their products label such
products to disclose hazards which may result from the inclusion of crystalline
silica-based fillers, if such products contain in excess of 0.1 percent of
crystalline silica by volume. Due to labeling 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 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. Data errors later discovered in the follow-up study reduced
the final SMR to 1.22 and further weakened the dose response relationship. An
additional aspect of the study, which seeks to compare results of the cohort
study to radiographic readings of the workers, awaits publication.
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
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Manville entities in respect of any environmental and health claims arising from
the operations of the business of Celite prior to its acquisition by the holding
company subsidiary.
EMPLOYEES
During 1997, World Minerals reorganized and centralized much of the sales
functions of its foreign subsidiaries, placing many of them directly under World
Minerals ownership. As of December 31, 1998, World Minerals had 203 employees
worldwide, Celite had about 1,548 employees worldwide, and Harborlite had about
240 employees worldwide. Approximately 380 of Celite's employees and 38 of
Harborlite's employees in the United States are covered by collective bargaining
agreements. All of the collective bargaining agreements covering workers at
Celite and Harborlite are in full force and effect.
STEEL FASTENER BUSINESS
The Heads and Threads division of Alleghany, headquartered in Northbrook,
Illinois, is believed to be 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 nineteen states. The strength of Heads and Threads lies in
its long years of association with suppliers and customers.
In 1998, Heads and Threads acquired the assets of Gardenbolt International
Corp. of Sayreville, New Jersey, substantially increasing both the size of Heads
and Threads and its presence in East Coast markets. In addition, it completed
the installation and implementation of a new fully-integrated, enterprise-wide
computer system which should enhance the functionality of all areas of Heads and
Threads' business operations, including order processing, sales and inventory
management, transportation services and accounting and finance.
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 1999, will increase costs.
At December 31, 1998, Heads and Threads had about 227 employees.
REAL ESTATE BUSINESS
Headquartered in Sacramento, California, Alleghany Properties and its
subsidiary own and manage, among other real estate and real estate-related
assets, 28 properties in California. Such properties are comprised primarily of
improved and unimproved commercial land (office, retail and industrial), and
improved and unimproved commercial and residential lots. A major portion of
API's real estate assets are located in North Natomas, the only large
undeveloped area in the City of Sacramento. Development in the area had been
delayed by flood plan zoning and wildlife habitat issues, both of which appear
to be close to resolution.
At December 31, 1998, API had 5 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.
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Chicago Trust leases about 57,000 square feet at 171 North Clark Street in
Chicago, Illinois. In 1998, Montag & Caldwell entered into a lease covering
approximately 23,500 square feet of office space for its new headquarters in
Atlanta, Georgia. The lease term is expected to begin in the third quarter of
1999 upon completion of construction and relocation. Currently, Montag &
Caldwell leases about 18,400 square feet in Atlanta, Georgia and Security Trust
leases about 8,100 square feet in San Diego, California.
URG is leasing approximately 45,000 square feet of office space for its new
headquarters in Calabasas, California. All of its four branch office locations
are also in leased space, ranging in size from about 2,900 square feet to 6,700
square feet. CUIC leases about 19,700 square feet of office space. All four
branch offices of The Center are also in leased space, ranging in size from
about 4,300 square feet to 5,800 square feet. VHL is leasing approximately
13,000 square feet of office space in London.
World Minerals' headquarters is located in leased premises of approximately
13,000 square feet in Santa Barbara, California. Celite, Harborlite and certain
departments of World Minerals share 16,800 square feet of leased premises in
Lompoc, California.
A description of the major plants and properties owned and operated by
Celite and Harborlite is set forth below. All of the following properties are
owned, with the exception of Plant #1 at Quincy, Washington, the headquarters
offices at Santa Barbara and Lompoc, California, the Nanterre, France, Santiago,
Chile and Izmir, Turkey offices and the plant at Wissembourg, France, which are
leased.
LOCATION AND APPROXIMATE
NATURE OF PROPERTY SQUARE FOOTAGE PRODUCT OR USE
- ------------------ -------------- --------------
CELITE:
Lompoc, CA............................ 997,410 Diatomite filter aids, fillers,
Production facility; 18 multi-story silicates and specialty products.
production buildings; 5 one-story
warehouse buildings; 6 one-story
laboratory buildings; 4 multi-story
bulk handling buildings; 6 one-story
office buildings; 2 one-story lunch
and locker-room buildings; and 10
one-story shops.
Lompoc, CA............................ 16,800 Administrative office
1 one-story building; and 3 units
within 1 one-story building.
Quincy, WA............................ 60,941 Diatomite filter aids and fillers
Production facility; Plant #1 -- 1
multi-story production building and 7
one-story buildings. Plant #2 -- 1
multi-story production building and 6
one-story buildings.
Murat, Department of Cantal, France... 77,000 Diatomite filter aids
Production facility; 1 one-story
manufacturing building; 2 one-story
warehouses; and 1 one-story office
building.
Nanterre, France...................... 6,600 Sales and administrative offices
1 single floor.
