Alleghany Corporation Reports 2010 Second Quarter Results -- Stockholders’ Equity Per Common Share Increases 2.1 Percent Since 2009 Year End

NEW YORK--(BUSINESS WIRE)--Stockholders’ equity per common share of Alleghany Corporation (NYSE-Y) at June 30, 2010 was $306.91, an increase of 2.1% from stockholders’ equity per common share of $300.69 at December 31, 2009 (all as adjusted for the stock dividend declared in February 2010), Weston M. Hicks, President and chief executive officer of Alleghany, announced today. The increase in stockholders’ equity per common share primarily reflects earnings in the first half of 2010, partially offset by a negative total return on Alleghany’s equity portfolio for the six month period. Consolidated cash and invested assets of approximately $4.4 billion at June 30, 2010 were essentially unchanged from December 31, 2009.

Alleghany’s 2010 second quarter net earnings were $66.3 million, or $7.41 per common share (presented on a basic basis throughout), compared with net earnings of $46.0 million, or $5.01 per common share, in the second quarter of 2009. For the first six months of 2010, net earnings were $124.4 million, or $13.85 per common share, compared with net earnings of $90.6 million, or $9.73 per common share in the first six months of 2009. Net earnings amounts include the following components:

	Three Months ended June 30,								Six Months ended June 30,
	Amount				Per Share				Amount				Per Share
(in millions, except per share amounts)	2010		2009		2010		2009		2010		2009		2010		2009
Net catastrophe (losses) after tax	$(13.2	)	$(3.3	)	$(1.47	)	$(0.38	)	$(12.9	)	$(6.4	)	$(1.44	)	$(0.74	)
Net realized capital gains after tax	$21.7		$51.7		$2.42		$5.92		$38.8		$91.0		$4.32		$10.49
Other than temporary impairment (losses) after tax	$(3.7	)	$(6.3	)	$(0.41	)	$(0.72	)	$(4.4	)	$(49.3	)	$(0.49	)	$(5.68	)

A summary of Alleghany’s results for the three and six months ended June 30, 2010 and 2009 is as follows:

	Three Months ended June 30,						Six Months ended June 30,
(in millions)	2010		2009		Change		2010		2009		Change
AIHL insurance group (1):
Underwriting profit (loss) (2)
RSUI	$43.8		$40.8		$3.0		$80.6		$83.0		$(2.4	)
CATA	2.7		3.7		(1.0	)	3.0		5.9		(2.9	)
PCC	(5.5	)	(54.1	)	48.6		(10.9	)	(60.7	)	49.8
AIHL Re	---		---		---		---		---		---
	$41.0		$(9.6	)	$50.6		$72.7		$28.2		$44.5
Net investment income	33.0		27.7		5.3		66.3		54.7		11.6
Net realized capital gains	32.7		19.0		13.7		55.5		26.5		29.0
Other than temporary impairment losses (3)	(5.7	)	(9.7	)	4.0		(6.8	)	(75.8	)	69.0
Other income, less other expenses	(7.5	)	(11.4	)	3.9		(15.9	)	(19.8	)	3.9
Total AIHL insurance group	$93.5		$16.0		$77.5		$171.8		$13.8		$158.0
Corporate activities (4)
Net investment income	(0.3	)	(3.0	)	2.7		(2.2	)	(3.1	)	0.9
Net realized capital gains	0.6		60.5		(59.9	)	4.3		113.5		(109.2	)
Other than temporary impairment losses	---		---		---		---		---		---
Other income	1.3		0.1		1.2		1.3		0.1		1.2
Corporate administration and other expenses	6.8		7.7		0.9		12.5		8.0		(4.5	)
Interest expense	0.1		0.2		0.1		0.1		0.3		0.2
Total Corporate activities	(5.3	)	49.7		(55.0	)	(9.2	)	102.2		(111.4	)
Total	$88.2		$65.7		$22.5		$162.6		$116.0		$46.6
Income taxes	21.9		19.7		(2.2	)	38.2		25.4		(12.8	)
Net earnings	$66.3		$46.0		$20.3		$124.4		$90.6		$33.8

