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It is with great pleasure that we invite you to our 20202022 Annual General Meeting of shareholders on Wednesday, May 6, 2020,4, 2022, at 6 Bevis Marks in London. Whether or not you plan to attend the meeting, in person, please vote your shares; your vote is important to us.
Assured Guaranty’s 2019
Some of the highlights from our year include:
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The market rewarded us for our accomplishments with a 30% total shareholder return for the year, double last year’s return.taking important steps in environmental and social responsibility areas described further within this proxy statement. We provide further detail about our 2019 accomplishments and our plans for the future in the Letter to Shareholders accompanying our 2019 Annual Report, which we encourage you to review.
Finally, a word about the COVID-19 pandemic and its consequences. We offer our support and well wishes for the safetycould not be prouder of all affected. Assured Guaranty is operating well remotely, as contemplatedthat our employees accomplished in the business continuity plan that we test regularly, and we are providing the services and communications we normally would. We believe the benefits of our value proposition are clearly evident in the volatile market environment we are now experiencing. We have the financial strength to fulfill our commitments, and preserving that financial strength is our highest strategic priority.
2021.
Francisco L. Borges | Dominic J. Frederico | |||||||
President and Chief Executive Officer |
23, 2022
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2, 2022. EMPLOYEE SHAREHOLDERS WHO PARTICIPATE IN THE ASSURED GUARANTY EMPLOYEE STOCK PURCHASE PLAN MAY VOTE UP UNTIL 11:59 P.M. EASTERN DAYLIGHT SAVINGS TIME ON APRIL 29, 2022.
SUMMARY ____________________________ | 1 | |||||||||||||
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How Are Directors Nominated? _____________ | 4 | |||||||||||||
Committees of the Board _________________ | 5 | |||||||||||||
How Are Directors Compensated? __________ | 7 | |||||||||||||
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How Does the Board Oversee Risk? ________ | 9 | |||||||||||||
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________________ | 10 | |||||||||||||
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___________ | 11 | |||||||||||||
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ENVIRONMENTAL AND SOCIAL RESPONSIBILITY ______________________ | 14 | |||||||||||||
INFORMATION ABOUT OUR COMMON SHARE OWNERSHIP___________________ | ||||||||||||||
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ELECTION OF DIRECTORS _____________ | ||||||||||||||
Compensation Discussion and Analysis ______ | ||||||||||||||
30 | ||||||||||||||
Summary _____________________________ | 31 | |||||||||||||
Executive Compensation Program Structure and Process | ||||||||||||||
_________________________ | 36 | |||||||||||||
Review _______________ | 48 | |||||||||||||
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Separation Agreement | 59 | |||||||||||||
2021 Executive Compensation Conclusion ___ | ||||||||||||||
Compensation Governance ______________ |
__________ | 64 | |||||||||||||
Tax Treatment _________________________ | 64 | |||||||||||||
Non-GAAP Financials Measures ___________ | 65 |
Compensation Committee Report ___________ | 66 | |||||||||||||
Summary Compensation Table _____________ | 67 | |||||||||||||
Employment Agreements _________________ | 68 | |||||||||||||
Perquisite Policy ________________________ | 68 | |||||||||||||
68 | ||||||||||||||
Employee Stock Purchase Plan ____________ | 68 | |||||||||||||
Indemnification Agreements _______________ | 68 | |||||||||||||
2021 Grants of | 69 | |||||||||||||
Outstanding Equity Awards ________________ | 71 | |||||||||||||
2021 Stock Vested ______________________ | 72 | |||||||||||||
Non-Qualified Deferred Compensation _______ | 73 | |||||||||||||
Potential Payments Upon Termination or Change in Control ______________________ | 73 | |||||||||||||
CEO Pay Ratio _________________________ | 75 | |||||||||||||
Non-Qualified Retirement Plans ____________ | 75 | |||||||||||||
Incentive Plans _________________________ | 76 | |||||||||||||
EQUITY COMPENSATION PLANS INFORMATION________________________ | 77 | |||||||||||||
ADVISORY APPROVAL OF EXECUTIVE COMPENSATION ______________________ | 78 | |||||||||||||
APPOINTMENT OF INDEPENDENT AUDITOR _____________________________ | 79 | |||||||||||||
Independent Auditor Fee Information ________ | 79 | |||||||||||||
Pre-Approval Policy of Audit and Non-Audit Services ______________________________ | 80 | |||||||||||||
PROPOSALS CONCERNING OUR SUBSIDIARY, ASSURED GUARANTY RE LTD. ______________________________ | ||||||||||||||
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How do I submit a proposal or make a nomination at an Annual General Meeting? __ | ||||||||||||||
OTHER MATTERS _____________________ |
23, 2022.
Time and Date | ||||||||
Place | 6 Bevis Marks London, EC3A 7BA United Kingdom | |||||||
Record Date | March | |||||||
Voting | Shareholders as of the record date are entitled to vote. Each Common Share is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. |
Agenda Item |
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Election of directors | For each director nominee | Page | 18 | |||||||||
Approval, on an advisory basis, of the compensation paid to AGL’s named executive officers | For |
| Page | 78 | ||||||||
Appointment of PricewaterhouseCoopers as AGL’s independent auditor for | For |
| Page | 79 | ||||||||
Direction of AGL to vote for directors of, and the appointment of the independent auditor of, AGL’s subsidiary, Assured Guaranty Re Ltd. | For each director nominee and for the independent auditor | Page | 81 |
At this writing, the novel Coronavirus responsible forCOVID-19 continues to spread and governments are taking various actions in response.
1
DIRECTOR |
COMMITTEES
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NOMINEE
| SINCE
| PRINCIPAL OCCUPATION
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A
| C
| ES
| F
| NG
| RO
| E
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| Francisco L. Borges | 68 | 2007 | Chairman, Landmark Partners, LLC | ✓
| «
| «
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| G. Lawrence Buhl | 73 | 2004 | Former Regional Director for Insurance Services, Ernst & Young LLP | «
| ✓
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| Dominic J. Frederico | 67 | 2004 | President and Chief Executive Officer, Assured Guaranty Ltd. | ✓ | |||||||||||||||||||||
| Bonnie L. Howard | 66 | 2012 | Former Chief Auditor and Global Head of Control and Emerging Risk, Citigroup | ✓
| «
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| Thomas W. Jones | 70 | 2015 | Founder and Senior Partner of TWJ Capital, LLC | ✓
| ✓
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| Patrick W. Kenny | 77 | 2004 | Former President and Chief Executive Officer, International Insurance Society | «
| ✓
| ✓
| ✓
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| Alan J. Kreczko | 68 | 2015 | Former Executive Vice President and General Counsel of The Hartford Financial Services Group, Inc. | «
| ✓
| ✓
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| Simon W. Leathes | 72 | 2013 | Former independentnon-executive director of HSBC Bank plc | ✓
| ✓
| ✓
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| Michael T. O’Kane | 74 | 2005 | Former Senior Managing Director, Securities Division, TIAA CREF | ✓
| «
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| Yukiko Omura | 64 | 2014 | Former Undersecretary General and Vice President/COO, International Fund for Agricultural Development |
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| ✓
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| ✓
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2019 Meetings | 4 | 5 | 2 1 | 4 | 4 | 4 | 0 |
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cast
.NOMINEE | DIRECTOR SINCE | PRINCIPAL OCCUPATION | COMMITTEES | ||||||||||||||||||||||||||||||||
A | C | ES | F1 | NG | RO | E | |||||||||||||||||||||||||||||
Francisco L. Borges | 70 | 2007 | Partner of Ares Management Corporation and Co-Head of Ares Secondary Solutions | ||||||||||||||||||||||||||||||||
G. Lawrence Buhl | 75 | 2004 | Former Regional Director for Insurance Services, Ernst & Young LLP | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||
Dominic J. Frederico | 69 | 2004 | President and Chief Executive Officer, Assured Guaranty Ltd. | ✓ | |||||||||||||||||||||||||||||||
Bonnie L. Howard | 68 | 2012 | Former Chief Auditor and Global Head of Control and Emerging Risk, Citigroup | ✓ | ✓ | ||||||||||||||||||||||||||||||
Thomas W. Jones | 72 | 2015 | Founder and Senior Partner of TWJ Capital, LLC | ✓ | ✓ | ||||||||||||||||||||||||||||||
Patrick W. Kenny | 79 | 2004 | Former President and Chief Executive Officer, International Insurance Society | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||
Alan J. Kreczko | 70 | 2015 | Former Executive Vice President and General Counsel of The Hartford Financial Services Group, Inc. | ✓ | ✓ | ||||||||||||||||||||||||||||||
Simon W. Leathes | 74 | 2013 | Former Independent non-executive director of HSBC Bank plc | ✓ | ✓ | ||||||||||||||||||||||||||||||
Michelle McCloskey | 60 | 2021 | Former President of the Americas of Man Group and President of Man FRM | ✓ | ✓ | ||||||||||||||||||||||||||||||
Yukiko Omura | 66 | 2014 | Former Executive Vice President and Chief Executive Officer of the Multilateral Investment Guarantee Agency of the World Bank Group | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||
Lorin P.T. Radtke | 53 | 2021 | Co-founder and Partner, M Seven 8 | ✓ | ✓ | ||||||||||||||||||||||||||||||
Courtney C. Shea | 61 | 2021 | Former Managing Member, Columbia Capital Management | ✓ | ✓ | ||||||||||||||||||||||||||||||
2021 Meetings | 4 | 5 | 4 | 4 | 4 | 4 | 0 |
2
•The Board and management have reviewed the rules of the SEC and the New York Stock Exchange (which we refer to as the NYSE) listing standards regarding corporate governance policies and processes, and we are in compliance with the rules and listing standards.
•We have adopted Corporate Governance Guidelines covering issues such as director qualification standards (including independence), director responsibilities, Board self-evaluations, and executive sessions of the Board.
•Our Corporate Governance Guidelines contain our Categorical Standards for Director Independence.
•We have adopted a Global Code of ConductEthics for our employees and directors and charters for each Board committee.
2021. Ms. McCloskey was elected to the Board effective May 5, 2021, and so was eligible to attend only two of the sets of Board and committee meetings held in 2021. She missed only one set of Board and committee meetings, due to illness.
Compensation Committee.
•Our Board has a substantial majority of independent directors.
•All members of the Audit, Compensation, Nominating and Governance, Finance, Environmental and Social Responsibility, and Risk Oversight Committees are independent directors.
3
•Our Audit Committee recommends to the Board, which recommends to the shareholders, the annual appointment of our independent auditor. Each year our shareholders are asked to authorize the Board, acting through its Audit Committee, to determine the compensation of, and the scope of services performed by, our independent auditor. The Audit Committee also has the authority to retain outside advisors.
•No member of our Audit Committee simultaneously serves on the audit committee of more than one other public company.
•Our Compensation Committee has engaged a compensation consultant, Frederic W. Cook & Co., Inc., which we refer to as FW Cook, to assist it in evaluating the compensation of our CEO, based on corporate goals and objectives and, with the other independent directors, setting his compensation based on this evaluation. FW Cook has also assisted us in designing our executive compensation program. The Compensation Committee has conducted an assessment of FW Cook’s independence and has determined that FW Cook does not have any conflict of interest. Our Nominating and Governance Committee also engages FW Cook to assist it in evaluating the compensation of our Board of Directors.
•We established an Executive Committee to exercise certain authority of the Board in the management of company affairs between regularly scheduled meetings of the Board when it is determined that a specified matter should not be postponed to the next scheduled meeting of the Board. Our Executive Committee did not meet in 2019.
•We have adopted a Global Code of Ethics that sets forth basic principles to guide our day-to-day activities. The Global Code of Ethics addresses, among other things, conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of company assets, compliance with laws and regulations, including insider trading laws, and reporting illegal or unethical behavior. The full text of our Global Code of Ethics is available on our website at www.assuredguaranty.com/governance. • |
In addition to AGL’s quarterly Board meetings, our Board has an annual business review meeting to assess specific areas of our Company’s operations and to learn about general trends affecting the financial guaranty industry and asset management.management industries. We also provide our directors with the opportunity to attend continuing education programs.
•We established an Environmental and Social Responsibility Committee in May 2019, and itwhich began meeting in August 2019. Prior to the establishment of the Environmental and Social Responsibility Committee, our Nominating and Governance Committee was responsible for many such matters.
•We adopted an Environmental Policy and a Statement on Climate Change in February 2019 and, in February |
In early 2020, we sought to engage withadopted a Human Rights Statement. In February 2021 we adopted a Diversity and Inclusion Policy. The current versions of these statements are available on our shareholders with respect to environmental and social matters, which we refer to as E&S matters, and contacted holders of 31.9% of our outstanding Common Shares (which comprised every shareholder holding more than 5% of our outstanding Common Shares) and offered to discuss such matters. Holders of approximately 22% of our outstanding Common Shares provided us with specific feedback on E&S matters and our E&S disclosure.
•Reviews the qualifications of potential nominees to determine whether they might be good candidates for Board of Directors membership •Reviews the potential nominees’ judgment, experience, independence, understanding of our business or other related industries and such other factors as it determines are relevant in light of the needs of the Board of Directors and our Company •Selects qualified candidates and reviews its recommendations with the Board of Directors, which will decide whether to nominate the person for election to the Board of Directors at an Annual General Meeting of Shareholders (which we refer to as an Annual General Meeting). Between Annual General Meetings, the Board, upon the recommendation of the Nominating and Governance Committee, can fill vacancies on the Board by appointing a director to serve until the next Annual General Meeting.and backgrounds in addition to diversity in professional experience and training. OurIn 2021, the Board is currently composedamended our Corporate Governance Guidelines to specify that the Nominating and Governance Committee will include, and will direct any director search firm that may be retained toindividuals from different disciplines, including lawyers, accountants and individuals who have industry, finance, executive and international experience, and is composedbackgrounds (including in respect of both men and women and citizensgender, race or ethnicity) in the pool of the United States, the United Kingdom and Japan. potential candidates being considered.4
skills and attributes of Board members within the context of the currentmake-up of the full Board. Our Corporate Governance GuidelinesThe guidelines also provide that Board members should have individual backgrounds that, when combined, provide a portfolio of experience and knowledge that will serve our governance and strategic needs. The Nominating and Governance Committee will consider Board candidates on the basis of a range of criteria, including broad-based business knowledge and contacts, prominence and sound reputation in their fields as well as having a global business perspective and commitment to good corporate citizenship. Our Corporate Governance Guidelines specify that directors should represent all shareholders and not any special interest group or constituency. The Nominating and Governance Committee annually reviews its own performance. In connection with such evaluation, the Nominating and Governance Committee assesses whether it effectively nominates candidates for director in accordance with the above described standards specified by the Corporate Governance Guidelines. See each nominee’s biography appearing later in this proxy statement for a description of the specific experience that each such individual brings to our Board.
Our Corporate Governance Guidelinesguidelines additionally specify that directors should be able and prepared to provide wise and thoughtful counsel to top management on the full range of potential issues facing us. Directors must possess the highest personal and professional integrity. Directors must have the time necessary to fully meet their duty of due care to the shareholders and be willing to commit to service over the long term.
•the shareholder’s name as it appears in AGL’s books
•a representation that the shareholder is a record holder of AGL’s sharesCommon Shares and intends to appear in person or by proxy at the meeting to present such proposal
•the class and number of sharesCommon Shares beneficially owned by the shareholder
•the name and address of any person to be nominated
•a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons, naming such other person or persons, pursuant to which the nomination or nominations are to be made by the shareholder
•such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the SEC’s proxy regulations
•the consent of each nominee to serve as a director of AGL, if so elected
Other Audit Committee members: The Audit Committee Chairman: G. Lawrence BuhlChair: Bonnie L. Howard / 4 meetings during 2019 2021Bonnie L. Howard,G. Lawrence Buhl, Thomas W. Jones, Michelle McCloskey, Michael T. O’Kane5
auditor. The Audit Committee is also responsible for the oversight of Company risks related to (i) financial reporting, accounting policies and reserving, (ii) legal, regulatory and compliance matters, (iii) information technology, which we refer to as IT, (including cybersecurity)cybersecurity and data privacy), (iv) workouts, emerging events, and counterparties, (v) outsourcing and people, and (vi) business continuity planning.
The Compensation Committee | |||||
Other Compensation Committee members: G. Lawrence Buhl, |
The Environmental and Social Responsibility Committee | |||||
Other Environmental and Social Responsibility Committee members: |
The Finance Committee | |||||
Other Finance Committee members: Alan J. Kreczko, Simon W. Leathes, Yukiko Omura, Lorin P.T. Radtke |
The Nominating and Governance Committee | |||||
Other Nominating and Governance Committee members: |
6
The Risk Oversight Committee | |||||
Other Risk Oversight Committee members: |
The Executive Committee | |||||
Other Executive Committee members: Dominic J. Frederico, Patrick W. Kenny, Simon W. Leathes |
•Thenon-executive Chairman Chair of the Board receives an annual retainer of $225,000 in recognition of the strategic role he plays and the time commitment involved. The ChairmanChair of the Board has elected not to receive any fees for serving as a member or chair of a board committee.
•The Chairmanchair of each committee of the Board other than the Executive Committee receives an additional $30,000 annual retainer.
•Members, other than the chairmanchair of the committee, of each committee of the Board other than the Executive Committee receive an additional $15,000 annual retainer.
7
constituted before the addition of the four new companies as described under “Compensation Discussion and Analysis—Compensation Governance—Executive Compensation Comparison Group” on page 48 below,by FW Cook in 2020, and which we refer to as the prior2020 executive compensation comparison group. FW Cook also looked at a broader market segment using data from FW Cook’s report for compensation packages for public company independent directors for 2018,2020 Director Compensation Report, the most recent year for which
•the absence of meeting fees to simplify program administration and avoid the implication that there is additional pay for meeting attendance, which is an expected part of Board service
•the use of committee member retainers to differentiate compensation among directors based on workload
•the vesting of annual restricted stock awards over aone-year period, which protects against the possibility of director entrenchment
•the payment of additional retainers to the board and committee leadership to recognize the additional responsibilities and time commitment associated with these roles
•our limited benefits (we provide a Company match of up to $15,000 per director for contributions to charitable organizations of the director’s choice)
•a meaningful and robust stock ownership guideline
Cook found in 2021 that the aggregate cost of our independent director compensation program approximates the 75th percentile of our prior2020 executive compensation comparison group. FW Cook also found that, before considering the instances where our directors have chosen to receive a portion of their cash compensation in our common shares, our total per director compensation has a somewhat heavier weighting on cash compensation than that of our prior2020 executive compensation comparison group.
Name | Fees Earned or Paid in Cash | Stock Awards(1) | All Other Compensation(2) | Total | ||||||||||||
Francisco L. Borges(3) |
| $345,000 |
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| $145,000 |
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| $33,014 |
| $ | 523,014 |
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G. Lawrence Buhl |
| $165,000 |
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| $145,000 |
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| $30,883 |
| $ | 340,883 |
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Bonnie L. Howard |
| $165,000 |
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| $145,000 |
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| $21,503 |
| $ | 331,503 |
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Thomas W. Jones |
| $150,000 |
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| $145,000 |
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| $25,665 |
| $ | 320,665 |
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Patrick W. Kenny(4) |
| $180,000 |
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| $145,000 |
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| $29,747 |
| $ | 354,747 |
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Alan J. Kreczko(5) |
| $180,000 |
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| $145,000 |
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| $27,143 |
| $ | 352,143 |
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Simon W. Leathes(6) |
| $272,725 |
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| $145,000 |
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| $ 929 |
| $ | 418,654 |
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Michael T. O’Kane |
| $165,000 |
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| $145,000 |
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| $12,654 |
| $ | 322,654 |
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Yukiko Omura |
| $150,000 |
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| $145,000 |
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| — |
| $ | 295,000 |
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Name | Fees Earned or Paid in Cash | Stock Awards(1) | All Other Compensation(2) | Total | ||||||||||||||||||||||
Francisco L. Borges(3) | $345,000 | $145,000 | $12,707 | $502,707 | ||||||||||||||||||||||
G. Lawrence Buhl | $165,000 | $145,000 | $16,760 | $326,760 | ||||||||||||||||||||||
Bonnie L. Howard | $180,000 | $145,000 | $16,760 | $341,760 | ||||||||||||||||||||||
Thomas W. Jones | $180,000 | $145,000 | $16,760 | $341,760 | ||||||||||||||||||||||
Patrick W. Kenny(4) | $150,000 | $145,000 | $16,957 | $311,957 | ||||||||||||||||||||||
Alan J. Kreczko(5) | $180,000 | $145,000 | $16,760 | $341,760 | ||||||||||||||||||||||
Simon W. Leathes(6) | $198,840 | $145,000 | $7,521 | $351,361 | ||||||||||||||||||||||
Michelle McCloskey(7) | $150,000 | $145,000 | — | $295,000 | ||||||||||||||||||||||
Michael T. O’Kane | $180,000 | $145,000 | $12,707 | $337,707 | ||||||||||||||||||||||
Yukiko Omura | $165,000 | $145,000 | — | $310,000 | ||||||||||||||||||||||
Lorin P.T. Radtke | $150,000 | $145,000 | $10,000 | $305,000 | ||||||||||||||||||||||
Courtney C. Shea | $150,000 | $145,000 | $15,000 | $310,000 |
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Name | Unvested Restricted Stock(1) | Vested Stock Options | ||||||
Francisco L. Borges | 10,657 | 7,658 | ||||||
G. Lawrence Buhl | 3,154 | 3,153 | ||||||
Bonnie L. Howard | 3,154 | — | ||||||
Thomas W. Jones | 3,154 | — | ||||||
Patrick W. Kenny | 3,806 | 4,955 | ||||||
Alan J. Kreczko | 7,068 | — | ||||||
Simon W. Leathes | 3,154 | — | ||||||
Michael T. O’Kane | 3,154 | 3,153 | ||||||
Yukiko Omura | 3,154 | — |
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Name | Unvested Restricted Stock(1) | |||||||
Francisco L. Borges | 9,544 | |||||||
G. Lawrence Buhl | 2,824 | |||||||
Bonnie L. Howard | 2,824 | |||||||
Thomas W. Jones | 2,824 | |||||||
Patrick W. Kenny | 3,409 | |||||||
Alan J. Kreczko | 6,330 | |||||||
Simon W. Leathes | 2,824 | |||||||
Michelle McCloskey | 2,922 | |||||||
Michael T. O’Kane | 2,824 | |||||||
Yukiko Omura | 2,824 | |||||||
Lorin P.T. Radtke | 2,824 | |||||||
Courtney C. Shea | 2,824 |
The
9
processes related to the evaluation of risk assessment and risk management, including our major financial risk exposures and the steps management has taken to monitor and control such exposures. It also oversees cybersecurity and data privacy risks and reviews compliance with legal and regulatory requirements. The Finance Committee of theour Board of Directors oversees the investment of theour Company’s investment portfolio (including alternative investments)
•disclosed in director and officer questionnaires (which must also be completed by nominees for director) or in certifications of Global Code of ConductEthics compliance
•reported directly by the related person or by another employee of our Company
•identified by our vendor management procedures and matching gift procedures based on comparison of vendors and matching gift recipients against a list of directors, executive officers and known 5% shareholders and certain of their related persons
If we have a related person transaction that requires committee approval in accordance with the policies set forth in our committee charters, we either seek that approval before we enter into the transaction or, if that timing is not practical, we ask the appropriate committee to ratify the transaction.
that module. 2021.2019,2021, the following transactions occurred with investors who reported beneficial ownership of 5% or more of our voting securities., and its affiliates, which we refer to as BlackRock, own approximately 8.48%9.8% and 5.67%13.8% of AGL’sour Common Shares outstanding, respectively, as of March 13, 202011, 2022 (the record date for our Annual General Meeting), based on the amount of Common Shares they reported in their Schedule 13G filings as of the date set forth in such filing, and on the amount of our Common Shares outstanding as of the record date. We appointed both Wellington Management and BlackRock as an investment managersmanager to manage certain of our investment accounts prior to theirit reaching such ownership thresholds. As of December 31, 2019,2021, Wellington Management managed approximately $1.95$2.7 billion of our investment assets, which is approximately 19% of our total fixed maturity and short-term investment portfolio, and BlackRock managed approximately $2.2 billion of our investment assets, which is approximately 22%29% of our total fixed maturity and short-term investment portfolio. In 2019,2021, we incurred expenses of approximately $1.7$1.9 million related to our investment management agreement with Wellington ManagementManagement. BlackRock supplies our investment reporting module, and $1.9 millionin 2021 we incurred expenses of approximately $497,000 with respect to our investment management and investment reporting agreements with BlackRock. Andrew Feldstein, our Chief Investment Officer and Head of Asset Management, is among our employees who invest in various private funds, vehicles or accounts managed by our Company.16(A)16(a) REPORTS2019.
