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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
XL CAPITAL LTD
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
XL CAPITAL LTD _______________________
NOTICE OF ANNUAL GENERAL MEETING OF HOLDERS OF CLASS A ORDINARY SHARES _______________________
Hamilton, Bermuda
March 19, 2007
TO THE HOLDERS OF CLASS A ORDINARY SHARES OF XL CAPITAL LTD:
Notice is hereby given that the Annual General Meeting of holders (the Shareholders) of Class A Ordinary Shares of XL Capital Ltd (the Company) will be held at the
principal executive offices of the Company, located at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda, on Friday, April 27, 2007 at 8:30 a.m. local time for the following purposes: To elect four Class III Directors to hold office until 2010; To ratify the appointment of PricewaterhouseCoopers LLP, New York, New York, to act as the independent registered public accounting firm of the Company for the year ending December 31, 2007; and To transact such other business as may properly come before the meeting or any adjournments thereof.
Only Shareholders of record, as shown by the transfer books of the Company at the close of business on March 8, 2007, are entitled to receive notice of and to vote at the Annual General
Meeting.
PLEASE VOTE YOUR PROXY BY TELEPHONE, INTERNET OR MAIL AS DIRECTED ON THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU LATER DESIRE TO
REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. YOUR SHARES WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED IN THE PROXY STATEMENT. IF NO INSTRUCTION IS GIVEN, YOUR SHARES WILL BE VOTED
FOR ITEMS 1 AND 2 IN THE PROXY. By Order of The Board of Directors,
XL CAPITAL LTD _______________________
PROXY STATEMENT
FOR THE
ANNUAL GENERAL MEETING OF HOLDERS OF CLASS A ORDINARY SHARES
TO BE HELD ON APRIL 27, 2007 _______________________
The accompanying proxy is solicited by the Board of Directors of XL Capital Ltd (the Company) to be voted at the Annual General Meeting of holders (the Shareholders) of
the Companys Class A Ordinary Shares (the Shares) to be held on April 27, 2007 and any adjournments thereof.
When such proxy is properly executed and returned, the Shares of the Company it represents will be voted at the meeting on the following: (1) the election of the four nominees for Class III
Directors identified herein, and (2) the ratification of the appointment of PricewaterhouseCoopers LLP, New York, New York (the Independent Auditor), to act as the independent registered public accounting firm of the Company for the year
ending December 31, 2007.
Any Shareholder giving a proxy has the power to revoke it prior to its exercise by giving notice of such revocation to the Secretary of the Company in writing at XL House, One Bermudiana Road,
Hamilton, HM 11, Bermuda, by attending and voting in person at the Annual General Meeting or by executing a subsequent proxy, provided that such action is taken in sufficient time to permit the necessary examination and tabulation of the subsequent
proxy or revocation before the votes are taken.
Shareholders of record as of the close of business on March 8, 2007 will be entitled to vote at the Annual General Meeting. As of March 8, 2007, there were 180,054,134 outstanding Shares
entitled to vote at the Annual General Meeting, with each Share entitling the holder of record thereof to one vote at the Annual General Meeting (subject to certain limitations set forth in the Companys Articles of Associationsee
footnote 1 under the heading Beneficial Ownership).
This Proxy Statement, the attached Notice of Annual General Meeting and the accompanying proxy card are first being mailed to Shareholders on or about March 19, 2007.
Other than the approval of the minutes of the 2006 Annual General Meeting, the Company knows of no specific matter to be brought before the Annual General Meeting that is not referred to in the
Notice of Meeting. If any such matter comes before the Annual General Meeting, including any Shareholder proposal properly made, the proxy holders will vote proxies in accordance with their judgment.
The election of each nominee for Director and the ratification of the appointment of the Independent Auditor referred to in Item 2 above require the affirmative vote of a majority of the votes
cast on such proposal at the Annual General Meeting, provided there is a quorum (consisting of one or more Shareholders present in person or by proxy holding at least fifty percent (50%) of the issued and outstanding Shares entitled to vote at the
Annual General Meeting). Shares owned by Shareholders electing to abstain from voting with respect to any proposal and broker non-votes will be counted towards the presence of a quorum but will not be considered present and voting with
respect to the elections of nominees for Director or other matters to be voted upon at the Annual General Meeting. Therefore, abstentions and broker non-votes will have no effect on the outcome of the proposals to elect directors or to
ratify the appointment of the Auditors.
BENEFICIAL OWNERSHIP
The following table sets forth certain information with respect to each person or group that, as of March 8, 2007, was, to the Companys knowledge, the beneficial owner of more than 5% of
the Companys outstanding Shares. There were 180,054,134 Shares outstanding as of March 8, 2007. The table is based upon information contained in filings with the Securities and Exchange Commission (the SEC). Each Share has one vote, except that if, and for so long as, the votes conferred by the Controlled Shares (as hereinafter defined) of any person constitute 10% or more of the votes conferred by the issued
Shares, the voting rights with respect to the Controlled Shares owned by such person shall be limited, in the aggregate, to a voting power equal to approximately (but slightly less than) 10%, pursuant to a formula set forth in the Companys
Articles of Association. Controlled Shares include, among other things, all Shares that a person (as defined in the Companys Articles of Association) owns directly, indirectly or constructively (within the meaning of Section
13(d)(3) of the Exchange Act or Section 958 of the Internal Revenue Code of 1986, as amended). Represents 5,704,500 Shares with sole voting power; also represents 17,526,720 Shares with sole dispositive power and includes (i) 542,640 Shares resulting from the assumed conversion of 2,040,000 6.50%
Equity Security Units issued by the Company in March 2004 and expiring May 15, 2007; and (ii) 899,580 Shares resulting from the assumed conversion of 2,900,000 7.00% Equity Security Units issued by the Company in December 2005 and expiring February
15, 2009. Represents 11,328,175 Shares with sole voting power and 1,459,818 Shares with shared voting power; also represents 15,867,525 Shares with sole dispositive power and 6,512 Shares with shared dispositive
power. Represents 15,148,807 Shares with sole voting power; also represents 15,648,920 Shares with sole dispositive power and 203,310 Shares with shared dispositive power. Represents 3,597,827 Shares with sole voting power and 11,901,099 Shares with shared voting power; also represents 15,498,926 Shares with sole dispositive power. Represents 5,609,659 Shares with sole voting power; also represents 12,211,309 Shares with sole dispositive power.
BOARD OF DIRECTORS
The Companys Articles of Association provide that the Board of Directors (sometimes referred to herein as the Board) shall be divided into three classes, designated
Class I, Class II and Class III, with each class consisting as nearly as possible of one-third of the total number of Directors constituting the entire Board of Directors.
The term of office for each Director in Class I expires at the 2008 Annual General Meeting; the term of office for each Director in Class II expires at the 2009 Annual General Meeting; and the
term of office for each Director in Class III expires at the 2007 Annual General Meeting of the Company. At each Annual General Meeting, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the Annual General Meeting to be held in the third year following the year of their election. In 2006, there were seven meetings of the Board and all incumbent Directors attended at least 75% of such meetings and of the meetings
held by all committees of the Board of which they were a member. Formal meetings of the Board and Board committees are supplemented periodically by informational meetings. In 2006, four such informational meetings of the Board were held. The Company
expects Directors to attend the Annual General Meeting and eleven of our then Directors attended the 2006 Annual General Meeting.
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Executive Sessions of Non-Management and Independent Directors
The Companys non-management Directors meet at regularly scheduled executive sessions of the Board without any member of management in attendance. In addition, the independent Directors
meet as a group at least annually. Mr. Glauber and, in his absence, Mr. Comey were selected by the independent Directors to act as presiding Director (the Lead Director) at such executive sessions of the Board. The next meeting at which
the Lead Director is to be selected, is scheduled to occur immediately before the Companys 2008 Annual General Meeting and on each second anniversary thereafter.
Independence Standards
The Board has adopted categorical standards to assist it in making determinations as to whether Directors have any material relationships with the Company for purposes of determining
independence under the listing standards of the New York Stock Exchange (the NYSE) and Rule 10A-3 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). The categorical standards are attached as
Appendix A to this Proxy Statement. In accordance with these standards, the Board of Directors determined (i) in February 2006 that Mr. Weiser, who retired as a Director of the Company immediately prior to the Companys Annual General Meeting
of Shareholders in 2006, was independent in accordance with such categorical standards; (ii) in February 2007 that each of Messrs. Comey, Glauber, Haag, Mauriello, McQuade, Rance, Senter and Thornton and Drs. Parker and Thrower is independent in
accordance with such categorical standards; and (iii) that no transactions or relationships existed that were inconsistent with a determination that each such Director is independent.
In reaching its conclusion with respect to each of the independent directors, the Board considered that (i) three Directors (Messrs. Glauber, OHara and Mauriello) are directors on boards
of entities on which other Directors are executive officers (Mr. McQuade and Dr. Thrower), (ii) a Director (Mr. McQuade) is an executive officer of a company to which the Company provides insurance and conducts business in the ordinary course at
levels that do not exceed the limits contained in the NYSE rules, (iii) a Director (Mr. Mauriello) receives a pension from a company that does business with the Company, (iv) a Director (Mr. McQuade) has a family member who is employed by an
investment bank that does work for the Company from time to time, but the family member is not involved in the work for the Company, (v) a Director (Mr. Senter) is a director at a public subsidiary of the Company and (vi) a Director (Dr. Thrower) is
an executive director of a charitable organization to which the Company and certain directors and executive officers make contributions.
Code of Conduct
The Company has adopted a Code of Business Conduct and Ethics, which applies to all of the Companys Directors, officers (including the Chief Executive Officer) and employees. The Company
has also adopted a Code of Ethics for XL Senior Financial Officers applicable to the Companys chief financial officer, controller and other persons performing similar functions. The Company will post on its website at www.xlcapital.com any amendment to or waiver under the Code of Business Conduct and Ethics or the Code of Ethics for XL Senior Financial Officers granted to any of its Directors or executive officers
that relates to any element of the code of ethics definition set forth in Item 406 of Regulation S-K of the Securities Act of 1933, as amended.
Website Access to Governance Documents
The Companys Director Independence Standards, Corporate Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics for XL Senior Financial Officers, the charters for
the Audit Committee, Compensation Committee, Nominating & Governance Committee, Finance Committee, and Public Affairs Committee, and other Company ethics and governance materials are available free of charge on the Companys website at
www.xlcapital.com or by writing to Investor Relations, XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 11, Bermuda.
Committees
The Board has established an Audit Committee, a Compensation Committee, a Nominating & Governance Committee, a Finance Committee and a Public Affairs Committee. Each member of the Audit
Committee is independent as independence for Audit Committee members is defined in the NYSE listing standards and Rule
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10A-3 promulgated under the Exchange Act. Each member of the Compensation Committee, the Nominating & Governance Committee and the Public Affairs Committee is independent (as defined in the NYSE listing
standards).
Audit Committee
The Audit Committees primary purpose is to assist in the Boards oversight of the integrity of the Companys financial statements, including its system of internal controls, the
Independent Auditors qualifications, independence and performance, the performance of the Companys internal audit function and the Companys compliance with legal and regulatory requirements. The Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of the work of the Independent Auditor in preparing or issuing an audit report or performing other audit, review or attestation services for the Company. Messrs. Thornton
(Chairman), Comey, Mauriello, McQuade, Rance, Senter and Dr. Thrower comprise the Audit Committee. The Audit Committee met six times during 2006 and held ten informational meetings in 2006. The Board has determined that each of Messrs. Mauriello,
McQuade, Senter and Thornton is an audit committee financial expert (as that term is defined in Item 401(h) of Regulation S-K).
Compensation Committee
The Compensation Committee reviews the performance and compensation of the Chairman, the Chief Executive Officer and other senior executives and has overall responsibility for approving and
evaluating compensation and benefit plans of the Company. Messrs. Comey (Chairman), Glauber and McQuade comprise the Compensation Committee. The Compensation Committee met six times during 2006 and held three informational meetings in 2006. On
September 15, 2006, the Board elected Mr. Glauber as a member of the Compensation Committee.
Nominating & Governance Committee
The Nominating & Governance Committee makes recommendations to the Board as to nominations for the Board and Board committee memberships and compensation for Board and Board committee
members, as well as structural, governance and procedural matters. The Nominating & Governance Committee also reviews the performance of the Board and the Companys succession planning. Drs. Parker (Chairman) and Thrower and Mr. Mauriello
comprise the Nominating & Governance Committee. The Nominating & Governance Committee met six times during 2006. On February 24, 2006, the Board elected Mr. Mauriello as a member of the Nominating & Governance Committee.
Identifying and Evaluating Nominees
The Nominating & Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the
composition of the Board as a whole. When the Board determines to seek a new member, whether to fill a vacancy or otherwise, the Nominating & Governance Committee utilizes third-party search firms and considers recommendations from Board
members, management and others, including Shareholders. In general, the Nominating & Governance Committee looks for new members possessing superior business judgment and integrity who have distinguished themselves in their chosen fields of
endeavor and who have knowledge or experience in the areas of insurance, reinsurance, financial services or other aspects of the Companys business, operations or activities.
Nominees Recommended by Shareholders
The Nominating & Governance Committee will consider, for Director nominees, persons recommended by Shareholders, who may submit recommendations to the Nominating & Governance Committee
in care of the Companys Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda. To be considered by the Nominating & Governance Committee, such recommendations must be accompanied by a description of the qualifications of the
proposed candidate and a written statement from the proposed candidate that he or she is willing to be nominated and desires to serve if elected. Nominees for Director who are recommended by Shareholders to the Nominating & Governance Committee
will be evaluated in the same manner as any other nominee for Director. Nominations by Shareholders may also be made at an Annual General Meeting in the manner set forth under Shareholder Proposals for 2008 Annual General
Meeting.
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Finance Committee
The Finance Committee establishes and recommends the financial policies of the Company and reviews the Companys capital structure, issuances of securities, dividend policy, mergers,
acquisitions and divestitures, significant strategic investments, overall investment policy and performance, all major risk management exposures and annual business plan and budget. Messrs. Esposito (Chairman), Glauber, Haag, OHara, Senter and
Thornton and Dr. Parker comprise the Finance Committee. The Finance Committee met six times during 2006 and held four informational meetings in 2006. Messrs. Glauber and Haag were elected by the Board as members of the Finance Committee on September
15, 2006 and June 9, 2006, respectively.
Public Affairs Committee
The Public Affairs Committee reviews the Companys policies and programs that relate to public issues of significance to the Company and the public at large, the Companys
relationship with external constituencies and the non-financial issues that impact the Companys reputation. The Public Affairs Committee also oversees the Companys program of charitable giving. Mr. Rance (Chairman) and Drs. Parker and
Thrower comprise the Public Affairs Committee. On July 26, 2006, the Board elected Dr. Thrower as a member of the Public Affairs Committee. The Public Affairs Committee met twice during 2006.
Communications with Members of the Board of Directors and its Committees
Shareholders and other interested persons may communicate directly with one or more Directors (including the Lead Director or all non-management Directors as a group) by writing to them in care
of the Companys Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda and specifying the intended recipient(s). All such communications will be forwarded to the appropriate Director(s) for review, other than communications that
are advertisements or other commercial solicitations or communications.
