UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a‑12
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SAFETY INSURANCE GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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SAFETY INSURANCE GROUP, INC.
20 Custom House Street, Boston, Massachusetts 02110
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April 9, 2019
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To Our Shareholders:
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I am pleased to invite you to attend the 2019 Annual Meeting of Shareholders of Safety Insurance Group, Inc., which will be held at 10:00 a.m. on Wednesday, May 22, 2019, at our headquarters, 20 Custom House Street, Boston, Massachusetts 02110.
The accompanying Notice of the Annual Meeting of Shareholders and Proxy Statement describe in detail the matters to be acted on at this year’s Annual Meeting.
If you plan to attend the meeting, please bring a form of personal identification with you and, if you are acting as proxy for another shareholder, please bring written confirmation from the shareholder for whom you are acting as proxy.
Whether or not you expect to attend the meeting, please sign and return the enclosed Proxy Card in the envelope provided. Your cooperation will assure that your shares are voted and will also greatly assist our officers in preparing for the meeting. If you attend the meeting, you may withdraw any proxy previously given and vote your shares in person if you so desire.
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Sincerely,
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George M. Murphy
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President and Chief Executive Officer
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SAFETY INSURANCE GROUP, INC.
20 Custom House Street, Boston, Massachusetts 02110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 2019
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April 9, 2019
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To Our Shareholders:
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The 2019 Annual Meeting of Shareholders of Safety Insurance Group, Inc. (the “Company”) will be held on Wednesday, May 22, 2019 at 10:00 a.m., local time, at our headquarters, 20 Custom House Street, Boston, Massachusetts 02110. At this meeting, you will be asked to consider and vote upon the following:
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a proposal to elect two of the Company’s directors to Class II with a term ending 2022;
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to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019;
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to provide an advisory vote on the compensation of the named executive officers as disclosed in this Proxy Statement;
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to consider and act upon a shareholder proposal requesting that the Company adopt a majority voting standard in uncontested director elections; and
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the transaction of such other business as may properly come before the meeting or any adjournment or adjournments thereof.
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The Board of Directors has fixed April 1, 2019 as the Record Date for determining the shareholders of the Company entitled to notice of and to vote at the 2019 Annual Meeting and any adjournment thereof. The Company’s 2018 Annual Report to Shareholders is enclosed with the mailing of this Notice of Annual Meeting of Shareholders, Proxy Statement and Proxy Card.
We urge you to attend and to participate at the meeting, no matter how many shares you own. Even if you do not expect to attend the meeting personally, we urge you to please vote, and then sign, date and return the enclosed Proxy Card in the postpaid envelope provided.
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By Order of the Board of Directors,
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WILLIAM J. BEGLEY, JR.
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Vice President, Chief Financial Officer and Secretary
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Important Notice Regarding the Availability of Proxy Materials for
Our Annual Meeting of Shareholders to Be Held on May 22, 2019
The accompanying Proxy Statement and our 2018 Annual Report to Our Shareholders are available for viewing, printing and downloading at
www.proxyvote.com
and
http://materials.proxyvote.com/78648T.
SAFETY INSURANCE GROUP, INC.
20 Custom House Street, Boston, Massachusetts 02110
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 2019
GENERAL INFORMATION
This Proxy Statement is being furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the “Board”) of Safety Insurance Group, Inc. (the “Company” or "Safety") for the 2019 Annual Meeting of Shareholders to be held on May 22, 2019 at 10:00 a.m. at the Company’s headquarters located at 20 Custom House Street, Boston, Massachusetts 02110 (the “2019 Annual Meeting”).
The record date for determining shareholders entitled to vote at the 2019 Annual Meeting has been fixed at the close of business on April 1, 2019 (the “Record Date”). As of the Record Date, 15,383,794 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), were outstanding and entitled to be voted. Every shareholder will be entitled to one vote for each share of Common Stock recorded in his or her name on the Company’s books as of the Record Date. The Company mailed this Proxy Statement and the related form of proxy (the “Proxy”) on or about April 9, 2019.
With respect to Proposal 1, Election of the Company’s Directors, the shares of Common Stock represented by the enclosed Proxy will be voted as directed by the shareholder or, in the absence of such direction, in favor of the election of the nominees for director designated herein. So long as a quorum (a majority of issued and outstanding shares of Common Stock entitled to vote at the 2019 Annual Meeting) is present at the 2019 Annual Meeting either in person or by proxy, a plurality of the votes properly cast is required to elect each director. Votes withheld from a director nominee, abstentions and broker non-votes (when a registered broker holding a customer’s shares in the name of the broker has not received voting instructions on a matter from the customer and is barred from exercising discretionary authority to vote on the matter, which the broker indicates on the Proxy Card) will be treated as present at the 2019 Annual Meeting for the purpose of determining a quorum but will not be counted as votes cast.
Please note that Brokers may not vote your shares on Proposals 1, 3 or 4 without your specific instructions. Please be sure to give specific voting instructions to your broker, so that your vote can be counted.
With respect to Proposal 2, Ratification of Appointment of Independent Registered Public Accounting Firm, an affirmative vote of a majority of the shares present or represented and entitled to vote on such proposal is required for approval. Abstentions are included in the number of shares
present or represented and entitled to vote on the proposal and therefore have the practical effect of a vote against the proposal.
With respect to Proposal 3, Advisory Vote on Executive Compensation, an affirmative vote of a majority of the shares present or represented and entitled to vote on such proposal is required for approval (on a non-binding, advisory basis). Abstentions are included in the number of shares present or represented and entitled to vote on the proposal and therefore have the practical effect of a vote against the proposal. Your vote is advisory and will not be binding upon the Company, the Board of Directors, or the Compensation Committee. However, the Board of Directors and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
With respect to Proposal 4, Shareholder Proposal, an affirmative vote of a majority of the shares present or represented and entitled to vote on such proposal is required for approval. Abstentions are included in the number of shares present or represented and entitled to vote on the proposal and therefore have the practical effect of a vote against the proposal.
The enclosed Proxy confers discretionary authority with respect to any other proposals that may properly be brought before the 2019 Annual Meeting. As of the date hereof, management is not aware of any other matters to be presented for action at the 2019 Annual Meeting. If any other matters properly come before the 2019 Annual Meeting, however, the Proxies solicited hereby will be voted in accordance with the recommendation of the Board.
Any shareholder giving a Proxy may revoke it at any time before it is exercised by delivering written notice thereof to the Secretary. Any shareholder attending the 2019 Annual Meeting may vote in person whether or not the shareholder has previously filed a Proxy. Presence at the 2019Annual Meeting by a shareholder who has signed a Proxy, however, does not in itself revoke the Proxy. The enclosed Proxy is being solicited by the Board. The cost of soliciting Proxies will be borne by the Company, and will consist primarily of preparing and mailing the Proxies and Proxy Statements. The Company will also request persons, firms and corporations holding shares of Common Stock in their names, or in the names of their nominees, which shares are beneficially owned by others, to send this Proxy material to and obtain Proxies from such beneficial owners and will reimburse such holders for their reasonable expenses in so doing.
The Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2018, including financial statements and the report of the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, thereon, accompanies this Proxy Statement. The Annual Report to Shareholders is neither a part of this Proxy Statement nor incorporated herein by reference.
PROPOSAL 1
ELECTION OF THE COMPANY’S DIRECTORS
The Board consists of six members and three classes. Each class serves three years, with terms of office of the respective classes expiring in successive years.
Each of the two Directors, whose term expires at this year’s 2019 Annual Meeting, Frederic H. Lindeberg and George M. Murphy have been nominated for re-election to a three-year term ending at the 2022 Annual Meeting of Shareholders and until a successor, if any, is elected and duly qualified. The remaining four directors will continue to serve in accordance with their terms. THE BOARD RECOMMENDS VOTING
FOR
PROPOSAL 1 WHICH CALLS FOR THE ELECTION OF THE 2019 NOMINEES.
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Name
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Age **
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Director Since
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Class II - Term ending in 2022*
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Frederic H. Lindeberg (1)(2)(3C)
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78
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2004
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George M. Murphy (4)
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52
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2016
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Class I - Term ending in 2021
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Peter J. Manning (1C)(2)(3)
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80
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2003
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David K. McKown (1)(2C)(3)
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81
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2002
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Class III - Term ending in 2020
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David F. Brussard, Chairman of the Board (4C)
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67
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2001
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Thalia M. Meehan (4)
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57
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2017
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*
Nominated at the 2019 Annual Meeting to a term ending in 2022
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As of April 1, 2019.
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Member of the Audit Committee.
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Member of the Compensation Committee.
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Member of the Nominating and Governance Committee.
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Member of the Investment Committee.
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(C)
Chairman of the Committee referenced.
The following information with respect to the principal occupation, business experience, recent business activities involving the Company and other affiliations of the nominees and directors has been furnished to the Company by the nominees and directors.
Nominees for Director
Frederic H. Lindeberg
has served as a director of the Company since August 2004. Mr. Lindeberg has had a consulting practice providing taxation, management and investment counsel since 1991, focusing on finance, real estate, manufacturing and retail industries. Mr. Lindeberg retired in 1991 as Partner-In-Charge of various KPMG tax offices, after 24 years of service where he provided both accounting and tax counsel to various clients. Mr. Lindeberg is an attorney and certified public accountant. Mr. Lindeberg was formerly an adjunct professor at Penn State Graduate School of Business. Mr. Lindeberg was formerly a director of Provident Senior Living Trust and TAL International Group, Inc. We believe that Mr. Lindeberg’s particular
knowledge and experience in a variety of areas, including financial, regulatory, corporate governance and other matters affecting public companies, qualify him to serve on our Board and as Chairman of the Nominating and Governance Committee.
George M. Murphy, CPCU,
was appointed President and Chief Executive Officer of the Company effective April 1, 2016. He previously was the Vice President of Marketing since October 1, 2005. Mr. Murphy was appointed to the Board of Directors and to the Investment Committee in February 2016. Mr. Murphy has been employed by the Insurance Subsidiaries for over 30 years. Mr. Murphy is also on the Board of Trustees of the Insurance Library Association of Boston. Mr. Murphy’s leadership roles in the Company and our insurance subsidiaries which includes developing strong personal relationships with Safety’s network of independent agents along with his understanding of finance, regulation, corporate governance and other matters affecting public companies, well qualify him to serve on our Board of Directors.
Directors Continuing in Office
David F. Brussard
served as President and Chief Executive Officer ("CEO") of the Company from June 2001 until his retirement on March 31, 2016. Mr. Brussard continues to serve the Company as Non-Executive Chairman of the Board. From January 1999 to March 31, 2016, Mr. Brussard served as the CEO and President of the Insurance Subsidiaries. Previously, Mr. Brussard served as Executive Vice President of the Insurance Subsidiaries from 1985 to 1999 and as Chief Financial Officer and Treasurer of the Insurance Subsidiaries from 1979 to 1999. Mr. Brussard was appointed Chairman of the Board in March 2004 and has served as a Director of the Company since October 2001. Mr. Brussard was also appointed Chairman of the Investment Committee on February 22, 2017. Based upon Mr. Brussard’s significant experience with the insurance industry and his leadership roles in the Company and our insurance subsidiaries since inception, as well as his understanding of the financial, regulatory, corporate governance and other matters affecting public companies, we believe that Mr. Brussard is well qualified to serve as Chairman of our Board.
Peter J. Manning
has served as a director of the Company since September 2003. Mr. Manning retired in 2003, as Vice Chairman Strategic Business Development of FleetBoston Financial, after 32 years with FleetBoston Financial Corporation (formerly BankBoston) where he also held the positions of Comptroller and Executive Vice President and Chief Financial Officer. Mr. Manning started his career with Coopers & Lybrand in 1962 prior to his 1972 employment with BankBoston. He currently is a director of the Blue Hills Bank and is a former director of Thermo Fisher Scientific and the Lahey Clinic. Mr. Manning qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and Exchange Committee rules. We believe that Mr. Manning’s many years of experience in finance and accounting in the banking industry provide him with the necessary qualifications to be a director of the Company and Chairman of our Audit Committee.
David K. McKown
has served as director of the Company since November 2002. Mr. McKown has been a Senior Advisor to Eaton Vance Management since 2000, focusing on business origination in real estate and asset-based loans. Mr. McKown retired in March 2000 having served as a Group Executive with BankBoston since 1993, where he focused on acquisitions and high-yield bank debt financings. Mr. McKown has been in the banking industry for 53 years, worked
for BankBoston for over 32 years and had previously been the head of BankBoston’s real estate department, corporate finance department, and a managing director of BankBoston’s private equity unit. Mr. McKown is currently a director of Global Partners L.P. and various privately held companies. Mr. McKown is also a former director of Newcastle Investment Corp. We believe that Mr. McKown’s extensive accounting, financial structuring, legal, and negotiation skills acquired during his many years in the banking industry provide him with the necessary skills to be a director of the Company and Chairman of our Compensation Committee.
Thalia M. Meehan
was appointed Director of the Company on July 3, 2017. Ms. Meehan has also been appointed to serve as a member of the Investment Committee of the Board. Ms. Meehan, a Chartered Financial Analyst, has over 30 years of experience in the investment sector. Ms. Meehan retired from Putnam Investments in 2016 with 27 years of experience and most recently served as a Team Leader and Portfolio Manager at Putnam Investments. Ms. Meehan currently serves on the Board of the Boston Women in Public Finance and was previously a member of the Municipal Securities Rulemaking Board Investor Advisory Group. Ms. Meehan’s leadership skills and vast experience in the investment sector enable her to provide valuable insight and advice regarding investment decisions and other matter of import to the Company, which we believe well qualify her to serve on our Board.
Certain Information Regarding the Board of Directors
Meetings of the Board of Directors
During 2018, the following meetings of the Board were held: five meetings of the Board, four meetings of the Audit Committee, two meetings of the Compensation Committee, two meetings of the Nominating and Governance Committee and four meetings of the Investment Committee. All of the incumbent Directors attended at least 75% of the Board and committee meetings held while they were members during 2018. At each quarterly meeting of the Board, the outside directors hold an executive session without management present.
Board Leadership Structure
The positions of Chairman of the Board and Chief Executive Officer are held by Mr. David F. Brussard and Mr. George M. Murphy, respectively. As the Chairman of the Board, Mr. Brussard provides leadership to the Board and works with the Board to define its structure and activities in the fulfillment of its responsibilities. Effective April 1, 2019, Mr. Brussard is considered independent under National Association of Securities Dealers, Inc. (“NASDAQ”) rules. As Chief Executive Officer, Mr. Murphy has general charge, supervision, and control of the business and affairs of the Company, and is responsible generally for assuring that policy decisions of the Board are implemented as adopted.
We believe this Board leadership structure is appropriate for the Company, in that the Chairman of the Board and Chief Executive Officer provide strong leadership and direction for management to execute the Company’s strategy and business plan while contributing to a more efficient and effective Board.
Risk Oversight
The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s strategic, financial and operational risks. The Company’s Compensation Committee oversees the management of risks relating to the Company’s compensation policies and practices. The Audit Committee oversees the management of risks associated with accounting, auditing, financial reporting and internal controls over financial reporting. The Audit Committee is responsible for reviewing and discussing the guidelines and policies governing the process by which senior management and the internal auditing department assess and manage the Company’s exposure to risk, as well as the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. The Nominating and Corporate Governance Committee oversees risks associated with the independence of the Board of Directors. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks.