Name of Beneficial Owner | Common Shares Beneficially Owned | Unvested Restricted Common Shares(1) | Restricted Share Units(2) | |||||||||||||||||
Robert A. Bailenson | 211,086 | — | 152,388 | |||||||||||||||||
Francisco L. Borges | 268,746 | 9,544 | — | |||||||||||||||||
Russell B. Brewer II(3) | 196,632 | — | 88,355 | |||||||||||||||||
G. Lawrence Buhl | 45,580 | 2,824 | — | |||||||||||||||||
David A. Buzen | 81,023 | — | 62,661 | |||||||||||||||||
Ling Chow | 77,396 | — | 86,304 | |||||||||||||||||
Dominic J. Frederico(4) | 1,528,494 | — | 510,171 | |||||||||||||||||
Bonnie L. Howard | 36,650 | 2,824 | — | |||||||||||||||||
Thomas W. Jones | 36,554 | 2,824 | — | |||||||||||||||||
Patrick W. Kenny | 72,874 | 3,409 | — | |||||||||||||||||
Alan J. Kreczko | 45,868 | 6,330 | — | |||||||||||||||||
Simon W. Leathes | 21,167 | 2,824 | — | |||||||||||||||||
Michelle McCloskey | — | 2,922 | — | |||||||||||||||||
Michael T. O’Kane | 65,491 | 2,824 | — | |||||||||||||||||
Yukiko Omura | 16,667 | 2,824 | — | |||||||||||||||||
Lorin P.T. Radtke | — | 2,824 | — | |||||||||||||||||
Courtney C. Shea | — | 2,824 | — | |||||||||||||||||
All directors, nominees and executive officers as a group (20 individuals)(5) | 2,918,766 | 44,797 | 1,033,681 |
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | ||||||||||||
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 9,049,844(1) | 13.8% | ||||||||||||
Putnam Investments, LLC 100 Federal Street Boston, MA 02110 | 7,706,196(2) | 11.7% | ||||||||||||
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 7,517,675(3) | 11.4% | ||||||||||||
Wellington Management Group LLP c/o Wellington Management Company LLP 280 Congress Street Boston, MA 02210 | 6,462,794(4) | 9.8% | ||||||||||||
Dimensional Fund Advisors LP 6300 Bee Cave Road, Building One Austin, TX 78746 | 3,997,428(1)) | 6.1% |
The board of directors recommends that you vote “FOR” the election of the nominees as directors of AGL. |
We have set forth below information with respect to the nominees for election as directors.
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GENDER DIVERSITY | RACIAL OR ETHNIC DIVERSITY |
n | Women | n | Asian | ||||||||||||||
n | Men | n | Black or African American | ||||||||||||||
n | White |
AGE DIVERSITY | DIRECTOR TENURE | ||||
9.4 Years | |||||
Average Tenure |
n | <65 | n | <6 | ||||||||||||||
n | 65-70 | n | 6-10 | ||||||||||||||
n | >70 | n | 11+ |
Borges | Buhl | Frederico | Howard | Jones | Kenny | Kreczko | Leathes | McCloskey | Omura | Radtke | Shea | |||||||||||||||||||||||||||
Financial Guaranty Industry | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||
U.S. Public Finance | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||
Non - U.S. Finance | ü | ü | ||||||||||||||||||||||||||||||||||||
Infrastructure Finance | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||
Audit and Internal Control | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||
Government Service | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||
Financial Reporting | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||
Investment Management | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||
Legal and Compliance | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
Insurance Industry | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
Banking | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||
Corporate Governance | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||
Risk Management | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||
Enterprise Risk Management | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
Cybersecurity and Data Privacy | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||
Human Capital Management | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||
Environmental and Climate Change | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||
Audit Com. Financial Expert* | ü | ü | NA | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||
Independent | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||
Director Since | 2007 | 2004 | 2004 | 2012 | 2015 | 2004 | 2015 | 2013 | 2021 | 2014 | 2021 | 2021 | ||||||||||||||||||||||||||
Age | 70 | 75 | 69 | 68 | 72 | 79 | 70 | 74 | 60 | 66 | 53 | 61 |
Francisco L. Borges Chair of the Board Director Since: 2007 Committee Memberships: Nominating and Governance (Chair) Executive (Chair) |
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NOMINEES FOR DIRECTOR
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G. Lawrence Buhl Independent Director Director Since: 2004 Committee Memberships: Audit Compensation Environmental and Social Responsibility |
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Dominic J. Frederico Chief Executive Officer Director Since: 2004 Committee Memberships: Executive |
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In the following years, he led our acquisition of a number of the remaining legacy financial guaranty insurance companies or their portfolios, expanding our reach, consolidating industry capital and solidifying our position as the leader in the financial guaranty industry. More recently, he is leading our expansion into asset management, which we believe will provide us with a new revenue source, reduce the volatility of our earnings and create another avenue for growth.
Bonnie L. Howard Independent Director Director Since: 2012 Committee Memberships: Audit (Chair) Compensation Nominating and Governance |
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Bonnie L.
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Thomas W. Jones Independent Director Director Since: 2015 Committee Memberships: Compensation (Chair) Audit Nominating and Governance |
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Patrick W. Kenny Independent Director Director Since: 2004 Committee Memberships: Compensation Nominating and Governance Executive |
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Alan J. Kreczko Independent Director Director Since: 2015 Committee Memberships: Environmental and Social Responsibility (Chair) Finance Risk Oversight |
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Chief Executive Officer.
Simon W. Leathes Independent Director Director Since: 2013 Committee Memberships: Risk Oversight (Chair) Finance Executive |
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Michelle McCloskey Independent Director Director Since: Committee Memberships:
Audit Environmental and Social Responsibility |
Qualifications:
Mr. O’Kane’s background has given him considerable experience in investment and risk management, both of which are key aspects of our business and are important to the Board and Board committee deliberation.
Biography:
Mr. O’Kane, age 74, became a director of AGL in August 2005. From 1986 until his retirement in August 2004, Mr. O’Kane was employed at TIAA-CREF (financial products) in a number of different capacities, most recently as Senior Managing Director, Securities Division. In that capacity, he oversaw approximately $120 billion of fixed income assets and approximately $3.5 billion of private equity fund investments.
From 2006 to 2013, Mr. O’Kane served as a director of Jefferies Group, Inc., where he was a member of the Audit, Compensation and Governance committees. In March 2013, Jefferies merged into Leucadia National Corporation, where Mr. O’Kane now serves as the lead director and as a member of the Compensation and the Nominating and Governance committees.
Yukiko Omura Independent Director Director Since:2014 Committee Memberships: Environmental and Social Responsibility Finance Risk Oversight |
Yukiko
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HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table sets forth information, as of March 13, 2020, the record date for our Annual General Meeting, regarding the beneficial ownership of our Common Shares by our directors and executive officers whose compensation is reported in the compensation tables that appear later in this proxy statement, which persons we refer as our named executive officers, and by the group comprising our directors, and those persons who, as of December 31, 2019, constituted our named executive officers and other executive officers. Unless otherwise indicated, the named individual has sole voting and investment power over the Common Shares under the column “Common Shares Beneficially Owned.” The Common Shares listed for each director and executive officer constitute less than 1% of our outstanding Common Shares, except that Mr. Frederico beneficially owns approximately 1.69% of our Common Shares. The Common Shares beneficially owned by all directors, named executive officers and other executive officers as a group constitute approximately 3.82% of our outstanding Common Shares.
Name of Beneficial Owner | Common Shares Beneficially Owned | Unvested Restricted Common Shares(1) | Restricted Share Units(2) | Common Shares Subject to Option(3) | ||||||||||||
Robert A. Bailenson |
| 202,156 |
|
| — |
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| 137,368 |
|
| — |
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Francisco L. Borges |
| 224,751 |
|
| 10,657 |
|
| — |
|
| 7,658 |
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Russell B. Brewer II |
| 180,847 |
|
| — |
|
| 72,580 |
|
| — |
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G. Lawrence Buhl |
| 57,749 |
|
| 3,154 |
|
| — |
|
| — |
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Ling Chow |
| 49,450 |
|
| — |
|
| 76,820 |
|
| 3,898 |
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Dominic J. Frederico(4) |
| 1,561,234 |
|
| — |
|
| 403,634 |
|
| — |
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Bonnie L. Howard |
| 29,076 |
|
| 3,154 |
|
| — |
|
| — |
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Thomas W. Jones |
| 18,723 |
|
| 3,154 |
|
| — |
|
| — |
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Patrick W. Kenny |
| 60,196 |
|
| 3,806 |
|
| — |
|
| 4,955 |
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Alan J. Kreczko |
| 28,381 |
|
| 7,068 |
|
| — |
|
| — |
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Simon W. Leathes |
| 15,434 |
|
| 3,154 |
|
| — |
|
| — |
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Michael T. O’Kane |
| 57,660 |
|
| 3,154 |
|
| — |
|
| — |
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Yukiko Omura |
| 12,010 |
|
| 3,154 |
| �� |
| — |
|
| — |
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Bruce E. Stern(5) |
| 157,290 |
|
| — |
|
| 33,597 |
|
| — |
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All directors and executive officers
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3,464,019 |
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40,455 |
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832,615 |
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16,511 |
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WHICH SHAREHOLDERS OWN MORE THAN 5% OF OUR COMMON SHARES?
The following table shows all persons we know to be direct or indirect owners of more than 5% of our Common Shares as of the close of business on March 13, 2020, the record date for the Annual General Meeting. On March 13, 2020, 92,270,245 Common Shares were outstanding, including 40,455 unvested restricted Common Shares. Our information is based on reports filed with the SEC by each of the firms listed in the table below. You may obtain these reports from the SEC.
Lorin P.T. Radtke Independent Director Director Since: 2021 Committee Memberships: Finance Risk Oversight | |||||||||
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COMPENSATION DISCUSSION AND ANALYSIS
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Courtney C. Shea Independent Director Director Since: 2021 Committee Memberships: Audit Environmental and Social Responsibility | |||||
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Our executive compensation program is designed to attract and retain talented and experienced business leaders who drive our corporate strategies and build long-term shareholder value.
The Compensation Committee assesses performance usingpre-established measures of success that are tied to our key business strategies. This approach encourages balanced performance, measured relative to financial andnon-financial goals as well as measures of shareholder value, and discourages excessive risk taking or undue leverage by avoiding too much emphasis on any one metric, or on short-term results.
In 2019, we exceeded every financial goal set by our Compensation Committee last year.
For 2019, our gross written premiums were $677 million, the highest in ten years, while our new business production in the insurance segment, anon-GAAP financial measure we refer to as PVP*, was $463 million, also the highest reported in ten years (when excluding our 2018 portfolio reinsurance transaction with SGI**). In 2019, our shareholders’ equity attributable to Assured Guaranty Ltd. per share, adjusted operating shareholder’s equity per share*and adjusted book value per share* all reached record levels, at $71.18, $66.96 and $96.86, respectively. In addition, we will look back on 2019 as the year we took our first significant step in establishing our asset management business, Assured Investment Management, by acquiring BlueMountain Capital Management, LLC, which we refer to as BlueMountain, and associated entities.
These results were driven in part by our successful pursuit of all of our primary business strategies:
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We achieved these results despite a persistently challenging business environment.
Over the last several years, municipal bond yields have been at historically low levels and credit spreads have been tight, making our product less attractive to issuers. In 2019, municipal interest rates reached new lows and credit spreads tightened further. The30-year AAA Municipal Market Data rate started the year off at 3.02% and ended the year at 2.09%. Credit spreads tightened during the year as the spread between “A” and “AAA”30-year general obligation fell from 51 basis points (bps) to start the year to as low as 35 bps on July 24th. It remained near that relatively narrow level through the end of the year. This is compared to an average of 53 bps in 2018 and 2017. The30-year AAA Municipal Market Data benchmark yields reached 1.83% on August 28th, the lowest yield since the benchmark was first published in June 1981. In early 2020, the benchmark yield hit a subsequent new low.
We have continued to accumulate excess capital at our insurance companies as our insured portfolios have amortized. While we believe we have reached an inflection point where, assuming a stable capital market environment, we should insure as much new insured par as the amount of our insured portfolio that amortizes, there are regulatory constraints to moving capital in excess of that needed to support our insurance segment to businesses that could provide more earnings, and these constraints reduce our capital efficiency.
We also continued to face pricing competition in certain segments of the market from another financial guaranty insurer that serves a smaller portion of the market than we serve.
The achievements described in this section were important considerations in determining the compensation of our named executive officers for the 2019 performance year.
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The market rewarded us for our accomplishments with a 30% total shareholder return for the year, double the previous year’s return.
The table and chart below depict the cumulative TSR in dollars on our Common Shares from December 31, 2014 through December 31, 2019, relative to the cumulative TSR of the Russell Midcap Financial Services Index, Standard & Poor’s 500 Stock Index and Standard & Poor’s 500 Financials Index over the same period. The table and chart depict the value on December 31 of each year from 2014 through 2019 of a $100 investment made on December 31, 2014, with all dividends reinvested:
Cumulative TSR from 12/31/14 | Assured Guaranty | S&P 500 Index | S&P 500 Financial Sector GICs Level 1 Index | Russell MidCap Financial Services Index | ||||||||||||||||
12/31/2014 |
| 100.00 |
| 100.00 |
| 100.00 |
| 100.00 | ||||||||||||
12/31/2015 |
| 103.50 |
| 101.37 |
| 98.44 |
| 102.35 | ||||||||||||
12/31/2016 |
| 150.70 |
| 113.49 |
| 120.83 |
| 117.86 | ||||||||||||
12/31/2017 |
| 137.08 |
| 138.26 |
| 147.58 |
| 137.44 | ||||||||||||
12/31/2018 |
| 157.58 |
| 132.19 |
| 128.33 |
| 123.64 | ||||||||||||
12/31/2019 |
| 205.06 |
| 173.80 |
| 169.52 |
| 165.13 |
Calculated from total returns published by Bloomberg.
As shown below, our cumulative TSR also exceeded the average cumulative TSR of our executive compensation comparison group over the last three and five years. Our executive compensation comparison group was revised this year and is described on pages 48 to 49 under “Compensation Governance—Executive Compensation Comparison Group.”
Total Shareholder Return Comparison
Period Ending 12/31/19 | Comparison Group Average TSR | Assured Guaranty TSR | |||||||||||||
1 Year |
| 37.61 | % |
| 30.13 | % | |||||||||
3 Years |
| 32.22 | % |
| 36.07 | % | |||||||||
5 Years |
| 62.76 | % |
| 105.06 | % |
Calculated from total returns published by Bloomberg.
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2019 Results Against Financial Performance Measure Targets
We exceeded all of the 2019 financial performance goals set by the Compensation Committee, in some instances by large amounts. The table below summarizes our 2019 results against the 2019 targets for the financial performance measures. The financial performance goals are explained in more detail under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program—Cash Incentive Compensation” on pages 30 to 32 below.
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Snapshot of Our CEO’s 2019 Compensation
For 2019, 89.3% of Mr. Frederico’s compensation constituted incentive compensation: 31.8% of his compensation was in the form of a performance-based cash incentive that was awarded based on measuring his performance against financial performance goals andnon-financial objectives set at the beginning of the year, and 57.5% was in the form of a long-term equity-based incentive, with 60% of that equity award dependent on performance relative to ourpre-established objectives. The allocation between his fixed and incentive compensation for the 2019 performance year was generally consistent with the 2018 performance year, while the portion of his incentive compensation comprising equity-based compensation increased from 54.2% to 57.5%.
Mr. Frederico received a compensation package for the 2019 performance year that was 6.0% higher than he received for the 2018 performance year.
Mr. Frederico’s cash incentive compensation decreased by 2.2% from the prior year, largely as a function of the financial performance goal scores awarded by the Compensation Committee. Our performance exceeded every financial performance target set by the Compensation Committee at the beginning of the year. Nevertheless, in two instances where the results were above target but below the results from the previous year, the Compensation Committee chose to exercise its negative discretion and reduce the scores awarded on those measures to below what they would have been otherwise. As a result, the Compensation Committee awarded Mr. Frederico a weighted score on his financial performance goals of 83.1%, somewhat less than his score of 89.8% for 2018. While the Compensation Committee recognized Mr. Frederico’s extraordinary achievements in 2019 by awarding him a higher weighted score on hisnon-financial objectives, 66% for 2019 compared to 62.7% for 2018, his total achievement score was held down by the negative discretion exercised on two of the financial performance goals and, as a result, his resulting total achievement score of 149.1% for 2019 was down slightly from his total achievement score of 152.5% for 2018.
The Compensation Committee also considered the appropriate amount of long-term incentive equity compensation to award Mr. Frederico in light of his execution of a transformative acquisition that forms the basis of our establishment of our Assured Investment Management platform in the asset management business. In recognition of this accomplishment and the Compensation Committee’s strong desire that Mr. Frederico continue his leadership as we integrate the acquisition and transform our Company into a dual financial guaranty and asset management company, the Compensation Committee granted Mr. Frederico long-term equity compensation with a target nominal value of $6,750,000, an increase of $750,000 from his grant for the 2018 performance year.
25
Mr. Frederico’s compensation package for 2019 and 2018 were composed of the following:
2019 Performance Year Compensation | 2018 Performance Year Compensation | Change from 2018 to 2019 Perf. Year | ||||||||||
Fixed Compensation—Base Salary(1) |
| $1,250,000 |
|
| $1,250,000 |
|
| — | % | |||
Incentive Compensation | ||||||||||||
Cash Incentive Compensation |
| $3,727,000 |
|
| $3,812,000 |
|
| (2.2 | )% | |||
Long-Term Performance-Based Equity |
| $4,050,000 | (2) |
| $3,600,000 | (2) |
| 12.5 | % | |||
Long-Term Time-Based Equity |
| $2,700,000 | (2) |
| $2,400,000 | (2) |
| 12.5 | % | |||
Total Direct Compensation |
| $11,727,000 |
|
| $11,062,000 |
|
| 6.0 | % |
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The compensation package presented in the table above is different from theSEC-required disclosure in the Summary Compensation Table on page 53 and is not a substitute for the information in that table. Rather, it is intended to show how the Compensation Committee linked Mr. Frederico’s compensation and its components to our performance results and his achievements for the prior year.
EXECUTIVE COMPENSATION PROGRAM STRUCTURE AND PROCESS
Overview of Philosophy and Design
Our executive compensation program is designed to recognize and reward outstanding achievement and to attract, retain and motivate the talented individuals needed to lead and grow our Company’s business. We maintain an ongoing dialog with our shareholders and incorporate their feedback into our program so that the program is aligned with their interests.
The guiding principles of our program are:
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We Align Pay With Performance
Our program rewards the performance of our most senior executives, who are directly responsible for our operational results, with a higher proportion of variable and performance-based compensation than it rewards lower level executives. We use a mix of variableat-risk compensation with different time horizons and payout forms to provide an incentive for both annual and long-term sustained performance, in order to maximize shareholder value in a manner consistent with our Company’s risk parameters. The Compensation Committee assesses the performance of our executive officers from both a financial and anon-financial perspective, usingpre-established goals.
Our executive officers are eligible to receive an annual cash incentive, which is based on their performance againstpre-established goals over the previous year. They may also receive a long-term equity incentive, the majority of which is performance-based and cliff vests at the end of a three-year performance period, and the remainder of which is time-based and cliff vests at the end of a three-year period. The long-term equity incentive is structured to encourage retention and a long-range mindset.
Executive Compensation Is Closely Tied To Long-Term Performance
The compensation program is structured with upside potential for superior executive achievements, but also the possibility of reduced compensation if executives do not successfully execute our Company’s strategies. By increasing management’s motivation to enhance shareholder value over the long term, our compensation program aligns executive officer incentives and shareholder interests.
For the 2019 performance year, we maintained the same structure for the compensation package for our executive officers as we did for the 2018 performance year:
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Shareholder Outreach on Our Executive Compensation Program
For the past several years, we have actively engaged with our shareholders in order to obtain their feedback on our executive compensation program. In May 2018, after negative recommendations from the two leading proxy advisory firms, only 60% of the Common Shares voting approved oursay-on-pay proposal. Following that 2018say-on-pay vote, we sought to engage with our shareholders with respect to the changes we proposed to make to the executive compensation program in response to the recommendations from the two leading proxy advisory firms and thesay-on-pay result, and based on advice from Cook. As part of that process and our continued dialogue with shareholders, we contacted holders of an aggregate of over 77% of our Common Shares (which comprised every shareholder holding more than 0.16% of our outstanding shares). Based on the feedback from our shareholders and advice from Cook, we made a number of structural changes to our executive compensation program.
With respect to the short-term cash incentive compensation, we reduced the CEO’s target individual cash multiple to 2.0x from 2.5x and introduced negative discretion for scoring the achievement of financial performance goals that were set below prior year actual results.
With respect to the long-term equity compensation, we increased the amount dependent on performance measures from 50% to 60% and introduced the two new types of PSUs described above.
We also ended our reimbursement of executives for the cost of financial planning.
27
In May 2019, after we made these structural changes to our executive compensation program based on discussions with our shareholders and advice from Cook, investors holding over 93% of the Common Shares voting approved oursay-on-pay proposal at our Annual General Meeting.
In late 2019 and into early 2020, we again sought to engage with our shareholders with respect to compensation matters. We contacted holders of an aggregate of nearly 76% of our outstanding Common Shares (which comprised every shareholder holding more than 1.5% of our outstanding Common Shares) and offered to discuss our executive compensation program. Holders of approximately 5.5% of our outstanding Common Shares provided us with specific feedback on aspects of our executive compensation program in a conversation that included the chairman of our Compensation Committee, while the holders of 27.3% of our outstanding Common Shares specifically responded that they did not need to speak with us because they had no concerns about our executive compensation program. Given this recent feedback from our shareholders as well as the 93% approval of oursay-on-pay proposal last May, the Compensation Committee chose to maintain the current executive compensation program without any changes.
The Compensation Committee, composed solely of independent directors, is responsible for all decisions made on our executive officer compensation. The Compensation Committee works closely with Cook, the Chairman of the Board and management to examine pay and performance matters throughout the year, and consults with the Board prior to making final compensation decisions.
The Compensation Committee conductsin-depth reviews of performance and then applies judgment to make compensation decisions. The Compensation Committee believes its process, described below, is an effective way to assess the performance, risk management and leadership demonstrated by Mr. Frederico and the senior management team.
In August and November, the Compensation Committee reviews ouryear-to-date corporate performance, as well as progress of each executive officer against individual performance goals. The chairman of the Compensation Committee seeks feedback from our shareholders on our executive compensation program.
In November, the Compensation Committee reviews and approves the metrics and goals in our performance framework and reviews certain of the executive officer performance goals for the upcoming year, and begins to formulate its compensation decisions with respect to current year performance.
In February, the Compensation Committee meets twice. It first meets in early February to receive and review our final results and evaluate executive performance for the previous calendar year, which we refer to as the performance year, against that performance year’s goals. The Compensation Committee formulates its preliminary compensation decisions with respect to that year’s executive performance, along with the executive officer performance goals for the coming year. Later in February, the Compensation Committee discusses with other Board members its preliminary compensation decisions for the previous year and the executive officer performance goals for the coming year, and then makes its final decisions with respect to those matters. The CEO is not present when the Compensation Committee meets to evaluate his performance and determine his compensation.
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In making its compensation decisions, the Compensation Committee follows a five-step approach:
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Components of Our Executive Compensation Program
For the 2019 performance year, the compensation package for the executive officers again consists of three principal elements: base salary, cash incentive compensation and long-term equity incentives. Our practice is to review the components of our executive officer compensation separately and monitor the total of the various components. We consider each component and the total against our compensation objectives described in “Overview of Philosophy and Design.” Decisions related to one compensation component (e.g., cash incentive compensation) generally do not materially affect decisions regarding any other component (e.g., long-term equity incentives) because the objectives of each element differ. Positions at higher levels generally have a greater emphasis on variable pay elements, although no specific formula, schedule or structure is currently applied in establishing the percentage of total compensation delivered through any compensation element.
Base Salary
The Compensation Committee establishes each executive officer’s base salary in consultation with Cook. We believe base salary is necessary to attract and retain key executives by providing appropriate compensation that is based on position, experience, scope of responsibility and performance. Base salary provides liquidity to our executive officers and balances the levels of guaranteed pay withat-risk pay to properly manage our compensation-related risk. The amount is based on the executive officer’s responsibilities, skills and experience, as well as market measures. The level of an executive officer’s base salary reflects the Compensation Committee’s view of the contribution that executive officer has consistently made to our Company’s success over several years, the continuing importance of that executive officer to our Company’s future, and the difficulty and expense of replacing the executive officer with one of a similar caliber. The Compensation Committee does not guarantee salary adjustments on an annual basis; in fact, our CEO’s base salary was last adjusted in February 2017. Base salary is set toward the beginning of the year and is paid to the executive officers for ongoing performance throughout the year. For the 2019 performance year, the Compensation Committee established our executive officers’ base salaries in February 2019.
29
Cash Incentive Compensation
Unlike base salary, which is set at the beginning of the year in which it is paid, cash incentive compensation is determined after the end of the performance year to which such compensation relates. For the 2019 performance year, the Compensation Committee determined the amount of the cash incentive compensation in February 2020.