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DIRECTOR COMPENSATION
The Company compensates each of its non-employee Directors (except for the Chairman of the Board and the Chief Executive Officer (who is also an employee of the Company)), (collectively, the Non-Employee Directors) through a mixture of cash and equity-based compensation. Director Summary Compensation Table
The following table sets forth the compensation paid by the Company to Non-Employee Directors for services rendered in the fiscal year ended December 31, 2006: Brian M. OHara, the Companys
President and Chief Executive Officer, is not included in this table, as
he is an employee of the Company and therefore receives no compensation for
his service as a Director. The compensation received by Mr. OHara
as an employee of the Company is shown in the Summary Compensation
Tableon page 14. Mr. Esposito, the Chairman of the Board of Directors,
is not included in this table. Mr. Espositos compensation is described
under Compensation Paid to the Chairman of the Board below. Mr. Glauber, having originally served on the Companys Board from 1998 to May 2005, was appointed as a Director of the Company on September 15, 2006. Mr. Weiser retired as a Director of the Company
immediately prior to the Companys Annual General Meeting of Shareholders in 2006. See Cash Compensation Paid to Non-Employee Directors below. Includes the annual retainer fee of $50,000 (the Annual Fee) paid to each Non-Employee Director for services in 2006.
Messrs. Comey, Mauriello, McQuade, and Thornton, each elected to receive their entire Annual Fee in the form of Deferred Share Units (as defined and described below), which are included in the Equity Securities Owned Beneficially table
on page 13, below. Drs. Parker and Thrower elected to receive half of their Annual Fee in the form of Deferred Share Units, which are included in the Equity Securities Owned Beneficially table on page 13, below. Includes for (i) Mr.
Glauber a pro rated Annual Fee of $33,334 paid upon his appointment to the Board on September 15, 2006; (ii) Mr. Haag a pro rated Annual Fee of $33,334 paid upon his appointment to the Board on June 7, 2006; (iii) Mr. Mauriello, an
additional pro rated Annual Fee of $16,667 paid to him upon his appointment to the Board on January 26, 2006; and (iv) Mr. Weiser a pro rated Annual Fee of $16,667 paid to him in 2005 for his service from January 2006 until his retirement from
the Board on April 28, 2006. See Equity Based Compensation
Paid to Non-Employee Directors below. Represents the dollar amount
recognized by the Company for financial statement reporting purposes with
respect to the 2006 fiscal year, for the fair value of stock awards granted
in 2006, calculated utilizing the provisions of Statement of Financial Accounting
Standards No. 123R, Share Based Payments. See Note 21(d) of the
consolidated financial statements in the Companys Annual Report on
Form 10-K for the year ended December 31, 2006. Includes the following amounts
in respect of Retainer Share Units (as described below) and dividend Share
units credited to each of the Deferred Share Unit and Retainer Share Unit
accounts of each of the Non-Employee Directors: Mr. Comey, $59,596; Mr.
Glauber, $33,520; Mr. Haag, $34,242; Mr. Mauriello, $52,187;
Mr. McQuade, $55,017; Dr. Parker, $66,989; Mr. Rance, $62,784;
Mr. Senter, $60,368; Mr. Thornton, $70,930, Dr. Thrower, $63,193
and Mr. Weiser, $21,003. Includes for Mr. Weiser, 1,250 restricted Shares awarded to him in 2006 at the fair market value of $65.89, in connection with his retirement from the Board on April 28, 2006 and as an
acknowledgement of his service as the presiding Director at executive sessions of the Board. The aggregate number of stock awards outstanding as at December 31, 2006 for each Non-Employee Director was nil. See Equity Based Compensation Paid to Non-Employee Directors below. Represents the dollar amount recognized by the Company for financial statement reporting purposes with respect to the 2006
fiscal year, for the fair value of options granted to each Director in 2006, calculated utilizing the provisions of Statement of Financial Accounting Standards No. 123R, Share Based Payments. See Note 21(d) of the consolidated financial
statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. These amounts reflect the Companys accounting expense for these awards and do not correspond to the actual value that might be realized by each
Director. See Equity Based Compensation Paid to Non-Employee Directors below. Includes for Mr. Haag an additional 5,000 options awarded to him upon his appointment to the Board on June 7, 2006,
exercisable at $63.08, and for Mr. Mauriello, an additional 5,000 options awarded to him upon his appointment to the Board on January 26, 2006, exercisable at $69.07. Represents for Mr. Glauber a grant of 5,000 options awarded to him upon
his appointment to the Board on September 15, 2006, exercisable at $67.90.
6 The aggregate number of option awards outstanding as at December 31, 2006 for each Director was as follows: Mr. Comey, 22,500; Mr. Glauber, 39,066; Mr. Haag, 7,500; Mr. Mauriello, 7,500; Mr. McQuade,
10,000; Dr. Parker, 34,500; Mr. Rance, 34,500; Mr. Senter, 32,823; Mr. Thornton, 32,443; Dr. Thrower, 34,500 and Mr. Weiser; 32,000. Directors do not receive non-equity incentive plan compensation. Directors are not entitled to participate in the Companys Non-Qualified Deferred Compensation Plan. See Cash Compensation Paid to
Non-Employee Directors and Equity Based Compensation Paid to
Non-Employee Directors below. Includes a cash dividend of $1,140
received by each Non-Employee Director on their restricted Shares referenced
in footnote (4) above, which are paid on a quarterly basis to all Shareholders,
except for Mr. Glauber, who did not receive restricted Shares in 2006 and
Mr. Weiser, who received a cash dividend of $1,425 on his restricted
Shares referenced in footnote (5) above. Also includes the discount related
to those Deferred Share Units (as described below), awarded to Messrs. Comey,
Mauriello, McQuade, Thornton and Drs. Parker and Thrower, as a result of
their election to defer their respective Annual Fees. Includes for Mr. Senter,
a fee of $28,500 and an award of 25,000 options exercisable at $20.50
for his service as a director on the board of Security Capital Assurance
Ltd, an indirect majority-owned subsidiary of the Company. The value of
Mr. Senters options presented in the table above represents the dollar
amount recognized by the Company for financial statement reporting purposes
with respect to the 2006 fiscal year, for the fair value of such options,
calculated utilizing the provisions of Statement of Financial Accounting
Standards No. 123R, Share
Based Payments. See note 21(d) of the consolidated financial statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
2006. This amount reflects the Company's accounting expense for this award
and does not correspond to the actual value that might be realized by Mr.
Senter.
Cash Compensation Paid to Non-Employee Directors
Annual Retainer Fee
In 2005, for service as a Director from April 2005 to April 2006, each Non-Employee Director received an annual retainer fee of $50,000, except for Messrs. Haag and Mauriello who were not
Directors of the Company in 2005. In 2006, for service as a Director from April 2006 to April 2007, each Non-Employee Director received an annual retainer fee of $50,000, except for (i) Mr. Haag whose $50,000 annual retainer fee was for service
as a Director from his appointment to the Board on June 7, 2006 to April 2007; (ii) Mr. Weiser who retired from the Board on April 28, 2006; and (iii) Mr. Glauber who received a pro rated annual retainer fee of $33,334 upon his appointment to the Board on
September 15, 2006. In 2006, Mr. Mauriello received an additional pro rated annual retainer fee of $16,667 for his service as a Director from his appointment to the Board on January 26, 2006 to April 2006.
Board and Committee Meeting Attendance Fees
In 2005 and 2006, each Non-Employee Director received a Board Meeting attendance fee of $3,000 per meeting, including informational meetings. Also, each of Messrs. Comey, Parker and Rance,
as the Chairman of the Compensation Committee, Nominating & Governance Committee and Public Affairs Committee, respectively received a Committee Chairmans fee of $5,000, and each member of such Committees received a Committee
attendance fee of $1,500 per meeting including informational meetings. Additionally, Mr. Thornton, as the Chairman of the Audit Committee received an annual fee of $12,000, and each of Messrs. Comey, Mauriello, McQuade, Rance, Senter and Dr.
Thrower, as Audit Committee members, received (i) an Audit Committee attendance fee of $2,000 per meeting, including informational meetings and (ii) an Audit Committee retainer fee of $5,000.
All Other Fees
In addition to the aforementioned fees, Non-Employee Directors are reimbursed for travel, accommodation and other reasonable out-of-pocket expenses incurred in connection with their attendance
at Board and Committee meetings. The Company transports one or more Non-Employee Directors to and from such meetings on the Companys corporate aircraft. The Company also reimburses Non-Employee Directors for continuing board education courses.
No such reimbursements were made during 2006.
Deferral of Annual Retainer Fee
Prior to the beginning of each calendar year, Directors may elect to defer all or part of their Board annual retainer fee in increments of 10%. Deferred annual retainer fees are credited in the
form of Share units (Deferred Share Units), the value of which is calculated by dividing 110% of the deferred annual retainer fee by the market value of the Companys Shares on the date the fees would otherwise be paid, in
accordance with the terms of the Companys Directors Stock & Option Plan, as amended and restated (the Directors Plan). Deferred Share Units represent a right to receive Shares as described above. Deferred Share Units have no
voting rights and receive dividend equivalents rather than cash dividends. Each Non-Employee Director receives dividend equivalents on the Deferred Share Units contained in his or her stock deferral account, which are equal in value to dividends
paid on the Companys Shares. The dividend equivalents granted are then reinvested in the Non-Employee Directors stock deferral accounts in the form of additional Share units. Upon retirement or termination of services as a Director, each
Non-Employee Director receives a Share for each Share Unit
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awarded. Such Shares are received either in a lump sum on the date of the Non-Employee Directors retirement or termination or over a period not to exceed 10 years, as elected in advance by such Non-Employee Director.
Alternatively, Non-Employee Directors may elect to receive their annual retainer fees in the form of Shares having a value equal to their annual retainer fees on the date of the Annual General Meeting of the current year. In 2006, no Non-Employee
Director elected to receive their annual retainer fee in the form of Shares.
The following table shows the Non-Employee Directors that elected to defer all or a portion of their annual retainer fees (i) in 2005 for service as a Director from April 2005 to April 2006; and (ii) in
2006 for service as a Director from April 2006 to April 2007:
_______________________
Equity Based Compensation Paid to Non-Employee Directors
Restricted Shares
In 2005, for service as a Director from April 2005 to April 2006, each Non-Employee Director was awarded 1,000 restricted Shares at the fair market value of the Shares on the date of grant, or
$70.30, which vested on grant, pursuant to the terms of the Directors Plan. In 2006, for service as a Director from April 2006 to April 2007, each Non-Employee Director was awarded 1,000 restricted Shares at the fair market value of the Shares
on the date of grant, or $65.89, pursuant to the terms of the Directors Plan (except for Mr. Glauber, who was appointed to the Board on September 15, 2006, and was awarded no restricted Shares and Mr. Weiser, who was awarded 1,250 restricted
Shares at the fair market value of $65.89 in connection with his retirement from the Board on April 28, 2006 and as an acknowledgement of his service as the presiding Director at executive sessions of the Board).
Options
In 2005, for service as a Director from April 2005 to April 2006, each Non-Employee Director was awarded a grant of 2,500 options exercisable at $69.05, which vest on grant, pursuant to the
terms of the Directors Plan. In 2006, for service as a Director from April 2006 to April 2007, each Non-Employee Director was awarded a grant of 2,500 options exercisable at $66.24, pursuant to the terms of the Directors Plan, except for (i) Messrs.
Haag and Mauriello who were each awarded an additional 5,000 options upon their appointments to the Board in June and January 2006, respectively; (ii) Mr. Glauber who was awarded 5,000 options upon his appointment to the Board in September 2006; and (iii) Mr.
Weiser who retired from the Board in April 2006. Upon appointment to the Board, each new Non-Employee Director receives a one-time award of 5,000 options.
Retainer Share Units
In addition, under the Companys Stock Plan for Non-Employee Directors (the Stock Plan), as of the day of each year that annual retainer fees are paid to Directors, Share units
are credited to the account of each Non-Employee Director (collectively, Retainer Share Units). The number of Retainer Share Units credited each year is equal to the annual retainer fee divided by the fair market value of a Share on the
date the Deferral Share Units are credited. Dividends on the Retainer Share Units contained in a Non-Employee Directors stock deferral account are credited
8
as additional Share Units, which are equal in value to dividends paid on the Companys Shares. Benefits under the Stock Plan will be distributed in the form of Shares for each Share Unit awarded following retirement or
termination of a Non-Employee Directors service on the Board. Such Shares are received either in a lump sum on the date of a Non-Employee Directors retirement or termination or over a period not to exceed 10 years, as elected in advance
by each Non-Employee Director.
Compensation Paid to the Chairman of the Board
Mr. Espositos annual
compensation as Chairman of the Board with respect to 2006 was comprised of a
salary of $750,000, a cash bonus of $1.5 million and pension contributions
of
$75,000. In connection with the initial public offering of Security Capital
Assurance Ltd (an indirect majority-owned subsidiary of the Company), Mr. Esposito
waived his right to receive a fee of $20,750 and an award of 25,000 options
for his service as a director on the board of that company, which compensation
was paid to the Company. Mr. Esposito was not awarded any restricted Shares during
2006. For his 2005 performance, Mr. Esposito received in 2006 an option to purchase
60,000 Shares at the then market price of $75.48. The
aggregate number of stock awards and option awards outstanding, as at December
31, 2006, for Mr. Esposito, was 17,500 and 529,040, respectively. Effective February
1, 2007, Mr. Espositos compensation package has been aligned with the other
outside directors. He will also receive an additional $150,000 annual cash
retainer for services as Chairman of the Board.
Director Share Ownership Guidelines
The Board of Directors revised the Companys stock ownership guidelines for Directors at its January 2004 board meeting. The guidelines require that, within three years of becoming a
Director, each Director beneficially own Shares, options or Share units (or any combination thereof) with a value of at least $200,000. All of the Directors are currently in compliance with the guidelines.
PROCEDURES FOR APPROVAL OF RELATED PERSON TRANSACTIONS
In February 2007, the Companys Board of Directors adopted written policies and procedures relating to the approval or ratification of transactions with Related Parties. Under
these policies and procedures, Management shall present to the Nominating & Governance Committee any Related Party Transactions proposed to be entered into by the Company and any Ordinary Course Related Party Transactions
known to Management, including the aggregate value of such transactions, if applicable. In reviewing proposed Related Party Transactions, the Committee shall consider, among other things, if such transactions are on terms comparable to those that
could be obtained in arms length dealings with an unrelated third party and shall review such transactions to ensure that the terms are arms-length or otherwise fair to the Company. In instances where an Ordinary Course Related Party
Transaction is reviewed, the Committee shall determine whether such proposed transaction is in the ordinary course of business and on terms no more favorable than are made to other customers. After review, the Committee shall approve or disapprove
such transactions and at each subsequently scheduled meeting, Management shall, at each subsequent Nominating & Governance Committee meeting, update the Committee as to any material change to those transactions that have been approved by the
Nominating & Governance Committee. No Director may participate in any discussion or approval of a Related Party Transaction in which he or she is a Related Party.
Under these policies and procedures, a Related Party Transaction is any transaction, including proposed charitable contributions or pledges of charitable contributions, in which the
Company was or is a participant, and the amount involved exceeds $120,000 and in which a Related Party had or will have a direct or indirect material interest. A Related Party Transaction does not include the Companys providing insurance
and/or reinsurance to Shareholders or their affiliates, or to employers or entities associated with a Related Party in the ordinary course of business, on terms no more favorable to the (re)insureds than are made available to other customers
(collectively, Ordinary Course Related Party Transaction(s)). A Related Party is a senior officer, director or nominee for director of the Company, a greater than 5% beneficial owner of the Companys outstanding Shares,
any immediate family member (as that term is defined by Item 404 of Regulation S-K) of any of the foregoing or an entity in which a person listed in the foregoing has a substantial interest in, or control of, such entity or which employs a person
listed in the foregoing.
