UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K/A

(Amendment No. 1)

Commission file number: 001-32938

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
(Exact Name of Registrant as Specified in Its Charter)

Gubelstrasse 24, Park Tower, 15th Floor, 6300 Zug, Switzerland
(Address of Principal Executive Offices and Zip Code)

41-41-768-1080
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

                Securities registered pursuant to Section 12(g) of the Act: None

                Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

                Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

                Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

                Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

                Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

                Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

                If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

                Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

                The aggregate market value of common shares held by non-affiliates of the registrant as of June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $3.1 billion based on the closing sale price of the registrant’s common shares on the New York Stock Exchange on that date.

                As of February 22, 2017, 87,316,864 common shares were outstanding.

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EXPLANATORY NOTE

On February 28, 2017, Allied World Assurance Company Holdings, AG (the “company”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Original Form 10-K”). This Amendment No. 1 (the “Amendment”, and together with the Original Form 10-K, the “Form 10-K”) amends Part III, Items 10 through 14 of the Original Form 10-K to include information previously omitted from the Original Form 10-K in reliance on General Instruction G(3) to Form 10-K. General Instruction G(3) to Form 10-K provides that registrants may incorporate by reference certain information from a definitive proxy statement that involves the election of directors if such definitive proxy statement is filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year. The company does not anticipate that its definitive proxy statement involving the election of directors will be filed by April 30, 2017 (i.e., within 120 days after the end of the company’s 2016 fiscal year). Accordingly, Part III of the Original Form 10-K is hereby amended and restated as set forth below.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment under Item 15 of Part IV hereof.

Except as stated herein, this Amendment does not reflect events occurring after the filing of the Original Form 10-K with the SEC on February 28, 2017 and no attempt has been made in this Amendment to modify or update other disclosures as presented in the Original Form 10-K.

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Part III

Item 10.    Directors, Executive Officers and Corporate Governance.

Board of Directors

              The company’s board of directors (the “Board”) currently consists of eight members. The biography of each current director below contains information regarding the person’s service as a director on the Board, his or her business experience, director positions at other companies held currently or at any time during the last five years, and his or her applicable experiences, qualifications, attributes and skills.

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Director Independence

              The Board has determined that Mses. Alexander, Guinn and Luck, and Messrs. Friedman, de Saint-Aignan, Schwartz and Weinhoff are independent directors under the listing standards of the New York Stock Exchange (the “NYSE”). We require that a majority of our directors meet the criteria for independence under applicable law and the rules of the NYSE. The Board has adopted a policy to assist it and the Nominating & Corporate Governance Committee in their determination as to whether a nominee or director qualifies as independent. This policy contains categorical standards for determining independence and includes the independence standards required by the SEC and the NYSE, as well as standards published by institutional investor groups and other corporate governance experts. In making its determination of independence, the Board applied these standards for director independence and determined that no material relationship existed between the company and these directors. A copy of the Board Policy on Director Independence was attached as an appendix to the company’s Proxy Statement filed with the SEC on March 13, 2015.

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Meetings and Committees of the Board

              During the year ended December 31, 2016, there were fifteen meetings of our Board, five meetings of the Audit Committee, four meetings of the Compensation Committee, four meetings of the Enterprise Risk Committee, no meeting of the Executive Committee, four meetings of the Investment Committee and three meetings of the Nominating & Corporate Governance Committee. Each of our directors other than Mr. Friedman attended at least 75% of the aggregate number of Board meetings and committee meetings of which he or she was a member during the period he or she served on the Board. Mr. Friedman missed three Board meetings and contemporaneous committee meetings due to medical issues, bringing his overall attendance rate to less than 75% of the aggregate number of Board meetings and committee meetings of which he was a member in 2016. Our non-management directors meet separately from the other directors in an executive session at least quarterly. Mr. Friedman, our Vice Chairman of the Board and Lead Independent Director, or his designee, served as the presiding director of the executive sessions of our non-management and independent directors held in 2016. The Lead Independent Director also has the authority to call meetings of the independent directors or full Board.

Board Leadership Structure

              The Board has chosen a leadership structure that combines the role of the Chief Executive Officer and the Chairman of the Board while also having a Lead Independent Director. The Lead Independent Director assumes many of the responsibilities typically held by a non-executive chairman of the board and a list of his responsibilities is provided in the chart below. The company’s rationale for combining the Chief Executive Officer and Chairman of the Board positions relates principally to the Board’s belief that at this stage of our development, the company and its shareholders will be best served if the Chairman is in close proximity to the senior management team on a regular and continual basis.

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              Our Board has also approved Corporate Governance Guidelines, a Code of Business Conduct and Ethics and a Code of Ethics for Chief Executive Officer and Senior Financial Officers. Printed copies of these documents as well as the committee charters discussed below are available by sending a written request to our Corporate Secretary. The foregoing information is available on our website at www.awac.com under “Investors — Corporate Information — Governance Documents”.

              Audit Committee.    Pursuant to its charter, the Audit Committee is responsible for overseeing our independent auditors, internal auditors, compliance with legal and regulatory standards and the integrity of our financial reporting. Each member of the Audit Committee has been determined by the Board to be “financially literate” within the meaning of the NYSE Listing Standards and each has been designated by the Board as an “audit committee financial expert,” as defined by the applicable rules of the SEC, based on either their extensive prior accounting and auditing experience or having a range of experience in varying executive positions in the insurance or financial services industry.