Guadalajara, Mexico................... 116,610 Diatomite filter aids and fillers
Production facility; 2 multi-story
production buildings; 2 multi-story
pollution-control buildings; and 20
one-story buildings.
Mexico City, Mexico................... 2,700 Sales and administrative offices
1 single floor condominium.
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LOCATION AND APPROXIMATE
NATURE OF PROPERTY SQUARE FOOTAGE PRODUCT OR USE
- ------------------ -------------- --------------
Arica, Chile.......................... 50,000 Diatomite filter aids
Production facility; 1 calcined line;
1 administration building; 1
laboratory; 1 warehouse building; 1
changing room building; 1 maintenance
workshop; and 1 product warehouse.
Santiago, Chile....................... 1,682 Offices
1 single floor in a multi-story,
rented office building.
Alicante, Spain....................... 70,777 Diatomite filter aids and fillers
Production facility; 2 multi-story
manufacturing buildings; 3 one-story
warehouses; 2 one-story office
buildings; 1 two-story laboratory; and
3 miscellaneous buildings.
Changbai County, Jilin Province, 95,000 Diatomite filter aids
PRC...................................
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, 74,665 Diatomite filter aids
PRC...................................
Production facility; 1 multi-story
production facility; 1 two-story
office building; 3 one-story warehouse
buildings; and 3 one-story
miscellaneous buildings.
Linjiang County, Jilin Province, 142,000 Diatomite filter aids
PRC...................................
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 for perlite ore
1 one-story manufacturing building and
warehouse; 1 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.
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.
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LOCATION AND APPROXIMATE
NATURE OF PROPERTY SQUARE FOOTAGE PRODUCT OR USE
- ------------------ -------------- --------------
Quincy, FL............................ 18,450 Perlite filter aids
1 one-story warehouse building; 1
one-story manufacturing building; and
1 one-story office building.
LaPorte, TX........................... 23,000 Perlite filter aids and fillers
1 one-story expansion warehouse and
office building.
Wissembourg, France................... 5,000 Perlite filter aids and fillers
a portion of 1 multi-story production
and warehouse building.
Hessle, Humberside, United Kingdom.... 36,700 Perlite filter aids and fillers
1 one-story manufacturing building;
and 1 two-story office building.
Dikili, Turkey........................ 63,200 Perlite crushing mill
Production facility; 1 four-story
manufacturing building; 1 one-story
warehouse building; 1 one-story raw
material warehouse; 1 one-story office
building; and 1 one-story maintenance
shop.
Izmir, Turkey......................... 1,000 Sales and administrative offices
1 single floor.
Barcelona, Spain...................... 70,300 Perlite filter aids and fillers
Production facility; 1 one-story
manufacturing and warehouse building;
1 one-story raw material warehouse;
and 1 two-story office building.
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.
WORLD MINERALS:
Santa Barbara, CA..................... 13,000 Headquarters office
1 one-story rented 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.
World Minerals, 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 rights to mine diatomaceous earth in
sections of Lake Myvatn, Iceland, and Celite's joint ventures in PRC have rights
to mine diatomaceous earth in sections of Jilin Province, PRC.
ITEM 3. LEGAL PROCEEDINGS.
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,
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including legal costs. In the opinion of management, such provision is adequate
under generally accepted accounting principles as of December 31, 1998.
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 1998.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
The name, age, current position, date elected and five-year business
history of each executive officer of Alleghany are as follows:
CURRENT POSITION BUSINESS EXPERIENCE
NAME AGE (DATE ELECTED) DURING LAST 5 YEARS
- ---- --- ---------------------------------- ----------------------------------
F.M. Kirby 79 Chairman of the Board (since 1967) Chairman of the Board, Alleghany.
John J. Burns, 67 President, chief operating officer President, chief operating officer
Jr. (since 1977) and chief executive and chief executive officer,
officer (since 1992) Alleghany.
David B. Cuming 66 Senior Vice President and chief Senior Vice President and chief
financial officer (since 1989) financial officer, Alleghany.
Robert M. Hart 54 Senior Vice President, General Senior Vice President and General
Counsel (since 1994) and Secretary Counsel since September 1994 and
(since 1995) Secretary since January 1995;
Partner, Donovan Leisure Newton &
Irvine, prior thereto.
Peter R. Sismondo 43 Vice President, Controller, Vice President, Controller,
Assistant Secretary, principal Treasurer, Assistant Secretary and
accounting officer (since 1989) principal accounting officer,
and Treasurer (since 1995) Alleghany, since 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 22 of Alleghany's Annual Report to
Stockholders for the year 1998, filed as Exhibit 13 hereto.
RECENT SALES OF UNREGISTERED SECURITIES.
On December 17, 1998, Alleghany sold to the Chairman of VHL 15,604 shares
of Alleghany common stock for an aggregate purchase price of $2,978,413.50, or
$190.875 per share. The sale was exempt from registration under the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof, as a transaction not
involving a public offering.