9
RELATED PERSON TRANSACTIONS
Certain Shareholders of the Company and their affiliates, as well as the employers of or entities otherwise associated with certain directors and officers or their affiliates, have purchased
insurance and/or reinsurance from the Company on terms the Company believes were no more favorable to these (re)insureds than those made available to other customers.
Mr. Rances son and daughter-in-law received aggregate annual compensation for 2006 of approximately $350,000 from subsidiaries of the Company. Neither of Mr. Rances son nor
daughter-in-law is an executive officer of the Company.
The Harbour View Charitable Trust (the Trust) is an unconsolidated charitable trust and was established by the Company in July 2002 to generate income to be used exclusively for the
benefit of Bermudian charities and to facilitate the provision of accommodations for certain of the Companys employees. The Trustees have distributed approximately $200,000 since inception of the Trust for the benefit of Bermudian
charitable purposes. The current trustees are members of non-executive management of the Company. The Trustees purchased a residence in Bermuda in 2002 for a purchase price of $3,250,000 with the intent of leasing the residence to generate
income for its charitable purposes. The purchase price of the residence was funded by a gift to the Trust of approximately $1,350,000 from the Company and a loan from the Company of $2,000,000, with interest on the loan at the rate of 6.9%
per annum. Principal and interest on the loan are due and payable to the Company on August 27, 2023. Upon the Trustees purchase of this residence, the Company entered into a 21-year lease of the residence from the Trust and a 5-year sublease
of the residence to Mr. De St. Paer for a sublease rental of $18,000 per month.
In 2006, in an effort to expand the Trusts charitable activities in Bermuda, the Company made a loan to the Trust of approximately $10,700,000, with interest at the rate of 3.5% per
annum, in order to permit the Trustees to purchase eight residential units in Bermuda. A portion of the loan was advanced by the Company in 2002 and 2003 to the sellers of the eight residential units. The Company nominated the Trustees as the
purchaser of the eight residential units and instructed the sellers to apply the loaned monies as consideration for selling the eight residential units to the Trustees. The Trustees have entered into an agreement with the Company pursuant to which
the Trustees will provide accommodation to certain of the Companys and its subsidiaries directors, officers and employees, as the Companys designees, by way of a lease of the residential units on standard terms for such premises
and at a rent that reflects the open market rent at the time any such lease is granted. The fair market rental to be paid by the Trustees will be determined on an annual basis by an independent real estate appraiser. Under the agreement the Company
pays the Trustees a fee based on the aggregate fair market rents for each of the residential units less the sum of all rents received by the Trustees during a given year under the terms of each residential lease.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys directors and executive officers and persons who own more than 10% of a registered class of the Companys equity securities to
file with the SEC and the NYSE reports on Forms 3, 4 and 5 concerning their ownership of the Shares and other equity securities of the Company.
The Company believes that all of its officers and Directors filed all of such reports on a timely basis during the year ended December 31, 2006. The Company is unaware of any Shareholder owning
10% or more of its equity securities.
I. ELECTION OF DIRECTORS
At the Annual General Meeting, four Class III Directors are to be elected to hold office until the 2010 Annual General Meeting of Shareholders. All of the nominees are currently serving as
Directors and were appointed or elected in accordance with the Companys Articles of Association. Unless authority is withheld by the Shareholders, it is the intention of the persons named in the enclosed proxy to vote for the nominees listed
below. All of the nominees have consented to serve if elected, but if any becomes unavailable to serve, the persons named as proxies may exercise their discretion to vote for a substitute nominee. The name, principal occupation and other information
concerning each Director are set forth below.
Your Board of Directors recommends that Shareholders vote FOR the nominees.
10
Nominees for whom Proxies will be Voted
Nominees for Class III Directors for terms to expire in 2010:
Joseph Mauriello, age 62, has been a Director of the Company since 2006. Mr. Mauriello was formerly Deputy Chairman and Chief Operating Officer of KPMG LLP (United States) and KPMG Americas
Region from 2004 to 2005 and a director of KPMG LLP (United States) and KPMG Americas Region from 2004 to 2005. During the 40 years at KPMG, Mr. Mauriello has held numerous leadership positions, including Vice Chairman of Financial Services from
2002 to 2004. He is a Certified Public Accountant in New York and New Jersey and is a member of the American Institute of Certified Public Accountants. He is also a member of the Board of Overseers of the School of Risk Management, Insurance and
Actuarial Science of the Peter J. Tobin College of Business at St. Johns University since 2002, a trustee of the St. Barnabas Medical Center in New Jersey since 2003, a member of the Board of Directors of the Alliance for Lupus Research and
The Hamilton Funds of the Bank of New York since 2006 and a member of the Board of Directors of Arcadia Resources, Inc. since March 2007.
Eugene M. McQuade, age 58, has been a Director of the Company since 2004. Mr. McQuade has been President and Chief Operating Officer of Federal Home Loan Mortgage Corp. (Freddie
Mac) since September 2004 and a director of Freddie Mac since November 2004. Mr. McQuade was President and a director of Bank of America Corporation from April 2004 to June 2004. He previously had been President and Chief Operating Officer at
FleetBoston Financial Corporation from 2002 to March 2004. Mr. McQuade served as Vice Chairman and Chief Financial Officer of FleetBoston Financial Corporation from 1997 to 2002. He also served as a director of FleetBoston Financial Corporation from
2003 until April 2004 (when FleetBoston Financial Corporation merged into Bank of America Corporation). Mr. McQuade is a Certified Public Accountant.
Robert S. Parker, age 69, has been a Director of the Company since 1992. Dr. Parker has been Dean Emeritus and the Robert S. Parker Chaired Professor of the McDonough School of Business at
Georgetown University since 1998. He served as Dean and a Professor of the School of Business Administration at Georgetown University from 1986 to 1997. Prior to 1986, Dr. Parker was a partner of McKinsey and Company, Inc., a consulting firm he
joined in 1969. Dr. Parker has been a director of Middlesex Mutual Assurance Company since 1988.
Alan Z. Senter, age 65, has been a Director of the Company since 1986. Mr. Senter is the Chairman of AZ Senter Consulting LLC, a financial advisory firm that he founded in 1993. Mr. Senter
served as Executive Vice President and Chief Financial Officer of NYNEX Corporation from 1994 to 1997 and served as a director and Executive Vice President and Chief Financial Officer of International Specialty Products from 1992 to 1994. Mr. Senter
previously served as the Vice President and Senior Financial Officer of Xerox Corporation from 1989 to 1992.
Directors whose terms of office do not expire at this meeting
Class I Directors whose terms expire in 2008:
Michael P. Esposito, Jr., age 67, has been Chairman of the Board since 1995 and a Director of the Company since 1986. Mr. Esposito has served as Chairman and a director of Primus Guaranty Ltd
since March 2002. He has also served as a director of Forest City Enterprises since 1995. Mr. Esposito has served as Chairman and a Director of Security Capital Assurance Ltd since 2006. Mr. Esposito was Co-Chairman of Inter-Atlantic Capital
Partners, Inc. from April 1995 to December 2000. Mr. Esposito served as Chief Corporate Compliance, Control and Administrative Officer of the Chase Manhattan Corporation from 1991 to 1995, having previously served as that companys Executive
Vice President and Chief Financial Officer from 1987 to 1991.
Herbert Haag, age 60, has been a Director of the Company since June 2006. Mr. Haag was the founding President and Chief Executive Officer of Bermuda-based reinsurer PartnerRe Ltd. from 1993
until his retirement in December 2000. From December 2000 to 2002, Mr. Haag served as Senior Advisor of PartnerRe Ltd. Mr. Haags insurance industry career spans approximately 40 years, including 24 years with Swiss Reinsurance Company where he
held various senior positions, latterly as Executive Vice President responsible for Swiss Re Zurichs reinsurance business from Americas, Asia, Africa and Southern Europe. Mr. Haag is the President of the Swiss-Japanese Society in
Switzerland.
Cyril Rance, age 72, has been a Director of the Company since 1990. Prior to his retirement, Mr. Rance served as President and Chief Executive Officer of the Bermuda Fire & Marine Insurance
Co. Ltd. from 1985 to 1990. Mr.
11
Rance has had a long and varied career in civic and government service and serves as a director of several investment, real estate, shipping and insurance companies located in Bermuda.
Ellen E. Thrower, age 60, has been a Director of the Company since 1995. Dr. Thrower has been Executive Director and Professor of Risk Management and Insurance at the School of Risk Management,
Insurance and Actuarial Science of the Peter J. Tobin College of Business at St. Johns University since 2001, and is President Emeritae of the College of Insurance, where she served as President and Chief Executive Officer from 1988 to 2001
(when the College of Insurance merged into St. Johns University). Dr. Thrower has also served as a director of SBLI USA Mutual Life Insurance Company, Inc. since 2004 and a director of United Educators Insurance since 1996.
Class II Directors whose terms expire in 2009:
Dale R. Comey, age 66, has been a Director of the Company since 2001. Mr. Comey was a director of St. Francis Hospital and Medical Center, Hartford, Connecticut from 1988 to 2006. Prior to his
retirement, Mr. Comey was Executive Vice President at the corporate headquarters of the ITT Corporation from 1990 to 1996, where he was responsible for directing the operations of several ITT business units, including ITT Hartford and ITT Financial
Corporation. From 1988 to 1990, Mr. Comey was President of ITT Hartfords Property & Casualty Insurance Business.
Robert Glauber, age 67, has been a Director of the Company since September 2006, having originally served on the Companys board from 1998 to May 2005, at which time he stepped down to
focus on other business commitments. Most recently, Mr. Glauber served as Chief Executive Officer of the National Association of Securities Dealers, Inc. (NASD) from November 2000 to August 2006 and, in addition, as Chairman from
September 2001 to August 2006. Mr. Glauber, who is currently a director of Moodys Corporation, Freddie Mac and Quadra Realty Trust, has previously served on the boards of the Federal Reserve Bank of Boston, a number of Dreyfus mutual funds and
the Investment Company Institute. From 1989 to 1992, he served as Under Secretary of the Treasury for Finance and, prior to that, was a Professor of Finance at the Harvard Business School. After leaving the Treasury, he was a lecturer at
Harvards Kennedy School of Government before joining NASD. He is currently a visiting Professor at the Harvard Law School and is a Senior Advisor to Peter J. Solomon Company.
Brian M. OHara, age 58, has been President and Chief Executive Officer of the Company since 1994 and a Director of the Company since 1986. He has also served as Chairman of XL Insurance
(Bermuda) Ltd since December 1995.
John T. Thornton, age 69, has been a Director of the Company since 1988. He has also been a director of Arcadia Resources, Inc. since June 2004 and a director of the Friends of the Pontifical
Irish College, Rome, Italy since 2003. Mr. Thornton served as Executive Vice President and Chief Financial Officer of Wells Fargo & Company (formerly Norwest Corporation) from 1967 to 1998. Mr. Thornton also served as Executive Vice President and
Financial Executive of Wells Fargo & Company from December 1998 until November 1999.
12
EQUITY SECURITIES OWNED BENEFICIALLY
The following table sets forth certain information with respect to the beneficial ownership as of March 8, 2007 of (i) the Companys Shares (XL Ordinary Shares) and (ii) the common shares
of the Companys majority owned subsidiary, Security Capital Assurance Ltd (the SCA Common Shares), by each Director and each Named Executive Officer (hereinafter defined) of the Company and all Directors and executive officers of the Company as a group.
The Shares are currently the only class of voting securities of the Company. There were 180,054,134 XL Ordinary Shares and 64,136,364 SCA Common Shares outstanding as of March 8, 2007. Includes for XL Ordinary Shares, Deferred Share Units credited to the accounts of the Directors pursuant to their election to defer their Annual Retainer fees as described under Cash Compensation
Paid to Non-Employee Directors above, on page 7. Shares underlying options that are exercisable within 60 days of March 8, 2007. Includes 65,612 Shares that Mr. Keeling owns indirectly. Includes 15,750 Shares that Mr. OHara owns indirectly. Includes 9,645 Shares that Mr. Weiser owns indirectly.
13
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Chief Executive Officer, the Chief Financial Officer and the next three most highly compensated executive officers of the Company and an
additional two executive officers of the Company (collectively, the Named Executive Officers or NEOs) for services paid for or rendered with respect to the Company and its subsidiaries in all capacities for the Companys last
fiscal year:
14 Represents the dollar amount recognized by the Company for financial statement reporting purposes with respect to the 2006 fiscal year, for the fair-value of stock awards and option awards granted in 2006
as well as prior fiscal years, calculated using the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payments. See Note 21(d) of the consolidated financial statements in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006. These amounts reflect the Companys accounting expense for these awards and do not correspond to the actual value that might be realized by each Named Executive
Officer. None of the Named Executive Officers received stock option grants with respect to performance year 2006. For retirement-eligible Named Executive Officers (Messrs. OHara, de St. Paer, Greetham, Keeling and Tobin) the entire amount is
expensed on grant. See 2006 Stock and Option Awards Expense Details table below for values associated with the 2006 annual expense and 2006 expense accelerations resulting from a change in SFAS No. 123R. No specified criteria have been met and no compensation has been earned under the Companys outstanding Long-Term Incentive Plan during 2006. See Narrative Disclosure to Summary Compensation
Table and Grants of Plan-Based Awards Table below. The Company does not pay above-market rates for amounts deferred under the Non-Qualified Deferred Compensation Plan. Represents the items of compensation and benefits separately identified in the Other Annual Compensation from the Summary Compensation Table below. On November 24, 2006, Mr. de St
Paer announced his decision to retire from the Company during 2007. On February
22, 2007 the Company entered into an agreement with Mr. de St. Paer pursuant
to which he continued to be employed by the Company as its Executive Vice
President and Chief Financial Officer through March 5, 2007. Mr. de St Paer
assisted the Company with transition matters until such termination date.
Ms. Fiona Luck, who will also continue in her role as Executive Vice President
and Chief of Staff of the Company, has been named as interim Chief Financial
Officer until a successor for Mr. de St. Paer has been identified. The Company
is in the process of an external search for Mr. de St. Paers replacement. On September 30, 2006, Mr. Greetham retired as the Executive Vice President and Chief Investment Officer of the Company but remained as an employee of the Company until December 31, 2006. Mr. Greetham will continue as a consultant to the Company pursuant to an agreement
that commenced on January 1, 2007 with a one year term. Mr. Tobin is paid his salary in British Pounds Sterling. Mr. Tobins annual salary for fiscal 2006 was converted from British Pounds Sterling to U.S. Dollars using the average foreign exchange rate
for 2006 reported by the U.S. Federal Reserve of 1.8434.
Other Annual Compensation from the Summary Compensation Table Represents for Mr. de St. Paer, a housing allowance of $180,000 and an additional allowance of $24,000. Mr. Veghte owns a 21.8% ownership interest in a home in which a subsidiary of the Company
owns the remaining 78.2% ownership interest. Mr.Veghte pays a fair market value rent to such subsidiary for the right to occupy these premises. This arrangement terminates on the earlier of Mr. Veghtes termination from the Company, the sale of
the home to a third party or July 1, 2008. This arrangement was entered into in connection with the relocation of Mr. Veghte to the Companys offices in Stamford, Connecticut at the Companys request. Represents for Messrs. OHara and de St. Paer, tax reimbursements in connection with their housing allowance. Such tax reimbursements were paid to the Companys executives pursuant to changes
made under The Tax Reconciliation Act of 2006 to section 911 of the U.S. Internal Revenue Code. Includes for Mr. OHara, $134,955 for Mr. OHaras personal travel on the Companys corporate aircraft in 2006, based upon the aggregate incremental cost to the Company. The
aggregate incremental cost to the Company of Mr. OHaras personal travel on the Companys corporate aircraft is determined on a per flight basis and includes the following costs: hourly charge; international positioning charge; fuel
variable charge; domestic segment fee; international passenger fee; and federal excise tax. Pursuant to the Companys policy regarding the use of the Companys aircraft, Mr. OHara is permitted to use the Companys corporate
aircraft for personal travel up to a limit of $150,000 per year based on the aggregate incremental cost to the Company. Includes payments made for, among other
things, personal car benefits, club memberships and annual officers medical.
