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Arch Capital Group Ltd. | ||
Waterloo House, Ground Floor | ||
100 Pitts Bay Road | ||
Pembroke HM 08, Bermuda | ||
T: (441) 278-9250 | ||
www.archcapgroup.com |
March 28, 2019 |
CONSTANTINE IORDANOU Chairman of the Board |
When: | Wednesday, May 8, 2019, 8:45 a.m., local time |
Where: | Waterloo House, Ground Floor, 100 Pitts Bay Road, |
1. | Elect three Class III Directors to serve for a term of three years or until their respective successors are duly elected and qualified (Item 1); |
2. | Advisory vote to approve named executive officer compensation (Item 2); |
3. | Appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2019 (Item 3); |
4. | Elect certain individuals as Designated Company Directors of certain of our non-U.S. subsidiaries, as required by our bye-laws (Item 4); |
5. | Conduct other business if properly raised. |
Martin Richardson Secretary |
Hamilton, Bermuda |
March 28, 2019 |
Go to the website listed on your proxy card or Notice to vote VIA THE INTERNET. | |
Call the telephone number specified on your proxy card or on your Voting Instruction Form to vote BY TELEPHONE. | |
If you received paper copies of your proxy materials, mark, sign, date and return your proxy card in the postage-paid envelope provided to vote BY MAIL. | |
Scan the QR Code on your proxy card, Notice or Voting Instruction Form to vote with your MOBILE DEVICE. | |
Attend the meeting to vote IN PERSON (see Annual Meeting Attendance in Annex A—General Information). |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: |
This Proxy Statement and 2018 Annual Report to Shareholders are available at www.proxyvote.com. On or about March 29, 2019, we expect to mail to our shareholders a Notice of Internet Availability containing instructions on how to access our proxy materials, including our Proxy Statement and 2018 Annual Report to Shareholders. The Notice of Internet Availability also will instruct you on how to access and submit your proxy through the Internet, by phone or with your mobile device. |
2019 PROXY STATEMENT | | 3 |
PROXY SUMMARY | |
Roadmap of Voting Matters | |
Director Nominees | |
Important Changes to Compensation Program in 2018 | |
Shareholder Engagement | |
Key Executive Compensation Policies and Practices | |
General Information | |
Learn More About Our Company | |
GOVERNANCE | |
Item 1—Election of Directors | |
Appointed Directors, Continuing Directors and Senior Management | |
Board | |
Committees of the Board | |
Director Compensation | |
Certain Relationships and Related Transactions | |
SHARE OWNERSHIP | |
Security Ownership of Certain Beneficial Owners and Management | |
Common Shares | |
Preferred Shares | |
Ownership of Watford Holdings Ltd. (“Watford”) Shares | |
Section 16(a) Beneficial Ownership Reporting Compliance | |
COMPENSATION | |
Item 2—Advisory Vote to Approve Named Executive Officer Compensation | |
Compensation Discussion and Analysis | |
Compensation Program at a Glance | |
Strong Link Between Pay and Performance | |
2018 Performance at a Glance | |
Long-Term Performance | |
Executive Compensation Philosophy | |
How We Make Compensation Decisions | |
Shareholder Engagement and Results of Say-on-Pay Votes | |
Elements of Compensation Program |
2018 Compensation Decisions for Named Executive Officers | |
Additional Compensation Policies and Practices | |
Tax Considerations | |
Report of the Compensation Committee on the Compensation Discussion and Analysis | |
Compensation Committee Interlocks and Insider Participation | |
Executive Compensation Tables | |
Employment Arrangements | |
AUDIT MATTERS | |
Report of the Audit Committee of the Board | |
Principal Auditor Fees and Services | |
Item 3—Appointment of Independent Registered Public Accounting Firm | |
SUBSIDIARY DIRECTORS | |
Item 4—Election of Subsidiary Directors | |
Nominees | |
ANNEX A—GENERAL INFORMATION | |
ANNEX B—NON-GAAP FINANCIAL MEASURES |
4 | | 2019 PROXY STATEMENT |
ROADMAP OF VOTING MATTERS |
Our Board’s Recommendation | |
ITEM 1 - Election of Directors (page 8) | |
The Board and the Nominating and Governance Committee believe that the three Director nominees possess the necessary qualifications and experience to provide quality advice and counsel to the Company’s management and effectively oversee the business and the long-term interests of shareholders. | FOR Each Director Nominee |
ITEM 2 - Advisory Vote to Approve Named Executive Officer Compensation (page 27) | |
The Company seeks a non-binding advisory vote to approve the compensation of its named executive officers as described in the Compensation Discussion and Analysis beginning on page 27 and the Executive Compensation Tables beginning on page 51. The Board values shareholders’ opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. | FOR |
ITEM 3 - Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm (page 69) | |
The Audit Committee and the Board believe that the retention of PricewaterhouseCoopers LLP to serve as the Independent Auditors for the fiscal year ending December 31, 2019, is in the best interests of the Company and its shareholders. As required by Bermuda law, shareholders are being asked to appoint the Audit Committee’s selection of the Independent Auditors. | FOR One Year |
ITEM 4 - Election of Designated Company Directors of Certain Non-U.S. Subsidiaries (page 70) | |
The Board and management believe that the named Designated Company Director nominees possess the necessary qualifications and experience to provide oversight for the Company’s non-U.S. subsidiaries. | FOR Each Director Nominee |
2019 PROXY STATEMENT | | 5 |
DIRECTOR NOMINEES | See page 8. |
Committee Membership (1) | |||||||||
Name | Age | Director Since | Primary Occupation | UW | A | C | E | FIR | NG |
John L. Bunce, Jr. | 60 | November 2001 | Managing Director of Greyhawk Capital Management, LLC and Senior Advisor to Hellman and Friedman LLC | n | n | n | n | ||
Marc Grandisson | 51 | March 2018 | President and Chief Executive Officer of Arch Capital | n | |||||
Eugene S. Sunshine | 69 | July 2014 | Former Senior Vice President for Business and Finance at Northwestern University | n | n | n |
(1) | UW = Underwriting Oversight Committee; A = Audit Committee; C = Compensation Committee; E = Executive Committee; FIR = Finance, Investment and Risk Committee; NG = Nominating and Governance Committee |
IMPORTANT CHANGES TO COMPENSATION PROGRAM IN 2018 | See page 37 |
SHAREHOLDER ENGAGEMENT | See page 36 |
6 | | 2019 PROXY STATEMENT |
KEY EXECUTIVE COMPENSATION POLICIES AND PRACTICES | See page 37 |
What We Do |
▪ | Structure the majority of pay as performance-based, which is tied to rigorous goals. |
▪ | Align executive compensation with shareholder returns. |
▪ | Apply caps on both the annual and long-term incentive plans. |
▪ | Apply stock ownership and holding guidelines. |
▪ | Discourage inappropriate risk taking that is inconsistent with the long-term success of the Company. |
▪ | Require minimum vesting periods for equity awards. |
▪ | Include clawback provisions for all incentive-based compensation. |
▪ | Include double-trigger change in control provisions in equity awards that are assumed by an acquirer. |
▪ | Prohibit hedging under our insider trading policy in our Code of Business Conduct. |
▪ | Limit shares that can be pledged. |
▪ | Set the exercise price of our stock options and stock appreciation rights (“SARs”) at the closing share price on the grant date. |
▪ | Engage an independent compensation consultant that reports directly to the Compensation Committee. |
▪ | Utilize a peer group approved by our Board. |
▪ | Engage with our shareholders. |
What We Don’t Do |
▪ | No repricing or reducing the exercise price of stock options or SARs. |
▪ | No exchanging out of the money stock options or SARs for cash or other property. |
▪ | No tax gross-ups provided to named executive officers. |
▪ | No excise tax gross-up payments in connection with change in control payments. |
GENERAL INFORMATION | See page A-1. |
LEARN MORE ABOUT OUR COMPANY |
▪ | Our website—www.archcapgroup.com. |
▪ | Proxy website—www.proxyvote.com, which includes this Proxy Statement and our 2018 Annual Report to Shareholders. |
2019 PROXY STATEMENT | | 7 |
John L. Bunce, Jr. | ||
n | 60 years old | Mr. Bunce is a Managing Director and founder of Greyhawk Capital Management, LLC and a Senior Advisor to Hellman & Friedman LLC. He joined Hellman & Friedman in 1988 and previously served as a Managing Director of the firm. Before joining Hellman & Friedman, Mr. Bunce was Vice President of TA Associates. Previously, he was employed in the mergers & acquisitions and corporate finance departments of Lehman Brothers Kuhn Loeb. He has served as a director of Duhamel Falcon Cable Mexico, Eller Media Company, Falcon Cable TV, National Radio Partners, VoiceStream Wireless Corporation, Western Wireless Corporation, National Information Consortium, Inc. and Young & Rubicam, Inc. Mr. Bunce also was an advisor to American Capital Corporation and Post Oak Bank. He holds an A.B. from Stanford University and an M.B.A. from Harvard Business School. Mr. Bunce’s qualifications for service on our Board include his corporate finance background, investment skills, extensive experience in evaluating and overseeing companies in a wide range of industries and service on boards of directors of other companies. |
n | Director since November 2001 | |
n | Class III Director of Arch Capital | |
n | Compensation Committee | |
n | Executive Committee | |
n | Finance, Investment and Risk Committee | |
n | Nominating and Governance Committee | |
8 | | 2019 PROXY STATEMENT |
Marc Grandisson | ||
