In 2004, we restated the operating results in this table for 2001 to correctly classify the net gain on sale of subsidiaries as part of discontinued operations. The 2001 financial statements we included in our 2003 Annual Report to Stockholders incorrectly classified the net gain on sale of subsidiaries as part of revenues from continuing operations. Previously, we reported revenues from continuing operations of $958,851, earnings from continuing operations of $430,563 and losses from discontinued operations of $206,333. The error in classification of the net gain on sale of subsidiaries in 2001 had no impact on net earnings or any balance sheet item.
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 market prices of our significant equity investments; extended labor disruptions, civil unrest or other external factors over which we have no control; and changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our 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 our behalf.
Each of our insurance operating units establishes reserves on its balance sheet for unpaid losses and LAE related to its property and casualty insurance and surety and fidelity contracts. As of any balance sheet date, historically there have been claims that have not yet been reported, and some claims may not be reported for many years after the date a loss
Our reserve for unpaid losses and LAE includes $25.6 million of gross and net reserves at December 31, 2005 and $26.5 million of gross and net reserves at December 31, 2004, for various liability coverages related to asbestos and environmental impairment claims that arose from reinsurance assumed by a subsidiary of CATA between 1969 and 1976. The subsidiary exited this business in 1976. 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 these uncertainties include a lack of historical data, the significant periods of time that often elapse between the occurrence of an insured 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 these risks, unresolved legal issues regarding policy coverage and the extent and timing of any such contractual liability. Loss reserve estimates for these environmental impairment and asbestos exposures include case reserves, which also reflect reserves for legal and other LAE and IBNR reserves. IBNR reserves are determined based upon CATA’s historic general liability exposure base and policy language, previous environmental impairment loss experience and the assessment of current trends of environmental law, environmental cleanup costs, asbestos liability law and judgmental settlements of asbestos liabilities.
Earnings from continuing operations before income taxes declined to $59.8 million in 2005 from $148.9 million in 2004. The primary reason for this decline was a $39.1 million pre-tax loss at AIHL, compared with pre-tax earnings of $173.4 million in 2004. AIHL’s 2005 loss reflects a $133.0 million net loss at RSUI primarily attributable to 2005 catastrophic events, particularly Hurricane Katrina, partially offset by net earnings at CATA and Darwin. Corporate activities reported pre-tax earnings of $98.9 million in 2005, compared with a pre-tax loss of $24.5 million in 2004, primarily reflecting net gains on investments transactions at the parent company of $132.6 million due to the sale of common stock of Burlington Northern and CIGNA in 2005. By comparison, there was only $2.4 million of net gains on investment transactions at the parent company level in 2004.
The following tables indicate the composition of the debt securities portfolio by rating for AIHL and its subsidiaries at December 31, 2005 and 2004 (in thousands, except for percentages):
Equity Securities Portfolio. As of December 31, 2005, the equity securities portfolio of AIHL and its subsidiaries, on a consolidated basis, was carried at a fair value of approximately $349.9 million with an original cost of approximately $293.4 million. In 2005, AIHL had dividend income on its portfolio of $4.1 million, compared with $5.3 million in 2004 and $7.8 million in 2003. AIHL and its subsidiaries may, from time to time, make significant investments in the common stock of a public company, subject to limitations imposed by applicable regulations.
At December 31, 2005 and 2004, Alleghany had a concentration of market risk in its holdings of the equity securities of Burlington Northern Santa Fe Corporation (“Burlington Northern”) of $424.9 million and $378.5 million, respectively. The cost of these securities is $72.4 million at December 31, 2005.
For purposes of the consolidated statements of cash flows and consolidated balance sheets, cash includes only funds that are available for immediate withdrawal. In 2005, the Company has separately disclosed the operating, investing and financing portions of the cash flows attributable to its discontinued operations, which in prior periods were excluded from the consolidated statements of cash flows.
The Board of Directors has authorized the purchase from time to time of shares of common stock for the treasury. During 2005 and 2004 Alleghany repurchased no shares. In 2003, Alleghany repurchased 1,326 shares of its common stock at a cost of $0.3 million.
d. Property and equipment, net of accumulated depreciation and amortization, at December 31, 2005 and 2004 are as follows (in thousands):
We have audited the accompanying consolidated balance sheets of Alleghany Corporation and subsidiaries as of December 31, 2005 and 2004, 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, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Alleghany Corporation maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Alleghany Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.