UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
_____________________________________
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x | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to §240.14a-12 | ||
ENSTAR GROUP LIMITED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Enstar Group Limited | 2 | 2017 Proxy Statement |
Dear Fellow Shareholders:
On behalf of Enstar Group Limited's Board of Directors, I invite you to join us at our 2017 Annual General Meeting of Shareholders on Tuesday, June 13, 2017 at 9:00 a.m. Atlantic time.
Meeting Details. The meeting will be held at our Bermuda headquarters, Windsor Place, 3rd Floor, 22 Queen Street, in Hamilton, to vote on the matters described in the notice of the Annual General Meeting and the Proxy Statement that follow. We also encourage you to read our 2016 Annual Report on Form 10-K to learn more about our performance.
Creating Long-term Value. Our Board's constant focus is on creating long-term value for our shareholders. Net earnings for 2016 increased more than 20% to an all-time high of $264.8 million. This was our fifth consecutive year delivering earnings growth. Book value per share increased nearly 11% to reach $143.68, and we have brought significant momentum into 2017. Enstar's performance demonstrates that the business model our founders put in place two decades ago endures successfully and prospers across market cycles. Our differentiated claims management expertise drives profitability in legacy business. Our diversified underwriting businesses remain disciplined, navigating the current market challenges by selectively pursuing only quality growth, developing tailored products, and building distribution relationships and other new partnerships.
Strategic Partnerships. Acquisitions fuel our future earnings potential, and our Board understands that we must continue to grow. Key to this growth is staying true to our entrepreneurial spirit and continuing to innovate in sourcing, structuring, and closing on new opportunities. The $1.1 billion Allianz transaction in 2016 brought loss reserves directly suited to our management expertise, and has already proved a catalyst for similarly large deals with other global industry leaders such as RSA and QBE. We also launched reinsurer KaylaRe in December 2016 in partnership with Hillhouse Capital and Stone Point Capital, and we are excited by the promise of this new venture.
Governance. Your interests are vigorously represented in our boardroom. The fresh perspectives we have added in recent years provide Enstar with a diverse and engaged Board attuned to both the markets in which we operate and our responsibilities as stewards of your investment. With Goldman Sachs selling its stake in Enstar after nearly six years, we were gratified that Canada Pension Plan Investment Board and Hillhouse Capital acquired many of these shares, and we welcomed Jie Liu of Hillhouse Capital to our Board in 2017. We again conducted a shareholder engagement program in which we spoke to our large shareholders and proxy advisory firms, and listened to their expectations and perspectives. We will continue this valuable dialog in the years ahead.
Boardroom Focus. Our Board will continue to focus on ensuring our platform is well-positioned to seize opportunities that will create long-term value. This means overseeing the actions we are taking to enhance the scalability of our operating platform and technology so that we can take on more transactions, seamlessly integrate them, and realize their value. Proper management of our investable assets, which now constitute over $400 per share, is critical to our continued success, and our Board allocates significant time and resources to the oversight of Enstar’s investment policies, strategies and results. We place an emphasis on succession planning and providing the future leaders of our business with opportunities to develop and advance. Enterprise risk management remains at the forefront, and to that end, in 2017 we have revised our Board committee structure and will launch a dedicated Risk Committee that will work more closely with the business to see that we are identifying and proactively addressing risks and opportunities.
Voting. Your support is important, so please vote as soon as possible using the internet, telephone, or, if you received a proxy/voting instruction card, by marking, dating, and signing it, and returning it by mail.
I hope to see you at the 2017 Annual General Meeting. As always, thank you for your continued support of Enstar.
Sincerely, |
 |
Robert J. Campbell |
Chairman of the Board |
Enstar Group Limited | 3 | 2017 Proxy Statement |
ENSTAR GROUP LIMITED
NOTICE OF 2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
June 13, 2017
To the shareholders of Enstar Group Limited:
Notice is hereby given that the 2017 Annual General Meeting of Shareholders of Enstar Group Limited (the "Company") will be held at the following location and for the following purposes:
When: | Tuesday, June 13, 2017 at 9:00 a.m. Atlantic time | |
Where: | Windsor Place, 3rd Floor 22 Queen Street Hamilton, Bermuda HM11 | |
Items of Business: | 1. | To elect three Class II Directors nominated by our Board of Directors to hold office until 2020. |
2. | To hold an advisory vote on the frequency of future advisory votes to approve executive compensation. | |
3. | To hold an advisory vote to approve executive compensation. | |
4. | To ratify the appointment of KPMG Audit Limited as our independent registered public accounting firm for 2017 and to authorize the Board of Directors, acting through the Audit Committee, to approve the fees for the independent registered public accounting firm. | |
5. | To act on the election of directors for our subsidiaries. | |
Who Can Vote: | Only holders of record of our voting ordinary shares at the close of business on April 17, 2017 are entitled to notice of and to vote at the meeting. | |
You are cordially invited to attend the Annual General Meeting in person. To ensure that your vote is counted at the meeting, however, please vote as promptly as possible. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your vote by proxy is revocable at your option in the manner described in the proxy statement.
By Order of the Board of Directors, |
 |
Audrey B. Taranto |
Corporate Secretary |
Hamilton, Bermuda |
April 28, 2017 |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 13, 2017 This notice of meeting, the proxy statement, the proxy card and the annual report to shareholders for the year ended December 31, 2016 are available at https://investor.enstargroup.com/annual-reports. |
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
To assist you in reviewing our proxy statement, we have summarized several key topics below. The following description is only a summary and does not contain all of the information that you should consider before voting. For more complete information, you should carefully review the rest of our proxy statement, as well as our Annual Report to Shareholders for the year ended December 31, 2016.
Annual General Meeting of Shareholders Information
Date and Time June 13, 2017 9:00 a.m., Atlantic time | Place Enstar Group Limited’s Corporate Headquarters Windsor Place, 3rd Floor, 22 Queen Street, Hamilton, Bermuda |
Record Date April 17, 2017 | Voting Your vote is very important and we urge you to vote as soon as possible. See Question and Answer No. 10 on Page 3 for voting instructions. |
Voting Matters
Proposal | Board of Directors’ Vote Recommendation | Page References |
1. Election of Directors: B. Frederick Becker James D. Carey Hitesh R. Patel | FOR the Director Nominees | Page 6 (Nominee Biographies) Page 54 (Proposal No. 1) |
2. Advisory Vote on Frequency of Future Advisory Votes to Approve Executive Compensation | 1 YEAR | Page 55 (Proposal No. 2) |
3. Advisory Approval of Enstar’s Executive Compensation | FOR | Page 31 (Compensation Discussion and Analysis) Page 45 (Summary Compensation Table) Page 56 (Proposal No. 3) |
4. Ratification of KPMG Audit Limited as the Independent Registered Public Accounting Firm for 2017 | FOR | Page 57 (Proposal No. 4) Page 57 (Audit and Non-Audit Fees Table) |
5. Acting on Election of Directors for our Subsidiaries | FOR each Subsidiary Director Nominee | Page 59 (Proposal No. 5) Appendix A (Subsidiary Director Nominee Biographies) |
Board Composition
The following describes our current Board composition and current committee assignments of each of our directors.
Director | Age | Director Since | Primary Occupation | Independent | Board Committee Membership* | Other Current Public Boards |
Robert J. Campbell (Chairman) | 68 | 2007 | Partner, Beck Mack and Oliver | þ | AC, CC, NGC, IC | 2 |
Dominic F. Silvester | 56 | 2001 | CEO, Enstar Group Limited | 0 | ||
B. Frederick Becker | 70 | 2015 | Chairman, Clarity Group, Inc. | þ | AC, CC, NGC | 0 |
Sandra L. Boss | 50 | 2015 | Bank of England Policy Committee Member; former McKinsey partner | þ | CC, NGC, RC | 1 |
James D. Carey | 50 | 2013 | Senior Principal, Stone Point Capital | IC | 0 | |
Hans-Peter Gerhardt | 61 | 2015 | CEO, Asia Capital Re | þ | 0 | |
Jie Liu | 38 | 2017 | Managing Director, Hillhouse Capital | 0 | ||
Paul J. O’Shea | 59 | 2001 | President, Enstar Group Limited | 0 | ||
Hitesh R. Patel | 56 | 2015 | Former CEO, Lucida plc; former KPMG Partner | þ | AC, NGC, RC | 0 |
Poul A. Winslow | 51 | 2015 | Managing Director, CPPIB | þ | CC, IC | 0 |
*Committee Legend: AC - Audit CC - Compensation NGC - Nominating and Governance RC - Risk IC - Investment | ||||||
Enstar Group Limited | i | 2017 Proxy Statement |
Board Statistics
● | Added 1 new director in early 2017 | ● | 7:3 ratio of Internationally Residing vs. US Directors provides global perspective |
● | Average Board Tenure: 5.6 years (Median 2 years) | ● | Average and Median Board Age: 56 |
Enstar is committed to sound governance, and we employ a number of practices that the Board believes are in the best interests of the Company and our shareholders. Highlights of these practices are listed below.
● | An independent director serves as Chairman of the Board | ● | Maintain separate roles for the Chairman and the CEO |
● | Majority of independent directors, entirely independent Audit, Compensation, and Nominating and Governance Committees | ● | No "over-boarding" - none of our current directors serve on the Board of more than two other publicly traded companies |
● | Recently expanded board to include additional independent directors | ● | Shareholder engagement program to solicit feedback on governance and compensation programs |
● | Majority voting standard in uncontested elections of directors | ● | Shareholder advisory vote on executive compensation held annually |
● | No super-majority voting requirements other than as required by Bermuda law | ● | Compensation Committee engages an independent compensation consultant |
● | No shareholder rights plan ("poison pill") | ● | Adopted a Clawback Policy |
● | Perform annual risk assessment of compensation programs | ● | Robust code of conduct that requires all employees and directors to adhere to high ethical standards |
● | No tax gross-ups on change of control | ● | Regular executive sessions of independent directors |
● | Board and Committee oversight of Enterprise Risk Management programs and processes | ● | Created new board level Risk Committee to enhance oversight in this area |
● | Annual Board and Committee performance evaluations are conducted | ● | Equity incentive plan prohibits re-pricing of underwater stock options and stock appreciation rights ("SARs") |
● | Anti-hedging policy in place (applicable to directors and all employees) | ● | Executive officer contractual change in control payments are "double trigger" |
Enstar Group Limited | ii | 2017 Proxy Statement |
Business Highlights
Enstar is a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting capabilities through its network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international locations. In 2016, we had another strong year. Select highlights included:
Increased book value per share: | |
● | We increased fully diluted book value per share 10.8% from $129.65 in 2015 to $143.68 in 2016. |
● | Since publicly listing in 2006, our book value per share has increased by a 16.3% compound annual growth rate. |
Significant growth through transactions: | |
● | We completed four major run-off transactions in 2016 and launched a specialty reinsurer. We acquired $1.4 billion of insurance reserves through new transactions during 2016. |
● | Total assets as of December 31, 2016 increased 9.3% to $12.9 billion, from $11.8 billion in 2015—an increase of 118.6% since 2012. |
Increased net earnings to an all-time high: | |
● | We increased net earnings from $220.3 million in 2015 to $264.8 million in 2016. |
● | Our non-life run-off segment earnings remained solid (contributing $206.7 million to net earnings in 2016), with life and annuities contributing $26.5 million. |
● | StarStone nearly doubled its net earnings contribution to Enstar ($25.2 million in 2016 compared to $13.7 million in 2015). |
● | Atrium contributed $6.4 million to net earnings in 2016. |
Enstar Group Limited | iii | 2017 Proxy Statement |
Executive Compensation
Philosophy:
We are a rapidly growing company operating in an extremely competitive and changing industry. Our compensation program is based on these core principles:
Incentivize performance consistent with clearly defined corporate objectives |
Align our executives’ long-term interests with those of our shareholders |
Fairly compensate our executives |
Retain and attract qualified executives who are able to contribute to our long-term success |
Key Compensation Decisions for 2016 Performance Year:
Our Compensation Committee made the following key compensation decisions:
Incentive Bonuses: Determined that the Company achieved "Target" level financial performance during the first year of using financial performance metrics in determining bonuses. |
Long-Term Incentive Awards: No new equity-based grants were made in 2016 to executives who had received SARs in 2014. The Compensation Committee granted equity awards to our CFO, who did not have any previous long-term incentive compensation. |
Base Salaries: Base salaries for our executive officers increased by 2% for calendar year 2016. |
Total Reported Compensation Mix: Our 2016 total reported compensation mix comprises 45% base salary and 55% annual incentive award for our CEO. Our average for other executives was 51% annual incentive award, 40% base salary, and 9% long-term incentive award. This reflected that the entire grant date fair values for the SAR awards made in 2014 under our long-term incentive plan were reported in the grant year. |
Recent Compensation Changes:
At last year's annual general meeting held on June 14, 2016, our shareholders approved the compensation of our executive officers with 92% of the total votes cast in favor of the proposal. While we aim to achieve higher than 92%, our Board of Directors considered the results as indicative of a reasonable level of support for decisions and a recognition of the changes made to our compensation programs since 2015. For the 2016 year we:
Continued engagement efforts with our shareholders: Following on from our initial program last year, we again sought feedback from our large shareholders and proxy advisory firms, speaking to the holders of approximately 40.2% of our outstanding voting shares during 2017, as described on page 32. |
Designed and implemented performance objectives for the 2016 performance year annual incentive program: The Compensation Committee established performance objectives based on a combination of financial and operational goals, which correspond to threshold, target, and maximum annual incentive award payments. Our new annual incentive award structure and results are described on page 37. |
Adopted Clawback Policy: We adopted a clawback policy applicable to all future cash and equity incentive awards. |
Awarded no new SARs: We reviewed the executive officer cash-settled SAR awards made in 2014 and determined not to make any further SAR awards. We expect to use a mix of performance share units and restricted share units for executive grants in 2017. |
Enstar Group Limited | iv | 2017 Proxy Statement |
ENSTAR GROUP LIMITED
Windsor Place, 3rd Floor
22 Queen Street
Hamilton, Bermuda
PROXY STATEMENT
2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS
1. | Why am I receiving these proxy materials? |
We have made these proxy materials available to you on the internet or, in some cases, have delivered printed copies of these proxy materials to you by mail in connection with the solicitation of proxies by the Board of Directors (the "Board") of Enstar Group Limited (the "Company") for use at the 2017 Annual General Meeting of Shareholders of the Company to be held on Tuesday, June 13, 2017 at 9:00 a.m. Atlantic time at our Company headquarters, Windsor Place, 3rd Floor, 22 Queen Street, Hamilton, Bermuda, and at any postponement or adjournment thereof. These proxy materials are first being sent or given to shareholders on April 28, 2017. You are invited to attend the Annual General Meeting and are requested to vote on the proposals described in this proxy statement.
2. | Why did I receive a one-page notice in the mail regarding the internet availability of proxy materials instead of a full set of proxy materials? |
Pursuant to rules adopted by the Securities and Exchange Commission (the "SEC"), we have elected to provide access to our proxy materials via the internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the "Notice") to our shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to request a printed copy are included in the Notice. In addition, shareholders may request proxy materials in printed form by mail or electronically by email on an ongoing basis.
We believe that providing access to our proxy materials via the internet will expedite shareholders’ receipt of materials, while lowering costs and reducing the environmental impact of our Annual General Meeting because we will print and mail fewer full sets of materials.
3. | What is included in these proxy materials? |
These "proxy materials" include this proxy statement, our Annual Report to Shareholders for the year ended December 31, 2016 and, if you received printed copies of the proxy materials by mail, the proxy card. We have included the Annual Report for informational purposes and not as a means of soliciting your proxy.
4. | What matters are being voted on at the Annual General Meeting? |
Shareholders will vote on the following proposals at the Annual General Meeting:
1. | To elect three Class II Directors nominated by our Board of Directors to hold office until 2020. |
2. | To hold an advisory vote on the frequency of future advisory votes to approve executive compensation. |
3. | To hold an advisory vote to approve executive compensation. |
4. | To ratify the appointment of KPMG Audit Limited ("KPMG") as our independent registered public accounting firm for 2017 and to authorize the Board of Directors, acting through the Audit Committee, to approve the fees for the independent registered public accounting firm. |
5. | To act on the election of directors for our subsidiaries. |
6. | To transact such other business as may properly come before the meeting and any postponement or adjournment thereof. |
Enstar Group Limited | 1 | 2017 Proxy Statement |
5. | What are the Board’s voting recommendations? |
The Board recommends that you vote your shares:
1. | "FOR" the nominees to serve on our Board (Proposal No. 1). |
2. | "1 YEAR" on the advisory vote on the frequency of future advisory votes to approve our executive compensation (Proposal No. 2). |
3. | "FOR" advisory approval of the resolution on our executive compensation (Proposal No. 3). |
4. | "FOR" the ratification of the appointment of KPMG as our independent registered public accounting firm for 2017 and the authorization of our Board, acting through the Audit Committee, to approve the fees for the independent registered public accounting firm (Proposal No. 4). |
5. | "FOR" each of the subsidiary director nominees (Proposal No. 5). |
6. | How can I get electronic access to the proxy materials? |
The Notice includes instructions regarding how to:
1. | View on the internet our proxy materials for the Annual General Meeting; and |
2. | Instruct us to send future proxy materials to you by email. |
Our proxy materials are also available on our website under "Annual General Meeting Materials" at https://investor.enstargroup.com/annual-reports.
Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it. |
7. | Who may vote at the Annual General Meeting? |
Only holders of record of our voting ordinary shares as of the close of business on April 17, 2017 (the "record date") are entitled to notice of and to vote at the Annual General Meeting. Holders of our non-voting convertible common shares are welcome to attend the Annual General Meeting, but may not vote these shares at the meeting or any postponement or adjournment thereof. As used in this proxy statement, the term "ordinary shares" does not include our non-voting convertible common shares. As of the record date, there are 16,418,069 ordinary shares issued and outstanding and entitled to vote at the Annual General Meeting, which number includes 34,916 unvested restricted shares. Except as set forth in our bye-laws, each ordinary share entitles the holder thereof to one vote. In accordance with our bye-laws, certain shareholders whose shares would otherwise represent 9.5% or more of the voting power of our ordinary shares are entitled to less than one vote for each ordinary share held by them.
8. | What is the difference between a shareholder of record and a beneficial owner of shares held in street name? |
Shareholder of Record. If your shares are represented by certificates or book entries in your name so that you appear as a shareholder on the records of American Stock Transfer & Trust Company, our stock transfer agent, you are considered the shareholder of record with respect to those shares, and the Notice or, in some cases, the proxy materials, were sent directly to you. If you request printed copies of the proxy materials, you will also receive a proxy card.
Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar institution, then you are the beneficial owner of shares held in street name and the Notice was forwarded to you by that institution. The institution holding your account is considered the shareholder of record for purposes of voting at the Annual General Meeting. As a beneficial owner, you have the right to instruct that institution on how to vote the shares held in your account.
Enstar Group Limited | 2 | 2017 Proxy Statement |
9. | What do I do if I received more than one Notice or proxy card? |
If you receive more than one Notice or proxy card because you have multiple accounts, you should provide voting instructions for all accounts referenced to be sure all of your shares are voted.
10. | How do I vote? |
We hope that you will be able to attend the Annual General Meeting in person. Whether or not you expect to attend the Annual General Meeting in person, we urge you to vote your shares at your earliest convenience by one of the methods described below, so that your shares will be represented.