n | 51 years old | Mr. Grandisson was promoted to the position of President and Chief Executive Officer of Arch Capital on March 3, 2018 and was appointed to our Board in March 2018. From January 2016 to March 2018, he was President and Chief Operating Officer of Arch Capital. Prior to that role, he was Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group from 2005 to 2015, and the Chairman and Chief Executive Officer of Arch Worldwide Mortgage Group from February 2014 to December 2015. He joined Arch Reinsurance Ltd. (“Arch Re Bermuda”) in October 2001 as Chief Actuary. He subsequently held various leadership roles, including Chief Underwriting Officer and Actuary, President and Chief Operating Officer, eventually being named President and Chief Executive Officer at Arch Re Bermuda. Prior to joining Arch, he held various positions with the Berkshire Hathaway Group, F&G Re, Inc. and Tillinghast/Towers Perrin. He holds a B.Sc. in Actuarial Science from Université Laval in Canada and an M.B.A. from The Wharton School of the University of Pennsylvania. He is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Mr. Grandisson’s qualifications for service on our Board include his financial background, extensive executive management and operating experience in the insurance industry and his in-depth knowledge of our operations. |
n | With Arch since October 2001 | |
n | President and Chief Executive Officer of Arch Capital | |
n | Director since March 2018 | |
n | Class III Director of Arch Capital | |
n | Executive Committee |
Eugene S. Sunshine | ||
n | 69 years old | Mr. Sunshine retired at the end of August 2014 as the Senior Vice President for Business and Finance at Northwestern University, the university’s chief financial and administrative officer. Before joining Northwestern in 1997, he was Senior Vice President for Administration at The Johns Hopkins University. Prior to Johns Hopkins, Mr. Sunshine held positions as New York State Deputy Commissioner for Tax Policy and New York State Treasurer as well as Director of Energy Conservation for the New York State Energy Office. He currently is a member of the boards of directors of Chicago Board Options Exchange and Kaufman Hall and Associates. Mr. Sunshine is a former member of the boards of Bloomberg L.P., Keypath Education, National Mentors Holdings and Nuveen Investments. He holds a B.A. from Northwestern University and a Master of Public Administration degree from Syracuse University’s School of Citizenship and Public Affairs. Mr. Sunshine’s qualifications for service on our Board include his strong financial background and extensive executive management and operating experience. |
n | Director since July 2014 | |
n | Class III Director of Arch Capital | |
n | Audit Committee | |
n | Compensation Committee | |
n | Nominating and Governance Committee |
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL. |
2019 PROXY STATEMENT | | 9 |
Eric W. Doppstadt | ||
n | 59 years old | Mr. Doppstadt serves as Vice President and Chief Investment Officer of the Ford Foundation. Mr. Doppstadt has been with the Ford Foundation since 1989, most recently as director of private equity investments for the foundation’s endowment. He joined the Ford Foundation as resident counsel, later assuming senior positions managing the Ford’s alternative investment portfolio. He has also served on the investment advisory boards of numerous private equity and venture capital funds. Mr. Doppstadt holds the Chartered Financial Analyst designation from the CFA Institute and is a director of Makena Capital Management, LLC. He holds an A.B. from The University of Chicago and a J.D. from New York University School of Law. Mr. Doppstadt’s qualifications for service on our Board include his extensive investment experience and investment management skills. |
n | Director since November 2010 | |
n | Class II Director of Arch Capital | |
n | Term expires 2021 | |
n | Finance, Investment and Risk Committee | |
n | Nominating and Governance Committee |
Laurie S. Goodman | ||
n | 62 years old | Ms. Goodman is the Vice President at the Urban Institute and Founder and Co-Director of its Housing Finance Policy Center. Before joining the Urban Institute in 2013, Ms. Goodman spent 30 years at several Wall Street firms. From 2008 to 2013, she was Senior Managing Director at Amherst Securities Group LP. From 1993 to 2008, Ms. Goodman was head of global fixed income research and Manager of U.S securitized products research at UBS and predecessor firms. Before that, she was a senior fixed income analyst, a mortgage portfolio manager and a senior economist at the Federal Reserve Bank of New York. Ms. Goodman serves on the board of directors of the real estate investment trust MFA Financial and is an adviser to Amherst Capital Management. She has also served on the Bipartisan Policy Center’s Housing Commission, Fannie Mae’s Affordable Housing Advisory Council, and the Federal Reserve Bank of New York’s Financial Advisory Roundtable. Ms. Goodman has a B.A. in Mathematics from the University of Pennsylvania and an A.M. and Ph.D. in Economics from Stanford University. Ms. Goodman’s qualifications for service on our Board include her extensive analytics and strategy experience, her housing finance expertise and her service on boards of directors of other companies. |
n | Director since May 2018 | |
n | Class II Director of Arch Capital | |
n | Term expires 2021 | |
n | Audit Committee | |
n | Underwriting Oversight Committee | |
Constantine Iordanou | ||
n | 69 years old | Mr. Iordanou has been Chairman of the Board of Arch Capital since November 2009 and was Chief Executive Officer of Arch Capital from August 2003 to March 2018. From March 1992 through December 2001, Mr. Iordanou served in various capacities for Zurich Financial Services and its affiliates, including as Senior Executive Vice President of group operations and business development of Zurich Financial Services, President of Zurich-American Specialties Division, Chief Operating Officer and Chief Executive Officer of Zurich-American and Chief Executive Officer of Zurich North America. Prior to joining Zurich, he served as President of the commercial casualty division of the Berkshire Hathaway Group and served as Senior Vice President with the American Home Insurance Company, a member of the American International Group. Since 2001, Mr. Iordanou has served as a director of Verisk Analytics, Inc. (formerly known as ISO Inc.). He holds an aerospace engineering degree from New York University. Mr. Iordanou’s qualifications for service on our Board include his extensive leadership, executive management and operating experience in the insurance industry, his in-depth knowledge of our operations and service on boards of directors of other companies. |
n | Director since January 2002 | |
n | Chairman of the Board and Class II Director of Arch Capital | |
n | Term ends September 2019 | |
n | Executive Committee | |
n | Finance, Investment and Risk Committee |
10 | | 2019 PROXY STATEMENT |
Louis J. Paglia | ||
n | 61 years old | Mr. Paglia is the founding member of Oakstone Capital LLC, a private investment firm. He previously founded Customer Choice LLC in April 2010, a data analytics company serving the electric utility industry. He previously served as Executive Vice President of UIL Holdings Corporation, an electric utility, contracting and energy infrastructure company. Mr. Paglia also served as UIL Holdings’ Chief Financial Officer and as President of its investment subsidiaries. Prior to joining UIL Holdings, Mr. Paglia was Executive Vice President and Chief Financial Officer of eCredit.com, a credit evaluation software company. Prior to that, Mr. Paglia served as the Chief Financial Officer for TIG Holdings Inc., a property and casualty insurance and reinsurance holding company, and Emisphere Technologies, Inc. He holds a B.S. in Engineering from Massachusetts Institute of Technology and an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Paglia’s qualifications for service on our Board include his strong financial background and extensive executive management and operating experience in financial services companies. |
n | Director since July 2014 | |
n | Class I Director of Arch Capital | |
n | Term expires 2020 | |
n | Audit Committee | |
n | Compensation Committee | |
n | Nominating and Governance Committee | |
n | Underwriting Oversight Committee |
John M. Pasquesi | ||
n | 59 years old | Mr. Pasquesi is the Managing Member of Otter Capital LLC, a private equity investment firm he founded in January 2001. He holds an A.B. from Dartmouth College and an M.B.A. from Stanford Graduate School of Business. Mr. Pasquesi’s qualifications for service on our Board include his investment skills, extensive experience in evaluating and overseeing companies in a wide range of industries, including the insurance industry, and service on boards of directors of other companies. |
n | Director since October 2001 | |
n | Class II Director of Arch Capital | |
n | Lead Independent Director | |
n | Term expires 2021 | |
n | Compensation Committee | |
n | Executive Committee | |
n | Finance, Investment and Risk Committee | |
n | Nominating and Governance Committee | |
n | Underwriting Oversight Committee |
Brian S. Posner | ||
n | 57 years old | Mr. Posner has been a private investor since March 2008 and is the President of Point Rider Group LLC, a consulting and advisory services firm focused on financial, bio-pharmaceutical, and other services-related companies. From 2005 to March 2008, Mr. Posner served as the President, Chief Executive Officer and Co-Chief Investment Officer of ClearBridge Advisors, LLC, an asset management company and a wholly owned subsidiary of Legg Mason. Prior to that, Mr. Posner co-founded Hygrove Partners LLC, a private investment fund, in 2000 and served as the Managing Member for five years. He served as a portfolio manager and an analyst at Fidelity Investments from 1987 to 1996 and, from 1997 to 1999, at Warburg Pincus Asset Management/Credit Suisse Asset Management where he also served as Co-Chief Investment Officer and director of research. Mr. Posner currently serves on the board of directors of Biogen Inc. and he is a trustee of the AQR Funds. He holds a B.A. from Northwestern University and an M.B.A. from the University of Chicago Booth School of Business. Mr. Posner’s qualifications for service on our Board include his strong financial background, investment skills and extensive experience as a leading institutional investment manager and advisor. |
n | Director since November 2010 | |