The Compensation Committee uses a formula to award cash incentive compensation in order to enhance the transparency of our process. The amount of cash incentive compensation is determined based on the extent to which the executives achieve certainpre-established performance targets; 67% is tied to the achievement of financial performance goals and 33% is tied to the achievement ofnon-financial objectives. The Compensation Committee considers the five financial performance goals to be important in assessing our Company and our executive officers’ performance; each goal has a weighting of 13.4% (for a total of 67%) and constitutes anon-GAAP financial measure that is described on page 52 under“Non-GAAP Financial Measures.” Similar to the financial performance goals, thenon-financial objectives also relate to matters that are important to our business. The Compensation Committee believes the qualitative objectives are necessary to fully evaluate the annual achievements that benefit our shareholders, and it does not individually weight thenon-financial objectives because it believes it is more appropriate to evaluate the level of achievement of all of thenon-financial objectives in their totality.
We provide a diagram of our formula for awarding our annual cash incentive compensation below:
The financial performance goals for 2019 for all the executive officers including Mr. Frederico, our CEO, are set out below. Thenon-financial objectives for Mr. Frederico are set out on pages 39 to 41 under “CEO Performance Review—Cash Incentive—Mr. Frederico’sNon-Financial Objectives”, while thenon-financial objectives for the executive officers other than Mr. Frederico are discussed on pages 43 to 45 under “Compensation Decisions of Other Executive Officers.” For the 2019 performance year, the financial performance goals and thenon-financial objectives for the named executive officers were established in February 2019 and the Compensation Committee determined the extent to which they had been satisfied in February 2020.
The financial goals are based onnon-GAAP financial measures and four of the five are labeled “core” to distinguish them from similarnon-GAAP financial measures. The four “core” measures have been adjusted to exclude the impact of consolidating variable interest entities, which we refer to as VIEs, while the similarnon-core measures have not been so adjusted. We include on page 52 under“Non-GAAP Financial Measures” a description of the adjustments we make to the most comparable GAAP financial measures to arrive at these measures.
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2019 Financial Performance Measures
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The Compensation Committee assigns each executive an Individual Target Cash Incentive Amount, which is calculated as a multiple of the executive officer’s base salary, and which we refer to as the Individual Target Cash Incentive Multiple. The amounts of the base salary and Individual Target Cash Incentive Multiples are set based on the executive officer’s position and level of responsibility, historic pay level, importance to the future strategic direction of our Company and Cook’s advice about the compensation practices of companies in our comparison group.
The Compensation Committee assigns an Individual Target Cash Incentive Multiple to each executive in the executive compensation program. The Compensation Committee assigned each of the named executive officers an Individual Target Cash Incentive Multiple of 2.0x, the same as last year. Last year, in response to the previous year’ssay-on-pay vote result and based on shareholder feedback and advice from Cook, the Compensation Committee had reduced Mr. Frederico’s multiple from 2.5x to 2.0x.
Then, for each executive officer, the Compensation Committee calculates and aggregates the weighted achievement scores for the financial performance goals and the individualnon-financial objectives. When assessing the level of achievement and assigning scores for the year, the Compensation Committee takes into account the difficulty of achieving particular goals or objectives. The Compensation Committee has discretion to assign achievement scores of up to 200% for outstanding performance and achievement scores of down to 0% for performance below target, based on its view of the level of achievement attained for each financial performance goal and each individualnon-financial objective.
The Compensation Committee may exercise negative discretion where the financial performance goal result, while above the target established by the Compensation Committee, is less than the prior year result. For the 2018 performance year, the Compensation Committee exercised this negative discretion with respect to both financial performance goals where the 2018 results were above 2018 targets but below 2017 actual results. For this year, the 2019 performance year, the Compensation Committee again exercised this negative discretion with respect to two financial performance goals where the 2019 results were above the 2019 targets but below the 2018 actual results. Our 2019 PVP was above the 2019 goal and also above the 2018 actual when PVP from the SGI reinsurance transactions is excluded, so the Compensation Committee did not view this as an instance where it would be appropriate to exercise its negative discretion.
Setting Financial Performance Goals
The Compensation Committee selected the five financial performance goal measurements in 2015 when, in consultation with Cook, it redesigned our process and formula for determining the amount of short-term cash incentive to award to our executives. At the time, the Compensation Committee considered the measures of value creation used by our then executive compensation comparison group and also the unique earnings model of the financial guaranty industry. The Compensation Committee reconsiders each year whether these measures are the appropriate ones to use in light of our Company’s business. The Compensation Committee believes our progress measured against these goals will, over the long term, result in optimal total shareholder return.
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Each year the Compensation Committee sets our five financial performance goals at levels it views as challenging based on the projected operating results in our annual business plan. The goals and our business plan acknowledge the unique long-term nature of our financial guaranty insurance business and that the required accounting treatment and operations of a financial guaranty insurer are distinct from other insurance product lines.
PVP. Our annual business plan for 2019 challenged our executives to originate more financial guaranty business in 2019 than we originated in 2018. Our most direct measurement of new business origination is PVP. However, our reported 2018 PVP of $663 million also included the impact of a portfolio reinsurance transaction we completed with SGI, which resulted in $391 million of PVP in 2018. PVP is meant to be a measure of the strength of new business production in our insurance business (we do not consider the 2018 portfolio reinsurance transaction with SGI to be typical new business origination). The Compensation Committee views the best measure of PVP as one that excludes the impact of strategic transactions such as the SGI portfolio reinsurance transaction. Without that SGI transaction, our 2018 PVP was $272 million. The Compensation Committee set our 2019 PVP performance goal of $325 million nearly 20% higher than our actual 2018 PVP exclusive of the SGI portfolio reinsurance transaction, despite our expectation that interest rates and credit spreads were likely to remain low (which they did). Given this expectation of a challenging business environment, the Compensation Committee viewed the PVP goal as quite challenging.
Core Operating Income per Diluted Share and Core Operating Return on Equity. The financial performance goals the Compensation Committee set for core operating income per diluted share and core operating return on equity, based on the same annual business plan that challenged us to originate more business in 2019 than in 2018 (excluding the impact of the SGI reinsurance transaction) despite the challenging business environment, were set lower than the actual results for these measures in 2018. Why would the Compensation Committee set these financial performance goals at levels that were below our prior year actual results, and still view those goals as challenging?
The answer to that question follows from the unique earnings model of the financial guaranty insurance industry. When a financial guarantor writes a new financial guaranty policy, it does not earn the full amount of the premium immediately; rather, it earns the premium for the policy over the term of the policy, often as long as twenty or thirty years. In 2019, for example, only approximately 3% of the premiums we earned in 2019 related to new financial guaranty policies we wrote in 2019. The premiums a financial guarantor earns in a year are primarily related to business it wrote some time ago, in our case over decades, rather than its originations in that year. Because the volume and pricing of new business written in a particular year has only a small impact on premium earnings for that year, most of our operating income from our core financial guaranty business may be forecast based on projections with respect to the very significant unearned premium that we earn as our insured portfolio amortizes, the income we earn on our sizable investment portfolio, and our operating expenses, all of which are reasonably predictable.
Despite the relative predictability of the contribution of our primary financial guaranty business to our core operating income per diluted share and core operating return on equity, we consider the financial performance goals we set for these measures to be challenging due to potential uncertainties in the broader market and environment. Those uncertainties include unexpected changes to investment rates, level of refunding activity and unexpected loss development. In addition, variability of our share price and availability of funds for share repurchases may add to the challenges of reaching these goals.
Over the last several years we have increased the insured portfolio through strategic transactions with legacy bond insurers. Such transactions have significantly increased our future earnings power. Our 2019 unearned premium reserve, which is a measure of the premium we will earn in the future from insurance business we have already written and which we refer to as UPR, was higher than our 2018 UPR, reflecting the premium rate we have been able to maintain while, at the same time, maintaining the credit quality of the new business we have written. Because the significant increases to UPR from strategic, non-repeating transactions exceed the rate at which we are able to increase the UPR based on new business from the insurable market in the recent low credit spread environment, the Compensation Committee believes the core operating income goal it set, while lower than the prior year result, was still challenging.
Our core operating ROE is also negatively impacted by the amount of excess capital we continue to have. Despite the strides we have made in managing our capital (see “Summary – 2019 Achievement Highlights” on page 23), we believe we still have excess capital that we need regulatory approval to deploy, and therefore are constrained in our ability to improve our capital efficiency and our core operating ROE.
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Core Operating Shareholders’ Equity Per Share and Core Adjusted Book Value Per Share. The Compensation Committee also wants to encourage our executives to build intrinsic value in our Company over time for our shareholders, so the Compensation Committee sets targets for core operating shareholders’ equity per share and core adjusted book value per share. The Compensation Committee believes these measures best capture the long-term value we are building for our shareholders and that growth in these measures will eventually result in growth in the price of our Common Shares. The Compensation Committee believes that core adjusted book value per share, in particular, is such an important measure of the intrinsic value we are building for our shareholders that the Compensation Committee has made this measure a component of both our short-term and long-term incentive programs. The Compensation Committee believes that this will motivate our executives to focus on growth in this measure in both the short and long term, and that eventually growth in the price of our Common Shares will follow.
Calculating Cash Incentive Compensation
Based on an executive officer’s weighted achievement scores for the financial performance goals and the individualnon-financial objectives, the individual payouts of the cash incentive for 2019 were calculated as follows:
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The basic formula for determining cash incentive compensation has remained the same since the Compensation Committee developed the methodology, together with Cook, at the beginning of 2015, and our Company’s share price performance and performance on other key financial measures has improved greatly since that time. At year end 2014, the price of our Common Shares closed at $25.99, compared to $49.02 at year end 2019. Our performance in respect of four out of five of the financial performance goals most important to our Company has also improved, as reflected in the table below.
FINANCIAL PERFORMANCE GOALS
| 2014
| 2019
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PVP |
| $168 million |
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| $463 million |
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Core Operating Income per Diluted Share |
| $2.83 |
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| $3.91 |
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Core Operating Shareholders’ Equity per Share |
| $37.48 |
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| $66.89 |
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Core Operating Return on Equity |
| 8.1 | % |
| 6.2 | % | ||
Core Adjusted Book Value per Share |
| $53.66 |
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| $96.91 |
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The progress we have made on these fronts is the result of the leadership of Mr. Frederico and the efforts of his management team. As a result, the Compensation Committee retained the same general methodology and formulas for cash incentive compensation implemented in 2015 for Mr. Frederico and other named executive officers. However, in 2019, in response to the previous year’ssay-on-pay vote result and based on shareholder feedback and advice from Cook, the Compensation Committee had reduced Mr. Frederico’s multiple from 2.5x to 2.0x and introduced negative discretion in the scoring of financial performance goals when the result exceeds the year’s target but is less than the prior year result.
Long-Term Equity Incentives
In addition to the cash incentive compensation, the Compensation Committee awards long-term incentive compensation in the form of our Common Shares.
Like cash incentive compensation, equity incentive compensation is awarded after the end of the performance year to which such compensation relates. For the 2019 performance year, the Compensation Committee determined the amount of equity incentive compensation in February 2020.
Sixty percent of the nominal value of the award is in the form of performance share units (which we refer to as PSUs) that may be earned over a3-year performance period based onpre-established performance targets, and are paid at the end of the3-year performance period if particular performance targets are achieved, and the remaining forty percent is in the form of RSUs that cliff vest at the end of a3-year period. Details about the individual awards are set out in “CEO Performance Review” and “Other Named Executive Officer Compensation Decisions.”
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For the 2020 grant with respect to the 2019 performance year, the proportion of the long-term equity incentive comprising performance-based PSUs was 60%.
Performance Share Units.Each performance share unit, or PSU, represents a contingent right to receive up to a certain number of our Common Shares as described under “Incentive Plans—Assured Guaranty Ltd. 2004 Long-Term Incentive Plan” on page 62. The Compensation Committee awards PSUs with the intent of aligning executive pay with our Company’s performance.
Prior to the grants made in February 2019 for the 2018 performance year, the number of our Common Shares executive officers could earn for each PSU was based on the price of our Common Shares over a3-year performance period in relation to price hurdles established by the Compensation Committee at the time of grant. Based on shareholder feedback and advice from Cook, the Compensation Committee chose to replace these PSUs with two new types of replacement PSUs for the February 2019 grant. The Compensation Committee maintained the same structure for the February 2020 grant:
PSUs tied to growth in our core adjusted book value per share over a three-year period, which we refer to as ABV PSUs; and
PSUs tied to our TSR over a three-year period relative to the TSR of the 55th percentile of the Russell Midcap Financial Services Index, which we refer to as Relative TSR PSUs.
ABV PSUs
The Compensation Committee believes that Core ABV per share is the best measure of the intrinsic value of our Common Shares, and that growth in Core ABV per share will eventually result in growth in the price of our Common Shares. The Compensation believes that this measure is so important that it has incorporated the measure into both its short-term cash incentive program and its long-term equity compensation program, so that the executives are motivated to grow Core ABV per share on both a short-term and long-term basis.
Each ABV PSU represents the right to receive up to two of our Common Shares at the end of a three-year performance period, which runs from January 1 of the year of the grant to December 31 three years later, depending on the growth in Core ABV per share over the three-year performance period.
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For Core ABV per share growth rates between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each ABV PSU is based on straight-line interpolation.
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The Compensation Committee set the ABV PSU target growth rate based on the projected operating results in our annual business plan and after consulting with Cook. In setting the ABV PSU target, the Compensation Committee did not consider significant potential or theoretical strategic activities that had not been finalized or share repurchases the funding of which require regulatory approvals that have not yet been obtained, because the conditions for success are highly contingent and outside of the executive officers’ control. Given the outsize positive impact on our Company of the successful achievement of at least some such endeavors, the Compensation Committee believes it is appropriate for its executive officers to be encouraged to pursue success in these areas through the ABV PSUs. The targets are unchanged from last year.
Relative TSR PSUs
Since our ultimate goal is to provide as much value to our shareholders as possible, the Compensation Committee believes that our long-term equity incentive compensation should also be based on our TSR. However, recognizing that share prices may be influenced by a number of factors, the Compensation Committee decided that a relative measure of TSR was most appropriate.
Each Relative TSR PSU represents the right to receive up to 2.5 (for extraordinary performance at the 95th percentile) of our Common Shares at the end of a three-year performance period, which runs from January 1 of the grant year to December 31 three years later, depending on the performance of our TSR over that three-year period relative to the TSR of the Russell Midcap Financial Services Index, which we refer to as the Index.
The target Company TSR for that period is the 55th percentile of the Index, for which the executive officer earns one Common Share for each Relative TSR PSU.
At the 25th percentile of the Index, which we refer to as the threshold, the executive officer earnsone-half share for each Relative TSR PSU; for Company TSRs below that level, the executive officer earns no Common Shares.
A Company TSR at the 95th percentile of the Index, which we refer to as the maximum, or above earns the executive officer 2.5 of our Common Shares for each Relative TSR PSU.
For Company TSRs between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each Relative TSR PSU is based on straight-line interpolation.
The Compensation Committee adopted the following additional restrictions on the Relative TSR PSUs:
The number of Common Shares that can be earned is capped at one share per Relative TSR PSU if the Company TSR is negative, even if above the 55th percentile.
Common Shares earned pursuant to the Relative TSR PSUs remain restricted until one year after they vest.
Prior to establishing the TSR PSUs in February 2019, the Compensation Committee sought advice from Cook last year in selecting an index for a target TSR and in establishing the target, threshold and maximum TSR levels and the number of our Common Shares awarded for each Relative TSR PSU.
When the Compensation Committee established the TSR PSUs in February 2019, it considered and rejected a number of other options:
The Compensation Committee considered establishing a peer group of companies against which to measure our Company’s TSR, but only one other financial guarantor continues to write new business, and that company is not publicly traded.
The Compensation Committee considered establishing a peer group of property and casualty insurance companies, an industry in which we are sometimes grouped by analysts, but determined that factors impacting the performance of property and casualty insurance companies are unlikely to impact our business in the same way, particularly given the unique long-term nature of our financial guaranty insurance business and the fact that the required accounting treatment and operations of a financial guaranty insurer are distinct from property and casualty and other insurance product lines
The Compensation Committee also considered using the executive compensation comparison group it uses to evaluate the level and mix of compensation it pays its executives. While the executive compensation comparison group comprisessimilarly-sized companies in businesses somewhat similar to our business, most of the companies in that group are mortgage finance and property and casualty insurance and reinsurance companies and the Compensation Committee did not believe that group was an appropriate benchmark for our TSR.
The Compensation Committee believed that aspects of our business are comparable to aspects of various financial services companies, and so determined that the best benchmark for our TSR was a broad index of somewhatsimilarly-sized financial services companies, and selected the Russell Midcap Financial Services as the best available measure.
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We engaged Aon plc, which we refer to as Aon, to model the grant date valuation of the Relative TSR PSUs and to track the Relative TSR PSUs in the future.
Restricted Stock Units
Each restricted stock unit represents a right to receive one of our Common Shares at the end of a three-year vesting period as described under “Incentive Plans—Assured Guaranty Ltd. 2004 Long-Term Incentive Plan” on page 62.
The Compensation Committee awards RSUs with the intent of providing executives with long-term incentive compensation that increases in value as our Company achieves its strategies. The Compensation Committee believes this incentivizes executives to remain with the Company and help build shareholder value over the long term. The Compensation Committee has been awarding RSUs to our executives for a number of years now. For the 2020 grant for the 2019 performance year, the Compensation Committee allocated 40% of the long-term equity incentive to RSUs, the same as last year and down from 50% from the prior year.
In light of Mr. Frederico’s significant accomplishments in the 2019 performance year, as detailed below, and also considering shareholder feedback and advice from Cook, the Compensation Committee awarded Mr. Frederico total compensation of $11,727,000, a 6.0% increase from his total compensation for the 2018 performance year.
Mr. Frederico’s cash incentive compensation decreased by 2.2% from the prior year, largely as a function of the financial performance goal scores awarded by the Compensation Committee. Our performance exceeded every financial performance target set by the Compensation Committee at the beginning of the year. Nevertheless, in two instances where the results were above target but below the results from the previous year, the Compensation Committee chose to exercise its negative discretion and reduce the scores awarded on those measures to below what they would have been otherwise. As a result, the Compensation Committee awarded Mr. Frederico a weighted score on his financial performance goals of 83.1%, somewhat less than his score of 89.8% for 2018. While the Compensation Committee recognized Mr. Frederico’s extraordinary achievements in 2019 by awarding him a higher weighted score on hisnon-financial objectives than for the 2018 performance year, 66% for 2019 compared to 62.7% for 2018, his total achievement score of 149.1% was held down by the negative discretion exercised on two of the financial performance goals and, as a result, his resulting total achievement score of 2019 was down slightly from his total achievement score of 152.5% for 2018.
The Compensation Committee also considered the appropriate amount of long-term incentive equity compensation to award Mr. Frederico in light of his execution of a transformative acquisition that forms the basis of our establishment of our Assured Investment Management platform in the asset management business. In recognition of this accomplishment and the Compensation Committee’s strong desire that Mr. Frederico continue his leadership as we integrate the acquisition and transform our Company into a dual financial guaranty and asset management company, the Compensation Committee granted Mr. Frederico long-term equity compensation with a target nominal value of $6,750,000, an increase of $750,000 from his grant for the 2018 performance year. Mr. Frederico’s total compensation for the 2019 performance year was composed of the following:
2019 Performance Year Compensation | 2018 Performance Year Compensation | Change from 2018 to 2019 | ||||||||||
Fixed Compensation—Base Salary(1)
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| $1,250,000
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| $1,250,000
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| —
| %
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Incentive Compensation | ||||||||||||
Cash Incentive Compensation | $3,727,000 | $3,812,000 | (2.2 | )% | ||||||||
Long-Term Performance-Based Equity | $4,050,000 | (2) | $3,600,000 | (2) | 12.5 | % | ||||||
Long-Term Time-Based Equity
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| $2,700,000
| (2)
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| $2,400,000
| (2)
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| 12.5
| %
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Total Direct Compensation
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| $11,727,000
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| $11,062,000
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| 6.0
| %
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The compensation package presented in the table above is different from theSEC-required disclosure in the Summary Compensation Table on page 52 and is not a substitute for the information in that table. Rather, it is intended to show how the Compensation Committee linked Mr. Frederico’s compensation and its components to our performance results and his achievements for the prior year. The base salary is paid during the performance year, while all of the components of the incentive compensation is based on achievements during the performance year and so is awarded in the first quarter of the following year.
In February 2019, given the continued importance of maintaining Mr. Frederico’s strategic leadership, but also considering the result of oursay-on-pay vote in 2018 and based on shareholder feedback and advice from Cook, the Compensation Committee chose to maintain Mr. Frederico’s salary at $1,250,000 for the 2019 performance year.
In February 2020, given the continued importance of maintaining Mr. Frederico’s strategic leadership as we seek to transform ourselves in accordance with his vision from a financial guaranty insurance company to a financial services company offering both financial guaranty products and asset management services, but also considering the result of oursay-on-pay vote in 2018 and based on shareholder feedback and advice from Cook, the Compensation Committee chose to again maintain Mr. Frederico’s salary at $1,250,000 for the 2020 performance year. The last increase in base salary Mr. Frederico received was granted in February 2017, effective January 1, 2017.
To determine Mr. Frederico’s cash incentive, as discussed above, the Compensation Committee used a formula that involved aggregating the weighted achievement scores for certain financial performance goals and individualnon-financial objectives, and multiplying the result by Mr. Frederico’s Individual Target Cash Incentive Amount. Please refer to the diagram and discussion found above under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program—Cash Incentive Compensation.”
Setting Mr. Frederico’s 2019 Financial Performance Goals
In February 2019, the Compensation Committee established targets for five financial performance goals for Mr. Frederico (and for our other executive officers) for the 2019 performance year. The financial performance goals were based on the business plan that the Board of Directors reviewed and approved in November 2018 and were designed to measure our progress in creating value for our shareholders. We include on pages 31 to 33 under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program” a detailed description of the financial performance goals, and why the Compensation Committee considers them to be important in assessing our Company and our executive officers’ performance. All of these arenon-GAAP financial measures.
The Compensation Committee viewed all of the 2019 targets for the financial performance goals as challenging in light of current market conditions. The target of $325 million the Compensation Committee set for 2019 PVP was nearly 20% higher than our actual 2018 PVP of $272 million when excluding the impact of the SGI reinsurance transaction from 2018 PVP, but was lower than actual 2018 PVP when including the SGI reinsurance transaction. PVP is meant to be a measure of the strength of new business production in our insurance business. The Compensation Committee views the best measure of PVP as one that excludes the impact of strategic transactions such as the SGI transaction, so does not view this as an instance when it should exercise its negative discretion.
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The Compensation Committee did set two 2019 targets (core operating income per diluted share and core operating ROE) at levels it viewed as challenging but that were below 2018 comparable results. As described on pages 31 to 32 under “Executive Compensation Program Structure and Process”, the nature of the accounting model for the financial guaranty business, where only approximately 3% of the premiums we earned in 2019 related to new financial guaranty policies we wrote in 2019, shows how little impact activity in our core insurance business has on the two of our financial measures related to income. Absent strategic transactions, and until the asset management business begins contributing more, almost all of our core operating income per diluted share and core operating ROE for a year can be projected at the beginning of the year based on insurance business already originated in prior years. Consequently, the Compensation Committee’s approach to setting goals for these two measures is to project the core operating income per diluted share and core operating ROE for the year based on ourin-force insurance business and goals for PVP production, and then set targets that require management to exceed those projections. When the projections are lower than actual performance for the prior year, as was the case for these two measures for 2019, the resulting goals can be quite challenging while still being below the prior year actual results. The Compensation Committee believes the goals it set in 2019 for these two measures fall in this category. As described below, in accordance with last year’s changes to the executive compensation program and based on shareholder feedback, the Compensation Committee exercised its negative discretion in scoring executive performance against these two measures.
Mr. Frederico’s 2019 Financial Performance Goal Scores
In 2019, we exceeded all of the 2019 targets for the financial performance goals, in some instances substantially.
We generated PVP of $463 million, the highest reported in ten years (when excluding our 2018 reinsurance transaction with SGI), and 70% more than we achieved in 2018 when excluding our 2018 reinsurance transaction with SGI. The achievement is significant in light of our maintaining our underwriting and pricing principles despite the challenging business environment we continue to face; we produced these results while still producing new business that had a higher average internal rating in 2019 than in 2018 and with higher average risk-adjusted premiums in 2019 than 2018.
With core operating income per diluted share of $3.91, we exceeded our goal of $3.30 by 18.5%, although it was still below last year’s actual results.
Core operating shareholders’ equity per share reached its highest level in our history, increasing 9.4% fromyear-end 2018 and exceeding our goal by 0.1%.
We exceeded our goal for core operating ROE by 12.7%, although it was still below last year’s results.
