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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Definitive Proxy Statement

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Soliciting Material under §240.14a‑12

 

 

 

 

 

SAFETY INSURANCE GROUP, INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

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SAFETY_LOGO_468X102_300DPI

SAFETY INSURANCE GROUP, INC.

20 Custom House Street, Boston, Massachusetts 02110

 

 

 

 

April 9, 2020

To Our Shareholders:

 

 

I am pleased to invite you to attend the 2020 Annual Meeting of Shareholders of Safety Insurance Group, Inc., which will be held at 10:00 a.m. on Wednesday,  May 20,  2020, 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.

 

 

 

 

Sincerely,

 

 

 

GEORGE_MURPHY

 

George M. Murphy

 

President and Chief Executive Officer

 

 

 

SAFETY_LOGO_468X102_300DPI

SAFETY INSURANCE GROUP, INC.

20 Custom House Street, Boston, Massachusetts 02110


NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 20, 2020


 

 

 

April 9, 2020

To Our Shareholders:

 

 

The 2020 Annual Meeting of Shareholders of Safety Insurance Group, Inc. (the “Company”) will be held on Wednesday, May 20, 2020 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:

1.

a proposal to elect two of the Company’s directors to Class III with a term ending 2023;

2.

to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2020;

3.

to provide an advisory vote on the compensation of the named executive officers as disclosed in this Proxy Statement; and

4.

the transaction of such other business as may properly come before the meeting or any adjournment or adjournments thereof.

The Board of Directors has fixed March 30, 2020 as the Record Date for determining the shareholders of the Company entitled to notice of and to vote at the 2020 Annual Meeting and any adjournment thereof. The Company’s 2019 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.

 

 

 

By Order of the Board of Directors,

 

 

PICTURE 4

 

 

CHRISTOPHER T. WHITFORD

 

Vice President, Chief Financial Officer and Secretary

 

Important Notice Regarding the Availability of Proxy Materials for

Our Annual Meeting of Shareholders to Be Held on May 20, 2020

The accompanying Proxy Statement and our 2019  Annual Report to Our Shareholders are available for viewing, printing and downloading at www.proxyvote.com and http://materials.proxyvote.com/78648T.

Table of Contents

 

 

 

Page

GENERAL INFORMATION 

1

PROPOSAL 1  ELECTION OF THE COMPANY’S DIRECTORS 

3

PROPOSAL 2  RATIFICATION OF APPOINTMENT OF     PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020 

9

PROPOSAL 3  ADVISORY VOTE ON EXECUTIVE COMPENSATION 

11

EXECUTIVE OFFICERS 

12

EXECUTIVE COMPENSATION 

 

Compensation Discussion and Analysis 

14

Compensation Committee Report 

26

Compensation Policies and Practices as They Relate to the Company’s Risk Management 

27

Summary Compensation Table 

28

Grants of Plan-Based Awards 

29

Outstanding Equity Awards at Fiscal Year-End 

32

Options Exercises and Stock Vested 

33

Nonqualified Deferred Compensation 

34

Potential Payments Upon Termination or Change in Control 

35

DIRECTOR COMPENSATION 

39

REPORT OF THE AUDIT COMMITTEE 

40

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT 

41

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 

42

PAY RATIO 

43

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

43

OTHER MATTERS 

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APPENDIX A-AUDIT COMMITTEE CHARTER 

A‑1

APPENDIX B-COMPENSATION COMMITTEE CHARTER 

B‑1

APPENDIX C-NOMINATING AND GOVERNANCE COMMITTEE CHARTER 

C‑1

 

 

 

 

 

 

SAFETY_LOGO_468X102_300DPI

SAFETY INSURANCE GROUP, INC.

20 Custom House Street, Boston, Massachusetts 02110


PROXY STATEMENT

FOR ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 20, 2020


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 2020 Annual Meeting of Shareholders to be held on May 20, 2020 at 10:00 a.m. at the Company’s headquarters located at 20 Custom House Street, Boston, Massachusetts 02110 (the “2020 Annual Meeting”).