Other than unregistered issuances of Alleghany common stock previously
reported in Alleghany's Quarterly Reports on Form 10-Q for the quarters ending
March 31, 1998, June 30, 1998 and September 30, 1998, such issuances that did
not involve a sale consisting of issuances of common stock and other securities
pursuant to employee incentive plans and the sale described above, Alleghany did
not sell any Alleghany common stock during 1998 that was not registered under
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item 6 is incorporated by reference from
page 22 of Alleghany's Annual Report to Stockholders for the year 1998, filed as
Exhibit 13 hereto.
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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 3 through 5, 7, 9 through 11, 13 through 15, 17, 19, and 24 through 28, of
Alleghany's Annual Report to Stockholders for the year 1998, filed as Exhibit 13
hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item 7A is incorporated by reference from
pages 28 through 29 of Alleghany's Annual Report to Stockholders for the year
1998, 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 30 through 46 of Alleghany's Annual Report to Stockholders for the year
1998, 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 23, 1999. Information concerning compliance with the reporting
requirements under Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from the bottom of pages 10 through 11 of
Alleghany's Proxy Statement, filed or to be filed in connection with its Annual
Meeting of Stockholders to be held on April 23, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by reference from
pages 11 through 18 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 23, 1999.
The information set forth beginning with the middle of page 18 through page 24
of Alleghany's Proxy Statement, filed or to be filed in connection with its
Annual Meeting of Stockholders to be held on April 23, 1999, is not "filed" as a
part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated by reference from
pages 2 through 4, and from pages 9 through 10, of Alleghany's Proxy Statement,
filed or to be filed in connection with its Annual Meeting of Stockholders to be
held on April 23, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated by reference from
pages 12 through 13 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 23, 1999.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and subsidiaries,
together with the report thereon of KPMG LLP, independent certified public
accountants, are incorporated by reference from the Annual Report to
Stockholders for the year 1998 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 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.
*10.01 Description of Alleghany Management Incentive Plan, filed as
Exhibit 10.01 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated herein by
reference.
*10.02 Alleghany Corporation Deferred Compensation Plan as amended
and restated as of December 15, 1992, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
*10.03 Alleghany 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.
*10.04 Alleghany Supplemental Death Benefit Plan dated as of May
15, 1985 and effective as of January 1, 1985, filed as
Exhibit 10.08 to Old Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1985, is incorporated herein
by reference (Securities and Exchange Commission File No.
1-9371).
*10.05(a) Trust Agreement Amendment made as of July 8, 1994 between
Alleghany and Chemical Bank, filed as Exhibit 10.08(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.05(b) Alleghany Retirement Plan, as amended and restated on March
14, 1995, filed as Exhibit 10.08(c) to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.05(c) Amendments to Alleghany Retirement Plan, effective as of
January 1, 1996, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, is incorporated herein by reference.
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.05(d) Amendments to Alleghany Retirement Plan, effective as of
January 1, 1998, filed as Exhibit 10.05(d) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1997, is incorporated herein by reference.
*10.06 Alleghany Retirement COLA Plan dated and effective as of
January 1, 1992, as adopted on March 17, 1992, filed as
Exhibit 10.7 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
*10.07 Description of Alleghany Group Long Term Disability Plan
effective as of July 1, 1995, filed as Exhibit 10.10 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.08 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.
*10.09 Alleghany Directors' Equity Compensation Plan, effective as
of January 16, 1995, filed as Exhibit 10.11 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
*10.10 Alleghany Non-Employee Directors' Retirement Plan effective
July 1, 1990, filed as Exhibit 10.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
*10.11(a) Description of compensatory arrangement between Alleghany
and Paul F. Woodberry, filed as Exhibit 10.11(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
*10.11(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.
10.12 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.
10.12(a) First Amendment dated as of April 8, 1998, to the Revolving
Credit Loan Agreement dated as of June 14, 1995, among
Alleghany and Chase Manhattan Bank (formerly known as
Chemical Bank), filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, is incorporated herein by reference.
10.13(a) Distribution Agreement dated as of June 16, 1998 by and
between Alleghany Corporation and Chicago Title Corporation
(the "Spin-Off Distribution Agreement"), filed as Exhibit
2.1(a) to Chicago Title Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and Exchange
Commission File No. 001-13995).
10.13(b) List of Contents of Exhibits to the Spin-Off Distribution
Agreement, filed as Exhibit 2.1(b) to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, is incorporated herein by reference
(Securities and Exchange Commission File No. 001-13995).
10.13(c) Tax Sharing Agreement dated as of June 17, 1998 by and among
Alleghany Corporation and Chicago Title Corporation, filed
as Exhibit 10.2 to Chicago Title Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and Exchange
Commission File No. 001-13995).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 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).
10.15 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).
10.16(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.
10.16(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.
10.17(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.
10.17(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.
10.17(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.
10.17(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.
10.17(e) Third Amendment to Alleghany Properties Note Purchase
Agreement dated as of December 11, 1998 by and among
Alleghany, Alleghany Properties, Inc., Hartford Life
Insurance Company, 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.
