Executive Compensation

Compensation Philosophy

The main objective of our executive compensation philosophy is to focus executives on the achievement of financial and operational performance over the short-and long-term in order to maximize shareholder value, with a focus on:

Our compensation program is designed to support our business objective of increasing shareholder value by:

Compensation Elements and Pay Mix

Our goal is to retain and attract experienced and talented executive officers and to motivate them to achieve our short- and long-term financial, operational and strategic objectives that produce and promote shareholder value. To achieve this goal, we strongly emphasize a culture of pay for performance in order to provide incentives and accountability for our executive officers in working toward the achievement of our objectives. Accordingly, we have designed our incentive compensation program with the goal of ensuring that actual realized pay varies based on achievement of challenging performance goals and demonstration of meaningful individual commitment and contribution.

A summary of the key components of our executive compensation program is set forth below and described in more detail beginning on page 52.

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When determining the appropriate level of compensation for an NEO, the Committee looks not only at the separate components of the compensation package and the incentive provided by each but also at the NEO’s aggregate level of compensation. This philosophy allows the Committee to provide a mix of components to incentivize and reward the desired performance from each NEO. The following graphs illustrate the pay mix and the fixed versus variable portion of Mr. Rehnberg’s and, on average, the other continuing NEOs’ total target direct compensation. The

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CEO pay chart provides an overview of Mr. Rehnberg’s target direct compensation, including the additional salary he received as interim CEO.

Elements of the Compensation Program

Our goal is to attract and retain experienced and talented executive officers and to motivate them to achieve our short- and long-term financial, operational and strategic objectives that produce and promote shareholder value. To achieve this goal, we strongly emphasize a culture of pay for performance in order to provide incentives and accountability for our executive officers in working toward the achievement of our objectives.

Base Salary

Consistent with our desire to provide compensation that will attract and retain superior executives, when establishing base pay for our NEOs, our Committee considers both (i) the experience, skills and responsibilities of the NEO and (ii) the pay practices of companies with whom we compete for executives. When adjusting base salaries, the Committee also considers Company performance and an NEO’s individual performance. The 2019 base salary increases were generally based on a review of market data and recognition of individual performance. In the case of Mr. Rehnberg, his base salary was increased to $750,000 in January 2019 in recognition of his expanded responsibilities in connection with his promotion to Group Chief Administrative Officer and Head of the Americas and then further increased to $975,000 in November 2019 in connection with his promotion to the position of Interim President and Chief Executive Officer. Mr. Bullock’s base salary was increased to $600,000 in connection with his revised employment agreement after consideration of market data and in recognition of historical base salary adjustments. Mr. Hernandez’s base salary was reduced to $500,000 due to his transition arrangement with the Company.

The 2019 base salaries for our NEOs were as follows:

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Annual Incentive Awards

Performance Goal and Target Establishment

Our annual cash incentive compensation plan is structured to motivate and reward achievement of short-term financial goals and individual performance objectives and to provide a strong linkage between pay and performance. For our NEOs, annual incentive awards are determined based on an individual target award multiplied by, in the case of corporate executives, the percentage of plan Company pre-tax operating income and, in the case of business unit executives, the percentage of plan Company pre-tax operating income and business unit underwriting income, weighted 30% and 70%, respectively. This result is then subject to upward or downward adjustment by up to 30% if deemed appropriate by the Committee to factor in individual achievement of annual objectives. Payouts are capped at 200% of target opportunity regardless of individual performance.

At the beginning of the year, each NEO’s individual target award is established as a percentage of his or her base salary. For 2019, the individual target opportunities were established based on market data provided by the Committee’s independent compensation consultant. In addition, in the case of Messrs. Rehnberg and Bullock, their individual bonus opportunities were determined based on the negotiations of the parties in conjunction with their new employment agreements.