Independent Directors
The Board has determined that David F. Brussard (effective April 1, 2019), Frederic H. Lindeberg, Peter J. Manning, David K. McKown and Thalia M. Meehan are “independent directors” as determined pursuant to the Marketplace Rules promulgated by NASDAQ and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Board Committees
The Audit Committee is comprised of Peter J. Manning (Chairman), Frederic H. Lindeberg, and David K. McKown (the “Audit Committee”). The Board has determined that Peter J. Manning is an “Audit Committee Financial Expert” as established by the rules and regulations of the SEC. The Audit Committee meets at least quarterly and at each quarterly meeting meets with the independent auditors in an executive session without management present. For information regarding the functions performed by the Audit Committee, please refer to the
Report of the Audit Committee
included in this Proxy Statement, as well as the Charter of the Audit Committee, attached hereto in Appendix A to this Proxy Statement.
The Compensation Committee is comprised of David K. McKown (Chairman), Frederic H. Lindeberg, and Peter J. Manning (the “Compensation Committee”). For information regarding the functions performed by the Compensation Committee, please refer to the
Compensation Discussion and Analysis
and the
Compensation Committee Report
included in this Proxy Statement, as well as the Charter of the Compensation Committee, attached hereto in Appendix B to this Proxy Statement.
The Nominating and Governance Committee is comprised of Frederic H. Lindeberg (Chairman), Peter J. Manning, and David K. McKown (the “Nominating and Governance Committee”). For information regarding the functions performed by the Nominating and Governance Committee, please refer to the Charter of the Nominating and Governance Committee, attached hereto in Appendix C to this Proxy Statement.
The Investment Committee is comprised of David F. Brussard (Chairman), Thalia M. Meehan, George M. Murphy and William J. Begley, Jr., the Company’s Chief Financial Officer (the “Investment Committee”). The Investment Committee reviews and evaluates, as may be appropriate,
information relating to the Company’s invested assets and its investment policies, strategies, objectives and activities.
Nominating and Governance Committee Policies
Pursuant to the Charter of the Nominating and Governance Committee, attached hereto in Appendix C to this Proxy Statement, the Nominating and Governance Committee has developed the following policies and procedures related to the nomination process for directors of the Company and the means by which shareholders may communicate with the Board.
Shareholder Recommendations for Director‑Nominees
The Nominating and Governance Committee will consider recommendations from shareholders as to candidates to be nominated for election to the Board. A shareholder wishing to submit such a recommendation should send a letter to the Secretary of the Company at Safety Insurance Group, Inc., 20 Custom House Street, Boston, Massachusetts 02110, who will forward such recommendations to the Chairman of the Nominating and Governance Committee. Recommendations must be in writing and should include the candidate’s name and qualifications for Board membership. This policy is not intended to replace the provisions in the Company’s bylaws related to shareholder nominations for director, but rather addresses the Nominating and Governance Committee’s position on recommendations from shareholders for potential director‑nominees. Shareholders wishing to nominate persons for director must comply with the Company’s bylaws and any applicable rules of the SEC.
Director‑Nominee Evaluation Process
The Nominating and Governance Committee intends to utilize a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee will regularly assess the appropriate size of the Board, and whether any vacancies are expected due to retirement or otherwise. In the event that vacancies arise, the Nominating and Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, shareholders, or other persons.
The Board is committed to a policy of inclusiveness and is committed to actively seeking out highly-qualified candidates with diverse gender, ethnicity, backgrounds, experiences, and skills for each search it undertakes.
Shareholder Communications to the Board
Shareholders may communicate directly with any member of the Board or the entire Board by sending correspondence to the Office of Investor Relations, Safety Insurance Group, Inc., 20 Custom House Street, Boston Massachusetts 02110, or emailing
InvestorRelations@SafetyInsurance.com
. Any such correspondence must contain a clear notation indicating that it is a “Shareholder‑Director Communication,” and must indicate whether the intended recipients are all members of the Board or certain specified individual directors. The Office of Investor Relations will make copies of all such correspondence and circulate them to the appropriate director or directors.
Director Attendance at Annual Meetings
Directors are encouraged but not required to attend the Company’s Annual Meetings. One director attended last year’s annual meeting.
Minimum Qualifications for Directors
In addition to the preceding policies and procedures adopted by the Nominating and Governance Committee, at the direction of the Board, the Board and Nominating and Governance Committee continue to evaluate their position on establishing minimum qualifications for directors. The Board seeks members with diverse business and professional backgrounds and outstanding integrity, judgment, and such other skills and experiences as will enhance the Board’s ability to best serve the interest of the Company.
They are committed to a policy of inclusiveness and is committed to actively seeking out highly-qualified candidates with diverse gender, ethnicity, backgrounds, experiences, and skills for each search it undertakes.
Matters reviewed include the candidate’s integrity, maturity and judgment, experience, collegiality, expertise, diversity, commitment and independence. The Board has not approved any criteria for nominees for director and believes that establishing such criteria is best left to an evaluation of the needs of the Company at the time the nomination is to be considered. Similarly, the Nominating and Governance Committee has not identified specific, minimum qualifications for director nominees or any specific qualities or skills that it believes are necessary for one or more of our directors to possess.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019
The Audit Committee of the Board selected PricewaterhouseCoopers LLP (“PwC”) to continue as the Company’s independent registered public accounting firm for 2019. PwC is the Company’s independent registered public accounting firm for the most recently completed fiscal year ended December 31, 2018. A representative of PwC is expected to be present at the 2019 Annual Meeting. The representative will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions from shareholders.
Ratification of PwC as our independent registered public accounting firm for the fiscal year ending December 31, 2019 requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote. THE BOARD RECOMMENDS VOTING
FOR
PROPOSAL 2 WHICH CALLS FOR THE RATIFICATION OF THE APPOINTMENT OF PWC.
If our shareholders do not ratify the selection of PwC, the appointment of the independent registered public accounting firm will be reconsidered by our Audit Committee. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its shareholders.
Audit Fees Billed for Services Performed Related to 2018 and 2017 Services
Audit Fees
Aggregate fees billed were $1,158,791 and $1,128,729 for 2018 and 2017, respectively. The fees in this category are for professional services rendered in connection with the audits of the Company’s annual financial statements, including the Company’s internal control over financial reporting, set forth in the Company’s Annual Report on Form 10‑K, the review of the Company’s quarterly financial statements set forth in its Quarterly Reports on Form 10‑Q, and the performance of other services that generally only the Company’s independent registered public accounting firm can provide, such as consents.
Audit-Related Fees
There were no aggregate fees billed in 2018. Aggregate fees were $38,450 for 2017. The fees in this category were for professional services rendered in connection with the employee benefit plan audit.
Tax Fees
Aggregate fees billed were $54,675 and $53,075 for 2018 and 2017, respectively. The fees in this category were for professional services rendered in connection with tax compliance and tax consulting services.
All Other Fees
Aggregate fees billed were $1,800 for both 2018 and 2017. The fees in this category were solely for the Company’s licensing of PwC proprietary research tools.
The Audit Committee has considered and determined that the provision of non-audit services provided in 2018 and 2017 are compatible with maintaining PwC’s independence.
Audit Committee’s Pre-Approval Policies and Procedures
Our Audit Committee has established a policy that all audit and permissible non-audit services provided by the independent auditors will be pre-approved by the Audit Committee. These services may include audit services, audit‑related services, tax services and other services. The Audit Committee considers whether the provision of each non-audit service is compatible with maintaining the independence of the Company’s auditors. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. During fiscal years 2018 and 2017, all audit services and all non-audit services provided to the Company by PwC were pre-approved in accordance with the Audit Committee’s pre-approval policies and procedures described above.
PROPOSAL 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Board adopted the shareholders’ recommendation at the 2018 Annual Meeting and elected to hold a shareholder vote on “say-on-pay” annually. Accordingly, in this Proposal 3, the Company again this year seeks your vote on the following advisory resolution:
“RESOLVED, that the shareholders of the Company approve, on a non-binding advisory basis, the compensation of the Company’s Named Executive Officers listed in the 2018 Summary Compensation Table included in the Proxy Statement for the 2019 Annual Meeting, as such compensation is disclosed pursuant to the disclosure rules of the Securities and Exchange Commission, including the section titled
Compensation Discussion and Analysis
as well as the compensation tables and other narrative executive compensation disclosures thereafter.”
Our goal for the Company’s executive compensation program is to attract, motivate and retain a talented, dedicated and knowledgeable team of executives who will provide leadership for the Company’s success in competitive markets. We seek to accomplish this goal in a way that rewards performance and is strongly aligned with our shareholders’ long-term interests.
The Company, the Board of Directors, and the Compensation Committee remain committed to the compensation philosophy, policies and objectives outlined under the heading
Compensation Discussion and Analysis
in the Proxy Statement. We are committed to paying for performance and making sure our decisions align with the long-term interests of Safety and its shareholders. Since our November 22, 2002 Initial Public Offering through December 31, 2018, Safety has delivered a total of 1,171% in total return to our shareholders, well above the major indexes and our property-casualty insurance peers. As always, the Board of Directors and the Compensation Committee will continue to review all elements of the executive compensation program and take any steps they deem necessary to continue to fulfill the objectives of the program.
Shareholders are encouraged to carefully review the
Compensation Discussion and Analysis
section, the compensation tables and other narrative discussion in the Proxy Statement which discuss in detail our compensation policies and procedures and our compensation philosophy.
Because your vote is advisory, it will not be binding upon the Company, the Board of Directors, or the Compensation Committee. However, the Board of Directors and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
THE BOARD RECOMMENDS VOTING
FOR
THE ADOPTION OF THE RESOLUTION ABOVE APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.
PROPOSAL 4
SHAREHOLDER PROPOSAL
The Company has been notified that the California Public Employees’ Retirement System (“CalPERS”), P.O. Box 2749, Sacramento, California, 95812-2749, the beneficial owner of at least $2,000 in market value of the Company’s common stock on the date the proposal was submitted and for at least the preceding eighteen months, intends to present the following proposal at the 2019 Annual Meeting of Shareholders. In accordance with applicable proxy regulations, the proposal and supporting statement, for which we and our Board accept no responsibility, are set forth below:
RESOLVED:
That the shareowners of Safety Insurance Group, Inc. (Company) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s articles of incorporation and/or bylaws to provide that directors shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareowners in uncontested elections. A plurality vote standard, however, will apply to contested director elections; that is, when the number of director nominees exceeds the number of board seats.
Supporting Statement
Is accountability by the Board of Directors important to you? As a long-term shareowner of the Company, CalPERS thinks accountability is of paramount importance. This is why we are sponsoring this proposal. This proposal would remove a plurality vote standard for uncontested elections that effectively disenfranchises shareowners and eliminates a meaningful shareowner role in uncontested director elections.
Under the Company’s current voting system, a director may be elected with as little as one affirmative vote because “withheld” votes have no legal effect. This scheme deprives shareowners of a powerful tool to hold directors accountable because it makes it impossible to defeat directors who run unopposed. Conversely, a majority voting standard allows shareowners to actually vote “against” candidates and to defeat reelection of a management nominee who is unsatisfactory to the majority of shareowners who cast votes.
A substantial number of companies have already adopted this form of majority voting. More than 90% of the companies in the S&P 500 have adopted a form of majority voting for uncontested director elections. We believe the Company should join the growing number of companies that have adopted a majority voting standard requiring incumbent directors who do not receive a favorable majority vote to submit a letter of resignation, and not continue to serve, unless the Board declines the resignation and publicly discloses its reasons for doing so.
Majority voting in director elections empowers shareowners to clearly say “no” to unopposed directors who are viewed as unsatisfactory by a majority of shareowners casting a vote. Incumbent board members serving in a majority vote system are aware that shareowners have the ability to determine whether the director remains in office. The power of majority voting, therefore, is not just
the power to effectively remove poor directors, but also the power to heighten director accountability through the threat of a loss of majority support. That is what accountability is all about.
CalPERS believes that corporate governance procedures and practices, and the level of accountability they impose, are closely related to financial performance. It is intuitive that, when directors are accountable for their actions, they perform better. We therefore ask you to join us in requesting that the Board of Directors promptly adopt the majority voting standard for uncontested director elections. We believe the Company’s shareowners will substantially benefit from the increased accountability of incumbent directors and the power to reject directors shareowners believe are not acting in their best interests. Please vote FOR this proposal.
Board of Directors’ Response in Opposition to Proposal No. 4
The Board unanimously recommends VOTING
AGAINST
this proposal
.
Proxies solicited by the Board of Directors will be voted “AGAINST” the proposal unless a shareholder has indicated otherwise in voting the proxy.
The Board has carefully considered the proposal submitted by the California Public Employees’ Retirement System (the “CalPERS Proposal”) and, following its review of the CalPERS Proposal, does not believe that the CalPERS Proposal is in the best interests of the Company or its shareholders at this time. Accordingly, the Board unanimously recommends that the Company’s shareholders vote
AGAINST
the CalPERS Proposal.
The Board does not believe that electing directors under a majority vote standard would result in a more effective Board. Importantly, the proponent has not asserted that the Board has not acted in the best interests of the Company’s shareholders. The Company’s shareholders have a history of electing strong and independent Boards, not only by a plurality, but by a sizeable majority of votes cast. The Board, as so elected, has been a significant factor in the Company’s consistent growth and financial stability, and has repeatedly demonstrated sound business judgment in its leadership of the Company. Consequently, the Board is hesitant to make a fundamental change to the Company’s corporate governance system that already has helped the Company deliver superior performance to its shareholders over many years.
The plurality standard for uncontested seats clearly has worked without problem for our shareholders for 16 years. Institutional stockholders own approximately 84% of the Company’s shares and in the prior year our directors received more than 98% “FOR” votes of the votes cast. A plurality vote standard guarantees a full board of directors as long as there are at least as many nominees as open seats, and avoids problems associated with failed elections (that is, an election in which a director is not chosen and a vacancy on the Board is created), and resulting holdover directors. A majority vote standard is problematic in these regards, and a failed election as to one or more director nominees could have other undesirable and disruptive consequences for the Company.
The Board is also concerned about other additional consequences that may result from adopting the CalPERS Proposal, including the potential unnecessary increase in the cost of soliciting
shareholder votes. Implementing the CalPERS Proposal could provide special interest shareholder groups with the ability to promote “vote-no” campaigns that the Board believes are not in the Company’s best interests or the best interests of its shareholders, and would force the Company to employ a proactive telephone solicitation, second mailing or other vote-getting strategy to obtain the required votes. The end result may be increased spending for routine elections. The Board does not believe that the costs incurred by the Company in such circumstances would be a wise use of the Company’s financial and other resources.
Under the current plurality voting standard, shareholders have the ability to express disapproval of corporate policies, strategy or director candidates through the use of withhold votes. Institutional and retail investors successfully utilize withhold vote campaigns to influence corporate policies and director elections. The use of withhold votes, as opposed to implementation of majority voting, provides the Board with flexibility to appropriately respond to shareholder dissatisfaction without concern for potential corporate governance complications arising from a failed election. In addition, shareholders who are truly dissatisfied with director candidates have the ability to nominate alternative candidates and also may make recommendations for nominations directly to the Company’s Corporate Secretary by following the procedures set forth in the Company’s Bylaws and related policies.
For these reasons, the Board does not believe adopting a majority voting standard for director elections is in the best interests of the Company or its shareholders at this time. However, the Board will continue to assess developments in director voting standards, and remains committed to maintaining the high standards in corporate governance that the Board has demonstrated to date.
EXECUTIVE OFFICERS
Occupations of Executive Officers
The table below sets forth certain information concerning our executive officers as of the date of this Proxy Statement.
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Years
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Employed
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Name
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Age
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Position
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by Safety
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George M. Murphy
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52
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President, Chief Executive Officer
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30
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William J. Begley, Jr.
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64
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Vice President, Chief Financial Officer and Secretary
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33
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James D. Berry
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59
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Vice President - Underwriting
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37
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John P. Drago
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52
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Vice President - Marketing
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24
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David E. Krupa
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58
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Vice President - Claims Operations
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36
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Ann M. McKeown
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52
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Vice President - Insurance Operations
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29
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Paul J.Narciso
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55
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Vice President - Claims
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28
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Stephen A.Varga
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51
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Vice President - Management Information Services
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26
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George M. Murphy, CPCU.