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.18(a) Note Purchase Agreement dated as of December 11, 1998 by and
among Alleghany Properties, Inc., Alleghany and United of
Omaha Life Insurance Company (the "Alleghany Properties 1998
Note Purchase Agreement"). Agreements dated as of December
11, 1998 among Alleghany Properties, Inc., Alleghany and
each of Companion Life Insurance Company, Hartford Life
Insurance Company, The Lincoln National Life Insurance
Company, and First Penn-Pacific Life Insurance Company are
omitted pursuant to Instruction 2 of Item 601 of Regulation
S-K.
10.18(b) List of Contents of Annexes and Exhibits to the Alleghany
Properties 1998 Note Purchase Agreement. Alleghany agrees to
furnish supplementally a copy of any omitted annex or
exhibit to the Securities and Exchange Commission upon
request.
10.19(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).
10.19(b) Intercreditor and Collateral Agency Agreement dated as of
October 20, 1997 among The Chase Manhattan Bank, Barclays
Bank PLC and Alleghany Funding Corporation, filed as Exhibit
10.1 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
10.19(c) Master Agreement dated as of October 20, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation, and
related Amended Confirmation dated October 24, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation, filed
as Exhibit 10.2 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, are incorporated
herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.19(d) Indenture dated as of October 20, 1997 between Alleghany
Funding Corporation and The Chase Manhattan Bank, filed as
Exhibit 10.3 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is incorporated
herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.20(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).
10.20(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).
10.21(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).
10.21(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).
35
38
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.22(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).
10.22(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).
10.22(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).
10.23(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).
10.23(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).
10.23(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).
10.24(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,
NationsBank, 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.
10.24(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.
10.25(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.
10.25(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.
10.26 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, filed as Exhibit 10.30(j) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
36
39
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.27(a) Amended and Restated Credit Agreement dated as of December
31, 1998 among Underwriters Re Group, Inc., the Lenders
named therein and The First National Bank of Chicago, as
Agent (the "Underwriters Credit Agreement").
10.27(b) List of Contents of Exhibits to the Underwriters Credit
Agreement. Alleghany agrees to furnish supplementally a copy
of any omitted exhibit to the Securities and Exchange
Commission upon request.
10.27(c) Guaranty dated as of December 31, 1998 by Underwriters
Reinsurance Company in favor of The First National Bank of
Chicago, as Agent, pursuant to the Underwriters Credit
Agreement.
10.28(a) Agreement and Plan of Amalgamation dated as of July 30, 1998
by and among Underwriters Reinsurance Company, Underwriters
Acquisition Company Ltd. and Venton Holdings Ltd. (the
"Amalgamation Agreement").
10.28(b) List of Contents of Exhibits to the Amalgamation Agreement.
Alleghany agrees to furnish supplementally a copy of any
omitted exhibit to the Securities and Exchange Commission
upon request.
10.28(c) Amendment No. 1 dated as of September 24, 1998 to the
Amalgamation Agreement (the "Amalgamation Amendment No. 1").
10.28(d) List of Contents of Exhibits to the Amalgamation Amendment
No. 1. Alleghany agrees to furnish supplementally a copy of
any omitted exhibit to the Securities and Exchange
Commission upon request.
10.29(a) Letter of Credit Facility and Reimbursement Agreement dated
as of October 23, 1998 by and among Venton Underwriting
Limited, Talbot Underwriting Limited, Underwriters Re Group,
Inc., Underwriters Reinsurance Company, the Banks parties
thereto, Mellon Bank, N.A., Dresdner Kleinwort Benson North
America LLC and Dresdner Bank AG, New York and Grand Cayman
Branches (the "Underwriters Letter of Credit Facility").
10.29(b) List of Contents of Exhibits to the Underwriters Letter of
Credit Facility. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit to the Securities and Exchange
Commission upon request.
10.29(c) First Amendment dated as of November 25, 1998 to the
Underwriters Letter of Credit Facility.
10.29(d) Second Amendment dated as of December 8, 1998 to the
Underwriters Letter of Credit Facility.
10.30(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.
10.30(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 3 through 5, 7, 9 through 11, 13 through 15, 17, 19,
22, and 24 through 46 of the Annual Report to Stockholders
of Alleghany for the year 1998.
21 List of subsidiaries of Alleghany.
37
40
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23 Consent of KPMG LLP, independent certified public
accountants, to the incorporation by reference of their
reports relating to the financial statements and related
schedules of Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration No.
33-27598), Form S-8 (Registration No. 333-323), Form S-8
(Registration No. 333-37237), Form S-8 (Registration No.
333-57133), Form S-3 (Registration No. 33-55707), Form S-3
(Registration No. 33-62477), Form S-3 (Registration No.
333-09881), and Form S-3 (Registration No. 333-13971).
27 Financial Data Schedule.
- ---------------
* Compensatory plan or arrangement.
(b) Reports on Form 8-K.
Alleghany did not file any reports on Form 8-K during the fourth quarter of
1998.
