UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
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Assured Guaranty Ltd.
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Assured Guaranty [Cover Art to Follow] 2018 Annual Meeting of Shareholders and Proxy Statement
DEAR SHAREHOLDERS: | March |
It is with great pleasure that we invite you to our 20172018 Annual General Meeting of shareholders on Wednesday, May 3, 2017,2, 2018, at 6 Bevis Marks in London. Whether or not you plan to attend the meeting in person, please vote your shares; your vote is important to us.
Assured Guaranty’s 20162017 financial performance was excellent. Our shareholders’ equity per share,non-GAAP operating shareholder’s equity per share1andnon-GAAP adjusted book value per share1 all reached record levels, at $50.82, $49.89$58.95, $56.20 and $66.46,$77.74, respectively. Our net income, at $881 million, was at its third highest level since we went public in 2004, while our operating income(non-GAAP)1, at $895 million, was at its highest level since we went public. These records reflect the great strides we continued to make on our four main strategies:
• | Growing our new business production.Our gross written |
• | Managing capital efficiently.During |
• | Alternative strategies.In |
• | Proactive loss mitigation.In 2017, we successfully concluded two financialcrisis-era recovery legal actions for apre-tax gain of $151 million, again demonstrating our perseverance and resilience in pursuing recovery litigation when required to enforce our rights. We |
We provide further detail about our accomplishments and plans for the future in the Letter to Shareholders accompanying our 20162017 Annual Report. We encourage you to review that letter and our 20162017 Annual Report, as well as the Proxy Statement that follows this letter.
We look forward to seeing you at the meeting.another successful year.
Sincerely,
Francisco L. Borges | Dominic J. Frederico | |
Chairman of the Board | President and Chief Executive Officer |
1 | Non-GAAP operating shareholder’s equity per share,non-GAAP adjusted book value per share,non-GAAP operating income |
March 23, 201721, 2018
Hamilton, Bermuda
NOTICE OF ANNUAL
GENERAL MEETING
TO THE SHAREHOLDERS OF ASSURED GUARANTY LTD.:
The Annual General Meeting of Assured Guaranty Ltd., which we refer to as AGL, will be held on Wednesday, May 3, 2017,2, 2018, at 8:00 a.m. London Time, at 6 Bevis Marks, London, EC3A 7BA, United Kingdom, for the following purposes:
1. | To elect our board of directors; |
2. | To approve, on an advisory basis, the compensation paid to AGL’s named executive officers; |
3. | To |
To direct AGL to vote for directors of, and the appointment of the independent auditor for, its subsidiary Assured Guaranty Re Ltd.; and |
To transact such other business, if any, as lawfully may be brought before the meeting. |
Shareholders of record are being mailed a Notice Regarding the Availability of Proxy Materials on or around March 24, 2017,21, 2018, which provides shareholders with instructions on how to access the proxy materials and our 20162017 annual report on the Internet, and if they prefer, how to request paper copies of these materials.
Only shareholders of record, as shown by the transfer books of AGL, at the close of business on March 8, 2017,2018, are entitled to notice of, and to vote at, the Annual General Meeting.
SHAREHOLDERS OF RECORD MAY VOTE UP UNTIL 12:00 NOON EASTERN DAYLIGHT TIME ON MAY 2, 2017.1, 2018. BENEFICIAL OWNERS MUST SUBMIT THEIR VOTING INSTRUCTIONS SO THAT THEIR BROKERS WILL BE ABLE TO VOTE BY 11:59 P.M. EASTERN DAYLIGHT TIME ON MAY 1, 2017.April 30, 2018.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL GENERAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE VOTE AS PROMPTLY AS POSSIBLE VIA THE INTERNET OR BY TELEPHONE. ALTERNATIVELY, IF YOU HAVE REQUESTED WRITTEN PROXY MATERIALS, PLEASE SIGN, DATE AND RETURN THE PROXY CARD IN THE RETURN ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. FOR FURTHER INFORMATION CONCERNING THE INDIVIDUALS NOMINATED AS DIRECTORS, THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT.
By Order of the Board of Directors,
James M. Michener
Ling Chow
Secretary
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Compensation Committee Interlocking and Insider Participation | ||||
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Did Our Insiders Comply With Section 16(A) Beneficial Ownership Reporting | ||||
INFORMATION ABOUT OUR COMMON SHARE OWNERSHIP | ||||
How Much Stock Is Owned By Directors and Executive Officers? | ||||
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PROXY STATEMENT
Assured Guaranty Ltd. | March |
This summary highlights information contained elsewhere in this proxy statement and does not contain all of the information that you should consider before voting. For more complete information about the following topics, please review the complete proxy statement and the Annual Report onForm 10-K of Assured Guaranty Ltd. (which we refer to as AGL, we, us or our; we use Assured Guaranty, our Company or the Company to refer to AGL and its subsidiaries).
We intend to begin distribution of the Notice Regarding the Availability of Proxy Materials to shareholders on or about March 24, 2017.21, 2018.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
Time and Date | 8:00 a.m. London time, May | |
Place | 6 Bevis Marks London, EC3A 7BA United Kingdom | |
Record Date | March 8, | |
Voting | Shareholders as of the record date are entitled to vote. Each Common Share is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. Shareholders of record may vote up until 12:00 noon Eastern Daylight Time on May |
Agenda Item | Board Vote Recommendation | Page Reference (for More Detail) | ||
For each director nominee | Page | |||
To approve, on an advisory basis, the compensation paid to AGL’s named executive officers | For | Page | ||
For | Page | |||
For each director nominee and for the independent auditor | Page |
We will also transact any other business that may properly come before the meeting.
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SUMMARY DIRECTOR INFORMATION
The following table provides summary information about each director nominee. Each director nominee will be elected for aone-year term by a majority of votes cast.
Director | Committees | |||||||||||||||||||||||
Nominee | Age | Since | Principal Occupation | A | C | F | NG | RO | E | |||||||||||||||
Francisco L. Borges | 65 | 2007 | Chairman, Landmark Partners, LLC | « | « | |||||||||||||||||||
G. Lawrence Buhl | 70 | 2004 | Former Regional Director for Insurance Services, Ernst & Young LLP | « | ✓ | |||||||||||||||||||
Dominic J. Frederico | 64 | 2004 | President and Chief Executive Officer, Assured Guaranty Ltd. | ✓ | ||||||||||||||||||||
Bonnie L. Howard | 63 | 2012 | Former Chief Auditor and Global Head of Control and Emerging Risk, Citigroup | ✓ | « | |||||||||||||||||||
Thomas W. Jones | 67 | 2015 | Founder and Senior Partner of TWJ Capital, LLC | ✓ | ✓ | |||||||||||||||||||
Patrick W. Kenny | 74 | 2004 | Former President and Chief Executive Officer, International Insurance Society | « | ✓ | ✓ | ||||||||||||||||||
Alan J. Kreczko | 65 | 2015 | Former Executive Vice President and General Counsel of The Hartford Financial Services Group, Inc. | ✓ | ✓ | |||||||||||||||||||
Simon W. Leathes | 69 | 2013 | Independent non-executive director of HSBC Bank plc | ✓ | ✓ | ✓ | ||||||||||||||||||
Michael T. O’Kane | 71 | 2005 | Former Senior Managing Director, Securities Division, TIAA CREF | ✓ | « | |||||||||||||||||||
Yukiko Omura | 61 | 2014 | Former Undersecretary General and Vice President, International Fund for Agricultural Development | ✓ | ✓ | |||||||||||||||||||
2016 Meetings | 4 | 5 | 4 | 4 | 4 | 1 |
DIRECTOR SINCE | COMMITTEES | |||||||||||||||||||||||
NOMINEE | AGE | PRINCIPAL OCCUPATION | A | C | F | NG | RO | E | ||||||||||||||||
Francisco L. Borges | 66 | 2007 | Chairman, Landmark Partners, LLC | «
| «
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G. Lawrence Buhl | 71 | 2004 | Former Regional Director for Insurance Services, Ernst & Young LLP | «
| ✓
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Dominic J. Frederico | 65 | 2004 | President and Chief Executive Officer, Assured Guaranty Ltd. | ✓ | ||||||||||||||||||||
Bonnie L. Howard | 64 | 2012 | Former Chief Auditor and Global Head of Control and Emerging Risk, Citigroup | ✓
| «
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Thomas W. Jones | 68 | 2015 | Founder and Senior Partner of TWJ Capital, LLC | ✓ | ✓ | |||||||||||||||||||
Patrick W. Kenny | 75 | 2004 | Former President and Chief Executive Officer, International Insurance Society | «
| ✓
| ✓
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Alan J. Kreczko | 66 | 2015 | Former Executive Vice President and General Counsel of The Hartford Financial Services Group, Inc. | ✓ | ✓ | |||||||||||||||||||
Simon W. Leathes | 70 | 2013 | Former independentnon-executive director of HSBC Bank plc | ✓ | ✓ | ✓ | ||||||||||||||||||
Michael T. O’Kane | 72 | 2005 | Former Senior Managing Director, Securities Division, TIAA CREF | ✓
| «
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Yukiko Omura | 62 | 2014 | Former Undersecretary General and Vice President/COO, International Fund for Agricultural Development | ✓ | ✓ | |||||||||||||||||||
2017 Meetings | 4 | 5 | 4 | 4 | 4 | 0 |
A: Audit; C: Compensation; F: Finance; NG: Nominating and Governance; RO: Risk Oversight; E: Executive;
«: Chair;✓: Member
2
Our Board of Directors maintains strong corporate governance policies.
The full text of our Corporate Governance Guidelines, our Code of Conduct and each committee charter, are available on our website at assuredguaranty.com/www.assuredguaranty.com/governance. In addition, you may request copies of the Corporate Governance Guidelines, the Code of Conduct and the committee charters by contacting our Secretary via:
Telephone | (441) | |
Facsimile | (441)279-5701 | |
Our Board of Directors oversees our business and monitors the performance of management. The directors keep themselvesup-to-date on our Company by discussing matters with Mr. Frederico, who is our Chief Executive Officer (and whom we refer to as our CEO), other key executives and our principal external advisors, such as outside auditors, outside legal counsel, investment bankers and other consultants, by reading the reports and other materials that we send them regularly and by participating in Board and committee meetings.
The Board usually meets four times per year in regularly scheduled meetings, but will meet more often if necessary. During 2016,2017, the Board met five times and the Executive Committee (described below under “Other Corporate Governance Highlights”) met once.four times. All of our directors attended at least 75% of the aggregate number of meetings of the Board and committees of the Board of which they were a member held while they were in office during the year ended December 31, 2016, except for Mr. Jones, who attended 67% of such meetings due to previously scheduled business travel that conflicted with one regularly scheduled Board meeting and one special Board meeting, and Mr. Leathes, who attended 60% of such meetings due to health reasons. Mr. Jones’ conflict with the regularly scheduled Board meeting was disclosed and considered before he joined the Board. Both Mr. Jones and Mr. Leathes expect to attend all meetings in 2017.
In February 2017,2018, our Board determined that, other than our CEO Mr. Frederico, all of our directors are independent under the listing standards of the NYSE. These independent directors constitute substantially more than a majority of our Board. In making its determination of independence, the Board applied its Categorical Standards for Director Independence and determined that no other material relationships existed between our Company and these directors. A copy of our Categorical Standards for Director Independence is available as part of our Corporate Governance Guidelines, which are available on our website at assuredguaranty.com/www.assuredguaranty.com/governance. In addition, as part of the independence determination, our Board monitors the independence of Audit and Compensation Committee members under rules of the SEC and NYSE listing standards that are applicable to members of the audit committee and compensation committee.committees.
As part of its independence determinations, the Board considered the other directorships held by the independent directors and determined that none of these directorships constituted a material relationship with our Company.
The independent directors meet at regularly scheduled executive sessions without the participation of management. The Chairman of the Board is the presiding director for executive sessions of independent directors.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
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In accordance with its charter, the Nominating and Governance Committee identifies potential nominees for directors from various sources. The Nominating and Governance Committee:
The Nominating and Governance Committee has the authority to retain search firms to be used to identify director candidates and to approve the search firm’s fees and other retention terms. The Nominating and Governance Committee may also retain other advisors.
We believe that diversity among members of the Board is an important consideration and is critical to the Board’s ability to perform its duties and various roles. Accordingly, in recommending nominees, the Board considers a wide range of individual perspectives and backgrounds in addition to diversity in professional experience and training. Our Board is currently composed of individuals from different disciplines, including lawyers, accountants and individuals who have industry, finance, executive and international experience, and is composed of both men and women and citizens of the United States, the United Kingdom and Japan. Our Corporate Governance Guidelines address diversity of experience, requiring the Nominating and Governance Committee to review annually the skills and attributes of Board members within the context of the currentmake-up of the full Board. Our Corporate Governance Guidelines also provide that Board members should have individual backgrounds that when combined provide a portfolio of experience and knowledge that will serve our governance and strategic needs. The Nominating and Governance Committee will consider Board candidates on the basis of a range of criteria includingbroad-based business knowledge and contacts, prominence and sound reputation in their fields as well as having a global business perspective and commitment to good corporate citizenship. Our Corporate Governance Guidelines specify that directors should represent all shareholders and not any
How are Directors Nominated?
special interest group or constituency. The Nominating and Governance Committee annually reviews its own performance. In connection with such evaluation, the Nominating and Governance Committee assesses whether it effectively nominates candidates for director in accordance with the above described standards specified by the Corporate Governance Guidelines. See each nominee’s biography appearing later in this proxy statement for a description of the specific experience that each such individual brings to our Board.
Our Corporate Governance Guidelines additionally specify that directors should be able and prepared to provide wise and thoughtful counsel to top management on the full range of potential issues facing us. Directors must possess the highest personal and professional integrity. Directors must have the time necessary to fully meet their duty of due care to the shareholders and be willing to commit to service over the long term.
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The Nominating and Governance Committee will consider a shareholder’s recommendation for director but has no obligation to recommend such candidates for nomination by the Board of Directors. Assuming that appropriate biographical and background material is provided for candidates recommended by shareholders, the Nominating and Governance Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. If a shareholder has a suggestion for candidates for election, the shareholder should send it to: Secretary, Assured Guaranty Ltd., 30 Woodbourne Avenue, Hamilton HM 08, Bermuda. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Nominating and Governance Committee recommends, and the Board approves, such person.
If a shareholder desires to nominate a person for election as director at an Annual General Meeting, that shareholder must comply with Article 14 of AGL’sBye-Laws, which requires notice no later than 90 days prior to the anniversary date of the immediately preceding Annual General Meeting. This time period has passed with respect to the 20172018 Annual General Meeting. With respect to the 20182019 Annual General Meeting, AGL must receive such written notice on or prior to February 2, 2018.1, 2019. Such notice must describe the nomination in sufficient detail to be summarized on the agenda for the meeting and must set forth:
The Board of Directors has established an Audit Committee, a Compensation Committee, a Finance Committee, a Nominating and Governance Committee, a Risk Oversight Committee and an Executive Committee.
The Audit Committee | Chairman: G. Lawrence Buhl / 4 meetings during | |
Other Audit Committee members: Thomas W. Jones, Alan J. Kreczko, Michael T. O’Kane |
The Audit Committee provides oversight of the integrity of our Company’s financial statements and financial reporting process, our compliance with legal and regulatory requirements (including cybersecurity requirements), the system of internal controls, the audit process, the performance of our internal audit program and the performance, qualification and independence of the independent auditor.
The Audit Committee is composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards.
The Board has determined that each member of the Audit Committee satisfies the financial literacy requirements of the NYSE and, except for Mr. Kreczko, is an audit committee financial expert, as that term is defined under Item 407(d) of the SEC’sRegulation S-K. For additional information about the qualifications of the Audit Committee members, see their respective biographies set forth in “Proposal No. 1: Election of Directors.”
The Compensation Committee | Chairman: Patrick W. Kenny / 5 meetings during | |
Other Compensation Committee members: G. Lawrence Buhl, Simon W. Leathes |
The Compensation Committee has responsibility for evaluating the performance of theour CEO and senior management and determining executive compensation in conjunction with the independent directors. The Compensation Committee also works with the Nominating and Governance Committee and theour CEO on succession planning.
The Compensation Committee is composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards.
The Compensation Committee’s meetings included discussions with Cook to review executive compensation trends and peer group compensation data and to evaluate the risk of our executive compensation program.
5
The Finance Committee | Chairman: Michael T. O’Kane / 4 meetings during | |
Other Finance Committee members: Thomas W. Jones, Alan J. Kreczko, Yukiko Omura |
The Finance Committee of the Board of Directors oversees management’s investment of our Company’s investment portfolio.portfolio, including in alternative investments. The Finance Committee also oversees, and makes recommendations to the Board with respect to, our capital structure, dividends, financing arrangements, investment guidelines, potential alternative investments and any corporate development activities.
The Nominating and Governance Committee | Chairman: Francisco Borges / 4 meetings during | |
Other Nominating and Governance Committee members: Bonnie L. Howard, Patrick W. Kenny |
The responsibilities of the Nominating and Governance Committee include identifying individuals qualified to become Board members, recommending director nominees to the Board and developing and recommending corporate governance guidelines. The Nominating and Governance Committee also has responsibility to review and make recommendations to the full Board regarding director compensation. In addition to general corporate governance matters, the Nominating and Governance Committee assists the Board and the Board committees in theirself-evaluations. The Nominating and Governance Committee is composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards.
The Risk Oversight Committee | Chairman: Bonnie L. Howard / 4 meetings during | |
Other Risk Oversight Committee members: Simon W. Leathes, Yukiko Omura |
The Risk Oversight Committee oversees management’s establishment and implementation of standards, controls, limits, guidelines and policies relating to risk assessment and enterprise risk management. The Risk Oversight Committee focuses on both the underwriting and surveillance of credit risks and the assessment and management of other risks, including, but not limited to, financial, legal, operational (including cybersecurity) and other risks concerning our Company’s reputation and ethical standards.
The Executive Committee | Chairman: Francisco L. Borges / | |
Other Executive Committee members: Dominic J. Frederico, Patrick W. Kenny, Simon W. Leathes |
The Executive Committee was established to have, and to exercise, certain of the powers and authority of the Board in the management of the business and affairs of our Company between regularly scheduled meetings of the Board when, in the opinion of a quorum of the Executive Committee, a matter should not be postponed to the next scheduled meeting of the Board. The Executive Committee’s authority to act is limited by our Company’sBye-Laws, rules of the NYSE and applicable law and regulation and the Committee’s charter.
HOW ARE DIRECTORS COMPENSATED?
OurIn 2017, our Nominating and Governance Committee engaged Cook to conduct a comprehensive review and assessment of our independent director compensation program. Cook reviews this program periodically. Cook evaluated the director compensation by comparing it against the compensation awarded to directors of companies in our executive compensation comparison group. (The compensation comparison group is discussed below under “Compensation Discussion and Analysis–Compensation Governance–Executive Compensation Comparison Group”.) Cook also looked at a broader market segment using data from Cook’s report regarding compensation packages for public company independent directors for 2016, the most recent year for which information was available. Cook again found that the structure of our director compensation program was generally consistent with peer group policies and best practice design as recognized by the proxy advisory firms and investors, noting:
6
Cook found that the percentage of our independent director compensation paid in equity was below the median of the comparison group practice of 61%, while the retainer for thenon-executive Chairman was at the 25th percentile of the comparison group practice. Cook recommended that thenon-executive Chairman retainer should be reviewed for reasonableness and appropriateness in light of the strategic importance of the position to our Company, the skill set and experience of the Chairman, and the expected time commitment.
After considering Cook’s market data, analysis and recommendations, the Nominating and Governance Committee made two changes to the independent director compensation in light of the expanding scope of the Company’s business as well as the time commitment associated with attending Board meetings in the U.K. The Nominating and Governance Committee increased the equity portion of the annual retainer of $240,000 per year.our independent directors by $25,000. We now pay $145,000 of the retainer in restricted stock, and $120,000 of the retainer in cash, for a total annual retainer of $265,000. The Nominating and $120,000Governance Committee also increased the annual retainer paid to thenon-executive Chairman, which had not been increased for several years and, as a result, was at the 25th percentile of the peer group practice. In 2017, the Chairman’s annual retainer in restricted stock.was increased from $125,000 to $225,000. A director may elect to receive up to his or her entire annual retainer (plus the additional amounts described below) in restricted stock.
How are Directors Compensated?
The restricted stock vests on the day immediately prior to the next Annual General Meeting following the grant of the stock. However, if, prior to such vesting date, either (i) a change in control (as defined in the Assured Guaranty Ltd. 2004Long-Term Incentive Plan, as amended) of Assured Guaranty Ltd. occurs before the director terminates service on the Board or (ii) the director terminates service on the Board as a result of such director’s death or disability, then the restricted stock will vest on the date of such change in control or the date of the director’s termination of service, whichever is applicable. Grants of restricted stock receive cash dividends and have voting rights; the cash dividends accrue during the vesting period and are paid upon vesting.
OurIn addition to the annual retainers described above:
The Company generally will not pay a fee for attendance at Board or committee meetings, although the Chairman of the Board has the discretion to pay attendance fees of $2,000 for extraordinary or special meetings. There were no extraordinary or special meetings of the Board in 2017. We do not pay a fee for being a member, or attending meetings, of the Executive Committee.
In addition to the annual retainers paid to independent directors, Cook also reviewed the director stock ownership requirements. Cook noted that because the director stock ownership guidelines are expressed as the greater of 25,000 shares or a multiple of the cash portion of thenon-employee director retainer, the dollar value of the ownership requirement fluctuates based on changes in our Company’s stock price until the ownership guideline is met. Cook found that the ownership requirement expressed as a multiple of the cash retainer and as a dollar value is above the 75th percentile of the peer group practice, and above the ISS best practice of five times the current annual cash retainer. Cook suggested the Nominating and Governance Committee consider moving to a guideline of five times the current annual cash retainer with no minimum share ownership requirement. The Nominating and Governance Committee considered Cook’s suggestion and increased the share ownership guidelines to five times the current cash annual retainer to be consistent with best practices but did not eliminate the 25,000 share ownership component since doing so would reduce the share ownership guideline.
As recently revised, our share ownership guidelines require that each independent director own the greater of (i) at least 25,000 Common Shares or (ii) Common Shares with a market value of at least threefive times the maximum cash portion of the annual director retainer, before being permitted to dispose of any shares acquired as compensation from our Company. Once a director has reached the share ownership guideline, for so long as he or she serves on the Board, such director may not dispose of any Common Shares if such disposition would cause the director to be below the share ownership guideline. Common Shares that had been restricted but subsequently vested and purchased Common Shares count toward the share ownership guideline. Our fivefour longest serving independent directors meet our share ownership guidelines. Our five newer Board members (Ms. Howard, who joined the Board in August 2012; Mr. Leathes, who joined the Board in May 2013; Ms. Omura, who joined the Board in May 2014; and Messrs. Jones and Kreczko, who joined the Board in August 2015) are accumulating Common Shares toward their ownership goals.
In 2016, the committee fees were the same as those established by the Nominating and Governance Committee in 2015, except that Mr. Borges agreed to forgo an additional fee as the Chairman of the Nominating and Governance Committee due to the substantial overlap between that position and his position as the Chairman of the Board. Specifically:
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The Company generally will not pay a fee for attendance at Board or committee meetings, although the Chairman of the Board has the discretion to pay attendance fees of $2,000 for extraordinary or special meetings. In 2016, the Board held one special meeting but the directors did not receive an attendance fee for such meeting. We do not pay a fee for being a member, or attending meetings, of the Executive Committee.
The following table sets forth our 2016non-management2017 independent director compensation, which was paid in May 2016, including the compensation for the directors’ committee assignments as of such date.
Name | Fees Earned or Paid in Cash | Stock Awards(1) | All Other Compensation(2) | Total | Fees Earned or Paid in Cash | Stock Awards(1) | All Other Compensation(2) | Total | ||||||||||||||||||||||||
Francisco L. Borges(3) | $ | 245,000 | $ | 120,000 | $ | 10,000 | $ | 375,000 |
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$345,000
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$145,000
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|
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$16,059
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$
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506,059
|
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G. Lawrence Buhl | $ | 165,000 | $ | 120,000 | $ | 16,352 | $ | 301,352 |
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$165,000
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$145,000
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$26,382
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$
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336,382
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Stephen A. Cozen(4) | — | — | — | — | ||||||||||||||||||||||||||||
Bonnie L. Howard | $ | 165,000 | $ | 120,000 | $ | 14,957 | $ | 299,957 |
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$165,000
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|
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$145,000
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$16,118
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$
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326,118
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Thomas W. Jones | $ | 150,000 | $ | 120,000 | $ | 16,203 | $ | 286,203 |
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$150,000
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$145,000
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$31,570
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$
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326,570
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Patrick W. Kenny(5) | $ | 165,000 | $ | 120,000 | $ | 19,979 | $ | 304,979 | ||||||||||||||||||||||||
Alan J. Kreczko(6) | $ | 150,000 | $ | 120,000 | $ | 27,605 | $ | 297,605 | ||||||||||||||||||||||||
Simon W. Leathes(7) | $ | 217,584 | $ | 120,000 | $ | 614 | $ | 338,198 | ||||||||||||||||||||||||
Patrick W. Kenny(4)
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$165,000
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$145,000
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|
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$23,838
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$
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333,838
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Alan J. Kreczko(5)
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$150,000
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$145,000
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$23,835
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$
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318,835
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Simon W. Leathes(6)
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$239,457
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$145,000
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$675
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$
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385,132
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Michael T. O’Kane | $ | 165,000 | $ | 120,000 | $ | 17,261 | $ | 302,261 |
|
$165,000
|
|
|
$145,000
|
|
|
$8,806
|
|
$
|
318,806
|
| ||||||||||||
Yukiko Omura | $ | 150,000 | $ | 120,000 | — | $ | 270,000 |
|
$150,000
|
|
|
$145,000
|
|
|
—
|
|
$
|
295,000
|
|
(1) | Represents grant date fair value, rounded to the nearest $1,000. |
(2) | Other compensation consists of matching gift donations |
(3) | Mr. Borges agreed to forgo an additional fee as the Chairman of the Nominating and Governance Committee due to the substantial overlap between that position and his position as the Chairman of the Board and elected to receive the entire cash component of his compensation as restricted stock. |
(4) | Mr. |
Mr. Kreczko elected to receive the entire cash component of his compensation as restricted stock. |
The fees for Mr. Leathes include £55,000 (which was approximately |
The following table shows information related to independent director equity awards outstanding on December 31, 2016:2017:
Name | Unvested Restricted Stock(1) | Vested Restricted Share Units(2) | Vested Stock Options | Unvested Restricted Stock(1) | Vested Stock Options | |||||||||||||||
Francisco L. Borges | 14,275 | 6,985 | 7,658 |
|
12,919
|
|
|
7,658
|
| |||||||||||
G. Lawrence Buhl | 4,693 | 15,821 | 7,026 |
|
3,823
|
|
|
7,026
|
| |||||||||||
Bonnie L. Howard | 4,693 | — | — |
|
3,823
|
|
|
—
|
| |||||||||||
Thomas W. Jones | 4,693 | — | — |
|
3,823
|
|
|
—
|
| |||||||||||
Patrick W. Kenny | 5,866 | 27,080 | 13,561 |
|
6,591
|
|
|
13,561
|
| |||||||||||
Alan J. Kreczko | 10,559 | — | — |
|
7,777
|
|
|
—
|
| |||||||||||
Simon W. Leathes | 4,693 | — | — |
|
3,823
|
|
|
—
|
| |||||||||||
Michael T. O’Kane | 4,693 | 16,654 | 7,026 |
|
3,823
|
|
|
7,026
|
| |||||||||||
Yukiko Omura | 4,693 | — | — |
|
3,823
|
|
|
—
|
|
(1) | Vests one day prior to the |
What is Our Board Leadership Structure?
WHAT IS OUR BOARD LEADERSHIP STRUCTURE?
Our current Chairman of the Board is Francisco L. Borges. The position of CEO is held by Dominic Frederico.
While the Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and CEO, those two positions have been held by separate individuals since our 2004 initial public offering. We believe this is the appropriate leadership
8
structure for us at this time. Mr. Borges and Mr. Frederico have had an excellent working relationship, which has continued to permit Mr. Frederico to focus on running our business and Mr. Borges to focus on Board matters, including oversight of our management. Mr. Borges and Mr. Frederico collaborate on setting agendas for Board meetings to be sure that the Board discusses the topics necessary for its oversight of the management and affairs of our Company. As Chairman of the Board, Mr. Borges sets the final Board agenda and chairs Board meetings, including executive sessions at which neither theour CEO nor any other member of management is present. The Chairman of the Board also chairs our Annual General Meetings.
HOW DOES THE BOARD OVERSEE RISK?
The Board’s role in risk oversight is consistent with our leadership structure, with theour CEO and other members of senior management having responsibility for assessing and managing risk exposure and the Board and its committees providing oversight in connection with these activities. Our Company’s policies and procedures relating to risk assessment and risk management are overseen by our Board. The Board takes anenterprise-wide approach to risk management that is designed to support our business plans at a reasonable level of risk. A fundamental part of risk assessment and risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. The Board annually approves our business plan, factoring risk management into account. The involvement of the Board in setting our business strategy is a key part of its assessment of management’s risk tolerance and also a determination of what constitutes an appropriate level of risk for us.
While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk assessment and risk management. As discussed under “Committees of the Board,” the Board has created a Risk Oversight Committee that oversees the standards, controls, limits, guidelines and policies that our Company establishes and implements in respect of credit underwriting and risk management. It focuses on management’s assessment and management of both (i) credit risks and (ii) other risks, including, but not limited to, financial, legal and operational risks (including cybersecurity risks), and risks relating to our reputation and ethical standards. Our Risk Oversight Committee and Board pay particular attention to credit risks we assume when we issue financial guaranties.guaranties or engage in strategic transactions. In addition, the Audit Committee of the Board of Directors is responsible for reviewing policies and processes related to the evaluation of risk assessment and risk management, including our major financial risk exposures and the steps management has taken to monitor and control such exposures. It also reviews compliance with legal and regulatory requirements. The Finance Committee of the Board of Directors oversees the investment of the Company’s investment portfolio and the Company’s capital structure, financing arrangements and any corporate development activities in support of the Company’s financial plan. The Nominating and Governance Committee of the Board of Directors oversees risk at the Company by developing appropriate corporate governance guidelines and identifying qualified individuals to become board members.
As part of its oversight of executive compensation, the Compensation Committee reviews compensation risk. The Compensation Committee oversaw the performance of a risk assessment of our employee compensation program to determine whether any of the risks arising from our compensation program are reasonably likely to have a material adverse effect on us. Since January 2011, the Compensation Committee has retained Cook to perform an annual review of each of our compensation plans and identify areas of risk and the extent of such risk. The Compensation Committee directs that our Chief Risk Officer work with Cook to perform such risk assessment and to be sure that compensation risk is included in our enterprise risk management system. In conducting this assessment, Cook performs a systemic, qualitative review of all of our incentive compensation programs and reviews its findings with our Chief Risk Officer for completeness and accuracy. Cook seeks to identify any general areas of risk or potential for unintended consequences that exist in the design of our compensation programs and to evaluate our incentive plans relative to our enterprise risks to identify potential areas of concern, if any.
