QuickLinks
-- Click here to rapidly navigate through this document
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. )
Filed by the Registrant
ý
|
Filed by a Party other than the Registrant
o
|
Check the appropriate box:
|
o
|
|
Preliminary Proxy Statement
|
o
|
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
|
ý
|
|
Definitive Proxy Statement
|
o
|
|
Definitive Additional Materials
|
o
|
|
Soliciting Material Pursuant to §240.14a-12
|
ARCH CAPITAL GROUP LTD.
|
(Name of Registrant as Specified In Its Charter)
|
Not Applicable
|
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
|
|
|
|
|
|
Payment of Filing Fee (Check the appropriate box):
|
ý
|
|
No fee required.
|
o
|
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
|
|
|
(1)
|
|
Title of each class of securities to which transaction applies:
|
|
|
(2)
|
|
Aggregate number of securities to which transaction applies:
|
|
|
(3)
|
|
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
|
|
|
(4)
|
|
Proposed maximum aggregate value of transaction: $
|
|
|
(5)
|
|
Total fee paid: $
|
o
|
|
Fee paid previously with preliminary materials.
|
o
|
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
|
|
|
(1)
|
|
Amount Previously Paid:
|
|
|
(2)
|
|
Form, Schedule or Registration Statement No.:
|
|
|
(3)
|
|
Filing Party:
|
|
|
(4)
|
|
Date Filed:
|
|
|
|
|
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
|
|
|
Wessex House
45 Reid Street
Hamilton HM 12,
Bermuda
|
|
441 278 9250 Telephone
441 278 9255 Fax
|
|
|
April 1, 2008
|
|
|
Dear Shareholder:
|
I am pleased to invite you to the annual general meeting of the shareholders of Arch Capital Group Ltd. to be held on May 9, 2008, at 9:00 a.m. (local time), at The Fairmont Hamilton
Princess Hotel, 76 Pitts Bay Road, Hamilton HM 12, Bermuda. The enclosed proxy statement provides you with detailed information regarding the business to be considered at the meeting.
|
Your vote is very important.
Whether or not you plan to attend the meeting, please sign the enclosed proxy card and mail it promptly in the enclosed
envelope.
|
|
|
|
|
|
|
|
Sincerely,
|
|
|
Paul B. Ingrey
Chairman of the Board
|
'
ARCH CAPITAL GROUP LTD.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
Notice is hereby given that the annual general meeting of the shareholders of Arch Capital Group Ltd. will be held on May 9, 2008, at
9:00 a.m. (local time), at The Fairmont Hamilton Princess Hotel, 76 Pitts Bay Road, Hamilton HM 12, Bermuda, for the following purposes:
-
-
PROPOSAL
1: To elect three Class I Directors to serve for a term of three years or until their respective successors are elected and qualified.
-
-
PROPOSAL
2: To elect certain individuals as Designated Company Directors of certain of our non-U.S. subsidiaries, as required by our
bye-laws.
-
-
PROPOSAL
3: To appoint PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2008.
-
-
PROPOSAL
4: To conduct other business if properly raised.
Only
shareholders of record as of the close of business on March 24, 2008 may vote at the meeting.
Our
audited financial statements for the year ended December 31, 2007, as approved by our Board of Directors, will be presented at this annual general meeting.
Your vote is very important. Please complete, sign, date and return your proxy card in the enclosed envelope promptly.
This proxy statement and accompanying form of proxy are dated April 1, 2008 and, together with our 2007 Annual Report to Shareholders, are first being
mailed to shareholders on or about April 4, 2008.
|
|
Dawna Ferguson
Secretary
|
Hamilton,
Bermuda
April 1, 2008
TABLE OF CONTENTS
|
|
Page
|
THE ANNUAL GENERAL MEETING
|
|
1
|
|
Time and Place
|
|
1
|
|
Record Date; Voting at the Annual General Meeting
|
|
1
|
|
Limitation on Voting Under Our Bye-Laws
|
|
1
|
|
Quorum; Votes Required for Approval
|
|
1
|
|
Voting and Revocation of Proxies
|
|
2
|
|
Solicitation of Proxies
|
|
2
|
|
Other Matters
|
|
3
|
|
Principal Executive Offices
|
|
3
|
PROPOSAL 1ELECTION OF DIRECTORS
|
|
4
|
|
Nominees
|
|
4
|
|
Required Vote
|
|
5
|
|
Continuing Directors and Senior Management
|
|
5
|
|
Composition of the Board of Directors
|
|
9
|
|
Meetings and Committees of the Board of Directors
|
|
9
|
|
Communications with the Board of Directors
|
|
11
|
|
Report of the Audit Committee of the Board of Directors
|
|
11
|
|
Compensation Discussion and Analysis
|
|
13
|
|
Report of the Compensation Committee on the Compensation Discussion and Analysis
|
|
22
|
|
Summary Compensation Table
|
|
23
|
|
Grants of Plan-Based Awards
|
|
26
|
|
Outstanding Equity Awards at 2007 Fiscal Year-End
|
|
27
|
|
Option Exercises and Stock Vested
|
|
28
|
|
Non-Qualified Deferred Compensation
|
|
29
|
|
Employment Arrangements
|
|
30
|
|
Share-Based Award Agreements
|
|
35
|
|
Potential Payments Upon Termination or Change in Control
|
|
36
|
|
Director Compensation
|
|
38
|
|
Security Ownership of Certain Beneficial Owners and Management
|
|
40
|
|
Section 16(a) Beneficial Ownership Reporting Compliance
|
|
43
|
|
Certain Relationships and Related Transactions
|
|
43
|
PROPOSAL 2ELECTION OF SUBSIDIARY DIRECTORS
|
|
45
|
|
Required Vote
|
|
48
|
PROPOSAL 3APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
49
|
|
Principal Auditor Fees and Services
|
|
49
|
|
Required Vote
|
|
50
|
SHAREHOLDER PROPOSALS FOR THE 2009 ANNUAL GENERAL MEETING
|
|
51
|
THE ANNUAL GENERAL MEETING
We are furnishing this proxy statement to holders of our common shares in connection with the solicitation of proxies by our Board of
Directors at the annual general meeting, and at any adjournments and postponements of the meeting.
Time and Place
The annual general meeting will be held at 9:00 a.m. (local time) on May 9, 2008 at The Fairmont Hamilton Princess Hotel, 76 Pitts Bay Road,
Hamilton HM 12, Bermuda.
Record Date; Voting at the Annual General Meeting
Our Board of Directors has fixed the close of business on March 24, 2008 as the record date for determination of the shareholders entitled to notice of and
to vote at the annual general meeting and any and all postponements or adjournments of the meeting. On the record date, there were 64,875,951 common shares outstanding and entitled to vote, subject to
the limitations in our bye-laws described below. At that date, there were an estimated 431 holders of record and approximately 29,000 beneficial holders of the common shares. Each holder
of record of shares on the record date is entitled to cast one vote per share, subject to the limitations described below. A shareholder may vote in person or by a properly executed proxy on each
proposal put forth at the annual general meeting.
Limitation on Voting Under Our Bye-Laws
Under our bye-laws, if the votes conferred by shares of Arch Capital Group Ltd. ("ACGL," "we," or the "Company"), directly or indirectly or
constructively owned (within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended (the "Code")) by any U.S. person (as defined in Section 7701(a)(30) of the Code)
would otherwise represent more than 9.9% of the voting power of all shares entitled to vote generally at an election of directors, the votes conferred by such shares or such U.S. person will be
reduced, subject to certain exceptions, by whatever amount is necessary so that after any such reduction the votes conferred by the shares of such person will constitute 9.9% of the total voting power
of all shares entitled to vote generally at an election of directors.
There
may be circumstances in which the votes conferred on a U.S. person are reduced to less than 9.9% as a result of the operation of our bye-laws because of shares,
including shares held by private equity investment funds affiliated with Warburg Pincus LLC ("Warburg Pincus funds") and Hellman & Friedman LLC ("Hellman & Friedman
funds"), that may be attributed to that person under the Code.
Notwithstanding
the provisions of our bye-laws described above, after having applied such provisions as best as they consider reasonably practicable, the Board of Directors
may make such final adjustments to the aggregate number of votes conferred by the shares of any U.S. person (other than shares constructively owned by virtue of affiliation with Warburg Pincus funds
or Hellman & Friedman funds) that they consider fair and reasonable in all the circumstances to ensure that such votes represent 9.9% of the aggregate voting power of the votes conferred by all
shares of ACGL entitled to vote generally at an election of directors.
In
order to implement our bye-laws, we will assume that all shareholders (other than the Warburg Pincus funds and the Hellman & Friedman funds) are U.S. persons unless
we receive assurances satisfactory to us that they are not U.S. persons.
Quorum; Votes Required for Approval
The presence of two or more persons representing, in person or by properly executed proxy, not less than a majority of the voting power of our shares outstanding
and entitled to vote at the annual
1
general
meeting is necessary to constitute a quorum. If a quorum is not present, the annual general meeting may be adjourned from time to time until a quorum is obtained. The affirmative vote of a
majority of the voting power of the shares represented at the annual general meeting will be required for approval of each of the proposals, except that Proposal 1 will be determined by a plurality of
the votes cast.
An
automated system administered by our transfer agent will tabulate votes cast by proxy at the annual general meeting, and our transfer agent will tabulate votes cast in person.
Abstentions and broker non-votes (
i.e
., shares held by a broker which are represented at the meeting but with respect to which such broker
does not have discretionary authority to vote on a particular proposal) will be counted for purposes of determining whether or not a quorum exists.
Several
of our officers and directors will be present at the annual general meeting and available to respond to questions. Our independent auditors are expected to be present at the
annual general meeting, will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Voting and Revocation of Proxies
All shareholders should complete, sign, date and return the enclosed proxy card. All shares represented at the annual general meeting by properly executed proxies
received before or at the annual general meeting, unless those proxies have been revoked, will be voted at the annual general meeting, including any postponement or adjournment of the annual general
meeting. If no instructions are indicated on a properly executed proxy, the proxies will be deemed to be FOR approval of each of the proposals described in this proxy statement.
Any
proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by either:
-
-
filing,
including by facsimile, with the Secretary of the Company, before the vote at the annual general meeting is taken, a written notice of revocation bearing a later
date than the date of the proxy or a later-dated proxy relating to the same shares; or
-
-
attending
the annual general meeting and voting in person.
In
order to vote in person at the annual general meeting, shareholders must attend the annual general meeting and cast their vote in accordance with the voting procedures established for
the annual general meeting. Attendance at the annual general meeting will not in and of itself constitute a revocation of a proxy. Any written notice of revocation or subsequent proxy must be sent so
as to be delivered at or before the taking of the vote at the annual general meeting to Arch Capital Group Ltd., Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda, Facsimile:
(441) 278-9255, Attention: Secretary.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the Board of Directors. In addition to the use of the mails, proxies may be solicited by personal interview,
telephone, telegram, facsimile and advertisement in periodicals and postings, in each case by our directors, officers and employees.
We
have retained MacKenzie Partners, Inc. to aid in the solicitation of proxies and to verify records related to the solicitation. We will pay MacKenzie Partners, Inc. fees
of not more than $5,000 plus expense reimbursement for its services. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward solicitation materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in so doing. We may request by telephone, facsimile, mail, electronic mail or other means of communication the return of the proxy
cards.
2
Other Matters
Our audited financial statements for the year ended December 31, 2007, as approved by our Board of Directors, will be presented at this annual general
meeting.
As
of the date of this proxy statement, our Board of Directors knows of no matters that will be presented for consideration at the annual general meeting other than as described in this
proxy statement. If any other matters shall properly come before the annual general meeting or any adjournments or postponements of the annual general meeting and shall be voted on, the enclosed
proxies will be deemed to confer discretionary authority on the individuals named as proxies therein to vote the shares represented by such proxies as to any of those matters. The persons named as
proxies intend to vote or not vote in accordance with the recommendation of our Board of Directors and management.
Principal Executive Offices
Our registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda (telephone number: (441) 295-1422), and our
principal executive offices are located at Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda (telephone number: (441) 278-9250).
3
PROPOSAL 1ELECTION OF DIRECTORS
The Board of Directors of ACGL is comprised of nine members, divided into three classes, serving staggered three-year terms. The Board of Directors
intends to present for action at the annual general meeting the election of Paul B. Ingrey, Kewsong Lee and Robert F. Works, whose present terms expire this year, to serve as Class I Directors
for a term of three years or until their successors are duly elected and qualified. Such nominees were recommended for approval by the Board of Directors by the nominating committee of the Board of
Directors.
Unless
authority to vote for these nominees is withheld, the enclosed proxy will be voted for these nominees, except that the persons designated as proxies reserve discretion to cast
their votes for other persons in the unanticipated event that any of these nominees is unable or declines to serve.
Nominees
Set forth below is information regarding the nominees for election:
Name
|
|
Age
|
|
Position
|
Paul B. Ingrey
|
|
68
|
|
Chairman and Class I Director of ACGL
|
Kewsong Lee
|
|
42
|
|
Class I Director of ACGL
|
Robert F. Works
|
|
60
|
|
Class I Director of ACGL
|
Paul B. Ingrey
has served as chairman of ACGL since April 2005 and as a director since October 2001. From April 2004 to March 2005, he
served as vice chairman of ACGL. Prior to April 2004, Mr. Ingrey served as chief executive officer of Arch Reinsurance Ltd. ("Arch Re (Bermuda)") from October 2001 and was elected
chairman of Arch Re (Bermuda) in March 2002. He was retired from 1996 to 2001. Mr. Ingrey was the founder of F&G Re Inc., a reinsurance subsidiary of USF&G Corporation, and served as its
chairman and chief executive officer from 1983 to 1996. Prior to that, he was senior vice president of Prudential Reinsurance, an underwriter of property and casualty reinsurance. He has also served
as a director of USF&G Corporation (until its sale to The St. Paul Companies, Inc. in 1998) and E.W. Blanch Holdings, Inc., the holding company for E.W. Blanch Co., which
provides risk management and distribution services through several subsidiaries (until its sale to Benfield Greig, the London-based international reinsurance broker, in April 2001) and he was formerly
a director of Fairfax Financial Holdings Limited, an insurance and reinsurance company with a focus on property and casualty
insurance until September 2002. He holds a B.A. degree from Colgate University and an M.B.A. degree from the School of Risk Management, Insurance and Actuarial Science of St. John's University
(formerly the College of Insurance).
Kewsong Lee
has served as a director of ACGL since November 2001. Mr. Lee has served as a member and managing director of Warburg
Pincus LLC and a general partner of Warburg Pincus & Co. since January 1997. He has been employed at Warburg Pincus since 1992. Prior to joining Warburg Pincus, Mr. Lee was
a consultant at McKinsey & Company, Inc., a management consulting company, from 1990 to 1992. His present service as a director includes membership on the boards of Knoll, Inc.
and MBIA Inc. and several privately held companies. He holds an A.B. degree from Harvard College and an M.B.A. degree from Harvard Business School. Mr. Lee was appointed to our Board of
Directors pursuant to our shareholders agreement ("Shareholders Agreement"), which is an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2007 ("2007
Annual Report").
Robert F. Works
has been a director of ACGL since June 1999. Mr. Works was a managing director of Jones Lang LaSalle (previously
LaSalle Partners) until he retired on December 31, 2001. He joined Jones Lang LaSalle in 1981, where he has served in various capacities, including manager of both the Property Management and
Investment Management teams of the Eastern Region of the United States. Mr. Works was also manager for the Times Square Development Advisory and Chelsea Piers Lease
4
Advisory
on behalf of New York State and the President of GCT Ventures and the Revitalization of Grand Central Terminal for the Metropolitan Transportation Authority until he retired on
December 31, 2001. He holds a B.A. degree from the College of William and Mary.
Required Vote
A plurality of the votes cast at the annual general meeting will be required to elect the above nominees as Class I Directors of ACGL.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL NOMINEES TO THE BOARD OF DIRECTORS.
Continuing Directors and Senior Management
The following individuals are our continuing directors:
Name
|
|
Age
|
|
Position
|
|
Term Expires*
|
Wolfe "Bill" H. Bragin
|
|
63
|
|
Class III Director of ACGL
|
|
2010
|
John L. Bunce, Jr.
|
|
49
|
|
Class III Director of ACGL
|
|
2010
|
Sean D. Carney
|
|
39
|
|
Class III Director of ACGL
|
|
2010
|
Constantine Iordanou
|
|
58
|
|
President and Chief Executive Officer of ACGL and Class II Director of ACGL
|
|
2009
|
James J. Meenaghan
|
|
69
|
|
Class II Director of ACGL
|
|
2009
|
John M. Pasquesi
|
|
48
|
|
Class II Director of ACGL
|
|
2009
|
-
*
-
Indicates
expiration of term as a director of ACGL
Wolfe "Bill" H. Bragin
has served as a director of ACGL since May 2002. He served as vice president of GE Asset Management from 1985 until
his retirement in 2002. He also served as a managing director of GE Asset Management until 2002. Mr. Bragin had been employed by various affiliates of General Electric Company since 1974,
including GE Capital (formerly known as GE Credit Corporation), specializing in equipment leasing and private investments, through 1984, and, thereafter, GE Asset Management's Private Placement Group,
specializing in private equity investments. Mr. Bragin has previously served as a director of both privately-held and publicly-traded companies. He holds a B.S. degree from the
University of Connecticut and an M.B.A. degree from Babson Institute of Business Administration. Mr. Bragin was appointed to our Board of Directors pursuant to our Shareholders Agreement.
John L. Bunce, Jr.
has served as a director of ACGL since November 2001. Mr. Bunce is a Managing Director and founder of Greyhawk
Capital Management, LLC and a senior advisor to Hellman & Friedman LLC. He joined Hellman & Friedman in 1988 and previously served as a managing director of the firm.
Before joining Hellman & Friedman LLC, Mr. Bunce was vice president of TA Associates. Previously, he was employed in the mergers & acquisitions and corporate finance
departments of Lehman Brothers Kuhn Loeb. He is also currently a director of National Information Consortium, Inc. He has served as a director of Duhamel Falcon Cable Mexico, Eller Media
Company, Falcon Cable TV, National Radio Partners, VoiceStream Wireless Corporation, Western Wireless Corporation and Young & Rubicam, Inc. Mr. Bunce also was an advisor to
American Capital Corporation and Post Oak Bank. He holds an A.B. degree from Stanford University and an M.B.A. degree from Harvard Business School. Mr. Bunce was appointed to our Board of
Directors pursuant to our Shareholders Agreement, which is an exhibit to our 2007 Annual Report.
Sean D. Carney
has served as a director of ACGL since July 2003. He has served as a member and managing director of Warburg
Pincus LLC and a general partner of Warburg Pincus & Co. since
5
January
2001 and has been employed by Warburg Pincus since November 1996. From November 1995 to November 1996, Mr. Carney was employed by McKinsey & Company. Mr. Carney is also
currently a director of DexCom, Inc. He holds an A.B. from Harvard College and an M.B.A from Harvard Business School. Mr. Carney was appointed to our Board of Directors pursuant to our
Shareholders Agreement, which is an exhibit to our 2007 Annual Report.
Constantine Iordanou
has been president and chief executive officer of ACGL since August 2003 and a director since January 1, 2002.