38
41
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)
By /s/ JOHN J. BURNS, JR.
------------------------------------
John J. Burns, Jr.
President
Date: March 16, 1999
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 16, 1999 By /s/ JOHN J. BURNS, JR.
--------------------------------------------------
John J. Burns, Jr.
President and Director
(principal executive officer)
Date: March 16, 1999 By /s/ DAN R. CARMICHAEL
--------------------------------------------------
Dan R. Carmichael
Director
Date: March 16, 1999 By /s/ DAVID B. CUMING
--------------------------------------------------
David B. Cuming
Senior Vice President
(principal financial officer)
Date: March 16, 1999 By /s/ THOMAS S. JOHNSON
--------------------------------------------------
Thomas S. Johnson
Director
Date: March 16, 1999 By /s/ ALLAN P. KIRBY, JR.
--------------------------------------------------
Allan P. Kirby, Jr.
Director
Date: March 16, 1999 By /s/ F.M. KIRBY
--------------------------------------------------
F.M. Kirby
Chairman of the Board and Director
Date: March 16, 1999 By /s/ WILLIAM K. LAVIN
--------------------------------------------------
William K. Lavin
Director
Date: March 16, 1999 By /s/ ROGER NOALL
--------------------------------------------------
Roger Noall
Director
39
42
Date: March 16, 1999 By /s/ PETER R. SISMONDO
-----------------------------------------------------
Peter R. Sismondo
Vice President, Controller, Treasurer and Assistant
Secretary (principal accounting officer)
Date: March 16, 1999 By /s/ JAMES F. WILL
-----------------------------------------------------
James F. Will
Director
Date: March 16, 1999 By /s/ PAUL F. WOODBERRY
-----------------------------------------------------
Paul F. Woodberry
Director
40
43
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.
44
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31,1998
(IN THOUSANDS)
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------ ---------- ---------- ---------------
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities..................... $ 309,088 $ 318,755 $ 318,755
States, municipalities and political
subdivisions................................. 379,861 391,968 391,968
Foreign governments............................ 26,146 25,809 25,809
Public utilities............................... 35,614 37,258 37,258
All other corporate bonds...................... 342,418 350,109 350,109
Certificates of deposit........................... 1,333 1,333 1,333
Redeemable preferred stock........................ 21,618 22,243 22,243
---------- ---------- ----------
Fixed maturities............................... 1,116,078 $1,147,475 $1,147,475
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust, and insurance companies.......... 16,000 $ 16,000 16,000
Industrial, miscellaneous, and all other....... 301,216 808,326 808,326
---------- ---------- ----------
Total equity securities................... 317,216 $ 824,326 824,326
---------- ========== ----------
Other long-term investments......................... 19,407 19,433
Short-term investments.............................. 134,794 134,799
---------- ----------
Total investments......................... $1,587,495 $2,126,033
========== ==========
45
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
---------- ----------
ASSETS
Investment securities (Cost: 1998 $207,857; 1997
$218,307)................................................. $ 534,580 $ 499,502
Cash........................................................ 999 0
Accounts and other receivables, less allowances............. 27,992 20,560
Property and equipment -- at cost, less accumulated
depreciation.............................................. 4,866 3,049
Other assets................................................ 47,347 32,118
Investment in CT&T (discontinued operations)................ 0 385,451
Investment in consolidated subsidiaries..................... 898,450 865,131
---------- ----------
$1,514,234 $1,805,811
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities........................................... $ 78,513 $ 76,896
Net deferred tax liability.................................. 140,686 122,857
Long-term debt.............................................. 47,607 35,123
---------- ----------
Total liabilities................................. 266,806 234,876
Commitments and contingent liabilities
Common stockholders' equity................................. 1,247,428 1,570,935
---------- ----------
$1,514,234 $1,805,811
========== ==========
See accompanying Notes to Condensed Financial Statements.
46
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
1998 1997 1996
------- -------- -------
Revenues:
Interest, dividend and other income....................... $73,477 $ 61,362 $58,647
Net (loss)
gain on investment transactions........................ 318 (11,280) 801
------- -------- -------
Total revenues.................................... 73,795 50,082 59,448
------- -------- -------
Costs and Expenses:
Interest expense.......................................... 6,597 4,466 3,444
General and administrative................................ 91,934 73,908 67,192
------- -------- -------
Total costs and expenses.......................... 98,531 78,374 70,636
------- -------- -------
Operating loss............................................ (24,736) (28,292) (11,188)
Equity in earnings of consolidated subsidiaries............. 115,752 93,522 68,578
------- -------- -------
Earnings from continuing operations, before income
taxes.................................................. 91,016 65,230 57,390
Income taxes................................................ 27,635 13,830 16,920
------- -------- -------
Earnings from continuing operations....................... 63,381 51,400 40,470
Earnings from discontinued operations, net of tax......... 32,725 54,267 46,578
------- -------- -------
Net earnings.............................................. $96,106 $105,667 $87,048
======= ======== =======
See accompanying Notes to Condensed Financial Statements.