Cook undertook a compensation risk assessment most recently in 2017February 2018 and concluded that our incentive plans arewell-aligned with sound compensation design principles and do not encourage behaviors that would create material risk for our Company. Our Chief Risk Officer reviewed their findings and agreed with their conclusion. Based on this update, the Compensation Committee continued to find that there is an appropriate balance between the risks inherent in our business and our compensation program.
COMPENSATION COMMITTEE INTERLOCKING AND INSIDER PARTICIPATION
The Compensation Committee of our Board of Directors has responsibility for determining the compensation of our executive officers. None of the members of the Compensation Committee is a current or former officer or employee of our Company. No executive officer of our Company serves on the compensation committee of any company that employs any member of the Compensation Committee.
WHAT IS OUR RELATED PERSON TRANSACTIONS APPROVAL POLICY AND WHAT PROCEDURES DO WE USE TO IMPLEMENT IT?
Through our committee charters, we have established review and approval policies for transactions involving our Company and related persons, with the Nominating and Governance Committee taking the primary approval responsibility for transactions with our executive officers and directors and the Audit Committee taking the primary approval responsibility for transactions with 5% shareholders. No member of these committees who has an interest in a transaction being reviewed is allowed to participate in any decision regarding any such transaction.
9
Our Nominating and Governance Committee charter requires the Nominating and Governance Committee to review and approve or disapprove of all proposed transactions with executive officers and directors that, if entered into, would be required to be disclosed pursuant to Item 404 ofRegulation S-K, the SEC provision which requires disclosure of any related person transaction with our Company that exceeds $120,000 per fiscal year. The Nominating and Governance Committee must also review reports, which our General Counsel provides periodically, and not less often than annually, regarding transactions with executive officers and directors (other than compensation) that have resulted, or could result, in expenditures that are not required to be disclosed pursuant to Item 404 ofRegulation S-K.
Our Audit Committee charter requires our Audit Committee to review and approve or disapprove all proposed transactions with any person owning more than 5% of any class of our voting securities that, if entered into, would be required to be disclosed pursuant to Item 404 ofRegulation S-K. In addition, our Audit Committee charter requires the Audit Committee to review reports regarding such transactions, which our General Counsel provides to the Audit Committee periodically, and not less often than annually, regarding transactions with any persons owning more than 5% of any class of the voting securities of AGL that have resulted, or could result, in expenditures that are not required to be disclosed pursuant to Item 404 ofRegulation S-K. Our Audit Committee charter also requires the Audit Committee to review other reports and disclosures of insider and affiliated party transactions which our General Counsel provides periodically, and not less often than annually.
Our General Counsel identifies related party transactions requiring committee review pursuant to our committee charters from transactions that are:
If we have a related person transaction that requires committee approval in accordance with the policies set forth in our committee charters, we either seek that approval before we enter into the transaction or, if that timing is not practical, we ask the appropriate committee to ratify the transaction.
WHAT RELATED PERSON TRANSACTIONS DO WE HAVE?
From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of a class of our voting securities and, as a result, are considered “related persons” under the SEC’s rules. These organizations may provide services to us. In 2016,2017, the following transactions occurred with investors who reported beneficial ownership of 5% or more of our voting securities.
As indicated in “Which Shareholders Own More Than 5% of Our Common Shares,” Wellington Management Group LLP, (Wellington Management)which we refer to as Wellington Management, and BlackRock, Inc. (BlackRock), which we refer to as BlackRock, own approximately 8.29%8.25% and 5.35%5.18% of AGL’s Common Shares outstanding, respectively, as of March 8, 2017,2018, based on the amount of Common Shares they reported in their Schedule 13G
What Related Person Transactions Do We Have?
filings. We appointed both Wellington Management and BlackRock as investment managers to manage certain of our investment accounts prior to their reaching such ownership thresholds. As of December 31, 2016,2017, Wellington Management managed approximately $2.3 billion of our investment assets, which is approximately 20% of our total fixed maturity and short-term investment portfolio, and BlackRock managed approximately $2.4 billion of our investment assets, which is approximately 21% of our total fixed maturity andshort-term investment portfolio, and BlackRock managed approximately $2.4 billion of our investment assets, which is approximately 22% of our total fixed maturity and short-term investment portfolio. In 2016,2017, we incurred expenses of approximately $1.9$1.8 million related to our investment management agreement with Wellington Management and $2.3 million with respect to our investment management and investment reporting agreements with BlackRock.
In addition, as previously disclosed, we repurchased 297,131 common shares from our CEO and 23,062 common shares from our then General Counsel on January 6, 2017 at a per share price equal to $38.73, the closing price of one of our Common Shares on the New York Stock Exchange on such date, with our CEO receiving aggregate proceeds of $11,507,883.63 and our then General Counsel receiving aggregate proceeds of $893,191.26 from such repurchases. Our CEO and then General Counsel also separately received 297,131 and 23,062 Common Shares, respectively, on January 6, 2017 in settlement of 297,131 share units and 23,062 share units which such officers held in the employer stock fund of the Assured Guaranty Ltd. Supplemental Employee Retirement Plan that were required to be distributed in January 2017 to comply with requirements of IRC Sections 409A and 457A.457A of the Internal Revenue Code of 1986, as amended.
DID OUR INSIDERS COMPLY WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING IN 2016?2017?
Our executive officers and directors are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We believe that all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act on a timely basis during fiscal year 2016, except that due to an administrative error, Mr. Borges was late in reporting four purchase transactions, which have subsequently been reported.2017.
10
PROPOSAL NO. 1:ELECTION OF DIRECTORS
GENERAL
OurBye-Laws provide for a maximum of 21 directors and empower our Board of Directors to fix the exact number of directors and appoint persons to fill any vacancies on the Board until the next Annual General Meeting. The Board may appoint any person as a director to fill a vacancy on the Board occurring as the result of any existing director being removed from office pursuant to theBye-Laws or prohibited from being director by law; being or becoming bankrupt or making any arrangement or composition with his or her creditors generally; being or becoming disqualified, of unsound mind, or dying; or resigning. The Board may also appoint a person as a director to fill a vacancy resulting from an increase in the size of the Board or a vacancy left unfilled at an Annual General Meeting.
Our Board currently consists of 10 members. Following the recommendation of the Nominating and Governance Committee, our Board of Directors has nominated Francisco L. Borges, G. Lawrence Buhl, Dominic J. Frederico, Bonnie L. Howard, Thomas W. Jones, Patrick W. Kenny, Alan J. Kreczko, Simon W. Leathes, Michael T. O’Kane and Yukiko Omura as directors of AGL. Proposal No. 1 is Item 1 on the proxy card.
Our directors are elected annually to serve until their respective successors shall have been elected.
The board of directors recommends that you vote “FOR” the election of the nominees as directors of AGL. |
It is the intention of the persons named as proxies, subject to any direction to the contrary, to vote in favor of the candidates nominated by the Board of Directors. We know of no reason why any nominee may be unable to serve as a director. If any nominee is unable to serve, your proxy may vote for another nominee proposed by the Board, or the Board may reduce the number of directors to be elected.
We have set forth below information with respect to the nominees for election as directors. There are no arrangements or understandings between any director and any other person pursuant to which any director was or is selected as a director or nominee.
Nominees for Director
DIRECTOR TENURE 8.7 YEARS Average Tenure 5 4 1 0-5 years 6-10 years 11-15 years
11
NOMINEES FOR DIRECTOR
Francisco L. Borges
Chairman of the Board
Director Since:2007
Committee Memberships:
Nominating and Governance (Chair), Executive (Chair) |
Qualifications:
Mr. Borges has expertise in finance arising from his experience structuring and marketing financial guaranty insurance. In addition, his public service background has given him insight on public finance. His current position gives Mr. Borges insights into the financial markets in which our Company operates. Each of these areas is important to our business.
Biography:
Mr. Borges, age 65,66, became a director of AGL in August 2007, and has been Chairman of our Board of Directors since May 2015. He is Chairman of Landmark Partners, LLC, an alternative investment management firm where he has been employed since 1999. Prior to joining Landmark, Mr. Borges was managing director of GE Capital’s Financial Guaranty Insurance Company and capital markets subsidiaries. Mr. Borges is a former Treasurer for the State of Connecticut and a former Deputy Mayor of the City of Hartford, Connecticut.
Mr. Borges serves on the board of directors for Connecticut Public Broadcasting Network, the Knight Foundation, and Millbrook School. He is also a member of the board of directors of Davis Selected Funds, where he serves on the Pricing Committee, and Leucadia National Corporation, where he serves on the Audit Committee and the Nominating and Governance Committee.
G. Lawrence Buhl
Independent Director
Director Since: 2004
Committee Memberships:
Audit (Chair), Compensation |
Qualifications:
Mr. Buhl’s insurance and Board experience and his knowledge of specific financial reporting requirements applicable to financial guaranty companies and familiarity with compliance, finance, governance, control environment and risk management requirements and processes for public companies and the financial guaranty industry benefit the Board in its deliberations and oversight.
Biography:
Mr. Buhl, age 70,71, became a director of AGL upon completion of our 2004 initial public offering. Through 2003, Mr. Buhl served as the Regional Director for Insurance Services in Ernst & Young LLP’s Philadelphia, New York and Baltimore offices and as audit engagement partner for insurance companies, including those in the financial guaranty industry.
Mr. Buhl began in 2004 to serve as a director for Harleysville Group, Inc. (NASDAQ: HGIC) and its majority shareholder, Harleysville Mutual Insurance Company, through their 2012 merger/combination with Nationwide Mutual Insurance Company and served on an Advisory Board to Nationwide through April 2014. Mr. Buhl has been a member of the Board of Directors of Penn National Insurance Group in Harrisburg, PA since April 2015 and is also an emeritus member of the Board of Sponsors of the Sellinger School of Business and Management of Loyola University Maryland.
12
Dominic J. Frederico
Chief Executive Officer
Director Since:2004
Committee Memberships:
Executive |
Qualifications:
Mr. Frederico has the most comprehensive knowledge of all aspects of our operations as well as executive experience. He also has extensive industry experience, which makes him valuable both as an officer and as a director of AGL.
Biography:
Mr. Frederico, age 64,65, has been a director of AGL since our 2004 initial public offering, and the President and Chief Executive Officer of AGL since 2003. Mr. Frederico served as Vice Chairman of ACE Limited from 2003 until 2004 and served as President and Chief Operating Officer of ACE Limited and Chairman of ACE INA Holdings, Inc. from 1999 to 2003. Mr. Frederico was a director of ACE Limited from 2001 through May 2005. From 1995 to 1999 Mr. Frederico served in a number of executive positions with ACE Limited. Prior to joining ACE Limited, Mr. Frederico spent 13 years working for various subsidiaries of the American International Group.
Bonnie L. Howard
Independent Director
Director Since:2012
Committee Memberships:
Risk Oversight (Chair),
Nominating and Governance |
Qualifications:
Ms. Howard’s background in audit, finance and enterprise risk management is valuable to the Board in its oversight of our financial reporting and credit and risk management policies.
Biography:
Ms. Howard, age 63,64, became a director of AGL in August 2012. Ms. Howard has more than 30 years of experience in credit, risk management and financial reporting policies. She worked at Citigroup, Inc. from 2003 to 2011, serving as Chief Auditor from 2004 to 2011 and Global Head of Control and Emerging Risk from 2010 to 2011, leading a team of over 1,500 professionals covering $1.9 trillion of assets in over 100 countries, until her retirement in 2011. She was previously Managing Director of Capital Markets Audit at Fleet Boston Financial and a Managing Director at JPMorgan in the roles of Deputy Auditor and head of Global Markets Operational Risk Management. Ms. Howard is a certified public accountant in the United States and has over a decade of experience with KPMG and Ernst and& Young.
Ms. Howard currently serves on the board of directors of BMO Financial Corp., where she is a member of the Audit Committee. She is also a member ofCommittee, and the board of directors of BMO Harris Bank N.A., where she chairs the Directors’ Trust Committee and the Audit Committee. Ms. Howard also serves on the board of directors of Artisan Partners Fund.
13
Nominees for Director
Thomas W. Jones
Independent Director
Director Since:2015
Committee Memberships:
Audit,
Finance |
Qualifications:
Mr. Jones’ background has given him extensive experience in investment management and in the operations of large financial institutions, which is valuable to the Board. His previous service on the boards of other financial services companies and the Federal Reserve Bank of New York adds value to the Board and Board committee deliberation.deliberations.
Biography:
Mr. Jones, age 67,68, became a director of AGL in August 2015. Mr. Jones is the founder and senior partner of venture capital firm TWJ Capital LLC. Prior to founding TWJ Capital in 2005, he was the chief executive officer of Global Investment Management at Citigroup, which included Citigroup Asset Management, Citigroup Alternative Investments, Citigroup Private Bank and Travelers Life & Annuity. Earlier, he held a series of positions at TIAA-CREF, including vice chairman and director, president and chief operating officer, and executive vice president and chief financial officer, and at John Hancock Mutual Life Insurance Company, where he rose to senior vice president and treasurer. He began his career in public accounting and management consulting, primarily at Arthur Young & Company (predecessor to Ernst & Young).
Mr. Jones is a current director of Altria Group, where he is a member of the Compensation, Finance and Audit committees. A trustee emeritus of Cornell University, Mr. Jones has served on numerous boards in the past, including those of the Federal Reserve Bank of New York (where he was vice chairman), Altria Group, Freddie Mac, Travelers Group, Fox Entertainment Group, Pepsi Bottling Group and TIAA-CREF. Mr. Jones has been designated Board Leadership Fellow by the National Association of Corporate Directors (NACD), and is a licensed Certified Public Accountant (CPA).
Patrick W. Kenny
Independent Director
Director Since:2004
Committee Memberships:
Compensation (Chair), Nominating and Governance, Executive |
Qualifications:
Mr. Kenny has extensive insurance industry experience, including executive experience within the industry. In addition, the Board benefits from Mr. Kenny’s experience as an accountant.
Biography:
Mr. Kenny, age 74,75, became a director of AGL upon completion of our 2004 initial public offering. He served as the President and Chief Executive Officer of the International Insurance Society in New York, an organization dedicated to fostering the exchange of ideas through a program of international seminars and sponsored research, from 2001 to 2009. From 1998 to 2001, Mr. Kenny served as executive vice president of Frontier Insurance Group, Inc. From 1995 to 1998, Mr. Kenny served as senior vice president of SS&C Technologies. From 1988 to 1994, Mr. Kenny served as Group Executive, Finance & Administration and Chief Financial Officer of Aetna Life & Casualty.
Mr. Kenny serves on the board of directors of several Voya funds.funds, where he is a member of the Audit Committee and, until 2018, was the Chairperson of the Nominating and Governance Committee. Until December 2009, Mr. Kenny was a director and member of the Audit and the Compensation committees of Odyssey Re Holdings Corp. Mr. Kenny was also a director of the Independent Order of Foresters from 1997 to 2009.
14
Alan J. Kreczko
Independent Director
Director Since:2015
Committee Memberships: Audit, Finance |
Qualifications:
Mr. Kreczko’s lengthy service in senior legal and policy positions both in the federal government and in the insurance industry, andas well as the global and governmental perspective he has gained, are valuable to the Board.
Biography:
Mr. Kreczko, age 65,66, became a director of Assured Guaranty Ltd.AGL in August 2015. Mr. Kreczko retired from The Hartford Financial Services Group, Inc. (“, which we refer to as The Hartford”)Hartford, on December 31, 2015, where he served as executive vice president and general counsel from June 2007 until June 2015. In that capacity, Mr. Kreczko oversaw the law department, government affairs, compliance and communications. Additionally he chaired The Hartford’s Environment Committee. From June 2015 until December 2015, he served as Special Advisor to the CEO.
HeMr. Kreczko joined The Hartford in 2003 after 27 years in public service at the United States Department of State, where he held various senior positions. As the Acting Assistant Secretary of State for Population, Refugees and Migration, he led the department’s response to humanitarian crises in conflict situations, including Afghanistan, Timor, and West Africa. Before that, Mr. Kreczko served as special assistant to President Clinton and legal advisor to the National Security Council. Earlier, he participated in sensitive bilateral and multilateral negotiations as deputy general counsel to the Department of State and as legal advisor to the personal representatives for Middle East negotiations of Presidents Carter and Reagan. Mr. Kreczko is the Executive Vice Chair of the Boys and Girls Clubs of Hartford and serves on the board of directors of the Mark Twain House.
Simon W. Leathes
Independent Director
Director Since:2013
Committee Memberships: Compensation, Risk Oversight, Executive |
Qualifications:
Mr. Leathes’ considerable experience in investment and risk management, as well the institutional knowledge gained through his directorships of our Company’s U.K. affiliates, is valuable to the Board and its committees.
Biography:
Mr. Leathes, age 69,70, joined the Board of AGL in May 2013. SinceFrom 2012 to 2017, Mr. Leathes has beenwas anon-executive director of HSBC Bank plc and iswas a member of its Risk Committee and its Audit Committee; he iswas also anon-executive director and member of the Audit and Risk Committees of HSBC Trinkaus & Burkhardt AG. In December 2011, he became an independent,non-executive director of our Company’s U.K. insurance subsidiaries, Assured Guaranty (Europe) Ltd.plc and Assured Guaranty (UK) Ltd.;plc; in January 2017 he was appointed to the samenon-executive director role with Assured Guaranty (London) Ltd.plc after it was acquired by our Company. Since 1996, Mr. Leathes has served as anon-executive director ofHSB-Engineering Insurance Ltd., a U.K. subsidiary of Munich Re, where he iswas the chairman of the Audit and Finance committee.
Mr. Leathes served as Vice Chairman and Managing Director of Barclays Capital, the investment banking subsidiary of Barclays plc, from January 2001 until his retirement in December 2006. In addition, he served from 2001 to 2010 as anon-executive director of Kier Group plc, a company listed on the London Stock Exchange, where he also served as chairman of the Audit Committee and a member of the Remuneration and Nominations committees. Until June 2014, Mr. Leathes served as the chairman of the trustees of the Kier Group Pension Scheme.
15
Nominees for Director
Michael T. O’Kane
Independent Director
Director Since:2005
Committee Memberships: Finance (Chair), Audit |
Qualifications:
Mr. O’Kane’s background has given him considerable experience in investment and risk management, both of which are key aspects of our business and are important to the Board and Board committee deliberation.
Biography:
Mr. O’Kane, age 71,72, became a director of AGL in August 2005. From 1986 until his retirement in August 2004, Mr. O’Kane was employed at TIAA-CREF (financial products) in a number of different capacities, most recently as Senior Managing Director, Securities Division. In that capacity, he oversaw approximately $120 billion of fixed income assets and approximately $3.5 billion of private equity fund investments. Since
From 2006 to 2013, Mr. O’Kane served as a director of Jefferies Group, Inc., where he was a member of the Audit, Compensation and Governance committees. In March 2013, Jefferies merged into Leucadia National Corporation, where Mr. O’Kane now serves as the lead director and as a member of the Compensation and the Nominating and Governance committees.
Yukiko Omura
Independent Director
Director Since:2014
Committee Memberships: Finance, Risk Oversight |
Qualifications:
Ms. Omura brings more than 30 years of international professional experience in the financial sector working in all major financial centers of the world. Her global experience adds considerable value to the Board.
Biography:
Ms. Omura, age 61,62, joined the Board of AGL in May 2014. She is anon-executive director of Nishimoto HD Co. Ltd. and anon-executivemember of the Board of Directors of GuarantCo (established by the Private Infrastructure Development Group, organization), where she is chair of the Asset and Liability Management Committee andBoard of its subsidiary, GuarantCo. Ms. Omura has been nominated to be a memberdirector of the Audit, Credit and New Business committees;HSBC Bank Plc. Ms. Omura was a Supervisory Board Member of Amatheon Agri Holding N.V.; and an Advisory Board Member of CG/LA Infrastructure. Ms. Omura is also anon-executive director of Nishimoto HD Co. Ltd. until March 2018. She served as Undersecretary General and Vice PresidentPresident/COO of the International Fund for Agricultural Development (IFAD) until February 2012 and, prior to that, as Executive Vice President and CEO of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group.
Ms. Omura began her career as a project economist with the Inter-American Development Bank, working in the infrastructure sector. She then worked in senior positions at several major investment banks in Tokyo, New York and London over the course of her career, including JP Morgan, Lehman Brothers, UBS and Dresdner Bank. At UBS and Dresdner Bank, she was the Managing Director and Head of Global Markets and Debt Office,Division, Japan.
In 2002, Ms. Omura created the HIV/AIDS Prevention Fund, a charitable company based in London.
16
INFORMATION ABOUT OUR COMMON SHARE OWNERSHIP
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table sets forth information, as of March 8, 2017,2018, the record date for our Annual General Meeting, except as otherwise expressly provided, regarding the beneficial ownership of our Common Shares by our directors and executive officers whose compensation is reported in the compensation tables that appear later in this proxy statement, to whom we refer as our named executive officers, and by the group comprising our directors, and those persons who, as of December 31, 2017, constituted our named executive officers as a group.and other executive officers. Unless otherwise indicated, the named individual has sole voting and investment power over the Common Shares under the column “Common Shares Beneficially Owned.” The Common Shares listed for each director and executive officer constitute less than 1% of our outstanding Common Shares, except that Mr. Frederico beneficially owns approximately 1.31%1.39% of our Common Shares. The Common Shares beneficially owned by all directors, named executive officers and other executive officers as a group constitute approximately 2.62%2.54% of our outstanding Common Shares.
Name of Beneficial Owner | Common Shares Beneficially Owned | Unvested Restricted Common Shares(1) | Restricted Share Units(2) | Common Shares Subject to Option(3) | Common
| Unvested
| Restricted
| Common
| ||||||||||||||||||||||||
Robert A. Bailenson | 112,429 | — | 155,051 | 53,558 | 144,398 | — | 158,863 | 43,558 | ||||||||||||||||||||||||
Francisco L. Borges | 192,878 | 14,275 | — | 7,658 | 203,981 | 12,919 | — | 7,658 | ||||||||||||||||||||||||
Russell B. Brewer II | 99,327 | — | 108,196 | 29,362 | 126,713 | — | 104,476 | 29,362 | ||||||||||||||||||||||||
G. Lawrence Buhl | 47,262 | 4,693 | — | 7,026 | 48,394 | 3,823 | — | 7,026 | ||||||||||||||||||||||||
Dominic J. Frederico | 1,108,659 | (4) | — | �� | 520,388 | 512,055 | ||||||||||||||||||||||||||
Dominic J. Frederico(4) | 1,286,467 | — | 508,944 | 312,055 | ||||||||||||||||||||||||||||
Bonnie L. Howard | 19,197 | 4,693 | — | — | 22,874 | 3,823 | — | — | ||||||||||||||||||||||||
Thomas W. Jones | 8,844 | 4,693 | — | — | 12,521 | 3,823 | — | — | ||||||||||||||||||||||||
Patrick W. Kenny | 48,136 | 5,866 | — | 13,561 | 50,322 | 6,591 | — | 13,561 | ||||||||||||||||||||||||
Alan J. Kreczko | 7,623 | 10,559 | — | — | 15,846 | 7,777 | — | — | ||||||||||||||||||||||||
Simon W. Leathes | 8,388 | 4,693 | — | — | 11,009 | 3,823 | — | — | ||||||||||||||||||||||||
James M. Michener | 287,266 | — | 101,558 | — | ||||||||||||||||||||||||||||
James M. Michener(5) | 206,281 | — | 94,978 | — | ||||||||||||||||||||||||||||
Michael T. O’Kane | 43,126 | 4,693 | — | 7,026 | 46,803 | 3,823 | — | 7,026 | ||||||||||||||||||||||||
Yukiko Omura | 4,964 | 4,693 | — | — | 7,585 | 3,823 | — | — | ||||||||||||||||||||||||
Bruce E. Stern | 90,809 | — | 69,918 | 24,925 | 109,287 | — | 69,346 | 24,925 | ||||||||||||||||||||||||
All directors and executive officers as a group (15 individuals) | 2,174,377 | 58,858 | 1,049,955 | 694,590 | ||||||||||||||||||||||||||||
All directors and executive officers as a group (15 individuals)(6) | 2,406,399 | 50,225 | 1,026,587 | 472,590 |
(1) | The reporting person has the right to vote (but not dispose of) the Common Shares listed under “Unvested Restricted Common Shares.” |
(2) | The Common Shares associated with restricted share units are not deliverable as of March 8, |
This column includes 37,907 share units allocated to Mr. Bailenson and 28,872 share units allocated to another executive officer, due to their elections to invest a portion of their AG US Group Services Inc. Supplemental Executive Retirement Plan accounts in an employer stock fund.
This column includes 37,907 share units allocated to Mr. Bailenson and 28,872 share units allocated to another executive officer, due to their elections to invest a portion of their AG US Group Services Inc. Supplemental Executive Retirement Plan accounts in an employer stock fund. |
(3) | Represents Common Shares which the reporting person has the right to acquire as of March 8, |
(4) |
(5) | ||
Which Shareholders Own More Than 5% of Our Common Shares?
(6) | Giving effect to the resignation of Mr. Michener as General Counsel and Secretary and as an executive officer of AGL as of December 31, 2017 and the addition of two new executive officers in early 2018, as of March 8, 2018, for all directors and executive officers as a group (16 individuals), the total Common Shares beneficially owned was 2,286,917, the unvested restricted Common Shares was 50,225, the Restricted Share Units was 1,030,600, and the Common Shares subject to option was 512,514. |
17
WHICH SHAREHOLDERS OWN MORE THAN 5% OF OUR COMMON SHARES?
The following table shows all persons we know to be direct or indirect owners of more than 5% of our Common Shares as of the close of business on March 8, 2017,2018, the record date for the Annual General Meeting, except to the extent indicated. On March 8, 2017, 124,130,7842018, 114,967,800 Common Shares were outstanding, including 58,85850,225 unvested restricted Common Shares. Our information is based on reports filed with the SEC by each of the firms listed in the table below. You may obtain these reports from the SEC.
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent | ||||||
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 |
| 11,681,093(1) |
| 10.16% | ||||
Wellington Management Group LLP c/o Wellington Management Company LLP 280 Congress Street Boston, MA 02210 |
| 9,482,550(2) |
| 8.25% | ||||
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 |
| 5,952,374(3) |
| 5.18% |
(1) | Based on a Schedule 13G/A filed by The Vanguard Group on February |
(2) | Based on a Schedule 13G/A filed by Wellington Management Group LLP on February |
(3) | Based on a Schedule |
18
COMPENSATION DISCUSSION AND ANALYSIS
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Our executive compensation program is designed to attract and retain talented and experienced business leaders who drive our corporate strategies and buildlong-term shareholder value.
The Guiding Principlesguiding principles of Our Programour program are:
Pay for
by providing an incentive for exceptional performance and the possibility of reduced compensation if executives are unable to successfully execute our strategies |
Accountability
for |
Alignment
with |
Retention
of highly |
We assess performance usingpre-established measures of success that are tied to our key business strategies. We encourage balanced performance, measured relative to financial,non-financial and share price goals, and discourage excessive risk taking or undue leverage by avoiding too much emphasis on any one metric or onshort-term results.
Our Compensation DiscussionCommittee determines our executive officers’ compensation in February of each year, with much of the compensation based on quantitative and Analysis—Summary
qualitative performance goals, objectives and formulas established at the beginning of the relevant year for performance during that year, which we refer to as our performance year. Accordingly, in February 2018 our Compensation Committee determined our executive officers’ performance-based cash awards, performance-based equity awards and time-based equity awards based on their performance during the 2017 calendar year, which we refer to as the 2017 performance year. These compensation components are backward-looking, in the sense that they reflect performance in the just completed performance year. Also in February 2018, our Compensation Committee set our executive officers’ base salaries, which are forward-looking, in the sense that they are intended to motivate the recipients during the year in which they are paid, and established the quantitative and qualitative performance goals for the upcoming 2018 performance year.
In 2016, we earned net income of $881 million, or $6.56 per share, and operating income(non-GAAP)* of $895 million, or $6.68 per share. Our net income per share was the second-highest since we went public in 2004, and our operating income(non-GAAP) per share was the highest since we went public. We increased2017, our shareholders’ equity per share,non-GAAP operating shareholder’s equityequity* per share* shareandnon-GAAP adjusted book valuevalue* per share* toshare all reached record levels, of $50.82, $49.89at $58.95, $56.20 and $66.46,$77.74, respectively. We also increasedOur growth in shareholder’s equity per share was 16% and our financial strength by deleveraginggrowth innon-GAAP adjusted book value* per share was $11.28, the largestone-year dollar increase in our insured portfolio; in 2016, we terminated $7.2 billion of insured exposure. We have reducedhistory. Our net income for the year was $730 million, or $5.96 per share, and our ratio of GAAP net par outstanding tonon-GAAP operating shareholders’ equity from 157:1 at December 31, 2009income* was $661 million, or $5.41 per share, even after taking a tax expense of $61 million against our net income and $35 million against our non-GAAP operating income for the estimated impact of the 2017 Tax Cut and Jobs Act, which we refer to 46:1 at December 31, 2016.as the 2017 Tax Act.
These results were driven in part by our accomplishmentsuccessful pursuit of the following key objectives:all four of our primary business strategies:
We increased new business production, with contributions from our U.S. public finance, international infrastructure and global structured finance business. •
• In the U.S. public finance market, we continued to lead the market with a • In the |
We further managed our capital, primarily by returning excess capital to our shareholders through repurchases of our Common Shares and quarterly dividends. • We returned approximately • In • Over the last four years we have distributed approximately |
* |
|
20
|
• We closed our acquisition of MBIA UK Insurance Limited, which we refer to as MBIA UK, resulting in a bargain purchase gain and settlement of preexisting relationships of $58 million.
• We reassumed three previously ceded portfolios, resulting in aggregate commutation gains of $328 million.
• We negotiated an agreement with Syncora Guarantee Inc., which we refer to as SGI, to reinsure, generally on a 100% quota share basis, substantially all of SGI’s insured portfolio, and executed that agreement in February 2018.
• We made our first investments in the asset management area by agreeing to purchase up to $100 million of limited partnership interests in a fund that invests in the equity of private equity managers and by purchasing a minority interest in Wasmer, Schroeder & Company, LLC.
• We negotiated the acquisition of a minority interest in Cadia (Malta) Limited, the holding company of Rubicon Infrastructure Advisors, a full-service investment banking firm active in the global infrastructure sector; that transaction closed in February 2018.