Core adjusted book value, which we refer to as Core ABV, per share increased by 12.4% and reached its highest level in our history, propelled by our efficient management of capital and the generation of PVP.
We achieved these results despite a persistently challenging business environment.
Over the last several years, municipal bond yields have been at historically low levels and credit spreads have been tight, making our product less attractive to issuers. Interest rates and credit spreads remained low in 2019 by historical standards.
We continued to face competition in an already tight market from a second financial guaranty insurer that focuses on a smaller portion of the market than we do and provides price competition in those markets where we overlap.
Despite the strides we have made in managing our capital, we believe we still have excess capital that we need regulatory approval to deploy, and therefore are constrained in our ability to improve our capital efficiency and core operating ROE. See “Summary – 2019 Achievement Highlights” on page 23.
The Compensation Committee assigned Mr. Frederico achievement scores for his achievements against each individual financial performance goal. In three instances, we achieved results substantially in excess of the 2019 financial performance goals established by the Compensation Committee in November 2018, but below the actual results for 2018. In the first instance, PVP, our result was well in excess of PVP in 2018 excluding the SGI portfolio reinsurance transaction. PVP is meant to be a measure of the strength of new business production in our insurance business, and the Compensation Committee does not consider the 2018 portfolio reinsurance transaction with SGI to be typical new business origination. Because our 2019 PVP was well in excess of our 2018 PVP excluding the SGI portfolio reinsurance transaction, the Compensation Committee chose not to treat the 2019 result as a result below the prior year actual result. In the other two instances, the Compensation Committee exercised its negative discretion to reduce how it would have scored the 2019 result relative to the goal if the 2019 result had not been lower than the 2018 result.
Our core operating income per diluted share exceeded the 2018 goal by nearly 20%, so probably would have been scored between 115% and 130%, depending on the circumstances; the Compensation Committee exercised its negative discretion to reduce the score to 105% in light of the actual 2018 Core operating income per diluted share of $4.37.
Similarly, our Core operating ROE exceeded the 2018 goal by nearly 13%, so probably would have been scored between 110% and 120%, depending on the circumstances; the Compensation Committee exercised its negative discretion to reduce the score to 100% in light of the actual 2018 core Operating ROE of 7.6%.
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The Compensation Committee weighted Mr. Frederico’s financial performance goal scores in accordance with the cash incentive formula, which resulted in a weighted financial performance goal score of 83.1%:
2019 CEO Financial Performance Scorecard
2019 Targets | 2019 Results | Weighting | 2019 Achievement Score (0%-200%) | Weighted Achievement Score | ||||||||||||||||
Financial Performance Goals* | ||||||||||||||||||||
PVP | $ 325 million | $463 million | 13.4% | 170 | % | 22.8% | ||||||||||||||
Core operating income per diluted share | $3.30 | $3.91 | 13.4% | 105 | %** | 14.1% | ||||||||||||||
Core operating shareholders’ equity per share | $66.84 | $66.89 | 13.4% | 110 | % | 14.7% | ||||||||||||||
Core operating ROE | 5.5% | 6.2% | 13.4% | 100 | %** | 13.4% | ||||||||||||||
Core ABV per share
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| 13.4%
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| 135
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| 18.1%
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Total Financial Performance Goal Score
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| 83.1%
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Mr. Frederico’sNon-Financial Objectives
The Compensation Committee also evaluated Mr. Frederico’s 2019 achievements against his 2019non-financial objectives. Highlights of those achievements include the transformational acquisition of BlueMountain and the establishment of Assured Investment Management; achievement of the highest level of PVP since the financial crisis; and the prominent role our Company continues to assume in the restructuring of the debt of Puerto Rico and its related authorities and public corporations. The details of Mr. Frederico’s 2019 achievements against his 2019non-financial objectives are set out in the pages that follow.
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Based on Mr. Frederico’s 2019 achievements against his 2019non-financial objectives, the Compensation Committee awarded him an achievement score of 200% against those objectives. Applying that score to the cash incentive formula resulted
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The Compensation Committee then added that weightednon-financial objective score of 66% to the weighted financial performance goal score of 83.1% achieved by Mr. Frederico as described earlier, to derive a total achievement score of 149.1% in accordance with the cash incentive formula, as follows:
Summary 2019 CEO Performance Scorecard
Weighting | 2019 Achievement Score (0%-200%) | Weighted Achievement Score | ||||||||||
Total Financial Goal Score (Summarized on page 39 above.) |
| 67% |
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| 83.1% |
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Non-Financial Objectives | ||||||||||||
Financial Guaranty Business—Articulate clear strategy and lead effective implementation of business plan to grow direct business and take advantage of reinsurance opportunities |
| 33% |
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| 200% |
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| 66.0% |
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Active Loss Mitigation and Avoidance | ||||||||||||
Diversification—Articulate clear strategy and lead effective implementation of diversification strategy | ||||||||||||
Capital Management | ||||||||||||
Regulatory | ||||||||||||
Financial strength ratings | ||||||||||||
Best practice risk management | ||||||||||||
Operations | ||||||||||||
Management development and succession planning | ||||||||||||
Non-Financial Objective Score |
| 33% |
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| 66% |
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Achievement Score |
| 149.1% |
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In reviewing Mr. Frederico’s 2019 performance scorecard, the Compensation Committee determined that he had a very strong year. In particular, the Compensation Committee found that Mr. Frederico should be recognized for our success in exceeding all of the targets for the financial performance goals established by the Compensation Committee, in certain cases substantially. Mr. Frederico’s very strong performance was demonstrated by our $463 million of PVP production, the highest reported in ten years (when excluding our 2018 portfolio reinsurance transaction with SGI). Mr. Frederico’s leadership and vision was the driving force behind our establishment of Assured Investment Management through the acquisition of BlueMountain and associated entities. Importantly, our TSR has reflected these strides: ourone-year TSR for 2019 was over 30% and our five-year TSR for 2015 through 2019 was over 105%.
Based on Mr. Frederico’s achievements, the Compensation Committee gave him a total achievement score of 149.1% for the 2019 performance year, slightly below his achievement score for the 2018 performance year. Applying this achievement score to his Individual Target Cash Incentive Amount resulted in a cash incentive award of $3,727,000. This was $85,000 (or 2.2%) less than the $3,812,000 awarded to Mr. Frederico for the 2018 performance year.
The Compensation Committee awarded all of Mr. Frederico’s long-term incentive compensation in the form of PSUs and RSUs. The $6,750,000 target nominal amount of long-term equity constituted a 12.5% increase over the target nominal amount for the prior year. The Compensation Committee believed it was very important to reward Mr. Frederico for his and for our Company’s very strong performance during 2019, particularly the execution of a transformative acquisition that will diversify our revenue by supplementing theaudit, risk premiums we receive in our insurance segment with fee income. It also reflected the Compensation Committee’s desire that Mr. Frederico have a strong incentive to continue his valued leadership of our Company and to generate long-term, sustained growth that will enhance shareholder value as we work to establish Assured Investment Management in the asset management business while growing our insurance business, and so becoming the diversified financial services company that he envisions.
The following table sets forth the target nominal amount of long-term incentive compensation the Compensation Committee awarded Mr. Frederico on February 26, 2020, the grant date. The Compensation Committee determined the number of PSUs and RSUs to award Mr. Frederico by converting the target nominal amount of the award using $47.36, which was the average price of our Common Shares over the 40 consecutive trading days ending on February 26, 2020.
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When we prepare the Summary Compensation Table, we report the value of the grants using U.S. generally accepted accounting principles (which we refer to as U.S. GAAP), in accordance with the SEC’s rules.
Under U.S. GAAP, the value of an ABV PSU as of February 26, 2020 was determined to be $43.09. This value is based on the closing price of our Common Shares on that date, which U.S. GAAP allows as a practical expedient to value grants with complicated features, such as in this case the estimated growth rate of the Company’s Core ABV per share.
Under U.S. GAAP, the value of a Relative TSR PSU on February 26, 2020 was $38.96. This value was computed using a Monte-Carlo simulation model taking into account the historical relationship of our TSR and the TSR of the Index, including for the period from the beginning of the Relative TSR PSU performance period to February 26, 2020, the grant date. We engaged Aon to provide this computation for us.
Under U.S. GAAP, the value of an RSU was $43.09, based our Common Share closing price on February 26, 2020.
The aggregate value of Mr. Frederico’s February 2020 long-term equity incentive grants under U.S. GAAP is set forth below.
Compensation Committee Target
| Equity
| U.S. GAAP
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ABV PSUs |
| $2,025,000 |
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| 42,758 |
| $ | 1,842,442 |
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Relative TSR PSUs |
| $2,025,000 |
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| 42,758 |
| $ | 1,665,852 |
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RSUs |
| $2,700,000 |
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| 57,010 |
| $ | 2,456,561 |
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TOTAL |
| $6,750,000 |
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| 142,526 |
| $ | 5,964,855 |
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The Compensation Committee considered the total compensation it was awarding to Mr. Frederico pursuant to its formulas and methodologies in light of Mr. Frederico’s considerable accomplishments with respect to the financial performance goals, especially the amount of PVP achieved, as well as hisnon-financial objectives, especially the establishment of Assured Investment Management, while also taking into account shareholder feedback and advice from Cook.
The Compensation Committee concluded that it was appropriate that Mr. Frederico’s individual cash incentive be $3,727,000 for the 2019 performance year, $85,000 less than 2018. This decrease reflected the slight decrease in Mr. Frederico’s scorecard for his financial performance goals, mitigated somewhat by a higher score for hisnon-financial objectives.
The Compensation Committee also considered the importance of maintaining Mr. Frederico’s leadership of our Company in the years ahead as we seek to continue developing both our financial guaranty business and our newly established asset management business, manage our insured exposure and mitigate any losses in the insured portfolio, and manage our capital, and as a result increased Mr. Frederico’s long-term equity compensation by $750,000 in targeted nominal value.
Taking these various factors into account, the Compensation Committee believed it was also appropriate for Mr. Frederico’s total 2019 compensation, which it determined in accordance with its formulas and methodologies, to be 6% higher than his total 2018 compensation.
OTHER NAMED EXECUTIVE OFFICER COMPENSATION DECISIONS
Non-Financial Objectives and Achievements of the Other Named Executive Officers
The Compensation Committee made compensation awards to the other executive officers for the 2019 performance year based on its assessment of their achievements and Mr. Frederico’s review of their performance, as well as Mr. Frederico’s compensation recommendations. The other named executive officers’ achievements were evaluated based on their contributions to our achievement of our financial goals, their contributions to the achievement of Mr. Frederico’snon-financial objectives, and their own achievements of the individualnon-financial objectives Mr. Frederico had assigned to them, as described below.
Robert A. Bailenson, Chief Financial Officer
Mr. Bailenson was responsible in the 2019 performance year for meeting all internal and external financial requirements, managing our capital efficiently, meeting with investors, and participating on earnings calls. Mr. Bailenson has involved himself in all aspects of our business and leads the financial team in addressing market and regulatory changes. More specifically, Mr. Bailenson:
Contributed to the negotiation and acquisition of BlueMountain;
Successfully mobilized capital to support our repurchase of $500 million of our common shares and the acquisition of BlueMountain while still making claim payments on defaulted Puerto Rico credits;
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Managed from the user side the planning and deployment of phase 1 of our new insurance accounting subledger application and extended our data warehouse to provide the necessary financial reporting;
Worked with our rating agencies and investment managers to broaden the categories of our investments;
Actively participated in loss mitigation activities relating to Puerto Rico and other credits, including an insurance securitization that was successfully resolved in 2019; and
Was responsible for the timely and accurate filing of all financial statements and tax returns.
Ling Chow, General Counsel
Ms. Chow has been an effective leader of legal resources for our Company. Her work on the establishment of our new French insurance company, financial disclosures, litigation and planning and strategymanagement is exemplary. She has also provided excellent and timely counsel to our company on various internal matters. More specifically, Ms. Chow:
Developed the regulatory strategy and structure for our acquisition of BlueMountain and helped lead the due diligence and negotiation of terms and documentation for the acquisition;
Initiated and is leading the process of developing the legal structure and guidelines for the integration of the highly regulated asset-management business with Assured Guaranty andre-branding it “Assured Investment Management”;
Successfully led the effort to obtain a number of regulatory approvals, including approvals for various actions that had the effect of increasing the resources available for strategic priorities of our holding company;
Provided support and guidance to our Compensation Committee in restructuring our executive compensation program in response to thesay-on-pay results in 2018, resulting in 93%say-on-pay approval in 2019;
Oversaw the Legal Department’s contribution to our efforts to mitigate Puerto Rico losses, including numerous legal actions;
Oversaw legal support and analysis for all underwriting activity;
Oversaw all disclosure activities; and
Supervised our response to various legal and regulatory issues, including those related to cybersecurity and privacy as well as the rising prominence of environmental, social and governance issues.
Russell B. Brewer II, Chief Surveillance Officer
Mr. Brewer was responsible in the 2019 performance year for ensuring that all of our insured exposures are reviewed annually and assigned appropriate internal ratings, for managing loss mitigation strategies for our troubled credits, and for overseeing our information technology department. Mr. Brewer is a major contributor to the successful operations of our company and is a thought leader in our relationships with our rating agencies. More specifically, Mr. Brewer:
Led the surveillance process for our $237 billion net par insured portfolio and the timely review and update of internal ratings for our insured portfolio, helping to identify and intervene in deteriorating situations before losses developed to avoid losses altogether or mitigate them if they cannot be avoided;
Oversaw and participated in many of our risk mitigation activities, including making major contributions to our effort in Puerto Rico;
Oversaw the successful defense of our systems from cyberattacks and our compliance with new cybersecurity regulations;
Managed the successful implementation of phase 1 of our new insurance accounting subledger application and extended our data warehouse to provide the necessary financial reporting;
Successfully worked with rating agencies to minimize impact of new initiatives in asset management and public finance originations; and
Initiated and is leading the process of integrating BlueMountain information technology systems into our information technology systems.
Bruce E. Stern, Executive Officer
Mr. Stern was responsible in the 2019 performance year for workouts of troubled transactions and the extraction of significant value from our insured portfolio and other relationships. Mr. Stern applied creative approaches to troubled transactions to mitigate losses. Mr. Stern is also responsible for governmental affairs and our participation in an industry group. More specifically, Mr. Stern:
Was deeply involved in our efforts to mitigate losses in Puerto Rico, playing a particularly valuable role in advocating our viewpoint to various government officials;
Made significant progress in resolving two distressed insurance transactions; and
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Executed reinsurance commutations and identified additional revenue opportunities in our insured portfolio.
Mr. Stern resigned as our Executive Officer, and we eliminated the position of Executive Officer, effective December 31, 2019, in accordance with the terms of a separation agreement described under “Compensation Discussion and Analysis—Other Named Executive Officer Compensation Decisions—Separation Agreement” on page 46 below. Mr. Stern remains employed by our Company in anon-executive officer position, serving as the Senior Advisor to the Chief Executive Officer of our Company.
Compensation Decisions for the Other Named Executive Officers
In the case of the other named executive officers, for the 2019 performance year the Compensation Committee calculated and aggregated the weighted achievement scores for the financial performance goals (which were the same as Mr. Frederico’s) and theirnon-financial objectives (which were a combination of their contribution to Mr. Frederico’snon-financial objectives and their achievement of their own individualnon-financial objectives), taking into account the level of difficulty of achieving particular goals or objectives. Based on their achievements, after applying the formula, the Compensation Committee awarded them the cash incentives calculated as shown in the table below.
(
| 2019 Salary
| X
| 2019 Individual Target Incentive Multiple
| )
| X
| (
| Financial Achievement Score (weighted 67%)
| +
| Individual Financial Achievement (weighted 33%)
| )
| =
| 2019 Cash Incentive Payout
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Robert A. Bailenson | $ | 700,000 |
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| 2.00x |
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| 83.1% |
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| 59.4% |
| $ | 1,994,720 |
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Russell B. Brewer II | $ | 525,000 |
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| 2.00x |
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| 83.1% |
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| 64.4% |
| $ | 1,548,015 |
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Ling Chow | $ | 525,000 |
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| 2.00x |
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| 83.1% |
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| 56.1% |
| $ | 1,461,390 |
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Bruce E. Stern | $ | 500,000 |
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| 2.00x |
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| 83.1% |
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| 39.6% |
| $ | 1,227,800 |
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The Compensation Committee awarded all of the other named executive officers, other than Mr. Stern, long-term incentive compensation in the form of PSUs and RSUs with the same terms and in the same proportion as the PSUs and RSUs awarded to Mr. Frederico. The target nominal amount of long-term equity reflected the Compensation Committee’s desire that each of the other named executive officers have a strong incentive to help generate long-term, sustained growth for our Company. The amounts of PSUs and RSUs awarded to each other named executive officer vary by individual and are based on their respective positions and levels of responsibility, historic compensation levels and Cook’s advice about the compensation practices of companies in our comparison group. In accordance with and subject to compliance with the terms of his separation agreement, Mr. Stern will be awarded deferred cash in lieu of PSUs and RSUs.
The Compensation Committee considered Cook’s analysis of the compensation paid to named executive officers in our executive compensation comparison group when evaluating the compensation of our executive officers. (Our revised comparison group is described under “Compensation Governance—Executive Compensation Comparison Group on page 48 below.) According to Cook, for the 2018 performance year, which is the most recent data available, on average, the target total direct compensation for our named executive officers ranked between the median and 75th percentile of amounts for the named executive officers of our revised executive compensation comparison group, reflecting the experience, leadership, specialized skill sets and sustained performance of our senior executive team. Actual total direct compensation for our named executive officers as a group paid for the 2018 performance year was also between the median and 75th percentile of our revised executive compensation comparison group, reflecting our above target bonus payouts for 2018 performance, which were aligned with our 2018 performance relative to our key business goals and strategies, as well as our strong financial performance for that period and our three-year total shareholder returns relative to our previous comparison group. For the 2018 performance year, ourone-year growth in book value was between median and the 75th percentile of our revised executive compensation comparison group, consistent with the ranking of our actual total direct compensation, and ourone-year and three-year TSR at the end of 2018 was in the top quartile of our executive compensation comparison group.
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In summary, the Compensation Committee approved the following compensation decisions for the named executive officers other than Mr. Frederico for the 2019 performance year:
Robert A. Bailenson | Russell B. Brewer II | Ling Chow | Bruce E. Stern | |||||||||||||
Fixed Compensation—Base Salary(1) |
| $700,000 |
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| $525,000 |
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| $525,000 |
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| $500,000 |
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Incentive Compensation | ||||||||||||||||
Cash Incentive Compensation | $ | 1,994,720 |
| $ | 1,548,015 |
| $ | 1,461,390 |
| $ | 1,227,800 |
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Long-Term Equity Incentive Target Values(2) | $ | 1,500,000 |
| $ | 1,150,000 |
| $ | 1,150,000 |
| $ | 700,000 |
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Total Direct Compensation | $ | 4,194,720 |
| $ | 3,223,015 |
| $ | 3,136,390 |
| $ | 2,427,800 |
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The Compensation Committee decided to increase the base salary of Mr. Bailenson from $700,000 to $800,000 and Ms. Chow from $525,000 to $550,000. Both of their base salaries were increased in recognition of the expanding responsibilities of their roles and offices in a financial services company diversifying into another highly regulated financial industry. The Compensation Committee believes it is critical for both of these officers to remain highly motivated in 2020, especially in light of the demands it anticipates will be made on them in connection with the integration of BlueMountain and our desire to grow Assured Investment Management. The base salary of Mr. Brewer will remain the same in 2020, as will the base salary of Mr. Stern, who resigned as our Executive Officer December 31, 2019, but remains employed as our Senior Advisor to the Chief Executive Officer until May 1, 2020.
As previously disclosed in our Form8-K filing on January 7, 2020, Mr. Stern resigned as Executive Officer and as an executive officer of AGL, effective December 31, 2019, in accordance with the terms of a separation and release agreement, which we refer to as the Separation Agreement, between Mr. Stern and us. We are eliminating the position of Executive Officer and entered into the Separation Agreement with Mr. Stern in recognition of his successful years at our company and to encourage him to work through May 1, 2020 in order to facilitate the transition of his duties to other persons in our company, and to continue to work toward closing a potential transaction in which he is involved. The Compensation Committee consulted with Cook and considered its advice with respect to the terms of the Separation Agreement with Mr. Stern.
Pursuant to the Separation Agreement, Mr. Stern remains employed by our Company in anon-executive officer position, serving as Senior Advisor to the Chief Executive Officer of the Company, for a transition period, which we refer to as the Transition Period, that began on January 1, 2020 and ends on May 1, 2020, which we refer to as the Termination Date.
The Separation Agreement provides for the following payments to Mr. Stern:
Mr. Stern received anon-equity incentive payment for the 2019 performance year in March 2020 of $1,227,800, the same amount he received as anon-equity incentive payment for the 2018 performance year in March 2019.
If Mr. Stern remains employed through the Termination Date, he will continue to receive his current base salary of $500,000 per annum through May 1, 2020.
If Mr. Stern remains employed through the Termination Date, he will receive a cash payment of $700,000 between February 1, 2021, and March 15, 2021, in lieu of receiving any long-term equity grant for the 2019 performance year; in March 2019 he had received a long-term equity incentive grant with a target value of $700,000.
If Mr. Stern remains employed through the Termination Date, within 60 days of his separation he will receive a singlelump-sum payment of $2,104,631, which is the severance payment he is entitled to receive pursuant to our executive severance plan as the result of the elimination of his position.
If Mr. Stern remains employed through the Termination date and a certain transaction on which he has been working is consummated on or prior to May 1, 2021, Mr. Stern will receive an additional $500,000 during 2021 no later than May 31, 2021.
If Mr. Stern remains employed through the Termination Date, he will become fully vested in the RSUs he was previously awarded and vestedpro-rata in PSUs he was previously awarded.
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The Separation Agreement addresses the timing of payments and distributions to Mr. Stern so that they remain exempt from or comply with the provisions of Section 409A of the Internal Revenue Code. The Separation Agreement also contains covenants by Mr. Stern relating to protection of the Company’s confidential information, cooperation,non-competition,non-solicitation andnon-disparagement and other standard provisions, as well as a release of claims by Mr. Stern. Payments pursuant to the Separation Agreement are subject to forfeiture and/or clawback in the event of violation of such covenants.
2019 EXECUTIVE COMPENSATION CONCLUSION
Our performance exceeded every financial performance target set by the Compensation Committee at the beginning of the year. Nevertheless, in two instances where the results were above target but below the results from the previous year, the Compensation Committee chose to exercise its negative discretion and reduce the scores awarded on those measures to below what they would have been otherwise. As a result, the overall achievement score awarded by the Compensation Committee on the financial performance measures, 83.1%, was lower than the score awarded last year, 89.8%. This held down the overall achievement scores of all of our executive officers as compared to last year, and resulted in Mr. Frederico receiving an overall achievement score, and a cash incentive award, slightly below what he received last year.
Our Compensation Committee wished to recognize the considerable accomplishments of all of our executive officers with respect to the financial performance goals, especially the amount of PVP achieved in markets with historically low interest rates and credit spreads, as well as their accomplishments of theirnon-financial objectives, especially the establishment of Assured Investment Management. The Compensation Committee also wished to incentivize our executive officers to continue to contribute to our Company as we transform into a financial services company active in both financial guaranty insurance and asset management, under the leadership and in accordance with the vision of Mr. Frederico. In the case of Mr. Frederico, the Compensation Committee accomplished this by increasing his long-term equity compensation by $750,000 in targeted nominal value.
The Compensation Committee believes that our executive compensation program rewards performance and motivates our executive officers to increase shareholder value, and that it is therefore appropriate and in the best interests of our Company and our shareholders. Our strategy requires exceptionally qualified and experienced management in senior financial guaranty executive, finance and legal positions, including personnel with skills and experience in reinsurance, acquisitions and corporate integration as well as asset management, and the ability to deal with adverse market conditions and take advantage of market opportunities. During this critical period in our Company’s history, the Compensation Committee believes that retaining and motivating our executive officers and staff is essential, and that the various elements of total compensation have worked well to attract, retain and properly reward management for their performance.
PAYOUT UNDER PERFORMANCE RETENTION PLAN
The Performance Retention Plan, which we refer to as the PRP, had been utilized as a form of incentive compensation for the executive officers until 2015. Its focus on adjusted book value and operating return on equity over a multi-year performance period reduced the incentive to concentrate on short-term gain and fostered a long-term view that minimized unnecessary or excessive risk taking.
In response to shareholder feedback that we should simplify our executive compensation program and emphasize equity rather than cash for incentive compensation, the Compensation Committee stopped granting our then executive officers new PRP awards beginning in 2015. We continue to grant PRP awards to employees other than our executive officers. Ms. Chow, who was not an executive officer until 2018, continued to receive PRP awards through February 2017, so she also received a cash distribution in March 2020 resulting from her PRP awards in February 2016 and 2017.
The principal amount of each PRP award is divided into three installments. The portion of principal associated with each installment and the performance period relating to such installment are set out in the terms of the award.