(1)	Alleghany Insurance Holdings LLC (“AIHL”) the holding company for Alleghany’s property and casualty and surety insurance operating units consisting of RSUI Group, Inc. (“RSUI”), Capitol Transamerica Corporation and Platte River Insurance Company (collectively, “CATA”) and Pacific Compensation Corporation (“PCC”), formerly known as Employers Direct Corporation, as well as AIHL Re LLC (“AIHL Re”).
(2)	Represents net premiums earned less loss and loss adjustment expenses and commission, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income, net realized capital gains, other-than-temporary impairment losses or other income, less other expenses. Please refer to “Comment on Regulation G” elsewhere herein.
(3)	Reflects impairment charges for unrealized losses related to Alleghany’s investment portfolio that are required to be charged against earnings as realized losses.
(4)	Corporate activities consist of Alleghany Properties Holdings LLC, Alleghany’s investments in Homesite Group Incorporated (“Homesite”) and ORX Exploration, Inc. (“ORX”), and corporate activities at the parent level.

Results for the second quarter and first six months of 2010, compared with the corresponding 2009 periods, primarily reflect an increase in AIHL’s pre-tax earnings, partially offset by pre-tax net losses at Corporate activities. The increase in AIHL’s pre-tax earnings in the second quarter and first six months of 2010 primarily reflects:

• a decrease in PCC’s underwriting loss primarily reflecting no adverse development recorded by PCC in the 2010 periods, compared with $34.5 million of adverse reserve development recorded in the first six months of 2009 (all of which was recorded in the second quarter);
• an increase in net realized capital gains, primarily due to gains on sales of certain energy sector equity securities; and
• a decrease in other-than-temporary impairment losses due primarily to improved equity market conditions since the 2009 first quarter.

The pre-tax net losses at Corporate activities in the second quarter and first six months of 2010 primarily reflect a substantial decrease in net realized capital gains as a result of the absence of sales of common stock of Burlington Northern Santa Fe Corporation in such periods, compared with significant sales of such common stock during the second quarter and first six months of 2009.

Mr. Hicks commented that “The first half of 2010 saw the continuation of a competitive property and casualty insurance market and a challenging investment environment. Despite continued pricing pressure, RSUI and CATA produced underwriting profits in the first half of 2010 and will continue to strive to maintain disciplined pricing in this environment. Pacific Compensation continues to execute on its plan to re-emerge as an agency carrier during 2010. On a consolidated basis, the total return on our investments, excluding other invested assets consisting primarily of our Homesite and ORX investments, was 2.3% in the first six months of 2010, with our fixed income portfolio providing a total return of 3.7% and our equity portfolio providing a negative total return of 7.5%, slightly behind the S&P 500’s negative total return of 6.6% for the same period.”

Information regarding the pre-tax results of AIHL’s operating units is attached as Exhibit A. During the first six months of 2010, Alleghany purchased in the open market an aggregate of 207,133 shares of its common stock for approximately $59.8 million, at an average price per share of $288.78 (such share and average price amounts are not adjusted for the stock dividend declared in February 2010), pursuant to the previously announced authorization by its Board of Directors to repurchase up to $300.0 million of Alleghany’s common stock. In July 2010, the Board of Directors authorized Alleghany to repurchase additional shares of its common stock, at such times and at such prices as management may determine advisable, up to an aggregate of $300.0 million upon completion of the current program. As of August 2, 2010, Alleghany had 8,833,790 shares of its common stock outstanding, adjusted to reflect the stock dividend declared in February 2010.

Additional information regarding Alleghany’s results for the second quarter and first six months of 2010, including management’s discussion and analysis of Alleghany’s financial condition and results of operations for the second quarter and first six months of 2010, is contained in Alleghany’s Quarterly Report on Form 10-Q for the period ended June 30, 2010, to be filed with the U.S. Securities and Exchange Commission on or about August 5, 2010. The Form 10-Q will be available on Alleghany’s website at www.alleghany.com and on the Securities and Exchange Commission’s website at www.sec.gov. Readers are urged to review the Form 10-Q for a more complete discussion of Alleghany’s financial performance.

Comment on Regulation G

This press release includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP financial measures are included in Exhibit A of this press release. Throughout this press release Alleghany presents its operations in the way it believes will be most meaningful and useful to the investing public and others who use such information in evaluating Alleghany’s results.

