-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QyknNVtvzaJJ9cVhPFig+sVcrZ5zB2p8tF+kC5CC6paNP8z+DBTJVdhDLhNHNI4B x8titCJNujBwLJHJ3qAtSg== 0000950123-04-006032.txt : 20040510 0000950123-04-006032.hdr.sgml : 20040510 20040510115849 ACCESSION NUMBER: 0000950123-04-006032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHANY CORP /DE CENTRAL INDEX KEY: 0000775368 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 510283071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09371 FILM NUMBER: 04791666 BUSINESS ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10152 BUSINESS PHONE: 2127521356 MAIL ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10152 FORMER COMPANY: FORMER CONFORMED NAME: ALLEGHANY FINANCIAL CORP DATE OF NAME CHANGE: 19870115 10-Q 1 y97239e10vq.txt ALLEGHANY CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2004 COMMISSION FILE NUMBER 1-9371 ALLEGHANY CORPORATION - -------------------------------------------------------------------------------- EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER DELAWARE - -------------------------------------------------------------------------------- STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION 51-0283071 - -------------------------------------------------------------------------------- INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NUMBER 375 PARK AVENUE, NEW YORK NY 10152 - -------------------------------------------------------------------------------- ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE 212-752-1356 - -------------------------------------------------------------------------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE NOT APPLICABLE - -------------------------------------------------------------------------------- FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT 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) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES [X] NO [ ] INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LAST PRACTICABLE DATE. 7,667,953 SHARES AS OF APRIL 30, 2004 ITEM 1. FINANCIAL STATEMENTS ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (dollars in thousands, except share and per share amounts) (unaudited)
2004 2003 ------------ ------------ REVENUES Net fastener sales $ 37,803 $ 27,953 Interest, dividend and other income 16,352 11,980 Net insurance premiums earned 189,668 33,415 Net mineral and filtration sales 67,081 62,048 Net gain on investment transactions 33,183 3,264 ------------ ------------ Total revenues 344,087 138,660 ------------ ------------ COSTS AND EXPENSES Underwriting expenses 41,638 13,362 Salaries, administrative and other operating expenses 24,243 17,606 Loss and loss adjustment expenses 93,098 19,853 Cost of goods sold - fasteners 27,906 20,759 Cost of mineral and filtration sales 51,378 47,920 Interest expense 1,244 1,278 Corporate administration 8,802 6,300 ------------ ------------ Total costs and expenses 248,309 127,078 ------------ ------------ Earnings before income taxes 95,778 11,582 Income taxes 33,714 3,858 ------------ ------------ Net earnings $ 62,064 $ 7,724 ============ ============ Basic earnings per share of common stock * $ 8.11 $ 1.02 ============ ============ Diluted earnings per share of common stock * $ 8.08 $ 1.01 ============ ============ Dividends per share of common stock ** ** ============ ============ Average number of outstanding shares of common stock * 7,652,336 7,561,408 ============ ============
* Adjusted to reflect the common stock dividend declared in March 2004. ** In March 2003 and 2004, Alleghany declared a stock dividend consisting of one share of Alleghany common stock for every fifty shares outstanding See Notes to Consolidated Financial Statements. 2 ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 AND DECEMBER 31, 2003 (dollars in thousands, except share amounts)
MARCH 31, 2004 DECEMBER 31, (UNAUDITED) 2003 * ------------ ------------ ASSETS Available for sale securities at fair value: 3/31/2004 12/31/2003 Equity securities (cost: $ 311,413 $370,982) $ 532,520 $ 620,754 Debt securities (cost: $1,182,055 $910,307) 1,194,657 917,270 Short-term investments 149,918 135,079 ------------ ------------ 1,877,095 1,673,103 Cash 142,161 231,583 Notes receivable 91,933 92,082 Accounts receivable, net 74,271 75,154 Premium balances receivable 177,011 279,682 Reinsurance receivables 281,096 228,423 Ceded unearned premium reserves 320,537 264,038 Deferred acquisition costs 48,033 47,282 Property and equipment - at cost, net of accumulated depreciation 174,823 177,708 Inventory 85,107 84,612 Goodwill and other intangibles, net of amortization 231,111 233,739 Deferred tax assets 90,550 85,736 Other assets 74,196 94,898 ------------ ------------ $ 3,667,924 $ 3,568,040 ============ ============ LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current taxes payable $ 56,773 $ 49,605 Losses and loss adjustment expenses 573,447 454,664 Other liabilities 212,183 211,000 Reinsurance payable 130,382 255,117 Unearned premiums 732,270 676,940 Parent company debt 0 0 Subsidiaries' debt 164,667 167,050 Deferred tax liabilities 186,271 190,842 ------------ ------------ Total liabilities 2,055,993 2,005,218 Common stockholders' equity 1,611,931 1,562,822 ------------ ------------ $ 3,667,924 $ 3,568,040 ============ ============ COMMON SHARES OUTSTANDING ** 7,663,517 7,644,232 ============ ============