The award payment for each installment is the product of:
Principal amount of award
Portion of principal associated with installment
50% of the sum of 1 and the percentage change in the core ABV per share for the relevant performance period
50% of the sum of 1 and the core operating ROE for the relevant performance period
The individual PRP payouts for amounts that vested on December 31, 2019 are set forth in footnote 2 to the Summary Compensation Table. Those PRP payouts were a function of decisions made in February 2016 and 2017 regarding the amount of PRP to award relating to Ms. Chow’s achievements before she became an executive officer and during the 2015 and 2016 performance years, as well as growth in core ABV per share and the core operating ROE during the relevant performance periods.
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The Role of the Board’s Compensation Committee
The Compensation Committee oversees all aspects of our executive compensation program. The Compensation Committee has responsibility for:
Establishing executive compensation policies
Determining the compensation of our CEO
Reviewing our CEO’s compensation recommendations regarding other senior officers and determining appropriate compensation for such officers
Our Board has adopted a Compensation Committee Charter to govern the Compensation Committee’s activities. The charter, which may be found on our website atwww.assuredguaranty.com/governance, is reviewed annually by the Compensation Committee. Under its charter, the Compensation Committee is authorized to retain compensation, legal, accounting and other expert consultants at our expense.
The Role of the Independent Consultants
For more than ten years, including in 2019, the Compensation Committee has engaged Cook as its independent compensation consultant and considered advice and information from that firm in determining the amount and form of compensation for the executive officers. Periodically, the Nominating and Governance Committee also engages Cook to conduct a comprehensive review of the compensation package for the independent directors; Cook last undertook such a comprehensive review in 2019.
In 2019, Cook’s work for the Compensation Committee included analyzing our compensation practices in light of best practices, providing a compensation risk assessment, reviewing and advising us on changes to our comparison group of companies, collecting and providing relevant market data, reviewing data and analyses provided by other consultants, and updating the Compensation Committee with respect to evolving governance trends.
The Compensation Committee has considered the independence of Cook in light of SEC rules and NYSE listing standards. It has requested and received a letter from Cook in 2019 affirming factors relevant to assessing Cook’s independence. The Compensation Committee discussed the content of the letter and concluded that Cook’s work did not raise any independence or conflict of interest issues.
When the Compensation Committee began to contemplate amending the long term equity incentive program to include performance share units based on relative TSR performance in 2018, we engaged Aon to model the the grant date fair value and ultimate performance and payout of hypothetical Relative TSR PSUs with various characteristics and, once the characteristics of the Relative TSR PSUs were settled, to provide grant date valuation of the Relative TSR PSUs and to provide Relative TSR PSU value tracking over the life of the Relative TSR PSUs. Aon’s compensation consulting work for us began in 2018 and concluded with our establishment of the TSR PSUs in February 2019. While we have engaged Aon to calculate and report on the value of the TSR PSUs on an ongoing basis, we have not engaged Aon as a compensation consultant since we established the TSR PSUs in February 2019.
Executive Compensation Comparison Group
The Compensation Committee examines pay data for the following 20 companies to review pay practices, identify compensation trends, and benchmark its executive compensation decisions:
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The Compensation Committee has long recognized that the comparison group has limitations. Our company is the only publicly-traded financial services company primarily writing new financial guaranty business in today’s markets, and we have now established Assured Investment Management, an asset management division that is one of the top 20 CLO managers by assets under management*.
Notably, the comparison group consists primarily of mortgage finance and property and casualty insurance and reinsurance companies, along with the four asset managers added this year. Despite the specialized nature of our primary financial guaranty business, our Compensation Committee looks for companies domiciled in Bermuda or with a similar size, global business model and compensation mix to ours, along with publicly traded asset management companies to reflect the establishment of Assured Investment Management. Although the factors the Compensation Committee considers for its compensation decisions and the level of compensation may differ from those for the comparison group, the Compensation Committee finds it useful to consider the pay practices at these companies.
In November 2019 and early February 2020, Cook met with the Compensation Committee to review the comparison group from the prior year, and to discuss whether other companies should be considered for inclusion in the group, which in the prior year comprised 16 companies. Cook noted that we had acquired BlueMountain and established Assured Investment Management since the last time the comparison group had been reviewed in 2018. Based on Cook’s review in November 2019 and February 2020 and the importance of the asset management business to our strategic vision, Cook recommended that we add several asset managers to our comparison group.
Cook informed the Compensation Committee that it recommended adding four asset management companies to the comparison group. Cook looked for asset management companies that were similar to our asset management business, screening for size, business model and presence in a peer network, and recommended adding to our comparison group the four asset management companies indicated inbold in the above list.
Cook advised the Compensation Committee that, as of December 31, 2019, ourone-year and three-year TSRs ranked near the median of the revised comparison group. Cook also informed the Compensation Committee that, as of September 30, 2019, our latest four quarters of operating income and net income are both near the median of our revised comparison group and our market capitalization falls between the 25th percentile and median of the revised comparison group; our total assets were between the median and the 75th percentile; and both our latest four quarters of revenue and number of employees was in the bottom quartile of the group.
The revised comparison group consists of companies that, like our Company, have a business model that involves underwriting or credit risk, a holding company structure, and similar size as measured by revenues, assets and market capitalization. Based on Cook’s recommendation, the Compensation Committee agreed that the 20 companies listed above would constitute the Company’s comparison group for 2019.
Executive Officer Recoupment Policy
Our Board of Directors adopted a recoupment (or clawback) policy in February 2009 pursuant to which the Compensation Committee may rescind or recoup certain of the compensation of an executive officer if such person engages in misconduct related to a restatement of our financial results or of objectively quantifiable performance goals, and the achievement of those goals is later determined to have been overstated.
In connection withRule 10D-1 proposed by the SEC, the Compensation Committee amended the recoupment policy in November 2015 so that it would apply, to the extent required by law, to incentive compensation received in the three year period before a determination that a material restatement is required. The amended recoupment policy allows the Company to recoup incentive compensation which is granted before the adoption and effectiveness of a finalRule 10D-1, but which may be subject to the three year look-back period of any such final rule.
To demonstrate our commitment to building shareholder value, the Board of Directors adopted management stock ownership guidelines. Our guidelines do not mandate a time frame by which this ownership must be attained, but each executive officer must retain 100% of his or herafter-tax receipt of Company stock until he or she reaches their ownership goal. Please see “Information About Our Common Share Ownership—How Much Stock is Owned by Directors and Executive Officers” for detailed information on the executive officers’ stock ownership.
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The chart below shows the guideline for each of our named executive officers and each executive’s stock ownership as of March 13, 2020, the record date, using $34.56, the closing price of one of our Common Shares on the NYSE on such date.
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These ownership levels include shares owned and, in the case of Mr. Bailenson, vested share units credited to hisnon-qualified retirement plan. Unvested RSUs, unvested performance share units and unexercised options do not count towards the guidelines. Some of the executive officers who have reached their share ownership goals have made gifts of shares to family or to charitable or educational institutions.
We adopted an anti-hedging policy in 2013 that explicitly prohibits employees and directors from hedging our Common Shares.
Our stock trading policy prohibits employees and directors from pledging our Common Shares without the approval of both our General Counsel and the Nominating and Governance Committee. Our stock trading policy requires that, in order to grant such approval, our Nominating and Governance Committee determine that the person making the pledge demonstrates the financial capacity to repay the loan (which does not constitute margin debt) without resorting to the pledged securities. In March 2020, in accordance with such policy, Mr. Frederico pledged 900,000 of our Common Shares to secure a personal loan to purchase a home. Mr. Frederico intends to repay the loan and release the pledged shares in the short term. Even if such shares are excluded from his total, on March 13, 2020, Mr. Frederico owned Common Shares in an amount equal to 18.3x his salary, significantly in excess of his guideline of 7x his salary. No other director or executive officer has pledged Common Shares.
The Compensation Committee meets during our February board meeting to make executive compensation decisions with respect to the previous year’s performance and to make its compensation recommendations to the other directors. After consulting with the Board, the Compensation Committee approves executive officer salary increases (if any), cash incentive compensation, and long-term equity incentive awards. Payments under existing PRP awards (if any) and cash incentives are not paid until after we file with the SEC our Annual Report onForm 10-K for the previous calendar year.
We maintaintax-qualified andnon-qualified defined contribution retirement plans for our executive officers and other eligible employees. We do not maintain any defined benefit pension plans. The Compensation Committee and our management believe that it is important to provide retirement benefits to employees who reach retirement in order to attract and retain key employees. All retirement benefits are more fully described on pages 59 to 61 under “Potential Payments Upon Termination or Change in Control.”
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Under our severance policy for executive officers, following the executive’s involuntary termination without cause or voluntary termination for good reason and subject to the executive signing a release of claims, the executive will receive alump-sum payment in an amount equal to one year’s salary plus his average cash incentive amount over the preceding three-year period, plus apro-rata annual cash incentive amount for the year of termination and an amount equal to one year of medical and dental premiums. The executive officer’s receipt of severance benefits is subject to his compliance withnon-competition,non-solicitation, and confidentiality restrictions during his employment and for a period of one year following termination of employment. We, in our discretion, may choose to pay one year of base salary to an executive who terminates employment for a reason other than involuntary termination without cause or voluntary termination for good reason, in which case the executive will also be subject tonon-competition,non-solicitation, and confidentiality restrictions following his termination of employment.
We provide change in control benefits to encourage executives to consider the best interests of shareholders by mitigating any concerns about their own personal financial well-being in the face of a change in control of our Company. Based on shareholder input and changing market trends, since 2011, in the event of a change in control:
Long-term incentive awards will vest only upon certain terminations of employment following a change in control (double-trigger)
Such awards will vest upon a change in control (single-trigger) if the acquirer does not assume the awards
We do not provide excise tax reimbursements andgross-up payments in the case of a change in control
Detailed information is provided on page 60 under “Potential Payments Upon Termination or Change in Control.”
Section 162(m) of the Internal Revenue Code limits the deductibility of annual compensation in excess of $1 million paid to “covered employees” of the Company, unless the compensation satisfied an exception, such as the exception for performance-based compensation. On December 22, 2017, the 2017 Tax Act was enacted, which, among other things, repealed the performance-based compensation exception and expanded the definition of covered employee. The changes to Section 162(m) are effective for taxable years beginning after December 31, 2017. The 2017 Tax Act includes a transition rule so that these changes do not apply to compensation paid pursuant to a “binding written contract” that was in effect on November 2, 2017 and that was not materially modified on or after such date.
Because of the performance-based compensation exception repeal, amounts paid pursuant to a contract effective after November 2, 2017 will not be deductible as performance-based compensation, and the Compensation Committee will not need to consider the requirements of the performance-based compensation exception when considering the design of any such future contracts as part of our compensation program. For amounts paid under contracts in effect on November 2, 2017 that were intended to constitute performance-based compensation, the Compensation Committee will continue to consider the performance-based compensation exception when making determinations of performance under those contracts.
The 2017 Tax Act also expands the definition of covered employee. For 2017, our covered employees included our CEO and other named executive officers (but not the chief financial officer) who were executive officers as of the last day of our fiscal year. For 2018 and thereafter, our covered employees will generally include anyone who (i) was our CEO or chief financial officer at any time during the year, (ii) was one of the other named executive officers who was an executive officer as of the last day of the fiscal year, and (iii) was a covered employee for any previous year after 2016.
As with prior years, although the Compensation Committee will consider deductibility under Section 162(m) with respect to the compensation arrangements for executive officers, deductibility will not be the sole factor used in determining appropriate levels or methods of compensation. The Compensation Committee considers many factors when designing its compensation arrangements in addition to the deductibility of the compensation, and maintains the flexibility to grant awards or pay compensation amounts that arenon-deductible if they believe it is in the best interest of our Company and our shareholders.
In addition, Section 409A of the Internal Revenue Code imposes restrictions on nonqualified deferred compensation plans. We maintain deferred compensation plans for the benefit of our employees, including nonqualified deferred compensation plans that provide for employee and employer contributions in excess of the IRS defined contribution plan limits. The deferred compensation plans we maintain are intended to be exempt from the requirements of Section 409A or, if not exempt, to satisfy the requirements of Section 409A, and we have reviewed and, where appropriate, have amended each of our deferred compensation plans to meet the requirements.
Finally, Section 457A of the Internal Revenue Code imposes restrictions on nonqualified deferred compensation plans maintained by a nonqualified entity (which generally includes an entity in a jurisdiction that is not subject to U.S. income tax or a comprehensive foreign income tax). The deferred compensation plans we maintain are intended to be exempt from the requirements of Section 457A.
51
This proxy statement references financial measures that are not determined in accordance with U.S. GAAP, and are identified as core, operating, PVP ornon-GAAP. Although thesenon-GAAP financial measures should not be considered substitutes for U.S. GAAP measures, our management and Board consider them important performance indicators and have employed them as well as other factors in determining senior management incentive compensation.
We referenced in theManagement’s Discussion and Analysis in our Annual Report onForm10-K for the year ended December 31, 2019 certain of thenon-GAAP financial measures we use in this proxy statement. The definitions for thosenon-GAAP financial measures, which are listed below, and how they may be calculated from the most directly comparable GAAP financial measures, may be found on pages 106 to 110 of our Annual Report onForm 10-K for the year ended December 31, 2019, which is available on our website atwww.assuredguaranty.com.
|
|
|
|
This proxy also references certainnon-GAAP financial measures, which are identified as “core”, that our management and Board also consider important performance indicators and have employed, as well as other factors, in determining senior management incentive compensation. These “core” measures, and how they are calculated from our GAAP financial statements, are as follows:
|
|
|
|
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management and, based on such review and discussion, the Compensation Committee recommended to the Board and its committees. In addition, her experience with state and local governments has given her valuable insight into the U.S. public finance market.
Patrick W. Kenny, Chairman
G. Lawrence Buhl
Thomas W. Jones
52
2019 SUMMARY COMPENSATION TABLE
The following table provides compensation information for 2019, 2018 and 2017 for our named executive officers.
Name and Principal
| Year
| Salary
| Stock Awards(1)
|
Non-Equity Incentive Plan Compen- sation(2)
| All Other Compen- sation(3)
| Total
| ||||||||||||||||||
Dominic J. Frederico, |
|
2019 |
|
|
$1,250,000 |
|
|
$6,424,343 |
|
|
$3,727,000 |
|
|
$752,127 |
|
|
$12,153,470 |
| ||||||
President and Chief | 2018 | $1,250,000 | $6,865,967 | $3,812,000 | $843,935 | $12,771,902 | ||||||||||||||||||
Executive Officer
|
| 2017
|
|
| $1,250,000
|
|
| $6,588,270
|
|
| $4,862,500
|
|
| $826,014
|
|
| $13,526,784
|
| ||||||
Robert A. Bailenson, |
|
2019 |
|
|
$700,000 |
|
|
$1,606,106 |
|
|
$1,994,720 |
|
|
$364,809 |
|
|
$4,665,635 |
| ||||||
Chief Financial | 2018 | $700,000 | $1,791,111 | $1,949,920 | $314,899 | $4,755,930 | ||||||||||||||||||
Officer
|
| 2017
|
|
| $625,000
|
|
| $1,557,236
|
|
| $1,953,125
|
|
| $286,085
|
|
| $4,421,446
|
| ||||||
Ling Chow |
|
2019 |
|
|
$525,000 |
|
|
$1,070,695 |
|
|
$1,769,140 |
|
|
$236,317 |
|
|
$3,601,152 |
| ||||||
General Counsel
|
| 2018
|
|
| $500,000
|
|
| $1,275,345
|
|
| $1,631,350
|
|
| $195,344
|
|
| $3,602,039
|
| ||||||
Russell B. Brewer II, |
|
2019 |
|
|
$525,000 |
|
|
$1,177,776 |
|
|
$1,548,015 |
|
|
$284,043 |
|
|
$3,534,834 |
| ||||||
Chief Surveillance | 2018 | $525,000 | $1,313,465 | $1,583,715 | $286,076 | $3,708,256 | ||||||||||||||||||
Officer
|
| 2017
|
|
| $500,000
|
|
| $1,317,654
|
|
| $1,734,250
|
|
| $253,803
|
|
| $3,805,707
|
| ||||||
Bruce E. Stern, |
|
2019 |
|
|
$500,000 |
|
|
$749,533 |
|
|
$1,227,800 |
|
|
$225,811 |
|
|
$2,703,144 |
| ||||||
Executive Officer | 2018 | $500,000 | $955,293 | $1,227,800 | $207,800 | $2,890,893 | ||||||||||||||||||
| 2017
|
|
| $470,000
|
|
| $838,490
|
|
| $1,255,420
|
|
| $192,864
|
|
| $2,756,774
|
|
|
|
D. Frederico | R. Bailenson | L. Chow | R. Brewer | B. Stern | ||||||||||||||||
2019 Cash Incentive Compensation | $3,727,000 | $1,994,720 | $1,461,390 | $1,548,015 | $1,227,800 | |||||||||||||||
2019 PRP Payout | — | — | $307,750 | — | — | |||||||||||||||
Total | $3,727,000 | $1,994,720 | $1,769,140 | $1,548,015 | $1,227,800 |
|
D. Frederico | R. Bailenson | L. Chow | R. Brewer | B. Stern | ||||||||||||||||
Employer Contribution to Retirement Plans |
| $607,440 |
|
| $317,990 |
|
| $214,296 |
|
| $253,046 |
|
| $207,336 |
| |||||
Bermuda Housing Allowance |
| $18,753 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Bermuda Car Allowance |
| $20,000 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Bermuda Travel Allowance |
| $15,000 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Tax Return Preparation |
| $31,631 |
|
| $16,050 |
|
| $6,100 |
|
| $11,000 |
|
| $75 |
| |||||
Matching Gift Donations |
| $15,000 |
|
| $15,000 |
|
| $15,000 |
|
| $15,000 |
|
| $11,100 |
| |||||
Business-Related Spousal Travel |
| $21,568 |
|
| $15,769 |
|
| $921 |
|
| $4,997 |
|
| $4,319 |
| |||||
Miscellaneous |
| $22,735 |
|
| — |
|
| — |
|
| — |
|
| $2,981 |
| |||||
Total |
| $752,127 |
|
| $364,809 |
|
| $236,317 |
|
| $284,043 |
|
| $225,811 |
|
53
NoneNational Association of our named executive officers currently have any employment agreements with the Company.
Our Company has established a perquisite policy pursuant to which we provide executive officers certain perquisites that are not available to employees generally. We believe that perquisites we provide to our named executive officers meet certain business objectives and that the benefit our Company receives from providing these perquisites significantly outweighs the cost of providing them. We feel these perquisites minimize distractions to our named executive officers, thereby enabling them to perform their responsibilities more efficiently. These include tax preparation, financial planning (until 2019, when it was eliminated), annual executive medical exams (for persons who became executive officers prior to December 31, 2017) and, for our executive officers located in Bermuda, housing and car allowances, Bermuda club memberships, and family travel stipend. In light of the challenges of the Bermuda market, including travel to and from the island, and the cost of living and maintaining a residence, the Bermuda perquisites are consistent with competitive practices in the Bermuda market and have been necessary for recruitment and retention purposes. Any of these perquisites may be modified by the Compensation Committee without the consent of the executive officers.
Prior to January 1, 2019, we provided tax preparation and financial planning services to maximize the value of Company-provided compensation and to assist our named executive officers with tax compliance in various jurisdictions, especially since some of our named executive officers fulfill their responsibilities to the Company by working outside their home country for a portion of their time. Beginning January 1, 2019, we no longer provide financial planning services.
In determining the total compensation payable to our named executive officers, the Compensation Committee considers perquisites in the context of the total compensation which our named executive officers are eligible to receive. However, given the fact that perquisites represent a relatively small portion of the executive’s total compensation, the availability of these perquisites does not materially influence the decisions made by the Compensation Committee with respect to other elements of the total compensation to which our named executive officers are entitled to or which they are awarded.
Our Company has adopted a severance policy for executive officers. For further detail, see the discussion in “Compensation Discussion and Analysis—Post-Employment Compensation—Severance” and “Potential Payments Upon Termination or Change ofControl—Change-in-Control Severance”. A severance policy enables us to attract and retain top candidates for our executive positions and enables us to have good relations with those executives.
We maintain a broad based employee stock purchase plan that gives our eligible employees the right to purchase our Common Shares through payroll deductions at a purchase price that reflects a 15% discount to the market price of our Common Shares on the first or last day of the relevant subscription period, whichever is lower. No participant may purchase more than $25,000 worth of Common Shares under this plan in any calendar year. In 2019, Mr. Frederico, Mr. Stern and two other executive officers participated in the employee stock purchase plan; Mr. Frederico and Mr. Stern participated to the maximum extent possible.
We enter into indemnification agreements with our directors and executive officers. These agreements are in furtherance of ourBye-Laws which require us to indemnify our directors and officers for acts done, concurred in or omitted in or about the execution of their duties in their respective offices.
The indemnification agreements provide for indemnification arising out of specified indemnifiable events, such as events relating to the fact that the indemnitee is or was one of our directors or officers or is or was a director, officer, employee or agent of another entity at our request or relating to anything done or not done by the indemnitee in such a capacity.
The indemnification agreements provide for advancement of expenses.
These agreements provide for mandatory indemnification to the extent an indemnitee is successful on the merits. To the extent that indemnification is unavailable, the agreements provide for contribution.
The indemnification agreements set forth procedures relating to indemnification claims.
The agreements also provide for maintenance of directors’ and officers’ liability insurance.