n | Class I Director of Arch Capital | |
n | Term expires 2020 | |
n | Audit Committee | |
n | Finance, Investment and Risk Committee | |
n | Underwriting Oversight Committee |
2019 PROXY STATEMENT | | 11 |
John D. Vollaro | ||
n | 74 years old | Mr. Vollaro has been a Senior Advisor of Arch Capital since April 2009. He was Executive Vice President and Chief Financial Officer of Arch Capital from January 2002 to March 2009 and Treasurer of Arch Capital from May 2002 to March 2009. Prior to joining us, Mr. Vollaro acted as an independent consultant in the insurance industry since March 2000. Prior to March 2000, Mr. Vollaro was President and Chief Operating Officer of W.R. Berkley Corporation from January 1996 and a director from September 1995 until March 2000. Mr. Vollaro was Chief Executive Officer of Signet Star Holdings, Inc., a joint venture between W.R. Berkley Corporation and General Re Corporation, from July 1993 to December 1995. Mr. Vollaro served as Executive Vice President of W.R. Berkley Corporation from 1991 until 1993, Chief Financial Officer and Treasurer of W.R. Berkley Corporation from 1983 to 1993 and Senior Vice President of W.R. Berkley Corporation from 1983 to 1991. Mr. Vollaro currently serves on the board of directors of Tiberius Acquisition Corporation. Mr. Vollaro’s qualifications for service on our Board include his financial background, extensive executive management and operating experience in the insurance industry and his in-depth knowledge of our operations. |
n | Director since November 2009 | |
n | Class I Director of Arch Capital and Senior Advisor | |
n | Term expires 2020 | |
n | Finance, Investment and Risk Committee | |
n | Underwriting Oversight Committee |
François Morin | ||
n | 51 years old | Mr. Morin is Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital, a position he has held since May 2018. Prior to such position, Mr. Morin served as Senior Vice President, Chief Risk Officer and Chief Actuary of Arch Capital, a position he held since May 2015. He joined Arch Capital in October 2011 as Chief Actuary and Deputy Chief Risk Officer. From January 1990 through September 2011, Mr. Morin served in various roles for Towers Watson & Co. and its predecessor firm, Towers Perrin Forster & Crosby, including its actuarial division, Tillinghast. He holds a B.Sc. in Actuarial Science from Université Laval in Canada. He is a Fellow of the Casualty Actuarial Society, a Chartered Financial Analyst, a Chartered Enterprise Risk Analyst and a Member of the American Academy of Actuaries. |
n | With Arch since October 2011 | |
n | Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital |
Nicolas Papadopoulo | ||
n | 56 years old | Mr. Papadopoulo is Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations, executive positions at Arch Capital. From July 2014 to September 2017, Mr. Papadopoulo was Chairman and Chief Executive Officer of Arch Reinsurance Group at Arch Capital. He joined Arch Re Bermuda in December 2001 where he held a variety of underwriting roles. Prior to joining Arch, he held various positions at Sorema N.A. Reinsurance Group, a U.S. subsidiary of Groupama and he was also an insurance examiner with the Ministry of Finance, Insurance Department, in France. Mr. Papadopoulo graduated from École Polytechnique in France and École Nationale de la Statistique et de l’Administration Economique in France with a master’s degree in statistics. He is also a Member of the International Actuarial Association and a Fellow at the French Actuarial Society. |
n | With Arch since December 2001 | |
n | Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations |
12 | | 2019 PROXY STATEMENT |
Maamoun Rajeh | ||
n | 48 years old | Mr. Rajeh has served as Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group since October 2017. From July 2014 to September 2017, he was Chairman and Chief Executive Officer of Arch Re Bermuda. He joined Arch Re Bermuda in 2001 as an underwriter, ultimately becoming Chief Underwriting Officer in November 2005. Most recently, he was President and Chief Executive Officer of Arch Reinsurance Europe Underwriting Designated Activity Company (“Arch Re Europe”) from October 2012 to July 2014. From 1999 to 2001, Mr. Rajeh served as Assistant Vice President at HartRe, a subsidiary of The Hartford Financial Services Group, Inc. Mr. Rajeh also served in several business analysis positions at the United States Fidelity and Guarantee Company between 1992 and 1996 and as an underwriter at F&G Re from 1996 to 1999. He has a B.S. from The Wharton School of Business of the University of Pennsylvania and he is a Chartered Property Casualty Underwriter. |
n | With Arch since December 2001 | |
n | Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group |
Andrew T. Rippert | ||
n | 58 years old | Mr. Rippert is Chief Innovation and Strategic Investment Officer of Arch Capital, a position he has held since March 2019. Prior to such position, Mr. Rippert served as Chief Executive Officer of the Global Mortgage Group at Arch Capital from January 2014 to February 2019. Prior to that, he served as President and Chief Executive Officer of Arch Insurance (EU) Designated Activity Company (formerly known as Arch Mortgage Insurance Designated Activity Company) from December 2011 to March 2014. Prior to December 2011, he served as senior executive of mortgage insurance at Arch Re Bermuda. He joined Arch Insurance (UK) Limited (formerly known as Arch Insurance Company (Europe) Limited) in September 2010 as a Senior Vice President. Prior to that time, he worked as a consultant to mortgage insurers and mortgage backed security investors. From 2001 through 2006, he held various positions at Radian Guaranty Inc., a subsidiary of Radian Group Inc., including senior vice president and managing director of the international mortgage insurance group. He has also worked in reinsurance as an actuary and underwriter. Mr. Rippert serves on the board of directors of the Mortgage Bankers Association (“MBA”) and the MBA’s Opens Doors Foundation. He is also a member of the Executive Committee of the Housing Policy Council and a voting member of the MBA’s Residential Board of Governors. Mr. Rippert graduated from Drexel University with a B.S. in Physics and Mathematics and has an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Rippert is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. |
n | With Arch since September 2010 | |
n | Chief Executive Officer of the Global Mortgage Group through February 2019 and currently Chief Innovation and Strategic Investment Officer of Arch Capital |
Dennis R. Brand | ||
n | 68 years old | Mr. Brand is Chairman, Worldwide Services at Arch Capital Services Inc. Mr. Brand also serves on the Group Reinsurance Steering Committee. He served as Senior Executive Vice President and Chief Administration Officer for Arch Insurance Group Inc. (“Arch Insurance Group”) until December 2017. Mr. Brand joined Arch Insurance Group in 2004 as Senior Vice President and Chief Reinsurance Officer where he oversaw reinsurance, finance, information technology, actuarial, corporate underwriting, human resources, legal and premium audit departments. Prior to joining Arch Insurance Group, Mr. Brand held various positions in the insurance industry: first in finance, then in assumed underwriting and ceded reinsurance, as well as serving in other operational roles in the industry. Mr. Brand has over 40 years of reinsurance and executive management experience through positions held at Kemper and Reliance National. Mr. Brand holds a B.A. in Business from West Virginia University; he has also served in the United States Navy. |
n | With Arch since February 2004 | |
n | Chairman, Worldwide Services at Arch Capital Services Inc. |
2019 PROXY STATEMENT | | 13 |
David E. Gansberg | ||
n | 46 years old | Mr. Gansberg was promoted to the position of Chief Executive Officer of the Global Mortgage Group at ACGL on March 1, 2019, which provides mortgage insurance and reinsurance on a worldwide basis. From February 2013 through February 2019, he was the President and Chief Executive Officer of Arch Mortgage Insurance Company. From July 2007 to February 2013, Mr. Gansberg was Executive Vice President and a director at Arch Reinsurance Company. Prior to that, he held various underwriting, operational and strategic roles at Arch Reinsurance Ltd. and Arch Capital Services Inc., where he joined in December 2001. Prior to joining Arch, Mr. Gansberg held various positions with ACE Bermuda and Cigna Property and Casualty. He holds a B.S. in Actuarial Mathematics from the University of Michigan. |
n | With Arch since December 2001 | |
n | Chief Executive Officer of Global Mortgage Group |
W. Preston Hutchings | ||
n | 62 years old | Mr. Hutchings has served as President of Arch Investment Management Ltd. (“AIM”) since April 2006 and Senior Vice President and Chief Investment Officer of Arch Capital since July 2005. Prior to joining Arch Capital, Mr. Hutchings was at RenaissanceRe Holdings Ltd. from 1998 to 2005, serving as Senior Vice President and Chief Investment Officer. Previously, he was Senior Vice President and Chief Investment Officer of Mid Ocean Reinsurance Company Ltd. from January 1995 until its acquisition by XL Group plc in 1998. Mr. Hutchings began his career as a fixed income trader at J.P. Morgan & Co., working for the firm in New York, London and Tokyo. He graduated in 1978 with a B.A. from Hamilton College and received in 1981 an M.A. in Jurisprudence from Oxford University, where he studied as a Rhodes Scholar. |
n | With Arch since July 2005 | |
n | President of Arch Investment Management Ltd. and Senior Vice President and Chief Investment Officer of Arch Capital |
Louis T. Petrillo | ||
n | 53 years old | Mr. Petrillo has been President and General Counsel of Arch Capital Services Inc. since April 2002. From May 2000 to April 2002, he was Senior Vice President, General Counsel and Secretary of Arch Capital. From 1996 until May 2000, Mr. Petrillo was Vice President and Associate General Counsel of Arch Capital’s reinsurance subsidiary. Prior to that time, Mr. Petrillo practiced law at the New York firm of Willkie Farr & Gallagher LLP. He holds a B.A. from Tufts University and a law degree from Columbia University. |