For information regarding Mr. Murphy, refer above to “Directors Continuing in Office”.
William J. Begley, Jr.
was appointed Chief Financial Officer, Vice President and Secretary of the Company on March 4, 2002. Since January 1999, Mr. Begley has been the Chief Financial Officer and Treasurer of the Insurance Subsidiaries. Previously, Mr. Begley served as Assistant Controller of the Insurance Subsidiaries from 1985 to 1987, as Controller from 1987 to 1990 and as Assistant Vice President/Controller from 1990 to 1999. Mr. Begley has been employed by the Insurance Subsidiaries for over 33 years. Mr. Begley also serves on the Audit Committee and Investment Committee of Guaranty Fund Management Services, and is a member of the Board of Directors of the Massachusetts Insurers Insolvency Fund.
James D. Berry, CPCU,
was appointed Vice President of Underwriting of the Company in July 2015, and was named as Secretary of the Insurance Subsidiaries at that time. Prior to that, he served as the Vice President of Insurance Operations since October 2005. Mr. Berry has been employed by the Insurance Subsidiaries for over 37 years and has directed the Company's Massachusetts Private Passenger line of business since 2001. Mr. Berry is the Chairman of the Board of Directors of the FAIR Plan and previously served as the Chairman of that organizations Executive Committee. He has served on several committees of
Commonwealth Automobile Reinsurers (“CAR”)
including Market Review and Defaulted Brokers and also served on Computer
Sciences Corporation Series II and Exceed advisory councils. He also serves on the Executive Committee of the In Control Family Foundation, and is the Chairman of that organizations Finance Committee.
John P. Drago
was appointed Vice President of Marketing on February 1, 2016. Mr. Drago has been employed by the Insurance Subsidiaries for over 24 years and most recently served as Director of Marketing.
David E. Krupa, CPCU,
was appointed Vice President of Claims Operations of the Company on March 4, 2002. Mr. Krupa has served as Vice President of Claims of the Insurance Subsidiaries since July 1990 and has been employed by the Insurance Subsidiaries for over 36 years. Mr. Krupa
was first employed by the Company in 1982 and held a series of management positions in the Claims Department before being appointed Vice President in 1990. Mr. Krupa has served on the Auto Damage Appraisers Licensing Board of Massachusetts and on several claims committees both at the Automobile Insurers Bureau of Massachusetts and CAR.
Ann M. McKeown
was appointed Vice President of Insurance Operations of the Company on July 1, 2015. Ms. McKeown has been employed by the Insurance Subsidiaries for over 29 years wherein she has held management positions in the Underwriting, Information Technology, and Insurance Operations departments. Ms. McKeown has served on the Massachusetts Assigned Insurance Plan (“MAIP”) Steering and Operations Committees of CAR.
Paul J. Narciso
was appointed Vice President of Claims of the Company on August 2013. Mr. Narciso has held various adjusting and claims management positions with the Company since 1990. Mr. Narciso has 32 years of claim experience having worked at two national carriers prior to joining Safety. He currently serves on the Governing Board of the Massachusetts Insurance Fraud Bureau and the Claims Subcommittee at CAR.
Stephen A. Varga
was appointed Vice President of Management Information Systems (“MIS”) of the Company on August 6, 2014. Mr. Varga has held various information technology positions with the Company since 1992 and most recently served as Senior Director of MIS.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
Our compensation program objectives are to attract and retain individuals key to our future success, to motivate and reward employees in achieving our business goals and to align the long-term interests of employees with those of our shareholders. We are committed to paying for performance and making sure our decisions align with long-term interests of Safety and its shareholders.
In this section, we discuss and analyze our compensation practices with respect to Messrs. Murphy, Begley, Berry, Narciso and Varga, who are respectively, our Chief Executive Officer, Chief Financial Officer, and three other highest paid executives (collectively, our "Named Executive Officers") in 2018.
Executive Summary
The purpose of this summary is to help our investors understand Safety’s approach to executive compensation, specifically understanding what we pay our executives, how we pay them, and why. We are committed to paying for performance and making sure our decisions align with long-term interests of Safety and its shareholders.
The Compensation Committee (the “Committee”) is responsible for executive compensation at Safety. The Committee is comprised entirely of independent directors. The Committee engages Pay Governance, a leading independent executive compensation consulting firm, to help guide them in implementing best pay practices and help ensure strong pay and performance alignment. Highlights and features of our shareholder-friendly pay practices include:
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·
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A performance-based share program, which measures our performance over a three-year period and is specifically tied to total shareholder return (“TSR”)
1
and combined ratio, which is a standard insurance industry profitability metric. In 2018, performance awards represented 55% of total long-term incentive shares awarded. We believe that maintaining a long-term performance-based share program in combination with our existing performance-based annual cash bonus will help ensure strong pay and performance alignment.
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·
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A “double trigger” rather than “single trigger” vesting acceleration in a potential change of control. For the vesting of shares to accelerate, the executive would need to be terminated and a change of control would have to occur.
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·
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No tax gross-ups for potential excise tax that might be incurred if a change of control were to occur.
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·
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Our equity plan prohibits share recycling and repricing of stock options without advance approval of shareholders.
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·
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Robust stock ownership guidelines for our executives and Directors.
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1
TSR = share price appreciation + dividends
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·
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A recoupment or “clawback” policy for incentive compensation awarded to executives in the event of an accounting restatement during a three-year period in cases of material fraud, misstatement or misconduct.
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·
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An insider trading policy that prohibits the hedging or pledging of the Company’s equity securities.
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Long-term Performance
We have had strong absolute and relative TSR over the 1, 3, and 5‑year periods. Our TSR of 1,171% from our November 22, 2002, Initial Public Offering (“IPO”) through December 31, 2018, is well above the major indexes and our property and casualty insurance peers.
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Time Period*
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TSR
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1 year
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6%
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3 years
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64%
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5 years
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81%
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*
1 year represents year-over-year growth while 3 and 5 years represent cumulative growth (e.g., for 3 years represents growth from December 31, 2015 through December 31, 2018; for 5 years represents growth from December 31, 2013 through December 31, 2018)
2018 Results and Impact on Actual Pay
2018 was a strong year for our Company as we achieved the following accomplishments:
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·
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In 2018, earnings per share (“EPS”) was $5.48 and earnings before income taxes was $83.3 million. Earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities was $120.7 million, which is calculated in the table below. The Compensation Committee believes that this is an effective measure for assessing annual profitability and company performance.
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Beginning in 2018, the Company was required to adopt a new accounting pronouncement from the Financial Accounting Standards Board (“FASB”) which requires changes in unrealized gains and losses on equity securities to be recorded through net income rather than through other comprehensive income. Eliminating the benefit or penalty of this adoption give a representation of true business performance. It is the core metric used in the annual incentive plan under which cash bonus payouts are tied directly to this metric.
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Financial Statement Line Item
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2018
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2017
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Income before income taxes
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$ 104,251
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$ 86,700
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Interest expense
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90
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90
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Change in net unrealized gains on equity investments
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16,324
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-
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$ 120,665
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$ 86,790
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·
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Direct written premiums, a proxy for revenue growth, increased by 2.0% from $827.3 million to $843.7 million.
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·
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Combined ratio, another measure of profitability, which is the sum of our loss and expense ratio, was 93.7% in 2018.
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Due to the above accomplishments and other strong financial performance, we funded performance-based variable pay as follows:
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·
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2018 annual incentive bonus was achieved at maximum, representing 150% of target;
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·
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The 2016 – 2018 performance awards granted on February 23, 2016 had an actual payout of 191.0%, above the targeted granted amount. Refer to the long–term incentive section below for further information.
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The Committee is confident that the 2018 annual incentive and 2016‑2018 performance share payouts are a fair reflection of the year’s results.
Say on Pay Results
Safety’s Board of Directors takes its duty to the Company and its shareholders seriously. We strive to follow good process, apply our best judgment, and make the best decisions we can to make Safety an even stronger and more valuable company. Our ability to perform that role is greatly enhanced when we receive thoughtful and constructive feedback from our shareholders. Our shareholders responded very favorably to our executive compensation program with 96.6% voting in support of our 2018 Say on Pay vote. We continue to welcome your input and feedback on our approach to executive compensation and these disclosure materials. We look forward to receiving your continued support on our upcoming say-on-pay vote.
Objectives of the Company’s Compensation Program
The Committee is responsible for recommending to the Board compensation for the CEO and for determining the compensation of the other executive officers. The Committee acts pursuant to a charter that has been approved by the Board. The Committee bases its compensation policies and decisions on the following principles.
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·
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Compensation should be structured to allow us to motivate, retain and attract executive talent.
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·
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Compensation should be directly linked to the Company’s and individual’s performance as well as the individual’s level of responsibility.
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·
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Compensation should be driven by our long-term financial performance and in doing so work to align the interests of management and shareholders.
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·
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Compensation should reflect the value of each officer’s position in the marketplace and within the Company.
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The Committee annually reviews executive performance and compensation, including base pay, annual cash incentives, and equity awards for our executives. The Committee considers specific recommendations regarding compensation for other executives from the CEO and reviews the CEO’s annual assessment of other executives’ performance. Our Committee makes a final determination of compensation amounts for our CEO and other executives with respect to each of the elements of the executive compensation program for actual compensation based on performance in the preceding year and target compensation for the current year.
Policies and Practices Related to the Company’s Compensation Program
We strive to create an overall compensation package for each Named Executive Officer that satisfies these objectives, recognizing that certain elements of compensation are better suited to reflect different compensation objectives. Our primary goal is to provide strong performance-based total compensation plans that enable us to provide highly competitive compensation when our performance leads the peer group and industry.
Compensation Consultant and Compensation Study
The Committee selected and directly engaged Pay Governance as its compensation consultant. Pay Governance receives compensation only for services related to executive compensation issues, and neither it nor any affiliate company provides any other services to the Company. Pay Governance reports directly to the Committee and is responsible for reviewing Committee materials, attending Committee meetings, assisting the Committee with program design and generally providing advice and counsel to the Committee as compensation issues arise. Based on the consideration of the various factors as set forth in the rules of the SEC, the Compensation Committee has determined that its relationship with Pay Governance and the work of Pay Governance on behalf of the Committee has not raised any conflict of interest.
As part of its review of the compensation of executive management at the Company, Pay Governance recommended and the Committee approved the following thirteen companies which comprise the Company’s peer group for 2018 as follows:
Donegal Group, Inc., EMC Insurance Group, Inc., Employers Holdings, Inc., Hallmark Financial Services, Inc., Hanover Insurance Group, Inc., Heritage Insurance Holdings Inc., Horace Mann Educators Corporation, Mercury General Corporation, Protective Insurance Corporation, Selective Insurance Group, Inc., State Auto Financial Corporation, United Fire Group, Inc. and Universal Insurance Holdings, Inc..
This 2018 peer group reflects the exclusion of Infinity Property and Casualty Insurance Company which was acquired in 2018 and the addition of United Fire Group, Inc.
Equity Grant Practices
The grant date of our equity awards is scheduled in advance and is based on the timing of the completion of our annual performance and compensation review process. We have not granted stock
options to our Named Executive Officers since 2003 and none of our Named Executive Officers hold any Company stock options.
Stock Ownership Guidelines and Hedging / Pledging Policy
We have stock ownership guidelines for our Named Executive Officers to help ensure alignment of our Named Executive Officers’ interests with those of our shareholders. Stock ownership guidelines are set as a multiple of annual base salary divided by the current share price on the date of the annual evaluation. The multiple of annual base salary for the CEO is set at five, and for the remaining executive officers is set at three. All of our Named Executive Officers currently meet these guidelines.
Our Directors are also subject to stock ownership guidelines, which require them to have a value four times their annual cash retainer. A director must meet this requirement within five years of becoming a director. All Directors, outside of the recently appointed Ms. Meehan, currently meet the guideline.
As part of our insider trading policy, our executives and directors are already subject to an anti-hedging policy that prohibits them from purchasing financial instruments that are designed to hedge or offset any fluctuations in the market value of the Company’s equity securities they hold. The insider trading policy also prohibits the pledging of the Company’s equity securities.
Elements of Executive Compensation
The Committee, after reviewing information provided by Pay Governance, determines what it believes to be the appropriate level for cash and non-cash compensation components. After receiving the results of the Pay Governance study and considering our compensation philosophy and the actual practices of the selected peer group, the Committee determined that the elements of targeted overall compensation for executive officers should include the following:
Pay at Risk
A significant percentage of each named executive’s target total direct compensation is "pay at risk" through long-term equity awards and annual incentive awards that are linked to actual performance. The Committee believes that the executive pay at Safety should contain a high percentage of pay at risk consistent with our pay for performance philosophy. For example in 2018, Safety’s CEO had 70% of his target pay (target annual incentive and long-term incentives) at
risk which was above that of peer CEOs according to the Pay Governance executive benchmarking report. The actual mix of compensation for 2018 for our CEO is shown in the chart below.
Base Salaries
Base salaries are generally targeted at the median (50th percentile) of peer group companies and reflect the roles, responsibilities and individual performance of the executives. In 2018, in accordance with the executive officers’ employment contracts, salary increases were based on the change in cost of living for the Boston metropolitan market as reported by the U.S. Department of Labor statistics. This resulted in an increase of 2.9% to each NEO. The salaries of our President and Chief Executive Officer was also adjusted by the Compensation Committee to reflect current market levels.
Annual Cash Incentives
The purpose of the Annual Performance Incentive Plan is to provide designated key executive employees with meaningful financial rewards for the accomplishment of our annual financial and strategic objectives. This annual cash incentive compensation award directly reflects the actual performance of the Company. This direct reflection of Company performance is illustrated by the 2018 awards, under which, as discussed below, performance results exceeded the maximum payout and resulted in a maximum payout to our Named Executive Officers
Under the Annual Performance Incentive Plan, once the threshold performance level (as defined by the Committee annually) has been achieved, the payouts may range from 50% to 150% of the target payout.
The 2018 payout opportunity for our executive officers ranged as follows:
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% of Salary Payable
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Position
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Threshold
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Target
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Maximum
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Chief Executive Officer
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40%
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80%
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120%
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Other Executive Officers
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30%
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60%
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90%
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On or before the end of the first 90 days of each fiscal year, the Committee selects the participants to whom incentive awards are granted, establishes the target incentive awards, and establishes the performance objective or objectives that will determine the dollar amount available for these incentive awards. Performance objectives are based upon the relative or comparative achievement of one or more of the following criteria, as determined by the Committee: net income, earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities, as described on page 20, earnings before interest and taxes (“EBIT”), EPS, return on shareholders’ equity, expense management, profitability of an identifiable business unit or product, ratio of claims to revenues, revenue growth, earnings growth, total shareholder return, cash flow, return on assets, operating income, net economic profit (operating earnings minus a charge for capital), customer satisfaction, agency satisfaction, employee satisfaction, quality of services, strategic innovation, or any combination of the foregoing.
For 2018, the financial measure established by the Committee was earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities, as described on page 20. The Compensation Committee believes this is an effective measure for assessing annual profitability and company performance.
The target goal for 2018 was $54.8 million and was based on the average of the actual EBIT achievements for 2017 and 2016 on which the executives were paid bonuses. Note in prior years EBIT was the target as the change in unrealized gains (losses) on equity securities was an accounting pronouncement adopted in 2018 under Financial Statement Accounting Board requirements. This establishes a consistent methodology tied to the operating results of the Company as explained on page 20. This means that if the actual achievement was above 150% of that year’s target, the goal setting calculation uses the 150% achievement for determining the two-year average. This practice avoids penalizing the executives for over achievement and creating unachievable performance goals. The two-year average also enables us to set targets that provide for a reasonable time to adjust to factors that are out of the Company’s control, such as changes in regulatory requirements or unusual weather occurrences. Once the target goal is set, the range of performance is 50% (threshold) to 150% (exceptional) of this target, and the payouts are based on achievement relative to the goal. The Committee prorates the payouts within this range to correspond to the actual performance.
