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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES

EXCHANGE ACT OF 1934 (AMENDMENT NO.     )

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-12

W. R. BERKLEY CORPORATION

 

(Name of Registrant as Specified In Its Charter)

  

 

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

Payment of Filing Fee (Check the appropriate box):

 

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Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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LOGO

 


Table of Contents

W. R. Berkley Corporation

 

LOGO

  

475 Steamboat Road

Greenwich, Connecticut 06830

Tel: (203) 629-3000 • Fax: (203) 769-4098

  

To our fellow shareholders:

For over 50 years, we have managed our Company with a focus on creating long-term value for our shareholders. Every action we take and every part of our strategy, including our management compensation and board structure, is designed to generate the highest long-term risk-adjusted return.

2017 was a year marked by record catastrophe losses and significant earnings volatility in our industry. We were there to help our clients pick up the pieces in the aftermath of these disasters and still delivered a 10.9% return on beginning equity to our shareholders.

The culture of our Company emphasizes that everything we do and every person who participates is important to our enterprise, and that doing the right thing is the cornerstone of our success. Our values and principles are not printed on fancy plaques hung on the walls of our offices, but are demonstrated every day at each of our operating units in the way we conduct our business, engage with our team members and give back to our communities. These values are critical to managing volatility and delivering superior long-term results.

2017 was also noteworthy as our commitment to ensuring the competitiveness of U.S. insurance groups in our home country was rewarded. The Tax Cut and Jobs Act effectively eliminated an unfair advantage in the Tax Code for offshore groups writing business through a U.S. subsidiary. In addition, the reduction in the corporate tax rate has positive implications for the economy and the global competitiveness of our business.

Over the last few years, we have spent a significant amount of time talking to our largest shareholders about the unique nature of our business — particularly its long-term characteristics. We have better communicated through engagement and through our proxy how our executive compensation system is tied to the key elements that create economic value in a property casualty insurance company. It is performance based and emphasizes long-term risk-adjusted returns and value creation to give our people a vested interest in the long-term success of the enterprise.

We have also enhanced the discussion regarding our board structure and governance practices. This is a complex business that requires knowledge and expertise for the Board and Compensation Committee to differentiate performance over the long run. Making these judgments requires expertise provided by directors with diverse experience and skills, and we continue to search for Board members who can bring value and advice.

In addition, investors have become increasingly focused on corporate responsibility as a driver of success in recent years, and we have accordingly done more to highlight our principles and practices. We have always recognized that in order to achieve long-term success, we have an obligation to society and the sustainability of the world around us. Whether employing individuals with diverse backgrounds and demographics that reflect the geographic and cultural diversity within our business, giving back to the communities in which we live and work, or managing our own impact on the environment and working closely with our insureds to manage theirs, corporate responsibility has been embedded in our culture from the beginning.

We and our management team continue to be the Company’s largest shareholders. The direct line of communication with our non-management shareholders has never been stronger, and we look forward to continuing the dialogue with you, our fellow owners. We also remain optimistic that we can continue to create value by delivering outstanding risk-adjusted returns in the future.

Sincerely,

 

LOGO                        LOGO
William R. Berkley                       W. Robert Berkley, Jr.
Executive Chairman                       President and Chief Executive Officer

“Always do right. This will gratify some people and astonish the rest.”

— Mark Twain


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LOGO

W. R. BERKLEY CORPORATION

475 Steamboat Road

Greenwich, Connecticut 06830

 

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 31, 2018

 

 

 

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of W. R. Berkley Corporation (the “Company”) will be held at its executive offices at 475 Steamboat Road, Greenwich, Connecticut, on Thursday, May 31, 2018 at 1:00 p.m. for the following purposes:

 

(1) To elect as directors to serve until their successors are duly elected and qualified the five nominees named in the accompanying proxy statement;

 

(2) To approve the W. R. Berkley Corporation 2018 Stock Incentive Plan (the “2018 Stock Incentive Plan”);

 

(3) To consider and cast a non-binding advisory vote on a resolution approving the compensation of the Company’s named executive officers pursuant to the compensation disclosure rules of the Securities and Exchange Commission, or “say-on-pay” vote;

 

(4) To ratify the appointment of KPMG LLP as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2018; and

 

(5) To consider and act upon any other matters which may properly come before the Annual Meeting or any adjournment thereof.

In accordance with the Company’s By-Laws, the Company’s Board of Directors has fixed the close of business on April 4, 2018 as the date for determining stockholders of record entitled to receive notice of, and to vote at, the Annual Meeting.

By Order of the Board of Directors,

IRA S. LEDERMAN

Executive Vice President and Secretary

Dated: April 19, 2018


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Table of Contents

 

2018 Annual Meeting of Stockholders      1  

Alignment with Stockholders Interests

     2  

2017 Financial Highlights

     3  

Proxy Summary

 

    

 

4

 

 

 

 

 

Our Business Must Be Managed with a Long-Term Perspective

     4  

Our Long-Term Perspective Has Driven Superior Stockholder Value Creation

     8  

Our Compensation Programs Are Structured to Align Employees’ and Directors’ Interests with those of Stockholders by Rewarding Long-Term Value Creation and to Retain Top Talent

     9  

NEO Compensation in 2017 Reflects Our Results

     12  

Our Corporate Governance Is Aligned with Our Long-Term Perspective

     13  

Stockholder Outreach

     17  

Cumulative Program Changes in Response to Stockholder Outreach

     19  

 

Proposal 1: Election of Directors

 

  

 

 

 

 

20

 

 

 

 

 

 

Our Directors and Director Nominees

     20  

 

Proposal 2: Approval of the 2018 Stock Incentive Plan

 

  

 

 

 

 

25

 

 

 

 

 

 

 

Proposal 3: Non-Binding Advisory Vote on Executive Compensation

 

  

 

 

 

 

35

 

 

 

 

 

 

 

Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

 

  

 

 

 

 

36

 

 

 

 

 

 

 

Executive Officers

 

  

 

 

 

 

37

 

 

 

 

 

 

 

Corporate Governance and Board Matters

 

  

 

 

 

 

38

 

 

 

 

 

 

Highlights

     38  

Board Committees

     39  

Additional Information Regarding the Board of Directors

     42  

Compensation Committee Interlocks and Insider Participation

     46  

Code of Ethics

     46  

Communications with Non-Management Directors

     46  

 

Transactions with Management and Others

 

  

 

 

 

 

47

 

 

 

 

 

 


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Compensation Discussion and Analysis

  

 

 

 

 

 

48

 

 

 

 

 

Compensation Discussion and Analysis — Table of Contents

     48  

Introduction

     49  

Executive Summary

     49  

Business Highlights for Fiscal year 2017

     49  

Long-Term Perspective and Performance

     50  

2017 Compensation Highlights

     51  

Pay at Risk and Pay-for-Performance Alignment

     52  

Feedback From Stockholder Outreach

     54  

Philosophy of Our Executive Compensation Program

     54  

Compensation Policies and Practices

     55  

Practices that We Emphasize and Practices that We Avoid

     57  

Objectives and Design of the Executive Compensation Program

     58  

Additional Design Information

     59  

Use of Market and Peer Group Data

     63  

Executive Compensation Decisions During the Last Year

     64  

Severance and Change in Control Benefits

     72  

Other Policies and Considerations

     73  

 

 

Compensation Committee Report

  

 

 

 

 

 

75

 

 

 

 

 

 

Discussion of Risk and Compensation Plans

  

 

 

 

76

 

 

 

 

 

 

Executive Compensation

  

 

 

 

 

 

77

 

 

 

 

 

Summary Compensation Table

     77  

Plan-Based Awards

     78  

Outstanding Equity Awards

     80  

Option Exercises and Stock Vested

     81  

Non-Qualified Deferred Compensation

     81  

Potential Payments Upon Termination or Change in Control

     82  

Director Compensation

     84  

CEO Pay Ratio

     85  

Equity Compensation Plan Information

     86  

 

 

Audit Committee Report

  

 

 

 

 

 

87

 

 

 

 

 

 

 

Audit and Non-Audit Fees

  

 

 

 

 

 

88

 

 

 

 

 

Pre-Approval Policies

     88  

 

 

Principal Stockholders and Ownership by Directors, Director Nominee and Executive Officers

  

 

 

 

 

 

89

 

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

  

 

 

 

 

 

92

 

 

 

 

 

 

 

Other Matters to Come Before the Meeting

  

 

 

 

 

 

92

 

 

 

 

 

 

 

General Information

  

 

 

 

 

 

93

 

 

 

 

 

 

 

Outstanding Stock and Voting Rights

  

 

 

 

 

 

100

 

 

 

 

 

 

 

Stockholder Nominations for Board Membership and Other Proposals

  

 

 

 

 

 

101

 

 

 

 

 

 

 

Annex A: Reconciliation of Non-GAAP Financial Measures; Forward-Looking Statements

  

 

 

 

 

 

A-1

 

 

 

 

 

 

 

Annex B: W. R. Berkley Corporation 2018 Stock Incentive Plan

  

 

 

 

 

 

B-1

 

 

 

 

 


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LOGO  

W. R. BERKLEY CORPORATION

PROXY STATEMENT

 

 
         
 

 

ANNUAL MEETING OF STOCKHOLDERS

May 31, 2018

  .
         

Your proxy is being solicited on behalf of the Board of Directors of W. R. Berkley Corporation (the “Company”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment thereof. On April 19, 2018, we began mailing to stockholders of record either a Notice of Internet Availability of Proxy Materials (“Notice”) or this proxy statement and proxy card and the Company’s Annual Report for the year ended December  31, 2017.

2018 Annual Meeting of Stockholders

 

LOGO

 

Date and Time:

Thursday, May 31, 2018 at 1:00 p.m.

 

Location:

W. R. Berkley Corporation, 475 Steamboat Road, Greenwich, Connecticut 06830

 

Record Date:

April 4, 2018

 

 

Proposal

 

 

Discussion
Beginning
on Page

 

 

Vote Required to
Adopt Proposal

 

 

Board
Recommendation

 

Broker
Discretionary
Voting
Allowed

 

 

 Effect of
 Abstentions

 

 

 Effect of

 Broker
 Non-Votes

 

 

1. Election of five directors

 

 

20

 

Majority of the votes cast at the Annual Meeting (i.e., more shares voted “FOR” election than “AGAINST” election)

 

 

FOR

 

 

No

 

 

    No effect

 

 

    No effect

 

 

2. Approval of the 2018 Stock Incentive Plan

 

 

25

 

The vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the Annual Meeting

 

 

FOR

 

 

No

 

 

    Same effect as

    a vote against

 

 

    No effect

 

 

3. Non-binding advisory vote to approve the 2017 compensation of our named executive officers

 

 

35

 

The vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the Annual Meeting

 

 

FOR

 

 

No

 

 

    Same effect as

    a vote against

 

 

    No effect

 

 

4. Ratification of appointment of independent registered public accounting firm for 2018

 

 

36

 

The vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the Annual Meeting

 

 

FOR

 

 

Yes

 

 

    Same effect as

    a vote against

 

 

    Not applicable

 

In order for business to be conducted, a quorum of a majority of our common stock outstanding and entitled to vote must be present either in person or by proxy at the Annual Meeting. Abstentions and broker non-votes are included in determining whether a quorum is present. The effects of abstentions and broker non-votes on the matters to be voted on are described in the table above.

 

2018 Proxy Statement   1


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ALIGNMENT WITH STOCKHOLDER INTERESTS

 

 

LONG-TERM VALUE CREATION

 

 

 

Performance

 

   

Governance

 

   

Alignment

 

 

MANAGEMENT AND THE BOARD

OF DIRECTORS ARE FOCUSED

ON LONG-TERM VALUE CREATION

   

CORPORATE GOVERNANCE IS

ALIGNED WITH LONG-TERM

PERSPECTIVE

   

COMPENSATION PROGRAMS ARE

DESIGNED TO ALIGN INTERESTS

WITH STOCKHOLDERS

     

Superior risk-adjusted underwriting results Please see pages 3 , 49, 51, 67

 

Above average risk-adjusted investment returns Please see
pages 3 , 6
, 49, 67

 

Prudent capital management Please see pages 3, 49, 67

 

Disciplined cycle management is key to long-term success Please see page 4

 

We grow when pricing is strong and are willing to reduce volume when prices are inadequate Please see page 4

 

We effectively manage volatility, including from catastrophic events Please see pages 3, 5, 67

 

We pursue strategies designed to build value for the future Please see page 6

 

Over the long term, our return on equity (“ROE”) and total value creation have consistently outperformed the industry and our peers Please see pages 8, 51

 

Our three year average ROE ranks in the 90th percentile of our peers Please see pages 11, 53

 

Average annual gain in book value per share (with dividends included) since our first full year as a public company in 1974 of 17.1% has outpaced the S&P 500® Index by 4.7 points Please see page 8

   

80% independent directors (including the new director nominee) Please see pages 14, 39

 

Board members bring diverse backgrounds, skills, experience and perspectives on the Company’s strategy and operations Please see pages 13, 22-24, 41-42

 

Diversified tenure of directors balances Board refreshment with benefit of overseeing the Company over the full insurance cycle Please see pages 13-14, 44

 

30% of the Board has been refreshed in the last 7 years Please see page 14

 

Separate Executive Chairman and Chief Executive Officer (“CEO”) Please see page 43

 

Our Executive Chairman, who founded the Company, is its largest stockholder and has led the Company for more than 50 years, is best suited to lead the Board Please see pages 15, 42-43, 68

 

The Board requires significant stock ownership by our Named Executive Officers (“NEOs”) and Directors, and our policy prohibits pledging shares used to satisfy our NEO stock ownership requirements Please see pages 11, 73, 84

 

Directors and executive officers as a group own 22.2% of the Company’s stock as of April 4, 2018, aligning their interests with those of the stockholders Please see page 90

   

CEO and Named Executive Officer (“NEO”) pay are 90% and 83%, respectively, performance based and at-risk Please see pages 9, 52

 

68% of CEO and 56% of NEO pay are long-term and subject to clawback Please see pages 9, 52

 

Annual cash incentive awards are performance-based and non-formulaic to discourage short-term oriented behavior that can hurt long-term performance Please see pages 10, 55, 64-69

 

100% of long-term compensation, and 75% of CEO’s incentive compensation, is formulaic Please see pages 9, 52, 55

 

NEOs do not receive any shares from vested Restricted Stock Unit (“RSU”) awards until separation from service Please see pages 10, 56, 61

 

Executive Chairman’s compensation reflects his active role in operations, particularly in strategy and investments Please see pages 12, 68

 

Our CEO compensation has been well-aligned with performance, with both three year average pay and performance (as measured by either total stockholder return, return on equity or growth in book value per share) ranking in the top quartile of our peers Please see pages 11, 53

 

Compensation peer group comprised of appropriate industry peers Please see
pages 11, 53, 63

 

 

FUNDAMENTAL UNDERSTANDING

THAT PROPERTY CASUALTY INSURANCE

IS A LONG-TERM AND CYCLICAL BUSINESS

 

 

2   W. R. Berkley Corporation


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2017 Financial Highlights

 

 

10.9%

96.7% $7.7B $4.26 $44.53

 

Return on   

Stockholders’ Equity   

averaged 12% over the past   

5 years.   

 

Combined Ratio

averaged 94.7% over the past
5 years.

 

Total Revenues

increased 32% over the past
5 years.

 

Net Income Per
Diluted Share

grew 20% over the past
5 years.

 

 Book Value Per Share

grew 41% over the past
5 years.

In a year marked by record catastrophe losses for the industry, our focus on risk-adjusted returns has enabled us to produce excellent results with lower volatility than our peers.

 

LOGO

Appropriately managing the insurance pricing cycle has always been critical to long-term success. Historically, catastrophe losses were a major catalyst for pricing increases, but excess capital and increased market fragmentation have dampened their effects, and underwriting expertise and prudent cycle management have become even more critical. During 2017, we maintained our discipline in both pricing and risk selection, while recording our 11th consecutive year of favorable loss reserve development.

 

 

$336 Million

 

Net Realized Investment Gains (Pre-Tax)

 

Sales of real estate and common stock investments in 2017 generated record net realized investment gains. We continue to invest in assets that we anticipate will provide additional meaningful gains in the future.

 

    

 

3.0 Years

 

Average Duration of Fixed income Portfolio

 

With a duration that is approximately one year shorter than the duration of our liabilities, we are well positioned to take advantage of rising interest rates in 2018 and beyond.

 

LOGO

 

2018 Proxy Statement   3

A record year of U.S. insured catastrophe losses industry-wide. . . (2015 Dollars) $135 Billion Sources: Property Claims Service/ISO; Insurance Information Institute; Munich Re . . . Had dramatically less impact on our results Points on Combined Ratio from Catastrohpe Losses Sources A. M. Best; W. R. Berkley Corporation 10.9% Growth in Book Value Per Share Before Share Repurchases and Dividends $236 Million Capital Returned to Stockholders 8% Increase in Annual Ordinary Per Share Dividend Change in Volume vs. Pricing Quarterly Reserve Development


Table of Contents

 

    PROXY SUMMARY    

 

 

 

Our Business Must Be Managed with a Long-Term Perspective

 

LOGO

 

The property casualty insurance business has historically been cyclical. It can take an extended time for insured losses to be reported, ultimate costs to be determined and final payments to be made, especially for liability claims. The uncertainty of insurers’ ultimate loss costs and fluctuating competitive conditions result in alternating periods of “hard” markets (more profitable for insurers) and “soft” markets (less profitable for insurers).    LOGO

Because this cyclicality can cause variability in results over time, an insurer’s results should be considered over the entire length of the cycle.

 

 

We manage our business to outperform over the full insurance cycle. Managing a property casualty insurance company for the long term requires discipline throughout the cycle, especially in soft markets. Companies that are too aggressive in soft markets can suffer large losses later.

The Classic Insurance Cycle

 

 

 

LOGO

We will forgo top-line growth when necessary to maintain profitability.

 

 

 

4   W. R. Berkley Corporation


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    PROXY SUMMARY    

 

 

 

Losses from large events cause significant volatility in industry results. We seek to maximize returns on a risk-adjusted basis. As a result, our catastrophe losses from major industry events have been significantly lower than industry averages.    LOGO

We manage our business with an appropriate consideration of volatility in analyzing risk.

 

 

The lack of volatility in our results has contributed to superior long-term performance.

 

LOGO    LOGO

The graph above on the left shows historical insured catastrophe losses, highlighting a benign period from 2013 to 2015, and a record year in 2017. The graph above on the right shows our average accident year loss ratios compared to highly-rated competitors over periods of three, five, seven and ten years through 2017. (A lower loss ratio is better.)

Our outperformance appeared to have declined in the 5 year period ended 2017, as catastrophe activity was benign from 2013 to 2015. However, a return to normalized catastrophe losses in 2016 and a record level of catastrophe losses in 2017 demonstrated that the outperformance remains, a tribute to our disciplined underwriting and risk management.

The cornerstone to long-term success is understanding risk-adjusted return. All returns are not created equal, and we need to be conscious of the risks we are taking to achieve our returns.

 

 

 

 

2018 Proxy Statement   5

WRB: Write as much good business as possible WRB: Accelerate growth as price adequacy returns to various market segments WRB: Capitalize on market dislocations; Create new units/divisions to position for market turn WRB: Slower growth and more selective underwriting WRB: Focus on retention; maintain disciplined underwriting WRB: Be willing to sacrifice volume for profitability Price Increases High Profitability Increases Capital + New capacity = Increases competition Price Reduction Low Profitability capacity Withdrawal Reduced Competition Hard Market Cycle and Capital Management Soft Market Ratio of event loss to surplus for largest events since 1992* *Ratio is for end-of-quarter surplus immediately prior to event. **Change in surplus from 12/31/2007 peak to date of maximum capital erosion at 3/31/09. Reflects losses offset by earnings. ***Assumes $80B in aggregate losses from Hurricanes Harvey, Irma, Maria and earthquakes in Mexico. Sources: PCS; Insurance Information Institute; A.M. Best; WRB


Table of Contents

 

    PROXY SUMMARY    

 

 

 

 

Strategies that we pursue to create long-term value may result in short-term expenses, but they ultimately benefit long-term ROE and build value for the future. An example is our strategy of starting businesses rather than acquiring them.

 

 

LOGO

We make long-term decisions to enhance long-term ROE and build stockholder value.

 

 

 

Investing for capital gains enhances our ROE. Our investment strategy is designed to support our long-term return target. In response to the extended low interest rate environment, we have increased our investments in private equity, real estate and other assets. These changes have caused us to give up some current investment income, but the gains ultimately benefit our ROE when viewed over longer periods.    LOGO

We continue to have a significant amount of unrealized gains, both on and off the balance sheet. For certain of our investments, accounting rules depart from the underlying economics and require us to carry the investments at a value other than fair value. The appreciation in the value of certain of these investments is not reflected in our financial statements until they are sold.

Realized gains have contributed an average of 3.2% to our ROE over the past 6 years.

 

 

 

6   W. R. Berkley Corporation

U.S. Insured Cat Losses (2015 Dollars) Sources: Property Claims Service/ISO; Insurance Information Institute; Munich Re Reported Accident Year Loss Ratio Averages As of December 31, 2017 Example of a Start Up Contribution of Realized Investment Gains to ROE Example of Off Balance Sheet Gains


Table of Contents
 

 

    PROXY SUMMARY    

 

 

We have adopted a defensive posture with respect to inflation. Because of the extended low interest rate environment and relatively flat yield curve, we have shortened the duration of our bond portfolio over the past several years to approximately 3 years, which is approximately one year shorter than the duration of our liabilities. These changes have reduced the potential impact of mark-to-market accounting and positioned us well to take advantage of rising interest rates.    LOGO

As investment income is an important component of our economic model, we anticipate improving returns in 2018 as interest rates move higher.

 

2018 Proxy Statement   7

Bond Portfolio Durations History


Table of Contents

 

    PROXY SUMMARY    

 

 

 

Our Long-Term Perspective Has Driven Superior Stockholder Value Creation

 

LOGO

 

Since our founding, our growth in book value per share with dividends compounded has far outpaced the S&P 500® Index. Our long-term approach to our business and careful exposure management have resulted in strong profitability, below average volatility and superior long-term value creation for stockholders.    LOGO
   Notes: Our book value per share has been adjusted for stock dividends paid from 1975 to 1983. Stock dividends were 6% in each year from 1975 to 1978, 14% in 1979, and 7% in each year from 1980 to 1983. We have paid regular cash dividends each year since 1976, as well as periodic special dividends.

 

 

 

We have delivered superior returns to stockholders over the past 15 years. The Company’s total stockholder return (“TSR”) over the past 15 years has exceeded by a wide margin the TSR of the S&P 500® Index and the S&P 500® Property & Casualty Insurance Index, as illustrated in the graph to the right.    LOGO

Indexes are market-cap weighted (rebalanced periodically). Compensation peer group TSR composite weighted by market capitalization (reweighted annually).

Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2018.

 

 

 

There is a strong correlation between long-term value creation and long-term total stockholder return, as shown by the accompanying graph. The correlation improves over long periods of time. We have been a top performer compared to our compensation peer group over the past 15 years.    LOGO

 

8   W. R. Berkley Corporation

Overall gain in book value per share with dividends compounded has far outpaced the S&P 500®Index Comparison of 15-year Cumulative Total Return Assumes Initial Investment of $100 on January 1, 2003 15 Year Total Value Creation vs. Total Stockholder Return


Table of Contents
 

 

    PROXY SUMMARY    

 

 

Our Compensation Programs Are Structured to Align Employees’ and Directors’ Interests with those of Stockholders by Rewarding Long-Term Value Creation and to Retain Top Talent

 

LOGO

Talent and expertise are the ultimate differentiators in our business. The combined expertise of our people in underwriting, risk management, claims handling and investing has delivered outstanding risk-adjusted returns. Our compensation programs appropriately balance the short term with the long term and our long-term incentive compensation awards vest after periods that are longer than the average duration of our liabilities.