54
2019 GRANTS OF PLAN-BASED AWARDS
The following table sets forth information concerning grants of plan-based awards for our named executive officers made during 2019.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||
Name | Grant Date | Target | Maximum | Threshold | Target | Maximum | | All Other Stock Awards: Number of Shares of |
| | Grant Date Fair Value of Stock and Option Awards(5) | |||||||||||||||||||||
Dominic J. Frederico |
| Feb. 27, 2019(1) |
|
| $2,500,000 |
|
| $5,000,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
| Feb. 27, 2019(2) |
|
| — |
|
| — |
|
| 22,444 |
|
| 44,888 |
|
| 112,220 |
|
| — |
|
| $2,094,474 |
| |||||||||
| Feb. 27, 2019(3) |
|
| — |
|
| — |
|
| 22,444 |
|
| 44,888 |
|
| 89,776 |
|
| — |
|
| $1,855,670 |
| |||||||||
| Feb. 27, 2019(4) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 59,850 |
|
| $2,474,199 |
| |||||||||
Robert A. Bailenson |
| Feb. 27, 2019(1) |
|
| $1,400,000 |
|
| $2,800,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
| Feb. 27, 2019(2) |
|
| — |
|
| — |
|
| 5,611 |
|
| 11,222 |
|
| 28,055 |
|
| — |
|
| $523,619 |
| |||||||||
| Feb. 27, 2019(3) |
|
| — |
|
| — |
|
| 5,611 |
|
| 11,222 |
|
| 22,444 |
|
| — |
|
| $463,917 |
| |||||||||
| Feb. 27, 2019(4) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 14,963 |
|
| $618,570 |
| |||||||||
Ling Chow |
| Feb. 27, 2019(1) |
|
| $1,050,000 |
|
| $2,100,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
| Feb. 27, 2019(2) |
|
| — |
|
| — |
|
| 3,741 |
|
| 7,481 |
|
| 18,703 |
|
| — |
|
| $349,063 |
| |||||||||
| Feb. 27, 2019(3) |
|
| — |
|
| — |
|
| 3,741 |
|
| 7,481 |
|
| 14,962 |
|
| — |
|
| $309,265 |
| |||||||||
| Feb. 27, 2019(4) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,975 |
|
| $412,367 |
| |||||||||
Russell B. Brewer II |
| Feb. 27, 2019(1) |
|
| $1,050,000 |
|
| $2,100,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
| Feb. 27, 2019(2) |
|
| — |
|
| — |
|
| 4,115 |
|
| 8,229 |
|
| 20,573 |
|
| — |
|
| $383,965 |
| |||||||||
| Feb. 27, 2019(3) |
|
| — |
|
| — |
|
| 4,115 |
|
| 8,229 |
|
| 16,458 |
|
| — |
|
| $340,187 |
| |||||||||
| Feb. 27, 2019(4) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,973 |
|
| $453,624 |
| |||||||||
Bruce E. Stern |
| Feb. 27, 2019(1) |
|
| $1,000,000 |
|
| $2,000,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
| Feb. 27, 2019(2) |
|
| — |
|
| — |
|
| 2,619 |
|
| 5,237 |
|
| 13,093 |
|
| — |
|
| $244,358 |
| |||||||||
| Feb. 27, 2019(3) |
|
| — |
|
| — |
|
| 2,619 |
|
| 5,237 |
|
| 10,474 |
|
| — |
|
| $216,498 |
| |||||||||
| Feb. 27, 2019(4) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6,983 |
|
| $288,677 |
|
|
|
|
55
|
|
56
The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2019.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||
Dominic J. |
| — |
|
| — |
|
| — |
|
| 69,270 |
|
| (1) |
|
| $3,395,615 |
|
| — |
|
| — |
| ||||||||||||
Frederico |
| — |
|
| — |
|
| — |
|
| 122,262 |
|
| (2) |
|
| $5,993,283 |
|
| — |
|
| — |
| ||||||||||||
| — |
|
| — |
|
| — |
|
| 82,237 |
|
| (3) |
|
| $4,031,258 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 164,474 |
|
| (4) |
|
| $8,062,515 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 59,850 |
|
| (5) |
|
| $2,933,847 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22,444 |
|
| (6) |
|
| $1,100,205 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22,444 |
|
| (7) |
|
| $1,100,205 |
| |||||||||||||
Robert A. |
| — |
|
| — |
|
| — |
|
| 16,373 |
|
| (1) |
|
| $802,604 |
|
| — |
|
| — |
| ||||||||||||
Bailenson |
| — |
|
| — |
|
| — |
|
| 28,898 |
|
| (2) |
|
| $1,416,580 |
|
| — |
|
| — |
| ||||||||||||
| — |
|
| — |
|
| — |
|
| 21,453 |
|
| (3) |
|
| $1,051,626 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 42,906 |
|
| (4) |
|
| $2,103,252 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 14,963 |
|
| (5) |
|
| $733,486 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,611 |
|
| (6) |
|
| $275,051 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,611 |
|
| (7) |
|
| $275,051 |
| |||||||||||||
Ling |
| 3,898 |
|
| $21.88 |
|
| 2/5/2021 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||||
Chow |
| — |
|
| — |
|
| — |
|
| 9,296 |
|
| (3) |
|
| $455,690 |
|
| — |
|
| — |
| ||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,592 |
|
| (4) |
|
| $911,380 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 9,975 |
|
| (5) |
|
| $488,975 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,741 |
|
| (6) |
|
| $183,384 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,741 |
|
| (7) |
|
| $183,384 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 2,560 |
|
| (8) |
|
| $125,491 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 4,829 |
|
| (9) |
|
| $236,718 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 9,890 |
|
| (10) |
|
| $484,808 |
|
| — |
|
| — |
| |||||||||||||
Russell B. |
| — |
|
| — |
|
| — |
|
| 13,854 |
|
| (1) |
|
| $679,123 |
|
| — |
|
| — |
| ||||||||||||
Brewer II |
| — |
|
| — |
|
| — |
|
| 24,452 |
|
| (2) |
|
| $1,198,637 |
|
| — |
|
| — |
| ||||||||||||
| — |
|
| — |
|
| — |
|
| 15,732 |
|
| (3) |
|
| $771,183 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 31,464 |
|
| (4) |
|
| $1,542,365 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 10,973 |
|
| (5) |
|
| $537,896 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,115 |
|
| (6) |
|
| $201,717 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,115 |
|
| (7) |
|
| $201,717 |
| |||||||||||||
Bruce E. |
| — |
|
| — |
|
| — |
|
| 8,816 |
|
| (1) |
|
| $432,160 |
|
| — |
|
| — |
| ||||||||||||
Stern |
| — |
|
| — |
|
| — |
|
| 15,560 |
|
| (2) |
|
| $762,751 |
|
| — |
|
| — |
| ||||||||||||
| — |
|
| — |
|
| — |
|
| 11,442 |
|
| (3) |
|
| $560,887 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22,884 |
|
| (4) |
|
| $1,121,774 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| 6,983 |
|
| (5) |
|
| $342,307 |
|
| — |
|
| — |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,619 |
|
| (6) |
|
| $128,383 |
| |||||||||||||
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,619 |
|
| (7) |
|
| $128,383 |
|
57
|
|
|
|
|
|
|
|
|
|
2019 OPTION EXERCISES AND STOCK VESTED
The following table provides information concerning option exercises by, and vesting of restricted stock awards of, our named executive officers during 2019.
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on | Value Realized on Exercise(2) | Number of Shares Acquired on | Value Realized on Vesting(4) | ||||||||||||
Dominic J. Frederico |
| 100,000 |
|
| $2,973,000 |
|
| 308,895 |
|
| $12,834,587 |
| ||||
Robert A. Bailenson |
| 26,835 |
|
| $734,287 |
|
| 67,956 |
|
| $2,823,572 |
| ||||
Ling Chow |
| 8,700 |
|
| $225,434 |
|
| 10,250 |
|
| $423,722 |
| ||||
Russell B. Brewer II |
| — |
|
| — |
|
| 67,956 |
|
| $2,823,572 |
| ||||
Bruce E. Stern |
| 18,202 |
|
| $519,124 |
|
| 43,245 |
|
| $1,796,830 |
|
|
|
|
|
58
NON-QUALIFIED DEFERRED COMPENSATION
The following table sets forth information concerning nonqualified deferred compensation of our named executive officers. The amounts set forth in this table include only contributions made and earnings received during 2019 and do not include contributions and earnings with respect to the 2019non-equity incentive compensation paid in 2020.
Name | Executive Contributions in Last FY(1) | Registrant Contributions in Last FY(2) | Aggregate Withdrawals/ Distributions | Aggregate Earnings in Last FY | Aggregate Balance at Last FYE(3) | |||||||||||||||
Dominic J. Frederico |
| $286,920 |
|
| $573,840 |
|
| — |
|
| $2,550,942 |
|
| $11,610,559 | (4) | |||||
Robert A. Bailenson |
| $142,195 |
|
| $284,390 |
|
| — |
|
| $1,210,151 |
|
| $5,888,060 |
| |||||
Ling Chow |
| $90,348 |
|
| $180,696 |
|
| — |
|
| $399,514 |
|
| $2,425,219 |
| |||||
Russell B. Brewer II |
| $109,723 |
|
| $219,446 |
|
| — |
|
| $258,521 |
|
| $5,018,417 |
| |||||
Bruce E. Stern |
| $86,868 |
|
| $173,736 |
|
| — |
|
| $114,976 |
|
| $2,952,245 |
|
|
|
|
Name | 2019 Amount | 2018 Amount | ||||||
Dominic��J. Frederico |
| $10,448,049 |
|
| $9,458,049 |
| ||
Robert A. Bailenson |
| $2,393,074 |
|
| $2,005,511 |
| ||
Ling Chow |
| $220,500 |
|
| — |
| ||
Russell B. Brewer II |
| $1,453,767 |
|
| $1,139,127 |
| ||
Bruce E. Stern |
| $793,554 |
|
| $555,429 |
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following tables quantify the potential payments upon termination that our named executive officers would receive assuming that the relevant termination event had occurred on December 31, 2019. The last table quantifies the potential payments upon an involuntary termination without cause and a change of control that our named executive officers would receive assuming that both the termination without cause and change in control had occurred on December 31, 2019.
TERMINATION DUE TO DEATH OR DISABILITY
Name | Unvested PRP | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||
Dominic J. Frederico |
| — |
|
| $10,360,720 |
|
| $11,639,440 |
|
| $22,000,160 |
| ||||
Robert A. Bailenson |
| — |
|
| $2,587,717 |
|
| $2,879,933 |
|
| $5,467,650 |
| ||||
Ling Chow |
| $125,000 |
|
| $1,791,681 |
|
| $753,322 |
|
| $2,670,003 |
| ||||
Russell B. Brewer II |
| — |
|
| $1,988,202 |
|
| $2,264,003 |
|
| $4,252,205 |
| ||||
Bruce E. Stern |
| — |
|
| $1,335,354 |
|
| $1,517,303 |
|
| $2,852,657 |
|
|
59
TERMINATION DUE TO RETIREMENT
Name | Unvested PRP | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||
Dominic J. Frederico |
| — |
|
| $6,546,849 |
|
| $11,639,440 |
|
| $18,186,289 |
| ||||
Robert A. Bailenson(2) |
| — |
|
| — |
|
| — |
|
| — |
| ||||
Ling Chow(3) |
| — |
|
| — |
|
| — |
|
| — |
| ||||
Russell B. Brewer II |
| — |
|
| $1,273,986 |
|
| $2,264,003 |
|
| $3,537,989 |
| ||||
Bruce E. Stern |
| — |
|
| $854,098 |
|
| $1,517,303 |
|
| $2,371,401 |
|
|
|
|
TERMINATION WITHOUT CAUSE PAYMENTS (1)
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(2) | Total | ||||||||||||||||||
Dominic J. Frederico |
| $1,250,000 |
|
| $4,278,313 |
|
| $48,044 |
|
| $10,360,720 |
|
| $11,639,440 |
|
| $27,576,517 |
| ||||||
Robert A. Bailenson |
| $700,000 |
|
| $1,785,815 |
|
| $32,190 |
|
| $2,587,717 |
|
| $2,879,933 |
|
| $7,985,655 |
| ||||||
Ling Chow |
| $525,000 |
|
| $986,933 |
|
| $32,190 |
|
| $944,664 |
|
| $753,322 |
|
| $3,242,109 |
| ||||||
Russell B. Brewer II |
| $525,000 |
|
| $1,437,188 |
|
| $19,956 |
|
| $1,988,202 |
|
| $2,264,003 |
|
| $6,234,349 |
| ||||||
Bruce E. Stern |
| $500,000 |
|
| $1,099,296 |
|
| $19,956 |
|
| $1,335,354 |
|
| $1,517,303 |
|
| $4,471,909 |
|
|
|
CHANGE-IN-CONTROL SEVERANCE (1)
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(2) | Total | ||||||||||||||||||
Dominic J. Frederico |
| $1,250,000 |
|
| $4,278,313 |
|
| $48,044 |
|
| $10,360,720 |
|
| $17,634,014 |
|
| $33,571,091 |
| ||||||
Robert A. Bailenson |
| $700,000 |
|
| $1,785,815 |
|
| $32,190 |
|
| $2,587,717 |
|
| $4,404,113 |
|
| $9,509,835 |
| ||||||
Ling Chow |
| $525,000 |
|
| $986,933 |
|
| $32,190 |
|
| $1,791,681 |
|
| $1,558,523 |
|
| $4,894,327 |
| ||||||
Russell B. Brewer II |
| $525,000 |
|
| $1,437,188 |
|
| $19,956 |
|
| $1,988,202 |
|
| $3,389,433 |
|
| $7,359,779 |
| ||||||
Bruce E. Stern |
| $500,000 |
|
| $1,099,296 |
|
| $19,956 |
|
| $1,335,354 |
|
| $2,280,720 |
|
| $5,235,326 |
|
|
|
The salary continuation, cash incentive compensation and benefits columns in the Termination Without Cause Payments table and theChange-in-Control Severance table represent amounts that would be payable to each executive officer under the terms of the severance policy for executive officers. Under the terms of the policy, each named executive officer receives one year of salary, the average of the last three annual cash incentive compensation amounts, apro-rata annual cash incentive compensation payment for the year of termination and one year of benefits which represent medical plan and dental plan premiums paid by our Company at the same level as was paid just prior to termination.
For the purpose of these tables, the value of RSUs and PSUs has been determined by multiplying the number of shares of that would have become vested on December 31, 2019 based on each applicable termination described above and based on target performance
60
or the actual performance determined as if the performance period ended on such date by the closing price of our Common Shares on December 31, 2019, which was $49.02.
In addition to the amounts listed in the tables, upon a termination of employment for any of the reasons described above, the executives would be entitled to distributions from the qualified andnon-qualified defined contribution retirement plans maintained by the Company and affiliates. For the named executive officers, the aggregate qualified andnon-qualified defined contribution retirement account balances as of December 31, 2019 for Mr. Frederico, Mr. Bailenson, Ms. Chow, Mr. Brewer and Mr. Stern are as follows, respectively: $12,644,961, $8,664,917, $4,111,822, $8,774,357 and $4,488,991. Retirement account balances will be paid upon termination in accordance with the terms of the plans, as described below.
If an executive officer had been terminated for cause on December 31, 2019, he or she would not have received any severance payments and would have forfeited all unvested PRP, RSUs and PSUs, receiving only salary payments through the termination date and vested retirement benefits under our Company’s retirement plans.
Severance payments, restricted stock vesting and retirement plan contributions assume no subsequent employment after termination. Certain rights to vesting and distributions following retirement or a termination without cause are subject to continued compliance with applicable restrictive covenants and may be forfeited by the executive in the event of a violation of such covenants (and in certain circumstances, the executive may be required to repay certain amounts in the event of a violation of such covenants).
In 2019, the annual total compensation of Dominic J. Frederico, our President and Chief Executive Officer was $12,153,470. The annual total compensation of our median employee was $255,268. As a result, the ratio of the annual total compensation of our CEO to our median employee was 47.6 to 1.
We identified the median employee by examining the 2019 annual total compensation for all individuals, excluding our CEO, who were employed by us on December 31, 2019, other than the approximately 116 employees of BlueMountain and associated entities, which we acquired on October 1, 2019. Except for such excluded employees, which we refer to as BlueMountain employees, we included all employees, whether employed on a full-time or part-time basis, and including allnon-BlueMountain employees resident outside of the U.S. We did not make any assumptions, adjustments or estimates with respect to annual total compensation. We annualized the compensation for any full-timenon-BlueMountain employees who were not employed by us for all of 2019. We calculated the total compensation for our CEO and all of ournon-BlueMountain employees excluding our CEO using the same methodology we use to calculate Total Annual Compensation for our named executive officers as set forth in the 2019 Summary Compensation table on page 52 earlier in this proxy statement.
NON-QUALIFIED RETIREMENT PLANS
All the executive officers participate in anon-qualified defined contribution retirement plan through an26 Assured Guaranty employer. These plans generally permit distributions only following a participant’s termination of employment, and each of the plans imposes some additional restrictions on distributions as described below. A change in control under the current provisions of these plans does not entitle a participant to payment. Below is an overview of each plan.
AG US GROUP SERVICES INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (AGUS SERP)
The AG US Group Services Inc. Supplemental Executive Retirement Plan, which we refer to as the AGUS SERP, is a2022 Proxy Statement
A participant does not vest in employer contributions until he or she has completed one year of service, but the participant will vest earlier if he or she dies or attains age 65 while employed by a specified Assured Guaranty employer.
Distribution of a participant’s account balances will be made as a lump sum. However, a participant may elect to receive payment of his or her account balances in annual installments over a period not exceeding five years, but only if, at the time of termination, the participant has attained age 55 and completed at least five years of service, and the amount of the participant’s account balances is at least $50,000.
A participant who is considered to be a specified employee as defined in Section 409A of the Internal Revenue Code and whose payment of benefits begins by reason of termination of employment may not begin to receive such payment until six months after termination of employment.
61
All the executive officers have previously received awards pursuant to our Company’s long-term incentive plan and in prior years received awards under our Company’s PRP. For the 2018 performance year, in 2019, the executive officers received a grant of performance share units and RSUs as described below, but did not receive a grant of PRP. Below is an overview of the plans.
ASSURED GUARANTY LTD. 2004 LONG-TERM INCENTIVE PLAN
The 2004 Long-Term Incentive Plan, as amended, provides for the grant ofnon-qualified and incentive stock options, stock appreciation rights, full value awards, which include awards such as restricted shares, RSUs or performance share units, and cash incentive awards to employees selected by the Compensation Committee. The Compensation Committee specifies the terms of the award, including the vesting period applicable to the award, at the time it grants the award to the employee, and includes the terms in an award agreement between the employee and our Company.
PSUs were granted in 2017 through 2020 that will vest at the end of a three-year performance period if certain performance conditions are satisfied (for PSUs granted through 2018, based on the highest40-day average share price during the last eighteen months of such period exceeding certain share price hurdles, and for PSUs granted in 2019 and 2020, based on growth in core adjusted book value per share relative to a target and on TSR relative to the Index) and if the participant continues to be employed through the end of such three-year period, with limited exceptions as described below.
The participant is entitled topro-rata vesting of the performance share units in the event of termination prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or, a voluntary termination due to retirement, if certain requirements are met and if, and only to the extent that, the performance conditions are satisfied at the end of the applicable performance period. In the event of a change in control, the performance share units vest only to the extent that the performance conditions are satisfied at the time of the change in control and only if the participant remains employed through the end of the three-year performance period, provided, however that the vesting of the performance share units shall be accelerated following such change in control in the event of termination following the change in control but prior to the end of the vesting period due to death or disability, an involuntary termination without cause, a voluntary termination for good reason or in the event that the acquirer does not agree to continue such award following the change in control.
RSUs were granted from 2017 through 2020 that will vest at the end of a three-year vesting period if the participant remains employed through the end of such period. Such vesting may be accelerated in the event of termination prior to the end of the vesting period due to death or disability or in the event of a change in control where the acquirer does not agree to continue such award following the change in control. Additionally, the participant may remain entitled to continued vesting of such RSUs following an involuntary termination without cause, a voluntary termination for good reason or a voluntary termination due to retirement during the vesting period if certain requirements are met, including the participant signing of a release of claims against our Company and continuing to comply with applicable restrictive covenants.
ASSURED GUARANTY LTD. PERFORMANCE RETENTION PLAN
The Performance Retention Plan was established in 2006 to permit the grant of cash-based awards to selected employees and give to the Compensation Committee greater flexibility in establishing the terms of performance retention awards, including the ability to establish different performance periods and performance objectives. PRP awards may be treated as nonqualified deferred compensation subject to the rules of Section 409A of the Internal Revenue Code. The PRP is asub-plan under our Company’s Long-Term Incentive Plan (enabling awards under the plan to be performance based compensation exempt from the $1 million limit on tax deductible compensation).
From 2008 through 2014, our Company integrated PRP awards into its long-term incentive compensation program for the executive officers and certain selected employees. The executive officers stopped receiving PRP awards beginning in 2015 and the last outstanding PRP award to anyone who was an executive officer as of December 31, 2017 vested on December 31, 2017. However, Ms. Chow was granted PRP awards before becoming an executive officer, including in February 2017, so her last PRP award is expected to vest on December 31, 2020. Generally, for outstanding awards granted before 2020, each PRP award is divided into three installments, with 25% of the award allocated to a performance period that includes the year of the award and the next year, 25% of the award allocated to a performance period that includes the year of the award and the next two years, and 50% of the award allocated to a performance period that includes the year of the award and the next three years. Each installment of an award vests if the participant remains employed through the end of the performance period for that installment (or vests on the date of the participant’s death, disability, or retirement if that occurs during the performance period). Payment for each performance period is made at the end of that performance period. One half of each installment is increased or decreased in proportion to the increase or decrease of core ABV per share during the performance period, and one half of each installment is increased or decreased in proportion to the core operating ROE during the performance period. However, if, during the performance period, a participant dies or becomes permanently disabled while employed, the amount for any such incomplete performance period shall equal the portion of the award allocated to such performance period. Core operating ROE and core ABV are defined in each PRP award agreement.
62
EQUITY COMPENSATION PLANS INFORMATION
The following table summarizes our equity compensation plans as of December 31, 2019:
Plan category | Number of exercise of | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by security holders |
| 90,351(1) |
| $ | 20.68 |
|
| 9,569,997(2) |
| |||
Equity compensation plans not approved by security holders |
| N/A |
|
| N/A |
|
| N/A |
| |||
TOTAL |
| 90,351 |
| $ | 20.68 | 9,569,997 |
|
|
63
•each Audit Committee member is independent, as that concept is defined in Section 10A of the Exchange Act, the SEC rules promulgated thereunder, and the NYSE listing standards, of our Company and our management;
•each Audit Committee member is financially literate, as contemplated by the NYSE listing standards; and
each•five Audit Committee member is anmembers, Mss. Howard and Shea and Messrs. Buhl, Jones and O'Kane, are audit committee financial expert,experts, as that term is defined under Item 407(d) ofRegulation S-K.
•the firm’s internal quality-control procedures;
•any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation of the firm by governmental or professional authorities, within the preceding five years, and any steps taken to deal with any such issues; and
64
to assess•an assessment of the independent auditors’ independence alland relationships between the independent auditor and the Company.
2022.
•reviewed and discussed the audited financial statements contained in theForm 10-K with management and PwC;
•reviewed and discussed our quarterly earnings press releases and related materials;
•reviewed the overall scope and plans for the internal and independent audits and the results of such audits;
•reviewed critical accounting estimates and policies and the status of our loss reserves;
•reviewed and discussed our compliance with our conflict of interest, regulatory compliance and global code of conductethics policies with the General Counsel, or Chief Compliance Officer and/or Deputy Compliance Officer;
•reviewed and discussed our underwritingenterprise risk management and risk managementinsurance underwriting with the Chief Risk Officer, the Chief Surveillance Officer and the Chief Credit Officer, coordinating the oversight of underwritingenterprise risk management and risk managementinsurance underwriting with the Risk Oversight Committee;
•reviewed and discussed cybersecurity and privacy matters with our Chief Information Security Officer;
•reviewed our whistleblower policy and its application;
•discussed with PwC all the matters required to be discussed by U.S. GAAP, including the matters required to be discussed by the applicable requirements of the Public Accounting Oversight Board and the SEC, such as:
|
|
|
|
|
|
–PwC’s judgments about the quality, not just the acceptability, of our Company’s accounting principles as applied in our financial reporting;
•reviewed all other material written communications between PwC and management; and
65
At each meeting, the Audit Committee meets in executive session (i.e.(i.e., without management present) with representatives of PwC to discuss the results of their examinations and their evaluations of our internal controls and overall financial reporting. Similar executive sessions are held at least semi-annually with representatives of E&Y.EY. In addition, the Audit Committee meets regularly with certain members of senior management in separate sessions.
