Third Quarter 2021 Letter to Shareholders

To Our Stockholders

At the end of this year, I will be retiring from Alleghany after over nineteen years with the company and seventeen years as the company's CEO. Joe Brandon, who is currently our President, will succeed me. It has been a privilege to be associated with this unique company for almost two decades, and to have played a part in creating the company it is today. The Alleghany Board of Directors and I are confident Joe is the right person to lead the company through its next chapter.

When I joined Alleghany in 2002, its holdings consisted largely of passive assets from sales of its largest operating businesses. Working with the Board of Directors, we were able to reinvent the company through several acquisitions and the creation of Alleghany Capital, which has grown into a portfolio of eight platform companies that are involved in both consumer and industrial businesses.

Alleghany today consists of RSUI (acquired in 2003), TransRe (acquired in 2012), CapSpecialty (reinvented starting in 2014), and Alleghany Capital (started in 2011). We have used the profits from our re/insurance businesses to support the development of Alleghany Capital without stretching our capital structure or taking on excessive levels of debt. With the exception of CapSpecialty, whose predecessor company had been acquired in early 2002, all of these businesses were acquired under my watch at reasonable prices. They have become stronger companies under Alleghany's ownership.

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RSUI was acquired in July of 2003 for approximately $628 million, including the capital used to create its opening balance sheet. Since then, it has provided Alleghany with approximately $1.5 billion of net dividends, and at the end of the third quarter of 2021 its stockholder's equity was over $1.8 billion. This investment has been a home run by any objective measure. RSUI has a well-deserved reputation for being one of the very best specialty commercial insurers focused on the wholesale insurance market.

We also formed Darwin Professional Underwriters in 2003, took the company public in 2006, and ultimately sold it in 2008 to a Bermuda-based insurer. This has been our highest rate of return investment to date.

In 2007 we acquired Employers Direct Corporation, a California workers' compensation insurer. It did not perform well due to a cyclical downturn in the California workers' compensation market, made worse by the Great Financial Crisis. We changed management, refocused the company's strategy, changed its branding, and ultimately exited the investment in an orderly fashion.

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In 2012, we acquired TransRe for roughly $3.5 billion. Since then, TransRe has provided Alleghany with approximately $2.0 billion of net dividends, and today has stockholder's equity of approximately $5.2 billion. Despite significant catastrophe losses in recent years, TransRe has been a steady compounding machine, and has made it possible for us to build Alleghany Capital, pay $369 million of special dividends, and reduce our share count along the way. Common shares issued and outstanding have declined by 19%, from 16.9 million at the end of the first quarter of 2012 when Alleghany acquired TransRe to 13.7 million at the end of the third quarter of 2021. TransRe is one of the very few global professional reinsurers with long-term perspective on a very complex business. The company is highly respected by its clients and key intermediaries.

Both TransRe and RSUI are currently undergoing leadership transitions. Each company has its own strong culture that has produced a deep bench of talent. We are confident they will continue to build on their unique strengths under their new CEOs, both of whom were internal.

Alleghany Capital had a strong year in 2020, and has continued to perform well in 2021. The largest companies in this portfolio - Jazwares, W&W│AFCO Steel, and IPS-Integrated Project Services - are all terrific businesses with outstanding management teams and bright prospects. We expect that they will continue to perform well in the years ahead. The smaller companies in the portfolio have also performed well over the long-term, and are emerging from the challenges of the Pandemic in good financial shape.

As part of Alleghany Capital, most of our platform companies have been able to grow and strengthen their competitive position by doing bolt-on acquisitions, supported by the Alleghany Capital team. As an example, Alleghany Capital's IPS subsidiary recently acquired Linesight, a complementary engineering and project management firm based in Ireland. This acquisition will strengthen IPS, and offers the potential for significant synergies.

Over the past 12 months, Alleghany Capital produced over $175 million in adjusted after-tax earnings for Alleghany stockholders, on an equity base of roughly $1.1 billion. We think owning a significant asset that earns a return on equity close to 15% with strong growth prospects makes Alleghany a stronger and more balanced company.

An important part of my job as CEO has also been to manage our investment portfolio. With the help of many people, including the investment team at Roundwood Asset Management (Alleghany's captive equity manager), we have created significant value by generating returns on our equity portfolio that have exceeded those of the broad equity market over the long-term.

Today's investment environment is extremely challenging with few attractive opportunities. Not only are most bonds producing negative real returns, but credible valuation measures of the equity market would suggest that future returns will be far lower than they have been since the Great Financial Crisis of 2008. It is highly unlikely, in my opinion, that future equity market returns will be anywhere close to what they have been over the past decade. We appear to be in a world of 1-2% treasury yields and 5-6% future long-term equity returns.

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From the end of 2002 through the third quarter of this year, Alleghany has grown its book value per share, including dividends, by almost 8% per year. This growth has come from strong underwriting performance, robust investment returns, and more recently earnings from Alleghany Capital, partially offset by the financial effects of a major financial crisis in 2008 and the Pandemic in 2020. Since the end of 2016, however, book value per share plus dividends has grown at a slower rate (about 6%).