* Certain amounts have been reclassified to conform to the 2004 presentation. ** Adjusted to reflect the common stock dividend declared in March 2004. See Notes to Consolidated Financial Statements. 3 ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (dollars in thousands) (unaudited)
2004 2003 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Earnings from continuing operations $ 62,064 $ 7,724 Adjustments to reconcile net earnings to cash provided by (used in) operations: Depreciation and amortization 10,632 4,923 Net gain on investment transactions (33,183) (3,264) Tax benefit on stock options exercised 375 48 Decrease (increase) in accounts and notes receivable 1,277 (9,204) (Increase) decrease in inventory (495) 13,035 Decrease (increase) in other assets 15,464 (2,015) Increase (decrease) in reinsurance receivables (176,537) 2,242 Increase (decrease) in premium balances receivable 102,671 (262) Increase in ceded unearned premium reserves (56,497) (546) Increase (decrease) in deferred acquisition costs (750) 297 Increase (decrease) in other liabilities and current taxes 28,298 (2,402) Increase (decrease) in unearned premiums 55,329 (862) Increase in losses and loss adjustment expenses 118,728 695 ------------ ------------ Net adjustments 65,312 2,685 ------------ ------------ Net cash provided by operations 127,376 10,409 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (474,840) (210,367) Sales of investments 294,088 192,549 Purchases of property and equipment (3,646) (3,047) Net change in short-term investments (14,839) (14,314) Other, net (17,349) 5,683 ------------ ------------ Net cash used in investing activities (216,586) (29,496) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (6,383) (33,026) Proceeds of long-term debt 4,000 49,305 Other, net 2,171 2,032 ------------ ------------ Net cash (used in) provided by financing activities (212) 18,311 ------------ ------------ Net decrease in cash (89,422) (776) Cash at beginning of period 231,583 27,423 ------------ ------------ Cash at end of period $ 142,161 $ 26,647 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 1,158 $ 774 Income taxes $ 30,222 $ 2,511
See Notes to Consolidated Financial Statements. 4 Notes to the Consolidated Financial Statements This report should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2003 (the "2003 Form 10-K") of Alleghany Corporation (the "Company"). The information included in this report is unaudited but reflects all adjustments which, in the opinion of management, are necessary to a fair statement of the results of the interim periods covered thereby. All adjustments are of a normal and recurring nature except as described herein. Stock-Based Compensation Accounting In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure" ("SFAS 148"). SFAS 148 amended FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") to provide alternative methods of transition for enterprises that elect to change to the SFAS 123 fair value method of accounting for stock-based employee compensation and to amend the disclosure requirements of SFAS 123. The Company maintains fixed option plans and a performance-based stock plan. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123 prospectively for all employee awards granted, modified or settled under any of its stock-based compensation plans after January 1, 2003. Fair value is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: no cash dividend yield for all years; expected volatility of 19 percent for all years; risk-free interest rates ranging from 2.92 to 3.59 percent; and expected lives of seven years. Prior to 2003, the Company accounted for its fixed option plans and performance-based stock plan under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). During the first quarter of 2004 and 2003, no stock options were granted under the Company's fixed option plans. The expense relating to options issued in prior periods was $20,000 in the 2004 first quarter and $0 in the 2003 first quarter. With respect to its performance-based stock plan, the Company recognized after-tax compensation expense of approximately $1.7 million in the 2004 first quarter and approximately $0.6 million in the 2003 first quarter (in each case calculated pursuant to the prospective method under SFAS 123). Had the Company applied SFAS 123 to all option awards outstanding under its fixed option plans during the 2004 and 2003 first quarters, the Company would have recognized after-tax expense of $48,000 in the 2004 first quarter and $52,000 in the 2003 5 first quarter. Had the Company applied SFAS 123 to all awards outstanding under its performance-based stock plan during the same periods, the Company would have recognized additional after-tax expense of approximately $1.8 million in the 2004 first quarter and approximately $0.9 million in the 2003 first quarter. The following table illustrates the effect on net earnings and earnings per share if the fair value based method had been applied to all outstanding and unvested awards under all of the Company plans in each period.
