Compensation Plans:

KSOP

The Company has established the KSOP for the benefit of eligible employees in the U.S. and Puerto Rico. The KSOP includes both an employee savings component and an employee stock ownership component. The purpose of the combined plan is to enable the Company’s employees to participate in a tax-deferred savings arrangement under Internal Revenue Service Code Sections 401(a) and 401(k) (the “Code”), and to provide employee equity participation in the Company through the employee stock ownership plan (“ESOP”) accounts.

Under the KSOP, eligible employees may make pre-tax and after-tax cash contributions as a percentage of their compensation, subject to certain limitations under the applicable provisions of the Code. The maximum pre-tax contribution that can be made to the 401(k) account as determined under the provisions of Code Section 401(g) is $18, $17 and $17 for 2013, 2012 and 2011, respectively. Certain eligible participants (age 50 and older) may contribute an additional $6 on a pre-tax basis for 2013, 2012 and 2011. After-tax contributions are limited to 10% of a participant’s compensation. The Company provides quarterly matching contributions in Verisk Class A common stock. The quarterly matching contributions are primarily equal to 75% of the first 6% of the participant’s contribution.

The Company established the ESOP component as a funding vehicle for the KSOP. This leveraged ESOP acquired 57,190,000 shares of the Company’s Class A common stock at a cost of approximately $33,170 ($0.58 per share) in January 1997. The ESOP borrowed $33,170 from an unrelated third party to finance the purchase of the KSOP shares. The common shares were pledged as collateral for its debt. The Company made annual cash contributions to the KSOP equal to the ESOP’s debt service. As the debt was repaid, shares were released from collateral and allocated to active employees in proportion to their annual salaries in relation to total participant salaries. The Company accounts for its ESOP in accordance with ASC 718-40, Employee Stock Ownership Plans (“ASC 718-40”) and ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”). As shares were committed to be released from collateral, the Company reported compensation expense at the then-current fair value of the shares, and the shares became outstanding for EPS computations.

In December 2004, the Company repaid the ESOP loan and issued a new loan agreement between the Company and the KSOP, thereby extending the allocation of the remaining unreleased shares as of July 1, 2004 through 2013. As part of this new loan agreement, the Company is required to contribute $8,000 to the ESOP by 2016, earlier payment is at the Company’s discretion. On April 20, 2013, the ESOP refinanced its intercompany loan between the Company and the KSOP, thereby extending the allocation of the remaining unreleased shares through 2016. As part of this new loan agreement, the Company is required to contribute an additional $9,000, plus interest, of cash or shares to the ESOP by 2016. Earlier contribution is at the Company's discretion. As the intercompany ESOP loan is repaid, a percentage of the ESOP loan collateral will be released and allocated to active participants in proportion to their annual salaries in relation to total participant salaries. As of December 31, 2013, the intercompany ESOP loan collateral consisted of 394,598 shares of Verisk Class A common stock valued at $65.72 per share. As of December 31, 2013, the Company had 14,137,294 allocated ESOP shares.

In 2005, the Company established the ISO Profit Sharing Plan (the “Profit Sharing Plan”), a defined contribution plan, to replace the qualified pension plan for all eligible employees hired on or after March 1, 2005. The Profit Sharing Plan is a component of the KSOP. Eligible employees participated in the Profit Sharing Plan if they completed 1,000 hours of service each plan year and were employed on December 31 of that year. The Company can make a discretionary contribution to the Profit Sharing Plan based on the annual performance of the Company. Participants vest once they have completed four years and 1,000 hours of service. For fiscal years 2013 and 2012, there were no profit sharing contributions allocated. In 2011, the profit sharing contribution was funded using Class A common stock.

At December 31, 2013, 2012 and 2011, the fair value of Verisk Class A common stock was $65.72, $50.97, and $40.13 per share, respectively. KSOP compensation expense for 2013, 2012 and 2011 was approximately $14,930, $13,111 and $12,615, respectively.