From January 2002 to July 2003, Mr. Iordanou was chief executive officer of Arch Capital Group (U.S.) Inc. From March 1992 through December 2001, Mr. Iordanou served in various
capacities for Zurich Financial Services and its affiliates, including as senior executive vice president of group operations and business development of Zurich Financial Services, president of
Zurich-American Specialties Division, chief operating officer and chief executive officer of Zurich-American and chief executive officer of Zurich North America. Prior to joining Zurich, he served as
president of the commercial casualty division of the Berkshire Hathaway Group and served as senior vice president with the American Home Insurance Company, a member of the American International
Group. Since 2001, Mr. Iordanou has served as a director of ISO Inc. He holds an aerospace engineering degree from New York University.
James J. Meenaghan
has been a director of the Company since October 2001. From October 1986 until his retirement in 1992,
Mr. Meenaghan was chairman, president and chief executive officer of Home Insurance Companies. He also served as president and chief executive officer of John F. Sullivan Co. from 1983
to 1986. Prior thereto, Mr. Meenaghan held various positions over 20 years with the Fireman's Fund Insurance Company, including president and chief operating officer and vice chairman of
its parent company, American Express Insurance Services Inc. He holds a B.S. degree from Fordham University.
John M. Pasquesi
has been vice chairman and a director of ACGL since November 2001. Mr. Pasquesi has been the managing member of
Otter Capital LLC, a private equity investment firm he founded in January 2001. He holds an A.B. degree from Dartmouth College and an M.B.A. degree from Stanford Graduate School of Business.
6
The following individuals are members of senior management, including our executive officers, who do not serve as directors of ACGL.
Name
|
|
Age
|
|
Position
|
John D. Vollaro
|
|
63
|
|
Executive Vice President, Chief Financial Officer and Treasurer of ACGL
|
Marc Grandisson
|
|
40
|
|
Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group
|
Ralph E. Jones III
|
|
51
|
|
Chairman and Chief Executive Officer of Arch Worldwide Insurance Group
|
W. Preston Hutchings
|
|
52
|
|
President of Arch Investment Management Ltd. and Senior Vice President and Chief Investment Officer of ACGL
|
Mark D. Lyons
|
|
51
|
|
President and Chief Operating Officer of Arch Insurance Group Inc.
|
Nicolas Papadopoulo
|
|
45
|
|
President and Chief Executive Officer of Arch Re (Bermuda)
|
Louis T. Petrillo
|
|
42
|
|
President and General Counsel of Arch Capital Services Inc.
|
John F. Rathgeber
|
|
53
|
|
President and Chief Executive Officer of Arch Reinsurance Company
|
John D. Vollaro
has been executive vice president and chief financial officer of ACGL since January 2002 and treasurer of ACGL since May
2002. Prior to joining us, Mr. Vollaro acted as an independent consultant in the insurance industry since March 2000. Prior to March 2000, Mr. Vollaro was president and chief operating
officer of W.R. Berkley Corporation from January 1996 and a director from September 1995 until March 2000. Mr. Vollaro was chief executive officer of Signet Star Holdings, Inc., a joint
venture between W.R. Berkley Corporation and General Re Corporation, from July 1993 to December 1995. Mr. Vollaro served as executive vice president of W.R. Berkley Corporation from 1991 until
1993, chief financial officer and treasurer of W.R. Berkley Corporation from 1983 to 1993 and senior vice president of W.R. Berkley Corporation from 1983 to 1991. He holds a B.S. degree from Long
Island University.
Marc Grandisson
has served as chairman and chief executive officer of Arch Worldwide Reinsurance Group, an executive position of ACGL,
since November 2005. Prior to November 2005, he served as president and chief executive officer of Arch Re (Bermuda) from February 2005. He served as president and chief operating officer of Arch Re
(Bermuda) from April 2004 to February 2005 and as senior vice president, chief underwriting officer and chief actuary of Arch Re (Bermuda) from October 2001. From March 1999 until October 2001,
Mr. Grandisson was employed as vice president and actuary of the reinsurance division of Berkshire Hathaway. From July 1996 until February 1999, Mr. Grandisson was employed as vice
president-director of F&G Re Inc. From July 1994 until July 1996, Mr. Grandisson was employed as an actuary for F&G Re. Prior to that, Mr. Grandisson was employed as an actuarial
assistant of Tillinghast-Towers Perrin. Mr. Grandisson holds an M.B.A. degree from the Wharton School of the University of Pennsylvania. He is also a fellow of the Casualty Actuarial Society.
Ralph E. Jones III
serves as chairman and chief executive officer of Arch Insurance Group Inc. ("Arch Insurance Group") and, since
September 2003, has also served as chairman and chief executive officer of Arch Worldwide Insurance Group, an executive position of ACGL. Mr. Jones joined Arch Insurance Group as president and
chief executive officer on July 1, 2003. Prior to his tenure with Arch, he was chief executive officer of Chubb Specialty Insurance, a strategic business unit within the Chubb Group of
Insurance Companies since November 1999. Previously, he was managing director of Hiscox Insurance Company, Ltd., the United Kingdom and European property and casualty business of
7
Hiscox, plc.
Mr. Jones began his career with Chubb, where he served in various senior executive positions, including chief underwriting officer of Chubb Insurance Company of Europe and
worldwide manager of its Executive Protection Department. He holds a B.A. from Wesleyan University.
W. Preston Hutchings
has served as president of Arch Investment Management Ltd. since April 2006 and senior vice president and
chief investment officer of ACGL since July 2005. Prior to joining ACGL, Mr. Hutchings was senior vice president and chief investment officer of RenaissanceRe Holdings Ltd. Previously,
he was senior vice president and chief investment officer of Mid Ocean Reinsurance Company Ltd. from January 1995 until its acquisition by XL Capital in 1998. Mr. Hutchings began his
career as a fixed income trader at J.P. Morgan & Co., working for the firm in New York, London and Tokyo. He graduated in 1978 with a B.A. from Hamilton College in Clinton, New York, and
received in 1981 an M.A. in Jurisprudence from Oxford University, where he studied as a Rhodes Scholar.
Mark D. Lyons
has served as president and chief operating officer of Arch Insurance Group since June 2006. Prior to June 2006, he served
as executive vice president of group operations and chief actuary of Arch Insurance Group from August 2003. From August 2002 to 2003, he was senior vice president of group operations and chief actuary
of Arch Insurance Group. From 2001 until August 2002, Mr. Lyons worked as an independent consultant. From 1992 to 2001, Mr. Lyons was executive vice president of product services at
Zurich U.S. From 1987 until 1992, he was a vice president and actuary at Berkshire Hathaway Insurance Group. Mr. Lyons holds a B.S. degree from Elizabethtown College. He is also an associate of
the Casualty Actuarial Society and a member of the American Academy of Actuaries.
Nicolas Papadopoulo
has served as president and chief executive officer of Arch Re (Bermuda) since November 2005. Prior to November 2005,
he served as chief underwriting officer of Arch Re (Bermuda) from October 2004. He joined Arch Re (Bermuda) in December 2001 as a senior property underwriter. Prior to that time, he held various
positions at Sorema N.A. Reinsurance Group, a U.S. subsidiary of Groupama from 1990, including executive vice president and chief underwriting officer since 1997. Prior to 1990, Mr. Papadopoulo
was an insurance examiner with the Ministry of Finance, Insurance Department, in France. Mr. Papadopoulo graduated from École Polytechnique in France and École
Nationale de la Statistique et de l'Administration Economique in France with a masters degree in statistics. He is also a member of the International Actuarial Association and a fellow at the French
Actuarial Society.
Louis T. Petrillo
has been president and general counsel of Arch Capital Services Inc. since April 2002. From May 2000 to April
2002, he was senior vice president, general counsel and secretary of ACGL. From 1996 until May 2000, Mr. Petrillo was vice president and associate general counsel of ACGL's
reinsurance subsidiary. Prior to that time, Mr. Petrillo practiced law at the New York firm of Willkie Farr & Gallagher LLP. He holds a B.A. degree from Tufts University and a law
degree from Columbia University.
John F. Rathgeber
has served as president and chief executive officer of Arch Reinsurance Company since April 2004 and as managing
director and chief operating officer of Arch Reinsurance Company since December 2001. From 1998 until 2001, Mr. Rathgeber was executive vice president of the financial solutions business unit
of St. Paul Re. From November 1992 until 1996, Mr. Rathgeber was employed as a vice president in the non-traditional underwriting department at F&G Re, and from 1996 until
1998, Mr. Rathgeber served as a senior vice president of non-traditional reinsurance. Prior to joining F&G Re, Mr. Rathgeber was employed by Prudential Re from 1980 until
1992. During that time, he held various underwriting positions, and from 1988 until 1992, Mr. Rathgeber was a director in the actuarial department. Mr. Rathgeber holds a B.A. from
Williams College. He is also a chartered property and casualty underwriter, a fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries.
8
Composition of the Board of Directors
The Board of Directors is required to determine which directors satisfy the criteria for independence under the rules of the National Association of Securities
Dealers, Inc. (the "NASD"). To be considered independent, a director may not maintain any relationship that would interfere with his or her independent judgment in completing the duties of a
director. The rules state that certain relationships preclude a board finding of independence, including a director who is, or during the past three years was, employed by the company, and any
director who accepts any payments from the company in excess of $60,000 during the current year or any of the past three years, other than director fees or payments arising solely from investments in
the company's securities. The rules specifically provide that ownership of company stock by itself would not preclude a board finding of independence. Our Board of Directors consists of nine
directors, including eight non-employee directors. Our Board of Directors has concluded that the following seven non-employee directors are independent in accordance with the
director independence standards set forth in Rule 4200 of the rules of the NASD: Wolfe "Bill" H. Bragin, John L. Bunce, Jr., Sean D. Carney, Kewsong Lee, James J. Meenaghan, John M. Pasquesi
and Robert F. Works. In making these independence determinations, the Board reviewed the relationships with the directors set forth under the caption "Certain Relationships and Related Transactions,"
including ordinary course transactions not meeting the disclosure threshold with insurers, reinsurers and producers in which a director or a fund affiliated with any of our directors maintained at
least a 10% ownership interest.
Pursuant
to the Shareholders Agreement entered into in connection with the capital infusion in November 2001, the Warburg Pincus funds are entitled to nominate a prescribed number of
directors based on the respective retained percentages of their preference shares purchased in November 2001. As long as the Warburg Pincus funds retain at least 45% of their original investment (or,
depending upon the size of the Board of Directors, at lower retained percentages), they will be entitled to nominate four directors to our Board of Directors. Currently, our Board of Directors
includes the following three directors nominated by the Warburg Pincus funds: Messrs. Bragin, Carney and Lee. Previously, the Hellman & Friedman funds had rights to nominate directors of
ACGL under the Shareholders Agreement, but, in May 2007, the Hellman & Friedman funds ceased to own shares of ACGL and their rights under the Shareholders Agreement terminated.
Meetings and Committees of the Board of Directors
The Board of Directors held four meetings during 2007. The Board of Directors has established standing audit, compensation, executive, finance and investment,
nominating and underwriting oversight committees. Each of the committees, except for the underwriting oversight committee, has a written charter, and these charters are posted on our web site at
www.archcapgroup.bm
. None of the material on our web site is incorporated herein by reference. Each director attended 75%
or more of all meetings of the Board of Directors and any committees on which the director served during fiscal year 2007, except Mr. Carney. Directors are encouraged but not required to attend
our annual general meetings of shareholders. Seven of the 10 directors at the date of the 2007 annual general meeting attended that meeting.
As
long as at least one representative of the Warburg Pincus funds is on the Board of Directors, each board committee will include at least one representative of the Warburg Pincus
funds. The foregoing is subject to the restrictions on service on the audit committee under the rules of the NASD and the Securities and Exchange Commission (the "SEC").
The audit committee assists the Board of Directors in monitoring (1) the integrity of our financial statements, (2) the independent auditor's
qualifications and independence, (3) the performance of our
9
internal
audit function and independent auditors and (4) the compliance by the Company with legal and regulatory requirements. In 2007, our Board of Directors reconfirmed the written charter
for the audit committee. The audit committee currently consists of James J. Meenaghan (chairman), Wolfe "Bill" H. Bragin and Robert F. Works. All of such audit committee members are considered
independent under the listing standards of the NASD governing the qualifications of the members of audit committees and the independence requirements under Rule 10A-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Board of Directors has determined that Mr. Meenaghan qualifies as an "audit committee financial expert" under the rules of
the SEC. The audit committee held five meetings during 2007. The report of the audit committee begins on page 11.
The compensation committee of the Board of Directors approves the compensation of our senior executives and has overall responsibility for approving, evaluating
and making recommendations to the Board of Directors regarding our officer compensation plans, policies and programs. The compensation committee currently consists of John L. Bunce, Jr. (chairman),
Kewsong Lee, James J. Meenaghan and Robert F. Works. All of such compensation committee members are considered independent under the listing standards of the NASD governing the qualifications of the
members of compensation committees. None of the members of the committee are or have been officers or employees of the Company. In addition, no executive officer of the Company served on any board of
directors or compensation committee of any entity (other than ACGL) with which any member of our Board of Directors serves as an executive officer. The compensation committee held four meetings during
2007. The report of the compensation committee begins on page 22.
The executive committee of the Board of Directors may generally exercise all the powers and authority of the Board of Directors, when it is not in session, in the
management of our business and affairs, unless the Board of Directors otherwise determines. The executive committee currently consists of Kewsong Lee (chairman), John L. Bunce, Jr., Paul B. Ingrey and
Constantine Iordanou. The executive committee did not meet during 2007.
The finance and investment committee of the Board of Directors oversees the Board of Directors' responsibilities relating to the financial affairs of the Company
and recommends to the Board of Directors financial policies, strategic investments and overall investment policy, including review of manager selection, benchmarks and investment performance. The
finance and investment committee currently consists of John M. Pasquesi (chairman), John L. Bunce, Jr., Sean D. Carney, Constantine Iordanou, Kewsong Lee and James J. Meenaghan. The finance and
investment committee held four meetings during 2007.
The nominating committee of the Board of Directors is responsible for identifying individuals qualified to become directors and recommending to the Board of
Directors the director nominees for consideration at each annual meeting of shareholders. The nominating committee currently consists of Kewsong Lee (chairman), John M. Pasquesi and Robert F. Works.
All of such nominating committee members are considered independent under the listing standards of the NASD governing the qualifications of the members of nominating committees. The nominating
committee held two meetings during 2007.
10
When
the Board of Directors determines to seek a new member, whether to fill a vacancy or otherwise, the nominating committee will consider recommendations from Board members, management
and
others, including shareholders. In general, the committee will look for new members, including candidates recommended by shareholders, possessing superior business judgment and integrity who have
distinguished themselves in their chosen fields of endeavor and who have knowledge and experience in the areas of insurance, reinsurance or other aspects of our business, operations or activities. A
shareholder who wishes to recommend a director candidate for consideration by the nominating committee should send such recommendation in writing to the Secretary, Arch Capital Group Ltd.,
Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda and should comply with the advance notice requirements set forth in our bye-laws, as described under the caption "Shareholder
Proposals for the 2009 Annual General Meeting." As described in more detail on page 51, every submission must include a statement of the qualifications of the nominee, a consent signed by the
candidate evidencing a willingness to serve as a director if elected, and a commitment by the candidate to meet personally, if requested, with the nominating committee. It is the policy of the
committee to review and evaluate each candidate for nomination submitted by shareholders in accordance with the above procedures on the same basis as candidates that are suggested by our Board of
Directors.
The
nominating committee has not paid a fee to third parties in connection with the identification and evaluation of nominees, nor has it rejected a candidate recommended by a 5%
shareholder, but, in each case, reserves the right to do so.
The underwriting oversight committee of the Board of Directors assists the Board of Directors by reviewing the underwriting activities of our insurance and
reinsurance subsidiaries. The underwriting oversight committee currently consists of Paul B. Ingrey (chairman), Wolfe "Bill" H. Bragin, Sean D. Carney and John M. Pasquesi. The underwriting oversight
committee held three meetings in 2007.
Communications with the Board of Directors
Shareholders may communicate with the Board of Directors or any of the directors by sending written communications addressed to the Board of Directors or any of
the directors, c/o Secretary, Arch Capital Group Ltd., Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda. All shareholder communications will be compiled by the Secretary for review by the
Board of Directors.
Report of the Audit Committee of the Board of Directors
The audit committee assists the Board of Directors in monitoring (1) the integrity of our financial statements, (2) the qualifications and
independence of the independent registered public accounting firm, (3) the performance of our internal audit function and independent registered public accounting firm and (4) the
compliance by the Company with legal and regulatory requirements.
It
is not the responsibility of the audit committee to plan or conduct audits or to determine that ACGL's financial statements are in all material respects complete and
accurate and in accordance with generally accepted accounting principles ("GAAP"). This is the responsibility of management and the independent public registered accounting firm. It is also not the
responsibility of the audit committee to assure compliance with laws and regulations or with any codes or standards of conduct or related policies adopted by ACGL from time to time which seek to
ensure that the business of ACGL is conducted in an ethical and legal manner.
The
audit committee has reviewed and discussed the consolidated financial statements of ACGL and its subsidiaries set forth in Item 8 of our 2007 Annual Report, management's
annual assessment of the effectiveness of ACGL's internal control over financial reporting and PricewaterhouseCoopers LLP's
11
opinion
on the effectiveness of internal control over financial reporting, with management of ACGL and PricewaterhouseCoopers LLP, independent registered public accounting firm for ACGL.
The
audit committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61, "Communication with Audit
Committees," as amended, which includes, among other items, matters relating to the conduct of an audit of ACGL's financial statements.
The
audit committee has received the written confirmation from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 and has discussed with
PricewaterhouseCoopers LLP their independence from ACGL.
Based
on the review and discussions with management of ACGL and PricewaterhouseCoopers LLP referred to above and other matters the audit committee deemed relevant and appropriate,
the audit committee has recommended to the Board of Directors that ACGL publish the consolidated financial statements of ACGL and its subsidiaries for the year ended December 31, 2007 in our
2007 Annual Report.
|
|
|
|
|
AUDIT COMMITTEE
James J. Meenaghan (chairman)
Wolfe "Bill" H. Bragin
Robert F. Works
|
12
Compensation Discussion and Analysis
In this section, we discuss the principal aspects of our compensation program as it pertains to Constantine (Dinos) Iordanou, president and chief executive
officer of ACGL, John Vollaro, executive vice president, chief financial officer and treasurer of ACGL, and our three other most highly-compensated executive officers in 2007, Marc Grandisson,
chairman and chief executive officer of Arch Worldwide Reinsurance Group, Ralph Jones, chairman and chief executive officer of Arch Worldwide Insurance Group, and W. Preston Hutchings, president of
Arch Investment Management Ltd. and senior vice president and chief investment officer of ACGL. We refer to these five individuals throughout this section as the "named executive officers." Our
discussion focuses on our compensation and practices relating to 2007.
The
compensation committee of our Board of Directors (which we refer to as the "Committee" in this section) is responsible for determining and approving the individual elements of total
compensation paid to the chief executive officer and our other executive officers and establishing overall compensation policies for our employees. The Committee also oversees the administration of
executive compensation plans and certain employee benefits. Our Board of Directors appoints each member of the Committee and has determined that each is an independent director under the applicable
standards of the NASD.