For the three months ended March 31, 2004 March 31, 2003 (in thousands, except per share amounts) Net earnings, as reported $ 62,064 $ 7,724 Add: stock-based employee compensation expense included in reported net earnings, net of related tax 1,739 583 Less: stock-based compensation expense determined under fair value method for all stock options, net of related tax (1,862) (925) --------------- --------------- Pro forma net earnings $ 61,941 $ 7,382 =============== =============== Earnings per share Basic - as reported $ 8.11 $ 1.02 Basic - pro forma $ 8.09 $ 0.98 Diluted - as reported $ 8.08 $ 1.01 Diluted - pro forma $ 8.06 $ 0.97
Employee Benefit Plans The Company has several noncontributory defined benefit pension plans. The defined benefits are based on years of service and the employee's average annual base salary over a consecutive three-year period during the last ten years or, if applicable, shorter period of employment plus one-half of the highest average annual bonus over a consecutive five-year period during the last ten years, or, if applicable, shorter period of 6 employment. The Company's funding policy is to contribute annually the amount necessary to satisfy the Internal Revenue Service's funding requirements. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Additional details regarding the Company's noncontributory defined benefit pension plans can be found in Note 11 to the Consolidated Financial Statements in the Company's 2003 Form 10-K. The components of net periodic benefit cost for the three months ended March 31, 2004 and 2003 consisted of the following:
For the three months ended March 31, 2004 March 31, 2003 (in millions) Net periodic cost included to following expense (income) components: Service cost-benefits earned during the quarter $ 0.9 $ 0.8 Interest cost on projected benefit obligation 1.1 1.0 Expected return on plan assets (0.9) (0.8) Net amortization 0.6 0.7 --------------- --------------- Net periodic pension cost $ 1.7 $ 1.7 =============== ===============
The Company plans to contribute approximately $7.4 million to the plans in 2004 compared to contributions of approximately $6.9 million in 2003. 7 Comprehensive Income (Loss) The Company's total comprehensive income (loss) for the three months ended March 31, 2004 and 2003 was $45.3 million and $(1.9) million. Comprehensive income (loss) includes the Company's net earnings adjusted for changes in unrealized (depreciation) appreciation of investments, which were $(14.6) million and $9.8 million, and cumulative translation adjustments, which were $(2.2) million and $0.2 million, for the three months ended March 31, 2004 and 2003, respectively. Segment Information Information concerning the Company's operations by industry segment is summarized below:
For the three months ended March 31, March 31, (in millions) 2004 2003 ------------ ------------ REVENUES Property and casualty insurance $ 231.4 $ 38.7 Mining and filtration 67.0 62.1 Corporate activities 45.7 37.9 ------------ ------------ Total $ 344.1 $ 138.7 ============ ============ EARNINGS (LOSSES) BEFORE INCOME TAXES Property and casualty insurance $ 90.6 $ 4.9 Mining and filtration 5.3 4.9 Corporate activities (0.1) 1.8 ------------ ------------ Total 95.8 11.6 ------------ ------------ Income taxes 33.7 3.9 ------------ ------------ Net earnings $ 62.1 $ 7.7 ============ ============
March 31, December 31, (in millions) 2004 2003 ------------ ------------ IDENTIFIABLE ASSETS Property and casualty insurance $ 2,725.8 $ 975.0 Mining and filtration 333.7 310.1 Corporate activities 608.4 861.2 ------------ ------------ Total $ 3,667.9 $ 2,146.3 ============ ============
8 Contingencies The Company's subsidiaries are parties to pending claims and litigation in the ordinary course of their businesses. Each such operating unit makes provisions on its books in accordance with generally accepted accounting principles for estimated losses to be incurred as a result of such claims and litigation, including related legal costs. In the opinion of management, such provisions are adequate as of March 31, 2004. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following discussion and analysis presents a review of the Company and its subsidiaries for the three months ended March 31, 2004 and 2003. This review should be read in conjunction with the consolidated financial statements and other data presented herein as well as Management's Discussion and Analysis of Financial Condition and Results of Operation contained in the Company's 2003 Form 10-K. The Company reported net earnings in the first quarter of 2004 of $62.1 million, compared with net earnings of $7.7 million in the first quarter of 2003. Net gains on investment transactions after taxes in the first quarter of 2004 totalled $21.6 million, compared with $2.1 million in the corresponding 2003 period. The Company's common stockholders' equity per share at March 31, 2004 was $210.33, an increase from common stockholders' equity per share of $204.44 as of December 31, 2003 (both as adjusted for the stock dividend declared in March 2004). Alleghany Insurance Holdings LLC ("AIHL") recorded pre-tax earnings of $90.6 million on revenues of $231.4 million in the 2004 first quarter, compared with pre-tax earnings of $4.9 million on revenues of $38.7 million in the first quarter of 2003. AIHL's 2004 first quarter net earnings include after-tax investment income of $7.1 million and a realized after-tax net gain on investment transactions of $20.4 million, compared with after-tax investment income of $3.0 million and a realized after-tax net gain on investment transactions of $0.6 million in the corresponding 2003 period. AIHL's 2004 first quarter after-tax investment income reflects a larger invested asset base, principally due to capital contributions by the Company and the acquisition of the operations of RSUI Group, Inc. ("RSUI") in July 2003. The comparative pre-tax contributions to AIHL's results made by its operating units RSUI, Capitol Transamerica Corporation ("CATA") and Darwin Professional Underwriters, Inc. ("Darwin") were as follows (in thousands, except ratios): 9 For the three months ended March 31