n | With Arch since January 1996 | |
n | President and General Counsel of Arch Capital Services Inc. |
Carl D. Sullo | ||
n | 70 years old | Mr. Sullo has served as Chief Human Resources Officer, Real Estate and Administrative Services at Arch Capital Services Inc. since June 2018. Prior to that he served as Senior Vice President, Human Resources, Real Estate and Administrative Services at Arch Insurance Group Inc. from July 2009 to May 2018. Prior to joining Arch Insurance Group, Mr. Sullo has over 40 years of insurance experience through executive and management positions at Catalina Holdings, One Beacon Insurance, Crum & Forster, Reliance National, Colonial Penn Insurance and CIGNA. He has a B.A. in Psychology from Iona College. |
n | With Arch since March 2009 | |
n | Chief Human Resources Officer, Real Estate and Administrative Services |
14 | | 2019 PROXY STATEMENT |
2019 PROXY STATEMENT | | 15 |
Underwriting Oversight Committee | Oversees risks relating to our underwriting activities, including with respect to accumulations and aggregations of exposures in our insurance, reinsurance and mortgage businesses. |
Audit Committee | Oversees management of financial reporting and compliance risks. |
Compensation Committee | Oversees the management of risks relating to the Company’s compensation plans and arrangements, retention of personnel and succession planning. |
Finance, Investment and Risk Committee | Oversees risks relating to the financial, investment, operational (including information technology and data security) and other risk affairs of the Company. |
Nominating and Governance Committee | Oversees risks associated with the composition of the Board and with corporate governance matters. |
16 | | 2019 PROXY STATEMENT |
Director | Audit | Compensation | Executive | Finance, Investment and Risk | Nominating and Governance | Underwriting Oversight | ||||||
John L. Bunce, Jr. | n | n | n | n | Chair | |||||||
Eric W. Doppstadt | n | Chair | n | |||||||||
Laurie S. Goodman | n | n | ||||||||||
Marc Grandisson | n | |||||||||||
Constantine Iordanou | n | Chair | n | |||||||||
Yiorgos Lillikas | n | n | ||||||||||
Louis J. Paglia | n | n | n | n | Chair1 | |||||||
John M. Pasquesi | n | n | n | n | n | |||||||
Brian S. Posner | n | Chair | n | n | ||||||||
Eugene S. Sunshine | n | n | Chair | n | ||||||||
John D. Vollaro | n | n |
1 | Mr. Paglia has served as Chair of the Underwriting Oversight Committee since January 2019. Prior to that, Mr. Vollaro served as Chair from November 2009 through December 2018. |
2019 PROXY STATEMENT | | 17 |
18 | | 2019 PROXY STATEMENT |
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | ||||||||||
John L. Bunce, Jr. | NC | 178,067 | 94,938 | — | 273,005 | |||||||||
Eric W. Doppstadt | FC | 170,567 | 94,938 | — | 265,505 | |||||||||
Laurie S. Goodman | 165,000 | 94,938 | 50,000 | 309,938 | ||||||||||
Yiorgos Lillikas | 173,567 | 94,938 | — | 268,505 | ||||||||||
Louis J. Paglia (4) | UC | 185,567 | 94,938 | 50,000 | 330,505 | |||||||||
John M. Pasquesi | LD | 184,067 | 94,938 | 50,000 | 329,005 | |||||||||
Brian S. Posner | AC | 204,567 | 94,938 | 50,000 | 349,505 | |||||||||
Eugene S. Sunshine | CC | 204,567 | 94,938 | 18,325 | 317,830 | |||||||||
John D. Vollaro (5)(6) | 750,000 | — | 132,318 | 882,318 |
(1) | Each non-employee member of our Board of Directors is entitled to receive an annual cash retainer fee in the amount of $125,000. Each such director may elect to receive the retainer fee in the form of common shares instead of cash. If so elected, the number of shares distributed to the non-employee director will be equal to 100% of the amount of the annual retainer fee otherwise payable divided by the fair market value of our common shares on the date of grant. Each non-employee director also receives a meeting fee of $2,500 for each Board meeting attended and $1,500 for each committee meeting attended. This column includes the annual retainer (whether paid in cash or, at the election of the director, in common shares), meeting fees and committee chair and retainer fees, as applicable and as described above. For the 2018–2019 annual period, Mr. Sunshine received his annual retainer fees in the form of cash and Ms. Goodman and Messrs. Bunce, Doppstadt, Lillikas, Paglia, Pasquesi and Posner received their annual retainers in the form of 4,722 common shares. |
Committee Chair/Member | Annual Fee | ||
Audit Committee Chair | $ | 50,000 | |
Audit Committee Member | $ | 25,000 | |
Finance, Investment and Risk Committee Chair | $ | 25,000 | |
Lead Director | $ | 25,000 | |
Compensation Committee Chair | $ | 25,000 | |
Nominating and Governance Committee Chair | $ | 25,000 | |
Executive Committee Chair | $ | 10,000 |
(2) | Each year, the non-employee directors are granted a number of restricted shares equal to $95,000 divided by the closing price on the date of grant (i.e., the first day of the annual period of compensation for the non-employee directors), and such shares vest on May 1 of the following year. The grant date fair value indicated in the table has been calculated in accordance with FASB ASC Topic 718 Compensation—Stock Compensation. On May 9, 2018, each |
2019 PROXY STATEMENT | | 19 |
(3) | The amounts in the “All Other Compensation” column for Ms. Goodman and Messrs. Paglia, Pasquesi, Posner, Sunshine and Vollaro include matching gifts made under the Company’s matching gift program. |
(4) | Effective January 1, 2019, Mr. Paglia became the Chair of the Underwriting and Oversight Committee, replacing Mr. Vollaro, and became entitled to the applicable chair fee. |
(5) | Mr. Vollaro is a senior advisor and an employee of the Company. Mr. Vollaro’s employment agreement provides that he receives an annual base salary of $250,000 and a bonus determined by the Compensation Committee and the Board for his role as Senior Advisor of the Company. For 2018, Mr. Vollaro received a cash bonus of $500,000. In addition, Mr. Vollaro is a member of the Finance, Investment and Risk Committee of the Board and served as chairman of the Underwriting and Oversight Committee of the Board in 2018. A description of Mr. Vollaro’s employment agreement is included below. |
(6) | The amount for Mr. Vollaro includes: (a) $33,440 in contributions to our defined contribution plans; (b) $25,710 for club dues; and (c) $55,000 for matching gifts made under the Company’s matching gift program. In addition, the total amount includes the payment for life insurance premiums, tax preparation services and an additional allowance, which did not exceed the greater of $25,000 or 10% of the total amount of these benefits for Mr. Vollaro. |
20 | | 2019 PROXY STATEMENT |
2019 PROXY STATEMENT | | 21 |
22 | | 2019 PROXY STATEMENT |
Common Shares | ||||
Name and Address of Beneficial Owner | (A) Number of Common Shares Beneficially Owned (1) | (B) Rule 13d-3 Percentage Ownership (1) | ||
Artisan Partners Holdings LP (2) 875 East Wisconsin Avenue, Suite 800 Milwaukee, Wisconsin 53202 | 52,664,200 | 13.1 | % | |
The Vanguard Group (3) 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | 35,009,622 | 8.7 | % | |
Cascade Investment, L.L.C. (4) 2365 Carillon Point Kirkland, Washington 98033 | 34,533,297 | 8.6 | % | |
BlackRock Inc. (5) 55 East 52nd Street New York, New York 10022 | 27,775,928 | 6.9 | % | |
Baron Capital Group, Inc. (6) 767 Fifth Avenue New York, New York 10153 | 23,212,503 | 5.8 | % | |
Constantine Iordanou (7) | 7,282,254 | 1.8 | % | |
Marc Grandisson (8) | 2,834,093 | * | ||
John L. Bunce, Jr. (9) | 2,072,376 | * | ||
Eric W. Doppstadt (10) | 56,022 | * | ||
Laurie S. Goodman (11) | 8,310 | * | ||
Yiorgos Lillikas (12) | 51,469 | * | ||
Louis J. Paglia (13) | 29,883 | * | ||
John M. Pasquesi (14) | 5,178,924 | 1.3 | % | |
Brian S. Posner (15) | 85,127 | * | ||
Eugene S. Sunshine (16) | 15,972 | * | ||
John D. Vollaro (17) | 511,818 | * | ||
François Morin (18) | 200,810 | * | ||
Nicolas Papadopoulo (19) | 777,062 | * | ||
Maamoun Rajeh (20) | 637,717 | * | ||
Andrew T. Rippert (21) | 219,390 | * | ||
All directors and executive officers (18 persons) (22) | 21,611,932 | 5.2 | % |
2019 PROXY STATEMENT | | 23 |
(1) | Pursuant to Rule 13d-3 promulgated under the Exchange Act, amounts shown include common shares that may be acquired by a person within 60 days of March 8, 2019. Therefore, column (B) has been computed based on (a) 403,518,712 common shares actually outstanding as of March 8, 2019; and (b) solely with respect to the person whose Rule 13d-3 Percentage Ownership of common shares is being computed, common shares that may be acquired within 60 days of March 8, 2019 upon the exercise of options held only by such person. All references to “options” in the above table and the related footnotes include SARs, as applicable. |
(2) | Based on a Schedule 13G/A filed with the SEC on February 7, 2019 jointly by Artisan Partners Limited Partnership (“APLP”), Artisan Investments GP LLC (“Artisan Investments”), Artisan Partners Holdings LP (“Artisan Holdings”), Artisan Partners Asset Management Inc. (“APAM”) and Artisan Partners Funds, Inc. (“Artisan Funds”). APLP is an investment advisor and Artisan Funds is an investment company. Artisan Holdings is the sole limited partner of APLP and the sole member of Artisan Investments. Artisan Investments is the general partner of APLP and APAM is the general partner of Artisan Holdings. The Schedule 13G/A reported that the common shares have been acquired on behalf of discretionary clients of APLP, which holds 52,664,200 common shares, including 25,667,824 common shares on behalf of Artisan Funds. In addition, the Schedule 13G/A reported that (a) APLP, Artisan Investments, Artisan Holdings and APAM each has shared voting with respect to 49,525,137 common shares and shared dispositive power with respect to 52,664,200 common shares and (b) Artisan Funds has shared voting and dispositive power with respect to 25,667,824 common shares. |
