[Maiden
Letterhead]
August
12, 2010
Via EDGAR and Facsimile
(202) 772-9198
Mr. Jim
B. Rosenberg
Senior
Assistant Chief Accountant
Division
of Corporation Finance
United
States Securities and Exchange Commission
Washington,
D.C. 20549
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Re:
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Maiden
Holdings, Ltd.
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Form
10-K for the Fiscal Year Ended December 31, 2009
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Filed
March 16, 2010
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Schedule
14A
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Filed
April 6, 2010
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File
No. 001-34042
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Dear Mr.
Rosenberg:
We are in receipt of your letter dated
July 20, 2010 (the “Comment Letter”),
setting forth comments of the Division of Corporation Finance (the “Staff”) regarding the
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and the
Proxy Statement on Schedule 14A filed April 6, 2010 for Maiden Holdings, Ltd.
(the “Company”).
We have carefully considered the
Staff’s comments and set forth our responses below. For the
convenience of the Staff, each numbered paragraph response herein corresponds to
the same numbered paragraph in the Comment Letter.
Form 10-K for the Fiscal
Year Ended December 31, 2009
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Critical Accounting Policies
and Estimates
Fair Value of Financial
Instruments, page 65
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1.
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Your
disclosure states that you use third party pricing services to price a
significant portion of your securities. Please revise your
disclosure to clarify the
following:
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a)
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Whether
you adjusted the quotes and prices obtained from the brokers and pricing
services during the periods
presented;
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Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
2
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b)
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Indicate
the number of quotes or prices you generally obtained per instrument, and
if you obtained multiple quotes or prices, how you determined the ultimate
value used in your financial statements;
and
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c)
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The
extent to which third parties are gathering observable market information
as opposed to using unobservable inputs and/or proprietary models in
making valuation judgments and
determinations.
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d)
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Whether
the broker quotes are binding or non-binding;
and
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e)
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The
procedures you performed to validate the prices you obtained to ensure the
fair value determination is consistent with ASC 820, Fair Value
Measurements and Disclosures, and to ensure that you properly classified
your assets and liabilities in the fair value
hierarchy.
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In
response to the Staff’s comment, the Company proposes a disclosure similar to
the following for all future filings (which disclosure was included in our
Quarterly Report on Form 10-Q filed on August 10, 2010):
“For
investments that have quoted market prices in active markets, the Company uses
the quoted market prices as fair value and includes these prices in the amounts
disclosed in the Level 1 hierarchy. To date, we have only included U.S.
government fixed maturity instruments as level 1. The Company
receives the quoted market prices from a third party, nationally recognized
pricing service (“Pricing Service”). When quoted market prices are unavailable,
the Company utilizes the Pricing Service to determine an estimate of fair value.
The fair value estimates are included in the Level 2 hierarchy. The Pricing
Service utilizes evaluated pricing models that vary by asset class and
incorporate available trade, bid and other market information and for structured
securities, cash flow and, when available, loan performance data. The Pricing
Service’s evaluated pricing applications apply available information as
applicable through processes such as benchmark curves, benchmarking of like
securities, sector groupings and matrix pricing, to prepare evaluations. In
addition, the Pricing Service uses model processes, such as the Option Adjusted
Spread model, to assess interest rate impact and develop prepayment scenarios.
The market inputs that the Pricing Service normally seeks for evaluations of
securities, listed in approximate order of priority, include: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, two-sided markets,
benchmark securities, bids, offers and reference data including market research
publications.
The
Company typically utilizes the fair values received from the Pricing Service. If
quoted market prices and an estimate from the Pricing Service are unavailable,
the Company produces an estimate of fair value based on dealer quotations for
recent activity in positions with the same or similar characteristics to that
being valued or through consensus pricing of a pricing service. Depending on the
level of observable inputs, the Company will then determine if the estimate is
Level 2 or Level 3 hierarchy. Approximately 98% of the Company’s fixed
maturity investments are categorized as Level 2 within the fair value
hierarchy. At
December 31, 2009, we have not adjusted any pricing provided by the Pricing Services.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
3
The
Company will challenge any prices for its investments which are not considered
to represent fair value. If a fair value is challenged, the Company will
typically obtain a non-binding quote from a broker-dealer; multiple quotations
are not typically sought. As of December 31, 2009, only one security valued
using the market approach at approximately $7.9 million, or less than 0.5% of
Level 2 fixed maturities, was priced using a quotation from a broker as opposed
to the Pricing Service. At December 31, 2009, we have not adjusted
any pricing provided by broker-dealers based on the review performed by our
investment managers.
