(9) | Includes 26,00028,500 shares held in IRA and SEP-IRA trusts for Mr. Walker’s benefit, and 22,50024,500 shares held by his wife. |
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|
ITEM 1 |
ELECTION OF DIRECTORS |
The following table lists allthe nominees and continuing directors of the Company. FourFive Class 3 directors are to be elected at the Annual Shareholders’ Meeting of the Shareholders for a term of three years and until their successors are elected and qualified. The nominees are current directors standing for re-election. Mr. Steven J. Bateman was elected a Class 2 director when the Board of Directors was increased to twelve members on February 23, 2017. He was elected in this class because the Company’s By-Laws require that directors be assigned as equally as possible among the Company’s three classes of directors. Accordingly, he shall stand for election as a director, in due course, with the other members of Class 2 in 2019. Mr. Bateman was recommended by the Company’s Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”) with input from other Company directors. The Governance and Nominating Committee approved his selection and the Board of Directors unanimously elected him. No third party was involved in Mr. Bateman’s recruitment or selection as a director and no fee was paid to any individual or entity in connection with his selection. Mr. Bateman was also named a member of the Audit and Compensation committees when he was elected. Information concerning his background, qualifications and the talents he brings to the Company is shown below. It is intended that, in the absence of contrary specifications, votes will be cast pursuant to the enclosed proxies for the election of such nominees. Should any of the nominees become unable or unwilling to accept nomination or election, it is intended that, in the absence of contrary specifications, the proxies will be voted for the balance of those named and for a substitute nominee or nominees. However, the Company does not expect such an occurrence. All of the nominees have consented to be slated and to serve as directors if elected.
Effective December 31, 2019, Mr. Dennis P. Van Mieghem retired after serving fifteen years as a director of the Company and its major insurance underwriting subsidiaries. Effective February 29, 2020, Mr. Charles F. Titterton retired after serving fifteen years as a director of the Company and its major insurance underwriting subsidiaries.
Mr. Craig R. Smiddy was elected a director, effective October 1, 2019, when he was made Chief Executive Officer and President of the Company. He was President and Chief Operating Officer of the Company since June 2018 and served in other executive positions with the Company since 2013. Mr. Smiddy, who is not considered independent, was also named a member of the Executive Committee. The Governance and Nominating Committee approved his nomination and he was unanimously elected by the Board of Directors. No third party was involved in his recruitment or selection as a director and no fee was paid to any individual or entity in connection with his selection.
Given the reasons and background information cited next to each nominee’s name below, the Board of Directors believes that each of the nominees and itsthe other continuing directors are eminently qualified to serve Old Republic’s shareholders and other stakeholders.
4
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| | | | |
Name | | Age | | Positions with Company, Business Experience and Qualifications |
|
| | | | |
Nominees for Election:Election: CLASS 3 (Term to expire(Term expires in 2020)2023) |
James C. Hellauer | | 78 | | |
Charles J. Kovaleski | | 71 | | Director since 2011. Prior2018. Retired as an attorney, he was formerly with Attorneys’ Title Insurance Fund, Orlando, Florida as well as an officer with one of the Company’s Title subsidiaries for many years. He brings extensive general business experience to Old Republic’s Board particularly in real estate and title insurance. |
Craig R. Smiddy | | 55 | | Director since October 2010, a director since 2005 of PMA Capital Corporation (“PMA”); owner of James C. Hellauer1, 2019. President and Associates. From 1997 to 1999, Chief Executive Officer of Environmental Technologies Corporation. From 1994 to 2007, executive directoras of the Colmen Group. Currently a foundersame date. Prior to that President and directorChief Operating Officer of East River Bank. His qualifications include athe Company since June 2018. From 2013 to 2018, President and Chief Operating Officer of Old Republic General Insurance Group, Inc. Before joining the Company, he was President of the Specialty Markets Division of Munich Reinsurance America, Inc. He has significant general business background as well as specific experience in, and knowledge concerningof, the business of PMA and itsthe risk factors.factors associated with, the insurance industry and especially the insurance specialty markets. |
Arnold L. Steiner | | 7982 | | Director since 1974. Retired for more than five years from Steiner Bank, Birmingham, Alabama of which he was President and a substantial owner. He bringshas long and significant experience in financial businesses and has extensive knowledge of the Company and its risk factors. |
Fredricka Taubitz | | 7376 | | Director since 2003. A CPA by training, she was until 2000 Executive Vice President and Chief Financial Officer of Zenith National Insurance Corp. Until 1985, she was a partner with the accounting firm of Coopers & Lybrand (now PricewaterhouseCoopers LLP). During her long professional career she has gained significant experience in, and knowledge of, the business and the risk factors associated with the insurance industry. |
Aldo C. Zucaro | | 7880 | | Director since 1976. Chairman of the Board since 1993. Prior to October 1, 2019, Chairman and Chief Executive Officer of the Company and various subsidiaries since 1993. He was President of the Company since 1990 and Executive Vice President and Chief Financial Officer since 1976. A CPA by training, he brings a significant background as a former insurance specialist partner with Coopers & Lybrand (now PricewaterhouseCoopers LLP), and has long-term experience with the insurance industry in general, and the Company in particular, since 1970. |
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| | | | |
Continuing Directors:Directors: CLASS 1 (Term expires in 2018)2021) |
| | | | |
Harrington Bischof | | 8285 | | Director since 1997. President of Pandora Capital Corporation since 1996. Formerly Senior Advisor with Prudential Securities, Inc. and prior to that, a senior investment banker with the firms of Merrill, Lynch & Co. and White, Weld & Co. His experience in business, investment banking, and international finance are of significant value to the Company’s corporate governance. |
Spencer LeRoy III | | 7173 | | Director since February 26, 2015. Until his retirement on July 1,in 2014, he was Senior Vice President, Secretary and General Counsel of the Company since 1992. Prior to that, he was a partner with the law firm of Lord, Bissell and Brook, now known as Locke Lord LLP. His legal career involved all aspects of insurance, corporate governance and financial-related matters. Mr. LeRoy brings to Old Republic’s Boardhas a long and significant legal experience and extensive knowledge of the Company and its risk factors. |
Charles F. TittertonPeter B. McNitt | | 7565 | | Director since 2004. Formerly Director – InsuranceJanuary 2019. He is the retired Vice Chair of BMO Harris Bank; a position he held since 2006. Prior to that, he led BMO Harris’ U.S. Corporate Banking as Executive Vice President and U.S. Investment Banking as Executive Managing Director. Mr. McNitt also serves as a director of Hub Group, with Standard & Poor’s Corp. until 2003.Inc. (NASDAQ: HUB), a provider of intermodal highway and logistics services. He brings significant businesshas long-term experience and deep knowledge gained during his more than 40 year-long career. His wide range of responsibilities focused on the delivery of the risk factors connected with the insurance industry by virtuefull breadth of his long career as a lending officer with a majorwealth, and commercial and investment banking institution and with the aforementioned rating agency.services to customers. |
Steven R. Walker | | 7274 | | Director since 2006. Formerly Senior Counsel and Partner with Leland, Parachini, Steinberg, Matzger & Melnick, LLP, attorneys, San Francisco, California. He bringshas significant experience to Old Republic’s Board as both an attorney and a business manager during a long career focused on the title insurance industry. |
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| | | | |
Continuing Directors:Directors: CLASS 2(Term expires (Term to expire in 2019)2022) |
| | | | |
Steven J. Bateman | | 61 | | Director since 2017. An audit partner with the accounting firm of PricewaterhouseCoopers LLP until his retirement, he had a 37 year career as an auditor and business advisor for a large number of organizations engaged in all major insurance fields. During that period of time, he gained a wealth of knowledge and experience in the business and the risk factors associated with the insurance industry. His background and experience will harmonize extremely well with the Company’s business and the Board’s governance objectives. |
Jimmy A. Dew | | 7679 | | Director since 1980. Formerly Vice Chairman of Old Republic’s subsidiary, Republic Mortgage Insurance Company (“RMIC”), of which he was a co-founder in 1973. His knowledge of RMIC gained in an executive capacity since its founding and his long service on Old Republic’s Board make him fully conversant with the insurance industry and its risk factors. |
John M. Dixon | | 7780 | | Director since 2003. Formerly Chief Executive Partner with the law firm of Chapman and Cutler, Chicago, Illinois until his retirement in 2002. His qualificationsqualifications include his extensive background as an attorney and his knowledge of corporate law and the risk factors of corporations like the Company. |
Dennis P. Van MieghemGlenn W. Reed | | 7667 | | Director since 2004. A CPA by training, he was the Partner in charge2017. Mr. Reed served as a Managing Director of The Vanguard Group, Inc., one of the National Insurance Tax Practiceworld’s largest asset-management firms until his retirement from the firm in 2017. While at Vanguard, Mr. Reed had overall responsibility for Vanguard’s corporate finance and mutual fund finance functions, most recently heading up the firm’s Strategy division. Prior to joining Vanguard in 2007, he served as general counsel for a multi-line health and life insurance company following a 21-year career in the partnership of the accountingChicago-based law firm of KPMG LLP until his 1998 retirement. With this background he brings significantGardner, Carton & Douglas (now Faegre Drinker Biddle & Reath). This long-term experience and deep knowledge gained in these fields of the insurance industry and its risk factors to Old Republic’s Board. |
5
Name | | Age | | Positions with Company, Business Experience and Qualifications |
Steven J. Bateman | | 58 | | Director since February 23, 2017. An audit partner with the accounting firm of PricewaterhouseCoopers, LLP until his recent retirement, he has a 37 year career as an auditor and business advisor for a large number of organizations engaged in all major insurance fields. During that period of time, he gained a wealth of knowledge and experience in the business and the risk factors associated with the insurance industry. His background and experience willendeavor harmonize extremely well with the Company’s business needs and the Board’s governance objectives. |
BOARD OF DIRECTORS’ RECOMMENDATION
The Board of Directors recommends a vote FOR the Class 3 directors listed above as nominees.above. Proxies solicited by the Board of Directors will be voted in favor of the election of these nominees unless shareholders specify to the contrary. The results of this vote shall be disclosed in a filing made with the SEC shortly after the Annual Shareholders’ Meeting of the Shareholders and will be available for review on the Company’s website, www.oldrepublic.com.
OVERVIEW |
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CORPORATE GOVERNANCE: |
BINDING ORGANIZATION, PURPOSE, AND LONG-TERM STRATEGY |
Old Republic is organizedOrganized as an independent,a for-profit, shareholder-owned insurance enterprise managedholding company chartered under the General Corporation Law of the State of Delaware. As a holding company, it has no operations of its own; rather its primary assets are the stock and debt instruments issued by its many subsidiaries. Nearly all of its consolidated business is conducted through 29 insurance underwriting subsidiaries which are chartered in 11 states and three foreign jurisdictions, most notably in Canada. The Company also owns the equity and debt securities of over 100 other subsidiaries. Each of these subsidiaries is charged with producing revenues, managing risk, and providing claims management and other services for the Long Run. insurance underwriting subsidiaries and outside parties.
This typical organizational structure ensures that Old Republic remains firmly established as a legal person with an indefinite life. Shareholders-long- or short-term investors in the Company’s shares-are not the direct owners of its assets or properties. Their rights are limited by Delaware law, which provides that shareholders delegate to the board of directors the responsibility for controlling, directing, and using those assets and properties based on the directors’ business judgment. In purchasing, holding, or selling shares of Old Republic common stock, shareholders can do so with confidence that the board of directors’ successful, long-standing governance practices are guided by its charter and by-laws, which they consistently observe.
Our Missioninsurance subsidiaries are vested with a public trust. Accepting premiums and insurance-related fees from policyholders and other buyers of related services forms the basis of this trust. This makes policyholders critically important stakeholders. They depend on the subsidiaries’ ability to meet their just obligations of financial indemnity over long periods of time. In observance of these relationships, state insurance laws impose certain requirements on insurance companies to dutifully protect the legitimate interests of policyholders, as well as the community at large. As a result, Old Republic is by necessity governed for the long run envisaged by the long-term promises of financial indemnity, and the public trust imbued in its insurance subsidiaries. Together with the principles and practices contained in the charter and by-laws, governance is intended to purposefully ensure the following:
Operation of the business within the law, with integrity, and in a socially responsible manner
Maintenance of the business’s competitive position to enable the continued growth of economic value in a fairly balanced way for the interests of all stakeholders
Old Republic’s Purpose is clearly stated in our mission statement: to provide quality insurance security and related services to businesses, individuals, and public institutions, and to be a dependable long-term steward of the trust that policyholders, shareholders, and shareholdersother important stakeholders place in us. Our Lodestar embodies the Company’s mission by binding organization, purpose, and long-term strategy into a coordinated whole.
We pursue our mission and purpose in light of the long-standing principles and practices of 1) our governance, 2) our service culture, 3) our value system, 4) the institutional memory that binds successive generations of managers, and 5) respectful appreciation of our people and the intellectual capital they bring to managing our wide-ranging business. In operating a business within America’s free enterprise system, we’re keenly focused on achieving two interrelated outcomes over time:
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A. | Create long-term value for all stakeholders, including shareholders, policyholders, our people, and the American community at large. We believe that this desired outcome is best achieved by: |
Continuously enhancing the Company’s competitive position, which increases its economic value to all stakeholders in a cohesive and socially responsible manner.
Steadily building the sustainability of the business’s competitiveness and earnings prospects. This adds to our financial and intellectual capital while at the same time:
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– | Providing a necessary financial cushion to support insurance obligations in the event they prove greater than anticipated. |
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– | Enhancing the Company’s ability to handle its insurance risk-bearing and dispersing functions to meet society’s increasing demands for protecting the property and other values that a growing economy produces. |
We use all of these means to achieve our purpose and help meet the community’s long-term expectations of economic growth, sustainable employment, and a rising tax base to accomplish social goals.
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B. | Create long-term value for long-term shareholders, whose interests are aligned with our Mission as they provide and support the retention of paid-in capital and the accumulated earnings retained in the business. We measure this value creation by these interrelated financial outcomes: |
The Company’s governanceconsecutive 10-year compound annual total returns provided by Old Republic’s common stock performance in the marketplace. This is calculated as the annual combination of the change in market value and operations are guidedthe reinvested cash dividend we pay.
The consecutive 10-year compound annual total returns seen in Old Republic’s common stock book value. This is calculated as the annual combination of the change in book value per share, plus our cash dividend.
The consecutive 10-year annual total return on shareholders’ equity. This is calculated by thisdividing net operating income (excluding both realized and unrealized investment gains or losses) by shareholders’ equity (which also excludes those factors).
In assessing the first two of these economic outcomes, we seek to achieve consecutive 10-year financial performance that exceeds the following benchmarks: 1) the annual year-over-year and compounded increases in the Nominal Gross Domestic Product (GDP), 2) the annual and compounded total return of the Standard & Poor’s (S&P) 500 Index, and 3) the annual and compounded return of the S&P Insurance Index. The charts on pages 10 to 12 reflect our success in these regards.
The overall Strategy we’ve followed over the decades has been fully aligned with our Mission and governing principles. The linchpin of this strategy is the inherent public interest vestedconservative, long-term management of Old Republic’s balance sheet. In this approach, periodic income statements are simply the linked economic outcomes from two succeeding balance sheet dates. The maintenance of a strong financial position supports the insurance subsidiaries’ risk-taking and obligations to policyholders, and underlies our stewardship in the interest of all stakeholders. We accomplish this through enterprise risk taking naturemanagement principles generally, and with insurance underwriting discipline in particular. The discipline rests on key operating tenets of its business. Its governance endeavorsour business:
Employing disciplined risk selection, evaluation, and pricing practices to alignreduce the possibility of adverse risk selection and the uncertainty of insurance underwriting outcomes
Focusing on diversification and spreading of insured risks by geography and among industries that are core to the North American economy, while staying in areas in which we are intellectually competent and operationally proficient
Emphasizing a balanced mix of insurance coverages for all industries we serve, in which we are knowledgeable and which exert economically balanced demands on our risk-bearing capital
Reducing and mitigating insured exposures through underwriting risk-sharing arrangements with policyholders to:
– Encourage a greater partnership approach to the costing and management of risk
– Bring greater efficiencies to capital management
Following these time-tested insurance underwriting disciplines and risk-management principles has enabled us to produce industry-beating underwriting results over the last five decades. For instance, our largest business segment, General Insurance, has generated better-than-industry-composite underwriting ratios for 41 years, matched the industry in four years, and has been less successful than the industry in only five of the past fifty years.
Achieving positive underwriting results is complemented by investment income, which we derive from the combined investments of underwriting cash flows, shareholders’ capital, and funds provided by debt holders. Through the years, this Missioncombination has led to 1) rising earnings over cycles, 2) the maintenance of balance sheet strength, and 3) increasing cash dividends to all shareholders. The strategy is evaluated and reestablished each year by the Board of Directors at the same time it reviews and approves management’s annual operating and capital allocation budgets. The evaluation includes, among other things, these major considerations:
The diversification of the business by types of insurance coverages and product distribution
The business’s performance over the natural multi-year cycles in the insurance industry. Reviews of 10-year trends are favored, as these likely encompass one or two economic and/or insurance underwriting cycles. This allows enough time for the cycles to run their course, for premium rates and underwriting changes to appear in financial results, and for reserved claim costs to be quantified with the substancegreater finality and effect
The allocation of its business, giving due appreciationcapital to Old Republic’s key insurance underwriting subsidiaries, in consideration of their relative risk-taking appetites and regardabilities, and their accumulated reserves to pay claims
Old Republic’s capital management strategy is underpinned by these consistent objectives:
Retaining high, economically justifiable independent financial ratings for the Company’s most important assets:insurance underwriting subsidiaries
Assuring a realistically consistent increase over time in cash dividend payments based on the Company’s earnings power and trends. These payments benefit all shareholders directly or as beneficiaries of their financial assets, as these are directed in common by institutional investment managers held to fiduciary obligations
Old Republic’s dedication to a program of steadily rising cash dividends rests on our belief that its long-term shareholders can benefit from a total return on their investment, whether measured by:
The combination of the annual cash dividend and change in the Company’s book value per share, or
The combination of the annual cash dividend and change in year-end market value per share
Old Republic’s consistent cash dividend policy has produced these results:
Dividend payments have been made without interruption since 1942 (in 78 of the Company’s 96 years)
The annual cash dividend rate has been raised in each of the past 38 years
Old Republic is one of just 111 American companies out of thousands that have posted at least 25 consecutive years of annual dividend growth (according to Mergent’s Dividend Achievers)
In directing capital management and the related dividend policies, Old Republic has refrained from stock buybacks. In the relatively few instances when its capital coffers have been more than ample for foreseeable business needs, the Board has chosen to pay an extra cash dividend (most recently in September 2019). This preferred approach treats all shareholders alike from the standpoints of both cash flows and equitable maintenance of book value per share.
The binding of organization, purpose, and long-term strategy is buttressed by Old Republic’s by-laws and charter provisions from which its long-established policies of corporate governance emanate. The structure and policies of this governance are discussed in the following two Proxy sections on pages 13 to 16:
Leadership Structure and Risk Management, and
Board of Directors’ Responsibilities and Independence
In their totality, the policies have enabled a necessary emphasis on the stability, continuity, and sustainability of the enterprise as primary objectives for achieving long-term value for all stakeholders. The chart on page 12 shows how we’ve succeeded in blending governance with organization, purpose, and strategy in the interest of all stakeholders. The information is shown for the 52 years, ending in 2019. The 1968 starting year was chosen because it gave rise to the Company’s ultimate transformation from the Old Republic Life Insurance Company, predecessor to Old Republic International Corporation in 1969. The chart reflects a large number of annual and ten-year comparisons between ORI’s
· | The investors’ capital which enables and underpins the insurance risk taking; |
total book and market value returns, and the three aforementioned benchmarks. A retrospective review and analysis of the data reflects two significant observations with respect to the ten-year comparisons:
We believe that Old Republic’s stock performance fell short in the 1980 - 1989 period due to accelerated diversification activity effected by acquiring various companies in exchange for our common stock and forming new joint underwriting ventures. Together these transactions caused temporary dilutions of book value and earnings per share. In later years, however, most of these companies became solid contributors to our consolidated performance.
We also believe that our performance fell short in the 2010 - 2019 period due to the adverse impact of the Great Recession on Old Republic’s investment in the financial indemnity segment. This business has been in run-off operating mode since 2012.
As previously stated, Old Republic measures its total book and market returns against three benchmarks: a) the annual year-over-year and compounded annual changes in the Nominal Gross Domestic Product (GDP), b) the annual and compounded annual returns of the S&P 500 Index, and c) the annual and compounded annual returns of the S&P Insurance Index. In the five ten-years periods reflected in the table immediately below and its related detailed table on page 12, Old Republic’s total compounded annual book return exceeded the compounded annual returns of those three benchmarks in eight of thirteen comparisons (61%), and the Company’s total compounded market return exceed the compounded annual returns of the three benchmarks in ten of thirteen comparisons (77%). Therefore, collectively, Old Republic outperformed the benchmarks 69% of the time.
The following, taken from the 52 year chart on page 12, summarizes ORI’s common stock compounded annual performance for each of the five ten-year periods presented compared with the selected benchmarks.
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| Old Republic | | Selected Benchmarks |
Period | Total Book Return | Total Market Return | | GDP Index | S&P 500 Total Market Return | S&P Insurance Total Market Return |
Ten Years: | | | | | | | |
1970 - 1979 | 17.6 | % | 16.2 | % | | 9.9 | % | 5.9 | % | | |
1980 - 1989 | 15.9 |
| 12.6 |
| | 7.9 |
| 17.6 |
| | |
1990 - 1999 | 12.7 |
| 13.1 |
| | 5.5 |
| 18.2 |
| 15.3 | % | * |
2000 - 2009 | 9.5 |
| 7.4 |
| | 4.1 |
| -1.0 |
| -3.7 |
| |
2010 - 2019 | 7.7 | % | 14.8 | % | | 4.0 | % | 13.6 | % | 12.4 | % | |
| | | | | | | |
2019 Only | 26.4 | % | 17.8 | % | | 4.0 | % | 31.5 | % | 29.4 | % | |
| | | | | | | |
52 Years 1968 - 2019 | 12.8 | % | 12.4 | % | | 6.4 | % | 10.2 | % | 7.7 | % | ** |
* This index was not available before 1990 / ** 30 years only.
· | The intellectual capital, know-how, and business relationships possessed by employees at various levels of the enterprise; and |
· |
The Company’s good name and reputation, cultivated over its 93-plus year history, and the even longer history of some of its major insurance subsidiaries. |
The next two tables also portray the relative market performance of Old Republic’s common stock in comparison with the selected benchmark and a peer group of companies.
The Peer Group has been approved by the Compensation Committee of Old Republic’s Board of Directors. The Peer Group consists of American Financial Group, Inc.; American International Group, Inc.; W.R. Berkley Corporation; Chubb Limited; Cincinnati Financial Corporation; CNA Financial Corporation; Fidelity National Financial, Inc.; First American Financial Corporation; The Hartford Financial Services Group, Inc.; Stewart Information appearing on the Company’s websiteServices Corporation; and The Travelers Companies, Inc.