RSUI(1) CATA(2) Darwin(3) Total ---------- ---------- ---------- ---------- 2004 Gross premiums written $ 294.4 $ 41.7 $ 20.6 $ 356.7 Net premiums earned $ 148.4 $ 34.4 $ 6.9 $ 189.7 Loss and loss adjustment expenses 70.0 18.8 4.3 93.1 Underwriting expenses 23.5 15.2 3.0 41.7 ---------- ---------- ---------- ---------- Underwriting profit (loss) (4) $ 54.9 $ 0.4 $ (0.4) $ 54.9 ========== ========== ========== ========== Loss ratio (5) 47.2% 54.6% 62.3% 49.1% Expense ratio (6) 15.8% 44.1% 43.5% 22.0% Combined ratio (7) 63.0% 98.7% 105.8% 71.1% 2003 Gross premiums written -- $ 36.4 -- $ 36.4 Net premiums earned -- $ 33.4 -- $ 33.4 Loss and loss adjustment expenses -- 19.8 -- 19.8 Underwriting expenses -- 13.2 -- 13.2 ---------- ---------- ---------- ---------- Underwriting profit (4) -- $ 0.4 -- $ 0.4 ========== ========== ========== ========== Loss ratio (5) -- 59.4% -- 59.4% Expense ratio (6) -- 39.5% -- 39.5% Combined ratio (7) -- 98.9% -- 98.9%
(1) Since July 1, 2003. (2) Includes the results of Platte River Insurance Company, which was acquired contemporaneously with CATA in January 2002 and operates in conjunction with CATA. (3) Since May 2003. Although Darwin is an underwriting manager for Platte River and certain subsidiaries of CATA, the results of business generated by Darwin have been separated from CATA's results for purposes of this table. (4) Represents net premiums earned less loss and loss adjustment expenses and underwriting expenses, all as determined in accordance with generally accepted accounting principles ("GAAP"), and does not include income derived from investments. Underwriting profit (loss) does not replace net income (loss) determined in accordance with GAAP as a measure of profitability; rather, it provides a basis for management to evaluate the underwriting performance of its insurance operating units. (5) Loss and loss adjustment expenses divided by net premiums earned, all as determined in accordance with GAAP. (6) Underwriting expenses divided by net premiums earned, all as determined in accordance with GAAP. (7) The sum of the Loss Ratio and Expense Ratio, all as determined in accordance with GAAP, representing the percentage of each premium dollar an insurance company has to spend on losses (including loss adjustment expenses) and underwriting expenses. 10 RSUI's 2004 first quarter results reflect favorable underwriting conditions in RSUI's lines of business and the absence of any significant catastrophe losses during such period. RSUI's commercial property business is exposed to catastrophe losses which have historically occurred more frequently during the second and third quarters. RSUI has experienced increased competition across all of its lines of business since the 2003 third quarter, particularly with respect to its property lines of business. Rates at RSUI in the 2004 first quarter as compared with the 2003 third and fourth quarters reflected overall industry trends, with marginal increases or flat rates in RSUI's casualty lines of business and decreased rates in its property lines of business. The continuation of such trends may result in lower levels of gross premiums written by RSUI during the remainder of 2004, since RSUI is expected to write more business when it considers prices adequate to support acceptable profit margins and less business when it considers prices inadequate to support acceptable profit margins. CATA's 2004 first quarter results reflect an increase in gross premiums written from the 2003 first quarter, primarily reflecting rate increases in its casualty lines of business as well as premiums generated with respect to expansion of business into the excess and surplus markets. CATA experienced increased competition across all of its admitted lines of business in the 2004 first quarter from the 2003 first quarter, particularly with respect to its property and contract surety lines of business. Rates at CATA for the 2004 first quarter as compared with the 2003 first quarter reflect overall industry trends, with lower levels of rate increases in its casualty lines of business and rate decreases in property and contract surety lines of business. A.M. Best Company, Inc. recently notified AIHL that it had downgraded its ratings of CATA's subsidiaries Capitol Indemnity Corporation and Capitol Specialty Insurance Company Platte River Insurance Company from A+ (Superior) to A (Excellent). It is not expected that such downgrade will have a material impact on the business of those AIHL subsidiaries. Darwin's first quarter results reflect the incurrence of expenses for organizational build-up to support expected future premium levels, as well as increased competition across all of its lines of business, particularly with respect to its directors and officers liability line of business. World Minerals recorded pre-tax earnings of $5.3 million on revenues of $67.0 million in first quarter 2004, compared with pre-tax earnings of $4.9 million on revenues of $62.1 million in the corresponding period in 2003. The 2004 first quarter results primarily reflect the continuing favorable impact of the strong euro versus the U.S. dollar (had foreign exchange rates remained constant with those in the first three months of 2003, World Minerals' revenues would have increased approximately 3% instead of 8%) and a modest increase in net shipments. As of March 31, 2004, the Company beneficially owned 8.0 million shares, or approximately 2.1 percent, of the outstanding common stock of Burlington Northern 11 Santa Fe Corporation, which had an aggregate market value on that date of approximately $252.0 million, or $31.50 per share. The aggregate cost of such shares is approximately $96.6 million, or $12.07 per share. The Company has previously announced that it may purchase shares of its common stock in open market transactions from time to time. In the first quarter of 2004, the Company did not purchase any shares of its common stock. As of March 31, 2004, the Company had 7,663,517 shares of common stock outstanding (which includes the stock dividend declared in March 2004). The Company's results in the first three months of 2004 are not indicative of operating results in future periods. The Company and its subsidiaries have adequate internally generated funds and unused credit facilities to provide for the currently foreseeable needs of its and their businesses. Information regarding the Company's accounting