To validate prices, the Company compares
the fair value estimates to its knowledge of the current market and will
investigate prices that it considers not to be representative of fair value. In
addition, our process to validate the market prices obtained from the Pricing
Service includes, but is not limited to, periodic evaluation of model pricing
methodologies and analytical reviews of certain prices. We also periodically
perform testing of the market to determine trading activity, or lack of trading
activity, as well as evaluating the variability of market prices. Securities
sold during the quarter are also “back-tested” (i.e., the sales prices are
compared to the previous month end reported market price to determine the
reasonableness of the reported market price). There were no material differences
between the prices from the Pricing Service and the prices obtained from our
validation procedures as of December 31, 2009.”
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2.
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Please
revise your disclosures, here and throughout the filing, to include a
discussion of the amounts of securities in your investment portfolio that
are guaranteed by third parties along with the credit rating with and
without the guarantee. Also disclosure any significant
concentration in a guarantor, both direct exposure (i.e. investments in a
guarantor) and indirect exposure (i.e. investments guaranteed by a
guarantor). Please avoid references to weighted average
ratings.
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In
response to the Staff’s comment, the Company proposes a disclosure similar to
the following for all future filings (which disclosure was included in our
Quarterly Report on Form 10-Q filed on August 10, 2010):
“At
December 31, 2009 and December 31, 2008, the Company has no fixed income
investments that are guaranteed by third parties. We do not have any direct
exposure to third party guarantors as of December 31, 2009 or December 31,
2008.”
Form 10-Q For the Quarterly
Period Ended March 31, 2010
Item 1. Financial
Statements
4. Fair Value of Financial
Instruments, page 11
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3.
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Please
revise your disclosures for assets and liabilities classified as Level 2
and Level 3 to quantify the inputs used in determining the fair value of
each class of assets or liabilities as required by ASC 820-10-50-2e as
amended by ASU 2010-06. Please refer to ASC 820-10-55-22A for
examples of the inputs to be
disclosed.
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Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
4
In response to the Staff’s comment, the
Company proposes a disclosure similar to the following for all future filings to
be inserted on the bottom of page 11 (which disclosure was included in our
Quarterly Report on Form 10-Q filed on August 10, 2010):
“The
following describes the valuation techniques used by the Company to determine
the fair value of financial instruments held as of March 31,
2010.
U.S. government and U.S.
government agencies: Comprised primarily of bonds issued by the U.S.
Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation
and the Federal National Mortgage Association. The fair values of the Company’s
U.S. government securities are based on quoted market prices in active markets
and are included in the Level 1 fair value hierarchy. The Company believes the
market for U.S. Treasury securities is an actively traded market given the high
level of daily trading volume. The fair values of U.S. government agency
securities are generally priced by pricing services. The pricing services may
use current market trades for securities with similar quality, maturity and
coupon. If no such trades are available, the pricing service typically uses
analytical models which may incorporate option adjusted spreads, daily interest
rate data and market/sector news. The Company generally classifies the fair
values of U.S. government agencies securities in Level 2.
Corporate debt: Corporate debt
securities consist primarily of investment-grade debt of a wide variety of
corporate issuers and industries. These securities are generally priced by
pricing services. The pricing services typically use discounted cash flow models
that incorporate benchmark curves for treasury, swap and high issuance credits.
Credit spreads are developed from current market observations for like or
similar securities. Where pricing is unavailable from pricing services, we
obtain non-binding quotes from broker-dealers. The Company generally classifies
the fair values of its corporate securities in Level 2.
Municipals: Municipal
securities comprises bonds issued by U.S. domiciled state and municipality
entities. The fair value of these securities are generally priced by pricing
services. The pricing services typically use spreads obtained from
broker-dealers, trade prices and the new issue market. As the significant inputs
used to price the municipals are observable market inputs, municipals are
classified within Level 2.
Other investments: The fair
values of the hedge funds are based on the net asset value of the funds as
reported by the fund manager, and as such, the fair values of those hedge funds
are included in the Level 3 fair value hierarchy.”