 

 

Our NEO Compensation Reflects our Performance-based Philosophy and our Emphasis on the Long Term. The great majority of compensation for our CEO and other NEOs is linked to Company performance and the creation of stockholder value, and most of their compensation is long term.

 

 

LOGO

 

   Annual cash incentive award is directly linked to operating performance as described on pages 64-69       Performance-based RSUs are earned based on ROE performance.       The 2017 LTIP awards are directly linked to growth in book value over five years (12.5% annual growth required to earn a maximum payout).

Compensation values reflected in the above illustration are based on 2017 base salary, the annual cash incentive award payment for 2017, the potential maximum value of the LTIP award for the 2017-2021 performance period, and the value of the 2017 performance-based RSU grant based on the target number of RSUs granted.

 

 

 

2018 Proxy Statement   9

2017 CEO Total Direct Pay 2017 All Other NEOs Total Direct Pay


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    PROXY SUMMARY    

 

 

 

 

Annual Cash Incentive Awards

 

 

Annual cash incentive awards are performance-based. Award determinations are primarily based on annual ROE compared to our long-term 15% goal. The Compensation Committee also considers combined ratio, the impact of catastrophes, performance relative to the Company’s compensation peer group, growth in book value per share, net income per share, net investment income and consistency of management, as well as investments in new businesses and gains on long-term investments to understand the drivers of ROE.

 

Cash incentive awards are non-formulaic. In our industry, a formulaic short-term incentive award can encourage excessive risk taking and imprudent short-term oriented behavior that create near-term payouts at the expense of the longer-term health and value of the business.

Please see pages 55, 59-60 and 64-69 for additional information and key metrics.  

 

 

Performance-Based Restricted Stock Units
(“RSUs”)
 

RSUs vest based on our ROE and use a series of rolling three-year performance periods, with the last period extending five years from the grant date.

 

             

 

Please see pages 55-56, 60-61 and 69-70 for additional information.                                         

   

 

Mandatory Deferral and Clawback: Key Features of our RSUs and Critical Differentiators. For our NEOs and other senior executives, shares earned upon vesting of RSUs are mandatorily deferred. Executives have no ability to monetize vested RSUs until they leave the Company. Executives forfeit unvested RSUs when they leave the Company. If an executive breaches post-employment restrictions, we are able to claw back vested shares.

 

     
   
         

 

   
               

 

 

 

Long-Term Incentive Plan (“LTIP”)

 

  LTIP awards are performance-based awards that pay in cash after five years. Full payout is attained only if the Company’s book value per share grows at an annualized rate of 12.5% for awards since 2015 and 15% for awards made in 2013 and 2014. Unvested LTIP awards and vested LTIP payouts are also subject to clawback.

 

Please see pages 55-56, 60 and 70-71 for additional information.

   
       

 

2013 – 2017
Cycle

 

 

2014 – 2018
Cycle

 

 

2015 – 2019
Cycle

 

 

2016 – 2020 
Cycle

 

 

2017 – 2021  

Cycle

   

 

Years Completed in 5-Year Cycle

 

 

5

 

 

4

 

 

3

 

 

2

 

 

1

   

 

Accrued Value as of December 31, 2017 (% of Maximum)

 

 

80%

 

 

62%

 

 

52%

 

 

33%

 

 

14%

 

 

 

 

10   W. R. Berkley Corporation


Table of Contents
 

 

    PROXY SUMMARY    

 

 

 

NEO Stock Ownership

 

 

Please see page 73 for additional information.

  The Board’s policy requires significant stock ownership by our NEOs, and prohibits pledging shares used to satisfy our NEO stock ownership requirements. Our NEOs (other than one relatively new NEO) hold stock between 9 and 117 times our ownership guidelines.

 

 

 

Director Compensation

 

Please see pages 84-85 for additional information.

  Our directors’ interests are aligned with those of our stockholders through meaningful stock ownership. Continuing directors are granted annually shares of the Company’s common stock, constituting a substantial portion of their compensation, and such shares are to be held until a director is no longer a member of the Company’s Board. To enhance alignment further, our director stock ownership guidelines require directors with four or more years of tenure to own shares with a value equivalent to five times the annual stipend, or $420,000. All of our non-management directors with at least four years of service own shares in excess of the required amount, holding between 3 and 110 times their ownership guidelines.

 

 

 

Pay and Performance Alignment

 

 

Please see page 53 for additional information.

 

The alignment of three-year performance versus CEO pay for the Company ranks in the top quartile as compared with our compensation peer group.

 

We believe it is important to compare the Company’s performance to a peer group comprised primarily of property and casualty insurance underwriters with whom we compete, which includes companies across a wide range of market capitalization.

 

LOGO

LOGO

 

2018 Proxy Statement   11


Table of Contents

 

    PROXY SUMMARY    

 

 

 

 

NEO Compensation in 2017 Reflects Our Results

 

LOGO

2017 Results Were Strong. Underwriting results were on par with prior years despite record industry catastrophe losses, and investment gains were strong. Please see 2017 Financial Highlights on page 3 and pages 49-51. The Company continued to take advantage of opportunities, started two new businesses in Mexico, launched a high net worth personal lines business and added many talented professionals.

Cash incentive awards in 2017 for our NEOs except Mr. Baio declined or remained flat in comparison to 2016, reflecting the decline in our overall results compared to results for the prior year. The absolute amount of the awards recognized the Company’s strong performance in a difficult environment. The increase in Mr. Baio’s award also reflects his increased role in 2017.

 

(10%)

 

 

(10%)

 

 

0%

 

 

1%

 

 

21%

 

 

Mr. Rob Berkley’s annual cash
incentive award declined to
$2,250,000, reflecting the
decline in our overall results,
tempered by their relative
stability in a year marked by
record catastrophes.

 

 

 

Mr. William Berkley’s annual
cash incentive award declined
to $3,150,000, reflecting the
decline in our overall results,
tempered by the Company’s
strong investment
performance.

 

 

 

Mr. Lederman’s annual cash
incentive award remained flat
based on the Company’s
performance.

 

 

 

Mr. Shiel had a nominal
increase to his annual cash
incentive award based on the
Company’s investment
performance.

 

 

 

Mr. Baio’s cash bonus
increased to $400,000,
reflecting his role as Chief
Financial Officer for a full year
versus seven months in 2016
and the Company’s 2017
performance.

 

In February 2017, the Compensation Committee determined the maximum cash incentive awards for our NEOs other than our CFO for the year ended December 31, 2017. These maximums were each subject to negative discretion based on the Company’s 2017 performance. Such negative discretion is determined principally by evaluating the Company’s ROE compared to our long-term target of 15%. Other metrics are utilized to inform the Compensation Committee about the industry-specific and general economic environment in which these results were achieved. Please see pages 64-69.

 

 

RSUs and LTIP Awards are Performance-Based and Continue to Incentivize Long-Term Value Creation

 

 

Please see pages 55-56, 60-61 and 69-71 for additional information.

  The potential dollar value of performance-based RSUs granted to our continuing NEOs was flat compared to 2016, as was the potential value of LTIP awards. These awards are intended primarily to motivate future long-term performance rather than to differentiate and reward recent performance, so the amounts granted tend not to vary with short-term performance as much as cash incentive awards do. These amounts are at risk and actual amounts earned may be less than their maximum value, depending upon our future performance.

 

 

Executive Chairman’s Compensation Reflects the Importance of His Ongoing Role

 

 

Please see page 68 for additional information.

  As Executive Chairman, in addition to his Board leadership role, Mr. Wm. Berkley maintains an active and significant presence in the Company. He continues to provide executive services to the Company by working with senior management to source, evaluate and implement strategic business and investment opportunities that promote long-term stockholder value creation. Among other things, he works actively to recruit and develop talent, enhance intellectual capital and corporate culture and provide corporate memory. In conjunction with the CEO, he directs government and industry outreach to inform public policy, provides industry thought leadership and contributes significantly to outreach to stockholders and financial institutions.

 

 

12   W. R. Berkley Corporation


Table of Contents
 

 

    PROXY SUMMARY    

 

 

Our Corporate Governance Is Aligned with Our Long-Term Perspective

 

LOGO

 

Board Diversity and Experience

 

 

 

Please see pages 20-24 and 41-42 for additional information.

 

We value having directors with diverse perspectives and experience. Each director has served in leadership roles and has significant experience in areas relevant to the Company. The Board has nominated Leigh Ann Pusey to stand for election to the Board of Directors at the 2018 Annual Meeting, following the addition of María Luisa Ferré in 2017. Ms. Pusey brings extensive leadership skills, insurance industry, regulatory and government affairs experience and expertise. The addition of these two directors refreshes our Board while enhancing its diversity.

  

 

LOGO

 

 

Board Tenure

 

 

 

Please see pages 20-24 and 44 for additional information.

  Given the complexity and long-term nature of our business, our Company is best served by having a Board with an in-depth understanding of our Company and industry. Developing that expertise takes time, and directors who have overseen our business over the full cycle are most effective. The tenure of our directors and director nominee is distributed across periods that could be considered in the insurance industry to be relatively short-term, medium-term and long-term, providing a balance of perspectives.   

 

LOGO

 

 

 

2018 Proxy Statement   13


Table of Contents

 

    PROXY SUMMARY    

 

 

 

 

Board Refreshment

 

 

 

 

Please see page 44 for additional information.

 

The Nominating and Corporate Governance Committee and members of the Board identify well-qualified candidates who may have different skills or backgrounds needed for the Company to execute its strategic vision. Over the last seven years, we have refreshed 30% of the Board. In looking for candidates, we start with character, seeking candidates with the highest standards, who are committed to upholding our values and who will be independent, strong stewards of our investors’ capital. Then, as we go through the process of assessing future Board recruitment needs, we look to recruit candidates from different backgrounds so that they can contribute to the cognitive diversity on the Board. We continue to search for directors who can bring value, expert advice and diversity.

 

The Committee identifies director candidates through the advice and assistance of internal and external advisors as it deems appropriate.

 

 

Director Independence
and Involvement
  All of our directors, other than Messrs. Wm. and Rob Berkley, are independent.
The Board of Directors held five meetings during 2017. Every director attended
at least 83% of the total number of meetings of the Board of Directors and all
committees on which he or she served, and seven of our directors had perfect
attendance records. All of the directors except one attended the Company’s
2017 Annual Meeting.

Please see pages 20-24 and 39 for additional information.

  LOGO   

 

LOGO

 

 

14   W. R. Berkley Corporation


Table of Contents
 

 

    PROXY SUMMARY    

 

 

 

Board Leadership Structure

 

 

 

Please see pages 42-43 for additional information.

 

Our Executive Chairman, Mr. Wm. Berkley, helps the Board identify strategic priorities, leads the Board in oversight responsibilities and facilitates and presides over Board meetings. He is our largest stockholder with approximately 20% of our common stock, founded the Company in 1967 and has led it for over 50 years. The Board considers that he is most familiar with the Company’s business and industry and has a unique perspective on the Company’s culture and values. As a result, he is best positioned to understand the issues, opportunities and challenges the Company faces and to lead the Board in discussions and execution of strategy. Consequently, the Board believes that the Company does not currently need a lead independent director.

 

Seven of the nine current directors (or eight of ten, including the director nominee) are independent, including all of the members of the Audit, Compensation and Nominating and Corporate Governance Committees. The independent directors have extensive leadership experience, provide oversight and meet regularly in executive sessions without any members of management present and have full access to the Company’s management. The presiding director of these executive sessions rotates.

 

The Board believes that its structure and process provide each director with an equal stake in the Board’s actions and oversight role and make them equally accountable to stockholders.

 

 

 

Classified Board   Our classified Board is important to our philosophy of managing for the long term. Because the cycle in the property casualty insurance industry can extend over many years, it can take several years to gain a robust understanding of our business and our Company. Standing for election every three years helps our directors maintain the long-term perspective needed to drive success in our business.

 

 

2018 Proxy Statement   15


Table of Contents

 

    PROXY SUMMARY    

 

 

 

 

Oversight of Stock Pledging by our Executive Chairman

 

Please see page 76 for additional information.

 

Our policy prohibits the pledging of shares used in fulfillment of our stock ownership guidelines. Mr. Wm. Berkley, our founder and Executive Chairman, has pledged a portion (35%) of the stock he owns in our Company. His unpledged shares, representing more than 65% of his total ownership, are 117 times his ownership requirement. The pledging is a unique circumstance given that he is the Company’s founder and served as its Chairman for over 50 years. The Compensation Committee reviews his pledging and the accompanying risks annually, and continues to be comfortable with the pledging.

 

  Pledging a portion of his holdings (i.e., 35% of overall) gives Mr. Wm. Berkley financial flexibility while maintaining his significant ownership.

 

  He has not sold a single share of stock since 1969, other than in connection with the cashless exercise of stock options or to cover taxes due upon vesting of restricted stock awards.

 

  He has reduced his pledged shares by almost 9.7 million (53%) since 2011, including almost 3.4 million since 2016. As of April 4, 2018, his unpledged shares represent more than 65% of his total ownership, with a total market value of approximately $1.2 billion.

 

 

Corporate Responsibility

 

Please visit our website for additional information.

  Doing the right thing for our people, our communities and our environment engenders the trust of our customers, distribution partners, employees and stockholders, enabling us to grow our business profitably and meet the diverse needs of all our constituents. The simple concept of doing the right thing embodies the principles that guide the way we do business. It is embedded in our culture and exemplified by our employees every day.

 

16   W. R. Berkley Corporation


Table of Contents
 

 

    PROXY SUMMARY    

 

 

Stockholder Outreach

 

LOGO

 

Compensation Committee Response to Say-on-Pay Advisory Vote Results and Investor Feedback. Last year, the Company’s say-on-pay vote was approved, receiving support of 75% of the shares voted. Our enhanced outreach, disclosure and presentation resulted in a dramatic increase in say-on-pay support since 2015, particularly among our largest stockholders and those with whom we engaged.

 

While we were pleased by the significant improvement, we strive to obtain greater support.

 

LOGO

 

(1)  Total votes cast “for” divided by total votes “for” or “against or abstentions”.

Following the 2017 Annual Meeting, we again reached out to many of our stockholders, representing more than 66% of the outstanding shares of the Company not held by management. We met, spoke to or corresponded with stockholders representing 61% of the outstanding shares of the Company not held by management, including several who declined meetings and indicated that they were comfortable with our governance and compensation practices. The predominant message from our outreach was that, in general, investors appreciate the alignment of our executive compensation programs with stockholder interests. There were no requests for modifications to the compensation program.

 

2018 Proxy Statement   17


Table of Contents

 

    PROXY SUMMARY    

 

 

 

The conversations principally centered on governance practices. Some investors asked us to consider certain items or to increase disclosure regarding the reasons some of our practices differ from those they consider to be best practices, as they recognize that one size does not fit all.

Specific discussion topics included the following:

 

 

Issue

 

  

 

Response/Comments

 

 

 

Number of
Investors Citing
Issue

 

 

 

Page(s)

 

 

Explain the role of the Executive Chairman

 

  

 

Added a description of Mr. Wm. Berkley’s ongoing responsibilities as an executive of the Company.

 

 

 

5

 

 

 

12, 68

 

 

Explain why there is no lead independent director

 

  

 

Added a discussion of the Board’s view that Mr. Wm. Berkley is best suited to lead the Board, and the Company does not currently need a lead independent director.

 

 

 

2

 

 

 

15, 42-43

 

 

Explain why the board is classified

 

  

 

Standing for election every three years helps our directors maintain the long-term perspective needed to drive success in a business where ultimate results of business written in a given year may not be known for many years.

 

 

 

3

 

 

 

15

 

 

Proxy access

 

  

 

Although the topic came up in several discussions, investors generally did not consider proxy access a primary issue in determining their vote for directors. The Board regularly considers the issue of proxy access and expects to continue to do so in 2018.

 

 

The Nominating and Corporate Governance Committee will evaluate qualified director candidates recommended by stockholders in accordance with its criteria for director selection on the same basis as any other candidates.

 

 

6

 

 

 

13-14, 41-42

 

 

Update information regarding board tenure, refreshment and diversity

 

  

 

Nominated Leigh Ann Pusey to stand for election at 2018 Annual Meeting. Elected María Luisa Ferré in 2017. Both bring refreshment, extensive experience and expertise in diverse businesses, and leadership skills, and they enhance the diversity of our Board.

 

We continue to actively seek qualified candidates who add value and diverse skills, experience and perspectives to further refresh the Board.

 

 

 

3

 

 

 

13-14, 44

 

 

Articulate which is the primary factor in determination of annual cash incentive awards

 

  

 

Refined disclosure regarding metrics used in determining the annual cash incentive awards to clearly articulate that return on equity is the primary factor. Other metrics are utilized to inform the Compensation Committee about the industry-specific and general economic environment in which these results were achieved.

 

 

 

3

 

  10, 55, 59, 64-69

 

18   W. R. Berkley Corporation


Table of Contents
 

 

    PROXY SUMMARY    

 

 

Cumulative Program Changes in Response to Stockholder Outreach

 

LOGO

The Compensation Committee has made a number of changes to the executive compensation program in response to stockholder feedback over the last several years. These changes and other changes made to our corporate governance over the preceding few years are summarized in the table below.

 

 

Feature

 

 

 

2013

 

 

 

2014

 

 

 

2015

 

 

 

2016

 

 

 

2017

 

 

 

2018

 

 

Performance-based RSUs, with higher performance threshold beginning in 2015

 

         LOGO

 

Double trigger vesting of long-term compensation in the event of a change in control

 

         LOGO

 

Annual grants of long-term awards

 

         LOGO

 

Stock ownership guidelines with a prohibition against pledging for NEOs

 

       LOGO

 

Reduction in maximum potential size of pool for NEO bonuses

 

  5.0%   4.05%   3.3%  

3.3% and

$10 million

per person

cap

 

     LOGO   

 

Majority voting in director elections

 

  LOGO               

 

Board refreshment and diversity

 

      Elected María  

Luisa Ferré  

 

Nominated

Leigh Ann

Pusey

 

 

Corporate Responsibility Disclosure

 

                  LOGO

We welcome the views of our stockholders and look forward to continuing our dialogue with you, our owners.

 

2018 Proxy Statement   19


Table of Contents

 

    PROPOSAL 1: ELECTION OF DIRECTORS    

 

 

 

Proposal 1: Election of Directors

Our Directors and Director Nominees

 

LOGO

You are being asked to vote for the election of five directors. Five other directors are continuing in office. Detailed information about each director’s background, skills and areas of expertise can be found beginning on page 22.

 

Name

 

 

Age

 

   

Director
Since

 

   

Occupation

and Experience

 

 

Term
Expiring

 

 

Independent

 

 

 

Committee Memberships

 

 

 

Other
Public
Company
Boards

 

           

AC

 

 

BEC

 

 

CC

 

 

NCGC

 

 

EC

 

 

 

Director Nominees Standing for Election

 

 

William R. Berkley

 

 

 

 

72

 

 

 

 

 

 

1967

 

 

 

 

Executive Chairman of the Board of the Company

 

 

 

2021

 

 

No

         

 

 

 

None

 

Christopher L. Augostini

 

 

 

 

53

 

 

 

 

 

 

2012

 

 

 

 

Executive Vice President—Business of Emory University

 

 

 

2021

 

 

Yes

 

 

     

 

   

 

None

 

Mark E. Brockbank

 

 

 

 

66

 

 

 

 

 

 

2001

 

 

 

 

Former Chief Executive Officer of XL Brockbank Ltd.

 

 

 

2021

 

 

Yes

     

 

 

 

   

 

None

 

María Luisa Ferré

 

 

 

 

54

 

 

 

 

 

 

2017

 

 

 

 

President and Chief Executive Officer of GFR Services, Inc.

 

 

 

2020

 

 

Yes

 

 

     

 

   

 

1
(Popular, Inc.)

 

 

Leigh Ann Pusey

 

 

 

 

55

 

 

 

 

 

 

N/A

 

 

 

 

Senior Vice President, Corporate Affairs and Communications

Eli Lilly and Company

 

 

 

2019

 

 

Yes

           

 

None

 

Directors Continuing in Office

 

 

W. Robert Berkley, Jr.

 

 

 

 

45

 

 

 

 

 

 

2001

 

 

 

 

President and Chief Executive Officer of the Company

 

 

 

2019

 

 

No

         

 

 

 

None

 

Ronald E. Blaylock

 

 

 

 

58

 

 

 

 

 

 

2001

 

 

 

 

Founder and Managing Partner of GenNx360 Capital Partners; founder and former Chairman and Chief Executive Officer of Blaylock & Company, Inc.

 

 

 

2019

 

 

Yes

   

 

 

 

 

 

   

 

3
(Pfizer Inc., CarMax, Inc. and Urban One, Inc.)

 

 

Mary C. Farrell

 

 

 

 

68

 

 

 

 

 

 

2006

 

 

 

 

President of the Howard Gilman Foundation; former Managing Director of UBS

 

 

 

2019

 

 

Yes

     

 

C

 

 

   

 

None

 

Jack H. Nusbaum

 

 

 

 

77

 

 

 

 

 

 

1967

 

 

 

 

Senior Partner at Willkie Farr & Gallagher LLP

 

 

2020

 

 

Yes

   

 

     

 

 

 

1
(Cowen Group,

Inc.)

 

 

Mark L. Shapiro

 

 

 

 

74

 

 

 

 

 

 

1974

 

 

 

 

Former Senior Consultant to the Export-Import Bank of the United States; former Managing Director of Schroder & Co. Inc.

 

 

 

2020

 

 

Yes

 

 

C

 

 

     

 

 

 

 

 

1
(Boardwalk Pipeline Partners, L.P.)

 

AC Audit Committee
NCGC Nominating and Corporate Governance Committee
BEC Business Ethics Committee
EC Executive Committee
CC Compensation Committee
C Chair
 

 

20   W. R. Berkley Corporation


Table of Contents
 

 

    PROPOSAL 1: ELECTION OF DIRECTORS    

 

 

The Board of Directors, which currently has nine directors, is divided into three classes, each class having a term of three years. Each year the term of office of one class expires. This year the term of a class consisting of four directors expires. If Ms. Pusey is elected as a director, the Board will have a class of four directors with terms expiring in 2019, three directors with terms expiring in 2020 and three directors with terms expiring in 2021.

The Board of Directors intends that the shares represented by proxy, unless otherwise indicated therein, will be voted for the election of William R. Berkley, Christopher L. Augostini and Mark E. Brockbank as directors to hold office for a term of three years until the Annual Meeting in 2021 and until their respective successors are duly elected and qualified, for María Luisa Ferré as director to hold office for a term of two years until the Annual Meeting in 2020 and until her successor is duly elected and qualified, and for Leigh Ann Pusey as director to hold office for a term of one year until the Annual Meeting in 2019 and until her successor is duly elected and qualified. There are no arrangements or understandings between the nominees for director and any other person pursuant to which the nominees were selected.