Performance Results

2019 Financial Goals

At the end of the year, a pool is established based upon the Company’s pre-tax operating income for the year subject to a minimum achievement of at least 50% of plan, with a maximum funding opportunity of up to 200% of

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plan. Pre-tax operating income is defined as net income before taxes excluding non-recurring net realized investment gains and losses and foreign currency exchange gains and losses. The Committee selected pre-tax operating income as a key financial metric because it believes it is a strong indicator of the Company’s short-term financial and operational performance. For 2019, partly in recognition of the evolution of the Company’s investment strategy towards a total return objective, the Committee included in the plan the return on certain investments that had historically been recorded as net realized gains and losses. Achievement against the plan includes the realized return on those investments. If the Company does not achieve 50% of the plan pre-tax operating income for the year, the pool is not funded and no awards are paid at year-end. This minimum funding requirement is designed to align the interests of management with the interests of shareholders while not providing incentives for undue risk taking. When evaluating financial performance at the end of the year, the Committee may also consider the state of the insurance market, the state of the investment market, the impact of unusual catastrophic events, accounting changes or other factors affecting pre-tax operating income outside of management’s control, in adjusting the calculated preliminary award. In accordance with historical practice, the Committee adjusted both plan and actual pre-tax operating income by eliminating the expense related to certain types of cash-settled equity awards that are directly impacted by a change in the Company’s stock price.

For 2019, the Company’s pre-tax operating income goal of $218.4 million, as adjusted by the Committee in the manner described above, was not met. This goal was set taking into account the challenging market conditions facing our industry, but despite those conditions, the Committee set a significantly higher pre-tax operating income goal in 2019 as compared to 2018 ($218.4 million in 2019 vs. $178.2 million in 2018).

As a business unit leader, the annual incentive award for Mr. Rehnberg was measured based on both Company-wide pre-tax operating income performance (weighted 30%) and business unit underwriting income performance (weighted 70%). Underwriting income represents the net amount earned from underwriting activities (net premiums earned less underwriting expenses and claims incurred). Consistent with financial targets communicated to shareholders, business unit targets for underwriting income were set at levels that were intended to be challenging. Mr. Rehnberg’s weighted preliminary award, based on the performance results of the Americas business, was 32.9%. Mr. Rehnberg’s award was pro-rated for the ten months he served in his role as Group Chief Administrative Officer, Head of the Americas.

2019 Individual Performance Objectives

At the beginning of the year, the Committee also establishes and communicates annual individual performance objectives for each NEO. Individual performance objectives are designed to be achievable, but required the coordinated, cross-functional focus and effort of the NEOs. At the end of the year, the Committee evaluates the extent to which each NEO achieved his or her individual performance objectives and adjusts the calculated preliminary award by up to +/- 30% as appropriate to reach a final individual award, subject to a maximum total payout of 200% of target. In making such adjustments, the Committee considers each NEO’s performance objectives collectively rather than applying a formula or weighting to each of the objectives. Accordingly, payouts under the plan are directly linked to both the Company’s financial performance and each NEO’s individual performance during the year. For 2019, the CEO and functional leaders had individual performance metrics tied to the categories of financial performance, client focus, talent development, organizational goals, and strategic goals. As noted above, the Company did not achieve the threshold pre-tax operating income goal and, accordingly, none of the NEOs were eligible for an individual performance modifier.

Mr. Hernandez did not participate in the annual incentive program as a result of his mid-year transition; however, he was eligible for a special bonus conditioned on the successful completion of certain targets, related to the following: final handover of all matters pertaining to the international division; successful management of the relocation of the Head of Bermuda Property to the US, including management of all the regulatory aspects; working with the Chairman of the AMA board to secure a new non-executive director; and successful communication of

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international profit share payouts. For 2019, the Committee awarded Mr. Hernandez a bonus equal to $239,000 based on his performance with respect to the performance goals.