Shareholders of record can vote any one of four ways:
VIA THE INTERNET | You may vote by proxy via the internet by following the instructions provided in the Notice. |
BY MAIL | If you received printed copies of the proxy materials, you may vote by proxy by filling out the proxy card and sending it back in the envelope provided. |
BY TELEPHONE | You may vote by proxy by calling the telephone number found on the internet voting site or on the proxy card, if you received a printed copy of the proxy materials. However, if you plan to vote for subsidiary directors on an individual basis under Proposal No. 5, you can do so only via the internet, by mail, or in person. |
IN PERSON | You, or a personal representative with an appropriate proxy, may vote by ballot at the Annual General Meeting. We will give you a ballot when you arrive. If you need directions to the Annual General Meeting, please call our offices at (441) 292-3645. |
If you own shares in street name, you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Internet and/or telephone voting also will be offered to shareholders owning shares through most banks and brokers. If you own shares in street name and you wish to attend the Annual General Meeting to vote in person, you must obtain a legal proxy from the institution that holds your shares and attend the Annual General Meeting, or send a personal representative with the legal proxy, to vote by ballot. You should contact your bank or brokerage account representative to learn how to obtain a legal proxy.
11. | What is the voting deadline if voting by internet or telephone? |
If you vote by internet or by telephone, you must transmit your vote by 11:59 p.m. Eastern Standard Time on June 12, 2017.
12. | How can I attend the Annual Meeting? |
You may attend the Annual General Meeting if you were an Enstar shareholder of record as of the close of business on April 17, 2017 or you hold a valid proxy for the Annual General Meeting. You should be prepared to present photo identification for admittance. If you are a shareholder of record, your name will be verified against the list of shareholders of record on the record date prior to your being admitted to the Annual General Meeting. If you are not a shareholder of record but hold shares through a broker, trustee or nominee, you should provide proof of beneficial ownership on the record date, such as a recent account statement showing your ownership, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of ownership.
13. | What is the quorum requirement for the Annual General Meeting? |
Two or more shareholders present in person or by proxy and entitled to vote at least a majority of the shares entitled to vote at the meeting constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes will be included in determining the presence of a quorum at the meeting. A broker non-vote occurs
Enstar Group Limited | 3 | 2017 Proxy Statement |
when a beneficial owner of shares held in street name does not provide voting instructions and, as a result, the institution that holds the shares is prohibited from voting those shares on certain proposals. Shares that are properly voted on the internet or by telephone or for which proxy cards are properly executed and returned, but lacking voting directions, will be counted toward the presence of a quorum.
14. | How are proxies voted? |
Shares that are properly voted on the internet or by telephone or for which proxy cards are properly executed and returned will be voted at the Annual General Meeting in accordance with the directions given or, in the absence of directions, in accordance with the Board’s recommendations as set forth in "What are the Board’s voting recommendations?" above. If any other business is brought before the meeting, proxies will be voted, to the extent permitted by applicable law, in accordance with the judgment of the persons voting the proxies.
The manner in which your shares may be voted depends on how your shares are held. If you own shares of record, you may vote by proxy, meaning you authorize individuals named on the proxy to vote your shares. If you do not vote by proxy or in person at the Annual General Meeting, your shares will not be voted. If you own shares in street name, you may instruct the institution holding your shares on how to vote your shares. If you do not provide voting instructions, the institution may nevertheless vote your shares on your behalf with respect to the ratification of the appointment of KPMG as the Company’s independent registered public accounting firm for 2017, but not on any other matters being considered at the meeting.
15. | What are the voting requirements to approve each of the proposals? |
Proposal | Voting Requirements | Effect of Abstentions | Effect of Broker Non-Votes | |
1. | Election of Directors | Affirmative Vote of Majority of Votes Cast | No effect on outcome | No effect on outcome |
2. | Advisory vote on frequency of future advisory votes to approve the Company’s executive compensation | Most Affirmative Votes Cast for One, Two, or Three years (to be approved on an advisory basis) | No effect on outcome | No effect on outcome |
3. | Advisory approval of the Company’s executive compensation | Affirmative Vote of Majority of Votes Cast (to be approved on an advisory basis) | No effect on outcome | No effect on outcome |
4. | Ratification of the appointment of KPMG as our independent registered public accounting firm for 2017 and to authorize the Board, acting through the Audit Committee, to approve its fees | Affirmative Vote of Majority of Votes Cast | No effect on outcome | Not applicable |
5. | Election of Subsidiary Directors | Board will Cause our Corporate Representative or Proxy to Vote Subsidiary Shares in the Same Proportion as Votes Received | No effect on outcome | No effect on outcome |
Each of the proposals to be voted on at the meeting, other than Proposal 2, is adopted by a majority of votes cast (as indicated in the table above), which means that a proposal must receive more votes "for" than votes "against" to be adopted. For the advisory vote in Proposal 2, the option of every one-year, two-years or three-years that receives the highest number of votes cast by shareholders will be the preferred frequency with which the Company is to provide shareholders with the opportunity to vote to approve the compensation of our named executive officers.
For the director election in Proposal 1, each nominee must receive more votes "for" than votes "against" to have a seat on the Board. For the subsidiary directors in Proposal 5, our Board will cause our corporate representative or proxy to vote the shares we hold in these subsidiaries in the same proportion as the votes received at the meeting. Where we wholly own the subsidiary, each nominee must receive more votes "for" than votes "against" to have a seat on the subsidiary board. Voting thresholds will vary where we own less than 100% of a subsidiary's shares.
Abstentions and broker non-votes are not considered votes for the purposes of any of the above listed proposals, and therefore have no effect on the election of the director nominees or the adoption of any of the other proposals.
Enstar Group Limited | 4 | 2017 Proxy Statement |
16. | Can I change my vote after I have voted? |
You may revoke your proxy and change your vote at any time before the final vote at the Annual General Meeting. You may vote again on a later date via the internet or by telephone (in which case only your latest internet or telephone proxy submitted prior to 11:59 p.m. Eastern time on June 12, 2017 will be counted), by filling out and returning a new proxy card bearing a later date, or by attending the Annual General Meeting and voting in person. However, your attendance at the Annual General Meeting will not automatically revoke your proxy unless you vote again at the Annual General Meeting or specifically request that your prior proxy be revoked by delivering a written notice of revocation prior to the Annual General Meeting to our Corporate Secretary at Enstar Group Limited, P.O. Box HM 2267, Windsor Place, 3rd Floor, 22 Queen Street, Hamilton, HM JX Bermuda.
17. | Who is paying for the cost of this proxy solicitation? |
We will bear the cost of preparing and soliciting proxies, including the reasonable charges and expenses of brokerage firms or other nominees for forwarding proxy materials to the beneficial owners of our ordinary shares. In addition to solicitation by mail, certain of our directors, officers and employees may solicit proxies personally or by telephone or other electronic means without extra compensation, other than reimbursement for actual expenses incurred in connection with the solicitation.
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CORPORATE GOVERNANCE
Board of Directors
Our Board is divided into three classes designated Class I, Class II and Class III. The term of office for each of our Class II directors expires at this year’s Annual General Meeting; the term of office for each of our Class I directors expires at our annual general meeting in 2019; and the term of office for each of our Class III directors expires at our annual general meeting in 2018. At each annual general meeting, the successors of the class of directors whose term expires at that meeting will be elected to hold office for a term expiring at the annual general meeting to be held in the third year following the year of their election.
The Board believes that all of its directors have demonstrated professional integrity, ability and judgment, as well as leadership and strategic management abilities, and have each performed exceptionally well in their respective time served as directors. Several of our current directors have served as directors of the Company for a number of years, and during this time, we have experienced significant growth and success.
In recent years we have enhanced and refreshed our Board and our newer directors have made significant contributions, drawing on backgrounds that are highly complementary to our growing Company. In early 2017, we added Jie Liu of Hillhouse Capital Management Ltd. ("Hillhouse Capital") to the Board, to fill a vacancy. During 2015, we added five independent directors: B. Frederick (Rick) Becker, Hitesh R. Patel, Poul A. Winslow, Hans-Peter Gerhardt, and Sandra L. Boss.
Particular attributes that are significant to each individual director’s selection to serve on the Board are described below.
Nominees
 | B. FREDERICK (RICK) BECKER |
Director Since: 2015 Age: 70 Class: II Enstar Committees: Audit, Compensation (Chair), Nominating and Governance (Chair) US resident; US citizen | |
Biographical Information: Rick Becker is the Chairman of Clarity Group, Inc., a US national healthcare professional liability and risk management organization, which he co-founded over 13 years ago. Prior to co-founding Clarity Group, Inc., he served as Chairman and Chief Executive Officer of MMI Companies, Inc. from 1985 until its sale to The St. Paul Companies in 2000. Mr. Becker has previously served as President and CEO of Ideal Mutual and McDonough Caperton Employee Benefits, Inc., and also served as State Compensation Commissioner for the State of West Virginia. | |
Certain Other Directorships: Mr. Becker currently serves as a director of private companies West Virginia Mutual Insurance Company, Barton and Associates, Inc., and Dorada Holdings Ltd. (Bermuda). | |
Skills and Qualifications: Compensation, governance, and risk management experience; industry knowledge Mr. Becker has over 35 years of experience within the insurance and healthcare industries. The Board also values Mr. Becker’s corporate governance experience, which he has gained from serving on many other boards over the years. In addition, his previous work on compensation matters makes him well-suited to serve as Chairman of our Compensation Committee. He has an extensive background in risk management, which enhances our risk oversight and monitoring capabilities. | |
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 | JAMES D. CAREY |
Director Since: 2013 Age: 50 Class: II Enstar Committees: Investment US resident; US citizen | |
Biographical Information: James Carey is a senior principal of Stone Point Capital LLC, a private equity firm based in Greenwich, Connecticut. Stone Point Capital serves as the manager of the Trident Funds, which invest exclusively in the global financial services industry. Mr. Carey has been with Stone Point Capital and its predecessor entities since 1997. He previously served as a director of the Company from 2001 until January 31, 2007. | |
Certain Other Directorships: Mr. Carey currently serves on certain private company boards of the portfolio companies of the Trident Funds, including Citco III Limited, Eagle Point Credit Management LLC, Oasis Outsourcing Group Holdings, LP, Sedgwick Claims Management Services, Inc., Amherst Pierpont Capital Holdings LLC, and Privilege Underwriters Inc. He served as a director of Alterra Capital Holdings Limited until 2013. Mr. Carey also serves as a director of subsidiaries that we and Trident established in connection with the Atrium/Arden and StarStone co-investment transactions. | |
Skills and Qualifications: Investment expertise; industry knowledge; significant acquisition experience Having worked in the private equity business for 20 years, Mr. Carey brings to our Board an extensive background and expertise in the insurance and financial services industries. His in-depth knowledge of investments and investment strategies is significant in his role on our Investment Committee. | |
 | HITESH R. PATEL |
Director Since: 2015 Age: 56 Class: II Enstar Committees: Audit, Nominating and Governance, Risk UK resident; UK citizen | |
Biographical Information: Hitesh Patel served as Chief Executive Officer of Lucida, plc, a UK life insurance company, from 2012 to 2013, and prior to that as its Finance Director and Chief Investment Officer since 2007. Mr. Patel has over 30 years of experience working in the insurance industry, having served in the United Kingdom as KPMG LLP's Lead Partner on Insurance Accounting and Regulatory Services from 2000 to 2007. He originally joined KPMG in 1982 and trained as an auditor. | |
Certain Other Directorships: Mr. Patel serves as a non-executive director at Aviva Life Holdings UK Ltd. (a subsidiary of Aviva plc) and as Chairman of its Audit Committee and member of the Risk and Investment Committee. He is also a non-executive director and Chair of the Audit and Risk Committee of Capital Home Loans Limited, a privately held buy-to-let mortgage provider, and Landmark Mortgage Limited. He has served as the Chair of the Insurance Committee of the Institute of Chartered Accountants of England and Wales since 2012. | |
Skills and Qualifications: Accounting expertise; regulatory and governance skills; industry experience Mr. Patel brings significant accounting expertise to our Board, obtained from over two decades of auditing and advising insurance companies on accounting and regulatory issues, which is highly valuable to our Audit Committee. His experience with insurance regulations and the regulatory environment is also a key attribute because our company is regulated in many jurisdictions around the world. As a former industry CEO, he also has significant knowledge of corporate governance matters and practices, which is valuable to our Board and the Nominating and Governance Committee. | |
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Continuing Directors
 | ROBERT J. CAMPBELL |
Director Since: 2007 Age: 68 Class: I Enstar Committees: Audit (Chair), Compensation, Investment (Chair), Nominating and Governance US resident; US citizen | |
Biographical Information: Robert Campbell was appointed as the independent Chairman of the Board in November 2011. Mr. Campbell has been a Partner with the investment advisory firm of Beck, Mack & Oliver, LLC since 1990. | |
Certain Other Directorships: Mr. Campbell is a director and chairman of the audit committee of AgroFresh Solutions, Inc. (formerly Boulevard Acquisition Corp.), a publicly traded global agricultural technologies company. He is also a director of Boulevard Acquisition Corp. II, a blank check company that completed its initial public offering in September 2015. He previously served as a director of Camden National Corporation, a publicly traded company, from 1999 to 2014. | |
Skills and Qualifications: Financial, accounting, and investment expertise; leadership skills Mr. Campbell brings to the Board his extensive understanding of finance and accounting, which he obtained through over 40 years of analyzing financial services companies and which is very valuable in his role as chairman of our Audit Committee. In addition, Mr. Campbell’s investment management expertise makes him a key member of our Investment Committee, of which he serves as chairman. Mr. Campbell continues to spend considerable time and energy in his role, which is significant to the leadership and function of our Board. | |
 | SANDRA L. BOSS |
Director Since: 2015 Age: 50 Class: III Enstar Committees: Risk (Chair), Compensation, Nominating and Governance UK resident; Dual US / UK citizen | |
Biographical Information: Sandra Boss has served since September 2014 as an External Member of the Prudential Regulation Committee of the Bank of England responsible for the prudential regulation and supervision of approximately 1,700 banks, building societies, credit unions, insurers and major investment firms. Ms. Boss was a Senior Partner at McKinsey & Company, a global management consulting firm, from 2005 to 2014, and a Partner from 2000. At McKinsey, she was a strategic advisor to global banks and investment banks as well as to a number of public sector institutions and industry bodies on financial services policy and financial markets structure. | |
Certain Other Directorships: As noted, Ms. Boss has been an External Member of the Prudential Regulation Committee of the Bank of England since September 2014. She is also a non-executive director of Elementis plc, a FTSE 250 specialty chemicals company. | |
Skills and Qualifications: Regulatory experience, financial acumen, strategic management expertise Ms. Boss brings to our Board her financial acumen, global experience in prudential regulation of financial institutions, and strategy development and oversight abilities gained from years of consulting at a highly respected, international firm. These skills are very useful to our Board as it sets strategy and oversees performance. Ms. Boss provides a unique perspective on our industry and regulatory environment, and also has a keen understanding of the financial markets in which we operate. As Chair of the Risk Committee, which we formed during 2017, she will draw on her experience and lead the committee in enhancing our oversight of enterprise risk. | |
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 | HANS-PETER GERHARDT |
Director Since: 2015 Age: 61 Class: III Swiss resident; German citizen | |
Biographical Information: Hans-Peter Gerhardt has been the Chief Executive Officer of Asia Capital Reinsurance Group since October 2015. He has served continuously in the reinsurance industry since 1981. He is the former Chief Executive Officer of PARIS RE Holdings Limited, serving in that position from the company’s initial formation in 2006 through the completion of its merger into Partner Re Ltd. in June 2010. He previously served as the Chief Executive Officer of AXA Re from 2003 to 2006, also serving as Chairman of AXA Liabilities Managers, the AXA Group’s run-off operation, during that time. | |
Certain Other Directorships: Mr. Gerhardt also serves as an executive director of Asia Capital Reinsurance Group and as a non-executive director of Tokio Marine Kiln, Tokio Millennium Re and African Risk Capacity (all privately held). He previously served as an independent director of Brit Insurance Holdings PLC until the company’s acquisition by Fairfax Financial Holdings in 2015. | |
Skills and Qualifications: Underwriting expertise; proven industry veteran Mr. Gerhardt brings decades of underwriting expertise to our Board, which is important to us as we run our active underwriting businesses, Atrium and StarStone. He is a proven industry veteran, with significant leadership experience, including several successful tenures in CEO roles. | |
 | JIE LIU |
Director Since: 2017 Age: 38 Class: I Hong Kong resident; Canadian citizen | |
Biographical Information: Jie Liu is a Managing Director at Hillhouse Capital. Prior to joining Hillhouse Capital in 2015, Mr. Liu spent more than 10 years in the financial services industry in North America. From 2010 to 2015, he was Head of Credit and a Senior Portfolio Manager at Sentry Investments, a leading Canadian asset manager. Before that, he worked at RBC Capital Markets and Standard & Poor’s. Mr. Liu obtained his M.A. in Economics from the University of Toronto and M.Sc. in Finance from the University of New Brunswick. He is also a CFA charterholder. | |
Skills and Qualifications: Investment management industry knowledge and relationships; financial expertise Mr. Liu brings to our Board his extensive knowledge of global investment markets and the investment management industry, as well as finance skills and a global perspective that we consider highly valuable to our Board’s oversight of our investment portfolios, international operations, and growth opportunities. | |
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 | PAUL J. O’SHEA |
Director Since: 2001 Age: 59 Class: I Enstar Officer Title: President Bermuda resident; Irish citizen | |
Biographical Information: Paul O’Shea was appointed as President in December 2016, when he was also named Executive Chairman of StarStone. He previously served as Executive Vice President and Joint Chief Operating Officer of the Company since our formation in 2001, and has also been a director throughout this time. He leads our mergers and acquisitions operations, including overseeing our transaction sourcing, due diligence, and negotiations processes. In 1994, Mr. O’Shea joined Dominic F. Silvester and Nicholas A. Packer in their run-off business venture in Bermuda, and he served as a director and Executive Vice President of Enstar Limited, which is now a subsidiary of the Company, from 1995 until 2001. Prior to co-founding the Company, he served as the Executive Vice President, Chief Operating Officer and a director of Belvedere Group/Caliban Group from 1985 until 1994. | |
Skills and Qualifications: Company leader; long track record of successful acquisitions; industry expertise Mr. O’Shea is a qualified chartered accountant who has spent more than 30 years in the insurance and reinsurance industry, including many years in senior management roles. As a co-founder of the Company, Mr. O’Shea has intimate knowledge and expertise regarding the Company and our industry. He has been instrumental in sourcing, negotiating and completing numerous significant transactions since our formation. | |
 | DOMINIC F. SILVESTER |
Director Since: 2001 Age: 56 Class: III Enstar Officer Title: Chief Executive Officer UK resident; UK citizen | |
Biographical Information: Dominic Silvester has served as a director and the Chief Executive Officer of the Company since its formation in 2001. In 1993, Mr. Silvester began a business venture in Bermuda to provide run-off services to the insurance and reinsurance industry. In 1995, the business was assumed by Enstar Limited, which is now a subsidiary of the Company, and for which Mr. Silvester has since then served as Chief Executive Officer. Prior to co-founding the Company, Mr. Silvester served as the Chief Financial Officer of Anchor Underwriting Managers Limited from 1988 until 1993. | |
Skills and Qualifications: Company leader; industry expertise; corporate strategy As a co-founder and CEO of the Company, Mr. Silvester contributes to the Board his intimate knowledge of the Company and the run-off industry. He is well known in the industry and is primarily responsible for identifying and developing our business strategies and acquisition opportunities on a worldwide basis. Mr. Silvester has served as our CEO since the Company’s inception, demonstrating his proven ability to manage and grow the business. | |
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 | POUL A. WINSLOW |
Director Since: 2015 Age: 51 Class: III Enstar Committees: Compensation, Investment Canadian resident; Danish citizen | |
Biographical Information: Poul Winslow has been a Managing Director of Canada Pension Plan Investment Board ("CPPIB") since 2009. Mr. Winslow also serves as Head of External Portfolio Management and Head of Thematic Investing for CPPIB, roles he has held since 2009 and 2014, respectively. Prior to joining CPPIB, Mr. Winslow had several senior management and investment roles at Nordea Investment Management in Denmark, Sweden and the United States. He also served as the Chief Investment Officer of Andra AP-Fonden (AP2) in Sweden. | |
Certain Other Directorships: Mr. Winslow serves as a director for the Hedge Fund Standards Board, a standard setting body for the hedge fund industry, and Viking Cruises Ltd, a private company. | |
Skills and Qualifications: Investment expertise; compensation and governance experience Mr. Winslow brings significant investment expertise to our Board gained from his years in senior investment roles, which is highly valuable to our Investment Committee as it oversees our investment strategies and portfolios. His experiences at CPPIB, including exposure to compensation and governance policies, are valuable in his role on our Compensation Committee. | |
Directorship Arrangements
We have previously entered into the following arrangements relating to directorships:
• | CPPIB Investment (2015) – On June 3, 2015, CPPIB purchased shares from the First Reserve partnerships ("First Reserve") representing 9.3% of our voting shares and a 9.9% economic interest. In connection with the 2015 transaction: (i) First Reserve's shareholder rights terminated and (ii) we and CPPIB entered into a new Shareholder Rights Agreement granting CPPIB contractual shareholder rights that are substantially similar to those rights previously held by First Reserve, including the right to designate one representative to our Board. CPPIB designated Poul A. Winslow as a director of the Company, and he was appointed in September 2015. The designation right terminates if CPPIB ceases to beneficially own at least 75% of the total number of voting and non-voting shares acquired by it from First Reserve. CPPIB has subsequently acquired additional shares and its current direct and indirect holdings constitute an economic interest of approximately 19.8%. |
Independence of Directors
Our Board currently consists of ten directors, of which eight are non-management directors, and six are independent. Nasdaq listing standards require that a majority of our directors be independent. For a director to be considered independent, the Board must determine that the director meets the definition of independence included in Nasdaq Marketplace Rule 5605(a)(2). This requires a determination that the director does not have any direct or indirect material relationship with us either directly or as a partner, owner, or executive officer of an organization that has a relationship with us. Our Board makes these determinations primarily based on a review of the responses of the directors to questions regarding employment and compensation history, family relationships and affiliations, discussions with the directors, and any other known relevant facts and circumstances.
