AMSF

 

 

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.)

Filed by the Registrant ☒

 

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

 

 

 

 

 

AMERISAFE, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check all boxes that apply):

 

 

 

 

 

 

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April 29, 2022

Dear AMERISAFE Shareholder:

You are cordially invited to attend the annual meeting of shareholders of AMERISAFE, Inc. The meeting will be held on Friday, June 10, 2022, beginning at 9:00 a.m. CST at our corporate headquarters, which are located at 2301 Highway 190 West in DeRidder, Louisiana 70634.

Information about the meeting, including the nominees for election as directors and the other proposals to be considered is presented in the following notice of annual meeting and proxy statement. At the meeting, management will report on the Company’s operations during 2021 and comment on our outlook for the remainder of 2022. The report will be followed by a question and answer period.

We hope that you will attend the annual meeting. It is important that your shares be represented. Accordingly, please vote using the internet or telephone procedures described on the proxy card or sign, date and promptly mail the enclosed proxy card in the enclosed pre-addressed, postage-paid envelope.

We look forward to seeing you at the meeting on June 10th.

 

 

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held on June 10, 2022

The 2022 annual meeting of shareholders of AMERISAFE, Inc. (the “Company”) will be held on June 10, 2022, beginning at 9:00 a.m. CST at the Company’s corporate headquarters, which are located at 2301 Highway 190 West in DeRidder, Louisiana 70634. The meeting will be held for the following purposes:

Information concerning the matters to be voted upon at the meeting is set forth in the accompanying proxy statement. Also enclosed is the Company’s annual report for the year ended December 31, 2021. Holders of record of the Company’s common stock as of the close of business on April 18, 2022 are entitled to notice of, and to vote at, the meeting.

If you plan to attend the meeting and will need special assistance or accommodation, please describe your needs on the enclosed proxy card.

 

 

 

DeRidder, Louisiana

April 29, 2022

 

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TABLE OF CONTENTS

 

 

 

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AMERISAFE, Inc.

2301 Highway 190 West

DeRidder, Louisiana 70634

 

PROXY STATEMENT

 

This proxy statement provides information in connection with the solicitation of proxies by the Board of Directors (the “Board”) of AMERISAFE, Inc. (the “Company”) for use at the Company’s 2022 annual meeting of shareholders or any postponement or adjournment thereof (the “Annual Meeting”). This proxy statement also provides information you will need in order to consider and act upon the matters specified in the accompanying notice of annual meeting. This proxy statement and the enclosed proxy card are being mailed to shareholders on or about May 3, 2022.

Record holders of the Company’s common stock as of the close of business on April 18, 2022 are entitled to vote at the Annual Meeting. Each record holder of common stock on that date is entitled to one vote at the Annual Meeting for each share of common stock held. As of April 18, 2022, there were 19,320,422 shares of common stock outstanding.

You cannot vote your shares unless you are present at the Annual Meeting or you have properly executed your proxy. You can vote by proxy in one of three convenient ways:

You may revoke your proxy at any time prior to the vote at the Annual Meeting by:

Unless revoked as described above, all properly executed proxies will be voted at the Annual Meeting in accordance with your directions on the proxy. If a properly executed proxy gives no specific instructions, the shares of common stock represented by your proxy will be voted:

If you own shares of common stock held in “street name” and you do not instruct your broker how to vote your shares using the instructions your broker provides you, your shares will be voted in the ratification of the appointment of Ernst & Young as the Company’s independent registered public accounting firm for 2022, but not for any other proposal. To be sure your shares are voted in the manner you desire, you should instruct your broker how to vote your shares.

Holders of a majority of the outstanding shares of the Company’s common stock must be present, either in person or by proxy, to constitute a quorum necessary to conduct the Annual Meeting.

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Abstentions and broker non-votes are counted for purposes of determining a quorum and are considered present and entitled to vote.

The following table sets forth the voting requirements, whether broker discretionary voting is allowed and the treatment of abstentions and broker non-votes for each of the matters to be voted on at the Annual Meeting.