              Compensation Committee.    Pursuant to its charter, the Compensation Committee has the authority to establish compensation policies and recommend compensation programs to the Board, including administering all equity and incentive compensation plans of the company. Pursuant to its charter, the Compensation Committee also has the authority to review the competitiveness of the non-management directors’ compensation programs and recommend to the Board these compensation programs and all payouts made thereunder. Additional information on the Compensation Committee’s consideration of executive compensation, including a discussion of the roles of the company’s Chief Executive Officer and the independent compensation consultant in such executive compensation consideration, is included in Item 11. “Executive Compensation — Compensation Discussion and Analysis” below.

              Enterprise Risk Committee.    Pursuant to its charter, the Enterprise Risk Committee oversees management’s assessment and mitigation of the company’s enterprise risks and reviews and recommends to the Board for approval the company’s overall firm-wide risk appetite statement and oversees management’s compliance therewith.

              Executive Committee.    The Executive Committee has the authority to oversee the general business and affairs of the company to the extent permitted by Swiss law.

              Investment Committee.    Pursuant to its charter, the Investment Committee is responsible for adopting and overseeing compliance with the company’s Investment Policy Statement, which contains investment guidelines and other parameters for the investment portfolio. The Investment Committee oversees the company’s overall investment strategy and the company’s investment risk exposures.

              Nominating & Corporate Governance Committee.    Pursuant to its charter, the Nominating & Corporate Governance Committee is responsible for identifying individuals believed to be qualified to become directors and to recommend such individuals to the Board and to oversee corporate governance matters and practices.

              The criteria adopted by the Board for use in evaluating the suitability of all nominees for director include the following:

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              In addition to considering candidates suggested by shareholders, the Nominating & Corporate Governance Committee considers candidates recommended by current directors, officers and others. The Nominating & Corporate Governance Committee screens all director candidates. The Nominating & Corporate Governance Committee determines whether or not the candidate meets the company’s general qualifications and specific qualities for directors and whether or not additional information is appropriate.

              The Board and the Nominating & Corporate Governance Committee do not have a specific policy regarding diversity. Instead, in addition to the general qualities that the Board requires of all nominees and directors, such as high personal and professional ethics, values and integrity, the Board and the Nominating & Corporate Governance Committee strive to have a diverse group of directors with differing experiences, qualifications, attributes and skills to further enhance the quality of the Board. As we are an insurance and reinsurance company that (i) sells products that protect other companies and individuals from complex risks, (ii) has a significant investment portfolio and (iii) faces operational risks similar to those at other international companies, the Board and the Nominating & Corporate Governance Committee believe that having a group of directors who have the range of experience and skills to understand and oversee this type of business is critical. The Board and the Nominating & Corporate Governance Committee do not believe that each director must be an expert in every aspect of our business, but instead strive to have well-rounded, collegial directors who contribute to the diversity of ideas and strengthen the Board’s capabilities as a whole. Through their professional careers and experiences, the Board and the Nominating & Corporate Governance Committee believe that each director has obtained certain attributes that further the goals discussed above.

Risk Oversight

              While the assumption of risk is inherent to our business, we believe we have developed a strong risk management culture throughout our organization that is fostered and maintained by our senior management, with oversight by the Board through its committees. The Board primarily delegates its risk management oversight to three of its committees: the Audit Committee, the Enterprise Risk Committee and the Investment Committee, who regularly report to the Board. The Audit Committee primarily oversees those risks that may directly or indirectly impact the company’s financial statements, the Enterprise Risk Committee primarily oversees the company’s business and operational risks and the Investment Committee primarily oversees the company’s investment portfolio risks. The Enterprise Risk Committee also reviews and recommends for approval by the Board our overall firm-wide risk appetite statement, and oversees management’s compliance with this statement. Each committee has broad powers to ensure that it has the resources to satisfy its duties under its charter, including the ability to request reports from any officer or employee of the company and the authority to retain special counsel or other experts and consultants as it deems appropriate.

              Each of these committees receives regular reports from senior management who have day-to-day risk management responsibilities, including from our Chief Executive Officer. The Audit Committee receives reports from our Chief Executive Officer, Chief Financial Officer, Chief Actuary, General Counsel, Chief Information Officer, Head of Internal Audit and the company’s independent auditors. These reports address various aspects of risk assessment and management relating to the company’s financial statements. The Enterprise Risk Committee meets regularly with our Chief Executive Officer; President, Underwriting and Global Risk; Chief Risk Officer; and Chief Actuary as part

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of its oversight of the company’s underwriting, pricing and claims risks. Throughout the year, the Enterprise Risk Committee will also receive reports from other operational areas. To assist it in its oversight of the company’s investment risk exposures, the Investment Committee receives reports from our senior investment personnel and external investment managers and advisors.

              As open communications and equal access to information can be an important part of the Board’s risk oversight, all of the directors receive the information sent to each committee prior to any committee meeting. Board members are also encouraged to, and often do, attend all committee meetings regardless of whether he or she is a member of such committee.

Director Compensation

              In 2016, compensation for our non-management directors consisted of the following:

              Our non-management directors received $3,000 for each Board meeting attended and $2,000 for each committee meeting attended. We also provide to all non-management directors reimbursement of expenses incurred in connection with their service on the Board, including the reimbursement of director educational expenses.

              As discussed in footnote 2 to the “Stock Awards” column of the “Non-Management Directors Compensation” table below, in February 2016, each non-management director received an annual equity award of restricted stock units (“RSUs”) of the company worth approximately $90,000. Each RSU represents the right to receive one newly-issued, fully paid and non-assessable common share of the company at a future date and fully vests on the first anniversary of the date of grant, subject to continued service as a director through such date. The RSUs were awarded to our non-management directors pursuant to the Allied World Assurance Company Holdings, AG 2012 Omnibus Incentive Compensation Plan (the “2012 Omnibus Plan”) and, other than with respect to vesting terms, were granted on similar terms and conditions as those generally granted to our employees. In 2016, these annual equity awards were granted concurrently with the grant of equity awards to members of our senior management following the preparation and completion of the 2016 year-end financial statements.