In addition, includes for Mr. de St. Paer, payment of $41,682
made in 2006 for a car. In connection with the initial public offering of
Security Capital Assurance Ltd (an indirect majority-owned subsidiary of
the Company), Mr. OHara waived his right to receive a fee of $26,750
and an award of 25,000 options for his service as a director on the board
of that company, which compensation was paid to the Company and accordingly,
is not included in this table.
Under the terms of the 1991 Performance Incentive Plan employees of the Company whose combined age and years of service aggregated to 65 or higher, were considered to be retirement-eligible,
meaning that they were entitled to retain the rights to any of their unvested stock based awards upon departure from the Company. Statement of Financial Accounting Standards No. 123R, which the Company implemented in 2006, requires awards made on
such a basis to be expensed in full at the time of the award notwithstanding the fact that the employee would not receive those awards until the normal vesting date should they remain employed by the Company.
Messrs OHara, de St. Paer, Greetham, Keeling and Tobin were retirement-eligible in 2006, and accordingly, all of the stock based awards granted to them in 2006 were expensed by the
Company in full in 2006. The table below sets out the impact of this change.
15
2006 Stock and Option Awards Expense Details
________________________________
As set out in the Compensation Discussion and Analysis, 4. Executive Compensation Program Components, Holding Requirements below, the terms under which an employee is viewed as
retirement-eligible were amended in January 2007 for new awards.
We continue our strategy of setting our executive salary levels at a level commensurate with the median of the market for the role that the executive occupies. Salaries for some of our
executives were amended in early 2006 as a result of role changes, most notably Mr. Keelings with his promotion to Chief Operating Officer and Ms. Streets with her promotion to Chief Investment Officer. No increases are being proposed
for 2007. The annual incentive (bonus) awards are meant to reward individuals for prior year performance and the awards for performance year 2006 are in-line with the strong performance exhibited by the business, particularly in relation to 2005
awards and the corresponding company performance for that year. Long-Term Incentive awards are primarily based on competitive market levels for the position that the executive occupies and a portion of the award is based on executive performance for
the prior year as well as contributions made to the executive leadership team. All other compensation amounts included in the table are based on general company-wide benefit plans in which the executives participate. Such amounts generally do not
have discretionary approval by the Board since they are company-wide in nature, although the Board reviews executive participation when determining annual incentive and long-term incentive awards.
16
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to §240.14a -12
[X]
No fee required.
[ ]
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
[ ]
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.
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.:
(3)
Filing Party:
(4)
Date Filed:
TO BE HELD ON FRIDAY, APRIL 27, 2007
1.
2.
3.
Kirstin Romann Gould
Secretary
________________
Amount and Nature
Name and Address of Beneficial Owner
of Beneficial Ownership (1)
Percent of Class
Capital Research and Management Company
17,526,720
9.7%(2)
333 South Hope Street, Los Angeles, CA 90071
AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle,
15,874,037
8.8%(3)
AXA Courtage Assurance Mutuelle, AXA and AXA Financial, Inc.
26, rue Drouot, 75009 Paris, France; 25, avenue Matignon, 75008
Paris, France; 1290 Avenue of the Americas, New York, NY, 10104
Franklin Resources, Inc.
15,852,230
8.8%(4)
One Franklin Parkway, San Mateo, CA 94403-1906
Barrow, Hanley, Mewhinney & Strauss, Inc.
15,498,926
8.6%(5)
2200 Ross Avenue, 31st Floor, Dallas, TX 75201-2761
Pzena Investment Management, LLC
12,211,309
6.8%(6)
120 West 45th Street, 20th Floor, New York, NY 10036
(1)
(2)
(3)
(4)
(5)
(6)
_______________
Change in
Pension Value
Non-Equity
and
Fees
Incentive
Nonqualified
Earned or
Plan
Deferred
All Other
Paid in
Stock
Option
Compensation
Compensation
Compensation
Name
Cash ($)
($)
Earnings
($)
(1)(2)
(3)
(4)(5)(6)
(7)(8)(9)
(10)
(11)
Dale R. Comey
$132,500
$125,836
$42,609
$6,140
Robert Glauber
$45,333
$33,520
$87,590
Herbert Haag
$54,333
$97,322
$127,445
$1,140
Joseph Mauriello
$122,500
$118,428
$126,267
$6,140
Eugene McQuade
$125,500
$121,257
$42,609
$6,140
Robert Parker
$114,500
$133,229
$42,609
$3,640
Cyril Rance
$121,500
$129,024
$42,609
$1,140
Alan Z. Senter
$129,000
$126,608
$42,609
$54,050
John T. Thornton
$133,000
$137,170
$42,609
$6,140
Ellen E. Thrower
$120,500
$129,433
$42,609
$3,640
John W. Weiser
$49,334
$103,803
$0
$1,425
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Director
Year
Amount Deferred
Dale R. Comey
2006
$50,000
2005
$50,000
Joseph Mauriello *
2006
$50,000
Eugene McQuade
2006
$50,000
2005
$50,000
Robert Parker
2006
$25,000
2005
$25,000
John T. Thornton
2006
$50,000
2005
$50,000
Ellen E. Thrower
2006
$25,000
2005
$25,000
* Mr. Mauriello was appointed
to the Board in January 2006.
________________
Amount and Nature of Beneficial Ownership
Title
Number of
Exercisable
Name of Beneficial Owner
of Class
Options (2)
Percent of Class
Dale R. Comey
XL Ordinary Shares
9,432
22,500
31,932
*
Jerry de St. Paer
XL Ordinary Shares
32,500
205,000
237,500
*
Michael P. Esposito, Jr.
XL Ordinary Shares
216,445
376,840
593,285
*
SCA Common Shares
3,000
0
3,000
*
Robert Glauber
XL Ordinary Shares
5,287
37,533
42,820
*
Christopher V. Greetham
XL Ordinary Shares
21,250
240,000
261,250
*
Herbert Haag
XL Ordinary Shares
2,806
7,500
10,306
*
Henry C. V. Keeling (3)
XL Ordinary Shares
115,101
352,083
467,184
*
Joseph Mauriello
XL Ordinary Shares
2,859
7,500
10,359
*
Eugene M. McQuade
XL Ordinary Shares
8,953
10,000
18,953
*
Brian M. OHara (4)
XL Ordinary Shares
705,417
920,283
1,625,700
*
Robert S. Parker
XL Ordinary Shares
15,325
34,500
49,825
*
Cyril Rance
XL Ordinary Shares
21,413
34,500
55,913
*
Alan Z. Senter
XL Ordinary Shares
17,169
32,823
49,992
*
Sarah E. Street
XL Ordinary Shares
17,497
83,750
101,247
*
John T. Thornton
XL Ordinary Shares
39,587
32,443
72,030
*
Ellen E. Thrower
XL Ordinary Shares
13,840
34,500
48,340
*
Clive R. Tobin
XL Ordinary Shares
61,750
326,500
388,250
*
James H. Veghte
XL Ordinary Shares
52,604
156,638
209,242
*
John Weiser (5)
XL Ordinary Shares
31,794
32,000
63,794
*
Directors and executive officers
XL Ordinary Shares
1,509,394
3,363,894
4,873,288
2.71%
of the Company as a group
SCA Common Shares
3,000
0
3,000
*
including those named
above (23 persons in total)
*
Represents less than 1% of each class of security
beneficially owned.
(1)
(2)
(3)
(4)
(5)
Change in
Pension Value
and
Nonqualified
Non-Equity
Deferred
Stock
Name and
Principal Position
Year
(1)
(1)
(3)
(4)
Brian M. OHara
2006
$1,000,000
$591,838
$2,198,413
$310,500
$8,850,751
President and
Chief Executive
Officer of the
Company
Jerry M. de St. Paer (5)
2006
$550,000
$533,800
$0
$390,320
$3,510,393
Executive Vice
President and
Chief Financial
Officer of the
Company
Christopher V.
2006
$450,000
$942,675
$0
$97,187
$4,964,057
Greetham (6)
Former Executive
Vice President
and Chief
Investment
Officer of the
Company
Henry C. V. Keeling
2006
$632,500
$1,725,000
$1,549,863
$0
$222,318
$5,170,416
Executive Vice
President and
Chief Operating
Officer of the
Company
Sarah E. Street
2006
$375,000
$258,080
$317,644
$0
$419
$3,451,143
Executive Vice
President and
Chief Investment
Officer of the
Company
Clive R. Tobin (7)
2006
$691,275
$1,574,275
$0
$34,544
$5,675,642
Executive Vice
President and
Chief Executive
of Insurance
Operations of the
Company
James H. Veghte
2006
$500,000
$593,033
$452,575
$0
$122,726
$3,068,334
Executive Vice
President and
Chief Executive
of Reinsurance
Operations of the
Company
(1)
(2)
(3)
(4)
(5)
(6)
(7)
_______________
Financial
Housing
Tax
Travel
Counseling/
Reimbursements
Allowance
Tax
Other
Name
Year
(i)
(iii)
Preparation
(iv)
Brian M. OHara
2006
$96,000
$43,513
$155,968
$8,750
$6,269
Jerry M. de St. Paer
2006
$204,000
$88,692
$30,934
$10,000
$56,694
Christopher V. Greetham
2006
$66,000
$0
$27,327
$0
$3,860
Henry C. V. Keeling
2006
$168,000
$0
$40,485
$0
$13,833
Sarah E. Street
2006
$0
$0
$0
$0
$419
Clive R. Tobin
2006
$0
$0
$0
$34,344
$200
James H. Veghte
2006
$108,000
$0
$0
$0
$14,726
(i)
(ii)
(iii)
(iv)
2006 Stock Award
2006 Option Award
2006 Annual
Retirement Rule
2006 Annual
Retirement Rule
Stock Award
Expense
Options Award
Expense
Expense (i)
Acceleration
Expense (i)
Acceleration
($)
($)
($)
($)
Brian M. OHara
$0
$2,198,413
$0
Jerry M. de St. Paer
$501,525
$533,800
$0
Christopher V. Greetham
$796,147
$488,325
$454,350
Henry C. V. Keeling
$401,220
$1,169,613
$380,250
Clive R. Tobin
$934,620
$1,194,025
$380,250
(i) Reflects
the expense that would have been recorded at December 31, 2006 had the Named
Executive Officer not been retirement-eligible.
The following table complements the Summary Compensation Table disclosure of stock awards and option awards and shows each grant of an award made to the Named Executive Officers of the Company in the last completed fiscal year under any plan:
All | All | Grant | |||||||||||||||||||||
Other | Other | Date | |||||||||||||||||||||
Stock | Option | Exercise | Fair | ||||||||||||||||||||
Awards: | Awards: | or Base | |
||||||||||||||||||||
Number | Number of | Price of | Stock | ||||||||||||||||||||
Estimated Future Payouts Under | Estimated Future Payouts Under | of Shares | Securities | Option | and | ||||||||||||||||||
Non-Equity Incentive Plan Awards | Equity Incentive Plan Awards(1) |
|
Underlying | Awards | Option | ||||||||||||||||||
Grant | Threshold | Target |
|
Target |
|
Units | Options | ($/Sh) |
|
||||||||||||||
Name | Date |
|
($) | ($) | |
($) | ($) | (#) | (#) | (2) | (3) | ||||||||||||
Brian M. | 3/10/2006 |
|
$2,500,000 | $7,500,000 |
|
|
|
0 | 0 | $0 | $0 | ||||||||||||
OHara | |||||||||||||||||||||||
Jerry M. | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
10,000 | 0 | $0 | $666,000 | ||||||||||||
de St. Paer | |||||||||||||||||||||||
Christopher | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
5,000 | 0 | $0 | $333,000 | ||||||||||||
V. Greetham | |||||||||||||||||||||||
Henry C. V. | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
8,000 | $532,800 | ||||||||||||||
Keeling | 2/24/2006 | 30,000 | $67.93 | $507,000 | |||||||||||||||||||
Sarah E. | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
8,000 | $532,800 | ||||||||||||||
Street | 10/01/2006 | 15,000 | $68.70 | $262,650 | |||||||||||||||||||
Clive R. | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
8,000 | $532,800 | ||||||||||||||
Tobin | 12/01/2006 | 10,000 | $705,500 | ||||||||||||||||||||
2/24/2006 | 30,000 | $67.93 | $507,000 | ||||||||||||||||||||
James H. | 3/10/2006 |
|
$500,000 | $1,500,000 |
|
|
|
8,000 | 0 | $0 | $532,800 | ||||||||||||
Veghte |
7/31/2006 |
25,000 |
$0 |
$1,592,500 |
(1) |
The Company does not have any Equity Incentive Plan Awards. |
(2) |
Dividends paid on Shares are paid quarterly at $0.38 per Share. The Company has no preferential dividends. |
(3) |
Represents the grant date fair value of each equity award calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payments. See Note 21(d) of the consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. |
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The Companys Long-Term Incentive Plan (LTIP) is designed to provide for both incentives and alignment of senior executives with Shareholders. LTIP awards are made, in general, each year and each award is conditioned on achievement of a three-year performance metric. Each senior executive is awarded a face value figure that would correspond to target performance for the three-year period. In 2005, the Compensation Committee made awards to executives with a face value of $100,000 per person and the performance metric used to value the actual award was a three-year Net Income metric based on the Companys three-year strategic plan for 2005 to 2007. Maximum payout for this award was set at $200,000, a minimum payout was set at $50,000, and the awards will payout in the first quarter of 2008.
The awards made in 2006 varied in face value. Payouts for such awards will be tied to a three-year average ROE metric for 2006 to 2008, with a payout scheduled for the first quarter of 2009. The three-year average ROE was set based on the Companys three-year strategic plan for 2006 to 2008. The maximum payout for this award was set at 300% conditioned on achievement. If three-year return on equity (meaning, operating income divided by the average ordinary Shareholders equity for the period) (ROE) performance is below 10% then no payout will be made.
On March 1, 2001, the Company entered into an employment agreement with one of its named executive officers, Jerry de St. Paer, to serve as Executive Vice President and Chief Financial Officer of the Company (the de St. Paer Employment Agreement). On November 24, 2006, Mr. de St Paer announced his decision to retire from the Company during 2007. On February 22, 2007 the Company entered into an agreement with Mr. de St. Paer pursuant to which he continued to be employed by the Company as its Executive Vice President and Chief Financial Officer through March 5, 2007. Pursuant to such agreement, he will receive payments and benefits substantially as provided in Section 8(d) (ii) of the de St. Paer Employment Agreement (Termination Without Cause). The Company has agreed to waive the provisions in the de St. Paer Employment Agreement relating to non-competition and non-solicitation of customers. The de St. Paer Employment Agreement provided for (i) a specified base salary, which is subject to review for increase annually, (ii) an annual bonus pursuant to the Companys incentive compensation plan as determined by the Compensation Committee and stock option and restricted share grants pursuant to the Companys performance incentive program, (iii) reimbursement for or payment of certain travel, living and other expenses
17
and (iv) the right to participate in such other employee or fringe benefit programs for senior executives as are in effect from time to time.