The Board determined that the following six directors are independent as defined by Nasdaq Marketplace Rule 5605(a)(2):
• | Robert J. Campbell |
• | B. Frederick Becker |
• | Sandra L. Boss |
• | Hans-Peter Gerhardt |
• | Hitesh R. Patel |
• | Poul A. Winslow |
Sumit Rajpal served as a member of the Board of Directors, as a representative of Goldman Sachs, & Co., until his resignation on September 16, 2016 following Goldman Sachs' agreement to sell the majority of its shares in the Company. Mr. Rajpal was determined to be independent during his time served. Mr. Liu was invited to replace Mr. Rajpal in 2017 following Hillhouse Capital's significant investment in the Company in 2016.
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For details about certain relationships and transactions among us and our executive officers and directors, see "Certain Relationships and Related Transactions." Our Board, in making its independence determinations, considered the relationships noted in that section with respect to CPPIB (for Mr. Winslow), which has an ownership interest in Wilton Re Ltd. ("Wilton Re"). Although Mr. Winslow is an employee of CPPIB and serves as its designated representative, he does not have a material direct or indirect interest in any of the reported transactions. Mr. Winslow had no involvement in the sale of life settlements businesses to us by Wilton Re, which was completed before CPPIB invested in us, nor in the reinsurance we have with Continental Assurance Company, where our reinsurance recoverable existed prior to Wilton Re's acquisition of this company.
In determining Ms. Boss' independence, the Board considered that Ms. Boss serves as an External Member of the Prudential Regulation Committee of the Bank of England ("PRC"), which regulates our UK insurance subsidiaries, including our Lloyd's operations. To avoid any potential conflicts, she has enacted broad recusals with the PRC so that she does not participate in non-life company matters or insurance policy matters (our only PRC-regulated companies are non-life companies). The Board reviewed these matters and is satisfied that the recusals are effective in addressing any potential issues.
Board Leadership Structure
The Company has separated the positions of Chairman of the Board and Chief Executive Officer. Robert J. Campbell, an independent director, has served as Chairman since 2011 (when our then Chairman and Chief Executive Officer, Dominic F. Silvester, recommended the separation of the positions). The Board believes that separating the roles of Chairman and CEO and having Mr. Campbell serve as Chairman is the most effective leadership structure for us at this time.
The Board believes Mr. Campbell is well suited to assist with the execution of strategy and business plans, to play a prominent role in setting the Board’s agenda, to act as the liaison between the Board and our senior management, and to preside at Board and shareholder meetings.
The Board believes that our corporate governance structure appropriately satisfies the need for objectivity, and includes several effective oversight means, such as:
● | the roles of Chairman and CEO are separated; | |
● | the Chairman is an independent director; | |
● | a majority of our directors are independent; | |
● | before or after regularly scheduled Board meetings, the independent directors meet in executive session to review, among other things, the performance of our executive officers; and | |
● | the Audit, Compensation and Nominating and Governance committees of the Board consist solely of independent directors who perform key functions, such as: | |
- | overseeing the integrity and quality of our financial statements and internal controls; | |
- | establishing senior executive compensation; | |
- | reviewing director candidates and making recommendations for director nominations; and | |
- | overseeing our corporate governance structure and practices. | |
The Board recognizes, however, that no single leadership model is right for all companies at all times and that, depending on the circumstances in the future, other leadership models might be appropriate for us.
Board Committees
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, a Risk Committee, and an Investment Committee. In 2017, the Board established the Risk Committee to replace the Underwriting and Risk Committee and the Risk Committee will begin meeting in June 2017. Each of our committees operates under a written charter that has been approved by the Board. Each Committee reviews its charter annually, and recommends any proposed changes to the Board. Current copies of the charters for all of our committees are available on our website at http://www.enstargroup.com/corporate-governance. In addition, any shareholder may receive copies of these documents in print, without charge, by contacting Investor Relations at P.O. Box HM 2267, Windsor Place, 3rd Floor, 22 Queen Street, Hamilton, HM JX, Bermuda.
Our Board of Directors met a total of five times during the year ended December 31, 2016.
The primary responsibilities of each of our committees, as well as the current composition of our committees and the number of committee meetings held during 2016, are described below.
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Audit Committee | |
The primary responsibilities of our Audit Committee include: • overseeing our accounting and financial reporting process, including our internal controls over financial reporting; • overseeing the quality and integrity of our financial statements; • reviewing the qualifications and independence of our independent auditor; • reviewing the performance of our internal audit function and independent auditor; • reviewing related party transactions; • overseeing our compliance with legal and regulatory requirements; • appointing and retaining our independent auditors; • pre-approving compensation, fees and services of the independent auditors and reviewing the scope and results of their audit; and • periodically reviewing our risk exposures and the adequacy of our controls over such exposures. Although the regular oversight of risk management lies with our Risk Committee, the Audit Committee still reviews risk matters at least annually. Each member of the Audit Committee is a non-management director and is independent as defined in Nasdaq Marketplace Rule 5605(a)(2) and under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our Board has determined that Messrs. Campbell, Becker, and Patel qualify as audit committee financial experts pursuant to the definition set forth in Item 407(d)(5)(ii) of Regulation S-K, as adopted by the SEC. | Committee Members: Robert Campbell (Chair) Rick Becker Hitesh Patel |
Number of Meetings in 2016: 5 | |
Compensation Committee | |
The primary responsibilities of our Compensation Committee include: • determining the compensation of our executive officers; • establishing our compensation philosophy; • overseeing the development and implementation of our compensation programs, including our incentive plans and equity plans; • overseeing the risks associated with the design and operation of our compensation programs, policies and practices; and • periodically reviewing the compensation of our directors and making recommendations to our Board with respect thereto. Each member of the Compensation Committee is a non-management director, is independent as defined in Nasdaq Marketplace Rule 5605(a)(2), and meets the enhanced independence standards applicable to compensation committee members in Nasdaq Marketplace Rule 5605(d)(2) and the Exchange Act. Additional information on the Compensation Committee and the role of management in setting compensation is provided below in "Executive Compensation - Compensation Discussion and Analysis." | Committee Members: Rick Becker (Chair) Sandra Boss Robert Campbell Poul Winslow |
Number of Meetings in 2016: 4 | |
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Nominating and Governance Committee | |
The primary responsibilities of our Nominating and Governance Committee include: • identifying individuals qualified to become directors and reviewing any candidates proposed by directors, management or shareholders; • recommending committee appointments to the Board; • recommending the annual director nominees to the Board and the shareholders; • establishing director qualification criteria; • supporting the succession planning process; and • advising the Board with respect to corporate governance-related matters. Each member of the Nominating and Governance Committee is a non-management director and is independent as defined in Nasdaq Marketplace Rule 5605(a)(2). | Committee Members: Rick Becker (Chair) Sandra Boss Robert Campbell Hitesh Patel |
Number of Meetings in 2016: 3 | |
Risk Committee | |
The primary responsibilities of our Risk Committee will include: • assisting the Board in overseeing the integrity and effectiveness of the Company's enterprise risk management framework; • reviewing and evaluating the risks to which we are exposed, as well as monitoring and overseeing the guidelines and policies that govern the processes by which we identify, assess, and manage our exposure to risk; • reviewing and monitoring our overall risk strategy and appetite; • periodically reviewing and approving the level of risk assumed in underwriting, investment and operational activities; and • reviewing and monitoring the potential impact of emerging risks. Ms. Boss and Mr. Patel are non-management directors, and both are independent as defined in Nasdaq Marketplace Rule 5605(a)(2). *Walker Rainey is a non-executive director of our subsidiary StarStone Specialty Holdings Limited, and serves as chair of its Underwriting and Risk Committee. The Board may seek to add additional committee members in 2017. | Committee Members: Sandra Boss (Chair) Hitesh Patel Walker Rainey* |
Number of Meetings in 2016: The Risk Committee was created during 2017 and will begin meeting in June. It replaced the Underwriting and Risk Committee, which held 3 meetings in 2016. | |
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Investment Committee | |
The primary responsibilities of our Investment Committee include: • determining our investment strategy; • developing and reviewing our investment guidelines and overseeing compliance with these guidelines and various regulatory requirements and any applicable loan covenants; • overseeing our investments, including approval of investment transactions; • overseeing the selection, retention and evaluation of outside investment managers; • overseeing investment-related risks, including those related to the Company’s cash and investment portfolios and investment strategies; and • reviewing and monitoring the Company’s investment performance quarterly and annually against plan and external benchmarks agreed from time to time. Three members of the Investment Committee (Messrs. Campbell, Carey, and Winslow) are non-management directors, and two members (Messrs. Campbell and Winslow) are independent under Nasdaq Marketplace Rule 5605(a)(2). *Orla Gregory is the Company's Chief Operating Officer. Mark Smith is the Company’s Chief Financial Officer. David Rocke is an Executive Vice President of our subsidiary Enstar Limited working in mergers and acquisitions. The Board has included Ms. Gregory and Messrs. Smith and Rocke on the Investment Committee because it believes their respective knowledge and insight provides a significant benefit to the functioning of the committee. In particular, the Board believes that Ms. Gregory's strategic and operational involvement with the Chief Investment Officer and Enstar investment team is highly valuable. In addition, Mr. Smith’s insight into financial and accounting matters and knowledge of subsidiary portfolios and Mr. Rocke's involvement in mergers and acquisitions (and accompanying investment issues) support the oversight of the Company’s investments and add valuable skill sets to this committee. | Committee Members: Robert Campbell (Chair) James Carey Poul Winslow Orla Gregory* Mark Smith* David Rocke* |
Number of Meetings in 2016: 5 | |
Attendance at Meetings
We expect our directors to attend all meetings of our Board, all meetings of all committees of the Board on which they serve and each annual general meeting of shareholders, absent extraordinary circumstances.
In 2016, during the time they were serving, all of the directors attended at least 75% of the meetings of the Board and the committees of the Board on which the director served.
All directors then serving attended the 2016 annual general meeting of shareholders. In addition, in 2016, our independent directors met each quarter in executive sessions without management.
Board Oversight of Risk Management
Risk assumption is inherent in our business, and appropriately setting risk appetite and executing our business strategies accordingly is key to our performance. Effective risk oversight is an important priority for the Board, which has placed strong emphasis on ensuring that we have a robust risk management framework to identify, measure, manage, report and monitor risks that may affect the achievement of our strategic, operational and financial objectives. Our Board and its committees have risk oversight responsibility and play an active role in overseeing management of the risks we face.
In 2017, the Board replaced the Underwriting and Risk Committee with a dedicated Risk Committee to streamline board-level risk oversight; the Risk Committee will begin meeting in June. The underwriting strategy oversight responsibilities of the Underwriting and Risk Committee were delegated to the management members that regularly report to the full Board.
Although our active underwriting businesses (StarStone and Atrium) each have strong, dedicated underwriting and risk committees related to the individual business, the Board believes that enhanced centralized risk oversight is also appropriate. While all of the Board's committees play a role in risk management, the Risk Committee, reporting to the full Board, will oversee our Company's risk management framework following its launch this year.
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The overall objective of our risk management framework is to support good risk governance while facilitating the the achievement of business objectives. Our risk management framework also contributes to an effective business strategy, efficiency in operations and processes, strong financial performance, reliable financial reporting, regulatory compliance, a good reputation with key stakeholders, business continuity planning, and capital planning.
Our enterprise risk management ("ERM") function consists of numerous processes and controls that have been designed by our senior management (including our risk management team), with oversight by our Board and its committees, managed by our senior executives, and implemented by employees across our organization. Risk assumption is inherent in our business, and appropriately setting risk appetite and executing our business strategies in accordance therewith is key to our performance. For more information on ERM, refer to "Item. 1 Business - Enterprise Risk Management" of our Annual Report on Form 10-K for the year ended December 31, 2016.
The Board and its committees regularly review information regarding, among other things, our operations, loss reserves, acquisitions, credit, liquidity, investments, active underwriting, information security, and the risks associated with each. Management is responsible for the operation of the Company’s risk management function, including identifying, monitoring, prioritizing, and addressing risks, and management reports to the Board and its committees. In 2017, this reporting will include significant interaction with the newly created Risk Committee.
Our committees support the Board’s oversight of risk management in the following ways:
Committee | Risk Management Responsibilities | |
Risk Committee | Ÿ | Assists the Board in overseeing the integrity and effectiveness of the Company's ERM framework |
Ÿ | Reviews and evaluates the risks to which the Company is exposed | |
Ÿ | Monitors the guidelines and policies that govern the process by which the Company identifies, assesses, and manages its exposure to risk | |
Ÿ | Reviews reinsurance programs and practices to ensure consistency with the Company's business plan and aggregate written exposures | |
Ÿ | Reviews our overall risk appetite with input from management | |
Audit Committee | Ÿ | Oversees the Company's internal controls over financial reporting |
Ÿ | Receives direct reports on internal controls from the Company’s Internal Audit leadership, who meets with the committee on a quarterly basis and maintains an open dialogue with the Audit Committee Chairman | |
Ÿ | Reviews information security matters and makes recommendations to the Board | |
Ÿ | Receives direct reports on ERM at least annually | |
Compensation Committee | Ÿ | Oversees risks relating to the Company's compensation programs and plans (as more fully described in "Executive Compensation - Compensation Discussion and Analysis - Compensation Risk Assessment" on page 44) |
Ÿ | Conducts an annual risk assessment of our compensation programs to ensure they are properly aligned with Company performance and do not provide incentives for employees to take inappropriate or excessive risks | |
Nominating and Governance Committee | Ÿ | Oversees risks relating to corporate governance matters, including with respect to reviewing Board and Committee composition and the Company’s relations with shareholders |
Ÿ | Oversees and supports the Board in management succession planning | |
Investment Committee | Ÿ | Regularly evaluates and tests the Company's investment portfolio and investment strategies under various stress scenarios |
Ÿ | Oversees compliance with investment guidelines, which assist the Company in monitoring the Company's investment-related risks | |
Ÿ | Monitors and evaluates the Company's internal investment management department and external investment managers | |
Ÿ | Oversees the Company’s investment systems and technology resources and any associated risks | |
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Director Nominations, Qualifications and Recommendations
When identifying and evaluating director nominees, our Nominating and Governance Committee considers the nominees’ personal and professional integrity, judgment, ability to represent the interests of the shareholders, and knowledge regarding insurance, reinsurance and investment matters, as well as other factors discussed below. The Nominating and Governance Committee has primarily identified candidates through its periodic solicitation of recommendations from members of the Board and individuals known to the Board, use of third-party search firms retained by the Nominating and Governance Committee, and shareholders, although in certain private placement or acquisition-related transactions, parties have obtained the right to designate a board representative.
Sumit Rajpal, who had been the director representative from Goldman Sachs, resigned from the Board in September 2016. In February 2017, the Board appointed Jie Liu, a Managing Director of Hillhouse Capital, to fill the vacancy left by Mr. Rajpal's resignation. Several directors had opportunities to meet with Mr. Liu prior to his nomination to serve as a director. The Board determined that Mr. Liu, who has significant investment and finance expertise stemming from his role at Hillhouse Capital, was a natural fit to fill the vacancy on the Board created by Mr. Rajpal's departure.
We did not make significant changes to our Board during 2016 because we added five new independent directors in the prior year. Those 2015 changes arose because our directors noted the relatively small size of the Board at the time, considered the changes to our business and our overall growth, and identified several key skills and qualifications they believed would benefit the quality, diversity, and function of the Board as a whole. The Board sought regulatory experience, industry-specific audit and accounting expertise, active underwriting expertise, and compensation committee experience. The Board also determined that identifying UK or European-based directors was important, as the then-serving non-employee directors were primarily US residents despite the Company's significant UK and European operations.
The Nominating and Governance Committee led our efforts to identify suitable candidates. The Nominating and Governance Committee used a third-party search firm, reviewed former directors of insurance businesses impacted by recent merger activity, and considered suggestions from Board members familiar with candidates' experience in the industry. Once a candidate was identified, the Nominating and Governance Committee undertook an evaluation process.
The evaluation of new director candidates involves several steps, not necessarily taken in any particular order. The Nominating and Governance Committee reviews the candidate's qualifications and background of the candidate (which includes securing a resume and other background data and background checks), and evaluates the candidate's attributes relative to the identified needs of the Board. If the Nominating and Governance Committee wishes to pursue a candidate further, it arranges candidate interviews with committee members and other directors. After assessing feedback, the Nominating and Governance Committee presents each nominated candidate to the Board for consideration.
For incumbent directors, the Nominating and Governance Committee reviews each director’s overall service to the Company during the director’s term, including the director’s level of participation and quality of performance. The Nominating and Governance Committee considered and nominated the candidates proposed for election as director at the Annual General Meeting, with the Board unanimously agreeing on the nominees.
Director Qualifications
We seek to identify candidates who represent a mix of backgrounds and experiences that will improve the Board’s ability, as a whole, to serve our needs and the interests of our shareholders. While we do not have a formal diversity policy for selection of directors, we consider diversity broadly to include differences of professional experience, individual attributes and skill sets, perspective, knowledge and expertise in substantive matters pertaining to our business and industry.