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              The following table provides information concerning the compensation paid to the company’s non-management directors for fiscal year 2016.

Stock Ownership Policy

              In order to promote equity ownership and further align the interests of the Board with our shareholders, the Board adopted a stock ownership policy for all non-management directors. Under this policy, a non-management director is expected to own, within five years after his or her joining the Board, equity interests of the company with a value equal to five times the then-current annual cash retainer for serving on the Board. Non-management directors are expected not to sell any common shares until they are in compliance with this policy. Mr. Carmilani, our President, Chief Executive Officer and Chairman of the Board, is subject to a stock ownership policy for senior employees as described in Item 11. “Executive Compensation — Compensation Discussion and Analysis — Stock Ownership Policy” below.

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Executive Officers

              Our executive officers are elected by and serve at the discretion of the Board. The following table identifies the executive officers of the company, including their respective ages and positions as of the date hereof.

              John R. Bender has been the Chief Executive Officer, Reinsurance of Allied World Reinsurance Management Company since August 2014 and oversees our reinsurance platform on a global basis. From February 2012 to August 2014, he served as the President of Allied World Reinsurance Management Company. From August 2009 to February 2012, he served as the President and Chief Operating Officer of Allied World Reinsurance Company, one of our subsidiaries. He joined us in November 2007 as the Chief Operating Officer of Allied World Reinsurance Company. From November 2007 through November 2011, Mr. Bender was responsible for establishing and expanding the company’s U.S. reinsurance platform and for overseeing its day-to-day operations. Since December 2011, Mr. Bender has assumed responsibility for providing strategic leadership and executing business strategies for our global reinsurance operations. Prior to joining us, Mr. Bender held several senior management positions at Platinum Underwriters Holdings, Ltd., including Chief Underwriting Officer, Casualty from November 2005 to October 2007 and Senior Vice President, Commercial Liability Products from October 2002 to November 2005. From 1989 to October 2002, he held numerous claims and underwriting positions with St. Paul Reinsurance Management Company.

              Thomas A. Bradley joined the company as Executive Vice President & Chief Financial Officer in September 2012. Prior to joining us, Mr. Bradley had served as the Chief Financial Officer of Dorsey & Whitney LLP, a large international law firm, since August 2011. From April 2009 to April 2011, Mr. Bradley served in various financial positions at the Fair Isaac Corporation, a business services company, including as its Executive Vice President and Chief Financial Officer. From April 2004 to February 2009, Mr. Bradley served in various financial and operational positions at Zurich Financial North America, a financial services company, including as its Executive Vice President and Chief

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Financial Officer. Prior to that, he held a host of senior financial and operational positions at USF&G Corporation/St. Paul Companies.

              Wesley D. Dupont has been our Executive Vice President & General Counsel since September 2009 and presently oversees our legal, compliance, claims and human resources functions on a global basis. From December 2005 to September 2009, he served as our Senior Vice President, General Counsel and served as our Corporate Secretary through May 2012. In November 2003, Mr. Dupont began working for American International Company Limited, a subsidiary of AIG, and began providing legal services to us pursuant to an administrative services contract with American International Company Limited. Through that contract, Mr. Dupont served as our Senior Vice President, General Counsel and Secretary from April 2004 until November 30, 2005. As of December 1, 2005, Mr. Dupont became an employee of our company. Prior to joining American International Company Limited, Mr. Dupont worked as an attorney at Paul, Hastings, Janofsky & Walker LLP, a large international law firm, where he specialized in general corporate and securities law. From April 2000 to July 2002, Mr. Dupont was a Managing Director and the General Counsel for Fano Securities, LLC, a specialized securities brokerage firm. Prior to that, Mr. Dupont worked as an attorney at Kelley Drye & Warren LLP, another large international law firm, where he also specialized in general corporate and securities law.

              Frank N. D’Orazio has been the President, Underwriting and Global Risk since December 31, 2014 and is responsible for the oversight and governance of our underwriting activities, enterprise risk management and ceded reinsurance strategies globally. From September 2009 to December 2014, Mr. D’Orazio served as the President — Bermuda and International Insurance of Allied World Assurance Company, Ltd, one of our subsidiaries, where he was responsible for providing strategic leadership and executing business strategies for the Bermuda, Europe and Asia insurance platforms. Prior to that, he served as the Chief Underwriting Officer of Allied World Assurance Company, Ltd since September 2008. From March 2005 to September 2008, Mr. D’Orazio was the company’s Senior Vice President — General Casualty where he was responsible for managing the company’s general casualty and healthcare operations in Bermuda, Europe and the United States. Mr. D’Orazio joined the company in June 2003 as Vice President — General Casualty. Prior to joining our company, Mr. D’Orazio worked for the retail insurance market arm of Munich-American Re-Insurance from August 1994 to May 2003, where he held a succession of underwriting and management positions. Mr. D’Orazio held various underwriting positions in the excess casualty division of Chubb from June 1990 to July 1994.

              Marshall J. Grossack has been our Executive Vice President-Chief Actuary since September 2009. He served as our Senior Vice President and Chief Corporate Actuary from July 2004 to September 2009. From June 2002 until July 2004, Mr. Grossack was a Vice President and Actuary for American International Company Limited, a subsidiary of AIG, and provided services to us pursuant to a former administrative services contract with American International Company Limited. From June 1999 until June 2002, Mr. Grossack worked as the Southwest Region Regional Actuary for subsidiaries of AIG in Dallas, Texas.