The Company has also entered into employment agreements (the NEO Employment Agreements) with the following named executive officers: Henry C.V. Keeling, to serve as the Companys Executive Vice President and Chief Operating Officer; Sarah Street, to serve as the Companys Executive Vice President and Chief Investment Officer; Clive R. Tobin, to serve as the Companys Executive Vice President and Chief Executive of Insurance Operations; and James H. Veghte, to serve as the Companys Executive Vice President and Chief Executive of Reinsurance Operations.
Each NEO Employment Agreement provides for (i) a specified base salary, which is initially as set forth in the Summary Compensation Table and is subject to annual review and may be increased by the Compensation Committee, (ii) an annual bonus pursuant to the Companys incentive compensation plan, the actual amount earned to be determined by the Compensation Committee, (iii) reimbursement for or payment of certain travel and other expenses and (iv) the right to participate in such other employee benefit programs as are in effect for senior executives from time to time. Employment is for an original term of one year and will continue to be automatically extended for successive one year periods unless the Company or the executive provides written notice that the term is not to be extended at least six months prior to the then scheduled expiration date. Each of these executives has agreed to certain confidentiality, non-competition and non-solicitation provisions.
Each NEO Employment Agreement provides for indemnification of the executive by the Company to the maximum extent permitted by applicable law and the Companys charter documents and requires the Company to maintain directors and officers liability coverage in an amount equal to at least $75,000,000.
With respect to the Companys Former Executive Vice President and Chief Investment Officer, Christopher V. Greetham, the Company entered into a consulting agreement (the Consulting Agreement) with Mr. Greetham, which commenced on January 1, 2007 after his retirement from the Company. Under the Consulting Agreement, Mr. Greetham will provide certain advisory services to the Company relating to its investment portfolio and investment strategy. The Consulting Agreement has a one year term, and can be terminated by either party at any time on the provision of ten (10) days written notice to the other party. Mr. Greetham will provide services as an independent contractor and is not eligible to participate in any Company welfare, retirement or incentive plans.
The Consulting Agreement provides that in exchange for the consulting services, Mr. Greetham (i) shall receive a fee of $250,000 on an annualized basis; (ii) will be reimbursed for his reasonable out of pocket expenses incurred in connection with the provision of services, (iii) will be reimbursed for certain spousal travel in connection with his provision of services and (iv) would be eligible to receive, at the sole discretion of the Companys Chief Executive Officer, additional payments based upon his provision of advisory services that result in capital events resulting from value created by investments entered into by XL Capital Investment Partners Inc., a subsidiary of the Company.
Mr. Greetham also has a contractual obligation to maintain and refrain from divulging confidential and proprietary information of the Company. While he may continue to maintain any board memberships he may currently have with any investment affiliate of the Company, the Company can request his resignation from those positions at any time during the term of the Consulting Agreement. The Company may extend the term of the Consulting Agreement for another year after expiration subject to pre-approval of the Compensation Committee and Nominating & Governance Committee.
18
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table shows the unexercised options, stock that has not vested and equity incentive plan awards for the Named Executive Officers of the Company outstanding as of the end of the last fiscal year:
|
|
|||||||||||||||||
|
|
Equity | ||||||||||||||||
|
|
Incentive | ||||||||||||||||
|
|
Equity | Plan | |||||||||||||||
|
|
Incentive | Awards: | |||||||||||||||
Equity |
|
|
Plan | Market or | ||||||||||||||
Incentive |
|
|
Awards: | Payout | ||||||||||||||
Plan |
|
|
Number of | Value of | ||||||||||||||
Awards: |
|
|
Market |
|
||||||||||||||
|
|
|
Value of | Shares, | Shares, | |||||||||||||
|
|
|
Shares or | Units | Units | |||||||||||||
Securities | Underlying | Underlying |
|
|
Units of | or Other | or Other | |||||||||||
Underlying | Unexercised | Unexercised | Option |
|
|
Stock That | Rights That | Rights That | ||||||||||
|
Unearned | Exercise |
|
|
Have Not | Have Not | Have Not | |||||||||||
Options (#) |
|
Options | Price | |
|
Vested | Vested | Vested | ||||||||||
Name |
|
(#) | ($) |
|
|
($)(2) | (#) | ($) | ||||||||||
Brian M. OHara | 1,533 | 0 | |
47.95 |
|
|
$1,665,463
|
|
|
|||||||||
100,000 | 0 | 61.50 |
|
|
||||||||||||||
1,533 | 0 |
|
57.85 |
|
|
|||||||||||||
75,000 | 0 | 73.00 |
|
|
||||||||||||||
150,000 | 0 | 50.00 |
|
|
||||||||||||||
75,000 | 0 | 80.00 |
|
|
||||||||||||||
140,000 | 0 | 93.00 |
|
|
||||||||||||||
104,999 | 35,001 | 68.62 |
|
|
||||||||||||||
92,500 | 92,500 | 88.00 |
|
|
||||||||||||||
50,000 | 150,000 | 75.48 |
|
|
||||||||||||||
Jerry M. de St. Paer | 30,000 | 0 |
|
78.00 |
|
|
$1,881,523
|
|
|
|||||||||
55,000 | 0 |
|
93.00 |
|
|
|||||||||||||
22,499 | 7,501 |
|
68.62 |
|
|
|||||||||||||
20,001 | 19,999 |
|
77.10 |
|
|
|||||||||||||
12,500 | 37,500 |
|
75.48 |
|
|
|||||||||||||
Christopher V. Greetham | 25,000 | 0 |
|
61.50 |
|
|
$0 |
|
|
|||||||||
20,000 | 0 |
|
73.00 |
|
|
|||||||||||||
40,000 | 0 |
|
80.00 |
|
|
|||||||||||||
45,000 | 0 |
|
93.00 |
|
|
|||||||||||||
40,000 | 0 |
|
68.62 |
|
|
|||||||||||||
40,000 | 0 |
|
77.10 |
|
|
|||||||||||||
30,000 | 0 |
|
75.48 |
|
|
|||||||||||||
Henry C. V. Keeling | 40,000 | 0 |
|
79.25 |
|
|
$2,034,565
|
|
|
|||||||||
20,000 | 0 |
|
73.00 |
|
|
|||||||||||||
28,333 | 0 |
|
50.00 |
|
|
|||||||||||||
50,000 | 0 |
|
80.00 |
|
|
|||||||||||||
55,000 | 0 |
|
93.00 |
|
|
|||||||||||||
30,000 | 10,000 |
|
68.62 |
|
|
|||||||||||||
22,500 | 22,500 |
|
77.10 |
|
|
|||||||||||||
18,750 | 56,250 |
|
75.95 |
|
|
|||||||||||||
20,000 | 60,000 |
|
75.48 |
|
|
|||||||||||||
0 | 30,000 |
|
67.93 |
|
|
|||||||||||||
Sarah E. Street | 15,000 | 0 |
|
76.00 | |
|
$1,008,280
|
|
|
|||||||||
20,000 | 0 |
|
93.00 | |
|
|||||||||||||
18,750 | 6,250 |
|
68.62 | |
|
|||||||||||||
10,000 | 10,000 |
|
77.10 | |
|
|||||||||||||
4,375 | 13,125 |
|
75.48 | |
|
|||||||||||||
0 |
15,000 |
68.70 |
10/01/2016
|
|
19
|
|
|||||||||||||||||
Equity | ||||||||||||||||||
Incentive | ||||||||||||||||||
Equity | Plan | |||||||||||||||||
Incentive | Awards: | |||||||||||||||||
Equity | Plan | Market or | ||||||||||||||||
Incentive | Awards: | Payout | ||||||||||||||||
Plan | Number of | Value of | ||||||||||||||||
Awards: | Market |
|
||||||||||||||||
|
Number of | Value of | Shares, | Shares, | ||||||||||||||
|
Shares or | Shares or | Units | Units | ||||||||||||||
Securities | Underlying | Underlying | Units of | Units of | or Other | or Other | ||||||||||||
Underlying | Unexercised | Unexercised | Option | Stock That | Stock That | Rights That | Rights That | |||||||||||
|
Unearned | Exercise | Option | Have Not | Have Not | Have Not | Have Not | |||||||||||
Options (#) |
|
Options | Price |
|
Vested | Vested | Vested | Vested | ||||||||||
Name |
|
(#) | ($) | Date | (#) | ($)(2) | (#) | ($) | ||||||||||
Clive R. Tobin | 4,000 | 0 |
|
|
|
|
$2,745,763
|
|
|
|||||||||
10,000 | 0 |
|
|
|||||||||||||||
40,000 | 0 |
|
|
|||||||||||||||
50,000 | 0 |
|
|
|||||||||||||||
60,000 | 0 |
|
|
|||||||||||||||
30,000 | 10,000 |
|
|
|||||||||||||||
25,000 | 25,000 |
|
|
|||||||||||||||
18,750 | 56,250 |
|
|
|||||||||||||||
20,000 | 60,000 |
|
|
|||||||||||||||
0 | 30,000 |
|
|
|||||||||||||||
James H. Veghte | 20,000 | 0 |
|
|
|
$3,195,888
|
| | ||||||||||
10,000 | 0 |
|
|
|||||||||||||||
23,387 | 0 |
|
|
|||||||||||||||
1,075 | 0 |
|
|
|||||||||||||||
23,425 | 0 |
|
|
|||||||||||||||
17,657 | 5,886 |
|
|
|||||||||||||||
1,092 | 365 |
|
|
|||||||||||||||
12,501 | 12,499 |
|
|
|||||||||||||||
7,500 | 22,500 |
|
|
|||||||||||||||
0 | 20,000 |
|
|
(1) |
All options were granted under the Companys 1991 Performance Incentive Plan. Each option award has a 10 year term and vests in 4 equal annual installments (at a rate of 25% per year) from the date of grant. Vesting dates for each option award can therefore be calculated accordingly. |
(2) |
Pursuant to the Companys 1991 Performance Incentive Plan, the vesting of Mr. Greethams Shares accelerated to December 31, 2006, in connection with his retirement from the Company on that date. |
20
OPTION EXERCISES AND STOCK VESTED
The following table sets forth the options exercised and each vesting of stock during the last fiscal year for the Named Executive Officers of the Company on an aggregate basis:
|
|
|||||||||
Number | Number | |||||||||
of Shares | Value | of Shares | Value | |||||||
|
Realized on |
|
Realized on | |||||||
Name | Exercise (#) | Exercise ($)(1) | Vesting (#) (2) |
|
||||||
Brian M. OHara | 176,129 | $5,779,700 | 3,125 | $212,031 | ||||||
Jerry M. de St. Paer | 0 | $0 | 500 | $33,925 | ||||||
Christopher V. Greetham | 40,000 | $827,640 | 22,425 | $1,610,094 | ||||||
Henry C. V. Keeling | 0 | $0 | 1,250 | $84,813 | ||||||
Sarah E. Street | 0 | $0 | 1,000 | $67,975 | ||||||
Clive R. Tobin | 0 | $0 | 3,125 | $211,444 | ||||||
James H. Veghte | 0 | $0 | 2,875 | $194,724 |
(1) |
Represents the difference between the exercise price and the fair market value of the Shares on the date of exercise. |
(2) |
All Shares were granted under the Companys 1991 Performance Incentive Plan. Each Share awarded has a 10 year term and vests in 4 equal annual installments (at a rate of 25% per year) from the date of grant, except for Mr. Greetham who was subject to accelerated vesting due to his retirement from the Company on December 31, 2006. Vesting dates for each Share awarded can therefore be calculated accordingly. |
PENSION BENEFITS
None of the Companys Named Executive Officers participates or has any accrued benefit under any of the Companys defined benefit pension plans.
NON-QUALIFIED DEFERRED COMPENSATION
The following table shows amounts contributed to the Companys only defined contribution plan for the Named Executive Officers that provides for the deferral of compensation on a basis that is not tax-qualified in the last fiscal year:
Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||
Contributions in | Contributions in | Earnings in | Withdrawals/ | Balance at Last | ||||||||
Last Fiscal Year | Last Fiscal Year | Last Fiscal Year | Distribution |
|
||||||||
Name(1) | ($) | ($) | ($) | ($) | ($) | |||||||
Brian M. OHara | $35,000 |
|
|
|
$3,557,477 | |||||||
Jerry M. de St. Paer | $23,958 |
|
|
|
$801,968 | |||||||
Sarah E. Street |
|
|
|
|
$1,088,575 | |||||||
James H. Veghte | $22,542 |
|
|
|
$724,516 |
________________________
(1) Messrs.
Greetham, Keeling and Tobin do not participate in any Non-Qualified Deferred
Compensation arrangements with the Company.
The Companys Non-Qualified Deferred Compensation Plan is based on Company prescribed contribution rates that are established for all participating employees. Aggregate earnings are based on the performance of the underlying mutual funds chosen by the executive from a prescribed list of choices sponsored by the Company through a third-party vendor. As no preferential performance or interest rates are accorded any of the notional investments that executives have in the Companys Non-Qualified Deferred Compensation Plan, no monies relating to the Non-Qualified Deferred Compensation Plan are reported in the Summary Compensation Table on page 14.
Participants are allowed to defer both salary and bonus into the Non-Qualified Deferred Compensation Plan. All participants in the Non-Qualified Deferred Compensation Plan are required to have on file with the Company a payout election form indicating the terms chosen by the participant for payout at the time of termination or retirement. No executive is allowed to take a loan from the Company or against their outstanding plan balance.
21
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
President and Chief Executive Officer
Mr. OHara does not have an employment agreement with the Company. Except for death or disability, no payments would be made to Mr. OHara upon termination or change-in-control of the Company. In the event of termination of Mr. OHaras employment by reason of death or disability, Mr. OHara would be entitled to accelerated vesting of his rights under any option or restricted share grants and pension plans, pursuant to the Companys 1991 Performance Incentive Plan that governs all equity awards made to employees of the Company. In the event Mr. OHaras employment were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, by reason of death or disability, the value of the estimated potential payments to be received by Mr. OHara described above, would be 277,501 option Shares and 23,125 restricted Shares. Based upon the difference between the exercise price of the options and the closing price of the Shares on December 29, 2006 or $72.02, the net value of these options would be $119,003. Based upon the closing price of the Shares on December 29, 2006, the value of these Shares would be $1,665,463.
Named Executive Officers
Jerry de St. Paer Employment Agreement
Although Mr. de St. Paer is no longer employed by the Company, as described above, the de St. Paer Employment Agreement as in effect as of the previous fiscal year end, is detailed below. The potential payments upon termination or a change in control of the Company pursuant to the de St. Paer Employment Agreement were as follows:
Termination Due to Death or Disability
Mr. de St. Paers employment agreement provided that, in the event of the termination of his employment prior to the expiration date of the employment agreement (after giving effect to any extensions thereof) by reason of death or disability:
(i) |
Mr. de St. Paer (or in the case of death, Mr. de St. Paers spouse or estate) would have been entitled to receive his then current base salary through the end of the sixth month after the month in which his employment is terminated; |
|
(ii) |
Mr. de St. Paer (or his estate) would have been entitled to any annual bonus awarded but not yet paid or a bonus for the year of termination in an amount determined by the Compensation Committee (but not less than a pro rata portion of his targeted annual bonus for the year); |
|
(iii) |
Mr. de St. Paer (or his estate) would have been entitled to accelerated vesting of his rights under any option or restricted share grants and pension plans; and |
|
(iv) |
Mr. de St Paer would have received 6 months medical benefits continuation. |
In the event Mr. de St. Paers employment were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, by reason of death or disability, the value of the estimated potential payments to be received by Mr. de St. Paer described in clauses (i), (ii), and (iii) above would have been as follows: (i) $275,000; (ii) $750,000; (iii) 65,000 option Shares and 26,125 restricted Shares. Based upon the difference between the exercise price of the options and $72.02, the closing price of the Shares on December 29, 2006, the cash value of these in the money options would have been $25,503. Based upon the closing price of the Shares on December 29, 2006, the value of these Shares would have been $1,881,523.