The objectives of our executive compensation program are to:
-
-
attract
and retain quality executives who will contribute to our long-term success and, thereby, increase shareholder value;
-
-
enhance
the individual executive's short and long-term performance;
-
-
align
the interests of the executive with those of our shareholders; and
-
-
improve
overall company performance and support the ACGL culture of teamwork, underwriting discipline and commitment to the highest ethical standards.
ACGL
seeks to provide a compensation program that is driven by our overall financial performance, the increase in shareholder value, the success of the operating unit or function
directly affected by the executive's performance and the individual performance of the executive. The main principles of this strategy include the following: (1) compensation decisions are
driven by performance, (2) increased compensation is earned through an employee's increased contribution and (3) a majority of total compensation should consist of variable,
performance-based compensation.
We
believe that the Company's compensation program provides a competitive mix of pay elements that align executive incentives with shareholder value. Our executive compensation program
includes both fixed and variable compensation, with an emphasis on long-term compensation that is tied to company performance. Although we do not apply rigid apportionment goals in our
compensation decisions, our philosophy is that variable pay, in the form of annual cash incentive bonuses and share-based awards, should constitute the majority of total direct compensation. A
substantial component of variable compensation is granted in the form of share-based awards, which make stock price appreciation fundamental in realizing a compensation benefit. By emphasizing
long-term performance through using long-term incentives, we align our executives' interests with our shareholders' interests and create a strong retention tool.
We
rely on our judgment in making compensation decisions for the named executive officers after reviewing the overall performance of our Company and evaluating an executive's performance
during
13
the
year against established objectives, leadership qualities, scope of responsibilities and current compensation. Specific factors affecting compensation decisions include key financial metrics, such
as growth in book value per share, return on equity ("ROE"), after-tax operating income, combined ratio and investment performance, as well as achieving strategic objectives and supporting
our values by promoting a culture of integrity through compliance with law and our ethics policies. We generally do not adhere to rigid formulas in determining the amount and mix of compensation
elements. We employ flexibility in our compensation programs and in the evaluation process, which we believe helps to position us to respond to changes in the business environment.
The four primary components of our executive compensation program are (1) base salary, (2) annual cash incentive bonuses,
(3) long-term incentive share-based awards and (4) benefits.
Base Salary.
Base salaries are designed to provide competitive levels of compensation to executives based upon their experience, duties
and scope of responsibility. We pay base salaries because they provide a basic level of compensation and are necessary to recruit and retain executives. The Committee has the ability, subject to the
terms of any employment agreement, to use base salary adjustments to reflect an individual's performance or changed responsibilities.
Base
salary levels are also important because we generally tie the amount of incentive compensation to an executive's base salary. For example, annual target bonus opportunities are
denominated as a percentage of the executive's base salary. In addition, as discussed above, the Committee emphasizes a mix of compensation weighted towards variable, performance-based compensation.
At lower executive levels, base salaries represent a larger proportion of total compensation but at senior executive levels are progressively replaced with larger variable compensation opportunities.
Annual Cash Incentive Bonuses.
We use annual cash incentive bonuses as a short-term incentive to drive achievement of our
annual performance goals. Specifically, annual cash incentive bonuses are designed to: (1) promote the achievement of financial goals, (2) support our strategic objectives and
(3) reward achievement of specific performance objectives.
Annual
bonus awards are designed to provide competitive levels of compensation to executives based upon their experience, duties and scope of responsibilities. The size of an executive's
bonus award is influenced by these factors, corporate performance, individual performance and market practice. As an employee's responsibilities increase, the portion of his or her bonus that is
dependent on corporate performance increases.
We
initially denominate a target annual cash incentive bonus opportunity as a percentage of an executive's base salary. For each employee, his or her target is an approximation of the
bonus payment that may be paid if performance goals and other expectations are attained by both the employee and the Company as a whole. These target annual bonuses are indicative and do not set a
maximum limit. For each of the named executive officers, the target annual bonus opportunity is 100% of such executive's respective base salary.
Our
annual bonus awards are paid under our Incentive Compensation Plan. The plan combines two sets of performance measures: (1) a qualitative judgment about progress and
performance each year (referred to as the "Target Bonus Approach") and (2) a quantitative, formula-based measure (referred to as the "Formula Approach").
The
Target Bonus Approach is applied to all the named executive officers, as well as to our investment management team, the employees of Arch Capital Services Inc. and other
designated officers. Under the Target Bonus Approach, the executive's bonus is discretionary and is determined by the Committee taking into account overall company performance, department or function
performance,
14
individual
performance and other measures deemed applicable by the Committee. The Committee measures company performance based on an analysis of our financial performance on an absolute basis and as
compared to that of Selected Competitors (as defined below) reviewed annually by the Committee. The financial metrics evaluated by the Committee in measuring company performance include growth in book
value per share, ROE, after-tax operating income, combined ratio and investment performance. Approved annual bonus awards are paid in cash in an amount reviewed and approved by the
Committee and ordinarily paid in a single installment in the first quarter following the completion of a given year.
The
Formula Approach is applied to executives included in our insurance and reinsurance groups. None of our named executive officers participated in our Formula Approach in 2007,
although from 2002 to 2005, the Formula Approach was applied to Mr. Grandisson, who previously served as president and chief executive officer of Arch Re (Bermuda) through November 2005. Under
the Formula Approach, a bonus pool is established for each of our insurance segment and our reinsurance segment based on underwriting performance during a given underwriting year. For each
underwriting year, the bonus pool will be recalculated annually as actual underwriting results emerge, and any resultant payments will be made to the participants over a 10-year
development period. Since much of our business requires multiple years to determine whether we have been successful in our assessment of risk, we have structured our plan in this manner so that
incentive payments are made to employees as actual results become known. Under the Incentive Compensation Plan, if the Board of
Directors or the Committee determines that the Formula Approach results in compensation levels that do not appropriately reflect the Company's underlying performance, then the Board of Directors or
the Committee may terminate the Formula Approach or make adjustments to it that it deems appropriate.
Historically,
we have allocated all of the Company's capital to the operating units for purposes of calculating ROE under our Incentive Compensation Plan, which is designed to encourage
our underwriters to write insurance and reinsurance business that offers the highest risk-adjusted returns. Since 2006, rates in many of our lines of business declined. In order to
reinforce ACGL's commitment to maintaining underwriting discipline, which involves writing only business that is adequately priced, the Board of Directors determined that a portion of
the Company's capital would not be allocated to the operating units for purposes of calculating ROE under the Incentive Compensation Plan for the 2006 and 2007 underwriting years. Consistent with this
philosophy of underwriting discipline, as well as our commitment to prudent and efficient capital management, in March 2007, the Board of Directors also authorized management to invest up to
$1 billion in ACGL's common shares through a share repurchase program.
Long-Term Incentive Share-Based Awards.
We emphasize long-term variable compensation at the senior executive
levels because of our desire to reward effective long-term management decision making and provide the named executive officers with a future interest in the Company. Long-term
incentives, which comprise a significant portion of executive compensation, are designed to focus attention on long-range objectives and future returns to shareholders, and are delivered
to the named executive officers and other employees through share-based awards under our long-term incentive plans. Our long-term incentive share award plans provide for the
grant to eligible employees of a wide range of share-based awards.
The
Company provided grants in the form of stock options and restricted common share awards through 2006. In May 2007, we began to utilize another form of share-based award,
stock-settled share appreciation rights ("SARs") in replacement of stock options in jurisdictions where this type of award is appropriate. SARs represent a right to be paid, upon exercise, an amount
measured by the difference between the fair market value per share on the exercise date and the exercise price of the SAR (the "spread"), multiplied by the number of shares with respect to which the
SAR is exercised, with the resultant amount paid in shares valued on the exercise date. The value of SARs to employees should be equivalent to that of options, and SARs are less dilutive to
shareholders. In addition, the Company
15
amended
outstanding stock option agreements to allow for net exercise to the extent permitted or otherwise advisable under applicable legal and accounting principles.
In
2007, the Company shifted the mix of share-based awards to place greater emphasis on restricted shares. One of the key bases for this change is that restricted shares are a more
predictable and flexible equity incentive than option and SAR awards. As a result, restricted shares are generally more
meaningful to employees and, therefore, could provide a more significant incentive to remain with the Company during the vesting period.
Our
share-based compensation is designed to align the interests of executives and shareholders by providing value to the executive as the share price increases. Due to the variability of
the share price, the value of stock options, SARs and restricted share awards is dependent upon our overall results and how we are perceived by our shareholders and the marketplace. Based on the
foregoing, the Company believes that share-based awards encourage executives and other employees to focus on behaviors and initiatives that should lead to an increase in the price of our common
shares, which benefits all ACGL shareholders.
During
2007, in an effort to further align the interests of the senior management team with the interests of shareholders, the Company adopted share retention guidelines that require
these executives to retain designated levels of ownership of the common shares of ACGL. Specifically, these guidelines require common share ownership levels as follows: (1) chief executive
officer of ACGLfive times base salary; (2) named executive officers and other executives who file reports under Section 16 of the Exchange Act and certain other members of
senior managementthree times base salary; and (3) other members of senior operating managementtwo times base salary. Each executive has five years to comply with the
guidelines, and unvested restricted shares, stock options and SARs do not count toward the requirement.
Share-based
compensation grant levels and awards are reviewed and determined by the Committee periodically. Grants of share-based compensation are determined on the basis of a number of
factors, including: (1) corporate performance on an absolute basis and relative to Selected Competitors and individual performance, (2) the executive's contribution to the Company's
success, (3) competitive total compensation and long-term incentive grant levels as determined in the market and (4) our share ownership objectives.
Share-based
awards granted to employees vest over a prescribed period, motivating executives to remain with us and sustain high corporate performance in order to increase the value of
such awards. The May 2007 grants outlined in the "Grants of Plan-Based Awards" table will vest over a three-year period, which the Company believes is consistent with the
Company's objectives to retain management and to align further the interests of management and the Company's shareholders. Options and SARs awarded to executives are granted at 100% of the market
value of the shares on the date of grant and, subject to earlier termination under certain circumstances as set forth in the award agreements, will expire 10 years from the grant date.
Each
award agreement expressly provides for the acceleration of the vesting of the applicable award and, in the case of stock options, adjustments to the option exercise period in the
event the award recipient ceases to be an employee of the Company in certain circumstances. Please refer to the description of our award agreements included below under the caption
"Share-Based Award Agreements." Commencing with the February 2006 annual grants, the award agreements for the named executive officers provide that, in the event that the employee's
employment is terminated by the Company other than for cause (or, in the case of Messrs. Iordanou, Vollaro, Grandisson and Jones, by the employee for good reason) within two years following a
change in control, unvested shares and unvested options would immediately vest, and the options would have a remaining term of 90 days from termination. Unlike single trigger provisions that
provide for vesting immediately upon a change in control, the agreements require a double trigger, a change in control followed by an involuntary loss
16
of
employment (or, in the case of Messrs. Iordanou, Vollaro, Grandisson and Jones, termination following an involuntary change in responsibilities) within two years thereafter. This is
consistent with the purpose of the provision, which is to provide employees with a level of financial protection upon loss of employment.
In
addition, commencing with grants on and after September 2004, our share-based award agreements provide that, if an employee's employment terminates (other than for cause) after
retirement age, unvested shares and unvested options would continue to vest pursuant to the normal vesting schedule so long as the employee does not engage in a competitive activity following
retirement. However, the award agreements also provide that, if a retired employee does engage in a competitive activity, any unvested awards would be forfeited and the holder would have a reduced
period in which to exercise vested options. These provisions are designed to help provide our retired employees with financial security so long as the Company's interests are protected.
Benefits.
ACGL seeks to provide benefit plans, such as medical coverage and life and disability insurance, consistent with applicable
market conditions. These health and welfare plans help ensure that the Company has a productive and focused workforce through reliable and competitive health and other benefits. In line with
ACGL's objective to provide careers and to promote retention, defined contribution retirement plans are provided for all employees according to local market conditions. Retirement plans
help employees save and prepare for retirement. The named executive officers are eligible for the benefit plans provided to all other employees.
Messrs. Iordanou,
Vollaro, Grandisson and Jones also participate in the Company's non-qualified defined contribution retirement plan, which provides these executives
with additional retirement savings opportunities that cannot be achieved with tax-qualified plans due to limits on annual compensation that can be taken into account under qualified plans.
The investment alternatives under the non-qualified plan are the same choices available to all participants under the tax-qualified defined contribution retirement plan and the
executives do not receive preferential earnings on their investments. Account balances are paid in cash following termination of employment in accordance with the terms of the plan. The principal
benefit to the executives is that U.S. taxes are deferred until distribution of the funds.
In
2007, the Company adopted an employee share purchase plan. The purpose of this plan is to provide employees with an opportunity to purchase common shares of ACGL through payroll
deductions, thereby encouraging employees to share in the economic growth and success of the Company.
In
addition, the Company provides our named executive officers with perquisites and other benefits that the Company and the Committee believe are reasonable and consistent with its
overall compensation program to better enable the Company to attract and retain key employees. In developing our guidelines for the administration of these various benefits, the Company reviews the
job requirements of various positions and the anticipated business use of such benefits, as well as available market data. Similar benefits are generally provided by insurers and reinsurers for
similarly-situated employees and have been necessary for recruitment and retention purposes. Many of these benefits relate to those executives who work and reside in Bermuda and are typical of such
benefits provided to expatriates located in Bermuda. Examples of these benefits include housing allowances, club memberships, the cost of tax preparation services and home leave for executives and
family for those executives working outside their home country. In addition, certain tax regulations often subject our executives to taxation on the receipt of certain benefits irrespective of the
value such benefit confers to the executive. In these situations, we typically provide a tax gross-up payment to the executive to reimburse the executive for approximate amounts of
additional tax liability the executive will need to pay as a result of receiving such benefits.
17
The Committee reviews the performance of, and approves the compensation paid to, the chief executive officer and the other named executive officers. The chief
executive officer assists in the reviews of the named executive officers other than himself through making recommendations on goals and objectives, evaluating performance and making recommendations
regarding compensation. With this input from the chief executive officer with respect to the other named executive officers, the Committee uses discretion in determining compensation for these
officers.
The
Committee meets in executive sessions (without management present) as necessary, particularly when administering any aspect of the compensation program for the chief executive
officer. Compensation matters in respect of the chairman, the chief executive officer and the chief financial officer of ACGL and the general counsel of Arch Capital Services Inc. are subject
to ratification by the Board of Directors.
In
determining the amount of named executive officer compensation each year, the Committee reviews overall corporate performance, the performance of the business unit or function that
the executive leads and an assessment of each executive's performance. The Committee considers competitive market practices with respect to senior executive compensation practices and levels of base
salary, annual incentives, long-term incentives and benefits. The Committee reviews available survey data and annual reports on Form 10-K, proxy statements and other
publicly available information for a representative sample of publicly-traded insurers and reinsurers which we believe compete directly with us for executive talent (the "Selected Competitors"). Many
of these Selected Competitors are of generally similar size and have generally similar numbers of employees, product offerings and geographic scope. Currently, the Selected Competitors are: ACE
Limited, AXIS Capital Holdings Limited, Endurance Specialty Holdings Ltd., Everest Re Group Ltd., Montpelier Re Holdings Ltd., Odyssey Re Holdings Corp., PartnerRe Ltd.,
Platinum Underwriters Holdings, Ltd., RenaissanceRe Holdings Ltd., Transatlantic Holdings, Inc., W.R. Berkley Corp. and XL Capital Ltd.
Materials
for each meeting are generally provided in advance for review by the Committee. Materials may include the following: reports on operating results and strategic results,
schedules showing all forms of compensation paid to senior executives, background information regarding any proposed change to any element of compensation or benefits and Selected Competitor data.
The specific compensation decisions made for each named executive officer for 2007 reflect the strong performance of the Company against key financial and
operational measurements. In evaluating the performance of the Company, we focus on two main benchmarks, growth in book value per share, which creates long-term value for shareholders, and
ROE, which measures the generation of earnings and the efficient use of capital and drives growth in book value. We did extremely well in 2007 by both measures. Book value increased 25.4% in 2007, to
$55.12 per diluted share at December 31, 2007, and after-tax operating income return on average equity was 24.3% for 2007. In addition, after-tax operating income
available to common shareholders was $846.3 million, or $11.47 per diluted share, and our GAAP combined ratio declined to 84.1% in 2007 from 85.4% in 2006. We believe our emphasis on
profitability, rather than on premium volume, will benefit shareholders by enabling us to continue to grow the Company's book value per share at an attractive rate over time.
Please
refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our 2007 Annual Report for an analysis of our financial and
operational performance during 2007. After-tax operating income available to common shareholders, a non-GAAP financial measure, is defined as net income available to common
shareholders, excluding net realized gains or losses and net foreign exchange gains or losses, net of income taxes.
18
Consistent
with our philosophy of emphasizing variable, performance-based compensation, the base salaries for 2008 for all named executive officers of the Company were not increased from
2007 levels.
In
determining the performance-based portion of Mr. Iordanou's compensation, the Committee evaluated Mr. Iordanou's contributions toward creation and enhancement of
shareholder value by considering a number of factors, including the Company's strong financial results achieved under his leadership despite softening of the insurance and reinsurance markets. The
Committee focused on the fact that the Company maintained underwriting discipline as market conditions weakened. The Committee also considered the Company's effective capital management, as well as
its pursuit of strategic and operational initiatives under Mr. Iordanou's leadership, to support the Company's long-term success. For example, over the past year, the Company
established the reinsurance group's new property facultative operations and finalized a joint venture with the Gulf Investment Corporation to form a new reinsurer based in the Dubai
International Financial Centre (the "Gulf Joint Venture"). The Committee did not apply a formula or assign performance measures relative weights but made a subjective determination after considering
these measures collectively.
In
light of the Committee's assessment, and as a result of his performance, Mr. Iordanou received a cash bonus of $3,500,000. In May 2007, he also was granted
long-term incentive awards in the form of 45,000 restricted common shares and 45,000 SARs with a per share exercise price of $71.12, each of which will vest in three equal annual
installments commencing on the first anniversary of the grant date. These awards, which are reflected in the "Summary Compensation Table," were awarded following an assessment of Mr. Iordanou's
performance during 2006. As noted below, the Committee expects to consider determinations for shared-based compensation for 2007 performance at meetings scheduled to be held in May 2008. In
consideration for Mr. Iordanou entering into his new employment agreement, the above restricted shares awarded to him have become fully vested on November 28, 2007 (see
"Employment Arrangements").
In
determining the performance-based compensation of our other named executive officers, the Committee evaluated overall performance of the Company and their contributions to that
performance, as well as the performance of the business or function that each named executive officer leads. Again, the Committee did not apply a formula or assign performance measures relative
weights but made a subjective determination after considering these measures collectively.
With
respect to Mr. Vollaro, the Committee noted his key role in capital management which, along with underwriting discipline, is critical to the Company's success. In that
regard, during 2007, Mr. Vollaro provided effective direction for the Company's common share repurchase program, which commenced in February 2007. The Committee also reviewed
Mr. Vollaro's oversight of enterprise risk management and the Company's capital allocation methodology. Effective capital allocation will allow us to deploy capital more effectively to those
areas with the best underwriting opportunities. In addition, under
Mr. Vollaro's leadership, the financial function for the Company, which involved, among other things, financial reporting, investor relations and ratings agency matters, performed very well
during the year. During 2007, the financial strength ratings of our principal reinsurance and insurance subsidiaries were affirmed by A.M. Best at "A" (Excellent), and upgraded by
Standard & Poor's to "A" (Strong).