Given the complex nature of our business and the insurance and reinsurance industry, we seek to include directors whose experiences, although varying and diverse, are also complementary to and demonstrate a familiarity with the substantive matters necessary to lead the Company and navigate our run-off and active underwriting businesses. |
Enstar Group Limited | 17 | 2017 Proxy Statement |
Board Skills Summary
The chart below highlights several categories of skills for our directors, and we have indicated the particular strengths of each director in the columns shown. While many of our directors have a wide range of experience covering all of these areas, we specifically designate expertise or leading experience.
Extensive Insurance Industry Experience | Risk Management | Finance and Accounting | Investment | Strategy | Corporate Governance | Regulatory and Government | |
Robert Campbell | þ | þ | þ | þ | |||
Rick Becker | þ | þ | þ | þ | þ | ||
Sandra Boss | þ | þ | þ | þ | þ | ||
James Carey | þ | þ | þ | þ | |||
Hans-Peter Gerhardt | þ | þ | þ | ||||
Jie Liu | þ | þ | þ | ||||
Paul O'Shea | þ | þ | þ | þ | |||
Hitesh Patel | þ | þ | þ | þ | þ | þ | |
Dominic Silvester | þ | þ | þ | ||||
Poul Winslow | þ | þ | þ | þ | |||
Shareholder Recommendations
In accordance with its charter, the Nominating and Governance Committee will consider director candidates submitted by shareholders. Shareholders may recommend candidates to serve as directors by submitting a written notice to the Nominating and Governance Committee at Enstar Group Limited, P.O. Box HM 2267, Windsor Place, 3rd Floor, 22 Queen Street, Hamilton, HM JX, Bermuda. Shareholder recommendations must be accompanied by sufficient information to assess the candidate’s qualifications and contain the candidate’s consent to serve as director if elected. Shareholder nominees will be evaluated by the Nominating and Governance Committee in the same manner as nominees it selects itself.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or was during 2016 an employee, or is or ever has been an officer, of the Company. During the year ended December 31, 2016, no executive officer served as a member of the Compensation Committee or as a director of another entity having an executive officer serving on our Compensation Committee or as one of our directors.
Code of Conduct
We have adopted a Code of Conduct that applies to all of our directors and employees, including all senior executives and financial officers. A copy of our Code of Conduct is available on our website at http://www.enstargroup.com/corporate-governance by clicking on "Code of Conduct."
In addition, any shareholder may receive a copy of the Code of Conduct or any of our committee charters in print, without charge, by contacting Investor Relations at Enstar Group Limited, P.O. Box HM 2267, Windsor Place, 3rd Floor, 22 Queen Street, Hamilton HM JX, Bermuda. We intend to post any amendments to our Code of Conduct on our website. In addition, we intend to disclose any waiver of a provision of the Code of Conduct that applies to our senior executives and financial officers by posting such information on our website or by filing a Form 8-K with the SEC within the prescribed time period. No such waivers currently exist.
Enstar Group Limited | 18 | 2017 Proxy Statement |
Shareholder Communications with the Board
Shareholders and other interested parties may send communications to the Board by sending written notice to:
Enstar Group Limited Attention: Corporate Secretary P.O. Box HM 2267 Windsor Place, 3rd Floor 22 Queen Street Hamilton, HM JX Bermuda |
The notice may specify whether the communication is directed to the entire Board, to the independent directors, or to a particular Board committee or individual director.
Our Corporate Secretary will handle routine inquiries and requests for information. If our Corporate Secretary determines the communication is made for a valid purpose and is relevant to the Company and its business, our Corporate Secretary will forward the communication to the entire Board, to the independent directors, to the appropriate committee chairman or to the individual director as the notice was originally addressed. At each regular meeting of the Board, our Corporate Secretary will present a summary of all communications received since the previous meeting that were not forwarded and will make those communications available to the directors on request.
Enstar Group Limited | 19 | 2017 Proxy Statement |
DIRECTOR COMPENSATION
2016 Director Compensation Program
Our Compensation Committee is responsible for periodically reviewing non-employee director compensation and making recommendations to our Board with respect to any changes. The Compensation Committee conducts a comprehensive review no less than biennially, which may include working with our independent compensation consultant.
In 2016, our director compensation program included:
• | a retainer payable quarterly for non-employee directors, and additional retainers payable quarterly for the Chairman of the Board and certain committee chairs; |
• | an equity retainer payable annually in the form of restricted ordinary shares with a one-year vesting period for non-employee directors and the Chairman of the Board; and |
• | meeting fees for all Board and committee meetings attended. |
Directors who are employees of the Company receive no fees for their services as directors. Pursuant to the terms of his employment with CPPIB, cash fees earned by Mr. Winslow are paid directly to CPPIB, and he has waived his equity retainer fee.
Our director retainer and meeting fees in place as of December 31, 2016 are set forth below. Committee fees differ due to workload and composition of each committee (i.e., whether the members are predominantly non-employee or employee directors) and are periodically evaluated by the Compensation Committee.
2016 Retainer Fees | Annual Amounts Payable | 2016 Meeting Fees | Amounts Payable for Attendance | |||||
Non-Employee Directors(1) | $ | 150,000 | Board Meetings | $ | 3,500 | |||
Chairman of the Board(1) | $ | 100,000 | Telephonic Board Meetings | $ | 1,000 | |||
Audit Committee Chairman | $ | 10,000 | Audit Committee Meetings | $ | 1,500 | |||
Compensation Committee Chairman | $ | 10,000 | Compensation Committee Meetings | $ | 1,250 | |||
Nominating and Governance Committee Chairman | $ | 5,000 | Nominating and Governance Committee Meetings | $ | — | |||
Investment Committee Chairman | $ | 5,000 | Investment Committee Meetings | $ | 1,250 | |||
Underwriting and Risk Committee Chairman | $ | — | Underwriting and Risk Committee Meetings | $ | — | |||
(1) | The non-employee director fee and the chairman's fee are each payable half in cash and half in restricted ordinary shares subject to a one-year vesting period. |
Deferred Compensation Plan
The Amended and Restated Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors (the "Deferred Compensation Plan") provides each non-employee director with the opportunity to elect (i) to defer receipt of all or a portion of his or her cash or equity compensation until retirement or termination and (ii) to receive all or a portion of his or her cash compensation for services as a director in the form of our ordinary shares instead of cash.
Non-employee directors electing to defer compensation have such compensation converted into share units payable as a lump sum distribution after the director leaves the Board. The lump sum share unit distribution is made in the form of ordinary shares, with fractional shares paid in cash. Non-employee directors electing to receive compensation in the form of ordinary shares receive whole ordinary shares (with any fractional shares payable in cash) as of the date compensation would otherwise have been payable. A director's participation in the Deferred Compensation Plan does not affect the vesting schedule of the equity portion of the retainer fees described above.
Enstar Group Limited | 20 | 2017 Proxy Statement |
Director Compensation Table
The following table summarizes the 2016 compensation of our non-employee directors who served during the year. Messrs. Silvester and O'Shea, as employees, are not eligible to receive compensation for Board service.
Name | Fees Earned or Paid in C(ash ($)(1)(2) | Stock Awards ($)(2)(3) | Total ($) | ||||||
Robert J. Campbell | $ | 176,250 | $ | 125,000 | $ | 301,250 | |||
Rick Becker | $ | 120,000 | $ | 75,000 | $ | 195,000 | |||
Sandra L. Boss | $ | 94,000 | $ | 75,000 | $ | 169,000 | |||
James D. Carey | $ | 90,500 | $ | 75,000 | $ | 165,500 | |||
Hans-Peter Gerhardt | $ | 87,500 | $ | 75,000 | $ | 162,500 | |||
Hitesh R. Patel | $ | 97,500 | $ | 75,000 | $ | 172,500 | |||
Sumit Rajpal(4) | $ | — | $ | — | $ | ||||
Poul A. Winslow(5) | $ | 75,000 | $ | — | $ | 75,000 | |||
(1) | Director fees listed in this column may be deferred by directors under the Deferred Compensation Plan. See footnote 3. |
(2) | Share units (rounded to the nearest whole share) acquired in lieu of the cash compensation portion of director retainer fees for 2016 under the Deferred Compensation Plan were as follows: (a) Mr. Campbell — 1,107 units; (b) Mr. Becker — 377 units; (c) Mr. Carey — 538 units; and (d) Mr. Patel — 153 units. Total share units under the Deferred Compensation Plan held by directors as of the record date are described in the footnotes to the Principal Shareholders and Management Ownership table. |
(3) | This column lists the aggregate grant date fair value of Enstar restricted ordinary shares awarded to directors as part of their Board retainer and Chairman of the Board retainer, computed in accordance with FASB Accounting Standards Codification (ASC) Topic 718. The value of the restricted ordinary shares is determined based on the closing price of our ordinary shares on the grant date. For information on the valuation assumptions with respect to awards made, refer to Note 19 to our consolidated financial statements for the year ended December 31, 2016, as included in our Annual Report on Form 10-K for the year ended December 31, 2016. The amounts above reflect the grant date fair value for these awards, excluding the accounting effect of any estimate of future forfeitures, and do not necessarily correspond to the actual value that might be recognized by the directors. |
Restricted ordinary shares are subject to a one-year vesting period and are forfeited in their entirety if a director leaves the Board prior to the vesting date. Restricted ordinary share awards listed in this column may be deferred by directors under the Deferred Compensation Plan in the form of restricted share units, subject to the same one-year vesting period ("RSUs"). The number of restricted ordinary shares or RSUs (rounded to nearest whole share) acquired by our directors during 2016 was as follows: (a) Mr. Campbell — 758 RSUs; (b) Mr. Becker — 455 RSUs; (c) Ms. Boss — 455 restricted ordinary shares; (d) Mr. Carey – 455 RSUs; (e) Mr. Gerhardt — 455 restricted ordinary shares; and (f) Mr. Patel — 455 RSUs. Fractional amounts are payable in cash at the time of vesting. Total restricted ordinary shares and RSUs held by directors as of the record date are described in the footnotes to the Principal Shareholders and Management Ownership table.
(4) | Mr. Rajpal stepped down from the Board on September 16, 2016. He had waived all fees for his services. |
(5) | Mr. Winslow has waived his equity retainer. Fees earned by him in cash are payable directly to CPPIB pursuant to the terms of his employment. |
Enstar Group Limited | 21 | 2017 Proxy Statement |
EXECUTIVE OFFICERS
DOMINIC F. SILVESTER | |
| Title: Chief Executive Officer Since: 2001 Age: 56 |
Biographical Information: Dominic Silvester has served as a director and the Chief Executive Officer of the Company since its formation in 2001. In 1993, Mr. Silvester began a business venture in Bermuda to provide run-off services to the insurance and reinsurance industry. In 1995, the business was assumed by Enstar Limited, which is now a subsidiary of the Company, and for which Mr. Silvester has since then served as Chief Executive Officer. Prior to co-founding the Company, Mr. Silvester served as the Chief Financial Officer of Anchor Underwriting Managers Limited from 1988 until 1993. | |
PAUL J. O’SHEA | |
| Title: President Since: 2001 Age: 59 |
Biographical Information: Paul O’Shea was appointed as President in December 2016, when he was also named Executive Chairman of StarStone. He previously served as EVP and Joint Chief Operating Officer of the Company since our formation in 2001, and has also been a director throughout this time. He leads our mergers and acquisitions operations, including overseeing our transaction sourcing, due diligence, and negotiations processes. In 1994, Mr. O’Shea joined Messrs. Silvester and Packer in their run-off business venture in Bermuda, and he served as a director and EVP of Enstar Limited, which is now a subsidiary of the Company, from 1995 until 2001. Prior to co-founding the Company, he served as the Executive Vice President, Chief Operating Officer and a director of Belvedere Group/Caliban Group from 1985 until 1994. | |
MARK W. SMITH | |
 | Title: Chief Financial Officer Since: 2015 Age: 64 |
Biographical Information: Mark Smith was appointed Chief Financial Officer of the Company, effective August 15, 2015. He had previously been a Partner at Deloitte & Touche, Bermuda since 1988 in Deloitte's accounting and auditing services group, where he had a distinguished public accounting career specializing in the insurance industry. Mr. Smith most recently served as the head of the financial advisory practice at Deloitte & Touche, Bermuda. He is chairman of the Insurance Advisory Committee, a Bermuda statutory committee that provides advice on insurance regulatory matters. | |
ORLA M. GREGORY | |
 | Title: Chief Operating Officer Since: 2015 Age: 43 |
Biographical Information: Orla Gregory was appointed as Chief Operating Officer during 2016. Prior to that she served as Chief Integration Officer starting in 2015. She previously served as EVP of Mergers and Acquisitions of our subsidiary, Enstar Limited, since May 2014, and prior to that was SVP of Mergers and Acquisitions since 2009. She has been with the Company since 2003. Ms. Gregory worked as Financial Controller of Irish European Reinsurance Company Ltd. in Ireland from 2001 to 2003. She worked in Bermuda from 1999 to 2001 for Ernst & Young as an Investment Accountant. Prior to this, Ms. Gregory worked for QBE Insurance & Reinsurance (Europe) Limited in Ireland from 1993 to 1998 as a Financial Accountant. | |
Enstar Group Limited | 22 | 2017 Proxy Statement |
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information as of April 17, 2017 (unless otherwise provided herein) regarding beneficial ownership of our voting ordinary shares by each of the following, in each case based on information provided to us by these individuals:
• | each person or group known to us to be the beneficial owner of more than 5% of our ordinary shares; |
• | each of our current directors and director nominees; |
• | each of the individuals named in the Summary Compensation Table; and |
• | all of our current directors and executive officers as a group. |
The following table describes the ownership of our voting ordinary shares (including restricted voting ordinary shares), which are the only shares entitled to vote at the Annual General Meeting. Percentages are based on 16,418,069 ordinary shares outstanding as of April 17, 2017.
In addition to voting ordinary shares, there were a total of 3,004,443 issued and outstanding non-voting ordinary shares as of April 17, 2017. Of these shares, CPPIB owns 1,192,941 Series C non-voting ordinary shares and 404,771 Series E non-voting ordinary shares that, together with its voting ordinary shares held directly and indirectly, represented an economic interest of approximately 19.8% as of April 17, 2017. Funds managed by Hillhouse Capital own 1,406,731 Series C non-voting shares, which together with their voting shares and warrants, represented an economic interest of approximately 9.8% as of April 17, 2017. For additional information on our non-voting ordinary shares, refer to Note 17 to our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2016.
Unless otherwise indicated, each person has sole voting and dispositive power with respect to all shares shown as beneficially owned by them.