The record date for determining shareholders entitled to vote at the 2020 Annual Meeting has been fixed at the close of business on March 30, 2020 (the “Record Date”). As of the Record Date, 15,452,789 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, 2020.

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. Abstentions are not counted as a vote cast either “for” or “against” the nominee’s election.  The Board adopted Amended and Restated Bylaws of the Company effective as of the Record Date under which a director shall be elected by a majority of the votes cast in an uncontested election at which a quorum (a majority of issued and outstanding shares of Common Stock entitled to vote) is present. For the 2020 Annual Meeting, so long as a quorum is present either in person or by proxy, a majority 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 2020 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 or 3 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

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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.

The enclosed Proxy confers discretionary authority with respect to any other proposals that may properly be brought before the 2020 Annual Meeting. As of the date hereof, management is not aware of any other matters to be presented for action at the 2020 Annual Meeting. If any other matters properly come before the 2020 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 2020 Annual Meeting may vote in person whether or not the shareholder has previously filed a Proxy. Presence at the 2020 Annual 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, 2019, 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.

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PROPOSAL 1

ELECTION OF THE COMPANY’S DIRECTORS

The Board consists of seven 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 2020 Annual Meeting, David F. Brussard and Thalia M. Meehan have been nominated for re-election to a three-year term ending at the 2023 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 2020 NOMINEES.

 

 

 

 

 

 

Name

 

Age **

 

Director Since

Class III - Term ending in 2023*

 

 

 

 

 

David F. Brussard, Chairman of the Board (4C)

 

68

 

2001

 

Thalia M. Meehan (2)(3)(4)

 

59

 

2017

 

 

 

 

 

 

Class I - Term ending in 2021

 

 

 

 

 

Peter J. Manning (1C)(2)(3)

 

81

 

2003

 

David K. McKown (1)(2C)(3)

 

82

 

2002

 

Mary C. Moran

 

64

 

2020

 

 

 

 

 

 

Class II - Term ending in 2022

 

 

 

 

 

Frederic H. Lindeberg (1)(2)(3C)

 

79

 

2004

 

George M. Murphy (4)

 

53

 

2016

 

 

 

 

 

 


*Nominated at the 2020 Annual Meeting to a term ending in 2023

**As of April 1, 2020.

(1)

Member of the Audit Committee.

(2)

Member of the Compensation Committee.

(3)

Member of the Nominating and Governance Committee.

(4)

Member of the Investment Committee.

(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

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

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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.

 

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, the Compensation Committee and the Nominating and Governance 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 Cambridge Bancorp where she is a member of the Trust and Asset and Liability Committees and also serves on the Municipal Securities Rulemaking Board, the Strategic Advisory Committee of Build America Mutual and the Board of Boston Women in Public Finance. 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.    

Directors Continuing in Office

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 a director of Provident Senior Living Trust and TAL International Group, Inc. and formerly an adjunct professor at Penn State Graduate School of Business. 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.

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 is a former director of the Blue Hills Bank and 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.

4

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 52 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.

Mary C. Moran was appointed Director of the Company on March 27, 2020. Ms. Moran has over 40 years of financial experience in both private industry as well as consulting. Ms. Moran began her career at KPMG, previously Peat Marwick, where she became a Senior Manager before serving as Senior Vice President of Finance and Administration for Boston Sand and Gravel Company from 1990 to 2001. Since 2002 she has served as CEO of MCM Financial Consulting, focusing on projects within in the banking, construction, higher education, manufacturing, not-for-profit and professional services industries. Ms. Moran is currently a director of Care Dimensions where she serves on the finance and audit committee and is a former director and audit committee member of Danvers Bankcorp, the College of the Holy Cross and Catholic Memorial School. Ms. Moran graduated from Northeastern University with a M.B.A. and MS in Accounting and from the College of the Holy Cross with a degree in Economics.    Ms. Moran qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and Exchange Committee rules. We believe that Ms.  Moran’s many years of experience in finance, along with her leadership skills and vast consulting experience in the financial sector provide her with the necessary qualifications which we believe well qualify her to serve on our Board.