Termination Without Cause
In the event of termination of his employment without cause prior to a Change in Control (as defined in his employment agreement), Mr. de St. Paer would have been entitled to his then current base salary through the date on which termination occurs, participation in employee benefit programs through the remainder of the term of his employment agreement, 6 months medical benefits continuation, and:
(i) a cash lump sum payment equal to two times his then current base salary;
22
(ii) |
a cash lump sum payment equal to one times the higher of (x) his targeted annual bonus for the year of termination or (y) the average annual bonus actually awarded for the year immediately preceding the year of termination; |
|
(iii) |
any annual bonus earned or awarded but not yet paid; and |
|
(iv) |
accelerated vesting of his rights under any option or restricted share grants and pension plans. |
In the event Mr. de St. Paers employment were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, without cause prior to a Change in Control, the value of the estimated potential payments to be received by Mr. de St. Paer described in clauses (i), (ii), (iii) and (iv) above would have been as follows: (i) $1,100,000; (ii) $550,000; (iii) $750,000; and (iv) 65,000 option Shares and 26,125 restricted Shares. Based upon the difference between the exercise price of the options and $72.02, the closing price of the Shares on December 29, 2006, the cash value of these in the money options would have been $25,503. Based upon the closing price of the Shares on December 29, 2006, the value of these Shares would have been $1,881,523.
Termination Without Cause Following a Change in Control; For Good Reason; or In connection with a Change in Control
If Mr. de St. Paer were terminated (a) by the Company without cause within the 24-month period following a Change in Control and, if the Change in Control is stockholder approval of an Event (as defined in his employment agreement), prior to a termination of the agreement to effect the Event (the Post-Change Period), (b) by Mr. de St. Paer for Good Reason (as defined in his employment agreement) during the Post-Change Period; or (c) in connection with or anticipation of a Change in Control within one year prior to the date on which a Change in Control occurs, he would have been entitled to his then current base salary through the date on which termination occurs and:
(i) |
a cash lump sum payment equal to two times his then current base salary immediately prior to such termination or Change of Control, whichever is greater; |
|
(ii) |
a cash lump sum payment equal to two times the largest annual bonus awarded to him in the three years preceding the year in which the Change in Control occurs, provided that such bonus is at least equal to the targeted annual bonus for the year of such termination; |
|
(iii) |
an amount equal to the higher of (x) his annual bonus actually awarded for the year immediately preceding the year of the Change in Control or (y) his targeted annual bonus that would have been awarded for the year of termination, pro rated by a fraction for the number of months or fraction thereof in which he was employed in the year of termination; and |
|
(iv) |
accelerated vesting of his rights under any option or restricted share grants and pension plans. |
Mr. de St. Paer would also have been entitled to continued exercisability of stock options for three years after termination of employment and continued medical benefits for two years after termination of employment. In addition, Mr. de St. Paer would have been entitled to gross-up payments in the event excise taxes on his payments or benefits are imposed on him under Section 280G of the United States Internal Revenue Code, as set forth in his employment agreement.
In the event Mr. de St. Paers employment were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, by reason of (a), (b) or (c) above, the value of the estimated potential payments to be received by Mr. de St. Paer described in clauses (i), (ii) and (iii) above would have been as follows: (i) $1,100,000; (ii) $1,100,000; (iii) $550,000; and (iv) 65,000 option Shares and 26,125 restricted Shares. Based upon the difference between the exercise price of the options and $72.02, the closing price of the Shares on December 29, 2006, the cash value of these in the money options would have been $25,503. Based upon the closing price of the Shares on December 29, 2006, the value of these Shares would have been $1,881,523.
Termination With Cause or Other Voluntary Termination
If Mr. de St. Paer were terminated by the Company with Cause or other voluntary termination by Mr. de St. Paer, he would have been entitled to:
(i) his then current base salary through the date on which termination occurs;
23
(ii) |
continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by him in accordance with the terms of the plans under which such options or equity securities were issued; and |
|
(iii) |
his vested accrued benefits under any employee benefit programs in the case of voluntary termination and, if such programs expressly provide for such benefits, in the case of termination by the Company with Cause. |
Employment Agreements of Henry C. V. Keeling, Clive R. Tobin, James H. Veghte and Sarah E. Street
The potential payments upon termination or a change in control of the Company pursuant to Henry C.V. Keelings employment agreement to serve as the Companys Executive Vice President and Chief Operating Officer; Sarah Streets employment agreement to serve as the Companys Executive Vice President and Chief Investment Officer; Clive R. Tobins employment agreement to serve as the Companys Executive Vice President and Chief Executive of Insurance Operations; and James H. Veghtes employment agreement to serve as the Companys Executive Vice President and Chief Executive of Reinsurance Operations, are as follows:
Termination Due to Death or Disability
Each NEO Employment Agreement provides that, in the event of the termination of the executives employment prior to the expiration date of the employment agreement (after giving effect to any extensions thereof) by reason of death or disability the executive shall be entitled to:
(i) |
(or in the case of death, the executives spouse or estate shall be entitled to) receive the executives then current base salary through the end of the six month period after the month in which the executives employment is terminated; |
|
(ii) |
(or the executives estate shall be entitled to) any annual bonus awarded but not yet paid or a pro rata bonus for the year of termination in an amount determined by the Compensation Committee (but not less than a pro rata portion of the executives average annual bonus for the immediately preceding three years); and |
|
(iii) |
(or the executives estate shall be entitled to) the executives vested accrued benefits under any employee benefit programs, continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or other rights were issued, and continued medical benefit plan coverage for the executive and the executives dependents for a period of six months. |
In the event the employment of any of Messrs. Keeling, Tobin, Veghte or Ms. Street were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, by reason of death or disability, the value of the estimated potential payments to be received by Messrs. Keeling, Tobin, Veghte or Ms. Street described in clauses (i), (ii), and (iii) above would have been as follows:
Mr. Keeling
(i) $337,500; (ii) $1,725,000;
(iii) 178,750 option Shares and 28,250 restricted Shares. Based upon the
difference between the exercise price of the options and $72.02, the
closing price of the Shares on December 29, 2006, the cash value of these
in the money options would have been $156,700. Based upon the closing price of the
Shares on December 29, 2006, the value of these Shares would have been $2,034,565.
Mr. Tobin
(i) $345,638; (ii) $1,600,000;
(iii) 181,250 option Shares and 38,125 restricted Shares. Based upon the
difference between the exercise price of the options and $72.02, the
closing price of the Shares on December 29, 2006, the cash value of these
in the money options would have been $156,700. Based upon the closing price of the
Shares on December 29, 2006, the value of these Shares would have been $2,745,763.
Mr. Veghte
(i) $250,000; (ii) $1,400,000;
(iii) 61,250 option Shares and 44,375 restricted Shares. Based upon the difference
between the exercise price of the options and $72.02, the closing price
of the Shares on December 29, 2006, the cash value of these in the money options would
have been $21,253. Based upon the closing price of the Shares on December
29, 2006, the value of these Shares would have been $3,195,888.
24
Ms. Street
(i) $225,000; (ii) $2,500,000;
(iii) 44,375 option Shares and 14,000 restricted Shares. Based upon the difference
between the exercise price of the options and $72.02, the closing price
of the Shares on December 29, 2006, the cash value of these in the money options would
have been $71,050. Based upon the closing price of the Shares on December
29, 2006, the value of these Shares would have been $1,008,280.
Termination Without Cause
In the event of termination of the executives employment by the Company without Cause (as defined in the employment agreement) or by the executive if the executive is assigned duties inconsistent with his position (but such assignment does not constitute Good Reason as defined in the employment agreement), the executive shall be entitled to the executives then current base salary through the date on which termination occurs and:
(i) |
a cash lump sum payment equal to the sum of two times the executives then current base salary; |
|
(ii) |
a cash lump sum payment equal to the sum of one times the higher of the targeted annual bonus for the year of such termination or the average of the executives annual bonus for the three years immediately preceding the year of termination; |
|
(iii) |
any annual bonus awarded but not yet paid; and |
|
(iv) |
the executives vested accrued benefits under any employee benefit programs, continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or other rights were issued and continued medical benefit plan coverage for the executive and the executives dependents for a period of 24 months. |
In the event the employment of either of Messrs. Keeling, Tobin, Veghte or Ms. Street were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, without cause, the value of the estimated potential payments to be received by Messrs. Keeling, Tobin, Veghte or Ms. Street described in clauses (i), (ii), (iii) and (iv) above would have been as follows:
Mr. Keeling
(i) $1,350,000; (ii) $1,012,500;
(iii) $1,725,000; and (iv) 178,750 option Shares and 28,250 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $156,700. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $2,034,565.
Mr. Tobin
(i) $1,382,550; (ii) $864,094;
(iii) $1,600,000; and (iv) 181,250 option Shares and 38,125 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $156,700. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $2,745,763.
Mr. Veghte
(i) $1,000,000; (ii) $666,667;
(iii) $1,400,000; and (iv) 61,250 option Shares and 44,375 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $21,253. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $3,195,888.
Ms. Street
(i) $900,000; (ii) $1,538,333;
(iii) $2,500,000; and (iv) 44,375 option Shares and 14,000 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $71,050. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $1,008,280.
Termination Without Cause Following A Change in Control; For Good Reason; By the Company Within One Year Prior to Change in Control
Notwithstanding the foregoing, in the event of termination of the executives employment (a) by the Company without Cause within the 24-month period following a Change in Control (as defined in the employment agreement)
25
(the Post-Change Period), (b) by the executive for Good Reason during the Post-Change Period or (c) by the Company within one year prior to a Change in Control and it is reasonably demonstrated that such termination arose in connection with or anticipation of the Change in Control, then the executive shall be entitled to the executives then current base salary through the date on which termination occurs and:
(i) |
a cash lump sum payment equal to the sum of two times the executives then current base salary; |
|
(ii) |
a cash lump sum equal to the sum of two times the average of the executives annual bonus for the three years immediately preceding the year in which the Change in Control occurs, provided such bonus shall be at least equal to the targeted annual bonus for the year of such termination; |
|
(iii) |
an amount equal to the higher of the executives annual bonus actually awarded in the year immediately preceding the year in which the Change in Control occurs or (y) the targeted annual bonus that would have been awarded to the executive for the year of such termination, pro rated by a fraction based on the number of months or fraction thereof in which the executive was employed by the Company in the year of termination; and |
|
(iv) |
the executives vested accrued benefits under any employee benefit programs, continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or other rights were issued. |
The executive shall also be entitled to continued medical benefit plan coverage for the executive and the executives dependents for a period of 24 months and to accelerated vesting of the executives rights (i) under any retirement plans; and (ii) under any stock options or other rights with respect to equity securities of the Company held by the executive, which options or other rights shall be exercisable for the shorter of three years or the original term of the security. In addition, the executive shall be entitled to gross-up payments in the event excise taxes on the executives payments or benefits are imposed under Section 280G of the United States Internal Revenue Code.
In the event the employment of either of Messrs. Keeling, Tobin, Veghte or Ms. Street were to have been terminated on December 29, 2006, the last business day of the Companys fiscal year, by reason of (a), (b) or (c) above, the value of the estimated potential payments to be received by each of Messrs. Keeling, Tobin, Veghte or Ms. Street described in clauses (i), (ii), (iii) and (iv) above, would have been as follows:
Mr. Keeling
(i) $1,350,000; (ii) $2,025,000;
(iii) $1,012,500 and (iv) 178,750 option Shares and 28,250 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $156,700. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $2,034,565.
Mr. Tobin
(i) $1,382,550; (ii) $1,728,188;
(iii) $864,094; and (iv) 181,250 option Shares and 38,125 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $156,700. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $2,745,763.
Mr. Veghte
(i) $1,000,000; (ii) $1,333,334;
(iii) $625,000; and (iv) 61,250 option Shares and 44,375 restricted Shares.
Based upon the difference between the exercise price of the options and $72.02,
the closing price of the Shares on December 29, 2006, the cash value of these
in the money options would have been $21,253. Based upon the closing price of the
Shares on December 29, 2006, the value of these Shares would have been $3,195,888.
Ms. Street
(i) $900,000; (ii) $3,076,667;
(iii) $1,350,000; and (iv) 44,375 option Shares and 14,000 restricted
Shares. Based upon the difference between the exercise price of the options
and $72.02, the closing price of the Shares on December 29, 2006, the
cash value of these in the money options would have been $71,050. Based upon the closing
price of the Shares on December 29, 2006, the value of these Shares would
have been $1,008,280.
Termination With Cause or Other Voluntary Termination
In the event of termination of the executives employment by the Company with Cause or other voluntary termination by the executive, the executive shall be entitled to:
26
(i) |
the executives then current base salary through the date on which termination occurs; |
|
(ii) |
continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or equity securities were issued; and |
|
(iii) |
the executives vested accrued benefits under any employee benefit programs in the case of voluntary termination and, if such programs expressly provide for such benefits, in the case of termination by the Company with Cause. |
All grants of restricted shares and share options under the Companys incentive compensation plans automatically vest upon a Change in Control (as defined in such plans).
27
COMPENSATION DISCUSSION AND ANALYSIS
1. Introduction
We operate on a global basis primarily in the property and casualty insurance industry and, to a lesser extent, the financial services industry. We serve the insurance, reinsurance and financial services needs of institutional or corporate clients, typically the global equivalent of the Fortune 2000.
The property and casualty insurance and reinsurance markets have historically been cyclical, meaning that based on market conditions, there have been periods when premium rates are high and policy terms and conditions are more favorable (a hard market), and there have been periods where premium rates decline and policy terms and conditions are less favorable (a soft market). This has been driven primarily by competition in the marketplace, the supply of capital in the industry, investment yields and the frequency and severity of loss events. Our goal is to build long-term shareholder value by capitalizing on current opportunities and managing through any potential downward cycles by reducing our property and casualty book of business and exposures if and when rates deteriorate to unprofitable levels. As part of our long-term strategy, we look to financial products and services to provide a diversified stream of earnings that are not directly tied to the property and casualty cycle.
Our executive compensation programs are established so that our executives are rewarded for creating long-term shareholder value, by strengthening our competitiveness within our industry, resulting in an increase in the value of our share price. Accordingly, performance measurements for the programs described below are set with the idea that attainment of both internal and external (relative to peers) goals will increase our long-term shareholder value.
The goals of our executive compensation programs are to:
Attract and retain high quality executives that will implement our business strategy effectively. Due to the highly competitive nature of attracting key executives within the commercial insurance/reinsurance industry, our aim is to provide substantial rewards to those executives that prove consistently successful in their roles. Differentiation based on performance is a hallmark of our programs.
Motivate executives to maximize the long term creation of shareholder value. With attainment of a return on equity (meaning, operating income divided by the average ordinary Shareholders equity for the period) (ROE) performance metric required for the vesting of restricted shares and a cash long-term incentive plan (LTIP) that pays out based on a three-year ROE performance metric, consistent annual returns are rewarded. If our company should have a sub-standard performance year, restricted shares do not vest and the LTIP payout will be reduced.