Name of Beneficial Owner | Number of Shares | Percent of Class(1) | |
Canada Pension Plan Investment Board2 | 1,501,211 | 9.1% | |
Akre Capital Management, LLC3 | 1,458,812 | 8.9% | |
Trident V, L.P. and related affiliates4 | 1,350,000 | 8.2% | |
Beck Mack & Oliver LLC5 | 809,318 | 4.9% | |
Poul A. Winslow6 | 741,735 | 4.5% | |
Dominic F. Silvester7 | 490,732 | 3.0% | |
Nicholas A. Packer8 | 319,901 | 1.9% | |
Paul J. O’Shea9 | 185,960 | 1.1% | |
Robert J. Campbell10 | 180,847 | 1.1% | |
Orla M. Gregory11 | 8,796 | * | |
Mark W. Smith12 | 6,247 | * | |
James D. Carey13 | 5,054 | * | |
Rick Becker14 | 1,794 | * | |
Hans-Peter Gerhardt15 | 1,100 | * | |
Sandra L. Boss16 | 1,051 | * | |
Hitesh R. Patel17 | 1,205 | * | |
Jie Liu18 | 435 | * | |
All Current Executive Officers and Directors as a group (12 persons)19 | 1,624,956 | 9.9% | |
* | Less than 1% |
(1) | Our bye-laws would reduce the total voting power of any US shareholder or direct foreign shareholder group owning 9.5% or more of our ordinary shares to less than 9.5% of the voting power of all of our shares. |
(2) | Based on information provided in a Schedule 13D filed jointly on November 23, 2016 by (i) CPPIB, (ii) CPPIB Epsilon Ontario Limited Partnership ("CPPIB LP"), (iii) CPPIB Epsilon Ontario Trust ("CPPIB Trust"), and (iv) Poul A. Winslow, R. Scott Lawrence and Eric M. Wetlaufer. CPPIB's reported holding of 1,501,211 ordinary shares excludes 741,735 ordinary shares held indirectly through CPPIB LP. CPPIB Trust is the general partner of CPPIB LP, and Mr. Winslow is a trustee of CPPIB Trust. By virtue of his role as a trustee of CPPIB Trust, Mr. Winslow has shared voting and shared dispositive power over the shares, but has no pecuniary interest in the shares (see footnote 6). CPPIB also owns 1,192,941 Series C non-voting ordinary shares and 404,771 Series E non-voting ordinary shares. The principal address of the above persons and entities is One Queen Street East, Suite 2500 Toronto, ON M5C 2W5 Canada. |
Enstar Group Limited | 23 | 2017 Proxy Statement |
(3) | Based on a Schedule 13G filed jointly on February 13, 2017 by Akre Capital Management, LLC ("Akre Capital"), Akre Focus Fund, and Charles T. Akre, Jr. Akre Capital and Mr. Akre have shared voting and shared dispositive power over 1,447,760 shares. Akre Focus Fund has shared voting and shared dispositive power over 921,000 shares, and Mr. Akre has sole voting and sole dispositive power over 11,052 shares. The principal address of Akre Capital and Mr. Akre is P.O. Box 998, Middleburg, Virginia 20118. The principal address of Akre Focus Fund is 2020 East Financial Way, Suite 100, Glendora, California 91741. |
(4) | Based on information provided in a Schedule 13D/A filed jointly on November 25, 2016 by Trident V, L.P. ("Trident V"), Trident V Parallel Fund, L.P. ("Trident V Parallel"), Trident V Professionals Fund, L.P. ("Trident V Professionals" and, together with Trident V and Trident V Parallel, the "Stone Point Partnerships"), Trident Capital V, L.P. ("Trident V GP"), Trident Public Equity GP LLC ("TPE GP"), Trident Public Equity LP ("TPE LP"), and Stone Point Capital LLC ("Stone Point"). Consists of 1,350,000 ordinary shares held by TPE LP. TPE LP, TPE GP, the Stone Point Partnerships and Trident V GP have shared voting and shared dispositive power with respect to all of the ordinary shares held by TPE LP. Trident V GP, Trident Capital V-PF, L.P. ("Trident V Parallel GP"), Stone Point GP Ltd. ("Trident V Professionals GP") and TPE GP (together, the "GPs") are the sole general partners of Trident V, Trident V Parallel, Trident V Professionals and TPE LP, respectively. Pursuant to TPE LPs limited partnership agreement, any action by TPE LP with respect to the ordinary shares must be approved by a unanimous vote of the limited partners of TPE LP. Therefore, each of the Stone Point Partnerships may be deemed to beneficially own any shares directly held by TPE LP. In addition, the limited partnership agreements of each of the Stone Point Partnerships and TPE LP have the effect of conferring dispositive and voting power over the ordinary shares held by TPE LP to the GPs. Pursuant to certain management agreements, Stone Point has received delegated authority from the GPs to exercise voting rights of the ordinary shares on behalf of the partnerships, subject to certain limitations, but Stone Point does not have dispositive power over the ordinary shares. Each of the GPs and the Stone Point Partnerships has disclaimed beneficial ownership of the ordinary shares that are, or may be deemed to be, directly beneficially owned by TPE LP, except to the extent of their respective pecuniary interests therein. James Carey, a member of our Board, is a member and senior principal of Stone Point, an owner of one of four general partners of each of Trident V GP and Trident V Parallel GP, and a shareholder and director of Trident V Professionals GP. See footnote 13 with respect to 3,082 ordinary shares issuable to Mr. Carey pursuant to the Deferred Compensation Plan and not included in the Partnerships’ total reported holdings of 1,350,000 shares. Although these share units accrue to Mr. Carey personally, he holds these share units solely for the benefit of Stone Point, which may be deemed an indirect beneficial owner. The principal address for the Stone Point Partnerships, Trident V GP, TPE GP, TPE LP and Stone Point is c/o Stone Point at its principal address, which is 20 Horseneck Lane, Greenwich, CT 06830. |
(5) | Based on information provided in a Schedule 13G filed on January 31, 2017 by Beck, Mack & Oliver LLC ("Beck Mack"), a registered investment adviser under Section 203 of the Investment Advisers Act of 1940. The ordinary shares beneficially owned by Beck Mack are owned by investment advisory clients of Beck Mack. These clients have the right to receive or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. None of these clients owns more than 5% of the Company’s ordinary shares. As of December 31, 2016, Beck Mack had shared dispositive power with respect to all of the shares and sole voting power with respect to 768,014 shares. The principal address for Beck Mack is 360 Madison Avenue, New York, NY 10017. Robert J. Campbell, one of our directors, is a Partner at Beck Mack. Beck Mack disclaims beneficial ownership of the ordinary shares of the Company that are, or may be deemed to be, beneficially owned by Mr. Campbell, which are described in footnote 10. |
(6) | Mr. Winslow disclaims any beneficial ownership of the shares owned by CPPIB. See footnote 2. Mr. Winslow is the trustee of the CPPIB Trust, which is the general partner of CPPIB LP, but he has no pecuniary interest in the shares held by CPPIB LP. |
(7) | Consists of 35,339 ordinary shares held directly by Mr. Silvester and 455,393 shares held indirectly by Rock Pigeon Limited, a Guernsey company, of which Mr. Silvester and his spouse own 58.66% and 41.34%, respectively. |
(8) | Consists of (a) 16,695 ordinary shares held directly by Mr. Packer and (b) 303,206 ordinary shares held by Hove Investments Holding Limited, a British Virgin Islands company. The Hove Trust owns all of the equity interests of Hove Investments Holding Limited. Mr. Packer and his immediate family are the sole beneficiaries of the Hove Trust. The trustee of the Hove Trust is R&H Trust Co. (BVI) Ltd. Mr. Packer ceased to be an executive officer as of December 16, 2016 but remained employed by the Company through December 31, 2016 in a transition role. |
(9) | Consists of (a) 31,629 ordinary shares held directly by Mr. O’Shea and (b) 154,331 ordinary shares held by the Elbow Trust. Mr. O’Shea and his immediate family are the sole beneficiaries of the Elbow Trust. The trustee of the Elbow Trust is R&H Trust Co. (BVI) Ltd. |
(10) | Consists of (a) 49,256 ordinary shares held directly by Mr. Campbell, (b) 42,500 ordinary shares held by a self-directed pension plan, (c) 32,300 ordinary shares owned by Mr. Campbell’s spouse, (d) 25,050 ordinary shares owned by Osprey Partners, (e) 12,600 ordinary shares owned by Mr. Campbell’s children, (f) 3,000 ordinary shares owned by the Robert J. Campbell Family Trust, (g) 2,500 ordinary shares owned by the F.W. Spellissy Trust, (h) 500 ordinary shares owned by the Amy S. Campbell Family Trust, and (i) 13,141 ordinary shares issuable pursuant to the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors. Does not include 786 RSUs scheduled to vest April 3, 2018. Mr. Campbell disclaims beneficial ownership of the ordinary shares that are, or may be deemed to be, beneficially owned by Beck Mack. |
(11) | Consists of 8,796 ordinary shares held directly by Ms. Gregory. |
(12) | Includes 2,082 restricted ordinary shares held directly by Mr. Smith scheduled to vest March 31, 2018. |
(13) | Includes 3,082 ordinary shares issuable pursuant to the Deferred Compensation Plan held by Mr. Carey solely for the benefit of Stone Point, of which Mr. Carey is a senior principal. Does not include 393 RSUs scheduled to vest April 1, 2018. Mr. Carey disclaims beneficial ownership of these share units, except to the extent of his pecuniary interest therein, if any. Stone Point may be deemed an indirect beneficial owner of these ordinary shares. Does not include the ordinary shares held by the Trident V funds described in footnote 4. Mr. Carey is a member of the investment committee and owner of one of the four general partners of both of Trident V GP (the general partner of Trident V) and Trident Capital V-PF (the general partner of Trident V Parallel). Mr. Carey is also a member and senior principal of Stone Point and a shareholder and director of Stone Point GP Ltd., which is the general partner of Trident V Professionals. Mr. Carey disclaims beneficial ownership of the shares held of record or beneficially by the Partnerships, except to the extent of any pecuniary interest therein. |
(14) | Consists of 1,794 ordinary shares issuable to Mr. Becker pursuant the Deferred Compensation Plan. Does not include 393 RSUs scheduled to vest April 3, 2018. |
(15) | Includes of 393 restricted ordinary shares held directly by Mr. Gerhardt scheduled to vest April 3, 2018. |
(16) | Includes 393 restricted ordinary shares held directly by Ms. Boss scheduled to vest April 3, 2018. |
(17) | Consists of 1,205 ordinary shares issuable to Mr. Patel pursuant to the Deferred Compensation Plan. Does not include 393 RSUs scheduled to vest April 3, 2018. |
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(18) | Consists entirely of restricted ordinary shares scheduled to vest April 3, 2018. |
(19) | See footnotes 6 though 18. |
Enstar Group Limited | 25 | 2017 Proxy Statement |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities to file with the SEC and The Nasdaq Stock Market, LLC reports on Forms 3, 4 and 5 regarding their ownership of ordinary shares and other equity securities of the Company. Under SEC rules, we must be furnished with copies of these reports.
Based solely on our review of the copies of such forms received by us and written representations from our executive officers and directors, we believe that, during the year ended December 31, 2016, all filing requirements applicable to our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities under Section 16(a) were complied with on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transaction Procedures
From time to time, we have participated in transactions in which one or more of our directors, executive officers or large shareholders has an interest. These transactions, called related-party transactions, are described below. All related party transactions require the approval of our Audit Committee (comprised entirely of independent directors), which reviews each transaction for fairness, business purpose, and reasonableness. Each transaction involving the Company and an affiliate entered into during 2016 was approved by our Audit Committee. Investment transactions with related parties are also subject to the review and approval of our Investment Committee.
In addition, our Board has adopted a Code of Conduct, which states that our directors, officers and employees must avoid engaging in any activity that might create a conflict of interest or a perception of a conflict of interest. The Code of Conduct requires these individuals to raise any proposed or actual transaction that they believe may create a conflict of interest for Audit Committee consideration and review. In any situation where an Audit Committee member could be perceived as having a potential conflict of interest, that member is expected to recuse himself from the matter, and the non-interested members of the Audit Committee review the transaction.
On an annual basis, each director and executive officer completes a Directors’ and Officers’ Questionnaire that requires disclosure of any transactions with the Company in which he or she, or any member of his or her immediate family, has a direct or indirect material interest. A summary of responses from the questionnaires is reported to the Audit Committee.
Investments and Transactions Involving Affiliates of Certain Shareholders
Transactions with Trident and its Affiliates
Following several private transactions occurring from May 2012 to July 2012, Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, "Trident") acquired 1,350,000 of our ordinary shares (which as of April 17, 2017 constitute approximately 8.2% of our ordinary shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point Capital LLC ("Stone Point"), the manager of the Trident funds.
Prior to Trident’s acquisition of our ordinary shares in 2012, we invested in SKY Harbor Global Funds ("SKY Harbor"), which is managed by companies in which the Trident funds have indirect ownership interests. Additional allocations to this investment were approved by our Audit and Investment Committees and made in subsequent years. As of December 31, 2016, we had made aggregate investments of $150.0 million in Sky Harbor, which had an aggregate fair value of approximately $165.5 million. The manager of SKY Harbor charges certain fees to the funds it manages. These fees are deducted within the net asset value of the fund and totaled approximately $0.7 million for the year ended December 31, 2016. We are treated no less favorably than similarly situated investors in the fund.
During 2014, we made a commitment to invest up to $20.0 million in Trident VI Parallel Fund and Trident VI Parallel AIV-I, L.P., which are managed by Stone Point, and in August 2015, we made a $15.0 million commitment to T-VI Co-Invest-A L.P., also managed by Stone Point. As of December 31, 2016, we had funded $21.7 million of our commitments to the Trident VI funds and T-VI Co-Invest-A fund, and such investments had a fair value of $25.2 million. Stone Point charges fees to the funds it manages (other than T-VI Co-Invest-A, L.P.), which are deducted within the net asset value of the funds and totaled approximately $0.3 million for the year ended December 31, 2016. We are treated no less favorably than similarly situated investors in the funds. The Trident VI funds and the T-VI Co-Invest-A fund collectively own an approximately 43% interest in Alliant Insurance Services, an insurance brokerage firm. Alliant Insurance Services has provided brokerage services to our StarStone companies in the ordinary course of
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business and receives commission fees for business produced (on an arm's-length basis). Subsequent to December 31, 2016, we made a commitment to invest up to $10.0 million in Trident VII, L.P., also managed by Stone Point.
During 2014, we invested in Eagle Point Credit Fund L.P., which is managed by Eagle Point Credit Management LLC, a company indirectly owned by Trident (the "EP Manager"). Mr. Carey is a director of the Board of Managers of the EP Manager. As of December 31, 2016, our investment totaled $9.5 million, and its fair value was $11.3 million. The EP Manager charges certain fees to the fund, which are deducted within the net asset value of the fund and totaled approximately $0.5 million for the year ended December 31, 2016. We are treated no less favorably than similarly situated investors in the fund. We also invested $24.9 million in shares of common stock of Eagle Point Credit Company, a registered investment company indirectly owned, in part, by Trident. As of December 31, 2016, the fair value of this investment was $20.9 million. We also have separate accounts managed by the EP Manager and PRIMA Capital Advisors, LLC, a registered investment adviser, which is indirectly owned, in part, by Trident. These accounts had a balance of $111.6 million and $103.5 million, respectively, as of December 31, 2016, and we incurred approximately $0.3 million and $0.2 million, respectively, in management fees for the year ended December 31, 2016.
During 2016, we invested in Marble Point Investments LP, the general partner of which is an affiliate of the EP Manager. As of December 31, 2016, we had invested $30.1 million.
Before Mr. Carey joined our board, we invested in Sound Point Capital Floating Rate Fund, a fund managed by Sound Point Capital. Mr. Carey has an indirect minority ownership interest in, and serves as a director on the board of managers of, Sound Point Capital. As of December 31, 2016, our total investment was $4.0 million, and its fair value was $6.6 million. During 2014, we invested $17.5 million in Sound Point Credit Opportunities Offshore Fund, Ltd., a fund managed by Sound Point Capital. This investment had a fair value of $18.8 million as of December 31, 2016. Sound Point Capital charges certain fees to the funds it manages, which are deducted from the net asset value of the funds and totaled approximately $0.4 million for the year ended December 31, 2016. We are treated no less favorably than similarly situated investors in the funds.
Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO equity securities. The fair value of these investments was $20.3 million as of December 31, 2016. During 2016, we opened a separate account managed by Sound Point Capital, with a balance of $61.2 million as of December 31, 2016, with respect to which we incurred approximately $0.3 million in management fees for the year.
Fees charged pursuant to investments affiliated with entities owned by Trident or Sound Point Capital were on an arm's-length basis.
In addition, we have entered into certain agreements with Trident with respect to Trident’s co-investments in Atrium Underwriting Group Limited ("Atrium"), Arden Reinsurance Company Ltd. ("Arden"), and StarStone acquisitions. These include investors’ agreements and shareholders’ agreements, which provide for, among other things: (i) our right to redeem Trident’s 39.3% equity interest in the Atrium/Arden and StarStone transactions in cash at fair market value within the 90 days following the fifth anniversary of the Arden and StarStone closings, respectively, and at any time following the seventh anniversary of the Arden and StarStone closings, respectively; and (ii) Trident’s right to have its 39.3% equity co-investment interests in the Atrium/Arden and StarStone transactions redeemed by us at fair market value (which we may satisfy in either cash or our ordinary shares) following the seventh anniversaries of the Arden closing and StarStone closing, respectively. As of December 31, 2016, $435.6 million of the $454.5 million included as redeemable noncontrolling interest on our balance sheet relates to these Trident co-investment transactions. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on the boards of StarStone and the holding companies established in connection with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these boards who is a Stone Point employee.
During the regular course of investing for our internally managed portfolios, we may use brokers owned by a fund managed by Stone Point (such as Amherst Pierpont, which is minority owned by the Trident IV funds, which are managed by Stone Point). There are no commissions paid and quantifying the amount of compensation to the brokers is not determinable. Brokers are selected from a competitive pool using a best price execution policy.
From time to time, certain of our directors and executive officers have made significant personal commitments and investments in entities that are affiliates of or otherwise related to funds managed by Stone Point or Sound Point Capital, including some of the entities listed above.
Transactions with CPPIB
CPPIB owns approximately 9.1% of our voting ordinary shares and additional non-voting shares that, together with its voting ordinary shares held directly and indirectly, represented an economic interest of approximately 19.8% as of April 17, 2017. Poul Winslow, of CPPIB, was appointed to our Board on September 29, 2015 in connection with CPPIB's shareholder rights agreement with us. 4.5% of the voting ordinary shares are held indirectly by CPPIB through
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CPPIB LP. CPPIB is the sole limited partner of CPPIB LP. CPPIB Trust is the general partner of CPPIB LP, and Mr. Winslow is a trustee of CPPIB Trust. By virtue of his role as a trustee of CPPIB Trust, in its capacity as general partner of CPPIB LP, Mr. Winslow has shared voting and shared dispositive power over the shares, but has no pecuniary interest in the shares.
On May 5, 2015, we acquired life settlements businesses from Wilton Re Ltd. ("Wilton Re") for total consideration payable of $173.1 million (described in Note 3 to our consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2016). The final purchase price installment of $83.9 million was paid to Wilton Re on May 5, 2016. CPPIB purchased its voting and non-voting ordinary shares in Enstar subsequent to the closing of our transaction with Wilton Re. CPPIB, together with management of Wilton Re, owns 100% of the common stock of Wilton Re.
We also have a pre-existing reinsurance recoverable carried on our balance sheet at $9.4 million as of December 31, 2016 from Continental Assurance Company, a company acquired by Wilton Re after the reinsurance recoverable was established.
Transactions with Goldman Sachs Affiliates
Prior to September 2016, affiliates of Goldman, Sachs & Co. ("Goldman Sachs") owned approximately 4.1% of our Voting Ordinary Shares and 100% of our Series C Non-Voting Ordinary Shares ("Series C Shares"), which constituted an aggregate economic interest of approximately 17.5% (excluding the impact of Goldman Sachs' warrants to acquire additional Series C Non-Voting Ordinary Shares). During September 2016, Goldman Sachs affiliates: (i) sold a portion of their Voting Ordinary Shares, Series C Non-Voting Ordinary Shares, and warrants, following which they held an aggregate economic interest of approximately 8.5% and (ii) sold Series C Shares to Canada Pension Plan Investment Board ("CPPIB") that resulted in Goldman Sachs holding an aggregate economic interest of approximately 2.3%. In December 2016, we filed a registration statement at Goldman Sachs' expense, pursuant to which Goldman Sachs affiliates were permitted to offer their remaining Voting Ordinary Shares and Series C Shares for resale from time to time. In addition, Goldman Sachs affiliates completed a cashless exercise of their remaining warrants, which were exchanged for Series C Non-Voting Ordinary Shares and included under the registration statement. Sumit Rajpal, a managing director of Goldman Sachs who had been appointed to our Board of Directors in connection with Goldman Sachs’ investment in Enstar, resigned from our Board on September 16, 2016.
We have committed to invest up to $30.0 million in Vintage VI, L.P., a fund affiliated with Goldman Sachs. As of December 31, 2016, we had funded approximately $16.0 million of this investment, which had a fair value of $18.1 million. We have also committed to invest up to $25 million in West Street Capital Partners VII, a private equity fund managed by Goldman Sachs' Merchant Banking Division. As of December 31, 2016, we had funded approximately $1.3 million of this investment, which had a fair value of $1.3 million. The fund managers charge certain fees to the funds they manage, which are deducted within the net asset value of the funds. These fees totaled approximately $0.5 million for Vintage and $nil million for the West Street fund for the year ended December 31, 2016. We are treated no less favorably than similarly situated investors in the funds.
We have also invested in indirect non-voting interests of two companies affiliated with Hastings Insurance Group Limited ("Hastings"). The aggregate amount invested as of December 31, 2016 was $13.2 million, and the fair value of the investment as of December 31, 2016 was $49.9 million. Our interests are held in accounts managed by affiliates of Goldman Sachs. Goldman Sachs affiliates have an approximately 38% interest in the Hastings companies, and Mr. Rajpal serves as a director of the entities in which we have invested. In connection with the Hastings investment, Goldman Sachs receives certain fees from us (on terms no less favorable than for similarly situated investors) pursuant to the terms of the documents governing the investments. For the year ended December 31, 2016, these fees totaled approximately $3.1 million.
During 2016, Goldman Sachs Asset Management, a Goldman Sachs affiliate, began providing investment management services to our subsidiaries pursuant to arm's-length agreements reflecting customary terms and conditions. Our interests are held in accounts managed by affiliates of Goldman Sachs, with a balance of $748.0 million as of December 31, 2016, with respect to which we incurred approximately $0.8 million in aggregate management fees for the year.
Fees charged pursuant to investments with affiliates of Goldman Sachs were on an arm's-length basis.
During the regular course of investing for our internally managed portfolios, we may use brokers affiliated with Goldman Sachs to execute ordinary course securities investment transactions through such brokers on arm's-length terms and conditions. There are no commissions paid and quantifying the amount of compensation to the brokers is not determinable. Brokers are selected from a competitive pool using a best price execution policy.
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KaylaRe
On December 15, 2016, our equity method investee, KaylaRe Holdings Ltd. ("KaylaRe") completed an initial capital raise of $620.0 million. We, through our subsidiary, own approximately 48.4% of KaylaRe's common shares. We also have a warrant to purchase up to 900,000 common shares of KaylaRe, exercisable upon an initial public offering or listing of KaylaRe’s common shares at an exercise price of $20.00 per share ("Warrant"). We have recorded the investment in KaylaRe using the equity method basis of accounting. Our investment in the common shares and warrants of KaylaRe was carried at $294.6 million in other assets on our consolidated balance sheet as of December 31, 2016.
In connection with our investment in KaylaRe, we entered into a Shareholders Agreement with the other shareholders in KaylaRe, including Trident (which owns approximately 8.1% of KaylaRe's common shares and a Warrant to purchase up to 150,000 common shares of KaylaRe) and HH KaylaRe Holdings, Ltd., an affiliate of Hillhouse Capital (which owns approximately 43.5% of KaylaRe's common shares and a Warrant to purchase up to 810,000 common shares of KaylaRe). The Shareholders Agreement (i) provides us with the right to appoint one member to the KaylaRe Board of Directors until the date that we own less than 1,250,000 common shares, (ii) includes a five year lock-up period on common shares of KaylaRe (unless KaylaRe completes an initial public offering before the expiry of this five year lock-up period), and (iii) provides customary tag-along rights and rights of first refusal in the case of certain proposed transfers by any other shareholder and customary preemptive rights in the event of a proposed new issuance of equity securities by KaylaRe. In the event that KaylaRe has not consummated an initial public offering by March 31, 2021, Trident has the right to require us and Hillhouse Capital to purchase on a pro rata basis all of their common shares in KaylaRe at the then-current fair market value.