(3) | Based on a Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group (“Vanguard”). In the Schedule 13G/A it is reported that Vanguard has shared dispositive power with respect to 411,156 common shares, sole voting power with respect to 287,336 shares, shared voting power with respect to 145,205 common shares and sole dispositive power with respect to 34,598,466 common shares. |
(4) | Based on a Schedule 13G/A filed with the SEC on February 14, 2013 jointly by Cascade Investment, L.L.C. (“Cascade”) and William H. Gates III. In the Schedule 13G/A, it is reported that Cascade has sole voting and dispositive power with respect to 34,533,297 common shares. In addition, all common shares held by Cascade may be deemed to be beneficially owned by William H. Gates III as the sole member of Cascade. |
(5) | Based on a Schedule 13G/A filed with the SEC on February 4, 2019 by BlackRock. In the Schedule 13G/A, it is reported that BlackRock has sole voting power with respect to 24,715,249 common shares and sole dispositive power with respect to 27,775,928 common shares. |
(6) | Based upon a Schedule 13G/A filed with the SEC on February 13, 2019 jointly by Baron Capital Group, Inc. (“BCG”), BAMCO, Inc. (“BAMCO”), Baron Capital Management, Inc. (“BCM”) and Ronald Baron (collectively, the “Baron Group”). In the Schedule 13G/A, the Baron Group reported that BAMCO and BCM are subsidiaries of BCG, and Ronald Baron owns a controlling interest in BCG. In addition, |
(7) | Amounts in columns (A) and (B) reflect (a) 497,740 common shares owned directly by Mr. Iordanou (including 69,807 restricted shares, which are subject to vesting); (b) 478,334 common shares, which are held by a grantor retained annuity trust; (c) stock options and SARs with respect to 3,410,840 common shares that are exercisable currently or within 60 days of the date hereof; and (d) stock options and SARs with respect to 2,895,340 common shares that are exercisable currently, which are held by two grantor retained annuity trusts. Amounts do not include (a) stock options and SARs with respect to 164,712 common shares that are not exercisable within 60 days of the date hereof, (b) 94,905 restricted common share units that will not be settled in common shares within 60 days of the date hereof; and (c) 39,753 restricted common share units that will be settled in common shares after the termination of Mr. Iordanou’s employment, as provided in the award agreement. Mr. Iordanou holds a security agreement with respect to 424,843 directly owned common shares, which is not currently being utilized. |
(8) | Amounts in columns (A) and (B) reflect (a) 1,832,136 common shares owned indirectly by Mr. Grandisson and his spouse; (b) 115,487 restricted shares owned directly by Mr. Grandisson, which are subject to vesting; (c) 1,980 common shares owned by his spouse; and (d) stock options and SARs with respect to 884,490 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 744,451 common shares that are not exercisable within 60 days of the date hereof. |
(9) | Amounts in columns (A) and (B) reflect 2,072,376 common shares owned directly by Mr. Bunce. |
(10) | Amounts in columns (A) and (B) reflect 56,022 common shares owned directly by Mr. Doppstadt. |
(11) | Amounts in columns (A) and (B) reflect 8,310 common shares owned directly by Ms. Goodman. |
(12) | Amounts in columns (A) and (B) reflect (a) 51,214 common shares owned directly by Mr. Lillikas and (b) 255 common shares owned by his child. |
(13) | Amounts in columns (A) and (B) reflect 29,883 common shares owned directly by Mr. Paglia. |
(14) | Amounts in columns (A) and (B) reflect (a) 1,221,693 common shares owned by Otter Capital LLC, for which Mr. Pasquesi serves as the Managing Member; (b) 3,106,098 common shares owned indirectly by revocable trusts for which Mr. Pasquesi and his spouse are the trustees; |
24 | | 2019 PROXY STATEMENT |
(15) | Amounts in columns (A) and (B) reflect 85,127 common shares owned directly by Mr. Posner. |
(16) | Amounts in columns (A) and (B) reflect 15,972 common shares owned directly by Mr. Sunshine. |
(17) | Amounts in columns (A) and (B) reflect (a) 420,018 common shares owned by a revocable trust for which Mr. Vollaro serves as trustee and (b) stock options and SARs with respect to 91,800 common shares that are exercisable currently. |
(18) | Amounts in columns (A) and (B) reflect (a) 41,481 common shares owned directly by Mr. Morin (including 32,368 restricted shares, which are subject to vesting); (b) 79,491 common shares owned indirectly with his spouse; (c) stock options and SARs with respect to 79,838 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 109,806 common shares that are not exercisable within 60 days of the date hereof. |
(19) | Amounts in columns (A) and (B) reflect (a) 670,862 common shares owned directly by Mr. Papadopoulo (including 71,169 restricted shares, which are subject to vesting) and (b) stock |
(20) | Amounts in columns (A) and (B) reflect (a) 362,743 common shares owned directly by Mr. Rajeh (including 53,504 restricted shares, which are subject to vesting) and (b) stock options and SARs with respect to 274,974 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 116,633 common shares that are not exercisable within 60 days of the date hereof. |
(21) | Amounts in columns (A) and (B) reflect (a) 106,389 common shares owned directly by Mr. Rippert (including 35,283 restricted shares, which are subject to vesting) and (b) stock options and SARs with respect to 113,001 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 103,267 common shares that are not exercisable within 60 days of the date hereof. |
(22) | In addition to securities beneficially owned by the directors and the named executive officers reflected in the table, includes an aggregate of 1,650,705 common shares, including common shares issuable upon exercise of stock options and SARs that are exercisable currently or within 60 days of the date hereof, which are beneficially owned by executive officers who are not directors of Arch Capital. |
Preferred Shares | ||||||
Name of Beneficial Owner | Number of Series E Preferred Shares Beneficially Owned | Percentage of Class Owned | Number of Series F Preferred Shares Beneficially Owned | Percentage of Class Owned | ||
Constantine Iordanou (1) | — | * | 10,000 | * | ||
Brian S. Posner | 6,000 | * | 3,000 | * | ||
All directors and executive officers (16 persons) | 6,000 | * | 13,000 | * |
2019 PROXY STATEMENT | | 25 |
Common Shares | Preferred Shares | ||||||||
Name of Beneficial Owner | (A) Number of Watford Common Shares Beneficially Owned (1) | (B) Rule 13d-3 Percentage Owned | (C) Number of Watford Preferred Shares Beneficially Owned (2) | (D) Percentage of Class Owned | |||||
Marc Grandisson | 125,000 | * | — | * | |||||
Constantine Iordanou | 50,000 | * | 120,000 | 1.3 | % | ||||
François Morin (3) | 6,250 | * | — | * | |||||
Nicolas Papadopoulo | 62,500 | * | — | * | |||||
John M. Pasquesi (4) | 125,000 | * | — | * | |||||
Brian S. Posner | 6,250 | * | — | * | |||||
Maamoun Rajeh | 12,500 | * | — | * | |||||
All directors and executive officers (18 persons) | 400,000 | 1.8 | % | 130,000 | 1.4 | % |
26 | | 2019 PROXY STATEMENT |
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL. |
Name | Title |
Marc Grandisson | President, Chief Executive Officer and Class III Director of Arch Capital |
François Morin | Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital |
Nicolas Papadopoulo | Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations |
Maamoun Rajeh | Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group |
Andrew T. Rippert | Chief Executive Officer of the Global Mortgage Group (1) |
Constantine Iordanou | Chairman of the Board and Class II Director of Arch Capital; Chief Executive Officer until March 2, 2018 |
Mark D. Lyons | Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital until May 25, 2018 |
(1) | Mr. Rippert held such position until February 28, 2019. Effective March 1, 2019, he was appointed as Chief Innovation and Strategic Investment Officer of Arch Capital. Mr. Gansberg was promoted to Chief Executive Officer of the Global Mortgage Group, effective March 1, 2019. |
2019 PROXY STATEMENT | | 27 |
Base Salary | Short-Term Incentives | Long-Term Share-Based | Performance-Based | Shareholder Return Modifier |
Long-Term Incentives | ||||
Base salaries attract, retain and compensate executives based on level of responsibility and experience. | Formulaic approach to our annual incentive plan design, which aligns payments made to named executive officers to the financial performance achieved by our Reporting Segments and investment function. | Long-term share-based incentive awards to senior executives comprise (i) 80% performance- based: 55% performance shares and 25% stock options, and (ii) 20% time-based restricted shares. Stock options and time-based restricted stock have three-year ratable vesting. | Performance-based long-term share-based incentive awards granted to senior executives payout in shares at the end of each three-year period based on growth in tangible book value per share, a strong indicator of growth in shareholder value. | Performance-based long-term share-based incentive awards contain a total shareholder return modifier to further tie awards to long-term shareholder value. |
Performance Metrics | ||||
Annual and long-term performance metrics have rigorous target goals and include minimum threshold amounts that must be achieved in order for an executive to receive a payout. Additionally, maximum payout as a percentage of target is capped at 200% for both the annual and long-term incentive plans. |
28 | | 2019 PROXY STATEMENT |
▪ | The short-term annual incentive awards reported in the Summary Compensation Table for 2018 were decided in February 2019 and reflect achievement of financial metrics and individual strategic metrics related to 2018 year performance. See “Elements of Compensation Program—Short-Term Annual Cash Incentive Bonuses.” |
▪ | Long-term equity incentive awards reflected in the Summary Compensation Table for 2018 and reported in the 2018 Grants of Plan-Based Awards table were granted in May 2018. |
2019 PROXY STATEMENT | | 29 |