We created value from our insured portfolio through loss mitigation and other loss recovery strategies. • We successfully concluded two financialcrisis-era recovery litigations for apre-tax gain of $151 million, again demonstrating our perseverance and resilience in pursuing recovery litigation when required to enforce our rights. • We continued to manage our exposure to the Commonwealth of Puerto Rico and its related authorities and public corporations,
|
We achieved these results despite a persistently challenging business environment.
|
The achievements described in this section were important considerations in determining the compensation of our named executive officers for the 2017 performance year.
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Compensation Discussion and Analysis—Summary
For the fourth year in a row,After the price of our Common Shares continuedreached $45.38 in the summer of 2017, the highest since our 2004 initial public offering, the price fell in the aftermath of the landfall of Hurricane Maria in the Commonwealth of Puerto Rico in September 2017, ending 2017 at $33.87 compared to improve, closing$37.77 at $37.77year-end 2016. Despite this, the total shareholder return, which we refer to as TSR, on December 31, 2016. our Common Shares has been admirable over the last several years in relation to relevant S&P index measures and our comparison group.
The table and chart below depictsdepict the dollar change in the total shareholder return (TSR)cumulative TSR on our Common Shares from December 31, 2012 through December 31, 20162017 as compared to the cumulative total return of the Standard & Poor’s 500 Stock Index and the cumulative total return of the Standard & Poor’s 500 Financials Index over the same period. The table and chart depict the value on December 31 of each year from 2012 December 31, 2013, December 31, 2014, December 31, 2015 and December 31, 2016through 2017 of a $100 investment made on December 31, 2012, with all dividends reinvested:
Assured Guaranty | S&P 500 Index | S&P 500 Financial Index | Assured Guaranty | S&P 500 Index | S&P 500 Financial Index | |||||||
12/31/2012 | 100.00 | 100.00 | 100.00 |
100.00
|
100.00
|
100.00
| ||||||
12/31/2013 | 168.84 | 132.37 | 135.59 |
168.84
|
132.37
|
135.59
| ||||||
12/31/2014 | 189.42 | 150.48 | 156.17 |
189.42
|
150.48
|
156.17
| ||||||
12/31/2015 | 196.05 | 152.54 | 153.74 |
196.05
|
152.54
| 153.74
| ||||||
12/31/2016 | 285.45 | 170.77 | 188.71 |
285.45
|
170.77
|
188.71
| ||||||
12/31/2017
|
259.65
|
208.03
|
230.49
|
On an annual basis, our 46%Calculated from total returns published by Bloomberg.
Our 21.04% per annum five-year TSR significantly exceeded the S&P 500 Index’s 12%15.79% per annum return and the S&P 500 Financial Index’s 23% return.18.19% per annum return over the same period.
Our cumulative TSR also exceeded the average cumulative TSR of our comparison group over all the periods measured.last two, three and five years, despite our negativeone-year TSR, which we attribute primarily to developments related to Puerto Rico. Our comparison group is described on page 4244 under “Executive Compensation Comparison Group.”
Total Shareholder Return Comparison
Comparison Group Average TSR | Assured Guaranty TSR | Comparison Group Average TSR | Assured Guaranty TSR | |||||
1 Year | 31.6% | 45.6% |
-1.9%
|
-9.0%
| ||||
2 Years | 33.8% | 69.1% |
25.0%
|
32.4%
| ||||
3 Years | 167.7% | 217.4% |
21.3%
|
37.1%
| ||||
5 Years
|
117.4%
|
159.7%
|
Cumulative Total Shareholder Return S&P 500 Financial Index S&P 500 Index Assured Guaranty
22
20162017 Results Against Targets
The Compensation Committee attributed the disappointing one-year TSR result primarily to developments related to Puerto Rico, including the impact of the landfall of Hurricane Maria. The Compensation Committee believed it was therefore particularly important to measure our success in creating value using other available objective measures.
In November 2015,February 2017, the Compensation Committee established targets for five financial performance goals for our executive officers for the 20162017 performance year. The financial performance goals arewere based on the business plan that the Board of Directors reviewed and approved in November 2016 and were designed to measure our progress in creating value for our shareholders. The financial performance goals use the same measures as those that the Compensation Committee used when assessing the executive officers’ achievements for the 2015 and 2014 through 2016 performance years. TheWe believe the price of our Common Shares will reflect the progress these targets are based onmeasure once there is less uncertainty regarding the business plan that the Board of Directors reviewed and approvedoutcome in November 2015.Puerto Rico.
Page 3031 under “Executive Compensation Program Structure and Process” contains a detailed description of the financial performance goals, and why the Compensation Committee considers them to be important in assessing our Company and our executive officers’ performance. All of these arenon-GAAP financial measures. We refer to four of these financial measures as “core” to distinguish them from other similarnon-GAAP financial measures that have not been adjusted to exclude the impact of consolidating financial guaranty variable interest entities, which we refer to as FG VIEs. The four “core” measures have been adjusted to exclude the impact of consolidating FG VIEs. Page 4548 under “Non-GAAP“Non-GAAP Financial Measures” contains a description of the adjustments we make to the most comparable GAAP financial measures to arrive at these measures.
The Compensation Committee considered the unique earnings model of the financial guaranty industry in designing its five financial performance goals for our executive officers. When a financial guarantor writes a new financial guaranty policy, it does not earn the full amount of the premium immediately; rather, the premium for the policy is earned over the period of the policy, often as long as twenty or thirty years. In 2017, for example, only approximately 5% of the premiums we earned related to new financial guaranty policies we wrote in 2017. As a consequence, the premiums a financial guarantor earns in a year are primarily related to business it has written over a long period, in our case decades. Such earnings may be accelerated in the event insured public finance obligations are refunded and when the insurance on insured structured finance obligations is canceled or terminated, but such acceleration also reduces earnings from the current portfolio for future periods. Our earnings in a particular year may also be impacted by, among other things, strategic activities such as acquisitions or reassumptions of previously ceded insured par and changes in investment income, loss reserves and expenses. However, the volume and pricing of new business written in a year has only a small impact on premium earnings for that year. As a consequence, we set a target for PVP, which more directly measures business production during the year. We also want to encourage our executive officers to build intrinsic value in our Company over time for our shareholders, so we set targets for core operating shareholder’s equity per share and core adjusted book value per share. We also set targets for core operating income per diluted share and core operating return on equity, but since most of our financial guaranty earnings in a year are derived as a result of insurance policies written in previous decades, we set those targets in relation to our projections of earnings on the existing inforce portfolio rather than in relation to the previous year’s results or targets.
We significantly exceeded four out of five of our targets and, ifeither (a) the price of our Common Shares had not increased in the middle of the year and we had been able to repurchase the number of Common Shares we originally projected we would with $500 million,or (b) if it had not been for the 2017 Tax Act (which was adopted well after the goals were established), we would have exceeded them all. The table below summarizes our 20162017 results against the targets.
FINANCIAL PERFORMANCE GOALS | 2016 TARGETS | 2016 RESULTS | BELOW TARGET | ABOVE TARGET | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PVP | $233 million | $214 million | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Income per Diluted Share | $3.13 | $6.58 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Shareholders’ Equity per Share | $47.62 | $49.95 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Return on Equity | 7.0% | 14.3% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Adjusted Book Value per Share | $65.25 | $66.64 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Compensation Committee viewed all of the 20162017 targets for the financial performance goals as challenging in light of current market conditions, particularly interest rate levels. It had set all of the 20162017 targets above the comparable 20152016 targets (except core operating return on equity, which we refer to as ROE) and withabove the exception ofcomparable 2016 actual results (except core operating income per diluted share and core operating return on equity (ROE), above the comparable 2015 actual results.ROE).
The 2016
23
Our Compensation Committee set our 2017 targets for core operating income per diluted share above our 2016 target but lower than 2016 actual results and core operating ROE took into accountlower than our 2016 target and our 2016 actual results in large part due to the Compensation Committee’s beliefnature of a financial guarantor’s earnings, as described above. As a result of the amortization of the insured portfolio from 2016, we projected lower premium earnings in 2017 regardless of the amount of new financial guaranty insurance we originated in 2017. We also project potential public finance refundings, which we refer to as refundings, based on the volume of insured bonds reaching the dates beyond which they can be redeemed (generally ten years after issuance) and the level of interest rates currently compared to ten years ago. Based on these factors, we projected lower refundings for 2017 than we had experienced in 2016. We also determined that, those measures were likely to be lower in 2016 than in 2015 due to:
The Compensation Committee was aware that, given the anticipated decline of earned premium and reduced opportunities for recoveries on residentialmortgage-backed bond representationsthe uncertainty of acquisition and warranties,other strategic transactions, the executive officers also would be required to manage losses and control expensesmake strategic moves to meet all of the targets except for PVP.
In 2016,As noted above, in 2017, we achieved or exceeded all but one of the 2017 targets for the financial performance goals.goals and, had it not been for the increase in our Common Share price, which caused us to repurchase fewer shares than we had planned although we met our goal of repurchasing $500 million of Common Shares, or the impact of the 2017 Tax Act, we would have exceeded all of the targets:
Compensation Discussion and Analysis—Summary
• | Core operating shareholders’ equity per share reached its highest level in our history, increasing 12.5% from year-end 2016, propelled by our efficient management of capital, our commutations of previously ceded business, our acquisition of MBIA UK, our loss mitigation activity (including our successful resolution of recovery litigation) and the generation of PVP through the underwriting of new business. And, while we missed our core operating shareholders’ equity per share goal by less than 1%, we would have exceeded our goal ifeither (a) the price of our Common Shares had not increased in the middle of the year and we had been able to repurchase the number of Common Shares we originally projected we would with $500 million,or (b) it had not been for the 2017 Tax Act. |
– | We met our non-financial objective of efficiently managing our capital by repurchasing $501 million of Common Shares over the course of 2017, but due to the increase in the price of our Common Shares in the middle of the year, we repurchased fewer shares than we originally projected in our 2017 business plan. Had we been able to repurchase Common Shares at the price assumed in our 2017 business plan, we would have repurchased more Common Shares, and without adjusting for the impact of the 2017 Tax Act, our core operating shareholders’ equity per share would have been approximately $58.18, or 2.9% above our financial performance goal of $56.52. |
– | The 2017 Tax Act required us to write down our net deferred tax asset and pay a one-time tax on unremitted earnings of foreign subsidiaries owned in our U.S. consolidated tax group. It also impacted the tax effect of several operating adjustments we make to shareholders’ equity per share to arrive at core operating shareholders’ equity per share. Had it not been for the 2017 Tax Act and without adjusting the actual number of our Common Shares we repurchased versus the number assumed in our business plan, our core operating shareholders’ equity per share would have been approximately $57.15, or 1.2% above our financial performance goal of $56.52. |
Given that we would have achieved our core operating shareholders’ equity per share financial performance goal if either the price of our Common Shares had not risen in the middle of the year as much as it did or if the 2017 Tax Act had not been enacted, neither of which was in the control of our senior management, the Compensation Committee viewed the target as substantially met and awarded an achievement score of 95% for this financial performance goal.
24
The weighted average achievement score resulting from the Company’s success in exceeding all but one of its financial performance goals in 20162017 was 90.45%83.8%, as described under “CEO Performance Review—Review–Cash Incentive”, and constitutedtwo-thirds of each executive officer’s total achievement score used to calculate that executive officer’s cash incentive compensation amount.
Our executive officers achieved these results despite a persistently challenging business environment that included low interest rates, tight credit spreads and competition in some markets.
Snapshot of Our CEO’s 20162017 Compensation
For 2016,2017, approximately 90%89% of Mr. Frederico’s compensation constituted incentive compensation: 40%39% was in the form of aperformance-based cash incentive that was awarded based on measuring performance against financial performance goals andnon-financial objectives set at the beginning of the year, and 49%50% was in the form of along-termequity-based long-term equity-based incentive, with half of that award subject to achievingpre-established share price hurdles. The allocation between fixed and incentive compensation, and between performance-based cash incentive and long-term equity-based incentive compensation, for the 2017 performance year is consistent with the allocation for the 2016 performance year.
Based onMr. Frederico received a compensation package for the 2017 performance year 3.4% higher than he received for the 2016 performance year. The increase reflects Mr. Frederico’s considerable accomplishments with respect to the financial performance goals as well as hisnon-financial objectives, but also takes into account our negativeone-year TSR. The Compensation Committee concluded that, in light of ourone-year TSR, it was appropriate that Mr. Frederico’s cash incentive of $4,525,000 for the 2017 performance year and his base salary for 2018 largely remain the same as the prior year.
Most of the 3.4% increase in Mr. Frederico’s compensation package for the 2017 performance year was due to the 4.5% increase in his long-term equity award, reflecting Mr. Frederico’s achievements over 2016,2017, including especially our Company’s success in exceeding all but one of the financial performance goals established by the Compensation Committee, in certain cases by a wide margin; our continuingsubstantially; and due to write new business (with contributions from our U.S. public finance, international infrastructure and global structured finance businesses) despite a challenging interest rate environment; our successthe 8.7% increase in acquiring CIFG and in reaching an agreement to acquire MBIA UK; andhis base salary for 2017, which was awarded at the prominent role our Company continues to assume in the restructuringbeginning of the debt of Puerto Rico and its related authorities and public corporations, the Compensation Committee in February 2017 grantedperformance year based on Mr. Frederico more incentive compensation forFrederico’s accomplishments during the 2016 performance year thanand the importance of maintaining his strategic leadership in the prior performance year. Mr. Frederico’s base salary had not been increased for 2016.
25
Mr. Frederico received aFrederico’s compensation packagepackages for the2017 and 2016 performance year 9.8% higher than he received for the 2015 performance year,were composed of the following:
EXECUTIVE COMPENSATION PROGRAM STRUCTURE AND PROCESS
Overview of Philosophy and Design
Our executive compensation program is designed to recognize and reward outstanding achievement and to attract, retain and motivate the talented individuals needed to lead and grow our Company’s business. We maintain an ongoing dialog with our shareholders and incorporate their feedback into our program so that the program is aligned with their interests.
We Align Pay With Performance
Our program rewards performance by having more variable andperformance-based compensation at the most senior levels. We use a mix of variableat-risk compensation with different time horizons and payout forms to provide an incentive for both annual andlong-term sustained performance, in order to maximize shareholder value in a manner consistent with our Company’s risk parameters. The Compensation Committee assesses the performance of our executive officers from both a financial and anon-financial perspective, usingpre-established goals.
Our executive officers can receive a cash incentive, which isperformance-based. They can also receive along-term equity incentive, 50% of which isperformance-based and cliff vests at the end of athree-year performance period if we achieve particular average share price targets, and 50% of which istime-based and cliff vests at the end of athree-year period. Thelong-term equity incentive is structured to encourage retention and along-range mindset.
Executive Compensation Is Closely Tied To Long-Term Performance
The compensation program is structured with upside potential for superior executive achievements, but also the possibility of reduced compensation if executives are unable to successfully execute our Company’s strategies. By increasing management’s motivation to enhance shareholder value over the long term, our compensation program aligns executive officer and shareholder interests.
26
Compensation Discussion and Analysis—Structure and Process
For the 20162017 performance year, the compensation package for the executive officers contains three principal elements.
Principal Elements of Executive Compensation Package | Performance Measures | |
Base Salary | Based on responsibilities, skill set and experience, and market measures | |
Cash Incentive Compensation | Cash reward for performance against annual financial performance goals and progress against strategicnon-financial objectives that we expect to drive our growth over the moderate to long term | |
Long-Term Equity Incentives | 50% in performance share units that may be earned over a3-year performance period based on share price targets, and are paid at the end of the3-year performance period if particular share price targets are achieved
50% in restricted stock units that cliff vest at the end of a3-year period |
Shareholder Outreach on Our Executive Compensation Program
For the past several years, we have been actively engaging with our shareholders in order to obtain their feedback on our executive compensation program. Beginning in the fall, we contact our large shareholders to invite them to speak directly with the chairman of the Compensation Committee.
We believe our shareholders support our executive compensation program. At each of our last twothree Annual General Meetings, investors holding over 98% of the Common Shares voting approved oursay-on-pay proposal. Both of the proxy advisory firms of Institutional Shareholder Services Inc. and Glass, Lewis & Co. LLC also recommended that our investors vote in support of oursay-on-pay proposal.
Even with the strong support that our executive compensation program received at our twothree most recent advisory votes, as the Compensation Committee began to determine compensation for the 20162017 performance year, we again sought to engage with our shareholders to discuss their concerns and recommendations. We contacted holders of an aggregate of 66%67% of our Common Shares and invited them to speak with Mr. Kenny, the chairman of the Compensation Committee. While none of those holders accepted our invitation to speak to Mr. Kenny spoke with investors holdingthis year, the holders of an aggregate of approximately 23%34% of our Common Shares; holders of another approximately 4%Shares specifically responded that they did not need to speak with us because they were comfortable with the executive compensation program. The investors we spoke to indicated they were generally pleased with the executive compensation program and with management’s performance, and on the whole found the program to reward management appropriately. Most shareholders were not prescriptive about plan design, and instead were more interested in seeing that results were aligned appropriately with performance. Certain shareholders supported tying long-term incentive compensation to the price of our Common Shares while others supported looking at other performance measures.
Our Compensation Committee tooktakes the feedback from our shareholders into consideration when making its compensation decisions.
The Compensation Committee, composed solely of independent directors, is responsible for all decisions about our executive officer compensation. The Compensation Committee works closely with Cook, the Chairman of the Board and management to examine pay and performance matters throughout the year, and consults with the Board prior to making final compensation decisions.
The Compensation Committee conductsin-depth reviews of performance and then applies judgment to make compensation decisions. The Compensation Committee believes its process, described below, is an effective way to assess the quality of performance, risk management and leadership demonstrated by Mr. Frederico and the senior management team.
In February, after discussion with other Board members, the Compensation Committee makes finalmeets twice. It first meets in early February to evaluate executive performance for the previous calendar year, which we refer to as the performance year, against that performance year’s goals and formulates its potential compensation decisions with respect to thethat year’s executive compensation for the previous year’s performance, and onalong with the executive officer performance goals for the upcoming year.
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coming year. Later in February, the Compensation Committee discusses its potential compensation decisions for the previous year and the executive officer performance goals for the coming year with other Board members, and then makes its final decisions with respect to those matters. |
In making its compensation decisions, the Compensation Committee follows afive-step approach:
Step 5: Seek input from the independent consultant concerning CEO pay.
The role of Cook is described in more detail under “Compensation Governance—the Role of the Independent Consultant” below. | ||||||||||||||||||
Step 4: Analyze trends
The Compensation Committee considers market pay levels and trends based on information Cook provides about comparison companies. | ||||||||||||||||||
Step 3: Review each executive’s individual performance and contributions.
The Compensation Committee reviews the individual performance objectives for | ||||||||||||||||||
Step 2: Assess Company Performance.
The Compensation Committee reviews the corporate financial performance goals for the performance year and discusses the full-year financial and strategic performance at length, seeking to understand what was accomplished relative to established objectives, how it was accomplished, and the quality of the financial results. | ||||||||||||||||||
Step 1: Establishment of financial performance goals andnon-financial objectives.
At or prior to the beginning of each performance year, the Compensation Committee discusses the Company’s business plan at length and establishes corporate financial goals for the upcoming performance year. The Compensation Committee also discusses the strategic direction of the Company andestablishesnon-financial objectives it expects to drive our growth over the moderate to long term. | ||||||||||||||||||
The Compensation Committee considers Cook’s analysis of the compensation paid to executive officers in our comparison group when evaluating the compensation of our executive officers.
Components of Our Executive Compensation Program
For the 20162017 performance year, the compensation package for the executive officers consists of three principal elements: base salary, cash incentive compensation and long-term equity incentives. Our practice is to review the components of our executive officer compensation separately and monitor the total of the various components. We consider each component and the total against our compensation objectives described in “Overview of Philosophy and Design.” Decisions related to one compensation component (e.g., cash incentive compensation) generally do not materially affect decisions regarding any other component (e.g., long-term equity incentives) because the objectives of each element differ. Positions at higher levels generally have a greater emphasis on variable pay elements, although no specific formula, schedule or structure is currently applied in establishing the percentage of total compensation delivered through any compensation element.
Compensation Discussion and Analysis—Structure and Process
The Compensation Committee considers Cook’s analysis of the compensation paid to executive officers in our comparison group when evaluating the compensation of our executive officers. According to Cook, for the 2015 performance year, which is the most recent data available, on average, both the target and the actual total direct compensation for our named executive officers approximated the comparable median amounts for the named executive officers of our comparison group.
Base Salary
The Compensation Committee establishes each executive officer’s base salary in consultation with Cook. We believe base salary is necessary to attract and retain key executives by providing appropriate compensation that is based on position, experience, scope of responsibility and performance. Base salary provides liquidity to our executive officers and balances the levels of guaranteed pay withat-risk pay to properly manage our compensation-related risk. The amount is based on the executive officer’s responsibilities, skills and experience, as well as market measures. The level of an executive officer’s base salary reflects the Compensation Committee’s view of the contribution that executive officer has consistently made to our Company’s success over several years, the continuing importance of that executive officer to our Company’s future, and the difficulty and expense of replacing the executive officer with one of a similar
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caliber. The Compensation Committee does not guarantee salary adjustments on an annual basis. Base salary is set at the beginning of the year and is paid to the executive officers for ongoing performance throughout the year. For the 20162017 performance year, the Compensation Committee established the base salary in February 2016.2017.
Cash Incentive Compensation
Unlike base salary, which is set at the beginning of the year in which it is paid, cash incentive compensation is determined after the end of the performance year to which such compensation relates. For the 20162017 performance year, the Compensation Committee determined the amount of the cash incentive compensation in February 2017.2018.
The Compensation Committee uses a formulaic approachformula to award cash incentive compensation in order to enhance the transparency of our process. The amount of cash incentive compensation is determined based on the extent to which the executives achieve certainpre-established performance targets. The Compensation Committee useshas used atwo-step process for granting and paying annual cash incentive compensation awards to our executive officers.officers as detailed below, although changes made by the 2017 Tax Act may make the first step unnecessary in future years as described in greater detail under “Tax Treatment” below.
For the first step, in order for the payment of cash incentive compensation to qualify asperformance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code, the Compensation Committee annually establishes a performance goal based on performance metrics, and awards the cash incentive to the executive officers pursuant to the Assured Guaranty Ltd. 2004Long-Term Incentive Plan, as amended (LTIP), subject to such performance goal being met. If the performance goal is not met, no cash incentive will be awarded to the executive officers for such year. If the performance goal is met, a cash pool is established pursuant to which payments can be made to the executive officers subject to limitations contained in the LTIP and to further limitations established by the Compensation Committee in the grant. For the 20162017 performance year, the performance goal for this first step was established in November 20152016 and the Compensation Committee determined the extent to which it had been met in February 2017.2018.
For the second step, if the Section 162(m) performance goal has been met for a particular performance year, the actual amount of the cash incentive compensation payable to each executive officer for such performance year is then linked 67% to financial performance goals and 33% tonon-financial objectives. The Compensation Committee considers the five financial performance goals to be important in assessing our Company and our executive officers’ performance; each goal has a weighting of 13.4% (for a total of 67%) and constitutes anon-GAAP financial measure that is described on page 45pages 47 to 48 under“Non-GAAP Financial Measures.” Similar to the financial performance goals, thenon-financial objectives also relate to matters that are important to our business. The Compensation Committee believes the qualitative objectives are necessary to fully evaluate the annual achievements that benefit our shareholders, and it does not individually weight thenon-financial objectives because it believes it is more appropriate to evaluate the level of achievement of all of the objectives in their totality. Of the companies in our comparison group, an analysis by Cook revealed that:
The Compensation Committee believes thepre-established target financial performance goals and individualnon-financial objectives are the most important for assessing Assured Guaranty’s performance and the value we create for our shareholders. Therefore, performance relative to the financial goals andnon-financial objectives is the primary driver of the final cash incentive compensation determined by the Compensation Committee in applying its discretion.
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The financial performance goals for 20162017 for all the executive officers and thenon-financial objectives for 20162017 for Mr. Frederico, our CEO, are set out below. For the executive officers other than Mr. Frederico, the Compensation Committee evaluates the extent to which those executives contributed to Mr. Frederico’snon-financial objectives and the extent of such executives’ personal achievements of their individualnon-financial objectives, which are discussed under “Compensation Decisions of Other Executive Officers.” For the 20162017 performance year, the financial performance goals and thenon-financial objectives for the named executive officers were established in February 20162017 and the Compensation Committee determined the extent to which they had been satisfied in February 2017.2018.
Cash Incentive Compensation Determinants Financial Performance Goals: 67% PVP Core operating income per diluted share Core operating shareholders’ equity per share Core operating ROE Core ABV per share Non-Financial Objectives: 33% Strategy and leadership Active management of potential losses Maintenance of financial strength ratings Maintenance of comprehensive risk management practices Management development and succession planning 13.4% 33.0% 13.4% 13.4% 13.4% 13.4%
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The financial performance goals that the Compensation Committee uses to assess our Company’s performance are described in greater detail below. The financial goals are based onnon-GAAP financial measures and four are labeled “core” to distinguish them from similarnon-GAAP financial measures that have not been adjusted to exclude the impact of consolidating FG VIEs. See“Non-GAAP Financial Measures” on page 4547 below.
PVP | represents our estimated gross future revenue stream from new business production. Specifically, PVP enables us to evaluate the value of our new business production during the year by taking into account the value of upfront and estimated future installment premiums, using a consistent discount rate, on all new contracts underwritten in a reporting period. | |
Core operating income per diluted share | enables us to evaluate the amount of income we are generating in our | |
Core operating shareholders’ equity per share | presents our equity with all financial guaranty contracts | |
Core operating ROE | represents core operating income for a specified period divided by the average of core operating shareholders’ equity at the beginning and the end of that period. This measure enables us to evaluate our return on the capital invested in our company. | |
Core ABV per share | reflects our core operating shareholders’ equity, plus the net present value of ourin-force premiums in excess of expected losses, plus credit derivative revenues, less deferred acquisition costs. This measure enables us to measure our intrinsic value, excluding our franchise value. |
Compensation Discussion and Analysis—Structure and Process
The Compensation Committee assigns each executive an Individual Target Cash Incentive Amount, which is calculated as a multiple, (we call thiswhich we refer to as the Individual Target Cash Incentive Multiple)Multiple, of the executive officer’s base salary. The amounts of the base salary and Individual Target Cash Incentive Multiples vary by individual based on the executive officer’s position and level of responsibility, historic pay level, importance to the future strategic direction of our Company and Cook’s advice about the compensation practices of companies in our comparison group. SinceAll of the 2014 performance year,Individual Target Cash Incentive Multiples assigned by the Compensation Committee hasfor the 2017 performance year were the same as it had assigned the previous year, except that Mr. Stern’s multiple was increased from 1.75x to 2.0x in recognition of his contributions to our strategic initiatives, including reinsurance reassumptions, and the active role he is playing in our loss mitigation activities, especially with regard to Puerto Rico. The Compensation Committee assigned the named executive officers the following Individual Target Cash Incentive Multiples:Multiples for the 2017 performance year:
Executive Officer |
(of Base Salary) | |||
Dominic Frederico, Chief Executive Officer | 2.50x | |||
| ||||
Robert A. Bailenson, Chief Financial Officer | 2.00x | |||
James M. Michener, General Counsel(1) | 2.00x | |||
Russell B. Brewer II, Chief Surveillance Officer | 2.00x | |||
Bruce E. Stern, Executive Officer |
(1) | As disclosed under “Separation Agreement”, Mr. Michener resigned as General Counsel and Secretary and as an executive officer of AGL, effective December 31, 2017. He remains employed as the Senior Advisor to the Chief Executive Officer of our Company through December 31, 2018, at which time he will retire from the Company. |
Then, for each executive officer, the Compensation Committee calculates and aggregates the weighted achievement scores for the financial performance goals and the individualnon-financial objectives. When assessing the level of achievement and assigning scores for the year, the Compensation Committee takes into account the difficulty of achieving particular goals or objectives. The Compensation Committee has discretion to assign achievement scores of up to 200% for outstanding performance and achievement scores of down to 0% for performance below target, based on its view of the level of achievement attained for each financial performance goal and each individualnon-financial objective.
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Based on the executive officer’s achievements of these priorities, the individual payouts of the cash incentive for 2016 are2017 were calculated as follows:
Annual Individual Target Cash Incentive Amount | X | Annual Achievement Score (a percentage from 0% to 200%) | = | Annual Cash Incentive Payout | ||||||||||||||||||||
( |
Base Salary |
X |
Individual Target Cash Incentive Multiple | ) |
X | ( |
Financial Goal Achievement Score (weighted 67%) | + |
Individual Non- Financial Objective Achievement Score (weighted 33%) | ) | = |
Incentive Payout |
The formula for determining cash incentive compensation has remained the same since the Compensation Committee developed the approach to calculating such amount, together with Cook.Cook at the beginning of 2015. Our Company’s share price performance and performance on other key financial measures has improved greatly since the formulaic approach was developed at the beginning of 2015. At year end 2014, the price of our Common Shares closed at $25.99, compared to $37.77$33.87 at year end 2016.2017. Our performance in respect of the financial performance goals most important to our Company has also improved, as reflected in the table below.
FINANCIAL PERFORMANCE GOALS | 2014 Results | 2016 Results | 2014 Results | 2017 Results | ||||||||||||
PVP | $ | 168 million | $ | 214 million | $ | 168 million | $ | 289 million | ||||||||
Core Operating Income per Diluted Share | $ | 2.83 | $ | 6.58 | $2.83 | $5.31 | ||||||||||
Core Operating Shareholders’ Equity per Share | $ | 37.48 | $ | 49.95 | $37.48 | $56.17 | ||||||||||
Core Operating Return on Equity | 8.1 | % | 14.3 | % | 8.1 | % | 10.1 | % | ||||||||
Core Adjusted Book Value per Share | $ | 53.66 | $ | 66.64 | $53.66 | $77.86 |
The progress we have made on these fronts is the result of the leadership of Mr. Frederico and the efforts of his management team. As a result, the Compensation Committee has maintained the approach and the formulas put in place for the cash incentive compensation for Mr. Frederico and the other named executive officers.
Long-Term Equity Incentives
In addition to the cash incentive compensation, the Compensation Committee awardslong-term incentive compensation in the form of our Common Shares.
Like cash incentive compensation, equity incentive compensation is awarded after the end of the performance year to which such compensation relates. For the 20162017 performance year, the Compensation Committee determined the amount of equity incentive compensation in February 2017.2018.
Half of the nominal value of the award is in the form of performance share units (which we refer to as PSUs) that may be earned over a3-year performance period based on share price targets, and are paid at the end of the3-year performance period if particular share price targets are achieved, and the other half is in the form of RSUs that cliff vest at the end of a3-year period. Details about the individual awards are set out in “CEO Performance Review” and “Other Named Executive Officer Compensation Decisions.”