In
assessing the performance of Messrs. Grandisson and Jones, who oversee the Company's reinsurance operations and insurance operations, respectively, the Committee reviewed the
profitability of the reinsurance group and the insurance group, including their respective groups' effective job in managing the underwriting cycle as market conditions worsened during 2007. As part
of that analysis, the Committee reviewed the estimated bonus pool determined under the Formula Approach for the 2007 and prior underwriting years, which is based on various ROE targets. In reviewing
these calculations, the Committee recognized that the estimated bonus pool provides only a current indication of underwriting performance as the bonus pool for the underwriting year will be
recalculated annually over a 10-year development period as actual results emerge.
19
The Committee also reviewed Mr. Grandisson's and Mr. Jones' oversight of key operational matters for their respective groups, including those relating to overall
management, expenses, risk management and information technology infrastructure. In addition, the Committee considered the Company's pursuit of strategic initiatives under the leadership of
Mr. Grandisson and Mr. Jones, which initiatives will provide us with opportunities to access new sources of profitable business over the long term. Over the past year,
Mr. Grandisson provided oversight for the establishment of new property facultative reinsurance operations, the extension of the reinsurance group's presence in Europe and the finalization of
the Gulf Joint Venture (as described above). Under Mr. Jones' direction, the insurance group continued to place greater emphasis on serving smaller accounts where pressure on rates was less and
enhanced our U.S.-based operations' presence in selected cities, which will help position us to serve our distributors more effectively.
With
respect to Mr. Hutchings, the Committee reviewed the performance of the Company's internal and external investment portfolios. Under Mr. Hutchings' oversight, the
Company believes that the portfolios were very well positioned to capitalize on attractive investment opportunities that may arise as a result of recent financial market turmoil. In addition, the
Committee reviewed other contributions of Mr. Hutchings, including his effective implementation of the Company's common share repurchase program and his oversight of a process by which internal
Company personnel assumed responsibility from external managers for managing a substantial amount of funds, which has led to more efficient administration of the Company's portfolios and related
savings.
In
light of this assessment, the named executive officers received the following annual incentive cash bonuses for performance during 2007: Mr. Vollaro$1,000,000;
Mr. Grandisson$1,000,000; Mr. Jones$750,000; and Mr. Hutchings$350,000. In addition, in May 2007, they were granted the following
long-term incentive share-based awards (with the same principal terms described above): Mr. Vollaro12,550 SARs and 12,550 restricted common shares;
Mr. Grandisson10,450 SARs and 10,450 restricted common shares; Mr. Jones9,400 SARs and 9,400 restricted common share units; and
Mr. Hutchings5,250 SARs and 5,250 restricted common shares. In order to limit the impact of the deductibility cap under Section 162(m) of the Code, certain amounts payable
to Mr. Jones were deferred in accordance with our current policies, which are described below under the caption "Tax ConsiderationsSection 162(m)." These share-based awards,
which are reflected in the "Summary Compensation Table," were awarded following an assessment of the executives' performance during 2006. As noted below, the Committee expects to consider
determinations for shared-based compensation for 2007 performance at meetings scheduled to be held in May 2008.
As
indicated above, and consistent with the Committee's general compensation philosophy for senior executives, compensation for the named executive officers was weighted significantly
towards performance-based compensation in the form of a cash bonus payment and share-based awards. Specifically, in 2007, for our named executive officers, we allocated compensation as follows:
(1) base salaries ranging from approximately 11% to 32% of total compensation and (2) variable, performance-based compensation, in the form of annual cash incentive bonuses and
long-term incentive share-based awards, ranging from approximately 68% to 89% of total compensation. For this purpose, the percentages are based on total compensation that includes the
base salary and cash bonus payments described above and the full grant date value of the May 2007 share-based awards calculated in accordance with prescribed accounting rules. The calculated amounts
for the share-based awards differ from the amounts included in the "Summary Compensation Table," which we calculated in accordance with SEC regulations and, accordingly, include amounts related to the
awards granted in 2007 as well as prior years.
The Committee approves all grants of share-based compensation to the named executive officers and other executives who file Section 16 reports with the
SEC, and these awards also are generally
20
approved
by the full Board of Directors. The Committee approves annual share-based awards to other employees or, alternatively, may approve the size of the pool of such annual share-based awards to be
granted to other employees, but may delegate to the chief executive officer and other members of senior management the authority to make and approve specific awards to other employees. In addition,
the Committee has delegated to the chief executive officer or, in his absence, the chief financial officer, the authority to make and approve specific share-based awards to non-executives,
principally new hires, who are not subject to Section 16 of the Exchange Act. The Committee reviews any grants made under this delegation on a regular basis.
Our
plans do not permit granting of stock options at an exercise price below the fair market value on the grant date and also do not allow for repricing or reducing the exercise price of
a stock option. We set the exercise price of stock options at the closing share price on the date of grant.
It
has been our practice to make annual grants of share-based compensation on the dates of regularly scheduled meetings of the full Board of Directors. Our process for establishing the
grant date well in advance provides assurance that grant timing is not being manipulated for employee gain. It is our current intention to consider the determinations for annual grants on the date of
the May meeting of our Board of Directors. We chose the May meeting of our Board of Directors because we believe that more complete information will be publicly available at that time regarding the
financial performance of our Selected Competitors and the related share-based awards granted by these companies for performance during the prior year, which will provide the Committee and the Board of
Directors with additional useful data before making final determinations on share-based compensation. Generally,
awards are granted to the named executive officers as part of the annual process, which encompassed approximately 273 company employees worldwide for awards granted in 2007 for 2006 performance. We
may grant a small percentage of awards at other times throughout the year on the date of regularly-scheduled meetings of the Committee or the full Board of Directors in connection with hiring or the
promotion of an executive or special retention circumstances. In addition, pursuant to the delegation of authority by the Committee, the chief executive officer or, in his absence, the chief financial
officer, may approve at other times grants of share-based awards to non-executive officers. In the case of a new hire, the awards have grant dates corresponding to the date the employment
commences for the new hire.
Section 162(m).
Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid to the chief executive officer and four other most highly compensated executive officers to no more than $1,000,000 each. Since ACGL will not generally be subject to United States
income tax, the limitation on deductibility will not directly apply to it. However, the limitation would apply to a United States subsidiary of ACGL if it employs the chief executive officer or one of
the four other most highly compensated executive officers. Qualified performance-based compensation will be excluded from the $1,000,000 limitation on deductibility. Our policy is to qualify, to the
extent reasonable, our executive officers' compensation for deductibility under applicable tax laws. Consistent with this policy, our Incentive Compensation Plan includes a provision pursuant to which
payments under the plan may be deferred if it is necessary in order to avoid nondeductibility of the payments under Section 162(m) of the Code. However, the Committee believes that its primary
responsibility is to provide a compensation program that will attract, retain and reward the executive talent necessary to our success. Consequently, the Committee recognizes that the loss of a tax
deduction could be necessary in some circumstances due to the restrictions of Section 162(m). The Committee will review tax consequences as well as other relevant considerations in connection
with compensation decisions.
21
Report of the Compensation Committee on the Compensation Discussion and Analysis
The Committee reviewed and discussed the "Compensation Discussion and Analysis" section included in this proxy statement with management. Based on such review and
discussion, the Committee recommended to the Board of Directors that the "Compensation Discussion and Analysis" section be included in this proxy statement for filing with the SEC.
22
Summary Compensation Table
The following table provides information concerning the compensation for services in all capacities earned by the named executive officers for fiscal year 2007.
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($) (1)
|
|
Option
Awards
($) (1)
|
|
Non-Equity
Incentive
Plan
Compen-
sation
($)
|
|
Change in Pension Value and Nonqualified
Deferred
Compen-
sation
Earnings
($)
|
|
All Other
Compen-
sation
($)
|
|
Total
($)
|
Constantine Iordanou
President and Chief Executive Officer of ACGL and Class II Director of ACGL
|
|
2007
2006
|
|
1,000,000
1,000,000
|
|
3,500,000
3,500,000
|
|
3,210,785
2,163,818
|
|
1,029,380
2,888,641
|
|
|
|
|
|
491,022
513,710
|
(3)
(3)
|
9,231,187
10,066,169
|
John D. Vollaro
Executive Vice President, Chief Financial Officer and Treasurer of ACGL
|
|
2007
2006
|
|
500,000
500,000
|
|
1,000,000
1,000,000
|
|
1,134,373
125,045
|
|
806,526
262,126
|
|
|
|
|
|
358,949
305,030
|
(4)
(4)
|
3,799,848
2,192,201
|
Marc Grandisson
Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group
|
|
2007
2006
|
|
625,000
625,000
|
|
1,000,000
900,000
|
|
1,109,108
1,013,674
|
|
641,318
617,481
|
|
484,623
|
(2)
|
|
|
288,766
287,818
|
(5)
(5)
|
3,664,192
3,928,596
|
Ralph E. Jones III
Chairman and Chief Executive Officer of Arch Worldwide Insurance Group
|
|
2007
2006
|
|
625,000
625,000
|
|
750,000
900,000
|
|
257,253
125,045
|
|
227,052
210,678
|
|
|
|
|
|
168,388
161,913
|
(6)
(6)
|
2,027,693
2,022,636
|
W. Preston Hutchings
President of Arch Investment Management Ltd. and Senior Vice President and Chief Investment Officer of ACGL
|
|
2007
2006
|
|
400,000
400,000
|
|
350,000
800,000
|
|
211,744
119,870
|
|
119,266
248,510
|
|
|
|
|
|
63,188
55,609
|
(7)
(7)
|
1,144,198
1,623,989
|
-
(1)
-
The
amounts shown in these columns are based on the compensation expense recognized for financial reporting purposes for 2007 with respect to all share-based awards granted in 2007 as
well as in prior years without regard to forfeiture assumptions. With respect to stock awards, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123 (R),
"Share-Based Payment," expense is initially measured based on the grant date fair value of the award, and is generally recognized for financial reporting purposes over the period in which the employee
is required to provide service in exchange for the award (generally the vesting period unless the employee is retirement eligible). For awards granted to retirement-eligible employees
(
i.e.,
Messrs. Iordanou and Vollaro) where no service is required for the employee to retain the award, the grant date fair value is
immediately recognized as compensation expense at the grant date because the employee is able to retain the award without continuing to provide service. For employees near retirement eligibility,
attribution of compensation cost is over the period from the grant date to the retirement eligibility date. In accordance with the provisions of SFAS No. 123 (R), we have computed the
estimated grant date fair values of share-based compensation
23
related
to stock options using the Black-Scholes option valuation model having applied the assumptions set forth in the notes accompanying our financial statements. See note 13, "Share Capital"
of the notes accompanying our consolidated financial statements included in our 2007 Annual Report. A discussion of the assumptions used in this valuation with respect to awards made in fiscal years
prior to 2007 may be found in the corresponding notes to the Company's consolidated financial statements for the fiscal year in which the award was made.
-
(2)
-
Under
the Formula Approach included in our Incentive Compensation Plan, bonus pools for performance in each underwriting year have been established for designated personnel of our
reinsurance operations and insurance operations. Under the plan, the bonus pools for each underwriting year will be recalculated annually, and any resultant payments will be made to plan participants
over a 10-year development period. Mr. Grandisson, who previously participated in the Formula Approach until the 2005 underwriting year, received a payment of $484,623 in 2006 based
on the calculated results for prior underwriting years under such Formula Approach.
-
(3)
-
Includes:
(a) $105,250 and $140,290 in contributions to our defined contribution plans for 2007 and 2006, respectively (the 2006 amount has been reduced to correct an
administrative error); (b) a housing allowance in Bermuda of $145,357 and $143,000 for 2007 and 2006, respectively; (c) incremental costs to the Company of $91,395 and $80,113 resulting
from the use of Company-provided aircraft for commuting to the Company's offices for 2007 and 2006, respectively; (d) reimbursement of $45,168 for additional tax costs resulting from a change
in tax laws relating to U.S. citizens working in Bermuda, which became effective as of January 1, 2006 (the "Expatriate Law Change"), for each of 2007 and 2006; and (e) an aggregate of
$41,678 and $41,429 for tax gross-up payments to reimburse the executive for the payment of taxes with respect to the Expatriate Law Change, commuting costs, family travel and home leave
policies and certain club dues for 2007 and 2006, respectively. The additional tax costs and related tax gross-up component that relate to the Expatriate Law Change is subject to
adjustmentup or downbased upon the executive's final tax return filed for the year (accordingly, such amounts reported for 2006 have been adjusted based on the executive's
final tax return). The calculation of the incremental cost for Company-provided aircraft use is based on the variable operating costs to the Company for each flight, including hourly charges, fuel
variable charges and applicable international fees. To the extent applicable, fixed costs, which did not change based on usage, such as management fees not related to trips, are excluded. In addition,
also includes the following other benefits, none of which individually exceeded the greater of $25,000 or 10% of the total amount of these benefits for the named executive: an automobile allowance,
Bermuda payroll tax reimbursements, tax preparation services, family travel and home leave policies, club dues and life insurance premiums.
-
(4)
-
Includes:
(a) $55,250 and $67,790 in contributions to our defined contribution plans for 2007 and 2006, respectively (the 2006 amount has been reduced to correct an
administrative error); (b) a housing allowance in Bermuda of $118,846 and $116,259 for 2007 and 2006, respectively; (c) incremental costs to the Company of $65,967 resulting from the use
of Company-provided aircraft for commuting to the Company's offices for 2007; (d) reimbursement of $34,561 for additional tax costs resulting from the Expatriate Law Change for each of 2007 and
2006; and (e) an aggregate of $25,099 and $23,009 in tax gross-up payments to reimburse the executive for the payment of taxes with respect to the Expatriate Law Change and
commuting costs for 2007 and 2006, respectively. The additional tax costs and related tax gross-up component that relate to the Expatriate Law Change is subject to
adjustmentup or downbased upon the executive's final tax return filed for the year (accordingly, such amounts reported for 2006 have been adjusted based on the executive's
final tax return). In addition, also includes the following other benefits, none of which individually exceeded the greater of $25,000 or 10% of the total amount of these benefits for the named
executive: the use of Company-provided and commercial aircraft for
24
commuting
to the Company's offices, an automobile allowance, Bermuda payroll tax reimbursements, tax preparation services and life insurance premiums.
-
(5)
-
Includes:
(a) $60,000 and $60,500 in contributions to our defined contribution plans for 2007 and 2006, respectively (the 2006 amount has been reduced to correct an
administrative error); (b) a housing allowance in Bermuda of $142,828 and $158,100 for 2007 and 2006, respectively; and (c) $29,500 for fees for children's schooling for 2007. In
addition, also includes the following other benefits, none of which individually exceeded the greater of $25,000 or 10% of the total amount of these benefits for the named executive: fees for
children's schooling during 2006, Bermuda payroll tax reimbursements, family travel and home leave policies, an automobile allowance, tax preparation services, club dues and life insurance premiums.
-
(6)
-
Includes:
(a) $67,750 and $67,690 in contributions to our defined contribution plans for 2007 and 2006, respectively; (b) a housing allowance of $66,099 and $61,859 for
2007 and 2006, respectively; and (c) $33,749 and $31,584 in tax gross-up payments for 2007 and 2006, respectively. In addition, also includes the payment for life insurance
premiums, which did not exceed the greater of $25,000 or 10% of the total amount of these benefits for the named executive.
-
(7)
-
Includes:
(a) $20,000 in contributions to our defined contribution plans for each of 2007 and 2006; (b) $18,082 and $12,511 in Bermuda payroll tax reimbursements for
2007 and 2006, respectively; (c) an automobile allowance of $11,668 and $11,667 for 2007 and 2006, respectively; and (d) club dues of $6,250 and $8,350 for 2007 and 2006, respectively.
In addition, also includes the payment for life insurance premiums, which did not exceed the greater of $25,000 or 10% of the total amount of these benefits for the named executive.
25
Grants of Plan-Based Awards
The following table provides information concerning grants of share-based awards made to our named executive officers in fiscal year 2007:
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Thresh-
old
($)
|
|
Target
($)
|
|
Maxi-
mum
($)
|
|
Thresh-
old
(#)
|
|
Target
(#)
|
|
Maxi-
mum
(#)
|
|
All Other Stock Awards: Number of Shares of Stock or Units
(#)(1)
|
|
All Other Option Awards: Number of Securities Underlying Options
(#)(1)
|
|
Exercise or Base Price of Option Awards
($/Sh)
|
|
Grant Date Fair Value of Stock and Option Awards
($)(2)
|
Constantine Iordanou
|
|
5/11/2007
5/11/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
45,000
|
|
71.12
|
|
3,200,400
1,029,380
|
John D. Vollaro
|
|
5/11/2007
5/11/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,550
|
|
12,550
|
|
71.12
|
|
892,556
287,083
|
Marc Grandisson
|
|
5/11/2007
5/11/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,450
|
|
10,450
|
|
71.12
|
|
743,204
239,045
|
Ralph E. Jones III
|
|
5/11/2007
5/11/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,400
|
|
9,400
|
|
71.12
|
|
668,528
215,026
|
W. Preston Hutchings
|
|
5/11/2007
5/11/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250
|
|
5,250
|
|
71.12
|
|
373,380
120,094
|
-
(1)
-
The
May 2007 grants indicated above were awarded under the 2007 Long Term Incentive and Share Award Plan in the form of SARs and restricted share awards. These awards will vest over a
three-year period, and the SARs were granted at 100% of the market value of the shares on the date of grant and, subject to the award agreements, will expire 10 years from the grant
date. The restricted share awards indicated above were granted in the form of restricted common shares, except for Mr. Jones' award, which was granted in the form of restricted common share
units that will be settled in common shares after the termination of his employment as provided in the award agreement. In consideration for Mr. Iordanou entering into his new employment
agreement, the above restricted shares awarded to him have become fully vested on November 28, 2007 (see "Employment Arrangements").
-
(2)
-
The
amounts shown in this column represent the grant date fair value of the underlying award computed in accordance with SFAS No. 123 (R) as discussed in note 13,
"Share Capital" of the notes accompanying our consolidated financial statements included in our 2007 Annual Report.
26
Outstanding Equity Awards at 2007 Fiscal Year-End
The following table provides information concerning unexercised options and stock that has not vested for each named executive officer outstanding as of
December 31, 2007.
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unearned
Options (#)
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#) (2)
|
|
Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($) (3)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested (#)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested ($)
|
Constantine Iordanou
|
|
400,000
120,000
50,000
|
|
100,000
45,000
|
|
|
|
23.50
39.00
56.27
71.12
|
|
1/1/2012
9/22/2014
2/23/2016
5/11/2017
|
|
|
|
|
|
|
|
|
John D. Vollaro
|
|
85,000
40,000
13,334
|
|
26,666
12,550
|
|
|
|
25.30
39.00
56.27
71.12
|
|
1/18/2012
9/22/2014
2/23/2016
5/11/2017
|
|
16,550
|
|
1,164,293
|
|
|
|
|
Marc Grandisson
|
|
37,500
32,000
6,667
|
|
80,000
13,333
10,450
|
|
|
|
20.00
39.00
55.04
56.27
71.12
|
|
10/23/2011
9/22/2014
11/15/2015
2/23/2016
5/11/2017
|
|
62,450
|
|
4,393,358
|
|
|
|
|
Ralph E. Jones III
|
|
50,000
40,000
10,000
|
|
20,000
9,400
|
|
|
|
34.71
39.00
56.27
71.12
|
|
7/1/2013
9/22/2014
2/23/2016
5/11/2017
|
|
13,400
|
|
942,690
|
|
|
|
|
W. Preston Hutchings
|
|
50,000
2,000
|
|
4,000
5,250
|
|
|
|
45.34
56.27
71.12
|
|
7/1/2015
2/23/2016
5/11/2017
|
|
18,416
|
|
1,295,566
|
|
|
|
|
-
(1)
-
Each
of the above stock options and SARs, as applicable, vest in three equal annual installments commencing on the first anniversary of the grant date, except that the 80,000 options
held by Mr. Grandisson will vest on December 31, 2008. All of such options will expire 10 years from the date of grant (subject to the terms of the award agreements).