For 2018, our actual earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities of $120.7 million was 220% of our $54.8 million target. For 2017 our actual financial performance of $86.7 million was 277% of our $31.3 million target. This resulted in a 150% of target payout for both 2018 and 2017 as follows.
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Name
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2018 Non-Equity Incentive Plan Compensation
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2017 Non-Equity Incentive Plan Compensation
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George M. Murphy
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900,000
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849,360
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William J. Begley, Jr.
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416,790
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405,000
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James D. Berry
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324,180
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315,000
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Paul J. Narciso
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236,430
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229,770
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Stephen A. Varga
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245,430
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238,500
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Long-Term Incentives (“LTI”)
On April 2, 2018, the Company’s Board of Directors adopted the Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the 2018 Plan”), which was subsequently approved by our shareholders at the 2018 Annual Meeting of Shareholders. The 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”). No awards were granted under the 2018 Plan during 2018.
We use our incentive plans to grant long-term equity-based incentive awards. A description of the 2018 Plan can be found in the narrative following the Grants of Plan-Based Awards table. Long-term incentive compensation, which may include nonqualified stock options, incentive stock options, stock appreciation rights and restricted stock awards, is intended to reinforce the long-term growth in shareholder value of the Company by linking pay to the value of our shares. The amounts awarded annually are based on the performance of the Company. The actual amount awarded and accumulated reflects our historical performance.
On February 26, 2018, the Committee, after reviewing information provided by Pay Governance, determined what it believed to be the appropriate level of each of the various compensation components. The Committee awarded restricted stock awards under the 2002 Incentive Plan with an aggregate total market value of $3,150,000 as of the date of the grant to the executive team. The executives were granted 55% of their overall LTI mix in the form of performance-based restricted shares, while the remaining 45% were in the form of time-based restricted shares. Shares will not be earned or vested until performance criteria and / or time requirements are met. The distribution resulted in the following share allocation:
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Name
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2018 Time-Based Stock Award Shares
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2018 Performance-Based Stock Award Shares
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2018 Total Stock Award Shares
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2018 Total Stock Award Value
|
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George M. Murphy
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4,797
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6,094
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10,891
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$ 800,000
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William J. Begley, Jr.
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2,398
|
|
3,047
|
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5,445
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400,000
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James D. Berry
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2,398
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|
3,047
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5,445
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400,000
|
|
Paul J. Narciso
|
2,099
|
|
2,666
|
|
4,765
|
350,000
|
|
Stephen A. Varga
|
2,099
|
|
2,666
|
|
4,765
|
350,000
|
As noted above, executives are granted 55% of their overall LTI mix in the form of performance-based restricted shares, while the remaining 45% is in the form of time-based restricted shares. The performance share design has the following features: three-year performance measurement period tied to the Company’s relative TSR versus its property-casualty insurance company peers (weighting of 40%) and Safety’s three-year average combined ratio (weighting of
60%), which is a standard insurance industry profitability metric. The Committee believes that a three-year average combined ratio is a strong long-term proxy for performance, and used with relative TSR will ensure strong pay and performance alignment while ensuring sufficient line of sight for executives. Actual payouts can range from 0% to 200%, depending on actual performance. The TSR portion of the performance share design employs a shareholder friendly feature that caps payout to 100% of target if absolute TSR is negative (even though the Company might have exceeded target in the relative TSR metric). The earned performance shares will cliff vest after the three-year performance period based on the performance measures attained.
Both time vested awards and performance awards granted include a retirement provision. For time vested awards, if termination of service occurs on or after the first anniversary of the date of grant and because of retirement after attaining age 62 with at least 10 years of service with the Company, the periods of restriction shall expire on the date of termination of service with respect to 100% of the shares subject to remaining periods of restriction.
For performance vested awards, if during the performance period, the grantee’s termination of service occurs because of the grantee’s retirement after attaining age 62 with at least 10 years of service with the Company, the award shall not be forfeited on the retirement date, but the number of shares earned shall be equal to the number of shares earned determined based on actual attainment of the performance measures as of the end of the performance period multiplied by a fraction, the numerator of which is the number of months (rounded up to the next integer) from the beginning of the performance period until the date of termination of service, and the denominator of which is 36.
The 2016 – 2018 performance awards granted on February 23, 2016 had an actual payout of 191.0%, above the targeted granted amount compared to 86.5% payout in the prior year. The actual payout of 191.0% is based on Safety’s combined ratio for the three year period ending December 31, 2018 of 95.6% (a 187% payout), and TSR performance of 70% relative performance at the 89th percentile (a 198% payout). The award to Mr. Murphy included a one-time grant of 10,000 performance shares in connection with his promotion to Chief Executive Officer in 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
Based
|
|
Actual
|
|
Additional
|
|
Name
|
|
Year
|
|
Granted Value
|
|
|
Number of Shares
|
|
Number of Shares
|
|
Number of Shares
|
|
George M. Murphy
|
|
2016
|
|
1,063,000
|
|
|
17,246
|
|
32,935
|
|
15,689
|
|
William J. Begley, Jr.
|
|
2016
|
|
275,000
|
|
|
4,529
|
|
8,649
|
|
4,120
|
|
James D. Berry
|
|
2016
|
|
220,000
|
|
|
3,623
|
|
6,919
|
|
3,296
|
|
Paul J. Narciso
|
|
2016
|
|
192,500
|
|
|
3,170
|
|
6,054
|
|
2,884
|
|
Stephen A. Varga
|
|
2016
|
|
151,250
|
|
|
2,491
|
|
4,757
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2016‑2018 SAFT Average Combined Ratio target was set at the beginning of the period and was based off a formulaic calculation: the median of a four year historical performance peer combined ratio performance. For relative TSR, we are ranked compared to the same performance peer group that is used in the combined ratio target.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Level
|
2016 - 2018 SAFT
Combined Ratio
|
Payout as
% of
Target
|
|
|
|
Relative 2016 -
2018 3-Year TSR
|
Payout
as % of
Target
|
|
|
|
|
|
Below Threshold
|
>103.9%
|
0%
|
|
|
|
> 90th Percentile
|
200%
|
|
|
|
|
|
Threshold
|
103.9%
|
50%
|
x
|
60%
|
|
90th Percentile
|
200%
|
x
|
40%
|
=
|
Ultimate
|
|
Intermediate < Target
|
101.0%
|
75%
|
|
Weighting
|
|
70th Percentile
|
150%
|
|
Weighting
|
|
Payout
|
|
Target
|
98.0%
|
100%
|
|
|
|
50th Percentile
|
100%
|
|
|
|
|
|
Intermediate > Target
|
96.6%
|
150%
|
|
|
|
40th Percentile
|
75%
|
|
|
|
|
|
Maximum
|
95.3%
|
200%
|
|
|
|
30th Percentile
|
50%
|
|
|
|
|
|
Above Maximum
|
<95.3%
|
200%
|
|
|
|
< 30th Percentile
|
0%
|
|
|
|
|
The 28 competitors used in the establishment of these goals for the 2016 performance shares were The Allstate Corporation, The Chubb Corporation, Cincinnati Financial Corporation, CNA Financial Corporation, Donegal Group Inc., EMC Insurance Group Inc., Employers Holdings, Inc., Erie Indemnity Company, Hallmark Financial Services Inc., Hanover Insurance Group Inc., Hilltop Holdings Inc., Horace Mann Educators Corporation, Infinity Property and Casualty Corp., Loews Corporation, Markel Corporation, Mercury General Corporation, National Interstate Corporation, Navigators Group Inc., Old Republic International Corp., Progressive Insurance Corporation, Protective Insurance Corporation, Selective Insurance Group Inc., State Auto Financial Corp., The Travelers Companies, Inc., United Fire Group, Inc., Universal Insurance, W.R .Berkley Corporation and White Mountains Insurance Group, Inc.
At December 31, 2018, the performance awards granted on February 26, 2018, and February 22, 2017 would be projected to payout at 181% and 163% respectively. These amounts are calculated based on the Company’s actual combined ratio to date, as well as relative TSR performance (compared to its performance peer group) to date. Final actual results may differ and will continue to be calculated until the end of each award’s applicable performance period.
Performance-Based Nonqualified Deferred Compensation
We maintain a nonqualified deferred compensation plan, the Executive Incentive Compensation Plan (the “EICP”) to further our objective of providing our executive officers with compensation that is competitive with that provided by comparable companies. The EICP is a performance-based program that allocates 1.75% of our insurance subsidiaries annual consolidated statutory net income to a pool that is then distributed as deferred compensation to the eligible executives. The amount allocated is based on the total annual cash compensation (salary plus annual incentive received, or deferred, in the year) of the eligible executives. Our insurance subsidiaries experienced a combined statutory net income of $94.9 million in 2018, and Messrs. Murphy, Begley, Berry, Narciso and Varga earned the following allocations under the EICP in 2018: $507,906, $275,616, $214,368, $156,426, and $162,342, respectively. The allocations are retained
by the Company, invested in mutual funds, and only paid to the executive upon employment termination as defined in the EICP.
The EICP also provides a deferred compensation benefit with a supplemental matching provision similar to our 401(k) plan. Our intention is to provide additional retirement benefits to eligible executives in the absence of a traditional defined benefit pension arrangement. The provision enables the executive officer to elect to defer amounts from current compensation above the federally limited amount that can be deferred under our tax-qualified 401(k) plan and receive an employer matching contribution on such supplemental deferrals. In accordance with the EICP, we make a matching contribution annually at the close of each plan year in an amount equal to 75% of the participant’s elective deferrals under the plan up to a maximum amount of 8% of the participant’s compensation. The participant’s compensation for this purpose means the participant’s base salary and annual incentive received (or deferred) in the plan year. Amounts deferred under the EICP do not include amounts deferred under the 401(k) plan, thus our matching contributions under the EICP do not include amounts we have matched under the 401(k) plan. We made the following employer matching contributions for 2018 to the EICP on behalf of the Named Executive Officers: Mr. Murphy - $36,994; Mr. Begley - $36,584; Mr. Berry - $14,943; Mr. Narciso - $17,233: and Mr. Varga - $15,163.
A description of our Named Executive Officers’ benefits under the EICP and other material terms of the EICP can be found in the narrative following the Nonqualified Deferred Compensation Plan table.
Other Employee Benefits
In addition to the main elements of compensation previously discussed in this section, our Named Executive Officers are eligible for the same welfare and other benefits as are available to all of our employees. These benefits include medical and dental insurance, short-term and long-term disability insurance, life and accidental death insurance, and a 401(k) plan. The 401(k) plan allows employees to contribute on a pre-tax basis up to the maximum allowed under federal law. At the close of each plan year, the Company makes a matching contribution equal to 100% of the amount each participant contributed during the plan year from their total pay, up to a maximum amount of 8% of the participant’s base salary, provided the participant is employed on the last day of the plan year. We have no defined benefit pension plan for employees at this time.
We provide our Named Executive Officers with limited perquisites that the Committee believes are reasonable and competitive. In 2018 these perquisites included use of an automobile parking space.
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and Form 10‑K.
DAVID K. MCKOWN, CHAIRMAN
FREDERIC H. LINDEBERG
PETER J. MANNING
The above report of the Compensation Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.
Compensation Policies and Practices as They Relate to the Company’s Risk Management
The Compensation Committee considers, among other things, in establishing and reviewing our executive compensation program, whether the program pays the executives for performance and whether the program encourages unnecessary or excessive risk taking. The Compensation Committee reviews annually the principal components of executive compensation and believes that our allocation of compensation among base salary and annual and long-term incentives encourages our executives to deliver strong results for our shareholders without taking excessive risk. We set base salaries at levels that provide our executives with assured cash compensation that, when combined with annual and long-term incentive awards, motivates them to perform at a high level without encouraging inappropriate risk taking to achieve a reasonable level of compensation. With respect to incentive opportunities under our annual incentive plan, we believe that our use of measurable corporate financial performance goals and multiple performance levels associated with minimum, target and maximum achievable payouts, together with the Compensation Committee’s discretion to reduce awards, serve to mitigate against excessive risk-taking. We also believe that our strategic balancing of annual incentives and long-term incentives in the form of restricted stock and performance shares, with multi-year vesting schedules, encourages our executives to deliver incremental value to our shareholders while discouraging short-term risk taking that could negatively affect the value of their long-term awards. The Company’s robust stock ownership guidelines combined with high level executive stock ownership additionally help mitigate short-term risk-taking. The Compensation Committee believes that these incentive plans appropriately balance risk, payment for performance and the desire to focus executives on specific financial and leadership measures and that they do not encourage unnecessary or excessive risk taking. We believe that the Company’s compensation policies and practices for all employees, including non-executive officers, are reasonable and do not create any material risk or adverse effect on the Company.
Summary Compensation Table
The following table shows the cash and non-cash compensation for the 2018, 2017 and 2016 fiscal years awarded to or earned by the five individuals who served as our CEO, CFO, and the three other most highly compensated executive officers (the “Named Executive Officers” or “NEOs”).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
Time Vested
|
|
|
Based
|
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Stock Awards
|
|
|
Compensation
|
|
Compensation
|
|
|
|
Name
|
|
Year
|
|
Salary
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
(4)
|
|
Total
|
|
George M. Murphy
|
|
2018
|
|
750,000
|
|
360,000
|
|
|
440,000
|
|
|
900,000
|
|
643,689
|
|
3,093,689
|
|
|
|
2017
|
|
707,800
|
|
360,000
|
|
|
440,000
|
|
|
849,360
|
|
422,541
|
|
2,779,701
|
|
|
|
2016
|
|
539,600
|
|
360,000
|
|
|
1,063,000
|
|
(5)
|
620,010
|
|
352,261
|
|
2,934,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Begley, Jr.
|
|
2018
|
|
463,100
|
|
180,000
|
|
|
220,000
|
|
|
416,790
|
|
391,624
|
|
1,671,514
|
|
|
|
2017
|
|
450,000
|
|
202,500
|
|
|
247,500
|
|
|
405,000
|
|
297,000
|
|
1,602,000
|
|
|
|
2016
|
|
409,700
|
|
225,000
|
|
|
275,000
|
|
|
368,730
|
|
302,409
|
|
1,580,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James D. Berry
|
|
2018
|
|
360,200
|
|
180,000
|
|
|
220,000
|
|
|
324,180
|
|
301,174
|
|
1,385,554
|
|
|
|
2017
|
|
350,000
|
|
180,000
|
|
|
220,000
|
|
|
315,000
|
|
227,376
|
|
1,292,376
|
|
|
|
2016
|
|
324,100
|
|
180,000
|
|
|
220,000
|
|
|
291,690
|
|
247,783
|
|
1,263,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Narciso
|
|
2018
|
|
262,700
|
|
157,500
|
|
|
192,500
|
|
|
236,430
|
|
230,133
|
|
1,079,263
|
|
|
|
2017
|
|
255,300
|
|
157,500
|
|
|
192,500
|
|
|
229,770
|
|
174,998
|
|
1,010,068
|
|
|
|
2016
|
|
252,000
|
|
157,500
|
|
|
192,500
|
|
|
226,800
|
|
168,582
|
|
997,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Varga
|
|
2018
|
|
272,700
|
|
157,500
|
|
|
192,500
|
|
|
245,430
|
|
232,640
|
|
1,100,770
|
|
|
|
2017
|
|
265,000
|
|
146,250
|
|
|
178,750
|
|
|
238,500
|
|
165,879
|
|
994,379
|
|
|
|
2016
|
|
220,200
|
|
123,750
|
|
|
151,250
|
|
|
226,800
|
|
122,132
|
|
844,132
|
|
|
(1)
|
|
This column shows the grant date fair value of stock awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). The fair value per share of the stock awards is equal to the closing price of the Company’s common stock on the grant date. Information concerning the stock awards is shown in the table below.