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 31 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.

Certain Information Regarding the Board of Directors

Meetings of the Board of Directors

During 2019, 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

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of the incumbent Directors attended at least 75% of the Board and committee meetings held while they were members during 2019. At each quarterly meeting of the Board, the non-executive 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. 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, Frederic H. Lindeberg, Peter J. Manning, David K. McKown,  Thalia M. Meehan and Mary C. Moran 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

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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, Peter J. Manning and Thalia M. Meehan (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, David K. McKown and Thalia M. Meehan (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 Christopher T.  Whitford, 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.

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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. Two directors 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. 

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PROPOSAL 2

RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020

The Audit Committee of the Board selected PricewaterhouseCoopers LLP (“PwC”) to continue as the Company’s independent registered public accounting firm for 2020. PwC is the Company’s independent registered public accounting firm for the most recently completed fiscal year ended December 31, 2019. A representative of PwC is expected to be present at the 2020 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, 2020 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 2019 and 2018 Services

Audit Fees

Aggregate fees billed were $1,189,233 and $1,158,791 for 2019 and 2018, 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 2019 or 2018. 

Tax Fees

Aggregate fees billed were $56,275 and $54,675 for 2019 and 2018, respectively. The fees in this category were for professional services rendered in connection with tax compliance and tax consulting services.

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All Other Fees

Aggregate fees billed were $1,800 for both 2019 and 2018. 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 2019 and 2018 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 2019 and 2018, 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.

10

 

PROPOSAL 3

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Board adopted the shareholders’ recommendation at the 2017  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 2019 Summary Compensation Table included in the Proxy Statement for the 2020 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, 2019, Safety has delivered a total of 1,273% 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.

 

 

 

 

 

11

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Years

 

 

 

 

 

 

Employed

Name

 

Age

 

Position

 

by Safety

George M. Murphy 

 

53

 

President, Chief Executive Officer 

 

31

Christopher T. Whitford

 

37

 

Vice President, Chief Financial Officer and Secretary

 

7

James D. Berry  

 

60

 

Vice President - Underwriting

 

37

John P. Drago

 

53

 

Vice President - Marketing

 

25

David E. Krupa

 

59

 

Vice President - Claims Operations

 

37

Ann M. McKeown

 

53

 

Vice President - Insurance Operations

 

30

Paul J.Narciso

 

56

 

Vice President - Claims

 

29

Stephen A. Varga

 

52

 

Vice President - Management Information Services

 

27

 

George M. Murphy, CPCU. For information regarding Mr. Murphy, refer above to “Directors Continuing in Office”.

  Christopher T. Whitford was appointed Chief Financial Officer, Vice President and Secretary of the Company on March 2, 2020.  Mr. Whitford, a Certified Public Accountant, previously held the Controller position with the Company since 2012 and began his career at PricewaterhouseCoopers in 2005. Mr. Whitford serves on the investment and audit committees of Guarantee Fund Management Services and serves on the audit committee of the Massachusetts Property Insurance Underwriting Association (“FAIR Plan”).

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 organization’s 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 25 years and most recently served as Director of Marketing.

David E. Krupa, CPCU, was appointed Vice President of Property Claims of the Company on March 4, 2002. Mr. Krupa has been employed by the Insurance Subsidiaries for over 37 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

12

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 30 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 Casualty Claims of the Company on August 5, 2013.  Mr. Narciso has held various adjusting and claims management positions with the Company since 1990.  Mr. Narciso has 33 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.

William J. Begley, Jr., formerly the Company’s Chief Financial Officer, Vice President and Secretary of the Company since March 4, 2002 retired effective March 1, 2020.  Mr. Begley was employed by the Insurance Subsidiaries for over 34 years.

13

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 2019.

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:

·

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 2019, 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.

·

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.

·

No tax gross-ups for potential excise tax that might be incurred if a change of control were to occur.