Equity Compensation Plans

All of the Company’s outstanding stock options and restricted stock are covered under the 2013 Incentive Plan, 2009 Incentive Plan or the 1996 Incentive Plan. Awards under the 2013 Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under the 2013 Incentive Plan. The Company issued common stock under these plans from the Company's treasury shares. On May 15, 2013, the Company’s shareholders approved the 2013 Incentive Plan. The number of shares of Class A common stock available for issuance under the 2013 Incentive Plan is 15,700,000 and such amount shall be reduced on a 1-for-1 basis for every share issued that is subject to an option or stock appreciation right and on a 2.5-for-1 basis for every share issued that is subject to an award other than an option or stock appreciation right. Shares that were subject to an award under the 2013 Incentive Plan that become forfeited, expired or otherwise terminated shall again be available for issuance under the 2013 Incentive Plan on a 1-for-1 basis if the shares were subject to options or stock appreciation rights, and on an 2.5-for-1 basis if the shares were subject to awards other than options or stock appreciation rights. As of December 31, 2013, there were 14,365,793 shares of Class A common stock reserved and available for future issuance. Cash received from stock option exercises for the years ended December 31, 2013, 2012 and 2011 was $80,368, $68,388 and $43,345, respectively.

In 2013, the Company granted 806,512 nonqualified stock options to key employees. The nonqualified stock options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date, with a ten-year contractual term and a service vesting period of four years. In addition, the Company granted 209,292 shares of restricted stock and 574 shares of Class A common stock to key employees. The restricted stock is valued at the closing price of the Company’s Class A common stock on the date of grant and has a service vesting period of four years. The Company recognizes the expense of the restricted stock ratably over the periods in which the restrictions lapse. The restricted stock is not assignable or transferrable until it becomes vested. Also in 2013, the Company granted 27,494 nonqualified stock options that were immediately vested, 54,032 nonqualified stock options with a one-year service vesting period, 7,535 shares of Class A common stock, and 32,382 deferred stock units to the directors of the Company. The nonqualified stock options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date and a ten-year contractual term.

The fair value of the stock options granted was estimated on the date of grant using a Black-Scholes option valuation model that uses the weighted-average assumptions noted in the following table during the years ended December 31:



	2013			2012			2011
Option pricing model		Black-Scholes			Black-Scholes			Black-Scholes
Expected volatility		29.27	%		32.22	%		30.44	%
Risk-free interest rate		0.70	%		0.90	%		2.21	%
Expected term in years		4.5			4.7			5.1
Dividend yield		—	%		—	%		—	%
Weighted average grant date fair value per stock option	$	15.58		$	13.59		$	10.42

The expected term for a majority of the awards granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor was based on the average volatility of the Company’s peers, calculated using historical daily closing prices over the most recent period is commensurate with the expected term of the stock option awards. The expected dividend yield was based on the Company’s expected annual dividend rate on the date of grant.

A summary of options outstanding under the Incentive Plan and the Option Plan and changes during the three years then ended is presented below:



	Number of Options			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
	(In thousands, except for share and per share data)
Outstanding at January 1, 2011		23,057,857		$	13.35	$	478,014
Granted		1,574,705		$	33.46
Exercised		(5,543,866	)	$	7.82	$	149,613
Cancelled or expired		(192,291	)	$	22.58
Outstanding at December 31, 2011		18,896,405		$	16.55	$	445,510
Granted		973,124		$	47.38
Exercised		(6,880,678	)	$	9.09	$	257,391
Cancelled or expired		(415,553	)	$	19.30
Outstanding at December 31, 2012		12,573,298		$	22.21	$	361,653
Granted		888,038		$	61.10
Exercised		(4,076,750	)	$	19.79	$	168,056
Cancelled or expired		(149,266	)	$	43.14
Outstanding at December 31, 2013		9,235,320		$	26.67	$	360,611
Options exercisable at December 31, 2013		7,169,089		$	20.98	$	320,766
Options exercisable at December 31, 2012		8,796,996		$	18.37	$	286,806

