Share-Based Compensation

In February 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan"), replacing the 2005 Equity Incentive Plan (the "2005 Plan") which expired in January 2015. The 2015 Plan was approved at the Company's Annual Meeting of Shareholders in May 2015. A maximum of 4,900,000 shares of common stock under the 2015 Plan are authorized for issuance upon exercise of stock options, stock appreciation rights and other awards, or upon vesting of restricted or deferred stock awards. As of December 31, 2017, only stock options and restricted stock unit awards have been granted under these plans.



	Year Ended December 31,
	2017			2016		2015
	(Amounts in thousands)
Cash received from stock option exercises	$	2,162		$	1,632	2,111
Compensation cost, all share-based awards	60			142		5,208
Excess tax (expense) benefit, all share-based awards	(8		)	913		27

Stock Option Awards

Beginning January 1, 2008, stock options granted, for which the Company has recognized share-based compensation expense, become exercisable at a rate of 25% per year beginning one year from the date granted, are granted at the closing price of the Company's stock on the date of grant, and expire after 10 years. Prior to January 1, 2008, stock options granted became exercisable at a rate of 20% per year.

No stock options were awarded in 2017, 2016, and 2015 under the 2015 Plan or 2005 Plan. The fair values of stock options awarded in 2013 under the 2005 Plan were estimated on the dates of grant using a closed-form option valuation model (Black-Scholes). The following table provides the assumptions used in the calculation of grant-date fair values of stock options awarded during 2013 based on the Black-Scholes option pricing model:



	2013
Weighted-average grant-date fair value	$7.11
Expected volatility	33.16% - 33.18%
Weighted-average expected volatility	33.17%
Risk-free interest rate	0.88% - 1.60%
Expected dividend yield	5.40% - 5.76%
Expected term in months	72

Expected volatilities are based on historical volatility of the Company’s stock over the term of the stock options. The Company estimated the expected term of stock options, which represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior. The risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the time of the grant.

The following table presents a summary of the stock option activity under the Company’s plans for the year ended December 31, 2017:



	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in 000’s)
Outstanding at January 1, 2017	85,500	$	47.52
Granted	—	—
Exercised	(43,000)	$	50.28
Canceled or expired	—	$	—
Outstanding at December 31, 2017	42,500	$	44.72	3.0	$	371
Exercisable at December 31, 2017	42,500	$	44.72	3.0	$	371

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the stock option exercise price, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock options been exercised on December 31, 2017. The aggregate intrinsic values of stock options exercised were $371,000, $591,000, and $303,000 for 2017, 2016, and 2015, respectively. The total fair value of stock options vested during each of 2017, 2016, and 2015 was $142,000.

The following table presents information regarding stock options outstanding at December 31, 2017:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options	Weighted-Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number of Options	Weighted- Average Exercise Price
$33.61-$45.30	27,500	4.5	$	42.64	27,500	$	42.64
$47.61-$50.35	15,000	0.3	$	48.52	15,000	$	48.52

As of December 31, 2017, all of stock options outstanding were vested, and no additional compensation expenses related to these stock options will be recognized in the Company's consolidated statements of operations.

Restricted Stock Unit Awards

Under the 2015 Plan and 2005 Plan, the Compensation Committee of the Company’s Board of Directors granted performance-based vesting restricted stock unit awards to the Company’s senior management and key employees.

The following table presents the restricted stock unit grants summary at December 31, 2017:



	Grant Year
	2016	2015
Three-year performance period ending December 31,	2018	2017
Vesting shares, target (net of forfeited)	83,250	85,750
Vesting shares, maximum (net of forfeited)	156,094	160,781

The following table presents a summary of restricted stock unit awards activity, based on target vesting, during the years indicated:



	Year Ended December 31,
	2017				2016				2015
	Shares		Weighted- Average Fair Value per Share		Shares		Weighted- Average Fair Value per Share		Shares	Weighted- Average Fair Value per Share
Outstanding at January 1	271,000		$	51.09	263,250		$	45.94	167,000	$	41.15
Granted	—		—		95,750		$	53.49	100,250	$	53.80
Vested	(82,000	)	$	45.17	(78,500	)	$	36.82	—	—
Forfeited/Canceled	(20,000	)	$	53.62	(9,500)		$	50.46	(4,000)	$	43.10
Expired	—		—		—		—		—	—
Outstanding at December 31	169,000		$	53.66	271,000		$	51.09	263,250	$	45.94

The restricted stock units vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company’s Board of Directors. For 2015 and 2016 grants, vesting is based on the Company’s cumulative underwriting income, annual underwriting income, and net earned premium growth. As of December 31, 2017, 12,500 and 13,500 target restricted stock units granted in 2016 and 2015, respectively, have been forfeited because the recipients were no longer employed by the Company. Expired shares represent shares that did not meet the vesting requirements.

The fair value of each RSU grant was determined based on the closing price of the Company's common stock on the grant date for awards classified as equity and on each reporting date for awards classified as a liability. Compensation cost is recognized based on management’s best estimate of the performance goals that will be achieved. If the minimum performance goals are not met, no compensation cost will be recognized and any recognized compensation cost would be reversed.

In March 2017, approximately $3.6 million was paid upon the vesting of 61,445 RSUs awarded in 2014 resulting from the attainment of performance goals above the target threshold during the three-year performance period ended December 31, 2016.

In February 2016, 88,074 shares of common stock, net of 58,822 shares withheld for payroll taxes, were issued upon the vesting of 146,896 RSUs awarded in 2013 resulting from the attainment of performance goals above the target threshold during the three-year performance period from 2013 to 2015.

At December 31, 2016, the Company determined that it was probable that the Company's Board of Directors would modify the payment method for the vested 2014 grant awards and pay for the vested awards in cash in lieu of shares of the Company's common stock. As a result, the 2014 grants were reclassified from equity to liability awards at December 31, 2016. $3.4 million of the amount previously recognized in additional paid-in capital for the 2014 grant awards was reclassified to other liabilities in the consolidated balance sheets at December 31, 2016. Additional $0.2 million was reclassified from additional paid-in capital to other liabilities at the vesting date of February 28, 2017 for the 2014 grant awards, based on the additional amount of awards vested from December 31, 2016 through the vesting date.