·

Our equity plan prohibits share recycling and repricing of stock options without advance approval of shareholders.

·

Robust stock ownership guidelines for our executives and Directors.


1 TSR = share price appreciation + dividends

14

·

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.

·

An insider trading policy that prohibits the hedging or pledging of the Company’s equity securities.

Long-term Performance

We have had strong absolute and relative TSR over the 1, 3, and 5‑year periods. Our TSR of 1,273% from our November 22, 2002, Initial Public Offering (“IPO”) through December 31, 2019, is well above the major indexes and our property and casualty insurance peers.

 

 

Time Period*

TSR

1 year

17%

3 years

41%

5 years

78%

*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, 2016 through December 31, 2019; for 5 years represents growth from December 31, 2014 through December 31, 2019)

 

15

PICTURE 6

 

2019 Results and Impact on Actual Pay

2019 was a strong year for our Company as we achieved the following accomplishments:

·

In 2019, earnings per share (“EPS”) was $6.52 and earnings before income taxes was $123.7 million. Earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities was $102.3 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. 

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 (losses) on equity securities to be recorded through net income rather than through other comprehensive income.  Eliminating the benefit or penalty of this adoption gives 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.

 

16

 

 

 

 

 

Financial Statement Line Item

2019

2018

Income before income taxes

$ 123,681

$ 104,251

Interest expense

90

90

Change in net unrealized gains on equity investments

(21,454)

16,324

 

$ 102,317

$ 120,665

 

·

Direct written premiums, a proxy for revenue growth, increased by 1.0% from $843.7 million to $852.4 million.

·

Combined ratio, another measure of profitability, which is the sum of our loss and expense ratio, was 95.6% in 2019. 

Due to the above accomplishments and other strong financial performance, we funded performance-based variable pay as follows:

·

2019 annual incentive bonus was achieved at maximum, representing 150% of target;

·

The 2017 – 2019 performance awards granted on February 22, 2017 had an actual payout of 142.6%, above the targeted granted amount. Refer to the long–term incentive section below for further information.

The Committee is confident that the 2019 annual incentive and 2017‑2019 performance share payouts are a fair reflection of the year’s results.

Our commitment to Environmental, Social and Governance (“ESG”) causes are incorporated into our corporate culture. For example, we conduct most of our operations in a building that was remodeled in 2018 to update lighting, heating, ventilation and air conditioning systems with state of the art and environmentally focused technologies. In addition, approximately half of our employees take part in a work from home program that helps contribute to a flexible work-life balance and allows the company to minimize the footprint required at our home office.  This additionally limits our workforce’s commute which benefits the environment.

We create a workplace where all employees are treated with dignity and respect, and individual differences are valued, all with the goal of securing the trust and satisfaction of our employees. The Company is committed to a policy of inclusiveness and is committed to actively seeking out highly qualified candidates with diverse gender, race, color, religion, ethnicity, age, marital status, handicap, sexual orientation, gender identity or expression, and backgrounds. We foster this culture through our robust learning and development program and our competitive compensation and health and benefit programs. Furthermore, we incorporate ESG factors into our investment selection and measure our exposure to ESG risks at both the individual asset class and total portfolio levels.

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

17

enhanced when we receive thoughtful and constructive feedback from our shareholders. Our shareholders responded very favorably to our executive compensation program with 98.7% voting in support of our 2019 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.

Executive Succession

As previously reported on December 2, 2019, Mr. Begley announced his intention to retire effective March 1, 2020 and Mr. Whitford, was appointed the Company’s Vice President, Chief Financial Officer and Secretary, effective March 2, 2020.  Safety Insurance Group, Inc. and the Board thanks Mr. Begley for his 34 years of dedicated service and commitment to the organization.  Mr. Whitford and the Company executed a one-year employment contract, to be renewed annually on approval from the Board of Directors, at an annual compensation of $275,000 with benefits comparable to other officers of the Company.

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.

·

Compensation should be structured to allow us to motivate, retain and attract executive talent.