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Schedule
14A
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General
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4.
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We
note that you have not included any disclosure in response to Item 402(s)
of Regulation S-K. Please advise us of the basis for your
conclusion that disclosure is not necessary and describe the process you
undertook to reach that conclusion.
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Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
5
In
response to the Staff’s comment, the Company has only been operating for three
years and for less than two years as a company combined with the operations of
the former GMAC RE. As a result, as the Company matures and increases
in size and complexity, the Compensation Committee would expect that the factors
considered and analyses undertaken with respect to compensation-related risk
issues would evolve appropriately.
The
Compensation Committee considered all the components of our compensation program
in determining that the Company’s compensation policies and practices are not
reasonably likely to have a material adverse effect on the
Company. We have a compensation structure which includes cash
compensation, bonuses and equity awards. As described in the Compensation
Discussion and Analysis section on pages 15-20 of Schedule 14A and in response
to question #5 below, the Company delivers executive compensation primarily
through a combination of annual base salary, annual cash incentive payments and
long-term equity incentives in the form of stock options granted via the
Company’s 2007 Share Incentive Plan (as amended). In reaching the
conclusion that such policies and practices are not reasonably likely to have a
material adverse effect on the Company, the Compensation Committee considered
the following factors:
• the
Company's compensation policies and practices are uniform across each of its
business units and geographic regions;
• all
of the equity awards granted to employees under the Company's equity-based plan
are subject to multi-year time vesting, which requires an employee to commit to
a longer time horizon for such awards to be valuable and focus on the long term
value of the business; and
• the
Company's annual compensation review and performance evaluation process does not
focus entirely on the Company's financial results but considers other
qualitative factors that do not encourage excessive risk taking, including, but
not limited to, leadership, technical skills, operational effectiveness and
effective risk management.
Compensation Discussion and
Analysis, page 15
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5.
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We
note that bonuses and options awards were apparently based upon the
Compensation Committee’s consideration of each executive’s personal
contribution to the company’s profits during the fiscal
year. The Compensation Discussion and Analysis does not
disclose how the Compensation Committee determined each executive
officer’s contribution to your profits or how the bonuses and option
awards were allocated. Please amend your Form 10-K to disclose
the following:
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A more detailed specific
description and quantification of the contribution to profits for each
named executive officer; and
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Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
6
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•
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A discussion of how the level
of contribution to profits or other goals or objectives affected the
actual bonus and stock awards
granted.
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To
the extent that these criteria are quantifiable, you should provide quantitative
disclosure.
In
response to the Staff’s comment, the Company stands by its statement in the
Proxy that our bonus policy awards each named executive officer for his or her
individual contribution to our profits. To further illustrate this
concept in response to the Staff’s comment, the Company proposes the following
disclosure to wholly replace the section on pages 15-17 entitled “Executive
Compensation.” This disclosure was prepared through consultation with
the chairman of the Company’s Compensation Committee:
Executive
Compensation
We
believe that the Company’s compensation packages provide a reasonable
arrangement of pay elements that align executive incentives with the creation of
shareholder value, and bonuses and stock option awards that are dependent on,
and strictly tied to, the Company’s performance and only paid upon the
achievement of business goals and key business metrics. Our executive
compensation policy includes the following fixed and variable
elements:
Fixed
Compensation
Salary. The base
salaries provided to our named executive officers are designed to deliver an
annual salary at a level consistent with individual experience, skills and
contributions to the Company, and is consistent with levels paid by direct and
indirect competitors in the reinsurance marketplace. The Compensation
Committee generally establishes executive officer base salaries at base
compensation levels consistent with benchmark compensation levels for executives
with similar job responsibilities at our peer group companies (ACE Group, Argo
Group, Caitlin, Inc., Everest Reinsurance, General Reinsurance Corporation,
Munich Re-America, Odyssey Reinsurance, Partner Reinsurance Company of the US,
Platinum Underwriters Reinsurance, Inc., QBE, Reinsurance Group of America, SCOR
Reinsurance Company, Swiss Reinsurance, Transatlantic Holdings, White Mountains
Re Services and XL Reinsurance). The annual base salary of each of
the named executive officers except for Mr. Haveron is set in each of their
employment agreements and is reviewed on an annual basis. The Compensation
Committee determines the CEO’s compensation after consultation with each
director on the Board as well as the Company’s outside compensation consultant,
and reviews the recommendations of the CEO concerning the compensation of the
other named executive officers and makes determinations with respect
thereto. In March 2010, at the recommendation of the CEO, the
Compensation Committee raised Ms. Schmitt’s salary from $550,000 to $566,500,
Mr. Haveron’s salary from $300,000 to $350,000, and chose to maintain the base
salary of Messrs. Raschbaum and Marshaleck at $1,000,000 and $600,000,
respectively.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
7
Benefits. The Company seeks to provide benefit
plans, such as health and welfare programs to provide life, 401(k),
health and disability benefits to our employees, in line with applicable market
conditions. These health and welfare plans help ensure that the Company has a
productive and focused workforce through reliable and competitive health and
other benefits. The named executive officers are eligible for the same benefit
plans provided to all other
employees.