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OLD REPUBLIC INTERNATIONAL CORPORATION Total Returns Compared to Nominal GDP and Selected S&P Indices’ Returns |
| | Old Republic International Corporation (1) | | Nominal Gross Domestic Product (GDP)(2) | | S&P 500 Index (3) | | S&P Insurance Index (3) |
Year | | Year End Book Value | | Year End Market Price | | Annual Cash Dividend Declared | | Total Book Value Annual & Compounded Return | | Total Market Annual & Compounded Return | | Total Annual & Compounded Return | | Total Annual & Compounded Return | | Total Annual & Compounded Return |
1968 | | 0.280 |
| | 0.472 |
| | $0.007 |
| | 18.2% | | 41.8% | | 9.4% | | 11.0% | | |
1969 | | 0.312 |
| | 0.336 |
| | 0.010 |
| | 15.1% | | -26.6% | | 8.2% | | -8.4% | | |
1970 | | 0.360 |
| | 0.528 |
| | 0.012 |
| | 19.2% | | 60.7% | | 5.5% | | 3.9% | | |
1971 | | 0.472 |
| | 0.840 |
| | 0.014 |
| | 34.9% | | 61.7% | | 8.5% | | 14.3% | | |
1972 | | 0.480 |
| | 1.240 |
| | 0.016 |
| | 5.1% | | 49.5% | | 9.8% | | 19.0% | | |
1973 | | 0.472 |
| | 0.456 |
| | 0.018 |
| | 2.2% | | -61.7% | | 11.4% | | -14.7% | | |
1974 | | 0.376 |
| | 0.408 |
| | 0.020 |
| | -16.1% | | -6.1% | | 8.4% | | -26.5% | | |
1975 | | 0.288 |
| | 0.440 |
| | 0.020 |
| | -18.1% | | 12.7% | | 9.0% | | 37.2% | | |
1976 | | 0.560 |
| | 0.624 |
| | 0.011 |
| | 98.3% | | 44.4% | | 11.2% | | 23.9% | | |
1977 | | 0.792 |
| | 0.792 |
| | 0.022 |
| | 45.3% | | 30.4% | | 11.1% | | -7.2% | | |
1978 | | 0.976 |
| | 0.976 |
| | 0.033 |
| | 27.4% | | 27.4% | | 13.0% | | 6.6% | | |
1979 | | 1.080 |
| | 1.112 |
| | 0.052 |
| | 16.0% | | 19.3% | | 11.7% | | 18.6% | | |
10 Year Compound Annual Growth Rate | | 17.6% | | 16.2% | | 9.9% | | 5.9% | | |
1980 | | 1.224 |
| | 0.888 |
| | 0.054 |
| | 18.3% | | -15.3% | | 8.8% | | 32.5% | | |
1981 | | 1.392 |
| | 1.144 |
| | 0.054 |
| | 18.1% | | 34.9% | | 12.2% | | -4.9% | | |
1982 | | 1.648 |
| | 1.456 |
| | 0.056 |
| | 22.4% | | 32.2% | | 4.3% | | 21.6% | | |
1983 | | 1.888 |
| | 2.353 |
| | 0.058 |
| | 18.1% | | 65.6% | | 8.7% | | 22.6% | | |
1984 | | 2.208 |
| | 2.039 |
| | 0.059 |
| | 20.1% | | -11.2% | | 11.1% | | 6.3% | | |
1985 | | 2.304 |
| | 3.014 |
| | 0.062 |
| | 7.1% | | 51.4% | | 7.5% | | 31.7% | | |
1986 | | 2.528 |
| | 2.316 |
| | 0.065 |
| | 12.5% | | -21.0% | | 5.5% | | 18.7% | | |
1987 | | 2.952 |
| | 1.861 |
| | 0.068 |
| | 19.5% | | -16.7% | | 6.0% | | 5.3% | | |
1988 | | 3.152 |
| | 2.345 |
| | 0.071 |
| | 9.2% | | 29.8% | | 7.9% | | 16.6% | | |
1989 | | 3.544 |
| | 2.604 |
| | 0.076 |
| | 14.8% | | 14.3% | | 7.7% | | 31.7% | | |
10 Year Compound Annual Growth Rate | | 15.9% | | 12.6% | | 7.9% | | 17.6% | | |
1990 | | 3.920 |
| | 2.465 |
| | 0.081 |
| | 12.9% | | -2.2% | | 5.7% | | -3.1% | | -13.5% |
1991 | | 4.456 |
| | 4.207 |
| | 0.086 |
| | 15.9% | | -74.2% | | 3.3% | | 30.5% | | 29.3% |
1992 | | 5.072 |
| | 5.896 |
| | 0.094 |
| | 15.9% | | 42.4% | | 5.9% | | 7.6% | | 18.4% |
1993 | | 5.744 |
| | 5.363 |
| | 0.102 |
| | 15.3% | | -7.3% | | 5.2% | | 10.1% | | 5.1% |
1994 | | 6.112 |
| | 5.037 |
| | 0.111 |
| | 8.3% | | -4.0% | | 6.3% | | 1.3% | | -0.2% |
1995 | | 7.248 |
| | 8.415 |
| | 0.121 |
| | 20.6% | | 70.1% | | 4.8% | | 37.6% | | 41.0% |
1996 | | 7.768 |
| | 9.511 |
| | 0.148 |
| | 9.2% | | 15.1% | | 5.7% | | 23.0% | | 23.4% |
1997 | | 8.312 |
| | 13.222 |
| | 0.178 |
| | 9.3% | | 41.2% | | 6.2% | | 33.4% | | 46.1% |
1998 | | 9.216 |
| | 12.000 |
| | 0.206 |
| | 13.4% | | -7.8% | | 5.7% | | 28.6% | | 9.7% |
1999 | | 9.590 |
| | 7.267 |
| | 0.262 |
| | 6.9% | | -37.5% | | 6.3% | | 21.0% | | 7.4% |
10 Year Compound Annual Growth Rate | | 12.7% | | 13.1% | | 5.5% | | 18.2% | | 15.3% |
2000 | | 11.000 |
| | 17.066 |
| | 0.294 |
| | 17.8% | | 142.1% | | 6.5% | | -9.1% | | 34.9% |
2001 | | 12.480 |
| | 14.938 |
| | 0.314 |
| | 16.3% | | -10.6% | | 3.2% | | -11.9% | | -12.4% |
2002 | | 13.960 |
| | 14.934 |
| | 0.336 |
| | 14.6% | | 2.0% | | 3.4% | | -22.1% | | -20.7% |
2003 | | 15.650 |
| | 20.288 |
| | 0.890 |
| * | 18.5% | | 42.4% | | 4.8% | | 28.7% | | 21.0% |
2004 | | 16.940 |
| | 20.240 |
| | 0.403 |
| | 10.8% | | 1.9% | | 6.6% | | 10.9% | | 7.2% |
2005 | | 17.530 |
| | 21.008 |
| | 1.312 |
| * | 11.2% | | 10.5% | | 6.7% | | 4.9% | | 14.1% |
2006 | | 18.910 |
| | 23.280 |
| | 0.590 |
| | 11.2% | | 13.9% | | 6.0% | | 15.8% | | 10.9% |
2007 | | 19.710 |
| | 15.410 |
| | 0.630 |
| | 7.6% | | -31.5% | | 4.6% | | 5.6% | | -6.3% |
2008 | | 15.910 |
| | 11.920 |
| | 0.670 |
| | -15.9% | | -18.0% | | 1.8% | | -37.0% | | -58.1% |
2009 | | 16.490 |
| | 10.040 |
| | 0.680 |
| | 7.9% | | -10.1% | | -1.8% | | 26.5% | | 13.9% |
10 Year Compound Growth Rate | | 9.5% | | 7.4% | | 4.1% | | -1.0% | | -3.7% |
2010 | | 16.160 |
| | 13.630 |
| | 0.690 |
| | 2.2% | | 43.4% | | 3.8% | | 15.1% | | 15.8% |
2011 | | 14.760 |
| | 8.920 |
| | 0.700 |
| | -4.3% | | -27.2% | | 3.7% | | 2.1% | | -8.3% |
2012 | | 14.030 |
| | 10.650 |
| | 0.710 |
| | -0.1% | | 23.4% | | 4.2% | | 16.0% | | 19.1% |
2013 | | 14.640 |
| | 17.270 |
| | 0.720 |
| | 9.5% | | 70.7% | | 3.6% | | 32.4% | | 46.7% |
2014 | | 15.150 |
| | 14.630 |
| | 0.730 |
| | 8.5% | | -11.2% | | 4.4% | | 13.7% | | 8.3% |
2015 | | 14.980 |
| | 18.630 |
| | 0.740 |
| | 3.8% | | 33.4% | | 4.0% | | 1.4% | | 2.3% |
2016 | | 17.160 |
| | 19.000 |
| | 0.750 |
| | 19.6% | | 6.2% | | 2.7% | | 11.9% | | 17.6% |
2017 | | 17.720 |
| | 21.380 |
| | 1.760 |
| * | 13.5% | | 16.9% | | 4.3% | | 21.8% | | 16.2% |
2018 | | 17.230 |
| | 20.570 |
| | 0.780 |
| | 1.6% | | 4.8% | | 5.4% | | -4.4% | | -11.2% |
2019 | | $19.980 | | $22.370 | | $1.800 | * | 26.4% | | 17.8% | | 4.0% | | 31.5% | | 29.4% |
10 Year Compound Annual Growth Rate | | 7.7% | | 14.8% | | 4.0% | | 13.6% | | 12.4% |
52 Year Compound Annual Growth Rate | | 12.8% | | 12.4% | | 6.4% | | 10.2% | | 7.7% |
Note: (*) Includes special cash dividends of $1.000, $1.000, $0.800, and $0.534 per share at September 2019 and December 31, 2017, 2005, and 2003, respectively.
Sources: (1) Old Republic Database / (2) Nominal Gross Domestic Product from Federal Reserve Bank St. Louis, with 2019 estimate.
(3) Standard & Poor’s Indices from S&P Global Market Intelligence LLC. Data for years 1989 and prior is not incorporated by reference in this proxy statement. However, the Corporate Governance Guidelines, Code of Ethicsavailable for the Principal Executive Officer and Senior Financial Officers, and the Code of Business Conduct and Ethics, are accessible on its website at www.oldrepublic.com. Printed copies of these documents are also available to shareholders upon request to the Investor Relations Department at the Company’s office.S&P Insurance Index.
LEADERSHIP STRUCTURE AND RISK MANAGEMENT
The Company’s leadership structure and its risk management processes are overseen and monitored by the Board of Directors. The details of this leadership structure and the development of management talent have been the primary responsibilities of the Board’s Executive Committee for many decades. This five member committee is currently composed of the Company’s Chairman and CEO, and four independent directors, including the Lead Director. The Board of Directors and its Executive Committee believe that the Company’s decades-long joining of the Chairman and CEO positions is best suited to ensuring the long-term value, stability and management of its most important assets necessary for the accomplishment of its Mission. Old Republic’s Board holds management singularly accountable for protecting and enhancing the value of thesethe Company and all other assets.its businesses. It therefore holds its CEO responsible for setting the proper tone in shaping and nurturing the institution’s culture and values not solely in the shareholders’ interests but in those of its important stakeholders as well.shareholders and all other stakeholders. Most critically, these other stakeholders include the policyholders to whom long-term promises of financial indemnity and stability are made by the Company’s insurance subsidiaries, the employees who possess the intellectual capital and business relationships necessary for the conduct and success of the Company, the debt holders who extend a portion of the capital at risk, and the regulators who are charged with protecting the public interest vested in the Company’s insurance enterprises.businesses. To meet these responsibilities and objectives, the Board expects the CEO to be a knowledgeable and well-rounded leader who, as chief enterprise risk manager, is fully dedicated to Old Republic’s overall Mission and is best qualified to address and balance the interests of all major stakeholders.
InThe Board believes that the Board’s sole discretion,Company's decades-long practice of joining the Chairman and CEO positions may be separatedhas been best suited to ensure the long-term value, financial stability, and assignedgrowth of the Company and its insurance underwriting subsidiaries - all in the interest of its Mission and its stakeholders. During executive transition or other periods affecting the Board Chairman's and/or CEO's leadership roles, the Board has sole discretion to separate for an appropriate period of time the Chairman and CEO positions, and assign them to two qualified individuals with extensive and complementary operating knowledge of the Company. UnderCompany and its insurance underwriting subsidiaries. Concurrent with the Board’s long- standing corporate governance philosophy, this separation is intendedappointment of Craig R. Smiddy as CEO and his election to be temporarythe Board and Executive Committee effective October 1, 2019, the Board determined that it was appropriate for Aldo C. Zucaro to occur in unusual circumstances or duringcontinue as Chairman of the transition of management authority.Board and its Executive Committee.
WhileWhen the Board has determined thatChairman is not an independent director, the advantagesCompany's by-laws require the appointment of a joint Chairman and CEO position outweigh the theoretical benefits of a separated leadership structure, it did establish a Lead Independent Director position well over a decade ago. In Old Republic’s practice, the. The Lead Independent Director is appointed from among the independent directors and serves as that group’s liaison to the Chairman and CEO, in addition to acting as the liaison to the Executive Committee.and/or CEO. In his or her capacity, the Lead Independent Director may preside at Board meetings in the Chairman’s absence, provide input to meeting agendas of the 1) full Board, or the meetings of2) independent directors, and 3) Board committees, and to act as liaison among various committees’ chairmen in the resolution of inter-committee governance issuesmatters that may arise from time to time.
Old Republic’s multi-faceted business is managed through a relatively flat, non-bureaucratic organizational structure. The CEO has primary responsibility for managing enterprise-wide risk exposures. The Company avoids management by committee and other organizational impediments to the free flow of information and to effective decision making. Long-established control processes are in place, and a variety of other acceptedlong-established methods are utilized to coordinate system-wide risk taking and risk management objectives. These methodsprocesses and processesmethods are based on threethe following major functions: lines of business responsibility, enterprise functions, and internal audit and peer reviews.
The lines of business operationoperations managers are responsible for identifying, monitoring, quantifying, and mitigating all insurance underwriting risks falling within their areas of responsibility. These managers use reports covering annual, quarterly or monthly time frames to identify the status and content of insured risk, including pricing or underwriting changes. These management reports ensure the continuity and timeliness of appropriate risk management monitoring and enterprise-wide oversight of existing or emerging issues.
The enterprise functions incorporate system-wide risk management, including asset/liability andmatching that is aligned with underwriting exposure, correlation controls, regulatory and public interest compliance, finance, actuarial, and legal functions. These functions are independent of the lines of business operations and are coordinated on an enterprise-wide basis by the ChairmanCEO and CEO.other executive officers.
The internal audit, as well as related underwriting and claims management peer review functions and processes, provide reasonably independent assessments of management performance and internal control systems. Internal audit activities are intended to give reasonable assurance that resources are adequately protected and that significant financial, managerial and operating information is materially complete, accurate and reliable. This process is also intended to ensure that associates’ actions are in compliance with corporate policies, standards, procedures, internal control guidelines, and applicable laws and regulations.
The corporate culture, the actions of all our associates,people, and the continuity of their employment are most critical to the Company’s risk management processes. The Company’sOld Republic’s Code of Business Conduct and Ethics provides a framework for all senior managers and employees to conduct themselves with the highest integrity in the delivery of the Company’s services to its customers and in connection with all Company relationships and activities.
The Compensation Committee, at the direction of the Board, has reviewed the Company’s compensation policies and practices and has concluded that they do not encourage the Company’s senior executives or employees to take unnecessary or excessive risks that could adversely affect the Company.
BOARD OF DIRECTORS’ RESPONSIBILITIES AND INDEPENDENCE
The BoardOld Republic believes that good corporate governance begins with a board of Directors’ main responsibility is to overseedirectors that has full appreciation of the Company’s operations, directly and through several committees operating cohesively.special place as a holding company for state-regulated insurance underwriting companies that are vested with a public trust. In exercising this responsibility, each director is expected to utilize his or her business judgment in a manner reasonably believed to beconsideration of the governance features set forth in the best interests of the CompanyCompany’s Corporate Governance Guidelines (see Governance section at www.oldrepublic.com), Old Republic seeks to attract and its shareholders. The Board’s oversight duties are to:
· | Ascertain that strategies and policies are in place to encourage the growth of consolidated earnings and shareholders’ equity over the long haul, while increasing the Company’s regular dividend payout; |
· | Ascertain that the Company’s business is managed in a sound and conservative manner that takes into account the public interest vested in its insurance subsidiaries; |
· | Provide advice and counsel to management on business opportunities and strategies; |
· | Review and approve major corporate transactions; |
· | Monitor the adequacy of the Company’s internal control and financial reporting systems and practices to safeguard assets and to comply with applicable laws and regulations; |
· | Ascertain that appropriate policies and practices are in place for managing the identified risks faced by the enterprise; |
· | Evaluate periodically the performance of the Chairman and CEO in the context of the Company’s Mission and performance metrics; |
· | Review and approve senior management’s base and incentive compensation taking into account the business’ performance gauged by its return on equity and growth of operating earnings; |
· | Periodically review senior management development and succession plans both at corporate and operating subsidiary levels; |
· | Select and recommend for shareholder election candidates deemed qualified for Board service; |
· | Select and retain an independent registered public accounting firm for the principal purpose of expressing its opinion on the annual financial statements and internal controls over financial reporting of the Company and its subsidiaries; |
· | Act as the Board of Directors of the Company’s significant insurance company subsidiaries; and |
· | Monitor, review and approve the operations and major policy decisions of the Company’s insurance subsidiaries. |
In considering the qualifications and independence ofhas retained for many years Board members and candidates, the Board of Directors, through the Governance and Nominating Committee, seeks to identify individuals who at a minimum:
· | Satisfy the requirements for director independence, as set out in the Company’s Corporate Governance Guidelines, in the Listed Company Standards of the NYSE, and in the regulations of the SEC; |
· | Are, or have been, senior executives of businesses or professional organizations; and |
· | Have significant business, financial, accounting and/or legal backgrounds useful to the Company’s operations, markets and customer services. |
Additionally, the Board seeks to retain and attract members possessingpossess certain critical personal characteristics, most importantly,importantly: (i) intelligence, honesty, good judgment, high ethics, and standards of integrity, fairness and responsibility, (ii) respect within the candidate’s social, business and professional community for his or her integrity, ethics, principles and insights; (iii) demonstrated analytic ability; and (iv) ability and initiative to frame insightful questions, to challenge questionable assumptions collegially, and to disagree in a constructive fashion in such circumstances as appropriatemay arise in varying circumstances.the course of the Company’s activities.
The Company’s insurance businessBoard of Directors’ main responsibility is conducted through segments which, in the aggregate, are broadly diversified as to the types of insurance coverage and services provided. Each ofoversee the Company’s insurance subsidiaries is highly regulated by stateoperations, directly and federal governmental agencies as to its capital requirements, financial leverage, business conduct,through several committees operating cohesively and accounting and financial reporting practices. New directors receive a broad array of information upon becoming a member of the Board in order to familiarize themselves with the Company’s business, strategic plans, significant financial, accounting and management issues, compliance programs, conflicts policies, Code of Business Conduct and Ethics, Corporate Governance Guidelines, principal officers and independent registered public accounting firm. Further, the Company supports directors taking advantage of and attending director education programs whenever convenient and appropriate. Even with such assistance and in part as the result of the specialized nature of the Company’s businesses and their regulation, it is the Company’s view that at least two to four years are typically required for a new director to develop sufficient knowledge of the Company’s business to become a fully productive and effective contributor to the Company’s governance. Reflectingcollegially. In exercising this responsibility, each director is expected to serve twoutilize his or more three-year termsher business judgment in the best interests of the Company, its shareholders and all other stakeholders. The Board’s oversight duties include the following:
Ascertain that strategies and policies are in place to encourage the growth of consolidated earnings and shareholders’ equity over the long term;
Ascertain that the Company’s business is managed in a sound and conservative manner that takes into account the public interest vested in its insurance subsidiaries;
Provide advice and counsel to management on business opportunities and strategies;
Review and approve major corporate transactions;
Monitor the adequacy of the Company’s internal control and financial reporting systems and practices to safeguard assets and to comply with applicable laws and regulations;
Ascertain that appropriate policies and practices are in place for managing the identified risks faced by the enterprise;
Evaluate periodically the performance of the CEO in the context of the Company’s Mission and performance metrics;
Review and approve senior management’s base and incentive compensation taking into account the business’s performance gauged by its intermediate and long-term returns on equity, growth of operating earnings, and financial soundness;
Periodically review senior management development and succession plans at corporate and operating subsidiary levels;
Select and recommend for shareholder election candidates deemed qualified for Board service;
Select and retain an independent registered public accounting firm for the principal purpose of expressing its opinion on the annual financial statements and internal controls over financial reporting of the Company and its subsidiaries;
Act as the Board of Directors of the Company’s significant insurance company subsidiaries; and
Monitor, review and approve the operations and major policy decisions of the Company’s insurance subsidiaries.
In considering the qualifications and independence of Board members and candidates, the Governance and Nominating Committee and full Board seek to identify individuals who, at a minimum:
Satisfy the requirements for director independence, as set out in the Company’s Corporate Governance Guidelines, in the Listed Company Standards of the NYSE, and in the regulations of the SEC;
Are, or have been, senior executives of businesses or professional organizations; and
Have significant business, financial, accounting and/or legal backgrounds that lend themselves to the unique nature of the Company’s insurance underwriting operations in addressing market, customer, and societal needs.
While the Company does not have a formal policy governing diversity among directors or candidates, the Board believes that diverse backgrounds are valuable attributes to service on our Board. In addition to the professional and personal qualifications already noted, consideration is given to diversity characteristics in the nomination process.
In attracting and retaining members of the Board of Directors, the Company adheres faithfully to a non-discrimination policy. Old Republic places great value on members’ long-term, successful experience in businesses and professions that can add meaningfully to its mission’s purpose and long-term strategy. In these regards, long board tenure is favored as it enables a knowledge-based, long-term perspective on the Company’s classified Board, on one or more business, and provides greater assurance
of stability, continuity, and sustainability of the enterprise and its mission. To these ends, Old Republic’s and its key insurance underwriting subsidiaries’ boards and on one or more Board Committees. This requirement will apply to Mr. LeRoy once he becomes independent as defined below.
The commitment of a substantial amount of time for meetings, for preparation thereof, and related travel is essential to the performance of a director’s responsibilities. As such, each director is expected to regularly prepare for and attend the meetings of the Board and each committee on which he or she serves. Owing to the risk-taking nature of much of the Company’s business, a demonstrated long-term orientation in a Board member’s business dealings and thought process is considered very important.
The Company’s Board of Directors hasdirectors have been classified into three classes for many decades. Excepting the possibility of uneven distribution among the classes, one-third of the Board is therefore elected annually. This organizational structure is intended to promote continuity and stability of strategy and business direction for the best long-term interests of investors in the Company’s securities, the confidence of insurance subsidiaries’ policyholders, and the long-term expectations of other stakeholders.
The Board has followed a long-standing practice of reviewing the Annual Shareholders’ Meeting vote concerning directors as well as the other itemsstaggered board organization recognizes policyholders’ dependence on the agenda. It has historically considered votes withheld from the electioninsurance underwriting subsidiaries’ stability and reliability to meet their just obligations of a director as the equivalent to a vote against the director. In the event that any director receives a significant withhold vote in an election, the Governance and Nominating Committee shall investigate the reason or reasons for such a withhold vote. Following its investigation, the Committee shall make such recommendations to the full Board as are appropriate in lightfinancial indemnity over long periods of the circumstances. Such actions may include a request that the director resign, but it is possible that no action might be recommended, especially if the Committee determines that the withhold vote represented an expression of dissatisfaction with management rather than the individual director, or if the Committee determined that the vote was an effort by a special interest group or particular voting block to unduly influence the Company, or if the Committee determines the vote was an effort to obtain the attention of management, rather than a vote expressing dissatisfaction with a director’s individual performance or his or her abilities.time.
The long-term orientation to board service notwithstanding, the Company has a directors’ retirement policy for those directorsapplicable to members who have attained age 75. Pursuant to this policy, the Board, at its meeting to slate directors for 2017,2020, evaluated the qualifications and long-term and continuing contributions of Ms. Taubitz and Messrs. Hellauer, Steiner and Zucaro as directors. In accordanceThe Board, with its policy, the Board of Directors, with the abovethese three individuals abstaining, unanimously recommended waiving this policythe policy’s application and slated these incumbent directors for re-election.