The persons designated as proxies reserve full discretion to cast votes for other persons in the event any such nominee is unable to serve. However, the Board of Directors has no reason to believe that any nominee will be unable to serve if elected. The proxies cannot be voted for a greater number of persons than five nominees.

Following the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors unanimously recommends a vote “FOR” all of the nominees for director.

The following table sets forth biographical and other information regarding each nominee and the remaining directors who will continue in office after the Annual Meeting.

 

2018 Proxy Statement   21


Table of Contents

 

    PROPOSAL 1: ELECTION OF DIRECTORS    

 

 

 

Director Nominees Standing for Election

 

 

William R. Berkley

 

     

 

Christopher L. Augostini

 

 

LOGO

 

 

Director Since: 1967

Age: 72

Occupation: Executive Chairman of the Board

Expiring Term: 2021

Independent: No

Committees: Executive Committee

Other Public Company Directorships: None

   

 

LOGO

 

 

Director Since: 2012

Age: 53

Occupation: Executive Vice President — Business of Emory University

Expiring Term: 2021

Independent: Yes

Committees: Audit, Nominating and Corporate Governance

Other Public Company Directorships: None

 

Key Experience: Chairman of the Board since the Company’s formation in 1967 and Executive Chairman since October 2015. He served as Chief Executive Officer from 1967 to October 2015, President and Chief Operating Officer from March 2000 to November 2009 and held such positions at various times from 1967 to 1995. He is the father of Mr. Rob Berkley.

 

Key Qualifications, Attributes or Skills: The founder of the Company, Mr. Wm. Berkley is widely regarded as one of the most distinguished leaders of the insurance industry. He provides the Company with strategic leadership, bringing to the Board of Directors deep and comprehensive knowledge of, and experience with, the Company and all facets of the insurance and reinsurance businesses. He has significant investment related experience, including oversight and management, since prior to his founding of the Company. His service as Executive Chairman of the Company creates a vital link between management and the Board of Directors, enabling the Board of Directors to perform its oversight function with the benefit of management’s insight on the business. In addition, his service on the Board of Directors provides the Company with effective, ethical and responsible leadership.

 

   

 

Key Experience: Executive Vice President — Business of Emory University since July 2017. Previously, Mr. Augostini was Senior Vice President and Chief Operating Officer of Georgetown University, where previously he served in various positions, including as Chief Financial Officer, from 2000 to 2017; a member of New York City Mayor Rudolph Giuliani’s administration in various capacities, including chief of staff to the deputy mayor for operations, director of intergovernmental affairs, and deputy budget director from 1995 to 2000; an analyst for the New York State General Assembly’s Higher Education Committee and its Ways and Means Committee in the late 1980s and early 1990s. He began his career conducting workforce and economic development research at the Nelson A. Rockefeller Institute of Government, the public policy arm of the State University of New York higher education system.

 

Key Qualifications, Attributes or Skills: Mr. Augostini’s extensive experience at senior levels of both a major university and in government enables him to provide valuable business, leadership and management insights to the Company’s Board of Directors. Mr. Augostini possesses operational, financial, management and investment expertise.

 

       

 

Mark E. Brockbank

 

     

 

María Luisa Ferré

 

 

LOGO

 

 

Director Since: 2001

Age: 66

Occupation: Former Chief Executive Officer of XL Brockbank Ltd.

Expiring Term: 2021

Independent: Yes

Committees: Compensation, Nominating and Corporate Governance

Other Public Company Directorships: None

   

 

LOGO

 

 

Director Since: 2017

Age: 54

Occupation: President and CEO of GFR Services, Inc.

Expiring Term: 2020

Independent: Yes

Committees: Audit, Nominating and Corporate Governance

Other Public Company Directorships: Popular, Inc.

 

Key Experience: Mr. Brockbank retired from active employment in November 2000. He served from 1995 to 2000 as Chief Executive of XL Brockbank Ltd., an underwriting management agency at Lloyd’s of London. He was a founder of the predecessor firm of XL Brockbank Ltd. and was a director of XL Brockbank Ltd. from 1983 to 2000.

 

Key Qualifications, Attributes or Skills: Mr. Brockbank’s service as Chief Executive of XL Brockbank Ltd. provides him with valuable entrepreneurial business, leadership and management experience, and particular knowledge of the insurance industry. He also brings significant business acumen to the Board of Directors, including a strong understanding of insurance and reinsurance risk evaluation, executive compensation and related areas.

   

 

Key Experience: President and Chief Executive Officer of GFR Services, Inc. since 1999 and, since 2001, of FRG, Inc., the holding company for GFR Media, LLC (formerly El Día, Inc.), the entity that publishes El Nuevo Día and Primera Hora, Puerto Rico newspapers. Ms. Ferré has also served as a member of the Board of Directors of GFR Media, LLC since 2003, serving as Chair from 2006 to February 2016. She is the Editor of El Nuevo Día and Primera Hora since 2006. Ms. Ferré is the President and Trustee of the Luis A. Ferré Foundation since 2003, and Trustee and Vice President of the Ferré Rangel Foundation since 1999.

 

Key Qualifications, Attributes or Skills: Ms. Ferré possesses executive leadership experience and a deep understanding of business operations as well as management and oversight skills that allow her to make significant contributions to the Board. Her deep media and publishing experience enable her to provide thoughtful insight regarding the communication needs of the Company.

 

 

 

22   W. R. Berkley Corporation


Table of Contents
 

 

    PROPOSAL 1: ELECTION OF DIRECTORS    

 

 

 

Leigh Ann Pusey

 

           

 

LOGO

 

Director Since: New Director Nominee

Age: 55

Occupation: Senior Vice President, Corporate Affairs and Communications, Eli Lilly and Company

Expiring Term: 2019

Independent: Yes

Committees: N/A

Other Public Company Directorships: None

     

 

Key Experience: Senior Vice President, Corporate Affairs and Communications, Eli Lilly and Company since June 2017. She previously served as president and chief executive officer of the American Insurance Association (AIA) from 2009 to June 2017 following several other AIA leadership positions, including chief operating officer and senior vice president for government affairs from 2000 and senior vice president of public affairs from 1997 to 2000. From 1995 to 1997, she served as director of communications for the Office of the Speaker of the U.S. House of Representatives, and from 1993 to 1994, she was the deputy director of communications for the Republican National Committee. From 1990 to 1992, she served as special assistant and then deputy assistant to the president for the White House Office of Public Liaison. She served on the board of the Insurance Institute for Highway Safety, was on the board of The George Washington Graduate School of Political Management and was a member of the U.S. Chamber of Commerce’s Committee of 100.

 

Key Qualifications, Attributes or Skills: Ms. Pusey possesses executive leadership experience and a deep understanding of the insurance business and governmental operations as well as management and oversight skills that will allow her to make significant contributions to the Board. Her experience as a past president and CEO of the AIA will enable her to provide thoughtful insight regarding the operations of the Company.

 

 

     

Directors Continuing In Office

 

 

W. Robert Berkley, Jr.

 

     

 

Ronald E. Blaylock

 

 

LOGO

 

Director Since: 2001

Age: 45

Occupation: President and Chief Executive Officer

Expiring Term: 2019

Independent: No

Committees: Executive Committee

Other Public Company Directorships: None

   

 

LOGO

 

Director Since: 2001

Age: 58

Occupation: Founder and Managing Partner of GenNx360 Capital Partners

Expiring Term: 2019

Independent: Yes

Committees: Business Ethics, Compensation, Nominating and Corporate Governance

Other Public Company Directorships: Pfizer Inc., CarMax, Inc. and Radio One, Inc.

 

Key Experience: President and Chief Executive Officer of the Company since October 2015 and Vice Chairman and President of Berkley International, LLC since May 2002 and April 2008, respectively. President and Chief Operating Officer of the Company from November 2009 to October 2015, Executive Vice President from August 2005 to November 2009, Senior Vice President — Specialty Operations from January 2003 to August 2005, and a variety of positions of increasing responsibility since September 1997. From July 1995 to August 1997, Mr. Rob Berkley was employed in the Corporate Finance Department of Merrill Lynch Investment Company. He is the son of Mr. William R. Berkley.

 

Key Qualifications, Attributes or Skills: Mr. Rob Berkley’s substantial experience in all areas of the Company’s operations, as well as his service as a Director (and prior service as Chairman of the Board) of NCCI Holdings, Inc. (the nation’s largest provider of workers’ compensation and employee injury data and statistics), on the Board of Trustees of The Institutes and prior investment banking experience, enable him to bring to the Board of Directors insightful, working knowledge of the Company’s business and the insurance industry.

 

   

 

Key Experience: Founder and Managing Partner of GenNx360 Capital Partners, a private equity buyout firm, since 2006. In 1993, Mr. Blaylock was the Founder, Chairman and Chief Executive Officer of Blaylock & Company, Inc., an investment banking firm through 2006. Prior to that, he held senior management positions with PaineWebber Group and Citicorp.

 

Key, Qualifications, Attributes or Skills: Mr. Blaylock’s founding and management of two financial services companies has provided him with valuable business, leadership and management experience. As a result, he brings substantial financial expertise to the Board of Directors. In addition, his experience on the boards of directors of other public companies enables him to bring other public company leadership, operational perspectives and experience to the Board of Directors.

 

2018 Proxy Statement   23


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    PROPOSAL 1: ELECTION OF DIRECTORS    

 

 

 

 

Mary C. Farrell

 

     

 

Jack H. Nusbaum

 

 

LOGO

 

Director Since: 2006

Age: 68

Occupation: President of the Howard Gilman Foundation

Expiring Term: 2019

Independent: Yes

Committees: Compensation (Chair), Nominating and Corporate Governance

Other Public Company Directorships: None

   

 

LOGO

 

Director Since: 1967

Age: 77

Occupation: Senior Partner, Willkie Farr & Gallagher LLP

Expiring Term: 2020

Independent: Yes

Committees: Business Ethics, Executive

Other Public Company Directorships: Cowen Group, Inc.

 

Key Experience: President of the Howard Gilman Foundation since September 2009, and a Director of Fidelity Strategic Advisor Funds since 2013. Retired in July 2005 from UBS, where she served as a Managing Director, Chief Investment Strategist for UBS Wealth Management USA and Co-Head of UBS Wealth Management Investment Strategy & Research Group.

 

Key Qualifications, Attributes or Skills: Ms. Farrell’s career in investment banking, including serving in various leadership roles at UBS, provides valuable business experience and critical insights regarding investments, finance and strategic transactions. She brings considerable financial expertise to the Board of Directors, providing an understanding of financial statements, corporate finance, executive compensation and capital markets.

 

   

 

Key Experience: Senior Partner in the international law firm of Willkie Farr & Gallagher LLP, where he has been a partner for more than the last five years and was Chairman of the firm from 1987 through 2009. Willkie Farr & Gallagher LLP is outside counsel to the Company.

 

Key Experience, Qualifications, Attributes or Skills: Mr. Nusbaum brings leadership, extensive legal, regulatory, financial and other broad-based business experience to the Board of Directors. In addition, Mr. Nusbaum’s service on the Company’s Board of Directors since its founding affords him extensive knowledge of the Company’s business, operations and culture.

 

 

Mark L. Shapiro

 

           

 

LOGO

 

Director Since: 1974

Age: 74

Occupation: Private Investor

Expiring Term: 2020

Independent: Yes

Committees: Audit (Chair), Business Ethics, Nominating and Corporate Governance, Executive

Other Public Company Directorships: Boardwalk Pipeline Partners, L.P.

     

 

Key Experience: Since September 1998, Mr. Shapiro has been a private investor. From July 1997 through August 1998, Mr. Shapiro was a Senior Consultant to the Export-Import Bank of the United States. Prior thereto, he was a Managing Director in the investment banking firm of Schroder & Co. Inc.

 

Key Experience, Qualifications, Attributes or Skills: Mr. Shapiro’s career in investment banking and finance provides valuable broad-based business experience and insights on the Company’s business. In addition, he brings considerable financial expertise to the Board of Directors, providing an understanding of accounting, financial statements and corporate finance. In addition, he has a professional working knowledge of the Company and its operations since the Company’s initial public offering in 1973, and his extensive service on the Company’s Board of Directors affords him a depth of understanding of the Company’s business, operations and culture.

     

 

24   W. R. Berkley Corporation


Table of Contents
 

 

    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

Proposal 2: Approval of the 2018 Stock Incentive Plan

On February 28, 2018, the Board of Directors adopted the 2018 Stock Incentive Plan (the “2018 Plan”), subject to the approval of our stockholders. The purpose of the 2018 Plan is to assist in attracting, retaining, motivating, and rewarding certain key employees, officers, directors, and consultants of the Company and its affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with the interests of stockholders. The 2018 Plan authorizes the award of stock-based incentives to encourage eligible employees, officers, directors, and consultants, as described below, to expend maximum effort in the creation of stockholder value.

If approved by the stockholders at the meeting, the 2018 Plan will become effective on the date of such approval and no additional grants will be made under our 2012 Stock Incentive Plan (the “2012 Plan”). The Board of Directors is recommending that our stockholders approve the 2018 Plan, the material terms of which are as described below.

Key Features of the 2018 Plan

 

LOGO

The 2018 Plan contains several key features that enhance our commitment to our stockholders’ long-term interests and sound corporate governance:

 

    No “Evergreen” Feature. The 2018 Plan has a fixed number of shares available for grant that will not automatically increase because of an “evergreen” feature; stockholder approval is required to issue any additional shares, allowing our stockholders to have direct input on our equity compensation program.

 

    No Dividend or Dividend Equivalent Rights on Unearned Awards. Unless expressly provided in an award agreement, under the 2018 Plan, no dividends and dividend equivalents may be paid in respect of unvested or unearned awards, unless and until such awards become vested or earned.

 

    No Repricing without Stockholder Approval. The 2018 Plan expressly prohibits repricing of awards, including stock options and stock appreciation rights, without prior stockholder approval.

 

    Limits on Share “Recycling.” The 2018 Plan includes a prohibition against re-granting shares used to pay stock option exercise prices or stock appreciation right base prices or shares withheld to pay taxes on awards.

 

    Minimum Vesting Period. Awards under the 2018 Plan generally must vest over a period of not less than one year from the date of grant.

 

    Minimum Holding Period. Awards to our named executive officers under the 2018 Plan generally must be held by such named executive officer for a period of not less than one year from the date such award vests or is exercised.

 

    Limited Term. The 2018 Plan sets a 10-year maximum term for stock options and will terminate on May 31, 2028.

 

    No Transferability. Awards granted under the 2018 Plan may not be transferred for value or consideration.

 

2018 Proxy Statement   25


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

 

 

    No Liberal Change in Control Definition. The 2018 Plan contains a definition of change in control whereby potential acceleration of awards will only occur in the event of an actual change in control transaction.

 

    Double-Trigger Vesting Upon a Change in Control. The 2018 Plan provides that the vesting of awards that are assumed or substituted in connection with a change in control only accelerates as a result of the change in control if a participant experiences a qualifying termination within 18 months following such change in control.

 

    No Discounted Stock Options or Stock Appreciation Rights. The 2018 Plan requires that stock option exercise prices and stock appreciation right base prices to be at least the fair market value of the Company’s common stock on the date of grant.

 

    No Automatic Grants. The 2018 Plan does not provide for automatic grants to any participant.

 

    Independent Compensation Committee. Our Compensation Committee, which will administer the 2018 Plan, consists entirely of independent directors.

 

    Awards Subject to Forfeiture/Clawback. Awards under the 2018 Plan will be subject to recoupment under certain circumstances.

 

    No Tax Gross-Ups. The 2018 Plan does not provide for any tax gross-ups.

 

    Limitation on Awards to Individual Participants. The 2018 Plan contains limits on the number of awards that may be granted to individual participants in a given calendar year.

Key Data

 

LOGO

The following table includes information regarding outstanding awards and shares of common stock available for future awards under 2012 Plan as of April 4, 2018 (and without giving effect to approval of the 2018 Plan under this Proposal 2):

 

   

 

2012 Plan

 

 

 

Total shares underlying outstanding stock options

 

 

 

 

 

 

 

 

 

 

 

Total shares subject to outstanding unvested time-based restricted stock unit awards

 

 

 

 

 

 

2,718,394

 

 

 

 

 

Total shares subject to outstanding unvested performance-based restricted stock unit awards (assuming a maximum payout)

 

 

 

 

 

 

701,049

 

 

 

 

 

Total shares subject to vested restricted stock unit awards (including performance-based awards) that have been mandatorily deferred pursuant to their terms(1)

 

 

 

 

 

 

4,763,800

 

 

 

 

 

Total shares currently available for grant (assuming a maximum payout for performance-based awards)

 

 

 

 

 

 

2,858,630

 

 

 

 

(1)  After vesting, settlement of certain RSUs is deferred (on a mandatory basis) and shares are not delivered until after the executive’s separation from service with the Company. This mandatory deferral applies to our NEOs and other senior executives (a group of approximately 80 in total).

 

26   W. R. Berkley Corporation


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

The Company carefully monitors our annual burn rate and total dilution by granting only the appropriate number of stock-based awards that it believes are necessary to attract, reward and retain employees, non-employee directors and other service providers. Burn rate, or run rate, refers to how fast a company uses the supply of shares authorized for issuance under its stock incentive plan. Over the last three years, we have maintained an average burn rate of only 0.64% of shares of common stock outstanding per year. Dilution measures the degree to which our stockholders’ ownership has been diluted by stock-based compensation awarded under our stock plans. The following table shows our burn rate and dilution percentages over the past three years:

 

 

  Key Equity Metric

 

  

 

2017

 

    

 

2016

 

    

 

2015

 

 

 

Stock Options Granted

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

Time-Based Full Value Awards Granted(1)

 

  

 

 

 

 

714,626

 

 

 

 

  

 

 

 

 

846,091

 

 

 

 

  

 

 

 

 

817,519

 

 

 

 

 

Potential Maximum Payout of Performance-Based Full Value Awards Granted(2)

 

  

 

 

 

 

141,358

 

 

 

 

  

 

 

 

 

154,438

 

 

 

 

  

 

 

 

 

179,753

 

 

 

 

 

Performance-Based Full Value Awards Vested

 

  

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

Total Time-Based Awards Granted and Performance-Based Awards Vested

 

  

 

 

 

 

714,626

 

 

 

 

  

 

 

 

 

846,091

 

 

 

 

  

 

 

 

 

817,519

 

 

 

 

 

Weighted-Average Shares of Common Stock Outstanding During the Fiscal Year

 

  

 

 

 

 

124,843,240

 

 

 

 

  

 

 

 

 

122,650,997

 

 

 

 

  

 

 

 

 

124,040,313

 

 

 

 

 

Annual Burn Rate(3)

 

  

 

 

 

 

0.57

 

 

 

  

 

 

 

 

0.69

 

 

 

  

 

 

 

 

0.66

 

 

 

 

Three-Year Average Burn Rate

 

  

 

 

 

 

0.64

 

 

 

     

 

Shares of Common Stock Outstanding at Fiscal Year End(4)

 

  

 

 

 

 

126,362,155

 

 

 

 

  

 

 

 

 

121,193,599

 

 

 

 

  

 

 

 

 

123,307,837

 

 

 

 

 

Dilution(5)

 

  

 

 

 

 

0.66

 

 

 

  

 

 

 

 

0.77

 

 

 

  

 

 

 

 

0.71

 

 

 

(1)  Time-based full value awards granted during fiscal years 2017, 2016 and 2015 and subsequently forfeited are included here. The number of time-based full value awards granted in each of the last three fiscal years, but subsequently forfeited, was: 2017: 10,450; 2016: 64,603; and 2015: 111,271.
(2)  Performance-based awards granted during fiscal years 2017, 2016, and 2015 and subsequently forfeited are included here. No performance-based awards granted in each of the last three fiscal years have been forfeited. The actual number of shares awarded is adjusted to between zero and 110% of the target award amount based upon achievement of pre-determined objectives. The amounts that will actually vest with respect to these awards are not yet determinable. The number of shares of common stock subject to performance-based equity awards outstanding at the end of the last three fiscal years (assuming target payout) was: 2017: 128,507; 2016: 140,398; and 2015: 163,412.
(3)  Burn rate is calculated by dividing the number of shares of common stock subject to time-based equity awards granted during the year and performance-based equity awards vested during the year by the weighted average number of shares of common stock outstanding during the year.
(4) Including shares held by a grantor trust established by the Company.
(5)  Dilution is calculated by dividing (i) the number of shares of common stock subject to equity awards outstanding at the end of the fiscal year (assuming a maximum payout for performance-based awards) by (ii) the sum of the number of shares of common stock outstanding at the end of the fiscal year and the number of shares of common stock subject to unvested equity awards outstanding at the end of the fiscal year (assuming a maximum payout for performance-based awards).

 

2018 Proxy Statement   27


Table of Contents

 

    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

 

Summary of the 2018 Plan

 

LOGO

The following description of the 2018 Plan is only a summary of certain provisions thereof and is qualified in its entirety by reference to its full text, which is attached as Annex B to this proxy statement.

Purpose

 

LOGO

The purpose of the 2018 Plan is to assist in attracting, retaining, motivating, and rewarding certain key employees, officers, directors, and consultants of the Company and its affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of such stockholders.

Administration

 

LOGO

The 2018 Plan will be administered by the Board of Directors or by a committee as may be appointed by our Board of Directors, which is intended to consist entirely of two or more “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and which is referred to in this summary as the “Committee.” It is intended that the Compensation Committee of the Board of Directors will serve as the Committee for the 2018 Plan; however, the 2018 Plan permits the Committee to delegate its authority to one or more persons with respect to awards that are not intended to be exempt from Section 16(b) of the Exchange Act. Under the terms of the 2018 Plan, the Committee can make rules and regulations and establish such procedures for the administration of the 2018 Plan as it deems appropriate. Any determination made by the Committee under the 2018 Plan will be made in the sole discretion of the Committee and such determinations will be final and binding on all persons.

General

 

LOGO

Awards granted under the 2018 Plan may be in the form of:

 

    stock options,

 

    stock appreciation rights,

 

    restricted stock,

 

    restricted stock units,

 

    performance awards, and

 

    other stock-based awards.

No new awards may be made under the 2018 Plan on or after the tenth anniversary of the 2018 Plan’s effective date, May 31, 2018.

 

28   W. R. Berkley Corporation


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

Shares and Other Limits

 

LOGO

The aggregate number of shares of our common stock that may be subject to awards under the 2018 Plan cannot exceed (i) 6,500,000, plus (ii) the number of shares of stock authorized for issuance or transfer under the 2012 Plan that are not subject to awards outstanding or previously exercised or settled as of the effective date of the 2018 Plan plus (iii) to the extent that an award outstanding under the 2012 Plan or the 2003 Stock Incentive Plan (the “2003 Plan”) as of the effective date of the 2018 Plan expires or is canceled, forfeited, settled in cash, or otherwise terminated without a delivery to the grantee of the full number of shares to which the award related, the number of shares that are undelivered on a one-for-one basis, in the case of the 2003 Plan, and on a one-for-2.47 basis, in the case of awards under the 2012 Plan. During any calendar year, no participant may be granted awards of options, stock appreciation rights, and performance awards covering in excess of 2,250,000 shares. All shares of common stock reserved for issuance under the 2018 Plan may be granted pursuant to incentive stock options. For each share of stock delivered pursuant to any awards other than options and stock appreciation rights, the number of shares of common stock available for delivery under the 2018 Plan will be reduced by 2.47 for each share. These share limits are in all cases subject to adjustment in certain circumstances to prevent dilution or enlargement. For shares underlying awards that expire or are canceled, forfeited, settled in cash or otherwise terminated without a delivery to the participant of the full number of shares to which the award related, the undelivered shares will again be available for the grant of additional awards within the limits provided by the 2018 Plan. Shares withheld by or delivered to us to satisfy the exercise price of options or stock appreciation rights or tax withholding obligations with respect to any award under the 2018 Plan will be deemed to have been issued under the 2018 Plan and not available for issuance in connection with future awards. The closing price of the shares of our common stock on the NYSE on April 4, 2018 was $73.25 per share.