Performance Share Units.Each performance share unit represents a contingent right to receive up to two of our Common Shares.Shares as described under “Incentive Plans – Assured Guaranty Ltd. 2004 Long-Term Incentive Plan” on page 58. The Compensation Committee awards performance share units with the intent of aligning executive pay with our Company’s performance, as measured by the price of our Common Shares.
The percentage of performance share units an executive can earn is based on the price of our Common Shares over a3-year performance period. For each 40 consecutive trading day sequence that occurs during the last 18 months of a performance period, we calculate the average price of a Common Share as traded on the New York Stock Exchange during that time. The highest average is used to determine whether a share price hurdle has been reached, and consequently, the percentage of the performance share units that has been earned. Use of the highest average share price during the last 18 months of the performance period mitigates concerns that short-term gains may yield payouts even if long-term performance lags, and was a refinement made by the Compensation Committee with respect to the 2014 performance year to address shareholder concerns raised at that time.
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In considering the structure of the awards for 20162017 performance, the Compensation Committee and Cook considereddetermined to use the following elements of the performance share units that determine their value:
Beginning with the performance share unit awards as had been applied for the 20142016 performance year, in response to shareholder feedback that the executive officers may not have an incentive to maintain the price of the Common Shares when amounts can be earned at any point during the performance period, and that the share price at the end of the performance period may be lower than the price at which the performance share units were earned, the Compensation Committee strengthened the alignment between executive pay and our Company’s performance by providing that only sequences occurring in the second half of the3-year performance period can be considered when the Compensation Committee determines the highest average share price over 40 consecutive trading days. Allowing performance share units to be earned only in the last half of the performance period mitigates concerns thatshort-term gains may yield payouts even iflong-term performance lags.
year. The Compensation Committee and Cook also reviewed the rigor of the share price hurdles and the vesting percentage at each hurdle. For the performance share units granted for the 20162017 performance year, in February 2017,2018, the Compensation Committee established the share price hurdles and vesting percentages set out in the table below. The table shows the percentage that could be earned if the highest average share price over 40 consecutive trading days occurring in the second half of the2017-2019 2018-2020 performance period reaches the stated share price hurdles.
Highest 40 consecutive trading day average share price hurdle | % Earned | |
$42 | 50% | |
$46 | 100% | |
$50 | 200% |
The share price hurdles represent increases over the $28/$32/$36 hurdles that applied for the grants for the 2014 and 2015 performance years.years and are unchanged from the hurdles that applied for the grants for the 2016 performance year.
Highest 40 consecutive trading day average share price hurdle | % Earned | |
$42 | 50% | |
$46 | 100% | |
$50 | 200% |
In making its decision with respect to the hurdles, the Compensation Committee considered the price of our Common Shares in 2017 and asked Cook to prepare an analysis in favor of increasingwith respect to Cook’s recommendation that the Compensation Committee maintain the current share price hurdles. Cook presented data on theone-,three- three- andfive-year compound annual growth rates of the
Compensation Discussion and Analysis—CEO Performance Review
S&P 500 Financial Index, our Company’s comparison group median stock performance, and the stock performance of a subset of certain companies within the comparison group in order to obtain hypothetical minimum and maximum ranges for the hurdles. Cook then applied the ranges to the Company’s average share price over 40 consecutive trading days as of a recent date of the analysis, and utilized those results to generate proposed higherevaluate the current share price hurdles.
The Compensation Committee considered Cook’s analysis as well as other factors, including the extent to which particular hurdles would exceed the 40 consecutive trading day average (i) at the beginning of the performance period. Inperiod and (ii) as of a date close to the casegrant date. For all three of the first two hurdles, above, the amount of the excess over the 40 consecutive trading day average at the beginning of the performance period and as of a date close to the grant date was greater than that of the last two grants. For the third hurdle, the amount of the excess over such average at the beginning of the performance period was greater than that of the February 2016 grant and substantially the same as that of the February 2015prior year grant.
The Compensation Committee also compared various proposed hurdles as a percentage of core operating shareholders’ equity at the beginning of the performance period. For each of the hurdles above, when analyzed as a percentage of core operating shareholders’ equity at the beginning of the performance period, that percentage was higher than the comparable measure for the February 2016 and the February 2015 grants. The $42, $46 and $50 hurdles constituted more than 84%, 92% and 100% of core operating shareholders’ equity at the beginning of the performance period. This indicated to the Compensation Committee that the hurdles would be difficult to achieve since the price of the Common Shares had risen to a level closer to core operating shareholders’ equity.
The Compensation Committee also noted the extent of the total equity payout as a percentage above the GAAP value and above the nominal value of the equity at the time of grant, under the methodology that the committee had developed with Cook. The Compensation Committee examined the benefit of the equity grants to the executive officers compared to the cost to our Company. In addition, the Compensation Committee reviewed other relevant statistics for the performance periods, including our Company’s TSR and the TSR of the S&P 500 Financial Index and our comparison group average TSR, and the growth in core operating book value and in core ABV, during those periods.
Restricted Stock Units.Each restricted stock unit represents a right to receive one of our Common Shares at the end of athree-year vesting period.period as described under “Incentive Plans – Assured Guaranty Ltd. 2004 Long-Term Incentive Plan” on page 57. The Compensation Committee awards RSUs with the intent of providing executives withlong-term incentive compensation the value of which increase as our Company achieves its strategies. The Compensation Committee believes this incentivizes executives to remain with the Company and help build shareholder value over the long term.
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In light of Mr. Frederico’s achievements in the 20162017 performance year, as detailed below, but also considering our negativeone-year TSR, the Compensation Committee awarded him total compensation of $11,147,938,$11,525,000, a 9.8%3.4% increase over his total compensation for the 20152016 performance year. The Compensation Committee concluded that, in light of our negativeone-year TSR, it was appropriate that Mr. Frederico’s cash incentive for 2017 and his base salary for 2018 largely remain the same as the prior year. Most of the 3.4% increase in Mr. Frederico’s compensation package for the 2017 performance year was due to the 4.5% increase in his long-term equity award, which reflects his achievements in the 2017 performance year as detailed below, and the 8.7% increase in his base salary for 2017, which was awarded at the beginning of the 2017 performance year based on Mr. Frederico’s accomplishments in the 2016 performance year and the importance of maintaining his strategic leadership. Mr. Frederico’s compensation for the 2017 performance year was composed of the following:
2017 Performance Year
| 2016 Performance Year
| |||||||||||||||
2016 Performance Year Compensation | 2015 Performance Year Compensation | |||||||||||||||
Fixed Compensation—Base Salary(1) | $ | 1,150,000 | $ | 1,150,000 |
| $1,250,000
|
|
| $1,150,000
|
| ||||||
Incentive Compensation | ||||||||||||||||
Cash Incentive Compensation | $ | 4,497,938 | $ | 4,002,000 | $4,525,000 | $4,497,938 | ||||||||||
Long-Term Performance-Based Equity | $ | 2,750,000 | (2) | $ | 2,500,000 | (2) | $2,875,000 | (2) | $2,750,000 | (2) | ||||||
Long-Term Time-Based Equity | $ | 2,750,000 | (2) | $ | 2,500,000 | (2) |
| $2,875,000
| (2)
|
| $2,750,000
| (2)
| ||||
Total Direct Compensation | $ | 11,147,938 | $ | 10,152,000 | $
| 11,525,000
|
| $
| 11,147,938
|
|
(1) | Mr. Frederico’s base salary for each of the 2017 and 2016 |
(2) | Represents the Compensation Committee’s target nominal value for the relevant performance year, using the average stock price over the 40 consecutive trading days ending on the date of |
The compensation package presented in the table above is different from theSEC-required disclosure in the Summary Compensation Table on page 4750 and is not a substitute for the information in that table. Rather, it is intended to show how the
Compensation Committee linked Mr. Frederico’s compensation and its components to our performance results and his achievements for the prior year. The base salary is paid during the performance year, while all of the components of the incentive compensation is based on achievements during the performance year and so is awarded in the first part of the following year.
In February 2016, the Compensation Committee chose to maintain Mr. Frederico’s 2016 base salary at the same level as his 2015 base salary.
In February 2017, in light of Mr. Frederico’s accomplishments in 2016 and the importance of maintaining his strategic leadership in the future, particularly in respect of managing our capital, mitigating the risks in our insured portfolio, and deciding upon appropriate alternative investments that complement our financial guaranty business and core competencies, the Compensation Committee decided to grant him an 8.9%8.7% increase in his base salary, to $1,250,000, for the 2017 performance year.
In February 2018, given the continued importance of maintaining Mr. Frederico’s strategic leadership, but also considering our negativeone-year TSR and the salary increase Mr. Frederico had received in February 2017 based on his performance in the 2016 performance year, the Compensation Committee chose to maintain his salary at $1,250,000 for the 2018 performance year.
To determine Mr. Frederico’s cash incentive, as discussed above under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program—Cash Incentive Compensation,” the Compensation Committee used a formula that involved aggregating the weighted achievement scores for certain financial performance goals and individualnon-financial objectives, and multiplying the result by his Individual Target Cash Incentive Amount. The financial performance goals for 20162017 were based on the business plan for the upcoming year that the Board of Directors reviewed and approved in November 2015.2016. Thenon-financial objectives were established taking into account the nature of our business, which requires qualitative goals to fully evaluate the annual achievements that benefit our shareholders.
In reviewing Mr. Frederico’s 20162017 performance scorecard, the Compensation Committee determined that he had a very strong year. In particular, the Compensation Committee found that Mr. Frederico should be recognized for our Company’s success in exceeding all but one of the targets for the financial performance goals established by the Compensation Committee, in certain cases by a wide margin.substantially, and also noting that, ifeither (a) the price of our Common Shares had not increased in the middle of the year and we had been able to repurchase the number of Common Shares we originally projected we would with $500 million,or (b) if it had not been for the 2017 Tax Act (which was adopted well after the goals were established), we would have exceeded all of our financial performance goals. Mr. Frederico’s very strong performance was reflected in our record core operating income of $883 million, or $6.58 per share, and record core operating shareholders’ equity per share and core adjusted book value per share of $49.95$56.17 and $66.64,$77.86, respectively. Mr. Frederico’s leadership was also credited for the growth in our new business production, with contributions from our U.S. public finance, international infrastructure and global structured finance businesses, despite a challenging business and economic environment.
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The Compensation Committee assigned Mr. Frederico achievement scores for his achievements against each individual financial performance goal, which averaged 135%125% across the five goals. The Compensation Committee’s rationale for establishing these 2017 financial performance goals in February 2017 is discussed on pages 23-24 of “Compensation Discussion and Analysis — Summary — 2017 Results Against Targets”. The Compensation Committee weighted this score 67% in accordance with the cash incentive formula, which resulted in a weighted score of 90.45%83.8%:
2017 Targets | 2017 Results | Weighting | 2017 Achievement Score (0%-200%) | Weighted Achievement Score | ||||||||||||||||||||||||||||||||
2016 Targets | 2016 Results | Weighting | 2016 Achievement Score (0%-200%) | Weighted Achievement Score | ||||||||||||||||||||||||||||||||
Financial Performance Goals* | Financial Performance Goals* |
| ||||||||||||||||||||||||||||||||||
PVP | $ 233 million | $214 million | 13.4 | % | 85 | % | 11.39 | % | $ 260 million | $289 million | 13.4% | 110% | 14.7% | |||||||||||||||||||||||
Core operating income per diluted share | $3.13 | $6.58 | 13.4 | % | 170 | % | 22.78 | % | $3.23 | $5.31 | 13.4% | 140% | 18.8% | |||||||||||||||||||||||
Core operating shareholders’ equity per share | $47.62 | $49.95 | 13.4 | % | 130 | % | 17.42 | % | $56.52 | $56.17 | 13.4% | 95% | 12.7% | |||||||||||||||||||||||
Core operating ROE | 7.0% | 14.3% | 13.4 | % | 170 | % | 22.78 | % | 6.2% | 10.1% | 13.4% | 140% | 18.8% | |||||||||||||||||||||||
Core ABV per share | $65.25 | $66.64 | 13.4 | % | 120 | % | 16.08 | % |
| $74.22
|
|
| $77.86
|
|
| 13.4%
|
|
| 140%
|
|
| 18.8%
|
| |||||||||||||
Total Financial Goal Score | 67.0 | % | 90.45 | % |
| 67%
|
|
| 83.8%
|
|
* | All of the financial performance goals are based onnon-GAAP financial measures, which are described on |
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The Compensation Committee also evaluated Mr. Frederico’s 20162017 achievements against his 20162017non-financial objectives. Highlights of those achievements include the positive financial impact from our acquisition of CIFG;MBIA UK; the positive impact from our success in entering into an agreement to acquire MBIA UK;reassumption of previously ceded portfolios; achievement of the highest level of PVP since 2010; and the prominent role our Company continues to assume in the restructuring of the debt of Puerto Rico and its related authorities and public corporations. The details of Mr. Frederico’s 20162017 achievements against his 2016 2017non-financial objectives are also set out in the pages that follow.
Compensation Discussion and Analysis—CEO Performance Review
Non-Financial Objectives | ||
Strategy and
◾ Leverage
◾ Attempt to purchase available bond insurance portfolios if they come on the market; recapture previously ceded
| ◾ Achieved highest level PVP production ($289 million) since 2010, exceeding target
◾ In U.S. Public Finance, exceeded PVP target while increasing risk adjusted pricing and maintaining market lead ◾ Innon-U.S. Public Finance, exceeded PVP budget by 120%, closing transactions in every quarter ◾ In Structured Finance, launched aircraft residual value insurance product, continued leadership in balloon note guaranties for government tenants, and continued production of life insurance regulatory capital financing ◾ Reestablished transferable custody receipt program for secondary market asset-backed securities guaranties, demonstrating the value of our product to that market ◾ Reassumed previously ceded business for aggregate commutation gains of $328 million ◾ Worked with SGI to reinsure the bulk of their insured portfolio and to commute almost all of the business we ceded to them in the past; that agreement was signed in February 2018 with closing subject to regulatory approval and third party consents ◾ Completed our acquisition of MBIA UK and integrated their portfolio into ours, for a bargain purchase gain and settlement of preexisting relationships of $58 million ◾ Repurchased 12.7 million shares during 2017, at an average price of $39.57 per share, meeting our goal ◾ Obtained regulatory approval for MAC to redeem $250 million of its stock from its holding company, which then distributed the funds to AGM and AGC ◾ Obtained regulatory approval for each of AGC and AGM to repurchase $200 million and $100 million of its stock from its respective holding company, providing a source of funding for corporate purposes, including repurchasing more of our Common Shares ◾ Obtained regulatory approval for AGC and AGM to release $134.3 million and $246.3 million of contingency reserves, respectively, increasing the policyholder surplus of each of them ◾ Obtained regulatory approval for and transferred AGC’s European insurance subsidiaries to AGM, which then contributed them to its European insurance subsidiary, Assured Guaranty (Europe) plc, in the first step toward combining all the European insurance subsidiaries |
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Non-Financial Objectives | 2017 Results | |
Implement alternative investment strategy - Achieve | • • Made initial investments in the area by agreeing to purchase up to $100 million of •
|
Active management of all potential loss transactions, including proactive minimization of losses from Puerto Rico | •
• • • | |
| •
| |
Ensure statement | • •
| |
Management development and succession planning—Attract and retain top quality senior management; develop succession plan for critical positions, including assisting the Board in further development of a CEO succession plan. | •
|
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Compensation Discussion and Analysis—CEO Performance Review
Based on Mr. Frederico’s 20162017 achievements against his 2016 2017non-financial objectives, the Compensation Committee awarded him an achievement score of 200%185% against those objectives. Applying that score to the cash incentive formula resulted in a weightednon-financial objective score of 66%61%.
The Compensation Committee then added thatthe weightednon-financial objective score of 61% to the weighted financial performance goal score of 83.8% achieved by Mr. Frederico, to derive a total achievement score of 144.8% in accordance with the cash incentive formula:formula, as follows:
2016 Targets | 2016 Results | Weighting | 2016 Achievement Score (0%-200%) | Weighted Achievement Score | 2017 Targets
| 2017 Results
| Weighting
|
2017
| Weighted
| |||||||||||||||||
Financial Performance Goals* | Financial Performance Goals* |
|
Financial Performance Goals* | |||||||||||||||||||||||
PVP | $ 233 million | $214 million | 13.4 | % | 85 | % | 11.39 | % | $ 260 million | $289 million | 13.4% | 110% | 14.7% | |||||||||||||
Core operating income per diluted share | $3.13 | $6.58 | 13.4 | % | 170 | % | 22.78 | % | $3.23 | $5.31 | 13.4% | 140% | 18.8% | |||||||||||||
Core operating shareholders’ equity per share | $47.62 | $49.95 | 13.4 | % | 130 | % | 17.42 | % | $56.52 | $56.17 | 13.4% | 95% | 12.7% | |||||||||||||
Core operating ROE | 7.0% | 14.3% | 13.4 | % | 170 | % | 22.78 | % | 6.2% | 10.1% | 13.4% | 140% | 18.8% | |||||||||||||
Core ABV per share | $65.25 | $66.64 | 13.4 | % | 120 | % | 16.08 | % | $74.22 | $77.86 | 13.4% | 140% | 18.8% | |||||||||||||
Total Financial Goal Score | 67.0 | % | 90.45 | % | 67% | 83.8% | ||||||||||||||||||||
Non-Financial Objectives | Non-Financial Objectives |
|
Non-Financial Objectives | |||||||||||||||||||||||
Strategy and leadership | Described in detail in the preceding table | Described in detail in the preceding table | 33 | % | 200 | % | 66.0 | % | Described in detail in the preceding table | Described in detail in the preceding table | 33% | 185% | 61.0% | |||||||||||||
Active management of all potential | ||||||||||||||||||||||||||
Maintain current ratings for operating insurance company subsidiaries | ||||||||||||||||||||||||||
Best practice risk management | ||||||||||||||||||||||||||
Management development and | ||||||||||||||||||||||||||
Non-Financial Objective Score | 33 | % | 66.0 | % | 33% | 61.0% | ||||||||||||||||||||
Achievement Score | 156.45 | % | 144.8% |
* | All of the financial performance goals are based onnon-GAAP financial measures, which are described on page |
In summary, Mr. Frederico achieved a weighted financial performance goal score of 90.5%, which counted towards two-thirds of the calculation of his cash incentive compensation, and a non-financial objective score of 66%, which counted towards the remaining one-third of the calculation. Based on Mr. Frederico’s achievements, but also considering our negativeone-year TSR, after applying the cash incentive formula, the Compensation Committee awarded him a cash incentive equal to 156.45%144.8% of his Individual Target Cash Incentive Amount, or $4,497,938.$4,525,000, which is approximately the same amount as the prior year.
The Compensation Committee awarded all of Mr. Frederico’slong-term incentive compensation in the form of performance share units and RSUs. The $5.5 million$5,750,000 target nominal amount oflong-term equity constituted a $0.5 million$250,000 increase over the prior year. The Compensation Committee believed the amount was appropriate to reward Mr. Frederico for his and for our Company’s very strong performance during 2016.2017. It also reflected the Compensation Committee’s desire that Mr. Frederico have a strong incentive to remain at our Company and to generatelong-term, sustained growth that will enhance shareholder value and its consideration of an appropriate level of total compensation for Mr. Frederico.
The following table sets forth the target nominal amount the Compensation Committee awarded Mr. Frederico on February 22, 2017,21, 2018, the grant date. The Compensation Committee determined the number of performance share units and RSUs to award Mr. Frederico by converting the target nominal amount of the award using $39.70,$34.96, which was the average share price over the 40 consecutive trading days ending on February 22, 2017.21, 2018.
When we prepare the Summary Compensation Table, we report the value of the grants using U.S. generally accepted accounting principles (which we refer to as U.S. GAAP), in accordance with the SEC’s rules. Under U.S. GAAP, the value of a performance
share unit as of February 22, 201721, 2018 was $53.74,$45.64, computed using aMonte-Carlo simulation model value and the highest average share price
38
over 40 consecutive trading days, where the sequence of 40 days occurs in the second half of the2017-2019 2018-2020 performance period. Under U.S. GAAP, the value of an RSU was $41.37,$37.85, computed using our Common Share closing price on February 22, 2017,21, 2018, adjusted for the delay in the payment of dividends until vesting. The aggregate value of the grants under U.S. GAAP is also set forth below.
Compensation Committee Target Nominal Value | Equity Granted (Shares) | U.S. GAAP Value | Compensation Committee Target
|
Equity
| U.S. GAAP
| |||||||||||||||||||
Performance share units | $ | 2,750,000 | 69,270 | $ | 3,722,570 | $2,875,000 | 82,237 | $ | 3,753,297 | |||||||||||||||
RSUs | $ | 2,750,000 | 69,270 | $ | 2,865,700 | $2,875,000 | 82,237 | $ | 3,112,670 | |||||||||||||||
TOTAL | $ | 5,500,000 | $ | 6,588,270 | $5,750,000 | $ | 6,865,967 |
The Compensation Committee considered the total compensation it was awarding to Mr. Frederico pursuant to its formulas and methodologies in light of Mr. Frederico’s considerable accomplishments with respect to the financial performance goals as well as hisnon-financial objectives, but also taking into account our negativeone-year TSR. The Compensation Committee attributed the disappointingone-year TSR result primarily to developments related to Puerto Rico, including the impact of the landfall of Hurricane Maria, which the committee acknowledged were outside Mr. Frederico’s control. The Compensation Committee concluded that, in light of our negativeone-year TSR result, it was appropriate that Mr. Frederico’s cash incentive of $4,525,000 for 2017 and base salary for 2018 remained largely unchanged (his cash incentive for 2017 was only 0.6% higher than his cash incentive for 2016 and his 2018 base salary is the same as his base salary for 2017). However, the Compensation Committee did give Mr. Frederico credit for consistently accomplishing our strategies successfully over the last several years, including the 2017 performance year, so as to achieve high three- and five-year TSR results. The Compensation Committee also considered the importance of maintaining Mr. Frederico’s leadership of our Company in the years ahead, as we seek to continue developing our financial guaranty business, to diversify into areas that complement our core credit experience and risk appetite, to manage our insured exposure and mitigate any losses in the insured portfolio, and to manage our capital. Taking these various factors into account, the Compensation Committee believed it was also appropriate for Mr. Frederico’s total 2017 compensation, which it determined in accordance with its formulas and methodologies, to be 3.4% higher than his total 2016 compensation.
CEO Reported Pay Versus Realized Pay
To supplement the disclosure in the Summary Compensation Table on page 47,50, which is determined under SEC rules, we have included the table below, which shows the difference between Mr. Frederico’s compensation as reported in the Summary Compensation Table and the compensation he actually received over the relevant period.
The primary source of the difference between the Summary Compensation Table Reported Value and the Actual Realized Value was Mr. Frederico’s equity grants. Under the SEC’s rules, the Summary Compensation Table for a given year must disclose the grant date value of an executive officer’slong-term equity incentive compensation granted in that year. However, equity grants constitute an incentive for future performance, not current cash compensation, and will not actually be received by the executive officer until a future year, if at all. Moreover, the value of this pay when realized may differ significantly from the grant date value shown in the Summary Compensation Table.
CEO Total Compensation | CEO Total Compensation |
CEO Total Compensation
| ||||||||||||||||||||||||||||||
Year | Summary Compensation Table Reported Value(1) | Actual Realized Value(2) | Variation Between Actual Realized Value versus Summary Compensation Table Reported Value | % Difference | Summary
| Actual Realized
| Variation Between
| % Difference
| ||||||||||||||||||||||||
2017 | $13,526,784 | $15,969,451 | $2,442,667 | 18% | ||||||||||||||||||||||||||||
2016 | $ | 12,727,315 | $ | 8,536,728 | -$ | 4,190,587 | -33 | % | $12,727,315 | $8,536,728 | -$4,190,587 | -33% | ||||||||||||||||||||
2015 | $ | 12,179,989 | $ | 15,395,726 | $ | 3,215,737 | 26 | % | $12,179,989 | $15,395,726 | $3,215,737 | 26% | ||||||||||||||||||||
2014 | $ | 10,774,791 | $ | 8,749,276 | -$ | 2,025,515 | -19 | % |
(1) | Summary Compensation Table Reported Value includes the total of all elements of compensation as reported pursuant to SEC rules, including the grant date value of equity awards granted in February |
(2) | Actual Realized Value represents compensation actually received by our CEO for the particular year shown. We began with the compensation shown in the Total column of the Summary Compensation Table on page |
39
OTHER NAMED EXECUTIVE OFFICER COMPENSATION DECISIONS
Non-Financial Objectives and Achievements of the Other Named Executive Officers
The Compensation Committee made compensation awards to the other executive officers for the 20162017 performance year based on its assessment of their achievements and Mr. Frederico’s review of their performance as well as Mr. Frederico’s compensation recommendations. The other named executive officers’ achievements were evaluated based on their contributions to our achievement of our financial goals, their contributions to the achievement of Mr. Frederico’snon-financial objectives, and their own achievements of the individualnon-financial objectives Mr. Frederico had assigned to them, as described below.
Robert A. Bailenson, Chief Financial Officer
Compensation DiscussionMr. Bailenson was responsible in the 2017 performance year for meeting all internal and Analysis—Other Named Executive Officer Compensation Decisionsexternal financial requirements, managing our capital efficiently, meeting with investors, and participating on earnings calls. In 2017 Mr. Bailenson assumed responsibility for our investor relations group. More specifically, Mr. Bailenson:
James M. Michener, General Counsel
Mr. Michener was responsible in the 20162017 performance year for a number of important initiatives, including spearheading the CIFGdeveloping litigation strategy relating to Puerto Rico and MBIA UK acquisitions from a legal perspective; managing litigation and workout activities relating to a number of distressed structured finance and U.S. public finance credits; developing the optimal structure from a regulatory perspective of a number of alternative investments; and obtaining regulatory approval of several significant matters that enabled us to increase our net earned premium and to manage our capital more efficiently. He also overseesoversaw all of our human resource matters. More specifically, Mr. Michener:
Mr. Michener oversawresigned as our General Counsel and made critical decisions regarding all litigation involvingSecretary, effective December 31, 2017, in accordance with the Company, resulting in the successful resolutionterms of a number of matters during 2016.
Robert A. Bailenson, Chief Financial OfficerCompany.
Mr. Bailenson was responsible in the 2016 performance year for meeting all internal and external financial requirements, managing our capital efficiently, meeting with investors, and participating on earnings calls.
Russell B. Brewer II, Chief Surveillance Officer
Mr. Brewer was responsible in the 20162017 performance year for ensuring that all of our insured exposures are reviewed annually and assigned appropriate internal ratings, and for managing loss mitigation strategies for our troubled credits.credits, and for overseeing our information technology department. Mr. Brewer also manages our rating agency relationships. In addition, in 2016,More specifically, Mr. Brewer made significant improvements to our information technology department.Brewer:
40
Bruce E. Stern, Executive Officer
Mr. Stern was responsible in the 20162017 performance year for workouts of troubled transactions and the extraction of significant value from our insured portfolio and other relationships. Mr. Stern applied creative approaches to troubled transactions to mitigate losses. Mr. Stern is also responsible for governmental affairs and our participation in an industry group. More specifically, Mr. Stern:
Compensation Decisions for the Other Named Executive Officers
In the case of the other named executive officers, for the 20162017 performance year the Compensation Committee calculated and aggregated the weighted achievement scores for the financial performance goals (which were the same as Mr. Frederico’s) and theirnon-financial objectives (which were a combination of their contribution to Mr. Frederico’snon-financial objectives and their achievement of their own individualnon-financial objectives), taking into account the level of difficulty of achieving particular goals or objectives. Based on their achievements, after applying the formula, the Compensation Committee awarded them the cash incentives calculated as shown in the table below.
(
| 2016 Salary | X
| 2016 Individual Target Incentive Multiple | )
| X
| (
| Financial Achievement Score (weighted | +
| Individual Financial Achievement (weighted | )
| =
| 2016 Cash Incentive Payout | (
| 2017 Salary
| X
| 2017 Individual Target Incentive Multiple
| )
| X
| (
| Financial Achievement Score (weighted 67%)
| +
| Individual Financial Achievement (weighted 33%)
| )
| =
| 2017 Cash Incentive Payout
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Robert A. Bailenson | $ | 625,000 | 2.00x | 83.8% | 54.0% | $ | 1,728,125 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James M. Michener | $ | 600,000 | 2.00x | 90.45 | % | 49.5 | % | $ | 1,679,400 | $ | 625,000 | 2.00x | 83.8% | 54.0% | $ | 1,728,125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert A. Bailenson | $ | 600,000 | 2.00x | 90.45 | % | 49.5 | % | $ | 1,679,400 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Russell B. Brewer II | $ | 450,000 | 2.00x | 90.45 | % | 46.2 | % | $ | 1,229,850 | $ | 500,000 | 2.00x | 83.8% | 66.0% | $ | 1,498,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bruce E. Stern | $ | 450,000 | 1.75x | 90.45 | % | 33.0 | % | $ | 972,169 | $ | 470,000 | 2.00x | 83.8% | 33.0% | $ | 1,097,920 |
The Compensation Committee awarded all of the other named executive officers’long-term incentive compensation in the form of performance share units and RSUs. The target nominal amount oflong-term equity reflected the Compensation Committee’s desire that each of the other named executive officers have a strong incentive to help generatelong-term, sustained growth for our Company. The amounts of performance share units and RSUs awarded to each other named executive officer vary by individual and are based on their respective positions and levels of responsibility, historic compensation levels and Cook’s advice about the compensation practices of companies in our comparison group.
The Compensation Committee considered Cook’s analysis of the compensation paid to executive officers in our comparison group when evaluating the compensation of our executive officers. According to Cook, for the 2016 performance year, which is the most recent data available, on average, the target total direct compensation for our named executive officers approximated the comparable median to 75th percentile amounts for the named executive officers of our comparison group, reflecting the experience, leadership, specialized skill sets and sustained performance of the senior executive team. Actual total direct compensation for the named executive officers as a group paid for the 2016 performance year was near the 75th percentile of our comparison group, reflecting our above target bonus payouts for 2016 performance, which were aligned with our 2016 performance relative to our key business goals and strategies, as well as our strong financial and total shareholder returns relative to our comparison group during that period. For the 2016 performance year our one-year growth in book value was the highest in our comparison group and our return on average equity as well as one-year growth in operating income were both above the 75th percentile of our comparison group, while one-year growth in net income and growth in diluted earnings per share approximated the median of our comparison group. Also for the 2016 performance year our one-year TSR was above the 75th percentile and our three-year TSR was the highest in our comparison group.