The Company provides certain of our named executive officers with other
benefits that the Company and the Compensation Committee believe are reasonable
and consistent with its overall compensation program to better enable the
Company to attract and retain key employees. These benefits are specified in our
named executive officers’ employment agreements. Many of these benefits relate to those
executives, such as Messrs.
Raschbaum and Marshaleck,
who reside and/or work in Bermuda and are typical of such benefits provided to
expatriates in Bermuda. Examples of these benefits for Bermuda-based expatriates
include housing and housing gross up allowances. These benefits are described under
“Summary Compensation Table” and “Employment Agreements”
below.
Variable
Compensation
Summary of Bonus
Determinations. At the beginning of each year, our
Compensation Committee sets an aggregate target bonus pool for all employees for
the upcoming year, which constitutes the sum of the individual bonuses at target
performance for each employee. Individual bonus targets for named
executive officers are set by the Compensation Committee and reflect both the
judgments of the Compensation Committee and industry
benchmarking. For the balance of eligible employees, these targets
are established by management using similar benchmarking along with management
judgment. The Compensation Committee also sets targets for each of
the key company performance metrics that will guide its determination of what
percentage of the aggregate target bonus pool it will fund at the end of the
year, which ranges from 0% of 200% of the aggregate target depending upon
results. The Compensation Committee retains discretion to adjust the
performance metrics at the end of the year based on developments in the industry
and at the Company. After the year is completed, the Compensation
Committee determines the aggregate size of the company bonus pool for the
preceding year based on the Company’s performance, and then determines the
manner in which the pool will be divided among the named executive officers and
other employees, based on the methodology described below, which includes
discretion to recognize subjective elements of individual performance and
contributions.
Our bonus
policy awards each named executive officer (except for the chief executive
officer whose bonus is determined as described below) for his or her individual
contribution to our profits for the fiscal year via our annual incentive pool
(“AIP”). The
AIP targets are determined by the Compensation Committee and reward the
achievement of certain objective measurable company-wide performance metrics,
which the Compensation Committee maintains discretion to adjust. We
believe that the policy of paying a bonus helps us attract qualified employees
and provides an additional incentive for them to join a company with a limited
track record.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
8
During
2009, each of the named executive officers in particular were instrumental in
the integration of GMAC RE (acquired in November 2008) with and into the
Company, as well as development and implementation of the business strategy and
the establishment of an effective risk management framework for the combined
Company. In addition, the Company’s financial results in 2009
resulted in $61.06 million net income on gross premiums written of $1.05 billion
in challenging market conditions, while substantially increasing in the
Company’s book value per share from $8.70 to $9.62. For these
reasons, the Compensation Committee unanimously decided to award annual
incentive grants to the named executive officers and all employees within the
framework of the Company’s CEO annual incentive award and the AIP.
CEO annual incentive
award. The Compensation Committee determined that the CEO’s
target bonus would be contingent on the achievement of objective and subjective
standards weighted as follows: 65% of the annual incentive was based
on the objective performance metrics established for the corporate
AIP. These performance metrics were achieved as described
below. The Compensation Committee determined that the Company’s
performance supported the award of the full portion of the 65% of the CEO’s
target bonus tied to objective standards. The remaining 35% of the
target bonus was based on a subjective standard via the Compensation Committee’s
assessment of the CEO’s critical management and leadership
accomplishments. For 2009, the Committee considered the CEO’s
effectiveness in developing and implementing:
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1.