Ten of the Company’s directors have been affirmatively determined to qualify as “independent” directors in accordance with Section 303A.02 of the Listed Company Standards of the NYSE, Rule 10C-1 and item 407 (a) of Regulation S-K of the SEC. Neither they nor any members of their immediate families have had any of the types of disqualifying relationships with the Company or any of its subsidiaries during 20162019 or the two years prior to that, as set forth in subsection (b) of Section 303A.02 of the NYSE’s Listed Company Standards. The independent directors, who are listed below, selected a Lead Independent Director from among themselves a Lead Directorthem and met on a regular basis during 20162019 in executive sessions without management present. The Lead Independent Director is nominated by the Governance and Nominating Committee and is elected annually by the independent directors. Arnold L. Steiner was Lead Independent Director for 20162019 and continues as such through the date of this proxy statement. The independent directors annually vote on the Lead Director position in May.that capacity. The entire Board and each of its standing Committees conduct an annual self-evaluation, which includes a determination of each member’s independence.
MembershipMr. Kovaleski, who is retired from a subsidiary of the Title Group, received no non-retirement compensation from the Title Group or the Company since 2018 and no other compensation except the annual retainer that other directors receive. Mr. Dew, who is retired from Republic Mortgage Insurance Company (“RMIC”), a subsidiary of the Company, and Mr. LeRoy, who is the retired General Counsel of the Company, received no non-retirement compensation from RMIC or the Company during the past three years other than the annual retainer and committee fees that other directors receive. As such, Messrs. Dew and LeRoy have each been determined to be an “independent director” by the Board as that term is used in Section 303A.02 of the Listed Company Standards of the NYSE, Rule 10C-1 and item 407(a) of Regulation S-K of the SEC.
Directors receive a broad array of public and internal proprietary information upon becoming members of the Board. This enables them to become familiar with the Company’s business, strategic plans, significant financial, accounting and management matters, compliance programs, conflict of interest policies, Code of Business Conduct and Ethics (see Code of Business Conduct and Ethics in the Governance section at www.oldrepublic.com), Corporate Governance Guidelines (see Governance section at www.oldrepublic.com), principal officers, and the independent registered public accounting firm. Further, the Company supports directors taking advantage of, and attending, director education programs whenever convenient and appropriate. Even with such assistance and in part as the result of the specialized nature of the Company’s businesses and the regulatory framework in which it operates, it is the Company’s view that some time is typically required for a new director to develop knowledge of the Company’s business. Reflecting this necessary personal development, each director is expected to serve two or more three-year terms on the Company’s Audit, Compensation,classified Board, on several of its key insurance subsidiaries’ boards, and Governance and Nominating Committees consists exclusively of independent directors. The members, chairpersons and vice-chairpersons of these Committees are recommended each yearon one or more Board Committees. Owing to the Board by the Governance and Nominating Committee in consultation with the Executive Committee. Eachrisk-taking nature of much of the three Committees has the authorityCompany’s business, a demonstrated long-term orientation in a Board member’s business dealings and funding to retain independent advisors or counsel as necessary and appropriate in the fulfillment of its duties. Each chairperson shall set the agenda of their respective Committees’ meetings consulting, as necessary and appropriate, with the Chairman and CEO. All directors have full and free access to the Company’s management.thought processes is considered very important.
CORPORATE GOVERNANCE UPDATES
Periodically, theThe Board of Directors reviews its corporate governance practices and has most recently concluded that Old Republic’s currentis committed to corporate governance principles and practices including its positions on plurality voting for directors, its Rights Planwith a long-term orientation. The Board periodically reviews these principles and practices to ensure they are properly aligned with the interests of all stakeholders. After discussions with several shareholders, the Board amended the Company's by-laws in February 2020 to adopt a so-called proxy access provision. The Company's proxy access by-law incorporates so-called "market" terms. More particularly, the provision allows a shareholder (or a group of up to 20 shareholders) that own at least 3% of the Company's Common Stock for at least three years to submit a number of nominees equal to 20% of the number of directors serving on the Board. If an eligible shareholder wishes to nominate a director and to have that nominee listed in the Company's proxy materials, proper written notice must be provided to the Secretary of the Company not more than 150 and at least 120 days before the anniversary of the Company's last proxy statement. Additional procedural and informational requirements are necessarily interwoven with its business philosophyset forth in the text of the by-law provision, which can be accessed on the Company's website at www.oldrepublic.com.
The decision to adopt proxy access reflects the Board's continual assessment of the governance attributes that best serve the long-term interests of all the Company's stakeholders.
As already discussed, the governance principles and the critically important long-term orientation of this philosophy which emphasizespractices emphasize stability, continuity, and sustainability of the enterprise as primary objectives for achieving the greatest long-term value for all shareholders. stakeholders. To safeguard these objectives, the Company has had a shareholders’ rights plan in place for more than three decades. The plan, which was once again renewed in 2017 for a ten-year term, is intended to deter possible opportunistic hostile tender offers and other abusive takeover transactions that may favor one group of shareholders over another. The plan imposes substantial dilution upon any shareholder who acquires in excess of 20% of Old Republic shares without prior Board approval. As a legally valid and powerful tool, the plan underpins and protects the Board’s ability to reject an unsolicited takeover proposal that it believes, in the good faith of its business judgment, is inadequate and not in the best long-term interests of Old Republic and all of its shareholders and other stakeholders.
As part of thisits governance duties, the Board reviews the Annual Meeting of the Shareholders vote concerning directors as well as other matters on the agenda. It has historically considered votes withheld from the election of a director as the equivalent to a vote against the director. In the event that any director receives a significant withhold vote in an election, the Governance and Nominating Committee is committed to investigating the reason or reasons for such a withhold vote. Following its investigation, the Committee can make such recommendations to the full Board as are appropriate in light of the circumstances. Such actions may include a request that the director resign, but it is possible that no action may be recommended.
The Board reviewed the 2019 Annual Meeting of the Shareholders vote, including the significant withheld votes that certain directors received. It concluded that certain shareholders, including significant institutional shareholders, withheld votes for these directors because the corporate governance positions of the Company may not be consistent with certain stated preferences of those institutional shareholders and certain proxy advisory firms. As a result of its review, the Company announced on February 23, 2017 thatBoard determined not to request the Boardresignations of Directors approved an extensionany of the Company’s Rights Plan,Class 2 directors following the 2019 shareholder meeting. However, under the Board's oversight, and in one instance with the participation of an independent director, the Company's management engaged with certain technical updates,shareholders to June 26, 2027. The Rights Plan was originally adopted by Shareholdersgain perspective on several topics, including governance. This engagement informed the decisions to:
•adopt the Company's proxy access by-law described above;
•prepare a sustainability report with a target completion date of December 2020; and
continue to engage with shareholders in 1987 and has been periodically renewed by the Board of Directors thereafter. The Board believes the Rights Plan provides protection2020 to shareholders, in the event of an unsolicited attempt to acquireinform the Company using abusiveof shareholders' perspectives and unfair pressure without precluding certain attempts in which all shareholders are fairly treated, such as cash tender offers. Further, last year and again at its most recent meeting,to better communicate the Board of Directors determined that a proxy access By-Law is not necessary as Old Republic’s governance structure already provides shareholders with various opportunities to hold the Board accountable in the nomination and election of directors. See the Company’s Statement in Opposition to the Shareholder’s Proposal on page 31 of this Proxy Statement.Company's long-term strategic goals.
PROCEDURES FOR THE APPROVAL OF RELATED PERSON TRANSACTIONS
In addition to a Code of Business Conduct and Ethics and a Code of Ethics for the Principal Executive Officer (CEO) and Senior Financial Officer (CFO), Old Republic also has a conflict of interest policy, which is circulated annually and acknowledged by all directors, officers and key employees of the Company and its subsidiaries. This policy states that no director, officer, or employee of the Company or its subsidiaries may acquire or retain any interest that conflicts with the interest of the Company. This includes direct or indirect interests in entities or individuals doing business with the Company or its subsidiaries. If such a conflict occurs, the director, officer or employee is required to make a written disclosure of the conflict to the Company.Company for evaluation by the Audit Committee or full Board of Directors.
9
The directors, officers and affected employees are required to notify the Company of the actual or potential existence of a related party transaction, as defined by the Listed Company Standards of the NYSE and the SEC rules. Directors are required to notify the Chairman of the Board, unless the Chairman is an affected director, in which case he or she is required to notify the Lead Independent Director. Executive officers are required to notify the CEO, unless the CEO is the affected executive, in which case he or she is required to notify the Chairman or Lead Independent Director, as appropriate. Under the procedures, the CEO, Chairman or Lead Independent Director, as applicable, must conduct a preliminary inquiry into the facts relating to any existing or potential related party transaction. If, based upon the inquiry and the advice of legal counsel, the CEO, Chairman or Lead Independent Director, as applicable, believe that an actual or potential related party transaction exists;occurred, exists, or might occur, he or she is required to notify the entire Board. In turn, the Board is required to conduct a full inquiry into the facts and circumstances concerning a conflicted transaction and to determine the appropriate actions, if any, for the Company to take. Any director who is the subject of an existing or potential related party transaction will not participate in the decision-making process of the Board relating to what actions, if any, shall be taken by the Company with respect to such transaction.
DELINQUENT SECTION 16(a) REPORTS
The Company believes that all reports required by Section 16(a) were properly filed during the year ended December 31, 2019.
THE BOARD AND ITS COMMITTEES
The Board of Directors met four times, once each quarter, and participated in anone interim telephonetelephonic meeting in 2016.2019. Each incumbent director attended at least 75% of the aggregate of the meetings of the Board and committees on which each served. The Company does not require its Board of Directors to attend the Annual Shareholders’ Meeting of the Shareholders, as such meeting is conducted by the Chairman and CEO who is designated to speak with one voice in the designated spokesperson for the Company and representsrepresentation of the entire Board of Directors for these and other purposes.
Membership on the Company's Audit, Compensation, and Governance and Nominating Committees consists exclusively of independent directors. The members, chairpersons and vice-chairpersons of these Committees are recommended each year to the Board by the Governance and Nominating Committee in consultation with the Executive Committee. Each of these Committees has the authority and funding to retain independent advisors or counsel as necessary and appropriate in the fulfillment of its duties. Each chairperson sets the agenda of their respective Committee's meetings, consulting as necessary and appropriate with the Chairman of the Board. All directors have full and free access to the Company's senior management during scheduled meetings of the Board and its Committees.
The following table shows the membership inof the Board of Directors and its Committees as of the date of this proxy statement.
|
| | | | | | | | | | | | | | | | | | |
BOARD AND COMMITTEE MEMBERSHIP | |
| | | | | | | | Committees | |
Director | Independent Directors(a) | Other Directors(b) | Audit | Compensation | Executive | Governance and Nominating |
Steven J. Bateman | | l | | | | l(c) | | l | | | | |
Harrington Bischof | | l | | | | | | l | | l | | l |
Jimmy A. Dew | | l | | | | | | l | | | | |
John M. Dixon | | l | | | | | | l(d) | | l | | l |
Charles J. Kovaleski | | | | l | | | | | | | | |
Spencer LeRoy III | | l | | | | | | | | | | l(e) |
Peter B. McNitt | | l | | | | l(c) | | l | | | | |
Glenn W. Reed | | l | | | | l | | l | | | | l |
Craig R. Smiddy (f) | | | | l | | | | | | l | | |
Arnold L. Steiner | | l(g) | | | | | | l | | l | | l |
Fredricka Taubitz | | l | | | | l(c)(d) | | l | | l | | |
Steven R. Walker | | l | | | | l | | | | l | | l(d) |
Aldo C. Zucaro | | | | l | | | | | | l(d) | | |
Number of meetings | | 5 | | | | 7 | | 5 | | 4 | | 5 |
BOARD AND COMMITTEE MEMBERSHIP |
| | | Committees |
Director | Independent Directors(a) | Other Directors(b) | Executive | Audit | Governance and Nominating | Compensation |
Steven J. Bateman (1) | l | | | l(e) | | l |
Harrington Bischof | l | | l | | l | l |
Jimmy A. Dew | l | | | | | l |
John M. Dixon | l | | l | | l | l(c) |
James C. Hellauer | l | | | l(e) | l | |
Spencer LeRoy III | | l | | | | |
Arnold L. Steiner | | | l | | l | l |
Fredricka Taubitz | l | | | l(c)(e) | | l |
Charles F. Titterton | l | | | l(e) | l(c) | |
Dennis P. Van Mieghem | l | | | l(d)(e) | | l(d) |
Steven R. Walker | l | | l | l | l(d) | |
Aldo C. Zucaro | | l | l(c) | | | |
Number of scheduled and special meetings | 4 | 4 | 4 | | 4 | 5 |
Number of written consents and telephone meetings | 1 | 1 | 3 | 4 | 1 | - |
| |
(a) | Independent Director as that term is defined in SEC Rules and the Listed Company Standards of the NYSE. |
| |
(b) | The Other Director classification includes all directors who are members of management, or do not currently meet the standard indicated in (a) above. |
| |
(c) Chairman. (d) Vice-Chairman. (e) | Financial Experts as that term is defined in SEC Regulation S-K. (f) Lead Director. |
| |
(f) | Mr. Craig R. Smiddy was elected a director effective October 1, 2019. |
| |
(g) | Lead Independent Director |
(1) |
| Mr. Steven J. Bateman was elected as a director on February 23, 2017 and while listed in this table and the sections below as a member of the Audit and Compensation Committees, he did not attend or serve on these committees during 2016. | |
10
Audit Committee |
Members: | Steven J. Bateman James C. Hellauer
| Fredricka Taubitz, Chairman |
| Charles F. Titterton
Dennis P. Van Mieghem, Vice-Chairman
Peter B. McNitt | Steven R. Walker |
| Glenn W. Reed | |
The Audit Committee operates pursuant to a written charter approved by the Board of Directors, performs an annual self-evaluation, and like all other Board committees reports through its chairman in making recommendations
to the full Board. While information appearing on the Company’s website is not incorporated by reference in this proxy statement, the Committee’s charter may be viewed at www.oldrepublic.com. Printed copies are available to shareholders upon request.
The Audit Committee is organized to assist the Board in monitoring: (1) the integrity of the Company’s financial statements and the effectiveness of the Company’s internal controls over financial reporting, (2) the Company’s compliance with legal and regulatory requirements, (3) the qualifications, performance, and independence of the registered public accounting firm, and (4) the qualifications and performance of the Company’s internal audit function. Further, it is charged with preparing the annual report required by SEC rules to be included in the Company’s proxy statement (which is printed below), and serving as the audit committee of each of the Company’s regulated insurance subsidiaries to the extent required by the National Association of Insurance Commissioners’ Model Audit Rule. It operates pursuant to a written charter approved each year by the Board of Directors and performs an annual self-evaluation. While information appearing on the Company’s website is not incorporated by reference in this proxy statement, the Committee’s charter may be viewed at www.oldrepublic.com. Printed copies are available to shareholders upon request.
The Audit Committee held fourseven meetings during 2016 and had four telephonic conference calls2019 with the Company’s independent registered public accounting firm and management, four of which were held prior to the Company’s filing of quarterly reports on SEC Form 10-Q and its annual report on SEC Form 10-K.
Old Republic has dedicated significant resources across the enterprise to monitor and address its cyber and information security risks. A working group established across all operating subsidiaries meets regularly and reports to members of senior management. On a quarterly basis, management updates the Audit Committee on current issues. Third party consultants are retained at the parent level and their expertise is available to all subsidiaries.
Each Audit Committee member has been affirmatively determined by the Board of Directors to qualify as “independent”, in accordance with SEC Rule 10A-3(b)(1) and the NYSE’s Listed Company Standards. FourThree members of the Committee are deemed to qualify as audit committee financial experts as that term is defined in SEC Regulation S-K. No member served on the audit committees of three or more unrelatedthan two other publicly held companies. The members of the Audit Committee are shown above.
|
| | |
Compensation Committee |
Members: | Steven J. Bateman | Peter B. McNitt |
| Harrington Bischof | Glenn W. Reed |
| Jimmy A. Dew | Arnold L. Steiner |
| John M. Dixon, Chairman | Arnold L. Steiner
Fredricka Taubitz Dennis P. Van Mieghem, Vice Chairman
|
The Compensation Committee operates pursuant to a written charter approved by the Board of Directors, performs an annual self-evaluation and, like all other Board committees, reports through its chairman in making recommendations to the full Board. While information appearing on the Company’s website is not incorporated by reference in this proxy statement, the Committee’s charter may be viewed at www.oldrepublic.com. Printed copies are available to shareholders upon request.
The Compensation Committee is responsible for: (1) evaluating the CEO’s performance and setting Compensationcompensation (“Compensation”compensation” meaning the annual salary, bonus, incentive and equity compensation)compensation package), (2) reviewing and approving, with input from the CEO and President of the Company, the evaluation and Compensationcompensation of thecertain other executive officers and senior executives of the Company and its subsidiaries, (3) reviewing and advising on general levels of Compensationcompensation of other employees, (4) reviewing the Company’s pension, incentive compensation and stock option plans, (5) preparing the annual report (which is printed below) required by SEC rules to be included in the Company’s proxy statement (which is printed below), (6) retaining compensation consultants, independent legal counsel or other advisers, and (7) taking any actionsuch other actions as may be necessary to perform its functions. The Committee is also responsible for reviewing directors’ compensation and subjects itself to an annual performance self-evaluation.compensation.
Each Compensation Committee member of the Committee has been affirmatively determined by the Board of Directors to qualify as “independent” in accordance with SEC rules and the judgment of the Company’s Board of Directors and according to theNYSE’s Listed Company Standards of the NYSE and the SEC rules. The Board of Directors considered all factors specifically relevant to determining whether Committee members have any relationships which would be material to the member’s ability to be independent. The Committee has the sole discretion and adequate funding to retain the services of a compensation consultant, legal counsel and other advisors that will be directly responsible to the Committee.Standards. The independence and possible conflicts of suchinterest of consultants, counsels or advisors which isretained by the committee (as required by the NYSE’s Listed Company Standards and SEC Rule 10C-1,10C-1) are taken into consideration when they are selected. Inquiries into any possible conflicts of interest are made when such persons are retained and annually thereafter, if their services are continued. As part of its function,
In 2019, the Committee has the ability to retain an independent compensation consultant, and in 2012 and 2016committee retained FredericFredrick W. Cook & Co., Inc., to review the Company’sCompany's compensation programs and procedures for compensation forapplicable to the Company’sCompany's executive officers.officers and directors. The consultant’s reviews includedconsultant was asked to provide a comparison of the compensation programs of companies similar in size, operation and organization to the Company,
including a review of a peer group of companies determined by the Committee to be appropriate for comparison. The consultant has not performed noany other work for the Company or any of its subsidiaries and has played no role in recommending the amount and form of compensation for the executive officers or directors of the Company andCompany. The consultant is considered independent according to SEC Rule 10C-1 and the requirements of the Dodd-Frank Act. All Compensation recommendations are made solely by the Compensation Committee following consultation with the CEO and the President regarding the Company’s executive officers (other than the CEO and the President) and other senior members of the Company’s management.
11
The Compensation Committee, at the direction of the Board, has reviewed the Company’s compensation policies and practices and has concluded that they do not encourage ORI’s senior executives or employees at large to take unnecessary or excessive risks to attain short-term results, or that could adversely affect management of the Company for the long run.
|
| | |
Executive Committee |
Members: | Harrington Bischof | Fredricka Taubitz |
| John M. Dixon | Steven R. Walker |
| Craig R. Smiddy | Aldo C. Zucaro, Chairman |
| Arnold L. Steiner | |
The Executive Committee is composed of seven directors and operates pursuant to a written charter approved each year by the Board of Directors.Directors and, like all other Board committees, reports through its chairman in making recommendations to the full Board. While information appearing on the Company’s website is not incorporated by reference in this proxy statement, the Committee’s charter may be viewed on the Company’s website at www.oldrepublic.com. Printed copies are available to shareholders upon request. The members of the Compensation Committee are shown above.
Executive Committee |
Harrington Bischof
John M. Dixon
Arnold L. Steiner
| Steven R. Walker
Aldo C. Zucaro, Chairman
|
The Pursuant to its charter, the Executive Committee is empowered to exercise the Board of Directors’ authority between scheduled meetings, except as provided in the By-laws or otherwise limited by the provisions of the General Corporation Law of the State of Delaware. The Committee operates pursuant to a written charter and performs an annual self-evaluation. It is authorized to: (1) actacts as the Company’s Finance Committeefinance committee and reviewreviews, approves, and approverecommends for approval by the full board the Company’s investment policies, (2) reviewreviews, approves, and approverecommends for approval by the full board the Company’s dividend and capitalization policies, (3) monitormonitors the Company’s enterprise risk management¸ (4) analyzeanalyzes potential acquisitions or divestitures by the Company or its subsidiaries, (5) annually reviewreviews and evaluateevaluates management development and executive succession plans, (6) overseeoversees the Company’s pension, BSP and ESSOP, and other significant benefit plans, and (7) makemakes any necessary and appropriate recommendations to the Governance and Nominating Committee regarding Board and Committee membership. While not incorporated by reference in this proxy statement, the Committee’s charter may be viewed on the Company’s website at www.oldrepublic.com. Printed copies are available to shareholders upon request. The members of the Executive Committee are shown above.
|
| | |
Governance and Nominating Committee |
Members: | Harrington Bischof | Glenn W. Reed |
| John M. Dixon James C. Hellauer
| Arnold L. Steiner Charles F. Titterton,
|
| Spencer LeRoy III, Vice Chairman | Steven R. Walker, Vice Chairman |
The Governance andNominating Committee is organized to oversee the Company’s policies relative to the size, composition and qualifications of the Board of Directors. The Committee operates pursuant to a written charter approved by the Board of Directors, performs an annual self-evaluation, and, like all other Board committees, reports through its chairman in making recommendations to the full Board. While not incorporated by reference in this proxy statement, the Committee’s charter may be viewed at www.oldrepublic.com. Printed copies are available to shareholders upon request.
The Governance and Nominating Committee is authorized to: (1) establish procedures and qualification criteria to identify and recommend qualified candidates for election to the Board, taking into consideration any recommendations from the Executive Committee, (2) review annually the qualifications and requirements of the member directors, the structure and performance of Board Committees and, jointly with the Compensation Committee, the compensation for Board members, (3) develop, recommend and annually reassess the Corporate Governance Guidelines applicable to the Company, (4) periodically review, in conjunction with the Executive Committee, the Company’s succession plans with respect to the CEO and other senior officers, (5) maintain and recommend changes to the Board-approved Code of Business Conduct and Ethics and the Code of Ethics for the Principal Executive Officer and Senior Financial Officer, and (6) serve in an advisory capacity to the Board and its Chairman on matters of the organizational and governance structure of the Company. The Committee operates pursuant to a written charter approved each year by the Board of Directors, and performs an annual self-evaluation.
The Board of Directors is currently composed of twelvethirteen persons of whom ten are classified as independent. ItWhile total membership may vary from time to time, it is the Company’s longer-term objective to have a Board consisting of between
nine and twelveto eleven members and to aim forwith at least 80% representation by independent directors. One ofqualifying as independent. In conjunction with the goals ofresponsibilities listed at (1) and (2) immediately above, the Committee is to have the Board reflect diversity with respect to professional and business experience. Age, race, gender and national origin are not considered by the Committee when reviewing proposed candidates or the re-nomination of existing directors. The Committee believes the Board is appropriately diverse in the context of the Company’s business needs and the Board’s responsibilities to shareholders and other stakeholders.
The Committee evaluates and proposes new and continuing candidates tofor Board and Committee memberships. In these regards, the Committee takes into account the factors set forth in the three paragraphs that address “the qualifications and independence of Board members and candidates…”on pages 14 and 15 of Directors for approval and slating. this Proxy Statement.