-
(2)
-
The
above restricted share awards vest in three equal annual installments commencing on the first anniversary of the grant date, except that (a) 50,000 common shares will vest
to Mr. Grandisson on December 31, 2008; and (b) 12,500 common shares will vest to Mr. Hutchings on July 1, 2010 (subject to the terms of the award agreements).
Mr. Jones' awards were granted in the form of restricted common share units that will be settled in common shares after the termination of his employment as provided in the award agreement.
-
(3)
-
Market
value of unvested shares or units on an aggregate basis are valued as of December 31, 2007 in accordance with applicable SEC rules.
27
Option Exercises and Stock Vested
The following table provides information concerning each exercise of stock options and each vesting of stock during fiscal year 2007 for the named executive
officers:
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of Shares
Acquired on
Exercise (#)
|
|
Value Realized
on Exercise
($) (1)
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
Value Realized on
Vesting ($) (2)
|
Constantine Iordanou
|
|
25,000
|
|
1,171,250
|
|
69,464
|
|
4,858,669
|
John D. Vollaro
|
|
|
|
|
|
2,000
|
|
132,080
|
Marc Grandisson
|
|
|
|
|
|
1,716
|
|
112,766
|
Ralph E. Jones III
|
|
|
|
|
|
2,892
|
|
190,292
|
W. Preston Hutchings
|
|
|
|
|
|
334
|
|
22,057
|
-
(1)
-
We
computed the dollar amount realized upon exercise by multiplying the number of shares by the difference between the market price of the underlying shares at exercise and the
exercise price of the options.
-
(2)
-
We
computed the dollar amount realized upon vesting by multiplying the number of shares by the market value of the underlying shares on the vesting date.
28
Non-Qualified Deferred Compensation
The following table provides information with respect to our defined contribution plan that provides for deferral of compensation on a basis that is not
tax-qualified:
Name
|
|
Executive Contributions in Last FY
($) (1)
|
|
Registrant Contributions in Last FY
($)
|
|
Aggregate Earnings in Last FY
($)
|
|
Aggregate Withdrawals/ Distributions
($)
|
|
Aggregate Balance at
Last FYE
($)
|
|
Constantine Iordanou
|
|
1,750,000
|
|
77,500
|
(2)
|
1,611,426
48,410
|
|
|
|
12,698,729
1,242,944
|
(3)
(4)
|
John D. Vollaro
|
|
500,000
|
|
27,500
|
(2)
|
121,024
|
|
|
|
3,354,560
|
(3)
|
Marc Grandisson
|
|
|
|
40,000
|
(2)
|
3,565
|
|
|
|
84,065
|
(3)
|
Ralph E. Jones III
|
|
505,000
|
|
40,000
668,528
|
(2)
(4)
|
143,738
172,427
|
|
|
|
2,041,812
5,274,210
|
(3)
(4)
|
W. Preston Hutchings
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
All
of such amounts were deferred by the named executive officers and are also reported in the "Summary Compensation Table" in the "Bonus" column for 2006.
-
(2)
-
All
of such contributions by the Company are also reported in the "Summary Compensation Table" for fiscal year 2007 in the "All Other Compensation" column.
-
(3)
-
Includes
the following amounts which we also reported in the "Summary Compensation Table" for fiscal year 2007 or in prior years: Mr. Iordanou$9,391,172;
Mr. Vollaro$3,056,875; Mr. Grandisson$80,500; and Mr. Jones$1,806,322. For Messrs. Iordanou, Vollaro and Grandisson, the amounts
indicated in the "Aggregate Balance at Last FYE" column have been reduced to correct administrative errors relating to 2006 and 2007.
-
(4)
-
Indicates
the value of restricted common share units that will be settled in common shares after the termination of employment as provided in the applicable award agreements. The
amount indicated in the "Registrant Contributions in Last FY" column for Mr. Jones is based on closing price of ACGL's common shares on the date of grant, and such award vests in
three equal annual installments commencing on May 11, 2008. The amounts indicated in the "Aggregate Balance at Last FYE" column are based on the closing price of ACGL's common
shares on December 31, 2007. All of such grants have been reported in the "Summary Compensation Table" for fiscal year 2007 or in prior years as follows: (a) "Registrant Contributions in
Last FY" for Mr. Jones$142,733; and (b) "Aggregate Balance at Last FYE" for Mr. Iordanou$500,000 and Mr. Jones$2,470,395.
The
Company maintains a non-qualified Executive Supplemental Non-Qualified Savings and Retirement Plan. Under this plan, participants may defer eligible base
salary in excess of the compensation limit imposed by the Code ("Excess Compensation") (for 2007, base salary in excess of $225,000, which amount has been increased to $230,000 for 2008) and the
Company provides matching contributions on these deferrals in amounts equal to 100% of the first 3% of salary contributed to the plan and 50% of the next 3% of salary contributed to the plan. The
Company also makes pension-like contributions on behalf of the eligible named executive officers in an amount equal to 10% of Excess Compensation. In addition, the named executive officers
may defer up to 100% of annual bonus paid each year and these bonus deferral contributions are not eligible for matching contributions by the Company. Until distribution, the contributions and any
earnings are held in an irrevocable trust known as a "rabbi trust" by an independent trustee, and the trust assets remain subject to the Company's creditors. The participants may elect to have their
contributions under the plan deemed to be invested among certain permissible mutual fund options. The plan provides that, as soon as practicable following retirement, death or other termination of
employment, but subject to any delay required by the Code,
29
all
benefits under the plan will be distributed either in a single lump sum in cash or, if elected, in installments over a period not to exceed 10 years.
Employment Arrangements
Set forth below is a summary of the material terms of the employment arrangements with each of the named executive officers.
In January 2002, Mr. Iordanou was appointed to our Board of Directors and as chief executive officer of Arch Capital Group (U.S.) Inc., responsible
for the general management and oversight of the U.S. insurance operations of Arch Capital Group (U.S.) Inc. and its affiliates. Effective August 1, 2003, Mr. Iordanou became
president and chief executive officer of ACGL. On November 28, 2007, ACGL entered into a new employment agreement with Mr. Iordanou, pursuant to which Mr. Iordanou has agreed to
continue to serve as ACGL's president and chief executive officer until November 28, 2012 (or such earlier or later date upon which Mr. Iordanou's employment may be
terminated or extended in accordance with the employment agreement). In consideration for Mr. Iordanou entering into the new employment agreement, the following awards of restricted ACGL common
shares granted to him by ACGL have become vested in full on November 28, 2007: 13,333 shares granted on February 23, 2006 (6,667 shares under such grant had already vested) and 45,000
shares granted on May 11, 2007. In addition, the employment agreement contains amendments intended to comply with Section 409A of the Code. The new employment agreement is otherwise on
substantially the same terms and conditions as Mr. Iordanou's prior employment agreement. Other terms of the employment agreement are summarized below.
Mr. Iordanou's
employment agreement provides for an annual base salary of $1,000,000, which is subject to review annually for increase at the discretion of the Board of Directors.
Mr. Iordanou is eligible to participate in an annual bonus plan on terms established from time to time. The target rate for the annual cash bonus is 100% of his annual base salary.
Mr. Iordanou is also entitled to participate in employee benefits programs such as major medical, life insurance and disability insurance; the cost of preparation of annual tax returns and
associated tax planning on a basis no less favorable than such arrangements provided to similarly situated senior executives residing in Bermuda; and other fringe benefits customarily provided to
similarly situated senior executives residing in Bermuda, which includes housing expense reimbursement, payroll tax reimbursements and automobile allowance. Since Mr. Iordanou relocated to
Bermuda, his employment agreement also provides for the use of any private aircraft owned or leased by the Company or such other reasonably comparable air transportation for travel between Bermuda and
the New York Metropolitan area. In addition, Mr. Iordanou is also entitled to an amount equal to the excess, if any, of the amount of income and employment taxes payable by him to Bermuda, New
York and any other governmental taxing authority over the amount that would have been payable by him had he resided in New York for the entire calendar year. The agreement also provides that, during
the employment period, ACGL will use its best efforts to cause Mr. Iordanou to be elected to our Board of Directors. The agreement provides that it will be automatically extended for successive
one-year periods after the current term unless either ACGL or Mr. Iordanou gives at least 12 months notice of the intention not to renew.
The
agreement provides that if Mr. Iordanou's employment is terminated by his death, he will receive a prorated portion of his bonus that would have been paid for the year of his
death and an amount equal to two times the sum of his base salary and target annual bonus payable in a lump sum, but offset by life insurance proceeds received by his estate on coverage provided by
the Company. His agreement also provides that if his employment is terminated due to his permanent disability, he will receive a prorated portion of his bonus that would have been paid for the year in
which he becomes disabled, as determined by the Board of Directors, and an amount equal to 40% of his base salary
30
payable
in monthly installments during the period of his disability extending through the time period provided for in our disability plan offset by proceeds received by him from disability insurance
provided by the Company. The agreement further provides that if we terminate Mr. Iordanou's employment without cause or he resigns for good reason, he will receive a prorated portion of his
bonus that would have been paid for the year of his termination and an amount equal to two times the sum of his base salary and target annual bonus payable over an 18-month period in equal
monthly installments (subject to six month deferral as required under Section 409A of the Code). Mr. Iordanou's and his spouse's major medical insurance coverage benefits pursuant to his
employment agreement will continue for 18 months after the date of termination in the event that (1) his employment ends due to death or permanent disability, (2) he is terminated
other than for cause or (3) he resigns for good reason (or until such time as he has major medical insurance coverage under the plan of another employer). The agreement also provides that if
Mr. Iordanou's employment is terminated by us for cause or he resigns other than for good reason, he will receive his base salary through the date of termination.
Mr. Iordanou
has agreed that, during the employment period and for the period of 18 months after termination of employment, he will not compete with the businesses of ACGL
or any of its subsidiaries as such businesses exist as of the date of termination, within any geographical area in which ACGL or any of its subsidiaries engage in such businesses. If we terminate
Mr. Iordanou's employment without cause or he terminates for good reason, the term of his non-competition period will extend only as long as he is receiving severance benefits
provided for under his employment agreement under such circumstances. However, in the event of termination due to expiration of the term of the agreement or by reason of Mr. Iordanou's
resignation other than for good reason, the noncompetition period will continue beyond his termination date for up to 18 months only if the Company so elects and pays Mr. Iordanou an
amount equal to two times the sum of his annual base salary and target annual bonus (prorated for the period selected by the Company) in 18 equal monthly installments (subject to six month deferral as
required under Section 409A of the Code) and provides medical benefits for the selected period. Mr. Iordanou also agreed that he will not, for an 18-month period following
his date of termination, induce or attempt to induce any of our employees to leave his or her position with us or induce any customer to cease doing business with us.
In
addition, in the event of a change in control, the agreement provides for a gross-up payment to reimburse Mr. Iordanou for any excise tax under Code
Section 4999 as well as any additional income, excise and employment taxes resulting from such reimbursement. Code Section 4999 imposes a 20% non-deductible excise tax on the
recipient of an "excess parachute payment" and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment. The agreement provides that any payments
contingent on a change of control will be reduced by an amount equal to the lesser of (i) the smallest amount possible such that no payment would be treated as a "parachute payment" under
Section 280G of the Code and (ii) $2,500,000. Notwithstanding
the foregoing provision, if, without regard to any gross-up payment and without any reduction in payments, the net amount retained by Mr. Iordanou, after subtracting from the
payments otherwise to be made all taxes imposed thereon, would exceed the after-tax amount that would be retained by him with the gross-up payment and after the reduction
described above, then no reduction in payments will be made and no gross-up payment will be made. The agreement also provides for indemnification of Mr. Iordanou to the fullest
extent permitted by applicable law and the Company's governing instruments in connection with suits or proceedings arising by reason of the fact that he is or was a director, officer or employee of
the Company. The Company has also agreed to pay reasonable legal fees incurred by Mr. Iordanou as result of any dispute or contest with the Company regarding the agreement, unless the Company
substantially prevails on all material causes of action in the dispute or contest.
31
Mr. Vollaro has been appointed as our executive vice president, chief financial officer and treasurer. Mr. Vollaro's employment agreement currently
provides for an annual base salary of $500,000. Mr. Vollaro is eligible to participate in an annual bonus plan on terms established from time to time by our Board of Directors. The target rate
for the annual bonus is 100% of his annual base salary. Mr. Vollaro is also entitled to participate in employee benefits programs such as major medical, life insurance and disability insurance;
the cost of preparation of annual tax returns and associated tax planning (up to the maximum $7,500 annually); and other fringe benefits customarily provided to similarly situated senior executives
residing in Bermuda, which includes housing expenses, payroll tax reimbursements and automobile allowance. His agreement also provides that the Company will reimburse him, on an after-tax
basis, for his reasonable expenses incurred in traveling between Bermuda and the United States. In addition, Mr. Vollaro is also entitled to an amount equal to the excess, if any, of the amount
of income and employment taxes payable by him to Bermuda, Connecticut and any other governmental taxing authority over the amount that would have been payable by him had he resided in Connecticut for
the entire calendar year. The current term of his employment agreement ends on January 18, 2009, but we or Mr. Vollaro may terminate his employment at any time. Such agreement will be
automatically extended for successive one-year periods after the term unless either we or Mr. Vollaro gives at least 60 days notice of the intention not to renew.
The
agreement provides that if Mr. Vollaro's employment is terminated without cause or for good reason, he will be entitled to receive an amount equal to 18 months of base
salary. The agreement also provides that if Mr. Vollaro's employment is terminated for cause, as a result of his resignation or leaving employment other than for good reason, as a result of
death or permanent disability, or by written notice of the intention not to renew the agreement by us or Mr. Vollaro, he will be entitled to receive his base salary through the date of
termination. The agreement further provides that if Mr. Vollaro's employment is terminated by reason of death or permanent disability, he will also be
entitled to receive his annual bonus prorated through the date of termination, provided that such bonus will not be less than the average annual bonus received for the preceding three years; and, if
he has not received bonuses for three years, he will receive a prorated portion of the average of the bonuses received, if any, but not less than a prorated portion of 90% of his base salary.
Mr. Vollaro's major medical insurance coverage benefits pursuant to his employment agreement will continue for 12 months after the date of termination in the event that (1) his
employment ends due to permanent disability, (2) he is terminated other than for cause or (3) he resigns for good reason.
Mr. Vollaro
has agreed that, during the employment period and for a period of two years after termination of employment for cause or as a result of his resignation or leaving
employment other than for good reason, he will not compete with the businesses of ACGL or any of its subsidiaries as such businesses exist or are in process or being planned as of the date of
termination. If we terminate Mr. Vollaro's employment without cause or he terminates for good reason, the term of his non-competition period will extend only as long as he is
receiving his severance payments and benefits under our major medical insurance coverage. Further, Mr. Vollaro has agreed to a non-competition period of two years if his termination
results from notice of the intent not to renew the agreement by us or Mr. Vollaro, and we agree in writing to pay him the sum of his annual base salary and target annual bonus for such period,
payable in monthly installments over such period. Mr. Vollaro also agreed that he will not, for a period of two years following his date of termination, induce or attempt to induce any of our
employees to leave his or her position with us or induce any customer to cease doing business with us.
Mr. Grandisson was promoted to the position of chairman and chief executive officer of Arch Worldwide Reinsurance Group in November 2005. Previously, he
served Arch Re (Bermuda) as
32
president
and chief executive officer from February 2005 to November 2005, president and chief operating officer from April 2004 to February 2005 and senior vice president, chief underwriting officer
and chief actuary from October 2001 to April 2004. In connection with his promotion in November 2005, Mr. Grandisson entered into a three-year employment agreement ending
December 31, 2008 and his annual base salary was increased to $625,000. Mr. Grandisson's annual base salary is subject to review annually for increase at the discretion of the Board of
Directors. The target rate for the annual cash bonus is 100% of the annual base salary. Mr. Grandisson is eligible to receive annual cash bonuses and share-based awards at the discretion of our
Board of Directors. Mr. Grandisson is also entitled to participate in employee benefits programs such as major medical, life insurance and disability insurance and other fringe benefits
customarily provided to similarly situated senior executives residing in Bermuda, which includes housing expenses, payroll tax reimbursements and automobile allowance. His agreement also provides that
the Company will reimburse him, on an after-tax basis, for his reasonable expenses incurred in traveling between Canada and Bermuda. The term of his employment agreement ends on
December 31, 2008, but we or Mr. Grandisson may terminate his employment at any time. The agreement will be automatically extended for additional one-year periods, unless we
or Mr. Grandisson gives notice at least 60 days prior to the expiration of the original term or any extended term. The agreement provides that if the employment of Mr. Grandisson
is terminated without cause or for good reason before December 31, 2008, he will be entitled to receive an amount equal to his annual base salary. Mr. Grandisson's major medical
insurance coverage benefits pursuant to his employment agreement will continue for 12 months after the date of termination in the event that (1) his employment ends due to permanent
disability, (2) he is terminated other than for cause or (3) he resigns for good reason. If Mr. Grandisson's employment is terminated for cause or if he resigns without good
reason or as a result of his death or disability, he will receive his annual base salary to the date of such termination.
Mr. Grandisson
agreed that, during the employment period and for the period of two years after termination of employment, he will not compete with the businesses of ACGL or any of
its subsidiaries as such businesses exist or are in process or being planned as of the date of termination. The non-competition period will be one year following termination if we
terminate his employment without cause, he terminates for good reason or he gives notice of his intent not to extend his employment term in accordance with the employment agreement. In such case, we
may extend the non-competition period to up to an additional six months following this one-year period if we pay his base salary for the additional six-month
period. Mr. Grandisson also agreed that he will not, for a period of two years following termination, induce or attempt to induce any of our employees to leave his or her position with us or
induce any customer to cease doing business with us.
In
consideration of his three-year employment commitment, in November 2005, Mr. Grandisson also was granted 50,000 restricted common shares and 80,000 stock options,
each of which will vest to him on December 31, 2008 so long as he remains an employee of the Company on such date. In the event that his employment terminates due to his death or permanent
disability or his employment is terminated by the Company without cause or he resigns for good reason, all of such shares and options will immediately vest. In the event of termination for any other
reason, all unvested shares and unvested options will be forfeited. In addition, in the event that Mr. Grandisson is terminated for cause, all of his vested options will cease to be exercisable
and will be immediately forfeited. In the event that we terminate his employment other than for cause, he resigns for good reason or his employment terminates due to death or permanent disability,
Mr. Grandisson's options will have a remaining term of three years following termination. In the event of termination for any other reason, all of such options will remain exercisable for a
period of 90 days from termination.