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the
Maiden business strategy;
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2.
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the
integration of GMAC RE with and into the
Company;
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3.
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an
effective risk management framework for the
Company;
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4.
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a
Maiden leadership team; and
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5.
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working
with the Board of Directors and the
shareholders.
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Based on
the Committee’s review and discussion with the Company’s outside compensation
consultant and internal parties (including the Chairman of the Board), the
Committee unanimously agreed that the CEO’s performance supported the awarding
of the remaining 35% of the CEO’s target bonus attributable to subjective
factors.
To
confirm its conclusions, the Committee requested and received a top level
benchmarking analysis of CEO compensation from its outside compensation
consultant, focusing in particular on other Bermuda reinsurance
companies. Such analysis concluded that Mr. Raschbaum’s compensation
was within the range of cash compensation to similarly situated
CEOs. As a result of the foregoing, the Committee awarded Mr.
Raschbaum an annual incentive award of 100% of his base salary, or
$1,000,000.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
9
Annual incentive
pool. The AIP is designed to reward our employees, including
our non-CEO named executive officers, based on achieving targets in the four
performance areas:
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targeted
return on equity
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achievement
of combined ratio objectives
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growth
in written premium, and
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controlling
expenses.
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All of
our employees are eligible to earn annual incentive compensation. Our
annual incentive compensation is paid in February or March for the prior year’s
performance, and approval by the Compensation Committee is
required. An aggregate bonus pool target is established each year,
based on the sum of all of the individual employee target bonus
amounts. Employee targeted bonus amounts are determined by the
employee’s position and benchmarked with other reinsurance companies’ positions
based on information from various independent annual surveys and
services.
The
actual amount of the annual incentive pool is determined by the Compensation
Committee and was based in fiscal 2009 on achieving the following performance
metrics: return on equity (40% of the annual incentive calculation),
combined ratio target (30%), revenue growth (20%) and operating expense targets
(10%). The Compensation Committee maintains discretion to modify the
performance metrics based on developments in the industry, in the market and the
Company during the year. At a performance level of 75% of the target
performance metrics, 50% of the targeted annual incentive pool would be
awarded. For performance levels below the 75% performance level, no
annual incentive compensation would be paid. For performance levels
at 150% and above target performance, the annual incentive bonus pool would be
capped at 200% of the targeted annual incentive pool.
Return on equity – Return on
equity (or ROE) as a measure of performance is highly correlated to market value
and ultimately the creation of shareholder value. As a measurement,
it is a proxy for the relationship between net income and the book value of the
Company. The Board in consultation with the CEO establishes annual
bonus target levels that are consistent with the objective of ultimately
achieving a medium term goal of 15% annual ROE. Recognizing the
impact on ROE from both the current low yield investment environment and the
significant increase in the Company’s book value, the Board of Directors chose
to modify the ROE metric when deciding to fund the 2009 AIP.
Combined ratio – Underwriting
profit is a critical component of operating performance and the combined ratio
reflects the margin by which insurance earned revenues exceed operating costs
and reinsured losses. The Company utilizes this metric to evaluate
its underwriting effectiveness at a contract and aggregate portfolio
basis. This metric is also measured at the underwriting team level
and ultimately impacts individual compensation. For Maiden, the
group’s target metric is a 96% or lower combined ratio.
Revenue growth rate – While
the reinsurance sector is a mature market with pronounced underwriting cycles
that reflect the competitive nature of the market, over time, Maiden management
believes that its competitive advantages should enable the Company to grow at a
level in excess of the broader industry growth trends. While this
metric is an important measure of the effectiveness of the Company’s business
model and market acceptance, it receives a significantly lower weighting that
ROE and combined ratio in recognition of the fact that in a cyclically mature
market, competition in the reinsurance sector may at times reach a level where
growth opportunities at acceptable margins are limited.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
10
Operating expense -
Reflecting the mature market dynamics of the reinsurance sector, a critical
element of Maiden’s business model is operating efficiency. Maiden
targets the maintenance of operating expense relativities (operating expenses
measured against net earned premium) within the most efficient quartile among
industry participants of operating efficiency on an annual basis. It
is believed that loss costs being equal, the relative operational efficiency of
Maiden can further differentiate the Company in both profit margin and cost
competitiveness. The Board of Directors establishes this metric on an
annual basis based on the business plan developed by management.