              Louis P. Iglesias has been the President, North America for Allied World Assurance Company (U.S.) Inc. and Allied World National Assurance Company, two of our subsidiaries, since January 31, 2014 and is responsible for providing strategic leadership and executing business strategies for our United States and Canada insurance platforms. Since December 31, 2014, he has also been responsible for providing strategic leadership and executing business strategies for our Bermuda insurance platform. From April 2012 through January 2014, he was the President, U.S. Property & Casualty for Allied World Assurance Company (U.S.) Inc. and Allied World National Assurance Company. From 1994 to April 2012, Mr. Iglesias served in various senior management positions at AIG, including Chief Executive Officer for Commercial Casualty, President for the Risk Management Group, President for AIG Environmental and President of AIG Construction. Prior to AIG, Mr. Iglesias worked at Travelers and Reliance insurance companies.

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              Julian James has been the President, Global Markets of Allied World Assurance Company (Europe) dac since December 31, 2014 and is responsible for providing strategic leadership and executing business strategies for our direct insurance operations in Europe and Asia Pacific, which includes offices in Australia, Hong Kong, Labuan and Singapore. In addition, Mr. James has served as the Chief Executive Officer of Allied World Managing Agency Limited since April 2014. From March 2013 to December 2014, Mr. James served as the President of Allied World Assurance Company (Europe) dac and was responsible for providing strategic leadership and executing business strategies for the company’s European insurance platform. From September 2007 to January 2013, Mr. James served as the Chief Executive Officer at Lockton International. From 1997 to April 2007, Mr. James held senior management positions at Lloyd’s, most recently as Director, Worldwide Markets, where he was responsible for all of Lloyd’s commercial activities outside of the United Kingdom, including the management of its trading licenses as well as oversight of its global branding and communications. Before joining Lloyd’s, Mr. James was the Development Director of brokers Sedgwick Energy and Marine Limited and a member of the division’s Executive Management Committee. Prior to that, he spent five years working in senior positions with Sedgwick, where he began his career in 1981, in North America. In February 2016, he was elected to serve on the Council of Lloyd’s.

              John J. McElroy was appointed our Chief Operating Officer in March 2012. In this role, he oversees the company’s operations and administration, information technology, new product development, marketing, broker relations and project management on a global basis. From May 2008 through February 2012, Mr. McElroy served as President, Professional Lines, of Allied World Assurance Company (U.S.) Inc. and Allied World National Assurance Company and oversaw the underwriting of all directors and officers liability, errors and omissions liability and medical malpractice liability insurance products by the company’s U.S. insurance operations. From June 2004, when he joined us, through April 2008, Mr. McElroy served as our Senior Vice President, Field Operations Officer, during which time he was responsible for expanding our U.S. insurance operations, developing our network of U.S. offices and increasing brand and product visibility. Prior to joining us, Mr. McElroy worked with Gulf Insurance Group for 12 years where he held various underwriting and other senior management positions. He began his career at AIG underwriting directors and officers liability insurance for large commercial risks.

              Kent W. Ziegler has been our Senior Vice President, Finance and Chief Accounting Officer since February 2013. Prior to joining us, from January 2010 through January 2013, Mr. Ziegler served as the Senior Vice President and Chief Financial Officer of the Retail Real Estate Division of JPMorgan Chase & Co. From 2005 to 2009, Mr. Ziegler served in JPMorgan Chase’s Business Banking Division, most recently as the Senior Vice President and Chief Financial Officer. From 1989 to 2004, Mr. Ziegler served in various financial and operational positions at Gulf Insurance Group, including as the Executive Vice President, Chief Financial Officer and Chief Administrative Officer. He began his career in public accounting at Ernst & Young.

Section 16(a) Beneficial Ownership Reporting Compliance

              Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership of, and transactions in, our equity securities with the SEC. Such directors, executive officers and shareholders are also required to furnish us with copies of all Section 16(a) reports they file. Purchases and sales of our equity securities by such persons are published on our website under the “SEC Filings” link under “Investors”.

              Based on a review of the copies of such reports, and on written representations from our reporting persons, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and shareholders were complied with during the fiscal year 2016.

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Item 11.    Executive Compensation.

Compensation Program Overview

              In accordance with the rules of the NYSE, a majority of the members of the Board are independent and the Compensation Committee is presently comprised of six independent Board members. The Board has adopted a Compensation Committee Charter discussed earlier in this Form 10-K. The Compensation Committee oversees our compensation programs and makes recommendations to the Board. Pursuant to Swiss law, the Board is required to make all final compensation decisions regarding our Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and our three other most highly compensated officers who were serving as executive officers at the end of our 2016 fiscal year (collectively, our “named executive officers” or “NEOs”). We have achieved considerable growth since our inception in November 2001 and our compensation programs have been designed to reward executives who contribute to our continuing success.

              The Compensation Committee has selected Farient Advisors, LLC (“Farient”) as its independent compensation advisor. At the committee’s direction, Farient has conducted an extensive review of our executive compensation strategy and programs to ensure strong alignment between executive compensation, business strategy and long-term shareholder value creation.

              Compensation Philosophy.    The insurance and reinsurance industry is very competitive, cyclical and often volatile, and our success depends in substantial part on our ability to attract and retain talented, high-achieving employees who will remain motivated and committed to the company during all insurance industry cycles. We have a strong pay-for-performance philosophy. Given our historically strong performance, we have set salaries and target bonuses for our executives as a group at approximately the median of the market, and total direct compensation, which includes salaries, target bonuses and the grant date value of equity, at between the 50^th and 75^th percentiles of the market. Total direct compensation for our executives as a group is delivered at the higher end of this pay positioning range following years in which performance is high relative to our peer group of insurance and reinsurance companies for compensation benchmarking purposes (the “Peer Group”) and at the lower end of this range following years in which performance is low relative to our Peer Group. Accordingly, the Compensation Committee believes that an effective executive compensation program is one that:

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Rewards strong company and individual performance,



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Aligns the interests of the executive officers with the company’s shareholders, and



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Balances the objectives of pay-for-performance and retention.