 

The Company pays the costs of soliciting proxies. We have engaged Georgeson, Inc. to serve as our proxy solicitor for the Annual Meeting at a base fee of $10,000 plus reimbursement of reasonable expenses. Georgeson will conduct our broker search, solicit banks, brokers, institutional investors and hedge funds to determine voting instructions, monitor voting and deliver executed proxies to our voting tabulator. Our employees also may solicit proxies by telephone or in person. However, they will not receive additional compensation for soliciting proxies. The Company may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of these proxy materials to the beneficial holders and to request instructions for the execution of proxies. The Company may reimburse these persons for their related expenses. Proxies are solicited to provide all record holders of the Company’s common stock an opportunity to vote on the matters to be presented at the Annual Meeting, even if they cannot attend the meeting in person.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

 

At the Annual Meeting, three directors will be elected to serve three-year terms expiring at our annual shareholder meeting in 2025. This section of the proxy statement contains information relating to the director nominees and the directors whose terms of office continue after the Annual Meeting. The director nominees were selected by the Nominating and Corporate Governance Committee and approved by the Board for submission to the shareholders. The nominees for election are Teri G. Fontenot, Billy B. Greer, and Jared A. Morris, each of whom currently serve as directors.

 

 

The Board recommends a vote “FOR” the election of each of the nominees.

Nominees to be elected for terms expiring at the Annual Meeting in 2025

 

 

 

 

 

 

 

 

 

 

 

 

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Current directors whose terms expire at the Annual Meeting in 2023

 

 

 

 

 

 

 

 

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Current directors whose terms expire at the Annual Meeting in 2024

 

 

 

 

 

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PROPOSAL 2

Approval of the AMERISAFE, Inc. 2022 Equity and Incentive Compensation Plan

 

Overview

We are asking shareholders to approve the AMERISAFE, Inc. 2022 Equity and Incentive Compensation Plan (the “2022 Plan”).  Our Board of Directors is recommending that the Company’s shareholders vote in favor of the 2022 Plan, which will succeed the AMERISAFE, Inc. 2012 Equity and Incentive Compensation Plan (the “2012 Plan”).  The 2012 Plan has shares remaining available for new awards as of the date of this proxy statement, but if the 2022 Plan is approved by our shareholders, no further grants will be made under the 2012 Plan.  However, outstanding awards under the 2012 Plan will generally continue in effect in accordance with their terms.

The 2022 Plan will continue to afford the Compensation Committee the ability to design compensatory awards that are responsive to the Company’s needs and includes authorization for a variety of awards designed to advance the interests and long-term success of the Company by encouraging stock ownership among 2022 Plan participants.

Shareholder approval of the 2022 Plan would constitute approval of 500,000 common shares, $0.01 par value per share, of the Company (“Common Shares”) to be available for awards under the 2022 Plan, as described below and in the 2022 Plan, with such amount subject to adjustment, including under the 2022 Plan’s share counting rules.  If the 2022 Plan is approved by our shareholders, it will be effective as of the day of the Annual Meeting.  If the 2022 Plan is not approved by our shareholders, no awards will be made under the 2022 Plan, and the 2012 Plan will remain in effect until June 15, 2022.

The actual text of the 2022 Plan is attached to this Proxy Statement as Appendix A.  The following description of the 2022 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set forth in Appendix A.

Why We Believe You Should Vote for this Proposal

The 2022 Plan authorizes the Compensation Committee to provide cash awards and equity-based compensation in the forms described below for the purpose of providing 2022 Plan participants incentives and rewards for performance and/or service.  Some of the key features of the 2022 Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below in this subsection.

We believe our future success depends in part on our ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the 2022 Plan is critical to achieving this success.  We would be at a significant competitive disadvantage if we could not use share-based awards to recruit and compensate our employees and directors.  The use of Common Shares as part of our compensation program is also important because equity-based awards are an essential component of our compensation for key employees, as they help link compensation with long-term shareholder value creation and reward participants based on service and/or performance.

As of April 18, 2022, 269,839 Common Shares remained available for issuance under the 2012 Plan, disregarding shares potentially issuable for outstanding performance-based awards, as described below. However, as noted above, the 2012 plan will expire by it terms on June 15, 2022. Therefore, if the 2022 Plan is not approved, it may be necessary to increase significantly the cash component of our employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of our shareholders.  Replacing equity awards with cash also would increase cash compensation expense and use cash that could be better utilized.