The
targets for the 2009 fiscal year, adopted by the Compensation Committee in
February 2009, were a 15% return on equity, 96% combined ratio, 10% revenue
growth and an achievement of targeted operating expense levels of $48
million. The following chart compares the target and the actual
figures attained by the Company and the resulting aggregate employee bonus pool
funded in fiscal 2009:
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Business
performance
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2009
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2009
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2009
AIP Payout
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Metric
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Weight
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Target
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Actual
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%
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Return
On Equity*
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40%
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15%
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11.4%*
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20.8%
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Combined
Ratio
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30%
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96%
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96%
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30%
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Revenue
Growth**
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20%
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10%
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46%
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40%
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Operating
Expenses
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10%
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$48 million
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$48 million
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10%
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Total
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100%
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* The original, non-adjusted ROE
calculation produced a total metric percentage of under
100%. However, the Compensation Committee considered the
sizable book value growth of the Company in 2009, as well as the
unprecedented low yields on the assets deployed and the trust preferred securities
adjustment as
negatively affecting the ROE calculation. As a result, the
Compensation Committee adjusted the ROE calculation to be based on average equity adjusted
for the trust preferred securities equity
increase of $45 million, which results in an adjusted ROE
percentage to produce a total metric percentage of over
100%.
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** Revenue growth calculation
based on calculating 2009 total premium minus
(2008 total
premium/2008 total premium) =
46%
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The
aggregate bonus pool maximum target established for the 2009 fiscal year was
$5.8 million, which was fully accrued for in the Company’s fiscal 2009 financial
statements. For employees other than the named executive officers,
executive management has discretion to determine the actual incentive
compensation paid, which can range from 0% to 200% of the employees’ targeted
annual incentive compensation based on the employees’ individual performance for
the year. The total annual incentive compensation paid cannot exceed
the aggregate pool approved by the Compensation Committee.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
11
The
Compensation Committee determines the actual annual incentive compensation for
the named executive officers based on the performance metrics used to determine
the annual incentive compensation pool and their individual contribution to
achieving the performance metrics. The Committee relied upon the
benchmarking survey from our outside compensation consultant, as well as the
recommendations from the entire Board of Directors and the chief executive
officer, when determining and approving the targeted annual incentive grants of
the non-CEO named executive officers. Such targeted annual incentive
grants are a percentage of base salary. The Compensation Committee
considered the following specific factors when considering the annual incentive
awards to the non-CEO named executive officers:
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•
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benchmarking
of similarly situated officers in the peer group described
above;
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•
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strategic
support of business objectives, such as the GMAC RE
integration;
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building the Sarbanes-Oxley and GAAP compliance activities; | |
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maintaining active client interaction and support; | |
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progress
in expanding the underwriting portfolio and maintaining strong
underwriting performance;
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accelerating
the transition of clients from the GMAC RE platform to Maiden Re, and
re-underwriting the Maiden Specialty business by successfully reducing
catastrophe aggregates;
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•
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efforts
to strengthen the Company’s finance and accounting capabilities,
procedures and processes;
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•
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leading
the enterprise risk management effort and Sarbanes-Oxley certification;
and
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•
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significant
progress in SEC reporting.
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Based on
the foregoing and the CEO’s overall assessment of their performance, (1) Mr.
Marshaleck, who was targeted to receive 100% of his base compensation, was
granted an annual incentive grant of 100%, of his base compensation, or
$600,000; (2) Ms. Schmitt, who was targeted to receive 75% of her base
compensation, was granted an annual incentive grant of 78.75% of her base
compensation, or $433,175; and (3) Mr. Haveron, who was targeted to receive 55%
of his base compensation, was granted a prorated, annual incentive grant of 67%
of his base compensation, or $50,000 (Mr. Haveron joined the Company in
September 2009).