▪ | Mortgage insurance and reinsurance was our most profitable segment in 2018 and represented 24% of our premium volume. The group also successfully introduced a new means of accepting mortgage credit risk from Fannie Mae and Freddie Mac and participated in several credit-risk transfer programs that are all designed to attract a diversified and robust capital base to the U.S. housing market and encourage market stability through economic cycles. |
▪ | Reinsurance growth reflected increased writings of motor business in Europe and reinstatement premiums from catastrophe events. The segment also reduced participation in large commoditized risks and continued to uncover deals in a soft market, which speaks to its diversified platform and dynamic portfolio. |
▪ | The Insurance segment responded to an extended soft market by carving out positions in those specialty areas where it sees attractive opportunities, including increased positions in travel and accident insurance. The Insurance segment also expanded its footprint in both the U.S. and Europe with business acquisitions that will provide a wider network and better service to our customers. |
30 | | 2019 PROXY STATEMENT |
Cumulative Annualized Growth in Book Value and Tangible Book Value per Common Share | |||||||||||||||
1 Year | 3 Year | 5 Year | 10 Year | 17 Year | |||||||||||
BVPS | 6.0 | % | 10.7 | % | 10.3 | % | 14.2 | % | 14.9 | % | |||||
TBVPS | 6.6 | % | 8.5 | % | 8.8 | % | 13.6 | % | 14.4 | % |
Growth in Book Value and Tangible Book Value per Common Share |
2019 PROXY STATEMENT | | 31 |
Average ROE | ||||||||||||
1 Year | 3 Year | 5 Year | 10 Year | |||||||||
Net Income ROE | 8.4 | % | 8.5 | % | 9.8 | % | 12.9 | % | ||||
Operating ROE | 10.7 | % | 8.3 | % | 9.2 | % | 10.3 | % |
Net Income ROE and Operating ROE |
32 | | 2019 PROXY STATEMENT |
Total Shareholder Return |
2019 PROXY STATEMENT | | 33 |
▪ | Link Pay with Performance: The great majority of our pay for executives is at-risk and performance-based with metrics aligned to the Company’s short-term and long-term financial results and business strategy. Pay should have a clear connection to each executive’s individual contribution to increasing value for our shareholders. |
▪ | Attract, Retain and Align: We maintain programs that will attract and retain critical talent, drive future growth and create strong shareholder alignment within our executive population. |
▪ | Support Culture: We support the Arch Capital culture of teamwork, underwriting discipline and commitment to the highest ethical standards. |
▪ | Provide Market Competitive Pay: For each executive position, we consider external market data at median values for base salary, annual target bonus levels and annualized long-term incentive target grants. Based upon the considerable range of unique facts and circumstances pertaining to our executive talent, we adjust opportunities as appropriate to take into consideration various factors such as consistent high performance and value delivery to the Company, retention, succession, successful tenure and other factors. |
▪ | The chief executive officer assists in the reviews of the named executive officers other than himself and makes individual recommendations to the Compensation Committee on base salary, annual incentive and long-term share-based compensation. The Compensation Committee reviews, discusses, modifies and approves these compensation recommendations. |
▪ | The Compensation Committee meets in executive sessions (without management present) as necessary, particularly when making determinations about base salary, annual incentive and long-term equity compensation, or administering any aspect of the compensation program for the chairman of the board and president and chief executive officer of Arch Capital. Determinations about compensation matters in respect of the chairman of the board, president and chief executive officer of Arch Capital, the chief financial officer of Arch Capital, the general counsel of Arch Capital Services Inc., and other senior executives designated by the Compensation Committee are subject to ratification by the Board. |
▪ | To establish levels of base salary, annual incentives, long-term incentives and benefits, the Compensation Committee reviews extensive historical competition data, including detailed tally sheets, information compiled from annual reports on Form 10-K, proxy statements and other publicly available information for a representative sample of publicly-traded insurers and reinsurers that we believe compete directly with us for executive talent (the “Peer Group”). Many of these selected peers are of generally similar size and have generally similar numbers of employees, product offerings and geographic scope. |
34 | | 2019 PROXY STATEMENT |
▪ | reviewed and advised the Compensation Committee on matters concerning compensation of the CEO and our other named executive officers; |
▪ | reported on all aspects of short-term and long-term compensation program design, including incentive mix and our Peer Group; |
▪ | reported on emerging trends and developments in executive compensation and corporate governance; |
▪ | prepared formal presentations for the Compensation Committee regarding executive compensation; |
▪ | reviewed compensation benchmarking analysis for each of the Company’s senior executives; and |
▪ | reviewed and advised on director compensation. |
How the Peer Group Was Chosen | |
Step 1: Industry Filters | Select industries relative to Arch Capital’s business operations. |
Step 2: Size Filters | Filter companies based on revenue and asset size. |
Step 3: Additional Subjective Filters | Review business descriptions and additional financial measures. |
How We Use the Peer Group | |
Pay Comparisons | Determine competitive pay levels and identify differences from general industry market data. |
Assess ability to attract, retain, engage and motivate top talent. | |
Compensation Structure | Provide benchmarks for compensation structure (pay mix, performance metrics, leverage, vehicles, etc.). |
Use as a foundation or reference when making design changes to the compensation program. | |
Performance Comparisons | Determine performance relative to companies facing similar business challenges. |
Input to setting incentive plan goals. | |
Financial Performance | Company performance is measured in absolute terms, as well as versus prior year results, and in relative terms in comparison with the performance of peer companies in our Peer Group on the same financial metrics. |
2019 PROXY STATEMENT | | 35 |
2018 Peer Group |
Alleghany Corporation |
American Financial Group, Inc. |
AmTrust Financial Services, Inc.* |
Argo Group International Holdings, Ltd. |
Aspen Insurance Holdings Limited |
Assurant, Inc. |
AXA XL* |
AXIS Capital Holdings Limited |
CNA Financial Corporation |
Cincinnati Financial Corporation |
Essent Group Ltd. |
Everest Re Group, Ltd. |
First American Financial Corporation |
The Hanover Insurance Group, Inc. |
The Hartford Financial Services Group |
Markel Corporation |
Old Republic International Corporation |
Radian Group Inc. |
RenaissanceRe Holdings Ltd. |
Selective Insurance Group, Inc. |
Validus Holdings, Ltd.* |
W. R. Berkley Corporation |
36 | | 2019 PROXY STATEMENT |
2018 Named Executive Officer Target Short-Term Incentive Bonus Opportunity | |||
Name | Base Salary (12/31/2018) | Target (%) | |
Marc Grandisson1* | $1,000,000 | 165 | % |
François Morin2* | $600,000 | 125 | % |
Nicolas Papadopoulo | $750,000 | 135 | % |
Maamoun Rajeh | $650,000 | 135 | % |
Andrew T. Rippert | $700,000 | 135 | % |
Constantine Iordanou1* | $500,000 | 100 | % |
* | The 2018 bonus payments for Messrs. Grandisson, Morin and Iordanou are based on pro-rated salaries and/or targets for the time spent in their respective roles during 2018. |
1 | In connection with Mr. Grandisson assuming the role of CEO, his base salary was increased to $1.0 million from $900,000 and Mr. Iordanou’s base salary was adjusted to $500,000. |
2 | In connection with Mr. Morin’s promotion to CFO on May 25, 2018, his base salary and bonus target was increased to $600,000 and 125%, respectively. Prior to May 25, 2018, Mr. Morin’s base salary was $500,000 and his target was 110%, respectively. |
2019 PROXY STATEMENT | | 37 |
▪ | Corporate executives are senior-level executives that have a broad set of responsibilities across the entire group and do not have specific underwriting unit profit and loss responsibilities. This group includes the chief executive officer and the chief financial officer. |
▪ | Unit executives are senior-level executives with profit and loss responsibilities for a specific underwriting unit. In 2018, this group included Mr. Papadopoulo, Mr. Rajeh and Mr. Rippert. |
Performance Criteria | Measurement | Weights for Corporate Executives | Weights for Unit Executives | Range of Payout Percentages | ||
Financial Metrics— Group Level | The incentive compensation payout level at the group level is based on each of the underwriting units’ incentive compensation formula plan multiples as described in “Overview” above. In order to calculate a weighted average multiple reflective of the relative contribution of each underwriting unit to the group results, the payout levels for each unit are initially converted to an ROE-equivalent, which is inferred1 using the current underwriting year’s ROE scale. Secondly, a group-wide ROE supporting the incentive compensation formula plans is derived, using the unit-specific inferred ROEs, weighted by capital allocated (or deployed) to each underwriting unit. Thirdly, the relative performance of the group is calculated by comparing the group-wide ROE to the target level ROE for the current year. Ultimately, this result is used in the pre-defined group-level payout scale to generate the incentive payout level under this category. | 70 | % | 20 | % | 0–200% |
Financial Metrics— Segment Level | The incentive compensation payout level for each unit executive measured under this category is equal to his respective unit’s incentive compensation formula plan multiple (total bonus payout dollars for the unit for the current year expressed as a percentage of the aggregate target bonus pool for the unit for the current year), as described in “Overview” above. | 0 | % | 50 | % | 0–200% |