Long-Term Incentive Awards

Our long-term equity incentive compensation is designed to provide a strong linkage between pay and the Company’s strategic goals, and to align the interests of our executives with those of our shareholders by awarding compensation in the form of equity, which may be restricted stock, restricted stock units, stock options or stock appreciation rights (“SARs”). With the exception of awards granted as sign-on incentives, each such grant is primarily conditioned upon the achievement of financial and individual performance objectives during the year in which the grant is made as further described below. Subject to the achievement of these goals, the awards (on a performance-modified basis) vest ratably over a four-year period from the grant date.

Individual target awards for our NEOs are established at the beginning of the year along with pre-determined threshold, target and maximum growth in BVPS goals for the Company and long-term performance objectives for the individual. Our BVPS target was set taking into account challenging global economic conditions and market conditions facing our industry. The 2019 growth in BVPS target under the Company’s LTI program was established based on an assessment of the current operating environment, evidenced by continued and heightened competition relative to prior periods, a modestly improving economic environment, and an improving interest rate environment, which at times has had the effect of increasing investment income. The Committee sets individual performance objectives under the LTI plan that are more forward-looking and strategic in nature when compared to the individual objectives set under the annual incentive plan, which are shorter term and more operational in nature.

At the end of the year, the target awards are then adjusted based on the following formula:

Payouts range from 25% to 150% of target opportunity, and will not exceed 150% of target regardless of individual performance. For 2019, the BVPS adjustment factor was determined on a linear basis according to the

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ranges of achievement, with the growth rate measured as compared to December 31, 2018. For 2019, the Company’s BVPS increased in 2019 by 3.1% (inclusive of cash dividends paid to our shareholders during the year), which was below the threshold of 4%, resulting in a BVPS modifier of -100% applied to 50% of the target awards in accordance with the following schedule:

For the Individual Modifier, the full target award may be adjusted up to +/- 25% based on the Committee’s evaluation of each NEO’s individual performance against the pre-determined individual performance objectives. For 2019, the CEO and functional leaders had individual performance metrics tied to the categories of financial performance, client focus, talent development, organizational goals, and strategic goals. Individual performance objectives were designed to be achievable, but require the coordinated, cross-functional focus and effort of the NEOs.

The following table sets forth the calculation of the final 2019 LTI awards for each NEO as adjusted based on growth in BVPS in 2019 and the Committee’s assessment of achievement of the long-term individual performance objectives and determination not to apply individual modifiers for any NEO. The 2019 Summary Compensation Table on page 52 includes the grant date fair value of the target award. However, as noted below, the Committee adjusted down the BVPS portion of the award by 100% for each of the current NEOs, and number of shares represented by the Performance Modified Grant Date Fair Value will vest over the four year vesting period of the award.

Placeholder footnotes

One-time Performance Award to Certain NEOs

In November 2018, the Committee approved performance-based restricted stock awards on a selective basis to Messrs. Rehnberg, Bullock, Schmidt and Watson and certain other key executives (the “2018 Performance Awards”). The 2018 Performance Awards may be earned based on the achievement of specific stock price and expense ratio reduction hurdles by the end of a three-year performance period from January 1, 2019 to December 31, 2021. For Messrs. Rehnberg and Bullock, 50% of the 2018 Performance Award will be earned based on the achievement of stock price hurdles and the remaining 50% will be earned based on the achievement of expense ratio hurdles. For Mr. Schmidt (and, prior to his departure, Mr. Watson), the 2018 Performance Award will be earned (or would have

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been earned, with respect to Mr. Watson) based on the achievement of stock price hurdles and expense ratio hurdles, weighted 75% and 25%, respectively. Mr. Watson’s 2018 Performance Award was forfeited in its entirety in connection with his separation from the Company on December 31, 2019. The 2018 Performance Awards granted to Messrs. Rehnberg, Bullock and Schmidt remain outstanding and will vest, if at all, based on performance through December 31, 2021. See the “Outstanding Equity Awards at 2019 Fiscal Year-End” table for further information regarding these awards.

Other Compensation and Benefit Programs

Savings Plans

Substantially all of our United States based employees, including our NEOs who are U.S. citizens, are eligible to participate in our tax-qualified savings plan (the “Qualified Savings Plan”). This plan provides an opportunity for employees to save for retirement on both a tax-deferred and after-tax basis. Participants may contribute up to 75% of their base pay through tax-deferred and after-tax contributions up to the Internal Revenue Code (“IRC”) limit on employee contributions. We match 100% of the first 5% of each employee’s bi-weekly contributions. Participants are vested on a five-year graded vesting schedule for employer matching contributions. In addition, we contribute 1% of base pay up to the IRC compensation limit. This contribution vests upon completing three years of service.

Our NEOs who are U.S. citizens are also eligible for a tax-deferred non-qualified defined contribution plan (the “Non-Qualified Savings Plan”). The Non-Qualified Savings Plan provides retirement benefits which would be payable under the Qualified Plan but for the limits imposed by the IRC. Our NEOs who are U.S. citizens may contribute up to 5% of their pay to the Non-Qualified Savings Plan after reaching the maximum allowable IRS contribution to the Qualified Plan. The participant’s investment return is calculated as though the account was invested as designated by the individual from substantially the same funds that are available under the Qualified Savings Plan.

Our NEOs who are non-U.S. citizens are eligible to participate in defined contribution pension plans pursuant to the laws of the jurisdictions where they work and reside. The Company generally contributes 15% of a participant’s base salary to these plans up to the limits permitted by applicable legislation.

Welfare Benefits and Perquisites

To provide our executives with competitive compensation packages similar to those available at other companies in our peer group, the Company provides certain welfare benefits to all of our executives, including our NEOs. Welfare benefits consist of company-paid portions of life, disability, medical and dental insurance premiums. The Company also provides our executives with certain perquisites as part of our compensation program. Perquisites generally available to each of our NEOs in 2019 consisted of financial planning assistance, term life insurance and a group umbrella casualty insurance policy. Certain of our NEOs also receive supplemental term life, disability and medical insurance coverage.

Historically, the Company has provided certain executives with expatriate benefits that are consistent with those provided to executives holding comparable positions in other insurance and reinsurance companies operating in the global marketplace. Such benefits may include relocation assistance, housing allowances, home leave and travel allowances, education allowances and cost-of-living allowances. The Company has also provided a tax equalization on housing, educational and home leave travel allowance benefits to certain executives who are asked to relocate internationally in order to reduce the related negative tax consequences of such allowances. Providing a tax equalization under such circumstance is a customary practice and is intended to ensure that an executive’s after-tax income is not substantially different from that of his or her U.S. counterpart as a result of being compensated for the higher housing, educational and travel costs associated with an international relocation. During 2019, the Company began phasing out these benefits for the NEOs.

The Company has historically maintained fractional leasehold interests and a term lease in private aircraft. In December 2019, the Company sold the private aircraft associated with the term lease. The Company still maintains fractional leasehold interests in corporate aircraft; however, the Board has adopted a policy that limits the use of

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corporate aircraft to only business travel. The Company’s corporate aircraft program enables NEOs and other executives, directors and employees to meet with Company personnel, vendors, professional service providers, clients and business partners, to attend board meetings, and to engage in business development activities in multiple locations where the Company conducts business throughout the world. An NEO may also have family members or other guests accompany the NEO on corporate aircraft in transit for business travel when there is space available on the corporate aircraft.

Revised and Updated Information about Perquisites Resulting from Investigation

As previously disclosed, the Company received a subpoena from the SEC seeking documents primarily with respect to the Company’s disclosure of certain compensation-related perquisites received by Mr. Watson from 2014 through 2019 (the “Review Period”). This subpoena prompted the Company to conduct an extensive investigation, which included the engagement of outside counsel and a forensic auditor, to review Mr. Watson’s use of corporate aircraft, his travel and entertainment expenditures, and any other amounts paid by, or benefits provided by, the Company at his request or on his behalf during the Review Period (the “Investigation”).

The Investigation was subsequently extended to the other NEOs for 2018 and 2017. Please see footnote 5 to the 2019 Summary Compensation Table regarding perquisites the Company has identified based on the Investigation for Mr. Watson and the other NEOs in 2019 to 2017.

Watson Separation Agreement

As previously disclosed, Mr. Watson entered into a Separation Agreement with the Company pursuant to which he agreed to reimburse the Company for certain alleged personal expenses that were paid for by the Company, subject to proceeding to arbitration as to expenses Mr. Watson disputes. Mr. Watson, through his counsel, has informed the Company that he disagrees with the Company’s characterization of certain such expenses as personal and that he intends to dispute any obligation to reimburse the Company for such expenses in arbitration. Please refer to the disclosure below under “—Potential Payments upon Termination or a Termination Following a Change in Control—Mr. Watson” for further information regarding reimbursement.

Improvements in Perquisite-Related Management and Controls

In connection with the Investigation, the Company has adopted and implemented a set of new and enhanced written policies and procedures to strengthen the Company’s internal controls and procedures regarding travel, entertainment and related expenses. These include:

Post-Termination Benefits

Our NEOs are eligible to receive severance payments and benefits pursuant to the terms of their employment agreements in the event their employment is terminated by the Company without cause or by the executive with good reason, as discussed in detail beginning on page 60. The Company provides severance payments and benefits because they are deemed essential to attracting and retaining highly-qualified executives. The Company also mitigates potential liability under these circumstances by requiring the executive to sign a separation and release agreement acceptable to the Company as a condition to receiving severance benefits. The post-termination benefits are determined based on market data, input from the Committee’s independent compensation consultant, the Company’s historical pay practices and negotiations of the parties. Please see the “2019 Potential Payments Upon Termination or a Change in Control” section for further information regarding the post-termination benefits under the Company’s employment agreements.

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Management Transition Compensation

As noted above, the Company undertook a number of leadership changes in 2019. The compensation adjustments made in connection with the 2019 management transitions were determined based on market data and the negotiations of the parties.

Mr. Watson

On December 6, 2019, the Company and Mr. Watson entered into a Separation Agreement and Release (the “Separation Agreement”) to set out the terms of Mr. Watson’s separation from the Company. Under the terms of the Separation Agreement, Mr. Watson continued to serve as a full-time, non-executive employee of the Company through December 31, 2019 (the “separation date”) and continued to receive his existing base salary during such period as well as medical, welfare and health insurance benefit plans on the same terms and conditions as were in effect for Mr. Watson prior to the termination of his tenure as an executive employee. Mr. Watson was not entitled to receive any annual cash incentive awards.

Effective as of the date on which the Separation Agreement became fully enforceable and binding, Mr. Watson fully vested in his unvested restricted stock from each of his (i) March 10, 2016 grant (11,285 shares), (ii) March 29, 2017 grant (14,558 shares), (iii) March 27, 2018 grant (10,500 shares) and (iv) March 15, 2019 grant (41,013 shares). All of Mr. Watson’s vested share appreciation rights will remain vested and fully exercisable without restriction, and will be governed by the terms of the underlying award agreements, provided that following the separation date, Mr. Watson will not be bound to any restrictive covenant or post-termination obligation, duty or restriction under such award agreements, other than certain obligations relating to confidential information. The Company paid Mr. Watson (a) an amount equal to $1,750,000 within two business days after the Separation Agreement became fully enforceable and binding, and (b) an amount equal to $725,833.33. The 73,481 performance-based restricted shares granted by the Company to Mr. Watson on November 5, 2018 were forfeited by Mr. Watson on December 31, 2019 in connection with Mr. Watson’s separation. The compensation reported in the 2019 Summary Compensation Table includes the separation payments paid to Mr. Watson under the Separation Agreement as well as compensation relating to the accelerated vesting of his outstanding equity awards pursuant to the terms of the Separation Agreement.

The Separation Agreement included a general release of claims by Mr. Watson in favor of the Company and superseded all prior agreements between Mr. Watson and the Company, including Mr. Watson’s employment agreement with the Company, dated November 5, 2018 (the “Employment Agreement”), except for certain provisions of the Employment Agreement set forth in the Separation Agreement, which will survive, including provisions relating to non-disclosure of confidential information, return of Company property, mutual non-disparagement, cooperation following termination of employment, indemnification and clawback.

Mr. Rehnberg

During fiscal 2019, we executed a new employment agreement with Kevin J. Rehnberg, in connection with his promotion to Group Chief Administrative Officer and Head of the Americas. Mr. Rehnberg’s employment agreement replaced and superseded the employment agreement previously entered into between the Company and Mr. Rehnberg and terminates as of December 31, 2022. The new employment agreement provided that Mr. Rehnberg would receive an annualized base salary of $750,000 and may be eligible to earn annual incentive awards in the sole discretion of the Company with an annual target participation rate of $863,000 and long-term incentive awards with an annual target participation rate of $1,000,000. In addition, as discussed further in the 2019 Potential Payments Upon Termination or a Change in Control section, Mr. Rehnberg’s employment agreement also entitles him to severance benefits in connection with certain qualifying terminations of employment.

In connection with Mr. Rehnberg’s appointment as Interim President and Chief Executive Officer, his annual base salary was increased from $750,000 to $975,000. On March 11, 2020, in connection with his appointment as President and Chief Executive Officer, we executed a new employment agreement with Mr. Rehnberg. This agreement replaces and supersedes the agreement we entered into with him in 2019. The Company’s Current Report on Form 8-K filed with the SEC on March 13, 2020 contains a summary of Mr. Rehnberg’s new agreement.

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Mr. Bullock

On April 26, 2019, the Company entered into a new employment agreement with Jay S. Bullock. Pursuant to Mr. Bullock’s employment agreement, Mr. Bullock will continue to serve as the Company’s Executive Vice President and Chief Financial Officer for a term beginning on April 26, 2019 until April 25, 2023, subject to earlier termination under the terms of the employment agreement. Under Mr. Bullock’s revised employment agreement, Mr. Bullock’s annual base salary was set at $600,000, which will be reviewed annually by the Committee for possible increases (but not decreases) in its sole discretion. Mr. Bullock will continue to be eligible to earn annual cash incentive and/or long-term incentive awards in the sole discretion of the Company from time to time, subject to his continued employment through any payment date. In addition, as discussed further in the 2019 Potential Payments Upon Termination or a Change in Control section, Mr. Bullock’s employment agreement also entitles him to severance benefits in connection with certain qualifying terminations of employment.

Mr. Hernandez

On April 26, 2019, the Company entered into an agreement amending the employment agreement of Mr. Hernandez. The amendment provided that Mr. Hernandez transitioned to a new position as Chair, International Operations of the Company, effective as of January 1, 2019, for a term scheduled to terminate on December 31, 2019. Under the amendment, Mr. Hernandez’s annual base salary was reduced to $500,000 effective May 1, 2019 for the remainder of the calendar year, and he remained eligible for standard health and welfare benefits. Mr. Hernandez ceased to be eligible to receive an annual cash incentive award or an LTI award with respect to the calendar year 2019, and any outstanding LTI awards continued to be governed by the terms and conditions of the incentive plan and award agreements pursuant to which such awards were granted. Further, as discussed above, Mr. Hernandez became eligible to receive a bonus conditioned on the successful completion of several targets provided for in the amendment, as determined by the Committee in its sole discretion.

Compensation Setting Process and Governance Elements

Process for Compensation Decisions

In making decisions with respect to the compensation of our executive officers, the Committee considers both Company performance and peer group practices to evaluate whether our executive compensation program remains competitive and consistent with best practices and our compensation philosophy. In determining the amount and form of compensation for our CEO, the Committee reviews our CEO’s performance and makes recommendations regarding his pay to the full Board for approval. In determining the amount and form of compensation for our other NEOs, the Committee considers our CEO’s assessment of their performance and his recommendations regarding their compensation.

When setting compensation levels and awarding compensation for 2019, the Committee took into account the Company’s strategic and financial goals as well as individual short- and long-term performance objectives for each NEO and other members of the executive management team. The Committee also considers the compensation levels of the Company’s peers as discussed in the Comparison Group section below.

2019 Comparison Group

To evaluate whether our executive compensation program is competitive, the Committee compares compensation for its executives with the compensation received by the executives of our competitors. Although the Committee considers compensation data for a designated comparison group when establishing compensation, the Committee does not target a specific percentage of compensation reported by such group. Instead the Committee uses the data as a guide in determining the level of compensation necessary to successfully compete for executives. Because the Company seeks to hire and retain experienced and talented executives, the Committee has selected a designated comparison group that incorporates the companies with whom we compete.

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In deciding whether a company should be included in the peer group, the Committee considered the following criteria: (a) global operations; (b) revenue; (c) market capitalization; and (d) peers that the Company competes with in the marketplace and for talent.

The designated comparison group for 2019 consisted of the following companies, which was the same group of companies as used to evaluate 2018 compensation decisions:

2020 Comparison Group

In December 2019, the Committee, with assistance from its independent compensation consultant, undertook a thorough review of the comparison group. As part of this review the Committee endeavored to consider the removal of peers that were either much larger or much smaller than the Company. In determining which companies should be removed or added to the comparison group, the following criteria were considered:

As a result of this review, the Committee removed four companies that were significantly larger and added three companies that are considered reasonably similar to the Company in terms of size and business mix:

The resulting 2020 comparison group is below:

Equity Ownership Guidelines

The Company requires a designated group of senior executives (including the NEOs) to adhere to its Equity Ownership Guidelines. The guidelines are considered an integral part of the Company’s executive compensation

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program as they align the economic interests of the Company’s executives with those of its shareholders. The guidelines are an incentive to encourage behavior that will foster long-term, sustainable value creation because the value of the stock being held by the participants is influenced by the Company’s long-term performance.

Pursuant to the guidelines, designated executives must hold at least 50% of earned or acquired shares until the guideline ownership level is attained (and non-employee directors must hold 100% of earned or acquired shares until the guideline ownership level is attained). Compliance is tested annually as of the first business day of the second quarter each year. Compliance with the guidelines is a factor that the Committee takes into consideration when determining whether to grant future equity awards to our executives under the Company’s LTI plan. As of December 31, 2019, each of our continuing NEOs either held the requisite number of shares or was subject to the 50% retention requirement.

In 2019, the Committee made certain changes to the guidelines to increase stock ownership multiples and clarify that pledged shares do not count toward compliance. The following table shows the ownership levels applicable to our designated executives, which are expressed as a multiple of salary depending upon their position:

For purposes of the ownership guidelines, only Common Shares owned by or on behalf of an individual or an immediate family member residing in the same household, including stock held in trusts or tax-qualified retirement plans, are counted, but excluding any pledged shares. The value of each common share is assumed to be the greater of the market value or the book value per common share of the Company’s stock.

Compensation Clawback Policy

To provide the Company with the ability to recoup performance-based compensation obtained through misconduct on the part of management that is detrimental to the Company, performance-based compensation may be recovered at the discretion of the Board if an executive officer (i) has engaged in fraud or other misconduct and the misconduct resulted in the need for a restatement of the Company’s financial statements that affect such executive officer’s compensation or (ii) the executive officer has engaged in certain other egregious conduct that is substantially detrimental to the Company. The potential for a clawback in response to egregious conduct has been incorporated into our revised policy after taking into consideration shareholder feedback and our internal review of compensation practices. The Board also has the discretion to recoup performance-based compensation if the payment, grant or vesting of the award was based on the achievement of a performance metric that was calculated by the Company in a substantially inaccurate manner. Our Compensation Clawback Policy is available on our website at www.argolimited.com.

Prohibition of Hedging and Restrictions on Pledging of Equity Securities

Our Insider Trading Policy prohibits our employees, officers and directors from selling any Company securities that they do not own. It also prohibits transactions in exchange-traded options such as puts, calls and other derivative securities of the Company’s stock. We prohibit all hedging transactions involving our securities that would insulate our employees, officers and directors from the effects of our stock price performance. The Policy places restrictions on our officers and directors from directly or indirectly pledging more than the lesser of 1% of the Company’s outstanding equity securities and 50% of the equity securities of the Company owned by such officer or director. Equity securities include Common Shares, voting preferred shares, options and any other securities beneficially owned by an officer or director.

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Compensation Risk Assessment

In line with the Company’s application of its enterprise risk management (“ERM”) framework to compensation risk, the Committee seeks to ensure that our executive compensation program does not encourage executives to take risks that are inconsistent with the long-term success of the Company. More broadly, the Company’s compensation philosophy is a core part of our risk culture and ensures that underwriters are motivated to produce profitable business and executives are compensated to operate within our Board approved risk appetite.

The Committee believes the Company’s executive compensation program does not encourage inappropriate risk-taking. Specifically, in 2019, the Company’s annual incentive and LTI plans were tied to operating performance and growth in BVPS, aligning our shareholders’ short- and long-term interests with the decision-making for our employees and NEOs. In 2020, the Committee also implemented changes to the LTI program to increase the long-term shareholder focus of the plan by changing the performance period from one to three years, and eliminating the individual performance modifier. The Committee also increased executive stock ownership guidelines as noted above.

During 2019, our ERM function, led by the Chief Risk Officer, undertook a risk assessment of our current compensation schemes, taking into consideration the anticipated reaction of key stakeholders to a number of potential downside or upside risk scenarios. The assessment considered a number of factors including risk-based measures, scheme calibration, clawback and ‘malus’ provisions, deferral features and multi-year structures. The risk analysis completed in 2019 also considered the threats and opportunities introduced by our proposed changes to our compensation schemes for 2020 and the transition risks associated with this proposed change. Other factors considered when determining that the compensation program does not encourage excessive risk-taking include:

Compensation Consultant

During 2019, the Committee continued to engage FW Cook to assist in the evaluation of our executive compensation program. The scope of FW Cook’s engagement was to provide assistance with (1) updating our stock award agreements, (2) conducting a review of our compensation peer group, (3) conducting competitive reviews of executive and non-employee director compensation, (4) conducting competitive reviews of incentive design and performance measurement, and (5) conducting pay-for-performance modeling, including using estimates of realizable pay. In addition, FW Cook also reviewed the compensation disclosure included in this proxy statement. FW Cook performed these services solely on behalf of the Committee. The Committee has assessed the independence of FW Cook, as required by the Company’s governance framework and NYSE and SEC rules and has concluded that no conflict of interest exists with respect to its services to the Committee.

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HUMAN RESOURCES COMMITTEE REPORT

The Human Resources Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on their review and discussions, the Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the registrant’s annual report on Form 10-K and proxy statement.

COMMITTEE

John R. Power, Jr., Chairman

Hector De Leon

Dymphna A. Lehane

Samuel G. Liss

Al-Noor Ramji

Gary V. Woods

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EXECUTIVE COMPENSATION

2019 Summary Compensation Table

The following table contains compensation information for our NEOs for the fiscal year ended December 31, 2019 and, to the extent required under the SEC executive compensation disclosure rules, the fiscal years ended December 31, 2018 and December 31, 2017. In the case of Mr. Watson, the amounts reported for 2019 include compensation received for his services during the year as well as the separation payments he received pursuant to the terms of his Separation Agreement and the incremental fair value associated with the modification of certain of his outstanding equity awards, as further described in the footnotes below.