|
|
|
|
|
Grant Date
|
Grant Price
|
|
February 26, 2018
|
$ 75.05
|
|
February 22, 2017
|
$ 73.55
|
|
February 23, 2016
|
$ 56.07
|
|
|
(2)
|
|
This column shows the grant date fair value of stock awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). The fair value per share of the stock awards under the combined ratio performance award calculation is equal to the closing price of the Company’s common stock on the grant date referenced in footnote (1). The fair value per share of the stock awards under the TSR performance award calculation is equal to a fair value determined using a Monte-Carlo scenario based fair value calculation. Actual award payout is calculated at the end of the performance period in 2020 for awards granted in 2018.
|
|
|
(3)
|
|
The amounts under this column consist of annual cash incentive awards earned in 2018, 2017 and 2016 under the Annual Performance Incentive Plan.
|
|
|
(4)
|
|
The amounts under this column include the following items for 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
EICP
|
|
401(k) Plan
|
|
Dividends on
|
|
Other
|
|
|
|
|
|
Compensation
|
|
Company
|
|
Company
|
|
Restricted
|
|
Compensation
|
|
|
|
Name
|
|
Bonus
|
|
Match
|
|
Match
|
|
Shares
|
|
(A)
|
|
Total
|
|
George M. Murphy
|
|
507,906
|
|
36,994
|
|
22,000
|
|
66,643
|
|
10,146
|
|
643,689
|
|
William J. Begley, Jr.
|
|
275,616
|
|
36,584
|
|
22,000
|
|
47,881
|
|
9,543
|
|
391,624
|
|
James D. Berry
|
|
214,368
|
|
14,943
|
|
22,000
|
|
42,952
|
|
6,911
|
|
301,174
|
|
Paul J. Narciso
|
|
156,426
|
|
17,233
|
|
21,016
|
|
31,279
|
|
4,179
|
|
230,133
|
|
Stephen A. Varga
|
|
162,342
|
|
15,163
|
|
21,816
|
|
29,129
|
|
4,190
|
|
232,640
|
|
|
(A)
|
|
Other Compensation includes Company paid term life insurance premium for coverage exceeding $50,000 (Mr. Murphy-$2,662, Mr. Begley-$7,563, Mr. Berry-$4,931, Mr. Narciso-$2,199, and Mr. Varga-$2,210, use of Company automobile (Mr. Murphy-$5,504), and Company paid parking ($1,980 each to Mr. Murphy, Mr. Begley, Mr. Berry, Mr. Narciso. and Mr. Varga).
|
(5) In connection with Mr. Murphy’s promotion to Chief Executive Officer, the Committee granted him a one-time grant of 10,000 performance shares valued at $623,000 on April 1, 2016. Performance shares are awarded in accordance with footnote 2.
Grants of Plan-Based Awards
The following table summarizes the 2018 grants of non-equity and equity plan-based awards to the NEOs. The non-equity plan-based awards were granted under the Annual Performance Incentive Plan and the equity plan-based awards were granted under the 2018 Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Grant Date
|
|
|
|
|
|
Estimated Future Payouts
|
|
Stock Awards
|
|
Fair Value
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
- Number of
|
|
of Stock
|
|
|
|
|
|
Plan Awards (1)
|
|
Shares of
|
|
and Option
|
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock or Units
|
|
Awards
|
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#) (2)
|
|
($) (3)
|
|
George M. Murphy
|
|
2/26/2018
|
|
-
|
|
-
|
|
-
|
|
10,891
|
|
800,000
|
|
|
|
-
|
|
300,000
|
|
600,000
|
|
900,000
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Begley, Jr.
|
|
2/26/2018
|
|
-
|
|
-
|
|
-
|
|
5,445
|
|
400,000
|
|
|
|
-
|
|
138,930
|
|
277,860
|
|
416,790
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James D. Berry
|
|
2/26/2018
|
|
-
|
|
-
|
|
-
|
|
5,445
|
|
400,000
|
|
|
|
-
|
|
108,060
|
|
216,120
|
|
324,180
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Narciso
|
|
2/26/2018
|
|
-
|
|
-
|
|
-
|
|
4,765
|
|
350,000
|
|
|
|
-
|
|
78,810
|
|
157,620
|
|
236,430
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Varga
|
|
2/26/2018
|
|
-
|
|
-
|
|
-
|
|
4,765
|
|
350,000
|
|
|
|
|
|
81,810
|
|
163,620
|
|
245,430
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These columns represent the range of cash bonus incentive payouts that were targeted for fiscal 2018 performance under the Annual Performance Incentive Plan as described above in Compensation Discussion and Analysis. Although the table refers to these payouts in future terms, they have already been earned and paid to the NEOs. The actual cash bonus incentive amounts paid are reported in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table
|
|
|
(2)
|
|
This column represents restricted stock awarded in fiscal 2018 under the 2018 Plan. The stock awarded is a combination of performance-based restricted shares representing 55% of the total and time-based restricted shares, representing 45% of the total. The awards were both effective February 26, 2018. The performance-based awards vest depending upon the attainment of pre-established performance objectives at the conclusion of the performance period in 2021. See Restricted Stock Awards below for a description of the performance objectives. The time-based restricted stock vests over three years with installments of 30% on February 26, 2019, 30% on February 26, 2020, and the remaining 40% on February 26, 2021, provided the grantee is still an employee of the Company on such dates.
|
|
|
(3)
|
|
This column shows the grant date fair value of stock awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). The fair value per share of the time-based stock awards is equal to the closing price of the Company’s common stock on the grant date. The fair value per share of the stock awards under the combined ratio performance award calculation is equal to the closing price of the Company’s common stock on the grant date. The fair value per share of the stock awards under the TSR performance award calculation is equal to a fair value determined using a Monte-Carlo scenario based fair value calculation. Actual award payout is calculated at the end of the performance period in 2020
|
Employment Agreements
George M. Murphy
. We enter into employment agreements on an annual basis effective on January 1
st
of the respective year. Under this agreement, Mr. Murphy has agreed to serve as CEO
and President of the Company for a term ending December 31, 2018. The employment agreement requires formal action to renew for an additional one-year term by the Compensation Committee at least 90 days in advance of the scheduled expiration date, unless Mr. Murphy notifies the Company of his decision to decline any additional term before at least 120 days prior to this scheduled expiration date.
The Compensation Committee approved the renewal of Mr. Murphy’s contract in 2018 for an additional one-year term. Under the terms of the employment agreement, Mr. Murphy is entitled to receive an annual base salary increase on an annual basis to reflect increases in the cost of living index specified therein or as otherwise determined by the Board or the Committee. As determined in the sole discretion of the Board, Mr. Murphy is also eligible to receive an annual bonus based on performance. Mr. Murphy is also entitled to other benefits, including reimbursement of expenses, paid vacations, health, life and other similar insurance benefits and use of a Company car, all as determined by the Board.
Other Named Executive Officers.
We entered into employment agreements on an annual basis effective January 1
st
of the respective year. The employment agreements require formal action to renew for an additional one-year terms by the Compensation Committee at least 90 days in advance of the scheduled expiration date, unless the executive notifies the Company of his decision to decline any additional term before at least 120 days prior to this scheduled expiration date. The Compensation Committee approved the renewal of these contracts in 2018 for an additional one-year term. Under their respective employment agreements, Messrs. Begley, Berry, Narciso, and Varga are entitled to receive annual increases to reflect increases in the cost of living index specified therein or as otherwise determined by the Board or the Committee. As determined in the sole discretion of the Board or the Committee, Messrs. Begley, Berry, Narciso and Varga are each eligible to receive an annual bonus based on performance. In addition, Messrs. Begley, Berry, Narciso and Varga are also entitled to other benefits, including reimbursement of expenses, paid vacations, health, life and other similar insurance benefits.
Restricted Stock Awards
In 2018, the Committee approved time-based restricted stock awards for our Named Executive Officers under our Incentive Plans. Provided there is no termination in service, the shares vest on February 26, 2019, 2020 and 2021 with respect to 30%, 30%, and 40% of the shares, respectively. The shares have voting and dividend rights and are held in custody by the Company during the period of restriction.
In addition to time-based awards, the Committee approved performance-based restricted stock awards for our Named Executive Officers. These performance shares will cliff vest after a three-year performance period provided certain performance measures are attained. A portion of these awards, which contain a market condition, vest according to the level of total shareholder return achieved by the Company compared to its property-casualty insurance peers over a three-year period. The remainder, which contain a performance condition, vest according to the level of Company’s combined ratio results compared to its property-casualty insurance peers over the same three-year performance period.
Actual payouts can range from 0% to 200% of target shares awarded depending upon the level of achievement of the respective market and performance conditions during a three fiscal-year
performance period ending at the end of 2019. Compensation expense for performance-based share awards is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period. Performance-based awards with market conditions are accounted for and measured differently from an award that has a performance or service condition. The effect of a market condition is reflected in the award’s fair value on the grant date. That fair value is recognized as compensation cost over the requisite service period regardless of whether the market-based performance objective has been satisfied.
Equity Compensation Plan Information
The following table sets forth information regarding all of our equity compensation plans as of December 31, 2018.
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|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Number of securities
|
|
|
|
securities to be
|
|
|
|
|
remaining available
|
|
|
|
issued upon
|
|
|
Weighted-average
|
|
for future issuance
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
under equity
|
|
|
|
outstanding
|
|
|
outstanding
|
|
compensation plans
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
(excluding securities
|
|
|
|
and rights
|
|
|
and rights
|
|
reflected in column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
(c)
|
|
Equity compensation plans
|
|
|
|
|
|
|
|
|
approved by shareholders (1)
|
|
-
|
|
$
|
-
|
|
350,000
|
|
Equity compensation plans
|
|
|
|
|
|
|
|
|
not approved by shareholders
|
|
-
|
|
|
-
|
|
-
|
|
Total
|
|
-
|
|
$
|
-
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The equity compensation plan approved by shareholders is the 2018 Long-Term Incentive Plan, which we refer to in this Proxy Statement as the 2018 Plan.
|
The prior 2002 Management Omnibus Plan had 137,804 shares remaining to satisfy actual performance-based restricted stock awards that were granted under the plan and vest in 2019, 2020, and 2021. No new grants can be made under the 2002 Management Omnibus Plan.
Outstanding Equity Awards at Fiscal Year-End
The following table shows the unvested restricted stock held at fiscal year-end December 31, 2018 by the NEOs
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
Number of
|
|
Value of
|
|
|
|
|
Shares or
|
|
Shares or
|
|
|
|
|
Units of
|
|
Units of
|
|
|
|
|
Stock That
|
|
Stock That
|
|
|
|
|
Have Not
|
|
Have Not
|
|
|
Name
|
|
Vested (#)
|
|
Vested (9)
|
|
|
George M. Murphy
|
|
|
|
|
|
|
Restricted Stock (1)
|
|
2,568
|
|
210,088
|
|
|
Restricted Stock (2)
|
|
7,246
|
|
592,795
|
|
|
Restricted Stock (3)
|
|
3,426
|
|
280,281
|
|
|
Restricted Stock (4)
|
|
5,869
|
|
480,143
|
|
|
Restricted Stock (5)
|
|
4,797
|
|
392,443
|
|
|
Restricted Stock (6)
|
|
6,094
|
|
498,550
|
|
|
Restricted Stock (7)
|
|
10,000
|
|
818,100
|
|
|
|
|
|
|
|
|
|
William J. Begley, Jr.
|
|
|
|
|
|
|
Restricted Stock (1)
|
|
1,605
|
|
131,305
|
|
|
Restricted Stock (2)
|
|
4,529
|
|
370,517
|
|
|
Restricted Stock (3)
|
|
1,927
|
|
157,648
|
|
|
Restricted Stock (4)
|
|
3,302
|
|
270,137
|
|
|
Restricted Stock (5)
|
|
2,398
|
|
196,180
|
|
|
Restricted Stock (6)
|
|
3,047
|
|
249,275
|
|
|
|
|
|
|
|
|
|
James D. Berry
|
|
|
|
|
|
|
Restricted Stock (1)
|
|
1,284
|
|
105,044
|
|
|
Restricted Stock (2)
|
|
3,623
|
|
296,398
|
|
|
Restricted Stock (3)
|
|
1,713
|
|
140,141
|
|
|
Restricted Stock (4)
|
|
2,935
|
|
240,112
|
|
|
Restricted Stock (5)
|
|
2,398
|
|
196,180
|
|
|
Restricted Stock (6)
|
|
3,047
|
|
249,275
|
|
|
|
|
|
|
|
|
|
Paul J. Narciso
|
|
|
|
|
|
|
Restricted Stock (1)
|
|
1,124
|
|
91,954
|
|
|
Restricted Stock (2)
|
|
3,170
|
|
259,338
|
|
|
Restricted Stock (3)
|
|
1,499
|
|
122,633
|
|
|
Restricted Stock (4)
|
|
2,568
|
|
210,088
|
|
|
Restricted Stock (5)
|
|
2,099
|
|
171,719
|
|
|
Restricted Stock (6)
|
|
2,666
|
|
218,105
|
|
|
|
|
|
|
|
|
|
Stephen A. Varga
|
|
|
|
|
|
|
Restricted Stock (1)
|
|
883
|
|
72,238
|
|
|
Restricted Stock (2)
|
|
2,491
|
|
203,789
|
|
|
Restricted Stock (3)
|
|
1,392
|
|
113,880
|
|
|
Restricted Stock (4)
|
|
2,384
|
|
195,035
|
|
|
Restricted Stock (5)
|
|
2,099
|
|
171,719
|
|
|
Restricted Stock (6)
|
|
2,666
|
|
218,105
|
|
|
Restricted Stock (8)
|
|
140
|
|
11,453
|
|
|
|
(1)
|
|
Represents time-based restricted stock awards effective February 23, 2016, which vest over three years with installments of 30% on February 23, 2017, 30% on February 23, 2018, and the remaining 40% on February 23, 2019, provided the grantee is still our employee on such dates.
|
|
|
(2)
|
|
Represents performance-based restricted stock awards effective February 23, 2016. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned will be calculated at the end of the performance period.
|
|
|
(3)
|
|
Represents time-based restricted stock awards effective February 22, 2017, which vest over three years with installments of 30% on February 22, 2018, 30% on February 22, 2019, and the remaining 40% on February 22, 2020, provided the grantee is still our employee on such dates.
|
|
|
(4)
|
|
Represents performance-based restricted stock awards effective February 22, 2017. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned will be calculated at the end of the performance period.
|
|
|
(5)
|
|
Represents time-based restricted stock awards effective February 26, 2018, which vest over three years with installments of 30% on February 23, 2019, 30% on February 23, 2020, and the remaining 40% on February 23, 2021, provided the grantee is still our employee on such dates.
|
|
|
(6)
|
|
Represents performance-based restricted stock awards effective February 26, 2018. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned will be calculated at the end of the performance period.
|
|
|
(7)
|
|
Represents performance-based restricted stock awards effective April 1, 2016. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned will be calculated at the end of the performance period.
|
|
|
(8)
|
|
Represents performance-based restricted stock awards effective March 24, 2014 Shares vest ratably over a five-year period ending March 24, 2019.
|
|
|
(9)
|
|
The amounts in this column were calculated using a per share value of $81.81, the closing market price of a share of our common stock on December 31, 2018.
|
There were no unexercised stock options or other equity incentive plan awards held at December 31, 2018 by the NEOs
Option Exercises and Stock Vested
The following table summarizes information with respect to restricted stock awards vested during the fiscal year ended December 31, 2018 for each of the NEOs.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
Value Realized
|
|
Name
|
|
|
on Vesting (#)
|
|
on Vesting (1)
|
|
George M. Murphy
|
|
|
8,589
|
|
642,040
|
|
William J. Begley, Jr.
|
|
|
6,704
|
|
501,601
|
|
James D. Berry
|
|
|
5,851
|
|
437,770
|
|
Paul J. Narciso
|
|
|
4,221
|
|
315,812
|
|
Stephen A. Varga
|
|
|
3,890
|
|
291,084
|
|
|
(1)
|
|
Value determined by multiplying the number of vested shares by the closing market price of a share of our common stock on the vesting date or on the previous business day in the event the vesting date is not a business day.
|
There were no stock option awards held or exercised by the NEO’s during the year ended December 31, 2018.