Align our business actions with our core values and our pay-for-performance philosophy. While it is important that we attain our stated business goals, we will not do so at the expense of our core values. These core values underscore and define who we are to our customers and other stakeholders. Our principles are predicated on the understanding that executive contributions to the Companys success demonstrate the base core values that underpin our Companys culture:
Ethics We insist on the highest standard of personal and professional conduct to secure the absolute trust and confidence of our clients, our stakeholders and our colleagues.
Teamwork We achieve greater contribution when we work together. We recognize and reward team effort.
Excellence We require continuous improvement in the quality of all the work that we do. We reward those who continually seek to improve the quality of their work.
Development Ensuring that all our staff realizes their full potential is the only way for us to reach our business objectives. We expect everyone to take the initiative for their own professional development and to actively seek opportunities to assist in the development of colleagues and subordinates.
Respect We must all value and respect the differences and diversity within our own organization. Lack of personal and professional respect in dealing with our colleagues is not tolerated.
28
2. Executive Compensation Program Review and Oversight
The goals of our executive compensation programs have been established by the Compensation Committee of the Board of Directors. This committee consists of three independent directors: Dale R. Comey (Chairman), Robert R. Glauber and Eugene M. McQuade. All Compensation Committee members are outside directors as defined under Section 162(m) of the Internal Revenue Code (Section 162(m)) and qualify as independent Directors under the NYSE listing standards. The Compensation Committee evaluates and approves all senior executive compensation actions, as well as compensation and benefits policies, plans and programs.
The Chief Executive Officer, Brian M. OHara, is responsible for providing recommendations to the Compensation Committee with respect to all compensation actions for the executive officers other than himself, as well as the cash incentive pools and the long-term incentive pools for all non-executive employees. The Compensation Committee expects that Mr. OHara will justify his recommendations based on actual performance against agreed upon metrics, relative performance versus the Companys peers and, at the business unit level, relative contributions to overall company results. Mr. OHara is required by the Compensation Committee to detail the companys operating results each year, how these results compare to the Companys peer group of 11 companies in the global commercial insurance/reinsurance market, individual performance of senior executives and how his compensation recommendations relate to such performance comparisons.
The Compensation Committee retains an independent consulting firm to assist in calculations for the annual incentive pool and to advise the Compensation Committee of any issues requiring the consulting firms expertise. In 2006, the Compensation Committee retained the consultant to size the annual incentive pool.
3. Executive Compensation Philosophy and Core Principles
Our compensation strategy is punctuated by differentiation we are a pay for performance company. Accordingly, we target our salary compensation levels to be at the 50th percentile of the local market in which each executive operates and the annual incentive target compensation levels are set between the 50th and the 75th percentile of our market relative to our peer group. We drive superior performance by paying above these market levels to executives that make superior contributions to the Companys success as measured by the performance of their business unit relative to annual internal and external goals and their contributions to the Companys overall success.
Using all instruments that are practically available, we position the total compensation package for executives competitively relative to the market for their skill-sets; in particular, the market for most of our executives consists of those companies that operate in the global commercial insurance/reinsurance industry. While not all of our executives can be expressly tied to such a market (e.g., certain finance, information technology or investments executives), our aim is to reward executives relative to their contributions to the success of the Company in any given year. This does not necessitate having every executive at or above market levels. Individual considerations such as performance, previous experience and additional skill-sets are considered when determining compensation for an executive. Due to our focus on providing variable compensation, actual pay can be well above or below an executives market median based on actual business and individual performance.
We are a performance-oriented company and we seek to pay-for-performance. This is achieved by minimizing the fixed elements (salary and benefits) of compensation that do not relate to performance of the Company, business line or executive while maximizing the variable elements (annual and long-term incentives) that relate to, and are paid out based on, performance.
Since much of our business requires multiple years to determine whether we have been successful in our risk assessments, we choose to put a significant portion of our senior executive compensation packages in long-term vehicles that provide wealth to our executives when value is created for shareholders. This combination of retaining and motivating our executives is carried out by using different vehicles that have different objectives. In general, our goal for our NEOs is to have 10% - 20% of their total annual compensation in annual salary, 20% - 40% in annual cash incentive and the remainder in a mix of long-term incentives.
We work to maintain equity and fairness in the distribution of total compensation for executives in similar jobs, with similar performance and in similar local markets. We do not attempt to equalize total compensation across geographical markets, varying business markets or different performance levels.
29
4. Executive Compensation Program Components
We aim to reward performance based on annual performance goals, long-term performance goals and our corporate core values by using two fixed components (base salaries and perquisites and benefits) and two variable components (annual incentives and long-term incentives) in our executive compensation program. For our NEOs, we complete an annual review of peer data that is disclosed in public filings (primarily annual reports on Form 10-K and annual proxy statements filed on Schedule 14A) to ensure that our compensation levels are competitive with those companies we view as direct competitors and to better understand trends in the use of compensation vehicles. The competitor group that we have defined includes companies in the commercial insurance/reinsurance market that have an average market capitalization and revenue base that is similar to ours. We also review companies in our industry that are both larger and smaller than ours and we appropriately adjust the compensation delivered by these companies when making comparisons. There are no companies in our compensation peer group that are not defined as commercial insurance and/or reinsurance companies.
Fixed Components
Base Salaries. Base
salaries are established based on the responsibilities of the executive,
the relative salary level paid by our
peer group to executives with similar levels of responsibility and the geographic
location of the executive. Base salaries
are intended to compensate an executive for executing the basic responsibilities of
their job. Due to the relatively fixed nature of base salaries, we aim to
pay at the median of the respective market and we undertake a review and
adjustment of executive base salaries each year in the first quarter. The
Compensation Committee reviews the recommendations made by Mr. OHara
each year with respect to all executive officers
and the Committee reviews the base salary of Mr. OHara in
the same manner. Since base salaries are paid
for executing the basic responsibilities of the job, base salaries are adjusted
when there has been a change to the market level
being paid for the responsibilities of that job or when the role of the executive
has changed. Mr. OHara last received a salary increase in 2001; since that
time, the Compensation Committee
has reviewed the salary level for Mr. OHara and believes that his salary
approximates the median of the competitive peer
group.
Perquisites and Supplemental
Benefits. Pursuant to our pay-for-performance
philosophy, executives receive minimal
perquisites and minimal supplemental benefits, most notably a non-qualified
supplemental deferred compensation plan
which allows U.S. tax-paying executives to defer receipt of up to 95% percent of
their base salary and 100% of their annual incentive award, which are
notionally invested in a series of mutual
funds that are managed by our retirement plan vendor. This type of benefit
is provided to executives by a majority
of our peer companies. We do not have any defined benefit (pension) plans
for our NEOs. Health and retirement benefits
are provided to all employees based on market norms in the local markets in
which we operate and at local market levels. Since benefits supplement
the overall total rewards package and
due to the fixed nature of the costs incurred in providing such benefits,
we review local markets periodically to
determine the appropriate vehicles and cost-sharing levels relative to
peer companies (as described above) in
the local markets in which we operate.
Variable Components
Annual Incentives. Annual incentives are awarded by the Compensation Committee, payable based on the attainment of financial and
operational goals of the company, business unit and individual goals and are paid in cash within the first quarter of the following year. Determination of payout levels includes both absolute and relative performance. Individuals have target annual incentive levels that vary based on the executives role with no stipulation of a maximum or minimum payout level. Executives are evaluated
based on four primary criteria: 1) the overall performance of the company and their contribution to that performance, 2) the performance of the business unit or function that the
executive leads, 3) the executives attainment of annual performance goals and 4) the executives personal and business unit/ functions adherence to the companys
core values.
Performance measures that determine the annual incentive pool include ROE, Operating Earnings per Ordinary Share (EPS), Book Value per Ordinary Share and Total Shareholder Return (TSR). Book
Value per Share and TSR are measured relative to our peer group of 11 companies in the commercial insurance/reinsurance market. By choosing these indices, the Compensation Committee can
judge the performance of management regarding how it handles broad market events and trends in the global commercial insurance/reinsurance market relative to our peer group. EPS is
measured in absolute terms, against goals set by the Board of
30
Long-Term Incentives To motivate sustained performance and the creation of superior long-term value for our shareholders, as well as to provide retention mechanisms to key executives, both stock-based vehicles (restricted stock, options, stock appreciation rights) and cash vehicles (deferred cash awards, long-term incentive plan awards) are used to reward middle management and senior executives. The vehicle chosen to award an executive depends upon such variables as current holdings, desired performance focus, career cycle management, vehicle availability and usage within our peer group.
Stock Options and Stock Appreciation Rights
When awarded, stock options or stock appreciations rights (SARs) are granted at the closing market price of the stock at the date of the next Board of Directors meeting following the release of full-year earnings to the market, usually in late February. To enhance the retention aspect associated with stock options and SARs, both vest ratably over four years and the Compensation Committee uses a Black-Scholes model to determine the value of the options/SARs to be awarded. Stock options are exercisable for up to 10 years from the date of grant to allow executives to focus on the creation of long-term shareholder value. In general, stock options are only awarded to senior executives, and then, only on a limited basis.
Stock option awards made for purposes other than the annual program in February are made at the market price on the last day of the second month of a quarter after the Compensation Committee approves the award.
The Compensation Committee made the decision not to award any stock options or SARs related to 2006 performance to any of the NEOs (although one member of Senior Management received stock options in order to increase such senior executives exposure to our stock price). The Committee will continue to review the level of equity exposure for its executive officers and it will consider future awards of stock options as appropriate.
Restricted Stock
Any restricted stock award made to an executive as part of the annual program is granted in early March, following approval by the Board of Directors. As required by an amendment made to the 1991 Performance Incentive Plan in 2004, at least 50% of the shares approved by shareholders for award to employees must have a performance vesting criteria. As a result of this requirement, all of the restricted shares granted to
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NEOs vest ratably over 4 years if the ROE threshold is attained for that year. Otherwise the shares are held until they meet a multi-year average ROE threshold. Under this plan, those shares that were scheduled to vest in March of 2006 (based on 2005 performance) did not vest. Those shares that did not vest in 2006 will vest in 2007 because the 2-year average ROE required threshold was met. All shares that were scheduled to vest in 2007 as a result of 2006 ROE performance will vest because the annual ROE required threshold was met.
Based on 2006 performance as well as the scope of the executives role, the Compensation Committee made restricted stock awards to the NEOs on March 9, 2007 as follows: Mr. OHara received 32,000 shares, Mr. Keeling received 12,000 shares, Ms. Street received 10,000 shares, Mr. Tobin received 8,000 shares and Mr. Veghte received 8,000 shares.
Long-Term Incentive Plan (LTIP)
The Long-Term Incentive Plan, or LTIP, is a cash program that allows the company to motivate executives with a 3-year cliff-vest award that pays out based on performance against a performance metric determined by the Compensation Committee. The metric chosen by the Compensation Committee is one that is expected to create long-term Shareholder value when achieved. The likelihood of whether we attain the performance goals is partially dependent upon the level of any catastrophic events that occur during the performance period as well as other financial factors that will impact our long-term Shareholder value.
The awards made in 2005 will pay out in March 2008 based on a 3-year accumulated operating income metric. The face value of all 2005 awards is $100,000. The minimum payout level for this award equates to a payout of 50% of the awards face value, while the maximum payout for an executive is 200% of the face value of the award. These awards represented the first to be given from the new LTIP program and are the only awards that will have a minimum payout that is greater than zero.
The awards made in 2006 will pay out in March 2009 if performance exceeds a threshold level of 3-year ROE. The threshold performance level would equate to a payout of 50% of an awards face value. Below this threshold level there will not be any payment and the maximum payout for an executive is 300% of the face value of the award. This 3-year ROE metric aligns with the Companys 2006 strategic plan. The face value of awards made in 2006 varied by executive based on the executives role and the other long-term incentive awards made to the executive.
The performance metric to be used for the 2007 awards (with performance years 2007 2009) will again be a 3-year ROE metric and will require that the 3-year ROE meets a threshold performance level before a 50% payout is made and the maximum payout that could be attained is again 300%. For this award, the Compensation Committee has discretion of up to 50 percentage points so that the Committee can either increase or decrease the value of the award based on the relative performance of our 3-year ROE versus the 3-year ROE performance of our peer group. Based on 2006 performance as well as the scope of the executives role, the Compensation Committee made LTIP awards to the NEOs on March 15, 2007 with face value amounts as follows: Mr. OHara received a $3,000,000 face value award, Mr. Keeling received a $750,000 face value award, Ms. Street received a $500,000 face value award, Mr. Tobin received a $500,000 face value award and Mr. Veghte received a $500,000 face value award.
Holding Requirements
To better align our executives interests with those of our shareholders, the Compensation Committee has put in place requirements that our executives hold an amount of Shares, share units and stock options with value relative to their base salaries. Executives are given three years to obtain the required holdings, otherwise shortfalls in meeting the requirements will be taken into consideration when determining future awards. All NEOs currently meet the required holdings.
CEO | 5x base salary | |
Executive Officers | 3x base salary | |
Executive Management Group | 2x base salary |
The 1991 Performance Incentive Plan which governs all equity awards has a vesting provision that allows all option shares and restricted shares to vest once an employee retires from the Company and has a combined age plus years of service that equals 65. Effective January 1, 2007, any new awards will also require that the employee be a
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minimum of 55 years old at the time of leaving the Company and will require the prior approval of the Compensation Committee before any such awards vest. As a result of this change, grants of share-based awards to retirement eligible employees will no longer be expensed in full at the time of grant. They will be expensed in the same manner as grants to non-retirement-eligible employees.
The Compensation Committee reviews the recommendations made by each business/functional unit as well as each of the recommendations made for the Executive Management Group. The Compensation Committee includes a recommendation for Mr. OHaras long-term incentive awards and submits the recommendations to the Board of Directors for approval.
5. Chief Executive Officer and Chairmans Compensation
The Compensation Committee evaluated the Chief Executive Officers performance pertaining to a series of objectives established for 2006. The Committee and the Board continue to believe Mr. OHaras leadership is strong, effective and appropriate. The leadership demonstrated by Mr. OHara in responding to the events of 2005 positioned the Company to achieve record profits in 2006, and the Committee believes that the Company is well-positioned, financially strong and focused on enhancing Shareholder value. As a result of this performance, the Compensation Committee recommended and the full Board of Directors approved a cash bonus of $4.75 million, 32,000 shares of performance-vested restricted stock and an LTIP award of $3.0 million. The cash bonus amount is 238% of his annual target payout level and this level is generally aligned with the collective payout ratios awarded to the other NEOs. His long-term awards are appropriately performance based and continue to align Mr. OHara with shareholders. The Compensation Committee believes that this compensation package is appropriately competitive relative to similarly situated executives.
The Compensation Committee evaluated the Chairmans performance pertaining to a series of objectives established for 2006. Mr. Esposito provided excellent overall leadership to the Board, especially with respect to issues of corporate governance and in relation to the initial public offering of Security Capital Assurance Ltd. The Committee recommended and the Board approved for Mr. Esposito a cash bonus of $1.5 million.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management of the Company, the Compensation Discussion and Analysis. Based on this review and these discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Companys Annual Report on Form 10-K For the year ended December 31, 2006.
Compensation Committee | |
Dale R. Comey, Chairman | |
Robert Glauber | |
Eugene M. McQuade |
Notwithstanding anything to the contrary set forth in any of the Companys previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including this Proxy Statement, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.