47
SCHEDULE II
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
1998 1997 1996
-------- --------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations....................... $ 63,381 $ 51,400 $40,470
Adjustments to reconcile earnings from continuing
operations to cash provided by (used in) continuing
operations:
Depreciation and amortization........................... 894 501 463
Net (gain) loss on investment transactions.............. (318) 11,280 (801)
(Increase) decrease in accounts and other receivables,
less allowances....................................... (7,432) (2,402) 884
(Increase) decrease in other assets..................... (15,327) (2,874) 3,554
Increase (decrease) in other liabilities................ 3,513 (7,375) (12,268)
Other operating, net.................................... 471 1,226 (1,625)
Equity in undistributed net earnings of consolidated
subsidiaries.......................................... (79,071) (64,007) (46,731)
-------- --------- -------
Net adjustments......................................... (97,270) (63,651) (56,524)
-------- --------- -------
Cash used in continuing operations...................... (33,889) (12,251) (16,054)
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments................................... (66,133) (250,930) (7,502)
Sales of investments...................................... 76,895 226,032 6,469
Capital contributions to consolidated subsidiaries........ (263) (1,171) (446)
Cash dividends from consolidated subsidiaries............. 61,826 14,362 4,441
Purchase of property and equipment........................ (2,613) (976) (333)
Disposition of property and equipment..................... 0 0 18
-------- --------- -------
Net cash provided by (used in) investing activities..... 69,712 (12,683) 2,647
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt...................... 0 0 (35,000)
Proceeds of long-term debt................................ 12,484 16,000 35,000
Cash provided by discontinued operations.................. 3,903 18,805 30,000
Other, net................................................ (51,211) (11,726) (15,570)
-------- --------- -------
Net cash (used in) provided by financing activities..... (34,824) 23,079 14,430
-------- --------- -------
Net increase (decrease) in cash......................... 999 (1,855) 1,023
Cash at beginning of year................................... 0 1,855 832
-------- --------- -------
CASH AT END OF YEAR......................................... $ 999 $ 0 $ 1,855
======== ========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................ $ 5,147 $ 4,869 $ 3,443
Income taxes............................................ $ 56,112 $ 34,100 $54,822
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Book value of spin-off of Chicago Title and Trust Company... $413,767 $ 0 $ 0
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.
See accompanying Notes to Condensed Financial Statements.
48
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 spin-off of Chicago Title and Trust.
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 1998 and 1997 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 13 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.
49
SCHEDULE III
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
AT DECEMBER 31 FOR THE YEAR ENDED DECEMBER 31
---------------------------------------------- ----------------------------------
FUTURE
POLICY OTHER BENEFITS,
BENEFITS, POLICY CLAIMS,
DEFERRED LOSSES, CLAIMS LOSSES
POLICY CLAIMS AND NET AND
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES
- ---- ------- ----------- ---------- -------- -------- -------- ---------- ----------
1998................. Property and
casualty
reinsurance $93,397 $1,554,818 $389,603 $0 $420,809 $80,404 $288,259
======= ========== ======== == ======== ======= ========
1997................. Property and
casualty
reinsurance $29,644 $1,159,070 $136,288 $0 $376,672 $75,531 $261,828
======= ========== ======== == ======== ======= ========
1996................. Property and
casualty
reinsurance $20,771 $1,110,020 $ 95,472 $0 $346,777 $63,184 $243,725
======= ========== ======== == ======== ======= ========
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING PREMIUMS
YEAR COSTS EXPENSES WRITTEN
- ---- ------------ --------- --------
1998.................
$113,170 $54,805 $438,162
======== ======= ========
1997.................
$ 94,444 $51,769 $414,191
======== ======= ========
1996.................
$ 88,895 $40,373 $360,305
======== ======= ========
50
SCHEDULE IV
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ---- ------- -------- --------- ---------- -------- ----------
1998................. Property
and casualty
reinsurance
premiums $144,812 $110,377 $386,374 $420,809 92%
======== ======== ======== ======== =====
1997................. Property
and casualty
reinsurance
premiums $112,158 $ 88,416 $352,930 $376,672 94%
======== ======== ======== ======== =====
1996................. Property
and casualty
reinsurance
premiums $ 85,437 $ 65,968 $327,308 $346,777 94.39%
======== ======== ======== ======== =====
51
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
(IN THOUSANDS)
DISCOUNT,
IF ANY,
DEDUCTED CLAIMS AND CLAIM
RESERVES IN RESERVES ADJUSTMENT
FOR FOR EXPENSES
UNPAID UNPAID INCURRED RELATED TO
DEFERRED CLAIMS CLAIMS -------------------
AFFILIATION POLICY AND CLAIM AND CLAIM NET (1) (2)
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME YEAR YEAR
- ----------- ----------- ---------- ----------- -------- -------- ---------- -------- --------
1998
Consolidated property-
casualty entities........ $93,397 $1,554,818 $0 $389,603 $420,809 $80,404 $290,513 $(2,254)
======= ========== == ======== ======== ======= ======== ========
1997
Consolidated property-
casualty entities........ $29,644 $1,159,070 $0 $136,288 $376,672 $75,531 $267,530 $(5,702)
======= ========== == ======== ======== ======= ======== ========
1996
Consolidated property-
casualty entities........ $20,771 $1,110,020 $0 $ 95,472 $346,777 $63,184 $242,332 $ 1,393
======= ========== == ======== ======== ======= ======== ========
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION POLICY AND CLAIM
WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
- ----------- ------------ ----------- --------
1998
Consolidated property-
casualty entities........ $113,170 $192,031 $438,162
======== ======== ========
1997
Consolidated property-
casualty entities........ $ 94,444 $210,015 $414,191
======== ======== ========
1996
Consolidated property-
casualty entities........ $ 88,895 $139,689 $360,305
======== ======== ========
52
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 19, 1999, we reported on the consolidated balance
sheets of Alleghany Corporation and subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements of earnings, changes in common
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998 as contained in the 1998 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 1998.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statements schedules as
listed in the accompanying index. These financial statements schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements schedules based on our audits.