·

Compensation should be directly linked to the Company’s and individual’s performance as well as the individual’s level of responsibility.

·

Compensation should be driven by our long-term financial performance and in doing so work to align the interests of management and shareholders.

·

Compensation should reflect the value of each officer’s position in the marketplace and within the Company.

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.

18

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 2019 as follows:

Donegal 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., United Insurance Holdings Corporation, and Universal Insurance Holdings, Inc..

This 2019 peer group reflects the exclusion of EMC Insurance Group, Inc. which was acquired in 2019.

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. Moran, 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.

19

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 2019, Safety’s CEO had 69% 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 2019 for our CEO is shown in the chart below.

PICTURE 3

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 2019, 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 3.2% to each NEO. 

20

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 2019 annual incentive payouts, 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 2019 payout opportunity for our executive officers ranged as follows:

 

 

 

 

 

 

 

 

 

% of Salary Payable

Position

 

Threshold

 

Target

 

Maximum

Chief Executive Officer

 

40%

 

80%

 

120%

Other Executive Officers

 

30%

 

60%

 

90%

 

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 17, 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 2019, 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 17.  The Compensation Committee believes this is an effective measure for assessing annual profitability and company performance.

The target goal for 2019 was $64.6 million and was based on the average of the actual EBIT achievements for 2018 and 2017 on which the executives were paid bonuses.  This establishes a consistent methodology tied to the operating results of the Company as explained on page 17.  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.

21

For 2019, our actual earnings before interest, taxes, and changes in unrealized gains (losses) on equity securities of $102.3 million was 158% of our $64.6 million target. For 2018 our actual financial performance of $120.7 million was 220% of our $54.8 million target. This resulted in a 150% of target payout for both 2019 and 2018 as follows.

 

 

 

 

 

 

Name

 

2019 Non-Equity Incentive Plan Compensation

 

2018 Non-Equity Incentive Plan Compensation

George M. Murphy

 

928,800

 

900,000

William J. Begley, Jr.

 

430,110

 

416,790

James D. Berry

 

334,530

 

324,180

Paul J. Narciso

 

243,990

 

236,430

Stephen A. Varga

 

253,260

 

245,430

 

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”). 

 

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, 2019, 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 2018 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

2019 Time-Based Stock Award Shares

 

2019 Performance-Based Stock Award Shares

 

2019 Total Stock Award Shares

2019 Total Stock Award Value

George M. Murphy

3,891

 

4,460

 

8,351

$ 800,000

William J. Begley, Jr.

1,459

 

1,673

 

3,132

300,000

James D. Berry

1,946

 

2,231

 

4,177

400,000

Paul J. Narciso

1,824

 

2,091

 

3,915

375,000

Stephen A. Varga

1,824

 

2,091

 

3,915

375,000

 

22

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 prorated and 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 2017 – 2019 performance awards granted on February 22, 2017 had an actual payout of 142.6%, above the targeted granted amount compared to 191.0% payout in the prior year.  The actual payout of 142.6% is based on Safety’s combined ratio for the three year period ending December 31, 2019 of 95.5% (a 154% payout), and TSR performance of 43%, equal to relative performance at the 60th percentile (a 125% payout).    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance

 

 

Performance

 

 

 

 

 

 

 

 

Based

 

 

Based

 

Actual

 

Additional

Name

 

Year

 

Granted Value

 

 

Number of Shares

 

Number of Shares

 

Number of Shares

George M. Murphy

 

2017

 

440,000

 

 

5,869

 

8,369

 

2,500

William J. Begley, Jr.

 

2017

 

247,500

 

 

3,302

 

4,709

 

1,407

James D. Berry

 

2017

 

220,000

 

 

2,935

 

4,185

 

1,250

Paul J. Narciso

 

2017

 

192,500

 

 

2,568

 

3,662

 

1,094

Stephen A. Varga

 

2017

 

178,750

 

 

2,384

 

3,400

 

1,016

 

 

 

 

 

 

 

 

 

 

 

 

 

23

The 2017‑2019 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, excluding the five private companies mentioned below, that is used in the combined ratio target.