A summary of the status of the Company’s nonvested options and changes is presented below:



	Number of Options			Weighted Average Grant-Date Fair Value Per Share
Nonvested balance at January 1, 2011		8,237,410		$	6.27
Granted		1,574,705		$	10.42
Vested		(2,876,730	)	$	5.56
Cancelled or expired		(192,291	)	$	6.82
Nonvested balance at December 31, 2011		6,743,094		$	7.52
Granted		973,124		$	13.59
Vested		(3,524,363	)	$	7.38
Cancelled or expired		(415,553	)	$	5.62
Nonvested balance at December 31, 2012		3,776,302		$	9.43
Granted		888,038		$	15.58
Vested		(2,448,843	)	$	8.81
Cancelled or expired		(149,266	)	$	12.18
Nonvested balance at December 31, 2013		2,066,231		$	12.61

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of Verisk’s common stock as of the reporting date. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2013 was $360,611 and $320,766, respectively. In accordance with ASC 718, excess tax benefit from exercised stock options is recorded as an increase to additional-paid-in capital and a corresponding reduction in taxes payable. This tax benefit is calculated as the excess of the intrinsic value of options exercised in excess of compensation recognized for financial reporting purposes. The amount of the tax benefit that has been realized, as a result of those excess tax benefits, is presented as a financing cash inflow within the accompanying consolidated statements of cash flows. For the years ended December 31, 2013, 2012 and 2011, the Company recorded excess tax benefit from exercised stock options of $58,056, $88,387 and $57,684, respectively. The Company realized $109,946, $60,672 and $53,195 of tax benefit within the Company’s tax payments through December 31, 2013, 2012 and 2011, respectively.The Company estimates expected forfeitures of equity awards at the date of grant and recognizes compensation expense only for those awards that the Company expects to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized over the requisite service period and may impact the timing of expense recognized over the requisite service period. Stock based compensation expense for 2013, 2012 and 2011 was $21,087, $24,696 and $22,656, respectively.

A summary of the status of the restricted stock awarded under the 2013 Incentive Plan and changes is presented below:



	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2010		—		$	—
Granted		150,187		$	33.27
Vested		(1,523	)	$	33.30
Forfeited		(3,030	)	$	33.30
Outstanding at December 31, 2011		145,634		$	33.32
Granted		244,397		$	47.10
Vested		(41,120	)	$	34.51
Forfeited		(17,898	)	$	43.27
Outstanding at December 31, 2012		331,013		$	42.78
Granted		241,674		$	61.12
Vested		(150,668	)	$	37.82
Forfeited		(25,270	)	$	53.00
Outstanding at December 31, 2013		396,749		$	52.82

As of December 31, 2013, there was $39,086 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2013 Incentive Plan and the 2009 Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.51 years. As of December 31, 2013, there were 2,066,231 and 396,749 nonvested stock options and restricted stock, respectively, of which 1,581,125 and 287,897 are expected to vest. The total grant date fair value of options vested during the years ended December 31, 2013, 2012 and 2011 was $16,468, $19,834 and $20,554, respectively. The total grant date fair value of restricted stock vested during the year ended December 31, 2013, 2012 and 2011 was $7,153, $3,206 and $908, respectively.

On May 16, 2012, the Company’s stockholders approved the implementation of an employee stock purchase plan (“ESPP”). The ESPP commenced on October 1, 2012 and offers eligible employees the opportunity to authorize payroll deductions of up to 20.0% of their regular base salary and up to 50.0% of their short-term incentive compensation, both of which in total may not exceed $25 in any calendar year, to purchase shares of the Company’s Class A common stock at a 5.0% discount of its fair market value at the time of purchase. In accordance with ASC 718, the ESPP is noncompensatory as the purchase discount is 5.0% or less from the fair market value, substantially all employees that meet limited employment qualifications may participate, and it incorporates no option features. During the year ended December 31, 2013, the Company issued 27,879 shares of Verisk Class A common stock at a weighted average discounted price of $59.62.