33
Mr. Jones serves as chairman and chief executive officer of Arch Insurance Group. Mr. Jones has also served as chairman and chief executive officer
of Arch Worldwide Insurance Group, an executive position at ACGL, since September 2003. His employment agreement currently provides for an annual base salary of $625,000. The annual base salary is
subject to review annually for increase at the discretion of the Board of Directors. The target rate for the annual cash bonus is 100% of the annual base salary. Mr. Jones is eligible to
receive annual cash bonuses and share-based awards at the discretion of our Board of Directors. Mr. Jones is also entitled to participate in employee benefits programs such as major medical,
life insurance and disability insurance and other benefits provided to senior executives of the Company. The initial term of his employment agreement ends on July 1, 2008. The employment
agreement may be terminated at any time by us or for good reason by Mr. Jones. The agreement will be automatically extended for additional one-year periods, unless we or
Mr. Jones gives notice at least 60 days prior to the expiration of the original term or any extended term. The agreement provides that if the employment of Mr. Jones is terminated
without cause or for good reason, he will be entitled to receive an amount equal to two times his annual base salary and his annual target bonus. Mr. Jones' major medical insurance coverage
benefits pursuant to his employment agreement will continue for 12 months after the date of termination in the event that (1) his employment ends due to permanent disability,
(2) he is terminated other than for cause or (3) he resigns for good reason. If the employment agreement is terminated by us for cause, resignation by Mr. Jones from his position
other than for good reason or as a result of his death or permanent disability, Mr. Jones is entitled to receive his annual base salary through the date of such termination.
Mr. Jones
agreed that, during the employment period and for the period of two years after termination of employment for cause or if Mr. Jones resigns without good reason,
he will not compete with the businesses of ACGL or any of its subsidiaries as such businesses exist or are in process or being planned as of the date of termination. If his employment is terminated by
us without cause or by
Mr. Jones with good reason, the non-competition period will extend for the period during which we pay Mr. Jones severance, as discussed above. In the event that the
termination of employment is due to us or Mr. Jones giving written notice of such party's intention not to extend the employment agreement, the non-competition period will be
24 months following the date of such termination if we pay Mr. Jones his annual base salary and target annual bonus over such non-competition period. Mr. Jones also
agreed that he will not, for a period of two years following termination, induce or attempt to induce any persons who were our employees during such non-solicitation period or within the
six months prior thereto to leave his or her position with us or induce any customer to cease doing business with us.
W. Preston Hutchings serves as president of Arch Investment Management Ltd. and senior vice president and chief investment officer of ACGL. The terms of
his employment provide for an annual base salary of $400,000. The annual base salary is subject to review annually for increase at the discretion of the Board of Directors. The target rate for the
annual cash bonus for Mr. Hutchings is 100% of his annual base salary. Mr. Hutchings is eligible to receive an annual cash bonus and share-based awards at the discretion of the Board of
Directors and to participate in our employee benefit programs. The Company or Mr. Hutchings may terminate his employment at any time. In addition, Mr. Hutchings also agreed that he will
not, for a period of one year following termination, induce or attempt to induce any of our employees to leave his or her position with us or induce any customer to cease doing business with us.
In
connection with his retention in July 2005, Mr. Hutchings was granted 12,500 restricted common shares, which will vest to him on July 1, 2010, and 50,000 stock options,
which vested in three equal annual installments commencing on July 1, 2005. In the event that his employment terminates due to
34
his
death or permanent disability, all of such restricted common shares will immediately vest. The restricted common shares will also vest in the event his employment is terminated by the Company
without cause. In the event of termination for any other reason, all unvested shares will be forfeited. In addition, in the event that Mr. Hutchings is terminated for cause, all of his vested
options will cease to be exercisable and will be immediately forfeited. In the event that we terminate his employment other than for cause or his employment terminates due to death or permanent
disability, Mr. Hutchings' options will have a remaining term of three years following termination. In the event of termination for any other reason, all of such options will remain exercisable
for a period of 90 days from termination.
Share-Based Award Agreements
Our long-term incentive share award plans provide for the grant to eligible employees and directors of stock options, stock appreciation rights,
restricted shares, restricted share units payable in common shares or cash, share awards in lieu of cash awards, dividend equivalents, performance shares and performance units and other share-based
awards.
To
date, the Company has provided grants in the form of stock options, SARs, restricted common shares and restricted common share units. Share-based awards granted to employees vest over
a prescribed period, motivating executives to remain with us and sustain high corporate performance in order to increase the value of such awards. The May 2007 grants outlined in the "Grants of
Plan-Based Awards" table will vest over a three-year period, which the Company believes is consistent with the Company's objectives to retain management and to align further
the interests of management and the Company's shareholders. Options and SARs awarded to executives are granted at 100% of the market value of the shares on the date of grant and, subject to the award
agreements, will expire 10 years from the grant date.
Each
award agreement expressly provides for the acceleration of the vesting of the applicable award and, in the case of stock options and SARs, adjustments to the option exercise period
in the event the award recipient ceases to be an employee of the Company in certain circumstances. In the event that an employee's employment terminates due to his death or permanent disability,
unvested awards would immediately vest, and the employee or his/her estate may exercise the options and SARs for a period of three years. In the event that an employee's employment is terminated by
the Company for cause, all unvested restricted shares would be forfeited and all unvested and vested options and SARs would be forfeited. Commencing with grants on and after September 2004, in the
event that an employee's employment terminates (other than for cause) after retirement age, unvested awards would continue to vest on the schedule set forth in the applicable agreement so long as the
employee does not engage in a competitive activity. If the employee does engage in a competitive activity, then any unvested awards would be forfeited and the holder would have a reduced period in
which to exercise vested options and SARs. Commencing with the February 2006 annual grants, the award agreements for the named executive officers provide that, in the event that the employee's
employment is terminated by the Company other than for cause (or, in the case of Messrs. Iordanou, Vollaro, Grandisson and Jones, by the employee for good reason) within two years following a
change in control, unvested awards would immediately vest, and the options and SARs would have a remaining term of 90 days from termination. In the event of termination for any other reason,
all unvested awards would be forfeited, and the holder may exercise vested options and SARs for a period of 90 days from termination. For certain awards granted prior to February 2006,
including grants made to certain of the named executive officers, the applicable agreements provided that, in the event of termination of employment by the Company without cause (or, in certain
limited cases, by the employee for good reason), all unvested awards would immediately vest, and the options would have a remaining term of three years following termination. The foregoing description
is qualified in its entirety by reference to the award agreements.
35
Potential Payments Upon Termination or Change in Control
The following table provides information on the various payments and benefits that each named executive officer would have been entitled to receive if his last
day of employment with the Company had been December 31, 2007 under the various circumstances presented. Please refer to the descriptions of our employment agreements and share-based award
agreements, which outline these potential payments and benefits (see "Employment Arrangements" and "Share-Based Award Agreements").
Name
|
|
Voluntary
($)
|
|
For
Cause ($)
|
|
Death ($)
|
|
Disability ($)
|
|
Without Cause
or For Good
Reason (as
applicable) ($)
|
|
Without Cause
or For Good
Reason (as
applicable)
following a
Change in
Control ($)
|
Constantine Iordanou
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance (1)
|
|
|
|
|
|
5,000,000
|
|
3,416,594
|
|
5,000,000
|
|
5,000,000
|
|
Accelerated Vesting of Share-Based Awards (2)
|
|
|
(4)
|
|
|
1,408,000
|
|
1,408,000
|
|
|
|
1,408,000
|
|
Health & Welfare (3)
|
|
|
|
|
|
20,967
|
|
20,967
|
|
20,967
|
|
20,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
6,428,967
|
|
4,845,561
|
|
5,020,967
|
|
6,428,967
|
John D. Vollaro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance (5)
|
|
|
|
|
|
914,667
|
|
914,667
|
|
750,000
|
|
750,000
|
|
Accelerated Vesting of Share-Based Awards (2)
|
|
|
(4)
|
|
|
1,539,750
|
|
1,539,750
|
|
|
|
1,539,750
|
|
Health & Welfare (3)
|
|
|
|
|
|
|
|
|
|
9,499
|
|
9,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
2,454,417
|
|
2,454,417
|
|
759,499
|
|
2,299,249
|
Marc Grandisson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance (6)
|
|
|
|
|
|
|
|
|
|
625,000
|
|
625,000
|
|
Accelerated Vesting of Share-Based Awards (2)
|
|
|
|
|
|
5,805,886
|
|
5,805,886
|
|
4,742,300
|
|
5,805,886
|
|
Health & Welfare (3)
|
|
|
|
|
|
|
|
|
|
15,447
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
5,805,886
|
|
5,805,886
|
|
5,382,747
|
|
6,446,333
|
Ralph E. Jones III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance (7)
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
2,500,000
|
|
Accelerated Vesting of Share-Based Awards (2)
|
|
|
|
|
|
1,224,290
|
|
1,224,290
|
|
|
|
1,224,290
|
|
Health & Welfare (3)
|
|
|
|
|
|
|
|
|
|
13,978
|
|
13,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
1,224,290
|
|
1,224,290
|
|
2,513,978
|
|
3,738,268
|
W. Preston Hutchings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Share-Based Awards (2)
|
|
|
|
|
|
1,351,886
|
|
1,351,886
|
|
879,375
|
|
1,351,886
|
|
Health & Welfare
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
1,351,886
|
|
1,351,886
|
|
879,375
|
|
1,351,886
|
-
(1)
-
In
the case of termination (i) due to death, (ii) by the Company without cause or (iii) by the executive for good reason, Mr. Iordanou will be entitled to
receive a prorated target bonus based on the termination date plus two times the sum of his base salary and target annual bonus, with such amounts payable (A) in a lump sum as soon as
practicable following death but offset by life insurance proceeds received by his estate on coverage provided by the Company and (B) except as otherwise required to be deferred for six months
under Section 409A of the Code, in equal monthly installments over an 18-month period for the other cases. In the case of termination due to disability, Mr. Iordanou will be
entitled to receive a prorated bonus based on the termination date plus 40% of his base salary on a monthly basis for the maximum disability term under our plans
(
i.e.,
through his 65th birthday) offset by proceeds received by him from disability insurance provided by
36
the
Company. In the case of disability, the monthly amount payable of $33,333 over 86 months was discounted using the current mid-term federal rate of 4.86%.
-
(2)
-
Represents
the intrinsic value (
i.e.,
the value based upon the Company's closing share price on December 31, 2007 or in the
case of options, the excess of the closing price over the exercise price) of accelerated vesting of certain unvested share-based awards as of December 31, 2007 under the various circumstances
presented. See "Employment Arrangements" and "Share-Based Award Agreements."
-
(3)
-
Represents
the employer cost relating to the continuation of medical insurance coverage under the terms described in each executive's employment agreement for the various
circumstances presented.
-
(4)
-
Since
Messrs. Iordanou and Vollaro are of retirement age (as defined in our plans), any unvested restricted shares and unvested stock options will continue to vest according to
the vesting schedule and, in the case of stock options, the options will continue to have the full exercise period of 10 years from the date of grant. In the event that either of them engages
in a competitive activity (as defined in the agreements) following retirement, the exercise periods for the options would be reduced.
-
(5)
-
In
the case of termination due to death or disability, Mr. Vollaro will receive a prorated bonus based on the termination date; provided, however, that the amount may not be
less than the average of the bonuses paid to him for the last three years. In the case of termination by the Company without cause or by the executive for good reason, Mr. Vollaro will be
entitled to receive 18 months of base salary payable, except as otherwise required to be deferred for six months under Section 409A of the Code, in equal monthly installments.
-
(6)
-
In
the case of termination by the Company without cause or by the executive for good reason, Mr. Grandisson will be entitled to receive 12 months of base salary payable
in equal monthly installments.
-
(7)
-
In
the case of termination by the Company without cause or by the executive for good reason, Mr. Jones will be entitled to receive two times the sum of his base salary and
target annual bonus payable, except as otherwise required to be deferred for six months under Section 409A of the Code, in equal monthly installments.
37
Director Compensation
The following table provides information concerning the compensation of the directors for fiscal year 2007:
Name
|
|
Fees
Earned or
Paid in
Cash
($) (1)
|
|
Stock
Awards
($)
(3) (4)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compen-
sation
($)
|
|
Total ($)
|
Paul B. Ingrey (2)
|
|
500,000
|
|
|
|
|
|
|
|
|
|
50,700
|
(6)
|
550,700
|
Wolfe "Bill" H. Bragin
|
|
92,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
126,164
|
John L. Bunce, Jr.
|
|
74,000
|
|
34,161
|
|
|
|
|
|
|
|
|
|
108,161
|
Sean D. Carney
|
|
59,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
93,164
|
Jeffrey A. Goldstein (5)
|
|
19,253
|
|
40,422
|
|
|
|
|
|
|
|
|
|
59,675
|
Kewsong Lee
|
|
80,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
114,164
|
James J. Meenaghan
|
|
124,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
158,164
|
John M. Pasquesi
|
|
74,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
108,164
|
Robert F. Works
|
|
96,003
|
|
34,161
|
|
|
|
|
|
|
|
|
|
130,164
|
-
(1)
-
Each
non-employee member of our Board of Directors is entitled to receive an annual cash retainer fee in the amount of $50,000. Each such director may elect to receive
this retainer fee in the form of common shares instead of cash. If so elected, the number of shares distributed to the non-employee director would be equal to 100% of the amount of the
annual retainer fee otherwise payable divided by the fair market value of our common shares. Each non-employee director also receives a meeting fee of $2,500 for each Board meeting
attended and $1,000 for each committee meeting attended. In addition, each non-employee director serving as chairman of the audit committee receives an annual fee of $50,000, and other
members of the audit committee receive an annual fee of $25,000. Each non-employee director serving as a chairman of a committee other than the audit committee receives an annual fee of
$5,000. Accordingly, this column includes the annual retainer (whether paid in cash or, at the election of the director, in common shares), meeting fees and committee chairman and retainer fees, as
applicable. For the 2007-2008 annual period, Messrs. Bunce and Goldstein received their annual retainer fee in the form of cash and Messrs. Bragin, Carney, Lee, Meenaghan,
Pasquesi and Works received their annual retainers in the form of 703 common shares. For the 2008-2009 annual period, each non-employee member of our Board of Directors is
entitled to receive an annual cash retainer fee in the amount of $60,000.
-
(2)
-
Mr. Ingrey's
employment agreement provides that he receives an annual base salary of $250,000 and a bonus determined by the compensation committee and the Board of Directors.
For 2007, Mr. Ingrey received a cash bonus of $250,000. A description of Mr. Ingrey's employment agreement is included below.
-
(3)
-
Each
year, the non-employee directors are granted a number of restricted shares equal to $35,000 divided by the closing price on the date of grant
(
i.e.,
the first day of the annual period of compensation for the non-employee directors), and such shares will vest on the first
anniversary of the grant date. On May 11, 2007, each director received 492 restricted common shares. For the 2008-2009 annual period, such amount has been increased to $45,000.
-
(4)
-
For
non-employee directors, the amounts shown in this column are based on the expense recognized for financial reporting purposes for 2007 with respect to all share-based
awards granted in 2007 as well as prior years, without regard to forfeiture assumptions. In accordance with SFAS No. 123 (R), "Share-Based Payment," expense is initially measured based on the
grant date fair value of the award, and is generally recognized for financial reporting purposes over the period in which the employee is required to provide
38
service
in exchange for the award (generally the vesting period). The grant date fair value of each stock award made in 2007 to each director is $35,000 (annual grant described in footnote 3).
-
-
At
December 31, 2007, the directors in the table above (other than Mr. Goldstein) had the following aggregate number of share and option awards outstanding:
(a) Paul B. Ingrey, 184,565 shares and 422,407 options; (b) Wolfe "Bill" H. Bragin, 7,607 shares and 1,800 options; (c) John L. Bunce, Jr., 492 shares; (d) Sean D. Carney,
7,748 shares and 300 options; (e) Kewsong Lee, 9,944 shares and 3,300 options; (f) James J. Meenaghan, 10,494 shares and 18,300 options; (g) John M. Pasquesi, 6,662 shares and
1,126,419 options; and (h) Robert F. Works, 14,353 shares and 21,300 options. Mr. Ingrey and Mr. Pasquesi received share-based awards in connection with their service to the
Company in other capacities, including chairman and vice chairman, respectively. For additional information on ownership of the Company's securities, please refer to "Security Ownership
of Certain Beneficial Owners and Management."
-
(5)
-
Mr. Goldstein
resigned as a director during August 2007 and, accordingly, his compensation for 2007 was prorated. In addition, the 492 restricted common shares granted on
May 11, 2007 were forfeited.
-
(6)
-
Includes:
(a) $30,250 in contributions to our defined contribution plans and (b) $12,633 in Bermuda payroll tax reimbursements. In addition, includes the payment for
life insurance premiums, which did not exceed the greater of $25,000 or 10% of the total amount of these benefits for Mr. Ingrey.
In addition to the above arrangements, all non-employee directors are entitled to reimbursement for their reasonable
out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees. Directors who are also employees of ACGL or its
subsidiaries receive no cash compensation for serving as directors or as members of Board committees.
Mr. Ingrey currently serves on our Board of Directors and as chairman of ACGL. As chairman, he is principally responsible for assisting the Board of
Directors in overseeing and monitoring our business and operations and will provide general stewardship to ACGL. He does not have any prescribed responsibilities for our
day-to-day operations, and no operating personnel report directly to him.
Mr. Ingrey's
employment agreement provides for an annual base salary of $250,000. For 2007, he also received a bonus in the amount of $250,000. Mr. Ingrey is eligible to
participate in our employee benefit programs and to use any private aircraft owned or leased by the Company for travel between Bermuda and his private residence. His employment agreement has an
indefinite term, but we or Mr. Ingrey may terminate his employment at any time with at least six months prior notice. The agreement provides that the employment agreement will also terminate
upon Mr. Ingrey's death or permanent disability or for cause. In connection with these arrangements, Mr. Ingrey is not entitled to receive any of the compensation paid to our
non-employee directors, as described above.
Mr. Ingrey
agreed that, during the employment period and for the period of two years after termination of employment, he will not compete with the businesses of ACGL or any of its
subsidiaries as such businesses exist or are in process or being planned as of the date of termination. The non-competition period will be one year following termination if we terminate
his employment without cause, he terminates for good reason or he gives notice of his intent not to extend his employment term in accordance with the employment agreement. In such case, we may extend
the non-competition period to up to an additional six months following this one-year period if we pay his base salary for such additional six-month period.
Mr. Ingrey also agreed that he will not, for a period of two years following termination, induce or attempt to induce any of our employees to leave his or her position with us or induce any
customer to cease doing business with us.
39
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information available to us as of March 24, 2008 with respect to the ownership of our voting shares by (1) each
person known to us to be the beneficial owner of more than 5% of any class of our outstanding voting shares, (2) each director and named executive officer of ACGL and (3) all of the
directors and executive officers of ACGL as a group. Except as otherwise indicated, each person named below has sole investment and voting power with respect to the securities shown.