The Committee canmay consider director candidates nominated by shareholders. Any name presented for consideration must be submitted to the Committee’s Chairman with a copy to the Secretary no later than 120 days before the anniversary date of the Company’s last proxy statement in order to be included in the Company’s proxy statement or on its form of proxy. It should be accompanied by a comprehensive description of the person’s qualifications plus additional sources of relevant information whichthat will assist the Committee in its review of the person’s background and qualifications so the Committee may makebefore making a determination of the candidate’s fitness to serve. All candidates nominated by shareholders will be evaluated on the basis ofwith the same minimum criteria and additional background qualifications and experience discussed in this proxy statement. A candidate who does not satisfy the minimumdisplay such criteria qualifications will not be recommended by the Committee for membership on the Board. Given the long-term, regulated nature of the Company’s business, nominees will not be considered if they are regarded simply as representatives of a particular shareholder or group of shareholders with a short-term agenda and not oriented toward the demands of a regulated insurance business vested with the public interest.
12
While not incorporatedEach Governance and Nominating Committee member has been affirmatively determined by reference in this proxy statement, the Committee’s charter may be viewed on the Company’s website at www.oldrepublic.com. Printed copies are available to shareholders upon request. In the judgment of the Company’s Board of Directors each member ofto qualify as “independent” in accordance with SEC rules and the Committee is considered independent pursuant to theNYSE’s Listed Company Standards of the NYSE and the rules of the SEC. The Committee’s members are shown above.Standards.
SHAREHOLDER COMMUNICATIONCOMMUNICATIONS WITH THE BOARD
Shareholders of the Company and other interested parties may communicate with the Lead Independent Director, the independent directors, the Board of Directors as a whole, or with any individual director. Such communications must be in writing and sent to Old Republic International Corporation, c/o Secretary, 307 N. Michigan Ave, Chicago, IL 60601. The Secretary will promptly forward such communications to the intended recipient.
RATIFICATION OF THE SELECTION OF AN INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
|
ITEM 2 |
RATIFICATION OF THE SELECTION OF AN INDEPENDENT |
REGISTERED PUBLIC ACCOUNTING FIRM |
In accordance with its charter, the Audit Committee has selected the firm of KPMG LLP (“KPMG”), an independent registered public accounting firm, to be the Company’s independent registered public accounting firm for the year 2017.2020. The selection has been approved by the Board of Directors and remains subject to a review of theKPMG’s proposed fee proposal and the proposed scope of the audit. In the ordinary course of corporate governance, the Board of Directors is asking and recommending that the shareholders ratify this selection subject to the Committee’s acceptance of KPMG’s proposed fee and audit scope. The Company is not required to take any action as a result of the outcome of the vote on this proposal. However, in the event the shareholders fail to ratify this selection, the Board of Directors and the Audit Committee will investigate the reasons for the shareholders’ rejection and may consider whether to retain KPMG or to appoint another independent registered public accounting firm. Even if the selection of KPMG is ratified, the Board of Directors and Audit Committee, at their discretion, may direct the appointment of a different independent registered public accounting firm if they believe that such a change would be in the best interests of the CompanyCompany’s shareholders and its shareholders.other stakeholders.
EXTERNAL AUDIT SERVICES
The Audit Committee had previously selected KPMG as the Company’s independent registered public accounting firm to examine its consolidated financial statements for the year 2016.ended December 31, 2019. A member of KPMG will be invited to attend the Company’s Annual Shareholders’ Meeting.Meeting of the Shareholders. He or she will be provided with an opportunity to make a statement, if so desired, and will be available to respond to appropriate questions.
KPMG’s aggregate fees for professional services for 20162019 and 20152018 are shown below.
Type of Fees | | 2016 | | 2015 |
Audit Fees | | $5,408,600 | | $4,993,650 |
Audit Related Fees | | 88,725 | | 77,500 |
Tax Fees | | — | | — |
All Other Fees | | — | | — |
Total | | $5,497,325 | | $5,071,150 |
|
| | | | | | |
Type of Fees | | 2019 | | 2018 |
Audit Fees | | $5,631,400 | | $5,475,108 |
Audit Related Fees | | 207,195 |
| | 167,992 |
|
Tax Fees | | — |
| | — |
|
All Other Fees | | — |
| | — |
|
Total | | $5,838,595 | | $5,643,100 |
The term “Audit Fees” refers to expenses covering: (a) professional services rendered by the auditors for the audit of the Company’s consolidated annual financial statements and internal control over financial reporting included in the Company’s Form 10-K, (b) reviews without audit of financial statements included in the Company’s Forms 10-Q, and (c) services normally provided by the auditors in connection with mandated audits of statutory financial statements and filings. “Audit Related Fees” refers to charges for assurance and related services by the auditors that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees”. Audits of most of the Company’s employee benefit plans are performed by an independent audit firm other than KPMG. “Tax Fees” refers to fees for professional services rendered by the auditors for tax compliance. The term “All Other Fees” refers to fees for products and services provided by the auditors, other than those reported under the preceding categories.
The charter of the Audit Committee requires that it pre-approvepreapprove all non-audit work by the Company’s independent registered public accounting firm. In determining whether to approve non-audit services, the Committee considers whether the services in question facilitate the performance of the audit, improve the Company’s financial reporting process or are otherwise in the Company’s and its shareholders’ interests. All of the Audit-Related Fees billed to the Company in 20162019 and 20152018 were approved by the Audit Committee pursuant to the pre-approval waiver requirements of SEC Regulation S-X.
KPMG has advised the Committee that all of its employees engaged in the Company’s audits have been independent ofindependence with respect to the Company.
BOARD OF DIRECTORS’ RECOMMENDATION
The Board of Directors recommends a vote FOR the selection of KPMG as the Company’s independent registered public accounting firm, subject to the Audit Committee’s approval of that firm’s fee and audit scope proposal for 2017.2020. Proxies solicited by the Board of Directors will be voted in favor of the selection of this firm unless shareholders specify to the contrary. The results of this vote shallwill be disclosed in a filing made with the SEC shortly after the Annual Shareholders’ Meeting of the Shareholders and will be available for review on the Company’s website, www.oldrepublic.com.
AUDIT COMMITTEE REPORT FOR 2016
The following Report of the Audit Committee does not constitute solicitation material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.2019
In accordance with its written charter, the Audit Committee performs the oversight role assigned to it by the Board of Directors. As part of its oversight responsibilities, the Audit Committee appointed KPMG as the Company’s independent registered public accounting firm for 2016.2019.
Management has responsibility for preparing the Company's financial statements as well as for the Company's financial reporting process.process and internal controls. KPMG is responsible for expressing an opinionopinions on the conformity of the Company's audited financial statements with U.S. Generally Accepted Accounting Principles, inand the United States.effectiveness of the Company's internal control over financial reporting.
The Audit Committee met with KPMG, with and without management representatives present, to discuss the results of its examinations, its evaluations of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. During 2016,2019, the Audit Committee reviewed the interim financial and other information contained in each quarterly report on Form 10-Q filed with the Securities and Exchange CommissionSEC with the Chief Executive Officer, Chief Financial Officer, and KPMG prior to its filing. The Annual Report on Form 10-K was similarly reviewed. In addition, the Audit Committee discussedtook up with KPMG matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16.and the SEC. Further, the Audit Committee received and discussed the written communications from KPMG required by applicable requirements of the PCAOB regarding KPMG’s independence. The Audit Committee reviewed the Company’s internal audit function, including itsthe reporting obligations and reviewed their proposed audit
plans and periodic reports to the Audit Committee summarizing the results of theirinternal auditing activities. The Audit Committee met regularly with the Company’s legal counsel to review the status of litigation involving the Company or its subsidiaries and to ascertain that the Company complied with applicable laws and regulations.
Following all of these discussions and reviews, referred to above, the Audit Committee recommended to the Board of Directors and the Board approved the inclusion of the audited financial statements in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2016.
142019.
James C. Hellauer
|
| | |
| By the 2019 Audit Committee | |
| Steven J. Bateman | Fredricka Taubitz, Chairman Charles F. Titterton
|
| Dennis P. Van Mieghem, Vice Chairman
Peter B. McNitt | Steven R. Walker |
| Glenn W. Reed | |
Mr. Steven J. Bateman did not sign the Audit Committee Report as he was not a member of the Committee during 2016 and did not participate in the oversight of the audit.
COMPENSATION COMMITTEE REPORT FOR 2016
The following Report of the Compensation Committee does not constitute solicitation material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.2019
The Compensation Committee met its oversight responsibilities for the year 20162019 by reviewing and discussing with the Company’s management the Compensation Discussion and Analysis (“CD&A”) contained in this proxy statement. Based upon this review, its discussions and its activities, the Compensation Committee recommended that the CD&A be included in this proxy statement.
|
| | |
| By the 2019 Compensation Committee: |
| Steven J. Bateman | Peter B. McNitt |
| Harrington Bischof | Glenn W. Reed |
| Jimmy A. Dew | Arnold L. Steiner |
| John M. Dixon, Chairman | Arnold L. Steiner
Fredricka Taubitz Dennis P. Van Mieghem, Vice-Chairman
|
Mr. Steven J. Bateman did not sign the Compensation Committee Report as he was not a member of the Committee during 2016 and did not participate in the review of the CD&A included in this proxy statement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has served within the last three years as an officer or employee of the Company or any of its subsidiaries, nor has any executive officer of the Company served as a director or member of a compensation committee for any company that employs any director of the Company or member of the Compensation Committee.
DIRECTORS’ COMPENSATION
In 2016, theThe directors receivedreceive an annual retainer of $120,000,$130,000, plus an additional annual committee fee of $10,000$13,000 for each committee on which they serve. Effective January 1, 2017, the annual committee fee shall increase to $12,000. The Lead Independent Director Mr. Steiner, and the chairmen of the Executive, Governance and Nominating and Compensation Committees Messrs. Titterton and Dixon, respectively, each receivedreceive an additional annual retainer of $10,000. Effective January 1, 2017, these fees shall increase to $12,000. Ms. Taubitz, as Chairman$13,000. The chairman of the Audit Committee receivedreceives an additional annual retainer of $15,000. Effective January 1, 2017, this fee shall increase to $18,000. Each$19,500. The vice-chairmen of the Committees’ Vice-Chairmen receivedeach committee receive an additional retainer of $5,000. Effective January 1, 2017, this fee shall increase to $6,000. Independent directors$6,500. Board members also serve as directors of several regulated insurance underwriting subsidiaries of the Company, for which no additional compensation is paid. In addition, the Company and these fees cover service on such subsidiary boardsits subsidiaries either directly pay or reimburse directors for travel, lodging and related committees. Directors’expenses incurred in attending director or Committee meetings.
Non-employee directors do not receive stock awards, stock options, incentive compensation awards, deferred compensation awards, pensions, or any other compensation programs or arrangements that the Company might offer to its employees or those of its subsidiaries. Independent directors may not receive any form of compensation from the Company other than director’s fees in order to remain qualified as independent.
Director compensation is reviewed annually, and any changes are recommended by the Compensation Committee in consultation with the CEO and any independent consultant retained by the Compensation Committee for that purpose. The Compensation Committee’s recommendations are, in turn, voted upon by the full Board. Directors who are employees of the Company or its subsidiaries receive no compensation for their services as directors or committee members.
Non-employee directors are not currently eligible for stock awards, stock options, incentive
The following table lists the compensation awards, deferred compensation awards, pensions, or any other compensation programs or arrangements whichpaid to each director of the Company might offereligible to its employees or those of its subsidiaries. Independent directors may not receive any form of compensation from the Company other than director’s fees in order to remain qualified as independent. As a result, the fees shown below are the total fees paid to directors.such fees. Mr. Zucaro,Smiddy, as an employee and CEO of the Company, has his compensation reported in the Summary Compensation Table shown elsewhere in this proxy statement. Since October 1, 2019, Mr. Dew, who is retired from Republic Mortgage Insurance Company (“RMIC”),Zucaro only receives compensation as a subsidiarydirector and as a member and as the Chairman of the Company, has received noExecutive Committee, which compensation from RMIC oris reported in the Company during the last three years other than the annual retainer that other directors receive and is now deemed independent.2019 Directors’ Compensation Table shown below. Mr. LeRoyZucaro’s compensation through September 30, 2019, when he retired as General Counsel of the Company effective July1, 2014 and has received no compensation fromCompany’s Chief Executive Officer, is reported in the Company since he became a director in 2015 other than the annual retainer that other directors receive.
15
The table below lists the compensation paid to each director of the Company eligible to receive such fees. In addition to director fees, the Company and its subsidiaries either directly pay or reimburse directors for travel, lodging and related expenses incurred in attending director or Committee meetings.Summary Compensation Table.
2016
|
| | | |
2019 Directors’ Compensation(1) |
Name | | Fees Earned or Paid in Cash |
Harrington Bischof Steven J. Bateman | | $150,000156,000 |
Harrington Bischof | | 169,000 |
|
Jimmy A. Dew | | 130,000143,000 |
|
John M. Dixon | | 160,000182,000 |
|
James C. Hellauer Charles J. Kovaleski | | 140,000130,000 |
|
Spencer LeRoy III | | 120,000(2)143,000 |
|
Peter B. McNitt | | 143,000 |
|
Glenn W. Reed | | 169,000 |
|
Arnold L. Steiner | | 160,000182,000 |
|
Fredricka Taubitz | | 155,000183,083 |
|
Charles F. Titterton (1) | | 150,000169,000 |
|
Dennis Van Mieghem (2) | | 150,000169,000 |
|
Steven R. Walker | | 155,000175,500 |
|
Aldo C. Zucaro (3) | | 39,000 |
|
| |
(1) | Mr. Bateman is not listedTitterton retired as he was not a director during 2016 and received no compensation from the Company during that year.effective February 29, 2020. |
| |
(2) | Mr. LeRoy’s compensation reflects the fact that he had no committee responsibilities during 2016.Van Mieghem retired as a director effective December 31, 2019. |
| |
(3) | The fees shown for Mr. Zucaro were paid in his capacity as a director and Executive Committee Chairman beginning on October 1, 2019. |
COMPENSATION DISCUSSION AND ANALYSIS
|
|
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Philosophy and Objectives
Compensation levels are set to enable the Company to attract, reward and retain key executives and other associates critical to its long-term success. The CompanyBoard of Directors believes that compensation paid to executive officers with major policy setting responsibilities should be closely aligned with the Company’s performance of the Company on both a short-term and long-term basis. In this regard, performanceincentive compensation is evaluatedestablished principally on the basis ofof: (a) premiums and fees growth, (b) achieved returns on equity andin excess of a preset minimum, (c) growth in operating earnings, and (d) underwriting results over multi-yearminimum five-year periods. For all executive officers, and senior members of the Company’s management, and key employees, compensation is based in part on the foregoing financialthese factors, as well as on their individual performances.performances in the long-term interest of the Company.
The executiveExecutive officers, of the Company, including the CEO and Chief Financial Officer (“CFO”), do not have employment contracts. They and all other associates of the Company and its subsidiaries are “employees at-will”“employees-at-will”. Compensation for most senior members of the Company’s management is set annually by the Compensation Committee of the Board of Directors based either inon its sole determination or in consultation with the CEO and as requested, the President. The Company does not generally set any salary, incentive award or stock option based on targets or conditions for its executive officers whichthat will automatically result in salary increases or awards based solely on the achievement of such targets or conditions. Rather, the Company attempts to make the total compensation paid to executive officers, the most senior members of the Company’s management and its other employees reflective of the financial performance achieved by the Company and the individual divisions or operating units for which they work. In certain cases, employees’ individual performance is subjectively evaluated and their incentive compensation is set at levels reasonably competitive with Old Republic’s understanding of compensation employment benefit levels at other companies in the insurance industry. In reaching compensation decisions, the Company does not measure each individual element of compensation against similar elements paid by other companies or its peer
group, nor is any compensation element or the total compensation paid to any executive based solely on comparisons with those of other companies or their executives.
The Company’s Board of Directors and Compensation Committee reviewed last year’s shareholder vote concerning executive compensation and took into account that vote along with all other considerations in its review and determination of compensation for the current year. In the normal course of events, the Committee expects to also consider that vote and future votes concerning executive compensation when reviewing any possible changes in compensation programs.
16
The companies Old Republic has selected as members of its peer group for 2016 were:2019 are: American Financial Group, Inc., American International Group, Inc., W. R. Berkley Corporation, Chubb Limited, Cincinnati Financial Corporation, CNA Financial Corporation, Fidelity National Financial, Inc., First American Financial Corporation, Markel Corporation,The Hartford Financial Services Group, Inc., Stewart Information Services Corporation and The Travelers Companies, Inc. and XL Group Plc. (The above peer group reflects the fact that Ace Limited was merged into Chubb Limited during 2016 and that American International Group, Inc. was added.) A(A comparison of the aggregate stock performance of Old Republic and the abovethis peer group and former peer group appearappears in the chartschart in Part II of the Company’s Annual Report on Form 10-K, and pages 35 and 36 ofin this Proxy statement.)
Executive Performance Considered in Reaching Compensation Decisions
The CompanyOld Republic rewards performance whichthat the Compensation Committee believes will lead to both the short and long-term success of the Company and its subsidiaries. The Committee evaluates the Company’s CEO performance and compensation primarily in the context of the following factors.
· | Vision and planning in managing the Company for the long run; |
Vision and planning in managing the Company for the long-run· | Strategies established and implemented to accomplish this important objective; |
Strategies established and implemented to accomplish this important objective· | Judgment in making decisions regarding plans and general management of the Company’s affairs; |
Judgment in making decisions regarding plans and general management of the Company’s affairs· | Commitment to achieving goals, especially when faced with adversity; |
Commitment to achieving goals, especially when faced with adversity· | Ability in setting objectives and promoting the best interests of the Company’s shareholders, the beneficiaries of its subsidiaries’ insurance policies, and those of other stakeholders; and |
Ability in setting objectives and promoting the best interests of the Company’s shareholders, the beneficiaries of its subsidiaries’ insurance policies, and those of other stakeholders· | Adherence to high ethical standards that promote and protect the Company’s good name and reputation. |
Adherence to high ethical standards that promote and protect the Company’s good name, culture and reputation
None of these factors is given any greater weight than another. Rather, each Compensation Committee member subjectively reviews these factors in the aggregate and exercises his or her best professional business judgment in reaching conclusions. The Committee solelyindependently evaluates the CEO’s performance and compensation, and that of other key executive officers in consultation with the CEO and it may seek the input of other members of the Office of the Chief Executive Officer.Officer as circumstances warrant. The performance of certain non-policy-making senior members of the Company’s management is likewise reviewed by the Committee in consultation with the CEO.similarly reviewed.
Elements of Compensation and the Factors and Rationale in Determining Compensation Amounts
The compensation paid byto the Company to its CEO, other executive officers, and senior members of the Company’s and key operating subsidiaries’ management is usually composed of the following basic elements:elements treated as a total compensation package:
· | Awards issued under the Company’s Key Employee Performance Recognition Plan (“KEPRP”), which are usually comprised of both cash and deferred amounts. These awards are principally based on participants’ annual salaries, and five-year running averages of growth in premium, fees, underwriting/service income and operating earnings (excluding realized investment gains or losses) achieved by the Company and its subsidiaries over multi-year periods, and the return on equity in excess of a minimum target return on U.S. Treasury Securities, excluding the impact of the RFIG run-off on consolidated underwriting results. In certain cases, special awards based upon individuals’ performances or extraordinary contributions in any one year or longer period of time are considered; |
Awards issued under the Key Employee Performance Recognition Plan (“KEPRP”) maintained by the Company or any one of its subsidiaries, is reported in the following Summary Compensation Table under the column captioned "Bonus". Such awards are usually comprised of both cash and deferred compensation. These awards are principally based on the factors described in the first paragraph under Compensation Philosophy and Objectives. In relatively few cases, special awards based upon individuals’ performances or extraordinary contributions in any one year or longer period of time may also be made;· | Awards issued under the Incentive Compensation Plan (traditionally stock options) in conjunction with awards under the KEPRP;Awards issued under the Incentive Compensation Plan (traditionally stock options); and |
· | Other employment benefits such as life and health insurance programs, the ESSOP, and the BSP. |
17
The following table shows the segmented sources of Old Republic’s pretax operating income and its net operating income or loss for the past five years. The level and trends in earnings of such segments and their past and most recent contributions to the Company’s growth in the shareholders’ equity account are important considerations in the determination of cash and stock option incentive compensation for certain executive officers and other senior members of the Company’s policy-making executive team.
| Segmented Operating Results ($ in Millions) |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Pretax operating income (loss) (a): | | | | | | | | | | | | | | |
General insurance | $ | 319.9 | | $ | 336.4 | | $ | 221.3 | | $ | 288.3 | | $ | 261.0 |
Title insurance | | 210.2 | | | 166.8 | | | 99.5 | | | 124.3 | | | 73.8 |
Corporate and other (b) | | 13.0 | | | 7.6 | | | 5.7 | | | 2.1 | | | (2.7) |
Subtotal | | 543.3 | | | 511.0 | | | 326.7 | | | 414.7 | | | 332.1 |
RFIG run-off business | | 69.8 | | | 29.4 | | | 10.3 | | | 110.0 | | | (508.6) |
Total | | 613.1 | | | 540.4 | | | 337.1 | | | 524.8 | | | (176.4) |
Income taxes (credits) on operating income (loss) | | 193.5 | | | 177.7 | | | 104.3 | | | 173.2 | | | (76.6) |
Net operating income (loss) (a) | $ | 419.6 | | $ | 362.7 | | $ | 232.7 | | $ | 351.6 | | $ | (99.7) |
|
| | | | | | | | | | | | | | | | | | | |
| Segmented Results ($ in Millions) |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Segmented and consolidated pretax income (loss) | | | | | | | | | | | | | | |
excluding investment gains (losses): | | | | | | | | | | | | | | |
General insurance | $ | 370.2 |
| | $ | 363.9 |
| | $ | 340.3 |
| | $ | 319.9 |
| | $ | 336.4 |
|
Title insurance | | 230.8 |
| | | 219.3 |
| | | 237.1 |
| | | 210.2 |
| | | 166.8 |
|
Corporate and other (a) | | 54.8 |
| | | 40.4 |
| | | 9.9 |
| | | 13.0 |
| | | 7.6 |
|
Subtotal | | 655.9 |
| | | 623.8 |
| | | 587.3 |
| | | 543.3 |
| | | 511.0 |
|
RFIG run-off business | | 30.3 |
| | | 49.9 |
| | | (73.5 | ) | | | 69.8 |
| | | 29.4 |
|
Consolidated pretax income (loss) | | | | | | | | | | | | | | |
excluding investment gains (losses) | | 686.2 |
| | | 673.7 |
| | | 513.8 |
| | | 613.1 |
| | | 540.4 |
|
Income taxes (credits) on above (b) | | 132.0 |
| | | 117.2 |
| | | 195.7 |
| | | 193.5 |
| | | 177.7 |
|
Net income (loss) excluding | | | | | | | | | | | | | | |
investment gains (losses) | $ | 554.2 |
| | $ | 556.4 |
| | $ | 318.0 |
| | $ | 419.6 |
| | $ | 362.7 |
|
(a) | Operating income is a non-GAAP reflection of the Company’s business results inasmuch as it excludes investment gains or losses from sales of securities or impairments in the value of portfolio securities. |
(b)(a) | Represents amounts for Old Republic’s holding company parent, minor corporate services subsidiaries, and a small life and accident insurance operation. |
| |
(b) | 2017 Includes $41.8 of deferred income tax expense to adjust to the 21% tax rate of 2018 pertaining to operations as of December 31, 2017. |
SUMMARY COMPENSATION TABLE
The following table on the next page shows the compensation summary for the Chairman and CEO, the CFO and the othersenior policy-making executive officers responsible for the operations of the Company and its subsidiaries in the above segments.officers. Bonus (KEPRP awards) and stock option awards for Messrs. Zucaro, Mueller, and Rager wereSmiddy have been based to a significant degree on the Company’s consolidated results; those of Mr. Smiddy were based primarily on the results of the General Insurance segment, whileresults. Mr. Yeager’s compensation wasis largely based on the results of the Title Insurance segment.group and Mr. Gray's compensation is largely based on the results of the General Insurance group. Mr. Oberst was appointed an executive officer of the Company effective October 1, 2019. As a result, his compensation described in the table below reflects his performance as CEO of the subsidiary with which he was primarily associated during 2019.