Nonqualified Deferred Compensation
The following table summarizes information with respect to the participation of each of the NEOs in the EICP, a non-qualified deferred compensation plan, as of December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
|
|
Aggregate
|
|
|
|
Contributions
|
|
Contributions
|
|
Earnings
|
|
Aggregate
|
|
Balance at
|
|
|
|
in Last
|
|
in Last
|
|
in Last
|
|
Withdrawals/
|
|
Last Fiscal
|
|
Name
|
|
Fiscal Year
|
|
Fiscal Year (1)
|
|
Fiscal Year
|
|
Distributions
|
|
Year End
|
|
George M. Murphy
|
|
49,326
|
|
322,308
|
|
(183,781)
|
|
-
|
|
2,043,377
|
|
William J. Begley, Jr.
|
|
48,778
|
|
212,637
|
|
(296,085)
|
|
-
|
|
3,531,664
|
|
James D. Berry
|
|
19,924
|
|
154,091
|
|
(88,115)
|
|
-
|
|
1,564,295
|
|
Paul J. Narciso
|
|
22,977
|
|
119,142
|
|
(18,810)
|
|
-
|
|
386,490
|
|
Stephen A. Varga
|
|
20,217
|
|
112,825
|
|
(21,881)
|
|
-
|
|
262,621
|
|
|
(1)
|
|
Represents employer matching contributions credited to the NEOs’ EICP accounts in January 2018 for the plan year ended December 31, 2017 on behalf of each NEO who contributed during the plan year (Mr. Murphy-$33,240, Mr. Begley- $34,313, Mr. Berry-$14,244, Mr. Narciso-$14,066, and Mr. Varga-$11,891) ; and annual deferred compensation bonuses credited to the NEOs’ EICP accounts in February 2018 and earned for the year ended 2017 under the EICP (Mr. Murphy-$289,068, Mr. Begley-$178,324, Mr. Berry-$139,847, Mr. Narciso-$105,076, and Mr. Varga-$100,934).
|
The EICP is a non-qualified deferred compensation plan designed to provide a means for retirement savings. With proper notice and approval by the Company, eligible employees may make elective deferral contributions of up to 75% of salary and 100% of annual cash incentives. We make a matching contribution annually in the amount of 75% of the participant’s elective deferral up to a maximum amount of 8% of the participant’s base salary plus annual cash incentive received during the plan year. We also make a fixed contribution annually in the amount of 1.75% of the combined statutory net income of our insurance subsidiaries. Elective deferrals, Company matching contributions, and the portion of the Company fixed contribution allocated to an eligible individual are credited to an account established for the individual. To measure gains and losses, the accounts are treated as though invested in mutual funds selected by the participants. Participants may change the mutual funds in which their accounts are notionally invested on a daily basis. The balance of an individual’s account is distributed in a lump sum upon an employee’s termination of employment, or six months thereafter if required to comply with applicable tax law, or upon change in control.
Under the EICP, change in control is defined to mean a change in control event, as that term is used in Section 409A of the Internal Revenue Code. Section 409A defines a change in control event to include a change in ownership, a change in effective control, or a change in the ownership of a substantial portion of assets. A change in ownership of the corporation occurs when one person or a group acquires stock that combined with stock previously owned, controls more than 50% of the value or voting power of the stock of the corporation. A change in effective control occurs on the date that, during any 12‑month period, either (i) any person or group acquires stock possessing 30% of the voting power of the corporation, or (ii) the majority of the board is replaced by persons whose appointment or election is not endorsed by a majority of the board. A change in ownership of a substantial portion of assets occurs on the date that a person or a group acquires, during any 12‑month period, assets of the corporation having a total gross fair market value equal to 40% or more of the total gross fair market value of all of the corporation’s assets. The definition also contains exceptions that may cause a transaction or event meeting one of the foregoing definitions
not to constitute a change in control event if the acquired or selling entity, or its shareholders, retains, directly or indirectly, a sufficient interest in the surviving or acquiring entity.
Potential Payments Upon Termination or Change in Control
As previously discussed, we have entered into employment agreements with each of the Named Executive Officers. Certain provisions relating to termination of employment and change in control are common to each of the employment agreements. These common provisions include, among other things, the following:
|
|
·
|
|
if the executive’s employment is terminated by us for a reason other than cause, material breach, death, disability or continuous poor performance, or is terminated by the executive for good reason or as a result of our willful and material violation of the executive’s employment agreement or certain other agreements between the executive and us, then we must provide (i) any earned but unpaid base salary and bonus, (ii) a lump sum payment equal to the annual salary he would have received during the remaining term of his employment agreement; and (iii) life and health insurance benefits (but not disability insurance benefits) substantially similar to those the executive and any covered dependents were receiving immediately prior to the date of termination through the remaining portion of the term of his employment agreement (collectively, the “Severance Payment”);
|
|
|
·
|
|
if the executive’s employment is terminated by us for a reason other than cause, material breach, death, disability or continuous poor performance, or is terminated by the executive for good reason or as a result of our willful and material violation of the executive’s employment agreement or certain other agreements between the executive and us, in each case, within three years after a change in control, then we must provide the greater of the Severance Payment or the following: (i) any earned but unpaid base salary and bonus, (ii) a lump sum payment equal to, for the CEO and CFO, three times, and for the remaining Named Executive Officers, two times, the sum of (1) the executive’s base salary in effect immediately prior to the date of termination and (2) the most recent annual bonus paid to the executive, and (iii) life and health insurance benefits for a three-year period after the date of termination (for the CEO and CFO) and for the two-year period after the date of termination (for the remaining Named Executive Officers);
|
|
|
·
|
|
The agreements contain non-competition and non-solicitation provisions; and
|
|
|
·
|
|
Each executive has agreed not to disclose confidential information.
|
For purposes of these employment agreements,
|
|
·
|
|
Change in control is defined, in general terms, to mean the closing of (i) a merger, combination, consolidation or similar business transaction involving the Company after which our shareholders cease to own a majority of the surviving entity, directly or indirectly, (ii) a sale or transfer of all or substantially all of our assets, other than to an entity the majority of which is owned by our shareholders or (iii) a sale of a majority of the Company’s common shares, other than to an entity the majority of which is owned by our shareholders;
|
|
|
·
|
|
Cause means the executive’s (i) commission or conviction of any crime or criminal offense involving monies or other property or any felony; (ii) commission or conviction of fraud or
|
|
embezzlement; (iii) uncured material and knowing violation of any obligations imposed upon him personally; or (iv) egregious misconduct involving serious moral turpitude;
|
|
|
·
|
|
Good reason means (i) a material reduction in the executive’s authority, perquisites, position, or responsibilities; (ii) relocation of our primary place of business or the executive to another office more than 75 miles from Boston, Massachusetts; or (iii) our willful and material violation of the employment agreement or any agreement between the executive and us; in each case that is uncured;
|
|
|
·
|
|
Material breach means the executive’s uncured (i) breach of any of his fiduciary duties to us or our shareholders or making of a willful misrepresentation or omission, in each case which would reasonably be expected to materially adversely affect our business, properties, assets, condition (financial or other) or prospects; (ii) willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations; (iii) habitual drunkenness or substance abuse which materially interferes with the executive’s ability to discharge his duties, responsibilities or obligations; or (iv) willful and material violation of any non-competition, non-disparagement, or confidentiality agreement.
|
2002 Omnibus Incentive Plan (“2002 Plan”)
Under the 2002 Plan, upon a termination by the Company for a reason other than for cause or disability, all unvested shares of restricted stock which were not granted during the year of termination will vest. Under the 2018 Plan, "cause" means (i) the willful engaging by the participant in misconduct that is demonstrably injurious to the Company (monetarily or otherwise), as determined by the Board in its sole discretion, (ii) the participant’s conviction of, or pleading guilty or nolo contendere to, a felony involving moral turpitude, (iii) the participant’s violation of any confidentiality, non-solicitation, or non-competition covenant to which the participant is subject, or (iv) the participant’s poor performance, as determined by reasonable business objectives, after written notice from the Company and a reasonable opportunity to correct such poor performance. If, while any award granted under the 2002 Plan remains outstanding, a change in control of the Company occurs, then all restrictions on restricted stock awards will lapse.
The Compensation Committee adopted a policy to remove the requirement that all awards made after the date of the amendment vest upon a change in control (i.e. “single trigger” vesting), which gives the Compensation Committee the flexibility to grant awards that vest upon an award recipient’s termination of employment upon or following a change in control (i.e., “double trigger” vesting).
Under the 2002 Plan, a change in control is defined, in general terms, to include the closing of (i) a merger, combination, consolidation or similar business transaction involving the Company after which our shareholders cease to own a majority of the surviving entity, directly or indirectly; (ii) a sale or transfer of all or substantially all of our assets, other than to an entity the majority of which is owned by our shareholders; or (iii) a sale of a majority of the Company’s Common Shares, other than to an entity the majority of which is owned by our shareholders.
The following table sets forth the estimated incremental payments and benefits, beyond existing compensation and benefit entitlements described in this Proxy Statement that are not contingent upon a termination or change in control, payable to each NEO upon termination of his
employment or a change in control of the Company, assuming that the triggering event occurred on December 31, 2018. We have not included amounts that would be provided upon a termination of employment under contracts, agreements, plans or arrangements, such as our 401(k) plan or our vacation policy, to the extent they are available generally to all of our salaried employees and do not discriminate in scope, terms, or operation in favor of our executive officers. Amounts shown below do not include amounts in the NEOs’ EICP deferred compensation accounts as of December 31, 2018. Excise tax gross-up reimbursements were eliminated from the executive officers respective employment agreements in December 2012 and hence, are not included in the amounts shown below.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control
|
|
Involuntary Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Cause
|
|
|
|
|
|
Resignation
|
|
|
|
|
|
Without
|
|
or For Good
|
|
With
|
|
Without
|
|
For Good
|
|
Death or
|
|
Name
|
|
Termination (1)
|
|
Reason (2)
|
|
Cause (3)
|
|
Cause (4)
|
|
Reason (5)
|
|
Disability (6)
|
|
George M. Murphy
|
|
-
|
|
$ 8,732,597
|
|
$ 192,676
|
|
$ 3,152,113
|
|
$
770,706
|
|
$ 4,043,106
|
|
William J. Begley, Jr.
|
|
-
|
|
4,323,314
|
|
121,283
|
|
1,414,738
|
|
485,131
|
|
1,860,193
|
|
James D. Berry
|
|
-
|
|
2,836,343
|
|
95,384
|
|
1,163,232
|
|
381,537
|
|
1,608,687
|
|
Paul J. Narciso
|
|
-
|
|
2,257,754
|
|
70,845
|
|
967,392
|
|
283,379
|
|
1,357,216
|
|
Stephen A. Varga
|
|
-
|
|
2,213,730
|
|
73,361
|
|
889,841
|
|
293,446
|
|
1,279,665
|
|
|
(1)
|
|
If there is a change in control but there is no termination of employment, the NEO would not be entitled to receive any incremental benefit under his respective employment agreement with the Company.
|
|
|
(1)
|
|
If there is a change in control followed by termination by the Company for a reason other than cause, material breach, poor performance, death or disability or by the executive for good reason, the NEO would be entitled to incremental payments and benefits under his respective employment agreement with the Company. Amounts in the “Termination Without Cause or For Good Reason” column include the following:
|
Equity Awards.
Under the 2002 Plan, upon a change in control and subsequent termination, any restrictions imposed upon restricted stock awards will lapse. The estimated value as of December 31, 2018 of the previously granted restricted stock awards that would have been accelerated for each NEO is as follows: Mr. Murphy-$3,272,400; Mr. Begley-$1,375,062; Mr. Berry-$1,227,150; Mr. Narciso - $1,073,837; and Mr. Varga-$986,219. The estimated value of restricted stock awards was calculated based upon the closing price of our common stock on December 31, 2018.
Annual Incentive.
Under the Annual Performance Incentive Plan, upon a change in control and subsequent termination, all performance objectives for the current Performance Period would be deemed to have been achieved at target levels of performance. The amount payable to each NEO based upon such assumed performance as of December 31, 2018 would have been as follows: Mr. Murphy-$600,000; Mr. Begley-$277,860; Mr. Berry - $216,120; Mr. Narciso-$157,620; and Mr. Varga-$163,620.
Lump Sum Payments.
The amount payable at three times annual base plus bonus for Mr. Murphy and Mr. Begley and at two times annual base plus bonus for the remaining NEOs would have been as follows: Mr. Murphy-$4,798,080; Mr. Begley-$2,604,300; Mr. Berry-$1,350,400; Mr. Narciso - $984,940; and Mr. Varga-$1,022,400.
Life and Health Insurance Benefits.
The NEOs are entitled to Company provided life and health benefits for three years after the termination date for Mr. Murphy and Mr. Begley and two years after the termination date for the remaining NEOs. The amounts are estimated as follows: Mr. Murphy-$62,117; Mr. Begley-$66,092; Mr. Berry- $42,673; Mr. Narciso-$41,357; and Mr. Varga-$41,491.
|
|
(2)
|
|
Amounts in this column reflect incremental amounts payable upon a termination of the NEO’s employment by the Company for cause or due to the NEO’s poor performance or material breach. The estimated incremental payments shown in this column include three months of base salary and life and health benefits. The three months’ of base salary and life and health benefits would be payable upon the Company’s termination of the NEO’s employment
|
|
due to the NEO’s poor performance, but would not be payable upon the Company’s termination of the NEO’s employment with cause or due to his material breach.
|
|
|
(3)
|
|
The estimated incremental payments shown in this column include the following incremental payments and benefits:
|
Lump Sum Payments.
The amount payable equal to the annual base salary which would have been due under the remaining term of the NEOs employment contracts are as follows: Mr. Murphy-$750,000; Mr. Begley - $463,100; Mr. Berry-$360,200; Mr. Narciso-$262,700; and Mr. Varga-$272,700.
Equity Awards.
Under the 2002 Omnibus Plan, if the termination by the Company is for a reason other than cause, all unvested shares of restricted stock which were not granted during the year in which the termination occurs will vest. The estimated value as of December 31, 2018 of the previously granted awards that would have been accelerated for each NEO is as follows: Mr. Murphy - $2,381,407; Mr. Begley - $929,607; Mr. Berry - $781,695; Mr. Narciso-$684,013; and Mr. Varga-$596,395. The estimated value of restricted stock awards was calculated based upon the closing price of our common stock on December 31, 2018.
Life and Health Insurance Benefits.