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The following includes aggregated information regarding our view of the overhang and dilution associated with the 2012 Plan, and the potential dilution associated with the 2022 Plan.  This information is as of April 18, 2022.  As of that date, there were approximately 19,320,422 Common Shares outstanding.  As of that date, approximately 160,093 shares (approximately 0.8% of our outstanding Common Shares) were subject to outstanding awards under the 2012 Plan (consisting of 12,821 time-based restricted shares and the estimated number of shares to be issued to satisfy performance-based awards 147,272).  For purposes of outstanding performance-based awards (which are denominated in cash until share settlement), we have calculated an estimated number of shares to be issued under such awards by dividing the estimated dollar value of such awards as of September 30, 2021 by the closing price of a Common Share on April 18, 2022. Although the 2012 Plan does not count shares as used until they are issued or delivered pursuant to an award, for purposes of this proposal we view the outstanding awards described above as reducing the available shares under the 2012 Plan. On that basis, 122,567 shares (approximately 0.6% of our outstanding Common Shares) were available for future awards under the 2012 Plan as of April 18¸2022.  As a result, we view the 2012 Plan as representing an overhang percentage (in other words, potential dilution of the holders of Common Shares) of approximately 1.5% as of April 18, 2022 (based on the 282,660 total shares subject to outstanding awards and available for future awards as of such date).

The proposed additional 500,000 Common Shares available for awards under the 2022 Plan represent approximately 2.6% of our outstanding Common Shares as of April 18, 2022, a percentage that reflects the simple dilution of the holders of Common Shares that could occur if the 2022 Plan is approved.  Factoring in both those additional shares and the 282,660 Common Shares subject to outstanding awards or available for future awards under the 2012 Plan, the approximate total overhang under the 2012 Plan and the 2022 Plan is 782,660 Common Shares (or approximately 4.1% of the Common Shares outstanding as of April 18, 2022).  However, as noted above, no further grants will be made under the 2012 Plan upon the effective date of the 2022 Plan.

Based on the closing price on Nasdaq Global Select Market for our Common Shares on April 18, 2022 of $46.61 per share, the aggregate market value as of April 18, 2022 of the new 500,000 Common Shares requested under the 2022 Plan was $23,305,000.

In 2019, 2020 and 2021, awards under the 2012 Plan covered 22,713 shares, 23,207 shares, and 27,388 shares, respectively.  Because the number of shares to be issued to satisfy our performance-based awards (which are cash-denominated) is not determinable as of the dates of grant, these numbers reflect, for each year, the number of shares subject to time-based awards granted during such year, plus the number of shares actually earned under performance-based awards during such year.  As a result, based on our basic weighted average Common Shares outstanding for those fiscal years of 19,248,657, 19,288,966, and 19,322,391, respectively, for the three-fiscal-year period 2019-2021, our average burn rate, not taking into account forfeitures, was approximately 0.13% (our individual years’ burn rates were 0.12% for fiscal 2019, 0.12% for fiscal 2020 and 0.14% for fiscal 2021).

In determining the number of shares to request for approval under the 2022 Plan, our management worked with the Compensation Committee to evaluate a number of factors, including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2022 Plan.

If the 2022 Plan is approved, we intend to utilize the shares authorized under the 2022 Plan to continue our practice of incentivizing key individuals through equity grants.  We currently anticipate that the shares requested in connection with the approval of the 2022 Plan will last for the entire ten-year life of the 2022 Plan, based on our recent grant rates and the approximate current share price, but could last for a shorter period of time if actual practice does not match recent rates or our share price changes materially.  As noted below, our Compensation Committee retains full discretion under the 2022 Plan to determine the number and amount of awards to be granted under the 2022 Plan, subject to the terms of the 2022 Plan, and future benefits that may be received by participants under the 2022 Plan are not determinable at this time.

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We believe that we have demonstrated a commitment to sound equity compensation practices in recent years.  We recognize that equity compensation awards dilute shareholders’ equity, so we have carefully managed our equity incentive compensation.  Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of shareholder interests, as described above.

In evaluating this proposal, shareholders should consider all of the information in this proposal.

2022 Plan Highlights

Below are certain highlights of the 2022 Plan.  These features of the 2022 Plan are designed to reinforce alignment between equity compensation arrangements awarded pursuant to the 2022 Plan and shareholders’ interests, consistent with sound corporate governance practices.