Common Shares
|
|
Name and Address of Beneficial Owner
|
|
(A)
Number of
Common Shares
Beneficially Owned
(1)
|
|
(B)
Rule 13d-3
Percentage
Ownership
(1)
|
|
(C)
Fully-Diluted
Percentage
(2)
|
|
Warburg Pincus (3)
466 Lexington Avenue
New York, New York 10017
|
|
10,974,322
|
|
16.9
|
%
|
15.6
|
%
|
Baron Capital Group, Inc. (4)
767 Fifth Avenue
New York, New York 10153
|
|
4,876,046
|
|
7.5
|
|
6.9
|
|
Constantine Iordanou (5)
|
|
869,359
|
|
1.3
|
|
1.2
|
|
Paul B. Ingrey (6)
|
|
606,972
|
|
*
|
|
*
|
|
Wolfe "Bill" H. Bragin (7)
|
|
9,407
|
|
*
|
|
*
|
|
John L. Bunce, Jr. (8)
|
|
222,507
|
|
*
|
|
*
|
|
Sean D. Carney (9)
|
|
11,010,592
|
|
16.9
|
|
15.6
|
|
Kewsong Lee (10)
|
|
11,061,706
|
|
16.9
|
|
15.6
|
|
James J. Meenaghan (11)
|
|
32,794
|
|
*
|
|
*
|
|
John M. Pasquesi (12)
|
|
1,638,086
|
|
2.5
|
|
2.3
|
|
Robert F. Works (13)
|
|
35,653
|
|
*
|
|
*
|
|
John D. Vollaro (14)
|
|
233,567
|
|
*
|
|
*
|
|
Marc Grandisson (15)
|
|
186,862
|
|
*
|
|
*
|
|
Ralph E. Jones III (16)
|
|
110,266
|
|
*
|
|
*
|
|
W. Preston Hutchings (17)
|
|
74,932
|
|
*
|
|
*
|
|
All directors and executive officers
(14 persons) (18)
|
|
15,228,757
|
|
22.3
|
%
|
23.2
|
%
|
-
*
-
Denotes
beneficial ownership of less than 1.0%
-
(1)
-
Pursuant
to Rule 13d-3 promulgated under the Exchange Act, amounts shown include common shares that may be acquired by a person within 60 days
of March 24, 2008. Therefore, column (B) has been computed based on (a) 64,875,951 common shares actually outstanding as of March 24, 2008 and (b) common shares that
may be acquired within 60 days of March 24, 2008 upon the exercise of options held only by the person whose Rule 13d-3 Percentage Ownership of common shares is being
computed. All references to "options" in the above table and the related footnotes include SARs, as applicable.
40
-
(2)
-
Amounts
shown under column (C) in the above table have been computed based on (a) 64,875,951 common shares actually outstanding as of March 24,
2008, (b) common shares that may be acquired upon the exercise of all outstanding options, whether or not such options are exercisable within 60 days held by all persons and
(c) 115,053 restricted common share units. As of March 24, 2008, there were outstanding options to purchase an aggregate of 5,406,766 common shares.
-
(3)
-
The
security holders are Warburg Pincus (Bermuda) Private Equity VIII, L.P. ("WP VIII Bermuda"), Warburg Pincus (Bermuda) International Partners, L.P.
("WPIP Bermuda") and Warburg Pincus Netherlands International Partners I, C.V. ("WPIP Netherlands I"). Warburg Pincus (Bermuda) Private Equity Ltd. ("WP VIII Bermuda Ltd.") is the sole
general partner of WP VIII Bermuda. Warburg Pincus (Bermuda) International Ltd. ("WPIP Bermuda Ltd.") is the sole general partner of WPIP Bermuda. Warburg Pincus Partners, LLC is
the sole general partner of WPIP Netherlands I. WP VIII Bermuda, WPIP Bermuda and WPIP Netherlands I are managed by Warburg Pincus LLC ("WP LLC"). Charles R. Kaye and Joseph P. Landy are
Managing Members of WP LLC and may be deemed to control the Warburg Pincus entities. Messrs. Kaye and Landy disclaim beneficial ownership of all of the shares of ACGL held by the Warburg
Pincus entities.
-
(4)
-
Based
upon a Schedule 13G/A filed with the SEC on February 14, 2008 jointly by Baron Capital Group, Inc. ("BCG"), BAMCO, Inc. ("BAMCO"),
Baron Capital Management, Inc. ("BCM") and Ronald Baron (collectively with BCG, BAMCO and BCM, the "Baron Group"). In the Schedule 13G/A, the Baron Group reported that BCG and Ronald
Baron are parent holding companies, and that BAMCO and BCM are each investment advisors. In addition, the Schedule 13G/A reported that (i) BCG has sole voting and dispositive power with
respect to 35,000 common shares, shared voting power with respect to 4,748,046 common shares and shared dispositive power with respect to 4,841,046 common shares, (ii) BAMCO has shared voting
power with respect to 4,415,000 common shares and shared dispositive power with respect to 4,601,000 common shares, (iii) BCM has sole voting and dispositive power with respect to 35,000 common
shares, shared voting power with respect to 233,046 common shares and shared dispositive power with respect to 240,046 and (iv) Ronald Baron has sole voting and dispositive power with respect
to 35,000 common shares, shared voting power with respect to 4,648,046 common shares and shared dispositive power with respect to 4,841,046 common shares.
-
(5)
-
Amounts
in columns (A) and (B) reflect (a) 79,780 common shares owned directly by Mr. Iordanou, (b) 129,415 common shares indirectly
owned by a limited liability company, for which Mr. Iordanou serves as the managing member, (c) 16,648 common shares held by a grantor retained annuity trust ("GRAT"), (d) 173,118
common shares issuable upon exercise of currently exercisable options, (e) 446,882 common shares issuable upon exercise of currently exercisable options held by the GRAT, (f) 11,666
common shares owned directly by Mr. Iordanou's children and (g) 11,850 common shares held by three irrevocable trusts for the benefit of Mr. Iordanou's children. The amount in
column (C) includes (a) 17,668 restricted common share units which will be settled in common shares of ACGL after the termination of Mr. Iordanou's employment and
(b) 95,000 common shares issuable upon exercise of stock options that are not currently exercisable within 60 days hereof. Mr. Iordanou disclaims beneficial ownership of all
shares owned by his children.
-
(6)
-
Amounts
in columns (A), (B) and (C) reflect (a) 184,565 common shares owned directly by Mr. Ingrey and (b) 422,407 common shares
issuable upon exercise of currently exercisable options.
41
-
(7)
-
Amounts
in columns (A), (B) and (C) reflect (a) 7,607 common shares owned directly by Mr. Bragin, (including 492 restricted shares, which are
subject to vesting) and (b) 1,800 common shares issuable upon exercise of currently exercisable options.
-
(8)
-
Amounts
in all columns reflect 222,507 common shares owned directly by Mr. Bunce.
-
(9)
-
Amounts
in all columns include 10,974,322 common shares held by or for the benefit of the entities listed in note (3). Mr. Carney is a general partner of
WP, a managing director and member of WP LLC and a beneficial owner of certain shares of capital stock of WP VIII Bermuda Ltd. and WPIP Bermuda Ltd. Share count includes 28,222
common shares owned directly by Mr. Carney. Share count also includes (a) 7,748 common shares (including 492 restricted shares, which are subject to vesting) and (b) 300 common
shares issuable upon exercise of currently exercisable options, which are held proportionately for the benefit of the Partnerships. Mr. Carney disclaims beneficial ownership of all shares owned
by these Warburg Pincus entities.
-
(10)
-
Amounts
in all columns include 10,974,322 common shares held by or for the benefit of the entities listed in note (3). Mr. Lee is a general partner of WP,
a managing director and member of WP LLC and a beneficial owner of certain shares of capital stock of WP VIII Bermuda Ltd. and WPIP Bermuda Ltd. Share count includes 74,140 common
shares owned directly by Mr. Lee. Share count also includes (a) 9,944 common shares (including 492 restricted shares, which are subject to vesting) and (b) 3,300 common shares
issuable upon exercise of currently exercisable options, which are held proportionately for the benefit of the Partnerships. Mr. Lee disclaims beneficial ownership of all shares owned by these
Warburg Pincus entities.
-
(11)
-
Amounts
in columns (A), (B) and (C) reflect (a) 14,494 common shares owned directly by Mr. Meenaghan (including 492 restricted shares, which
are subject to vesting) and (b) 18,300 common shares issuable upon exercise of currently exercisable options.
-
(12)
-
Amounts
in columns (A), (B) and (C) reflect (a) 424,268 common shares owned directly by Otter Capital LLC, for which Mr. Pasquesi
serves as the managing member, (b) 87,399 common shares owned directly by Mr. Pasquesi (including 492 restricted shares, which are subject to vesting) and (c) 1,126,419 common
shares issuable upon exercise of currently exercisable options. The 424,268 common shares held by Otter Capital LLC are pledged as security.
-
(13)
-
Amounts
in columns (A), (B) and (C) reflect (a) 14,353 common shares owned directly by Mr. Works (including 492 restricted shares, which are
subject to vesting) and (b) 21,300 common shares issuable upon exercise of currently exercisable options.
-
(14)
-
Amounts
in columns (A) and (B) reflect (a) 81,900 common shares owned directly by Mr. Vollaro (including 14,550 restricted shares, which are
subject to vesting) and (b) 151,667 common shares issuable upon exercise of currently exercisable options. The amount in column (C) includes 25,883 common shares issuable upon exercise
of stock options that are not currently exercisable within 60 days hereof.
-
(15)
-
Amounts
in columns (A) and (B) reflect (a) 103,828 common shares owned directly by Mr. Grandisson (including 61,450 restricted shares, which
are subject to vesting), (b) 200 common shares owned by his spouse and (c) 82,834 common shares issuable upon exercise of currently exercisable options. The amount in column
(C) includes 97,116 common shares issuable upon exercise of stock options that are not currently exercisable within 60 days of the date hereof.
-
(16)
-
Amounts
in columns (A) and (B) reflect (a) 100 common shares owned directly by Mr. Jones, (b) 166 common shares owned by his spouse
and (c) 110,000 common shares issuable upon
42
exercise
of currently exercisable options. The amount in column (C) includes (a) 74,971 restricted common share units (11,400 of which are subject to vesting) which will be settled in
common shares of ACGL after the termination of Mr. Jones' employment as provided in the award agreement and (b) 19,400 common shares issuable upon exercise of stock options that are not
currently exercisable within 60 days hereof.
-
(17)
-
Amounts
in columns (A) and (B) reflect (a) 18,416 common shares owned directly by Mr. Hutchings (18,083 of which are subject to vesting),
(b) 2,516 common shares held by a company which is owned by a family trust, with Mr. Hutchings, his spouse and their children as beneficiaries (the "Trust") and (c) 54,000 common
shares issuable upon exercise of currently exercisable options, which options have been transferred to the Trust. The amount in column (C) includes 7,250 common shares issuable upon exercise of
stock options that are not currently exercisable within 60 days of the date hereof.
-
(18)
-
Includes
an aggregate of 110,376 common shares, including common shares issuable upon exercise of currently exercisable stock options beneficially owned by one
executive officer of ACGL who is not a director of ACGL. The amount in column (C) includes 9,916 common shares issuable upon exercise of stock options that are not currently exercisable within
60 days of the date hereof.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common shares, to file with the
SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common shares. Such persons are also required by SEC regulation to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and representations that no other reports were required, we believe
that all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis during the year ended December 31, 2007.
Certain Relationships and Related Transactions
Generally, transactions with related persons are subject to the approval of the Board of Directors of ACGL. The Board of Directors has adopted written procedures
regarding the review and approval of transactions involving companies affiliated with funds managed by Warburg Pincus LLC or another company in which a non-employee director of ACGL
has a material interest (each a "portfolio company"), on the one hand, and ACGL or one of its subsidiaries, on the other hand.
Under
the procedures, these transactions must be reviewed and approved by the management of ACGL or the operating subsidiary entering into the transaction (as applicable), and the terms
of such transaction should be arm's-length or on terms that are otherwise fair to ACGL and its subsidiaries. In addition, these transactions also require the approval of ACGL under its holding company
oversight guidelines, except for the following: (1) ordinary course transactions pursuant to which any insurance subsidiary of ACGL writes a direct insurance policy for a portfolio company
unless a non-U.S. subsidiary will receive $3 million or more in annual premiums and (2) a transaction in which a U.S.-based subsidiary of ACGL (a) assumes reinsurance
from, or cedes reinsurance to, a portfolio company or (b) provides direct insurance to a portfolio company pursuant to which such U.S.-based insurance subsidiary of ACGL will receive
$3 million or more in annual premiums, in which case, the general counsel of Arch Capital Services Inc. should be pre-notified and appropriate steps will be implemented based
on the transaction. In reviewing these proposed transactions, the effects, if any, on the independence of the relevant directors are considered under the governing NASD and SEC standards. Any
applicable regulatory, tax and ratings agency matters are also considered. Under these procedures,
43
the
Board of Directors is provided with an update of related party transactions entered into by the Company in accordance with the procedures on a regular basis.
During
2006, Arch Re (Bermuda) invested $50 million in Aeolus LP ("Aeolus"), which operates as an unrated reinsurance platform that provides property catastrophe protection
to insurers and reinsurers on both an ultimate net loss and industry loss warranty basis. In return for its investment, Arch Re (Bermuda) received an approximately 4.9% preferred interest in Aeolus
and a pro rata share of certain founders' interests. Arch Re (Bermuda) made its investment in Aeolus on the same economic terms as a fund affiliated with Warburg Pincus, which has invested
$350 million in Aeolus. Funds affiliated with Warburg Pincus owned 16.3% of ACGL's outstanding voting shares as of December 31, 2007.
On
January 1, 2007, the Company's reinsurance subsidiary assumed under four reinsurance treaties a total of $37.8 million of gross premiums written from PARIS RE Holdings
Limited ("PARIS RE"), a reinsurance group in which funds affiliated with Hellman & Friedman had a 19% ownership interest. In May 2007, the funds managed by Hellman & Friedman LLC
ceased to own shares of ACGL and their rights under the Shareholders Agreement terminated.
In
February 2007, our Board of Directors authorized management to invest up to $1 billion in ACGL's common shares through a share repurchase program. As previously
disclosed, as a term of the original investment in ACGL by the Warburg Pincus funds and the Hellman & Friedman funds, ACGL has agreed (until 2011) not to declare any dividend or make any other
distribution on its common shares, and not to repurchase any common shares, until ACGL has repurchased from the Warburg Pincus funds and the Hellman & Friedman funds, pro rata, on the basis of
the amount of these shareholders' investments in us at the time of such repurchase, common shares having an aggregate value of $250 million, at a per share price acceptable to these
shareholders. In connection with the repurchase program, such shareholders waived these rights under the Shareholders Agreement for all repurchases of common shares by ACGL under the repurchase
program in open market transactions and certain privately negotiated transactions. In May 2007, the Hellman & Friedman funds ceased to own shares of ACGL and their rights under the Shareholders
Agreement terminated.
In
the ordinary course of its investment activities, the Company purchases municipal bonds enhanced by insurance provided by certain carriers, including MBIA Inc. As of
December 31, 2007, the Company held $164.3 million of municipal bonds enhanced by insurance provided by MBIA Inc. net of prerefunded bonds that are escrowed in U.S. government
obligations. Since January 2008, Warburg Pincus holds a more than 10% ownership interest in MBIA and also has appointed designees to serve on the Board of Directors of MBIA, including Kewsong Lee who
is a Director of ACGL.
From
time to time, in the ordinary course of our business, we may enter into insurance and reinsurance transactions with entities in which companies or funds affiliated with Warburg
Pincus or other directors of ACGL may have an ownership or other interest.
Graham
B. Collis, a director of certain of our non-U.S. subsidiaries, is partner in the law firm of Conyers Dill & Pearman, which provides legal services to the
Company and its subsidiaries.
44
PROPOSAL 2ELECTION OF SUBSIDIARY DIRECTORS
Under our bye-law 75, the Boards of Directors of any of our subsidiaries that are incorporated in Bermuda, the Cayman Islands and any other subsidiary
designated by our Board of Directors, must consist of persons who have been elected by our shareholders as Designated Company Directors.
The
persons named below have been nominated to serve as Designated Company Directors of our non-United States subsidiaries indicated below. Unless authority to vote for this
nominee is withheld, the enclosed proxy will be voted for this nominee, except that the persons designated as proxies reserve discretion to cast their votes for other persons in the unanticipated
event that this nominee is unable or declines to serve.
Arch Reinsurance Ltd.
Marc Grandisson
Nicolas Papadopoulo
Maamoun Rajeh
|
|
Arch Capital Holdings Ltd.
Graham B. Collis
John D. Vollaro
|
Arch Insurance Company (Europe) Limited
Ralph E. Jones III
Thomas G. Kaiser
Mark D. Lyons
Martin J. Nilsen
Michael Quinn
Paul S. Robotham
Robert T. Van Gieson
James Weatherstone
|
|
Arch Risk Transfer Services Ltd.
Alternative Re Holdings Limited
Alternative Re Limited
Alternative Underwriting Services, Ltd.
Graham B. Collis
John D. Vollaro
|
Arch Investment Management Ltd.
Constantine Iordanou
John D. Vollaro
W. Preston Hutchings
|
|
Other Non-U.S. Subsidiaries, as Required
or Designated Under Bye-Law 75 (except
as otherwise indicated in this Proposal 2)
Marc Grandisson
Nicolas Papadopoulo
Maamoun Rajeh
|
Mr. Collis,
47, has practiced law at Conyers Dill & Pearman in Bermuda since 1992, where he has been a partner since 1995. Mr. Collis obtained a Bachelor of Commerce
Degree from the University of Toronto and received his Law Degree from Oxford University in 1985.
Mr. Grandisson,
40, has served as chairman and chief executive officer of Arch Worldwide Reinsurance Group, an executive position of ACGL, since November 2005. Prior to November
2005, he served as president and chief executive officer of Arch Re (Bermuda) from February 2005. He served as president and chief operating officer of Arch Re (Bermuda) from April 2004 to February
2005 and as senior vice president, chief underwriting officer and chief actuary of Arch Re (Bermuda) from October 2001. From March 1999 until October 2001, Mr. Grandisson was employed as vice
president and actuary of the reinsurance division of Berkshire Hathaway. From July 1996 until February 1999, Mr. Grandisson was employed as vice president-director of F&G Re Inc. From
July 1994 until July 1996, Mr. Grandisson was employed as an actuary for F&G Re. Prior to that, Mr. Grandisson was employed as an actuarial assistant of Tillinghast-Towers Perrin.
Mr. Grandisson holds an M.B.A. degree
45
from
the Wharton School of the University of Pennsylvania. He is also a fellow of the Casualty Actuarial Society.
Mr. Hutchings,
52, has served as president of Arch Investment Management Ltd. since April 2006 and senior vice president and chief investment officer of ACGL since July
2005. Prior to joining ACGL, Mr. Hutchings was senior vice president and chief investment officer of RenaissanceRe Holdings Ltd. Previously, he was senior vice president and chief
investment officer of Mid Ocean Reinsurance Company Ltd. from January 1995 until its acquisition by XL Capital in 1998. Mr. Hutchings began his career as a fixed income trader at J.P.
Morgan & Co., working for the firm in New York, London and Tokyo. He graduated in 1978 with a B.A. from Hamilton College in Clinton, New York, and received in 1981 an M.A. in
Jurisprudence from Oxford University, where he studied as a Rhodes Scholar.