AUDIT COMMITTEE REPORT
The primary purpose of the Audit Committee is to assist the Boards oversight of the integrity of the Companys financial statements, including its system of internal controls, the Companys independent registered public accounting firms (the Independent Auditor) qualifications, independence and performance, the performance of the Companys internal audit function and the Companys compliance with legal and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the Independent Auditor for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. During 2006, Messrs. Thornton, Comey, Mauriello, McQuade, Rance, Senter and Dr. Thrower served on the Audit Committee. The Audit Committee is currently comprised of seven independent Directors and operates under a written charter. A current copy of the Audit Committee Charter is available on the Companys website located at www.xlcapital.com. It is not the responsibility of the Audit Committee to plan or conduct audits or to determine that the Companys financial
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statements are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. This is the responsibility of management and the Independent Auditor, as appropriate. It is also not the responsibility of the Audit Committee to assure compliance with laws and regulations and the Companys Code of Business Conduct and Ethics and Code of Ethics for XL Senior Financial Officers or to set or determine the adequacy of the Companys reserves.
The Audit Committee has reviewed and discussed the Companys system of internal controls over financial reporting. Based on the Audit Committees review of the audited financial statements and managements assessment of the effectiveness of the Companys system of internal controls over financial reporting, its discussions with management regarding the audited financial statements, its receipt of written disclosures and the letter from the Independent Auditor required by Independence Standards Board Standard No. 1, its discussions with the Independent Auditor regarding such auditors independence, the audited financial statements, the matters required to be discussed by the Statement on Auditing Standards 61, the Independent Auditors opinion on the effectiveness of the Companys system of internal controls over financial reporting and on managements assessment of the effectiveness of the Companys system of internal controls over financial reporting, and other matters the Audit Committee deemed relevant and appropriate, the Audit Committee recommended to the Board of Directors that the Companys audited financial statements for the fiscal year ended December 31, 2006 be included in the Companys Annual Report on Form 10-K for such fiscal year.
Audit Committee | |
John T. Thornton, Chairman | |
Dale R. Comey | |
Joseph Mauriello | |
Eugene M. McQuade | |
Cyril Rance | |
Alan Z. Senter | |
Ellen E. Thrower |
Audit Fees
The aggregate fees billed by PriceWaterhouseCoopers LLP for audit services for the years ended December 31, 2006 and 2005 were approximately $14,600,000 and $14,500,000, respectively. Audit fees are for professional services rendered primarily in connection with the audit and quarterly review of the consolidated financial statements and other attestation services that comprised the audits for insurance statutory and regulatory purposes in the various jurisdictions in which the Company operates and the provision of certain opinions relating to the Companys filings with the SEC. Included in the aggregate fees noted above for the year ended December 31, 2006, is $1,150,000 for engagements of PriceWaterhouseCoopers LLP by an indirect majority-owned subsidiary of the Company, Security Capital Assurance Ltd (SCA), which are reviewed and approved by the independent audit committee of SCA pursuant to pre-approval policies adopted by such committee.
Audit-Related Fees
The aggregate fees billed by PriceWaterhouseCoopers LLP for audit-related professional services for the years ended December 31, 2006 and 2005 were approximately $1,432,000 and $123,610, respectively. Audit-related fees were (i) in 2006 primarily related to assurance and related services rendered primarily in connection with accounting consultations and services related to the initial public offering of SCA, and other services associated with SCAs filings on Form S-1 in connection therewith and (ii) in 2005 primarily related to assurance and related services rendered primarily in connection with accounting consultations. Included in the aggregate fees noted above for the year ended December 31, 2006, is $480,125 for engagements of PriceWaterhouseCoopers LLP by SCA, which are reviewed and approved by the independent audit committee of SCA pursuant to pre-approval policies adopted by such committee.
Tax Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for tax services for the fiscal years ended December 31, 2006 and 2005 were $132,000 and $104,661, respectively. These fees are for professional services rendered for tax compliance. Included in the aggregate fees noted above for the year ended December 31, 2006, is $25,000 for engagements of PriceWaterhouseCoopers LLP by SCA, which are reviewed and approved by the independent audit committee of SCA pursuant to pre-approval policies adopted by such committee.
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All Other Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for products and services rendered to the Company, other than the services described above under Audit Fees, Audit-Related Fees and Tax Fees, for the fiscal years ended December 31, 2006 and 2005 were $3,538 and $45,052, respectively. The aggregate fees billed by PricewaterhouseCoopers LLP for such products and services rendered to the Company (i) in 2006 related to software licenses acquired for technical accounting reference tools required for regulatory filings and (ii) in 2005 primarily related to online access to human resource advisory services and software licenses acquired for technical accounting reference tools required for regulatory filings.
General
The Audit Committee has adopted procedures for pre-approving all audit and permissible non-audit services provided by the Independent Auditor. The Audit Committee will annually review and pre-approve the audit, review, attestation and permitted non-audit services to be provided during the next audit cycle by the Independent Auditor. To the extent practicable, the Audit Committee or the Chairman of the Audit Committee will also review and approve a budget for such services. Services proposed to be provided by the Independent Auditor that have not been pre-approved during the annual review and the fees for such proposed services must be pre-approved by the Audit Committee or the Chairman of the Audit Committee. Additionally, fees for previously approved services that are expected to exceed the previously approved budget must also be pre-approved by the Audit Committee or the Chairman of the Audit Committee. All requests or applications for the Independent Auditor to provide services to the Company shall be submitted to the Audit Committee or the Chairman of the Audit Committee.
The Audit Committee considered whether the provision of non-audit services performed by the Independent Auditor is compatible with maintaining PricewaterhouseCoopers LLPs independence during 2005 and 2006. The Audit Committee concluded in 2006 that the provision of these services was compatible with the maintenance of PricewaterhouseCoopers LLPs independence in the performance of its auditing functions during 2006.
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The Audit Committee of the Board of Directors is required by law and applicable NYSE rules to be directly responsible for the appointment, compensation and retention of the Companys Independent Auditor. The Audit Committee has appointed PricewaterhouseCoopers LLP as the Independent Auditor for the year ending December 31, 2007. While Shareholder ratification is not required by the Companys Articles of Association or otherwise, the Board of Directors is submitting the appointment of PricewaterhouseCoopers LLP to the Shareholders for ratification as part of good corporate governance practices. If the Shareholders fail to ratify the appointment, the Audit Committee may, but is not required to, reconsider whether to retain PricewaterhouseCoopers LLP. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the fiscal year if it determines that such a change would be in the best interest of the Company and its Shareholders.
The Board of Directors recommends a vote FOR the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Companys Independent Auditor to audit the Companys consolidated financial statements for the year ending December 31, 2007. The persons designated as proxies will vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Companys Independent Auditor, unless otherwise directed. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual General Meeting, with the opportunity to make a statement should they choose to do so and are expected to be available to respond to questions, as appropriate.
Your Board of Directors recommends a vote FOR the proposal to ratify the appointment of PricewaterhouseCoopers LLP, New York, New York.
III. SHAREHOLDER PROPOSALS FOR 2008 ANNUAL GENERAL MEETING
Shareholder proposals intended for inclusion in the Proxy Statement for the 2008 Annual General Meeting should be submitted in accordance with the procedures prescribed by Rule 14a-8 promulgated under the Exchange Act and sent to the Companys Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda. Such proposals must be received by November 9, 2007.
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In addition, a Shareholder may present a proposal at the 2008 Annual General Meeting other than pursuant to Rule 14a-8 promulgated under the Exchange Act. Any such proposal will not be included in the Proxy Statement for the 2008 Annual General Meeting and must be received by the Companys Secretary at XL House, One Bermudiana Road, Hamilton, HM 11, Bermuda by February 1, 2008. If any such proposal is not so received, such proposal will be deemed untimely and, therefore, the persons appointed by the Board of Directors as its proxies will have the right to exercise discretionary voting authority with respect to such proposal.
Pursuant to the Companys Articles of Association, any Shareholder entitled to attend and vote at any Annual General Meeting may nominate persons for election as Directors if written notice of such Shareholders intent to nominate such persons is received by the Secretary at XL House, One Bermudiana Road, Hamilton, HM 11, Bermuda not less than five days or more than 21 days before the date appointed for such Annual General Meeting. Such notice must include the following information about the proposed nominee: (a) name, age and business and residence addresses, (b) principal occupation or employment, (c) class and number of Shares or securities of the Company beneficially owned; and (d) any other information required to be disclosed in solicitations of proxies pursuant to Regulation 14A promulgated under the Exchange Act, including the proposed nominees written consent to serve if elected. Such notice must also include information on the Shareholder making the nomination, including such Shareholders name and address as it appears on the Companys books and the class and number of Shares of the Company beneficially owned by such Shareholder. The nomination of any person not made in compliance with the foregoing procedures shall be disregarded.
IV. OTHER MATTERS
While management knows of no other matters to be brought before the Annual General Meeting other than the approval of the minutes of the 2006 Annual General Meeting of Shareholders, if any other matters properly come before the meeting, it is the intention of the persons named in the accompanying proxy form to vote the proxy in accordance with their judgment on such matters.
Proxy Solicitation
The Company will bear the cost of this solicitation of proxies. Proxies may be solicited by Directors, officers and employees of the Company and its subsidiaries, who will not receive additional compensation for such services. In addition to the foregoing, the Company has retained Georgeson & Company Inc. to assist in the solicitation of proxies for a fee of approximately $10,000 plus reasonable out-of-pocket expenses and disbursements. Upon request, the Company will also reimburse brokers and others holding Shares in their names, or in the names of nominees, for forwarding proxy materials to their customers.
The Company will furnish, without charge, to any Shareholder a copy of its Annual Report on Form 10-K that it files with the SEC. A copy of the Companys Annual Report on Form 10-K for the year ended December 31, 2006 may be obtained upon written request to the Companys Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda.
As ordered,![]() Brian M. OHara President and Chief Executive Officer |
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APPENDIX A
XL CAPITAL LTD
DIRECTOR INDEPENDENCE STANDARDS
The Board of Directors of XL Capital Ltd (the Company) has adopted the following standards to assist it in making determinations of independence in accordance with the NYSE Corporate Governance rules.
Employment Relationships
A director will be deemed to be independent unless, within the preceding three years:
such director |
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is or was an employee of the Company or any of the Companys subsidiaries, other than an interim Chairman or Chief Executive Officer or other executive officer; |
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is a current partner of the Companys internal or external auditor; |
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is a current employee of the Companys internal or external auditor; or |
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was (but is no longer) a partner or employee of the Companys internal or external auditor who personally worked on the Companys audit within that time. |
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any immediate family member of such director |
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is or was an executive officer of the Company or any of the Companys subsidiaries; |
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is a current partner of the Companys internal or external auditor; |
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is a current employee of the Companys internal or external auditor who participates in the firms audit, assurance or tax compliance (but not tax planning) practice; or |
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was (but is no longer) a partner or employee of the Companys internal or external auditor who personally worked on the Companys audit within that time. |
Compensation Relationships
A director will be deemed to be independent unless, within the preceding three years:
such director has received during any twelve-month period more than $100,000 in direct compensation from the Company or any of its subsidiaries other than: (i) director and committee fees; (ii) pension or other forms of deferred compensation for prior service; provided, however, that such compensation is not contingent in any way on continued service; and (iii) compensation received for former service as an interim Chairman or Chief Executive Officer or other executive officer; or
an immediate family member of such director has received during any twelve-month period more than $100,000 in direct compensation from the Company or any of its subsidiaries as a director or executive officer other than: (i) director and committee fees and (ii) pension or other forms of deferred compensation for prior service; provided, however, that such compensation is not contingent in any way on continued service.
Commercial Relationships
A director will be deemed to be independent unless:
such director is a current employee of another company that has made payments to, or received payments from, the Company or any of its subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other companys consolidated gross revenues; or
an immediate family member of such director is a current executive officer of another company that has made payments to, or received payments from, the Company or any of its subsidiaries for property or services
A-1
Charitable Relationships
A director will be deemed to be independent unless, within the preceding three years such director was an executive officer of a tax-exempt organization that received contributions from the Company or any of its subsidiaries in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of such tax-exempt organizations consolidated gross revenues; unless the Board determines such relationships not to be material or otherwise consistent with a Directors independence.
Interlocking Directorates
A director will be deemed to be independent unless, within the preceding three years:
such director is or was employed as an executive officer of another company where any of the Companys or its subsidiaries present executive officers at the same time serves or served on that companys compensation committee; or
an immediate family member of such director is or was employed as an executive officer of another company where any of the Companys or its subsidiaries present executives at the same time serves or served on that companys compensation committee.
Other Relationships
For relationships not specifically mentioned above, the determination of whether a director has a material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and therefore would not be independent, will be made by the Board of Directors after taking into account all relevant facts and circumstances. For purposes of these standards, a director who is solely a director and/or a non-controlling shareholder of another company that has a relationship with the Company and/or is, directly or indirectly, a security holder of the Company will not be considered to have a material relationship based solely on such relationship that would impair such directors independence.
For purposes of the standards set forth above, immediate family member means any of such directors spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law and brothers and sisters-in-law (other than those who are no longer family members as a result of legal separation or divorce, or those who have died or become incapacitated) and anyone (other than a domestic employee) who shares such directors home. For purposes of the standards set forth above, executive officer means the Companys president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of the Companys subsidiaries shall be deemed officers of the Company if they perform such policy-making functions for the Company.
These standards shall be interpreted in a manner consistent with the New York Stock Exchange Corporate Governance Rules.
A-2
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XL CAPITAL LTD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P R O X Y |
The undersigned holder of Class A Ordinary Shares of XL Capital Ltd hereby appoints Brian M. OHara or, failing him, Kirstin Romann Gould to be its proxy and to vote for the undersigned on all matters arising at the Annual General Meeting of holders of Class A Ordinary Shares of XL Capital Ltd or any adjournment thereof, and to represent the undersigned at such meeting or any adjournment thereof to be held on April 27, 2007 in Hamilton, Bermuda. THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED FOR ITEMS 1 AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE OF SUCH MEETING, DATED AS OF MARCH 19, 2007, AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH ARE ACKNOWLEDGED. THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF. (Continued, and to be marked, dated and signed, on the other side) |
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2007 Annual General Meeting April 27, 2007 Hamilton, Bermuda |
THERE ARE THREE WAYS TO VOTE YOUR PROXY
TELEPHONE This method is available for residents of the U.S. and Canada. On a touch tone telephone, call TOLL FREE 1-800-786-5337, 24 hours a day, 7 days a week. You will be asked to enter ONLY the CONTROL NUMBER shown below. Have your Proxy Card ready, then follow the pre-recorded instructions. Available until 5 p.m. Eastern Time on Thursday, April 26, 2007. |
INTERNET Visit the Internet website at http://proxy.georgeson.com. Enter the COMPANY NUMBER and CONTROL NUMBER shown below and follow the instructions on your screen. Available until 5 p.m. Eastern Time on Thursday, April 26, 2007. |
Simply complete, sign and date your Proxy Card and return it in the postage-paid envelope. If you are delivering your proxy by telephone or the Internet, please do not mail your Proxy Card. |
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Please mark your vote as indicated in this example. |
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1. | To elect the following four Nominees as Class III Directors to hold office until 2010: |
2. | To ratify the appointment of PricewaterhouseCoopers LLP, New York, New York to act as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2007. |
FOR | AGAINST | ABSTAIN | ||||
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FOR all nominees listed (except as marked to the contrary) |
WITHHOLD AUTHORITY to vote for all nominees |
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INSTRUCTION: To withhold authority to vote for any nominee listed, write that nominees name in the space provided below: | ||||||||||
Date | , 2007 | |
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SIGNATURE(S) | |
IMPORTANT: Please sign exactly as your name(s) appear(s) hereon. If you are acting as attorney-in-fact, corporate officer, or in a fiduciary capacity, please indicate the capacity in which you are signing. |