policies is included in the Company's 2003 Form 10-K and the Notes to the Consolidated Financial Statements included in this report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of loss from adverse changes in market prices and rates, such as interest rates, foreign currency exchange rates and commodity prices. The primary market risk related to the Company's non-trading financial instruments is the risk of loss associated with adverse changes in interest rates. The investment portfolios of the Company and its insurance subsidiaries may contain, from time-to-time, debt securities with fixed maturities that expose them to risk related to adverse changes in interest rates. The table below presents a sensitivity analysis of the debt securities of the Company and its insurance subsidiaries that are sensitive to changes in interest rates. Sensitivity analysis is defined as the measurement of potential changes in future earnings, fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates over a selected time. In this sensitivity analysis model, the Company uses fair values to measure its potential change, and a +/- 200 basis point range of change in interest rates to measure the hypothetical change in fair value of the financial instruments included in the analysis. The change in fair value is determined by calculating hypothetical March 31, 2004 ending prices based on yields adjusted to reflect a +/- 200 basis point range of change in interest rates, comparing such hypothetical ending price to actual ending prices, and multiplying the difference by the par outstanding. 12 SENSITIVITY ANALYSIS At March 31, 2004 (dollars in millions)
Interest Rate Shifts -200 -100 0 100 200 - -------------------- ---------- ---------- ---------- ---------- ---------- ASSETS Debt securities, fair value $ 1,281.8 $ 1,239.8 $ 1,194.7 $ 1,158.1 $ 1,118.5 Estimated change in fair value $ 87.1 $ 45.1 -- $ (36.6) $ (76.2) LIABILITIES Subsidiaries' debt, fair value $* $ 164.6 $ 165.2 $ 165.9 $ 166.5 Estimated change in fair value $* $ (0.6) -- $ 0.7 $ 1.3
*The weighted average interest rate for subsidiaries' debt is 2.5%, of which approximately $80.0 million bears interest at 1.5%. Therefore, the results of interest rate shifts in excess of 150 basis points is not meaningful. The Company's 2003 Form 10-K provides a more detailed discussion of the market risks affecting its operations. Based on the Company's estimates as of March 31, 2004, no material change has occurred in its liabilities, as compared with amounts disclosed in the 2003 Form 10-K. ITEM 4. CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic reports required to be filed with the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies or material weaknesses. 13 Forward-Looking Statements "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk" contain disclosures which are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based upon the Company's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. These statements are not guarantees of future performance, and the Company has no specific intention to update these statements. The uncertainties and risks include, but are not limited to, those relating to conducting operations in a competitive environment and conducting operations in foreign countries, effects of acquisition and disposition activities, adverse loss development for events insured by the Company's insurance operations in either the current year or prior years, general economic and political conditions, including the effects of a prolonged U.S. or global economic downturn or recession, changes in costs, including changes in labor costs, energy costs and raw material prices, variations in political, economic or other factors such as currency exchange rates, inflation rates or recessionary or expansive trends, changes in market prices of the Company's significant equity investments, tax, legal and regulatory changes, extended labor disruptions, significant weather-related or other natural or human-made disasters, especially with respect to their impact on losses at the Company's insurance subsidiaries, civil unrest or other external factors over which the Company has no control, and changes in the Company's plans, strategies, objectives, expectations or intentions, which may happen at any time at the Company's discretion. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. 14 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. (c) Recent Sales of Unregistered Securities. On January 6, 2004, the Company issued 1,884 shares of common stock to William K. Lavin in exchange for a payment in cash of $155,206 upon the exercise of an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends and the spin-off by the Company of Chicago Title Corporation in 1998, at an exercise price of $82.3811 per share, granted to Mr. Lavin on April 25, 1995 pursuant to the Alleghany Corporation Amended and Restated Directors' Stock Option Plan. On January 20, 2004, the Company issued 1,922 shares of common stock to Dan R. Carmichael in exchange for a payment in cash of $141,733 upon the exercise of an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends and the spin-off by the Company of Chicago Title Corporation in 1998, at an exercise price of $73.7427 per share, granted to Mr. Carmichael on April 25, 1994 pursuant to the Alleghany Corporation Amended and Restated Directors' Stock Option Plan. On February 6, 2004, the Company issued 1,061 shares of common stock to William J. Hegg in exchange for a payment in cash of $175,094 upon the exercise of an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends, at an exercise price of $165.00 per share, granted to Mr. Hegg on July 18, 2000 pursuant to the Subsidiary Directors' Stock Option Plan. On March 1, 2004, the Company issued an aggregate of 2,165 shares of common stock to Dana G. Leavitt in exchange for a payment in cash of $410,594 upon the exercise of an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends, at an exercise price of $213.29 per share granted to Mr. Leavitt on July 21, 1998, and an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends, at an exercise price of $165.00 per share, granted to Mr. Leavitt on July 18, 2000, in each case pursuant to the Subsidiary Directors' Stock Option Plan. Each of the foregoing sales of common stock 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. 