Reasonable 2022 Plan Limits.  Generally, up to 500,000 Common Shares, plus the number of Common Shares that are added (or added back, as applicable) to the aggregate number of shares available under the 2022 Plan pursuant to the share counting rules of the 2022 Plan (as described below), may be issued or transferred pursuant to 2022 Plan awards.  These shares may be shares of original issuance or treasury shares, or a combination of the two.  Generally, the aggregate number of Common Shares available for issuance or transfer under the 2022 Plan will be reduced by one Common Share for every one Common Share issued or transferred in connection with an award granted under the 2022 Plan.  Common Shares covered by an award granted under the 2022 Plan will not be counted as used unless and until they are actually issued or transferred to a participant.

Minimum Vesting Requirement.  The 2022 Plan provides for certain minimum vesting periods for awards granted to participants other than non-employee directors that consist of restricted shares, restricted share units (“RSUs”), performance shares, performance units, cash incentive awards and certain other awards.  Specifically, if such an award vests based only on the passage of time rather than the achievement of management objectives, the period of time will be no shorter than three years, except that vesting may occur ratably during the three-year period, on at least an annual basis, as determined by the Committee.  If an award vests upon the achievement of management objectives, then such award may not vest sooner than one year from the date of grant (or, in the case of performance shares, performance units and cash incentive awards, after a one-year performance period).  Notwithstanding anything in the 2022 Plan to the contrary, up to 10% of the maximum number of Common Shares that may be issued or transferred under the 2022 Plan, as may be adjusted under the terms of the 2022 Plan, may be used for (1) awards of restricted shares, RSUs, performance shares, performance units, cash incentive awards and other awards granted to participants other than non-employee directors that do not comply with the applicable three-year or one-year vesting requirements set forth in the 2022 Plan plus (2) awards granted to non-employee directors.

Incentive Stock Option Limit.  The 2022 Plan also provides that, subject as applicable to adjustment as described in the 2022 Plan, the aggregate number of Common Shares actually issued or transferred upon the exercise of Incentive Stock Options (as defined below) will not exceed 500,000 Common Shares.

Limited Share Recycling Provisions.  Subject to certain exceptions described in the 2022 Plan, if any Common Shares issued or transferred pursuant to an award granted under the 2022 Plan are forfeited, or an award granted under the 2022 Plan (in whole or in part) is canceled or forfeited, expires, is settled for cash, or is unearned, the Common Shares issued or transferred pursuant to, or subject to, such award (as applicable) will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available (or continue to be available) for issuance or transfer under the 2022 Plan.  Additionally, if after the effective date of the 2022 Plan, any Common Shares issued or transferred pursuant to an award granted under the 2012 Plan are forfeited, the Common Shares subject to such award will, to the extent of such forfeiture, be available for awards under the 2022 Plan.  Further, the following will reduce the aggregate number of Common Shares available under the 2022 Plan:

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Common Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options will not be added to the aggregate number of Common Shares available for issuance or transfer under the 2022 Plan.

Further, if a participant elects to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate number of shares available for issuance or transfer under the 2022 Plan.

No Repricing Without Shareholder Approval.  Outside of certain corporate transactions or adjustment events described in the 2022 Plan or in connection with a “change in control,” the exercise or base price of stock options and stock appreciation rights (“SARs”) cannot be reduced, nor can “underwater” stock options or SARs be cancelled in exchange for cash or replaced with other awards with a lower exercise or base price, without shareholder approval under the 2022 Plan.

Change in Control Definition.  The 2022 Plan includes a non-liberal definition of “change in control,” which is described below.

Exercise or Base Price Limitation.  Except with respect to certain converted, assumed or substituted awards as described in the 2022 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair market value of a Common Share on the date of grant.

Clawback Provisions.  The 2022 Plan includes clawback provisions, as described below.

Summary of Other Material Terms of the 2022 Plan

Administration.  The 2022 Plan will generally be administered by the Compensation Committee (or its successor), or any other committee of the Board of Directors designated by the Board of Directors to administer the 2022 Plan.  However, at the discretion of the Board of Directors, the 2022 Plan may be administered by the Board of Directors, including with respect to the administration of any responsibilities and duties held by the Compensation Committee under the 2022 Plan.  References to the “Committee” in this proposal refer to the Compensation Committee, such other committee designated by the Board of Directors, or the Board of Directors, as applicable.  Subject to applicable law, the Committee may delegate certain administrative duties to officers, agents or advisors.  In addition, the Committee may by resolution, subject to certain restrictions set forth in the 2022 Plan, authorize one or more officers of the Company to (1) designate employees to be recipients of awards under the 2022 Plan, and (2) determine the size of such awards.  However, the Committee may not delegate such responsibilities to officers for awards granted to non-employee directors or certain employees who are subject to the reporting requirements of Section 16 of the Exchange Act of 1934.