41
In summary, the Compensation Committee approved the following compensation decisions for the named executive officers other than Mr. Frederico for the 20162017 performance year:
James M. Michener | Robert A. Bailenson | Russell B. Brewer II | Bruce E. Stern |
Robert A.
| James M.
| Russell B.
| Bruce E.
| |||||||||||||||||||||||||
Fixed Compensation—Base Salary(1) | $ | 600,000 | $ | 600,000 | $ | 450,000 | $ | 450,000 | $625,000 | $625,000 | $500,000 | $470,000 | ||||||||||||||||||||
Incentive Compensation | ||||||||||||||||||||||||||||||||
Cash Incentive Compensation | $ | 1,679,400 | $ | 1,679,400 | $ | 1,229,850 | $ | 972,169 | $ | 1,728,125 | $ | 1,728,125 | $ | 1,498,000 | $ | 1,097,920 | ||||||||||||||||
Long-TermPerformance-Based Equity andTime-Based Equity Target Values(2) | $ | 1,000,000 | $ | 1,300,000 | $ | 1,100,000 | $ | 700,000 | ||||||||||||||||||||||||
Long-Term Performance-Based Equity and Time-Based Equity Target Values(2) | $ | 1,500,000 | $ | 1,000,000 | $ | 1,100,000 | $ | 800,000 | ||||||||||||||||||||||||
Total Direct Compensation | $ | 3,279,400 | $ | 3,579,400 | $ | 2,779,850 | $ | 2,122,169 | $ | 3,853,125 | $ | 3,353,125 | $ | 3,098,000 | $ | 2,367,920 |
(1) |
(2) |
The Compensation DiscussionCommittee also decided to increase the base salaries of three of the named executive officers other than Mr. Frederico based on their increased roles and Analysis—responsibilities.
The Compensation Committee believed that it was critical for these three executive officers to remain highly motivated in 2018, especially in light of demands it anticipates will be made on them in connection with the consummation of the reinsurance transaction with SGI, continued focus on developments in Puerto Rico and potential additional alternative investment activity.
The 2018 base salary of Mr. Michener, who remains employed as the Senior Advisor to the Chief Executive Officer of our Company through December 31, 2018, like Mr. Frederico’s 2018 base salary, remains the same as it was in 2017.
As further disclosed in our quarterly report on Form10-Q for the quarter ended September 20, 2017, Mr. Michener resigned as the General Counsel and Secretary and as an executive officer of AGL, effective December 31, 2017, in accordance with the terms of a separation agreement, which we refer to as the Separation Agreement, which he and the Company entered into on November 1, 2017. The Company entered into the Separation Agreement in recognition of Mr. Michener’s successful years of service with the Company and to encourage him to work through December 31, 2018 in order to facilitate the transition of his duties to his successor, to advise the Company regarding ongoing litigation (including both litigation against, and litigation commenced by, the Company), and to have him otherwise remain available to consult on matters related to his experience with the Company. The Compensation ConclusionCommittee consulted with Cook and considered its advice with respect to the terms of the Separation Agreement with Mr. Michener.
Pursuant to the Separation Agreement, Mr. Michener remains employed by our Company in anon-executive officer position, serving as the Senior Advisor to the Chief Executive Officer of the Company, for a transition period, which we refer to as the Transition Period, that began on January 1, 2018 and ends upon his retirement on December 31, 2018, which we refer to as the Retirement Date. The Separation Agreement provides that if Mr. Michener remains employed though the Retirement Date, his base salary and cash and equity incentive opportunities during the Transition Period will be equal to his current base salary and cash and equity incentive opportunities. The portion of the 2018 incentive award amount, if any, attributable to an equity grant will be paid in cash, 50% in 2019 and the remaining 50% in 2020. If Mr. Michener remains employed though the Retirement Date, any unvested equity awards that he holds on the Retirement Date will vest in accordance with the terms of the original applicable award agreement for retirement. However, any previously granted cash and equity awards, including the performance share units granted to Mr. Michener in 2016 and 2017, that include Company or individual performance-based vesting conditions (e.g., the achievement of certainpre-established share price
42
targets) remain subject to satisfaction of such applicable performance conditions. The Separation Agreement addresses the timing of payments and distributions to Mr. Michener so that they remain exempt from or comply with the provisions of Sections 409A and 457A of the Internal Revenue Code. The Separation Agreement also contains covenants by Mr. Michener relating to protection of the Company’s confidential information, cooperation,non-competition,non-solicitation andnon-disparagement and other standard provisions, as well as a release of claims by Mr. Michener. Payments pursuant to the Separation Agreement are subject to forfeiture and/or clawback in the event of violation of such covenants.
EXECUTIVE COMPENSATION CONCLUSION
We made changes to our executive compensation program in early 2015 in response to shareholder engagement. For example, the Compensation Committee’s discretion with respect to the cash incentive was reduced and the link between pay and performance was enhanced. We received advisory shareholder approval of over 98% of the compensation we paid to our named executive officers in the twothree years since that time, and have not made any major changes to our executive compensation program since then.
The Compensation Committee believes that our executive compensation program rewards performance and motivates the officers to increase shareholder value, and that it is therefore appropriate and in the best interests of our Company and our shareholders. Our strategy requires exceptionally qualified and experienced management in senior financial guaranty executive, finance and legal positions, including personnel with skills and experience in reinsurance, acquisitions and corporate integration as well as asset management, and the ability to deal with adverse market conditions and take advantage of market opportunities. During this critical period in our Company’s history, the Compensation Committee believes that retaining and motivating our executive officers and staff is essential, and that the various elements of total compensation have worked well to attract, retain and properly reward management for their performance.
PAYOUT UNDER PERFORMANCE RETENTION PLAN
The Performance Retention Plan, which we refer to as the PRP, had been utilized as a form of incentive compensation for the executive officers until 2015. Its focus on adjusted book value and operating return on equity over a multi-year performance period reduced the incentive to concentrate on short-term gain and fostered a long-term view that minimized unnecessary or excessive risk taking.
In response to shareholder feedback that we should simplify our executive compensation program and emphasize equity rather than cash for incentive compensation, the Compensation Committee stopped granting our executive officers new PRP awards beginning in 2015.
However, the executive officers did receive PRP awards in February 2013 and 2014, installmentsthe final installment of which vested on December 31, 2016,2017, so each of the executive officers received a cash distribution in March 20172018 resulting from those awards. The last PRP award to the executive officers was granted in February 2014 and the last installment of that award will vest on December 31, 2017.
The principal amount of each PRP award is divided into three installments. The portion of principal associated with each installment and the performance period relating to such installment are set out in the terms of the award.
The award payment for each installment is the product of:
For the executive officers, no amount is payable if our core ABV per share has declined for the applicable performance period and if our core operating ROE is not at least 3% on average for each year in the applicable performance period. However, if, in a subsequent performance period, there is either positive growth in our core ABV per share or our core operating ROE is at least 3% on average for each year in the applicable performance period, each executive officer who remains employed at our Company will receive the recalculated payment.
The following table sets forth the calculation of the returns on the installmentsinstallment of the PRP awardsaward granted in February 2013 and 2014 that vested on December 31, 2016:2017:
Grant Date | Performance Period Beginning Date | Performance Period End Date | Portion of Principal Associated with Installment | Percentage Change in Core ABV per Share | Core Operating ROE | 50% of Percentage Change in Core ABV per Share + 50% of Core Operating ROE | Performance
| Performance
| Portion of
| Percentage
| Core
| 50% of
| ||||||||||||||||||||||||||||||||||||
February 2013 | January 1, 2013 | December 31, 2016 | 50 | % | 41.3 | % | 43.9 | % | 42.6 | % | ||||||||||||||||||||||||||||||||||||||
February 2014 | January 1, 2014 | December 31, 2016 | 25 | % | 34.4 | % | 33.0 | % | 33.7 | % |
|
January 1, 2014
|
|
|
December 31, 2017
|
|
|
50%
|
|
|
57%
|
|
|
43%
|
|
|
50%
|
|
43
The individual PRP payouts for amounts that vested on December 31, 20162017 are set forth in footnote 2 to the Summary Compensation Table. Those PRP payouts were a function of decisions made by the Compensation Committee in February 2013 and 2014 regarding the amount of PRP to award relating to the executive officers’ achievements during the 2012 and 2013 performance years, as well as growth in core ABV per share and the core operating ROE during the relevant performance periods.
The strong growth in core ABV per share and the core operating ROE during the performance periods shown in the table above was driven in large part by achievements of our named executive officers during those performance periods. For example, the efficient management of capital, the CIFG acquisition,various acquisitions, recoveries from our loss mitigation activities, gains on reassumptions of previously ceded business and the generation of PVP through the writing of new business each contributed to both the increase in core ABV per share and core operating ROE, while the core operating ROE was also impacted by terminations of insured transactions.
The Role of the Board’s Compensation Committee
The Compensation Committee oversees all aspects of our executive compensation program. The Compensation Committee has responsibility for:
Our Board has adopted a Compensation Committee Charter to govern the Compensation Committee’s activities. The charter, which may be found on our website at assuredguaranty.com/www.assuredguaranty.com/governance, is reviewed annually by the Compensation Committee. Under its charter, the Compensation Committee is authorized to retain compensation, legal, accounting and other expert consultants at our expense.
The Role of the Independent Consultant
Over the pastFor more than ten years, including in 2016,2017, the Compensation Committee has engaged Cook as its independent compensation consultant and considered advice and information from that firm in determining the amount and form of compensation for the executive officers. As part of its engagement, Cook advised the Compensation Committee in 2014 and 2015 about the changes to the cash incentive portion of our executive compensation program. Every two years, the Nominating and Governance Committee also engages Cook to review the compensation package for the independent directors; Cook last undertook such a review in 2017. The Compensation Committee also consulted with Cook and considered its advice with respect to the terms of the Separation Agreement with Mr. Michener. Cook has not provided any additional consulting service to us beyond its role as consultant to the Compensation Committee and the Nominating and Governance Committee.
In 2016,2017, Cook’s work for the Compensation Committee included analyzing our compensation practices in light of best practices, providing compensation risk assessment, reviewing our comparison group of companies, collecting and providing relevant market data, reviewing data and analyses provided by other consultants, and updating the Compensation Committee with respect to evolving governance trends.
The Compensation Committee has considered the independence of Cook in light of SEC rules and NYSE listing standards. It has requested and received a letter from Cook in 20162017 affirming factors relevant to assessing Cook’s independence. The Compensation Committee discussed the content of the letter and concluded that Cook’s work did not raise any independence or conflict of interest issues.
Executive Compensation Comparison Group
The Compensation Committee examines pay data for the following 1412 companies to review pay practices, identify compensation trends, and benchmark its executive compensation decisions:
Ambac Financial Group | Eaton Vance | |||
| Radian Group | |||
Arch Capital Group | Everest Re Group | RenaissanceRe Holdings | ||
Aspen Insurance Holdings | MBIA | Validus | ||
Axis Capital Holdings | MGIC Investment | White Mountains Insurance Group | ||
|
The Compensation Committee has long recognized that the comparison group has limitations. Notably, the comparison group consists primarily of mortgage finance and casualty insurance and reinsurance companies. Despite the specialized nature of our business, our Compensation Committee looks for companies domiciled in Bermuda or with a similar size, business model and compensation mix to
44
ours. Although the factors the Compensation Committee considers for its compensation decisions and the level of compensation may differ from those for the comparison group, the Compensation Committee finds it useful to consider the pay practices at these companies.
Compensation Discussion and Analysis—Compensation Governance
In November 2016,2017, Cook met with members of the Compensation Committee to review the comparison group from the prior year, and to discuss whether other companies should be considered for inclusion in the group. The Compensation Committee had not revisedadded Ambac Financial Group to the comparison group the prior year, to replace Partner Re, which had been acquired earlier in the year. Cook advised the Compensation Committee that the current comparison group consists of companies that, like our Company, have a business model that involves underwriting risk, a holding company structure, and similar size as measured by revenues, assets and market capitalization. However, sinceSince November 2015, Partner Re has been acquired by Exor and2016, Endurance Specialty announced in October 2016 that it expected it would beand Allied World Assurance were acquired by SOMPO Holdings, Inc. in the first quarter of 2017. Cook recommended the deletion of Partner Re but the retention of Endurance Specialtyand therefore have been removed from the comparison group for time being because it may still file compensation data for 2016.
group. Cook recommendedperformed an independent review to determine whether to change or add to the addition of Ambac Financial Group toremaining 12 companies in the comparison group, because Ambac is similarand ultimately concluded the remaining companies continue to the Company in terms of business focus and structure, is reasonably similar from a size perspective, and is used as abe reasonable for competitive comparison by MBIA and MGIC Investment, both of which are in the Company’s comparison group. Although it is currently not writing new business, it has survived the financial crisis and is actively working with the Company to mitigate Puerto Rico losses. purposes.
Cook advised the Compensation Committee that, withas of September 30, 2017, ourone-year TSR ranked in the addition of Ambac, the Company ranks at the 4691thst percentile of the current comparison group and ourthree-year TSR was the highest in termsthe comparison group. Cook also informed the Compensation Committee that, as of September 30, 2017, our latest four quarters of revenue approximate the median of the current comparison group; our latest quarter of assets and atmarket capitalization fall between the 40median and the 75th percentile in market capitalization. If Endurance Specialty were removed,percentile; our net income is near the comparison group’s “high” number; and the number of employees at our Company would rank atis below the 5025th percentile in terms of latest four quarters of revenue and at the 43rd percentile in market capitalization.percentile.
Based on Cook’s recommendation, the Compensation Committee agreed that the 1412 companies listed above would continue to constitute the Company’s comparison group.group for 2018.
Executive Officer Recoupment Policy
Our Board of Directors adopted a recoupment (or clawback) policy in February 2009 pursuant to which the Compensation Committee may rescind or recoup certain of the compensation of an executive officer if such person engages in misconduct related to a restatement of our financial results or of objectively quantifiable performance goals, and the achievement of those goals is later determined to have been overstated.
In connection withRule 10D-1 proposed by the SEC, the Compensation Committee amended the recoupment policy in November 2015 so that it would apply, to the extent required by law, to incentive compensation received in the three year period before a determination that a material restatement is required. The amended recoupment policy allows the Company to recoup incentive compensation which is granted before the adoption and effectiveness of a finalRule 10D-1, but which may be subject to the three yearlook-back period of any such final rule.
To demonstrate our commitment to building shareholder value, the Board of Directors adopted management stock ownership guidelines. Our guidelines do not mandate a time frame by which this ownership must be attained, but each executive officer must retain 100% of hisafter-tax receipt of Company stock until he reaches his ownership goal. Please see “Information About Our Common Share Ownership—How Much Stock is Owned by Directors and Executive Officers” for detailed information on the executive officers’ stock ownership.
The chart below shows the guideline for each of our named executive officers and each executive’s stock ownership as of March 8, 2017,2018, the record date, using $40.19,$34.49, the closing price of one of our Common Shares on the NYSE on such date.
Named Executive Officer | Guideline | Current Ownership | |||||||
Dominic J. Frederico | 7 × Salary | 35.5 × Salary | |||||||
Robert A. Bailenson | 5 × Salary | 9.0 × Salary | |||||||
James M. Michener | |||||||||
| 5 × Salary | (1) | 11.4 × Salary | (1) | |||||
Russell B. Brewer II | 5 × Salary | 8.3 × Salary | |||||||
Bruce E. Stern | 5 × Salary | 7.5 × Salary |
During 2017, Mr. Michener, as an executive officer of the Company, was subject to a stock ownership guideline of five times his base salary. The Separation Agreement specifies that during the Transition Period, Mr. Michener will be required to own AGL shares having a value equal to two times his base salary, which is the level applicable to certain managing directors, group heads and equivalent positions under the Company’s stock ownership guidelines. |
45
These ownership levels include shares owned and, in the case of Mr. Bailenson, vested share units credited to hisnon-qualified retirement plan. Unvested RSUs, unvested performance share units and unexercised options do not count towards the guidelines. Some of the executive officers who have reached their share ownership goals have made gifts of shares to family or to charitable or educational institutions.
We adopted ananti-hedging policy in 2013 that explicitly prohibits employees and directors from hedging our Common Shares.
Our stock trading policy prohibits employees and directors from pledging our Common Shares without approval of both our General Counsel and the Nominating and Governance Committee. There have been no such transactions to date.
The Compensation Committee meets during our February board meeting to make executive compensation decisions with respect to the previous year’s performance and to make its compensation recommendations to the other directors. After consulting with the Board, the Compensation Committee approves executive officer salary increases (if any), cash incentive compensation, and equity awards. Payments under existing PRP awards (if any) and cash incentives are not paid until after we file our Annual Report onForm 10-K for the previous calendar year with the SEC.
We maintaintax-qualified andnon-qualified defined contribution retirement plans for our executive officers and other eligible employees. We do not maintain any defined benefit pension plans. The Compensation Committee and our management believe that it is important to provide retirement benefits to employees who reach retirement in order to attract and retain key employees. All retirement benefits are more fully described under “Potential Payments Upon Termination or Change in Control.”
Benefit Under Defined Contribution Plans | Description | |
Core contribution | We contribute 6% of each employee’s salary and cash bonus compensation, which we refer to as eligible compensation | |
Company match | We match 100% of each employee’s contribution, up to 6% of eligible compensation |
Under our severance policy for executive officers, following the executive’s involuntary termination without cause or voluntary termination for good reason and subject to the executive signing a release of claims, the executive will receive alump-sum payment in an amount equal to one year’s salary plus his average cash incentive amount over the preceding3-yearthree-year period, plus apro-rata annual cash incentive amount for the year of termination and an amount equal to one year of medical and dental premiums. The executive officer’s receipt of severance benefits is subject to his compliance withnon-competition,non-solicitation, and confidentiality restrictions during his employment and for a period of one year following termination of employment. We, in our discretion, may choose to pay one year of base salary to an executive who terminates employment for a reason other than involuntary termination without cause or voluntary termination for good reason, in which case the executive will also be subject tonon-competition,non-solicitation, and confidentiality restrictions following his termination of employment. In accordance with his Separation Agreement, Mr. Michener will
remain eligible for our severance policy for any termination prior to the Retirement Date specified in such agreement.
We provide change in control benefits to encourage executives to consider the best interests of shareholders by mitigating any concerns about their own personal financialwell-being in the face of a change in control of our Company. Based on shareholder input and changing market trends, since 2011, in the event of a change in control:
Detailed information is provided under “Potential Payments Upon Termination or Change in Control.”
46
Compensation Discussion and Analysis—Tax Treatment
Section 162(m) of the Internal Revenue Code (IRC) Section 162(m) generally limits the deductibility of annual compensation in excess of $1 million paid to “covered employees” of the Company, unless the compensation satisfied an exception, such as the exception for performance-based compensation. Performance-based compensation generally includes only payments that are contingent on achievement of performance objectives, and excludes fixed or guaranteed payments. On December 22, 2017, the 2017 Tax Act was enacted, which, among other things, repealed the performance-based compensation exception and expanded the definition of covered employee. The changes to Section 162(m) are effective for taxable years beginning after December 31, 2017. The 2017 Tax Act includes a transition rule so that these changes do not apply to compensation paid pursuant to a “binding written contract” that was in effect on November 2, 2017 and that was not materially modified on or after such date.
Because of the performance-based compensation exception repeal, amounts paid pursuant to a contract effective after November 2, 2017 will not be deductible as performance-based compensation, and the Compensation Committee will not need to consider the requirements of the performance-based compensation exception when considering the design of any such future contracts as part of our compensation program. For amounts paid under contracts in effect on November 2, 2017 that were intended to constitute performance-based compensation, the Compensation Committee will continue to consider the performance-based compensation exception when making determinations of performance under those contracts.
The 2017 Tax Act also expands the definition of covered employee. For 2017, our covered employees included our CEO and three other named executive officers (but not the chief financial officer) who were executive officers as of the last day of our fiscal year. For 2018 and thereafter, our covered employees will generally include anyone who (i) was our CEO or chief financial officer at any time during the year, (ii) was one of the other than our Chief Financial Officer to $1 million during anynamed executive officers who was an executive officer as of the last day of the fiscal year, unless such compensation is“performance-based”and (iii) was a covered employee for any previous year after 2016.
As with prior years, although the Compensation Committee will consider deductibility under Section 162(m). Generally, we intend with respect to structure ourthe compensation arrangements for executive officers, deductibility will not be the sole factor used in a manner that would comply with Section 162(m). However, thedetermining appropriate levels or methods of compensation. The Compensation Committee considers many factors when designing its compensation arrangements in addition to the deductibility of the compensation, and maintains the flexibility to grant awards or pay compensation amounts that arenon-deductible if they believe it is in the best interest of our Company and our shareholders.
In addition, IRC Section 409A of the Internal Revenue Code imposes restrictions on nonqualified deferred compensation plans. We maintain deferred compensation plans for the benefit of our employees, including nonqualified deferred compensation plans that provide for employee and employer contributions in excess of the IRS defined contribution plan limits. The deferred compensation plans we maintain are intended to be exempt from the requirements of Section 409A or, if not exempt, to satisfy the requirements of Section 409A, and we have reviewed and, where appropriate, have amended each of our deferred compensation plans to meet the requirements.
Finally, IRC Section 457A of the Internal Revenue Code imposes restrictions on nonqualified deferred compensation plans maintained by a nonqualified entity (which generally includes an entity in a jurisdiction that is not subject to U.S. income tax or a comprehensive foreign income tax). The deferred compensation plans we maintain are intended to be exempt from the requirements of Section 457A for benefits accrued or awards granted on or after January 1, 2009 (the effective date of Section 457A). Also, we had amended certain deferred compensation plans in which benefits were accrued or awards granted prior to January 1, 2009 to provide that such benefits would be distributed in a singlelump-sum payment in January 2017 (to the extent not previously distributed) to satisfy the requirements of Section 457A, and such benefits were distributed on January 6, 2017.
This proxy statement references financial measures that are not determined in accordance with U.S. GAAP, and are identified as core, operating, PVP ornon-GAAP. Although thesenon-GAAP financial measures should not be considered substitutes for U.S. GAAP measures, our management and Board consider them important performance indicators and have employed them as well as other factors in determining senior management incentive compensation.
We referenced in theManagement’s Discussion and Analysis in our Annual Report on Form10-K for the year ended December 31, 20162017 certain of thenon-GAAP financial measures we use in this proxy statement. The definitions for thosenon-GAAP financial measures, which are listed below, and how they may be calculated from the most directly comparable GAAP financial measures, may be found on pages 9492 to 9896 of our Annual Report onForm 10-K for the year ended December 31, 2016.
2017.
• | non-GAAPoperating income |
• | non-GAAP operating shareholders’ equity |
• | non-GAAP adjusted book value (ABV) |
• | PVP or present value of new business production |
47
This proxy also references certainnon-GAAP financial measures, which are identified as “core”, that our management and Board also consider important performance indicators and have employed, as well as other factors, in determining senior management incentive compensation. These “core” measures, and how they are calculated from our GAAP financial statements, are as follows:
• | Core operating income per diluted share. After making the adjustments to net income described on pages |
• | Core operating shareholders’ equity per share.After making the adjustments to shareholders’ equity described on pages |
• | Core ABV. After making the adjustments to shareholders’ equity described on pages |
• | Core operating ROE. Core operating ROE is calculated as core operating income divided by the average of core operating shareholders’ equity at the beginning and end of the period. |
48
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Company’s Annual Report onForm 10-K for the year ended December 31, 20162017 and this proxy statement. The foregoing report has been approved by the Compensation Committee.
Patrick W. Kenny, Chairman
G. Lawrence Buhl
Simon W. Leathes
49
2016 Summary Compensation Table
20162017 SUMMARY COMPENSATION TABLE
The following table provides compensation information for 2017, 2016 2015 and 20142015 for our named executive officers.
Name and Principal Position | Year | Salary | Stock Awards(1) | Non-Equity Incentive Plan Compen- sation(2) | All Other Compen- sation(3) | Total | Year
| Salary
| Stock Awards(1)
|
Non-Equity Incentive Plan Compen- sation(2)
| All Other Compen- sation(3)
| Total
| ||||||||||||||||||||||||||||||||||||
Dominic J. Frederico, | 2016 | $ | 1,150,000 | $ | 5,090,589 | $ | 5,717,851 | $ | 768,875 | $ | 12,727,315 |
|
2017 |
|
|
$1,250,000 |
|
|
$6,588,270 |
|
|
$4,862,500 |
|
|
$826,014 |
|
|
$13,526,784 |
| |||||||||||||||||||
President and Chief | 2015 | $ | 1,150,000 | $ | 4,708,445 | $ | 5,609,813 | $ | 711,731 | $ | 12,179,989 | 2016 | $1,150,000 | $5,090,589 | $5,717,851 | $768,875 | $12,727,315 | |||||||||||||||||||||||||||||||
Executive Officer | 2014 | $ | 950,000 | $ | 3,607,088 | $ | 5,580,300 | $ | 637,403 | $ | 10,774,791 |
| 2015
|
|
| $1,150,000
|
|
| $4,708,445
|
|
| $5,609,813
|
|
| $711,731
|
|
| $12,179,989
|
| |||||||||||||||||||
Robert A. Bailenson, |
|
2017 |
|
|
$625,000 |
|
|
$1,557,236 |
|
|
$1,953,125 |
|
|
$286,085 |
|
|
$4,421,446 |
| ||||||||||||||||||||||||||||||
Chief Financial | 2016 | $600,000 | $1,119,915 | $2,207,475 | $230,530 | $4,157,920 | ||||||||||||||||||||||||||||||||||||||||||
Officer
|
| 2015
|
|
| $550,000
|
|
| $1,046,351
|
|
| $1,920,375
|
|
| $191,279
|
|
| $3,708,005
|
| ||||||||||||||||||||||||||||||
James M. Michener, | 2016 | $ | 600,000 | $ | 1,018,118 | $ | 2,355,089 | $ | 487,858 | $ | 4,461,065 |
|
2017
|
|
|
$625,000 |
|
|
$1,197,815 |
|
|
$1,964,375 |
|
|
$505,545 |
|
|
$4,292,735 |
| |||||||||||||||||||
General Counsel | 2015 | $ | 550,000 | $ | 941,700 | $ | 2,338,881 | $ | 443,359 | $ | 4,273,940 | 2016 | $600,000 | $1,018,118 | $2,355,089 | $487,858 | $4,461,065 | |||||||||||||||||||||||||||||||
2014 | $ | 500,000 | $ | 706,975 | $ | 2,399,400 | $ | 401,974 | $ | 4,008,349 |
| 2015
|
|
| $550,000
|
|
| $941,700
|
|
| $2,338,881
|
|
| $443,359
|
|
| $4,273,940
|
| ||||||||||||||||||||
Robert A. Bailenson, | 2016 | $ | 600,000 | $ | 1,119,915 | $ | 2,207,475 | $ | 230,530 | $ | 4,157,920 | |||||||||||||||||||||||||||||||||||||
Chief Financial | 2015 | $ | 550,000 | $ | 1,046,351 | $ | 1,920,375 | $ | 191,279 | $ | 3,708,005 | |||||||||||||||||||||||||||||||||||||
Officer | 2014 | $ | 475,000 | $ | 673,311 | $ | 1,618,772 | $ | 153,900 | $ | 2,920,983 | |||||||||||||||||||||||||||||||||||||
Russell B. Brewer II, | 2016 | $ | 450,000 | $ | 1,119,915 | $ | 1,762,939 | $ | 223,481 | $ | 3,556,335 |
|
2017 |
| $500,000 |
|
$1,317,654 |
| $1,734,250 |
|
$253,803 |
|
|
$3,805,707 |
| |||||||||||||||||||||||
Chief Surveillance | 2015 | $ | 400,000 | $ | 941,700 | $ | 1,784,931 | $ | 191,288 | $ | 3,317,919 | 2016 | $450,000 | $1,119,915 | $1,762,939 | $223,481 | $3,556,335 | |||||||||||||||||||||||||||||||
Officer | 2014 | $ | 390,000 | $ | 706,975 | $ | 1,570,130 | $ | 171,000 | $ | 2,838,105 |
| 2015
|
|
| $400,000
|
|
| $941,700
|
|
| $1,784,931
|
|
| $191,288
|
|
| $3,317,919
|
| |||||||||||||||||||
Bruce E. Stern(4) | 2016 | $ | 450,000 | $ | 712,678 | $ | 1,274,087 | $ | 184,236 | $ | 2,621,001 | |||||||||||||||||||||||||||||||||||||
Bruce E. Stern, |
|
2017 |
|
|
$470,000 |
|
|
$838,490 |
|
|
$1,255,420 |
|
|
$192,864 |
|
|
$2,756,774 |
| ||||||||||||||||||||||||||||||
Executive Officer | 2015 | $ | 400,000 | $ | 627,800 | $ | 1,259,694 | $ | 139,415 | $ | 2,426,909 | 2016 | $450,000 | $712,678 | $1,274,087 | $184,236 | $2,621,001 | |||||||||||||||||||||||||||||||
| 2015
|
|
| $400,000
|
|
| $627,800
|
|
| $1,259,694
|
|
| $139,415
|
|
| $2,426,909
|
|
(1) | This column represents the grant date value of performance share unit awards and restricted share unit awards granted in 2017, 2016 and 2015 for 2016, 2015 and 2014 |
(2) | This column represents cash incentive compensation for |
D. Frederico | J. Michener | R. Bailenson | R. Brewer | B. Stern | ||||||||||||||||
2016 Cash Incentive Compensation | $ | 4,497,938 | $ | 1,679,400 | $ | 1,679,400 | $ | 1,229,850 | $ | 972,169 | ||||||||||
2016 PRP Payout | $ | 1,219,913 | $ | 675,689 | $ | 528,075 | $ | 533,089 | $ | 301,918 | ||||||||||
Total | $ | 5,717,851 | $ | 2,355,089 | $ | 2,207,475 | $ | 1,762,939 | $ | 1,274,087 |
D. Frederico
|
R. Bailenson
|
J. Michener
|
R. Brewer
|
B. Stern
| ||||||||||||||||
2017 Cash Incentive Compensation
|
|
$4,525,000
|
|
|
$1,728,125
|
|
|
$1,728,125
|
|
|
$1,498,000
|
|
|
$1,097,920
|
| |||||
2017 PRP Payout
|
|
$337,500
|
|
|
$225,000
|
|
|
$236,250
|
|
|
$236,250
|
|
|
$157,500
|
| |||||
Total
|
|
$4,862,500
|
|
|
$1,953,125
|
|
|
$1,964,375
|
|
|
$1,734,250
|
|
| $1,255,420
|
|
(3) | All Other Compensation for |
D. Frederico | J. Michener | R. Bailenson | R. Brewer | B. Stern |
D. Frederico
|
R. Bailenson
|
J. Michener
|
R. Brewer
|
B. Stern
| |||||||||||||||||||||||||||||||
Employer Contribution to Retirement Plans | $ | 618,240 | $ | 247,032 | $ | 220,896 | $ | 186,096 | $ | 161,226 |
|
$689,753
|
|
|
$276,528
|
|
|
$276,528
|
|
|
$207,582
|
|
|
$173,060
|
| |||||||||||||||
Bermuda Housing Allowance | $ | 21,714 | $ | 144,000 | — | — | — |
|
$23,688
|
|
|
—
|
|
|
$132,000
|
|
|
—
|
|
|
—
|
| ||||||||||||||||||
Bermuda Car Allowance | $ | 20,000 | $ | 15,000 | — | — | — |
|
$20,000
|
|
|
—
|
|
|
$15,000
|
|
|
—
|
|
|
—
|
| ||||||||||||||||||
Bermuda Travel Allowance | $ | 15,000 | $ | 15,000 | — | — | — |
|
$15,000
|
|
|
—
|
|
|
$15,000
|
|
|
—
|
|
|
—
|
| ||||||||||||||||||
Tax Preparation/Financial Planning | $ | 42,292 | $ | 29,222 | $ | 1,000 | $ | 19,680 | — |
|
$32,732
|
|
|
$1,100
|
|
|
$28,458
|
|
|
$20,465
|
|
|
—
|
| ||||||||||||||||
Matching Gift Donations | $ | 15,000 | $ | 15,000 | — | $ | 10,000 | $ | 10,820 |
|
$15,000
|
|
|
—
|
|
|
$15,000
|
|
|
$15,000
|
|
|
$8,300
|
| ||||||||||||||||
Business—Related Spousal Travel | $ | 15,771 | $ | 12,604 | $ | 8,634 | $ | 7,705 | $ | 8,669 | ||||||||||||||||||||||||||||||
Business-Related Spousal Travel
|
|
$8,054
|
|
|
$7,757
|
|
|
$13,359
|
|
|
$4,571
|
|
|
$1,263
|
| |||||||||||||||||||||||||
Miscellaneous | $ | 20,858 | $ | 10,000 | — | — | $ | 3,521 |
|
$21,787
|
|
|
$700 |
|
|
$10,200
|
|
|
$6,185
|
|
|
$10,241
|
| |||||||||||||||||
Total | $ | 768,875 | $ | 487,858 | $ | 230,530 | $ | 223,481 | $ | 184,236 |
|
$826,014
|
|
|
$286,085
|
|
|
$505,545
|
|
|
$253,803
|
|
|
$192,864
|
|
50
None of our named executive officers currently have any employment agreements with the Company. See “Compensation Disclosure and Analysis—Separation Agreement” for a description of Mr. Michener’s Separation Agreement.