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Please See Continuation on Next Page
|
| | | | | | | | | | | | | | | | | | | | | | | |
SUMMARY COMPENSATION TABLE |
(a) Name and Principal Positions | (b) Year | (c) Salary | | (d) Bonus (1) | (e) Value of Stock Option Awards (2) | (f) Change in Pension Value and Nonqualified Deferred Compensation Earnings (3)(4) | (g) All Other Compensation (5) | (h) Total ($) |
Craig R. Smiddy | 2019 | $ | 663,750 |
| * | $ | 728,706 |
| | $ | 240,900 |
| $ | — |
| | $ | 13,419 |
| | $ | 1,646,775 |
|
President and Chief | 2018 | 581,667 |
| | 622,105 |
| | 154,000 |
| — |
| | 14,990 |
| | 1,372,762 |
|
Executive Officer - Effective | 2017 | 494,999 |
| | 562,367 |
| | 98,100 |
| — |
| | 14,888 |
| | 1,170,354 |
|
October 1, 2019 | 2016 | 485,000 |
| | 473,349 |
| | 87,500 |
| — |
| | 14,277 |
| | 1,060,126 |
|
| 2015 | 475,000 |
| | 428,780 |
| | 33,500 |
| — |
| | 13,518 |
| | 950,798 |
|
| | | | | | | | | | | |
Karl W. Mueller | 2019 | 491,667 |
| | 303,907 |
| | 131,000 |
| 69,900 |
| | 16,250 |
| | 1,012,724 |
|
Senior Vice President | 2018 | 481,667 |
| | 256,810 |
| | 138,600 |
| — |
| | 19,001 |
| | 896,078 |
|
and Chief Financial Officer | 2017 | 471,666 |
| | 239,969 |
| | 129,165 |
| 47,946 |
| | 18,694 |
| | 907,440 |
|
| 2016 | 465,000 |
| | 209,901 |
| | 131,250 |
| 288 |
| | 17,657 |
| | 824,096 |
|
| 2015 | 455,000 |
| | 191,344 |
| | 73,700 |
| — |
| | 16,610 |
| | 736,654 |
|
| | | | | | | | | | | |
W. Todd Gray | 2019 | 506,667 |
| | 411,995 |
| | 23,580 |
| — |
| | 12,159 |
| | 954,401 |
|
Senior Vice President and | | | | | | | | | | | |
Treasurer - Effective July 1, | | | | | | | | | | | |
2019 | | | | | | | | | | | |
| | | | (8) |
| | | | | | | |
Stephen J. Oberst | 2019 | 421,538 |
| * | 552,132 |
| | 107,860 |
| 107,645 |
| | 42,335 |
| (7) | 1,231,510 |
|
Executive Vice President - | | | | | | | | | | | |
Effective October 1, 2019 | | | | | | | | | | | |
| | | | | | | | | | | |
Rande K. Yeager | 2019 | 543,654 |
| | 779,808 |
| | 131,000 |
| 78,739 |
| | 22,834 |
| | 1,556,035 |
|
Executive Chairman - Title | 2018 | 529,712 |
| | 684,219 |
| | 138,600 |
| — |
| | 20,760 |
| | 1,373,291 |
|
Insurance Group | 2017 | 519,134 |
| | 2,093,977 |
| (6) | 171,675 |
| 41,806 |
| | 21,741 |
| | 2,848,333 |
|
| 2016 | 510,000 |
| | 686,357 |
| | 140,000 |
| 26,674 |
| | 20,704 |
| | 1,383,735 |
|
| 2015 | 495,000 |
| | 606,369 |
| | 80,400 |
| — |
| | 19,965 |
| | 1,201,734 |
|
| | | | | | | | | | | |
Aldo C. Zucaro | 2019 | 719,167 |
| ** | 69,456 |
| | 262,000 |
| 1,557,546 |
| | 18,333 |
| | 2,626,502 |
|
Chairman, formerly Chief | 2018 | 936,667 |
| | 797,332 |
| | 308,000 |
| 1,076,134 |
| | 17,158 |
| | 3,135,291 |
|
Executive Officer until | 2017 | 911,666 |
| | 740,899 |
| | 327,000 |
| 645,543 |
| | 19,527 |
| | 2,644,635 |
|
September 30, 2019 | 2016 | 895,000 |
| | 636,809 |
| | 350,000 |
| 306,047 |
| | 18,017 |
| | 2,205,873 |
|
| 2015 | 870,000 |
| | 582,978 |
| | 268,000 |
| 416,266 |
| | 18,526 |
| | 2,155,770 |
|
SUMMARY COMPENSATION TABLE |
(a) Name and Principal Positions | (b) Year | (c) Salary | (d) Bonus (1) | (e) Value of Stock Option Awards (2) | (f) Change in Pension Value and Nonqualified Deferred Compensation Earnings (3)(4) | | (g) All Other (5) Compensation | | (h) Total ($) |
Aldo C. Zucaro | 2016 | $ 895,000 | $ 636,809 | $350,000 | $306,047 | (3) | $18,017 | | $2,205,873 |
ORI Chairman and | 2015 | 870,000 | 582,978 | 268,000 | 416,266 | | 18,526 | | 2,155,770 |
Chief Executive Officer | 2014 | 855,000 | 31,109 | 306,000 | 368,087 | | 17,110 | | 1,577,306 |
| 2013 | 828,333 | 283,340 | 119,700 | 69,315 | | 13,677 | | 1,314,365 |
| 2012 | 810,000 | 155,197 | 89,654 | 224,997 | | 13,544 | | 1,293,392 |
| | | | | | | | | |
Karl W. Mueller | 2016 | 465,000 | 209,901 | 131,250 | 288 | | 17,657 | | 824,096 |
ORI Senior Vice President | 2015 | 455,000 | 191,344 | 73,700 | — | (3) | 16,610 | | 736,654 |
and Chief Financial Officer | 2014 | 445,000 | 140,701 | 107,100 | 63,151 | | 13,034 | | 768,986 |
| 2013 | 431,667 | 171,469 | 55,575 | 25,395 | | 8,568 | | 692,674 |
| 2012 | 421,667 | 152,045 | 41,625 | 56,292 | | 7,984 | | 679,613 |
| | | | | | | | | |
R. Scott Rager (6) | 2016 | 510,000 | 602,869 | 175,000 | — | | 32,469 | | 1,320,338 |
ORI President and | 2015 | 500,000 | 544,828 | 80,400 | — | | 31,145 | | 1,156,373 |
Chief Operating Officer | 2014 | 490,000 | 303,977 | 113,220 | — | | 30,571 | | 937,768 |
| 2013 | 476,667 | 388,708 | 55,575 | — | | 24,763 | | 945,713 |
| 2012 | 466,667 | 336,115 | 41,625 | — | | 21,547 | | 865,954 |
| | | | | | | | | |
Craig R. Smiddy (7) | 2016 | 485,000 | 473,349 | 87,500 | — | | 14,277 | | 1,060,126 |
President and Chief | 2015 | 475,000 | 428,780 | 33,500 | — | | 13,518 | | 950,798 |
Operating Officer − | 2014 | 460,000 | 375,000 | 44,370 | — | | 13,112 | | 892,482 |
General Insurance Group | 2013 | 184,327 | — | — | — | | 239,733 | (8) | 424,060 |
| | | | | | | | | |
Rande K. Yeager | 2016 | 510,000 | 686,357 | 140,000 | 26,674 | | 20,704 | | 1,383,735 |
Chairman and Chief | 2015 | 495,000 | 606,369 | 80,400 | — | (3) | 19,965 | | 1,201,734 |
Executive Officer − | 2014 | 485,000 | 387,952 | 114,750 | 93,014 | | 21,085 | | 1,101,801 |
Title Insurance Group | 2013 | 471,250 | 400,656 | 51,300 | 53,308 | | 16,683 | | 993,197 |
| 2012 | 455,833 | 250,000 | 27,537 | 175,807 | | 13,053 | | 922,230 |
| |
* | Effective October 1, 2019, with the change in responsibilities of Messrs. Smiddy and Oberst, their base salaries changed. Mr. Smiddy's base annual salary was increased to $725,000 a year and Mr. Oberst's base salary was increased to $475,000. |
| |
** | Mr. Zucaro's salary ended effective September 30, 2019, but he began receiving fees as a director and chairman of the Executive Committee of $13,000 per month for a total of $39,000 in 2019. These director fees are included in the amount shown for Mr. Zucaro in the 2019 Directors' Compensation table on page 23. |
| |
(1) | InThe awards in this table, awardscolumn are made pursuant to the ORI KEPRP, or the group plans for other subsidiaries. Awards attributed to any one year are based on calculations and Compensation Committee approvalapprovals made in the following year. The calculations used to determine the awards are based on the evaluationColumn (d) of the Company’s performance metrics averaged over the previous five years. The table includes the combined cash and deferred incentive compensation awards granted under the Company’s performance recognition plansKEPRP or similar plans maintained by subsidiaries of the Company. Under the KEPRP, effectiveits subsidiaries. Effective with the performance year 2017, the first $50,000 of KEPRP awards is paid in cash. For 2016, the first $37,500 shall bewas paid in cash. Prior to that change,cash, and in prior years the first $25,000 of any award was paid in cash. For awards in excess of thosethese amounts, 50% of the excess is paid in cash and 50% is deferred. The deferred amounts included in this column are usually not payable before the person retires at 55 years of age or later. The deferred amounts accrue interest for awards made after 2004. No incentive compensation awards were granted for the years 2012 and 2013 under the Company’s Key Employee Performance Recognition Plan as this plan was suspended due to the poor consolidated results during those years. In those years, however, certain subsidiary plans remained in place and certain executive officers and other employees were granted bonus awards based on segmented results or on the basis of a subjective evaluation of their individual performance. The awardsamounts set forth for all executive officers include the amount of the present year award as well as interest accrued during the year on their deferred balances from prior years’ awards. See footnote (6) with regard to a special award granted to Mr. Yeager that is included in his column (d) bonus for 2017. For 2019, Mr. Zucaro was not eligible to receive any award under the KEPRP since he was no longer an employee following his retirement on September 30, 2019. The amount shown in this column for 2014 representsMr. Zucaro reflects only the accrual of interest on his prior years’ awards.deferred KEPRP balance. |
| |
(2) | The awards in this column (e) are made pursuant to the Incentive Compensation Plan. The value of options is calculated pursuant to the Black-Scholes model. The option values represent the estimated present value as of the date the options were granted. Accordingly, the option awards included under this column were granted in the years shown and reflect, among other factors previously noted, an evaluation of earnings trends and returns on equity for prior years. |
| The significant factors and assumptions incorporated in the Black-Scholes model used to estimate the value of the options include the following: |
| |
a) | Options are issued with an exercise price equal to 100% of the per share value at the close of trading (the “Fair Market Value”) of Common Stock on the business day immediately preceding the date of grant. The “Grant Date” shall be the date the Compensation Committee grants an option and the date from which the option term shall be measured. |
| |
b) | The term of each option is 10 years (unless such terms are otherwise shortened or forfeited due to termination of employment) and it is assumed that these executives will hold these options for an average of 8 years. |
| |
c) | Specific interest rates are used for valuing the awards. Such rates are predicated on the interest rate on U.S. Treasury securities on the date of grant with a maturity date corresponding to that of the expected option life. |
| |
d) | A stock price volatility factor is utilized in valuing the option awards. This factor is calculated using dailyclosing stock prices for the period prior to the Grant Date corresponding with the expected option life. |
| |
e) | Expected annual dividend yields ranging between 4.4%4.0% and 6.9%5.1% are used in the calculation of the awards. |
The ultimate value of the options will depend on the future market price of the Company’s Common Stock which cannot be forecasted with reasonable accuracy. The actual value, if any, that an optionee may realize upon exercise of an option will be based on the excess of the market value over the exercise price on the date the option is exercised. On August 20, 2019, Messrs. Smiddy and Oberst received additional options granted in connection with their change in responsibilities. The value of these additional options is included in column (e) for 2019.
| The ultimate value of the options will depend on the future market price of the Company’s Common Stock which cannot be forecasted with reasonable accuracy. The actual value an optionee may realize upon exercise of an option, if any, will depend on the excess of the market value over the exercise price on the date the option is exercised. |
19
(3) | Represents the aggregate change in the actuarial present value of the accumulated benefits under the Company’sOld Republic’s defined benefit pension plan.plan (“the Company’s pension plan”). Plan benefits were frozen as of December 31, 2013. The year over yearyear-over-year change in the present value of accumulated benefits resulted in negative amounts in 2015 for Messrs. Mueller and Yeager of $11,927($11,927 and $90,632, respectively,respectively) because of changes in the underlying actuarial assumptions. SEC rules require that these negative changes be treated as zeros. For Mr. Zucaro, there was a negative impact of $16,376 for Old Republic’s defined benefitthe Company’s pension plan and a positive impact of $432,642 for the Old Republic International Corporation Executives Excess Benefit Plan. AsPlan (“the Excess Benefit Plan”) for a result, there was acombined net positive impact of $416,266 for Mr. Zucaro for 2015. For 2016, the year overyear-over- year change in the present value of accumulated benefits for Mr. Zucaro, had a negative impact of $55,211 for Old Republic’s defined benefitthe Company’s pension plan and a positive impact of $361,258 for the Old Republic International Corporation Executives Excess Benefit Plan. AsPlan for a result, there was acombined net positive impact of $306,047$306,047. For 2017, the year-over-year change in the present value of accumulated benefits for Mr. Zucaro had a negative impact of $205,520 for the Company’s pension plan and a positive impact of $851,063 for the Excess Benefit Plan for a combined net positive impact of $645,543. For 2018, the year-over-year change in 2016.the present value of accumulated benefits resulted in negative amounts for Messrs. Mueller and Yeager of $23,264 and $117,997, respectively, because of changes in the underlying actuarial assumptions. For Mr. Zucaro, there was a negative impact of $228,233 for the Company’s pension plan and a positive impact of $1,076,134 for the Excess Benefit Plan for a combined net positive impact of $1,304.367 for 2018. For 2019, the year-over-year change in the present value of accumulated benefits resulted in $69,900, $107,645, and $78,739 for Messrs. Mueller, Oberst, and Yeager, respectively. For Mr. Zucaro, there was a negative impact of $72,711 for the Company's pension plan and a positive impact of $1,630,257 for the Excess Benefit Plan for a combined net positive impact of $1,557,547 for 2019. |
| |
(4) | The Company does not have any non-qualified deferred compensation plans that credit above market or preferential earnings to participants. |
| |
(5) | Includes all minor amounts coveringcovering: (a) the Company’s matching contribution to the executive officers’ ESSOP accounts;accounts, (b) the Company’s contribution to the executive officer’s Baseline Security Plan (“BSP”) accounts;accounts, (c) the value of the Company’s group term life insurance plan treated as income;income, (d) the value of the personal use of any vehicle supplied for Company business;business, and (e) the personal value of meals and club dues incurred for Company business. |
| |
(6) | Mr. Rager became PresidentYeager’s bonus for 2017 consisted of an award of $649,219 (inclusive of accrued interest on prior years’ deferred balance) under the KEPRP of the Company effective June 1, 2012. Prior to that date he was PresidentTitle insurance segment, and Chief Operating Officer–General Insurance.an additional award of $1,444,758 (consisting of a cash award of $1,066,721 and an equity award with a value of $378,037) resulting from satisfaction in 2017 of pre-set, five-year underwriting/service income performance objectives of the Title insurance segment under the Incentive Compensation Plan. |
| |
(7) | Mr. Smiddy joinedIncludes $10,935 in housing expenses covered by the Company on August 13, 2013 and became President and Chief Operating Officer–General Insurance on October 1, 2015.
|
(8) | Includes $100,128 as the value of 6,720 shares of restricted Old Republic stock, which vested over three years, awarded to Mr. Smiddy when he joined the Company and $139,605 paid in connection with his relocation to the Company’s executive officesMr. Oberst's accommodations in Chicago. |
CEO PAY RATIO DISCLOSURE
The Compensation Committee and Board of Directors believe that executive compensation, particularly as it applies to the Company’s CEO as well as in appropriately similar degrees to other senior executives throughout ORI’s holding company system, should be related to the responsibilities undertaken, and be consistent with the Company’s intermediate and long-term performance. In this context, and in accordance with the requirements of The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), as well as the SEC rules adopted pursuant to it, the Company is reporting the ratio of the total annual compensation of the CEO to that of the “Median Employee”.
On October 1, 2019, Mr. Craig R. Smiddy succeeded Mr. A. C. Zucaro as CEO of the Company. During a transition year, the SEC pay ratio rule permits the Company to use Mr. Smiddy's total annual compensation for purposes of the pay ratio disclosure. Mr. Smiddy's compensation used for this calculation is the same as is shown in the Summary Compensation Table immediately above. The total annual compensation for the Median Employee was determined as of December 31, 2019 by preparing a list of all United States (“U.S.”) based employees of the Company’s U.S. subsidiaries at year-end 2019 (excluding the CEO) in the order of the highest to the lowest total annual compensation. The number of non-U.S. employees was excluded as they accounted for approximately 130 persons employed in Canada out of a total of approximately 8,900 Company employees. Pursuant to the pay ratio rule, the compensation of those non-U.S. employees was considered to be de minimis. The compensation for employees who did not work for the Company or one of its subsidiaries for all of 2019 was annualized in arriving at the Median Employee’s compensation. The Median Employee’s total compensation was established by using the same elements of compensation as are shown in the Summary Compensation Table for the CEO.
|
| | | |
The total annual compensation of the Company’s CEO - Craig R. Smiddy: | 1,646,775 |
| |
The total annual compensation of the Median Employee: | 82,043 |
| |
Ratio of the CEO’s compensation to the Median Employee: | 20.1 to 1 |
| |
Annual Salary Compensation Practices
The Company’s objective in regard to all of its employees is to set annual salaries at amounts which:that:
· | Are reasonably competitive in the context of prevailing salary scales in the insurance industry, and |
· | Provide a fixed, reasonable source of annual income in context of individual work responsibilities. |
The primary factors considered, in varying degrees, in the establishment of annual salaries for certain executive officers and other senior members of the Company’s management are:
· | Business size and complexity of operations with which the person is associated; The person’s level of responsibility and experience; The success of the business unit with which the person is principally engaged; and The evaluation of the manager’s contribution to the operations with which the person is associated; |
· | The person’s level of responsibility and experience; |
· | The success of the business unit with which the person is principally engaged; and |
· | The evaluation of his or her contribution to his or her business unit’s success. |
When making these evaluations, the prevailing salary scales in the insurance industry, the annual consumer price index, the trends in salary levels in published or private compilations and reports, and the data contained in the proxy statements of selected publicly held insurance organizations are taken into account. No formula, set benchmark or matrix is used in determining annual salary adjustments. The decision regarding each executive officer is subjectively based upon all of the above factors, with the Compensation Committee members exercising their business judgment in consultation with the CEO, as to all executive officers other than the CEO himself. With respect to the latter, the Compensation Committee has sole authority for establishing his compensation.
The salaries of the executive officers are reviewed on an annual basis during the first quarter of the year, and concurrently with a promotion or other significant change in responsibilities. Prior compensation, prior cash and/or deferred incentive awards, bonuses and prior gains from the exercise of stock options are not taken into account when setting current annual salaries for the CEO, CFO and any other executive officer of the Company.
Incentive Awards and Bonuses
The Company uses incentive awards, usually comprised of cash and deferred amounts, as well as periodic performance bonuses. Incentive awards and bonuses are intended to reward and retain eligible executive officers, other senior members of the Company’s management and other key employees. They are also intended to provide an opportunity and incentive to increase compensation based on management’s and the Compensation Committee’s review of their performance. Incentive awards and bonuses may be awarded under the Company’s KEPRP or under the Company’s Incentive Compensation Plan. Awards made to the Named Executive Officers and other executive officers set forth in the Summary Compensation Table were approved by the Compensation Committee.
Key Employee Performance Recognition Plans
Under the Company’s KEPRP which was reinstated in 2014, a performance recognition pool is calculated each year for allocation among eligible key employees of the Company and its participating subsidiaries, including the CEO and CFO.CFO and other executive officers. Employees eligible to share in this pool are selected by the Compensation Committee in consultation with the CEO. Each year the CEO recommends the total amount of the pool and the Compensation Committee makes the sole determination with regard to the total amount of the pool and the award thereunder, if any, granted to the CEO. The Committee alsothen approves the award recommendations for the CFO and the senior members of management based upon their performance evaluation and the CEO’s recommendations. The eligibility and awards of other key employees are also approved by the Compensation Committee following the CEO’s recommendation. All awards are based on the positions and responsibilities of the key employees, the perceived value of their accomplishments to the Company, their expected future contributions to Old Republic, and the other relevant factors previously addressed in this discussion and analysis. The Compensation Committee’s evaluation of all such factors is made subjectively based on its member’smembers’ business judgment.
20
Each year’s pool amount takes into account pre-established objectives approved by the Compensation Committee. Calculation of the pool is made in accordance with a detailed formula that includesincorporates such factors as: (a) the eligible participating employees’ annual salaries, and the five-year running averages: ofaverages for: (b) the growth in premiums and feesfees; (c) underwriting/service income,income; (d) operating earnings (excluding income from realized or unrealized investment gains or losses) and (e) return on equity in excess of a minimum target return on equity equal to two times the mean of the five-year average post-tax yield on 10-year and 20-year U.S. Treasury Securities and excluding theSecurities. The impact of the RFIG run-off on consolidated earnings.
earnings is excluded from calculations. The pool is generally limited to a percentage of plan participants’ aggregate annual base salaries and a percentage of the latest five years’ average net operating earnings. Up to 50% of any one year’s pool amount maybe carried forward for up to three years for later allocation. There is no prescribed guarantee or limit as to how much of the year’s available pool would be awarded to each participant.
Under the KEPRP,As previously noted, effective with the performance year 2017, the first $50,000 of any KEPRP award is paid in cash. For 2016, the first $37,500 shall bewas paid in cash. Prior to that changecash, and for prior years, the first $25,000 of any award was paid in cash. For awards in excess of those amounts, 50% of the excess is paid in cash and 50% is deferred. The deferred balance of the award vests at the rate of 10% per year of participation. The deferred balance, if any, isDeferred balances accrued after 2004 are credited with interest at a rate approved annually by the Compensation Committee. Plan participants become vested in their deferred account balances upon total and permanent disability, death, upon the earlier of attaining age 55 or being employed for 10 years after first becoming eligible, or upon a change of control of the Company. Benefits are payable in a set number of equal installments, beginning no earlier than age 55, following termination of employment, death, disability, or retirement, or in total upon a change in control of the Company. Distributions for executive officers can begin no earlier than six months following their termination of employment from full time service.
In addition to theORI’s KEPRP, the Company also maintains a number of separatesubstantially similar plans are maintained for several individual subsidiaries,subsidiaries or segments of business. Such plans provide for the achievement of certain financial resultsbusiness and objectives as to each such entity. Each of these plans generally operates in the same basic fashion as the Company’s Plan.KEPRP. The award pool for each planother KEPRP is also established according to detailed formulas that also take into account the above indicated factors for the company plan. Substantially all subsidiaries or operating centers plan have similar cash and deferred elements.such plans.
Incentive awards under the KEPRP are typically granted annuallyusually made in conjunction with any awards under the Incentive Compensation Plan, (traditionallywhich are usually stock options) duringoptions but may also include cash and other equity awards. Any such awards are typically determined in the first quarter of the year tofor eligible employees who are employed as of the award date. This followsThe awards follow the receipt of the independent registered public accounting firm’s reports on the financial statements of the preceding year and an evaluation of any pertinent and significant post- balancepost-balance sheet events and business trends by the Compensation Committee.