Alleghany shows earnings before income taxes (a GAAP financial measure), as well as underwriting profit (a non-GAAP financial measure), which is earnings before income taxes, adjusted to exclude the impact of net investment income, net realized capital gains, other-than-temporary impairment losses and other income, less other expenses. The presentation of underwriting profit is intended to enhance the understanding of AIHL’s insurance operating units’ operating results by highlighting earnings attributable to their underwriting performance. With respect to AIHL’s insurance operating units, earnings before income taxes may show a profit despite an underlying underwriting loss. If underwriting losses persist over extended periods, an insurance company’s ability to continue as an ongoing concern may be at risk. Investors should consider the non-GAAP measures contained herein in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP.

Forward-looking Statements

This release contains disclosures which are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. 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,” “believe,” “potential,” “should,” “continue” or the negative versions of those words or other comparable words. These forward-looking statements are based upon Alleghany’s current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and Alleghany’s future financial condition and results. These statements are not guarantees of future performance, and Alleghany has no specific intention to update these statements. The uncertainties and risks include, but are not limited to, risks relating to

• significant weather-related or other natural or human-made catastrophes and disasters;
• the cyclical nature of the property and casualty insurance industry;
• adverse loss development for events insured by Alleghany’s insurance operating units in either the current year or prior years;
• changes in market prices of our significant equity investments and changes in value of our debt securities portfolio;
• the long-tail and potentially volatile nature of certain casualty lines of business written by Alleghany’s insurance operating units;
• the cost and availability of reinsurance;
• exposure to terrorist acts;
• the willingness and ability of Alleghany’s insurance operating units’ reinsurers to pay reinsurance recoverables owed to such insurance operating units;
• changes in the ratings assigned to Alleghany’s insurance operating units;
• claims development and the process of estimating reserves;
• legal and regulatory changes;
• the uncertain nature of damage theories and loss amounts; and
• increases in the levels of risk retention by Alleghany’s insurance operating units.

Additional risks and uncertainties include general economic and political conditions, including the effects of a prolonged U.S. or global economic downturn or recession; changes in costs; variations in political, economic or other factors; risks relating to conducting operations in a competitive environment; effects of acquisition and disposition activities, inflation rates or recessionary or expansive trends; changes in interest rates; extended labor disruptions, civil unrest or other external factors over which Alleghany has no control; and changes in Alleghany’s plans, strategies, objectives, expectations or intentions, which may happen at any time at Alleghany’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 Alleghany or on its behalf.

ALLEGHANY CORPORATION
COMBINING STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
	THREE MONTHS ENDED 6/30/10						THREE MONTHS ENDED 6/30/09
	ALLEGHANY						ALLEGHANY
	INSURANCE		CORPORATE				INSURANCE		CORPORATE
	HOLDINGS		ACTIVITIES		COMBINED		HOLDINGS		ACTIVITIES		COMBINED
Revenues
Net premiums earned	$188,809		$0		$188,809		$204,530		$0		$204,530
Net investment income	32,957		(263	)	32,694		27,659		(3,135	)	24,524
Net realized capital gains	32,749		559		33,308		18,949		60,543		79,492
Other than temporary impairment losses	(5,703	)	0		(5,703	)	(9,675	)	0		(9,675	)
Other income	150		1,351		1,501		435		136		571
Total revenues	$248,962		$1,647		$250,609		$241,898		$57,544		$299,442
Costs and expenses
Loss and loss adjustment expenses	83,027		0		83,027		143,917		0		143,917
Commissions, brokerage and other
underwriting expenses	64,773		0		64,773		70,272		0		70,272
Other operating expenses	7,553		529		8,082		11,730		455		12,185
Corporate administration	12		6,312		6,324		3		7,227		7,230
Interest expense	145		71		216		0		169		169
Total costs and expenses	$155,510		$6,912		$162,422		$225,922		$7,851		$233,773
Earnings before income taxes	$93,452		($5,265	)	$88,187		$15,976		$49,693		$65,669
Income taxes					21,916						19,668
Net earnings					$66,271						$46,001
Net earnings					$66,271						$46,001
Preferred dividends					0						2,250
Net earnings available to common stockholders					$66,271						$43,751