Our Company has established a perquisite policy pursuant to which we provide executive officers certain perquisites that are not available to employees generally. We believe that perquisites we provide to our named executive officers meet certain business objectives and that the benefit our Company receives from providing these perquisites significantly outweighs the cost of providing them. We feel these perquisites minimize distractions to our named executive officers, thereby enabling them to perform their responsibilities more efficiently. These include tax preparation, financial planning, annual executive medical exams and, for our executive officers located in Bermuda, housing and car allowances, Bermuda club memberships, and family travel stipend. We provide tax preparation and financial planning services to maximize the value of Company-provided compensation and to assist our named executive officers with tax compliance in various jurisdictions, especially since some of our named executive officers fulfill their responsibilities to the Company by working outside their home country for a portion of their time. In light of the challenges of the Bermuda market, including travel to and from the island, and the cost of living and maintaining a residence, the Bermuda perquisites are consistent with competitive practices in the Bermuda market and have been necessary for recruitment and retention purposes. Any of these perquisites may be modified by the Compensation Committee without the consent of the executive officers.
In determining the total compensation payable to our named executive officers, the Compensation Committee considers perquisites in the context of the total compensation which our named executive officers are eligible to receive. However, given the fact that perquisites represent a relatively small portion of the executive’s total compensation, the availability of these perquisites does not materially influence the decisions made by the Compensation Committee with respect to other elements of the total compensation to which our named executive officers are entitled to or which they are awarded.
Our Company has adopted a severance policy for executive officers. For further detail, see the discussion in “Compensation Discussion andAnalysis—Post-Employment Compensation—Severance” and “Potential Payments Upon Termination or Change ofControl—Change-in-Control Severance”. A severance policy enables us to attract and retain top candidates for our executive positions and enables us to have good relations with those executives.
We maintain a broad based employee stock purchase plan that gives our eligible employees the right to purchase our Common Shares through payroll deductions at a purchase price that reflects a 15% discount to the market price of our Common Shares on the first or last day of the relevant subscription period, whichever is lower. No participant may purchase more than $25,000 worth of Common Shares under this plan in any calendar year. In 2016,2017, Mr. Frederico, Mr. Stern and another executive officer participated in the employee stock purchase plan to the maximum extent possible.
We enter into indemnification agreements with our directors and executive officers. These agreements are in furtherance of ourBye-Laws which require us to indemnify our directors and officers for acts done, concurred in or omitted in or about the execution of their duties in their respective offices.
51
2016 Grants ofPlan-Based Awards
20162017 GRANTS OFPLAN-BASED AWARDS
The following table sets forth information concerning grants ofplan-based awards for our named executive officers made during 2016.2017.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Target | Maximum | Threshold | Target | Maximum | All Other Stock Awards: Number of Shares of | Grant Date Fair Value of Stock and Option Awards(4) | Grant Date | Target | Maximum | Threshold | Target | Maximum | | All Other Stock Awards: Number of Shares of |
| | Grant Date Fair Value of Stock and Option Awards(4) | |||||||||||||||||||||||||||||||||||||||||||||
Dominic J. Frederico | Feb. 24, 2016 | (1) | $ | 2,875,000 | $ | 5,750,000 | — | — | — | — | — | Feb. 22, 2017(1) | $3,125,000 | $6,250,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (2) | — | — | 51,483 | 102,965 | 205,930 | — | $ | 2,579,273 | Feb. 22, 2017(2) | — | — | 34,635 | 69,270 | 138,540 | — | $3,722,570 | |||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (3) | — | — | — | — | — | 102,965 | $ | 2,511,316 | Feb. 22, 2017(3) | — | — | — | — | — | 69,270 | $2,865,700 | |||||||||||||||||||||||||||||||||||||||||||||||
James M. Michener | Feb. 24, 2016 | (1) | $ | 1,200,000 | $ | 2,400,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert A. Bailenson | Feb. 22, 2017(1) | $1,250,000 | $2,500,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (2) | — | — | 10,297 | 20,593 | 41,186 | — | $ | 515,855 | Feb. 22, 2017(2) | — | — | 8,187 | 16,373 | 32,746 | — | $879,885 | |||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (3) | — | — | — | — | — | 20,593 | $ | 502,263 | Feb. 22, 2017(3) | — | — | — | — | — | 16,373 | $677,351 | |||||||||||||||||||||||||||||||||||||||||||||||
Robert A. Bailenson | Feb. 24, 2016 | (1) | $ | 1,200,000 | $ | 2,400,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
James M. Michener | Feb. 22, 2017(1) | $1,250,000 | $2,500,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (2) | — | — | 11,326 | 22,652 | 45,304 | — | $ | 567,433 | Feb. 22, 2017(2) | — | — | 6,297 | 12,594 | 25,188 | — | $676,802 | |||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (3) | — | — | — | — | — | 22,652 | $ | 552,482 | Feb. 22, 2017(3) | — | — | — | — | — | 12,594 | $521,014 | |||||||||||||||||||||||||||||||||||||||||||||||
Russell B. Brewer II | Feb. 24, 2016 | (1) | $ | 900,000 | $ | 1,800,000 | — | — | — | — | — | Feb. 22, 2017(1) | $1,000,000 | $2,000,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (2) | — | — | 11,326 | 22,652 | 45,304 | — | $ | 567,433 | Feb. 22, 2017(2) | — | — | 6,927 | 13,854 | 27,708 | — | $744,514 | |||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (3) | — | — | — | — | — | 22,652 | $ | 552,482 | Feb. 22, 2017(3) | — | — | — | — | — | 13,854 | $573,140 | |||||||||||||||||||||||||||||||||||||||||||||||
Bruce E. Stern | Feb. 24, 2016 | (1) | $ | 787,500 | $ | 1,575,000 | — | — | — | — | — | Feb. 22, 2017(1) | $940,000 | $1,880,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (2) | — | — | 7,208 | 14,415 | 28,830 | — | $ | 361,096 | Feb. 22, 2017(2) | — | — | 4,408 | 8,816 | 17,632 | — | $473,772 | |||||||||||||||||||||||||||||||||||||||||||||||
Feb. 24, 2016 | (3) | — | — | — | — | — | 14,415 | $ | 351,582 | Feb. 22, 2017(3) | — | — | — | — | — | 8,816 | $364,718 |
(1) | Represents a grant of anon-equity incentive compensation award. As described in “Compensation Discussion and Analysis—Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program—Cash Incentive Compensation”, the Compensation Committee uses atwo-step process for granting and paying annualnon-equity incentive compensation awards to executive officers. On the February |
(2) | Represents a performance share unit award. The performance share units will vest at the end of athree-year vesting period based on the highest40-day average share price during the last eighteen months of such period and continued employment through the end of the applicablethree-year period, with limited exceptions. The number of performance share units listed in the Threshold column represents the number of performance share units which shall become vested based on achievement of 50% of the performance target (a40-day average share price of |
(3) | Represents atime-based RSU award. Restrictions lapse on the third anniversary of the grant date of the award, subject to continued employment, with limited exceptions. |
(4) | This column discloses the aggregate grant date fair market value computed in accordance with U.S. GAAP, which is |
52
The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2016.2017.
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||
Dominic J. | 200,000 | $ | 23.27 | 2/14/2018 | — | — | — | — | ||||||||||||||||||||
Frederico | 100,000 | $ | 7.44 | 2/5/2019 | — | — | — | — | ||||||||||||||||||||
100,000 | $ | 19.79 | 2/24/2020 | — | — | — | — | |||||||||||||||||||||
112,055 | $ | 17.44 | 2/9/2019 | — | — | — | — | |||||||||||||||||||||
— | — | — | 82,635 | (1) | $ | 3,121,124 | — | — | ||||||||||||||||||||
— | — | — | 143,082 | (2) | $ | 5,404,207 | — | — | ||||||||||||||||||||
— | — | — | 87,959 | (3) | $ | 3,322,211 | — | — | ||||||||||||||||||||
— | — | — | 175,918 | (4) | $ | 6,644,423 | — | — | ||||||||||||||||||||
— | — | — | 102,965 | (5) | $ | 3,888,988 | — | — | ||||||||||||||||||||
— | — | — | — | — | 51,483 | (6) | $ | 1,944,513 | ||||||||||||||||||||
James M. | 30,000 | $ | 23.27 | 2/14/2018 | — | — | — | — | ||||||||||||||||||||
Michener | 40,000 | $ | 19.79 | 2/24/2020 | — | — | — | — | ||||||||||||||||||||
8,964 | $ | 17.44 | 2/9/2019 | — | — | — | — | |||||||||||||||||||||
10,398 | $ | 19.24 | 2/7/2020 | — | — | — | — | |||||||||||||||||||||
— | — | — | 16,197 | (1) | $ | 611,761 | — | — | ||||||||||||||||||||
— | — | — | 28,042 | (2) | $ | 1,059,146 | — | — | ||||||||||||||||||||
— | — | — | 17,592 | (3) | $ | 664,450 | — | — | ||||||||||||||||||||
— | — | — | 35,184 | (4) | $ | 1,328,900 | — | — | ||||||||||||||||||||
— | — | — | 20,593 | (5) | $ | 777,798 | — | — | ||||||||||||||||||||
— | — | — | — | — | 10,297 | (6) | $ | 388,918 | ||||||||||||||||||||
Robert A. | 10,000 | $ | 23.27 | 2/14/2018 | — | — | — | — | ||||||||||||||||||||
Bailenson | 10,000 | $ | 7.44 | 2/5/2019 | — | — | — | — | ||||||||||||||||||||
20,000 | $ | 19.79 | 2/24/2020 | — | — | — | — | |||||||||||||||||||||
6,723 | $ | 17.44 | 2/9/2019 | — | — | — | — | |||||||||||||||||||||
6,835 | $ | 19.24 | 2/7/2020 | — | — | — | — | |||||||||||||||||||||
— | — | — | 15,425 | (1) | $ | 582,602 | — | — | ||||||||||||||||||||
— | — | — | 26,708 | (2) | $ | 1,008,761 | — | — | ||||||||||||||||||||
— | — | — | 19,547 | (3) | $ | 738,290 | — | — | ||||||||||||||||||||
— | — | — | 39,094 | (4) | $ | 1,476,580 | — | — | ||||||||||||||||||||
— | — | — | 22,652 | (5) | $ | 855,566 | — | — | ||||||||||||||||||||
— | — | — | — | — | 11,326 | (6) | $ | 427,783 |
Outstanding Equity Awards
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||
Dominic J. | 200,000 | $23.27 | 2/14/2018 | — | — | — | — | |||||||||||||||||||||||||||||
Frederico | 100,000 | $7.44 | 2/5/2019 | — | — | — | — | |||||||||||||||||||||||||||||
100,000 | $19.79 | 2/24/2020 | — | — | — | — | ||||||||||||||||||||||||||||||
112,055 | $17.44 | 2/9/2019 | — | — | — | — | ||||||||||||||||||||||||||||||
— | — | — | 87,959 | (1) | $2,979,171 | — | — | |||||||||||||||||||||||||||||
— | — | — | 175,918 | (2) | $5,958,343 | — | — | |||||||||||||||||||||||||||||
— | — | — | 102,965 | (3) | $3,487,425 | — | — | |||||||||||||||||||||||||||||
— | — | — | 205,930 | (4) | $6,974,849 | — | — | |||||||||||||||||||||||||||||
— | — | — | 69,270 | (5) | $2,346,175 | — | — | |||||||||||||||||||||||||||||
— | — | — | — | — | 34,635 | (6) | $1,173,087 | |||||||||||||||||||||||||||||
Robert A. | 10,000 | $7.44 | 2/5/2019 | — | — | — | — | |||||||||||||||||||||||||||||
Bailenson | 20,000 | $19.79 | 2/24/2020 | — | — | — | — | |||||||||||||||||||||||||||||
6,723 | $17.44 | 2/9/2019 | — | — | — | — | ||||||||||||||||||||||||||||||
6,835 | $19.24 | 2/7/2020 | — | — | — | — | ||||||||||||||||||||||||||||||
— | — | — | 19,547 | (1) | $662,057 | — | — | |||||||||||||||||||||||||||||
— | — | — | 39,094 | (2) | $1,324,114 | — | — | |||||||||||||||||||||||||||||
— | — | — | 22,652 | (3) | $767,223 | — | — | |||||||||||||||||||||||||||||
— | — | — | 45,304 | (4) | $1,534,446 | — | — | |||||||||||||||||||||||||||||
— | — | — | 16,373 | (5) | $554,554 | — | — | |||||||||||||||||||||||||||||
— | — | — | — | — | 8,187 | (6) | $277,294 | |||||||||||||||||||||||||||||
James M. | — | — | — | 17,592 | (1) | $595,841 | — | — | ||||||||||||||||||||||||||||
Michener | — | — | — | 35,184 | (2) | $1,191,682 | — | — | ||||||||||||||||||||||||||||
— | — | — | 20,593 | (3) | $697,485 | — | — | |||||||||||||||||||||||||||||
— | — | — | 41,186 | (4) | $1,394,970 | — | — | |||||||||||||||||||||||||||||
— | — | — | 12,594 | (5) | $426,559 | — | — | |||||||||||||||||||||||||||||
— | — | — | — | — | 6,297 | (6) | $213,279 | |||||||||||||||||||||||||||||
Russell B. | 10,000 | $19.79 | 2/24/2020 | — | — | — | — | |||||||||||||||||||||||||||||
Brewer II | 8,964 | $17.44 | 2/9/2019 | — | — | — | — | |||||||||||||||||||||||||||||
10,398 | $19.24 | 2/7/2020 | — | — | — | — | ||||||||||||||||||||||||||||||
— | — | — | 17,592 | (1) | $595,841 | — | — | |||||||||||||||||||||||||||||
— | — | — | 35,184 | (2) | $1,191,682 | — | — | |||||||||||||||||||||||||||||
— | — | — | 22,652 | (3) | $767,223 | — | — | |||||||||||||||||||||||||||||
— | — | — | 45,304 | (4) | $1,534,446 | — | — | |||||||||||||||||||||||||||||
— | — | — | 13,854 | (5) | $469,235 | — | — | |||||||||||||||||||||||||||||
— | — | — | — | — | 6,927 | (6) | $234,617 |
53
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||
Russell B. | 10,000 | $ | 19.79 | 2/24/2020 | — | — | — | — | ||||||||||||||||||||
Brewer II | 8,964 | $ | 17.44 | 2/9/2019 | — | — | — | — | ||||||||||||||||||||
10,398 | $ | 19.24 | 2/7/2020 | — | — | — | — | |||||||||||||||||||||
— | — | — | 16,197 | (1) | $ | 611,761 | — | — | ||||||||||||||||||||
— | — | — | 28,042 | (2) | $ | 1,059,146 | — | — | ||||||||||||||||||||
— | — | — | 17,592 | (3) | $ | 664,450 | — | — | ||||||||||||||||||||
— | — | — | 35,184 | (4) | $ | 1,328,900 | — | — | ||||||||||||||||||||
— | — | — | 22,652 | (5) | $ | 855,566 | — | — | ||||||||||||||||||||
— | — | — | — | — | 11,326 | (6) | $ | 427,783 | ||||||||||||||||||||
Bruce E. | 10,000 | $ | 19.79 | 2/24/2020 | — | — | — | — | ||||||||||||||||||||
Stern | 6,723 | $ | 17.44 | 2/9/2019 | — | — | — | — | ||||||||||||||||||||
8,202 | $ | 19.24 | 2/7/2020 | — | — | — | — | |||||||||||||||||||||
— | — | — | 10,688 | (1) | $ | 403,686 | — | — | ||||||||||||||||||||
— | — | — | 18,504 | (2) | $ | 698,896 | — | — | ||||||||||||||||||||
— | — | — | 11,728 | (3) | $ | 442,967 | — | — | ||||||||||||||||||||
— | — | — | 23,456 | (4) | $ | 885,933 | — | — | ||||||||||||||||||||
— | — | — | 14,415 | (5) | $ | 544,455 | — | — | ||||||||||||||||||||
— | — | — | — | — | 7,208 | (6) | $ | 272,246 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||
Bruce E. | 10,000 | $19.79 | 2/24/2020 | — | — | — | — | |||||||||||||||||||||||||||||
Stern | 6,723 | $17.44 | 2/9/2019 | — | — | — | — | |||||||||||||||||||||||||||||
8,202 | $19.24 | 2/7/2020 | — | — | — | — | ||||||||||||||||||||||||||||||
— | — | — | 11,728 | (1) | $397,227 | — | — | |||||||||||||||||||||||||||||
— | — | — | 23,456 | (2) | $794,455 | — | — | |||||||||||||||||||||||||||||
— | — | — | 14,415 | (3) | $488,236 | — | — | |||||||||||||||||||||||||||||
— | — | — | 28,830 | (4) | $976,472 | — | — | |||||||||||||||||||||||||||||
— | — | — | 8,816 | (5) | $298,598 | — | — | |||||||||||||||||||||||||||||
— | — | — | — | — | 4,408 | (6) | $149,299 |
(1) | These units vested on February |
(2) | These units vested on February |
(3) | These units will vest on February |
(4) | These units will vest on February |
(5) | These units will vest on February |
(6) | These units will vest on February |
20162017 OPTION EXERCISES AND STOCK VESTED
The following table provides information concerning option exercises by, and vesting of restricted stock awards of, our named executive officers during 2016.2017.
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise(1) | Value Realized on Exercise(2) | Number of Shares Acquired on Vesting(3) | Value Realized on Vesting(4) | Number of Shares Acquired on Exercise(1) | Value Realized on Exercise(2) | Number of Shares Acquired on Vesting(3) | Value Realized on Vesting(4) | ||||||||||||||||||||||||
Dominic J. Frederico | 166,667 | $ | 900,002 | — | — | — | — | 225,717 | $9,030,937 | |||||||||||||||||||||||
Robert A. Bailenson | 10,000 | $184,800 | 42,133 | $1,685,741 | ||||||||||||||||||||||||||||
James M. Michener | 50,000 | $ | 255,000 | 15,000 | $ | 355,950 | 89,362 | $1,832,050 | 44,239 | $1,770,002 | ||||||||||||||||||||||
Robert A. Bailenson | 16,000 | $ | 81,600 | 10,900 | $ | 258,657 | ||||||||||||||||||||||||||
Russell B. Brewer II | — | — | 15,000 | $ | 355,950 | — | — | 44,239 | $1,770,002 | |||||||||||||||||||||||
Bruce E. Stern | — | — | 11,500 | $ | 272,895 | — | — | 29,192 | $1,167,972 |
54
(1) | This column represents gross shares exercised, not reduced by shares withheld to pay for personal income tax and not reduced by shares swapped to pay for the option price. |
(2) | The value realized on exercise represents the value of gross shares received, not reduced by shares withheld to pay for personal income tax, but reduced by shares swapped to pay for the option price. |
(3) | This column represents gross shares vesting, not reduced by shares withheld to pay for personal income tax. |
(4) | The value of a restricted share upon vesting is the fair market value of the stock on the vesting date. This column represents the value of gross shares vesting, not reduced by shares withheld to pay for personal income tax. |
NON-QUALIFIED DEFERRED COMPENSATION
The following table sets forth information concerning nonqualified deferred compensation of our named executive officers. The amounts set forth in this table include only contributions made and earnings received during 20162017 and do not include contribution and earnings with respect to the 20162017non-equity incentive compensation paid in 2017.2018.
Name | Executive Contributions in Last FY(1) | Registrant Contributions in Last FY(2) | Aggregate Withdrawals/ Distributions | Aggregate Earnings in Last FY | Aggregate Balance at Last FYE(3) | Executive Contributions in Last FY(1) | Registrant Contributions in Last FY(2) | Aggregate Withdrawals/ Distributions(3) | Aggregate Earnings in Last FY | Aggregate Balance at Last FYE(4) | ||||||||||||||||||||||||||||||
Dominic J. Frederico | $ | 293,220 | $ | 586,440 | — | $ | 3,928,435 | $ | 19,066,795 | (4) | $328,676 | $657,353 | $12,577,909 | $575,820 | $8,050,735 | (5) | ||||||||||||||||||||||||
Robert A. Bailenson | $122,064 | $244,128 | — | $231,945 | $3,804,903 | |||||||||||||||||||||||||||||||||||
James M. Michener | $ | 107,616 | $ | 215,232 | — | $ | 309,132 | $ | 3,999,970 | $122,064 | $244,128 | $1,375,257 | $154,725 | $3,145,630 | ||||||||||||||||||||||||||
Robert A. Bailenson | $ | 94,548 | $ | 189,096 | — | $ | 620,560 | $ | 3,206,766 | |||||||||||||||||||||||||||||||
Russell B. Brewer II | $ | 77,148 | $ | 154,296 | — | $ | 256,370 | $ | 3,265,780 | $87,591 | $175,182 | — | $464,927 | $3,993,480 | ||||||||||||||||||||||||||
Bruce E. Stern | $ | 64,713 | $ | 129,426 | — | $ | 16,757 | $ | 2,054,516 | $70,330 | $140,660 | — | $42,048 | $2,307,554 |
(1) | The amounts in this column are also included in the Summary Compensation Table, in the Salary column and in theNon-Equity Incentive Plan Compensation column. |
(2) | The amounts in this column are included in the Summary Compensation Table, in the All Other Compensation column as the employer contribution to the retirement plans. |
(3) | The amounts in this column represent the benefits that were distributed on January 6, 2017 to satisfy Sections 409A and 457A of the Internal Revenue Code as described in greater detail below on pages 57 to 58 in the“Non-Qualified Retirement Plans” section. |
(4) | Of the totals in this column plus, for Mr. Frederico and Mr. Michener, the amounts distributed on January 6, 2017 as described in footnote 3 above, the following totals have been previously reported in the Summary Compensation Table for previous years: |
Name | 2016 Amount | 2015 Amount | 2017 Amount | 2016 Amount | ||||||||||||
Dominic J. Frederico | $ | 7,592,360 | $ | 6,779,840 | $8,472,020 | $7,592,360 | ||||||||||
Robert A. Bailenson | $1,639,319 | $1,355,675 | ||||||||||||||
James M. Michener | $ | 2,228,225 | $ | 1,942,925 | $2,551,073 | $2,228,225 | ||||||||||
Robert A. Bailenson | $ | 1,355,675 | $ | 1,133,110 | ||||||||||||
Russell B. Brewer II | $ | 644,910 | $ | 458,100 | $876,354 | $644,910 | ||||||||||
Bruce E. Stern | $ | 150,300 | — | $344,439 | $150,300 |
$1,612,387 was assumed from the ACE Limited Supplemental Retirement Plan at our 2004 initial public offering. |
Potential Payments Upon Termination or Change in Control
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following tables quantify the potential payments upon termination that our named executive officers would receive assuming that the relevant termination event had occurred on December 31, 2016.2017. The last table quantifies the potential payments upon an involuntary termination without cause and a change of control that our named executive officers would receive assuming that both the termination without cause and change in control had occurred on December 31, 2016.2017.
TERMINATION DUE TO DEATH OR DISABILITY
Name | Unvested PRP | Unvested RSUs | Unvested PSUs(1) | Total | Unvested RSUs | Unvested PSUs(1) | Total | |||||||||||||||||||||
Dominic J. Frederico | $ | 225,000 | $ | 10,332,323 | $ | 10,544,763 | $ | 21,102,086 | $8,812,771 | $10,738,572 | $19,551,343 | |||||||||||||||||
James M. Michener | $ | 157,500 | $ | 2,054,008 | $ | 2,087,980 | $ | 4,299,488 | ||||||||||||||||||||
Robert A. Bailenson | $ | 150,000 | $ | 2,176,458 | $ | 2,155,002 | $ | 4,481,460 | $1,983,834 | $2,386,268 | $4,370,102 | |||||||||||||||||
James M. Michener(2) | $1,719,885 | $2,135,568 | $3,855,453 | |||||||||||||||||||||||||
Russell B. Brewer II | $ | 157,500 | $ | 2,131,777 | $ | 2,109,997 | $ | 4,399,274 | $1,832,299 | $2,233,755 | $4,066,054 | |||||||||||||||||
Bruce E. Stern | $ | 105,000 | $ | 1,391,107 | $ | 1,392,361 | $ | 2,888,468 | $1,184,061 | $1,456,441 | $2,640,502 |
55
(1) | The value of the PSUs for this table was determined as if the applicable performance period ended on December 31, |
TERMINATION DUE TO RETIREMENT
Name | Unvested PRP(1) | Unvested RSUs | Unvested PSUs(2) | Total | ||||||||||||
Dominic J. Frederico | $ | 225,000 | $ | 6,228,122 | $ | 10,544,763 | $ | 16,997,885 | ||||||||
James M. Michener | $ | 157,500 | $ | 1,233,575 | $ | 2,087,980 | $ | 3,479,055 | ||||||||
Robert A. Bailenson(3) | — | — | — | — | ||||||||||||
Russell B. Brewer II | $ | 157,500 | — | — | $ | 157,500 | ||||||||||
Bruce E. Stern | $ | 105,000 | $ | 825,704 | $ | 1,392,361 | $ | 2,323,065 |
In addition to the amounts listed, pursuant to the Separation Agreement which he and the Company entered into on November 1, 2017, in the event of a termination of Mr. |
TERMINATION WITHOUT CAUSE PAYMENTS(1)DUE TO RETIREMENT
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(2) | Total | Unvested RSUs | Unvested PSUs(1) | Total | |||||||||||||||||||||||||||
Dominic J. Frederico | $ | 1,150,000 | $ | 3,710,333 | $ | 39,738 | $ | 10,332,323 | $ | 10,544,763 | $ | 25,777,157 | $5,703,535 | $10,738,572 | $16,442,107 | |||||||||||||||||||||
James M. Michener | $ | 600,000 | $ | 1,286,200 | $ | 39,738 | $ | 2,054,008 | $ | 2,087,980 | $ | 6,067,926 | ||||||||||||||||||||||||
Robert A. Bailenson | $ | 600,000 | $ | 997,424 | $ | 29,875 | $ | 2,176,458 | $ | 2,155,002 | $ | 5,958,759 | ||||||||||||||||||||||||
Robert A. Bailenson(2) | — | — | — | |||||||||||||||||||||||||||||||||
James M. Michener(3) | — | — | — | |||||||||||||||||||||||||||||||||
Russell B. Brewer II | $ | 450,000 | $ | 934,543 | $ | 29,875 | $ | 2,131,777 | $ | 2,109,997 | $ | 5,656,192 | $1,183,727 | $2,233,755 | $3,417,482 | |||||||||||||||||||||
Bruce E. Stern | $ | 450,000 | $ | 714,517 | $ | 29,875 | $ | 1,391,107 | $ | 1,392,361 | $ | 3,977,860 | $770,760 | $1,456,441 | $2,227,201 |
(1) |
The value of the PSUs for this table was determined as if the applicable performance period ended on December 31, |
(2) | ||||
Mr. Bailenson had not reached retirement age by December 31, 2017. Upon retirement, Mr. Bailenson will become | vested in respect of his unvested RSUs and PSUs. |
(3) | Pursuant to the Separation Agreement, Mr. Michener would not be entitled to any vesting of outstanding equity awards in the event of his voluntary termination for any reason prior to the agreed retirement date of December 31, 2018. |
CHANGE-IN-CONTROL SEVERANCE(1)
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(2) | Total | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||||||||||||||||||||||||||
Dominic J. Frederico | $ | 1,150,000 | $ | 3,710,333 | $ | 39,738 | $ | 10,332,323 | $ | 19,826,606 | $ | 35,059,000 | $1,250,000 | $4,042,979 | $42,846 | $8,812,771 | $10,738,572 | $24,887,168 | ||||||||||||||||||||||||||||||
James M. Michener | $ | 600,000 | $ | 1,286,200 | $ | 39,738 | $ | 2,054,008 | $ | 3,943,641 | $ | 7,923,587 | ||||||||||||||||||||||||||||||||||||
Robert A. Bailenson | $ | 600,000 | $ | 997,424 | $ | 29,875 | $ | 2,176,458 | $ | 4,196,474 | $ | 8,000,231 | $625,000 | $1,290,557 | $31,644 | $1,983,834 | $2,386,268 | $6,317,303 | ||||||||||||||||||||||||||||||
James M. Michener(2) | $625,000 | $1,479,333 | $42,846 | $1,719,885 | $2,135,568 | $6,002,632 | ||||||||||||||||||||||||||||||||||||||||||
Russell B. Brewer II | $ | 450,000 | $ | 934,543 | $ | 29,875 | $ | 2,131,777 | $ | 4,099,178 | $ | 7,645,373 | $500,000 | $1,077,827 | $31,644 | $1,832,299 | $2,233,755 | $5,675,525 | ||||||||||||||||||||||||||||||
Bruce E. Stern | $ | 450,000 | $ | 714,517 | $ | 29,875 | $ | 1,391,107 | $ | 2,673,738 | $ | 5,259,237 | $470,000 | $855,240 | $21,644 | $1,184,061 | $1,456,441 | $3,987,386 |
(1) |
(2) | In the event of a termination without cause prior to the agreed retirement date of December 31, 2018, Mr. Michener shall remain eligible for all payments and accelerated vesting of equity awards consistent with other executive officers without any change as a result of the Separation Agreement. |
CHANGE-IN-CONTROL SEVERANCE
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||||||||
Dominic J. Frederico | $1,250,000 | $4,042,979 | $42,846 | $8,812,771 | $14,645,899 | $28,794,495 | ||||||||||||||||||
Robert A. Bailenson | $625,000 | $1,290,557 | $31,644 | $1,983,834 | $3,263,384 | $7,194,419 | ||||||||||||||||||
James M. Michener(2) | $625,000 | $1,479,333 | $42,846 | $1,719,885 | $2,898,040 | $6,765,104 | ||||||||||||||||||
Russell B. Brewer II | $500,000 | $1,077,827 | $31,644 | $1,832,299 | $3,068,670 | $6,510,440 | ||||||||||||||||||
Bruce E. Stern | $470,000 | $855,240 | $21,644 | $1,184,061 | $1,988,903 | $4,519,848 |
(1) | For PSUs, the applicable performance period would end on the date of a change in control and the amount which would become vested would be determined based on the performance through such date. |
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(2) | In the event of a termination without cause on or after a change in control prior to the agreed retirement date of December 31, 2018, Mr. Michener shall remain eligible for all payments and accelerated vesting of equity awards consistent with other executive officers without any change as a result of the Separation Agreement. |
The salary continuation, cash incentive compensation and benefits columns in the Termination Without Cause Payments table and theChange-in-Control Severance table represent amounts that would be payable to each executive officer under the terms of the severance policy for executive officers. Under the terms of the policy, each named executive officer receives one year of salary, the average of the last three annual cash incentive compensation amounts, apro-rata annual cash incentive compensation payment for the year of termination and one year of benefits which represent medical plan and dental plan premiums paid by our Company at the same level as was paid just prior to termination.