Eligibility.  Any person who is selected by the Committee to receive benefits under the 2022 Plan and who is at that time an officer or other employee of the Company or any of its subsidiaries (including a person who has agreed to commence serving in such capacity within 90 days of the date of grant) is eligible to participate in the 2022 Plan.  In addition, persons (including consultants) who provide services to the Company or any of its subsidiaries that are equivalent to those typically provided by an employee (provided that such persons satisfy the Form S-8 definition of “employee”), and non-employee

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directors of the Company, may also be selected by the Committee to participate in the 2022 Plan.  As of April 18, 2022, the Company and its subsidiaries had approximately 377 employees, and the Company had 8 non-employee directors. Although consultants of the Company and its subsidiaries are eligible to participate in the 2022 Plan, we have not granted equity awards to consultants in recent years and, due to the temporary status of such service providers, do not have a current estimate of how many such consultants may be eligible in the future to participate in the 2022 Plan. We do not currently expect to make material grants of awards under the 2022 Plan to consultants. The basis for participation in the 2022 Plan by eligible persons is the selection of such persons by the Committee (or its authorized delegate) in its discretion.

Evidence of Awards.  Generally, each grant of an award under the 2022 Plan will be evidenced by an award agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee (an “Evidence of Award”), which will contain such terms and provisions as the Committee may determine, consistent with the 2022 Plan.

Treatment of Awards on Termination or Change in Control.  Awards under the 2022 Plan may be subject to service-based vesting requirements, and the Committee may specify management objectives regarding the vesting of such awards.  However, such awards may provide for continued vesting or earlier vesting (1) in the event of the retirement, death or disability of a participant or (2) in the event of a change in control where either (A) within a specified period the participant is involuntarily terminated for reasons other than for “cause” or terminates his or her employment for “good reason” (as such terms may be defined in the Evidence of Award or otherwise) or (B) the award is not assumed or converted into replacement awards in a manner described in the Evidence of Award.

Types of Awards Under the 2022 Plan.  Pursuant to the 2022 Plan, the Company may grant cash awards and restricted shares, RSUs, stock options (including stock options intended to be “incentive stock options” as defined in Section 422 of the Code (“Incentive Stock Options”)), SARs, performance shares, performance units, cash incentive awards, and certain other awards based on or related to our Common Shares.  A brief description of the types of awards which may be granted under the 2022 Plan is set forth below.

Restricted Shares.  Restricted shares constitute an immediate transfer of the ownership of Common Shares to the participant in consideration of the performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Committee.  Each such grant or sale of restricted shares may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per Common Share on the date of grant.  Any grant of restricted shares may require that any and all dividends or distributions paid on restricted shares that remain subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted shares, which will be subject to the same restrictions as the underlying restricted shares.  Any such dividends or other distributions on restricted shares will be deferred until, and paid contingent upon, the vesting of such restricted shares.

RSUs.  RSUs awarded under the 2022 Plan constitute an agreement by the Company to deliver Common Shares, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the restriction period as the Committee may specify.  Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of our Common Shares on the date of grant.  During the restriction period applicable to RSUs, the participant will have no right to transfer any rights under the award and will have no rights of ownership in the Common Shares deliverable upon payment of the RSUs and no right to vote them.  The Committee may, at or after the date of grant, authorize the payment of dividend equivalents on such RSUs on a deferred and contingent basis, either in cash or in additional Common Shares.  However, dividend equivalents or other distributions on Common Shares underlying RSUs will be deferred until, and paid contingent upon, the vesting of such RSUs.  Each grant or sale of RSUs will specify the time and manner of payment of the

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RSUs that have been earned.  An RSU may be paid in cash, Common Shares or any combination of the two.