 

 

 

 

 

 

 

 

 

 

 

 

Performance Level

2017 - 2019 SAFT
Combined Ratio

Payout as
% of
Target

 

 

 

Relative 2017 -
2019 3-Year TSR

Payout
as % of
Target

 

 

 

 

Below Threshold

>101.3%

0%

 

 

 

> 90th Percentile

200%

 

 

 

 

Threshold

101.3%

50%

x

60%

 

90th Percentile

200%

x

40%

=

Ultimate

Intermediate < Target

99.1%

75%

 

Weighting

 

70th Percentile

150%

 

Weighting

 

Payout

Target

97.0%

100%

 

 

 

50th Percentile

100%

 

 

 

 

Intermediate > Target

95.6%

150%

 

 

 

40th Percentile

75%

 

 

 

 

Maximum

94.1%

200%

 

 

 

30th Percentile

50%

 

 

 

 

Above Maximum

<94.1%

200%

 

 

 

< 30th Percentile

0%

 

 

 

 

 

 

The twenty-five competitors used in the establishment of these goals for the 2017 performance shares were The Allstate Corporation, The Chubb Corporation, Cincinnati Financial Corporation, CNA Financial Corporation, Donegal Group Inc., EMC Insurance Group Inc., Erie Indemnity Company, Hallmark Financial Services Inc., Hanover Insurance Group Inc., Hartford Financial Services Group, Inc., Hilltop Holdings Inc., Horace Mann Educators Corporation,  Infinity Property and Casualty Corp., Loews Corporation, Mercury General 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., W.R .Berkley Corporation and White Mountains Insurance Group, Inc. In addition to these competitors five private companies are also used in the establishment of the Combined Ratio target only. These companies were The Andover Companies, Arbella Insurance, Mapfre Insurance, Plymouth Rock Assurance and Quincy Mutual Insurance.

At December 31, 2019, the performance awards granted on February 26, 2019, and February 26, 2018 would be projected to payout at 122% and 160% 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 $82.8 million in 2019, and Messrs. Murphy, Begley, Berry, Narciso and Varga earned the following allocations under the EICP in 2019:  

24

$431,298,  $230,496, $179,340,  $130,830, and $135,681, 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 2019 to the EICP on behalf of the Named Executive Officers: Mr. Murphy - $51,678; Mr. Begley - $39,735; Mr. Berry - $21,656; Mr. Narciso - $17,844: and Mr. Varga - $15,868.

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 2019 these perquisites included use of an automobile parking space.

25

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

THALIA M. MEEHAN

 

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.

26

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.

27

 

Summary Compensation Table

The following table shows the cash and non-cash compensation for the 2019, 2018 and 2017 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

 

2019

 

774,000

 

360,000

 

 

440,000

 

 

 928,800

 

816,860

 

3,319,660

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William J. Begley, Jr.

 

2019

 

477,900

 

135,000

 

 

165,000

 

 

430,110

 

396,521

 

1,604,531

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James D. Berry

 

2019

 

371,700

 

180,000

 

 

220,000

 

 

334,530

 

304,347

 

1,410,577

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul J. Narciso

 

2019

 

271,100

 

168,750

 

 

206,250

 

 

243,990

 

239,753

 

1,129,843

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stephen A. Varga

 

2019

 

281,400

 

168,750

 

 

206,250

 

 

253,260

 

229,268

 

1,138,928

 

 

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


(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, 2019

$ 92.52

February 26, 2018

$ 75.05

February 22, 2017

$ 73.55

 

(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 2021 for awards granted in 2019.

(3)

The amounts under this column consist of annual cash incentive awards earned in 2019, 2018 and 2017 under the Annual Performance Incentive Plan.