Eligibility

 

LOGO

The 2018 Plan provides that awards may be granted to the directors, officers and employees of the Company and its affiliates, as well as consultants and advisors who provide substantial services to the Company and its affiliates, except that incentive stock options may be granted only to employees of the Company and its subsidiaries or any parent corporation. Awards may also be made to any person who has been offered employment or a consultancy by the Company or any of its affiliates; provided that such prospective employee or consultant may not receive any payment or exercise any right relating to the award until such person has commenced employment or services with the Company or its affiliates. As of April 4, 2018, there are approximately 6,821 directors, officers and employees who would be eligible to participate in the 2018 Plan if it were effective on such date. Our current executive officers named in the Summary Compensation Table under the caption “Executive Compensation” herein and each of our directors are among the individuals eligible to receive awards under the 2018 Plan.

Awards

 

LOGO

Stock Options. Subject to the terms and provisions of the 2018 Plan, options to purchase our common stock may be granted to eligible individuals at any time and from time to time as determined by the

 

2018 Proxy Statement   29


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

 

Committee. Options may be granted as incentive stock options, which are intended to qualify for favorable treatment to the recipient under federal tax law, or as non-qualified stock options, which do not qualify for such favorable tax treatment. Subject to the limits provided in the 2018 Plan, the Committee will determine the number of options granted to any recipient. Each option grant will be evidenced by a stock option agreement that specifies the option exercise price (which may not be less than 100%, or, in the case of incentive stock options granted to a 10% or greater stockholder, 110%, of the fair market value of a share of our common stock on the date of grant), whether the options are intended to be incentive stock options or non-qualified stock options, the duration of the options, the number of shares to which the options pertain and such additional limitations, terms and conditions as the Committee may determine.

Any option granted under the 2018 Plan will expire no later than ten years from the date of its grant, or, in the case of incentive stock options granted to a 10% or greater stockholder, five years from the date of grant. The method of exercising an option granted under the 2018 Plan is set forth in the 2018 Plan, as are the general provisions regarding the vesting and exercisability of options.

Stock Appreciation Rights. A stock appreciation right entitles the holder to receive from us upon exercise an amount equal to the excess, if any, of the aggregate fair market value of a specified number of shares of our common stock that are the subject of such stock appreciation right over the aggregate base price for the underlying shares. The 2018 Plan provides that the base price of a stock appreciation right may not be less than 100% of the fair market value of a share of our common stock on the date of grant.

Each stock appreciation right will be evidenced by an award agreement that specifies the base price, the number of shares to which the stock appreciation right pertains and such additional limitations, terms and conditions as the Committee may determine. The Company may pay the amount to which the participant exercising stock appreciation rights is entitled by delivering shares of our common stock, cash or a combination of stock and cash as set forth in the award agreement. The method of exercising a stock appreciation right granted under the 2018 Plan is set forth in the 2018 Plan, as are the general provisions regarding the vesting and exercisability of stock appreciation rights.

Restricted Stock. The 2018 Plan provides for the award of shares of our common stock that are subject to forfeiture and restrictions on transferability as set forth in the 2018 Plan and as may be otherwise determined by the Committee. Such restricted stock awards may or may not be subject to performance conditions. Except for these restrictions and any others imposed by the Committee, the recipient of a grant of restricted stock will have rights of a stockholder with respect to the restricted stock, including the right to vote the restricted stock and to receive all dividends and other distributions paid or made with respect to the restricted stock. During the restriction period set by the Committee, the recipient may not sell, transfer, pledge, exchange or otherwise encumber the restricted stock.

Restricted Stock Units. Restricted stock units are not shares of our common stock and do not entitle the recipients to the rights of a stockholder, but rather represent the right to receive one share of our common stock, or the cash value thereof, on a specified settlement date. Restricted stock units granted under the 2018 Plan may or may not be subject to performance conditions. Restricted stock units will be settled in cash or shares of our common stock, in an amount based on the fair market value of our common stock on the settlement date.

 

30   W. R. Berkley Corporation


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

Performance Awards. The 2018 Plan provides that performance awards may be granted in the form of restricted stock, restricted stock units or other stock-based awards, in each case having a value that is subject to the attainment of specified performance objectives. Such performance objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of an individual participant, the participant’s employer, or an affiliate, division, department, business unit, or function of or within the Company or the participant’s employer, or any combination thereof. Performance objectives may be measured on an absolute or relative basis. Relative performance may be measured by comparison to a peer company or group of peer companies, by comparison between one or more affiliates, divisions, departments, business units or functions or by comparison to a financial market index or indices.

The 2018 Plan provides for the Committee to adjust goals and the related minimum acceptable level of achievement if, in its sole judgment, events or transactions have occurred after the applicable date of grant of a performance award that are unrelated to the performance of the Company or participant and result in a distortion of the performance objectives or the related minimum acceptable level of achievement. Potential transactions or events giving rise to adjustment include, but are not limited to, (i) restructurings, discontinued operations, extra-ordinary items or events, and other unusual or nonrecurring charges; (ii) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management; and (iii) a change in tax law or accounting standards required by generally accepted accounting principles.

Other Stock-Based Awards. The 2018 Plan also provides for the award of shares of our common stock and other awards that are valued by reference to our common stock, including unrestricted stock, stock bonuses and dividend equivalents. Awards of unrestricted stock may only be granted in lieu of compensation that would otherwise be payable to the participant.

Fair Market Value. For purposes of the 2018 Plan, the fair market value of our common stock as of any given date means the average of the high and low prices reported on the principal national securities exchange (currently, the NYSE) on which our common stock is listed and traded on such date (or if such date is not a trading day for such exchange, the most recent trading day).

Change in Control. Pursuant to the 2018 Plan, the vesting, payment, purchase or distribution of any award that is assumed or substituted in connection with a change in control will not be accelerated by reason of the change in control for any participant unless the participant’s employment is involuntarily terminated (or, in the case of a non-employee director of the Company, if the non-employee director’s service on the Board terminated in connection with or as a result of a change in control) during the 18-month period commencing on the change in control. Any award not subject to performance-based vesting conditions that is held by a participant whose employment is involuntarily terminated during the 18-month period commencing on a change in control will immediately vest as of the date of such termination. With respect to an award subject to performance-based vesting conditions that is held by a participant whose employment is involuntarily terminated during the 18-month period commencing on a change in control, a prorated portion of such award will become vested based on actual performance through the date of the participant’s termination.

 

2018 Proxy Statement   31


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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

 

For purposes of the 2018 Plan, “change in control” generally means:

 

    an acquisition (other than directly from the Company) by an individual, entity or group (excluding the Company or an employee benefit plan of the Company or a corporation controlled by the Company’s stockholders, Mr. Wm. Berkley and his family members and affiliates and an underwriter temporarily holding securities pursuant to an offering of such securities) of 25% or more of the Company’s stock or voting securities;

 

    a change in a majority of the current Board of Directors (excluding any persons approved by a vote of at least a majority of the current Board of Directors other than in connection with an actual or threatened proxy contest); and

 

    a reorganization, merger, sale, consolidation, amalgamation or share exchange, or the sale or disposition of all or substantially all of the assets of the Company, other than such a transaction following which (i) all or substantially all of the stockholders of the Company own, directly or indirectly, more than 50% of the stock or voting securities of the Company resulting from the transaction or the ultimate parent entity of such company, (ii) at least a majority of the board of directors of the resulting company or ultimate parent entity were members of the Board of Directors prior to the transaction and (iii) no person (other than Mr. Wm. Berkley and his family members and affiliates or an employee benefit plan of the surviving company or ultimate parent entity) owns 25% or more of the stock or voting securities of the resulting company or ultimate parent entity.

Termination of Employment/Services. Unless otherwise determined by the Committee, options and stock appreciation rights that are not vested as of a participant’s termination are forfeited, and options and stock appreciation rights that are vested may be exercised for a limited period of 90 days following the holder’s termination of employment (but in no event longer than expiration of the original term) for any reason.

Clawback/Restrictive Covenants. All awards granted under the 2018 Plan will be subject to any incentive compensation clawback or recoupment policy currently in effect or as may be adopted by the Board of Directors. In addition, the Committee may subject any award to forfeiture or repayment in the event that the participant breaches post-termination restrictions.

Minimum Vesting Period. Except as provided below, no award granted under the 2018 Plan may vest over a period that is less than one year from the date of grant. The foregoing minimum vesting period will not apply: (i) to awards granted in payment of or exchange for an equivalent amount of salary, bonus or other earned cash compensation (including performance awards), and (ii) to awards involving an aggregate number of shares of our common stock not in excess of 5% of the aggregate number of shares of our common stock that may be delivered in connection with awards under the 2018 Plan.

Minimum Holding Period. The shares of our common stock underlying any award granted under the 2018 Plan to our named executive officers, or any other participants designated by the Committee, must be held by such participant for period of not less than 12 months, as measured from the date such award vests or is exercised. The minimum holding period does not apply in the case of a participant’s death, disability, retirement or other any other termination of employment events prescribed by the Committee.

 

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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

Effective Date; Amendment to 2018 Plan

 

LOGO

The 2018 Plan is effective as of the date of our Annual Meeting, assuming approval by the stockholders. The Board of Directors or the Committee may amend, terminate or suspend the 2018 Plan at any time, but no amendment, termination or suspension may be made that would materially impair the rights of the participant with respect to a previously granted award without such participant’s consent, except such an amendment made to comply with applicable law or stock exchange rules or to prevent adverse tax or accounting consequences to the Company or participants under Section 409A of the Code or accounting rules. The 2018 Plan specifically provides that awards may not be repriced without stockholder approval. In addition, no such amendment may be made without the approval of the Company’s stockholders to the extent that such approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which our stock is listed.

Federal Income Tax Consequences

 

LOGO

The following is a summary of certain U.S. federal income tax consequences of awards made under the 2018 Plan, based upon the laws in effect on the date of this proxy statement. The discussion is general in nature and does not take into account a number of considerations that may apply in light of the circumstances of a particular participant under the 2018 Plan. The income tax consequences under applicable state and local tax laws may not be the same as under U.S. federal income tax laws.

Non-Qualified Stock Options. A participant will not recognize taxable income at the time of a grant of a non-qualified stock option, and the Company will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and be subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and the Company generally will be entitled to a corresponding deduction.

Incentive Stock Options. A participant will not recognize taxable income at the time of grant of an incentive stock option and will not recognize taxable income (except for purposes of the alternative minimum tax) upon the exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date the option was exercised, any gain or loss arising from a subsequent disposition of such shares will be taxed as a long-term capital gain or loss, and the Company will not be entitled to any deduction. If, however, such shares are disposed of within such two or one-year periods, then in the year of such disposition, the participant will recognize compensation taxable as ordinary income equal to the excess of the lesser of the amount realized upon such disposition and the fair market value of such shares on the date of exercise over the exercise price, and the Company generally will be entitled to a corresponding deduction. The excess of the amount realized through the disposition date over the fair market value of the stock on the exercise date will be treated as a capital gain.

Stock Appreciation Rights. A participant will not recognize taxable income at the time of a grant of a stock appreciation right, and the Company will not be entitled to a tax deduction at such time. Upon exercise, a

 

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    PROPOSAL 2: APPROVAL OF THE 2018 STOCK INCENTIVE PLAN     

 

 

 

participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) equal to the fair market value of any shares delivered and the amount of cash paid by the Company, and the Company generally will be entitled to a corresponding deduction.

Restricted Stock. A participant will not recognize taxable income at the time of a grant of shares of restricted stock, and the Company will not be entitled to a tax deduction at such time, unless the participant makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”) to be taxed at such time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of the grant equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. The Company is entitled to a corresponding deduction at the time the ordinary income is recognized by the participant, except to the extent the deduction limits of Section 162(m) of the Code apply. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the restrictions lapse will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee), rather than dividend income. The Company will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.

Restricted Stock Units. A participant will not recognize taxable income at the time of a grant of a restricted stock unit, and the Company will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of settlement of the award equal to the fair market value of any shares delivered and the amount of cash paid by the Company, and the Company will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.

The foregoing general tax discussion is intended for the information of stockholders considering how to vote with respect to this proposal and not as tax guidance to participants in the 2018 Plan. Participants are strongly urged to consult their own tax advisors regarding the federal, state, local, foreign and other tax consequences to them of participating in the 2018 Plan.

New Plan Benefits

 

LOGO

The grant of awards under the 2018 Plan is entirely within the discretion of the Compensation Committee, and we cannot forecast the extent to which such grants will be made in the future.

The Board of Directors unanimously recommends a vote “FOR” the approval of the 2018 Plan.

 

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    PROPOSAL 3: NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION    

 

 

Proposal 3: Non-Binding Advisory Vote on Executive Compensation

We submit to our stockholders this non-binding advisory vote on the compensation of our NEOs, which gives stockholders a mechanism to convey their views about our compensation programs and policies. Although your vote on executive compensation is not binding on the Board of Directors or the Company, the Board of Directors values the views of our stockholders. The Board of Directors and Compensation Committee will review the results of the non-binding vote and consider them in addressing future compensation policies and decisions. In response to feedback from our stockholders, the Company has made changes to its executive compensation program over the preceding several years as described above under the heading “Proxy Summary — Stockholder Outreach.”

We believe that our executive compensation programs create a strong competitive advantage in the market both for retaining talent and for creating long-term stockholder value. They align the interests of our NEOs with those of our stockholders, and reward achievement of our strategic objectives. See “Compensation Discussion and Analysis — Objectives and Design of the Executive Compensation Program” below.

A substantial majority of our NEOs’ compensation is linked to Company performance and stockholder value over the long term.

 

    Because of the cyclical nature of our industry and the need to maintain a long-term perspective, we use a non-formulaic performance-based annual cash incentive program, which provides the Compensation Committee with flexibility to respond to market conditions and permits the application of judgment that is necessary to avoid creating incentives for our NEOs to engage in short-term oriented behavior that is detrimental to long-term value creation.

 

    RSUs for our NEOs are performance-based. Additionally, for our NEOs and certain other senior executives, Restricted Stock Unit awards contain a mandatory deferral feature that delays settlement and delivery of shares until the executive’s separation from service with the Company, which further promotes a long term perspective on performance.

 

    Our LTIP program promotes our long-term approach to compensation incentives, as well as our emphasis on pay for performance, because Long-Term Incentive Plan awards remain outstanding over a five-year period and have value only to the extent that the Company achieves growth in book value per share.

 

    Consistent with good corporate governance practices, we do not provide our NEOs with employment agreements or cash severance agreements.

The non-binding advisory vote on this resolution is not intended to address any specific element of compensation; rather, the vote is intended to provide our stockholders with the opportunity to approve, on an aggregate basis and in light of our corporate performance, the compensation program for our NEOs as described in this proxy statement. The following resolution will be submitted for a stockholder vote at the Annual Meeting:

“RESOLVED, that the stockholders of the Company approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers listed in the 2017 Summary Compensation Table included in the proxy statement for the 2018 Annual Meeting, as such compensation is disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the section titled “Compensation Discussion and Analysis,” as well as the compensation tables and other narrative executive compensation disclosures thereafter.”

The Board of Directors unanimously recommends a vote “FOR” this resolution.

 

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    PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED  PUBLIC ACCOUNTING FIRM    

 

 

 

Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

KPMG LLP has been appointed by the Board of Directors as the independent registered public accounting firm to audit the financial statements of the Company for the fiscal year ending December 31, 2018. The appointment of this firm was recommended to the Board of Directors by the Audit Committee. The Board of Directors is submitting this matter to a vote of stockholders in order to ascertain their views. If the appointment of KPMG LLP is not ratified, the Board of Directors will reconsider its action and will appoint auditors for the 2018 fiscal year without further stockholder action. Further, even if the appointment is ratified by stockholder action, the Board of Directors may at any time in the future in its discretion reconsider the appointment without submitting the matter to a vote of stockholders.

It is expected that representatives of KPMG LLP will attend the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate stockholder questions.

Information on KPMG’s fees for 2017 and our pre-approval policy for services provided by the Company’s independent auditors is provided under “Audit and Non-Audit Fees” on page 88.

The Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of KPMG LLP.

 

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    EXECUTIVE OFFICERS    

 

 

Executive Officers

Each executive officer who does not also serve as a director is listed below. The executive officers are elected by the Board of Directors annually and serve at the pleasure of the Board of Directors. There are no arrangements or understandings between the executive officers and any other person pursuant to which the executive officers were selected. The information is provided as of April 19, 2018.

 

 

  Name

 

  

 

Age

 

 

 

Position

 

 

  Ira S. Lederman

 

  

 

64

 

 

 

Executive Vice President and Secretary

 

 

  Lucille T. Sgaglione

 

  

 

68

 

 

 

Executive Vice President

 

 

  James G. Shiel

 

  

 

58

 

 

 

Executive Vice President — Investments

 

 

  Richard M. Baio

 

  

 

49

 

 

 

Senior Vice President — Chief Financial Officer and Treasurer

 

 

  Matthew M. Ricciardi

 

  

 

50

 

 

 

Senior Vice President — General Counsel

 

Ira S. Lederman has served as Corporate Secretary since November 2001, as a Senior Vice President from January 1997 to June 2015 and as an Executive Vice President since June 2015. He was also General Counsel from November 2001 to May 2015. He joined the Company in 1983.

Lucille T. Sgaglione has served as Executive Vice President of the Company since December 2015. She joined the Company in 2010 as a Senior Vice President working with several of the Company’s operating units and has over 25 years of senior leadership experience in the commercial property casualty insurance industry.

James G. Shiel has served as Executive Vice President — Investments of the Company since June 2015. Previously, he was Senior Vice President — Investments from January 1997 to June 2015 and Vice President — Investments from January 1992. Since February 1994, Mr. Shiel has been President of Berkley Dean & Company, Inc., a subsidiary of the Company, which he joined in 1987.

Richard M. Baio has served as Senior Vice President — Chief Financial Officer and Treasurer since May 2016. Previously he was Vice President and Treasurer since joining the Company in May 2009. He has over 25 years of experience in the insurance and financial services industry, having served prior to joining the Company as a director in Merrill Lynch & Co.’s financial institutions investment banking group and as a partner in Ernst & Young’s insurance practice.

Matthew M. Ricciardi has served as Senior Vice President — General Counsel since joining the Company in May 2015. Previously, he served as Chief Counsel, General Corporate from 2013 to 2015, and as Chief Counsel, Public Company & Corporate Law from 2008 to 2013, of MetLife, Inc. From 1995 to 2008, Mr. Ricciardi was with the New York office of the law firm Dewey & LeBoeuf and its predecessor firm, LeBoeuf, Lamb, Greene & MacRae LLP, where he was a partner from 2001 to 2008.

 

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    CORPORATE GOVERNANCE AND BOARD MATTERS    

 

 

 

Corporate Governance and Board Matters

Highlights

 

LOGO

 

        Majority Voting for Directors
        Majority of Independent Directors: 8 of 10 including new director nominee
        Separate Chairman and CEO
        Diversified Tenure of Directors balances board refreshment with benefit of experience of overseeing the Company over the full insurance cycle
        Regular Executive Sessions of Independent Directors
        Annual Board and Committee Self-Evaluations
        Independent Compensation Consultant Retained by Compensation Committee
        Risk Oversight by Full Board and Committees
        Enterprise Risk Management Committee: Management committee reports periodically to the Board
        Rigorous Stock Ownership Requirements for Executives and Directors
        Anti-Hedging Policy
        Anti-Pledging Policy for shares satisfying NEOs’ ownership requirement
        Compensation Clawback for long-term compensation vehicles
        Annual Equity Grant to Directors is a substantial portion of their compensation
        Statement of Business Ethics for the Board of Directors
        Robust Investor Outreach Program

Our Board of Directors is committed to sound and effective corporate governance practices. Accordingly, our Board of Directors has adopted written Corporate Governance Guidelines, which address, among other things:

 

   

identification of director candidates;

 

   

director qualification (including independence) standards;

 

   

director responsibilities;

 

   

director access to management and independent advisors;

 

   

employees, officer or other interested party communications with non-management members of the board of directors;

 

   

director compensation;

 

   

director orientation and continuing education;

 

   

director election procedures;

 

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management succession; and

 

   

annual performance evaluation of the Board of Directors.

Our Corporate Governance Guidelines are available on our website at www.wrberkley.com.

Director Independence. The Board of Directors is currently composed of nine directors and is expected to be ten following the election of Ms. Pusey at the 2018 Annual Meeting, all of whom, other than Messrs. Wm. Berkley and Rob Berkley, have been determined by the Board of Directors to be independent in accordance with applicable New York Stock Exchange (“NYSE”) corporate governance rules and not to have a material relationship with the Company which would impair their independence from management or otherwise compromise their ability to act as an independent director.

In making its determination with respect to Mr. Nusbaum, the Board of Directors considered the relevant facts and circumstances of Mr. Nusbaum’s business and personal relationships with Mr. Wm. Berkley, including (1) that Mr. Nusbaum is a Senior Partner in the international law firm of Willkie Farr & Gallagher LLP (“Willkie”), which serves as legal counsel to the Company, and (2) Mr. Nusbaum’s long service on the Board of Directors of the Company, his previous service on the board of directors of other companies affiliated with Mr. Wm. Berkley, and his personal relationship with Mr. Wm. Berkley over such time.

The Board of Directors determined that Mr. Nusbaum be classified as an independent director, based on (1) the relative insignificance of the Company’s annual legal fees paid to Willkie, representing less than 0.1% of Willkie’s total annual revenue (including that such fees fall below the NYSE’s materiality threshold); (2) Mr. Nusbaum’s reputation and professional background evidencing his independent nature, and particularly Mr. Nusbaum’s history of acting independently of Company management; and (3) Mr. Nusbaum’s personal financial substance and lack of economic dependence on Mr. Wm. Berkley and the Company. The Board of Directors also noted that Mr. Nusbaum did not have any transaction or other relationship that precludes a determination of independence under the specific tests in Section 303A.02(b) of the NYSE rules.

Board Committees

 

LOGO

The Board has five standing committees: Audit, Business Ethics, Compensation, Nominating and Corporate Governance and Executive. The charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are available on our website at www.wrberkley.com. The committees’ membership and leadership are discussed on pages 20-24 .

Audit Committee. The Audit Committee is appointed by the Board of Directors to assist the Board of Directors in monitoring:

 

    the integrity of the financial statements of the Company;

 

    the independent auditors’ qualifications and independence;

 

    the performance of the Company’s internal audit function and independent auditors; and

 

    compliance by the Company with legal and regulatory requirements.

The Audit Committee has also adopted procedures to receive, retain and treat any complaints received regarding accounting, internal accounting controls or auditing matters and provide for the anonymous, confidential submission of concerns regarding these matters.

 

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Each member of the Audit Committee is independent under the rules of the Securities and Exchange Commission (the “SEC”) and the NYSE. The Board of Directors has identified Mr. Shapiro as a current member of the Audit Committee who meets the definition of an “audit committee financial expert” established by the SEC.