Stock Options.  A stock option is a right to purchase Common Shares upon exercise of the stock option.  Stock options granted to an employee under the 2022 Plan may consist of either an Incentive Stock Option, a non-qualified stock option that is not intended to be an “incentive stock option” under Section 422 of the Code, or a combination of both.  Each grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable: (1) in cash, by check acceptable to the Company, or by wire transfer of immediately available funds; (2) by the actual or constructive transfer to the Company of Common Shares owned by the participant with a value at the time of exercise that is equal to the total exercise price; (3) subject to any conditions or limitations established by the Committee, by a net exercise arrangement pursuant to which the Company will withhold Common Shares otherwise issuable upon exercise of a stock option; (4) by a combination of the foregoing methods; or (5) by such other methods as may be approved by the Committee.  To the extent permitted by law, any grant may provide for deferred payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to which the exercise relates.  Stock options granted under the 2022 Plan may not provide for dividends or dividend equivalents.

SARs.  A SAR is a right to receive from us an amount equal to 100%, or such lesser percentage as the Committee may determine, of the spread between the base price of the SAR and the value of our Common Shares on the date of exercise.  A SAR may be paid in cash, Common Shares or any combination of the two.  SARs granted under the 2022 Plan may not provide for dividends or dividend equivalents.

Stock Option and SAR Expiration.  The term of a stock option or SAR may not extend more than 10 years from the date of grant, and the Committee may provide in an Evidence of Award for the automatic exercise of a stock option or SAR.  

Performance Shares, Performance Units and Cash Incentive Awards.  A performance share is a bookkeeping entry that records the equivalent of one Common Share, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by the Committee.  Each grant of a cash incentive award, performance shares or performance units will specify the number or amount of performance shares or performance units, or the amount payable with respect to a cash incentive award being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.  Each grant will specify management objectives regarding the earning of the award.  Each grant will specify the time and manner of payment of performance shares, performance units or a cash incentive award that has been earned.

Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash or in additional Common Shares, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the performance shares or performance units, as applicable, with respect to which such dividend equivalents are paid.

Awards to Non-Employee Directors.  Subject to the applicable limits set forth in the 2022 Plan, the Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to non-employee directors of stock options, SARs or Other Awards (as defined below) and may also authorize the grant or sale of Common Shares, restricted shares or RSUs to non-employee directors. Each grant of an award to a non-employee director will be upon such terms and conditions as approved by the Committee, will not be subject to any minimum vesting period, and will be evidenced by an Evidence of Award in such form as will be approved by the Committee. Each stock option and SAR granted under the 2022 Plan to a non-employee director will expire not more than 10 years from the date of grant. If a non-employee director subsequently becomes an employee of the Company or a subsidiary of the Company while remaining a member of the Board, any award held under the 2022 Plan by such individual at the time of such commencement of employment will not be affected thereby. Non-employee directors may be awarded, or may be permitted to elect to receive, pursuant to procedures established by

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the Board, all or any portion of their annual retainer, meeting fees or other fees in Common Shares, Restricted shares, RSUs or other awards under the 2022 Plan in lieu of cash.

Other Awards.  Subject to applicable law and applicable share limits under the 2022 Plan, the Committee may grant to any participant Common Shares or such other awards (“Other Awards”) that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of such Common Shares, as further described in the 2022 Plan.  The terms and conditions of any such awards will be determined by the Committee.  In addition, the Committee may grant cash awards, as an element of or supplement to any other awards granted under the 2022 Plan.  The Committee may also authorize the grant of Common Shares as a bonus, or may authorize the grant of Other Awards in lieu of obligations of the Company or a subsidiary to pay cash or deliver other property under the 2022 Plan or under other plans or compensatory arrangements, subject to terms determined by the Committee in a manner that complies with Section 409A of the Code.

The Committee may provide for the payment of dividends or dividend equivalents on Other Awards on a deferred and contingent basis, either in cash or in additional Common Shares.  However, dividend equivalents or other distributions on Common Shares underlying Other Awards will be deterred until, and paid contingent upon, the earning and vesting of such awards.

Change in Control.  The 2022 Plan includes a definition of “change in control.”  In general, except as may be otherwise prescribed by the Committee in an Evidence of Award, a change in control will be deemed to have occurred upon the occurrence (after the effective date of the 2022 Plan) of any of the following events (subject to certain exceptions and limitations and as further described in the 2022 Plan):  (1) the acquisition by any person or entity of beneficial ownership of 35% or more of the then outstanding securities of the Company entitled to vote generally in the election of directors; (2) a majority of the Board ceases to be comprised of incumbent directors (as defined in the 2022 Plan); (3) the consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company or other transaction that results in a substantial change in the ownership or leadership of the Company (as further described in the 2022 Plan); or (4) approval by our shareholders of a complete liquidation or dissolution of the Company, except as otherwise provided in the 2022 Plan.