15 The above does not include unregistered issuances of the Company's common stock that did not involve a sale, consisting of issuances of common stock and other securities pursuant to employee incentive plans. ITEM 5. OTHER INFORMATION Acquisition of U.S. AEGIS Energy Insurance Company. On May 3, 2004, AIHL purchased U.S. AEGIS Energy Insurance Company (to be renamed Darwin National Assurance Company), an admitted insurance company domiciled in Delaware, to support future business underwritten by Darwin for cash consideration of approximately $20.4 million, $17.1 million of which represented consideration for AEGIS's investment portfolio and approximately $3.3 million of which represented consideration for licenses. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit Number Description 10.1 First Amendment and Waiver to Credit Agreement dated as of April 30, 2003, by and between Heads & Threads International LLC and LaSalle Bank National Association, dated as of March 30, 2004. 10.2 Closing Agreement, dated May 3, 2004, by and among Darwin Group, Inc., Aegis Holding Inc. and Associated Electric & Gas Insurance Services Limited. 31.1 Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed "filed" as a part of this Report on Form 10-Q. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed "filed" as a part of this Report on Form 10-Q. 16 (b) Reports on Form 8-K. On February 26, 2004, the Company furnished a report on Form 8-K under Item 12 thereof regarding a press release reporting on the Company's financial results for the year ended December 31, 2003. On April 22, 2004, the Company furnished a report on Form 8-K under Item 12 thereof regarding a press release reporting on the Company's financial results as of and for the quarter ended March 31, 2004. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLEGHANY CORPORATION Registrant Date: May 7, 2004 /s/ David B. Cuming -------------------- David B. Cuming Senior Vice President (and chief financial officer) 18 EX-10.1 2 y97239exv10w1.txt 1ST AMENDMENT AND WAIVER TO CREDIT AGREEMENT EXHIBIT 10.1 FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT DATED AS OF APRIL 30, 2003 (AS AMENDED FROM TIME TO TIME, THE "AGREEMENT"), BY AND BETWEEN HEADS & THREADS INTERNATIONAL LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE "COMPANY") AND LASALLE BANK NATIONAL ASSOCIATION (THE "BANK") This First Amendment and Waiver to the Agreement ("Amendment") is entered into as of March 30, 2004 by and between the Company and the Bank. All capitalized terms stated in this Amendment and not defined herein shall have the same meaning as set forth in the Agreement. WHEREAS, the Bank has made Loans to the Company pursuant to the Agreement; and WHEREAS, the Company has requested the Bank's consent to the Company's conduct of business in Mexico through the formation and operation of the Mexican Subsidiary (as defined below); and WHEREAS, the Bank is willing to consent to the formation and operation of such Mexican Subsidiary; and WHEREAS, the Company and the Bank have agreed to amend the Agreement as stated herein and grant certain waivers as referenced herein. Now, therefore, in consideration of the fulfillment of each of the terms and conditions set forth herein, the parties hereto agree as follows: Section 1. Amendments to Agreement. a. The definition of "Eligible Inventory" in Section 1.1 of the Agreement is amended to delete the phrase "and (v)" and substitute therefor the following: (v) it is not owned by the Mexican Subsidiary or located in the Country of Mexico; and (vi) b. The definition of "Loan Documents" in Section 1.1 of the Agreement is amended to include the Stock Pledge and all documents related thereto as additional Loan Documents. c. A new definition of "Mexican Subsidiary" is added to Section 1.1 of the Agreement as follows: "Mexican Subsidiary" means a Subsidiary (including Subsidiaries of such Subsidiary) organized and existing in the Country of Mexico. d. A new definition of "Stock Pledge" is added to Section 1.1 of the Agreement as follows: "Stock Pledge" means the Stock Pledge Agreement dated as of March 30, 2004 executed and delivered by the Company to the Bank and the Membership Pledge Agreement dated as of March 30, 2004 executed and delivered by the Company to the Bank pledging the Company's membership interest in Heads and Threads (Mexico) LLC, a Delaware limited liability company ("H&T Mexico") to the Bank. e. Section 6.15 of the Agreement is amended to add a new subsection (viii) stating: (viii) Investments in the Mexican Subsidiary not exceeding $3,000,000 in the aggregate at any time outstanding whether directly or indirectly through Heads and Threads (Mexico) LLC. f. Section 6.22 of the Agreement is amended to add the following after the phrase "acquire any Subsidiary": "(except the Mexican Subsidiary and Heads and Threads (Mexico) LLC)". g. The Company's address for receipt of notices pursuant to Article XII of the Agreement is changed pursuant to Section 12.2 of the Agreement to be the following: 255 E. Lake Street, Bloomingdale, Illinois, 60108, Attn: Fred J. Weber Section 2. Waivers and Consent. a. The Company has requested that the Bank waive certain provisions of the Security Agreement set forth on Schedule 1 hereto which would otherwise be violated by the maintenance of certain Company Inventory and cash in Mexico from time to time. Subject to the Company's satisfaction of all conditions stated in Section 4 hereof, the Bank hereby grants to the Company a waiver of any violations of such provisions which would be caused solely by the Company's, Heads and Threads (Mexico) LLC's or the Mexican Subsidiary's maintenance in Mexico of Inventory and cash with a combined aggregate cost (for the Inventory) and value (for the cash) not exceeding $3,000,000 (the "Waivers"). The Waivers set forth herein are effective solely for the purpose set forth herein and shall be limited precisely as written and shall not be deemed to be a consent to any amendment, waiver, modification of, or noncompliance with, any other term or condition of the Agreement as amended hereby or otherwise prejudice any right or remedy which the Bank may now have or may have in the future in connection