ALLEGHANY CORPORATION
COMBINING STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
	SIX MONTHS ENDED 6/30/10						SIX MONTHS ENDED 6/30/09
	ALLEGHANY						ALLEGHANY
	INSURANCE		CORPORATE				INSURANCE		CORPORATE
	HOLDINGS		ACTIVITIES		COMBINED		HOLDINGS		ACTIVITIES		COMBINED
Revenues
Net premiums earned	$383,509		$0		$383,509		$422,574		$0		$422,574
Net investment income	66,338		(2,215	)	64,123		54,681		(3,088	)	51,593
Net realized capital gains	55,444		4,331		59,775		26,464		113,510		139,974
Other than temporary impairment losses	(6,780	)	0		(6,780	)	(75,801	)	0		(75,801	)
Other income	287		1,347		1,634		887		133		1,020
Total revenues	$498,798		$3,463		$502,261		$428,805		$110,555		$539,360
Costs and expenses
Loss and loss adjustment expenses	179,654		0		179,654		256,754		0		256,754
Commissions, brokerage and other
underwriting expenses	131,129		0		131,129		137,722		0		137,722
Other operating expenses	15,911		1,022		16,933		20,491		907		21,398
Corporate administration	24		11,534		11,558		20		7,118		7,138
Interest expense	294		141		435		0		332		332
Total costs and expenses	$327,012		$12,697		$339,709		$414,987		$8,357		$423,344
Earnings before income taxes	$171,786		($9,234	)	$162,552		$13,818		$102,198		$116,016
Income taxes					38,112						25,441
Net earnings					$124,440						$90,575
Net earnings					$124,440						$90,575
Preferred dividends					0						6,158
Net earnings available to common stockholders					$124,440						$84,417

ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
	June 30,		December 31,
	2010		2009
	(unaudited)
Assets
Investments
Available for sale securities at fair value:
Equity securities (cost: 2010 $915,210; 2009 $530,945)	$863,209		$624,546
Debt securities (amortized cost: 2010 $2,765,354; 2009 $3,235,595)	2,860,614		3,289,013
Short-term investments	353,880		262,903
	4,077,703		4,176,462
Other invested assets	237,266		238,227
Total investments	4,314,969		4,414,689
Cash	84,182		32,526
Premium balances receivable	183,101		145,992
Reinsurance recoverables	945,710		976,172
Ceded unearned premium reserves	168,032		160,713
Deferred acquisition costs	72,480		71,098
Property and equipment at cost, net of
accumulated depreciation and amortization	20,128		20,097
Goodwill and other intangibles, net of amortization	143,989		145,667
Current tax receivable	18,542		0
Net deferred tax assets	147,511		124,266
Other assets	120,185		101,550
	$6,218,829		$6,192,770
Liabilities and Stockholders' Equity
Losses and loss adjustment expenses	$2,418,932		$2,520,979
Unearned premiums	596,609		573,906
Reinsurance payable	68,203		51,795
Current taxes payable	0		3,827
Other liabilities	420,994		324,742
Total liabilities	3,504,738		3,475,249
Common stock (shares authorized: 2010 and 2009 -
22,000,000; issued and outstanding:
2010 - 9,118,086; 2009 - 9,300,734)	9,118		9,118
Contributed capital	923,392		921,225
Accumulated other comprehensive income	32,114		94,045
Treasury stock, at cost (2010 - 274,804 shares; 2009 - 258,013 shares)	(76,705	)	(66,325	)
Retained earnings	1,826,172		1,759,458
Total stockholders' equity	2,714,091		2,717,521
	$6,218,829		$6,192,770