28

(4)

The amounts under this column include the following items for 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EICP

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

EICP

 

401(k) Plan

 

Dividends on

 

Other

 

 

 

 

Compensation

 

Company

 

Company

 

Restricted

 

Compensation

 

 

Name

 

Bonus

 

Match

 

Match

 

Shares (A)

 

(B)

 

Total

George M. Murphy

 

431,298

 

51,678

 

22,400

 

301,122

 

10,362

 

816,860

William J. Begley, Jr.

 

230,496

 

39,735

 

22,400

 

87,293

 

16,597

 

396,521

James D. Berry

 

179,340

 

21,656

 

22,400

 

71,308

 

9,643

 

304,347

Paul J. Narciso

 

130,830

 

17,844

 

21,688

 

62,391

 

7,000

 

239,753

Stephen A. Varga

 

135,681

 

15,868

 

22,400

 

50,623

 

4,696

 

229,268


(A)

Dividends on restricted shares paid to Mr. Murphy include dividends paid on performance shares originally granted on April 1, 2016 as a result of his promotion to Chief Executive Officer.

(B)

Other Compensation includes Company paid term life insurance premium for coverage exceeding $50,000 (Mr. Murphy-$2,656, Mr. Begley-$14,557, Mr. Berry-$7,603, Mr. Narciso-$4,960, and Mr. Varga-$2,656, use of Company automobile (Mr. Murphy-$5,666), and  Company paid parking ($2,040 each to Mr. Murphy, Mr. Begley, Mr. Berry, Mr. Narciso. and Mr. Varga).

Grants of Plan-Based Awards

The following table summarizes the 2019 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

 

2/26/2019

 

 -

 

 -

 

 -

 

8,351

 

800,000

 

 

 -

 

309,600

 

619,200

 

928,800

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

William J. Begley, Jr.

 

2/26/2019

 

 -

 

 -

 

 -

 

3,132

 

300,000

 

 

 -

 

143,370

 

286,740

 

430,110

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

James D. Berry

 

2/26/2019

 

 -

 

 -

 

 -

 

4,177

 

400,000

 

 

 -

 

111,510

 

223,020

 

334,530

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul J. Narciso

 

2/26/2019

 

 -

 

 -

 

 -

 

3,915

 

375,000

 

 

 -

 

81,330

 

162,660

 

243,990

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Stephen A. Varga

 

2/26/2019

 

 -

 

 -

 

 -

 

3,915

 

375,000

 

 

 

 

84,420

 

168,840

 

253,260

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)

These columns represent the range of cash bonus incentive payouts that were targeted for fiscal 2019 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 2019 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,

29

representing 45% of the total. The awards were both effective February 26, 2019. The performance-based awards vest depending upon the attainment of pre-established performance objectives at the conclusion of the performance period in 2022. 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, 2020, 30% on February 26, 2021, and the remaining 40% on February 26, 2022, 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 2021.

Employment Agreements

George M. Murphy. We enter into employment agreements on an annual basis effective on January 1st 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, 2019. 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 2019 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 1st 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.

On December 2, 2019,  William J. Begley, Jr. announced his decision to decline any additional term and that he will be retiring as Vice President, Chief Financial Officer and Secretary, effective March 1, 2020. 

The Compensation Committee approved the renewal of contracts in 2019 for an additional one-year term. Under their respective employment agreements, Messrs. 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. Berry, Narciso and Varga are each eligible to receive an annual bonus based on performance. In addition, Messrs. Berry, Narciso and Varga are

30

also entitled to other benefits, including reimbursement of expenses, paid vacations, health, life and other similar insurance benefits.

Restricted Stock Awards

In 2019, 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, 2020, 2021 and 2022 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 2021. 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, 2019.

 

 

 

 

 

 

 

 

 

 

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)

 

 -

 

$

 -

 

293,031

Equity compensation plans

 

 

 

 

 

 

 

 not approved by shareholders

 

 -

 

 

 -

 

 -

Total

 

 -

 

$

 -

 

293,031

 

 

 

 

 

 

 

 


(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.