Our subsidiary, Enstar Limited, acts as insurance and reinsurance manager to KaylaRe's subsidiary, KaylaRe Ltd. Affiliates of Enstar have also entered into various reinsurance agreements with KaylaRe Ltd., and KaylaRe Ltd. will also have the opportunity to participate in future Enstar legacy transactions. We also provide administrative services to KaylaRe and KaylaRe Ltd.
Through a Quota Share Agreement dated December 15, 2016, (the "KaylaRe-StarStone QS") several of our StarStone affiliates have entered into a Quota Share Treaty with KaylaRe Ltd. pursuant to which KaylaRe Ltd. reinsures 35% of all business written by these StarStone affiliates for risks attaching from January 1, 2016, net of the StarStone affiliates’ reinsurance programs. During the year ended December 31, 2016, StarStone ceded $117.6 million of premium earned, $75.7 million of net incurred losses and LAE and $42.5 million of acquisition costs to KaylaRe Ltd. under the KaylaRe-StarStone QS. These amounts were recorded in the aggregate as net incurred losses and LAE of $1.4 million in our consolidated statement of earnings for the year ended December 31, 2016 in accordance with retroactive reinsurance accounting. In addition, certain of our non-life run-off subsidiaries ceded $177.2 million of loss reserves to KaylaRe Ltd. during the year ended December 31, 2016, on a funds held basis.
Our consolidated balance sheet as of December 31, 2016 included the following balances related to transactions between us and KaylaRe and KaylaRe Ltd.: reinsurance recoverable of $242.1 million, prepaid reinsurance premiums of $109.0 million, funds held of $182.3 million recorded in other liabilities, insurance and reinsurance balances payable of $132.6 million, and ceded acquisition costs of $41.2 million recorded as a reduction of deferred acquisition costs.
Our former Executive Vice President and Joint Chief Operating Officer, Nicholas Packer, now serves as Chief Executive Officer of KaylaRe, and our CEO, Dominic Silvester, serves as a member of its board of directors. Jie Liu, a member of our Board of Directors and a Managing Director at Hillhouse Capital, also serves as a member of its board of directors.
Hillhouse Capital
Investment funds managed by Hillhouse Capital collectively own approximately 2.1% of Enstar’s voting ordinary shares. These funds also own non-voting ordinary shares and warrants to purchase additional non-voting ordinary shares, which together with their voting ordinary shares, represent an approximate 9.8% economic interest in Enstar. In February 2017, Jie Liu, a Managing Director of Hillhouse Capital, was appointed to our Board.
As of December 31, 2016, our equity method investee, KaylaRe, had investments in Hillhouse InRe Fund L.P., a fund managed by Hillhouse Capital with a fair value of $350.0 million. No fees were incurred in connection with this investment during 2016.
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Indemnification of Directors and Officers; Director Indemnity Agreements
We have Indemnification Agreements with each of our directors and Mr. Packer. Each Indemnification Agreement provides, among other things, that we will, to the extent permitted by applicable law, indemnify and hold harmless each indemnitee if, by reason of such indemnitee’s status as a director or officer of the Company, such indemnitee was, is or is threatened to be made a party or participant in any threatened, pending or completed proceeding, whether of a civil, criminal, administrative, regulatory or investigative nature, against all judgments, fines, penalties, excise taxes, interest and amounts paid in settlement and incurred by such indemnitee in connection with such proceeding. In addition, each of the Indemnification Agreements provides for the advancement of expenses incurred by the indemnitee in connection with any proceeding covered by the agreement, subject to certain exceptions. None of the Indemnification Agreements precludes any other rights to indemnification or advancement of expenses to which the indemnitee may be entitled, including but not limited to, any rights arising under our governing documents, or any other agreement, any vote of our shareholders or any applicable law.
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
Company Performance
Enstar had a strong year in 2016, posting record earnings and advancing our strategic objectives. Select highlights for the year included:
• | Growth in fully diluted book value per share of 10.8% (a compound annual growth rate of 16.3% since 2006, immediately prior to our public listing); |
• | Net earnings of $264.8 million, a 48% increase from 2015; |
• | Completed four major run-off transactions and added $1.4 billion in new insurance reserves; and |
• | Increased total assets 9.3% (an increase of 118.6% since 2012). |
The graphs below show that we have outperformed peer median, notably in GAAP return on equity and growth in book value per common share (compounded annually) during the one- and three-year periods ended December 31, 2016. Our Board monitors our performance versus our industry peers for background information purposes only, and relative performance metrics are not built into our incentive programs because of the unique nature of our business (as described in "- Peer Group" below).
* | Source: SNL Financial for peer company data. |
Management Team
We are a growth company operating in an extremely competitive and changing industry. We believe that the skill, talent, judgment, and dedication of our executive officers are critical factors affecting the long-term value of our company. During 2016, our executive officer team included:
• | Dominic Silvester - Chief Executive Officer ("CEO") and co-founder; |
• | Paul O'Shea - Named President in December 2016; previously served as EVP and Joint Chief Operating Officer; co-founder; |
• | Orla Gregory - Named Chief Operating Officer in December 2016; previously served as Chief Integration Officer; |
• | Mark Smith - Chief Financial Officer ("CFO"); and |
• | Nicholas Packer - EVP and Joint Chief Operating Officer until December 2016 when he separated from Enstar to become CEO of KaylaRe; co-founder. |
Key Compensation Decisions for 2016 Performance Year
After considering our financial, operational, and strategic performance, the Compensation Committee made the following key compensation decisions:
• | Discontinued use of SAR awards; |
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• | Made no new equity awards to executive officers with previously granted awards; and |
• | Moved from our long-standing discretionary annual incentive award program to a more formalized program in which bonus opportunity was tied to financial and operational metrics. Financial objectives were awarded at "target" levels and operational objective awards varied from "threshold" to "maximum." |
Results of Shareholder Vote on Compensation; Shareholder Engagement
At last year's annual general meeting held on June 14, 2016, our shareholders approved the compensation of our executive officers with 92% of the total votes cast in favor of the proposal, a significant increase from the prior year. While we seek to achieve higher than 92%, our Board of Directors considered the results as indicative of support for decisions and a recognition of the changes made to our compensation programs.
Shareholder Engagement
The Board elected to continue our shareholder outreach efforts, which we launched the previous year following extensive deliberation about the results of the 2015 vote. The engagement program was led by two Compensation Committee members. We spoke with shareholders representing 27.4% of our outstanding voting ordinary shares, as well as with two major proxy advisory firms, and reached out to additional shareholders inviting them to engage. We have taken, and continue to take, the feedback we received from our shareholders and advisory firms into account in making compensation decisions and designing future compensation programs.
What We Heard | What We Did |
Establish rigorous performance objectives tied to defined pay-out levels for Annual Incentive Plan Awards, rather than relying on full discretion | Beginning with the 2016 award cycle under the new Annual Incentive Plan, the Compensation Committee has established performance objectives based on a combination of financial and operational goals, which will correspond to threshold, target, and maximum annual incentive award payments. |
Our SAR awards are not viewed as sufficiently performance-based; long-term incentive awards should be redesigned | We did not make any new executive SAR awards following the annual general meeting, and we are working with our compensation consultant on structuring long-term incentive awards based on performance objectives relevant to our business model and long-term goals. |
The impact of the SAR awards on overall compensation was not sufficiently clear | We clarified that the SAR awards granted in 2014 represented the long-term incentive component of our executives' compensation until their "cliff" vesting in 2017, and we did not grant any new equity to executives who held SARs. |
Our selection of peers and relative compensation of executives could be clarified | We maintained our peer group in 2016 following changes in 2015 to remove two peers viewed as potentially outsized. Our discussions continue to provide us with an opportunity to describe why simple comparisons to "peers" present challenges for Enstar, given the unique nature of our business and our leadership structure, as described below in "-Peer Group." |
Adopt a robust Clawback policy | We adopted a Clawback Policy in 2016 applicable to all cash and equity incentive awards, as described in "-Clawback Policy." |
Objectives of our Executive Compensation Program
Our Committee is responsible for establishing the philosophy and objectives of our compensation program, designing and administering the various elements of our compensation program, and assessing the performance of our executive officers and the effectiveness of our compensation program in achieving their objectives.
We are a growth company operating in an extremely competitive and changing industry. We believe that the skill, talent, judgment, and dedication of our executive officers are critical factors affecting the long-term value of our company. Therefore, our goal is to maintain an executive compensation program that will:
Incentivize performance consistent with clearly defined corporate objectives |
Align our executives’ long-term interests with those of our shareholders |
Fairly compensate our executives |
Retain and attract qualified executives who are able to contribute to our long-term success |
We have specifically identified growing our net book value per share as our primary corporate objective over the long term. We believe growth in our net book value is driven primarily by growth in our net earnings, which is in turn driven in large part by: (i) successfully completing new acquisitions; (ii) effectively managing companies and portfolios
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of business that we have acquired; (iii) executing on our active underwriting strategies; and (iv) prudently managing our investments in deploying our capital.
During 2016, the Compensation Committee selected additional financial metrics to be used in our annual compensation program, including earnings before income tax, growth in fully diluted book value per share, and return on equity. We also incorporated operational performance objectives similarly designed to drive success in these measures and to achieve long-term growth and success.
Roles of Executive Officers
The Compensation Committee makes compensation determinations for all of the executive officers. As part of the determination process, Mr. Silvester, our CEO, assesses our overall performance and the individual contribution of each member of the executive leadership team. On an annual basis, he reviews the prior year’s compensation and presents recommendations to the Compensation Committee for salary adjustments and bonus awards for each executive officer, taking into consideration each executive's achievement of his or her operational performance objectives. He also makes recommendations regarding the overall size of the executive/employee bonus pool for our 2016-2018 Annual Incentive Program, which is 15% of our consolidated net after-tax profits unless the Compensation Committee exercises its discretion to decrease or increase the percentage. The Compensation Committee discusses all recommendations with Mr. Silvester and then meets in executive session without Mr. Silvester present to evaluate his recommendations, review the performance of all of the executive officers, discuss CEO compensation, and make final compensation decisions.
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Principal Elements of Executive Compensation
Our executive compensation program currently consists of three principal elements: base salaries, annual incentive compensation and long-term incentive compensation. Executives also receive certain other benefits, including those pursuant to their employment agreements. The table below describes the elements of our executive compensation as well as the other components of our program, each of which is described in more detail later in this proxy statement.
Principal Element | Description | Key Features |
Base Salary | Provides the fixed portion of an executive’s compensation that reflects scope of skills, experience and performance | • Provides a base component of total compensation • Established largely based on scope of responsibilities, market conditions, and individual and Company performance in the preceding year |
Annual Incentive Compensation | Provides "at risk" pay that reflects annual Company performance and individual performance | • Aligns executive and shareholder interests • Designed to reward performance consistent with financial and individual operational performance objectives • 2016 was our first year using defined performance objectives, following our previous use of a fully discretionary program |
Long-Term Incentive Compensation | Provides equity-based pay, aimed at incentivizing long-term performance Includes legacy SARs, which represent the right to receive an amount in cash equal to the appreciation in value of one ordinary voting share of the Company above the fair market value on the grant date New performance stock unit ("PSUs") and restricted stock unit ("RSUs") awards were developed in 2016 and used with our non-executive senior management team; executives expected to move to this program in 2017 | • Aligns executive and shareholder interests • Drives long-term performance and promotes retention • Executive officer SARs granted in 2014 had a delayed "cliff" vesting of three years and limited period of exercisability after vesting (one year) • Shareholder dilution issues are considered when making equity awards |
Other Benefits and Perquisites | Reflects the Bermuda location of our corporate headquarters, as well as specific local market and competitive practices such as retirement benefits, Bermudian payroll and social insurance tax contributions, CEO rental expense, and administrative assistance | • Provides benefits consistent with certain local market practices in our Bermuda location in order to remain competitive in the marketplace for industry talent • Promotes retention of executive leadership team |
Employment Agreements | Provides certain protections for executives and their families in the event of death or long-term disability, termination, or change in control Change in control contractual benefits are payable only in a "double trigger" situation where employment is terminated following a change of control | • Provides Company with protections such as restrictive covenants (non-competition, non-solicitation, confidentiality, etc.) • Promotes retention over a multi-year term and a sense of security among the leadership team • Consistent with competitive conditions and legal requirements in Bermuda and the U.K. |
Compensation Allocations among Elements
For 2016, consistent with historic practices, we did not have a pre-established policy or target for the allocation of the components of our program, and the Compensation Committee considers all compensation components in total when evaluating and making decisions with respect to each individual component. Although it does not mandate a specific allocation among the components of pay, the Compensation Committee believes that a meaningful portion of each executive’s total compensation should be "at risk" and performance-based.
Prior to 2014, our use of long-term incentive awards for our executive officers was limited. This reflected the significant existing ownership of our executive officer team - primarily our three co-founders, Messrs. Silvester, O'Shea, and Packer. It also reflected our Compensation Committee's desire to minimize dilution. Annual compensation was generally composed only of the annual incentive award, base salary and the value of other benefits. In 2014, we reshaped compensation allocations with the introduction of the SARs, which allocated more compensation to long-term, equity-based incentives, and less to short-term annual incentive awards. The SARs were granted and reported in their entirety in 2014 for Messrs. Silvester, O'Shea, and Packer, although they were intended to serve as the primary long-term incentive component for these executive officers through their scheduled cliff vesting in 2017.
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Because the full grant date fair value of the SARs was required to be reported in 2014, our reported mix of compensation in 2014 was heavily weighted to long-term "at-risk" awards. Conversely, we are reporting no long-term "at-risk" awards for 2016 with respect to executive officers who held SARs even though the value of the 2014 SAR awards is ultimately driven in part by the Company's three-year performance, including 2015 and 2016.
For 2016, performance-based compensation reported in the Summary Compensation Table constituted 55% of the Chief Executive Officer’s total compensation, consisting of only annual incentives, excluding other benefits and perquisites. On average for all other executive officers, the percentage for 2016 was 51%, consisting of only annual incentives for Messrs. O'Shea and Packer and Ms. Gregory, and a restricted share award to Mr. Smith who joined the Company in August 2015 and who did not hold SARs or other awards. Because of the impact of the full value of the SAR awards reported in 2014, 82% of our CEO's total compensation was at risk for that year, with 64% awarded as a long-term incentive. Similarly, 82% of our other executive officers' compensation for 2014 was at risk, with 56% awarded as long-term incentives. The changes in these percentages between 2014 and 2015/2016 do not represent a shift in the Compensation Committee's view of the relative weighting between base salaries, annual incentives, and long-term incentives, but rather reflect the reporting of the full value of the 2014 SAR awards in the year of grant.
*Excludes other benefits and perquisites.
Role of Compensation Consultants
The Compensation Committee has the authority under its charter to retain compensation consultants and outside legal counsel or other advisors and, before selecting a consultant or advisor, must consider its independence. During 2016, the Compensation Committee engaged McLagan, an Aon Hewitt Company ("McLagan"), to provide analysis of total direct compensation of our executive officers in comparison to our peer group, to assist in the construct of our peer group, and to provide design assistance with a long-term incentive program. McLagan reports directly to the Compensation Committee and has no personal or business relationship with any Committee member or member of Company management. McLagan provides no other services to the Company. McLagan’s fees for its services were $33,705 during 2016. McLagan is a division of Aon plc, the parent company of Aon Risk Solutions, Aon Benfield and Aon Hewitt, which provided brokerage-related services to the Company (primarily in relation to StarStone) of approximately $1.48 million in 2016. These brokerage-related services are unrelated to the services provided by McLagan and collectively represented approximately 0.00029% of Aon’s revenue in 2016.
The Compensation Committee assessed the independence of McLagan in light of applicable SEC and Nasdaq rules and reviewed responses from the consultant addressing factors related to its independence. Following this review, the Compensation Committee concluded that the firm was independent and that their advisory services did not raise any conflicts of interest.
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Peer Group
In making compensatory decisions with respect to the 2016 performance year, including assessing whether we were meeting our goal of providing competitive compensation, the Compensation Committee reviewed publicly available executive officer compensation information described in the periodic filings of a group of other publicly traded companies. During early 2016, our Compensation Committee worked with McLagan to review and refresh our peer group, and the Compensation Committee again reviewed the peer group in late 2016, while reflecting upon merger activity in the industry and ongoing suitability.
Establishing a reliable peer group presents challenges for Enstar because our primary business is acquiring and operating companies and portfolios in run-off, whereas most in our industry focus primarily on writing new (re)insurance premiums. Run-off is a niche within the insurance industry, fragmented with only a handful of smaller specialist managers, and divisions within significantly larger insurance franchises. Our run-off businesses still generate the substantial share of our earnings. Certain aspects of our business also resemble private equity firms, but funds with publicly available data are typically size mismatches for Enstar. We have not identified another company that lists Enstar as its peer.
This year, we maintained our peer group from last year, following the Compensation Committee's determination that each fell approximately within our size guidelines and included comparable aspects of our business (e.g., acquisitive business models, active specialty underwriters, and a property and casualty insurer with run-off business).
While pay at these companies is generally relevant to provide a frame of reference to the Compensation Committee in determining executive compensation, the Compensation Committee reviewed the compensation paid by these companies for informational and overall comparison purposes only. We did not compensate our executives to align with a specific benchmark or target percentile or precise position within our peer group. Instead, we sought only to be generally competitive relative to our peers with the compensation we offer our executives. Given the significant differences between us and our most similar peers relating to business, operations, and executive team structure, we believe that formulaic benchmarking against our peer group or other companies to set 2016 compensation would not have provided meaningful guidance, although we will continue to evaluate our methodologies and views in future years.
The following companies were reviewed to provide an overall backdrop to the Compensation Committee’s decisions:
Alleghany Corporation | Allied World Assurance Company Holdings(1) | Argo Group International Holdings | Aspen Insurance Holdings | AXIS Capital Holdings |
Endurance Specialty Holdings(1) | Hanover Insurance Group | Hiscox Ltd | Maiden Holdings | Navigators Group |
OneBeacon Insurance Group | RenaissanceRe Holdings | Third Point Reinsurance | Validus Holdings | White Mountains Insurance Group |
(1) | These companies will not appear in our peer group in future years following recent merger activity. |
The peer group selection process focused on three criteria: (i) industry; (ii) geography (with a significant preference for the use of Bermuda companies); and (iii) size, with reference to: (A) total shareholders’ equity within approximately 0.5 to 2.5 times of our total shareholders’ equity and (B) total assets within approximately 0.5 to 2.5 times of total assets.
Industry. Given the lack of companies directly comparable to Enstar, we have designed our peer group around companies primarily focused on property and casualty (re)insurance, which are the companies against which we compete for talent. Where possible, we look for aspects of other companies that reflect elements similar to operations or strategies we have.
Geography. Publicly traded Bermuda companies (or publicly traded companies domiciled elsewhere with prominent Bermuda operations) are most relevant because these are the companies against which Enstar generally competes for talent, and the Compensation Committee believes market conditions across other Bermuda-based companies are largely what drives executives’ views as to whether they are compensated fairly and competitively. In 2015, we had added three companies domiciled in the US (Alleghany Corporation, Hanover Insurance Group, and Navigators Group) to our peer group for diversification given our significant US growth in recent years.