Strategic Metrics2 | Based on year-end performance evaluation. | 30 | % | 30 | % | 0–250% |
Total | 100 | % | 100 | % | 0–200% |
1 | An ROE equivalent for a given unit is inferred by determining the ROE that would be required under the current underwriting year’s ROE scale to produce a payout multiple equal to the unit’s actual incentive compensation formula plan payout. |
2 | For the strategic criteria, payout percentages over 200% may only be used if the overall financial criteria payout percentage is 100% (i.e., target level of performance) or higher. The overall maximum bonus payment cannot exceed 200% of the target amount. |
38 | | 2019 PROXY STATEMENT |
Threshold | Target | Maximum | ||||
ROE scale for 2018 underwriting year | 5.87 | % | 11 | % | 16.87 | % |
Range of Payouts as % of Target - Financial Goals | Threshold | Target | Maximum | |||
Payout as a % of Target1 | 20 | % | 100 | % | 200 | % |
Level of Goal Achievement Required: Financial—Corporate Executives | 85 | % | 100 | % | 115 | % |
Level of Goal Achievement Required: Financial—Unit Executives | 53 | % | 100 | % | 153 | % |
1 | Payout for performance achievement between stated levels is interpolated on a straight-line basis. |
Strategic Performance Rating | Payout Modifier1 |
Exceptional Achievements | 250% |
Exceeds Expectations | 150% |
Meets Expectations | 100% |
Needs Development | 50% |
Unsatisfactory | 0% |
1 | For the strategic criteria, payout modifiers over 200% may only be used if the overall financial goals achieve the target level of performance or higher. Additionally, maximum payout as a percentage of target is capped at 200%. |
2019 PROXY STATEMENT | | 39 |
Performance Shares 55% of Economic Value | Stock Options 25% of Economic Value | Restricted Stock/Units 20% of Economic Value | ||||||||
Performance Period: 3-years. Underlying Value: Denoted in shares of Arch Capital stock. Metrics: Absolute Tangible Book Value per share growth over the 3-year performance period, with a 25% +/- TSR modifier, relative to the TSR of our Peer Group set forth within “How We Make Compensation Decisions—Selected Competitors.” Opportunities: Pre-established threshold, target and maximum opportunities (e.g., 50%, 100%, 200%). Below threshold performance results in 0% shares earned. Payout: Earned shares vest in March following the end of the performance period, with the number of vested shares dependent upon the level of goal achievement. | + | Vesting: 3-year ratable commencing on the first anniversary of the grant date. Exercise Price: Equal to the closing share price on the grant date. Life: 10-year maximum term. | + | Vesting: 3-year ratable commencing on the first anniversary of the grant date. Underlying Value: Denoted in shares of Arch Capital stock. Payout: In shares. Dividends: Accrue and are paid out upon vesting. |
40 | | 2019 PROXY STATEMENT |
Level of Performance | Growth in TBVPS | Shares Earned as a % of Target | ||
Threshold | 6 | % | 50 | % |
Target | 11 | % | 100 | % |
Maximum | 16 | % | 200 | % |
Name | 2018 Target (%) | 2018 Actual (%)1 | ||
Marc Grandisson | 450 | % | 405 | % |
François Morin2 | 175 | % | 158 | % |
Nicolas Papadopoulo | 200 | % | 180 | % |
Maamoun Rajeh | 200 | % | 180 | % |
Andrew T. Rippert | 200 | % | 180 | % |
1 | For 2018, the Compensation Committee adjusted the amount received to 90% of the approved target values reflecting the reduced value of our common share price at the time of grant and to recognize that 2018 was a transition period in the implementation of the long-term incentive compensation targets. |
2 | Effective January 1, 2019, the Compensation Committee increased Mr. Morin’s long-term incentive target to 200% to reflect his additional responsibilities related to the oversight of the Company’s investment unit. |
2019 PROXY STATEMENT | | 41 |
Chief Executive Officer | |||||||||
Marc Grandisson President and Chief Executive Officer | |||||||||
Strategic Goals | |||||||||
Under Mr. Grandisson’s leadership, the company continued to deliver strong operational and financial results as highlighted in the “2018 Performance at a Glance” section. The Compensation Committee took into account the Company’s profitability achieved under his guidance, the Company’s continued strong performance in relation to its Peer Group and the Company’s overall focus on underwriting discipline and its disciplined approach to investments and capital management. The Compensation Committee also reviewed Mr. Grandisson’s oversight of key operational strategic matters such as predictive analytics, strategic M&A initiatives and risk management as well as the launch of a multi-year initiative to upgrade and refresh core processes and systems that will generate productivity, efficiency and consumer centric solutions. | |||||||||
Compensation Decisions | |||||||||
■ Base Salary | Effective March 3, 2018, when Mr. Grandisson assumed the role of President and Chief Executive Officer of Arch Capital, his base salary was increased to $1,000,000 from $900,000 to reflect his additional responsibilities. | ||||||||
■ Short-Term Cash Incentive (“STI”) | The group financial performance metrics represent the weighted average results under the plan formula for the insurance, reinsurance, mortgage and investment units determined for 2018. The level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The Compensation Committee reviewed Mr. Grandisson’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 175% on the portion of his bonus that was based on strategic performance. | ||||||||
2018 STI Metric | Payout Factor | x Weighting | = Adjusted Weighting | x Target Bonus | = Bonus Payout | ||||
Financial Performance—Group | 200% | 70% | 140% | $1,621,068 | $2,270,000 | ||||
Strategic Performance | 175% | 30% | 52.5% | 851,000 | |||||
TOTAL | 100% | 192.5% | $3,121,000 | ||||||
■ Long-Term Incentive | On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. In addition, as discussed in “Elements of Compensation Program—2018 Long-Term Incentive Awards—Other Long-Term Incentive Awards,” the Compensation Committee approved a retention award on April 9, 2018 for Mr. Grandisson in connection with his promotion to CEO of Arch Capital. | ||||||||
Performance Shares | Stock Options | Time-Based Restricted Shares | |||||||
Grant Date | Number of Shares | Value1 | Number of Shares | Value1 | Number of Shares | Value1 | Total | ||
May 11, 2018 | 82,449 | $2,227,500 | 133,821 | $1,012,500 | 29,982 | $810,000 | $4,050,000 | ||
April 9, 2018 | 616,284 | $4,499,983 | $4,499,983 | ||||||
1 The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. |
42 | | 2019 PROXY STATEMENT |
Chief Financial Officer | |||||||||||||||||
François Morin Executive Vice President, Chief Financial Officer and Treasurer | |||||||||||||||||
Strategic Goals | |||||||||||||||||
Mr. Morin has transitioned seamlessly to the Group CFO and Treasurer position since May 2018. The Compensation Committee took into account the strong contribution of Mr. Morin to strategic initiatives such as developing our plan to transform group-wide financial reporting, risk management and treasury operations. Mr. Morin worked towards getting confirmation of agency ratings at satisfactory levels affirmed with a stable outlook. The strategic metrics considered for Mr. Morin’s performance evaluation also include the efficient use of assets to fund M&A initiatives and his continued focus on developing and retaining key talent for his previous role. | |||||||||||||||||
Compensation Decisions | |||||||||||||||||
■ Base Salary | Effective May 25, 2018, Mr. Morin’s base salary was increased to $600,000 from $500,000 to reflect his additional responsibilities in connection with his promotion to Executive Vice President and Chief Financial Officer of Arch Capital. Effective January 1, 2019, Mr. Morin’s base salary and target were increased to $625,000 and 135%, respectively, to reflect his additional responsibilities related to his oversight of the Company’s investment unit. | ||||||||||||||||
■ Short-Term Cash Incentive | The group financial performance metrics represent the weighted average results under the plan formula for the insurance, reinsurance, mortgage and investment units determined for 2018. The level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The Compensation Committee reviewed Mr. Morin’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 175% on the portion of his bonus that was based on strategic performance. | ||||||||||||||||
2018 STI Metric | Payout Factor | x Weighting | = Adjusted Weighting | x Target Bonus | = Bonus Payout | ||||||||||||
Financial Performance—Group | 200% | 70% | 140% | $679,863 | $952,000 | ||||||||||||
Strategic Performance | 175% | 30% | 52.5% | 357,000 | |||||||||||||
TOTAL | 100% | 192.5% | $1,309,000 | ||||||||||||||
■ Long-Term Incentive | On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. In addition, as discussed in “Elements of Compensation Program—2018 Long-Term Incentive Awards—Other Long-Term Incentive Awards,” the Compensation Committee approved a special award on July 24, 2018 for Mr. Morin in connection with his promotion to CFO of Arch Capital. | ||||||||||||||||
Performance Shares | Stock Options | Time-Based Restricted Shares | Total | ||||||||||||||
Grant Date | Number of Shares | Value1 | Number of Shares | Value1 | Number of Shares | Value1 | Total | ||||||||||
May 11, 2018 | 19,239 | $519,774 | 31,224 | $236,242 | 6,996 | $189,009 | $945,025 | ||||||||||
July 24, 2018 | 16,993 | $495,006 | 27,534 | $224,994 | 6,179 | $179,994 | $899,994 | ||||||||||
1 The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. In addition, the value of the performance shares in the summary above for the July 24, 2018 award are shown at target based on the closing price of our common shares on the date of grant. |
2019 PROXY STATEMENT | | 43 |
Insurance Unit Executive | |||||||||
Nicolas Papadopoulo Chairman and CEO of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations | |||||||||
Strategic Goals | |||||||||