For the purpose of these tables, the value of RSUs and PSUs has been determined by multiplying the number of shares of that would have become vested on December 31, 20162017 based on each applicable termination described above and based on target performance or the actual performance determined as if the performance period ended on such date by the closing price of our Common Shares on December 31, 2016,2017, which was $37.77.
With respect to the PRP, the amount that would become vested following death or permanent disability would be determined and paid out immediately assuming target performance over the performance period and that amount was included in the table above. The amount that would become vested following termination due to retirement would be determined based on actual performance through the entire performance period. For the table on termination due to retirement, the amount included for the payout of the unvested PRP following retirement was calculated assuming target performance over the performance period. The value of the actual payment amount for PRP may vary from this assumed amount depending on actual performance over the remainder of the performance period following retirement.$33.87.
In addition to the amounts listed in the tables, upon a termination of employment for any of the reasons described above, the executives would be entitled to distributions from the qualified andnon-qualified defined contribution retirement plans maintained by the Company and affiliates. For the named executive officers, the aggregate qualified andnon-qualified defined contribution retirement account balances as of December 31, 20162017 for Messrs. Frederico, Bailenson, Michener, Bailenson, Brewer and Stern are as follows, respectively: $19,734,982, $5,001,041, $5,053,527, $6,109,499$8,823,458, $6,043,347, $4,213,889, $7,336,359 and $3,347,459.$3,667,991. Retirement account balances will be paid upon termination in accordance with the terms of the plans, as described below.
If an executive officer had been terminated for cause on December 31, 2016,2017, he would not have received any severance payments and would have forfeited all unvested PRP, RSUs and PSUs, receiving only salary payments through the termination date and vested retirement benefits under our Company’s retirement plans.
Severance payments, PRP vesting, restricted stock vesting and retirement plan contributions assume no subsequent employment after termination. Certain rights to vesting and distributions following retirement or a termination without cause are subject to continued compliance with applicable restrictive covenants and may be forfeited by the executive in the event of a violation of such covenants (and in certain circumstances, the executive may be required to repay certain amounts in the event of a violation of such covenants).
See “Compensation Disclosure and Analysis—Separation Agreement” for a description of Mr. Michener’s Separation Agreement.
In 2017, the annual total compensation of Dominic J. Frederico, our President and Chief Executive Officer was $13,526,784. The annual total compensation of our median employee was $234,048. As a result, the ratio of the annual total compensation of our CEO to our median employee was 57.8 to 1.
We identified the median employee by examining the 2017 annual total compensation for all individuals, excluding our CEO, who were employed by us on December 31, 2017. We included all employees, whether employed on a full-time or part-time basis, and including all employees resident outside of the U.S. We did not make any assumptions, adjustments or estimates with respect to annual total compensation. We annualized the compensation for any full-time employees who were not employed by us for all of 2017. We calculated the total compensation for our CEO and all of our employees excluding our CEO using the same methodology we use to calculate Total Annual Compensation for our named executive officers as set forth in the 2017 Summary Compensation table earlier in this proxy statement.
NON-QUALIFIED RETIREMENT PLANS
All the executive officers participate in anon-qualified defined contribution retirement plan through an Assured Guaranty employer. These plans generally permit distributions only following a participant’s termination of employment, and each of the plans imposes some additional restrictions on distributions as described below. A change in control under the current provisions of these plans does not entitle a participant to payment. Below is an overview of each plan.
Non-Qualified Retirement Plans
ASSURED GUARANTY LTD.AG US GROUP SERVICES INC. SUPPLEMENTAL EMPLOYEEEXECUTIVE RETIREMENT PLAN (AGL(AGUS SERP)
The AGLAG US Group Services Inc. Supplemental Executive Retirement Plan, which we refer to as the AGUS SERP, is anon-qualified retirement plan forhigher-paid employees. Internal Revenue Code provisions, such as the annual limit on employee deferrals, limit the amount of contributions that these employees may make or have made on their behalf to the qualified Assured Guaranty Ltd. Employee Retirement Plan. To satisfy the requirements of IRC Section 457A, U.S. taxpayers did not accrue additional benefits under the AGL SERP on and after January 1, 2009, and, as permitted by IRC Sections 409A and 457A, the AGL SERP was amended to require the distribution in 2017 of all benefits that were accrued prior to January 1, 2009 and that would otherwise have been subject to IRC Section 457A. Accrued benefits of executive officers in the AGL SERP (other than participant account balances invested in the employer stock fund) were transferred from the AGL SERP to the AGC SERP in 2012. The remaining balances held by executive officers in the AGL SERP were invested in the employer stock fund and were distributed as Common Shares in a singlelump-sum payment on January 6, 2017 to satisfy the requirements of IRC Sections 409A and 457A. On the day such distributions were made to the Company’s Chief Executive Officer and to the Company’s General Counsel, the Company repurchased a like number of Common Shares from such officers. See “What Related Person Transactions Do We Have?” Following such distribution, no executive officers have any accrued benefits remaining in the AGL SERP. Any additional benefits for the executive officers accrue in the AGC SERP described below.AG US Group Services Inc.
ASSURED GUARANTY CORP. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (AGC SERP)
The AGC SERP is anon-qualified retirement plan forhigher-paid employees. Internal Revenue Code provisions, such as the annual limit on employee deferrals, limit the amount of contributions that these employees may make or have made on their behalf to the qualified Assured Guaranty Corp. 57
Employee Retirement Plan. Contributions credited to this supplemental plan mirror the employee contributions, employer matching contributions, and 6% employer contributions that would have been made under the Assured Guaranty Corp.AG US Group Services Inc. Employee Retirement Plan had the Internal Revenue Code provisions not limited the contributions. The plan also permits discretionary employer contributions.
In the first quarter of 2017, our subsidiaryASSURED GUARANTY LTD. SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN (AGL SERP)
The Assured Guaranty US Holdings Inc. formed and capitalized AG US Group Services Inc.,Ltd. Supplemental Executive Retirement Plan, which we refer to as AG Services, to actthe AGL SERP, is anon-qualified retirement plan for higher-paid employees. Internal Revenue Code provisions, such as the payroll companyannual limit on employee deferrals, limit the amount of contributions that these employees may make or have made on their behalf to the qualified Assured Guaranty Ltd. Employee Retirement Plan. To satisfy the requirements of Section 457A of the Internal Revenue Code, U.S. taxpayers did not accrue additional benefits under the AGL SERP on and after January 1, 2009, and, as permitted by Sections 409A and 457A of the Internal Revenue Code, the AGL SERP was amended to require the distribution in 2017 of all benefits that were accrued prior to January 1, 2009 and that would otherwise have been subject to Section 457A of the Internal Revenue Code. Accrued benefits of executive officers in the AGL SERP (other than participant account balances invested in the employer for all U.S. personnel andstock fund) were transferred from the central, dedicated service provider withinAGL SERP to the Assured Guaranty groupCorp. Supplemental Executive Retirement Plan, which we refer to as the AGC SERP, in place2012. Accrued benefits of AGC. This structure is consistent withexecutive officers in the way in which numerous other insurance holding companies provide inter-company staff and services. EffectiveAGC SERP were transferred from the AGC SERP to the AGUS SERP effective January 1, 2017. The remaining balances held by executive officers in the AGL SERP were invested in the employer stock fund and were distributed as Common Shares in a singlelump-sum payment on January 6, 2017 AGC transferredto satisfy the employeesrequirements of Sections 409A and 457A of the employee benefit, retirementInternal Revenue Code. On the day such distributions were made to the Company’s Chief Executive Officer and health plans (includingto the AGC SERP) relating toCompany’s General Counsel, the Company repurchased a like number of Common Shares from such employees to AG Services.officers. See “What Related Person Transactions Do We Have?” Following such distribution, no executive officers have any accrued benefits remaining in the AGL SERP. Any additional benefits for the executive officers accrue in the AGUS SERP described above.
All the executive officers have previously received awards pursuant to our Company’slong-term incentive plan and in prior years received awards under our Company’s PRP. For the 20162017 performance year, in 2017,2018, the executive officers received a grant of performance share units and RSUs as described below, but did not receive a grant of PRP. Below is an overview of the plans.
ASSURED GUARANTY LTD. 2004LONG-TERM INCENTIVE PLAN
The 2004Long-Term Incentive Plan, as amended, provides for the grant ofnon-qualified and incentive stock options, stock appreciation rights, full value awards, which include awards such as restricted shares, RSUs or performance share units, and cash incentive awards to employees selected by the Compensation Committee. The Compensation Committee specifies the terms of the award, including the vesting period applicable to the award, at the time it grants the award to the employee, and includes the terms in an award agreement between the employee and our Company.
For performance share unitswere granted in 2015 2016 and 2017, the awardsthrough 2018 that will vest at the end of athree-year performance period if certain performance conditions (based on the highest40-day average share price during the last eighteen months of such period exceeding certain share price hurdles) are satisfied and if the participant continues to be employed through the end of suchthree-year period, with limited exceptions as described below.
For all such performance share unit awards, the participant is entitled topro-rata vesting in the event of termination prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or, a voluntary termination due to retirement, if certain requirements are met and if, and only to the extent that, the performance conditions are satisfied at the end of the applicable performance period. In the event of a change in control, the performance share units vest only to the extent that the performance conditions are satisfied at the time of the change in control and only if the participant remains employed through the end of thethree-year performance period, provided, however that the vesting of the performance share units shall be accelerated following such change in control in the event of termination following the change in control but prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or in the event that the acquirer does not agree to continue such award following the change in control.
The participant is entitled topro-rata vesting of the performance share units in the event of termination prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or, a voluntary termination due to retirement, if certain requirements are met and if, and only to the extent that, the performance conditions are satisfied at the end of the applicable performance period. In the event of a change in control, the performance share units vest only to the extent that the performance conditions are satisfied at the time of the change in control and only if the participant remains employed through the end of the three-year performance period, provided, however that the vesting of the performance share units shall be accelerated following such change in control in the event of termination following the change in control but prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or in the event that the acquirer does not agree to continue such award following the change in control. |
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ASSURED GUARANTY LTD. PERFORMANCE RETENTION PLAN
The Performance Retention Plan was established in 2006 to permit the grant ofcash-based awards to selected employees and give to the Compensation Committee greater flexibility in establishing the terms of performance retention awards, including the ability to establish different performance periods and performance objectives. PRP awards may be treated as nonqualified deferred compensation subject to the rules of IRC Section 409A.409A of the Internal Revenue Code. The PRP is asub-plan under our Company’sLong-Term Incentive Plan (enabling awards under the plan to be performance based compensation exempt from the $1 million limit on tax deductible compensation).
From 2008 through 2014, our Company integrated PRP awards into itslong-term incentive compensation program for the executive officers and certain selected employees. The executive officers stopped receiving PRP awards beginning in 2015 and the last outstanding PRP award to anyone who was an executive officer will vest inas of December 31, 2017 vested on December 31, 2017. Generally, each PRP award is divided into three installments, with 25% of the award allocated to a performance period that includes the year of the award and the next year, 25% of the award allocated to a performance period that includes the year of the award and the next two years, and 50% of the award allocated to a performance period that includes the year of the award and the next three years. Each installment of an award vests if the participant remains employed through the end of the performance period for that installment (or vests on the date of the participant’s death, disability, or retirement if that occurs during the performance period). Payment for each performance period is made at the end of that performance period. One half of each installment is increased or decreased in proportion to the increase or decrease of core ABV per share during the performance period, and one half of each installment is increased or decreased in proportion to the core operating ROE during the performance period. However, if, during the performance period, a participant dies or becomes permanently disabled while employed, the amount for any such incomplete performance period shall equal the portion of the award allocated to such performance period. Core operating ROE and core ABV are defined in each PRP award agreement.
In the case of outstanding PRP awards granted to the executive officers, if a payment would otherwise be subject to the $1 million limit on tax deductible compensation, no payment will be made unless performance satisfies a minimum threshold—for the applicable performance period, there must be positive growth in our core ABV per share and our core operating ROE must have been at least 3% on average for each year in the applicable performance period. If a payment is forfeited because the minimum threshold is not satisfied, but in a subsequent performance period, there is either positive growth in our core ABV per share or our core operating ROE is at least 3% on average for each year in the applicable performance period, and the executive officer remains employed at our Company, then the executive officer will receive the forfeited payment.
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EQUITY COMPENSATION PLANS INFORMATION
The following table summarizes our equity compensation plans as of December 31, 2016:2017:
Plan category | Number of exercise of | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | Number of exercise of
| Weighted
|
Number of
| ||||||||||||||||||
Equity compensation plans approved by security holders | 1,392,002 | (1) | $ | 18.35 | 10,355,486 | (2) |
|
1,029,855
|
(1)
|
$
|
17.48
|
|
|
10,124,066
|
(2)
| |||||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A |
|
N/A
|
|
|
N/A
|
|
|
N/A
|
| ||||||||||||
TOTAL | 1,392,002 | $ | 18.35 | 10,355,486 |
|
1,029,855
|
|
$
|
17.48
|
|
|
10,124,066
|
|
(1) | Includes Common Shares to be issued upon exercise of outstanding stock options and performance stock options granted under the Assured Guaranty Ltd. 2004Long-Term Incentive Plan. Does not include purchase rights currently accruing under the Assured Guaranty Ltd. Employee Stock Purchase Plan because the purchase price (and therefore the number of shares to be purchased) will not be determined until the end of the purchase period, which is June 30, |
(2) | Includes |
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The Audit Committee consists of four members of the Board of Directors. After reviewing the qualifications of the current members of the Audit Committee and any relationships they may have with our Company that might affect their independence from our Company, the Board of Directors has determined that:
The Audit Committee operates under a written charter approved by the Board of Directors, a copy of which is available on our website.website at www.assuredguaranty.com/governance. Each year, the Audit Committee reviews the charter and reports to the Board of Directors on its adequacy. As more fully described in the charter, the primary purpose of the Audit Committee is to assist the Board of Directors in its oversight of the integrity of our financial statements and financial reporting process; our compliance with legal and regulatory requirements and ethics programs as established by management; the system of internal accounting and financial controls; the audit process; the role and performance of our internal audit process; and the performance, qualification and independence of our independent auditor.
The Audit Committee annually evaluates the performance of our Company’s independent auditor and provides assistance to the members of the Board of Directors in fulfilling their oversight of the financial reporting practices, including satisfying obligations imposed by Section 404 of the Sarbanes Oxley Act of 2002, and the financial statements of our Company. The Audit Committee selects the independent auditor for the Board of Directors to recommend to the shareholders to appoint. Our Company’s current independent auditor is PricewaterhouseCoopers LLP, (“PwC”). which we refer to as PwC.
PwC has beenserved as our independent auditor since 2003. The Audit Committee believes there are significant benefits to having an independent auditor with an extensive history with the initial public offeringCompany, including higher quality audit work and accounting advice, due to PwC’s institutional knowledge of Assured Guaranty Ltd. in 2004.our business and operations, accounting policies and financial systems, and internal control framework and operational efficiencies.
Subject to our Company’s shareholders’ statutory right to set the terms of engagement for our independent auditor, including setting the remuneration of the independent auditor and authorizing the Board of Directors, through the Audit Committee, annually to set such terms of engagement, the Audit Committee contracts with and sets the fees paid to our independent auditor. The fees for services for PwC’s audit services the past two fiscal years are set forth under Proposal No. 4:3: Appointment of Independent Auditor. Audit fees relate to professional services rendered for the audit of our consolidated financial statements, audits of the statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and audit of internal control over financial reporting as required under Sarbanes Oxley Section 404.
The Audit Committee also determines that thenon-audit services provided to our Company by the independent auditor are compatible with maintaining the independence of the independent auditor. The Audit Committee’spre-approval policies and procedures are discussed under Proposal No. 4:3: Appointment of Independent Auditor.
The Audit Committee annually conducts an evaluation of the independent auditor to determine if it will recommend the retention of the independent auditor. The Audit Committee is also involved in evaluating the qualifications and performance of the engagement team and lead partner. As part of the evaluation of the independent auditor, the engagement team and lead partner, the Audit Committee surveys select Company management and all members of the Audit Committee to evaluate the historical and recent performance of the independent auditor and to determine if the independent auditor is meeting our Company’s expectations. Among other things, the Audit Committee considers PwC’s independence, professional skepticism and objectivity, the quality and candor of PwC’s communications with the Audit Committee and management, the quality and efficiency of the services provided by PwC, and the depth of PwC’s understanding of the Company’s business, operations and systems, including the potential effect on the financial statements of major risk and exposures facing the Company. In addition, the Audit Committee obtains and reviews, at least annually, a report by the independent auditor describing:
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The Audit Committee is also involved in evaluating the qualifications and performance of the engagement team and the lead partner. The Audit Committee considers the experience of the independent auditor in auditing companies in the financial guaranty insurance industry and considers the effect of changing independent auditors when assessing whether to retain the current independent auditor. Based upon the foregoing, and in light of the quality of audit services and sufficiency of resources provided, the Audit Committee believes choosing PwC as our Company’s independent auditor would be in the best interest of the Company and its shareholders and recommends the retention of PwC as our Company’s independent auditor for 2017.
Our Company’s management prepares our consolidated financial statements in accordance with U.S. GAAP and is responsible for the financial reporting process that generates these statements. Management is also responsible for establishing and maintaining adequate internal controls over financial reporting and for performing an assessment of the effectiveness of these controls. PwC audits ouryear-end financial statements and reviews interim financial statements. PwC also audits the effectiveness of our internal
controls over financial reporting. The Audit Committee, on behalf of the Board of Directors, monitors and reviews these processes, acting in an oversight capacity relying on the information provided to it and on the representations made to it by our management, PwC and other advisors. We have also retained Ernst & Young LLP, which we refer to as E&Y, to provide services to support our Company’s internal audit program and compliance with Section 404 of the Sarbanes Oxley Act of 2002.
During the last year, and earlier this year in preparation for the filing with the SEC of the Company’sForm 10-K, the Audit Committee:
– | PwC’s judgments about the quality, not just the acceptability, of our Company’s accounting principles as applied in our financial reporting; |
– | methods used to account for significant unusual transactions; |
– | the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; |
– | the process used by management in formulating particularly sensitive accounting estimates and the basis for PwC’s conclusions regarding the reasonableness of those estimates; |
– | disagreements with management (of which there were none) over the application of accounting principles, the basis for management’s accounting estimates, and disclosures in the financial statements; and |
– | any significant audit adjustments and any significant deficiencies in internal control; |
At each quarterly meeting, E&Y has the opportunity to address pending issues with the Audit Committee andsemi-annually specifically reviews the results of internal audits and the overall internal audit program.
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At each meeting, the Audit Committee meets in executive session (i.e., without management present) with representatives of PwC to discuss the results of their examinations and their evaluations of our internal controls and overall financial reporting. Similar executive sessions are held at leastsemi-annually with representatives of E&Y. In addition, the Audit Committee meets regularly with certain members of senior management in separate sessions.
Based on the review and discussions referred to above, and in reliance on the information, opinions, reports or statements presented to the Audit Committee by our Company’s management and PwC, the Audit Committee recommended to the Board of Directors that the December 31, 20162017 audited consolidated financial statements be included in our Company’s Annual Report onForm 10-K.
The foregoing report has been approved by the Audit Committee.
G. Lawrence Buhl, Chairman
Thomas W. Jones
Alan J. Kreczko
Michael T. O’Kane
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ADVISORY APPROVAL OF EXECUTIVE COMPENSATION
Our shareholders have the opportunity to cast an advisory (nonbinding) vote to approve the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s compensation disclosure rules. This vote is being conducted in accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC. Proposal No. 2 is Item 2 on the proxy card.
As described in detail under the heading “Executive Compensation—Compensation Discussion and Analysis,” our executive compensation program is designed to attract, motivate, and retain talented executives who possess the skills required to formulate and drive our Company’s strategic direction and achieve annual andlong-term performance goals necessary to create shareholder value. The program seeks to align executive compensation with shareholder value on an annual andlong-term basis through a combination of base pay, annual incentives andlong-term incentives. The Compensation Committee continually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our shareholders’ interests and current market practices. Please read the “Compensation Discussion and Analysis” discussion for additional details about our executive compensation programs, including information about the fiscal year 20162017 compensation of our named executive officers.
We believe that our executive compensation programs are structured in the best manner possible to support our Company and our business objectives. We are asking our shareholders to indicate their support for our named executive officer compensation as described on pages 2019 to 59 of this proxy statement, which include the “Compensation Discussion and Analysis” section and the compensation tables and related narrative disclosure. This proposal, commonly known as a“say-on-pay” proposal, gives our shareholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.
The board of directors recommends that you vote “FOR” the following resolution at the Annual General Meeting: |
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.”
Thesay-on-pay vote is advisory, and therefore not binding on our Company, the Compensation Committee or the Board of Directors. However, the Board of Directors and the Compensation Committee value the opinions of our shareholders and will review the voting results carefully. To the extent there is any significant vote against the named executive officer compensation as disclosed in this proxy statement, we will consider our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
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ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Our shareholders have the opportunity to cast an advisory vote on how often we should include asay-on-pay proposal, such as Proposal No. 2, in our proxy materials for future shareholder meetings. Under this Proposal No. 3, shareholders may indicate whether they would prefer to have thesay-on-pay vote every year, every two years, or every three years. This vote is being conducted in accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC. Proposal No. 3 is Item 3 on the proxy card.
The advisory vote by the shareholders on frequency is distinct from the advisory vote on the compensation of our named executive officers. This proposal deals with the issue of how frequently an advisory vote on compensation should be presented to our shareholders and, in this regard, we are soliciting your advice on whether the compensation of our named executive officers be submitted to shareholders for an advisory vote every year, every two years, or every three years. You may vote for one of these three alternatives or you may abstain from making a choice.
The Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for the Company, and therefore the Board of Directors recommends that you vote for aone-year interval for the advisory vote on executive compensation.
In formulating its recommendation, the Board of Directors considered that named executive officer compensation is evaluated, adjusted and approved on an annual basis, and that the Company has had an annual advisory vote on executive compensation since 2011. The Board believes that the annual advisory vote has fostered communication with shareholders on compensation matters and that continuing to have an advisory vote on executive compensation annually will allow our shareholders to continue to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. Additionally, an annual advisory vote on executive compensation is consistent with our policy of seeking input from, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices.
We understand that our shareholders may have different views as to what is the best approach for the Company, and we look forward to hearing from our shareholders on this Proposal.
The option of one year, two years or three years that receives the highest number of votes cast by shareholders will be the frequency for the advisory vote on executive compensation that has been selected by shareholders. Although the vote isnon-binding, the Compensation Committee and the Board of Directors value the opinions of the shareholders and will consider the outcome of the vote carefully when determining the frequency of the shareholder vote on executive compensation.
APPOINTMENT OF INDEPENDENT AUDITOR
The appointment of our independent auditor is approved annually by our shareholders, who also annually authorize the Board of Directors, acting through its Audit Committee, to set the remuneration for our independent auditor. Proposal No. 43 is Item 43 on the proxy card.
At the recommendation of the Audit Committee, the Board of Directors recommends that shareholders appoint PricewaterhouseCoopers LLP as our independent auditor for the year ending December 31, 20172018 and that shareholders authorize the Board of Directors, acting through its Audit Committee, to set the fees for our independent auditor. In making its recommendation with respect to the engagement of our independent auditor, the Audit Committee reviewed both the audit scope and estimated fees for professional services for the coming year.
PwC served as our independent auditor for the year ended December 31, 2016.2017. Our audited financial statements for the year ended December 31, 20162017 will be presented at the Annual General Meeting. Representatives of PwC will attend the Annual General Meeting and will have an opportunity to make a statement if they wish. They will also be available to answer questions at the meeting.
INDEPENDENT AUDITOR FEE INFORMATION
The following table presents fees for professional audit services rendered by PwC for the audit of our annual consolidated financial statements for 20162017 and 20152016 and fees for other services rendered by PwC in 20162017 and 2015.2016.
2016 | 2015 | 2017 | 2016 | |||||||||||||
Audit fees(1) | $ | 6,571,000 | $ | 6,958,000 | $ | 8,353,000 | $ | 6,571,000 | ||||||||
Audit-related fees(2) | $ | 1,164,000 | $ | 91,000 | $553,000 | $ | 1,164,000 | |||||||||
Tax fees(3) | $ | 878,500 | $ | 377,300 | $169,500 | $878,500 | ||||||||||
All other fees(4) | $ | 55,532 | $ | 4,000 | $4,000 | $55,532 |
(1) | We paid audit fees, including costs, for the years ended December 31, |
(2) | Audit-related fees for the year ended December 31, 2017 related to audits of our employee benefit plans, agreed upon procedures related to our proxy statement, due diligence services for potential acquisitions and attestation procedures on Solvency II calculations of our U.K. subsidiaries. |
Audit-related fees for the year ended December 31, 2016 related to audits of our employee benefit plans, |
(3) | Of the total amount of tax fees for 2017, $146,500 related to tax compliance and $23,000 related to tax advice. Of the total amount of tax fees for 2016, $460,500 related to tax compliance and $418,000 related to tax advice. |
Compliance-related tax fees for 2017 and 2016 were for professional services rendered in connection with the preparation of the 2016 and 2015 |
Tax advice-related fees for 2016 were primarily related to advice for the tax |
Compliance-related tax fees for 2016 and 2015 were for professional services rendered in connection with the preparation of the 2015 and 2014 federal tax returns, respectively, as well as for compliance services rendered in connection with the preparation of the corporate tax return of Assured Guaranty Services (Australia) Pty Ltd. and U.K. VAT compliance. Compliance-related tax fees for 2016 also included tax compliance services related to the 2015 and 2016 stub-period returns of CIFG Holding Inc., the parent of CIFG Assurance North America, Inc.
Taxadvice-related fees for 2016 were primarily related to advice for the tax domicile of one of the Company’s subsidiaries and tax diligence services. Taxadvice-related fees for 2015 were primarily related to advice for one of AGL’s subsidiaries’ tax domicile and continued advice on AGL’s establishment of tax residence in the U.K. In addition, in 2016 and 2015, PwC provided advice to us on various other tax matters.
In addition, in 2017 and 2016, PwC provided advice to us on various other tax matters. |
(4) | Fees for 2016 primarily related to compliance services relating to the capital impact to beneficiaries of guarantees issued by the Company’s U.K. subsidiaries. |
Pre-approval Policy of Audit andNon-audit Services
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PRE-APPROVAL POLICY OF AUDIT ANDNON-AUDIT SERVICES
The Audit Committeepre-approved all of the fees described above. The Audit Committee has adopted policies and procedures for thepre-approval of all audit and permissiblenon-audit services provided by our independent auditor, PwC. The Audit Committee provides a generalpre-approval of certain audit andnon-audit services on an annual basis. The types of services that may be covered by a generalpre-approval include other audit services,audit-related services and permissiblenon-audit services. If a type of service is not covered by the Audit Committee’s generalpre-approval, the Audit Committee must review the service on a specific case by case basis andpre-approve it if such service is to be provided by the independent auditor. Annual audit services engagement terms and fees require specificpre-approval of the Audit Committee and management and the auditor will report actual fees versus the budget periodically throughout the year by category of service. Any proposed services exceedingpre-approved costs also require specificpre-approval by the Audit Committee. For both types ofpre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. Either the Audit Committee Chairman or the entire Audit Committee mustpre-approve the provision of any significant additional audit fees in excess of the budgeted amount and/or any excess related tonon-audit fees over the budgeted amount. All fees related to internal control work arepre-approved by the Audit Committee before such services are rendered. The Audit Committeepre-approved all of the fees described above pursuant to itspre-approval policies and procedures.
The Board of Directors and the Audit Committee recommends that you vote “FOR” the appointment of PwC as the Company’s independent auditor for the year ending December 31, 2018 and the authorization of the Board of Directors, acting through its Audit Committee, to set the fees for the independent auditor. |
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PROPOSALS CONCERNING OUR SUBSIDIARY, ASSURED GUARANTY RE LTD.
In accordance with AGL’sBye-Laws, if AGL is required or entitled to vote at a general meeting of any directnon-United States subsidiary of AGL, AGL’s directors must refer the matter to the shareholders of AGL and seek authority from AGL’s shareholders for AGL’s representative or proxy to vote in favor of the resolution proposed by the subsidiary. AGL’s directors must cause AGL’s representative or proxy to vote AGL’s shares in the subsidiary pro rata to the votes received at the general meeting of AGL. In addition, AGL’s Board of Directors, in its discretion, may require that the organizational documents of each subsidiary of AGL organized under the laws of a jurisdiction outside the United States contain provisions substantially similar to these provisions. As a consequence, we are proposing that our shareholders authorize AGL to vote in favor of the following matters to be presented at the next annual general meeting of our subsidiary, Assured Guaranty Re Ltd., which we refer to as AG Re.