Size. Run-off profits are derived primarily from reserve releases rather than revenue, making peer comparison on the basis of revenue a much less relevant metric for us. The Compensation Committee designed our peer group targeting companies with approximately 0.5 to 2.5 times our shareholder equity or total assets (measured using financial
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data available at the time of consideration), which are metrics we find most relevant for purposes of comparison. The Compensation Committee also considers market capitalization in selecting a peer group.
Base Salaries
We set the salaries of our CEO and our other executive officers based on the scope of the executives’ responsibilities, taking into account the Compensation Committee's view of competitive market compensation for similar executive officer positions based on publicly available information available to the Compensation Committee. Our goal is to provide base salary amounts at levels necessary to achieve our compensation objectives of fairly compensating our executives and retaining and attracting qualified executives who are able to contribute to our long-term success. Given the competitive market for highly qualified employees in our industry and our geographic location, we believe that below-market compensation could, in the long run, jeopardize our ability to retain our executive officers.
Any base salary adjustments are generally based on competitive conditions, market increases in salaries, individual performance, our overall financial results and performance, estimates of the cost of living and changes in job duties and responsibilities. Pursuant to the employment agreements we have with our CEO and our other executive officers, once increased, the executive officer’s annual salary cannot be decreased without his or her written consent.
The Compensation Committee increased 2016 executive base salaries by 2% in connection with the annual compensation review. Accordingly, annual base salary levels for the 2016 year were approved as follows (effective April 1, 2016): (i) Dominic Silvester - $2,274,600; (ii) Paul O'Shea - $1,246,603; (iii) Nicholas Packer - $1,246,603; (iv) Orla Gregory - $1,100,000; and (v) Mark Smith - $1,020,000.
Annual Incentive Compensation
Operation of 2016-2018 Annual Incentive Compensation Program
Our 2016-2018 Annual Incentive Compensation Program (the "Annual Incentive Plan") rewards performance consistent with our primary corporate objective of increasing our net book value per share over the long term through growth in our net earnings year over year. The percentage of net after-tax profits comprising the bonus pool is 15% unless the Compensation Committee exercises its discretion to decrease or increase the percentage. The Compensation Committee, in accordance with the CEO’s recommendation, elected to reduce the size of the 2016 bonus pool from 15% to 13.2% of net after-tax profits, resulting in a total bonus pool of $40.4 million. The Annual Incentive Plan provided for the grant of annual bonus compensation (a "bonus award") to all bonus-eligible employees, including our executive officers, and excluding Atrium staff. Atrium has a different bonus program, in which our executive officers are not eligible to participate.
Executive Officer 2016 Annual Incentive Plan Targets
During 2016, we implemented an inaugural set of Company financial and operational performance objectives under our Annual Incentive Plan and established a threshold, target, and maximum annual incentive award payment structure. This change to our program followed an evaluation of the voting results from the June 2015 annual general meeting and our engagement with shareholders.
Until 2016, our longstanding practice was to use a fully discretionary annual incentive award plan as a way of addressing our acquisitive business model, in which our executives are encouraged to pursue new transactions on an opportunistic basis. We often adapt our financial, strategic, and operational plans during the course of the year to pursue these developing opportunities, and our results during early years of integrating new business can be difficult to predict. In moving to the new approach, the Compensation Committee designed a program it believed was better aligned with the expectations of our shareholders and would incentivize our executives to achieve our strategic goals. The Committee will continue to evaluate our Annual Incentive Plan to ensure it is meeting these objectives.
The 2016 program operated as follows:
Base Salary ($) x Company Financial Performance Objective (%) | + | Base Salary ($) x Operational Performance Objective (%) | +/- | Committee Adjustment Amount | = | 2016 Bonus Award |
Company financial objectives and individual operations performance objectives each comprise half of the executive's bonus potential.
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Bonus Potential
In the early part of the year, the Compensation Committee determined threshold, target, and maximum bonus potential for each executive officer with reference to Company financial performance and individual operational performance objectives, each expressed as a percentage of base salary. In setting 2016’s bonus potential, the Compensation Committee considered historic compensation levels to ensure the program would reward strong performance, and motivate and retain our executives transitioning from the former fully discretionary program. For example, the bonus potential for Messrs. O’Shea and Packer were set at higher levels (relative to base salary) than other executives to reflect that historically these officers had received a larger portion of their overall compensation from annual bonus awards. The table below sets forth each executive's bonus potential, expressed as a percentage of base salary in effect as of April 1, 2016.
Executive | Base Salary | Threshold (% of Base Salary) | Target (% of Base Salary) | Maximum (% of Base Salary) | ||
Dominic Silvester | $ | 2,274,600 | 100% | 115% | 130% | |
Paul O’Shea | $ | 1,246,603 | 100% | 150% | 200% | |
Orla Gregory | $ | 1,100,000 | 85% | 100% | 115% | |
Mark Smith | $ | 1,020,000 | 85% | 100% | 115% | |
Nicholas Packer | $ | 1,246,603 | 100% | 150% | 200% | |
Company Financial Objectives
To determine the Company financial objectives, the Compensation Committee reviewed the 2016 business plan with the full Board and the executive officers and put in place a rigorous set of financial objectives. The Compensation Committee used three financial metrics:
• | earnings before income taxes; |
• | growth in fully diluted book value per share; and |
• | return on equity. |
The Compensation Committee then selected thresholds, targets, and maximums for each of these metrics based on the Company's business plan objectives, which correspond to each executive’s bonus potential. At the time of the initial approval, the directors acknowledged that the targets were aggressive, that the Company's business plan may need to be adapted for us to pursue major developing opportunities, and that the business plan contained a number of assumptions integrally related to the estimated timing of acquisition and commercial transactions (subject to vary, sometimes significantly, from initial projections). Accordingly, the Compensation Committee stated that during the inaugural year of the program, it would reassess the Company's business plan with the Board in terms of appropriateness of assumptions and alignment with risk appetite. It planned to have a one-time reassessment and make adjustments to the Company's financial objectives if commercial and risk related circumstances dictated. Following the one-time reassessment, the financial objectives were adjusted to conform to the revised plan, and were set as follows:
Financial Metric | 2015 Actual | 2016 Threshold | 2016 Target | 2016 Maximum | 2016 Actual | Weighting |
Earnings Before Income Taxes (in millions) | $228.12 | $289.48 | $340.57 | $391.65 | $339.68 | 20% |
Growth in Fully Diluted Book Value Per Share | 8.7% | 9.4% | 11.1% | 12.8% | 10.8% | 15% |
Return on Equity | 9.6% | 9.4% | 11.0% | 12.7% | 10.5% | 15% |
Total | 50% | |||||
In assessing the Company’s performance against these financial objectives, the program allows for the Compensation Committee to consider the impact on the Company’s financial statements of certain unplanned or unanticipated events and certain nonrecurring items to ensure that the achievement of financial objectives is properly linked to performance. For 2016, the Compensation Committee determined that the Company achieved the financial objectives at target level, noting that each target financial metric was substantially achieved and 97.8% of target had been achieved overall on a weighted-average basis.
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Earnings before income taxes was achieved within 0.3% (or $0.89 million) of what the Compensation Committee viewed as an aggressive target, representing a 48% increase from 2015 and our highest earnings to date. Growth in fully diluted book value per share was achieved within 0.3% of target, and return on equity was achieved within 0.5%. In reaching the determination that each metric had been achieved at target, the Compensation Committee considered that targets were substantially achieved despite the negative impact on all metrics of a $35 million expense related to outstanding staff SAR awards, which was primarily driven by the significant increase in the Company’s share price during the fourth quarter of 2016. The Compensation Committee also acknowledged that the results were very strong given the adaptations we made during the year in pursuit of opportunities.
Operational Performance Objectives
In early 2016, the Compensation Committee asked each executive to provide a proposed set of individual operational performance goals to the CEO. The CEO reviewed and discussed these goals with each executive and provided the agreed goals to the Compensation Committee for review, deliberation and revision. The CEO submitted his proposed set of individual goals directly to the Compensation Committee.
Following year-end, each executive submitted a self-appraisal of his or her performance versus the goals to the Compensation Committee and the CEO. The Compensation Committee discussed each appraisal with the CEO before making a determination and considered his thoughts and views on overall achievement levels. For the initial year of the Compensation Committee considered achievement of "threshold" level to meet operational performance expectations, with "target" level corresponding to above expectations, and "maximum" level corresponding to exceptional performance.
Dominic Silvester: Mr. Silvester's operational performance objectives included, among others, several strategic and operational objectives as follows: acquire targeted level of total loss reserves in line with strategic business growth objectives; launch our sponsored total return reinsurer at targeted levels of capitalization; develop the capabilities for Enstar’s Bermuda reinsurance subsidiary; and review, improve, and modernize identified functions through talent optimization and operating model improvements.
The Compensation Committee determined that Mr. Silvester achieved goals consistent with the target level of his bonus potential. Under Mr. Silvester's leadership, Enstar completed transactions in 2016 involving $1.4 billion in new gross loss reserves, and progressed significant transactions with QBE Insurance Group Limited ("QBE") and RSA Insurance Group PLC ("RSA") that closed in early 2017 and added a further $2 billion in gross loss reserves. He was instrumental in identifying new acquisition opportunities outside of the traditional insurance market, including with Dana Companies, LLC ("Dana"), which the Board sees as the types of transactions that are strategically significant to our future growth potential. The Compensation Committee recognized Mr. Silvester's involvement in the successful launch of KaylaRe Ltd., with initial capital of $620 million, including developing an important relationship with Hillhouse Capital. He also oversaw operating model improvement initiatives in several key functional areas, including through new senior hires who have made significant contributions. The Compensation Committee also noted his strong leadership, corporate development skills, and strategy execution during our most profitable year to date.
Paul O'Shea: Mr. O’Shea's operational performance objectives included: lead transactional oversight and negotiations of acquisitions of targeted level of total loss reserves in line with strategic business growth objectives; lead transactional oversight of launch of total return reinsurer at targeted levels of capitalization; provide direction and oversight for Enstar as a key member of the group executive team and of subsidiary boards; and contribute to growth strategy and structuring initiatives.
The Compensation Committee determined that Mr. O’Shea achieved goals at the target level of his bonus potential, noting in particular his significant efforts during a productive year of closing and progressing transactions. The Compensation Committee recognized that he led the negotiation and completion of Enstar's 2016 transactions and early 2017 transactions, including the $1.1 billion Allianz transaction and the QBE and RSA deals. He oversaw the coordination of ongoing due diligence of potential acquisitions and new projects. Mr. O'Shea led the development, negotiation, and completion of the KaylaRe transaction. He provided leadership in his executive role throughout the year, which was recognized with his appointment as President in December, and he was involved in operating model improvement initiatives. As Chairman of the Board of the Atrium Group, he provided additional leadership and in late 2016 became more engaged with the StarStone Group, taking on the role of Executive Chairman. In addition to meeting his operational objectives, the Compensation Committee recognized his significant efforts during the year, including his increased responsibilities.
Orla Gregory: Ms. Gregory's operational performance objectives included: successfully leading group-wide operational modernization initiatives with specific focus on certain departments; managing several large-scale IT, procurement, and HR projects; successfully overseeing new business integration; spearheading global change
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management and driving cultural changes; and providing direction, guidance, and leadership to executive and senior management teams.
The Compensation Committee determined that Ms. Gregory achieved goals at the maximum level of her bonus potential. The Compensation Committee recognized that throughout the year, she was primarily responsible for efforts to achieve our operational modernization initiatives, which included significant accomplishments in terms of improving numerous functions, and leading senior actuarial and investment appointments. She managed several transformative projects, including a major initiative to deliver scalable insurance processes and systems to our businesses and oversaw business integration related to new transactions. In addition to meeting her operational objectives, the Compensation Committee determined she had not only outperformed her objectives (which had been set pursuant to her original role as Chief Integration Officer), but also that she took on increasingly greater responsibility throughout the year and played a pivotal role in the executive leadership team. In recognition of this, she was named Chief Operating Officer. Following Mr. Packer's transition to KaylaRe and Mr. O'Shea's promotion to President, the Compensation Committee determined her performance and these factors warranted a bonus award exceeding the bonus potential originally established when she was Chief Integration Officer.
Mark Smith: Mr. Smith's operational performance objectives included: deliver compliant, enhanced financial reporting and Board reporting; build out a finance operating model to support future growth and scalability; achieve capital management goals, including credit facilities, intercompany consolidations and reorganizations, and develop the capabilities for Enstar’s Bermuda reinsurance subsidiary; implement changes to optimize financial planning and mergers and acquisitions support; and improve relationships and communications with external stakeholders.
The Compensation Committee assessed that Mr. Smith achieved his operational goals at target level. The Compensation Committee recognized that Mr. Smith led a successful year of financial reporting, enhancing our SEC and other filings and the efficiency of our closing processes. He led the amendment of our revolving credit facility, which improved our borrowing terms and increased our capacity, and the funds at Lloyd's facility for our syndicates that allowed us to optimize our capital position. Further, Mr. Smith led preparatory activities in 2016 related to our inaugural senior notes offering, which culminated in a March 2017 public offering. He also led the design and execution of intercompany transactions that have improved organizational capital management and created efficiencies. Mr. Smith improved the effectiveness and capabilities of our finance operations by supporting the centralization of our in-house actuarial, tax, and treasury capabilities and processes, all of which delivered value to the organization in 2016 and a decreased reliance on service providers. The finance team provided support to our mergers and acquisitions and integration teams, and Mr. Smith also helped advance our relations with regulators, investors, and agencies throughout the year.
Nicholas Packer: Mr. Packer's operational performance objectives included: deliver non-life run-off 2016 technical income plan results; deliver 2016 StarStone business plan and expense ratio targets; oversee key structuring transactions involving our UK companies; actively transition Enstar and StarStone duties and engage in start-up activities related to new role as CEO for our total return reinsurer; contribute to developing enterprise strategy; support specified internal operational and integration initiatives; and review and progress life segment strategy and drive continued life operations efficiencies.
The Compensation Committee determined that Mr. Packer achieved goals at the threshold level of his bonus potential. The Compensation Committee based its determination on non-life run-off technical income results and StarStone both meeting plan, with StarStone performing solidly by contributing significantly more to Enstar earnings and maintaining a 98.6% combined ratio that was in line with 2015, but just below expectations in terms of its key underwriting ratio metrics. The Compensation Committee noted strong progress on both our UK internal consolidation project, which we expect to result in cost savings and operating efficiencies, and StarStone UK's redomicile to Liechtenstein, which became even more significant following Britain's vote to leave the European Union. Throughout the year, Mr. Packer transitioned responsibilities to Enstar and StarStone senior management in preparation for his move to KaylaRe, which occurred in December 2016, and focused on start-up activities for the new entity.
Committee Adjustment Amount
The Committee Adjustment Amount allows for a positive or negative discretionary adjustment of up to 10% on the formulaic bonus outcome described above. Any Committee Adjustment Amount is applied based on the Compensation Committee's judgment of the executive’s performance, including for exceptional individual or team achievements. The Committee Adjustment Amounts set forth in the 2016 Bonus Calculations table reflect the views of the Compensation Committee summarized above.
For Ms. Gregory, the Compensation Committee applied an individual performance increase of 26.9%, which was above the maximum limit. This was done in response to Ms. Gregory’s promotion to Chief Operating Officer and assumption of significant additional duties and responsibilities during the year. In making Ms. Gregory's individual
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performance adjustment, the Compensation Committee considered internal pay equity, noting that Ms. Gregory did not receive a base salary increase, equity grant, or other incentive award at the time of her promotion.
2016 Bonus Calculations
Executive | Base Salary | Company Financial Objective Achieved | Corresponding % of Base Salary | Individual Operational Performance Objective Achieved | Corresponding % of Base Salary | Committee Adjustment Amount (% of formulaic bonus) | 2016 Bonus Award |
Dominic Silvester CEO | $2,274,600 | Target | 58% | Target | 58% | 7.0% | $2,800,000 |
Paul O’Shea President | $1,246,603 | Target | 75% | Target | 75% | 7.0% | $2,000,000 |
Orla Gregory COO | $1,100,000 | Target | 50% | Maximum | 58% | 26.9% | $1,500,000 |
Mark Smith CFO | $1,020,000 | Target | 50% | Target | 50% | —% | $1,020,000 |
Nicholas Packer Former Joint COO | $1,246,603 | Target | 75% | Threshold | 50% | (9.6)% | $1,408,254 |
Long-Term Incentive Compensation
We have established the 2016 Equity Incentive Plan (the "2016 Equity Plan") to provide our employees with long-term equity-based incentive compensation, which we believe furthers our objective of aligning the interests of management and the other plan participants with those of our shareholders. The 2016 Equity Plan was approved by a 99% vote of our shareholders at last year's annual general meeting and is administered by the Compensation Committee. In considering whether to make long-term equity-based compensatory awards and how to design them, the Compensation Committee takes into account shareholder dilution and burn rate issues and related concerns.
2016 Equity Plan Snapshot
What the Plan DOES | What the Plan DOES NOT DO | ||
þ | Shareholder approval is required to issue additional shares | ý | No liberal share recycling |
þ | Requires 12-month minimum vesting period for options/SARs (with 5% carve out pool) | ý | No evergreen renewal provision |
þ | Applies annual award limits for employees and directors | ý | No granting of reload options |
þ | Awards under plan are subject to our Clawback Policy | ý | No excise tax gross-up provision |
þ | Pool was constituted solely of the shares that remained under the expired 2006 Equity Plan | ý | No liberal Change in Control definition |
þ | Performance-based awards vest on a pro-rata basis at target level upon a Change in Control | ý | No single-trigger acceleration of awards upon a Change in Control if acquirer assumes the award or substitutes a new award |
þ | All stock options and SARs must have an exercise price or base price equal to or greater than the fair market value of the underlying shares on the grant date | ý | No repricing or cash buy-out of underwater options and SARs without shareholder approval |
2016 Awards
Following the adoption of the new equity plan in June 2016, the Compensation Committee worked with our independent compensation consultant to develop a long-term incentive program for senior management, non-executive staff based on principles of equity compensation it believes are aligned with shareholder expectations and best practice. The awards included a combination of three-year cliff-vesting performance stock unit awards tied to growth in fully diluted book value per share ("PSUs") and three-year tranche-vesting restricted stock unit awards ("RSUs"), with the ratio of PSUs to RSUs increasing with relative levels of seniority.
Since the outstanding executive officer SAR awards vest in 2017 for Messrs. Silvester, O'Shea, and Packer and Ms. Gregory, no new long-term incentive plan awards were granted to these executives during 2016. The Compensation Committee granted Mr. Smith an award of restricted stock with a grant date fair value of $1 million in March 2016 under
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the previous equity plan (and prior to the development of the PSU / RSU program for senior management). This was considered a sign-on award following his initial six-months and designed to allocate a meaningful portion of his compensation package to long-term incentives. The award vests in three substantially equal annual installments beginning March 31, 2016, subject to continued employment with the Company.
The Compensation Committee expects to leverage the newly developed PSU and RSU long-term incentive award structure in designing future equity awards to our executives, beginning in 2017.
2014 SAR Awards
Several of our executive officers were granted SAR awards during 2014, which vest in 2017. The grant date fair value of these awards was reported in the Summary Compensation Table for 2014, although the awards were intended to represent the long-term incentive component of these executives' compensation until vesting. The value of awards is tied directly to increases in our stock price, which closely aligns the interests of the executives with those of our shareholders, and have a delayed vesting period of three years from the grant date and a limited period of exercisability of one year following vesting. Noting the Compensation Committee’s desire to minimize equity dilution and the existing shareholdings of our executive officers, the Compensation Committee determined that the awards should only be able to be settled in cash, based on any appreciation in our stock price at the time of exercise. Following our shareholder engagement program in 2016, we considered to the views of our shareholders who did not agree that our SARs program was sufficiently performance based and recommended we redesign future awards; this resulted in the development of our PSU / RSU program.