Mr. Papadopoulo’s effective oversight of the insurance group during the year brought structure and discipline in our operations reducing our combined ratio and improving the insurance segment ROE. The Compensation Committee also took into account Mr. Papadopoulo’s role in strategic initiatives, including insurance segment acquisitions that solidified our portfolio and distribution in the U.S., as well as accelerated our U.K. retail portfolio growth. Under his leadership, the segment designed and implemented a de-risking strategy that is intended to provide certainty in areas that have had propensity to adverse development and he developed the “Voice of Customer” platform that creates a common customer-centric brand and attitude across the organization. | |||||||||
Compensation Decisions | |||||||||
■ Base Salary | Mr. Papadopoulo did not receive a salary adjustment in 2018. | ||||||||
■ Short-Term Cash Incentive | The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the group financial goal portion of bonuses. The level of goal achievement during 2018 under the formula plan for the open underwriting years under the insurance segment was 99%, which resulted in a payout factor of 99% of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Papadopoulo’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 250% on the portion of his bonus that was based on strategic performance. | ||||||||
2018 STI Metric | Payout Factor | x Weighting | = Adjusted Weighting | x Target Bonus | = Bonus Payout | ||||
Financial Performance—Group | 200% | 20% | 40% | $1,012,500 | $405,000 | ||||
Financial Performance—Segment | 99% | 50% | 49.5% | 502,000 | |||||
Strategic Performance | 250% | 30% | 75% | 759,000 | |||||
TOTAL | 100% | 164.5% | $1,666,000 | ||||||
■ Long-Term Incentive | On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. | ||||||||
Performance Shares | Stock Options | Time-Based Restricted Shares | Total | ||||||
Grant Date | Number of Shares | Value1 | Number of Shares | Value1 | Number of Shares | Value1 | Total | ||
May 11, 2018 | 27,483 | $742,499 | 44,607 | $337,498 | 9,993 | $269,978 | $1,349,975 | ||
1 The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. |
44 | | 2019 PROXY STATEMENT |
Reinsurance Unit Executive | |||||||||
Maamoun Rajeh Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group | |||||||||
Strategic Goals | |||||||||
Mr. Rajeh’s oversight of the reinsurance group during the year led it to deliver strong performance when compared with our Peer Group. The Compensation Committee reviewed the profitability of the reinsurance group, including the group’s effectiveness in managing the underwriting cycle and catastrophic loss management. The Compensation Committee also took into account Mr. Rajeh’s role in strategic initiatives, including development of the group’s platform in Europe, the implementation of a motor center of excellence, raising the profile of predictive analytics and identifying fertile ground for implementing predictive analytics. | |||||||||
Compensation Decisions | |||||||||
■ Base Salary | Mr. Rajeh did not receive a salary adjustment in 2018. | ||||||||
■ Short-Term Cash Incentive | The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the group financial goal portion of bonuses. The level of goal achievement during 2018 under the formula plan for the open underwriting years under the reinsurance segment was 101%, which resulted in a payout factor of 101%1of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Rajeh’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 150% on the portion of his bonus that was based on strategic performance. | ||||||||
2018 STI Metric | Payout Factor | x Weighting | = Adjusted Weighting | x Target Bonus | = Bonus Payout | ||||
Financial Performance—Group | 200% | 20% | 40.0% | $877,500 | $351,000 | ||||
Financial Performance—Segment1 | 65% | 50% | 32.5% | 285,000 | |||||
Strategic Performance | 150% | 30% | 45.0% | 395,000 | |||||
TOTAL | 100% | 117.5% | $1,031,000 | ||||||
1 The payout factor was adjusted for amounts calculated under the reinsurance segment’s formulaic plan attributable to performance for prior underwriting years. | |||||||||
Mr. Rajeh also received an additional bonus amount of $474,000 calculated under the reinsurance segment’s formulaic plan for prior underwriting years. | |||||||||
■ Long-Term Incentive | On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. | ||||||||
Performance Shares | Stock Options | Time-Based Restricted Shares | Total | ||||||
Grant Date | Number of Shares | Value1 | Number of Shares | Value1 | Number of Shares | Value1 | Total | ||
May 11, 2018 | 23,820 | $643,537 | 38,661 | $292,510 | 8,661 | $233,991 | $1,170,038 | ||
1 The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. |
2019 PROXY STATEMENT | | 45 |
Mortgage Unit Executive | |||||||||
Andrew Rippert Chief Executive Officer of the Global Mortgage Group until February 2019 | |||||||||
Strategic Goals | |||||||||
The Mortgage segment, under Mr. Rippert’s leadership, continued to strengthen the Company’s financial performance in relation to its Peer Group and maintained high ROE despite competitive pressures. In addition, Mr. Rippert introduced new products and services that generated meaningful fee based income with the potential for future growth. The Compensation Committee considered his oversight of strategic initiatives such as risk management, including the programmatic use of the capital markets through the Bellemeade transactions. Finally, the Compensation Committee took into account Mr. Rippert’s role in obtaining approval for our Australian-based mortgage operations. | |||||||||
Compensation Decisions | |||||||||
■ Base Salary | Effective January 1, 2018, Mr. Rippert’s base salary was increased to $700,000 from $650,000. | ||||||||
■ Short-Term Cash Incentive | The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The level of goal achievement during 2018 for the open underwriting years under the formula plan for the mortgage segment was 132%, which resulted in a payout factor of 160%1 of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Rippert’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 150% on the portion of his bonus that was based on strategic performance. | ||||||||
2018 STI Metric | Payout Factor | x Weighting | = Adjusted Weighting | x Target Bonus | = Bonus Payout | ||||
Financial Performance—Group | 200% | 20% | 40% | $945,000 | $378,000 | ||||
Financial Performance—Segment1 | 120% | 50% | 60% | 567,000 | |||||
Strategic Performance | 150% | 30% | 45% | 425,250 | |||||
TOTAL | 100% | 145% | $1,370,250 | ||||||
1 The payout factor was adjusted for amounts calculated under the mortgage segment’s formulaic plan attributable to performance for prior underwriting years. | |||||||||
Mr. Rippert also received an additional bonus amount of $346,000 calculated under the mortgage segment’s formulaic plan for prior underwriting years. | |||||||||
■ Long-Term Incentive | On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. | ||||||||
Performance Shares | Stock Options | Time-Based Restricted Shares | Total | ||||||
Grant Date | Number of Shares | Value1 | Number of Shares | Value1 | Number of Shares | Value1 | Total | ||
May 11, 2018 | 25,650 | $692,978 | 41,634 | $315,004 | 9,327 | $251,984 | $1,259,966 | ||
1 The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. |
46 | | 2019 PROXY STATEMENT |
Other Named Executive Officers | ||||||
Constantine Iordanou Chairman of the Board | ||||||
Strategic Goals | ||||||
In 2018, Mr. Iordanou served as Chairman of the Board and Chief Executive Officer of ACGL through March 2, 2018. He continued as Chairman of the Board when Mr. Grandisson became Chief Executive Officer on March 3, 2018. As Chairman, Mr. Iordanou continued to work toward ensuring a successful transition. | ||||||
Compensation Decisions | ||||||
■ Base Salary | Effective March 3, 2018, when Mr. Iordanou continued as Chairman of the Board, his base salary was adjusted to $500,000. | |||||
■ Short-Term Cash Incentive | Mr. Iordanou received an annual bonus of $500,000. Mr. Iordanou elected to receive all of his annual bonus in the form of stock options under the Company’s existing election program, which resulted in an award, on March 15, 2019, of 63,956 stock options. | |||||
■ Long-Term Incentive | Mr. Iordanou received a long-term incentive grant for 2018 performance on May 9, 2018 valued at $805,441 consisting of restricted common shares and stock options. The award was pro-rated to reflect his time as CEO of Arch and vests in annual installments over a two-year period. |
2019 PROXY STATEMENT | | 47 |
▪ | In no event may any executive officer or director of the Company pledge an amount of common shares that exceeds the lesser of 30% of the common shares beneficially owned by the individual (as reported or would be reported in our Proxy Statement) or 0.5% of the then outstanding common shares of Arch Capital; and |
▪ | any securities pledged would not count toward satisfying any required ownership level of securities under relevant share retention guidelines. |
48 | | 2019 PROXY STATEMENT |
COMPENSATION COMMITTEE Eugene S. Sunshine (Chairman) John L. Bunce, Jr. Louis J. Paglia John M. Pasquesi |
2019 PROXY STATEMENT | | 49 |
50 | | 2019 PROXY STATEMENT |
2018 Summary Compensation Table |
Name and Principal Position | Year | Salary ($) (1) | Annual Bonus ($) | Stock Awards ($)(2) | Option Awards ($)(3),(6) | Non-Equity Incentive Plan Compensation ($) (4) | All Other Compensation ($)(5) | Total ($) | |||||||||
Marc Grandisson(6) | 2018 | 982,576 | — | 2,828,662 | 5,500,589 | 3,121,000 | 451,360 | 12,884,187 | |||||||||
President, Chief Executive Officer and Class III Director of Arch Capital | 2017 | 900,000 | 3,000,000 | 2,233,232 | 572,270 | — | 426,243 | 7,131,745 | |||||||||
2016 | 900,000 | 3,700,000 | (7 | ) | 832,437 | 202,748 | — | 416,167 | 6,051,352 | ||||||||
François Morin(8) | 2018 | 563,406 | — | 1,299,874 | 458,462 | 1,309,000 | 271,642 | 3,902,384 | |||||||||
Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital | |||||||||||||||||
Nicolas Papadopoulo | 2018 | 750,000 | — | 942,861 |