The NEOs are entitled to Company provided life and health benefits equal to the benefits which would have been provided under the remaining term of their respective employment contracts. The amounts are estimated as of December 31, 2018 as follows: Mr. Murphy-$20,706 Mr. Begley - $22,031; Mr. Berry-$21,337; Mr. Narciso-$20,679; and Mr. Varga-$20,746.
|
|
(4)
|
|
The estimated payments shown in this column include the lump sum payments and life and health insurance benefits as shown in note (4). Under the 2002 Omnibus Plan, if the termination by the NEO is for good reason, all unvested shares of restricted stock will be forfeited. Hence, the amounts shown in this column do not include an incremental benefit related to equity awards.
|
|
|
(5)
|
|
The estimated incremental payments shown in this column include a lump sum payment equal to 100% of the NEO’s base salary, Company provided life and health insurance benefits for one year, and the estimated value of all unvested restricted stock awards as of December 31, 2018 as shown in note (2).
|
2018 Long-Term Incentive Plan
No awards were granted in 2018 under the 2018 Long-Term Incentive Plan.
DIRECTOR COMPENSATION
Our bylaws provide that at the discretion of the Board, the directors may be paid their expenses, if any, at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as a director. Since we completed our initial public offering of common stock on November 27, 2002, directors who are employees have not received any compensation for serving as directors and directors who were not our employees have received an annual retainer paid in quarterly installments. The annual Director fees are $75,000 annually for each non-management director. Director fees also include an additional $60,000 annually to the Chairman of the Board, an additional $10,000 annually to the Chairman of the Audit Committee, an additional $5,000 annually to the Chairman of our Compensation Committee, the Chairman of our Nominating and Governance Committee, and the Chairman of our Investment Committee.
On February 26, 2018, the Compensation Committee approved grants of 1,000 shares of restricted stock to each of our non-employee directors effective on such dates. Board of Director members must maintain stock ownership equal to at least four times their annual retainer. This requirement must be met within five years of becoming a director.
The following table sets forth the fees paid to the non-employee members of the Board for services provided in 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
Stock
|
|
All Other
|
|
|
|
Name
|
|
Cash
|
|
Awards (1)
|
|
Compensation
|
|
Total
|
|
David F. Brussard
|
|
$ 135,000
|
|
75,050
|
|
$ -
|
|
$ 210,050
|
|
Frederic H. Lindeberg
|
|
80,000
|
|
75,050
|
|
-
|
|
155,050
|
|
Peter J. Manning
|
|
85,000
|
|
75,050
|
|
-
|
|
160,050
|
|
David K. McKown
|
|
80,000
|
|
75,050
|
|
-
|
|
155,050
|
|
Thalia M. Meehan
|
|
75,000
|
|
75,050
|
|
-
|
|
150,050
|
|
|
(1)
|
|
The amounts in this column represent 1,000 shares granted to each Director multiplied by the closing price of the stock on the date of the grant. As of December 31, 2018, no directors who are not our employees held unvested stock awards or unexercised stock options.
|
REPORT OF THE AUDIT COMMITTEE
The primary purpose of the Audit Committee is to assist the Board in its general oversight of the Company’s accounting and financial reporting process, and is more fully described in its charter which the Board and the Audit Committee have adopted and is included as Appendix A to this Proxy Statement.
Each member of the Audit Committee satisfies the definition of an “independent director” as established by Rule 4200 of the NASDAQ Marketplace Rules. The Audit Committee is a separately-designated standing committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over the accounting and financial reporting process. PwC is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to express an opinion on the financial statements and on the Company’s internal control over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.
In connection with the audit of the Company’s consolidated financial statements for the year ended December 31, 2018, the Audit Committee has:
|
|
·
|
|
reviewed and discussed the audited consolidated financial statements with management and PwC;
|
|
|
·
|
|
discussed with the independent auditors the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard 1301,
Communications with Audit Committees
, as amended;
|
|
|
·
|
|
received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent auditors their independence;
|
|
|
·
|
|
met and held discussions with the head of the Company’s internal audit group; and
|
|
|
·
|
|
reviewed our written charter and practices and determined that they meet the applicable requirements of the NASDAQ Marketplace Rules and the SEC.
|
Based on the review and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2018, and be filed with the SEC.
Respectfully submitted,
PETER J. MANNING, CHAIRMAN
FREDERIC H. LINDEBERG
DAVID K. MCKOWN
The above report of the Audit Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
The following table sets forth certain information as of April 1, 2019 with respect to the beneficial ownership of shares of common stock by the following individuals: (a) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of such stock; (b) each of our directors and director nominees; (c) each of our Named Executive Officers; and (d) all of our directors, director nominees and executive officers as a group. Except as stated below, each holder listed below has sole or shared investment and/or voting power with respect to the shares of common stock beneficially owned by the holder, subject to community property laws where applicable. The information in the table and the related notes has been furnished by or on behalf of the indicated owners.
|
|
|
|
|
|
|
|
|
|
|
Amount of Shares
|
|
Percentage of
|
|
|
Name and Address of Beneficial Owner
|
Beneficially Owned
|
|
Class (%) (6)
|
|
|
(a)
|
Security ownership of certain beneficial owners:
|
|
|
|
|
|
|
|
BlackRock, Inc. (1)
|
|
2,138,390
|
|
13.9%
|
|
|
|
|
40 East 52nd Street
|
|
|
|
|
|
|
|
|
New York, New York 10022
|
|
|
|
|
|
|
|
|
SRB Corporation (2)
|
1,537,233
|
|
10.0%
|
|
|
|
|
125 High Street
|
|
|
|
|
|
|
|
|
Boston, MA 02110
|
|
|
|
|
|
|
|
|
The Vanguard Group (3)
|
1,514,682
|
|
9.8%
|
|
|
|
|
100 Vanguard Blvd
|
|
|
|
|
|
|
|
|
Malvern, PA 19355
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP (4)
|
1,184,749
|
|
7.7%
|
|
|
|
|
6300 Bee Cave Road
|
|
|
|
|
|
|
|
|
Austin, Texas 78746
|
|
|
|
|
|
|
|
|
T. Rowe Price Associates, Inc. (5)
|
1,149,039
|
|
7.5%
|
|
|
|
|
100 E. Pratt Street,
|
|
|
|
|
|
|
|
|
Baltimore, Maryland 21202
|
|
|
|
|
|
|
(b)
|
Security ownership of directors and director nominees:
|
|
|
|
|
|
|
|
David F. Brussard
|
354,806
|
|
2.3%
|
|
|
|
|
George M. Murphy*
|
72,903
|
|
0.5%
|
|
|
|
|
Frederic H. Lindeberg*
|
16,000
|
|
0.1%
|
|
|
|
|
Peter J. Manning
|
8,000
|
|
0.1%
|
|
|
|
|
David K. McKown
|
5,500
|
|
0.0%
|
|
|
|
|
Thalia M. Meehan
|
|
3,000
|
|
0.0%
|
|
|
(c)
|
Security ownership of Named Executive Officers:
|
|
|
|
|
|
|
|
William J. Begley, Jr.
|
88,448
|
|
0.6%
|
|
|
|
|
James D. Berry
|
28,331
|
|
0.2%
|
|
|
|
|
Paul Narciso
|
24,370
|
|
0.2%
|
|
|
|
|
George M. Murphy*
|
72,903
|
|
0.5%
|
|
|
|
|
Stephen A. Varga
|
20,391
|
|
0.1%
|
|
|
(d)
|
All directors, director nominee and executive officers as a group
|
|
|
|
|
|
|
(13 persons)
|
742,981
|
|
4.8%
|
|
|
|
|
|
|
|
|
|
|
*
Nominee for director.
|
|
(1)
|
|
Based on Schedule 13G, dated January 31, 2019 filed by Black Rock, Inc. which states sole voting power over 2,102,830 shares and sole dispositive power over 2,138,390 shares.
|
|
|
(2)
|
|
Based on Schedule 13G, dated February 14, 2019, filed by SRB Corporation which states shared voting power and shared dispositive power over 1,537,233 shares.
|
|
|
(3)
|
|
Based on Schedule 13G, dated February 11, 2019, filed by The Vanguard Group which states sole voting power over 13,950 shares, shared voting power over 3,132 shares, sole dispositive power over 1,514,682 shares and shared dispositive power over 15,882 shares.
|
|
|
(4)
|
|
Based on Schedule 13G, dated February 8, 2019, filed by Dimensional Fund Advisors LP which states sole voting power over 1,134,835 shares and sole dispositive power over 1,184,749 shares.
|
|
|
(5)
|
|
Based on Schedule 13G, dated December 31, 2018, filed by T. Rowe Price Associates, Inc. which states sole voting power over 261,594 shares and sole dispositive power over 1,149,039 shares.
|
|
|
(6)
|
|
Percentage of class refers to percentages of class beneficially owned as the term beneficial ownership is defined in Rule 13d‑3 under the Securities Exchange Act of 1934 and is based upon the 15,383,794 shares of common stock outstanding and eligible to vote on the Record Date.
|
The mailing address of each director, director nominee, and executive officer shown above is c/o Safety Insurance Group, Inc., 20 Custom House Street, Boston, MA 02110.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers and persons who own more than ten percent of the Common Stock to file with the SEC initial reports of ownership and reports of changes in ownership of the Common Stock and other equity securities, if any. Executive officers, directors and greater than ten percent beneficial owners are required to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on the Company’s review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended December 31, 2018, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten percent beneficial owners were complied with.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee consists of David K. McKown (Chairman), Frederic H. Lindeberg and Peter J. Manning, who are three independent non-employee directors who have no “interlocking” relationships as defined by the SEC, or other relationships with us that would call into question their independence as a member of the Compensation Committee. During fiscal year 2018, none of our executive officers served (i) as a member of the compensation committee or board of directors of another entity, one of whose executive officers served on our compensation committee, or (ii) as a member of the compensation committee of another entity, one of whose executive officers served on our board.
PAY RATIO
We are providing the following information to comply with Item 402(u) of Regulation S-K. We have determined that our pay ratio for 2018 is 39 to 1, calculated pursuant to SEC rules by dividing our CEO’s annual total compensation set forth in the Summary Compensation Table for 2018 ($3,096,189) by $78,460, which represents the median of the annual total compensation of our employees (other than our CEO) for 2018. We identified our median employee as of December 31, 2018, using our entire workforce of approximately 627 employees. Total compensation including cash bonuses and stock related awards were used to determine the median employee for 2018. We then calculated the median employee’s annual total compensation based on the proxy rules for determining the annual total compensation of our NEOs in order to determine the pay ratio.
SEC rules for identifying the median employee and calculating the pay ratio allow companies to apply various methodologies and make various assumptions that may differ from other companies’ methodologies and/or assumptions. As a result, the pay ratio reported by the Company may not be comparable to the pay ratio reported by other companies.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Related Party Transactions
We have adopted and maintain a code of business conduct and ethics that applies to all directors, executive officers and employees. The code covers matters that we believe are supportive of high standards of ethical business conduct, including those regarding legal compliance, conflicts of interest, insider trading, maintenance of corporate books and records, gifts and entertainment, political contributions, confidentiality, public communications, special obligations applicable to our CFO and members of the audit committee, and standards and procedures for compliance with the code. Among other things, the code covers all transactions required to be disclosed in this related party transactions section of the proxy statement. The code can be found on our website at
www.SafetyInsurance.com
. Shareholders may also obtain a copy of the code by writing to the Office of Investor Relations at the address set forth under "Available Information."
The code does not distinguish between potential conflict of interest transactions involving directors or executive officers and those involving other employees. It notes that all covered persons shall be responsible for the enforcement of the policies set forth in the code and will be held accountable for any violations of the code. Any of our officers or employees having any information or knowledge regarding any transaction or activity prohibited by the code shall promptly report the same to our CFO, who shall review and determine whether to approve of potential conflicts of interest for employees. Review and approval of potential conflicts of interests of officers and directors shall be made by the audit committee of our board of directors.
The code does not expressly set forth the standards that would be applied in reviewing, approving or ratifying transactions in which our directors, executive officers or 5% stockholders have a material interest. We expect that in connection with the review, approval or ratification of any such transaction, our CFO and audit committee will be provided with all material information then available regarding the transaction, the nature and extent of the director’s, executive officer’s or 5% stockholder’s interest in the transaction, and the terms upon which the products, services or other
subject matter of the transaction could be provided by alternative sources. We expect that any such transaction would be approved or ratified only if our CFO or audit committee, as applicable, concluded in good faith that it was in our interest to proceed with it. We expect that pre-approval will be sought for any such transaction when practicable, and when pre-approval is not obtained, that any such transaction will be submitted for ratification as promptly as practicable.
OTHER MATTERS
Inspectors of Election
Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717, has been appointed as Inspectors of Election for the Company’s 2019 Annual Meeting. Representatives of Broadridge will attend the 2019 Annual Meeting to receive votes and ballots, supervise the counting and tabulating of all votes and ballots, and determine the results of the vote.
Delivery of Documents to Shareholders Sharing an Address
We have adopted a procedure approved by the SEC, called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our Annual Report and Proxy Statement unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of our Annual Reports and/or Proxy Statements, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of the Annual Report or Proxy Statement for your household, please contact our transfer agent, Broadridge Shareholder Services (in writing: P.O. Box 1342, Brentwood, NY 11717-0718; by telephone: 1‑877‑830‑4936). If you participate in householding and wish to receive a separate copy of the 2018 Annual Report or this Proxy Statement, or if you do not wish to participate in householding and prefer to receive separate copies of future Annual Reports and/or Proxy Statements, please contact Broadridge Shareholder Services as indicated above. Beneficial shareholders can request information about householding from their banks, brokers or other holders of record. The Company hereby undertakes to deliver promptly upon written or oral request, a separate copy of the Annual Report to Our Shareholders, or Proxy Statement, as applicable, to a Company shareholder at a shared address to which a single copy of the document was delivered.
Available Information
The Company is subject to the informational reporting requirements of the Securities Exchange Act of 1934. In accordance therewith, the Company files reports, proxy statements and other information with the SEC. The Company will provide to any shareholder, upon request and without charge, copies of all documents (excluding exhibits unless specifically requested) filed with the SEC. Written, telephone, fax or e-mail requests should be directed to the Office of Investor Relations, Safety Insurance Group, Inc., 20 Custom House Street,
Boston, MA 02110, Tel: 877‑951‑2522, Fax: 617‑603‑4837, or e-Mail to
InvestorRelations@SafetyInsurance.com
. These documents are also made available on the Company’s website,
www.SafetyInsurance.com
, as soon as reasonably practicable after each SEC Report is filed with or furnished to the SEC.
Shareholder Proposals for the Annual Meeting of Shareholders
Any shareholder proposals intended to be presented at our 2020 Annual Meeting and considered for inclusion in our proxy materials must be received by December 20, 2019. Any shareholder proposals intended to be presented at our 2020 Annual Meeting and not included in our proxy materials must comply with the advance notice provisions in Article II, Section 2 and Article III, Section 1 of our bylaws. Notices must be received by December 20, 2019. In addition, shareholders who wish to nominate directors for election or make other proposals must comply with the procedures described in our bylaws. All shareholder proposals should be directed to our Secretary, William J. Begley, Jr., at our address listed on page 1 of this Proxy Statement.
|
|
|
|
|
By Order of the Board of Directors,
|
|
|
|
|
|
WILLIAM J. BEGLEY, JR.
|
|
|
Vice President, Chief Financial Officer and Secretary
|
APPENDIX A
Safety Insurance Group, Inc.
AUDIT COMMITTEE CHARTER
As approved by the Audit Committee and Board of Directors on May 16, 2013
This Charter (this “Charter’) of the Audit Committee has been adopted by the Board of Directors (the “Board”) of Safety Insurance Group, Inc (the “Company”).
I. General Statement of Purpose
The Audit Committee of the Board of the Company assists the Board in general oversight and monitoring of: (i) the integrity and audits of financial statements of the Company; (ii) the independent auditor’s qualifications and independence; (iii) the performance of the Company’s internal audit function and independent auditors; (iv) the accounting and financial reporting processes of the Company; and (v) the Company’s procedures for compliance with legal and regulatory requirements.