              The Compensation Committee’s objectives for the company’s compensation programs are to:

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Drive and reward employee performance that supports the company’s business objectives and financial success;



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Attract and retain talented and highly-skilled employees;



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Align the interests of the executives with the company’s shareholders by:



·

having a substantial portion of compensation in long-term, performance-based equity awards, a large portion of which is “at risk” with vesting dependent on the company achieving certain performance targets over time, particularly at the senior officer level where such persons can more directly affect the company’s financial success;



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regularly evaluating the company’s compensation programs to help ensure that they do not encourage excessive risk taking; and

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tying incentive opportunity to a blend of metrics that focus on key company objectives, correlate with the creation of shareholder value and encourage prudent risk taking; and



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Remain competitive with other insurance and reinsurance companies, particularly other insurance and reinsurance companies with which the company competes for talent.

              The charts below show the company’s net income return on equity (adjusted for other comprehensive income) and diluted book value per share growth (adjusted for dividends) relative to the Peer Group over a 1-year, 3-year and 5-year period. Please see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Non-GAAP Financial Measures” in the Original Form 10-K for reconciliations to the most directly comparable financial measures under generally accepted accounting principles.

Net Income Return on Equity (Adjusted for other comprehensive income)	​	Diluted Book Value per Share Growth (Adjusted for dividends)
	​

              Components of Executive Compensation.    The components of our executive compensation programs and the terms of each are shown in the table below:

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              The mix of our total direct compensation that was paid to our NEOs in 2016 (comprised of base salary, annual cash bonus and equity-based incentive compensation at grant value) is shown below:

              As shown in the charts above, the Compensation Committee manages the pay mix such that a substantial portion of pay is dedicated to “at risk” compensation, including annual cash bonuses and equity-based incentive compensation. The Compensation Committee believes that this mix of pay best aligns the interests of our executives, including the NEOs, with those of our shareholders over time.

              We use ROE relative to our Peer Group for both our short-term cash bonus program and our long-term, equity-based compensation program because:

              Our Compensation Practices.    We continue to implement and maintain what we believe are leading practices in our compensation programs and related areas. These practices include the following:

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              Shareholder Engagement.    We provide our shareholders with the opportunity to cast an annual advisory vote on executive compensation (the “say-on-pay proposal”) under U.S. securities laws in addition to binding executive compensation votes required under Swiss law. Prior to 2016, shareholders strongly supported our executive compensation programs, approving the say-on-pay proposals with 98.4%, 98.8% and 98.9% support in 2013, 2014 and 2015, respectively.

              At our Annual Shareholder Meeting held in April 2016, shareholders approved our binding executive compensation proposal with 99.4% support. However, shareholders approved our advisory say-on-pay proposal with a lower level of support of 64.3%, even though our compensation program design had not materially changed from prior years and overall compensation levels had substantially decreased commensurate with our financial performance. As part of the proxy solicitation process, and following the 2016 Annual Shareholder Meeting, we engaged in an extensive shareholder outreach effort, contacting our 28 largest institutional shareholders representing approximately 63% of the company’s outstanding shares. Members of the company’s management, its Investor Relations Department and, in some cases, the independent Chair of the Compensation Committee, conducted conference calls with those shareholders that responded to outreach efforts to solicit shareholder feedback, respond to questions and ensure that shareholders understand our executive compensation programs and are afforded an opportunity to voice any concerns.

              Shareholders noted that they generally supported the company’s compensation program design, particularly the emphasis on long-term, performance-based equity awards that reflected our strong pay-for-performance philosophy. Shareholders also noted that they appreciated our outreach efforts and the opportunity to engage in discussions with the independent Chair of the Compensation Committee. Although shareholders did not identify any specific issues with our executive compensation programs, the Compensation Committee deliberated on the results of the 2016 say-on-pay vote in multiple meetings and considered shareholder feedback, market data and advice from its independent compensation consultant in its ongoing review of the compensation program design.

Compensation Oversight and Process

              The Compensation Committee has established a number of processes to assist it in ensuring that NEO compensation is achieving its objectives. Among those are:

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              In determining the level of compensation for the NEOs, both quantitative and qualitative factors of the company’s and each NEO’s performance are analyzed. The Compensation Committee primarily uses formulaic factors to assess company performance. However, due to the potential volatility of the insurance and reinsurance industry and thus the company’s financial results, the Compensation Committee believes that it is appropriate to also use non-formulaic factors to assess company and individual performance.