As I discussed in my 2020 stockholder letter, the principal reason for the slower rate of growth has been elevated natural catastrophe loss activity. Since 2016, our insurance and reinsurance subsidiaries have incurred almost $3.0 billion of natural catastrophe losses on behalf of our customers, and over $400 million of losses related to the Pandemic, mostly in 2020. The natural catastrophe losses were greater than our subsidiaries assumed in their pricing, and pricing continues to adjust to this elevated catastrophe loss experience.

According to data maintained by the National Oceanic and Atmospheric Administration (NOAA), there have been 102 major hurricanes making landfall in the United States since 1851 through 2020, or approximately six per decade. From 2006 through 2016, there were no major hurricanes making landfall in the United States. By contrast, from 2017 through 2021 there were six major hurricanes making landfall, of which five were Category-4 hurricanes and one was a Category-5. This recent catastrophe loss experience was unusual based on long-term averages, and is increasingly attributed to a changing climate, as well as the current phase of the El Niño Southern Oscillation, or "ENSO."

While our insurance and reinsurance subsidiaries performed an essential function to society by absorbing these losses, we do not believe that they have done so at prices that allow them to earn a fair rate of return on the capital required to support these risks. We are not alone in this regard; we believe that most insurers in the property insurance business have earned poor underwriting returns over the past five years. Accordingly, we have decided that we will reduce our capacity for catastrophe-exposed property exposures unless we are paid properly to put our capital at risk. Today, underpriced property risks are mostly in the reinsurance industry.

It can be hard for outsiders to see the progress that we have made in improving our insurance and reinsurance results when they are so volatile. One way to get a clearer picture is to look at the underwriting results before natural catastrophe and Pandemic losses over a longer period of time, and then consider what a "normal" catastrophe loss year might look like. The attached exhibit summarizes our historical underwriting results on both a pre-catastrophe and post-catastrophe loss basis.

After we acquired TransRe in 2012, the property and casualty insurance industry enjoyed several years of relatively low catastrophe losses. This led to a more competitive insurance and reinsurance market in the following years. The result was that our underwriting profit before catastrophe losses, which was $690 million in 2012, steadily declined to a low of $433 million by 2019.

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The industry experienced several large catastrophe losses starting in 2017 and continuing in 2018. As a result of these losses - as well as poor results for some insurers in casualty lines and low interest rates - industry pricing began to improve in late 2018, and continued in the following years. This pricing momentum began to show up in underwriting results before catastrophe and Pandemic losses in 2020, and has continued into 2021 as well.

Alleghany's underwriting profit before natural catastrophe and Pandemic losses for the first nine months of 2021 has approximately doubled from the level of 2019, approaching $1 billion on an annualized basis this year. But with natural catastrophe losses approaching $700 million so far in 2021, results have been unsatisfactory. With a number of initiatives underway to improve our catastrophe risk profile, I expect that Alleghany will likely see significantly improved underwriting results in the year ahead.

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I am especially proud of the team that has been built at Alleghany. Our next generation of leaders - including Kerry Jacobs (our CFO), John Shannon (our CIO), and David Van Geyzel (head of Alleghany Capital) are a talented group, and are already working effectively with Joe, who assumed the position of President earlier this year. Joe will also have the continued counsel of Chris Dalrymple (our General Counsel and Corporate Secretary), who has consistently provided sound and wise advice. Finally, we have made significant progress in adding diversity to our management team and Board of Directors, including most recently our newly-appointed Vice President of People and Inclusion, Kelly Jones.

The past two years have been challenging for our employees, as managing through the Pandemic has required an extraordinary effort on their part. I want to take this opportunity to acknowledge the many sacrifices and extraordinary efforts of all of our employees, both at the parent company as well as our operating subsidiaries. I have enjoyed working with all of you, and am confident you will continue to prosper under Joe's leadership.

One of my top priorities over the past several years has been to ensure that Alleghany has the right people in place to take the company forward. I believe that the team that we have in place will accomplish great things in the years ahead, and look forward to watching their success as a continuing shareholder.

Sincerely,

Weston M. Hicks

Chief Executive Officer

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Alleghany Corporation

Consolidated Underwriting Results

Before and After Catastrophe Losses

2012 to 2021 YTD

($ millions)
	Net	Before Catastrophe Losses	Catastrophe Losses		Reported
	Premiums	Underwriting	Combined		Loss Ratio	Underwriting	Combined
Year	Earned	Result	Ratio	Amount	Points		Result	Ratio
2012	$ 3,733	$ 690	81.5%	$ 470	12.6%	$	220	94.1%
2013	4.239	572	86.5%	151	3.6%		421	90.1%
2014	4,411	590	86.6%	95	2.2%		495	88.8%
2015	4,230	529	87.5%	62	1.5%		467	89.0%
2016	4,976	627	87.4%	226	4.5%		401	91.9%
2017	4,955	502	89.9%	818	16.5%		(316)	106.4%
2018	4,976	496	90.0%	658	13.2%		(162)	103.2%
2019	5,478	433	92.1%	400	7.3%		33	99.4%
2020(1)	6,000	673	88.7%	802	13.4%		(129)	102.1%
2021(2)	5,232	676	87.1%	686	13.1%		(10)	100.2%

1. Catastrophe losses include losses arising from the COVID-19 global pandemic of $415 million in 2020.
2. Through September 30, 2021.

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