Long-Term Compensation Plans

12 Months Ended

Dec. 31, 2018

14. Long-Term Compensation Plans

(a) Parent Company-Level

As of December 31, 2018, Alleghany had long-term compensation plans for parent company-level employees and directors. Parent company-level, long-term compensation awards to current employees do not include stock options but consist only of restricted stock awards, including restricted stock units and performance share awards. Parent company-level, long-term compensation awards to

non-employee

directors consist of annual grants of restricted shares and restricted stock units of Common Stock.

Amounts recognized as compensation expense in the consolidated statements of earnings and comprehensive income with respect to long-term compensation awards under plans for parent company-level employees and non-employee directors were ($12.0) million, $17.1 million and $17.1 million in 2018, 2017 and 2016, respectively. The negative expense for 2018 reflects a reversal of certain long-term incentive compensation expense accruals, driven primarily by the impacts of depreciation in the value of Alleghany’s consolidated debt and equity securities portfolio, as well as significant catastrophe losses incurred at Alleghany’s reinsurance and insurance subsidiaries in 2018. The amount of related income tax (expenses) benefit in the consolidated statements of earnings and comprehensive income with respect to these plans was ($2.5) million, $3.6 million and $6.0 million in 2018, 2017 and 2016, respectively. In 2018, 2017 and 2016, $4.3 million, $7.1 million and $5.7 million of Common Stock at fair market value, respectively, and $17.1 million, $19.3 million and $14.4 million of cash, respectively, was paid by Alleghany under these plans for parent company-level employees and non-employee directors. As noted above, as of December 31, 2018 and 2017, all outstanding awards were accounted for under the fair-value-based method of accounting.

The following is a summary of the parent company-level, long-term compensation plans.

Director Restricted Stock Plan

The annual grant to each

non-employee

director consists of either restricted shares or restricted stock units of Common Stock, at the director’s election. Awards granted to

non-employee

directors were not material to Alleghany’s results of operations, financial condition or cash flows for the three years ended December 31, 2018.

Alleghany Long-Term Incentive Plans

Awards under Alleghany’s long-term compensation plans may include, but are not limited to, cash and/or shares of Common Stock, rights to receive cash and/or shares of Common Stock and options to purchase shares of Common Stock, including options intended to qualify as incentive stock options under the Internal Revenue Code, and options not intended to so qualify.

The following types of awards were outstanding as of December 31, 2018:

•

Performance Share Awards — Participants are entitled, at the end of a four-year award period, to a maximum amount equal to the value of one and

one-half

shares of Common Stock for each performance share issued to them based on market value on the payment date. Payouts are made provided defined levels of performance are achieved. Expenses are recorded based on changes in the fair value of the awards. The fair value is calculated based primarily on the value of Common Stock as of the balance sheet date, the degree to which performance targets have been achieved and the time elapsed with respect to each award period.

•

Restricted Share Awards — From time to time, Alleghany has awarded to certain management employees restricted shares or restricted stock units of Common Stock. These awards entitle the participants to a specified maximum amount equal to the value of one share of Common Stock for each restricted share or restricted stock unit issued to them based on the market value on the grant date, subject to certain conditions. The expense is recognized ratably over the performance period, which can be extended under certain circumstances.

(b) TransRe Book Value Unit Plan and

Mid-Term

Incentive Plan

TransRe has a Book Value Unit Plan and a

Mid-Term

Incentive Plan (collectively, the “TransRe Plans”) for the purpose of providing incentives to key employees of TransRe. Under the TransRe Plans, book value units (“BVUs”) and

mid-term

incentive plan (“MTIP”) awards are issued. BVUs and MTIP awards may only be settled in cash. The fair value of each BVU is calculated as the stockholder’s equity of TransRe, adjusted for certain capital transactions, divided by the adjusted number of BVUs outstanding. BVUs have vesting dates of up to approximately the fourth anniversary of the date of grant. The fair value of MTIP awards is calculated based on underwriting results compared to specified targets. MTIP awards have vesting dates of approximately the second or third anniversary of the date of grant. The BVUs and MTIP awards contain certain restrictions, related to, among other things, forfeiture in the event of termination of employment and transferability. In 2018, 2017 and 2016, TransRe recorded $35.6 million, $46.6 million and $50.7 million, respectively, in compensation expense and a deferred tax benefit of $7.5 million, $9.8 million and $17.7 million, respectively, related to the TransRe Plans.

RSUI has a Restricted Stock Unit Plan (the “RSUI Plan”) for the purpose of providing equity-like incentives to key employees of RSUI. Under the RSUI Plan, restricted stock units (“units”) are issued. Additional units, defined as the “Deferred Equity Pool,” were issued in 2018, 2017 and 2016 and may be created in the future if certain financial performance measures are met. Units may only be settled in cash. The fair value of each unit is calculated as the stockholder’s equity of RSUI, adjusted for certain capital transactions and accumulated compensation expense recognized under the RSUI Plan, divided by the sum of RSUI common stock outstanding and the original units available under the RSUI Plan. The units vest on the fourth anniversary of the date of grant and contain certain restrictions, related to, among other things, forfeiture in the event of termination of employment and transferability. In 2018, 2017 and 2016, RSUI recorded $11.7 million, $26.3 million and $25.4 million, respectively, in compensation expense related to the RSUI Plan. During the same periods, a deferred tax benefit of $2.4 million, $5.5 million and $8.9 million, respectively, related to the compensation expense were recorded.

(d) Other Subsidiary Plans

Long-term incentive plans exist at certain other subsidiaries for the purpose of providing equity-like incentives to key employees. The awards under such plans were not material to Alleghany’s results of operations, financial condition or cash flows for the three years ended December 31, 2018.