Summary _______________________________ | 31 | ||||
2021 Achievements Highlights _____________ | 31 | ||||
Our Total Shareholder Return _____________ | 33 | ||||
2021 Results Against Financial Performance Targets _____________________________ | 35 | ||||
Snapshot of Our CEO’s 2021 Compensation _ | 35 | ||||
Executive Compensation Program Structure and Process __________________________ | 36 | ||||
Overview of Philosophy and Design ________ | 36 | ||||
Shareholder Outreach on Our Executive Compensation Program ________________ | 38 | ||||
The Decision-Making Process _____________ | 39 | ||||
Components of Our Executive Compensation Program ____________________________ | 40 | ||||
CEO Performance Review _________________ | 48 | ||||
Overview ______________________________ | 48 | ||||
Base Salary ___________________________ | 49 | ||||
Cash Incentive _________________________ | 49 | ||||
Equity Compensation ____________________ | 55 | ||||
Perquisites ____________________________ | 56 | ||||
Other Named Executive Officer Compensation Decisions ____________________________ | 56 | ||||
Non-Financial Objectives and Achievements of the Other Named Executive Officers ____ | 56 |
Compensation Decisions for the Other Named Executive Officers _______________________ | 58 | ||||
Separation Agreement ______________________ | 59 | ||||
2021 Executive Compensation Conclusion______ | 60 | ||||
Compensation Governance __________________ | 60 | ||||
The Role of the Board’s Compensation Committee _____________________________ | 60 | ||||
The Role of the Independent Consultants ______ | 60 | ||||
Executive Compensation Comparison Group ___ | 61 | ||||
Executive Officer Recoupment Policy and Related Forfeiture and Termination for Cause Provisions _____________________________ | 61 | ||||
Share Ownership Guidelines ________________ | 62 | ||||
Anti-Hedging Policy _______________________ | 63 | ||||
Anti-Pledging Policy _______________________ | 63 | ||||
Award Timing ____________________________ | 63 | ||||
Post-Employment Compensation _____________ | 64 | ||||
Retirement Benefits _______________________ | 64 | ||||
Severance ______________________________ | 64 | ||||
Change in Control Benefits _________________ | 64 | ||||
Tax Treatment _____________________________ | 64 | ||||
Non-GAAP Financial Measures _______________ | 65 |
We achieved robust new business production in our insurance segment despite historically low interest rates, with contributions from our U.S. public finance, non-U.S. public finance (including infrastructure) and global structured finance business. •Gross written premiums were $377 million, while our new business production in the insurance segment, a non-GAAP financial measure we refer to as PVP,* was $366 million. •In U.S. public finance, our primary insurance market, we insured 5.0% of par issued out of the entire U.S. new issue municipal market, up substantially from 4.4% in 2020, and the most since 2011. With a more than 60% share of new-issue insured par, we led the municipal bond insurance industry to its highest market penetration in a dozen years. •Also in the U.S. public finance market, we insured 48 transactions with over $100 million of par, more than in any full year over the past decade and a nearly 25% increase from the 39 such transactions we insured in 2020. (We focus on such transactions as a good barometer of institutional demand for our product.) •In the non-U.S. public finance market, we generated $79 million of PVP. •In the structured finance market, we produced nearly $47 million of PVP, the second-highest PVP in over a decade (excluding a portfolio reinsurance transaction). |
We continued to develop our Assured Investment Management (AssuredIM) brand. •Despite the COVID-19 pandemic, we raised $3.0 billion of inflows of third-party AUM. •We issued $2.6 billion in new collateralized loan obligations, which we refer to as CLOs. •As a result of both inflows of third-party AUM and ending certain rebates, we increased our fee-earning assets under management by 28%. •In addition, we are using the knowledge base and experience of AssuredIM to expand the categories and types of investments included in our investment portfolio. Capital invested in AssuredIM funds generated $80 million in pretax equity in earnings, nearly double the $42 million generated in 2020, and representing a blended return of 20.8% in 2021. |
We further managed our capital, by returning excess capital to our shareholders and by reducing the average coupon on $600 million of long-dated debt by issuing new debt. •We returned approximately $562 million during 2021 through repurchasing Common Shares ($496 million) and distributing dividends ($66 million). •Over the last nine years, we have distributed approximately $4.8 billion to our shareholders through Common Share repurchases and dividends; and we have repurchased approximately 68% of our Common Shares outstanding at December 31, 2012, which was just before we began our Common Share repurchase program. In 2021 alone, we repurchased approximately 14% of the Common Shares we had outstanding at the beginning of 2021. •We issued $500 million of 10-year Senior Notes at a rate of 3.15% in May and issued $400 million of 30-year Senior Notes at a rate of 3.6% in August. Most of the proceeds of these debt offerings were used to redeem $600 million of long-dated debt obligations, and the remaining proceeds were used primarily for share repurchases. We reduced the average coupon on $600 million of our debt from 5.89% to 3.35%. |
Cumulative TSR from 12/31/16 | Assured Guaranty | Executive Compensation Comparison Group | S&P 500 Index | S&P 500 Financials Index | Russell MidCap Financial Services Index | ||||||||||||
12/31/2016 | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | ||||||||||||
12/31/2017 | 90.96 | 114.10 | 121.82 | 122.14 | 116.62 | ||||||||||||
12/31/2018 | 104.56 | 97.49 | 116.47 | 106.21 | 104.91 | ||||||||||||
12/31/2019 | 136.07 | 130.66 | 153.13 | 140.30 | 140.11 | ||||||||||||
12/31/2020 | 89.89 | 129.22 | 181.29 | 137.83 | 147.03 | ||||||||||||
12/31/2021 | 145.94 | 160.02 | 233.28 | 185.90 | 199.75 | ||||||||||||
02/28/2022 | 180.15 | 153.76 | 214.58 | 183.48 | 194.82 |
Period Ending 02/28/2022 | Executive Compensation Comparison Group Average TSR | Assured Guaranty TSR | ||||||
14 months | 18.99% | 100.42% | ||||||
38 months | 57.72% | 72.29% | ||||||
62 months | 53.76% | 80.15% | ||||||
Calculated from total returns published by Bloomberg. |
FINANCIAL PERFORMANCE MEASURES | 2021 TARGETS | 2021 RESULTS | BELOW TARGET | ABOVE TARGET | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Income per Diluted Share* | $3.62 | $5.91 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Return on Equity* | 4.6% | 7.3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Operating Shareholders’ Equity per Share* | $82.90 | $88.26 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core Adjusted Book Value per Share* | $122.60 | $130.33 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PVP | $475 million | $361 million | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Third-Party Assets Raised | $2.7 billion | $3.0 billion | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
n | Performance-Based Equity1 | ||||
n | Time-Based Equity1 | ||||
n | Performance-Based Cash Incentive | ||||
n | Fixed Compensation-Base Salary |
2021 Performance Year Compensation | 2020 Performance Year Compensation | Change from 2020 to 2021 Perf. Year | ||||||||||||||||||
Fixed Compensation—Base Salary (1) | $ 1,250,000 | $ 1,250,000 | — | % | ||||||||||||||||
Incentive Compensation | ||||||||||||||||||||
Cash Incentive Compensation | $ 3,454,988 | $ 2,979,625 | 16.0 | % | ||||||||||||||||
Long-Term Performance-Based Equity | $ 4,350,000 | (2) | $ 4,200,000 | (2) | 3.6 | % | ||||||||||||||
Long-Term Time-Based Equity | $ 2,900,000 | (2) | $ 2,800,000 | (2) | 3.6 | % | ||||||||||||||
Total Direct Compensation | $11,954,988 | $11,229,625 | 6.5 | % |
Pay for Performance | Accountability | Alignment | Retention | ||||||||
by providing an incentive for exceptional performance and the possibility of reduced compensation if executives are unable to successfully execute our strategies | for short- and long- term performance | with shareholder interests | of highly qualified executives with financial guaranty and asset management experience |
Principal Elements of Executive Compensation Package | Purpose | ||||
Base Salary | Based on responsibilities, skill set and experience, and market measures | ||||
Cash Incentive Compensation | Cash reward for performance against annual financial performance targets and progress against strategic non-financial objectives that we expect to drive our growth over the medium to long term | ||||
Equity Incentives | 60% in performance restricted share units, which we refer to as PSUs, that may be earned over a 3-year performance period based on performance targets, and are paid at the end of the 3-year performance period if particular performance targets are achieved, with half of the PSUs (or 30% of the long-term equity incentive) being based on growth in our Core Adjusted Book Value per share, and half of the PSUs (or 30% of the long-term equity incentive) being based on our TSR, relative to the 55th percentile of the Russell Midcap Financial Services Index 40% in restricted share units, which we refer to as RSUs, that cliff vest at the end of a 3-year period |
Step 5: Seek input from the independent consultant concerning CEO pay. Our Compensation Committee considers FW Cook’s analysis of the compensation paid to executive officers in our executive compensation comparison group when evaluating the compensation of our senior leadership team. The role of FW Cook is described in more detail below under “Compensation Governance—the Role of the Independent Consultants.” | |||||||||||||||||||||||||||||
Step 4: Analyze trends among comparison companies. Our Compensation Committee considers market pay levels and trends based on information FW Cook provides about comparison companies. | |||||||||||||||||||||||||||||
Step 3: Review the individual performance and contributions of each member of our senior leadership team. Our Compensation Committee reviews the individual performance objectives for our CEO and each other member of our senior leadership team, and assesses each person’s performance and contributions. For the members of our senior leadership team other than our CEO, our Compensation Committee considers individual performance assessments and compensation recommendations from our CEO, as well as succession planning and retention issues in this unique segment of the financial services industry. | |||||||||||||||||||||||||||||
Step 2: Assess Company Performance. Our Compensation Committee reviews our corporate financial performance targets for the performance year and discusses our full-year financial and strategic performance at length, seeking to understand what was accomplished relative to established objectives, how it was accomplished, and the quality of the financial results. | |||||||||||||||||||||||||||||
Step 1: Establishment of financial performance goalsand non-financial objectives. At or prior to the beginning of each performance year, our Compensation Committee discusses our Company’s business plan at length and establishes corporate financial goals for the upcoming performance year. Our Compensation Committee also discusses the strategic direction of our Company and establishes non-financial objectives it expects to drive our growth over the medium to long term. |
Core operating income per diluted share | enables us to evaluate the amount of income we are generating in our business without certain items, primarily non-economic fluctuations and movements in fair value, foreign exchange movements related to long dated receivables and payables, and other adjustments, as well as removing the impact of consolidating VIEs. | |||||||
Core operating ROE | represents core operating income for a specified period divided by the average of core operating shareholders’ equity at the beginning and the end of that period. This measure enables us to evaluate our return on equity. | |||||||
Core operating shareholders’ equity per share | presents our equity excluding non-economic fair value adjustments as well as the impact of consolidating VIEs. Core operating shareholders’ equity per share is the basis of the calculation of core adjusted book value, which we refer to as Core ABV, per share, as described below. | |||||||
Core ABV per share | reflects our core operating shareholders’ equity, plus unearned premiums in excess of expected losses, plus future estimated revenues from contracts other than financial guaranty insurance contracts (such as specialty insurance contracts and credit derivatives), less deferred acquisition costs. This measure enables us to measure our intrinsic value, excluding our franchise value. | |||||||
PVP | represents the estimated value of new business production in our insurance segment. PVP takes into account upfront premiums and the present value of estimated future installment premiums using a consistent discount rate on all new contracts written in a reporting period. | |||||||
Gross third-party assets raised | represents the gross increase in AUM, from sources other than our subsidiaries (but includes assets from employees and former employees). It represents sales of CLOs, as well as gross increases in funded and unfunded commitments in funds managed by AssuredIM, which we refer to as AssuredIM Funds, during the year. Gross third-party assets raised would also include gross third-party assets obtained in strategic transactions. Gross third-party assets raised increases the total AUM on which we earn recurring asset management fees. We also sometimes refer to this measure as inflows of third-party AUM. |
Core Operating Income per Diluted Share and Core Operating Return on Equity. Our Compensation Committee set the financial performance targets for core operating income per diluted share and core operating return on equity for the 2021 performance year materially higher than the 2020 actual results. These targets were particularly challenging when considering the unique earnings model of the financial guaranty insurance industry. When a financial guarantor writes a new financial guaranty policy, it does not earn the full amount of the premium immediately; rather, when a policy is written, the upfront premium it receives (plus the present value of future premiums) is recorded on its balance sheet as the unearned premium reserve, which we refer to as the UPR. This UPR is earned over the term of the insured obligation, often as long as 20, 30 or even 40 years. For example, only approximately 3% of the premiums we earned in 2021 related to new financial guaranty policies we wrote in 2021, and the rest was earned from our previously established UPR. Because the volume and pricing of new financial guaranty business written in a particular year has only a small impact on premium earnings for that year, most of our operating income from our core financial guaranty business may be forecast based on projections with respect to the very significant UPR that we earn as our insured portfolio amortizes. Despite the relative predictability of the contribution of our primary financial guaranty business to our core operating income per diluted share and core operating return on equity, we consider the financial performance goals we set for these measures to be challenging due to potential uncertainties in the broader market and environment. Those uncertainties include unexpected loss development, level of refunding activity, unexpected mark-to-market movements of investments in alternative investments, and unexpected changes to investment rates. In addition, variability of our share price and availability of funds for share repurchases may add to the challenges of reaching these goals. Our core operating ROE is also negatively impacted by the amount of excess capital we continue to have. Despite the strides we have made in managing our capital (see “Summary – 2021 Achievement Highlights” above), we believe we still have excess capital that we need regulatory approval to deploy, and therefore are constrained in our ability to improve our capital efficiency and our core operating ROE. |
Core Operating Shareholders’ Equity Per Share and Core Adjusted Book Value Per Share. Our Compensation Committee also wants to encourage our senior leadership team to build intrinsic value in our Company over time for our shareholders, so our Compensation Committee sets targets for core operating shareholders’ equity per share and core adjusted book value per share. Our Compensation Committee believes these measures best capture the long-term value we are building for our shareholders and that growth in these measures will eventually result in growth in the price of our Common Shares. Our Compensation Committee believes that core adjusted book value per share, in particular, is such an important measure of the intrinsic value we are building for our shareholders that our Compensation Committee has made this measure a component of both our short-term and long-term incentive programs. Our Compensation Committee believes that this will motivate our senior leadership team to focus on growth in this measure in both the short and long term, and that eventually growth in the price of our Common Shares will follow. |
PVP. Our annual business plan for 2021 challenged our senior leadership team to originate more financial guaranty business in 2021 than the financial guaranty business we originated in 2020. Our most direct measurement of new insurance business origination is PVP. We set our 2021 PVP target nearly 22% higher than our our 2020 actual results. |
Gross Third-Party Assets Raised. Our Compensation Committee set this target nearly 69% higher than 2020 actual results. Our Compensation Committee believes that gross third-party assets raised eliminates the “noise” of the reduction of AUM attributable to the wind-down business and is an appropriate metric against which to weigh the success of management’s efforts to grow our asset management business. |
Annual Individual Target Cash Incentive Amount | X | Annual Achievement Score (a percentage from 0% to 200%) | = | Annual Cash Incentive Payout | ||||||||||||||||||||||||||||||||||
( | 2021 Base Salary | X | 2021 Individual Target Cash Incentive Multiple | ) | X | ( | 2021 Financial Target Achievement Score (weighted 67%) | + | 2021 Non-Financial Objective Achievement Score (weighted 33%) | ) | = | 2021 Cash Incentive Payout |
FINANCIAL PERFORMANCE GOALS | 2014 Results | 2021 Results | ||||||||||||
Core Operating Income per Diluted Share | $2.83 | $5.91 | ||||||||||||
Core Operating Return on Equity | 8.1 | % | 7.3 | % | ||||||||||
Core Operating Shareholders’ Equity per Share | $37.48 | $88.26 | ||||||||||||
Core Adjusted Book Value per Share | $53.78 | $130.33 | ||||||||||||
PVP | $172 million | $361 million | ||||||||||||
Gross Third-Party Assets Raised | NA | $3.0 billion |
Each ABV PSU represents the right to receive up to two of our Common Shares at the end of a three-year performance period, which runs from January 1 of the year of the grant to December 31 three years later, depending on the growth in Core ABV per share over the three-year performance period. •The target growth rate is an aggregate of 15% over that three-year period, for which the recipient earns one Common Share for each ABV PSU. •At 80% of the target growth (or 12%), which we refer to as the threshold, the recipient earns one-half share for each ABV PSU; for growth rates below that amount, the recipient earns no Common Shares. •At 120% of the target growth (or 18%) or above, which we refer to as the maximum, the recipient earns two of our Common Shares for each ABV PSU. For Core ABV per share growth rates between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each ABV PSU is based on straight-line interpolation. |
Each Relative TSR PSU represents the right to receive up to 2.5 (for extraordinary performance at the 95th percentile) of our Common Shares at the end of a three-year performance period, which runs from January 1 of the grant year to December 31 three years later, depending on the performance of our TSR over that three-year period relative to the TSR of the Russell Midcap Financial Services Index, which we refer to as the Index. •The target Company TSR for that period is the 55th percentile of the Index, for which the recipient earns one Common Share for each Relative TSR PSU. •At the 25th percentile of the Index, which we refer to as the threshold, the recipient earns one-half share for each Relative TSR PSU; for Company TSRs below that level, the recipient earns no Common Shares. •A Company TSR at the 95th percentile of the Index, which we refer to as the maximum, or above earns the recipient 2.5 of our Common Shares for each Relative TSR PSU. For Company TSRs between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each Relative TSR PSU is based on straight-line interpolation. The Compensation Committee adopted the following additional restrictions on the Relative TSR PSUs: •The number of Common Shares that can be earned is capped at one share per Relative TSR PSU if the Company TSR is negative, even if above the 55th percentile. •Common Shares earned pursuant to the Relative TSR PSUs remain restricted until one year after they vest. |
Each restricted share unit represents a right to receive one of our Common Shares at the end of a three-year vesting period as described below under “Incentive Plans—Assured Guaranty Ltd. 2004 Long-Term Incentive Plan”. |
2021 Performance Year Compensation | 2020 Performance Year Compensation | 2019 Performance Year Compensation | Change from 2020 to 2021 | |||||||||||||||||||||||
Fixed Compensation—Base Salary (1) | $1,250,000 | $1,250,000 | $1,250,000 | — | % | |||||||||||||||||||||
Incentive Compensation | ||||||||||||||||||||||||||
Cash Incentive Compensation | $3,454,988 | $2,979,625 | $3,727,000 | 16.0 | % | |||||||||||||||||||||
Long-Term Performance-Based Equity | $4,350,000 | (2) | $4,200,000 | (2) | $4,050,000 | (2) | 3.6 | % | ||||||||||||||||||
Long-Term Time-Based Equity | $2,900,000 | (2) | $2,800,000 | (2) | $2,700,000 | (2) | 3.6 | % | ||||||||||||||||||
Total Direct Compensation | $11,954,988 | $11,229,625 | $11,727,000 | 6.5 | % |
2021 Targets | 2021 Results | Weighting | 2021 Achievement Score (0%-200%) | Weighted Achievement Score | |||||||||||||
Financial Performance Measurements* | |||||||||||||||||
Core operating income per diluted share | $3.62 | $5.91 | 11.17% | 165% | 18.4% | ||||||||||||
Core operating ROE | 4.6% | 7.3% | 11.17% | 170% | 19.0% | ||||||||||||
Core operating shareholders’ equity per share | $82.90 | $88.26 | 11.17% | 110% | 12.3% | ||||||||||||
Core ABV per share | $122.60 | $130.33 | 11.17% | 110% | 12.3% | ||||||||||||
PVP | $475 million | $361 million | 11.17% | 75% | 8.4% | ||||||||||||
Gross third-party assets raised | $2.7 billion | $3.0 billion | 11.17% | 105% | 11.7% | ||||||||||||
Total Financial Performance Measurement Achievement Score | 67.0% | 82.1% |
Non-Financial Objectives | 2021 Results | ||||
Insurance Growth—Articulate clear strategy and lead effective implementation of business plan to grow financial guaranty and related business globally •Expand U.S. public finance financial guaranty business •Expand global infrastructure financial guaranty business •Expand global structured finance financial guaranty business •Attempt to purchase bond insurance portfolios if they become available for purchase •Maintain strong financial strength ratings at insurance companies to facilitate articulated business strategies and periodically assess the financial strength ratings of each insurance company to determine whether to request that a rating agency add or drop a rating from that company | Underwrote a total of $361 million of PVP despite continued low interest rates and credit spreads, as follows: •$235 million of U.S. Public Finance PVP •$79 million of International PVP •$47 million of Global Structured Finance PVP U.S. Public Finance: •As a result of increased institutional demand for our insurance, in 2021, we insured $22.6 billion of new issue par on 1,076 individual transactions (including the Citi Field and Miami Seaport transactions, where we insured $609 million and $800 million of gross par, respectively) •Industry insured penetration rose to 8.2% of municipal par insured for 2021 in the primary market, the highest in a dozen years •The $22.6 billion that we insured in the primary market in 2021 was 15% higher than 2020, and 62% higher than 2019 (the last year not affected by the pandemic), and our highest insured par in a decade International Public Finance: •Wrote $79 million of PVP, representing the third largest amount in over a decade, including the guarantee of a student housing transaction with University of Essex ($156 million par) •Sustained trend started in the fourth quarter of 2015 of writing new business in each quarter; opportunities continue to support our targets Global Structured Finance: •Wrote $47 million of PVP, representing the second largest amount in over a decade (excluding a portfolio reinsurance transaction) • |
Non-Financial Objectives | 2021 Results | ||||
Insurance Loss Mitigation and Avoidance—Proactively manage financial guaranty portfolio to identify and avoid losses when stress develops and minimize losses when losses cannot be avoided •Use all available levers to creatively resolve Puerto Rico credits while minimizing losses to the Company | •Completed two plan support agreements with the Federal Oversight Management Board for Puerto Rico and other important stakeholders in 2021, covering 74% of the insured Puerto Rico debt outstanding on December 31, 2021 •Significantly improved expected recoveries and performance of RMBS portfolio | ||||
Asset Management and Alternative Investments—Lead effective implementation of asset management and alternative investment strategies •Grow assets under management (AUM) organically and/or through acquisitions •Improve yield on investment portfolio by investing a portion of excess capital in alternative investments | •Raised $3.0 billion of inflows of third-party AUM, and now manage $16.1 billion in third-party AUM •Reduced AUM of wind down funds by 64% from $1,623 million to $582 million •Increased CLO fee-earning AUM and the recovery of previously deferred CLO fees, resulting in a 109% increase in CLO fees •Committed $209 million in additional insurance company capital into AssuredIM funds, bringing total committed capital in AssuredIM funds to $702 million •Capital invested in AssuredIM Funds generated $80 million in pretax equity in earnings, representing a blended return of 20.8% •Other alternative investments (not AssuredIM Funds) contributed $64 million in pretax equity in earnings | ||||
Capital Management—Articulate clear strategy to maintain optimal capital structure, considering internal risk measures and rating agency and regulatory requirements •Accumulate capital outside of insurance companies to support asset management and other strategies •Return excess capital to shareholders | •Returned $562 million to our shareholders — $496 million by repurchasing 10.5 million of our Common Shares and $66 million through dividends •Issued $500 million of 10-year Senior Notes at an attractive rate of 3.15% in May and issued $400 million of 30-year Senior Notes at an attractive rate of 3.6% in August, benefiting the Company by (i) reducing the average coupon on $600 million of our debt from 5.89% to 3.35%, resulting in a $5.2 million annual debt service savings until the next debt maturity date; (ii) reducing the amount of debt coming due in 2024; and (iii) using some of the debt proceeds for share repurchases, all without significantly affecting leverage or interest coverage ratios |