31

The prior 2002 Management Omnibus Plan had 97,548 shares remaining to satisfy actual performance-based restricted stock awards that were granted under the plan and vest in 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, 2019 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 (7)

 

George M. Murphy

 

 

 

 

 

Restricted Stock (1)

 

1,958

 

181,174

 

Restricted Stock (2)

 

5,869

 

543,059

 

Restricted Stock (3)

 

3,358

 

310,716

 

Restricted Stock (4)

 

6,094

 

563,878

 

Restricted Stock (5)

 

3,891

 

360,034

 

Restricted Stock (6)

 

4,460

 

412,684

 

 

 

 

 

 

 

William J. Begley, Jr.

 

 

 

 

 

Restricted Stock (1)

 

1,101

 

101,876

 

Restricted Stock (2)

 

3,302

 

305,534

 

Restricted Stock (3)

 

1,679

 

155,358

 

Restricted Stock (4)

 

3,047

 

281,939

 

Restricted Stock (5)

 

1,459

 

135,001

 

Restricted Stock (6)

 

1,673

 

154,803

 

 

 

 

 

 

 

James D. Berry

 

 

 

 

 

Restricted Stock (1)

 

979

 

90,587

 

Restricted Stock (2)

 

2,935

 

271,576

 

Restricted Stock (3)

 

1,679

 

155,358

 

Restricted Stock (4)

 

3,047

 

281,939

 

Restricted Stock (5)

 

1,946

 

180,063

 

Restricted Stock (6)

 

2,231

 

206,434

 

 

 

 

 

 

 

Paul J. Narciso

 

 

 

 

 

Restricted Stock (1)

 

856

 

79,206

 

Restricted Stock (2)

 

2,568

 

237,617

 

Restricted Stock (3)

 

1,469

 

135,927

 

Restricted Stock (4)

 

2,666

 

246,685

 

Restricted Stock (5)

 

1,824

 

168,775

 

Restricted Stock (6)

 

2,091

 

193,480

 

 

 

 

 

 

 

Stephen A. Varga

 

 

 

 

 

Restricted Stock (1)

 

795

 

73,561

 

Restricted Stock (2)

 

2,384

 

220,592

 

Restricted Stock (3)

 

1,469

 

135,927

 

Restricted Stock (4)

 

2,666

 

246,685

 

Restricted Stock (5)

 

1,824

 

168,775

 

Restricted Stock (6)

 

2,091

 

193,480

 

32


(1)

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.

(2)

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.

(3)

Represents time-based restricted stock awards effective February 26, 2018, which vest 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 our employee on such dates.

(4)

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.

(5)

Represents time-based restricted stock awards effective February 26, 2019, which vest over three years with installments of 30% on February 26, 2020, 30% on February 26, 2021, and the remaining 40% on February 26, 2022, provided the grantee is still our employee on such dates.

(6)

Represents performance-based restricted stock awards effective February 26, 2019 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)

The amounts in this column were calculated using a per share value of $92.53, the closing market price of a share of our common stock on December 31, 2019.

There were no unexercised stock options or other equity incentive plan awards held at December 31, 2019 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, 2019 for each of the NEOs.

 

 

 

 

 

 

 

 

 

Stock Awards

 

 

 

Number of

 

 

 

 

 

Shares Acquired

 

Value Realized

Name 

 

 

on Vesting (#)

 

on Vesting (1)

George M. Murphy

 

 

38,410

 

3,564,045

William J. Begley, Jr.

 

 

11,799

 

1,094,746

James D. Berry

 

 

9,656

 

895,875

Paul J. Narciso

 

 

8,451

 

784,076

Stephen A. Varga

 

 

7,007

 

649,160


(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. Shares acquired on vesting by Mr. Murphy include 19,097 of performance shares originally granted on April 1, 2016 as a result of his promotion to Chief Executive Officer.

There were no stock option awards held or exercised by the NEO’s during the year ended December 31, 2019.

 

 

 

 

33

 

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, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

Registrant

 

Aggregate

 

 

 

Aggregate

 

 

Contributions

 

Contributions

 

Earnings

 

Aggregate

 

Balance at

 

 

in Last

 

in Last