Management Objectives.  The 2022 Plan generally provides that any of the awards set forth above may be granted subject to the achievement of specified management objectives.  Management objectives are defined as the performance objective(s) established pursuant to the 2022 Plan for applicable awards.  The management objectives applicable to an award under the 2022 Plan (if any) will be determined by the Committee, and may be based on one or more, or a combination, of metrics under the following categories or such other metrics as may be determined by the Committee (including relative or growth achievement regarding such metrics):  (1) cash flow/net assets ratio; (2) return on assets, capital or investment; (3) return on equity; (4) earnings per share growth; (5) revenue growth; (6) total shareholder return; (7) loss ratio; (8) expense ratio; (9) combined ratio; (10) direct premiums written or premium volume; (11) net income (before or after taxes); (12) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA” or “EBITDA”); (13) market share; (14) cost reduction goals; (15) earnings from continuing operations; (16) levels of expense, costs or liabilities; (17) operating profit; (18) sales or revenues; (19) stock price appreciation; or (20) implementation or completion of critical projects or processes.

If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable, the Committee may in its discretion modify such management objectives or the goals or actual levels of achievement, in whole or in part, as the Committee deems appropriate and equitable.

Transferability of Awards.  Except as otherwise provided by the Committee, and subject to the terms of the 2022 Plan with respect to Section 409A of the Code, no awards under the 2022 Plan will be

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transferrable by a participant except by will or the laws of descent and distribution.  In no event will any such award granted under the 2022 Plan be transferred for value.

Adjustments; Corporate Transactions.  The Committee will make or provide for such adjustments in: (1) if applicable, the number of and kind of Common Shares covered by awards under the 2022 Plan; (2) the exercise price or base price provided in outstanding stock options and SARs, respectively; (3) cash incentive awards; and (4) other award terms, as the Committee in its sole discretion, determines in good faith is equitably required in order to prevent dilution or enlargement of the rights of participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; (b) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or (c) any other corporate transaction or event having an effect similar to any of the foregoing.

In the event of any such transaction or event, or in the event of a change in control of the Company, the Committee may provide in substitution for any or all outstanding awards under the 2022 Plan such alternative consideration (including cash), if any, as it may in good faith determine to be equitable under the circumstances and will require the surrender of all awards so replaced in a manner that complies with Section 409A of the Code.  In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or change in control of the Company, the Committee may cancel such stock option or SAR without any payment to the person holding such stock option or SAR.  The Committee will make or provide for such adjustments to the number of Common Shares available under the 2022 Plan and the share limits of the 2022 Plan as the Committee, in its sole discretion, determines in good faith is appropriate to reflect such transaction or event, subject to certain tax-based limitations.

Detrimental Activity and Recapture.  Any Evidence of Award may reference a clawback policy of the Company or provide for the cancellation or forfeiture of an award or forfeiture and repayment to us of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if any participant, either during employment or other service with us or a subsidiary or within a specified period after such employment or service, engages in any detrimental activity as described in the 2022 Plan, in the applicable Evidence of Award or in such clawback policy.  In addition, any Evidence of Award or such clawback policy may provide for cancellation or forfeiture of an award or the forfeiture and repayment of any Common Shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, including upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules and regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Common Shares may be traded.

Withholding.  To the extent the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a participant or other person under the 2022 Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements, in the discretion of the Committee, may include relinquishment of a portion of such benefit.  If a participant’s benefit is to be received in the form of Common Shares, and such participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, we will withhold Common Shares having a value equal to the amount required to be withheld.  When a participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the Committee may require the participant to satisfy the obligation, in whole or in part, by having withheld, from the shares delivered or required to be delivered to the participant, Common Shares having a value equal to the amount required to be withheld or by delivering to us other Common Shares held by such participant.  The Common Shares used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares on the date the benefit is to be included in the participant’s

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income.  In no event will the fair market value of the Common Shares to be withheld and delivered pursuant to the 2022 Plan exceed the minimum amount required to be withheld, unless (1) an additional amount can be withheld and not result in adverse accounting consequences, and (2) such additional withholding amount is authorized by the Committee.