              Relationship Between Pay and Performance.    The success of the company’s business and resulting value for our shareholders is contingent upon our successfully selecting, pricing and managing insurance and reinsurance risks over the long-term. Our business requires that we assess, select and respond to identified market opportunities in a highly disciplined and cost-effective manner. To reinforce this approach, our executive compensation programs are designed to align executives’ interests closely with shareholder interests by tying executive compensation directly to equity results, as well as to those financial and strategic results that drive shareholder value, including sustainable, profitable growth; high returns; efficient, risk-adjusted capital deployment; and the company’s strategic positioning. In this regard, key features of our executive compensation programs include:

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              For the 2016 performance year, the Compensation Committee reviewed an assessment conducted by Farient on the company’s pay and performance alignment. Farient determined that the company’s performance improved in 2016 relative to the prior year, despite market conditions that remained challenging, including excess capacity and increased competition, and that the company’s total shareholder return also increased significantly, in part due to the pending acquisition of the company by Fairfax Financial Holdings Limited (“Fairfax”). The Compensation Committee also considered Mr. Carmilani’s role in evaluating potential strategic transactions involving the company and successfully negotiating the terms with Fairfax to obtain significant value for our shareholders. The company’s quartile rank in performance is shown in the chart below:

              Given our relative performance, as well as the Compensation Committee’s philosophy that pay should be commensurate with performance, the committee determined that our CEO compensation has been positioned appropriately relative to performance. The Compensation Committee is committed to ensuring that CEO and other NEO compensation are appropriately aligned with performance, and will continue to monitor our pay-for-performance alignment as an input in making pay decisions.

              Assessment of Individual Performance.    All of our NEOs have specific objectives that are established at the beginning of each year. Each NEO’s performance (other than our CEO’s performance) is reviewed annually by Mr. Carmilani, our CEO, based on his individual skills and qualifications, management responsibilities and initiatives, staff development and the achievement of departmental, geographic and/or established business goals and objectives, depending on the role of the NEO. Each NEO’s performance was assessed on both company and individual achievements in light of current market conditions. Mr. Carmilani’s performance was reviewed by the Compensation Committee and was also assessed on both the company’s achievements and his individual achievements in light of current market conditions in the insurance and reinsurance industry. In 2016, these performance reviews formed the basis on which compensation-related decisions were made for annual cash bonuses and grants of performance-based and time-vested RSU awards, as well as 2017 base salaries and target bonus opportunities.

              Roles of the CEO and the Compensation Committee.    The Compensation Committee recommends to the Board for approval the company’s compensation programs and the total amount available for the base salaries, cash bonuses and equity-based compensation for the NEOs and the other executive officers as a group. The Compensation Committee also determines the company’s compensation philosophy and objectives and sets the framework for the NEOs’ compensation structure. Within this framework, Mr. Carmilani, our CEO, recommends to the Compensation Committee all aspects of compensation for each NEO, excluding himself. He reviews the recommendations, survey data and other materials provided to him by our Human Resources Department and Farient as well as proxy statements and other publicly available information of our industry peers. He also assesses the company’s and each NEO’s performance as described above. The conclusions and recommendations

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resulting from these reviews and consultations, including proposed salary adjustments, annual cash bonus amounts and equity award amounts, are then presented to the Compensation Committee for its review and consideration. The Compensation Committee has discretion to modify any recommendation it receives from Mr. Carmilani, but strongly relies on his recommendations.

              The Board and NEO Interactions.    The Board has the opportunity to meet with the NEOs regularly during the year. In 2016, the company’s NEOs met with and made presentations to the Board regarding their respective business lines or responsibilities. The company believes that the interaction among its NEOs and the Board is important in enabling the Board, including the members of the Compensation Committee, to form its own assessment of each NEO’s performance.

              The Role of Our Independent Advisor.    The Compensation Committee directed Farient to conduct analyses on key aspects of NEO and other senior officer pay and performance, and to provide recommendations about compensation plan design. Farient reports directly to the Compensation Committee and in 2016 did not provide any non-executive consulting services to the company that would require disclosure under SEC rules. Farient meets with members of senior management to gain a greater understanding of key issues facing the company and to review its cash and equity compensation programs. The Compensation Committee meets separately with Farient to review in detail all compensation-related decisions regarding the CEO as well as the structure of the company’s compensation programs. During this review, the Compensation Committee also receives Farient’s analyses of the Peer Group, NEO pay and performance for the company and its peers, a compensation risk assessment, analyses of compensation best practices and current compensation trends.

              The Compensation Committee has assessed the independence of Farient pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Farient from serving as an independent advisor to the Compensation Committee.

              Timing of Awards.    The Compensation Committee believes that compensation decisions regarding employees should be made after year-end results have been determined to better align employee compensation with company performance and shareholder value. This requires that annual cash bonuses, equity awards and base salary adjustments be determined after year-end financials have been prepared and completed. The Compensation Committee’s policy is to approve compensation decisions at its regularly scheduled meeting during the first quarter of the year.

              Benchmarking.    The Compensation Committee reviews our competitive pay positioning annually based on a report prepared by Farient. Farient compiles data on over 30 of our top positions, including our NEOs, using a number of nationally recognized surveys covering the property and casualty insurance and reinsurance industry as well as general industry surveys. In addition, Farient uses proxy data for the CEO and CFO positions from our Peer Group. Farient compiles data on base salaries, target annual bonus opportunities, target equity-based incentive compensation values and total direct compensation, which is the sum of all three components. The Compensation Committee uses this information as one input, among others, such as individual performance and retention requirements, for making compensation decisions regarding salary increases, target bonus opportunities and equity-based incentive compensation awards each year.

              Peer Group.    The Compensation Committee asks Farient to review the company’s Peer Group on an annual basis. For 2016, the company’s Peer Group is comprised of 12 insurance and reinsurance companies, selected primarily because they are similar to the company in terms of property and casualty insurance and reinsurance business mix; percentage of U.S. and non-U.S. business written; focus on specialty insurance; high-quality financial strength; and size, as measured by gross premiums written, total revenue and market capitalization. Farient uses the Peer Group for purposes of assessing total direct compensation for the CEO and CFO positions; program design, including measures and goals; pay practices; equity plan burn-rate and share overhang; business performance; an analysis of pay and performance; and Board compensation.