Mr. Iordanou,
58, has been president and chief executive officer of ACGL since August 2003 and a director since January 1, 2002. From January 2002 to July 2003,
Mr. Iordanou was chief executive officer of Arch Capital Group (U.S.) Inc. From March 1992 through December 2001, Mr. Iordanou served in various capacities for Zurich Financial
Services and its affiliates, including as senior executive vice president of group operations and business development of Zurich Financial Services, president of Zurich-American Specialties Division,
chief operating officer and chief executive officer of Zurich-American and chief executive officer of Zurich North America. Prior to joining Zurich, he served as president of the commercial casualty
division of the Berkshire Hathaway Group and served as senior vice president with the American Home Insurance Company, a member of the American International Group. Since 2001, Mr. Iordanou has
served as a director of ISO Inc. He holds an aerospace engineering degree from New York University.
Mr. Jones,
51, joined Arch Insurance Group as president and chief executive officer on July 1, 2003. Mr. Jones has also served as chairman and chief executive
officer of Arch Worldwide Insurance Group, an executive position of ACGL, since September 2003. Prior to his tenure with Arch, he was chief executive officer of Chubb Specialty Insurance, a strategic
business unit within the Chubb Group of Insurance Companies. Previously, he was managing director of Hiscox Insurance Company, Ltd., the United Kingdom and European property and casualty
business of Hiscox, plc. Mr. Jones began his career with Chubb, where he served in various senior executive positions, including chief underwriting officer of Chubb Insurance Company of
Europe and worldwide manager of its Executive Protection Department. He holds a B.A. from Wesleyan University.
Mr. Kaiser,
61, joined Arch Insurance Group in June 2002 as president of the Property, Energy, and Marine Division. He is currently president of the Special Risks Division of Arch
Insurance Group. Prior to joining Arch, Mr. Kaiser served as president and chief executive officer of Zurich Corporate Solutions, Zurich, from September 1999 to May 2002 and as president and
chief executive officer of Enterprise Risk, a unit of Zurich U.S. from February 1998 to September 1999. From 1993 to February 1998, Mr. Kaiser was employed by American International Group,
where he held several positions including vice president of AIG Foreign General, president of AIU Energy Division and president of Star Technical Risk Agency. From 1975 to 1993, Mr. Kaiser held
various positions with Arkwright Mutual, including senior vice president and area manager. Mr. Kaiser holds B.S. and M.A. degrees from the State University of New York.
Mr. Lyons,
51, has served as president and chief operating officer of Arch Insurance Group since June 2006. Prior to June 2006, he served as executive vice president of group
operations and chief actuary of Arch Insurance Group from August 2003. From August 2002 to 2003, he was senior vice president of group operations and chief actuary of Arch Insurance Group. From 2001
until August 2002, Mr. Lyons worked as an independent consultant. From 1992 to 2001, Mr. Lyons was executive vice president of product services at Zurich U.S. From 1987 until 1992, he
was a vice president and actuary at Berkshire Hathaway Insurance Group. Mr. Lyons holds a B.S. degree from Elizabethtown
46
College.
He is also an associate of the Casualty Actuarial Society and a member of the American Academy of Actuaries.
Mr. Nilsen,
58, joined Arch Insurance Group in November 2002 as senior vice president and general counsel, and became secretary in May 2003. Prior to joining Arch,
Mr. Nilsen practiced law with the firm of Edwards Angell Palmer and Dodge LLP from December 1999 to November 2002, as counsel and partner-in-charge of the New
York office. From April 1995 to December 1999, Mr. Nilsen was a partner in the firm of Wilson, Elser, Moskowitz, Edelman & Dicker LLP, in the firm's New York office.
Mr. Nilsen was also a partner in the New York firm of Bigham Englar Jones & Houston from January 1994 until April 1995, and practiced law with the firm of LeBoeuf, Lamb, Greene &
MacRae LLP from June 1984 until December 1993. From November 1981 until May 1984, Mr. Nilsen was associated with the firm of Trubin Sillcocks Edelman & Knapp in New York. From
August 1978 to November 1981, he was a member of the Continental Insurance Companies' law department in New York, where he was counsel, and from October 1975 to August 1978, he was an attorney with
Lawyers Title Insurance Corporation. Mr. Nilsen holds B.A. and J.D. degrees from St. John's University.
Mr. Papadopoulo,
45, has served as president and chief executive officer of Arch Re (Bermuda) since November 2005. Prior to November 2005, he served as chief underwriting officer
of Arch Re (Bermuda) from October 2004. He joined Arch Re (Bermuda) in December 2001 as a senior property underwriter. Prior to that time, he held various positions at Sorema N.A. Reinsurance Group, a
U.S. subsidiary of Groupama from 1990, including executive vice president and chief underwriting officer since 1997. Prior to 1990, Mr. Papadopoulo was an insurance examiner with the Ministry
of Finance, Insurance Department, in France. Mr. Papadopoulo graduated from École Polytechnique in France and École Nationale de la Statistique et de
l'Administration Economique in France with a masters degree in
statistics. He is also a member of the International Actuarial Association and a fellow at the French Actuarial Society.
Mr. Quinn,
66, serves on the board of directors of Arch Insurance Company (Europe) Limited ("Arch Europe") and has been a partner at Crobern Management Partnership, an investment
company specializing in the healthcare sector. Since 1992, he has also served as chairman and chief executive officer, as well as a director of Myerson L.L.C., a manufacturer of dentures and related
products, since 2002. From 1997 to 2002, he was president, chief executive officer and a director of Austenal Inc., which manufactures products and systems used in the manufacture of dental
prosthetics. From 1992 to 1997, he was a director, chairman and chief executive officer of International Medical Specialties, a marketer and distributor of medical specialty products. Mr. Quinn
also served as president and chief executive officer of Southam Graphics Ltd. from 1987 to 1992. From 1963 to 1987, Mr. Quinn held various positions at Baxter International Inc.
Mr. Rajeh,
37, has served as the chief underwriting officer of Arch Re (Bermuda) since November 2005. He joined Arch Re (Bermuda) in 2001 as an underwriter. From 1999 to 2001,
Mr. Rajeh served as assistant vice president at HartRe, a subsidiary of The Hartford Financial Services Group, Inc. Mr. Rajeh also served in numerous business analysis positions
at the United States Fidelity and Guarantee Company between 1992 and 1996 and as an underwriter at F&G Re from 1996 to 1999. He has a B.S. from The Wharton School of Business of the University of
Pennsylvania, and he is a Chartered Property Casualty Underwriter.
Mr. Robotham,
43, has been senior vice president and chief financial officer of Arch Europe since October 2005. Mr. Robotham joined Coopers & Lybrand in 1986 where
he qualified as a chartered accountant in 1989. His insurance career began in 1990, when he joined the finance team at Hiscox Syndicates until 1994. He served as finance director of a Lloyds'
insurance broker until 1996, when he joined Odyssey Re as head of UK Reporting. From 2000 until joining Arch Europe, he served as chief financial officer of Zurich Corporate Solutions at Zurich
Insurance Company.
47
Mr. Van
Gieson, 62, has been president, chief executive officer and a director of Arch Europe since November 2003. Mr. Van Gieson was retired from 1999 until 2003, when he
joined the Company as president and chief executive officer of Arch Capital UK Ltd. From 1996 to 1999, Mr. Van Gieson served as a senior vice president of CNA Financial, with
responsibilities as the chief executive officer for its global operations. Prior to joining CNA, Mr. Van Gieson was employed by Chubb & Son from 1967 until 1996, where he held various
senior executive positions, including chairman and chief executive officer of Chubb Insurance Company of Europe, from 1990 to 1996, and president of Chubb Insurance Company of Canada from 1983 to
1990. Mr. Van Gieson holds a B.S. degree from Seton Hall University, and attended the Harvard Business School Program for Management Development.
Mr. Vollaro,
63, has been executive vice president and chief financial officer of ACGL since January 2002 and treasurer of ACGL since May 2002. Prior to joining us,
Mr. Vollaro acted as an independent consultant in the insurance industry since March 2000. Prior to March 2000, Mr. Vollaro was president and chief operating officer of W.R. Berkley
Corporation from January 1996 and a director from September 1995 until March 2000. Mr. Vollaro was chief executive officer of Signet Star Holdings, Inc., a joint venture between W.R.
Berkley Corporation and General Re Corporation, from July 1993 to December 1995. Mr. Vollaro served as executive vice president of W.R. Berkley Corporation from 1991 until 1993, chief financial
officer and treasurer of W.R. Berkley Corporation from 1983 to 1993 and senior vice president of W.R. Berkley Corporation from 1983 to 1991. He holds a B.S. degree from Long Island University.
Mr. Weatherstone,
41, has been chief underwriting officer and senior vice president of Arch Europe since March 2007. On joining Arch Europe in 2005, he was originally appointed as
vice president and manager of executive assurance. Prior to Arch Europe, Mr. Weatherstone was employed by XL Capital Ltd from 1992 until 2005 where he held various roles, including
deputy underwriter of syndicate 861/1209 at Lloyd's and director of Brockbank Syndicate Management Ltd. In 2002, he was responsible for establishing the London branch of XL Europe Ltd
for the purpose of writing executive assurance and professional liability business. Prior to XL Capital, he worked as a financial lines underwriter with the Merrett Group and as a broker with
Willis Ltd. Mr. Weatherstone is an associate of the Chartered Insurance Institute and a graduate in Economics & History from Exeter University.
Required Vote
The affirmative vote of a majority of the voting power of all of our shares represented at the annual general meeting will be required for the election of
Designated Company Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE DESIGNATED COMPANY DIRECTORS INDICATED ABOVE.
48
PROPOSAL 3APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of the Board of Directors proposes and recommends that the shareholders appoint the firm of PricewaterhouseCoopers LLP to serve as
independent registered public accounting firm of ACGL for the year ending December 31, 2008. PricewaterhouseCoopers LLP has served as ACGL's independent registered public
accounting firm from our inception in June 1995 to the present. Unless otherwise directed by the shareholders, proxies will be voted for the appointment of PricewaterhouseCoopers LLP to audit
our consolidated financial statements for the year ending December 31, 2008. A representative of PricewaterhouseCoopers LLP will attend the annual general meeting and will have an
opportunity to make a statement and respond to appropriate questions.
Principal Auditor Fees and Services
The following summarizes the fees billed to us by PricewaterhouseCoopers LLP for professional services rendered in 2007 and 2006, except that "Audit Fees"
also includes amounts incurred but not yet billed:
|
|
2007
|
|
2006
|
Audit Fees (1)
|
|
$
|
4,518,436
|
|
$
|
4,890,977
|
Audit Related Fees (2)
|
|
|
52,902
|
|
|
215,560
|
Tax Fees (3)
|
|
|
533,995
|
|
|
310,529
|
All Other Fees (4)
|
|
|
3,223
|
|
|
3,788
|
|
|
|
|
|
|
|
$
|
5,108,556
|
|
$
|
5,420,854
|
|
|
|
|
|
-
(1)
-
For
2007 and 2006, "Audit Fees" consisted primarily of fees for the integrated audit of our annual financial statements and internal control over financial reporting, review of our
financial statements included in our quarterly reports on Form 10-Q, statutory audits for our insurance subsidiaries and review of SEC registration statements.
-
(2)
-
For
2007 and 2006, "Audit Related Fees" consisted of the audit of the Company's benefit plans and other miscellaneous audit-related services.
-
(3)
-
"Tax
Fees" consisted primarily of fees for tax compliance, tax advice and tax planning.
-
(4)
-
"All
Other Fees" consisted of fees for the licensing of an accounting research software tool.
The
audit committee has considered whether the provision of these services is compatible with maintaining PricewaterhouseCoopers LLP's independence. The audit committee approves
all audit and permissible non-audit services performed for us by PricewaterhouseCoopers LLP, our independent registered public accounting firm. Prior to engagement, the audit
committee pre-approves these services by category of service. The fees are budgeted and the audit committee requires the independent registered public accounting firm and management to
report actual fees compared to the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent
registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the audit committee requires specific pre-approval
before engaging the independent registered public accounting firm. The audit committee delegates pre-approval authority to one or more of its independent members. To the extent applicable,
the member to whom such authority is delegated reports, for informational purposes only, any pre-approval decisions to the audit committee at its next scheduled meeting.
49
Required Vote
The affirmative vote of a majority of the voting power of all of our shares represented at the annual general meeting will be required for the appointment of
PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the year ending December 31, 2008.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2008.
50
SHAREHOLDER PROPOSALS FOR THE 2009 ANNUAL GENERAL MEETING
All proposals of security holders intended to be presented at the 2009 annual general meeting of shareholders must be received by the Company not later than
December 6, 2008 for inclusion in our proxy statement and form of proxy relating to the 2009 annual general meeting. Upon timely receipt of any such proposal, we will determine whether or not
to include such proposal in the proxy statement and proxy in accordance with applicable regulations and provisions governing the solicitation of proxies. Proposals should be addressed to the
Secretary, Arch Capital Group Ltd., Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda.
For
any proposal that is not submitted for inclusion in next year's proxy statement (as described in the preceding paragraph) but is instead sought to be presented directly at next
year's annual general meeting, the rules of the SEC permit management to vote proxies in its discretion if we do not receive notice of the proposal on or before February 19, 2009. Notices of
intention to present proposals at next year's annual general meeting should be addressed to the Secretary, Arch Capital Group Ltd., Wessex House, 45 Reid Street, Hamilton HM 12,
Bermuda.
In
addition, our bye-laws provide that any shareholder desiring to make a proposal or nominate a director at an annual general meeting must provide written notice of such
proposal or nomination to the Secretary of the Company at least 50 days prior to the date of the meeting at which such proposal or nomination is proposed to be voted upon (or, if less than
55 days' notice of an annual general meeting is given, shareholder proposals and nominations must be delivered no later than the close of business of the seventh day following the day notice
was mailed). Our bye-laws require that notices of shareholder proposals or nominations set forth the following information with respect to each proposal or nomination and the shareholder
making such proposal or nomination: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that
the shareholder is a holder of record of our common shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in
the notice; (c) a description of all arrangements or understandings between the shareholder and each such nominee and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the SEC had each such nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each such
nominee to serve as a director of ACGL if so elected.
A
shareholder proponent must be a shareholder of the Company who was a shareholder of record both at the time of giving of notice and at the time of the meeting and who is entitled to
vote at the meeting.
Shareholders are entitled to receive, upon written request and without charge, a copy of our Annual Report on Form 10-K for the year ended
December 31, 2007. Please direct such requests to Secretary, Arch Capital Group Ltd., Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda.
51
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 9, 2008
This proxy statement and our annual report are available at
http://www.archcapgroup.bm/acgl_investors.htm
. This proxy statement
includes information on the following matters, among other things:
-
-
The
date, time and location of the annual general meeting;
-
-
A
list of the matters being submitted to the shareholders for approval; and
-
-
Information
concerning voting in person at the annual general meeting.
52
ARCH
CAPITAL GROUP LTD.
PROXY CARD FOR ANNUAL GENERAL MEETING OF
SHAREHOLDERS ON MAY 9, 2008
This
proxy is solicited by the board of directors of Arch Capital Group Ltd. (the
Company).
The
undersigned hereby appoints Constantine Iordanou and John D. Vollaro as
proxies, each with full power of substitution, to represent the undersigned and
to vote all common shares of the Company held of record by the undersigned on
March 24, 2008, or which the undersigned would otherwise be entitled to vote
at the annual general meeting to be held on May 9, 2008 and any
adjournment thereof, upon all matters that may properly come before the annual
general meeting.
All shares eligible to be
voted by
the undersigned will be
voted by the proxies named above in the manner specified on the reverse
side of this card, and such proxies are
authorized to vote in their discretion on such other matters
as may properly come before the annual meeting.
(Continued and to be signed on the reverse
side)
ANNUAL GENERAL MEETING OF SHAREHOLDERS OF
ARCH CAPITAL GROUP LTD.
May 9, 2008
Please
vote, date and
sign below and return
promptly in the
enclosed envelope.
Please
detach.
THIS PROXY,
WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS SET FORTH BELOW. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK
AS SHOWN HERE
x
1.
To elect the nominees listed as Class I
Directors of the Company for a term of three years.
|
NOMINEES:
|
o
|
FOR
ALL NOMINEES
|
o
|
Paul B. Ingrey
|
|
|
o
|
Kewsong Lee
|
o
|
WITHHOLD
AUTHORITY FOR ALL NOMINEES
|
o
|
Robert F. Works
|
|
|
|
|
o
|
FOR
ALL EXCEPT
(See
instructions below)
|
|
|
INSTRUCTION:
|
To WITHHOLD
authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and
fill in the circle next to each nominee you wish to WITHHOLD, as shown here:
x
|
2.
To elect the nominees listed as Designated
Company Directors so that they may
be elected directors of certain of our non-U.S. subsidiaries.
|
|
NOMINEES:
|
|
|
o
|
FOR
ALL NOMINEES
|
|
o
|
Graham B. Collis
|
|
o
|
Nicolas Papadopoulo
|
|
|
|
o
|
Marc Grandisson
|
|
o
|
Michael Quinn
|
o
|
WITHHOLD
AUTHORITY
|
|
o
|
W. Preston Hutchings
|
|
o
|
Maamoun Rajeh
|
|
FOR
ALL NOMINEES
|
|
o
|
Constantine Iordanou
|
|
o
|
Paul S. Robotham
|
|
|
|
o
|
Ralph E. Jones III
|
|
o
|
Robert T. Van Gieson
|
o
|
FOR
ALL EXCEPT
|
|
o
|
Thomas G. Kaiser
|
|
o
|
John D. Vollaro
|
|
(See instructions
below)
|
|
o
|
Mark D. Lyons
|
|
o
|
James Weatherstone
|
|
|
|
o
|
Martin J. Nilsen
|
|
|
|
INSTRUCTION:
|
To WITHHOLD
authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and
fill in the circle next to each nominee you wish to WITHHOLD, as shown here:
x
|
3.
|
To
appoint PricewaterhouseCoopers LLP as the Companys independent registered
public accounting firm for the year ending December 31, 2008.
|
FOR
|
AGAINST
|
ABSTAIN
|
|
o
|
o
|
o
|
The undersigned hereby
acknowledges receipt of the proxy statement
and the Companys Annual Report on Form 10-K
for the year ended December 31,
2007, and hereby revokes all previously granted proxies.
To
change the address on your account, please check the box at right and
indicate your new address in the address
space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
o
|
Signature of Shareholder
|
|
Date:
|
|
Signature of Shareholder
|
|
Date:
|
|
|
|
Note:
|
This
proxy must be signed exactly as the name appears hereon. When shares are held
jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by duly authorized officer,
giving full title as such. If a partnership, please sign in
|
|
partnership
name by authorized person.
|
|
|
|
|
|
|
|
|
|
|
|
QuickLinks
ARCH CAPITAL GROUP LTD. NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
THE ANNUAL GENERAL MEETING
PROPOSAL 1ELECTION OF DIRECTORS
PROPOSAL 2ELECTION OF SUBSIDIARY DIRECTORS
PROPOSAL 3APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SHAREHOLDER PROPOSALS FOR THE 2009 ANNUAL GENERAL MEETING
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 9, 2008
Arch Capital (NASDAQ:ACGL)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
Arch Capital (NASDAQ:ACGL)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024