Non-Financial Objectives | 2021 Results | ||||
Regulatory—Maintain optimal corporate and regulatory structure and good standing to pursue the articulated business strategies | •Completed merger of Municipal Assurance Corp. into Assured Guaranty Municipal Corp. on April 1, 2021, which simplified corporate structure and increased dividend capacity •Obtained approval for $250 million of insurance company assets to be drawn over a two-year period into AssuredIM Funds •Obtained approval for new Assured Guaranty Municipal and Assured Guaranty Corp. quota share reinsurance agreement •Obtained approval for arrangements supporting renewed European structured finance underwriting | ||||
Risk Management—Ensure that the Company has comprehensive, best-practice risk management with respect to all of its activities •Insure credits of good quality consistent with underwriting guidelines and consistent with risk appetite statement •Articulate and execute thorough enterprise risk management program | •No unanticipated risk issues •Enhanced underwriting procedures to identify insurable credits with ample financial strength to withstand crisis caused by the COVID-19 pandemic; all new business within risk limits and risk appetite statement •Updated stress analysis of the pandemic’s impact on the insured portfolio; liquidity claims for 2021 remained nominal •Participated in periodic conference calls with regulators to focus on (i) Assured Guaranty’s processes for monitoring and reevaluating its exposure in light of changing economic conditions, (ii) any changes in the ability of obligors, especially municipal obligors, to make scheduled debt payments, and (iii) Assured Guaranty’s liquidity and solvency position under adverse stress scenario •Successful testing of Business Continuity Plan in 2021, as employees have been able to effectively work remotely since mid-March of 2020 | ||||
Operations—Establish an environment of excellence in all areas of operations, including investment management, accounting and financial reporting, and legal and compliance, and provide a secure information technology environment | •All financial statements and regulatory reports completed successfully and filed on time •Transitioned IT team to our new CTO while pivoting to a hybrid work schedule and layering pandemic response atop existing IT mandates •Successful Annual General Meeting, with shareholders supporting all proposals, including over 92% support of compensation paid to named executive officers •Extensive support and collaboration with IT Security to identify, analyze and address issues related to cybersecurity events •Successfully passed IT penetration testing •Successfully avoided ransomware and security attacks •Successful integration of AssuredIM IT systems, compliance regime, and office space •Successfully automated legacy accounting and investment accounting and reporting systems |
Non-Financial Objectives | 2021 Results | ||||
Human Capital Management – Attract and retain talented employees, invest in the development of our people and strive for a diverse work force and an inclusive culture | •Expanded recruiting process in an effort to reach a more diverse slate of candidates •Created and funded a strategic initiative to enhance educational opportunities for underserved populations in the New York City area as just one part of our philanthropic activities in support of our communities •Established Employee Resource Groups for Black / African American employees, women, and working parents •Issued statements (i) condemning religious hate crimes and discrimination, and (ii) opposing violence and discrimination against Asian American and Pacific Islander (AAPI) communities, and made contributions to various organizations that work to promote a more equitable society | ||||
Environmental and Social Responsibility – Pursue clear strategies for assessing and mitigating the long-term impact of climate change on the Company’s businesses, and pursue opportunities to be a good corporate citizen | •Measured and disclosed greenhouse gas (GhG) emissions; GhG methodology and results are independently verified •Developed new underwriting criteria to address climate change risk •Created AssuredIM and Assured Healthcare Partners Environmental, Social and Governance (ESG) statements; conducted annual ESG review of investment portfolio •Developing an analysis of risk aggregation of the insured portfolio along the coastline for rising sea levels and hurricane 5 risks •Created employee-led Diversity and Inclusion (D+I) Committee •Held bias awareness training sessions for entire firm and continued work with D+I committee to expand employee diversity and provide for an inclusive corporate culture •Held D+I hosted events throughout the year |
Weighting | 2021 Achievement Score (0%-200%) | Weighted Achievement Score | |||||||||
Total Financial Performance Measurement Achievement Score (Summarized on page 50 above.) | 67% | 122.5% | 82.1% | ||||||||
Non-Financial Objective Score | 33% | 170% | 56.1% | ||||||||
Achievement Score | 138.2% |
Compensation Committee Target Nominal Value | Equity Granted (Shares) | U.S. GAAP Value | |||||||||
ABV PSUs | $2,175,000 | 40,055 | $2,270,718 | ||||||||
Relative TSR PSUs | $2,175,000 | 40,055 | $3,363,418 | ||||||||
RSUs | $2,900,000 | 53,407 | $3,027,643 | ||||||||
TOTAL | $7,250,000 | 133,517 | $8,661,779 |
( | 2021 Base Salary | X | 2021 Individual Target Cash Incentive Multiple | ) | X | ( | Financial Performance Measurement Achievement Score (weighted 67%) | + | Individual Non- Financial Objective Achievement Score (weighted 33%) | ) | = | 2021 Cash Incentive Payout | |||||||||||||||||||||||||||||
Robert A. Bailenson | $800,000 | 2.00x | 82.1% | 46.2% | $2,052,792 | ||||||||||||||||||||||||||||||||||||
David A. Buzen | $800,000 | 2.00x | 73.1% | 33.0% | $1,696,480 | ||||||||||||||||||||||||||||||||||||
Ling Chow | $600,000 | 2.00x | 82.1% | 42.9% | $1,499,994 | ||||||||||||||||||||||||||||||||||||
Russell B. Brewer II | $550,000 | 2.00x | 82.1% | 42.9% | $1,374,995 |
Robert A. Bailenson | David A. Buzen | Ling Chow | Russell B. Brewer II | |||||||||||
Fixed Compensation—Base Salary(1) | $ 800,000 | $ 800,000 | $ 600,000 | $ 550,000 | ||||||||||
Incentive Compensation | ||||||||||||||
Cash Incentive Compensation | $2,052,792 | $1,696,480 | $1,499,994 | $1,374,995 | ||||||||||
Long-Term Equity Incentive Target Values(2) | $1,575,000 | $770,000 | $1,200,000 | $1,250,000 | ||||||||||
Total Direct Compensation | $4,427,792 | $3,266,480 | $3,299,994 | $3,174,995 |
Affilated Managers Group | Enstar Group Limited | Radian Group | ||||||
Alleghany | Essent Group, Ltd. | RenaissanceRe Holdings | ||||||
AllianceBernstein | Everest Re Group, Ltd. | Sculptor Capital | ||||||
Arch Capital Group | Federated Hermes | Selective Insurance Group, Inc | ||||||
Argo Group International Holdings, Ltd. | First American Financial Corporation | The Hanover Insurance Group, Inc. | ||||||
Assurant, Inc. | Janus Henderson Group | Virtus Investment Partners | ||||||
AXIS Capital Holdings Limited | MGIC Investment Corporation | White Mountains Insurance Group, Inc. |
Forfeit Unpaid Incentive Compensation* | Recoup Already Paid Incentive Compensation* | Termination for Cause | |||||||||
Misconduct: (a) felony; (b) other crime involving moral turpitude in certain circumstances; and (c) other serious misconduct that may cause material harm to our employees or material reputational harm to the Company or may expose the Company to material regulatory, legal or financial risk | ü | ü | ü | ||||||||
Any act or omission likely to injure our operations or reputation or to prevent such executive from being able to perform their duties | ü | ü | |||||||||
Material restatement of financial statements (regardless of misconduct) | ü | ü | |||||||||
Overstatement of objectively quantifiable performance objectives | ü | ü | |||||||||
Violation of specified covenants (non-compete, non-solicitation, breach of confidentiality) | ü | ü | ü | ||||||||
Failure to follow directions of the Board or supervisor or any willful, serious and continued failure to perform their duties | ü | ü |
Named Executive Officer | Guideline | Current Ownership | |||||||||
Dominic J. Frederico | 7 × Salary | 70.2 × Salary | (1) | ||||||||
Robert A. Bailenson | 5 × Salary | 17.9 × Salary | |||||||||
David A. Buzen(2) | 5 × Salary | 5.8 × Salary | |||||||||
Ling Chow (3) | 5 × Salary | 7.4 × Salary | |||||||||
Russell B. Brewer II | 5 × Salary | 20.5 × Salary |
Benefit Under Defined Contribution Plans | Description | ||||
Core contribution | We contribute 7% of each employee’s salary and non-equity incentive payment or cash bonus compensation, which we refer to as eligible compensation, on the portion made to our tax-qualified plan, and 6% on the portion made to our nonqualified supplemental employee retirement plans. | ||||
Company match | We match 100% of each employee’s contribution, up to 7% of eligible compensation on the portion made to our tax-qualified plan, and 6% on the portion made to our nonqualified supplemental employee retirement plans. |
Thomas
Michael T. O’Kane
Kenny
Name and Principal Position | Year | Salary | Stock Awards(1) | Non-Equity Incentive Plan Compen- sation(2) | All Other Compen- sation(3) | Total | ||||||||||||||
Dominic J. Frederico, | 2021 | $1,250,000 | $9,239,643 | $3,454,988 | $591,431 | $14,536,062 | ||||||||||||||
President and | 2020 | $1,250,000 | $5,964,855 | $2,979,625 | $682,044 | $10,876,524 | ||||||||||||||
Chief Executive Officer | 2019 | $1,250,000 | $6,424,343 | $3,727,000 | $752,127 | $12,153,470 | ||||||||||||||
Robert A. Bailenson, | 2021 | $800,000 | $2,078,969 | $2,052,792 | $316,847 | $5,248,608 | ||||||||||||||
Chief Financial Officer | 2020 | $800,000 | $1,325,546 | $1,669,360 | $367,904 | $4,162,810 | ||||||||||||||
2019 | $700,000 | $1,606,106 | $1,994,720 | $364,809 | $4,665,635 | |||||||||||||||
David A. Buzen(4), | 2021 | $800,000 | $1,319,932 | $1,696,480 | $273,314 | $4,089,726 | ||||||||||||||
Chief Investment Officer and | 2020 | $612,500 | $662,752 | $1,306,585 | $235,131 | $2,816,968 | ||||||||||||||
Head of Asset Management | ||||||||||||||||||||
Ling Chow, | 2021 | $600,000 | $1,583,883 | $1,499,994 | $251,905 | $3,935,782 | ||||||||||||||
General Counsel | 2020 | $550,000 | $1,016,267 | $1,481,135 | $264,960 | $3,312,362 | ||||||||||||||
2019 | $525,000 | $1,070,695 | $1,769,140 | $236,317 | $3,601,152 | |||||||||||||||
Russell B. Brewer II, | 2021 | $550,000 | $1,649,945 | $1,374,995 | $259,055 | $3,833,995 | ||||||||||||||
Chief Surveillance Officer | 2020 | $525,000 | $1,016,267 | $1,286,093 | $268,315 | $3,095,675 | ||||||||||||||
2019 | $525,000 | $1,177,776 | $1,548,015 | $284,043 | $3,534,834 |
2020 | 2019 | |||||||
Cash Incentive Compensation | $1,292,885 | $1,461,390 | ||||||
PRA Payout | $188,250 | $307,750 | ||||||
Total | $1,481,135 | $1,769,140 |
D. Frederico | R. Bailenson | D. Buzen | L. Chow | R. Brewer | |||||||||||||
Employer Contribution to Retirement Plans | $513,079 | $301,847 | $258,314 | $232,670 | $225,855 | ||||||||||||
Bermuda Car Allowance | $20,000 | — | — | — | — | ||||||||||||
Tax Return Preparation | $20,208 | — | — | $4,235 | $11,000 | ||||||||||||
Matching Gift Donations | $15,000 | $15,000 | $15,000 | $15,000 | $14,700 | ||||||||||||
Miscellaneous | $23,144 | — | — | — | $7,500 | ||||||||||||
Total | $591,431 | $316,847 | $273,314 | $251,905 | $259,055 |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||
Name | Grant Date | Target | Maximum | Threshold | Target | Maximum | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards(5) | ||||||||||||||||||
Dominic J. Frederico | Feb. 24, 2021(1) | $2,500,000 | $5,000,000 | — | — | — | — | — | ||||||||||||||||||
Feb. 24, 2021(2) | — | — | 28,386 | 56,772 | 141,930 | — | $3,409,726 | |||||||||||||||||||
Feb. 24, 2021(3) | — | — | 28,386 | 56,772 | 113,544 | — | $2,498,536 | |||||||||||||||||||
Feb. 24, 2021(4) | — | — | — | — | — | 75,696 | $3,331,381 | |||||||||||||||||||
Robert A. Bailenson | Feb. 24, 2021(1) | $1,600,000 | $3,200,000 | — | — | — | — | — | ||||||||||||||||||
Feb. 24, 2021(2) | — | — | 6,387 | 12,774 | 31,935 | — | $767,206 | |||||||||||||||||||
Feb. 24, 2021(3) | — | — | 6,387 | 12,774 | 25,548 | — | $562,184 | |||||||||||||||||||
Feb. 24, 2021(4) | — | — | — | — | — | 17,032 | $749,578 | |||||||||||||||||||
David A. Buzen | Feb. 24, 2021(1) | $1,600,000 | $3,200,000 | — | — | — | — | — | ||||||||||||||||||
Feb. 24, 2021(2) | — | — | 4,055 | 8,110 | 20,275 | — | $487,087 | |||||||||||||||||||
Feb. 24, 2021(3) | — | — | 4,055 | 8,110 | 16,220 | — | $356,921 | |||||||||||||||||||
Feb. 24, 2021(4) | — | — | — | — | — | 10,814 | $475,924 | |||||||||||||||||||
Ling Chow | Feb. 24, 2021(1) | $1,200,000 | $2,400,000 | — | — | — | — | — | ||||||||||||||||||
Feb. 24, 2021(2) | — | — | 4,866 | 9,732 | 24,330 | — | $584,504 | |||||||||||||||||||
Feb. 24, 2021(3) | — | — | 4,866 | 9,732 | 19,464 | — | $428,305 | |||||||||||||||||||
Feb. 24, 2021(4) | — | — | — | — | — | 12,976 | $571,074 | |||||||||||||||||||
Russell B. Brewer II | Feb. 24, 2021(1) | $1,100,000 | $2,200,000 | — | — | — | — | — | ||||||||||||||||||
Feb. 24, 2021(2) | — | — | 5,069 | 10,138 | 25,345 | — | $608,888 | |||||||||||||||||||
Feb. 24, 2021(3) | — | — | 5,069 | 10,138 | 20,276 | — | $446,173 | |||||||||||||||||||
Feb. 24, 2021(4) | — | — | — | — | — | 13,517 | $594,883 |
Stock Awards | ||||||||||||||||||||
Name | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||||||||
Dominic J. Frederico | 59,850 | (1) | $3,004,470 | — | — | |||||||||||||||
57,010 | (2) | $2,861,902 | — | — | ||||||||||||||||
75,696 | (3) | $3,799,939 | — | — | ||||||||||||||||
35,749 | (4) | $1,794,600 | — | — | ||||||||||||||||
89,776 | (5) | $4,506,755 | — | — | ||||||||||||||||
— | — | 21,379 | (6) | $1,073,226 | ||||||||||||||||
— | — | 21,379 | (7) | $1,073,226 | ||||||||||||||||
— | — | 28,386 | (8) | $1,424,977 | ||||||||||||||||
— | — | 28,386 | (9) | $1,424,977 | ||||||||||||||||
Robert A. Bailenson | 14,963 | (1) | $751,143 | — | — | |||||||||||||||
12,669 | (2) | $635,984 | — | — | ||||||||||||||||
17,032 | (3) | $855,006 | — | — | ||||||||||||||||
8,937 | (4) | $448,637 | — | — | ||||||||||||||||
22,444 | (5) | $1,126,689 | — | — | ||||||||||||||||
— | — | 4,751 | (6) | $238,500 | ||||||||||||||||
— | — | 4,751 | (7) | $238,500 | ||||||||||||||||
— | — | 6,387 | (8) | $320,627 | ||||||||||||||||
— | — | 6,387 | (9) | $320,627 | ||||||||||||||||
David A. Buzen | 7,481 | (1) | $375,546 | — | — | |||||||||||||||
6,334 | (2) | $317,967 | — | — | ||||||||||||||||
10,814 | (3) | $542,863 | — | — | ||||||||||||||||
4,469 | (4) | $224,344 | — | — | ||||||||||||||||
11,222 | (5) | $563,344 | — | — | ||||||||||||||||
— | — | 2,376 | (6) | $119,275 | ||||||||||||||||
— | — | 2,376 | (7) | $119,275 | ||||||||||||||||
— | — | 4,055 | (8) | $203,561 | ||||||||||||||||
— | — | 4,055 | (9) | $203,561 | ||||||||||||||||
Ling Chow | 9,975 | (1) | $500,745 | — | — | |||||||||||||||
9,713 | (2) | $487,593 | — | — | ||||||||||||||||
12,976 | (3) | $651,395 | — | — | ||||||||||||||||
5,958 | (4) | $299,092 | — | — | ||||||||||||||||
14,962 | (5) | $751,092 | — | — | ||||||||||||||||
— | — | 3,643 | (6) | $182,879 | ||||||||||||||||
— | — | 3,643 | (7) | $182,879 | ||||||||||||||||
— | — | 4,866 | (8) | $244,273 | ||||||||||||||||
— | — | 4,866 | (9) | $244,273 | ||||||||||||||||
3,297 | (10) | $165,509 | — | — | ||||||||||||||||
Russell B. Brewer II | 10,973 | (1) | $550,845 | — | — | |||||||||||||||
9,713 | (2) | $487,593 | — | — | ||||||||||||||||
13,517 | (3) | $678,553 | — | — | ||||||||||||||||
6,554 | (4) | $329,011 | — | — | ||||||||||||||||
16,458 | (5) | $826,192 | — | — | ||||||||||||||||
— | — | 3,643 | (6) | $182,879 | ||||||||||||||||
— | — | 3,643 | (7) | $182,879 | ||||||||||||||||
— | — | 5,069 | (8) | $254,464 | ||||||||||||||||
— | — | 5,069 | (9) | $254,464 |
Stock Awards | ||||||||
Name | Number of Shares Acquired on Vesting(1) | Value Realized on Vesting(2) | ||||||
Dominic J. Frederico | 230,058 | $9,087,291 | ||||||
Robert A. Bailenson | 60,015 | $2,370,593 | ||||||
David A. Buzen | 30,009 | $1,185,356 | ||||||
Ling Chow | 31,717 | $1,253,087 | ||||||
Russell B. Brewer II | 44,010 | $1,738,395 |
Name | Executive Contributions in Last FY(1) | Registrant Contributions in Last FY(2) | Aggregate Withdrawals/ Distributions | Aggregate Earnings in Last FY | Aggregate Balance at Last FYE(3) | |||||||||||||||
Dominic J. Frederico | $237,206 | $474,412 | — | $3,444,816 | $18,518,759 | (4) | ||||||||||||||
Robert A. Bailenson | $131,590 | $263,180 | — | $1,897,277 | $8,536,206 | |||||||||||||||
David A. Buzen | $109,824 | $219,647 | — | $185,001 | $1,564,660 | |||||||||||||||
Ling Chow | $97,002 | $194,003 | — | $558,644 | $3,813,629 | |||||||||||||||
Russell B. Brewer II | $93,594 | $187,188 | — | $170,952 | $6,015,684 |
Name | 2021 Amount | 2020 Amount | ||||||
Dominic J. Frederico | $12,155,812 | $11,308,809 | ||||||
Robert A. Bailenson | $3,273,851 | $2,819,659 | ||||||
David A. Buzen | $258,196 | — | ||||||
Ling Chow | $804,737 | $491,544 | ||||||
Russell B. Brewer II | $2,107,221 | $1,782,936 |
Name | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||
Dominic J. Frederico | $9,666,311 | $12,396,767 | $22,063,078 | ||||||||
Robert A. Bailenson | $2,242,133 | $2,927,503 | $5,169,636 | ||||||||
David A. Buzen | $1,236,376 | $1,538,682 | $2,775,058 | ||||||||
Ling Chow | $1,805,242 | $2,092,520 | $3,897,762 | ||||||||
Russell B. Brewer II | $1,716,991 | $2,209,623 | $3,926,614 |
Name | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||
Dominic J. Frederico | $9,507,316 | $21,128,095 | $30,635,411 | ||||||||
Robert A. Bailenson(2) | — | — | — | ||||||||
David A. Buzen | $786,087 | $1,726,632 | $2,512,719 | ||||||||
Ling Chow(3) | — | — | — | ||||||||
Russell B. Brewer II | $1,687,840 | $3,748,489 | $5,436,329 |
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||||
Dominic J. Frederico | $1,250,000 | $3,506,208 | $53,979 | $9,666,311 | $12,396,767 | $26,873,265 | ||||||||||||||
Robert A. Bailenson | $800,000 | $1,871,333 | $36,082 | $2,242,133 | $2,927,503 | $7,877,051 | ||||||||||||||
David A. Buzen | $800,000 | $1,106,928 | $36,082 | $1,236,376 | $1,538,682 | $4,718,068 | ||||||||||||||
Ling Chow | $600,000 | $1,338,358 | $36,082 | $1,639,733 | $2,092,520 | $5,706,693 | ||||||||||||||
Russell B. Brewer II | $550,000 | $1,472,608 | $24,699 | $1,716,991 | $2,209,623 | $5,973,921 |
Name | Salary Continuation | Cash Incentive Compensation | Benefits | Unvested RSUs | Unvested PSUs(1) | Total | ||||||||||||||
Dominic J. Frederico | $1,250,000 | $3,506,208 | $53,979 | $9,666,311 | $19,845,552 | $34,322,050 | ||||||||||||||
Robert A. Bailenson | $800,000 | $1,871,333 | $36,082 | $2,242,133 | $4,607,292 | $9,556,840 | ||||||||||||||
David A. Buzen | $800,000 | $1,106,928 | $36,082 | $1,236,376 | $2,544,681 | $5,724,067 | ||||||||||||||
Ling Chow | $600,000 | $1,338,358 | $36,082 | $1,805,242 | $3,366,105 | $7,145,787 | ||||||||||||||
Russell B. Brewer II | $550,000 | $1,472,608 | $24,699 | $1,716,991 | $3,527,905 | $7,292,203 |
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||||||
Equity compensation plans approved by security holders | — | — | 8,567,790 (1) | ||||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | ||||||||
TOTAL | — | — | 8,567,790 |
The board of directors recommends that you vote “FOR” the following resolution at the Annual General Meeting: |
67
| 2019 | 2018 | ||||||
Audit fees(1) | $ | 7,906,500 | $ | 6,610,000 | ||||
Audit-related fees(2) | $ | 2,285,000 | $ | 678,000 | ||||
Tax fees(3) | $ | 250,000 | $ | 165,000 | ||||
All other fees(4) | $ | 494,000 | $ | 35,000 |
|
2021 2020 $9,064,000 $9,212,000 $855,000 $1,428,000 $332,000 $250,000 All other fees $4,000 $4,000
•the statutory and GAAP audits of various subsidiaries
•review of quarterly financial statements
|
|
|
|
68
The board of directors and the Audit Committee recommend that you vote “FOR” the appointment of PwC as the Company’s independent auditor for the year ending December 31, |
69
The board of directors recommends that you direct AGL to vote “FOR” each of the nominees. |
Russell B. Brewer II, age 63, has been Chief Surveillance Officer of AGL since November 2009 and Chief Surveillance Officer of AGC and AGM since July 2009 and has also been responsible for information technology at AGL since April 2015. Mr. Brewer has been with AGM since 1986. Mr. Brewer was Chief Risk Management Officer of AGM from September 2003 until July 2009 and Chief Underwriting Officer of AGM from September 1990 until September 2003. Mr. Brewer was also a member of the Executive Management Committee of AGM. He was a Managing Director of
70
Mr. Brewer’s risk management and surveillance expertise and his position as the Chief Surveillance Officer of AGL enhance the deliberations of the Board of Directors of AG Re.
71
The following table presents fees for professional audit services rendered by PwC for the audit of AG Re’s financial statements for 20192021 and 2018.
2019 | 2018 | |||||||
Audit fees | $ | 89,900 |
| $ | 89,900 |
| ||
Audit—related fees |
| — |
|
| — |
| ||
Tax fees |
| — |
|
| — |
| ||
All other fees |
| — |
|
| — |
|
2020.
2021 | 2020 | |||||||
Audit fees | $89,900 | $89,900 | ||||||
Audit—related fees | — | — | ||||||
Tax fees | — | — | ||||||
All other fees | — | — |
The board of directors recommends that you direct AGL to vote “FOR” each of the proposals concerning AGL’s subsidiary, AG Re. |
72
25, 202023, 2022, and otherwise comply with the requirements of the SEC to be eligible for inclusion in AGL’s 20212023 Annual General Meeting proxy statement and form of proxy.20212023 Annual General Meeting, such written notice must be received on or prior to February 5, 2021.3, 2023. The notice must meet the requirements set forth in ourBye-Laws. Under the circumstances described in, and upon compliance with,Rule 14a-4(c) under the Exchange Act, management proxies would be allowed to use their discretionary voting authority to vote on any proposal with respect to which the foregoing requirements have been met.73
g | XXXX XXXX XXXX XXXX |
Meeting and because it is an environmentally friendly practice.
postpone or change the date, time or location of our
4, 2022
74
WHO IS ENTITLED TO VOTE?
$57.41.
11, 2022.
Many
|
HOW DO I VOTE BY PROXY IF I AM A SHAREHOLDER OF RECORD?
75
one of two things can happen, depending on the type of proposal. According to rules of the NYSE:
May 5, 2020. Similarly, in3, 2022. In order to assure that your votes, as a beneficial holder,owner, are tabulated in time to be voted at the Annual General Meeting, you must submit your voting instructions so that your broker will be able to vote by 11:59 p.m. Eastern Daylight Time on May 4, 2020.
2, 2022. In order to assure that your votes, as an employee shareholder who participates in the Assured Guaranty Employee Stock Purchase Plan, are tabulated in time to be voted at the Annual General Meeting, you must complete your voting over the Internet or by telephone or submit your proxy card so that it is received by 11:59 p.m. Easter Daylight Savings Time on April 29, 2022.
11, 2022.
76
WHAT VOTES NEED TO BE PRESENT TO HOLD THE ANNUAL GENERAL MEETING?
11, 2022.
Beneficial Owner?”, elections of directors and the advisory vote on executive compensation are considerednon-routine matters. We will appoint one or more inspectors of election to count votes cast in person or by proxy.
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DO DIRECTORS ATTEND THE ANNUAL GENERAL MEETING?
5, 2021.
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
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By Order of the Board of Directors,
Ling Chow
Secretary
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By Order of the Board of Directors, | |||||
Ling Chow | |||||
Secretary |
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Shareholders of record may vote up until 4:00 PM Eastern Daylight Time on May 5, 2020. Have your proxy card in hand when you access the web ASSURED GUARANTY LTD. 30 WOODBOURNE AVENUE site and follow the instructions to obtain your records and to create an electronic HAMILTON, HM 08 BERMUDA voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Shareholders of record may vote up until 4:00 PM Eastern Daylight Time on May 5, 2020. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E96611-P35431 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY ASSURED GUARANTY LTD. The nominees: Board of Directors recommends you vote FOR each of the following 1. Election of Directors ofLtd. (the “Company”): Nominees: For Against Abstain 1a. Francisco L. Borges ! ! ! For Against Abstain 1b. G. Lawrence Buhl ! ! ! 3. independent To appoint PricewaterhouseCoopers auditor for the fiscal year ending LLP (“PwC”) December as 31, the 2020, Company’s and to ! ! ! set authorize the fees the of Board the independent of Directors, auditor acting . through its Audit Committee, to 1c. Dominic J. Frederico ! ! ! 4A. Assured To authorize Guaranty the Company Re Ltd. (“AG to vote Re”): for directors of the Company’s subsidiary, 1d. Bonnie L. Howard ! ! ! For Against Abstain Nominees: 1e. Thomas W. Jones ! ! ! 4aa. Howard W. Albert ! ! ! 4ab. Robert A. Bailenson 1f. Patrick W. Kenny ! ! ! ! ! ! 1g. Alan J. Kreczko ! ! ! 4ac. Russell B. Brewer II ! ! ! 1h. Simon W. Leathes ! ! ! 4ad. Gary Burnet ! ! ! 1i. Michael T. O’Kane ! ! ! 4ae. Ling Chow ! ! ! 1j. Yukiko Omura ! ! ! 4af. Stephen Donnarumma ! ! ! The Board of Directors recommends you vote FOR the following proposals: For Against Abstain 4ag. Dominic J. Frederico ! ! ! 2. named To approve, executive on an officers advisory . basis, the compensation paid to the Company’s ! ! ! 4ah. Walter A. Scott ! ! ! 4B. To for authorize the fiscal the year Company ending December to appoint 31, PwC 2020 as .AG Re’s independent auditor ! ! ! Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other juduciary, NOTE: Such other business as may properly come before the meeting or any please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, adjournment thereof. please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateImportant Notice Regarding the Availability of2022 Proxy Materials for the Annual General Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS OF ASSURED GUARANTY LTD. The undersigned hereby appoints Dominic J. Frederico, Nicholas J. Proud and Ling Chow, and each of them, with power to act without the other and with power of substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the common shares of Assured Guaranty Ltd. which the undersigned is entitled to vote and, in their discretion, to vote upon such other business as may properly come before the Annual General Meeting of shareholders of the Company to be held May 6, 2020 or any adjournment thereof, with all powers which the undersigned would possess if present at the meeting. THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE BUT THE CARD IS SIGNED, THIS PROXY CARD WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES UNDER PROPOSALS 1 AND 4A, FOR PROPOSALS 2, 3 AND 4B AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. Continued and to be signed on reverse side
NYSE : AGO | Assured Guaranty Ltd. 30 Woodbourne Ave Hamilton HM 08 Bermuda | www.agltd.com | ||||||