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              The 12 Peer Group companies used by the Compensation Committee as inputs for 2016 pay design and pay level decisions are as follows:

              Assessment of Risks Associated with Compensation.    The Compensation Committee has evaluated whether our compensation policies and programs encourage excessive risk taking. As part of this evaluation, the Compensation Committee reviewed a detailed compensation risk assessment conducted by Farient. In its assessment, Farient established both quantitative and qualitative criteria for assessing the company’s compensation programs, and evaluated numerous elements of the company’s pay mix, its compensation-related performance measurements, its governance and its processes and procedures that mitigate risk in its compensation programs. In addition to the above assessment, at the Compensation Committee’s request, Farient also conducted a review of the pay programs and risk mitigation policies covering certain executives that have direct responsibility for decisions that impact the company’s risk position. Based on these assessments, Farient concluded and the Compensation Committee concurred that the company’s balanced pay and performance program coupled with its risk mitigation policies effectively prevent excessive risk taking.

              Total Compensation Review.    Each year, the Compensation Committee reviews a summary report or “tallysheet” prepared by the company for each NEO as well as the other executive officers. The purpose of a tallysheet is to show the aggregate dollar value of each officer’s total annual compensation, including base salary, annual cash bonus, equity-based compensation, perquisites and all other compensation earned over the past two years. The tallysheet also shows amounts payable to each NEO upon termination of his employment under various termination scenarios. Tallysheets are reviewed by our Compensation Committee for informational purposes.

2016 Cash Compensation

              2016 Base Salaries.    As part of its assessment in late 2016 in preparation for pay actions in early 2017, the Compensation Committee determined that our CEO’s and NEOs’ annual base salaries were at approximately the 50^th percentile of the market. In addition, the Compensation Committee determined that Messrs. Bradley, Dupont, D’Orazio and Iglesias continued to be positioned similarly to one another at approximately one-half of the CEO’s salary. The Compensation Committee made this decision in order to (i) achieve its objective of internal equity; (ii) position average salaries between the 50^th and 75^th percentiles of the market; and (iii) avoid the need to increase salaries annually, unless dictated by significant competitive or internal considerations.

              2016 Annual Cash Bonus.    The company has established a structured, yet flexible, cash bonus program that has two facets: (1) an overall cash bonus pool that is funded based on the company’s financial and qualitative performance and (2) a process by which the overall cash bonus pool is

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allocated to individuals based on individual target awards and performance. As in prior years, a target bonus percentage was established in February 2016 for each employee, including the NEOs, who were eligible to participate in the plan. The CEO’s target bonus as a percentage of salary was based on the Compensation Committee’s competitive assessment of the market and was set to be commensurate with the market. The target bonus as a percentage of salary for the other NEOs was set with the view that there should be a reasonable separation between the percentages for the CEO and the other NEOs, and that the target bonus percentages for all other NEOs should be the same given the relative importance and impact of each NEO’s role. Target bonus percentages for the NEOs and other senior officers were recommended by the CEO and approved by the Compensation Committee. The CEO’s target bonus percentage was determined solely by the Compensation Committee.

              Our NEOs were eligible to receive an annual cash bonus based on a percentage of their annual base salary as follows:

              The methodology used to determine the 2016 annual cash bonus pool from which individual bonuses were paid is shown below:

              The maximum funding for each formulaic (i.e., financial) metric was 200%, the maximum funding for the non-formulaic (i.e., corporate scorecard) metric was 150% and the aggregate maximum funding for the 2016 annual cash bonus plan was capped at 183%. The objective of this structure was to provide predictability of award outcomes for participants while also permitting the Compensation Committee to take into consideration non-formulaic objectives.

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               Why use CIBIT as a financial metric?

              The Compensation Committee selected CIBIT as one of the financial metrics for the 2016 fiscal year because it believed it was the most comprehensive and relevant measure of our annual results and also correlated closely with shareholder value. In previous years, the Compensation Committee selected earnings before interest and taxes (“EBIT”) as the financial metric, but changed to CIBIT in 2016 in order to address currency translation adjustments following the completion of the acquisitions in Hong Kong and Singapore in 2015.

               How is CIBIT calculated?

              CIBIT is calculated by taking the company’s comprehensive income and adding back interest expense and tax expense.

               What was the level of CIBIT achievement in 2016?

              In 2016, CIBIT was $307.6 million, derived as follows (based on approximate totals): $253.0 million of comprehensive income, plus $63.7 million of interest expense, minus $9.1 million of income tax benefit, equals $307.6 million of CIBIT. Based on the $292 million Maximum Target reflected in the table above, this portion of the cash bonus pool was 200% funded.

               How were the CIBIT goals for 2016 determined?

              The target for the 2016 annual cash bonus pool was based on budgeted CIBIT for the company. The Compensation Committee determined that this target was a fair yet demanding goal, consistent with its philosophy to reward strong company and individual performance, and recognizing that the company continued to face significant challenges in growing its business at a time of heavy competition, excess capacity in the insurance and reinsurance marketplace, and a low fixed-income rate environment. The threshold and maximum goals were selected based on typical ranges used by the Peer Group to ensure that the company’s cash bonus program remained competitive.

               Why use ROE relative to the Peer Group as a financial metric?

              The Compensation Committee selected ROE relative to the Peer Group because it believes that it is important to have relative performance measures and because it believes this metric strongly correlates with long-term shareholder value. ROE is also a common measure used in the industry and, as a measurement of return, complements well with the CIBIT metric by emphasizing profitable growth.

               How is ROE calculated and defined?