Exhibit A
	AIHL Operating Unit Pre-Tax Results
	Three months ended June 30, 2010									Six months ended June 30, 2010
(in millions, except ratios)	RSUI		AIHL Re	CATA		PCC		AIHL		RSUI		AIHL Re	CATA		PCC		AIHL
Gross premiums written	$300.6		--	$47.0		$(0.6	)	$347.0		$522.6		--	$87.5		$1.9		$612.0
Net premiums written	185.1		--	44.3		(0.6	)	228.8		315.5		--	82.5		1.8		399.8
Net premiums earned (1)	$146.3		--	$41.5		$1.0		$188.8		$296.6		--	$82.1		$4.9		$383.6
Loss and loss adjustment expenses	62.3		--	19.6		1.1		83.0		135.2		--	40.6		4.0		179.8
Commission, brokerage and other underwriting expenses (2)	40.2		--	19.2		5.4		64.8		80.8		--	38.5		11.8		131.1
Underwriting profit (loss) (3)	$43.8		--	$2.7		$(5.5	)	$41.0		$80.6		--	$3.0		$(10.9	)	$72.7
Net investment income (1)								33.0									66.3
Net realized capital gains (1)								32.7									55.5
Other than temporary impairment losses (1)								(5.7	)								(6.8	)
Other income (1)								0.2									0.3
Other expenses (2)								7.7									16.2
Earnings before income taxes								$93.5									$171.8
Loss ratio (4)	42.6	%	--	47.2	%	110.8	%	44.0	%	45.6	%	--	49.4	%	82.1	%	46.8	%
Expense ratio (5)	27.4	%	--	46.3	%	518.7	%	34.3	%	27.3	%	--	47.0	%	241.7	%	34.2	%
Combined ratio (6)	70.0	%	--	93.5	%	629.5	%	78.3	%	72.9	%	--	96.4	%	323.8	%	81.0	%
	Three months ended June 30, 2009									Six months ended June 30, 2009
	RSUI		AIHL Re	CATA		PCC		AIHL		RSUI		AIHL Re	CATA		PCC		AIHL
Gross premiums written	$337.0		--	$45.1		$15.6		$397.7		$587.1		--	$87.2		$32.1		$706.4
Net premiums written	209.5		--	43.4		11.7		264.6		359.2		--	81.6		27.0		467.8
Net premiums earned (1)	$159.2		--	$41.2		$4.1		$204.5		$319.9		--	$83.2		$19.5		$422.6
Loss and loss adjustment expenses	76.0		--	19.0		48.9		143.9		153.5		--	39.9		63.3		256.7
Commission, brokerage and other underwriting expenses (2)	42.4		--	18.5		9.3		70.2		83.4		--	37.4		16.9		137.7
Underwriting profit (loss) (3)	$40.8		--	$3.7		$(54.1	)	$(9.6	)	$83.0		--	$5.9		$(60.7	)	$28.2
Net investment income (1)								27.7									54.7
Net realized capital gains (1)								19.0									26.5
Other than temporary impairment losses (1)								(9.7	)								(75.8	)
Other income (1)								0.4									0.9
Other expenses (2)								11.8									20.7
Earnings before income taxes								$16.0									$13.8
Loss ratio (4)	47.8	%	--	46.1	%	1197.8	%	70.4	%	48.0	%	--	48.0	%	324.7	%	60.8	%
Expense ratio (5)	26.6	%	--	45.0	%	229.3	%	34.4	%	26.1	%	--	44.9	%	87.1	%	32.6	%
Combined ratio (6)	74.4	%	--	91.1	%	1427.1	%	104.8	%	74.1	%	--	92.9	%	411.8	%	93.4	%

(1)	Represent components of total revenues.
(2)	Commission, brokerage and other underwriting expenses represent commission and brokerage expenses and that portion of salaries, administration and other operating expenses attributable to underwriting activities, whereas the remainder constitutes other expenses.
(3)	Represents net premiums earned less loss and loss adjustment expenses and commission, brokerage and other underwriting expenses, all as determined in accordance with GAAP, and does not include net investment income, net realized capital gains, other-than-temporary impairment losses, other income and other expenses. Underwriting profit does not replace net earnings determined in accordance with GAAP as a measure of profitability; rather, we believe that underwriting profit, which does not include net investment income, net realized capital gains, other-than-temporary impairment losses, other income and other expenses, enhances the understanding of AIHL’s insurance operating units’ operating results by highlighting net earnings attributable to their underwriting performance. With the addition of net investment income, net realized capital gains, other-than-temporary impairment losses, other income and other expenses, reported pre-tax net earnings (a GAAP measure) may show a profit despite an underlying underwriting loss. Where underwriting losses persist over extended periods, an insurance company’s ability to continue as an ongoing concern may be at risk. Therefore, we view underwriting profit as an important measure in the overall evaluation of performance.
(4)	Loss and loss adjustment expenses divided by net premiums earned, all as determined in accordance with GAAP.
(5)	Commission, brokerage and other underwriting expenses divided by net premiums earned, all as determined in accordance with GAAP.
(6)	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 commission, brokerage and other underwriting expenses.