The Audit Committee has determined to engage KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2018 and is recommending that our stockholders ratify this appointment at the Annual Meeting. See Proposal 4, Ratification of Appointment of Independent Registered Public Accounting Firm on page 36 of this proxy statement.

The report of our Audit Committee is found on page 87 of this proxy statement.

Compensation Committee. The Compensation Committee has overall responsibility for discharging the Board of Directors’ responsibilities relating to the compensation of the Company’s senior executive officers and directors.

Each member of the Compensation Committee is independent under the rules of the NYSE, is a “non-employee director,” as defined in Section 16 of the Securities Exchange Act of 1934, and is an “outside director,” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

The report of our Compensation Committee on executive compensation is found on page  75 of this proxy statement.

Compensation Consultant. During 2017, the Compensation Committee retained the services of an external executive compensation consultant, Meridian Compensation Partners, LLC (“Meridian”). The mandate of the external compensation consultant is to serve the Company and work for the Compensation Committee in its review of executive and director compensation practices, including the competitiveness of pay levels, executive compensation design issues, market trends, and technical considerations. The nature and scope of services rendered by the external compensation consultant on the Compensation Committee’s behalf includes:

 

    competitive market pay analyses, including proxy data studies, board of directors pay studies, and market trends;

 

    ongoing support with regard to the latest relevant regulatory, technical, and/or accounting considerations impacting compensation and benefit programs;

 

    assistance with the redesign of any compensation or benefit programs, if desired/needed; and

 

    preparation for and attendance at selected Compensation Committee meetings.

The Compensation Committee did not direct the external compensation consultant to perform the above services in any particular manner or under any particular method. The Compensation Committee has the final authority to hire and terminate the external compensation consultant, and the Compensation Committee evaluates the external compensation consultant periodically.

In February 2018, the Compensation Committee assessed the independence of Meridian pursuant to SEC regulations, considering various factors bearing on adviser independence, including the six factors

 

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mandated by the SEC rules. The Compensation Committee concluded that Meridian is independent from the Company’s management and that no conflict of interest exists that would prevent Meridian from independently representing the Compensation Committee. The Compensation Committee also reviewed and was satisfied that there was no business or personal relationships between members of the Compensation Committee and the individuals at Meridian supporting the Compensation Committee. The Company does not engage Meridian for any services other than its services to the Compensation Committee.

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee was formed to assist the Board of Directors in:

 

    identifying individuals qualified to become members of the Board of Directors (consistent with criteria approved by the Board of Directors);

 

    recommending that the Board of Directors select the director nominees for the next annual meeting of stockholders or for other vacancies on the Board of Directors;

 

    overseeing the evaluation of the Board of Directors and management;

 

    reviewing the corporate governance guidelines and the corporate code of ethics; and

 

    generally advising the Board of Directors on corporate governance and related matters.

All of the members of the Nominating and Corporate Governance Committee are considered independent under the rules of the NYSE. The chair of the Nominating and Corporate Governance Committee is selected by rotation among the chair of the Audit Committee, the chair of the Compensation Committee and the non-management member of the Executive Committee who does not already chair another committee.

Identification of Director Candidates. The Committee may identify director candidates through the advice and assistance of internal and external advisors as it deems appropriate, and has the sole authority to retain and terminate any search firm to be used to identify director candidates on behalf of the Company.

Qualifications of Director Candidates. The Company’s Corporate Governance Guidelines (the “Guidelines”) set forth certain qualifications and specific qualities that candidates should possess. In accordance with the Guidelines, the Nominating and Corporate Governance Committee, in assessing potential candidates, considers their independence, business, strategic and financial skills and other experience in the context of the needs of the Board of Directors as a whole, as well as a director’s service on the boards of directors of other public companies. The Guidelines further state that directors should:

 

    bring to the Company a range of experience, knowledge and judgment;

 

    have relevant business or other appropriate experience;

 

    maintain an acceptable level of attendance, preparedness and participation with respect to meetings of the Board of Directors and its committees; and

 

    demonstrate competence in one or more of the following areas: accounting or finance, business or management experience, insurance or investment industry knowledge, crisis management, or leadership and strategic planning.

In identifying and recommending director nominees, the Nominating and Corporate Governance Committee members may take into account such factors as they determine appropriate and will assess the

 

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qualifications of potential nominees and any potential conflicts with the Company’s interests. The Nominating and Corporate Governance Committee will also assess the contributions of the Company’s incumbent directors in connection with their potential re-nomination.

The Nominating and Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees. In accordance with the Guidelines, when considering the overall composition of the Board of Directors, the Nominating and Corporate Governance Committee seeks a diverse and appropriate balance of members who have the experiences, qualifications, attributes and skills necessary to oversee a publicly traded, financially complex, growth oriented, international organization that operates in multiple regulatory environments. Candidates should have the highest standards of character and be committed to upholding the Company’s values and be independent, strong stewards of our investors’ capital. The Committee seeks directors with diverse backgrounds and experience in a variety of professional disciplines and business ventures who can provide diverse perspectives on the Company’s operations. The Committee evaluates the types of backgrounds that are needed to strengthen and balance the Board of Directors based on the foregoing factors and nominates candidates to fill vacancies accordingly.

The Committee identifies director candidates through the advice and assistance of internal and external advisors as it deems appropriate.

The Nominating and Corporate Governance Committee will evaluate qualified director candidates recommended by stockholders in accordance with the criteria for director selection described above, on the same basis as any other candidates. Nominations for consideration by the Nominating and Corporate Governance Committee, together with a description of the nominee’s qualifications and other relevant information, should be sent to the attention of the General Counsel, c/o W. R. Berkley Corporation, 475 Steamboat Road, Greenwich, Connecticut 06830. Stockholders may also follow the nomination procedures described under “Stockholder Nominations for Board Membership and Other Proposals” below.

Other Standing Committees. During 2017, the Board of Directors had two other standing committees in addition to the committees set forth above: the Executive Committee and the Business Ethics Committee.

The Executive Committee is authorized to act on behalf of the Board of Directors during periods between Board of Directors meetings.

The Business Ethics Committee administers the Company-wide business ethics program. The Business Ethics Committee reviews certain disclosures made by Company employees and directors under the Company’s Code of Ethics and Business Conduct and Statement of Business Ethics for the Board of Directors, determines if any issue presented raises an ethics concern and takes any appropriate action. The chair of the Business Ethics Committee is selected by rotation among the members.

Additional Information Regarding the Board of Directors

 

LOGO

Board Leadership Structure. The Company’s By-Laws provide that the chairman of the board may, but is not required to, be the chief executive officer and/or any other executive officer or non-executive officer of the Company. The Board of Directors regularly reviews and considers the Board’s leadership structure, including whether separation of the positions of chairman and chief executive officer is desirable.

 

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    CORPORATE GOVERNANCE AND BOARD MATTERS    

 

 

Since October 31, 2015, Mr. Rob Berkley, previously our President and Chief Operating Officer, has been our President and Chief Executive Officer, and Mr. Wm. Berkley, previously our Chairman and Chief Executive Officer, has been Executive Chairman, thereby separating the chairman and chief executive officer positions. This separation of roles allows the Chief Executive Officer to focus on executing the Company’s strategic plan, managing the Company’s operations and performance and the guidance and oversight of senior management.

Mr. Wm. Berkley founded the Company in 1967 and has been its Chairman of the Board since that time, a period of over fifty years, and also served as the Company’s Chief Executive Officer from 1967 to October 2015. Under Mr. Wm. Berkley’s strategic leadership, the Company has grown and prospered significantly, with Mr. Wm. Berkley being recognized for his extensive experience in and leadership of the insurance and reinsurance industries. Risk oversight is an especially complex issue for property casualty insurance companies, and the Board of Directors believes that the Company’s structure under Mr. Wm. Berkley’s leadership as Executive Chairman serves this function well.

The Board believes that its current leadership structure is effective and serves the Company and its stockholders well. Mr. Wm. Berkley, the Executive Chairman of the Board and largest stockholder with approximately 20% of our common stock, founded the Company in 1967 and has led it for over 50 years. The Board considers that he is most familiar with the Company’s business and industry and has a unique perspective on the Company’s culture and values. As a result, he is best positioned to understand the issues, opportunities and challenges the Company faces and to lead the Board in discussions and execution of strategy without the need for an independent lead director.

In his role as Executive Chairman, Mr. Wm. Berkley helps the Board identify strategic priorities and investments, leads the Board in oversight responsibilities and facilitates and presides over Board meetings.

Seven of the nine current directors (or eight of ten, including the director nominee) are independent, including all of the members of the Audit, Compensation and Nominating and Corporate Governance Committees. The independent directors have extensive leadership experience, provide oversight and meet regularly in executive sessions without any members of management present. The presiding director of these executive sessions rotates.

The Board believes that its structure and process provide each director with an equal stake in the Board’s actions and oversight role, and make them equally accountable to stockholders.

Executive Sessions. In accordance with applicable NYSE rules, the independent directors meet regularly in executive session, which serves to promote open discussion among these directors. The presiding director at these executive sessions rotates. The Board of Directors believes that this rotation provides different directors the opportunity to guide the Board’s agenda and facilitates collegiality among Board members.

Board Self-Assessment. Our Board recognizes that a thorough, constructive evaluation process enhances its effectiveness and is an essential element of good corporate governance. Accordingly, the Board of Directors conducts an annual self-assessment to determine whether it and each of its committees has the right skills, experience and perspectives. Each year, each director completes an evaluation covering:

 

    Board and committee composition, including appropriateness and diversity of skills, background and experience;

 

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    CORPORATE GOVERNANCE AND BOARD MATTERS     

 

 

 

 

    Key areas of focus and effectiveness of management oversight;

 

    Director performance, including knowledge of the Company and its business;

 

    Committee functions and effectiveness and quality of materials;

 

    Satisfaction with committee structure and performance of committee chairs in those positions;

 

    Board meeting process, including satisfaction with schedule, agendas, time allotted for topics and encouragement of open communication and robust discussion; and

 

    Access to management, experts and internal and external resources.

Responses are reviewed and presented to the Board of Directors. Feedback is solicited for enhancement and improvement.

We value having directors with diverse perspectives and experience. We have refreshed 30% of the Board over the past six years and continue to actively seek qualified candidates who add value and diverse skills, experience and perspectives to further refresh the Board.

The current average tenure of our directors is 24 years. Three of our directors, including our founder and Executive Chairman, who are at or over 72 years of age (the age at which we have historically not nominated a director to stand for reelection) have continued to serve at our request while we search for additional new directors to join our Board. The average tenure of the remaining six continuing directors is 12 years and, if our director nominee is included, the remaining seven directors have an average tenure of 10 years.

 

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    CORPORATE GOVERNANCE AND BOARD MATTERS    

 

 

Board Role in Risk Oversight. Managing risk is a critical element of any property casualty insurance business. The Board of Directors believes that risk oversight is a key responsibility of the entire Board of Directors. Risk management is one of the core responsibilities of the Executive Chairman and the President and Chief Executive Officer and is a critical responsibility of every other senior officer of the Company and its operating units.

The strategic management of risk in an insurance business is a multi-level proposition. The Board of Directors has an active role, both as a whole and also at the committee level, in risk oversight. The Board of Directors and its committees receive periodic updates from members of senior management, including the Senior Vice President — Enterprise Risk Management, on areas of material risk to the Company, such as operational (including risks related to climate change, cyber security and technology), financial, strategic, competitive, investment, reputational, legal and regulatory risks. Among other things, the Board of Directors as a whole oversees management’s assessment of business risks relating to the Company’s insurance operations and investment portfolio.

At the committee level:

 

    Our Audit Committee regularly reviews our financial statements, financial and other internal controls, and remediation of material weaknesses and significant deficiencies in internal controls, if any.

 

    Our Compensation Committee regularly reviews our executive compensation policies and practices and the risks associated with each. See “Discussion of Risk and Compensation Plans” on page 76 .

 

    Our Nominating and Corporate Governance Committee considers issues associated with the independence of our Board of Directors, corporate governance and potential conflicts of interest.

While each committee is responsible for evaluating certain risks and risk oversight, the entire Board of Directors is regularly informed of risks relevant to the Company’s business, as described above.

Risk management is a core tenet of the Company, with the concept of achieving appropriate risk-adjusted returns in our business a driving principle since the Company was founded. As a key element of their duties, our senior executive officers are responsible for risks and potential risks as they arise from day to day in their various operational areas. The Company’s Senior Vice President — Enterprise Risk Management, who is responsible for enterprise risk management, reports directly to the President and Chief Executive Officer and also reports to the Board of Directors regarding the Company’s risk management. The Company’s Enterprise Risk Management Committee, which is composed of the President and Chief Executive Officer, Senior Vice President — Enterprise Risk Management, Executive Vice President — Investments and Executive Vice President and Secretary, meets quarterly, and more frequently as necessary, to review and monitor levels of risk of various types. In addition, our internal audit function reports to our Audit Committee on a quarterly basis, and more frequently to the extent necessary.

Our independent outside auditors regularly identify and discuss with our Audit Committee risks and related mitigation measures that may arise during their regular reviews of the Company’s financial statements, audit work and accounting matters associated with executive compensation.

 

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Compensation Committee Interlocks and Insider Participation

 

LOGO

During 2017, the Compensation Committee was composed of Ms. Farrell and Mr. Brockbank and Dr. Daly until Dr. Daly’s retirement from the Board of the Company in May 2017. For the remainder of 2017, the Compensation Committee was composed of Ms. Farrell and Messrs. Blaylock and Brockbank. No member of the Compensation Committee was, during 2017, an officer or employee of the Company or was formerly an officer of the Company, or had any relationship requiring disclosure by the Company as a related party transaction. No executive officer of the Company served on any board of directors or compensation committee of any other company for which any of the Company’s directors served as an executive officer at any time during 2017.

Code of Ethics

 

LOGO

We have had a Code of Ethics and Business Conduct in place for many years. This code applies to all of our officers and employees. It is a statement of our high standards for ethical behavior and legal compliance, and governs the manner in which we conduct our business. This code covers all areas of professional conduct, including employment policies, conflicts of interest, anti-competitive practices, intellectual property and the protection of confidential information, as well as adherence to the laws and regulations applicable to the conduct of our business. We have also adopted a Statement of Business Ethics for the Board of Directors.

We have adopted a Code of Ethics for Senior Financial Officers. This code, which applies to our Chief Executive Officer, Chief Financial Officer and Controller, addresses the ethical handling of conflicts of interest, the accuracy and timeliness of SEC disclosure and other public communications and compliance with law.

Copies of our Code of Ethics and Business Conduct, Statement of Business Ethics for the Board of Directors and Code of Ethics for Senior Financial Officers can be found on our website at www.wrberkley.com. We intend to disclose amendments to these procedures, and waivers of these policies for executive officers and directors, if any, on our website.

Communications with Non-Management Directors

 

LOGO

A stockholder who has an interest in communicating with management or non-management members of the Board of Directors may do so by directing the communication to the General Counsel, c/o W. R. Berkley Corporation, 475 Steamboat Road, Greenwich, Connecticut 06830. With respect to communications to non-management members of the Board of Directors, the General Counsel will provide a summary of all appropriate communications to the addressed non-management directors and will provide a complete copy of all such communications upon the request of the addressed director.

Information about the Company, including with respect to its corporate governance policies and copies of its SEC filings, is available on our website at www.wrberkley.com. Our filings with the SEC are also available on the SEC’s website at www.sec.gov.

 

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    TRANSACTIONS WITH MANAGEMENT AND OTHERS    

 

 

Transactions with Management and Others

As described above, the Company has adopted both a Code of Ethics and Business Conduct that applies to all officers and employees and a Statement of Business Ethics for the Board of Directors (together, the “Statements”), each of which is administered by the Business Ethics Committee. The Statements address, among other things, transactions in which the Company is or will be a party and in which any employee or director (or members of his or her immediate family, as such term is defined by the NYSE rules) has a direct or indirect interest. The Statements require full and timely disclosure of any such transaction to the Company. Company management initially determines whether a disclosed transaction by an employee requires review by the Business Ethics Committee. Based on its consideration of all of the relevant facts and circumstances, the Business Ethics Committee decides whether or not to approve such a transaction and approves only those transactions that are not contrary to the best interests of the Company. If the Company becomes aware of an existing transaction which has not been approved, the matter will be referred to the Business Ethics Committee. The Business Ethics Committee will evaluate all available options, including ratification, revision or termination of such transaction.

During 2017, the Company continued to engage the services of Associated Community Brokers (“ACBrokers”), an insurance agency indirectly owned by Mr. Wm. Berkley, the Company’s Executive Chairman, and Mr. Rob Berkley, the Company’s President and Chief Executive Officer. During 2017, ACBrokers received commissions (both directly and indirectly) from the relevant insurance carriers in the amount of $1,259,778 in connection with insurance brokerage services provided to the Company and certain of its subsidiaries, and received a fee of $151,200 from the Company for services rendered in connection with the administration of the Company’s medical benefits program. In addition, ACBrokers may place business on behalf of unrelated third parties with insurance company subsidiaries of the Company.

Also during 2017, two of the Company’s non-officer employees performed services for Interlaken Capital, Inc. (“Interlaken”), a company substantially owned and controlled by Mr. Wm. Berkley, the Company’s Executive Chairman. Interlaken separately compensates those Company employees for providing such services.

The above transactions between the Company and ACBrokers and Interlaken, respectively, have been previously approved by our independent Business Ethics Committee in accordance with the procedures described above.

BlackRock, Inc., which beneficially owns more than 5% of the Company’s common stock, provides, on an arm’s length basis, investment management software to the Company for which the Company paid fees to BlackRock of approximately $1.35 million during 2017. As BlackRock is not an officer, employee or director of the Company, the Statements do not require approval of this arrangement by the Business Ethics Committee.

Mr. Nusbaum, a director of the Company, is a Senior Partner of Willkie Farr & Gallagher LLP, outside counsel to the Company.

 

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Compensation Discussion and Analysis

Table of Contents

 

LOGO

 

Introduction

 

     49  

Executive Summary

 

     49  

Business Highlights for Fiscal Year 2017

 

     49  

Long-Term Perspective and Performance

 

     50  

2017 Compensation Highlights

 

     51  

Pay-for-Performance Alignment and Pay at Risk

 

     52  

Feedback from Stockholder Outreach

 

     54  

Philosophy of Our Executive Compensation Program

 

     54  

Compensation Policies and Practices

 

     55  

Practices that We Emphasize and Practices that We Avoid

 

     57  

Objectives and Design of the Executive Compensation Program

 

     58  

Additional Design Information

 

     59  

Annual Cash Incentive Award

 

     59  

Long-Term Incentives

 

     60  

Deferred Compensation

 

     61  

Benefit Replacement

 

     62  

Supplemental Benefits Agreement with the Executive Chairman

 

     62  

Use of Market and Peer Group Data

 

     63  

Executive Compensation Decisions During the Last Year

 

     64  

General Approach

 

     64  

Base Salary

 

     64  

Annual Cash Incentive Award

 

     64  

Long-Term Incentives

 

     69  

Severance and Change in Control Benefits

 

     72  
Other Policies and Considerations      73  

 

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Compensation Discussion and Analysis

Introduction

 

LOGO

This Compensation Discussion and Analysis provides material information about the Company’s compensation policies, objectives and decisions regarding our NEOs as well as perspective for investors on the amounts disclosed in the Summary Compensation Table and other tables, footnotes and narrative that follow.

This Compensation Discussion and Analysis and the tables that follow cover the compensation paid in 2017 to the following five NEOs:

 

    W. Robert Berkley, Jr.: President and Chief Executive Officer (“CEO” or “Mr. Rob Berkley”);

 

    William R. Berkley: Executive Chairman of the Board (“Executive Chairman” or “Mr. Wm. Berkley”);

 

    Richard M. Baio: Senior Vice President — Chief Financial Officer and Treasurer;

 

    Ira S. Lederman: Executive Vice President and Secretary; and

 

    James G. Shiel: Executive Vice President — Investments.

Executive Summary

 

LOGO

Business Highlights for Fiscal Year 2017. In 2017, our focus on risk-adjusted returns enabled us to produce excellent results with lower volatility than our peers, as management continued to create value while managing risk and volatility throughout the business, despite challenges created by the extended low interest rate environment, significant catastrophe activity and incrementally more competitive market conditions in many lines of insurance.

 

    Our after-tax ROE was 10.9% and pre-tax ROE(1) was 15.2% for the year. ROE benefited from realized investment gains of $336 million pre-tax, in accordance with our strategy of investing a portion of our portfolio for capital gains.

 

    Book value per share increased 6.9% to $44.53; our 2017 total value creation (growth in book value per share before dividends and share repurchases) was 10.9%.

 

    Our combined ratio of 96.7% outperformed the property casualty insurance industry by 7.1 points. With record industry losses from catastrophes in 2017, the Company’s combined ratio increased slightly compared to 2016. Combined ratio is a financial metric that represents our underwriting profitability excluding investment income; a value of less than 100% indicates an underwriting profit, and a lower combined ratio is better. A comparison to an industry benchmark automatically adjusts for competitive conditions and allows us to better gauge our performance relative to our competitors.

 

    Net investment income for 2017 was $576 million, and net realized investment gains before taxes were $336 million.

 

    2017 net income per diluted share was $4.26.

 

    We returned $236 million of capital to our stockholders in 2017 through special and ordinary cash dividends on our common stock of $188 million and share repurchases totaling $48 million.

 

(1)  See Annex A for a reconciliation of pre-tax income, a non-GAAP financial measure, to net income, its most directly comparable GAAP measure. Pre-tax ROE is calculated based on pre-tax income.

 

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    We started two new businesses in Mexico, realigned three operating units and added many talented professionals.

 

    We continued our practice of making certain investments and strategically divesting certain of those investments with the aim of generating capital gains that enhance long-term returns and stockholder value. Net realized investment gains net of performance-based compensation costs added 4.2 percentage points to our ROE in 2017.

Our reported 2017 results are prepared under U.S. generally accepted accounting principles (“GAAP”), which may not fully reflect the then current fair values of some of our assets.

 

    For real estate that we own, the accounting rules require us to record those properties in our financial statements at cost. As a result, any appreciation of these properties since we acquired them is not reflected in our financial statements. In 2017, we sold our investment in an office building in Washington, D.C., resulting in a pre-tax realized gain of $124.3 million.

 

    For certain equity securities that we own – either securities for which accounting rules require us to use the equity method of accounting, or securities that do not have a readily determinable fair value – appreciation in the value of the investments over time may not be reflected in our financial statements or results. (For some of these securities, changes in unrealized gains and losses may begin to be included in net income once the securities have a readily determinable fair value.) When these investments are sold, however, the gain is realized.

Long-Term Perspective and Performance

While these results reflect our most recent years’ performance, we hold to the fundamental belief that the Company should be managed over the long term, including the full extent of the property casualty insurance cycle. Managing over the cycle means growing when conditions, in pricing and terms, are favorable, and maintaining underwriting discipline ( i.e., forgoing top-line growth) when they are not. Our business model is therefore designed to produce superior returns over industry performance when pricing is favorable, or “hard,” and maintain at least adequate returns when pricing is less favorable, or “soft.” Accordingly, we believe that the most relevant performance comparisons should be made based on long-term measurements, consistent with our strategy.

 

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Our performance over the past five completed fiscal years is summarized in the graphs below:

 

 

LOGO

 

(1) 

A combined ratio below 100% indicates an underwriting profit; a lower combined ratio is better.