PROPOSAL 5.1—4.1—ELECTION OF AG RE DIRECTORS
We propose that AGL be directed to elect the following eight directors of AG Re: Howard W. Albert, Robert A. Bailenson, Russell B. Brewer, II, Gary Burnet, Ling Chow, Stephen Donnarumma, Dominic J. Frederico, James M. Michener, and Walter A. Scott, with such persons constituting the entire board of directors of AG Re, to serve for one year terms commencing at the annual general meeting of AG Re. Other than Mr. Scott, each nominee is an officer of AGL or one of its subsidiaries and has consented to serve as a director of AG Re without fee if elected. Mr. Scott will receive director’s fees of $5,000 per annum if elected. We do not expect that any of the nominees will become unavailable for election as a director of AG Re, but if any nominees should become unavailable prior to the meeting, proxy cards, whether submitted by telephone, via the Internet or by mail, authorizing the proxies to vote for the nominees will instead be voted for substitute nominees recommended by AG Re’s board of directors. Proposal 5.14.1 is Item 5A4A on the proxy card.
The biographies for these nominees are set forth below:
HowardW. Albert, age 57,58, has been Chief Risk Officer of AGL since May 2011. Prior to that, he was Chief Credit Officer of AGL from 2004 to April 2011. Mr. Albert joined Assured Guaranty in September 1999 as Chief Underwriting Officer of Capital Re Company, the predecessor to AGC. Before joining Assured Guaranty, he was a Senior Vice President with Rothschild Inc. from February 1997 to August 1999. Prior to that, he spent eight years at Financial Guaranty Insurance Company from May 1989 to February 1997, where he was responsible for underwriting guaranties ofasset-backed securities and international infrastructure transactions. Prior to that, he was employed by Prudential Capital, an investment arm of The Prudential Insurance Company of America, from September 1984 to April 1989, where he underwrote investments inasset-backed securities, corporate loans and project financings.
Mr. Albert’s experience in risk management, underwriting and credit and his position as the Chief Risk Officer of AGL make him valuable to the Board of Directors of AG Re.
RobertA. Bailenson, age 50,51, has been the Chief Financial Officer of AGL since June 2011. Mr. Bailenson has been with Assured Guaranty and its predecessor companies since 1990. Mr. Bailenson became Chief Accounting Officer of AGM in July 2009 and has been Chief Accounting Officer of AGL since May 2005 and Chief Accounting Officer of AGC since 2003. He was Chief Financial Officer and Treasurer of AG Re from 1999 until 2003 and was previously the Assistant Controller of Capital Re Corp., the Company’s predecessor.
Mr. Bailenson’s background as the Chief Financial Officer of AGL and as an accountant provides an important perspective to the Board of Directors of AG Re.
Russell B. Brewer II, age 60,61, has been Chief Surveillance Officer of AGL since November 2009 and Chief Surveillance Officer of AGC and AGM since July 2009 and has also been responsible for information technology at AGL since April 2015. Mr. Brewer has been with AGM since 1986. Mr. Brewer was Chief Risk Management Officer of AGM from September 2003 until July 2009 and Chief Underwriting Officer of AGM from September 1990 until September 2003. Mr. Brewer was also a member of the Executive Management Committee of AGM. He was a Managing Director of Assured Guaranty Municipal Holdings Inc. from May 1999 until July 2009. From March 1989 to August 1990, Mr. Brewer was Managing Director, Asset Finance Group, of AGM. Prior to joining AGM, Mr. Brewer was an Associate Director of Moody’s Investors Service, Inc.
Proposal 5.1—Election of AG Re Directors
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Mr. Brewer’s risk management and surveillance expertise and his position as the Chief Surveillance Officer of AGL enhance the deliberations of the Board of Directors of AG Re.
Gary Burnet,age 46,47, has been President of AG Re since August 2012, and prior to that he served as the Managing Director—Chief Credit Officer of AG Re from 2006 until his appointment as President. Mr. Burnet also served as the Vice President—Risk Management and Operations of AG Re from 2002 to 2005. Prior to joining our Company, Mr. Burnet’s previous experience included two years at ACE Asset Management, where he was Investment Officer with responsibility for developing and modeling the ACE group’s consolidated investment and insurance credit risk. Prior to ACE Asset Management, he was an Assistant Vice President—Investments at ACE Bermuda. Mr. Burnet trained as a Chartered Accountant with Geoghegan & Co. CA from 1993 to 1996 in Edinburgh Scotland and also worked as an audit senior for Coopers & Lybrand from 1996 to 1998 in Bermuda.
As the President of AG Re, Mr. Burnet has the most comprehensive knowledge of its operations, including the key areas of underwriting credit risk, accounting and risk managementmanagement.
Ling Chow, age 47, has been General Counsel and credit.Secretary of AGL since January 1, 2018. Ms. Chow previously served as Deputy General Counsel and Assistant Secretary of AGL from May 2015 and as Assured Guaranty’s U.S. General Counsel from June 2016. Prior to that, Ms. Chow served as Deputy General Counsel of Assured Guaranty’s U.S. subsidiaries in several capacities from 2004. Before joining Assured Guaranty in 2002, Ms. Chow was an associate at Brobeck, Phleger & Harrison LLP, Cahill Gordon & Reindel and LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Ms. Chow’s experience as an attorney and her position as the General Counsel of AGL enables her to make valuable contributions as a member of the Board of Directors of AG Re.
Stephen Donnarumma, age 54,55, was appointed as a director of AG Re on September 11, 2012 and has been with Assured Guaranty since 1993.2012. Mr. Donnarumma has been the Chief Credit Officer of our U.S. operating companiesAGC since January 1, 2010.2007, of AGM since its 2009 acquisition, and of MAC since its 2012 capitalization. Mr. Donnarumma has been with Assured Guaranty since 1993. Over the past 2025 years, Mr. Donnarumma has held severala number of positions at Assured Guaranty, including Deputy Chief Credit Officer of AGL, PresidentChief Operating Officer and Chief Underwriting Officer of AG Re, Chief SurveillanceRisk Officer of AGC, and Senior Managing Director, Head of Mortgage andAsset-backed Securities of AGC. Prior to joining Assured Guaranty, Mr. Donnarumma was with Financial Guaranty Insurance Company from 1989 until 1993, where his responsibilities included underwriting domestic and international financial guaranty transactions and priortransactions. Prior to that, he served as a Director of Credit Risk Analysis at Fannie Mae from 1987 until 1989. Mr. Donnarumma was also an analyst with Moody’s Investors Services from 1985 until 1987.
Mr. Donnarumma’s experience with credit analysis and risk management, and his position as the Chief Credit Officer of AGM, Municipal Assurance Corp.MAC and AGC, provide important perspective to the Board of Directors of AG Re.
Dominic J. Frederico—See Mr. Frederico’s biography in “Election of Directors—Nominees for Director.” The benefits of his experience described therein with respect to the Board of Directors of AGL also make him valuable as a director of AG Re.
James M. Michener, age 64, has been General Counsel and Secretary of AGL since February 2004. Prior to joining Assured Guaranty, Mr. Michener was General Counsel and Secretary of Travelers Property Casualty Corp. from January 2002 to February 2004. From April 2001 to January 2002, Mr. Michener served as General Counsel of Citigroup’s Emerging Markets business. Prior to joining Citigroup’s Emerging Markets business, Mr. Michener was General Counsel of Travelers Insurance from April 2000 to April 2001 and General Counsel of Travelers Property Casualty Corp. from May 1996 to April 2000.
Mr. Michener’s experience as a lawyer and his position as the General Counsel of AGL enables him to make valuable contributions as a member of the Board of Directors of AG Re.
Walter A. Scott, age 79,80, was the Chairman of the AGL Board of Directors from May 2005 until his retirement in May 2013, and a director of AGL from 2004 through 2013. Mr. Scott was Chairman, President and Chief Executive Officer of ACE from 1991 until his retirement in 1994, and President and Chief Executive Officer of ACE from 1989 to 1991. Subsequent to his retirement he served as a consultant to ACE until 1996. Mr. Scott was a director of ACE from 1989 through May 2005. Prior to joining ACE, Mr. Scott was President and Chief Executive Officer of Primerica’s financial services operations. Mr. Scott was also the Chairman of Vermont Hard Cider Company, LLC from 2003 until 2012, when that company was sold. Mr. Scott is an Emeritus Trustee of Lafayette College and a founding trustee of the Bermuda Foundation for Insurance Studies.
Mr. Scott’s tenure on the AGL Board of Directors and lengthy experience at senior levels in the financial services industry allow him to provide valuable perspective to the Board of Directors of AG Re.
PROPOSAL 5.2—4.2—APPOINTMENT OF AG RE AUDITOR
We propose that AGL be directed to appoint PwC as the independent auditor of AG Re for the fiscal year ending December 31, 2017,2018, subject to PwC being appointed as our Company’s independent auditor. We expect representatives of PwC to be present at AGL’s Annual General Meeting with an opportunity to make a statement if they wish and to be available to respond to appropriate questions. Proposal 5.24.2 is Item 5B4B on the proxy card.
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The following table presents fees for professional audit services rendered by PwC for the audit of AG Re’s financial statements for 20162017 and 2015.2016.
2016 | 2015 | 2017 | 2016 | |||||||||||||
Audit fees | $ | 89,900 | $ | 89,900 | $ | 89,900 | $ | 89,900 | ||||||||
Audit—related fees | $ | — | $ | — | $ | — | $ | — | ||||||||
Tax fees | $ | — | $ | — | $ | — | $ | — | ||||||||
All other fees | $ | — | $ | — | $ | — | $ | — |
The above audit fees are also included in the audit fees shown in “Proposal No. 4:3: Appointment of Independent Auditor.”
Other Matters.The Board of Directors of AGL does not know of any matter to be brought before the annual general meeting of AG Re that we have not described in this proxy statement. If any other matter properly comes before the annual general meeting of AG Re, AGL’s representative or proxy will vote in accordance with his or her judgment on such matter.
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SHAREHOLDER PROPOSALS FOR 20182019 ANNUAL MEETING
HOW DO I SUBMIT A PROPOSAL FOR INCLUSION IN NEXT YEAR’S PROXY MATERIAL?
If you wish to submit a proposal to be considered for inclusion in the proxy material for the next Annual General Meeting, please send it to the Secretary, Assured Guaranty Ltd., 30 Woodbourne Avenue, Hamilton HM 08, Bermuda. Under the rules of the SEC, proposals must be received no later than November 24, 201721, 2018 and otherwise comply with the requirements of the SEC to be eligible for inclusion in AGL’s 20182019 Annual General Meeting proxy statement and form of proxy.
HOW DO I SUBMIT A PROPOSAL OR MAKE A NOMINATION AT AN ANNUAL GENERAL MEETING?
OurBye-Laws provide that if a shareholder desires to submit a proposal for consideration at an Annual General Meeting, or to nominate persons for election as directors, the shareholder must provide written notice of an intent to make such a proposal or nomination which the Secretary of the Company must receive at our principal executive offices no later than 90 days prior to the anniversary date of the immediately preceding Annual General Meeting. With respect to the 20182019 Annual General Meeting, such written notice must be received on or prior to February 2, 2018.1, 2019. The notice must meet the requirements set forth in ourBye-Laws. Under the circumstances described in, and upon compliance with,Rule 14a-4(c) under the Exchange Act, management proxies would be allowed to use their discretionary voting authority to vote on any proposal with respect to which the foregoing requirements have been met.
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INFORMATION ABOUT THE ANNUAL GENERAL MEETING AND VOTING
WHY DID I RECEIVE A NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS IN THE MAIL INSTEAD OF A FULL SET OF PROXY MATERIALS?
In accordance with the rules of the SEC, instead of mailing a printed copy of the proxy statement, annual report and other materials (which we refer to as proxy materials) for our Annual General Meeting, we are furnishing proxy materials to shareholders on the Internet by providing a Notice Regarding the Availability of Proxy Materials (which we refer to as a Notice) to inform shareholders when the materials are available on the Internet.
If you receive the Notice by mail, you will not receive a printed copy of the proxy materials unless you specifically request one. Instead, the Notice instructs you on how you may access and review all of our proxy materials, as well as how to submit your proxy, over the Internet.
We will first make available the proxy statement, form of proxy card and 20162017 annual report to shareholders atwww.assuredguaranty.com/annualmeeting. The proxy materials will also be available atwww.proxyvote.com on or about March 24, 201721, 2018 to all shareholders entitled to vote at the Annual General Meeting. You may also request a printed copy of the proxy solicitation materials by any of the following methods: via Internet at www.proxyvote.com; by telephone at1-800-579-1639; or by sending ane-mail tosendmaterial@proxyvote.com. Our 20162017 annual report to shareholders will be made available at the same time and by the same methods. If requesting materials bye-mail, please send a blanke-mail with the information that is printed in your Notice in the box marked by the arrow in the subject line.
g | XXXX XXXX XXXX XXXX |
We elected to use electronic notice and access for our proxy materials because we believe it will reduce our printing and mailing costs related to our Annual General Meeting.
WHY HAS THIS PROXY STATEMENT BEEN MADE AVAILABLE?
Our Board of Directors is soliciting proxies for use at our Annual General Meeting to be held on May 3, 2017,2, 2018, and any adjournments or postponements of the meeting. The meeting will be held at 8:00 a.m. London Time at 6 Bevis Marks, London, EC3A 7BA, United Kingdom.
This proxy statement summarizes the information you need to vote at the Annual General Meeting. You do not need to attend the Annual General Meeting to vote your shares.
WHAT PROPOSALS WILL BE VOTED ON AT THE ANNUAL GENERAL MEETING?
The following proposals are scheduled to be voted on at the Annual General Meeting:
Our Board of Directors recommends that you vote your shares “FOR” each of the nominees and each of the foregoing proposals, other than the frequency of the advisory vote on compensation, for which our Board recommends one year.proposals.
ARE PROXY MATERIALS AVAILABLE ON THE INTERNET?
Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting to be Held on Wednesday, May 3, 20172, 2018
Yes. Our proxy statement for the 20172018 Annual General Meeting, form of proxy card and 20162017 annual report to shareholders are available atwww.assuredguaranty.com/annualmeeting. The proxy materials will also be available atwww.proxyvote.com on or about March 24, 201721, 2018 to all shareholders entitled to vote at the Annual General Meeting.
You can obtain directions to attend the 20172018 Annual General Meeting by contacting Virginia Reynolds at + 44 020 7562 1920 or atvreynolds@agltd.com.
Who Is Entitled to Vote?
WHO IS ENTITLED TO VOTE?
March 8, 20172018 is the record date for the Annual General Meeting. If you owned our Common Shares at the close of business on March 8, 2017,2018, you are entitled to vote. On that date, 124,130,784114,967,800 of our Common Shares were outstanding and entitled to vote at the Annual General Meeting, including 58,85850,225 unvested restricted Common Shares. Our Common Shares are our only class of voting stock. On March 8, 2017,2018, the closing price of our Common Shares on the New York Stock Exchange, which we refer to as the NYSE, was $40.19.$34.49.
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HOW MANY VOTES DO I HAVE?
You have one vote for each of our Common Shares that you owned at the close of business on March 8, 2017.2018.
However, if your shares are considered “controlled shares,” which ourBye-Laws define generally to include all of our Common Shares directly, indirectly or constructively owned or beneficially owned by any person or group of persons, or owned by any “United States person,” as defined in the U.S. Internal Revenue Code, of 1986, as amended, which we refer to in this proxy statement as the Internal Revenue Code or the IRC, and such shares constitute 9.5% or more of our issued Common Shares, the voting rights with respect to your controlled shares will be limited, in the aggregate, to a voting power of approximately 9.5%, pursuant to a formula specified in ourBye-Laws.
The Notice indicates the number of Common Shares you are entitled to vote, without giving effect to the controlled share rule described above.
WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND AS A BENEFICIAL OWNER?
Many of our shareholders are beneficial owners since they hold their shares through a stockbroker, bank or other nominee rather than as shareholders of record when they own shares directly in their own name. As summarized below, there are some differences between shares held of record and those owned beneficially.
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shares. You may also vote by telephone or on the Internet as described below under the heading “May I Vote by Telephone or via the Internet?” |
HOW DO I VOTE BY PROXY IF I AM A SHAREHOLDER OF RECORD?
If you are a shareholder of record and you properly submit your proxy card (by telephone, via the Internet or by mail) so that it is received by us in time to vote, your “proxy” (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card (including electronic signatures in the case of Internet or telephonic voting) but do not make specific choices, your proxy will vote your shares as recommended by our Board of Directors (also referred to as our Board or the Board):
If any other matter is presented, your proxy will vote in accordance with the best judgment of the individuals named on the proxy card. As of the date of printing this proxy statement, we knew of no matters that needed to be acted on at the Annual General Meeting other than those discussed in this proxy statement.
HOW DO I GIVE VOTING INSTRUCTIONS IF I AM A BENEFICIAL OWNER?
If you are a beneficial owner of shares, your broker, bank or other nominee will ask you how you want your shares to be voted. If you give the broker, bank or other nominee instructions, the broker, bank or other nominee will vote your shares as you direct. If your broker, bank or other nominee does not receive instructions from you about how your shares are to be voted, one of two things can happen, depending on the type of proposal. According to rules of the NYSE:
It is therefore important that you provide instructions to your broker, bank or other nominee if your shares are held by a broker, bank or other nominee so that your shares can be voted with respect to directors and executive compensation, and any other matters treated asnon-routine by the NYSE.
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MAY I VOTE BY TELEPHONE OR VIA THE INTERNET?
Yes. If you are a shareholder of record, you have a choice of voting over the Internet, voting by telephone using atoll-free telephone number or voting by requesting and completing a proxy card and mailing it in the return envelope provided. We encourage you to vote by telephone or over the Internet because your vote is then tabulated faster than if you mailed it. There are separate telephone and Internet arrangements depending on whether you are a shareholder of record (that is, if you hold your stock in your own name), or whether you are a beneficial owner and hold your shares in “street name” (that is, if your stock is held in the name of your broker, bank or other nominee).
The telephone and Internet voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their voting instructions and to confirm that shareholders’ instructions have been recorded properly. If you vote via telephone or the Internet, you may incur costs, such as usage charges from Internet access providers and telephone companies. You will be responsible for those costs.
Whether or not you plan to attend the Annual General Meeting, we urge you to vote. Voting by telephone or over the Internet or by returning your proxy card by mail will not affect your right to attend the Annual General Meeting and vote. In order to assure that your votes, as a record holder, are tabulated in time to be voted at the Annual General Meeting, you must complete your voting over the Internet or by telephone or submit your proxy card so that it is received by 12:00 noon Eastern Daylight Time on May 2, 2017.1, 2018. Similarly, in order to assure that your votes, as a beneficial holder, are tabulated in time to be voted at the Annual General Meeting, you must submit your voting instructions so that your broker will be able to vote by 11:59 a.m. Eastern Daylight Time on May 1, 2017.April 30, 2018.
MAY I REVOKE MY PROXY?
Yes. If you change your mind after you vote, you may revoke your proxy by following any of the procedures described below. If you are a shareholder of record, to revoke your proxy:
Beneficial owners who wish to change the votes submitted on their voting instruction cards should contact their respective broker, bank or other nominee to determine how and when
changes must be submitted so that the nominee can revoke and change their votes on their behalf.
If you wish to revoke your proxy or make changes to your voting instruction card, as applicable, you must do so in sufficient time to permit the necessary examination and tabulation of the subsequent proxy or revocation before the vote is taken.
HOW DO I VOTE IN PERSON AT THE ANNUAL GENERAL MEETING?
You may vote shares held directly in your name as the shareholder of record in person at the Annual General Meeting. If you choose to vote your shares in person at the Annual General Meeting, please bring the Notice Regarding the Availability of Proxy Materials containing your control number or proof of identification. Shares held in “street name” through your broker, bank or other nominee may be voted in person by you only if you obtain a signed proxy from the shareholder of record giving you the right to vote the shares. You must bring such signed proxy to the Annual General Meeting, along with an account statement or letter from the broker, bank or other nominee indicating that you are the beneficial owner of the shares and that you were the beneficial owner of the shares on March 8, 2017.2018.
How Do I Vote in Person at the Annual General Meeting?
Even if you plan to attend the Annual General Meeting, we recommend that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual General Meeting. However, while proxy voting is subject to the time deadlines described above, shareholders attending the meeting in person may vote during the Annual General Meeting as long as they satisfy the requirements described in this section.
WHAT VOTES NEED TO BE PRESENT TO HOLD THE ANNUAL GENERAL MEETING?
To have a quorum for our Annual General Meeting, two or more persons must be present, in person or by proxy, representing more than 50% of the Common Shares that were outstanding on March 8, 2017.2018.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
The affirmative vote of a majority of the votes cast on such proposal at the Annual General Meeting is required for each of:
The votesvote on the compensation paid to our named executive officers and on the frequency of that vote, areis advisory in nature so there is no specified requirement
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for approval. However, the Board of Directors and the Compensation Committee value the opinions of our shareholders and will review the voting results carefully. To the extent there is any significant vote against the named executive officers’ compensation as disclosed in this proxy statement, we will consider our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. In addition, the Compensation Committee and the Board of Directors will consider the outcome of the most recent vote on the frequency of the vote on named executive officer compensation when determining how frequently such vote will be submitted to shareholders.
HOW ARE VOTES COUNTED?
Your vote may be cast “FOR” or “AGAINST”, or you may “ABSTAIN”, with respect to each of the nominees for AGL director, with respect to directing AGL to vote for each of the
nominees for director of its subsidiary AG Re, and with respect to each of the other proposals on the agenda, other than the frequency of the advisory vote on compensation, for which the Board recommends one year.agenda.
If you sign (including electronic signatures in the case of Internet or telephonic voting) your proxy card with no further instructions, your shares will be voted in accordance with the recommendations of the Board. If you sign (including electronic signatures in the case of Internet or telephonic voting) your broker, bank or other nominee voting instruction card with no further instructions, your shares will be voted in the broker’s, bank’s or nominee’s discretion with respect to routine matters but will not be voted with respect tonon-routine matters. As described in “How do I Give Voting Instructions if I am a Beneficial Owner?”, elections of directors and the advisory vote on executive compensation are considerednon-routine matters. We will appoint one or more inspectors of election to count votes cast in person or by proxy.
WHAT IS THE EFFECT OF BROKERNON-VOTES AND ABSTENTIONS?
A broker“non-vote” occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker, bank or other nominee does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.
Common Shares that are beneficially owned and are voted by the beneficiary through a broker, bank or other nominee will be counted towards the presence of a quorum, even if there are brokernon-votes with respect to some proposals, as long as the broker, bank or nominee votes on at least one proposal. Common Shares owned by shareholders electing to abstain from voting with respect to any proposal also will be counted towards the presence of a quorum.
Although brokernon-votes will be counted towards the presence of a quorum, brokernon-votes will not be included in the tabulation of the shares voting with respect to elections of
directors or other matters to be voted upon at the Annual General Meeting. Therefore, “brokernon-votes” will have no direct effect on the outcome of any proposal to be voted upon at the Annual General Meeting.
While abstentions will be counted towards the presence of a quorum, abstentions will not be included in the tabulation of the shares voting with respect to elections of directors or other matters to be voted upon at the Annual General Meeting. Therefore, abstentions will have no direct effect on the outcome of any proposal to be voted upon at the Annual General Meeting.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES AND WHO WILL PAY THEM?
We will pay all the costs of soliciting these proxies. Our directors and employees may also solicit proxies by telephone, by fax or other electronic means of communication, or in person. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you. Alliance Advisors, 200 Broadacres Drive, Bloomfield, New Jersey 07003, is assisting us with the solicitation of proxies for a fee of $20,000 plusout-of-pocket expenses.
WHERE CAN I FIND THE VOTING RESULTS?
We will publish the voting results in aForm 8-K that we will file with the SEC by May 9, 2017.8, 2018. You will also be able to find thisForm 8-K on our website atassuredguaranty.com/www.assuredguaranty.com/sec-filings by May 9, 2017.8, 2018.
DO DIRECTORS ATTEND THE ANNUAL GENERAL MEETING?
Our Corporate Governance Guidelines provide that directors are expected to attend our Annual General Meeting and any special meeting of shareholders we call to consider extraordinary business transactions, unless they are unable to do so as a result of special circumstances. All of our directors then in office other than Mr. Leathes, who was ill at the time, attended the Annual General Meeting that was held on May 4, 2016.3, 2017.
CAN A SHAREHOLDER, EMPLOYEE OR OTHER INTERESTED PARTY COMMUNICATE DIRECTLY WITH OUR BOARD? IF SO, HOW?
Our Board provides a process for shareholders, employees or other interested parties to send communications to our Board.
Shareholders, employees or other interested parties wanting to contact the Board, the independent directors, the Chairman of the Board, the chairman of any Board committee or any other director, as to other matters may send ane-mail to corpsecy@agltd.com. The Secretary has access to both of thesee-mail addresses
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Chairman of the Board, the chairman of any Board committee or any other director, as to other matters may send ane-mail to corpsecy@agltd.com. The Secretary has access to both of thesee-mail addresses |
Communication with the Board may be anonymous. The Secretary will forward all communications to the Board to the Chairman of the Audit Committee or the Chairman of the Nominating and Governance Committee, who will determine when it is appropriate to distribute such communications to other members of the Board or to management.
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
If you have any questions about the Annual General Meeting or voting, please contact James M. Michener,Ling Chow, our Secretary, at(441) 279-5702279-5725 or at jmichener@agltd.com.generalcounsel@agltd.com. If you have any questions about your ownership of our Common Shares, please contact Robert Tucker, our Managing Director, Investor Relations and Corporate Communications, at(212) 339-0861 or at rtucker@agltd.com.
HOW DOES “HOUSEHOLDING” WORK?
Please note we may deliver a single copy of the Notice and, if applicable, a single set of our 20162017 annual report to shareholders and our proxy statement, to households at which two or more shareholders reside, unless an affected shareholder has provided contrary instructions. Individual proxy cards or voting instruction forms (or electronic voting facilities), as applicable, will, however, continue to be provided for each shareholder account. This procedure, referred to as “householding,” reduces the volume of duplicate information received by shareholders, as well as our expenses. Upon written or oral request, we will promptly deliver, or arrange for delivery, of a separate copy of the Notice and, if applicable, a separate set of our annual report and other proxy materials to any shareholder at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the Notice and, if applicable, a separate set of our annual report and proxy materials, you may write or call Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department, telephone(866) 540-7095. Shareholders currently sharing an address with another shareholder who wish to have only one copy of our Notice or annual report and other proxy materials delivered to the household in the future should also contact Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department, telephone(866) 540-7095.
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The Board of Directors of AGL does not know of any matters which may be presented at the Annual General Meeting other than those specifically set forth in the Notice of Annual General Meeting. If any other matters properly come before the meeting or any adjournment thereof, the persons named in the accompanying form of proxy and acting thereunder will vote in accordance with their best judgment with respect to such matters.
By Order of the Board of Directors,
James M. Michener
Ling Chow
Secretary
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ASSURED GUARANTY LTD.
30 WOODBOURNE AVENUE
HAMILTON, HM 08 BERMUDA
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information. Shareholders of record may vote up until 12:00 noon Eastern Daylight Time on May 1, 2018. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Shareholders of record may vote up until 12:00 noon Eastern Daylight Time on May 1, 2018. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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E36281-P02192
KEEP THIS PORTION FOR YOUR RECORDS
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ASSURED GUARANTY LTD.
The Board of Directors recommends a vote FOR each of the following nominees:
1. Election of Directors of Assured Guaranty Ltd. (the “Company”):
Nominees:
For
Against
Abstain
1a. Francisco L. Borges ☐ ☐ ☐
1b. G. Lawrence Buhl ☐ ☐ ☐
1c. Dominic J. Frederico ☐ ☐ ☐
1d. Bonnie L. Howard ☐ ☐ ☐
1e. Thomas W. Jones ☐ ☐ ☐
1f. Patrick W. Kenny ☐ ☐ ☐
1g. Alan J. Kreczko ☐ ☐ ☐
1h. Simon W. Leathes ☐ ☐ ☐
1i. Michael T. O’Kane ☐ ☐ ☐
1j. Yukiko Omura ☐ ☐ ☐
The Board of Directors recommends you vote FOR the following proposal:
2. To approve, on an advisory basis, the compensation paid to the Company’s named executive officers. ☐ ☐ ☐
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] Date
For
Against
Abstain
3. To appoint PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent auditor for the fiscal year ending December 31, 2018, and to authorize the Board of Directors, acting through its Audit Committee, to set the fees of the independent auditor. ☐ ☐ ☐
4A. To authorize the Company to vote for directors of the Company’s subsidiary, Assured Guaranty Re Ltd. (“AG Re”):
Nominees:
4aa. Howard W. Albert ☐ ☐ ☐
4ab. Robert A. Bailenson ☐ ☐ ☐
4ac. Russell B. Brewer II ☐ ☐ ☐
4ad. Gary Burnet ☐ ☐ ☐
4ae. Ling Chow ☐ ☐ ☐
4af. Stephen Donnarumma ☐ ☐ ☐
4ag. Dominic J. Frederico ☐ ☐ ☐
4ah. Walter A. Scott ☐ ☐ ☐
4B. To authorize the Company to appoint PwC as AG Re’s independent auditor for the fiscal year ending December 31, 2018 ☐ ☐ ☐
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Signature (Joint Owners) Date
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V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
E20024-P84638
E36282-P02192
PROXY
THISPROXYISSOLICITEDONBEHALFOFTHEDIRECTORS
OFASSUREDGUARANTYLTD.
The undersigned hereby appoints Dominic J. Frederico and James M. Michener,Ling Chow, and each of them, with power to act without the other and with power of substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the common shares of Assured Guaranty Ltd. which the undersigned is entitled to vote and, in their discretion, to vote upon such other business as may properly come before the Annual General Meeting of shareholders of the Company to be held May 3, 2017,2, 2018, or any adjournment thereof, with all powers which the undersigned would possess if present at the meeting.
THISPROXY
THIS PROXY CARD,,WHENPROPERLY WHEN PROPERLY EXECUTED,,WILLBEVOTEDINTHEMANNERDIRECTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BYTHEUNDERSIGNED.IFNODIRECTIONISMADEBUTTHECARDISBY THE UNDERSIGNED. IF NO DIRECTION IS MADE BUT THE CARD IS SIGNED,,THISPROXYCARD THIS PROXY CARD WILLBEVOTEDFORTHEELECTIONOFALLNOMINEESUNDERPROPOSALS BE VOTED FOR THE ELECTION OF ALL NOMINEES UNDER PROPOSALS 1AND5A,ANDONEYEARONPROPOSAL AND 4A, FOR PROPOSALS 2, 3,FORPROPOSALS2,4AND5BANDINTHEDISCRETIONOFTHEPROXIESWITH AND 4B AND IN THE DISCRETION OF THE PROXIES WITH RESPECTTOSUCHOTHERBUSINESSASMAYPROPERLYCOMEBEFORETHE TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Continuedand tobesignedonreverseside
V.1.1