Bonuses
The awards shown in the “Bonus” column of the preceding SummaryDeferred Compensation Table were approved by the Compensation Committee. As a result of the substantial decline in the Company’s consolidated earnings between 2008 and 2013 and those of its run-off Mortgage Guaranty business in particular, no incentive awards were made under the KEPRP for those years. In its stead, the Committee granted certain purely subjective awards to policy-making executive officers and other key employees based on consolidated results generally, as well as individual performance evaluations. The manner of deciding who would receive these bonuses and the amounts of such bonuses was the same as outlined in the first paragraph of the above section.
21
The following table sets forth certain information regarding the portion of KEPRP awards that constitute non-qualified deferred compensation awards made to the personsexecutives listed in the Summary Compensation Table andTable. It shows the pro forma balances of their deferred accounts as of December 31, 2016. The2019. As described above, the individuals listed had no discretion as to whether they wished to defer anythe applicable portion of the awards made to them by the Company and were not permitted to voluntarily make contributions of their own to the Company’s KEPRP.
| | Nonqualified Deferred Compensation | Name | | Company’s Contributions in 2016 | | Aggregate Interest Earnings 2016 | | Aggregate Deferred Balance as of December 31, 2016 | | Company’s Contributions in 2019(1) | | Aggregate Interest Earnings 2019 | | Aggregate Deferred Balance as of December 31, 2019 |
Craig R. Smiddy | | | $325,000 | | $28,706 | | $1,686,557 |
Karl W. Mueller | | | 115,000 |
| | 23,907 |
| | 1,112,855 |
|
W. Todd Gray | | | 175,000 |
| | 11,995 |
| | 772,991 |
|
Stephen J. Oberst | | | 237,500 |
| | 27,132 |
| | 1,513,617 |
|
Rande K. Yeager | | | 345,000 |
| | 38,706 |
| | 2,117,594 |
|
Aldo C. Zucaro | | $281,250 | | $36,809 | | $7,408,424 | | — |
| | 69,456 |
| | 8,241,111 |
|
Karl W. Mueller | | 79,250 | | 13,901 | | 759,669 | |
R. Scott Rager | | 256,250 | | 52,869 | | 3,500,526 | |
Craig R. Smiddy | | 213,750 | | 8,349 | | 775,879 | |
Rande K. Yeager | | 318,750 | | 11,357 | | 1,098,834 | |
| |
(1) | The amounts in this column are the portion of current year KEPRP awards that are mandatorily deferred pursuant to the terms of that plan. |
Stock Option or Restricted Stock Awards under Incentive Compensation Plan and Stock Option Awards
The Company believes senior executive officers and other members of the Company’s and its subsidiaries’ management who make substantial contributions to long-term performance should have an equity ownership in the Company to better align their interests with those of the shareholders. Old Republic has had non-qualified stock option plans in place for more than thirtyforty years. At the 2015 Annual Meeting of Shareholders,The most recent plan, “The 2016 Incentive Compensation Plan” (“the 2016(the “Incentive Compensation Plan”) was approved by shareholders and it became effective February 24,in 2016.
Under the 2016Incentive Compensation Plan, an award to a participant may be in the form of a stock option or restricted stock (“Award Shares”), a performance award in the form of cash or deferred cash award (“Performance Award”), or a combination of these items. The Compensation Committee has the authority to: (i) select the participants to whom
awards may be granted; (ii) determine the type or types of awards to be granted to each participant; (iii) determine the number of Award Shares, if any, to be covered by any award granted hereunder;award; (iv) determine the terms and conditions of any Performance Award granted hereunder;Award; (v) determine whether, to what extent, and under what circumstances Performance Awards shall be deferred; and (vi) determine whether, or to what extent and under what circumstances any award shall be canceled or suspended. On the effective date of the 2016Incentive Compensation Plan, 15,000,000 shares became available for awards. It is expected that stock options will be the primary Award Shares under the 2016Incentive Compensation Plan although Award Shares may also include restricted stock awards in some instances.
The above stated objectives of the 2016Incentive Compensation Plan are to encourage:
· | An alignment of stockholder and employee interests; |
An alignment of shareholder and employee interests· | Employee efforts to grow shareholder value; and |
Employee efforts to grow shareholder value· | A long-term commitment to the Company by employee-shareowners. |
A long-term commitment to the Company by employee-shareowners
Accordingly, stock option grants have not been limited to the CEO, CFO and senior executive officers, but have also been granted to several hundred employees of the Company and its subsidiaries. The factors considered when making stock option awards include:
· | The achievements of the individual; |
The achievements of the individual· | The overall performance of the Company: |
The overall performance of the Company· | The performance of the subsidiary or division to which the individual is attached; and |
The performance of the subsidiary or division to which the individual is attached· | The past and anticipated contributions of the individual to the Company’s success. |
The past and anticipated contributions of the individual to the Company’s success
No formula, set benchmark or matrix is used in determining stock option awards. The relative significance of the above factors with respect to awards granted to the CEO, CFO, other executive officers and all other employees is determined subjectively by the Compensation Committee. In this regard it gives consideration to the segmented and consolidated results of the Company using business judgment and consultation with the CEO for awards other than his own. The aggregate number of option shares granted annually over the past three years to all employees, including the CEO, CFO, the executive officers of the Company and all senior members of the Company has been less than 0.5%0.6% of the then outstanding Common Stock of the Company.
22
Option awards, like KEPRP awards, are typically made once a year, usually during the first quarter following receipt of the independent registered public accounting firm’s report on the financial statements for the preceding year. The Compensation Committee approves a total pool of option shares, and the individual options granted to the CEO and the other executive officers and senior members of the Company and its subsidiaries’ management. The options’ exercise price is the fair market value of the Company’s Common Stock, as defined by the Plan, on the day before the Grant Date.
When making these awards, the other sources of Compensationcompensation for the participant, such as base salary and any other incentive awards, are taken into account so as to achieve a reasonable balance of cash and future income or value. The grant of options and their strike price are not linked to any Company action such as the release of earnings and have typically occurred during March of each year with notifications to recipients in concurrence withat the time of their annual compensation review.
Stock Option Grants During 20162019
The following table sets forth certain information regarding options to purchase shares of Common Stock granted in 20162019 to the executive officers listed in the Summary Compensation Table. The value of these options is calculated pursuant to the Black-Scholes model. Additional information about how these values are determined is disclosed as part of the Summary Compensation Table.
Stock Option Grants |
Name | | Grant Date | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Option Award |
| | | | | | | | |
Aldo C. Zucaro | | 3/23/16 | | 100,000 | | $18.14 | | $350,000 |
Karl W. Mueller | | 3/23/16 | | 37,500 | | 18.14 | | 131,250 |
R. Scott Rager | | 3/23/16 | | 50,000 | | 18.14 | | 175,000 |
Craig R. Smiddy | | 3/23/16 | | 25,000 | | 18.14 | | 87,500 |
Rande K. Yeager | | 3/23/16 | | 40,000 | | 18.14 | | 140,000 |
|
| | | | | | | | | | | |
Stock Option Grants |
Name | | Grant Date | | Number of Securities Underlying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Option Award |
| | | | | | | | |
Craig R. Smiddy | | 3/19/2019 | | 70,000 |
| | $21.12 | | $183,400 |
Craig R. Smiddy | | 8/20/2019 | | 25,000 |
| | 21.99 |
| | 57,500 |
|
Karl W. Mueller | | 3/19/2019 | | 50,000 |
| | 21.12 |
| | 131,000 |
|
W. Todd Gray | | 3/19/2019 | | 9,000 |
| | 21.12 |
| | 23,580 |
|
Stephen J. Oberst | | 3/19/2019 | | 28,000 |
| | 21.12 |
| | 73,360 |
|
Stephen J. Oberst | | 8/20/2019 | | 15,000 |
| | 21.99 |
| | 34,500 |
|
Rande K. Yeager | | 3/19/2019 | | 50,000 |
| | 21.12 |
| | 131,000 |
|
Aldo C. Zucaro | | 3/19/2019 | | 100,000 |
| | 21.12 |
| | 262,000 |
|
The term of each option is 10 years from the Grant Date. Options are exercisable in accordance with the following vesting schedule: 10% at the end of the year of grant, and thereafter annually at the rates of 15%, 20%, 25% and 30% so that at the end of the 5th fiscal year after the grant they are 100% vested. If the optionee dies, retires in good standing after age 57, or becomes disabled, vesting acceleration occurs. In such cases and in the event of change in control of the Company, vesting accelerates to the extent of the higher of 10% of the shares covered for each year of service by the optionee or the actual vested percentage plus 50% of the unvested remaining shares. In the case of any option granted after January 1, 2014 to an optionee who, as of the Grant Date: (i) has attained age 65, (ii) is currently an employee of the Company or a subsidiary, and (iii) has been employed by the Company or a subsidiary for ten (10) years or longer, such options are considered fully vested as of the Grant Date.
Exercises of Stock Options During 20162019
NoneThe following table sets forth certain information regarding options to purchase shares of Common Stock exercised during 2019 by the Executive Officersexecutive officers named in the Company’s Summary Compensation Table exercised any stock options during 2016.Table.
23
|
| | | | | | |
Exercises of Stock Options During 2019 |
| | Option Awards |
Name | | Number of Shares Acquired on Exercise | | Value Realized on Exercise |
| | | | |
Craig R. Smiddy | | — |
| | — |
|
Karl W. Mueller (1) | | 47,500 |
| | $508,574 |
W. Todd Gray | | — |
| | — |
|
Stephen J. Oberst (2) | | 10,710 |
| | 103,459 |
|
Rande K. Yeager | | — |
| | — |
|
Aldo C. Zucaro | | — |
| | — |
|
| |
(1) | During 2019, Mr. Mueller exercised options granted to him in 2010 and 2011, as such, the value realized that is shown above had accrued over the years since these options were granted. |
| |
(2) | During 2019, Mr. Oberst exercised an option grated to him in 2011, as such, the value realized that is shown above had accrued over the years since that option was granted. |
Equity Compensation Plan Information
The following table sets forth certain information regarding securities authorized for issuance under stock option plans as of year-end 2016.2019. The Company only sponsors the stock option plan that has been approved by the shareholders.
|
| | | | | | |
Equity Compensation Plan Status as of Year End 2019 |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | 8,009,237 | | $18.43 | | 8,826,878 |
Equity compensation plans not approved by security holders | | — | | — | | — |
Total | | 8,009,237* | | $18.43 | | 8,826,878 |
(*) A total of 305,553 options included in this total were either exercised or expired on March 6, 2020.
Equity Compensation Plan Status as of Year End 2016 |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | 8,243,025* | | $15.77 | | 13,750,829 |
Equity compensation plans not approved by security holders | | — | | — | | — |
Total | | 8,243,025* | | $15.77 | | 13,750,829 |
| (*) A total of 1,676,175 options included in this total were unexercised and expired on March 13, 2017 as the strike price was in excess of the stock’s quoted market value as of that date. |
Please See Continuation on Next Page
The following table sets forth information regarding the unexercised options held by the persons listed in the Summary Compensation Table. This table shows the option exercise price for each exercisable and un-exercisable option held by each individual and the date upon which each option expires.
|
| | | | | | | | | | | | |
Outstanding Equity Awards at Year End 2019 |
| | Number of Securities | | |
Name | | Underlying Unexercised Options Exercisable | | Underlying Unexercised Options Unexercisable | | Option Exercise Price | | Option Expiration Date |
| | | | | | | | |
Craig R. Smiddy | | 14,500 |
| | — |
| | $ | 16.06 |
| | 03/19/24 |
| | 12,500 |
| | — |
| | 15.26 |
| | 03/19/25 |
| | 17,500 |
| | 7,500 |
| | 18.14 |
| | 03/23/26 |
| | 13,500 |
| | 16,500 |
| | 19.98 |
| | 03/22/27 |
| | 12,500 |
| | 37,500 |
| | 20.98 |
| | 02/20/28 |
| | 7,000 |
| | 63,000 |
| | 21.12 |
| | 03/19/29 |
| | 2,500 |
| | 22,500 |
| | 21.99 |
| | 08/20/29 |
| | | | | | | | |
W. Todd Gray | | 3,500 |
| | 1,500 |
| | 18.14 |
| | 03/23/26 |
| | 2,250 |
| | 2,750 |
| | 19.98 |
| | 03/22/27 |
| | 1,875 |
| | 5,625 |
| | 20.98 |
| | 02/20/28 |
| | 900 |
| | 8,100 |
| | 21.12 |
| | 03/19/29 |
| | | | | | | | |
Karl W. Mueller | | 32,500 |
| | — |
| | 10.80 |
| | 03/21/22 |
| | 32,500 |
| | — |
| | 12.57 |
| | 03/20/23 |
| | 35,000 |
| | — |
| | 16.06 |
| | 03/19/24 |
| | 27,500 |
| | — |
| | 15.26 |
| | 03/19/25 |
| | 26,250 |
| | 11,250 |
| | 18.14 |
| | 03/23/26 |
| | 17,775 |
| | 21,725 |
| | 19.98 |
| | 03/22/27 |
| | 11,275 |
| | 33,750 |
| | 20.98 |
| | 02/20/28 |
| | 5,000 |
| | 45,000 |
| | 21.12 |
| | 03/19/29 |
| | | | | | | | |
Stephen J. Oberst | | 14,000 |
| | — |
| | 10.80 |
| | 03/21/22 |
| | 11,000 |
| | — |
| | 12.57 |
| | 03/20/23 |
| | 12,000 |
| | — |
| | 16.06 |
| | 03/19/24 |
| | 14,500 |
| | — |
| | 15.26 |
| | 03/19/25 |
| | 11,200 |
| | 4,800 |
| | 18.14 |
| | 03/23/26 |
| | 9,450 |
| | 11,550 |
| | 19.98 |
| | 03/22/27 |
| | 6,000 |
| | 18,000 |
| | 20.98 |
| | 02/20/28 |
| | 2,800 |
| | 25,200 |
| | 21.22 |
| | 03/19/29 |
| | 1,500 |
| | 13,500 |
| | 21.99 |
| | 08/20/29 |
| | | | | | | | |
Rande K. Yeager | | 9,000 |
| | — |
| | 12.57 |
| | 03/20/23 |
| | 40,000 |
| | — |
| | 18.14 |
| | 03/23/26 |
| | 52,500 |
| | — |
| | 19.98 |
| | 03/22/27 |
| | 45,000 |
| | — |
| | 20.98 |
| | 02/20/28 |
| | 50,000 |
| | — |
| | 21.12 |
| | 03/19/29 |
| | | | | | | | |
Aldo C. Zucaro | | 100,000 |
| | — |
| | 12.33 |
| | 03/23/21 |
| | 70,000 |
| | — |
| | 10.80 |
| | 03/21/22 |
| | 70,000 |
| | — |
| | 12.57 |
| | 03/20/23 |
| | 100,000 |
| | — |
| | 16.06 |
| | 10/01/23* |
| | 100,000 |
| | — |
| | 15.26 |
| | 10/01/23* |
| | 100,000 |
| | — |
| | 18.14 |
| | 10/01/23* |
| | 100,000 |
| | — |
| | 19.98 |
| | 10/01/23* |
| | 100,000 |
| | — |
| | 20.98 |
| | 10/01/23* |
| | 100,000 |
| | — |
| | 21.12 |
| | 10/01/23* |
* These options expire 4 years following Mr. Zucaro's retirement.
The following table sets forth a summary of all stock options that have been granted to Company employees, inclusive of those persons listed in the Summary Compensation Table. This table highlights the fact that the compensation of employees in the form of stock options can be illusory due to the decline in price of the Company’s Common Stock following the award of an option at a set exercise price. In the past 10 years, a total of approximately $29.0 million (or an average of $2.9 million per year) was expensed by the Company in accordance with generally accepted accounting principles.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
| | | | Weighted - Average | | | | |
Ranges of Exercise Prices | | Year(s) of Grant | | Number Outstanding | | Remaining Contractual Life | | Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
$ | 12.08 |
| | | | 2010 | | 69,910 |
| | 0.25 |
| | $ | 12.08 |
| | 69,910 |
| | $ | 12.08 |
|
$ | 12.33 |
| | | | 2011 | | 242,870 |
| | 1.25 |
| | 12.33 |
| | 242,870 |
| | 12.33 |
|
$ | 10.80 |
| | | | 2012 | | 305,867 |
| | 2.25 |
| | 10.80 |
| | 305,867 |
| | 10.80 |
|
$ | 12.57 |
| | | | 2013 | | 395,663 |
| | 3.25 |
| | 12.57 |
| | 395,663 |
| | 12.57 |
|
$ | 16.06 |
| | | | 2014 | | 646,252 |
| | 4.25 |
| | 16.06 |
| | 646,252 |
| | 16.06 |
|
$ | 15.26 |
| | | | 2015 | | 712,408 |
| | 5.25 |
| | 15.26 |
| | 712,408 |
| | 15.26 |
|
$ | 18.14 |
| | | | 2016 | | 1,049,953 |
| | 6.25 |
| | 18.14 |
| | 802,281 |
| | 18.14 |
|
$ | 19.98 |
| | | | 2017 | | 1,297,309 |
| | 7.25 |
| | 19.98 |
| | 763,024 |
| | 19.98 |
|
$ | 20.98 |
| | | | 2018 | | 1,514,505 |
| | 8.25 |
| | 20.98 |
| | 623,406 |
| | 20.98 |
|
$ | 21.12 |
| to | $ | 21.99 |
| | 2019 | | 1,774,500 |
| | 9.25 |
| | 21.14 |
| | 538,328 |
| | 21.13 |
|
Total |
| | | | | | 8,009,237 |
| | | | $ | 18.43 |
| | 5,100,009 |
| | $ | 17.18 |
|
Financial Restatement
The Company has adopted a policy that, to the extent permitted by law, it will seek to recoup any incentive-based compensation paid to any current or former executive officer if: (i) the amount of such payment was based on the achievement of certain financial results that were subsequently the subject of a restatement, (ii) the Board determines that such executive officer engaged in misconduct that resulted in the obligation to restate, and (iii) a lower payment would have been made to the executive officer based upon the restated financial results.
Hedging Prohibited
The Company has adopted a policy prohibiting any director or executive officer (a covered individual) from hedging the economic risk of his or her ownership of the Company’s securities. Under this policy, a covered individual is prohibited from entering into any derivative transaction on the Company’s securities (e.g., any short-sale, forward, option, collar, etc.). Further, the policy does not allow a covered individual to pledge the Company’s securities at any time, which included having Company securities in a margin account or using Company securities as collateral for a loan.
Change of Control, Severance or Retirement
None of the executive officers or any other employee of the Company and its subsidiaries have employment contracts, and allcontracts. All are considered “at-will” employees of the Company.employees. Further, the Company has no change of control or severance agreements such as “golden parachutes” in place for any of its executive officers. However, the benefit plans referred to above would be affected, in limited ways, by a change of control of the Company. Such an event would not result in additional compensation or benefits being paid to any executive officer or employee for the Company. Rather, the effect would be to accelerate the vesting of benefits under these plans and require the immediate payment of all deferred balances under the Company’s Performance Recognition Plans.such plans.
The above notwithstanding, the Company and its Board of Directors retain the right to enter into employment contracts or institute “golden parachutes” and similar benefits for its executive officers and other key employees immediately, and at any time as circumstances may warrant to protect the Company’s business interests. There is no assurance, however, that any of the selected executives would agree to any such contracts.
Financial Restatement
The Company has adopted a policy that if it is ever required to prepare an accounting restatement due to a material noncompliance with any financial reporting requirement under the securities laws, it will attempt, to the extent permitted by law, to recover or clawback the excess incentive-based compensation received by each current or former executive officer during the three years preceding the required restatement, over what, if any, incentive compensation such officers would have received based on the accounting restatement.
Tax Deductibility of Compensation
Prior to the passage of the Tax Cuts and Jobs Act in December 2017, Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to each of its five most highly paid executive officers. There iscontained an exception to the $1,000,000 limitation for performance-basedon the amount of compensation paid to the Company’s five most highly paid executive officers that was deductible by the Company, where the excess compensation was “performance-based” compensation meeting certain requirements. Annual cash incentive compensationThe Tax Cuts and stock option awards generally areJobs Act eliminated the performance-based compensation meeting those requirements and, as such, are fully deductible. In lightexception, resulting in the loss of the above rule,ability to deduct compensation expenses over $1,000,000 for the Company’s Named Executive Officers. The effect of this elimination is not consequential to the Company and the tax deductibility of compensation has never been considered in setting compensation amounts for these officers.
Stock Ownership Guidelines
The Company encourages all of its employees to own Company Common Stock directly or through employee benefit plans such as its 401(k) ESSOP. All of its executive officers and directors own shares of the Company’s Common Stock. The table on page 4 shows the nature and amount of such holdings.
Additionally, the Company has not adopted anyan equity ownership policy with respectfor its directors and senior officers. Pursuant to compensation in excess of $1,000,000 being paidthis policy, directors are required to executive officers.