2017 Compensation Highlights

Compensation paid to our NEOs in 2017 reflected the Company’s performance. Although absolute performance was modestly lower than in 2016, the Company delivered strong risk-adjusted returns despite the challenges of low interest rates, high catastrophe losses and substantial competition in the pricing of insurance products. In 2017, base salaries for the NEOs remained the same as in 2016. Annual cash incentive awards for the CEO and the Executive Chairman each decreased 10% from 2016 to $2,250,000 and $3,150,000, respectively; Mr. Lederman’s award remained unchanged at $430,000 and Mr. Shiel’s increased slightly to $430,000. The annual cash incentive award for Mr. Baio, our Chief Financial Officer since May of 2016, increased 21% over 2016 to $400,000 reflecting his increased responsibilities for the full year.

 

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Pay at Risk and Pay-for-Performance Alignment. Compensation for our CEO is almost entirely linked to Company performance and the creation of stockholder value, as illustrated in the graph below. In addition, 68% of the compensation for our CEO is long term and subject to forfeiture/clawback in certain events. For all our other NEOs, 83% of their compensation in the aggregate is performance-based, of which 56% is long term and subject to forfeiture/clawback in certain events.

 

 

LOGO

 

   Annual cash incentive award is directly linked to operating performance as described on pages 64-69.       Performance-based RSUs are earned based on ROE performance.       The 2017 LTIP awards are directly linked to growth in book value over five years (12.5% annual growth required to earn a maximum payout).

Compensation values reflected in the above illustration are based on 2017 base salary, the annual cash incentive award payment for 2017, the potential maximum value of the LTIP award for the 2017-2021 performance period, and the value of the 2017 performance-based restricted stock unit (“RSU”) grant based on the target number of RSUs granted.

In addition, for our NEOs and other senior executives, vested RSUs are mandatorily deferred and shares are not delivered until the executive has a separation from service with the Company. These executives have no opportunity to convert their deferred RSUs to cash for as long as they are employed by the Company. Mandatory deferral increases their focus on building long-term value and aligns their interests with those of our stockholders.

 

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The adjacent graphs plot relative rankings of three-year performance versus CEO pay for the Company and its compensation peer group. The graph on the top utilizes total stockholder return to measure performance, while the graph in the middle utilizes return on equity and the graph on the bottom utilizes growth in book value per share*. The graphs highlight our strong alignment between pay and performance relative to our peer group.

We believe it is important to compare the Company’s performance to a peer group comprised primarily of property and casualty insurance underwriters with whom we compete, which includes companies across a wide range of market capitalization. See “Use of Market and Peer Group Data” on page 63.

The Company utilizes ROE and growth in book value per share in its compensation programs. We believe that they are more appropriate indicators of management performance than stock price, and that over the long term, stock price will reflect the value created through strong ROE and growth in book value per share.

 

 

 

 

*  Compensation is based on proxy Summary Compensation Table disclosures. Where peer 2017 compensation has not been disclosed as of April 19, 2018 (one company in our compensation peer group), estimated values have been used, based on forward and/or historical disclosures. Financial and market data has been standardized across companies. Total stockholder return (“TSR”) is defined as stock price appreciation plus reinvested dividends. Book value per share is defined as common stockholders’ equity divided by common shares outstanding. Return on equity is defined as income before extraordinary items, over five-quarter average common stockholders’ equity. TSR and book value per share calculations reflect three-year annualized growth rates; return on equity calculations reflect a three-year average.

LOGO

 

LOGO

 

LOGO

LOGO

 

 

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Feedback from Stockholder Outreach

 

LOGO

We engage in stockholder outreach regularly and the Compensation Committee has made a number of changes to the executive compensation program in response to stockholder feedback over the last several years. The predominant message from our outreach since our 2017 Annual Meeting was that, in general, investors appreciate the alignment of our executive compensation programs with stockholder interests. There were no requests for modifications to the compensation programs. For additional information, see “Proxy Summary — Stockholder Outreach” on pages 17-18.

We welcome the views of our stockholders and look forward to continuing our dialogue with you, our owners.

Philosophy of Our Executive Compensation Program

 

LOGO

Our philosophy for our executive compensation program is to provide an attractive, flexible and market competitive program tied to performance and aligned with the interests of our stockholders. Our program is designed to recognize and reward the achievements of our executives and to attract, retain and motivate our leaders in a competitive environment. Key principles include the following:

Competitive and Market-Based Compensation. Provide base salary and benefits that are market competitive and ensure we are able to attract and retain high-caliber individuals with the leadership abilities and experience necessary to develop and execute business strategies and build long-term stockholder value.

Pay-for-Performance. Link a significant portion of compensation to Company performance, with an emphasis on long-term vehicles.

Reward Long-Term Performance. Consistent with managing the business over the long term, executive compensation should reward executives for the long-term performance of the Company.

Align Compensation with Stockholder Interests. Link executives’ and stockholders’ interests through the risks and rewards of common stock ownership. In addition, our programs should use metrics and provide compensation elements that closely align executives’ interests with the creation of stockholder value.

 

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Compensation Policies and Practices

 

LOGO

We implement our executive compensation philosophy through specific policies and practices that are designed to align our executive compensation with long-term stockholder interests.

 

 

Linking pay to performance. The vast majority of NEO pay (90% for the CEO and 83% for all other NEOs as a group) is variable, at-risk, and tied to short- or long-term business performance.

 

 

NEO compensation is heavily weighted toward performance-based pay.

  The NEO long-term equity compensation program is 100% performance-based — greater than is typical for many of our peers (a majority of which continue to use time-vested equity for a portion of their long-term equity programs).

 

  Based on grants made in 2017, 68% of total CEO compensation and 56% of the compensation of all other NEOs as a group is linked to long-term performance vehicles.

 

  Our focus on long-term performance mitigates the risk of and discourages short-term oriented behavior.

 

 

Non-formulaic performance-based annual cash incentive award program mitigates risk of short-term oriented behavior that is detrimental to long-term performance. We use a non-formulaic program to allow the Compensation Committee to consider all aspects of annual performance prior to approving payouts.

 

  Our financial results are the starting point for determining annual cash incentive awards, with a primary emphasis on ROE. The Compensation Committee also considers other performance-based metrics to understand the drivers of ROE in that particular period and the implications for the longer-term. The metrics and the measurement criteria are determined by the Compensation Committee at the beginning of the plan year as described on page 59.

 

  Formula-based short-term incentives are not well suited to our business due to the cyclical nature of the insurance industry and the fact that the ultimate results of business written in a given year may not be known for many years. It is easy, and can be misleading, to meet short-term targets. Formulaic incentives can encourage counterproductive behaviors that create near-term payouts at the expense of the longer-term health and value of the business, and may raise concerns from a risk management perspective, potentially undermining long-term stockholder value.

 

  Negative discretion permits the application of judgment that is necessary to align annual cash incentive award payouts with a holistic assessment of performance for the year, after considering all performance indicators in combination.

 

 

Incentive compensation programs are tied to the Company’s long-term performance.

 

  LTIP awards are earned over five-year performance periods — notably longer than the three-year period that is typical for many of our peer insurance companies.

 

  Performance periods for our performance-based RSUs also extend for a total of five years from grant.

 

  Longer performance periods are better suited to the cyclicality of our business.

 

 

 

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Alignment of interests through mandatory deferral and clawback of vested RSU awards.

 

  All RSU awards for NEOs and other senior executives (a group of approximately 80 in total), once vested, remain mandatorily deferred and the shares are not owned by or delivered to the executive until the executive has a separation from service with the Company. These executives have no opportunity to convert any of their deferred RSUs to cash for as long as they are employed by the Company.

 

  Over time, the accumulation of deferred RSUs results in a substantial portion of executives’ personal net worth being tied directly to the value of our stock, aligning their interests with long-term stockholder value creation.

 

  We believe the deferral practice to be unique to the Company among our peers.

 

  Executives forfeit all unvested LTIP awards and RSUs when they leave the Company (except to retire, in some cases) or if they engage in misconduct while employed. In addition, we can claw back LTIP payouts and vested RSUs if an executive engages in misconduct or breaches post-employment restrictions.

 

 

Robust share ownership by NEOs, prohibition on hedging and restrictions on pledging.

 

  Our NEOs hold equity many times in excess of their ownership guidelines (which we believe are themselves rigorous by market standards).

 

  For NEOs (other than one relatively new NEO), the multiple of stock owned to the required amount ranges between 9 and 117 times our ownership guidelines.

 

  NEOs may not hedge their exposure to the Company’s stock price.

 

  Shares used in fulfillment of ownership guidelines may not be pledged or encumbered.

 

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Practices that We Emphasize and Practices that We Avoid

 

LOGO

We are committed to executive compensation practices that drive long-term value creation and mitigate risk, and that align the interests of our executives with the interests of our stockholders. Below is a summary of best practices that we have implemented and practices that we avoid, with the goal of promoting the best interests of the Company and our stockholders.

 

 

What We Emphasize

 

 

 

What We Avoid

 

 

  Pay for performance — A significant majority of our NEOs’ compensation is performance-based.

 

  Incentivize and reward long-term value creation — NEO equity compensation is 100% performance-based and principally tied to the Company’s long- term performance.

 

  Vested RSUs are mandatorily deferred and shares are not delivered until separation from service — This practice, which we believe to be unique among our peers, aligns executives’ interests with those of stockholders.

 

  Robust share ownership for senior executives — Our NEOs hold equity many times in excess of their ownership guidelines.

 

  Mitigate risk through non-formulaic performance-based annual cash incentive award program — In our industry, formula-based short-term incentives can encourage counterproductive behaviors and raise concerns from a risk management perspective. Non-formulaic analysis permits the application of judgment that is necessary to achieve superior risk-adjusted long-term results in our business.

 

  Capped maximum NEO annual cash incentive award — We limit the maximum aggregate cash award payouts to NEOs to a specified percentage of pre-tax income. Each NEO’s award is subject to a dollar cap.

 

  Clawback — If an executive engages in misconduct or breaches post-employment restrictions, all unvested LTIP awards and RSUs are forfeited and we can claw back LTIP payouts and vested RSUs.

 

  Restrictions on pledging Company stock by NEOs — NEOs may not pledge or encumber shares used to fulfill stock ownership guidelines.

 

  Independent compensation consultants — The Compensation Committee benefits from its use of an independent compensation consulting firm that provides no other services to the Company.

 

  Capped payout for LTIP awards — Our LTIP awards cannot pay out more than 100% of the target amount, and in recent years have paid out substantially less than 100%.

 

  Modest perquisites — We provide a limited number of perquisites to our executives.

 

 

û   No employment agreements — All of our NEOs are employed on an at-will basis.

 

û   No separate severance agreements or guaranteed cash severance — We do not have severance agreements with our executives or guarantee cash severance to our executives.

 

û   No single-trigger vesting on change in control — LTIP and RSU awards granted after 2013 do not vest automatically in the event of a change in control.

 

û   No liberal share recycling — We do not add back to our plan reserves any shares withheld for taxes.

 

û   No stock options — We have not awarded stock options, which can motivate behaviors that pursue short-term gains to the detriment of long-term profitability, in almost 15 years.

 

û   No tax gross-ups on perquisites — We do not pay executives additional amounts to reimburse them for income or excise taxes payable on perquisites.

 

û   No dividend equivalents paid on unearned or unvested RSUs — We do not pay dividend equivalents on shares of stock underlying RSUs until the RSUs have vested.

 

û   No hedging or derivative transactions on the Company’s stock by executive officers — NEOs may not hedge their exposure to Company stock.

 

 

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Objectives and Design of the Executive Compensation Program

 

LOGO

The executive compensation program for NEOs generally includes the following components:

 

 

Compensation
Element

 

 

 

Role of the Element and Why

W. R. Berkley Corporation Uses the Element

 

 

Annual Cash Compensation

 

 

 

Base Salary

 

 

 Attracts and retains NEOs.

 

 Provides a fixed level of compensation for NEO services rendered during the year.

 

 

Annual Cash Incentive Award

 

 

 

 Provides focus on short-term performance measures that are linked to the Company’s long-term success and stockholder value.

 

 Rewards NEOs for delivering ROE and other performance metrics consistent with the Company’s objectives.

 

 Enables the Compensation Committee to discourage excessive risk taking.

 

 

Long-Term Incentive Compensation

 

 

 

 

Mandatorily Deferred Performance-Based Restricted Stock Units

 

 

 

 Increases stock ownership among NEOs since RSUs are settled in shares of Company stock.

 

 Provides focus on mid-term ROE performance, with shares vesting in three tranches using three-year overlapping performance periods ending in years three, four and five of a five-year vesting period (described in more detail under “Additional Design Information” below). Ultimate award payouts depend on actual ROE performance.

 

 Promotes longer-term alignment of NEOs’ financial interests with those of Company stockholders since all shares earned upon vesting of RSUs are mandatorily deferred and not delivered until separation from service — akin to a requirement to hold all vested shares until separation from service.

 

 Retains NEOs through use of overlapping vesting periods and mandatory deferrals.

 

 Places focus on stock price and dividend yield, as NEOs receive dividend equivalent payments on vested RSUs.

 

 Discourages excessive risk taking.

 

 

 

Long-Term Incentive Plan (LTIP) Awards

 

 

 

 Places focus on growth in book value, a primary driver of stockholder value.

 

 Through a Company-wide goal, encourages teamwork and decision-making to further the long-term best interests of the Company.

 

 Encourages retention of NEOs through use of overlapping performance periods.

 

 Allows NEOs to realize a portion of long-term compensation at established intervals during employment through potential LTIP cash payments.

 

 Discourages excessive risk taking.

 

 

 

Benefits and Perquisites

 

 

 

 

Benefit Replacement Plan

 

 

 

 Makes up for the Code limits on Company contributions to the Company’s tax-qualified profit sharing plan.

 

 Allows for equal treatment of all employees who participate in the tax-qualified profit sharing plan.

 

 Provides a competitive compensation element designed to attract and retain NEOs.

 

 

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Benefits and Perquisites (continued)

 

 

 

 

Deferred Compensation

 

 

 

 Allows NEOs to defer receipt of all or part of their base salary, annual cash incentive award and excess profit sharing payments.

 

 Provides a strong retention feature through reasonable return potential.

 

 Enhances current year cash flow to the Company in a cost effective manner.

 

 Provides an attractive tax planning tool designed to attract and retain NEOs.

 

 

 

 

Additional Benefits

 

 

 

 Provides coverage for officers, including the NEOs, in the areas of life, travel accident, and long-term disability insurance.

 

 Provides a competitive compensation element designed to attract and retain NEOs.

 

 

 

 

Personal Use of Company Aircraft
(CEO and Executive Chairman only)

 

 

 

 

 

 Enhances security and personal safety of the CEO and the Executive Chairman.

 

 Enhances productivity of the CEO and the Executive Chairman.

 

 

Supplemental Benefits Agreement (a legacy arrangement with Executive Chairman only)

 

 

 

 

 

 Provides continued health insurance benefits and certain perquisites to the Executive Chairman after employment ends.

 

 Provides consideration in exchange for a non-compete agreement with the Executive Chairman.

 

 

Other

 

 

 

 

Director Fees (CEO
and Executive Chairman only)

 

 

 

 

 

 Compensates the CEO and the Executive Chairman, who are also members of the Board of Directors, for responsibilities and duties that are separate and distinct from their responsibilities as officers.

 

 

Additional Design Information

 

LOGO

Annual Cash Incentive Award. In February 2017, the Compensation Committee determined maximum potential awards for the CEO and certain other NEOs for the year ended December 31, 2017. These maximum potential awards were each subject to negative discretion of the Compensation Committee based on the Company’s 2017 performance. Actual award amounts under the Amended and Restated Annual Incentive Compensation Plan (the “Annual Incentive Compensation Plan”) for the NEOs (other than the CFO) were determined in early 2018 by applying negative discretion to the maximum award using the following performance metrics considered by the Compensation Committee:

 

    ROE (primary metric)

 

    Combined Ratio

 

    Net Investment Income

 

    Net Realized Gains on Investment Sales

 

    Earnings per Share

 

    Book Value per Share Growth

 

    Investments in New Businesses

 

    Consistency of Management

 

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Performance was evaluated through a review of the 2017 results, a comparison of the 2017 results to the Company’s prior year results and a comparison of the results of the Company’s compensation peer companies. The actual award amounts paid for 2017 performance are described under “Executive Compensation Decisions During the Last Year — Annual Cash Incentive Award” on pages 64-69.

Long-Term Incentives. The Company’s long-term incentive program for the NEOs generally consists of two vehicles:

 

    Cash-denominated performance units under the LTIP; and

 

    Performance-based RSUs under the Company’s 2012 Stock Incentive Plan.

The long-term incentive compensation programs have been designed to vest after periods that are longer than the average duration of the Company’s liabilities to align the executives’ interests with those of the stockholders. The program supports the Company’s focus on long-term performance through multiple overlapping three- or five-year performance cycles for RSU and LTIP awards. These performance-based RSU and LTIP awards (as well as the mandatory deferral feature of vested RSU awards whereby shares are not delivered until separation from service) encourage our NEOs to achieve and sustain longer-term Company performance goals. These awards also align NEOs’ financial interests with those of the Company’s stockholders, as a significant portion of their annual compensation is tied directly to the value of our stock or metrics that are highly correlated with the value of our stock. The mandatory deferral feature of the RSUs also ties a significant portion of the NEOs’ personal net worth to the value of our stock.

LTIP Awards. In 2014, the Company adopted, and its stockholders approved, the 2014 Long-Term Incentive Plan, which is a cash-based long-term incentive plan. LTIP awards are performance units that grow in value based on one or more performance measures selected by the Compensation Committee and are settled, to the extent earned, in cash at the end of the performance period. The performance measure for current outstanding LTIP awards is the increase in book value per share, as adjusted, during a five-year performance period. In order to earn the maximum value of the LTIP award, prior to 2015 the Company’s book value per share needed to grow at an average annual rate of 15% for LTIP awards to pay out at the maximum potential value. Since 2015, the hurdle for maximum payout of awards has been set at 12.5%, in light of the extended period of historically low interest rates. The Compensation Committee believes a 12.5% average annual growth rate provides a significant stretch in performance goals that is reflective of current insurance market conditions. Over the five years ending December 31, 2017, only two companies in the Company’s compensation peer group achieved or exceeded this rate of growth, and over the ten years ending December 31, 2017 only one company in the peer group achieved a 12.5% growth rate and no company exceeded it. (Because of limitations in publicly available data, the method used to calculate book value per share growth for the peer group differed slightly from the formula used in our LTIP agreements.) Because of the rigor of the performance target for LTIP awards as demonstrated by these results, our LTIP awards have paid out at substantially less than the maximum potential value over the past several performance cycles. See page 71. The Compensation Committee reviews the growth rate annually for new grants to set an appropriately rigorous performance target in light of interest rates and other conditions. LTIP-based compensation can be recaptured (clawed back) for up to two years after settlement if a recipient breaches post-employment restrictions or violates misconduct provisions of the award agreement.

 

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Performance-Based RSUs. Prior to 2014, the Company issued time-based RSUs that cliff vested after five years. Beginning in 2014, the NEOs were awarded performance-based RSUs that are earned, or not, based on ROE performance. The performance-based RSUs consist of three tranches that vest, if earned, after three separate, but overlapping three-year performance periods, with the final tranche vesting only after five years. The diagram below explains the structure and performance periods for awards made in 2017.

 

 

LOGO

 

Mandatory Deferral and Clawback: Key Features of Our RSUs and Critical Differentiators. After vesting, settlement of the RSUs is deferred (on a mandatory basis) and shares are not delivered until 90 days following the executive’s separation from service with the Company (subject to a six-month delay to comply with Section 409A of the Code). This mandatory deferral applies to our NEOs and other senior executives (a group of approximately 80 in total). The mandatory deferral feature is akin to a requirement for executives to hold all shares they receive until their separation from service. We believe this deferral feature is unique to the Company’s program compared to peer companies.

Executives have no ability to monetize vested RSUs until separation from service. The amounts deferred remain at risk in the event of a decline in the value of the Company’s stock. Dividend equivalent payments are made only after RSUs vest. These deferred shares may not be pledged since they are not delivered until after a separation from service. Our NEOs and other senior officers are also prohibited from hedging or similar transactions with respect to the Company’s stock.

The mandatory deferral feature reinforces our executives’ incentive to maximize long-term stockholder value, as the value of the deferred shares cannot be realized until separation from service and the accumulated value can grow to represent a significant portion of an executive’s personal net worth. RSU-based compensation can be recaptured (clawed back) if a recipient breaches post-employment restrictions or violates misconduct provisions of the award agreement during employment and the one-year period following separation from the Company.

Deferred Compensation. The Company maintains the Deferred Compensation Plan for Officers, in which the NEOs may participate on a voluntary basis. Under the plan, eligible officers may elect to defer all or a portion of their base salary, annual cash incentive award, and excess profit sharing payments for any year. Amounts deferred accrue a reasonable rate of interest, as determined annually by the Compensation Committee. At the time of the deferral election, amounts may be deferred until any date on or before the officer’s separation from service. At the officer’s election made at the time of deferral, the Company will pay the deferred amounts either in a lump sum or in no more than five annual installments beginning generally within 60 days of a date which is prior to or on the date of the officer’s separation from service (subject to a six-month delay to comply with Section 409A of the Code). The amounts deferred are not secured or funded by the Company in any manner and therefore remain at risk in the event of an adverse financial impact to the Company. For 2017, the Compensation Committee determined to accrue interest on the deferred amounts at the prime rate of interest reported by JPMorgan Chase. The Non-Qualified

 

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Deferred Compensation for 2017 table and the associated narrative and footnotes on pages 81-82 provide additional information on the plan and NEO participation.

The Deferred Compensation Plan for Officers provides a valuable tax planning mechanism to the NEOs and thereby supports the Company’s objectives by providing a compensation program designed to attract talented executives and retain our current NEOs. In addition, deferrals under the plan allow for delayed compensation payments and thereby increase current year cash flow for the Company.

Benefit Replacement. The Company maintains a Benefit Replacement Plan, which provides participants with an annual payment equal to the amount they would have otherwise received under the Company’s tax-qualified profit sharing plan absent the limitations imposed by the Code on amounts that can be contributed under the tax-qualified profit sharing plan. This payment is made annually in a lump sum

unless deferred by the participant under the Deferred Compensation Plan for Officers. Additional information on the amounts paid under this plan can be found in the “All Other Compensation” column of the Summary Compensation Table and the associated footnotes on pages 77-78 .

The Benefit Replacement Plan ensures that the full value of the intended benefits under the tax-qualified profit sharing plan is provided to the NEOs and as such supports the Company’s ability to attract talented executives and retain current NEOs.

Supplemental Benefits Agreement with the Executive Chairman. The Company has a Supplemental Benefits Agreement with Mr. Wm. Berkley, originally dating to 2004 and amended since then to comply with Section 409A of the Code and, in 2013, to terminate the retirement benefit that was originally included and subsequently liquidated. The remaining benefits to be provided to Mr. Wm. Berkley (or his spouse) under the agreement, as amended, are as follows:

 

    continued health insurance coverage (including coverage for his spouse) for the remainder of his or her life, as applicable;

 

    continued use of a Company plane and a car and driver for a period beginning with termination of employment and ending with the latest to occur of the second anniversary of such termination, the date he ceases to be Chairman of the Board, or the date he ceases to provide consulting services to the Company;

 

    office accommodations and secretarial support; and

 

    payment of any excise tax imposed upon the Executive Chairman under Section 4999 of the Code (plus payment of additional taxes incurred as a result of the Company’s payment of excise taxes), in the event of a change in control. As noted on pages 82-83, if a change in control and termination of the Executive Chairman’s employment had occurred on December 31, 2017, no excise tax would have been triggered.