II. Audit Committee Composition
The Audit Committee shall be comprised of a minimum of three directors as appointed by the Board, who shall meet the independence and audit committee composition requirements of the Marketplace Rules promulgated by the National Association of Securities Dealers, Inc., as may be modified or supplemented, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, the rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”) and any applicable requirements of state law. Each member of the Audit Committee shall be able to read and understand fundamental financial statements, including a balance sheet and statements of operations, comprehensive income and cash flows, and to the extent required, at least one member shall be an “Audit Committee Financial Expert” as such term is defined by the Commission.
The members of the Audit Committee shall be elected by the Board and shall continue to serve as such until the next annual meeting of the Board or until their respective successors are designated. Any vacancy that might arise in the membership of the Audit Committee shall be filled by appointment of the Board.
III. Meetings
The Audit Committee will meet as often as may be deemed necessary or appropriate and at such times and places as it shall determine, but not less frequently than quarterly. The Audit Committee will meet periodically with management, the internal auditors and the independent auditor in separate executive sessions. The Audit Committee will record the actions taken at such meetings and will report to the Board with respect to its meetings.
IV. Responsibilities and Authority
The Audit Committee shall have the sole authority to appoint, replace, determine funding for, and oversee the independent auditor. The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of
disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work, or performing other audit, review or attest services for the Company. The independent auditor shall report directly to the Audit Committee.
The Audit Committee shall preapprove all auditing and review services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor in accordance with applicable rules and regulations.
The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee shall be responsible for (i) ensuring its receipt of a formal written statement delineating all relationships between the independent auditor and the Company from the independent auditors, consistent with Independence Standards Board Standard No. 1, as may be modified or supplemented; (ii) actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors; and (iii) taking, or recommending that the Board take, appropriate action to oversee the independence of the independent auditor.
The Audit Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
V. Audit Committee Principal Processes
The principal processes of the Audit Committee will generally include the following which are set forth as a guide with the understanding that the Audit Committee may supplement them as appropriate:
A. Financial Statement and Disclosure
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Review and discuss with management and the independent auditor the annual earnings release and annual audited financial statements, including disclosures made in management’s discussion and analysis.
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2.
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Review and discuss with management and the independent auditor the Company’s quarterly earnings releases and quarterly financial statements prior to the filing of its Form 10‑Q, including disclosures made in management’s discussion and analysis and the results of the independent auditor’s review of the quarterly financial statements.
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3.
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Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the
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Company’s internal controls and any special steps adopted in light of material control deficiencies.
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4.
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Review and discuss quarterly reports from the independent auditors on: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (c) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.
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5.
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Review management’s conclusions about the Company’s disclosure controls and procedures.
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6.
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Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
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7.
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Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10‑K and Form 10‑Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls.
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B. Oversight of the Company’s Relationship with the Independent Auditor
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Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management and internal auditors.
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2.
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Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law.
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C. Oversight of the Company’s Internal Audit Function
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Review the appointment and replacement of the senior internal auditing executive.
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2.
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Review the significant reports to management prepared by the internal auditing department and management’s responses.
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3.
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Discuss with the independent auditor and management the internal audit department responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.
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D. Oversight of the Company’s Risk Management Process
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Assist the Board in fulfilling its risk oversight responsibilities.
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Review and approve the Company’s overall risk level.
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Review the risk register evidencing the Company’s risk environment.
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Monitor the effectiveness of the risk treatment activities in place
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Review and approve the Company’s risk management program and supporting policies and procedures.
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VI. Annual Evaluation
The Audit Committee shall review and reassess this Charter on an annual basis.
VII. Limitation of Audit Committee’s Role
Notwithstanding the responsibilities and powers of the Audit Committee set forth in this Charter, the Audit Committee does not have the responsibility of planning or conducting audits of the Company’s financial statements or determining whether or not the Company’s financial statements are complete, accurate and in accordance with generally accepted accounting principles or the rules of the Commission. Such responsibilities are the duty of management and the independent auditor.
APPENDIX B
Safety Insurance Group, Inc.
COMPENSATION COMMITTEE CHARTER
As approved by the Compensation Committee and the Board of Directors on March 27, 2013
This Charter (this “Charter”) of the Compensation Committee (the “Committee”) has been adopted by the Board of Directors (the “Board”) of Safety Insurance Group, Inc. (the “Company”).
I.
General Statement of Purpose
The Committee shall assist in fulfilling the Board’s oversight responsibilities relating to compensation including, but not limited to: (i) reviewing and making recommendations to the Board on the Company’s compensation practices and policies; (ii) determining or recommending to the Board for determination, the salaries and incentive compensation of the Chief Executive Officer and all other executive officers; and (iii) administering and interpreting the Company’s equity-based plans. The Committee shall also prepare the report required to be included in the Company’s annual proxy statements pursuant to the rules promulgated by the United States Securities and Exchange Commission.
II.
Responsibilities and Authority
In furtherance of this purpose, the Committee shall have the following responsibilities and authority:
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a.
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The Committee shall approve, and review at least annually, the terms of any agreement providing for the compensation of the Chief Executive Officer. If there is no such agreement in place, or if such agreement provides for compensation based upon a determination by the Board, the Committee shall determine, or recommend to the Board for determination, the Chief Executive Officer’s annual compensation, including salary, bonus, incentive and equity compensation.
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b.
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The Committee shall approve, and review at least annually, the terms of any agreement providing for the compensation of any executive officer of the Company. If there is no such agreement in place, or if such agreement provides for compensation based upon a determination by the Board, the Committee shall determine, or recommend to the Board for determination, the annual compensation, including salary, bonus, incentive and equity compensation of such executive officers.
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c.
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To consider and take actions with respect to adoption, amendment, administration or termination of long-term incentive plans, equity/stock plans (subject to paragraph d below), retirement or pension plans, and other plans related to compensation of current and former employees of the Company.
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d.
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To review the terms and conditions of compensation and incentive plans, evaluate the performance of compensation and incentive plans, and approve, and recommend to the Board for its approval, the initial adoption of any equity-based plans and any material modifications to such plans (such as an increase in the number of shares of the
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Company’s common stock available for grant thereunder) as the Committee deems appropriate.
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e.
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To recommend to the Board the compensation of outside directors.
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f.
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To delegate any of its responsibilities to subcommittees as the Committee may deem appropriate in its sole discretion.
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To exercise such additional powers as may be reasonably necessary, in the Committee’s discretion, to fulfill its responsibilities hereunder.
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III.
Outside Advisors
The Committee, acting by majority vote, shall have the sole authority to retain and terminate compensation consultants to assist in the evaluation of Chief Executive Officer or executive officer compensation, including sole authority to approve such consultants’ fees and any other retention terms. The Committee, acting by majority vote, shall also have sole authority to obtain advice and assistance from internal or external legal, accounting or other advisors to assist the Committee in fulfilling its responsibilities hereunder. The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel or other adviser retained by the Committee.
To the extent required under NASDAQ Listing Rule 5605(d), the Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the Committee, other than in-house legal counsel, only after taking into consideration the following factors:
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a.
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the provision of other services to the Company by the person that employs the compensation consultant, legal counsel or other adviser;
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b.
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the amount of fees received from the Company by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser;
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c.
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the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest;
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d.
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any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the Committee;
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e.
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any stock of the Company owned by the compensation consultant, legal counsel or other adviser; and
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f.
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any business or personal relationship of the compensation consultant, legal counsel, other adviser or the person employing the adviser with an executive officer of the Company.
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The Company must provide for appropriate funding, as determined by the Committee, for payment of reasonable compensation to a compensation consultant, legal counsel or any other adviser retained by the Committee.
IV.
Annual Evaluation
The Committee shall review this Charter annually and recommend to the Board any improvements to this Charter it deems necessary.
V.
Membership
The Committee shall consist of no fewer than two (2) members of Board, as determined by the Board. Each Committee member shall meet the independence requirements of the Marketplace Rules promulgated by the Financial Industry Regulatory Authority, Inc., as determined by the Board, and any other requirements set forth in applicable laws, rules and regulations.
Committee members shall be appointed annually by a majority vote of the Board on the recommendation of the Nominating and Corporate Governance Committee. The Committee members may be removed, with or without cause, by a majority vote of the Board.
VI.
Chairman
The Committee shall include a Committee chairman. The Committee chairman shall be appointed by a majority vote of the Board. The Committee chairman shall be entitled to chair all regular sessions of the Committee, add topics to the agenda, and cast a vote to resolve any ties.
VII.
Meetings
The Committee shall meet as often as necessary to carry out its responsibilities, but at least twice yearly. The Committee chairman may call a Committee meeting upon due notice of each other Committee member at least forty-eight (48) hours prior to the meeting, unless such notice is waived by any Committee member not receiving such notice. Any Committee member may request the Committee chairman to call a meeting. A majority of Committee members, acting in person or by proxy, shall constitute a quorum. The Committee shall be responsible for maintaining minutes and other applicable records of each Committee meeting. The Committee shall report its actions and recommendations to the Board after each Committee meeting.
The Committee may invite to, or exclude from, its meetings any individual it deems appropriate in order to carry out its responsibilities. However, the Chief Executive Officer may not be present during voting or deliberations on his or her compensation.
APPENDIX C
Safety Insurance Group, Inc.
NOMINATING AND GOVERNANCE COMMITTEE CHARTER
As approved by the Nominating and Governance Committee and Board of Directors on February 26, 2019
This Charter (this “Charter”) of the Nominating and Governance Committee (the “Committee”) has been adopted by the Board of Directors (the “Board”) of Safety Insurance Group, Inc. (the “Company”).
I. General Statement of Purpose
The Committee shall assist the Board in identifying individuals qualified to become Board members, recommend director-nominees to the Board for annual shareholders’ meetings, take a leadership role in shaping the Company’s corporate governance and oversee the evaluation of the Board, management and the Board committees.
II. Responsibilities and Authority
In furtherance of this purpose, the Committee shall have the following responsibilities and authority:
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To lead the search for individuals qualified to become Board members to the extent necessary to fill vacancies on the Board or as otherwise desired by the Board.
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2.
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To develop and recommend to the Board for its approval a policy regarding director nominees recommended by shareholders, including the procedures to be followed by shareholders in submitting such recommendations. The Committee shall assess the adequacy of such policy on an annual basis, or more frequently as circumstances dictate, and recommend changes to the Board.
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3.
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To develop a process for identifying and evaluating director nominees.
The Board is committed to a policy of inclusiveness and is committed to actively seeking out highly-qualified candidates with diverse gender, ethnicity, backgrounds, experiences, and skills for each search the Board undertakes. The Committee shall assess the adequacy of such process on an annual basis, or more frequently as circumstances dictate, and implement any changes to such policy as determined by a majority vote of the Committee.
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4.
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To conduct all necessary and appropriate inquiries into the background and qualifications of each possible director nominee.
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5.
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To make an annual report to the Board on emergency as well as expected CEO succession planning. The full Board will work with the Committee to recommend and evaluate potential successors to the CEO.
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6.
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To develop a process for shareholders of the Company to send communications to the Board. The Committee shall assess the adequacy of such process on an annual basis, or more
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frequently as circumstances dictate, and implement any changes to such policy as determined by a majority vote of the Committee.
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7.
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To develop and recommend to the Board for its approval a policy regarding Board members’ attendance at annual meetings. The Committee shall assess the adequacy of such policy on an annual basis, or more frequently as circumstances dictate, and recommend changes to the Board.
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8.
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To review written communications from shareholders concerning the Company’s annual general meeting and governance process and make recommendations to the Board as necessary.
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9.
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To annually review and reassess the adequacy of the Company’s Code of Business Conduct and recommend changes to the Board as necessary.
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10.
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To review requests from directors and executive officers of the Company for waivers from the Company’s Code of Business Conduct, to make recommendations to the Board concerning such requests, and to review any required disclosures relating to such waivers.
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11.
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To review and approve all related-party transactions, as such term is defined in the NASDAQ Marketplace Rules.
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12.
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To delegate any of its responsibilities to subcommittees as the Committee may deem appropriate in its sole discretion.
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13.
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To exercise such additional powers as may be reasonably necessary, in the Committee’s discretion, to fulfill its responsibilities hereunder.
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III. Outside Advisors
The Committee, acting by majority vote, shall have sole authority to retain and terminate any search firm employed to identify director nominees, including sole authority to approve the search firm’s fees and any other retention terms. The Committee, acting by majority vote, shall also have sole authority to obtain advice and assistance from internal or external legal, accounting, or other advisors to assist the Committee in fulfilling its responsibilities hereunder.
IV. Annual Evaluation
The Committee shall review this Charter annually and recommend to the Board any improvements to this Charter it deems necessary.
V. Membership
The Committee shall consist of no fewer than two (2) directors, as determined by the Board. Each Committee member shall meet the independence requirements of the Marketplace Rules promulgated by the National Association of Securities Dealers, Inc., as determined by the Board, and any other requirements set forth in applicable laws, rules and regulations. The Committee members shall be appointed annually, and may be removed, with or without cause, by a majority vote of the Board.
VI. Chairman
The Committee shall include a Committee chairman. The Committee chairman shall be appointed by a majority vote of the Board. The Committee chairman shall be entitled to chair all regular sessions of the Committee, add topics to the agenda, and cast a vote to resolve any ties.
VII. Meetings
The Committee shall meet as often as necessary to carry out its responsibilities, but at least twice yearly. The Committee chairman may call a Committee meeting upon due notice of each other Committee member at least forty-eight (48) hours prior to the meeting, unless such notice is waived by any Committee member not receiving such notice. Any Committee member may request the Committee chairman to call a meeting. A majority of Committee members, acting in person or by proxy, shall constitute a quorum. The Committee shall be responsible for maintaining minutes and other applicable records of each Committee meeting. The Committee shall report its actions and recommendations to the Board after each Committee meeting.
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SAFETY INSURANCE GROUP, INC.
C/O BROADRIDGE CORPORATE ISSUER SOLUTIONS
PO BOX 1342
BRENTWOOD, NY 11717
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on 05/21/2019. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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For
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Withhold
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For All
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To withhold authority to vote for any individual
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The Board of Directors recommends you vote FOR
the following:
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All
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All
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Except
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nominee(s), mark “For All Except” and write the
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number(s) of the nominee(s) on the line below.
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1.
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Election of two Class II Directors to serve a
three year term expiring in 2022.
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☐
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☐
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Nominees:
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1a.
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Frederic H. Lindeberg
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1b. George M. Murphy
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The Board of Directors recommends you vote FOR proposals 2 and 3.
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For
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Against
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Abstain
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2.
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Ratification of the Appointment of PRICEWATERHOUSECOOPERS LLP.
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3.
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Advisory Vote on Executive Compensation.
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The Board of Directors recommends you vote AGAINST proposal 4.
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Abstain
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4.
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Vote on shareholder proposal requesting that the Company adopt a majority voting standard in uncontested
director elections.
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NOTE:
Such other business as may properly come before the meeting or any adjournment thereof.
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For address change/comments, mark here.
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☐
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(see reverse for instructions)
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement and 10K Wrap are available at www.proxyvote.com
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SAFETY INSURANCE GROUP, INC.
Annual Meeting of Shareholders
May 22, 2019 10:00 AM
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) George M. Murphy and William J. Begley, Jr. (each with the power to act without the other and with power of substitution) or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of SAFETY INSURANCE GROUP, INC. that the shareholder is entitled to vote at the Annual Meeting of shareholders to be held at 10:00 AM, EDT on May 22, 2019, at 20 CUSTOM HOUSE STREET BOSTON, MA 02210, and any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations.
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Address change/comments:
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(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
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Continued and to be signed on reverse side
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