UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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ALLEGHANY CORPORATION
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Alleghany
Supplemental Proxy Information Regarding Say on Pay Proposal April 15, 2014
Stockholder Meeting Date: April 25, 2014
We Are Requesting Your Support on Our Say on Pay Proposal
In prior years, our stockholders have shown strong support for our Say on Pay proposals, with approval rates of over 96% in both 2013 and 2012
All changes made in 2013 are stockholder friendly and do not warrant a change in support
Glass, Lewis & Co., Inc., has recommended a vote for the Say on Pay proposal citing “alignment of pay with performance”
ISS Proxy Advisory Services (“ISS”) has recommended a vote against the Say on Pay proposal. ISS asserts a “pay for performance” disconnect based upon a “high concern” Relative Degree of Alignment (“RDA”) result and certain qualitative factors
ISS’s 2014 “high concern” result is essentially the result of a single quarter (4Q’13). During 1Q’14 Alleghany’s stock price outperformed its ISS peers and the S&P 500
P&C index
Alleghany’s Board strongly believes the executive compensation program appropriately links pay with performance and is aligned with Alleghany’s stockholder interests
Alleghany 2
Alleghany’s Track Record of Creating Stable Long Term Stockholder Value
Focus on book value per share growth
Long-term conservative orientation
Track record of stable returns leads to out performance
Indexed Performance
2003 - 2008
2008 - 2013
2003 – 2013
Alleghany BVPS
+50%
+55%
+132%
Alleghany Price
+40%
+51%
+111%
S&P 500
-10%
+128%
+104%
S&P 500 P&C Index
-13%
+103%
+77%
(%)
300 250 200 150 100 50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Alleghany has outperformed the S&P 500 and peers over the past ten years and held up better versus peers and the market in the 2008 crisis
Source: Bloomberg
(1) Alleghany price, S&P 500 and S&P 500 P&C Index calculated on a total return basis
Alleghany 3
Alleghany’s Executive Compensation Program
What We Do
Align executive interests with stockholder interests and incent executives to create and preserve value over the long-term
Link majority of compensation for executive officers to performance (80% for CEO)
Cap individual awards at reasonable levels under our annual and long-term incentive plan
Require our officers to own a substantial amount of our common stock (5x base salary for CEO)
Discourage imprudent risk taking through a compensation clawback policy applicable to our NEOs
What We Do Not Do
Incent executives to generate short-term stock price gains not based on fundamental value creation
No executive officer receives more than $10,000 in perquisites or other personal benefits
No stock option grants
NEOs are prohibited from hedging or pledging Alleghany securities they hold
No excise tax gross-ups
No accelerated vesting upon a termination without cause
Alleghany’s executive compensation program supports its strategic objective of increasing common stockholders’ equity per share at rates of 7-10% over the long term without employing excessive amounts of financial leverage and without taking imprudent risks
Alleghany 4
Alleghany’s CEO Compensation Plan Is Highly Performance Based
Component Description 2013 % CEO Compensation % Performance Based
Long-Term Incentive Plan (“LTIP”)
Directly tied to book value per share growth achievement
No payout if growth <5%
52%
80%
100%
Annual Incentive Plan (“MIP”)
Limited by pre-tax earnings achievement and max award amount of $2.0 million
Can be adjusted down (but not up) based on individual performance
28%
100%
Salary
Essentially flat since 2011
17%
N/A
All Other
Primarily savings benefit plan
3%
N/A
Performance related compensation amounted to 80% of CEO compensation in 2013
CEO total compensation was essentially flat since 2011 while book value per share increased 8.9% in 2013 and 10.8% in 2012
Alleghany 5
ISS Analysis Raises Four Key Factors
ISS Factor Description Alleghany Response
RDA Test “High Concern” Result
Three year time period ending 12/31/13 relative total stockholder return vs. average CEO pay fell out of “aligned” range at year-end
Alleghany’s performance over the past decade has been strong, outpacing the market
4Q “high concern” essentially the result of one quarter
CEO pay is “highly” aligned with long-term performance
Annual Incentive Plan (“MIP”)
Individual award metrics lacking
Single reward opportunity
Changes to plan in 2013 served to further align pay with performance