In exchange for these benefits, the agreement prohibits Mr. Wm. Berkley from competing against the Company for two years following his resignation of employment other than for “good reason,” during which time Mr. Wm. Berkley has agreed to be available to provide consulting services to the Company.

Additional detail on the agreement is provided under “Executive Compensation — Potential Payments Upon Termination or Change in Control” on pages 82-84 .

 

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Use of Market and Peer Group Data

 

LOGO

The Compensation Committee reviews and analyzes market data on total direct executive compensation annually. Total direct compensation (defined as base salary, annual cash incentive awards, and the potential value of long-term incentive awards granted) for the NEOs is compared to that paid to individuals holding comparable positions at our peer companies.

In 2017, the Compensation Committee reviewed with its independent compensation consultant, Meridian, the composition of the peer group to be used for compensation market data, including the Company’s size and market positioning relative to potential peer companies as well as the impact of changes due to

consolidations from acquisitions. The Compensation Committee approved the addition of Aspen Insurance Holdings Limited to the peer group, and the removal of Allied World Assurance Holdings (due to its acquisition).

The Compensation Committee believes that the peer group should be comprised primarily of property casualty insurance underwriters, and not include (as the peer groups used by proxy advisors do) brokerage firms or companies in the life (re)insurance business as such companies’ performance can be affected by factors not germane to the Company’s business. Further, the Compensation Committee believes that the peer group it has identified for the Company is appropriate because it includes companies across a wide range of market capitalization, with whom the Company competes for senior executive talent. The companies included in our compensation peer group, shown below, represent direct competitors of the Company for both business and executive talent and are believed to provide a reasonable assessment of industry market pay levels.

 

 Alleghany Corporation

  

 Fidelity National Financial Group

 American Financial Group, Inc.

  

 Markel Corporation

 Arch Capital Group Ltd.

  

 The Progressive Corporation

 Aspen Insurance Holdings Limited

  

 RenaissanceRe Holdings Ltd.

 Axis Capital Holdings Limited

  

 The Travelers Companies, Inc.

 Chubb Limited

  

 White Mountains Insurance Group, Ltd.

 CNA Financial Corporation

  

 XL Group Ltd

 Everest Re Group, Ltd.

  

The Compensation Committee reviews market data, together with performance data, for our peer companies to evaluate the overall alignment of total direct compensation paid and relative performance. In addition, the Compensation Committee also reviews broader industry survey data as an additional reference point. However, market data is only one of many factors considered in setting future compensation awards. We do not target a specific percentile for any pay component or for our total direct compensation, nor do we target any particular mix of base salary, annual cash incentive awards, and long- term incentive compensation. Our executives’ actual pay is determined primarily by Company operational and financial performance.

 

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Executive Compensation Decisions During the Last Year

 

LOGO

General Approach. The Compensation Committee makes the determinations concerning NEO compensation. The CEO and the Executive Chairman make initial recommendations to the Compensation Committee with respect to compensation for NEOs other than themselves. The Compensation Committee then makes the final determination.

Base Salary. Base salaries for NEOs in 2017 were unchanged from 2016.

Mr. Rob Berkley’s annual salary was set at $850,000 effective January 1, 2010, and was not changed until January 1, 2016, when it was increased to $985,000 and then to $1 million effective June 1, 2016 in conjunction with his transition into the CEO role. His salary for 2017 was maintained at $1 million.

Mr. Wm. Berkley has received a base salary of $1 million since January 1, 2000; his salary has not increased since then, at his request. The Compensation Committee periodically reviews Messrs. Rob and Wm. Berkley’s base salaries.

Mr. Lederman’s and Mr. Shiel’s base salaries were set at $650,000 in 2015 and were not adjusted in 2016 or 2017. Mr. Baio’s annual base salary for 2017 remained unchanged at $550,000.

 

            Name

 

    

 

2017 Annual

Base Salary

 

    

 

2016 Annual    

Base Salary    

 

 

  Mr. Rob Berkley

 

 

      

 

 

$

 

 

 

1,000,000

 

 

 

 

      

 

$

 

 

 

1,000,000    

 

 

 

 

 

 

  Mr. Wm. Berkley

 

 

      

 

$

 

 

 

1,000,000

 

 

 

 

 

      

 

$

 

 

 

1,000,000    

 

 

 

 

 

 

  Mr. Baio

 

 

      

 

$

 

 

 

550,000

 

 

 

 

 

      

 

$

 

 

 

550,000    

 

 

 

 

 

 

  Mr. Lederman

 

 

      

 

$

 

 

 

650,000

 

 

 

 

 

      

 

$

 

 

 

650,000    

 

 

 

 

 

 

  Mr. Shiel

 

 

      

 

$

 

 

 

650,000

 

 

 

 

 

      

 

$

 

 

 

650,000    

 

 

 

 

 

Annual Cash Incentive Award. Because of the cyclical nature of our industry, the Compensation Committee’s determination to assess ROE performance holistically based on a series of supplemental performance indicators, and the need to maintain a long-term perspective, we use a non-formulaic performance-based annual cash incentive award program. The Compensation Committee establishes a cap on these awards; actual payments are determined by applying negative discretion. This provides the Compensation Committee with flexibility to respond to market conditions and permits the application of judgment that is necessary to avoid creating incentives for our NEOs to engage in short-term oriented behavior that is detrimental to long-term value creation.

Under the Company’s Annual Incentive Compensation Plan, the Compensation Committee evaluates the Company’s performance across a number of measures. The primary performance measure considered is ROE, as it provides the most complete picture of the Company’s performance in a given year and across time periods.

 

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The Compensation Committee also considers other measures that inform the evaluation of ROE performance, as a property casualty insurance company has earnings streams from both underwriting activity and investment activity, and is dependent upon prudent capital management, strategic business and investment decisions and an appropriate long-term focus to maximize risk-adjusted return. These other measures are generally consistent from year to year. However, the Compensation Committee has the discretion to add/remove or change the degree of emphasis on certain measures, depending upon the business and economic environment.

 

    ROE. Our long-term goal of 15% ROE has remained consistent for our entire 50-year plus history. Although 15% is a demanding hurdle for a property casualty insurance company in the current low interest rate environment, the Compensation Committee believes it remains appropriate as a long-term goal in order to challenge management to maximize stockholder value.

 

    Combined Ratio. Combined ratio is a key measure of underwriting profitability for insurance companies. A combined ratio below 100% indicates that an insurance company’s underwriting activities are profitable. The appropriate combined ratio target for a company depends upon its mix of business. Companies that are concentrated in businesses characterized by low frequency and high severity (such as property catastrophe reinsurance) will generally target a very low annual combined ratio absent a major event, so that the earnings in low-catastrophe years can offset the severity of loss from a significant event. Such companies typically demonstrate a high degree of volatility in their underwriting results. Companies that have a higher frequency of loss, with less severity (as is often the case with casualty business) may target a relatively higher combined ratio and their results tend to be less volatile.

Because our business is predominately low-limit casualty insurance, the Compensation Committee considers our combined ratio target of 95% or lower (absent a major catastrophe) to be stringent, yet achievable. While an even lower combined ratio would be necessary to achieve our 15% ROE target in the current environment, the Compensation Committee recognizes that a willingness to walk away from underpriced business in a competitive rate environment requires us to accept a higher expense ratio at times, and thus a higher combined ratio. A combined ratio target that is too stringent would fail to incentivize proper underwriting discipline.

The Compensation Committee also considers our combined ratio as compared to the property casualty insurance industry as a whole, to account for cyclical changes derived from competitive

conditions, as well as the impact of catastrophe events on the industry and our Company. The Compensation Committee also recognizes that in times of below average catastrophe activity, our outperformance compared to the industry will temporarily narrow.

 

   

Net Investment Income. In the low interest rate environment of the last several years, the Compensation Committee expects consistent income from fixed-maturity securities while maintaining the same high quality portfolio, combined with a duration that positions us to take advantage of rising interest rates. This task has been difficult, as the reinvestment rate for new investments is generally below the expiring yield of maturing investments. Income from fixed-maturity securities has also been affected by the allocation of a modestly larger percentage of assets to other classes. The Compensation Committee recognizes that investments designed to generate capital gains may produce less annual income, and this income may be less predictable, but such investments are designed to generate a higher total return over the life of the investment. In addition, while

 

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investment funds and the merger arbitrage portfolio inherently have greater variability than fixed-maturity securities, the Company expects they will generate a higher average yield over time.

 

    Net Realized Gains on Investment Sales. In the current interest rate environment, the Company allocates an increased portion of the investment portfolio to assets designed to generate capital gains and above average total returns. Over the past several years, we have made a number of investments designed to generate capital gains, and continue to do so.

 

    Growth in Earnings Per Share. The Company measures growth in earnings per share while being mindful of capital management. We do not target a specific percentage growth in earnings per share so as not to improperly incentivize irresponsible growth in premiums written, particularly in competitive or weak pricing environments. The absence of a specific growth target also allows the Compensation Committee to take into account variability in income from investment funds and realized gains.

 

    Growth In Book Value Per Share. After giving effect to capital management and changes in accumulated other comprehensive income, growth in book value per share should be broadly in line with ROE. When we are generating more capital than can be reinvested in the business, the excess capital is returned to stockholders.

 

    Investments In New Businesses. Of the Company’s 54 operating units, 7 have been acquired and 47 have been started from scratch. We believe that starting new businesses when the best talent can be attained is better for long-term value creation than buying businesses that may have unknown balance sheet issues, add goodwill to the balance sheet, or be culturally incompatible. Disruptions in the market due to financial difficulties at other companies, mergers or acquisitions, or changes in strategic direction typically provide the best opportunities to find talented individuals who share our long-term vision. The Compensation Committee expects the number of businesses started in any given year to vary depending upon available opportunities, and recognizes that start up costs can negatively impact earnings for a period of time.

 

    Consistency Among Members of the Management Team. A significant amount of turnover in senior management can disrupt operations and detract from long-term focus. Recognizing that retaining and developing talent is difficult in today’s competitive job market, the Compensation Committee looks to incentivize retention of talented executives.

After the close of the year, the Compensation Committee, with the input of the CEO and the Executive Chairman and historical performance information for the Company’s compensation peer group provided by the independent compensation consultant, evaluated the Company’s performance across these measures. The primary performance measure considered was ROE. Overall, the Compensation Committee determined that the Company’s performance in 2017 was strong, considering the high level of catastrophes in 2017, the low interest rate environment and the Company’s strong investment gains.

 

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Observations regarding performance in relation to the principal criteria considered by the Compensation Committee to assist its annual cash incentive award decision-making are summarized in the table below:

 

   

Objective

 

  

 

2017

Observations

 

 

 

2017

Performance

 

 

  ROE (1)

 

 

15% ROE

over the long term

  

 

Affected by competitiveness of underwriting environment, significant catastrophe activity and low interest rates, offset by significant realized capital gains. Excellent results in light of these conditions, despite falling short of target and 2016 ROE.

 

 

 

 

10.9% (2)

 

 

  Combined   Ratio

 

 

 

95% or less (absent a major catastrophe) and better than the industry average over the long term

  

 

 

Sound underwriting results on an absolute basis and relative to the industry. Level of outperformance versus industry grew as industry-wide results were affected by heavy catastrophe losses, while the Company’s emphasis on limiting exposure to catastrophe losses resulted in a comparatively smaller impact. Excluding losses from major catastrophes (Hurricanes Harvey, Irma and Maria and Mexican earthquakes), our combined ratio met our target.

 

 

 

7.1 points better

than the property

casualty

insurance

industry

(96.7% vs. 103.8% (3))

95.0% excluding major catastrophes

 

 

 

  Net

  Investment

  Income

 

 

 

Stability of income from fixed maturity portfolio and higher yield over the long term from other assets

  

 

 

Income from the fixed maturity portfolio grew by 6.5% over 2016, while the portfolio yield improved by 0.1 points. Income from other assets was strong, despite a year-over-year decline in the non-fixed maturity yield. Maintaining a shorter fixed maturity duration forgoes some investment income but benefits the Company in a rising interest rate environment.

 

 

 

 

 

$576 million

Fixed maturity yield 3.3%; Duration 3.0 years; Average rating AA-

 

 

  Net Realized

  Gains On   Investment   Sales

 

 

 

 

Alternative investments, within acceptable risk limits, that produce capital gains

  

 

 

The gain on investments sold in 2017 exceeded expectations. The Company sold its interest in an office building in Washington, D.C., realizing a $124.3 million gain and realized further gains from sales of stock of HealthEquity, Inc.

 

 

 

Net realized gains $336 million

(pre-tax)

 

 

  Earnings

  Per Share

 

 

 

 

Year over year growth

  

 

 

2017 EPS declined from 2016 due to losses from major catastrophes and lower income from investment funds.

 

 

 

$4.26 compared to $4.68 in 2016

 

 

  Book Value

  Per Share

  Growth

 

 

 

Year over year growth (taking into consideration capital management and changes in accumulated other comprehensive income (“AOCI”))

 

  

 

 

Positively affected in 2017 by earnings, unrealized investment gains, share repurchases and special dividends, offset by the change in currency translation adjustments. The strong growth excluding capital management and changes in AOCI was consistent with ROE and expectations.

 

 

 

$44.53

(6.9% growth)

(10.9% growth before capital management and changes in AOCI)

 

 

  Investments In

  New

  Businesses

 

 

 

 

Start new businesses when the best talent can be obtained

  

 

 

Market conditions and few disruptive events at competitors limited opportunities to start new businesses.

 

 

 

Formed 2 new businesses in Mexico

 

 

  Management

  Consistency

 

 

 

Stability among senior management and smooth transitions

 

  

 

 

Added new key management positions. Continued to enhance management and leadership programs.

 

 

 

No unplanned turnover in senior positions

(1)  ROE data based on beginning of year stockholders’ equity.
(2)  Operating ROE of 6.3% in 2017.
(3)  Property casualty insurance industry combined ratio data from A.M. Best.

The Company’s 2017 ROE fell short of our long-term target of 15% due to robust competition, the low interest rate environment, and a high level of catastrophe activity. In addition, prior to the enactment of the Tax Cuts and Jobs Act, the U.S. corporate tax rate and the affiliated reinsurance loophole provided an uneven playing field for U.S. based property casualty insurance groups, placing additional pressure on our after-tax ROE. Despite these challenges, the Company’s 2017 ROE ranked in the 90th percentile of our compensation peer group. The 10.9% ROE was driven by a combined ratio that outperformed the industry by 7.1 points, greater net investment income and strong net realized gains on investment sales. Although

 

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net income per share declined modestly, book value per share before capital management and AOCI grew 10.9%, resulting in superior value creation for our stockholders.

 

    The 10% reduction in each of Mr. Rob Berkley’s and Mr. Wm. Berkley’s annual cash incentive awards takes into consideration the performance results in comparison to the prior year amounts tempered by the Company’s performance as compared to its compensation peer group.

 

    As Executive Chairman, in addition to his Board leadership role, Mr. Wm. Berkley maintains an active and significant presence in the Company. He continues to provide executive services to the Company by working with senior management to source, evaluate and implement strategic business and investment opportunities that promote long-term shareholder value creation. Among other things, he works actively to recruit and develop talent, enhance intellectual capital and corporate culture and provide corporate memory. In conjunction with the CEO, he directs government and industry outreach to inform public policy, provides industry thought leadership and contributes significantly to outreach to stockholders and financial institutions. He also provides direction concerning strategic leadership issues. He was instrumental in the Company’s efforts and those of a coalition of leading domestic insurers in a successful multi-year endeavor to level the playing field for domestic insurers through the recently enacted Tax Cuts and Jobs Act.

 

    The Compensation Committee determined to keep relatively flat the annual cash incentive awards paid to Messrs. Lederman and Shiel compared to 2016 levels based on the Company’s sound 2017 results.

 

    The amount paid to Mr. Baio reflects that he was in the role of Chief Financial Officer for the full year versus seven months in 2016 and the Company’s 2017 performance.

The amounts are summarized in the table below:

 

Name

 

    

 

2017 Annual Cash
Incentive Award

 

    

 

2016 Annual Cash

Incentive Award

 

    

 

Change            

From 2016            

 

 

  Mr. Rob Berkley(1)

 

 

      

 

 

$

 

 

 

2,250,000

 

 

 

 

      

 

$

 

 

 

2,500,000

 

 

 

 

 

      

 

 

 

 

 

-10

 

 

 

%            

 

 

 

  Mr. Wm. Berkley(1)

 

 

      

 

$

 

 

 

3,150,000

 

 

 

 

 

      

 

$

 

 

 

3,500,000

 

 

 

 

 

      

 

 

 

 

 

-10

 

 

 

%

 

 

 

  Mr. Baio

 

 

      

 

$

 

 

 

400,000

 

 

 

 

 

      

 

$

 

 

 

330,000

 

 

 

 

 

      

 

 

 

 

 

21

 

 

 

%

 

 

 

  Mr. Lederman(1)

 

 

      

 

$

 

 

 

430,000

 

 

 

 

 

      

 

$

 

 

 

430,000

 

 

 

 

 

      

 

 

 

 

 

0

 

 

 

%

 

 

 

  Mr. Shiel(1)

 

 

      

 

$

 

 

 

430,000

 

 

 

 

 

      

 

$

 

 

 

425,000

 

 

 

 

 

      

 

 

 

 

 

1

 

 

 

%

 

 

 

(1) The 2017 and 2016 annual cash incentive awards for these individuals were made under the Annual Incentive Compensation Plan.

Process. For the CEO and the Executive Chairman, the Compensation Committee considered ROE and the supplemental performance measures set forth above and those outlined in “Business Highlights for Fiscal Year 2017” on pages 49-51, taking into account the Company’s results in comparison to its objectives and prior-year results, and relative to its compensation peer group and industry.

Based on the Company’s results, the CEO and the Executive Chairman made recommendations to the Compensation Committee concerning NEO annual incentive payment levels, other than for themselves.

 

68   W. R. Berkley Corporation


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    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

The recommendations were based on an evaluation of the Company’s ROE and supplemental performance measures (in comparison to expectations, the Company’s prior-year results, and relative to the compensation peer group and industry), and the award levels relative to prior-year award payouts. Each NEO’s individual accomplishments and contributions to the Company’s results were also evaluated. This additional subjective evaluation is not based on any specific pre-determined criteria and generally will not impact the award levels, either positively or negatively, except in cases of extraordinary performance. Based on the CEO’s and Executive Chairman’s assessments, no adjustments based on extraordinary individual performance were made to the annual cash incentive award amounts determined based on Company performance.

Mr. Baio, our Chief Financial Officer, did not participate in the Section 162(m)-based Annual Incentive Compensation Plan. However, the CEO and the Executive Chairman still followed the same general process as used for the other NEOs to develop their recommendation for his annual cash incentive award.

Long Term Incentives.

Performance-Based Restricted Stock Units. RSU awards with performance-based vesting conditions were made to our NEOs in 2017. Each of the NEOs received a target number of performance-based RSUs divided into three tranches. Each tranche may be earned based on the Company’s three-year average ROE performance for the three-year periods ending on each of June 30, 2020, 2021, and 2022, compared to the rate on the five-year U.S. Treasury Note (“T-Note”) as of July 1, 2017, as follows:

 

 

Excess ROE (1)
(
i.e. , Average ROE Less the T-Note Rate)

 

  

 

Percentage of Target RSUs
That Will Be Earned

 

 

Less than 500 basis points

 

 

  

 

0%

 

 

 

500 basis points

 

 

  

 

80%

 

 

 

633 basis points

 

 

  

 

90%

 

 

 

766 basis points

 

 

  

 

100% (target)

 

 

 

900 or more basis points

 

 

  

 

110%

 

 

(1) For any Excess ROE performance between 500 and 900 basis points, linear interpolation will be used to determine the vesting fraction. For performance-based RSU awards, “Average ROE” is defined as net income from continuing operations divided by beginning-of-year stockholders’ equity, measured quarterly and averaged over the performance period.

The Compensation Committee chose ROE as the performance measure for 2017 performance-based RSU awards because it is a key performance indicator in our industry closely watched by investors. The Compensation Committee believes that using ROE for both these performance-based RSUs and as a primary metric to determine annual cash incentive awards is appropriate because the metric is well aligned with stockholder interests and because the Compensation Committee believes there is adequate balance with other performance criteria in both the annual plan (through the Compensation Committee’s use of negative discretion and review of multiple supplemental measures) and the long-term plan (with the LTIP focus on book value). The Compensation Committee decided to keep the same payout scale for the 2017 awards that was used in 2016 and 2015. Under this payout scale, any Excess ROE less than 500 basis points over the July 1 T-Note rate, for the year of grant, would result in no payout.

 

2018 Proxy Statement   69


Table of Contents

 

    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

 

In 2017, the target number of performance-based RSU awards to our NEOs were as follows (more detail is found in the 2017 Grants of Plan-Based Awards table on pages 78-79):

 

Name

 

  

Target Number
of 2017
Performance-Based
RSUs Awarded

 

  

 

Grant Date Fair Value
of Target Number
of 2017
Performance-Based
RSUs Awarded

 

  

 

Grant Date Fair Value     

of Target Number     

of 2016     

Performance-Based     

RSUs Awarded     

 

 

  Mr. Rob Berkley

 

 

    

 

 

 

 

 

47,325

 

 

 

 

 

    

 

 

 

 

 

$3,250,044

 

 

 

 

 

    

 

 

 

 

 

    $3,250,330            

 

 

 

 

 

 

  Mr. Wm. Berkley

 

 

    

 

 

 

 

 

47,325

 

 

 

 

 

    

 

 

 

 

 

$3,250,044

 

 

 

 

 

    

 

 

 

 

 

    $3,250,330            

 

 

 

 

 

 

  Mr. Baio

 

 

    

 

 

 

 

 

4,733

 

 

 

 

 

    

 

 

 

 

 

$   325,039

 

 

 

 

 

    

 

 

 

 

 

    $   300,033            

 

 

 

 

 

 

  Mr. Lederman

 

 

    

 

 

 

 

 

6,917

 

 

 

 

 

    

 

 

 

 

 

$   475,025

 

 

 

 

 

    

 

 

 

 

 

    $   475,096            

 

 

 

 

 

 

  Mr. Shiel

 

 

    

 

 

 

 

 

6,917

 

 

 

 

 

    

 

 

 

 

 

$   475,025

 

 

 

 

 

    

 

 

 

 

 

    $   475,096            

 

 

 

 

 

In general, the performance-based RSU awards are sized taking into consideration (i) that the purpose of the awards is primarily to incentivize future performance rather than to differentiate and reward immediate past performance, so they will not vary significantly in grant date terms from year to year and (ii) NEOs with similar level of responsibility receive similarly sized awards.

Dividend Equivalent Awards. We believe it is important for executives to be fully aligned with our stockholders. This alignment includes our dividend policy. Therefore, our performance-based RSU awards made to our NEOs generally include dividend equivalent rights with respect to vested shares. Recipients start earning shares after the third year, so we believe that it is important for these recipients to also share in the dividends generated by those shares at the same time. However, no dividend equivalents will be paid if the underlying shares do not vest.