with the Agreement. Section 3. Representations and Warranties. The Company represents and warrants that: a. The representations and warranties contained in the Agreement are true and correct in all material respects on and as of the date hereof as if such representations and warranties had been made on and as of the date hereof (except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty is true and correct in all material respects on and as of such earlier date); and -2- b. The Company is in compliance with all the terms and provisions set forth in the Agreement and no Default or Unmatured Default has occurred and is continuing except for those waived pursuant to Section 2 hereinbefore or as previously waived. Section 4. Conditions to Effectiveness. This Amendment is subject to the satisfaction in full of the following conditions precedent: a. The Lender shall have received executed originals of this Amendment; b. The Lender shall have received copies of the organization documents and respective by-laws and operating agreement for the Mexican Subsidiary and H&T Mexico certified by the Company's Secretary or Assistant Secretary (with copies certified by the applicable Secretary of State to be delivered to the Lender as soon as practicable thereafter); c. The Lender shall have received executed originals of the Stock Pledge along with the original stock certificates for the stock pledged therein and executed stock powers with respect to such stock; d. The Lender shall have received payment of the fees provided in Section 7 of this Amendment; and e. All legal matters incident to this Amendment shall be reasonably satisfactory to Arnstein & Lehr LLP, counsel for the Bank. Section 5. Full Force and Effect. Except as expressly amended and waived herein, the Agreement and the Loan Documents are hereby ratified and confirmed, and shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Agreement and the Loan Documents, the terms "Agreement", "this Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar import, shall, unless the context otherwise requires, mean the Agreement as amended by this Amendment. Section 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. Section 7. Expenses. The Company agrees to pay all out-of-pocket expenses incurred by Lender in connection with the preparation, execution and delivery of this Amendment and the other documents incident hereto, including, but not limited to, the reasonable fees and disbursements of Arnstein & Lehr LLP, counsel for the Bank. Section 8. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one instrument. Section 9. Headings. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the date and year first above written. COMPANY: HEADS & THREADS INTERNATIONAL LLC BY: /s/ Fred J. Weber --------------------------------- ITS: VP Finance & CFO BANK: LASALLE BANK NATIONAL ASSOCIATION BY: /s/ Henry J. Munez --------------------------------- ITS: First Vice President -4- SCHEDULE 1 PROVISIONS OF THE SECURITY AGREEMENT SUBJECT TO THE WAIVERS 1. The Warranties and Representations in Sections 3(iv) and 3(v) of the Security Agreement. 2. The Covenant in Section 7(ii) of the Security Agreement. EX-10.2 3 y97239exv10w2.txt CLOSING AGREEMENT EXHIBIT 10.2 CLOSING AGREEMENT This Closing Agreement (the "Closing Agreement") is made and entered into on May 3, 2004 by and among Darwin Group, Inc., a Delaware corporation ("Darwin Group"), Aegis Holding Inc., a Delaware corporation ("Seller"), and Associated Electric & Gas Insurance Services Limited, a mutual insurance company organized under the laws of Bermuda and the sole stockholder of Seller ("Parent"). W I T N E S S E T H : WHEREAS, Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), Seller and Parent entered into that certain Stock Purchase Agreement dated as of January 30, 2004 and amended by letter agreement dated as of April 28, 2004 (as so amended, the "Stock Purchase Agreement"), pursuant to which Seller agreed to sell, and AIHL agreed to purchase, all of the outstanding shares of common stock, par value $1.00 per share, of U.S. Aegis Energy Insurance Company, a stock insurance company organized under the laws of Delaware (the "Company"); and WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of April 29, 2004 (the "Assignment Agreement"), AIHL assigned to Darwin Group, a wholly owned subsidiary of AIHL, and Darwin Group assumed from AIHL, all of AIHL's rights and obligations under the Stock Purchase Agreement; and WHEREAS, Darwin Group, Seller and Parent (collectively, the "parties") desire to confirm their mutual understanding and agreement with respect to certain matters in connection with the consummation of the transactions contemplated by the Stock Purchase Agreement; NOW, THEREFORE, in consideration of the foregoing premises, and the mutual agreements contained herein, intending to be bound legally hereby, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement. 2. Closing. The Closing shall take place on May 3, 2004 and shall be given effect as of 12:01 a.m. on May 1, 2004. 3. The Closing Date Balance Sheet. The Closing Date Balance Sheet shall be dated as of April 30, 2004. 4. Flow of Funds. Darwin Group and Seller agree that the Closing Date Shareholder's Equity, as determined in accordance with Section 5.5 of the Stock Purchase Agreement, is $17,085,765 and that the Purchase Price, as determined in accordance with Section 2.2 of the Stock Purchase Agreement, is $20,385,765. At the Closing, Darwin Group will pay to Seller by wire transfer the amount of $20,335,765, representing payment of the Purchase Price less offset of $50,000 owed by Seller to Darwin Group in connection with the finder's fee referenced in Section 5.15 of the Stock Purchase Agreement. 5. Third Party Reinsurance Endorsements. Seller shall obtain, no later than 60 days after Closing, endorsements or amendments to the Surety Quota Share Reinsurance Agreement effective as of September 1, 1998, eliminating the Company as a reinsured entity thereunder. AIHL and Darwin Group will fully cooperate with the Seller, to the extent such cooperation is reasonably requested by Seller, in obtaining such endorsements and/or amendments. 