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The following table sets forth information regarding the unexercised options held by the persons listedacquire holdings in the Summary Compensation Table. This table showsCompany’s Common Stock with a value of at least $250,000. New directors are allowed to take three years during which to acquire such ownership, with the option exercise price for each exercisable and un-exercisable option held by each individual andvaluation of the dateshares equivalent to the greater of the current market value attained at any point in time, or the original acquisition cost. All of the Company’s directors are currently in compliance with this policy. For certain other senior officers of the Company, the recommended value of Common Stock ownership is based upon which each option expires.the following multiples of the officer’s base salary:
Outstanding Equity Awards at Year End 2016 |
| | Number of Securities | | |
Name | | Underlying Unexercised Options Exercisable | | Underlying Unexercised Options Unexercisable | | Option Exercise Price | | Option Expiration Date |
| | | | | | | | |
Aldo C. Zucaro | | 200,000 | * | — | | $ 21.77 | | 03/13/17 |
| | 100,000 | | — | | 12.33 | | 03/23/21 |
| | 70,000 | | — | | 10.80 | | 03/21/22 |
| | 49,000 | | 21,000 | | 12.57 | | 03/20/23 |
| | 100,000 | | — | | 16.06 | | 03/19/24 |
| | 100,000 | | — | | 15.26 | | 03/19/25 |
| | 100,000 | | — | | 18.14 | | 03/23/26 |
| | | | | | | | |
Karl W. Mueller | | 38,000 | * | — | | 21.77 | | 03/13/17 |
| | 25,000 | | — | | 12.95 | | 03/18/18 |
| | 15,000 | | — | | 10.48 | | 03/25/19 |
| | 17,500 | | — | | 12.08 | | 03/25/20 |
| | 30,000 | | — | | 12.33 | | 03/23/21 |
| | 32,500 | | — | | 10.80 | | 03/21/22 |
| | 22,750 | | 9,750 | | 12.57 | | 03/20/23 |
| | 15,750 | | 19,250 | | 16.06 | | 03/19/24 |
| | 6,875 | | 20,625 | | 15.26 | | 03/19/25 |
| | 3,750 | | 33,750 | | 18.14 | | 03/23/26 |
| | | | | | | | |
R. Scott Rager | | 55,000 | * | — | | 21.77 | | 03/13/17 |
| | 37,500 | | — | | 12.95 | | 03/18/18 |
| | 10,000 | | — | | 10.48 | | 03/25/19 |
| | 13,000 | | — | | 12.08 | | 03/25/20 |
| | 30,000 | | — | | 12.33 | | 03/23/21 |
| | 32,500 | | — | | 10.80 | | 03/21/22 |
| | 22,750 | | 9,750 | | 12.57 | | 03/20/23 |
| | 37,000 | | — | | 16.06 | | 03/19/24 |
| | 30,000 | | — | | 15.26 | | 03/19/25 |
| | 50,000 | | — | | 18.14 | | 03/23/26 |
| | | | | | | | |
Craig R. Smiddy | | 6,525 | | 7,925 | | 16.06 | | 03/19/24 |
| | 3,125 | | 9,375 | | 15.26 | | 03/19/25 |
| | 2,500 | | 22,500 | | 18.14 | | 03/23/26 |
| | | | | | | | |
Rande K. Yeager | | 5,000 | * | — | | 21.77 | | 03/13/17 |
| | 6,300 | | — | | 12.33 | | 03/23/21 |
| | 21,500 | | — | | 10.80 | | 03/21/22 |
| | 21,000 | | 9,000 | | 12.57 | | 03/20/23 |
| | 37,500 | | — | | 16.06 | | 03/19/24 |
| | 30,000 | | — | | 15.26 | | 03/19/25 |
| | 40,000 | | — | | 18.14 | | 03/23/26 |
|
| (*) These options expired on March 13, 2017 and were out |
CEO of the money when they expired.Company | 6 times |
President of the Company | 4 times |
Certain other senior officers of the Company and its subsidiaries | 1.5 times |
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The following table sets forth a summaryvalue of all stock optionsshares of Company Common Stock owned directly or held in employee benefit accounts by such officers, together with the value of deferred compensation accounts and the value of the greater of the strike price or highest market value attained at any time of the Common Stock subject to option awards, are considered for meeting these objectives. Newly appointed senior officers subject to this policy have five years to meet the pertinent requirement. Officers who are promoted to a position that have been granted to Company employees, inclusive of those persons listed in the Summary Compensation Table. This table highlights the fact that the compensation of employees in the form of stock options can be illusory due to the decline in pricehas a stated ownership requirement of the Company’s Common Stock followinghave three years from such promotion to meet the award of an option at a set exercise price. In the past 10 years, a total of approximately $41 million (or an average of $4.1 million per year) was expensed by the Company in accordance with generally accepted accounting principles. These expenses represented the amortization of stock option costs over the vesting periodapplicable requirement. All of the underlying options. Approximately $25 million (or 61%)Company’s Directors and executive officers either currently hold in excess of these chargesthe requirement that applies to operation represented costs attributed to options that were never exercised and were therefore of no value tothem or are within the optionees, due to declines in Old Republic’s quoted stock price below the exercise price.
| | Options Outstanding | | Options Exercisable |
| | | | Weighted – Average | | | | |
Ranges of Exercise Prices | | Year(s) of Grant | | Number Outstanding | | Remaining Contractual Life | | Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
$21.78 | to | $23.16 | | 2007 | | 1,676,175 | | 0.25 | | $21.77 | | 1,676,175 | | $ 21.77 |
$ 7.73 | to | $12.95 | | 2008 | | 451,450 | | 1.25 | | 12.91 | | 451,450 | | 12.91 |
$10.48 | | | | 2009 | | 298,505 | | 2.25 | | 10.48 | | 298,505 | | 10.48 |
$12.08 | | | | 2010 | | 355,745 | | 3.25 | | 12.08 | | 355,745 | | 12.08 |
$12.33 | | | | 2011 | | 637,592 | | 4.25 | | 12.33 | | 637,592 | | 12.33 |
$10.80 | | | | 2012 | | 760,237 | | 5.25 | | 10.80 | | 760,237 | | 10.80 |
$12.57 | | | | 2013 | | 811,720 | | 6.25 | | 12.57 | | 569,292 | | 12.57 |
$16.06 | | | | 2014 | | 1,045,461 | | 7.25 | | 16.06 | | 607,102 | | 16.06 |
$15.26 | | | | 2015 | | 978,640 | | 8.25 | | 15.26 | | 391,137 | | 15.26 |
$18.14 | | | | 2016 | | 1,227,500 | | 9.25 | | 18.14 | | 347,876 | | 18.14 |
Total | | | | | | 8,243,025 | | | | $15.77 | | 6,095,111 | | $ 15.59 |
time period permitted for compliance.
Pension Plan and Baseline Security Plan
During 2013, theThe Old Republic International Corporation Salaried Employees Restated Retirement Plan (“Company Pension Plan”) assumed the obligations and assets of other retirement plans maintained by certain subsidiariessubsidiaries. All of the Company. Participation in the Company Plan and the other retirementthese plans hadhave been closed to new employees for many years. Effective December 31, 2013,Finally, the accrued benefit levels available to each participant in the Company Plan were frozen at December 31, 2013 and no new benefits have accrued to participants aftersince that date.
Under the Company Pension Plan, as it applies to Messrs. Mueller, Oberst and Zucaro and Mueller, benefits arewere determined based uponby taking into account 1.5% of the participant’s “Final Average Monthly Earnings” (1/60th of the aggregate earnings of the employee during the period of the five consecutive years of service out of the last ten consecutive years of service whichthat results in the highest “Final Average Monthly Earnings”) multiplied by the participant’s years of service. Earnings include base salary and commissions, but exclude bonuses and cash and deferred incentive compensation awards granted under any Company or subsidiaries’ incentive plans or KEPRPs. Early retirement benefits are available under the Company Plan for persons who are eligible and elect to retire after attaining age 55 provided they have at least five years of vested service with the Company. In this case, early retirement benefits are adjusted based upon the participant’s age at retirement. The adjustment begins at 50% of normal benefits at age 55. For participants age 55 to 60, the early retirement benefits increase by 3.33% per year. Between ages 60 and 65, they increase by 6.66% per year until they reach 100%. Vested benefits must be paid upon an employee’s attainment of age 70 1/2. Mr. Mueller is currently eligible for early retirement benefits under the Company Plan. Messrs. RagerGray and Smiddy are not participants in the Company Pension Plan or any pension plan previously sponsored by a subsidiary of the Company.
Under the Pension Plan, as it applies to Mr. Yeager, who has attained age 65, the monthly benefit is 1.20% of the participant’s Final Average Monthly Earnings up to the Social Security Integration Level, and 1.75% of the amount in excess of that level, multiplied by the participant’s years of credited service limited to a maximum of 30 years. Early retirement benefits are available for persons who are eligible and elect to retire after attaining age 55 and completing 10 years of vesting service, or after attaining age 60. In the case of early retirement, benefits are reduced by .458% for each month preceding the participant attaining age 65.
For a number of years the Company maintained the Old Republic International Corporation Executives Excess Benefit Plan (“Excess Benefit Plan”) to provideprovide certain key executives with pension benefits in excess of those provided by the Company Pension Plan because of government imposed limitations capping benefit payments. The Excess Benefit Plan was administered by the Compensation Committee of the Board of Directors, which selected the employees eligible to participate in this plan. Mr. Zucaro is the only continuing executive officerperson listed in the Summary Compensation Table who qualified for participation under the Excess Benefit Plan, as this plan was alsohas been closed to new participants as of December 31, 2004. Further,for over a decade and the accrued benefits under this planit were also frozen as of December 31, 2013 and no additional future benefits will accrue to Mr. Zucaro under it.2013.
The following table sets forth the payments and present value of the estimated benefits payable to executive officers under the above described pension plans.
| | Pension Benefits | Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit (1) | Payments During Last Fiscal Year | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit (1) | Payments During Last Fiscal Year |
Craig R. Smiddy | | None | — |
| — |
| — |
|
Karl W. Mueller | | Company Plan | 8.3 |
| $ | 415,706 |
| — |
|
W. Todd Gray | | None | — |
| — |
| — |
|
Stephen J. Oberst | | Company Plan | 13.1 |
| 459,353 |
| — |
|
Rande K. Yeager | | Company Plan | 26.6 |
| 1,243,555 |
| — |
|
Aldo C. Zucaro | Company Plan | 36.4 | $2,073,242 | $ 247,168 | Company Plan | 36.4 |
| 1,813,956 |
| $ | 247,168 |
|
| Excess Benefit Plan | 36.4 | 6,025,286 | — | Excess Benefit Plan | 36.4 |
| 9,810,963 |
| — |
|
Karl W. Mueller | Company Plan | 8.3 | 321,124 | — | |
R. Scott Rager | None | — | — | — | |
Craig R. Smiddy | None | — | — | — | |
Rande K. Yeager | Company Plan | 26.6 | 1,319,746 | — | |
| |
(1) | The present value of accumulated benefits payable following assumed retirement is calculated using interest and mortality assumptions consistent with those used for financial reporting purposes with respect to the companies’ audited financial statements. No discount is assumed for separation prior to retirement due to death, disability or termination of employment. The amount shown is based upon accrued service through year end 2013 when Plan benefits were frozen. |
In 2014, theThe Baseline Security Plan (“BSP”) was established by the Company, in part as a replacement for various 401(k) plans maintained by a number of its subsidiaries. Eligibility for participation in the BSP is similar to eligibility under the Company’s 401(k) ESSOP discussed below. The BSP is noncontributory by participants although IRA roll-over contributions are permitted. The annual Company contributions are performance-based with an emphasis on the long-term underwriting and related services profitability of the individual subsidiaries or groups.groups thereof that employ participants. Contributions are approved each year by ORI’s Compensation Committee and Board of Directors following the receipt of all pertinent audit reports for the Company and its individual subsidiaries and operating centers. Any contribution isContributions are characterized as a percentage of each eligible employee’s annual base salary.
Employees Savings and Stock Ownership Plan (ESSOP)
UnderThe ESSOP, which has been in place since 1978, is intended to encourage all of ORI’s eligible employees to save in a tax-advantaged manner and benefit from Company matching contributions in the form of ORI Common Stock to build a stake in the Company’s 401(k) qualifiedbusiness. As of March 31, 2020, the ESSOP eligibleheld approximately 5.1% of ORI’s Common Stock.
Eligible employees who elect to participate in the ESSOP by saving a portion of their pay may receive a Company match ranging from 20% to 140% of a maximum of 6% of the participant’s first $150,000 in eligible annual compensation. The matching formula is based upon the percentages saved and the increase in the Company’s five-years’five-year running average of net operating earnings growth per share, adjusted for the effect of the RFIG run-off. Employees’ savings are invested, at the employees’ direction, in a number of publicly-traded mutual funds, and employeesthey may elect to purchase the Company’s Common Stock as an investment option. Employer contributions are invested exclusively in the Company’s Common Stock. Employees with three or more years of service as of the prior year’s end may diversify the annual contribution of Company Common Stock into alternative mutual funds available for investment. Further, such employees may
also diversify all of the prior contributions of Company Common Stock at any time into such mutual funds. The number of times that employees may change their investments into or out of the Company’s Common Stock is annually limited.subject to an annual limitation. A participant becomes vested in the account balance allocated from employer contributions upon being totally and permanently disabled, death, or upon the earlier of attaining age 65 or being employed for 6 years. Vesting occurs in increments of 20% per year, beginning after one year of service.service. Benefits are payable upon termination of service, death or disability, or following retirement, and are subject to minimum distribution requirements set forth under the Internal Revenue Code. At the election of the participant, benefits derived from employer contributions are payable either in cash or the Company’s Common Stock.
27
In addition to participation in the Company’s ESSOP, Mr. Rager participated in the Great West Casualty Company Profit Sharing Plan (“GWC Plan”) that was terminated on December 31, 2013. The existing account balances of GWC Plan participants were absorbed by the BSP described above. Mr. Rager ‘s participation in the GWC Plan ended after he joined the Company’s Senior Management team in late 2007. The GWC Plan was a 401(k) qualified plan that covered substantially all employees of GWC and its affiliates. As of January 1, 2014, no new participants were permitted to join the GWC Plan and existing GWC participants automatically became participants in the BSP and continued to be eligible for participation in the Company’s ESSOP.
Other Benefits
The Company’s culture and operating philosophy doCompany does not provide for the disbursement of significant values by way of perquisites or personal benefits to its executive officers andor any other employees. Such benefits as may in fact be provided in very limited circumstances include the personal value attributed to the use of Company-supplied automobiles, the personal value of club memberships, and the value of certain personal meals.meals incurred in connection with Company business. The value of these benefits to the CEO, CFO and other listed executive officers were insignificant and are shownincluded with other amounts in the “All Other Compensation” column of the Summary Compensation Table appearing elsewhere in this proxy statement.
VOTE ON EXECUTIVE COMPENSATION
|
|
ITEM 3 |
VOTE ON EXECUTIVE COMPENSATION |
BACKGROUND
The CompanyIt is committedOld Republic’s policy to provide full disclosure and transparency concerning its compensation philosophy and corporate governance. At the Company’s 20162018 Annual Shareholders’ Meeting of the Shareholders, more than 96.8%88% of the shares voted in approval of the Company’s executive compensation. However, in accordance with the Company’s full disclosure policy and intents, shareholders are again asked to endorse the Company’s compensation philosophy by adopting the following resolution that is commonly called a “Say-on-Pay” proposal.
The Board of Directors and the Compensation Committee, in particular, review the elements of Company compensation each year. Special attention is devoted to the compensation of the executive officers and other senior members of the Company’s management. In general, the Company seeks to align executive compensation with shareholder value on an annual and long-term basis through a combination of base pay and annual and long-term incentives. The Company believes that its history of long-term growth over many decades is, in part, a result of its compensation programs that encourage a longer-term pursuit of growth objectives and the building of long-term shareholder value rather than short-term results. A more detailed review of those programs and the awards for 20162019 to the executive officers of the Company are reported elsewhere in this proxy statement. The Board of Directors and Compensation Committee believe the Company’s performance and executive compensation have been aligned and balanced with shareholder returns in recent years. This vote is therefore not intended to address any one specific element of compensation or the compensation paid to any one individual. Rather, the resolution concerns the overall philosophy, makeup and amounts of compensation paid to executive officers as a group.
20162019 EXECUTIVE COMPENSATION VOTE
At the Company’s 20162019 Annual Shareholders’ Meeting more than 96.9%of the Shareholders 88% of shares present in person or by proxy voted to approve the Company’s executive compensation for 2015.2018. The Compensation Committee and Board of Directors considered this vote when it reviewed executive compensation for 2016.2019.
PROPOSED RESOLUTION
Resolved, that the shareholders of the Company approve the compensation policies, practices and procedures as set forth in the Compensation Discussion and Analysis section of this proxy statement for its executive officers.
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ADVISORY VOTE REQUIRED
This vote is advisory and is not binding upon the Board of Directors. The vote is intended to be a measure of the shareholders overall approval of the handling of the Company’s executive compensation matters. Therefore, the vote will not result in a change or clawback of any existing or future compensation of any individual. Nor will this vote necessarily result in a change in the elements or compensation programs of the Company, as those decisions remain vested in the Board of Directors. However, if the shareholders fail to give this proposal a favorable vote, the Board of Directors and Compensation Committee shall investigate the reasons the resolution did not receive a majority vote. Further, this vote will be taken into consideration when future changes are considered in the elements of compensation, when compensation programs are adopted or changed, and when compensation amounts or incentive awards are approved for executive officers and the other senior members of the Company’s management. The results of this vote shall be disclosed in a filing made with the SEC shortly after the Annual Shareholders’ Meeting of the Shareholders and will be available for review on the Company’s website, www.oldrepublic.com.
BOARD OF DIRECTORS’ RECOMMENDATION
The Board of Directors recommends a vote FOR this proposal. Proxies solicited by the Board of Directors shall be voted in favor of this proposal unless shareholders specify to the contrary in their proxies.
FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION
BACKGROUND
The Board of Directors, as part of its commitment to transparency in corporate governance and executive compensation, has determined that submitting to shareholders a resolution to approve the Company’s compensation policies, practices and procedures concerning executive officers, commonly referred to as a “Say-on-Pay” proposal should be made periodically, and at least every three (3) years. To further enhance this procedure and as prescribed by law and regulation, the shareholders of the Company are asked to indicate their preference concerning the frequency of these votes. Regardless of the frequency selected, the Company shall, at least every six years, unless the law or regulations concerning this matter are changed, have the opportunity to re-evaluate the frequency of voting on this issue.
PROPOSED RESOLUTION
Resolved, that the shareholders of the Company shall vote on a resolution concerning the frequency of approving the Company’s compensation policies, practices and procedures concerning executive officers, commonly referred to as a “Say-on-Pay” proposal. The choices the shareholders may recommend are: every year, every two years, or every three years. Further, if the shareholder wishes, he or she may abstain on this matter.
VOTE REQUIRED
This vote is required by law but is advisory and is not binding upon the Company or its Board of Directors with regard to the frequency of such a vote, provided the Company’s shareholders vote at least every three years on a “Say-on-Pay” resolution and the shareholders have an opportunity, at least every six years, to recommend the frequency of such votes. This vote is intended to serve as an indication of the frequency shareholders wish to address this issue. The Board of Directors and Compensation Committee believe a choice of voting on compensation matters every year is appropriate as this practice was approved by the Board six years ago. The Company makes an effort to align compensation matters for its executive officers and other senior members of the Company’s management in the same manner as it evaluates its general business – using a long-haul approach. During the six years that executive compensation has been voted on by Old Republic’s shareholders, the vote has averaged over 98% in favor of the Company’s compensation policies, practices and procedures. While the Board believes voting on these policies, practices and procedures every year is appropriate, the choice receiving a plurality of votes shall be considered by the Board of Directors in determining the frequency of such votes. The results of the vote on this matter shall be disclosed in a filing made with the SEC that will be available for review through the Company’s website at www.oldrepublic.com. Any change resulting from this vote shall be disclosed after the Board of Directors has had an opportunity to review and evaluate the vote. Such action shall be announced in a filing made with the SEC that will be available for review through the Company’s website. This filing will be made at least 60 days prior to the deadline for the submission of shareholder proposals (October 14). Further, it is currently anticipated that a vote on the frequency of having advisory votes on executive compensation shall again occur in connection with the Company’s 2023 election of Directors.
29
BOARD OF DIRECTORS’ RECOMMENDATION
The Board of Directors recommends a vote for every year for this proposal. Proxies solicited by the Board of Directors shall be voted in that manner unless shareholders specify one of the other options in their proxies.
SHAREHOLDER PROPOSAL by the
CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM (“CalPERS”)
The Secretary of the Company has received a written notice that CalPERS, as a shareholder, intends to introduce a resolution at the Company’s Annual Shareholders’ Meeting. The Company’s Secretary will provide the formal name, address and number of shares held by the proponent of this proposal to any shareholder, upon receipt of a request for such information. The proposed resolution and a supporting statement are presented verbatim below.
PROPOSAL
RESOLVED: Shareholders of Old Republic International Corporation (“Company”) ask the board of directors (“Board”) to adopt, and present for shareholder approval, a “proxy access” bylaw. Such a bylaw shall require Company to include in its proxy materials prepared for a shareholder meeting at which directors are to be elected, the name, the Disclosure and the Statement (each as defined herein) of any person nominated for election to the board by a shareholder or group (“Nominator”) that meets the criteria established below. Company shall allow shareholders to vote on such nominee on Company’s proxy card.
The number of shareholder-nominated candidates appearing in proxy materials shall not exceed one quarter of the directors then serving. This bylaw, which shall supplement existing rights under Company bylaws, should provide that Nominator must:
| a) | have beneficially owned 3% or more of Company’s outstanding common stock continuously for at least three years before submitting the nomination; |
| b) | give Company, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission rules about (i) the nominee, including consent to being named in the proxy materials and to serving as director if elected; and (ii) Nominator, including proof it owns the required shares (the “Disclosure”); and |
| c) | certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of Nominator’s communications with Company shareholders, including the Disclosure and the Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than Company’s proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary course of business and not to change or influence control at Company.OTHER INFORMATION |
Nominator may submit with the Disclosure a statement not exceeding 500 words in support of the nominee (the “Statement”). The Board shall adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and the Statement satisfy the bylaw and applicable federal regulations, and the priority to be given to multiple nominations exceeding the one-quarter limit.
SUPPORTING STATEMENT
Proxy access enables a system of governance that fosters director accountability and long-term value creation. Without effective proxy access, the director election process simply becomes a ratification of corporate management’s slate of nominees.
The CFA Institute’s 2014 assessment of pertinent academic studies and the use of proxy access in other markets similarly concluded that proxy access:
· | Would “benefit both the markets and corporate boardrooms, with little cost or disruption.” |
· | Has the potential to raise overall US market capitalization by up to $140.3 billion if adopted market-wide.1
|
30
At the 2016 annual meeting, a similar proposal received overwhelming shareowner support with approximately 74% of the vote cast. A growing number of companies continue to adopt proxy access provisions – rejecting the common assertion that proxy access is costly, distracting, and favored mainly by special interests.
We urge shareholders to vote FOR this proposal.
1. http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1
OLD REPUBLIC’S STATEMENT IN OPPOSITION TO THE SHAREHOLDER’S PROPOSAL
Currently, the Company has no rule or By-law concerning proxy access; accordingly, this matter is governed by Delaware General Business Law and SEC law and regulations. The shareholder in its supporting statement relies on academic studies to support its contention that proxy access increases directors’ accountability and long-term value creation. Addressing accountability first, Old Republic’s governance structure already provides shareholders with various opportunities to hold the Board accountable in the nomination and election of directors. The Company’s governance structure currently provides:
· | Shareholders the ability to call special meetings and take action by written consent outside the context of an annual meeting of shareholders. |
· | That in the event that any director receives a significant withhold vote in an election, the Governance and Nominating Committee have stated that they would investigate the reason or reasons for such a withhold vote and following its investigation, the Committee would make such recommendations to the full Board as are appropriate in light of the facts and circumstances that they discover. |
· | Shareholders the ability to recommend director candidates to Old Republic’s Governance and Nominating Committee. Such nominees would be evaluated and considered using the same criteria as are used for all candidates and would be reviewed with the same consideration made for the Company’s needs as all other candidates. |
· | A strong independent leadership structure, including a Lead Independent Director who is appointed from among the independent directors. |
Currently, ten of the twelve Company directors are independent under the rules of the NYSE and the SEC and are under no obligation to follow the lead of the Company’s management. Moreover, based on the beneficial ownership of approximately 2.0% of the Company’s outstanding Common stock by the directors and executive officers of the company, as a group, and the ownership of approximately 6.3% of Old Republic’s outstanding stock by its employees’ ESSOP, pension and other benefit plans, the interests of the Company’s directors, executive officers and employees (a combined 8.3%) are fully aligned with those of the shareholders. In these regards the Board believes that this alignment of interests among these groups along with the intellectual capital that they have invested in Old Republic, demonstrate that they, as a group, are committed to the Company’s performance over the long run, and are thus responsive to the concerns of shareholders as serious investors in Old Republic’s business.
The Company also has an effective director nomination process. In this regard, the Board of Directors’ Governance and Nominating Committee follows an approach designed to obtain a reasonable balance between skills, tenure and experience in the slating and retention of directors. The Committee is always open to considering all candidates nominated by shareholders, and as described elsewhere in this proxy statement, the Committee’s policy is that it will evaluate each such candidate on the basis of the minimum criteria and background qualifications and experience as are required of any candidate.
The supporting statement to the shareholder’s proposal asserts that in addition to fostering director accountability, it would also result in long-term value creation. The Board of Directors is unaware of any empirical evidence that such value creation would in fact occur. Notably, while not disclosed by the shareholder in its supporting statement, one of the event studies in the academic report cited by the shareholder concludes that proxy access could have a negative impact on US market capitalization. Moreover, the Board believes that much of what passes as best practices of corporate governance propounded by certain academic circles and shareholder advisory services is based on theories largely distanced from real business life considerations. As demonstrated by the fact that even the academic studies cited by the shareholder are not unanimous in concluding that proxy access may increase US market capitalization, the Board views much of the current academic theory on the merits of proxy access as speculative in nature and as attempts for one-size-fits-all financial and social engineering unrelated to the uniqueness of individual institutions, their business models, and long-term operating and growth objectives.
The tables that follow reflect the Company’s annual operating results over the past 50 years. To put them in perspective, the Company has included information on the stock market’s valuation. The first table compares Old Republic’s annual total book return with the total pretax annual return for the Standard & Poor’s 500 Index. (The Company calculates total book return by taking the annual post-tax change in shareholders’ equity per share, plus the pretax dividend yield on that account.) For this period, Old Republic’s total book return averaged 14.7%, versus 11.5% for the S&P 500 Index.