In our opinion, such financial statements schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 19, 1999
53
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.
*10.01 Description of Alleghany Management Incentive Plan, filed as
Exhibit 10.01 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated herein by
reference.
*10.02 Alleghany Corporation Deferred Compensation Plan as amended
and restated as of December 15, 1992, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
*10.03 Alleghany 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.
*10.04 Alleghany Supplemental Death Benefit Plan dated as of May
15, 1985 and effective as of January 1, 1985, filed as
Exhibit 10.08 to Old Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1985, is incorporated herein
by reference (Securities and Exchange Commission File No.
1-9371).
*10.05(a) Trust Agreement Amendment made as of July 8, 1994 between
Alleghany and Chemical Bank, filed as Exhibit 10.08(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.05(b) Alleghany Retirement Plan, as amended and restated on March
14, 1995, filed as Exhibit 10.08(c) to Alleghany's Annual
Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.05(c) Amendments to Alleghany Retirement Plan, effective as of
January 1, 1996, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, is incorporated herein by reference.
*10.05(d) Amendments to Alleghany Retirement Plan, effective as of
January 1, 1998, filed as Exhibit 10.05(d) to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1997, is incorporated herein by reference.
*10.06 Alleghany Retirement COLA Plan dated and effective as of
January 1, 1992, as adopted on March 17, 1992, filed as
Exhibit 10.7 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
*10.07 Description of Alleghany Group Long Term Disability Plan
effective as of July 1, 1995, filed as Exhibit 10.10 to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
*10.08 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.
*10.09 Alleghany Directors' Equity Compensation Plan, effective as
of January 16, 1995, filed as Exhibit 10.11 to Alleghany's
Annual Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
54
EXHIBIT
NUMBER DESCRIPTION
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*10.10 Alleghany Non-Employee Directors' Retirement Plan effective
July 1, 1990, filed as Exhibit 10.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990, is
incorporated herein by reference (Securities and Exchange
Commission File No. 1-9371).
*10.11(a) Description of compensatory arrangement between Alleghany
and Paul F. Woodberry, filed as Exhibit 10.11(a) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
*10.11(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.
10.12 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.
10.12(a) First Amendment dated as of April 8, 1998, to the Revolving
Credit Loan Agreement dated as of June 14, 1995, among
Alleghany and Chase Manhattan Bank (formerly known as
Chemical Bank), filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, is incorporated herein by reference.
10.13(a) Distribution Agreement dated as of June 16, 1998 by and
between Alleghany Corporation and Chicago Title Corporation
(the "Spin-Off Distribution Agreement"), filed as Exhibit
2.1(a) to Chicago Title Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and Exchange
Commission File No. 001-13995).
10.13(b) List of Contents of Exhibits to the Spin-Off Distribution
Agreement, filed as Exhibit 2.1(b) to Chicago Title
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, is incorporated herein by reference
(Securities and Exchange Commission File No. 001-13995).
10.13(c) Tax Sharing Agreement dated as of June 17, 1998 by and among
Alleghany Corporation and Chicago Title Corporation, filed
as Exhibit 10.2 to Chicago Title Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference (Securities and Exchange
Commission File No. 001-13995).
10.14 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).
10.15 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).
10.16(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.
10.16(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.
55
EXHIBIT
NUMBER DESCRIPTION
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10.17(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.
10.17(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.
10.17(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.
10.17(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.
10.17(e) Third Amendment to Alleghany Properties Note Purchase
Agreement dated as of December 11, 1998 by and among
Alleghany, Alleghany Properties, Inc., Hartford Life
Insurance Company, 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.