We did not make any new executive SAR awards and do not intend to use them in the future. In February 2017, the Compensation Committee approved an acceleration of vesting of Mr. Silvester's SARs from August 13, 2017 to March 2, 2017, and a simultaneous shortening of the expiration date from August 13, 2018 to December 31, 2017. This was in connection with entering into a new employment agreement to retain Mr. Silvester until April 2020.
Alignment of Pay and Performance
Our executive compensation program links compensation to Company and individual performance over both the short- and long-term.
What We Reward: | How We Link Pay to Performance: | How We Pay: | ||
Financial and operational out-performance, as measured against prior year and Board-approved plan Achievement of individual strategic goals | è | Financial Performance measured across 3 key metrics, against prior year and Board-approved plan: -Earnings Before Income Tax -Growth in Fully Diluted Book Value Per Share -Return on Equity Operational achievements, aimed at accomplishing annual and long-term strategic objectives | è | CEO Reported Pay Increased vs. 2015, reflecting significantly increased earnings (48% growth in earnings before income tax and 20% growth in after-tax net earnings) Other NEO Reported Pay Collectively increased vs. 2015, on an annualized basis Achievement of financial and operational goals, including major transactions and other accomplishments |
Other Benefits and Perquisites
We provide certain additional benefits in furtherance of our objective of retaining and attracting key talent and pursuant to contractual provisions. In 2016, our executive officers participated in the same group insurance and employee benefit plans, including long-term disability insurance, life insurance, and medical and dental benefits on the same basis as our other Bermuda salaried employees, and Mr. Silvester received certain additional expense reimbursements for non-plan medical and dental items. We pay the employee’s share of Bermudian government payroll and social insurance taxes for all of our Bermuda employees, including our executive officers, which we believe is common practice at other Bermuda-based public companies. Our executive officers also receive payment in lieu of a retirement benefit contribution, as described below in the "Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table" under "Retirement and Other Benefits." Because our business is global but our headquarters are in Bermuda, many of our executives have relocated from their home countries, which results in them maintaining a second residence or having to travel to see family who may be in a different location, and we may provide
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reimbursements to help defray certain costs related to such travel and living arrangements. During 2016, we reimbursed Mr. Silvester for rental expenses related to his family residence in Bermuda, and certain expenses related to his relocation to the UK, which occurred in April 2017. We permit the use by Mr. Silvester of an Enstar employee and administrative assistant to provide services related to personal administrative matters, and we report the Company's aggregate incremental cost of providing such services in the Summary Compensation Table.
Executive Employment Agreements
See "Executive Compensation Tables - Narrative Disclosure to Summary Compensation Table and Grants of Plan Based Awards Table - Employment Agreements with Executive Officers" below for a summary of the material terms of these employment agreements.
Post-Termination Payments
Our employment agreements with our executive officers each provide for certain benefits in the event of a change in control followed by termination of the executive’s employment for specified reasons (referred to as a "double trigger"), including a cash payment, accelerated vesting of equity awards, family medical benefits, and, in certain circumstances, payment of annual incentive bonus. We believe these benefits are common features in many of our peers’ compensation programs. See “Executive Compensation Tables - Narrative Disclosure to Summary Compensation Table and Grants of Plan Based Awards Table - Employment Agreements with Executive Officers" below for a summary of these employment agreements. The terms of the employment agreements reflect arm’s-length negotiations between us and each executive officer.
Separately from our employment agreements and equally applicable to any employee participant, our 2006 Equity Plan, associated award agreements, and annual incentive plans provide that plan participants receive certain vesting benefits upon a change in control, unless determined otherwise by the Compensation Committee. These benefits are described below in "Executive Compensation Tables - Potential Payments upon Termination or Change in Control." However, the 2016 Equity Plan only provides for plan participants to receive accelerated vesting upon a change in control if the acquirer does not assume or convert the awards, or substitute new awards. In the case of performance-based awards that may be granted under the 2016 Equity Plan, if the acquirer does not assume, convert, or substitute awards, only a pro-rata portion of the target opportunity for the performance period would accelerate upon a change in control, based on the portion of the performance period that has been completed.
Clawback of Incentive Compensation
In 2016, our Board of Directors, upon recommendation of the Compensation Committee, adopted a Clawback Policy (the "Clawback Policy") that applies to all cash and equity incentive awards granted after its adoption. The Clawback Policy allows the Board of Directors or the Compensation Committee to recoup or "clawback" incentive compensation if an employee: (i) engages in misconduct pertaining to a financial reporting requirement under the federal securities laws that requires a restatement to correct an error; (ii) receives incentive compensation based on inaccurate financial or operating measure that when corrected causes significant harm to the Company; (iii) engages in any fraud, theft, misappropriation, embezzlement or dishonesty to the detriment of our financial results; or (iv) engages in conduct that is not in good faith and disrupts, damages, impairs, or interferes with our business, reputation, or employees.
In addition, our 2016-2018 Annual Incentive Plan works in conjunction with our Clawback Policy in that it allows the Compensation Committee to cancel an award if the program participant has engaged in conduct or acts determined to be materially injurious, detrimental or prejudicial to the Company's interest, and allows us to recoup any amount in excess of what the participant should have received under the terms of the award for any reason, including financial restatement, mistake in calculations or other administrative error. Awards made under our 2016 Equity Incentive Plan are also subject to the Clawback Policy. In addition to the policy, our equity plan provides that the Compensation Committee has the authority to require disgorgement of any profit, gain or other benefit received in respect of restricted shares, options and stock appreciation rights for a period of up to 12 months prior to the grantee’s termination for cause.
Once final rules are adopted regarding clawback requirements under the Dodd-Frank Act, we will consider and adopt any additional responsive policies required. As a publicly traded company, the mandates of the Sarbanes-Oxley Act requiring clawback of compensation under specified circumstances also apply to us.
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Other Matters
Hedging Prohibition
Under our Code of Conduct, our employees, officers, and directors are prohibited from engaging in any hedging or monetization transactions involving our securities, such as zero-cost collars and forward sale contracts, and are also prohibited from trading in derivatives in our securities, such as exchange-traded put or call options and forward transactions.
Executive Share Ownership
We currently do not require our executive officers to own a particular amount of our ordinary shares. The Compensation Committee is satisfied that the substantial equity holdings of our executive officers have been sufficient to provide motivation and align this group’s interests with the interests of our shareholders without formal share ownership guidelines. Our CEO and President beneficially own shares with a fair market value (as of the record date) in excess of 25 times their respective base salaries. Our COO and CFO (appointed as executives in 2015) have equity-based holdings equal to or greater than their base salaries. We continue to evaluate whether adopting share ownership guidelines would be appropriate for Enstar.
Tax and Accounting Treatment of Compensation
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that we may deduct from our US source income in any one year with respect to certain of our executive officers. As a Bermuda-based company with limited US source income, this limitation has not historically impacted our decisions regarding executive compensation.
We account for equity compensation paid to our employees based on the guidance of the Share-Based Payment topic of the Financial Accounting Standards Board Accounting Standards Codification, which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.
Compensation Risk Assessment
As part of our risk management practices, the Compensation Committee reviews and considers risk implications of and incentives created by our executive compensation program and our compensation policies and practices for the Company as a whole. At the Compensation Committee’s direction, representatives from our risk management and legal departments conducted a risk assessment of our compensation policies and practices for executives and all employees, which was discussed and reviewed by the Compensation Committee.
The review analyzes compensation governance processes, situations where compensation programs may have the potential to raise material risks to the Company, internal controls that mitigate the risk of incentive compensation having an adverse effect, and program elements that further mitigate these risks.
Through this review, the Compensation Committee has concluded that our compensation program does not create risks that are reasonably likely to have a material adverse effect on us.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management. Based on its review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2016.
COMPENSATION COMMITTEE
B. Frederick Becker
Sandra L. Boss
Robert J. Campbell
Poul A. Winslow
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EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table sets forth compensation earned in 2016, 2015 and 2014 by our CEO, CFO, President, and Chief Operating Officer, who were our only executive officers serving as of December 31, 2016. Our former Joint Chief Operating Officer, Nicholas A. Packer, is also included. These individuals are referred to in this proxy statement as the "executive officers."
Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Option Awards(1) | Non-Equity Plan Incentive Compensation(2) | All Other Compensation | Total | ||||||||||||||
Dominic F. Silvester(3) | 2016 | $ | 2,263,450 | $ | $ | — | $ | — | $ | 2,800,000 | $ | 882,939 | $ | 5,946,389 | ||||||||
Chief Executive Officer | 2015 | $ | 2,230,000 | $ | 2,000,000 | $ | — | $ | — | $ | $ | 685,796 | $ | 4,915,796 | ||||||||
2014 | $ | 2,165,060 | $ | 2,200,000 | $ | $ | 7,696,850 | $ | $ | 600,326 | 12,662,236 | |||||||||||
Mark W. Smith(4) | 2016 | $ | 1,015,000 | $ | $ | 1,000,145 | $ | — | $ | 1,020,000 | $ | 147,283 | $ | 3,182,428 | ||||||||
Chief Financial Officer | 2015 | $ | 376,984 | $ | 500,000 | $ | — | $ | — | $ | $ | 59,058 | $ | 936,042 | ||||||||
Paul J. O’Shea(5) | 2016 | $ | 1,240,492 | $ | $ | — | $ | — | $ | 2,000,000 | $ | 169,832 | $ | 3,410,324 | ||||||||
President | 2015 | $ | 1,222,160 | $ | 1,600,000 | $ | — | $ | — | $ | $ | 164,665 | $ | 2,986,825 | ||||||||
2014 | $ | 1,186,560 | $ | 1,750,000 | $ | — | $ | 5,644,346 | $ | $ | 155,912 | $ | 8,736,818 | |||||||||
Orla M. Gregory(6) | 2016 | $ | 1,050,000 | $ | 199,250 | $ | — | $ | — | $ | 1,300,750 | $ | 150,783 | $ | 2,700,783 | |||||||
Chief Operating Officer | 2015 | $ | 787,500 | $ | 1,000,000 | $ | — | $ | — | $ | $ | 121,199 | $ | 1,908,699 | ||||||||
Nicholas A. Packer(7) | 2016 | $ | 1,240,492 | $ | $ | — | $ | — | $ | 1,408,254 | $ | 169,832 | $ | 2,818,578 | ||||||||
Former Executive Vice President and Joint Chief Operating Officer | 2015 | $ | 1,222,160 | $ | 1,600,000 | $ | — | $ | — | $ | $ | 164,665 | $ | 2,986,825 | ||||||||
2014 | $ | 1,186,560 | $ | 1,750,000 | $ | — | $ | 5,644,346 | $ | $ | 155,912 | $ | 8,736,818 | |||||||||
(1) | The amount shown in the Stock Awards column represents the aggregate grant date fair value of time-vested restricted shares granted to our named executive officers in the applicable fiscal year, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The amounts reported in the Option Awards column reflects the grant date fair value of cash-settled SARs calculated using the Black-Scholes option-pricing model. The assumptions used in calculating the grant date fair value of the SARs are incorporated by reference to Note 19 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. |
(2) | The amounts reported reflect the actual performance-based annual incentive bonuses paid to each named executive officer for the applicable fiscal year pursuant to the Annual Incentive Plan. The bonuses paid pursuant to the Annual Incentive Plan are described above in "Compensation Discussion and Analysis - Annual Incentive Compensation.” |
(3) | All Other Compensation represents: (a) perquisites valued at aggregate incremental cost to Enstar, including (i) use of an Enstar employee and administrative assistant on work related to personal administrative matters ($180,334); (ii) certain rental expenses in Bermuda ($222,000); (iii) shipping expenses in preparation for relocation ($73,193); (iv) professional adviser fees in preparation for relocation ($72,659); and (v) additional medical and dental expense reimbursement ($62,625); and (b) other compensation, including (i) payment in respect of retirement benefit contribution ($226,345) and (ii) payment of the employee's share of Bermudian payroll and social insurance tax ($45,783). Both the retirement benefit contribution and the payroll and social insurance tax payment are payments we provide to all of our Bermuda-based employees. |
(4) | All Other Compensation represents other compensation, including (i) cash payment in respect of retirement benefit contribution ($101,500) and (ii) payment of the employee’s share of Bermudian payroll and social insurance tax ($45,783). Both the retirement benefit contribution and the payroll and social insurance tax payment are payments we provide to all of our Bermuda-based employees. |
(5) | All Other Compensation represents other compensation, including: (i) cash payment in respect of retirement benefit contribution ($124,049) and (ii) payment of the employee’s share of Bermudian payroll and social insurance tax ($45,783). Both the retirement benefit contribution and the payroll and social insurance tax payment are payments we provide to all of our Bermuda-based employees. |
(6) | All Other Compensation represents other compensation, including: (i) cash payment in respect of retirement benefit contribution ($105,000) and (ii) payment of the employee’s share of Bermudian payroll and social insurance tax ($45,783). Both the retirement benefit contribution and the payroll and social insurance tax payment are payments we provide to all of our Bermuda-based employees. |
(7) | Mr. Packer resigned from his position as EVP and Joint Chief Operating Officer, effective December 16, 2016, and entered into a separation agreement. Pursuant to the separation agreement, he remained employed by the Company in a transition role through December 31, 2016. The agreement is described under "Narrative to Summary Compensation and Grants of Plan-Based Awards Table - Employment Agreements - Separation Agreement for Nicholas Packer." All Other Compensation represents other compensation, including: (i) cash payment in respect of retirement benefit contribution ($124,049) and (ii) payment of the employee’s share of Bermudian payroll and social insurance tax ($45,783). Both the retirement benefit contribution and the payroll and social insurance tax payment are payments we provide to all of our Bermuda-based employees. |
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Grants of Plan-Based Awards in 2016
Name | Award Type | Approval Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock or Units (#)(2) | Grant date fair value of Stock and Option Awards(3) | ||
Threshold | Target | Maximum | ||||||
Dominic F. Silvester | Annual Incentive | n/a | $2,047,140 | $2,615,790 | $3,252,678 | |||
Mark W. Smith | Annual Incentive | n/a | $780,300 | $1,020,000 | $1,290,300 | |||
Restricted Stock | February 23, 2016 | March 2, 2016 | 6,247 | $1,000,145 | ||||
Paul J. O'Shea | Annual Incentive | n/a | $1,121,943 | $1,869,905 | $2,742,527 | |||
Orla M. Gregory | Annual Incentive | n/a | $841,500 | $1,100,000 | $1,391,500 | |||
Nicholas A. Packer | Annual Incentive | n/a | $1,121,943 | $1,869,905 | $2,742,527 | |||
(1) | The amounts reported in these columns represent estimated possible payouts of performance-based annual incentive bonuses in respect of 2016, assuming threshold achievement, target achievement and maximum achievement of the applicable performance metrics and assuming full negative and positive exercise of the Committee Adjustment Amount for threshold and maximum awards, respectively. The Committee Adjustment Amount is described in detail in "Compensation Discussion and Analysis - Annual Incentive Compensation - Committee Adjustment Amount." The actual amounts paid to our named executive officers in respect of 2016 are included in the Summary Compensation Table in the "Non-Equity Incentive Plan Compensation" column. |
(2) | The amount reported in this column represents a grant pursuant to the 2006 Equity Incentive Plan during 2016 of 6,247 restricted shares that began vesting in three substantially equal annual installments on March 31, 2016. |
(3) | The amounts shown in this column represent the grant date fair value of time-vested restricted shares and performance shares granted to our named executive officers in the applicable fiscal year, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. |
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements with Executive Officers
We have employment agreements with all of our executive officers. Our agreements with Messrs. Silvester, O’Shea and Packer originally became effective as of May 1, 2007 following our public listing on the NASDAQ stock exchange and have been extended on subsequent occasions. On March 28, 2017, we entered into a new employment agreement with Mr. Silvester (subsequently amended April 12, 2017) with a three-year term extending until April 17, 2020, which reflects his relocation to the United Kingdom on such date, among other changes. It does not contain an automatic renewal clause.
Our employment agreements with Mr. Smith and Ms. Gregory became effective as of August 15, 2015 and August 18, 2015, respectively. For Messrs. O'Shea and Smith and Ms. Gregory, the contract terms end on December 31, 2017 but would renew for additional one-year periods unless either we or the executive give 120 days’ prior written notice to terminate the agreement.
The material terms of each of the employment agreements are described below in the section entitled "Potential Payments upon Termination or Change in Control," and are substantially similar for the executives other than as noted. The employment agreements also provide for certain benefits and certain restrictive covenants upon termination of employment for various reasons.
Separation Agreement Terms for Nicholas Packer
On December 15, 2016, Mr. Packer was appointed as Chief Executive Officer of KaylaRe, a Bermuda-based reinsurer that we launched alongside our co-investor partners. We own 48% of KaylaRe and it operates as a business independent from Enstar. In connection with accepting that appointment, Mr. Packer and Enstar entered into a Separation Agreement dated as of December 16, 2016, and Mr. Packer resigned as Executive Vice President and Joint Chief Operating Officer of Enstar and as Chairman and Chief Executive Officer of Enstar’s subsidiary, StarStone Specialty Holdings Limited, effective concurrently therewith. Pursuant to the Separation Agreement, Mr. Packer remained employed by the Company in a transition role through December 31, 2016.
The Separation Agreement confirmed that Mr. Packer was eligible to receive an annual incentive program award from Enstar for the performance year ending December 31, 2016, to be paid no later than April 15, 2017. He also
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received his regular base salary during the period in which he served in a transition role. No additional separation payments were made. The agreement also provides for the continuation of Mr. Packer’s 18-month non-competition and non-solicitation covenants, provided that the non-compete will not prevent him from working for KaylaRe. Mr. Packer will also maintain his SARs granted in August 2014 and scheduled to vest in August 2017 and remains on the board of directors of StarStone Specialty Holdings Limited as a non-employee director.
Incentive Awards
Awards under our 2016 Annual Incentive Plan and our equity incentive plans are described in "Compensation Discussion and Analysis - Annual Incentive Compensation" and "Long-Term Incentive Compensation," respectively.
Retirement and Other Benefits
We maintain retirement plans and programs for our employees in Bermuda, Australia, the United Kingdom, Europe, and the United States. On an annual basis, our Bermuda employees including our executive officers receive an amount equal to 10% of their base salaries in respect of a retirement benefit contribution. The amounts paid to each of our executive officers are included in the amounts shown in the "All Other Compensation" column of the Summary Compensation Table above. Amounts for other benefits included in the "All Other Compensation" column of the Summary Compensation Table are described in "Compensation Discussion and Analysis - Other Benefits and Perquisites."
Outstanding Equity Awards at 2016 Fiscal Year-End
The following table sets forth information regarding all outstanding equity awards held by the executive officers at December 31, 2016.
Option Awards(1) | Stock Awards | ||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price | 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 | ||||||||||
Dominic F. Silvester | August 13, 2014 | — | 250,000 | (2) | $ | 141.10 | August 13, 2018 | (2) | — | $ | — | ||||||
Mark W. Smith | March 2, 2016 | — | — | 4,165 | $ | 823,421 | (3) | ||||||||||
Paul J. O'Shea | August 13, 2014 | — | 183,333 | (4) | $ | 141.10 | August 13, 2018 | — | $ | — | |||||||
Orla M. Gregory | June 9, 2014 | 13,333 | 6,667 | (5) | $ | 147.75 | June 9, 2024 | — | $ | ||||||||