Share-based compensation

On July 15, 2013, the Third Point Reinsurance Ltd. 2013 Omnibus Incentive Plan (“Omnibus Plan”) was approved by the Board of Directors and subsequently on August 2, 2013 by the shareholders of the Company. An aggregate of 21,627,906 common shares were made available under the Omnibus Plan. This number of shares includes the shares available under the Third Point Reinsurance Ltd. Share Incentive Plan ("Share Incentive Plan"). Awards under the Omnibus Plan may be made in the form of performance awards, restricted shares, restricted share units, share options, share appreciation rights and other share-based awards.

As of June 30, 2014, 10,255,525 (December 31, 2013 - 10,613,975) of the Company's common shares were available for future issuance under the equity incentive compensation plans.

Share based compensation expense of $2.2 million for the three months ended June 30, 2014 (2013 - $1.7 million) was included in general and administrative expenses. Share based compensation expense of $4.5 million for the six months ended June 30, 2014 (2013 - $3.5 million) was included in general and administrative expenses.

As of June 30, 2014, the Company had $20.7 million (December 31, 2013 - $23.8 million) of unamortized share compensation expense that is expected to be amortized over a weighted average period of 1.8 years (December 31, 2013 - 2.0 years).


(a)	Management and director options

The share options issued to management under the Share Incentive Plan prior to the IPO are subject to a service condition and a performance condition. The service condition will be met with respect to 20% of the management options on each of the first five anniversary dates following the grant date of the management options. The performance condition with respect to the management options was met as a result of the IPO. Prior to the IPO, 8,572,594 of the management options outstanding had met the performance condition. After the IPO, the remaining 2,357,633 management options had met the performance condition.

The director options contain only a service condition that will be met with respect to 20% of the director options on each of the five anniversary dates following the grant date of the director options. On November 6, 2013, the director options were modified so that a total of 60% of the outstanding options vested on that date and the remaining 40% of the director options were forfeited. These forfeited options were replaced with restricted share awards.

The management and director options activity for the six months ended June 30, 2014 and the year ended December 31, 2013 were as follows:



	Number of options		Weighted average exercise price
Balance as of January 1, 2013	10,956,838		$	13.20
Granted - employees	348,836		14.09
Granted - directors	—		—
Forfeited	(324,599	)	13.20
Exercised	—		—
Balance as of December 31, 2013	10,981,075		13.23
Granted - employees	348,836		18.25
Granted - directors	—		—
Forfeited	—		—
Exercised	—		—
Balance as of June 30, 2014	11,329,911		$	13.38

The fair value of share options issued were estimated on the grant date using the Black-Scholes option-pricing model. The share price used for purposes of determining the fair value of share options that were granted in the six months ended June 30, 2014 was $15.05. The estimated share price used for purposes of determining the fair value of share options that were granted in the second quarter of 2013 (prior to the IPO) was $10.89. The volatility assumption used was 23.1% (2013 - 22.0%). The other assumptions used in the option-pricing model were as follows: risk free interest rate of 2.2% (2013 - 1.2%), expected life of 6.5 years (2013 - 6.5 years) and a 0.0% dividend yield (2013 - 0.0%). As of June 30, 2014, the weighted average remaining contractual term for options outstanding was 7.6 years (2013 - 8.1 years).

The following table summarizes information about the Company’s management and director share options outstanding as of June 30, 2014:



	Options outstanding		Options exercisable
Range of exercise prices	Number of options	Weighted average exercise price	Number of options	Weighted average exercise price
$10.00-$10.89	6,588,647	$10.03	2,346,787	$10.02
$15.05-$16.89	2,405,516	$15.94	782,262	$16.02
$20.00-$25.05	2,335,748	$20.21	782,262	$20.02
	11,329,911	$13.38	3,911,311	$13.22

For the three months ended June 30, 2014, the Company recorded $1.7 million (2013 - $1.5 million) of share compensation expense related to share options. For the six months ended June 30, 2014, the Company recorded $3.4 million (2013 - $2.8 million) of share compensation expense related to share options.

The aggregate intrinsic value of options outstanding and options exercisable as of June 30, 2014 was $34.5 million and $12.3 million, respectively (December 31, 2013 - $61.5 million and $17.6 million, respectively).


(b)	Restricted shares

Restricted shares vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment or service and transferability.

Restricted share award activity for the six months ended June 30, 2014 and year ended December 31, 2013 was as follows:



	Number of non- vested restricted shares	Weighted average grant date fair value
Balance as of January 1, 2013	619,300	$	10.00
Granted	37,856	15.22
Forfeited	—	—
Vested	—	—
Balance as of December 31, 2013	657,156	10.25
Granted	9,614	15.29
Forfeited	—	—
Vested	—	—
Balance as of June 30, 2014	666,770	$	10.37

For the three months ended June 30, 2014, the Company issued 6,489 (2013 - nil) restricted shares to employees. For the six months ended June 30, 2014, the Company issued 9,614 (2013 - 5,000) restricted shares to employees. The restricted shares issued to employees in 2014 will vest after three years from the date of issuance, subject to the grantee's continued service with the Company. The restricted shares issued in 2013 to employees vest two years from the date of grant and restricted shares issued to directors vest on December 31, 2014, subject to the grantee's continued service with the Company.

For the three months ended June 30, 2014, the Company recorded $0.5 million (2013 - $0.2 million) compensation expense related to restricted share awards. For the six months ended June 30, 2014, the Company recorded $1.1 million (2013 - $0.7 million) compensation expense related to restricted share awards.