6. New Mexico License. Seller and Parent will fully cooperate with the Company and with Darwin Group, to the extent such cooperation is reasonably requested by the Company or by Darwin Group, in obtaining renewal of the Company's license to transact and issue policies of Property, Marine and Transportation and Casualty and Surety in the State of New Mexico. 7. Certain Tax Matters. The parties intend that (i) Seller and Parent shall be liable and responsible for all Taxes of the Company (other than United States federal income Taxes) attributable to all Tax periods (or portions thereof) ending on or before April 30, 2004, and for all the United States federal income Taxes attributable to the taxable income of the Company for all Tax periods ending on or prior to May 3, 2004; and (ii) Purchaser shall be liable and responsible for all Taxes (other than United States federal income Taxes) of the Company attributable to all Tax periods (or portions thereof) beginning after April 30, 2004, and for the United States federal income Taxes attributable to the taxable income of the Company for all taxable periods beginning after May 3, 2004. To effectuate the foregoing, the following provisions of the Stock Purchase Agreement shall be modified as follows: (a) The term "Post-Closing Tax Period" in Section 5.3(g) of the Stock Purchase Agreement shall be interpreted consistently with the term "Post-Closing Period" (taking into account the interpretation of such term called for pursuant to Section 4(c) of this Closing Agreement, below); (b) Except as otherwise specifically provided herein, references in the Stock Purchase Agreement to the "Closing" or the "Closing Date" for both United States federal income Tax purposes and all other Tax purposes shall mean May 3, 2004; (c) For purposes of Sections 3.7(b)(viii), 5.3(d), 5.3(f), 5.3(g), 5.3(i), and 5.4(a) of the Stock Purchase Agreement, when applying the terms "Closing" or "Closing Date," including as those terms are used in the definitions of "Pre-Closing Period," "Post-Closing Period," and "Straddle Period," (1) with respect to all Taxes other than United States federal income Taxes, the term "Closing" or "Closing Date" shall mean April 30, 2004, and (2) with respect to United States federal income Taxes, the term "Closing" or "Closing Date" shall mean May 3, 2004. 8. Representations. Seller and Parent hereby represent and warrant to Darwin Group that (i) all actions contemplated by the Stock Purchase Agreement to have -2- taken place on or prior to the Closing Date were taken on or before April 30, 2004, other than satisfaction of closing conditions relating to any agreements or other documents that were delivered in connection with the Closing on the Closing Date, and (ii) during the period from May 1, 2004 through May 3, 2004, the Company (x) has not made any payments and (y) has not taken any actions outside of the ordinary course of business. 9. Miscellaneous. (a) Amendments. This Closing Agreement may be amended or modified, and the terms hereof may be waived, only by a writing signed by all parties hereto or, in the case of a waiver, by the party entitled to the benefit of the terms being waived. (b) Assignment; Binding Effect. This Closing Agreement may not be assigned or delegated, in whole or in part, by any party hereto without the prior written consent of all other parties hereto. This Closing Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (c) Governing Law. This Closing Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles regarding the choice of law. (d) Reference to and Effect on the Stock Purchase Agreement. Upon the effectiveness of this Closing Agreement, each reference in the Stock Purchase Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Stock Purchase Agreement giving effect to the modifications and amendments set forth in this Closing Agreement. (e) Counterparts. This Closing Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. -3- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written. DARWIN GROUP, INC. By: /s/ John L. Sennott, Jr. -------------------------------------- Name: John L. Sennott, Jr. Title: Senior Vice President and Chief Financial Officer AEGIS HOLDING INC. By: /s/ Mary Ellen Lenahan -------------------------------------- Name: Mary Ellen Lenahan Title: Secretary ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LIMITED By: /s/ Mary Ellen Lenahan -------------------------------------- Name: Mary Ellen Lenahan Title: Assistant Secretary -4- EX-31.1 4 y97239exv31w1.txt CERTIFICATIONS Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John J. Burns, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alleghany Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: May 7, 2004 John J. Burns, Jr. ----------------------------------------------- John. J. Burns, Jr. President and chief executive officer EX-31.2 5 y97239exv31w2.txt CERTIFICATIONS EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David B. Cuming, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alleghany Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: May 7, 2004 /s/ David B. Cuming ------------------------------------------------- David B. Cuming Senior Vice President and chief financial officer EX-32.1 6 y97239exv32w1.txt CERTIFICATION EXHIBIT 32.1 ALLEGHANY CORPORATION CERTIFICATION In connection with the periodic report of Alleghany Corporation (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission (the "Report"), I, John J. Burns, Jr., President and chief executive officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification, which accompanies the Report, has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: May 7, 2004 By: /s/ John J. Burns, Jr. ----------------------------------- John J. Burns, Jr. President and chief executive officer EX-32.2 7 y97239exv32w2.txt CERTIFICATION EXHIBIT 32.2 ALLEGHANY CORPORATION CERTIFICATION In connection with the periodic report of Alleghany Corporation (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission (the "Report"), I, David B. Cuming, Senior Vice President and chief financial officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification, which accompanies the Report, has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: May 7, 2004 By: David B. Cuming --------------------------------------- David B. Cuming. Senior Vice President and chief financial officer -----END PRIVACY-ENHANCED MESSAGE-----