Individual awards under our short and long-term incentive plans are “capped”
Catastrophe Losses Treatment
Initial ISS report mistakenly assumed funding excluded average cat losses
ISS “corrected” report still implies average cat losses in a given year wouldn’t be factored in
Incentive pool funding approach includes average cat losses
An above average cat year would impact the next four years’ incentive pool calculations
All cat losses are charged against plan
LTIP
Not a concern
Viewed as positive by ISS
Changes to plan increase performance alignment and rigor
Alleghany 6
ISS’s RDA Is an Arbitrary Way to Judge Performance
RDA Results Generated “Low Concern” for Both the Ten Year Period and as of 2012
Ten Year RDA(1)
Performance 100%
50% 0%
0% 50% 100%
Pay
12/31/12 ISS RDA(2)
Performance
100% 50% 0%
0% 50% 100% Pay
ISS RDA 4Q “High Concern” Is Essentially the Result of a Single Quarter
9/30/13 ISS RDA(3)
Performance 100 % 50% 0%
0% 50% 100%
Pay
12/31/13 ISS RDA
Performance
100% 50% 0%
0% 50% 100% Pay
Source: Bloomberg, Peer Proxy Statements and ISS. (1) Ten year pro forma RDA analysis conducted using ISS’s methodology and defined peer set but over a 10 year period. Peer total compensation figures sourced from ISS when available or in periods not available, sourced from peer company proxy statement summary compensation tables. Peers not public at beginning of period excluded. (2) As per ISS recommendation from 3 year period ending December 31, 2012. (3) September 30, 2013 replicated as per ISS analysis using same peer set.
Alleghany 7
ISS’s Five Year Absolute Alignment Chart Shows Alleghany’s Proxy Reported CEO Pay is Well Aligned with Performance
Five Year Pay – Total Shareholder Return Alignment
6,612 5,636 7,392 7,335 7,444
2008 2009 2010 2011 2012 2013
CEO Pay ($000)
Indexed TSR
Fiscal Year 2009 2010 2011 2012 2013 CAGR 2009 - 2013(%)
Proxy Reported CEO Pay ($000) 6,612 5,636 7,392 7,335 7,444 3.0%
Indexed TSR 100 113 107 126 151 10.8%
Excess annual stockholder return above CEO pay increases 7.8%
Source: ISS
Alleghany 8
Changes in Executive Compensation Program in 2013
Increase Performance Alignment
Target for annual book value per share growth under LTIP increased from 6% to 7% and increased threshold from 3.5% to 5%
Eliminated S&P relative out-performance adjustment from LTIP
Removed upside leverage in MIP
Reduce Non-Performance Items
Froze retirement plan
Eliminated post-retirement medical plan
ISS recommended a vote “For” of Alleghany’s 2012 executive compensation program
2013 changes were the result of a review by the Compensation Committee in consultation with its independent outside consultant
All 2013 changes increased alignment with long-term stockholder value creation and reduced non-performance-related items
Alleghany 9
2013 Changes in Annual Incentive (MIP)
The target and maximum incentive opportunity approach under the MIP was eliminated for all participants in favor of a single incentive opportunity target, which was capped in dollar terms at $4.5 million in 2013 in aggregate for all NEOs The change eliminated the upside leverage potential under the MIP, which is a design feature that some characterize as having the potential to encourage imprudent short-term risk taking Payouts under the revised MIP are subject to meaningful limitations: (1) Total payouts can’t exceed 3% of pre-tax earnings (2) 2013 awards were capped at the lesser of 3% or pre-tax earnings or $4.5 million in aggregate for all NEOs(1) and $2.0 million for the CEO
Alleghany’s Compensation Committee has discretion to decrease incentive awards based on overall corporate performance or individual performance but not to increase them
(1) Five most senior NEOs.
Alleghany 10
MIP Holds Management Accountable for All Catastrophe Losses
Cat Loss Treatment in MIP
One of the key factors identified by ISS in its initial report contained a serious factual error
“Corrected” report implies above average cat losses are excluded
Average aggregate cat losses of approximately $400 million were included in the 2013 incentive pool funding calculation
Such average losses were deducted from 2013 pre-tax earnings in place of actual 2013 cat losses
Rather than encourage short-term risk-taking, actual losses become part of the average calculation for four years, holding management accountable for all cat losses
2013 MIP Deduction for Cat Losses
($ millions)
($78)
($400)
4 year average (used for bonus pool calculation)
2013 actual
$322 million additional deduction beyond actual losses deducted from bonus pool calculation in 2013
Alleghany 11