10.18(a) Note Purchase Agreement dated as of December 11, 1998 by and
among Alleghany Properties, Inc., Alleghany and United of
Omaha Life Insurance Company (the "Alleghany Properties 1998
Note Purchase Agreement"). Agreements dated as of December
11, 1998 among Alleghany Properties, Inc., Alleghany and
each of Companion Life Insurance Company, Hartford Life
Insurance Company, The Lincoln National Life Insurance
Company, and First Penn-Pacific Life Insurance Company are
omitted pursuant to Instruction 2 of Item 601 of Regulation
S-K.
10.18(b) List of Contents of Annexes and Exhibits to the Alleghany
Properties 1998 Note Purchase Agreement. Alleghany agrees to
furnish supplementally a copy of any omitted annex or
exhibit to the Securities and Exchange Commission upon
request.
10.19(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).
10.19(b) Intercreditor and Collateral Agency Agreement dated as of
October 20, 1997 among The Chase Manhattan Bank, Barclays
Bank PLC and Alleghany Funding Corporation, filed as Exhibit
10.1 to Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, is incorporated herein by
reference (Securities and Exchange Commission File No.
1-9371).
56
EXHIBIT
NUMBER DESCRIPTION
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10.19(c) Master Agreement dated as of October 20, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation, and
related Amended Confirmation dated October 24, 1997 between
Barclays Bank PLC and Alleghany Funding Corporation, filed
as Exhibit 10.2 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, are incorporated
herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.19(d) Indenture dated as of October 20, 1997 between Alleghany
Funding Corporation and The Chase Manhattan Bank, filed as
Exhibit 10.3 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is incorporated
herein by reference (Securities and Exchange Commission File
No. 1-9371).
10.20(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).
10.20(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).
10.21(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).
10.21(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).
10.22(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).
10.22(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).
10.22(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).
10.23(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).
57
EXHIBIT
NUMBER DESCRIPTION
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10.23(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).
10.23(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).
10.24(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,
NationsBank, 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.
10.24(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.
10.25(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.
10.25(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.
10.26 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, filed as Exhibit 10.30(j) to
Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
10.27(a) Amended and Restated Credit Agreement dated as of December
31, 1998 among Underwriters Re Group, Inc., the Lenders
named therein and The First National Bank of Chicago, as
Agent (the "Underwriters Credit Agreement").
10.27(b) List of Contents of Exhibits to the Underwriters Credit
Agreement. Alleghany agrees to furnish supplementally a copy
of any omitted exhibit to the Securities and Exchange
Commission upon request.
10.27(c) Guaranty dated as of December 31, 1998 by Underwriters
Reinsurance Company in favor of The First National Bank of
Chicago, as Agent, pursuant to the Underwriters Credit
Agreement.
10.28(a) Agreement and Plan of Amalgamation dated as of July 30, 1998
by and among Underwriters Reinsurance Company, Underwriters
Acquisition Company Ltd. and Venton Holdings Ltd. (the
"Amalgamation Agreement").
10.28(b) List of Contents of Exhibits to the Amalgamation Agreement.
Alleghany agrees to furnish supplementally a copy of any
omitted exhibit to the Securities and Exchange Commission
upon request.
10.28(c) Amendment No. 1 dated as of September 24, 1998 to the
Amalgamation Agreement (the "Amalgamation Amendment No. 1").
58
EXHIBIT
NUMBER DESCRIPTION
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10.28.(d) List of Contents of Exhibits to the Amalgamation Amendment
No. 1. Alleghany agrees to furnish supplementally a copy of
any omitted exhibit to the Securities and Exchange
Commission upon request.
10.29(a) Letter of Credit Facility and Reimbursement Agreement dated
as of October 23, 1998 by and among Venton Underwriting
Limited, Talbot Underwriting Limited, Underwriters Re Group,
Inc., Underwriters Reinsurance Company, the Banks parties
thereto, Mellon Bank, N.A., Dresdner Kleinwort Benson North
America LLC and Dresdner Bank AG, New York and Grand Cayman
Branches (the "Underwriters Letter of Credit Facility").
10.29(b) List of Contents of Exhibits to the Underwriters Letter of
Credit Facility. Alleghany agrees to furnish supplementally
a copy of any omitted exhibit to the Securities and Exchange
Commission upon request.
10.29(c) First Amendment dated as of November 25, 1998 to the
Underwriters Letter of Credit Facility.
10.29(d) Second Amendment dated as of December 8, 1998 to the
Underwriters Letter of Credit Facility.
10.30(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.
10.30(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 3 through 5, 7, 9 through 11, 13 through 15, 17, 19,
22, and 24 through 46 of the Annual Report to Stockholders
of Alleghany for the year 1998.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG LLP, independent certified public
accountants, to the incorporation by reference of their
reports relating to the financial statements and related
schedules of Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration No.
33-27598), Form S-8 (Registration No. 333-323), Form S-8
(Registration No. 333-37237), Form S-8 (Registration No.
333-57133), Form S-3 (Registration No. 33-55707), Form S-3
(Registration No. 33-62477), Form S-3 (Registration No.
333-09881), and Form S-3 (Registration No. 333-13971).
27 Financial Data Schedule.
- ---------------
* Compensatory plan or arrangement.