The second table compares the Company’s annual total market return on a per-share basis with the S&P 500’s performance. (This is calculated by taking the year-to-year percentage change in the closing price of Old Republic’s stock, plus the cash dividend as a percentage of the closing price per share at the beginning of each year.) During this time, Old Republic’s shares posted an annual average return of 17.3% versus 11.5% for the S&P 500.
Both charts reflect the Company’s poorer performance relative to the S&P 500 Index in the Great Recession years, as this recession seriously impacted the Company’s Run-Off financial indemnity business. This relatively poorer performance is expected to turn more positive as Old Republic’s recalibrated capital resources restore an earnings momentum driven by its General and Title insurance businesses.
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OLD REPUBLIC INTERNATIONAL CORPORATON – Total Book Return Compared S&P 500
| Old Republic International Corporation (a) | | S&P 500 (b) | | Relative Results |
Year | Ending Book Value | | Cash Dividends Paid (c) | | Percentage Change in Book Value | | Dividend Yield | | Total Book Return (d) | | Total Annual Return | | ORI vs. S&P 500 |
| | | | | | | | | | | | | |
1967 | $ 0.25 | | $ 0.007 | | 56.3% | | 4.4% | | 60.7% | | 23.7% | | 37.0% |
1968 | 0.28 | | 0.007 | | 15.2% | | 2.8% | | 18.0% | | 11.0% | | 7.0% |
1969 | 0.31 | | 0.011 | | 9.4% | | 3.8% | | 13.2% | | –8.4% | | 21.6% |
1970 | 0.36 | | 0.012 | | 15.5% | | 4.0% | | 19.5% | | 4.0% | | 15.5% |
1971 | 0.47 | | 0.014 | | 31.3% | | 3.9% | | 35.2% | | 14.3% | | 20.9% |
| | | | | | | | | | | | | |
1972 | 0.48 | | 0.016 | | 2.3% | | 3.4% | | 5.7% | | 19.0% | | –13.3% |
1973 | 0.47 | | 0.019 | | –2.2% | | 3.9% | | 1.7% | | –14.7% | | 16.4% |
1974 | 0.38 | | 0.020 | | –19.3% | | 4.2% | | –15.1% | | –26.5% | | 11.4% |
1975 | 0.29 | | 0.020 | | –23.9% | | 5.3% | | –18.6% | | 37.2% | | –55.8% |
1976 | 0.56 | | 0.011 | | 94.4% | | 3.9% | | 98.3% | | 23.8% | | 74.5% |
| | | | | | | | | | | | | |
1977 | 0.79 | | 0.022 | | 41.9% | | 3.9% | | 45.8% | | –7.2% | | 53.0% |
1978 | 0.98 | | 0.033 | | 22.8% | | 4.2% | | 27.0% | | 6.6% | | 20.4% |
1979 | 1.08 | | 0.052 | | 10.9% | | 5.3% | | 16.2% | | 18.4% | | –2.2% |
1980 | 1.22 | | 0.054 | | 12.8% | | 5.0% | | 17.8% | | 32.5% | | –14.7% |
1981 | 1.39 | | 0.054 | | 14.0% | | 4.4% | | 18.4% | | –4.9% | | 23.3% |
| | | | | | | | | | | | | |
1982 | 1.65 | | 0.056 | | 18.4% | | 4.0% | | 22.4% | | 21.6% | | 0.8% |
1983 | 1.89 | | 0.058 | | 14.6% | | 3.6% | | 18.2% | | 22.6% | | –4.4% |
1984 | 2.21 | | 0.059 | | 16.9% | | 3.3% | | 20.2% | | 6.3% | | 13.9% |
1985 | 2.30 | | 0.062 | | 4.3% | | 2.9% | | 7.2% | | 31.7% | | –24.5% |
1986 | 2.53 | | 0.065 | | 9.7% | | 2.7% | | 12.6% | | 18.7% | | –6.1% |
| | | | | | | | | | | | | |
1987 | 2.95 | | 0.068 | | 16.7% | | 2.7% | | 19.4% | | 5.3% | | 14.1% |
1988 | 3.15 | | 0.071 | | 6.9% | | 2.3% | | 9.2% | | 16.6% | | –7.4% |
1989 | 3.54 | | 0.076 | | 12.4% | | 2.4% | | 14.8% | | 31.7% | | –16.9% |
1990 | 3.92 | | 0.081 | | 10.7% | | 2.2% | | 13.1% | | –3.1% | | 16.2% |
1991 | 4.46 | | 0.086 | | 13.7% | | 2.2% | | 15.9% | | 30.5% | | –14.6% |
| | | | | | | | | | | | | |
1992 | 5.07 | | 0.093 | | 13.8% | | 2.1% | | 15.9% | | 7.6% | | 8.3% |
1993 | 5.75 | | 0.102 | | 13.4% | | 1.9% | | 15.3% | | 10.1% | | 5.2% |
1994 | 6.11 | | 0.111 | | 6.3% | | 2.0% | | 8.3% | | 1.3% | | 7.0% |
1995 | 7.24 | | 0.121 | | 18.5% | | 2.0% | | 20.5% | | 37.6% | | –17.1% |
1996 | 7.77 | | 0.148 | | 7.3% | | 2.0% | | 9.3% | | 23.0% | | –13.7% |
| | | | | | | | | | | | | |
1997 | 8.31 | | 0.178 | | 7.0% | | 2.3% | | 9.3% | | 33.4% | | –24.1% |
1998 | 9.21 | | 0.206 | | 10.8% | | 2.5% | | 13.3% | | 28.6% | | –15.3% |
1999 | 9.59 | | 0.261 | | 4.2% | | 2.8% | | 7.0% | | 21.0% | | –14.0% |
2000 | 11.00 | | 0.293 | | 14.6% | | 3.1% | | 17.7% | | –9.1% | | 26.8% |
2001 | 12.48 | | 0.315 | | 13.5% | | 2.9% | | 16.4% | | –11.9% | | 28.3% |
| | | | | | | | | | | | | |
2002 | 13.96 | | 0.336 | | 11.8% | | 2.7% | | 14.5% | | –22.1% | | 36.6% |
2003 | 15.65 | | 0.890 | (c) | 12.1% | | 6.4% | (c) | 18.6% | | 28.7% | | –10.1% |
2004 | 16.94 | | 0.402 | | 8.2% | | 2.6% | | 10.8% | | 10.9% | | –0.1% |
2005 | 17.53 | | 1.312 | (c) | 3.5% | | 7.7% | (c) | 11.2% | | 4.9% | | 6.3% |
2006 | 18.91 | | 0.590 | | 7.9% | | 3.4% | | 11.3% | | 15.8% | | –4.5% |
| | | | | | | | | | | | | |
2007 | 19.71 | | 0.630 | | 4.2% | | 3.3% | | 7.5% | | 5.5% | | 2.0% |
2008 | 15.91 | | 0.670 | | –19.3% | | 3.4% | | –15.9% | | –37.0% | | 21.1% |
2009 | 16.49 | | 0.680 | | 3.6% | | 4.3% | | 7.9% | | 26.5% | | –18.6% |
2010 | 16.16 | | 0.690 | | –2.0% | | 4.2% | | 2.2% | | 15.1% | | –12.9% |
2011 | 14.76 | | 0.700 | | –8.7% | | 4.3% | | –4.4% | | 2.1% | | –6.5% |
| | | | | | | | | | | | | |
2012 | 14.03 | | 0.710 | | –4.9% | | 4.8% | | –0.1% | | 16.0% | | –16.1% |
2013 | 14.64 | | 0.720 | | 4.3% | | 5.1% | | 9.4% | | 32.4% | | –23.0% |
2014 | 15.15 | | 0.730 | | 3.5% | | 5.0% | | 8.5% | | 13.7% | | –5.2% |
2015 | 15.02 | | 0.740 | | –0.9% | | 4.9% | | 4.0% | | 1.4% | | 2.6% |
2016 | $ 17.20 | | $ 0.750 | | 14.5% | | 5.0% | | 19.5% | | 11.9% | | 7.6% |
Annual Average – 1967 to 2016 (50 years) | 11.1% | | 3.6% | | 14.7% | | 11.5% | | 3.2% |
| | | | | | | | | |
(a) | Old Republic’s per share statistics have been retroactively restated for stock dividends and splits. The data applicable to the Company are reported on a post-tax basis relative to book value, and on a pretax basis with respect to the dividend yield. The 1967 information is based on the statutory results of Old Republic Life Insurance Company, predecessor to Old Republic International Corporation. |
(b) | Data for the Standard & Poor’s 500 Index (“S&P 500“) are calculated on a pretax basis. |
(c) | In December, 2003 and 2005, special year-end cash dividends of $.534 and $.800 per common share were declared and paid. |
(d) | Total book return represents the sum of each year’s dividend yield as a percentage of beginning book value per share, plus the percentage change in each year’s book value per share. |
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OLD REPUBLIC INTERNATIONAL CORPORATON – Total Market Return Compared S&P 500
| Old Republic International Corporation (a) | | S&P 500 (b) | | Relative Results |
Year | Ending Market Value | | Cash Dividends Paid (c) | | Percentage Change in Market Value | | Dividend Yield | | Total Market Return (d) | | Total Annual Return | | ORI vs. S&P 500 |
| | | | | | | | | | | | | |
1967 | $ 0.34 | | $ 0.007 | | –10.5% | | 1.8% | | –8.7% | | 23.7% | | –32.4% |
1968 | 0.47 | | 0.007 | | 39.7% | | 2.1% | | 41.8% | | 11.0% | | 30.8% |
1969 | 0.34 | | 0.011 | | –28.4% | | 2.3% | | –26.1% | | –8.4% | | –17.7% |
1970 | 0.53 | | 0.012 | | 57.1% | | 3.7% | | 60.8% | | 4.0% | | 56.8% |
1971 | 0.84 | | 0.014 | | 59.6% | | 2.6% | | 62.2% | | 14.3% | | 47.9% |
| | | | | | | | | | | | | |
1972 | 1.24 | | 0.016 | | 47.5% | | 1.9% | | 49.4% | | 19.0% | | 30.4% |
1973 | 0.45 | | 0.019 | | –63.5% | | 1.5% | | –62.0% | | –14.7% | | –47.3% |
1974 | 0.41 | | 0.020 | | –10.6% | | 4.4% | | –6.2% | | –26.5% | | 20.3% |
1975 | 0.44 | | 0.020 | | 7.9% | | 5.0% | | 12.9% | | 37.2% | | –24.3% |
1976 | 0.62 | | 0.011 | | 42.7% | | 2.6% | | 45.3% | | 23.8% | | 21.5% |
| | | | | | | | | | | | | |
1977 | 0.79 | | 0.022 | | 27.4% | | 3.5% | | 30.9% | | –7.2% | | 38.1% |
1978 | 0.98 | | 0.033 | | 22.8% | | 4.2% | | 27.0% | | 6.6% | | 20.4% |
1979 | 1.11 | | 0.052 | | 14.2% | | 5.3% | | 19.5% | | 18.4% | | 1.1% |
1980 | 0.89 | | 0.054 | | –20.4% | | 4.8% | | –15.6% | | 32.5% | | –48.1% |
1981 | 1.14 | | 0.054 | | 28.8% | | 6.1% | | 34.9% | | –4.9% | | 39.8% |
| | | | | | | | | | | | | |
1982 | 1.46 | | 0.056 | | 27.8% | | 4.9% | | 32.7% | | 21.6% | | 11.1% |
1983 | 2.35 | | 0.058 | | 61.4% | | 4.0% | | 65.4% | | 22.6% | | 42.8% |
1984 | 2.03 | | 0.059 | | –13.7% | | 2.5% | | –11.2% | | 6.3% | | –17.5% |
1985 | 3.01 | | 0.062 | | 48.4% | | 3.0% | | 51.4% | | 31.7% | | 19.7% |
1986 | 2.32 | | 0.065 | | –23.2% | | 2.2% | | –21.0% | | 18.7% | | ���39.7% |
| | | | | | | | | | | | | |
1987 | 1.86 | | 0.068 | | –19.6% | | 2.9% | | –16.7% | | 5.3% | | –22.0% |
1988 | 2.35 | | 0.071 | | 26.0% | | 3.8% | | 29.8% | | 16.6% | | 13.2% |
1989 | 2.61 | | 0.076 | | 11.0% | | 3.2% | | 14.2% | | 31.7% | | –17.5% |
1990 | 2.46 | | 0.081 | | –5.3% | | 3.1% | | –2.2% | | –3.1% | | 0.9% |
1991 | 4.21 | | 0.086 | | 70.7% | | 3.5% | | 74.2% | | 30.5% | | 43.7% |
| | | | | | | | | | | | | |
1992 | 5.90 | | 0.093 | | 40.2% | | 2.2% | | 42.4% | | 7.6% | | 34.8% |
1993 | 5.37 | | 0.102 | | –9.0% | | 1.7% | | –7.3% | | 10.1% | | –17.4% |
1994 | 5.04 | | 0.111 | | –6.1% | | 2.1% | | –4.0% | | 1.3% | | –5.3% |
1995 | 8.42 | | 0.121 | | 67.1% | | 2.4% | | 69.5% | | 37.6% | | 31.9% |
1996 | 9.51 | | 0.148 | | 13.0% | | 1.8% | | 14.8% | | 23.0% | | –8.2% |
| | | | | | | | | | | | | |
1997 | 13.22 | | 0.178 | | 39.0% | | 1.9% | | 40.9% | | 33.4% | | 7.5% |
1998 | 12.00 | | 0.206 | | –9.2% | | 1.6% | | –7.6% | | 28.6% | | –36.2% |
1999 | 7.27 | | 0.261 | | –39.4% | | 2.2% | | –37.2% | | 21.0% | | –58.2% |
2000 | 17.06 | | 0.293 | | 134.8% | | 4.0% | | 138.8% | | –9.1% | | 147.9% |
2001 | 14.93 | | 0.315 | | –12.5% | | 1.8% | | –10.7% | | –11.9% | | 1.2% |
| | | | | | | | | | | | | |
2002 | 14.93 | | 0.336 | | ––% | | 2.2% | | 2.2% | | –22.1% | | 24.3% |
2003 | 20.29 | | 0.890 | (c) | 35.9% | | 5.9% | (c) | 41.8% | | 28.7% | | 13.1% |
2004 | 20.24 | | 0.402 | | –0.2% | | 2.0% | | 1.8% | | 10.9% | | –9.1% |
2005 | 21.01 | | 1.312 | (c) | 3.8% | | 6.5% | (c) | 10.3% | | 4.9% | | 5.4% |
2006 | 23.28 | | 0.590 | | 10.8% | | 2.8% | | 13.6% | | 15.8% | | –2.2% |
| | | | | | | | | | | | | |
2007 | 15.41 | | 0.630 | | –33.8% | | 2.7% | | –31.1% | | 5.5% | | –36.6% |
2008 | 11.92 | | 0.670 | | –22.6% | | 4.3% | | –18.3% | | –37.0% | | 18.7% |
2009 | 10.04 | | 0.680 | | –15.8% | | 5.7% | | –10.1% | | 26.5% | | –36.6% |
2010 | 13.63 | | 0.690 | | –35.8% | | 6.9% | | 42.7% | | 15.1% | | 27.6% |
2011 | 9.27 | | 0.700 | | –32.0% | | 5.1% | | –26.9% | | 2.1% | | –29.0% |
| | | | | | | | | | | | | |
2012 | 10.65 | | 0.710 | | 14.9% | | 7.7% | | 22.6% | | 16.0% | | 6.6% |
2013 | 17.27 | | 0.720 | | 62.2% | | 6.8% | | 69.0% | | 32.4% | | 36.6% |
2014 | 14.63 | | 0.730 | | –15.3% | | 4.2% | | –11.1% | | 13.7% | | –24.8% |
2015 | 18.63 | | 0.740 | | 27.3% | | 5.1% | | 32.4% | | 1.4% | | 31.0% |
2016 | $ 19.00 | | $ 0.750 | | 2.0% | | 4.0% | | 6.0% | | 11.9% | | –5.9% |
Annual Average – 1967 to 2016 (50 years) | 13.7% | | 3.6% | | 17.3% | | 11.5% | | 5.8% |
| | | | | | | | | |
(a) | Old Republic’s per share statistics have been retroactively restated for stock dividends and splits. The 1967 information is based on the statutory results of Old Republic Life Insurance Company, predecessor to Old Republic International Corporation. |
(b) | Data for both the Company and the Standard & Poor’s 500 Index (“S&P 500“) are calculated on a pretax basis. |
(c) | In December, 2003 and 2005, special year-end cash dividends of $.534 and $.800 per common share were declared and paid. |
(d) | Total market return has been calculated as the sum of the year-to-year increase or decrease in the closing price and the dividend yield for each year as a percentage of the closing price at the end of the preceding year. The total return shown would be higher if an interest factor were also applied to the reinvestment of cash dividends. |
The Board of Directors has considered the proposal by CalPERS, as it also did last year. Following the vote on CalPERS proposal at the 2016 Shareholder Meeting, the Board of Directors reviewed the Company’s corporate governance practices and the Proxy Access proposal CalPERS made, in the context of the totality of Old Republic’s system of corporate governance. The Board determined that the system Old Republic has in place, and which has been consistently adhered to during decades of the Company’s existence as an independent publicly-held insurance holding company, best suits the Company, its shareholders’ and other stakeholders’ needs. The Board is of the view that the Company’s performance over decades provides empirical evidence that the Company’s system of governance is not broken and therefore does not need to be fixed or enhanced. The Board believes that actions speak louder than words and Old Republic’s governance structure has helped produce industry-beating value creation for all of its serious long term investors. Very little additional proof is needed of Old Republic’s distinguished record of successfully managing a long-term business in the best interests of its shareholders than the above two charts, which have been updated annually and supplied to shareholders for many years. Moreover, the Company believes the following tables and chart also support its position by comparing the Company’s stock market performance over the last 5 years with the S&P 500 index and its Peer Group of Companies.
Total Return to Shareholders
(Includes reinvestment of dividends)
| | ANNUAL RETURN PERCENTAGE |
| | Years Ending |
Company Name / Index | | Dec12 | Dec13 | Dec14 | Dec15 | Dec16 |
Old Republic International Corp | | 23.84 | 70.34 | -11.15 | 33.30 | 6.08 |
S&P 500 Index | | 16.00 | 32.39 | 13.69 | 1.38 | 11.96 |
New Peer Group | | 34.96 | 37.22 | 13.98 | 11.12 | 10.18 |
Old Peer Group | | 21.67 | 32.02 | 14.95 | 13.90 | 8.99 |
| | | | | | |
| | INDEXED RETURNS |
| | Years Ending |
| Base Period | | | | | |
Company Name / Index | Dec11 | Dec12 | Dec13 | Dec14 | Dec15 | Dec16 |
Old Republic International Corp | 100.00 | 123.84 | 210.94 | 187.43 | 249.84 | 265.04 |
S&P 500 Index | 100.00 | 116.00 | 153.57 | 174.60 | 177.01 | 198.18 |
New Peer Group | 100.00 | 134.96 | 185.19 | 211.08 | 234.55 | 258.43 |
Old Peer Group | 100.00 | 121.67 | 160.62 | 184.64 | 210.29 | 229.20 |
New Peer Group | | Old Peer Group |
American Financial Group, Inc. | | American Financial Group, Inc. |
American International Group, Inc. | | |
Chubb Limited | | Ace Limited and Chubb Corporation (Chubb Corporation was acquired
by ACE Limited and changed its name to Chubb Limited in 2016)
|
Cincinnati Financial Corporation | | Cincinnati Financial Corporation |
Fidelity National Financial, Inc. | | Fidelity National Financial, Inc. |
First American Financial Corporation | | First American Financial Corporation |
Markel Corporation | | Markel Corporation |
Stewart Information Services Corporation | | Stewart Information Services Corporation |
Travelers Companies, Inc. | | Travelers Companies, Inc. |
XL Group Plc | | XL Group Plc |
35
Further, it should be pointed out that in addition to the Company’s better than Peer group and S&P performance as shown above, it has paid cash dividends without interruption for each of the 75 years since 1942, and its annual dividend rate has been increased in each of the past 35 years. The Company announced a further increase of its quarterly dividend to $.19 per share at its February, 23, 2017 Directors’ meeting.
Viewed against the backdrop of the Company’s financial performance over several decades, the Board believes that its shareholders have had and will continue to have the opportunity to hold Directors accountable under its current method of operations and governance for the long run of the enterprise. Accordingly, the Board does not believe that the shareholder’s proposal would result in more effective corporate governance or long-term value creation.
VOTE REQUIRED
If this proposal is properly presented at the Annual Shareholders’ Meeting, approval requires the affirmative vote of a majority of the shares present at the Meeting, in person or represented by proxy, and entitled to vote. Proxies submitted without direction pursuant to this solicitation will be voted AGAINST the stockholder proposal. Abstentions will have the same effect as a vote against the proposal. Brokers will not have discretionary authority to vote on this proposal, so there could be broker non-votes. Broker non-votes will have no effect on the vote. The result of this vote shall be disclosed in a filing made with the SEC shortly after the Annual Shareholders’ Meeting and will be available for review on the Company’s website, www.oldrepublic.com.
BOARD OF DIRECTORS’ RECOMMENDATION
The Board believes that this proposal is not in the shareholders’ best interests, and recommends a vote AGAINST it. Proxies solicited by the Board of Directors shall be voted AGAINST this proposal unless shareholders specifically vote for it in their proxies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than ten percent of the Company’s Common Stock, to file reports of ownership and changes in ownership with the SEC. Based solely on reports and other information submitted by executive officers, directors and such other persons required to file, the Company believes that during the year ended December 31, 2015, all reports required by Section 16(a) have been properly filed.
36
SHAREHOLDER PROPOSALS OR DIRECTOR NOMINATIONS FOR THE 20182021 ANNUAL SHAREHOLDERS’ MEETING OF THE SHAREHOLDERS
In order for a proposal by a shareholder of the Company to be included in the Company’s proxy statement and form of proxy for the 20182021 Annual Shareholders’ Meeting of the Shareholders, the proposal must be received by the Company no later than 120 days before the anniversary date of the Company’s last proxy statement (December 15)(which is December 1, 2020).
STOCK OWNERSHIP GUIDELINES
The Company encourages all of its employees A nomination under our proxy access by-law to own Company Common Stock directly or through employee benefit plans such as its 401(k) ESSOP. All of its executive officers andinclude shareholder-nominated directors own shares of the Company’s Common Stock. The table on page 3 shows the nature and amount of such holdings.
The Company has an equity ownership policy for its directors and senior officers. Pursuant to this policy, directors are required to acquire holdings in the Company’s Common Stock with a valueCompany's proxy materials for the 2021 Annual Meeting of at least $250,000. This policy allows new directors three years during which to acquire such ownership, with the valuation of such stock based upon the greater of current market value attained at any point in time, or the original acquisition cost. All of the Company’s directors, except Mr. Bateman, currently hold in excess of this requirement. For the most senior officers ofshareholders must be received by the Company the recommended value of Common Stock ownership is based upon the following multiples of the officer’s base salary:no earlier than November 1, 2020 and no later than December 1, 2020.
CEO of the Company | | 6 times |
President of the Company | | 4 times |
Certain other senior officers of the Company and its subsidiaries | | 1.5 times |
The value of all shares of Company Common Stock owned directly or held in employee benefit accounts by such officers, together with the value of deferred compensation accounts, are considered in meeting these objectives. Newly elected senior officers have five years to meet the pertinent requirement. Senior officers who are promoted to a position that suggests additional ownership of the Company’s Common Stock have three years from such promotion to meet the applicable requirement.
This proxy statement is filed by order of the Board of Directors.
John R. Heitkamp, Jr.
Senior Vice President,
General Counsel and Secretary
Chicago, Illinois
April 14, 2017March 31, 2020
37