Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes

5. Income Taxes

The effective tax rate for the first three months of 2013 was 22.5 percent, compared with 8.3 percent for the first three months of 2012. The higher effective tax rate in the first three months of 2013 primarily reflects the absence of a gain on bargain purchase, which had a significant impact in the first three months of 2012. The gain on bargain purchase resulted in a significant increase in earnings before income taxes without a corresponding increase in income taxes. The impact of the gain on bargain purchase on the effective tax rate in the first three months of 2012 was partially offset by the impact of certain non-deductible transaction costs in the first three months of 2012, which resulted in losses before income taxes without a corresponding decrease in income taxes. As a result of these non-recurring, merger-related items, the effective tax rate for the first three months of 2012 was reduced by a net 10.8 percentage points.

Alleghany believes that, as of March 31, 2013, it had no material uncertain tax positions. Interest and penalties relating to unrecognized tax expenses (benefits) are recognized in income tax expense, when applicable. There was no liability for interest or penalties accrued as of March 31, 2013.