In March
2010, based on the aforementioned accomplishments of the Company in 2009 and the
other factors described above, the Compensation Committee authorized the funding
of the annual incentive compensation pool for 2009 at 100% for all
employees. Further in March 2010, the Compensation Committee
unanimously approved the metrics for the 2010 AIP, which are the same as 2009
with one exception: the ROE target was altered to 12.5%, which is consistent
with other similarly situated reinsurance companies, as well as for the reasons
stated above (i.e. changes in the operating environment, the current investment
yield environment and maintaining a conservative investment
portfolio).
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
12
Long-Term Incentive
Program. We believe that the use of common shares and
share-based awards offers the best approach to achieving our compensation goals
as equity ownership ties a considerable portion of a named executive officer’s
compensation to the performance of our common shares. We intend to increase our
emphasis on long-term variable compensation at the senior executive levels
because of our desire to reward effective long-term management decision making
and provide the named executive officers with a future interest in the Company.
While we intend to in the future, we have not as of yet adopted share
ownership guidelines for our named executive officers. We have
adopted the amended 2007 Share Incentive Plan, as described in this Proxy
Statement, which provides the principal method for our named executive officers
to acquire equity interests in the Company.
2007 Share Incentive
Plan. We believe stock options align employee incentives
with shareholders because options have value only if the share price increases
over time. The
Plan is intended to award our employees and named executive officers with
proprietary interests in the Company and to provide an additional incentive to
promote our success and to remain in our service. The Plan authorizes us to
grant incentive stock options, non-qualified stock options and restricted share
awards to our employees, officers, directors and consultants. Our Compensation
Committee oversees the administration of the Plan. 10,000,000 or our common
shares are reserved for issuance under the Plan, of which no more than 2,500,000
(25% of the total number of share currently authorized for issuance under the
Plan) may be used for restricted share awards. The Compensation Committee may in
the future elect to make grants of restricted shares to our named executive
officers but has not done so at this time. As of August 1, 2010, we
have granted stock options to purchase 2,563,848 shares in the aggregate
to our senior executives, non-employee directors, employees and other
persons. The Compensation Committee awards stock options based on its
evaluation of an individual’s contribution to the Company’s overall
success.
As for
the named executive officers, Mr. Raschbaum as required by his employment
agreement was granted 333,334 options in November 2008 and 333,333 options in
November 2009. Mr. Marshaleck was granted 25,000 options in November 2008,
75,000 options in February 2009, and 50,000 options in March 2010. Ms. Schmitt
was granted 25,000 options in November 2008, 75,000 options in February 2009,
and 50,000 options in March 2010. Mr. Haveron was granted 40,000 options in
March 2010. The stock options granted to Mr. Marshaleck, Ms. Schmitt
and Mr. Haveron, along with the rest of the employees, are at the complete
discretion of the Compensation Committee. Until we create a formal
long term incentive plan, the only form of long term compensation presently
awarded to the named executive officers are via stock options and are well
within the benchmarked long term awards granted to similarly situated
executives.
Jim B.
Rosenberg
Division
of Corporation Finance
August
12, 2010
Page
13
Retirement
Plan. We do not provide either a qualified or non-qualified
pension plan for our named executive officers. However, it is intended that all
of our employees will be eligible to participate in pension plans which have
been or will be established on their behalf.
Change in Control and Severance
Arrangements. We do not maintain change in control agreements
with any of our named executive officers. We do not provide any other severance
benefits, other than as may be provided from time to time in an executive’s
employment agreement. Currently, none of the employment agreements with our
named executive officers provide for a change in control or severance
payments.
In
connection with our response to your Comment Letter, the Company hereby
acknowledges that:
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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Staff
comments or changes to the disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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The
Company further understands that the Division of Enforcement has access to all
information provided to the Staff in the Staff’s review of our filings or in
response to the Staff’s comments on our filings.
The
Company trusts that you will find the foregoing to be responsive to the Staff’s
comments. Please contact the Company’s General Counsel Lawrence F.
Metz at (856) 359-2586 if you require any further information.
Sincerely,
/s/ Arturo M.
Raschbaum
Arturo M.
Raschbaum
President
and Chief Executive Officer
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cc:
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John
M. Marshaleck (Chief Financial Officer)
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Patrick
J. Haveron (Executive Vice President)
Lawrence
F. Metz, Esq. (SVP, General Counsel and Secretary)
William
C. Hicks, Esq. (Edwards Angell Palmer & Dodge
LLP)
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