              For purposes of the company’s annual cash bonus plan, “ROE” is defined as the one-year average adjusted net income divided by the two-year average shareholders’ equity for the period then ending. Please see “— 2016 Equity-Based Compensation — 2016 Equity Awards — How is ROE calculated and defined?” for the definition of “Adjusted net income.” Based on the company’s ROE relative to the Peer Group, which was in the 42^nd percentile, the Threshold Target reflected in the table above was achieved and this portion of the cash bonus pool was 66.4% funded.

               How were the relative ROE goals for 2016 determined?

              Given the competitive insurance and reinsurance marketplace, the Compensation Committee believed that the target goal would be challenging yet obtainable, and that the goal would neither

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sacrifice management’s discipline in its efforts to grow the business nor promote short-term gain over long-term shareholder returns. The threshold and maximum goals were selected based on typical ranges used by the Peer Group to ensure that the company’s cash bonus program remained competitive.

              Why is there a non-formulaic (i.e., corporate scorecard) element to the Annual Bonus Pool funding formula?

              The non-formulaic portion of the award is intended to take into account other quantitative and qualitative financial, operational and strategic measures to allow the Compensation Committee to assess the company’s performance in ways that may not manifest in near-term financial performance. In 2016, non-formulaic measures included financial metrics, product innovation, international expansion, staff development and internal efficiency.

              For 2016, highlights of some of the non-formulaic objectives and related achievements noted in determining this portion of the annual cash bonus pool funding are that we:

·

Successfully negotiated and signed a merger agreement with Fairfax, pursuant to which, subject to the terms and conditions set forth therein, we will be acquired by Fairfax in a transaction that would provide our shareholders with merger consideration that represents:



·

an 18% premium to the company’s unaffected closing stock price on December 16, 2016 of $45.77, which price was close to the then 52-week high price of $47.11, which also represented the all-time high for the company;



·

a 76% premium to the then 52-week low price of $30.75;



·

a 1.35x multiple of the company’s diluted book value as of September 30, 2016; and



·

a 1.57x multiple of the company’s diluted tangible book value as of September 30, 2016;



·

Successfully completed various initiatives to integrate the operations in Hong Kong and Singapore that had been acquired from Royal & Sun Alliance Insurance plc in 2015;



·

Successfully implemented numerous initiatives to manage expenses and position the businesses for underwriting profitability;



·

Successfully managed probable maximum losses within prescribed limits based on our economic capital model and established risk tolerances;



·

Scaled back our operations in underperforming business lines and maintained disciplined underwriting;



·

Continued to expand our insurance and reinsurance product offerings across a wide array of specialty coverages and jurisdictions; and



·

Successfully supported our growth initiatives through the continued development of our information technology systems and modeling capabilities.

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              Based on these measures and other considerations, the Compensation Committee funded the non-formulaic component of the annual cash bonus pool at 125%, which resulted in the annual cash bonus pool being funded at 130.5% of the Target column. Once the Compensation Committee determined the overall cash bonus pool funding level, awards to individual officers then were made based on the CEO’s assessments of individual performance. The annual cash bonus earned for 2016 by each of the NEOs as a percentage of his salary and as a percentage of target bonus was as follows:

2016 Equity-Based Compensation

              The Compensation Committee believes that a substantial portion of each NEO’s compensation should be in the form of long-term, equity-based awards, the largest portion of which should be “at risk” awards with vesting dependent on the company achieving certain performance targets. Equity-based grants have generally been awarded as a combination of performance-based equity awards and time-vested RSUs. Each year, the Compensation Committee sets a mix between the various equity-based vehicles to ensure that a substantial portion of the awards to each NEO is comprised of performance-based awards. The value of each NEO’s individual awards is based on an assessment of each individual’s performance for the prior year, contribution to the business, experience level and external market information.

              Equity-based awards serve to better align the interests of the NEOs and our shareholders. Equity-based awards also help to ensure a strong connection between NEO compensation and our financial performance because the value of the award depends on our future performance and share price. Long-term, equity-based awards, meaning awards that vest over a period of years, also serve as a management retention tool. The Compensation Committee utilizes equity-based awards to accomplish its compensation objectives while recognizing its duty to the company’s shareholders to limit diluting their holdings in the company. Each year, the Compensation Committee reviews analyses from its compensation consultant on relevant factors of its equity compensation program, including the competitiveness of equity awards by position, overall share usage, burn rates and comparisons to the equity compensation programs of the Peer Group.

              2016 Equity Awards.    In February 2016, the Compensation Committee set the mix among performance-based equity awards and time-vested RSU awards at approximately 75% and 25%, respectively. No stock options were granted to any employees.

              The total number of performance-based equity awards available for grant each year is determined by the Board based upon the recommendation of the Compensation Committee. In making its recommendation to the Board, the Compensation Committee may consider the number of available shares remaining under the company’s equity plans, the number of employees who will be eligible to receive such awards, market data from competitors with regard to the percentage of outstanding shares made available for annual grants to employees and the need to retain and motivate key employees.

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              Performance-based equity awards were granted to our NEOs in February 2016 under the 2012 Omnibus Plan, of which 80% will be eligible to settle in common shares and 20% will be eligible to settle in cash. Awards issued in 2016 will vest after the fiscal year ending December 31, 2018 in accordance with the terms and performance conditions set forth in the Performance-Based Award Agreement under the 2012 Omnibus Plan and as described in more detail below. These performance-based awards are “at risk,” meaning that, should the company fail to perform at the minimum prescribed level, no performance-based awards will vest and no compensation will be paid to the NEOs from these awards. The Compensation Committee believes that performance-based equity awards serve to promote the company’s growth and profitability over the long term. By having a three-year vesting period, these awards also encourage sustainable performance and employee retention.

              The company granted the following performance-based equity awards to the NEOs in 2016:

              The methodology by which these grants will be earned is shown in the table below: