MIGP Mercer Insurance Grp., Inc. (MM)

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

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MERCER INSURANCE GROUP, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

       

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT

 

MERCER INSURANCE GROUP, INC.

PENNINGTON, NEW JERSEY 08534

 

To Be Held April 15, 2009

 

Mailed to Security Holders March 18, 2009

 

Mercer Insurance Group, Inc.
10 North Highway 31
P. O. Box 278
Pennington, New Jersey 08534

March 18, 2009

 

Dear Fellow Shareholder:

 

The Annual Meeting of Shareholders of Mercer Insurance Group, Inc. will be held on Wednesday, April 15, 2009, at the Company’s headquarters located at 10 North Highway 31, Pennington, New Jersey, at 10:30 a.m. local time.

 

The matters to be acted upon at the meeting are:

 

(a) The election of three Class III directors;

 

(b) The ratification of the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2009; and

 

(c) Such other matters as may properly come before the Annual Meeting or any adjournment thereof.

 

Please review the enclosed material and sign, date and return the proxy card. Regardless of whether you plan to attend the annual meeting in person, please vote now so that the matters coming before the meeting may be acted upon.

 

I look forward to seeing you at the annual meeting.

 

Respectfully yours,

 

 

Andrew R. Speaker
President and Chief Executive Officer

Mercer Insurance Group, Inc.
10 North Highway 31
P. O. Box 278
Pennington, New Jersey 08534

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

March 18, 2009

 

To the Shareholders:

 

NOTICE IS HEREBY GIVEN that, pursuant to a call of its directors, the Annual Meeting of Shareholders of Mercer Insurance Group, Inc. will be held at the Company’s headquarters located at 10 North Highway 31, Pennington, New Jersey, 08534 on Wednesday, April 15, 2009, at 10:30 a.m. local time for the purpose of considering and voting on the following matters:

 

1. Election of three Class III directors to hold office for terms of three years from the date of election and until their successors shall have been duly elected and qualified (Matter No. 1);

 

2. The ratification of the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2009 (Matter No. 2); and

 

3. Such other business as may properly come before the meeting or any adjournment thereof.

 

Only those shareholders of record at the close of business on March 6, 2009, shall be entitled to notice of and to vote at the meeting. A proxy statement, a proxy card and a self-addressed postage prepaid envelope are enclosed. Please complete, sign and date the proxy card and return it promptly in the envelope provided. If you attend the meeting, you may revoke your proxy and vote in person.

 

This notice, the accompanying proxy statement and form of proxy are sent to you by order of the Board of Directors.

 

Respectfully yours,

 

Paul D. Ehrhardt
Corporate Secretary

Pennington, New Jersey
March 18, 2009

TABLE OF CONTENTS

 

Mercer Insurance Group, Inc.
10 North Highway 31
P. O. Box 278
Pennington, New Jersey 08534

 

PROXY STATEMENT

 

GENERAL

 

Introduction

 

This Proxy Statement and the accompanying Notice of Meeting, proxy card and Annual Report for the year ended December 31, 2008 are being mailed to the shareholders of Mercer Insurance Group, Inc. (“Mercer” or the “Company”) on or about March 18, 2009 in connection with the solicitation of proxies by the Board of Directors of Mercer. The proxies will be voted at the Annual Meeting of Shareholders of Mercer to be held on Wednesday, April 15, 2009, at 10:30 a.m. local time at the Company’s headquarters located at 10 North Highway 31, Pennington, New Jersey (the “Annual Meeting”).

 

Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on April 15, 2009:

 

This Notice and Proxy Statement and our 2008 Annual Report to Shareholders,
which includes the Annual Report on Form 10-K, may be accessed at
http://www.cfpproxy.com/5546 ,

 

where it can be viewed or downloaded.

 

For directions to the location of the meeting, please email

 

InvestorRelations@mercerins.com

 

or call the Company’s offices at (609) 737-0426.

 

Solicitation of Proxies

 

The cost of the solicitation of proxies will be borne by Mercer. In addition to the use of the mail, some directors and officers of Mercer may solicit proxies, without additional compensation, in person, by telephone, telegram, or otherwise. Arrangements may be made by Mercer with banks, brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of shares of record held by them, and Mercer may reimburse them for reasonable expenses they incur in so doing.

 

Voting Securities

 

As of the close of business on March 6, 2009 (the “Record Date”), there were outstanding 6,429,767 shares of common stock, no par value (the “Mercer Common Stock”), the only class of capital stock of Mercer outstanding. Holders of record of Mercer Common Stock as of the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting. Each outstanding share of Mercer Common Stock is entitled to one vote on each matter to be voted upon.

 

If the enclosed proxy card is appropriately marked, signed and returned in time to be voted at the Annual Meeting, the shares represented by the proxy will be voted in accordance with the instructions marked thereon. Signed proxies not marked to the contrary will be voted “FOR” the election of the nominees for Mercer’s Board of Directors, “FOR” the ratification of the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2009, and in accordance with the judgment of the person or persons voting the proxy on any other matter properly brought before the Annual Meeting.

Right of Revocation

 

A Proxy may be revoked at any time before it has been exercised by filing with the Corporate Secretary of Mercer an instrument of revocation or a duly executed proxy bearing a later date. Any shareholder attending the Annual Meeting also may revoke a previously granted proxy by voting in person at the Annual Meeting.

 

Quorum

 

The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast constitutes a quorum for the transaction of business at the Annual Meeting.

 

Shares Held in “Street Name”

 

If your shares are held in “street name” by your bank or broker or other intermediary, you will receive voting instructions from your intermediary which you must follow in order for your shares to be voted in accordance with your directions. Many intermediaries permit their clients to vote via the internet or by telephone. Whether or not internet or telephone voting is available, you may vote your shares by returning the voting instruction card which you will receive from your intermediary.

 

Principal Shareholders

 

The following table sets forth information regarding persons or entities known to Mercer’s management to beneficially own, as of the Record Date, 5% or more of the outstanding shares of Mercer Common Stock.

 

 

 

 

MATTER NO. 1

 

ELECTION OF MERCER DIRECTORS

 

General

 

Under Mercer’s Articles of Incorporation, the total number of directors may be determined by a resolution adopted by majority vote of the directors then in office or by resolution of the shareholders at a meeting. The number of directors for 2009 has been set by the Board at nine. Mercer’s Board of Directors is divided into three classes with directors serving for three-year terms, with one class of directors being elected at each annual meeting of shareholders.

 

Director Independence

 

The Board has determined that each of the following directors is an “independent director,” as such term is defined in the Marketplace Rules of the Nasdaq Stock Market LLC (“Nasdaq”), as follows:

 

 

Nominees and Continuing Directors

 

The Board of Directors has fixed the number of directors in Class III at three and has nominated William C. Hart, Richard U. Niedt and Richard G. Van Noy for election as Class III directors, each to hold office for a three-year term which expires at the 2012 Annual Meeting of Shareholders or when his successor is duly elected and has qualified. Messrs. Hart, Niedt and Van Noy are currently directors of Mercer. The remaining directors will continue to serve as Class I and Class II directors whose terms expire in 2010 and 2011, respectively.

 

Pursuant to Mercer’s bylaws directors are elected by a plurality of votes cast, without regard to either: (i) broker non-votes, or (ii) proxies as to which authority to vote for one or more of the nominees being proposed is withheld. The three persons receiving the highest number of votes cast at the Annual Meeting will be elected as Class III directors. Accordingly, abstentions and broker non-votes will not constitute or be counted as votes cast for purposes of the election of directors at the Annual Meeting, but will be counted for purposes of determining the presence of a quorum.

 

Except as noted above, it is intended that shares represented by proxies will be voted for the nominees listed, each of whom is now a director of Mercer and each of whom has expressed his willingness to serve, or for any substitute nominee or nominees designated by the Mercer Board of Directors in the event any nominee or nominees become unavailable for election. The Mercer Board of Directors has no reason to believe that any of the nominees will not serve if elected.

 

The following tables set forth as to each of the nominees for election as a Class III director and as to each of the continuing Class I and Class II directors, his age, principal occupation and business experience for the past five years. There are no family relationships between or among any of our nominees, continuing directors or executive officers.

 

Nominees for Election as Class III Directors — Term Expires in 2012

 

Continuing Class I Directors — Term Expires in 2010

 

 

Continuing Class II Directors — Term Expires in 2011

 

 

 

 

Recommendation:

 

The Board of Directors unanimously recommends that you vote “FOR” its nominees for directors .

 

Executive Officers Who Are Not Directors

 

Security Ownership of Management

 

The following table sets forth information concerning the number of shares of Mercer Common Stock beneficially owned, as of March 6, 2009, by each present director, nominee for director, executive officer named in the Summary Compensation Table appearing below and by all directors and executive officers as a group.

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

All reports required to be filed by the Company’s senior officers and directors pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, were filed on time.

 

Board and Committees

 

The Board of Directors has various standing committees, including an Audit Committee, a Compensation Committee, and a Nominating/Governance Committee. Directors are expected to attend meetings of the Board, meetings of the committees on which they serve and the Annual Meeting. During 2008, the Board of Directors held 13 meetings, the Audit Committee held five meetings, the Compensation Committee held four meetings, and the Nominating/Governance Committee held one meeting. Each director attended at least 75% of the combined total of meetings of the Board of Directors and of each committee of which he was a member. There were four executive sessions of the Board of Directors excluding management. All directors attended the 2008 Mercer Annual Meeting.

 

The Audit Committee is comprised of Directors Hornyak (Chairman), Hart, Malizia and Van Noy, each of whom is an “independent director” in the judgment of the Board of Directors and as such term is defined by Nasdaq’s Marketplace Rules. The Board of Directors has designated George T. Hornyak as the “audit committee financial expert” of the Audit Committee. The Audit Committee operates under a charter adopted by the Board of Directors, a copy of which is posted on the Company’s website at www.mercerins.com. The Committee is responsible for the appointment, compensation, oversight and termination of Mercer’s independent registered public accounting firm. The Committee is required to pre-approve audit and non-audit services performed by the independent registered public accounting firm. The Committee also assists the Board in providing oversight over the integrity of Mercer’s financial statements and Mercer’s compliance with applicable legal and regulatory requirements. The Committee also is responsible for, among other things, reporting to Mercer’s Board on the results of the annual audit and reviewing the financial statements and related financial and non-financial disclosures included in Mercer’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Importantly, from a corporate governance perspective, the Audit Committee regularly evaluates the independent registered public accounting firm’s independence from Mercer and Mercer’s management, including approving legally permitted, non-audit services provided by Mercer’s auditors and the potential impact of such services on the auditors’ independence. The Committee meets periodically with Mercer’s independent registered public accounting firm outside of the presence of Mercer’s management and possesses the authority to retain professionals to assist it in meeting its responsibilities without consulting with management. The Committee reviews and discusses with management earnings releases, including the use of pro forma information and financial information provided to analysts and rating agencies. The Committee discusses with management and the independent registered public accounting firm the effect of accounting initiatives. The Committee also is responsible for reviewing related party transactions and for receiving and retaining complaints and concerns relating to accounting and auditing matters.

 

The Nominating/Governance Committee is comprised of Directors Niedt (Chairman), Malizia, Hornyak and Van Noy, each of whom is an “independent director” in the judgment of the Board of Directors and as such term is defined by Nasdaq’s Marketplace Rules. The Nominating/Governance Committee operates under a charter adopted

by the Board of Directors, a copy of which is posted on the Company’s website at www.mercerins.com. The Nominating/Governance Committee is responsible for recommending to the Board individuals to stand for election as directors at the Annual Meeting of Shareholders, assisting the Board in the event of any vacancy on the Board by identifying individuals qualified to become Board members, recommending to the Board qualified individuals to fill such vacancy, recommending to the Board, on an annual basis, nominees for each Board Committee and making independent recommendations to the Board of Directors as to the best practices for Board governance and evaluation of Board performance. The Committee has the responsibility to develop and recommend criteria for the selection of director nominees to the Board, including, but not limited to diversity, age, skills, experience, and time availability (including consideration of the number of other boards on which the proposed director sits) in the context of the needs of the Board and Mercer and such other criteria as the Committee determines to be relevant at the time. The Committee has the power to apply these criteria in connection with the identification of individuals to be Board members, as well as to apply the standards for independence imposed by Mercer’s listing agreement with Nasdaq and all applicable federal laws in connection with such identification process. The Committee has not adopted any specific minimum qualifications. However, Mercer’s articles of incorporation require that unless waived by the board of directors, in order to qualify for election as a director of Mercer, a person must have been a shareholder of record of the Company for at least three years. This provision is designed to discourage non-shareholders who are interested in buying a controlling interest in the Company for the purpose of having themselves elected to the Board, by requiring them to wait at least three years before being eligible for election. During this period, the shareholder would gain the familiarity with the Company that is necessary to be able to fulfill his or her duties as a director.

 

The Nominating/Governance Committee considers potential candidates for Board membership recommended by its members, management, shareholders, other directors and others. The Committee will consider nominees recommended by shareholders and, in considering such candidates, the Committee will apply the same criteria it applies in connection with Committee-recommended candidates. The bylaws of Mercer permit nominations for election to the Board of Directors to be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. All nominations for director to be made at the Annual Meeting by shareholders entitled to vote for the election of directors must be preceded by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of Mercer not less than 90 days prior to the Annual Meeting. Such notice must contain the following information: (a) the name, age, and business address, and if known, the residential address of each nominee; (b) the principal occupation or employment of each nominee; and (c) the number of shares of Mercer Common Stock beneficially owned by the nominee. No shareholder has given notice of an intention to make a nomination as of the date of this proxy statement. If a nomination is attempted at the Annual Meeting that does not comply with the procedures required by the bylaws or if any votes are cast at the Annual Meeting for any candidate not duly nominated in accordance with the requirements of the bylaws, then such nomination or such votes shall be disregarded.

 

The Compensation Committee is comprised of Directors Hart (Chairman), Boehm Hornyak, and Van Noy, each of whom is an “independent director” in the judgment of the Board of Directors and as such term is defined by Nasdaq’s Marketplace Rules. All of our employees are employed directly by BICUS Services Corporation (“BICUS”), a wholly owned subsidiary of Mercer that provides management services to Mercer and all of its affiliates. The Compensation Committee operates under a charter adopted by the Board of Directors, a copy of which is posted on the company’s website at www.mercerins.com. The Compensation Committee is responsible for reviewing and making recommendations regarding the compensation and benefits of employees for, and granting stock options and restricted stock awards to, employees, management and directors under Mercer’s 2004 Stock Incentive Plan.

Compensation of Directors

 

The following table sets forth a summary of the total compensation that we paid to each non-employee director in 2008:

 

2008 DIRECTOR COMPENSATION

 

 

Footnotes

 

 

The following table provides additional information on the outstanding equity awards granted to non-employee directors in 2008 and the number of outstanding equity awards at December 31, 2008.

 

 

 

 

Each non-employee director of Mercer receives a monthly retainer of $3,000, and a meeting fee of $1,000. Non-employee directors who are members of committees of the Board receive $1,000 per meeting attended in person and $500 per meeting attended by teleconference. The Audit Committee Chairman also receives an additional annual retainer of $5,000. The Compensation Committee Chairman and the Investment Committee Chairman each receive an additional annual retainer of $3,000. The Vice Chairman of the Board, Mr. Boehm, received an additional fee of $480 per month, which fee was eliminated as of March 31, 2008. In addition, the former Chairman, Mr. Van Noy, received an additional fee of $640 per month, which also was eliminated as of March 31, 2008. Executive officers of Mercer who are directors or members of committees of the Mercer Board of Directors or its subsidiaries receive no compensation for their service as directors or committee members.

 

Directors may elect to participate in Mercer’s Executive Nonqualified Excess Plan. Under this plan, a participating director may defer all or a portion of the compensation earned by him for his service on the Board. The Plan is described in greater detail in the narrative discussion which accompanies the Nonqualified Deferred Compensation Table which appears below.

 

Mercer maintains a Benefit Agreement pursuant to which it provides a pension to all non-management directors upon their retirement from the Board. Directors are eligible for the pension if they retire on or after their 65 ^th birthday with at least 10 years of service, or were elected or appointed a director prior to January 1, 1990. The pension is in the form of a monthly payment in an amount equal to the director’s monthly retainer from the Company in effect on the director’s retirement date, or $2,500, whichever is less. If a participating director dies prior to receiving 120 monthly payments under the Benefit Agreement, the director’s beneficiaries are entitled to receive these payments until the total number of payments received by the director and the director’s beneficiaries equals 120.

AUDIT COMMITTEE REPORT

 

The Audit Committee of the Board of Directors of Mercer is comprised of four independent Directors. The members of the Audit Committee are Directors Hornyak (Chair), Hart, Malizia and Van Noy. The Audit Committee operates under a written charter originally adopted by the Board of Directors on May 7, 2003 and affirmed on January 15, 2009. The Board of Directors has designated Mr. George T. Hornyak as “audit committee financial expert” of the Audit Committee.

 

The Audit Committee has reviewed the audited financial statements of Mercer for the fiscal year ended December 31, 2008, and discussed them with management and Mercer’s independent registered public accounting firm, KPMG LLP. The Audit Committee also has discussed with the independent registered public accounting firm the matters required to be discussed by the Statement of Auditing Standards No. 114.

 

The Audit Committee has received the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP its independence. The Audit Committee has also considered whether the fees paid by Mercer to KPMG and described below are compatible with maintaining KPMG’s independence from Mercer. Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that Mercer’s audited financial statements for the fiscal year ended December 31, 2008, be included in Mercer’s Annual Report on Form 10-K for that fiscal year.

 

This report is not intended to be “soliciting material,” is not intended to be “filed” with the SEC, and is not intended to be incorporated by reference into any filing made by Mercer Insurance Group, Inc. with the SEC under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether such filing is made before or after the date hereof and notwithstanding any general incorporation language contained in any such filing.

 

Submitted by:

 

THE AUDIT COMMITTEE:
George T. Hornyak, Jr. (Chairman)
William C. Hart
Samuel J. Malizia
Richard G. Van Noy

 

EXECUTIVE COMPENSATION

 

Compensation Committee Members and Independence

 

Messrs. Hart, Boehm, Hornyak and Van Noy are the members of the Compensation Committee. Mr. Hart is the Committee chair. Each member of the Compensation Committee is an “independent director” as such term is defined by Nasdaq’s Marketplace Rules.

 

Role of Compensation Committee

 

The Compensation Committee operates under a written charter adopted by the Board. A copy of the charter is available online on our website at www.mercerins.com. The fundamental responsibilities of the Committee are to:

 

 

Committee Meetings

 

The Compensation Committee meets as often as necessary to perform its duties and responsibilities. The Committee held four meetings during 2008. The Committee typically meets with the Chief Executive Officer and, where appropriate, with other members of our executive management team.

 

The Committee receives and reviews materials in advance of each meeting. These materials include information that management believes will be helpful to the Committee, as well as materials that the Committee has specifically requested. Depending upon the agenda for a specific meeting, these materials may include:

 

 

 

Management’s Role in the Compensation Process

 

Management plays a significant role in the compensation process. The most significant aspects of management’s role are:

 

 

The Chief Executive Officer works with the Committee chair in establishing the agenda for Committee meetings. Management also prepares information as needed for each Committee meeting.

 

The Chief Executive Officer also participates in Committee meetings at the Committee’s request to provide:

 

 

Committee Analysis

 

The Compensation Committee collects and analyzes internal executive compensation information in establishing appropriate compensation levels. Additionally, from time to time, the Committee reviews other human resource issues, including qualified and non-qualified benefits and management performance appraisals.

 

The Compensation Committee Charter grants the Committee the authority to hire advisors and consultants to assist the Committee with meeting its obligations under its charter, although the Committee has not to date engaged any advisors or consultants.

 

Annual Evaluation

 

The Compensation Committee meets in executive session each year to evaluate the performance of the named executive officers, to determine their annual equity and incentive bonuses for the prior fiscal year, if any, and to establish annual performance objectives for the Chief Executive Officer for the current fiscal year, as well as to review and set base salaries and to consider and approve any grants or awards to executive officers under our equity incentive programs.

 

Performance Objectives

 

The Compensation Committee’s process begins with a review of the performance objectives for the Company’s executive officers in the first quarter of each fiscal year. The Committee engages in an active dialogue with the Chief Executive Officer concerning strategic objectives and performance targets. The Committee reviews the appropriateness of the measures used in our incentive plans and the degree of difficulty in achieving specific performance targets.

 

Targeted Compensation Levels

 

Together with the performance objectives, the Compensation Committee establishes targeted total compensation levels for its executive officers. In making its determination, the Committee is guided by the compensation philosophy described below in the Compensation Discussion and Analysis. The Committee also considers historical compensation levels, competitive pay practices and the relative compensation levels among our executive officers as a group. We also consider industry conditions, corporate performance, and the overall effectiveness of our compensation program in achieving desired performance levels.

As targeted total compensation levels are determined, the Committee also determines the portion of total compensation that will be contingent, performance-based pay. Performance-based pay generally includes cash bonuses for achievement of specific performance objectives and equity-based compensation whose value is dependent upon long-term appreciation in the price of our common stock.

 

Committee Effectiveness

 

In accordance with the provisions of our charter, the Committee reviews, on an annual basis, its performance and the effectiveness of our compensation program in obtaining desired results.

 

Reasonableness of Compensation

 

After considering all the components of the compensation paid to the named executive officers, the Committee has determined that the compensation paid to the named executive officers is reasonable and not excessive.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Philosophy

 

We have designed our executive compensation program with the fundamental objective of supporting our core values and strategic mission and vision. The basis of our compensation philosophy is to align the interests of management with those of our shareholders. The following principles influence and guide the Compensation Committee’s compensation decisions:

 

 

 

Business Context

 

The Committee has adopted guiding compensation principles that will directly align the interests of executives with shareholders in accomplishing corporate strategic objectives. These guiding principles are as follows:

 

 

 

Compensation Components and Benchmarking

 

We do not believe it is appropriate to establish compensation levels primarily based upon benchmarking.

 

The major components of our executive compensation program are the following:

 

 

For 2008, compensation paid to our executives consisted primarily of base salary and cash bonuses. In addition to being eligible for participation in company-wide benefits plans, the named executive officers are eligible to participate in our nonqualified deferred compensation plans, which is the only significant benefit we provide to our senior officers which is not available to all of our employees generally. Incentive awards are directly related to both corporate and individual performance. Market data, individual performance, retention needs, and internal equity have been the primary factors considered in decisions to increase or decrease compensation.

 

Base Salaries

 

Base salary is a critical element of executive compensation because it provides executives with a predictable base level of income. In determining base salaries, the Committee considers the following criteria:

 

 

We annually review the base salaries for our executive officers to assess the above criteria and determine any necessary adjustments and we generally adjust the base salaries as of April 1 of each year. Periodic increases may also occur if warranted due to significant increases in job scope and responsibility or other considerations.

 

The Compensation Committee met in February of 2008 and considered the base salaries of the Company’s senior officers at that meeting. The Committee applied the principles discussed above and determined that base salaries for the named executive officers, effective April 1, 2008, be increased, as follows: (a) Mr. Speaker from $346,538 to $375,000; (b) Mr. Ehrhardt: from $275,500 to $290,000; (c) Mr. Merclean: from $238,500 to $250,000; and (d) Mr. Corkery: from $212,000 to $220,000.

 

In November of 2008, the Committee met to discuss Company-wide compensation guidance for 2009 in light of the current economic and insurance marketplace conditions. It was noted by the Committee during this meeting that in addition to the recent staff cuts and planned elimination of certain expenses, additional compensation control measures would be needed in planning for 2009. The Committee first discussed the traditional practice of granting one week’s pay to each non-officer employee as a holiday bonus. At the meeting, the committee decided to terminate this practice, starting in calendar year 2009, but to increase each non-officer’s salary equal to one week’s

pay, effective January 1, 2009. In addition, the Committee determined to freeze the salaries of all Company employees effective January 1, 2009 after giving effect for the previously discussed adjustment for non-officers.

 

Salary income earned by each named executive officer during calendar year 2008 is reported in the Summary Compensation Table which appears below following this Compensation Discussion and Analysis.

 

Short-Term Incentive Compensation

 

We provide annual short-term incentive opportunities, after a specified minimum level of operating earnings (a non-GAAP measure defined as net income less after-tax realized gains and losses) is achieved, in the form of cash bonuses for our senior executives that are designed to reward achievement of company operating profitability objectives. The Cash Bonus Plan provides various incentive levels based upon the Company’s earnings and the participant’s impact on Company operations and strategic objectives, with target award opportunities that are established as a percentage of base salary based on target percentages linked to different levels of operating earnings per share. These targets range from 16.9% of base salary to 150.0% of base salary for the Company’s named executive officers, provided certain minimum operating profitability standards are achieved. For 2008, 75% of a named executive officer’s cash bonus incentive was based upon achievement of corporate financial objectives measured by operating earnings per share; 15% of the cash bonus incentive was based upon specific individual incentives established for each executive officer by the Chief Executive Officer (and, in the case of the Chief Executive Officer, by the Compensation Committee) and 10% of the cash bonus incentive was discretionary. Corporate financial objectives under the Plan are established by the Compensation Committee in February of each year.

 

Mercer achieved its pre-established 2008 corporate performance objectives. Accordingly, the named executive officers received cash bonuses under the Plan ranging from 67.5% to 112.5% of base salary. The cash bonus earned by each named executive officer under the Plan for 2008 is reported in the Summary Compensation Table which appears below following this Compensation Discussion and Analysis.

 

At its November 2008 meeting, the committee discussed revisions to the Cash Bonus Plan for 2009 in light of current economic and insurance marketplace conditions. The Committee determined to increase the minimum basic operating earnings per share performance for eligibility to $1.25 per basic operating earnings per share from $1.00 and to decrease the percentage of base salary payout between $1.25 and $2.25 per basic operating earnings per share as compared to the Plan in 2008. The eligible payout in 2009 as a percentage of salary for Company performance in excess of $2.25 per basic operating earnings per share is equal to the level established for 2008.

 

Long-Term Incentive Compensation

 

We believe in maintaining a strong correlation between shareholders’ long-term interests and objectives for executives. This correlation is strengthened by using equity-based compensation through programs that are easily understood and incorporate long-term business growth strategies. We determine, on an annual basis, which executives will receive equity-based awards, the size and type of the awards, and the award restrictions (vesting and performance criteria). We target our equity-based awards based upon several factors, including each officer’s job scope and responsibilities, individual performance and long-term potential as determined by the Committee.

 

We have historically provided long-term incentive compensation through the use of equity grants. We believe that equity grants are the most effective means of creating a long-term link between the compensation provided to executive officers and gains realized by shareholders. We have elected to use stock options and restricted stock as the primary equity compensation vehicles.

 

We use stock options as a long-term incentive vehicle because, among other things:

 

 

 

All stock options incorporate the following features:

 

 

We also use restricted stock as a long-term investment vehicle because, among other things:

 

 

In determining the number of options and shares of restricted stock that we grant to our executive officers as long-term incentive compensation, the Compensation Committee takes into account the officer’s position, scope of responsibility and the value of the awards in relation to other elements of the executive’s total compensation. In addition, the Committee considers an executive’s job responsibilities, past contributions to Company performance and potential for future contributions. The Committee believes that long-term incentive compensation should consist of awards of both stock options and shares of restricted stock, which is consistent with the broader market practice of using more than one type of award to provide appropriate long-term incentives. In determining the proper mix between stock options and shares of restricted stock, the Committee exercises judgment and discretion in light of its general compensation philosophy and policies with a view toward creating motivational incentives which are appropriate for each officer in light of the specific components of that officer’s total compensation package. Note that, unlike many other publicly held companies, the Company has not in the past issued incentive awards on a recurring annual basis. Instead, the Company has made only a single grant of stock options and shares of restricted stock to each of its senior officers. Although this has been the Company’s practice in the past, the Committee could change this policy in the future.

 

We currently award all options and restricted stock pursuant to the 2004 Stock Incentive Plan. Awards of restricted stock and stock options are approved by the Compensation Committee at its regularly scheduled meeting in February each year, which is contemporaneous with the release of the Company’s annual earnings. Except in unusual circumstances, the Company does not generally grant stock options to its executive officers at other times.

 

The number of shares underlying an option granted to each named executive officer, the fair value of each such option on the date of grant (determined in accordance with SFAS 123R) and the exercise price per share of each such option is set forth in the Grants of Plan Based Awards Table, which appears below following this Compensation Discussion and Analysis. Also reported in this Table is the number of shares of restricted stock granted to each named executive officer. There were no grants of options or restricted stock during 2008 to the named executive officers. Information concerning the number of shares of restricted stock and stock options that vested in 2008 and concerning the number of options and unvested restricted shares held by each named executive officer as of December 31, 2008 is set forth in the Option Exercises and Stock Vested Table and in the Outstanding Equity Awards at Fiscal Year-End Table, respectively, which appear below following this Compensation Discussion and Analysis.

Retirement Plans and Other Benefits

 

All Mercer employees who have completed at least six months of service, who are at least 21 years of age and who work at least 1,000 hours per year are entitled to participate in the Mercer Insurance Retirement Savings Plan, which we refer to as the “MIRSP.” Under the terms of the MIRSP, a participating employee may elect to have up to 100% of their earnings contributed to the MIRSP’s related trust under its 401(k) feature. Mercer matches the employee’s contributions at the rate of 1 / 3 of the first 6% of each employee’s pre-tax contribution and also contributes an amount equal to 2% of each employee’s annual compensation. Deferral amounts in excess of the qualified plan limitations, as well as Company contributions on such compensation, are funded into a nonqualified plan, as discussed below. In addition, the Company may make a discretionary contribution for each year, based on Company profitability, to both the qualified 401(k) plan and, where applicable, to the nonqualified plan. All Company contributions vest 30%, 60% and 100% after one, two and three years of service, respectively. Contributions made by the Company under the MIRSP in 2008 on behalf of each named executive officer are reported in the Summary Compensation Table which appears below following this Compensation Discussion and Analysis.

 

In addition to the MIRSP, the named executive officers are eligible to participate in the Executive Nonqualified Excess Plan and in the nonqualified 401(k) Mirror Plan, each of which is a nonqualified deferred compensation plan and is described in the narrative that accompanies the Nonqualified Deferred Compensation Table which appears below following this Compensation Discussion and Analysis. Contributions made by the Company under these Plans in 2008 on behalf of the named executive officers are reported in the Summary Compensation Table which appears below following this Compensation Discussion and Analysis.

 

Mercer also maintains an Employee Stock Ownership Plan, which we refer to as the “ESOP,” which is described under the heading “Tax Qualified Retirement Plan and ESOP” that appears below following this Compensation Discussion and Analysis. Shares of Mercer Common Stock which were allocated to the accounts of the named executive officers in 2008 under the ESOP are reported in the Summary Compensation Table.

 

2009 Compensation of Named Executive Officers

 

The Compensation Committee met in February of 2009 and affirmed its decision to freeze the salaries of the named executive officers effective January 1, 2009.

 

The Compensation Committee also addressed stock option and restricted stock awards at its February, 2009 meeting and determined that no grants of stock options or restricted stock would be authorized at that time.

 

Internal Pay Equity

 

We believe that internal pay equity is an important factor to be considered in establishing compensation for executive officers. We have not established a formal policy regarding the ratio of total compensation of the Chief Executive Officer to that of the other senior officers, but we review compensation levels to ensure that appropriate equity exists. The Compensation Committee intends to continue to review internal compensation equity and may adopt a formal policy in the future if the Committee deems such policy appropriate.

 

The Tax Deductibility of Compensation Should Be Maximized Where Appropriate

 

We generally seek to maximize deductibility for tax purposes of all elements of compensation. The Compensation Committee reviews compensation plans in light of applicable tax provisions including Section 162(m) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”) and may revise compensation plans from time to time to maximize deductibility. The Committee may, however, approve compensation that does not qualify for deductibility when the committee deems it to be in our best interest. Note that, in 2008, none of our named executive officers received annual compensation (as defined in Section 162(m) of the Code) in excess of $1,000,000.

Restatement of Financial Statements

 

The Compensation Committee is of the view that, to the extent permitted by law, it has authority to retroactively adjust any cash or equity-based incentive award paid to any senior officer (including any named executive officer) where the award was based upon Mercer’s achievement of specified financial goals and it is subsequently determined following a restatement of Mercer’s financial statements that the specified goals were not in fact achieved.

 

Executive Stock Ownership Requirements

 

In accordance with a policy adopted by the Board of Directors, each executive officer of the Company is required to own a minimum of 1,000 shares of Mercer Common Stock, allowing a reasonable time after joining the Company for each executive officer to achieve such a level of shareholdings.

 

COMPENSATION COMMITTEE REPORT

 

We have reviewed and discussed with management the Compensation Discussion and Analysis set forth above in this proxy statement. Based upon our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in our Annual Report on Form 10-K for the year ended December 31, 2008.

 

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including this proxy statement, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.

 

Submitted by:

 

THE COMPENSATION COMMITTEE
William C. Hart (Chairman)
Roland D. Boehm
George T. Hornyak, Jr.
Richard G. Van Noy

 

Compensation Tables and Additional Compensation Disclosure

 

Total Compensation

 

The following table provides certain summary information concerning total compensation paid or accrued by Mercer to Andrew R. Speaker, Mercer’s President and Chief Executive Officer, to David B. Merclean, Mercer’s Senior Vice President of Finance and Chief Financial Officer, and to the Company’s other two executive officers. The Company has entered into an employment agreement with each of Messrs. Speaker, Ehrhardt, Merclean and Corkery, which employment agreements are described under the heading “Description of Employment Agreements and Potential Post-Employment Payments” which appears below.

 

SUMMARY COMPENSATION TABLE

 

 

 

Footnotes

 

 

 

Plan-Based Compensation

 

The 2004 Stock Incentive Plan provides for the grant of awards in the form of incentive stock options, nonqualified stock options, restricted stock or any combination thereof to Company employees and to non-employee directors. The Plan as adopted authorized the issuance of 876,555 shares of Mercer common stock, subject to an annual increase equal to 1% of the number of shares of Mercer Common Stock outstanding at the end of each calendar year. As of December 31, 2008, 1,141,565 shares (before reduction for grants) of Mercer Common Stock were authorized to be issued under the Plan. The Plan provides that stock options and restricted stock awards may include vesting restrictions and performance criteria at the discretion of the Compensation Committee of the Board of Directors. The term of options may not exceed ten years for incentive stock options and ten years and one month for nonqualified stock options and the option exercise price may not be less than fair market value on the date of grant. All grants employ graded vesting over vesting periods of 3 or 5 years for restricted stock, incentive stock options and nonqualified stock options, and are subject only to such service conditions. During 2008, the Company made no grants of restricted stock, incentive stock options or non-qualified stock options. There were 2,500 stock options and 1,000 shares of restricted stock forfeited in 2008.

Outstanding Stock Option and Other Equity Awards at Fiscal Year End

 

The following table provides certain information with respect to the executive officers named in the Summary Compensation Table appearing above concerning stock options and other equity awards which were outstanding on December 31, 2008.

 

OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR END

 

 

 

Footnotes:

 

 

Stock Option Exercises and Vesting of Restricted Stock

 

The following table provides certain information with respect to the executive officers named in the Summary Compensation Table appearing above concerning the exercise of stock options and the vesting of restricted stock during calendar year 2008.

 

OPTION EXERCISES AND STOCK VESTED IN 2008

 

 

 

Footnotes

 

 

Tax Qualified Retirement Plan and ESOP

 

All Mercer employees who have completed at least six months of service, who are at least 21 years of age and who work at least 1,000 hours per year are entitled to participate in the Mercer Insurance Retirement Savings Plan, which we refer to as the “MIRSP”. Under the terms of the MIRSP, a participating employee may elect to have up to 100% of his earnings contributed to the Plan’s related trust under its 401(k) feature. The Company matches at a rate of one third of each employee’s pre-tax contribution (up to 6% of compensation) and also contributes an amount equal to 2% of each employee’s annual compensation. Deferral amounts in excess of the qualified plan limitations, as well as Company contributions on such compensation, are allocated to a nonqualified plan. (See the narrative which accompanies the Nonqualified Deferred Compensation Table which appears below.) In addition, the Company generally makes a discretionary contribution to the MIRSP each year based upon Company profitability and, where applicable, to the nonqualified plans. All Company contributions vest 30%, 60% and 100% after one, two and three years of service, respectively. Amounts in the plan, together with accumulated earnings, are distributed, in accordance with the requirements of the Internal Revenue Code, at the discretion of the participant upon retirement as a lump sum or in installments, or on occasion of death or justifiable hardship. Balances in the MIRSP are invested in investment vehicles chosen by the participants from a selection of investment choices that are unrelated to the Company in any way. Company contributions under the MIRSP for the account of each named executive officer are reported in the “All Other Compensation” column in the Summary Compensation Table which appears above.

 

The Company also maintains an Employee Stock Ownership Plan (which we refer to as the “ESOP”) for the benefit of its employees. The ESOP purchased 626,111 shares of Mercer common stock in 2003 with the intention of allocating these shares to its employees over a period of ten years. The Company allocates shares of Mercer stock to eligible participants based upon the ratio of each participating employee’s compensation as a percentage of all participating employee compensation. Compensation used for the Company’s executives in this calculation is limited to the limitation imposed by the Code, which in 2008 was $230,000. All assets of the ESOP are held in trust by the plan. To be eligible to participate in the ESOP, an employee must have completed one year of service, be at least 21 years of age and work at least 1,000 regularly scheduled hours annually. Regular vesting of ESOP shares occurs after five years of service.

Deferred Compensation

 

The following table provides certain information with respect to the executive officers named in the Summary Compensation Table appearing above concerning defined contribution plans that provide for the deferral of compensation on a basis that is not tax qualified at and for the calendar year ended December 31, 2008.

 

NONQUALIFIED DEFERRED COMPENSATION IN 2008

 

 

 

Footnotes:

 

 

The Company does not maintain a defined benefit retirement plan for its officers.

 

In addition to the tax-qualified MIRSP (discussed above) that we maintain for the benefit of all eligible employees, our senior officers (including the named executive officers) are eligible to participate in the Executive Nonqualified Excess Plan and in the nonqualified 401(k) Mirror Plan. The Executive Nonqualified Excess Plan allows a participant to defer receipt of all or a portion of his salary, in addition to amounts deferred under the MIRSP. Amounts contributed to the 401(k) Mirror Plan are matched by the Company in the same amount and subject to the same vesting schedules as are deferrals to the MIRSP. To the extent that a named executive’s compensation exceeds the annual limitation under the Code discussed above ($230,000 in 2008), the Company contributes for his benefit an amount equal to the additional amount which would have been contributed to the MIRSP in the absence of this ERISA limitation. Amounts in the plan, together with accumulated earnings, are distributed at the discretion of the participant as a lump sum or in installments over a period of not more than ten years. The 401(k) Mirror Plan is a plan that Mercer contributes to on behalf of executive officers to permit deferrals and Company contributions that are in excess of the limitations under the Code. The Company contributions made to these nonqualified deferred compensation plans for the benefit of each named executive officer are reported in the “All Other Compensation” column in the Summary Compensation Table which appears above. Balances in both nonqualified plans are invested in investment vehicles chosen by the participants from a selection of investment choices that are unrelated to the Company in any way.

 

Description of Employment Agreements and Potential Post-Employment Payments

 

Andrew R. Speaker, Paul D. Ehrhardt, David B. Merclean and Paul R. Corkery are each parties to an employment agreement with the Company and BICUS. These employment agreements (individually, an “Agreement” and collectively, the “Agreements”) are substantially identical, except as noted in the discussion which follows. The current term of each Agreement is three years. Each of these Agreements provides for serial one-year extensions, effective on March 31 of each year, so as to maintain a constant term equal to three years, unless the Company or the officer involved gives prior notice of nonrenewal.

The Agreements, as in effect on the date hereof, provide for minimum annual base salaries, as follows: Mr. Speaker — $375,000; Mr. Ehrhardt — $290,000; Mr. Merclean — $250,000; and Mr. Corkery — $220,000. In addition, each executive is entitled to participate in any incentive compensation and employee benefit plans which are maintained by the Company.

 

At its December 2008 meeting, the Committee discussed the appropriateness of an amendment to the Employment Agreements with Mr. Speaker, Mr. Ehrhardt, Mr. Merclean and Mr. Corkery pertaining to any potential business combinations. The Committee determined that it was appropriate to amend the Employment Agreements to allow for the automatic extension of such agreements in the event the Company had entered into a definitive agreement with another party but had not completed the contemplated transaction by the time a notice of extension of the agreement was required.

 

Under each Agreement, in the event that the executive’s employment is terminated by the Company for cause (as defined in the Agreement) or in the event that the executive terminates his employment without good reason (as defined in the Agreement), the executive will be entitled to receive his accrued but unpaid base salary and an amount for all accumulated but unused vacation time earned through the date of termination. In addition, if such termination occurs prior to the occurrence of a change in control (as defined in the Agreement), the executive is subject to a noncompetition and a non-solicitation covenant for a period of one year following the date of termination.

 

In the event that the executive’s employment is terminated by the Company without disability or cause, the executive will be entitled to receive for the remaining term of his Agreement an annual amount at a rate equal to the greater of:

 

 

The frequency and amount of such payments will be in accordance with the Company’s executive payroll practices as from time to time in effect.

 

In addition, the executive will be entitled to receive annually for the remaining term of his Agreement:

 

 

In addition, each executive shall be entitled to additional payments equal to the amount of their highest annual bonus compensation during either of the past two calendar years and their highest annual defined contribution plan annual contribution during either of the past two calendar years, each such amount to be prorated by a fraction, the numerator of which is the number of whole months elapsed during the year in which termination occurs and the denominator is 12.

 

Each executive also will be entitled to certain retirement, health, and welfare benefits.

 

In the event that the executive terminates his employment for good reason, (as defined in the Agreement), the executive will be entitled to receive the same amounts and benefits he would receive if he had been terminated by the Company without disability or cause. In the event that the executive’s employment is terminated without disability or cause or in the event that the executive terminates his employment for good reason, the executive has the continuing right to demand that the present value of the remaining payments owing to him be paid to him in a single lump sum after he gives to the Company written demand for such payment.

In the event that the executive’s employment is terminated by the Company by reason of the executive’s disability, the executive will be entitled to receive for a period of one year an annual amount at a rate equal to the greater of:

 

 

The frequency and amount of such payments will be in accordance with the Company’s executive payroll practices as from time to time in effect.

 

In addition, the executive will be entitled to receive on the first anniversary of the date of termination:

 

 

Each executive also will be entitled to certain retirement, health, and welfare benefits.

 

In the event of the executive’s death during the term of his employment, the executive’s spouse (or his estate, if his spouse does not survive him) will be entitled to receive for a period of one year an annual amount equal to the greater of:

 

 

The frequency and amount of such payments will be in accordance with the Company’s executive payroll practices as from time to time in effect.

 

In addition, the executive’s spouse (or his estate, if his spouse does not survive him) will be entitled to receive within 30 days following the executive’s death:

 

 

The executive’s surviving spouse also will be entitled to certain retirement, health, and welfare benefits.

 

A “change in control” is defined in the Agreement to include the following: (i) the acquisition by an unrelated third party of 19.9% or more of the Company’s outstanding voting securities, (ii) the sale, exchange, transfer or other disposition of substantially all of the assets of the Company, (iii) the occurrence of a merger, consolidation or other reorganization of the Company, unless the shareholders of the Company immediately prior to the reorganization own immediately after the reorganization at least two-thirds of the voting securities of the surviving entity, there is no change in control of the Board of Directors of the surviving entity, and no unrelated third party owns 19.9% or more of the outstanding voting securities of the surviving entity, (iv) a plan of liquidation or dissolution is adopted by the Company, and (v) the election or appointment during any two year of a majority of the members of the Company’s Board of Directors under circumstances where the nomination or appointment of such members were not approved by a majority of the directors in office at the beginning of such period. The concept of the termination of the Agreement by the executive for good reason generally encompasses acts by the Company which are inconsistent with the terms or spirit of the Agreement, but is more expansively defined following the occurrence

of a change in control; among other things, the executive is deemed to have good reason to terminate following a change in control if he terminates his employment for any reason at any time prior to the first anniversary of the change in control.

 

In the event that the executive is required to pay an excise tax as a result of any compensation and benefits received under his Agreement in connection with a change in control, the Company will pay the executive an additional amount, such that the net amount retained by him, after the payment of such excise taxes (and any additional income tax resulting from such payment), equals the amount he would have received but for the imposition of such excise tax.

 

Additional information concerning the severance benefits payable to Messrs. Speaker, Ehrhardt, Merclean and Corkery upon termination of employment under various circumstances is set forth in the Potential Post-Employment Payment Table which appears below.

 

Other Potential Post-Employment Payments

 

The potential post-employment payments due to each of our named executive officers under various circumstances, assuming that employment was terminated on December 31, 2008, are set forth in the following table:

 

POTENTIAL POST-EMPLOYMENT PAYMENTS

 

Actual amounts that we will pay out and the assumptions used in arriving at such amounts can only be determined at the time of such executive’s termination or change in control and are likely to differ materially from the amounts set forth below.

 

 

 

 

 

Equity Compensation Plan Information

 

The following table provides certain information regarding securities issued or issuable under our equity compensation plans as of December 31, 2008.

 

EQUITY COMPENSATION PLAN TABLE

 

 

Transactions with Related Parties

 

In accordance with the terms of Mercer’s Code of Conduct and Ethics and Audit Committee Charter, (a copies of which is posted on Mercer’s website at www.mercerins.com), any transaction involving Mercer or any direct or indirect subsidiary of Mercer and an executive officer or a director (or a company or other entity in which he or she has, directly or indirectly, a financial interest) must be submitted for review and approval by the Audit Committee and/or the entire Board of Directors. It is Mercer’s policy to carefully review any such proposed transaction and to grant a waiver of Mercer’s policy prohibiting transactions and relationships that may involve a conflict of interest only if the proposed transaction can be structured in such a way as to eliminate both any potential financial disadvantage to Mercer and any appearance of impropriety. The following transactions have been reviewed and approved by the Audit Committee and/or the entire Board of Directors in accordance with the foregoing.

 

H. Thomas Davis, Jr., a director and former executive officer of the Company who retired in September 30, 2006, is the owner of Davis Insurance Agency. The Davis Insurance Agency is Mercer’s second largest producer, accounting for approximately 4% of our direct premiums written during the year ended December 31, 2008. For that year, Mercer paid the Davis Insurance Agency $1.1 million in commissions and profit sharing amounts.

 

Van Rensselaer, Ltd., which is owned by William V. R. Fogler, a director, has provided investment management services to Mercer Insurance since the year 1980. Fees to Van Rensselaer, Ltd. amounted to $124,000 in 2008.

 

Compensation Committee Interlocks and Insider Participation

 

The members of the Compensation Committee of our Board of Directors are currently Messrs. Hart (Chairman), Boehm, Hornyak and Van Noy. No member of the Compensation Committee is an employee of Mercer or any Mercer subsidiary and no member of the Compensation Committee had any relationship requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended. None of our executive officers serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or Compensation Committee.

 

MATTER NO. 2

 

RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

KPMG LLP has audited Mercer’s financial statements for the fiscal year ended December 31, 2008 and the reports on such financial statements and the effectiveness of internal control over financial reporting as of December 31, 2008 appear in the Annual Report to Shareholders. KPMG LLP has been selected by the Audit Committee to perform an examination of the consolidated financial statements of Mercer for the year ending December 31, 2009 and the effectiveness of internal control over financial reporting as of December 31, 2009, such appointment to continue at the pleasure of the Audit Committee and to be presented to the shareholders for ratification.

 

The affirmative vote of a majority of the votes cast at the Annual Meeting, assuming a quorum is present, is required to ratify the Audit Committee’s appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009. Abstentions and broker non-votes, although counted for the purpose of determining whether a quorum is present at the Meeting, will not constitute or be counted as “votes” cast so they will have no effect on the approval of this matter.

 

Representatives of KPMG LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

 

The Board of Directors unanimously recommends a vote FOR the ratification of KPMG LLP as the Company’s independent registered public accounting firm.

 

Fees of Independent Registered Public Accounting Firm

 

The following table sets forth the aggregate fees billed to the Company for the fiscal years ended December 31, 2008 and 2007, by KPMG LLP.

 

 

 

Audit fees included the audit of the Company’s annual financial statements and an audit of internal control over financial reporting, reviews of the Company’s quarterly financial statements, statutory audits, consents, and other services related to Securities and Exchange Commission matters.

 

All other fees include services provided in connection with statutory actuarial reviews.

 

The fees shown above do not include out-of-pocket expenses incurred in the performance of the services described above, which are reimbursed by the Company.

 

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Registered Public Accounting Firm

 

The Audit Committee pre-approves all audit and legally permissible non-audit services provided by the independent registered accounting firm in accordance with the pre-approval policies and procedures adopted by the Audit Committee at its May 7, 2003 meeting and affirmed at its January 15, 2009 meeting. These services may include audit services, audit-related services, tax services and other services. Under the policy, pre-approved services include pre-approval of legally permissible non-audit services for a limited dollar amount. The Audit Committee may delegate pre-approval authority to one or more of its members. Such member must report any decisions to the Audit Committee at the next scheduled meeting. All services performed by KPMG in 2008 were pre-approved in accordance with the pre-approval policy.

 

CORPORATE GOVERNANCE DOCUMENTS

 

A copy of the Company’s Corporate Governance Guideline, the Company’s Code of Conduct and Ethics, the Company’s Code of Ethics for Executive Officers and the charters of the Company’s Audit Committee, Compensation Committee, and Nominating/Governance Committee are available on the Company’s website under Investor Relations at www.mercerins.com and any shareholder may obtain a printed copy of these documents by writing to Investor Relations, Mercer Insurance Group, Inc., P.O. Box 278, Pennington, New Jersey 08534, by e-mail to investorrelations@mercerins.com or by calling Investor Relations at (800) 223-0534.

 

FINANCIAL INFORMATION