LTIP Awards. Cash-denominated LTIP awards were granted in 2017 and will be earned based on growth in book value per share over the 2017-2021 period. The 2017 awards were structured similarly to awards made in prior years: units have no value at grant, but may gain in value during the subsequent five-year period based on growth in book value per share. If book value per share were to remain unchanged or decrease at the end of the five-year period, the earned value of an award would be zero. For the 2017 awards, the maximum LTIP unit value of $100 will be earned only for a 12.5% average annual increase in book value per share (as defined in the 2017 LTIP agreement), which implies a value for book value per share of $74.22 (from an opening value of $41.19), by the end of 2021. The Compensation Committee elected to set the performance requirement at 12.5% for the 2017 LTIP award, as it did in 2016, given the extended period of historically low interest rates. The Compensation Committee reviews the growth rate annually for new grants to set an appropriately rigorous performance target in light of interest rates and other factors and believes this performance hurdle is appropriate because it:

 

    Represents a challenging performance goal relative to actual book value per share growth in recent years to achieve the potential maximum value;

 

    Reflects the current operating environment reality for property casualty insurance companies; and

 

    Motivates our NEOs to pursue long-term goals aligned with stockholders’ interests while avoiding incentives for our NEOs to take excessive risks in the prevailing low interest rate environment.

 

70   W. R. Berkley Corporation


Table of Contents
 

 

    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

In 2017, the NEOs were granted LTIP awards in the following amounts (more detail is found in the 2017 Grants of Plan-Based Awards table on pages 78-79):

 

 

  Name

 

 

 

 

Number of 2017
LTIP Units Granted

 

 

    

 

Number of 2016

    LTIP Units Granted    

 

 

 

 

  Mr. Rob Berkley

 

 

 

 

 

 

 

 

35,000          

 

 

 

 

 

 

  

 

 

 

 

 

35,000            

 

 

 

 

 

 

 

  Mr. Wm. Berkley

 

 

 

 

 

 

 

 

35,000          

 

 

 

 

 

 

  

 

 

 

 

 

35,000            

 

 

 

 

 

 

 

  Mr. Baio

 

 

 

 

 

 

 

 

3,000          

 

 

 

 

 

 

  

 

 

 

 

 

2,500            

 

 

 

 

 

 

 

  Mr. Lederman

 

 

 

 

 

 

 

 

4,500          

 

 

 

 

 

 

  

 

 

 

 

 

4,500            

 

 

 

 

 

 

 

  Mr. Shiel

 

 

 

 

 

 

 

 

4,500          

 

 

 

 

 

 

  

 

 

 

 

 

4,500            

 

 

 

 

 

 

In general, the LTIP awards are sized taking into consideration (i) that the purpose of the awards is primarily to incentivize future performance rather than to differentiate and reward immediate past performance, so they will not vary significantly from year to year, and (ii) NEOs with similar level of responsibility receive similarly sized awards. The 2017 LTIP award amounts remained the same as the amounts awarded in 2016, except for the CFO.

The levels of performance required to produce a maximum payout have proven to be rigorous and challenging in recent years. For the last three completed LTIP cycles, the payouts as a percentage of maximum potential value were as follows:

 

    

 

2008 – 2012
Cycle

 

 

  

 

2011 – 2015

Cycle

 

 

  

 

    2013 - 2017(1)    
Cycle

 

 

 

  Payout (% of
  Maximum)

 

 

  

 

57%

 

 

  

 

79%

 

 

  

 

80%

 

 

 

(1)  Prior to 2014, LTIP awards were granted approximately every 30 months rather than annually.

For LTIP awards currently outstanding, the accrued payout values as of December 31, 2017 as a percentage of the maximum potential value are summarized as follows:

 

   

 

  2014 – 2018  
Cycle

 

 

 

 

  2015 – 2019  
Cycle

 

 

 

 

  2016 – 2020  

Cycle

 

 

 

 

  2017 – 2021  
Cycle

 

 

 

  Years Completed in 5-Year Cycle

 

 

 

 

4

 

 

 

 

3

 

 

 

 

2

 

 

 

 

1

 

 

 

  Accrued Value as of December 31,

  2017 (% of Maximum)

 

 

 

 

62.4%

 

 

 

 

51.8%

 

 

 

 

33.1%

 

 

 

 

13.9%

 

 

The Company moved to annual grant cycles beginning in 2014. Accruals for amounts earned under open LTIP cycles are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table in the year that the amounts are earned (as required by SEC rules, even though the awards are not paid out until the end of the cycle, and may be forfeited). The values for 2017 in the Summary Compensation Table on pages 77-78 include amounts earned in 2017 under the 2013-2017, 2014-2018, 2015-2019, 2016-2020 and 2017-2021 performance cycles.

 

2018 Proxy Statement   71


Table of Contents

 

    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

 

Severance and Change in Control Benefits

 

LOGO

The Company generally does not have any contracts, agreements, plans or arrangements that provide for severance or similar payments to the NEOs at, following, or in connection with any termination of employment (other than the benefits noted above in the discussion of the Executive Chairman’s Supplemental Benefits Agreement). However, the following agreements provide for certain benefits upon specific termination events:

 

 

Termination Event

 

 

 

Treatment

 

 

  Death or Disability

 

 

 

  Legacy Time-Vested RSUs: Vest pro-rata based on the portion of the vesting period completed.

  Performance-Based RSUs: Vest pro-rata based on the portion of the performance period completed, assuming target performance.

  LTIP: Earned value determined as of the last completed fiscal year-end, and distributed in cash within 90 days.

 

 

 

  Termination for Cause

 

 

 

  All Awards: Forfeit unvested portion.

 

 

 

  Other Termination (For   change in control, see   paragraphs below)

 

 

  Legacy Time-Vested RSUs: Forfeit unvested portion unless vesting is accelerated by the Compensation Committee upon retirement.

  2014 Performance-Based RSUs: If after year three of the performance period, pro-rata vesting based on actual performance through the most recent fiscal year end (forfeit if before completion of year three of the performance period).

  Performance-Based RSUs granted 2015 and after: Forfeit unvested portion.

  LTIP: For termination due to eligible retirement or by the Company for other than cause, earned value determined as of the last completed fiscal-year end, and distributed in cash within 90 days. For other terminations, forfeit.

 

 

The prospect of a change in control of the Company can cause significant distraction and uncertainty for executive officers, including the NEOs. Therefore, the Compensation Committee believes that appropriate change in control provisions are important tools for aligning executive officers’ interests with those of stockholders, in change in control scenarios. These provisions allow our executive officers to focus on strategic transactions that may be in the best interest of our stockholders without undue concern regarding the effect of such transactions on their continued employment.

Beginning in 2014, in response to stockholder feedback, RSU and LTIP awards include “double trigger” treatment upon a change in control rather than vesting or paying out automatically in the event of a change in control. If the holder’s employment is terminated by the Company without “cause” or by the holder for “good reason” (each as defined in the award agreements) within 18 months following the change in control, the unvested RSUs will vest (in an amount corresponding to an assumed achievement of “target” performance, for performance-based RSUs) and the value of LTIP awards will be determined and fixed as of the end of the fiscal year prior to the termination. However, in the limited circumstances that LTIP awards are not assumed or substituted in connection with a change in control, then the value of LTIP awards will be determined and fixed as of the end of the fiscal year prior to the change in control.

With respect to LTIP awards granted prior to 2014, upon a change in control of the Company as described in the various plan documents, the value of such LTIP awards will be determined and fixed as of the end of the fiscal year prior to the change in control and paid to the participant within 90 days following the last day of the performance period that ends upon the change in control.

 

72   W. R. Berkley Corporation


Table of Contents
 

 

    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

For additional detail, see “Executive Compensation — Potential Payments Upon Termination or Change in Control” on pages 82-84 below.

Other Policies and Considerations

 

LOGO

The Company maintains other policies and practices related to executive compensation and governance, including the following:

 

   

Clawback. The Compensation Committee has mandated recapture provisions for RSUs and LTIP units, if award recipients (including the NEOs) engage in misconduct (no restatement of financial statements required) or breach post-employment restrictions (as those terms are defined in the applicable award agreements).

 

   

Stock Ownership. Our NEOs are required to hold shares in the following amounts:

 

   

CEO: 10 times base salary

 

   

Executive Chairman: 10 times base salary

 

   

Other NEOs: 3 times base salary

All of our NEOs hold stock well in excess of their guideline amounts as noted in the following table:

Eligible Shares Owned for Purposes of Stock Ownership Guidelines

 

 

  Name

 

 

 

 

  Guideline  

 

 

 

 

Guideline
  (# of Shares)(1)  

 

 

   

 

  Eligible Shares Owned
   – as of 4/4/2018(2)

 

 

   

 

  Eligible Shares Owned  

(% of Guideline)

 

 

 

 

  Mr. Rob Berkley

 

 

 

 

10x base salary

 

 

 

 

 

 

 

 

139,567      

 

 

 

 

 

 

 

 

 

 

 

 

1,219,210          

 

 

 

 

 

 

 

 

 

 

 

 

874%              

 

 

 

 

 

 

 

  Mr. Wm. Berkley

 

 

 

 

10x base salary

 

 

 

 

 

 

 

139,567      

 

 

 

 

 

 

 

 

 

 

 

 

16,362,462          

 

 

 

 

 

 

 

 

 

 

 

 

11,724%              

 

 

 

 

 

 

 

  Mr. Baio

 

 

 

 

3x base salary

 

 

 

 

 

 

 

 

23,029      

 

 

 

 

 

 

 

 

 

 

 

 

35,484          

 

 

 

 

 

 

 

 

 

 

 

 

154%              

 

 

 

 

 

 

 

  Mr. Lederman

 

 

 

 

3x base salary

 

 

 

 

 

 

 

 

27,216      

 

 

 

 

 

 

 

 

 

 

 

 

309,891          

 

 

 

 

 

 

 

 

 

 

 

 

1,139%              

 

 

 

 

 

 

 

  Mr. Shiel

 

 

 

 

3x base salary

 

 

 

 

 

 

 

 

27,216      

 

 

 

 

 

 

 

 

 

 

 

 

265,513          

 

 

 

 

 

 

 

 

 

 

 

 

976%              

 

 

 

 

 

 

  (1)  Based on the December 31, 2017 closing stock price of $71.65 as reported by the NYSE.
  (2)  Based on shares that are owned by the NEO (as described below), less any pledged shares.

Shares counting toward meeting these ownership guidelines include: shares that are owned by the executive; shares that are beneficially owned by the executive, such as shares in “street name” through a broker or shares held in trust; shares underlying unvested or vested and deferred RSUs; and other unvested or vested and deferred equity awards denominated in common stock, excluding pledged shares and unvested performance-based RSUs. Covered executives have five years from the date the executive became an NEO to come into compliance with the guidelines.

In addition, after vesting, settlement of the RSUs is deferred (on a mandatory basis) and shares are not delivered until 90 days following the executive’s separation from service with the Company (subject to a six-month delay to comply with Section 409A of the Code). This mandatory deferral applies to our NEOs and other senior executives (a group of approximately 80 in total). The mandatory deferral feature is akin to a requirement for executives to hold all shares they receive under equity awards until their separation

 

2018 Proxy Statement   73


Table of Contents

 

    COMPENSATION DISCUSSION AND ANALYSIS    

 

 

 

from service. Executives have no ability to monetize vested RSUs until separation from service and the amounts deferred remain at risk in the event of a decline in the value of the Company’s stock.

 

    Prohibition on Hedging. The Company’s senior officers, as well as the presidents and chief financial officers of the Company’s operating units, are prohibited from hedging and other derivative transactions with respect to the Company’s common stock.

 

    Restrictions on Pledging. Shares used in fulfillment of the stock ownership guidelines may not be pledged or otherwise encumbered. In addition, vested but mandatorily deferred RSUs may not be pledged.

 

    Tax and Accounting Considerations. When reviewing compensation matters, the Compensation Committee considers the anticipated tax and accounting treatment of various payments and benefits to the Company and, when relevant, to its executives. Through December 31, 2017 and prior to the recent federal tax changes with the passage of the Tax Cuts and Jobs Act of 2017, Section 162(m) of the Code generally disallowed a tax deduction for compensation in excess of $1 million paid to the CEO and the three other most highly compensated NEOs employed at the end of the year (other than the Chief Financial Officer). Certain compensation was specifically exempt from the deduction limit to the extent that it did not exceed $1 million during any fiscal year or was “performance-based” as defined in Section 162(m) of the Code. As a result of passage of the Tax Cuts and Jobs Act, effective for taxable years beginning after December 31, 2017, the qualified “performance-based” compensation exemption was eliminated, with the effect that compensation in excess of $1 million paid to our named executive officers (including our Chief Financial Officer) will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. The Compensation Committee does not necessarily limit executive compensation to the amount deductible under the Code. Rather, it considers the available alternatives and acts to preserve the deductibility of compensation to the extent reasonably practicable and consistent with its other compensation objectives. As a result, prior to the passage of the Tax Cuts and Jobs Act, most of the Company’s compensation programs were generally intended to qualify for deductibility under Section 162(m) of the Code, including annual cash incentive awards, LTIP awards, and performance-based RSUs (but not time-vested RSUs). As noted above, RSU awards are mandatorily deferred upon vesting, so tax-deductibility of awards granted prior to November 2, 2017 may be preserved even for legacy time-vested awards based on grandfathering of the agreements.

Section 409A of the Code requires programs that allow executives to defer a portion of their current income — such as the Deferred Compensation Plan for Officers — to meet certain requirements regarding risk of forfeiture and election and distribution timing (among other considerations). Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is the Company’s intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our NEOs, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Code.

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation — Stock Compensation, which requires the Company to recognize compensation expense for share-based payments (including RSUs).

 

74   W. R. Berkley Corporation


Table of Contents
 

 

    COMPENSATION COMMITTEE REPORT    

 

 

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Compensation Committee

Mary C. Farrell, Chairwoman

Ronald E. Blaylock

Mark E. Brockbank

April 19, 2018

The above report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

2018 Proxy Statement   75


Table of Contents

 

    DISCUSSION OF RISK AND COMPENSATION PLANS    

 

 

 

Discussion of Risk and Compensation Plans

The Company has implemented a variety of practices, policies, and incentive design features that are intended to ensure that employees are not encouraged to take unnecessary or excessive risks. As a result, the Compensation Committee believes that risks arising from the Company’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company. These practices, policies and incentive design features include:

 

    Multi-year equity vesting and multi-year performance periods (discussed on pages 60-61 of this proxy statement).

 

    Non-formulaic performance-based annual cash incentive awards (discussed on pages 55 and 64-69 of this proxy statement).

 

    Clawback practices (discussed on pages 60-61 and 73 of this proxy statement).

 

    Stock ownership guidelines for NEOs (discussed on pages 73-74 of this proxy statement).

 

    Review of pledging of shares by Executive Chairman (discussed below).

 

    Unsecured and unfunded deferred compensation program (discussed on pages 61-62 of this proxy statement).

 

    Prohibition on hedging and restrictions on pledging of shares held by executives (discussed on pages 61 and 74 of this proxy statement).

 

    Mandatory deferral of vested RSUs (with shares not being delivered until separation from service) for all NEOs and other senior officers (discussed on page 61 of this proxy statement).

As part of its contribution to risk oversight, the Compensation Committee annually reviews the pledging of shares by the Executive Chairman and reports to the Board of Directors. The Compensation Committee has noted that Mr. Wm. Berkley has not sold a share of the Company’s stock since 1969, other than in connection with cashless exercises of stock options or to cover taxes on vested restricted stock units from time to time, and has a strong track record of managing his pledged shares: through all economic environments, including the 2008-2009 financial crisis, he has never been required to sell any shares. His pledging actions are not designed to shift or hedge any economic risk associated with his ownership of the Company’s shares. He has pledged shares from time to time because he did not want to reduce his significant ownership stake and weaken his alignment with the Company’s stockholders.

Mr. Wm. Berkley has significantly reduced the number of shares pledged over the past few years. This reduction in his pledged holdings totals approximately 9.7 million shares, or an approximately 53% decline, since 2011. Moreover, his unpledged holdings total almost 16.4 million shares with an approximate market value of $1.2 billion as of April 4, 2018, which represents 117 times the Company’s stock ownership guidelines for the Executive Chairman. The Compensation Committee and the Board of Directors review this issue annually and are comfortable that, due to Mr. Wm. Berkley’s overall financial position, including the approximately 16.4 million unpledged shares that represent more than 65% of his total ownership, his pledging of a portion of his shares does not create a material risk to the Company. Recognizing the steps Mr. Wm. Berkley has taken to significantly reduce the number of his pledged shares and his very substantial unpledged shares, the Compensation Committee has determined that requiring Mr. Wm. Berkley to eliminate his pledging could have an adverse impact on the Company and its stockholders if he were to sell the shares as a result. Accordingly, the Compensation Committee reaffirmed its belief that it would be counterproductive for the Company’s Executive Chairman to sell shares of the Company to further reduce his pledged shares.

 

76   W. R. Berkley Corporation


Table of Contents
 

 

    EXECUTIVE COMPENSATION    

 

 

Executive Compensation

Summary Compensation Table

 

LOGO

The following table sets forth the cash and non-cash compensation awarded to or earned during 2017 by the Chief Executive Officer of the Company, the Chief Financial Officer of the Company and the three other highest paid executive officers of the Company in 2017, 2016 and 2015.

Summary Compensation Table

 

Name and

Principal Position(1)

  Year  

Salary

($)(2)

 

Bonus

($)

 

Stock

Awards

($)(3)

 

Non-Equity

Incentive Plan

Compensation

($)(4)

 

All Other

Compensation

($)

 

Total   

($)   

 

  W. Robert Berkley, Jr.

 

   

 

 

 

 

2017

 

 

 

   

 

 

 

 

1,000,000

 

 

 

         

 

 

 

 

3,575,015

 

 

 

   

 

 

 

 

5,253,700

 

 

 

   

 

 

 

 

450,824

 

 

(5)(6)

 

   

 

 

 

 

10,279,539   

 

 

 

 

President and Chief

 

   

 

 

 

 

2016

 

 

 

   

 

 

 

 

993,769

 

 

 

         

 

 

 

 

3,575,396

 

 

 

   

 

 

 

 

5,312,850

 

 

 

   

 

 

 

 

481,274

 

 

 

   

 

 

 

 

10,363,290   

 

 

 

 

Executive Officer

 

   

 

 

 

 

2015

 

 

 

   

 

 

 

 

850,000

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

3,194,346

 

 

 

   

 

 

 

 

3,815,350

 

 

 

   

 

 

 

 

400,470

 

 

 

   

 

 

 

 

8,260,165   

 

 

 

  William R. Berkley

 

     

 

2017

 

 

     

 

1,000,000

 

 

     

 

 

 

     

 

3,575,015

 

 

     

 

7,071,000

 

 

     

 

568,082

 

(5)(6)

 

     

 

12,214,097   

 

 

 

Executive Chairman

 

   

 

 

 

 

2016

 

 

 

   

 

 

 

 

1,000,000

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

3,575,396

 

 

 

   

 

 

 

 

7,347,200

 

 

 

   

 

 

 

 

514,354

 

 

 

   

 

 

 

 

12,436,950   

 

 

 

 

of the Board

 

   

 

 

 

 

2015

 

 

 

   

 

 

 

 

1,000,000

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

5,405,798

 

 

 

   

 

 

 

 

9,246,400

 

 

 

   

 

 

 

 

487,213

 

 

 

   

 

 

 

 

16,139,411   

 

 

 

  Richard M. Baio(7)

 

     

 

2017

 

 

     

 

550,000

 

 

     

 

400,000

 

(8)

 

     

 

357,523

 

 

     

 

225,245

 

 

     

 

47,230

 

(6)

 

     

 

1,579,998   

 

 

Senior Vice President —

 

     

 

2016

 

 

     

 

497,981

 

 

     

 

330,000

 

 

     

 

330,037

 

 

     

 

205,380

 

 

     

 

45,778

 

 

     

 

1,409,176   

 

 

Chief Financial Officer and Treasurer

 

                           

  Ira S. Lederman

 

     

 

2017

 

 

     

 

650,000

 

 

           

 

522,549

 

 

     

 

923,830

 

 

     

 

55,730

 

(6)

 

     

 

2,152,109   

 

 

Executive Vice President

 

     

 

2016

 

 

     

 

650,000

 

 

           

 

522,564

 

 

     

 

913,070

 

 

     

 

63,187

 

 

     

 

2,148,821   

 

 

and Secretary

 

   

 

 

2015

 

 

   

 

 

645,833

 

 

   

 

 

 

 

   

 

 

491,671

 

 

   

 

 

952,050

 

 

   

 

 

55,712

 

 

   

 

 

2,145,266   

 

 

  James G. Shiel

 

     

 

2017

 

 

     

 

650,000

 

 

           

 

522,549

 

 

     

 

923,830

 

 

     

 

55,730

 

(6)

 

     

 

2,152,109   

 

 

Executive Vice President —

   

 

2016

   

 

650,000

         

 

522,564

   

 

908,070

   

 

59,459

   

 

2,140,094   

Investments

 

     

 

2015

 

 

     

 

645,833

 

 

     

 

 

 

 

 

 

     

 

491,671

 

 

     

 

952,050

 

 

     

 

55,712

 

 

     

 

2,145,266   

 

 

(1)  This column reflects each NEO’s principal position as of the date of this proxy statement.
(2)  Any amounts deferred, whether pursuant to a plan established under Section 401(k) of the Code or otherwise, are included for the year in which earned.
(3)  This column represents the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation.
     For 2017, all of the stock awards reported in the Stock Awards column are performance-based RSUs. The grant date fair value of performance-based RSUs is based on the probable outcome of the performance-related component. The amounts in the table above assume that on the grant date of the awards the highest level of performance was probable and therefore such amounts represent the maximum potential value of the awards. For performance-based RSUs, fair value is calculated using the average of the high and low prices of the Company’s common stock reported by the NYSE on the date of grant. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
     For additional information relating to the valuation assumptions with respect to the prior year grants, refer to note 23 of the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC. These amounts reflect the Company’s accounting expense for these awards and do not necessarily correspond to the actual value that will be recognized by the NEOs, which depends on the extent to which the RSUs are earned and the market value of the Company’s common stock on a date in the future when the RSUs are settled.
(4)  This column includes the dollar amount of annual cash incentive awards earned by Messrs. Rob Berkley, Wm. Berkley, Lederman and Shiel for performance during 2017 under the Annual Incentive Compensation Plan of $2.25 million, $3.15 million, $430,000 and $430,000, respectively. These awards were paid in March 2018. This column also includes the dollar amounts contingently earned during 2017 with respect to awards granted to each of the NEOs prior to 2018 pursuant to the LTIP, subject to the terms and conditions of the individual LTIP agreements. See the 2017 Grants of Plan-Based Awards table below for information relating to the Annual Incentive Compensation Plan. For additional information on the LTIP, refer to note 24 of the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.
(5) 

This amount includes (i) Company director fees of $91,500 and 3,000 vested shares of the Company’s common stock awarded to directors on May 16, 2017, having a grant date fair value of $198,645 (calculated using the average of the high and low prices of the Company’s common stock reported on the NYSE on the date of grant), payable to each of Messrs. Rob Berkley and Wm. Berkley; (ii) the incremental cost to the Company related to personal use of Company-owned aircraft by Mr. Rob Berkley ($75,199) and Mr. Wm. Berkley ($95,387); and (iii) for Mr. Wm. Berkley only, secretarial and administrative assistant expenses of $97,310. To increase productivity and for reasons of security and personal

 

2018 Proxy Statement   77


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