Amendment and Termination of the 2022 Plan.  The Board of Directors generally may amend the 2022 Plan from time to time in whole or in part, subject to shareholder approval in certain circumstances as required under the 2022 Plan, applicable law, or stock exchange rules.

Further, subject to the 2022 Plan’s prohibition on repricing, the Committee generally may amend the terms of any award prospectively or retroactively, subject in certain circumstances to participant consent.  If permitted by Section 409A of the Code and subject to certain other limitations set forth in the 2022 Plan, and including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a change in control, the Committee may provide for continued vesting or accelerate the vesting of certain awards granted under the 2022 Plan or waive any other limitation or requirement under any such award.

The Board of Directors may, in its discretion, terminate the 2022 Plan at any time.  Termination of the 2022 Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination.  No grant will be made under the 2022 Plan on or after the tenth anniversary of the effective date of the 2022 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms of the 2022 Plan.

Allowances for Conversion Awards and Assumed Plans.  Common Shares issued or transferred under awards granted under the 2022 Plan in substitution for or conversion of, or in connection with an assumption of, restricted shares, RSUs, stock options, SARs or other share or share-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit or other 2022 Plan limits described above.  Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2022 Plan, under circumstances further described in the 2022 Plan, but will not count against the aggregate share limit or other 2022 Plan limits described above.

New Plan Benefits

It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the 2022 Plan because the grant and actual settlement of awards under the 2022 Plan are subject to the discretion of the plan administrator.

U.S. Federal Income Tax Consequences

The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the 2022 Plan based on Federal income tax laws in effect.  This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for 2022 Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.

Tax Consequences to Participants

Restricted Shares.  The recipient of restricted shares generally will be subject to tax at ordinary income rates on the fair market value of the restricted shares (reduced by any amount paid by the recipient) at such time as the restricted shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code.  However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will generally have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares over any purchase price.

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RSUs, Performance Shares, Performance Units, and Cash Incentive Awards.  No income generally will be recognized upon the grant of RSUs, performance shares, performance units or cash incentive awards.  Upon payment in respect of such awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted Common Shares received (reduced by any amount paid by the recipient).

Nonqualified Stock Options and SARs.  In general:

Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an “incentive stock option” as defined in Section 422 of the Code.  If Common Shares are issued to the optionee pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

If Common Shares acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares.  Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

Tax Consequences to the Company and its Subsidiaries

To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, it is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

Registration with the SEC

We intend to file a Registration Statement on Form S-8 relating to the issuance of Common Shares under the 2022 Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2022 Plan by our shareholders.

Vote Required

The affirmative vote of a majority of the holders of our common shares entitled to vote and present at the Annual Meeting is required to approve the 2022 Plan. Accordingly, abstentions will have the effect of a vote against this proposal.  Broker non-votes will not have any effect on the adoption of this proposal.

The Board recommends a vote “FOR” the approval of the 2022 Plan.

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PROPOSAL 3  

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), we are submitting the compensation of our executive officers as disclosed in this proxy statement to our shareholders for an advisory vote. Our Board has adopted a policy to hold annual advisory votes on executive compensation. Our next advisory vote on the frequency of shareholder votes on executive compensation will take place at our annual meeting of shareholders in 2023.

We encourage shareholders to review the information regarding our compensation practices and decisions as described below under the heading “Compensation Discussion and Analysis.” We seek to offer our employees, including our named executive officers, a competitive pay package that rewards individual contributions, performance and experience with our Company, while aligning the interests of our executive officers and other key employees with those of the Company’s shareholders. The Compensation Committee sets compensation in this manner to ensure that our compensation practices do not put the Company at a disadvantage in attracting and retaining executives and other employees, while also ensuring a competitive cost structure for our Company.

The vote on this proposal is not intended to address any specific element of compensation. Rather, the vote relates to the compensation of our executive officers, as described under the headings “Compensation Discussion and Analysis” and “Executive Compensation” in this proxy statement. The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee. However, the Compensation Committee expects to consider the outcome of this advisory vote in evaluating whether any actions are appropriate with respect to our compensation programs for our executive officers.

The Board recommends a vote “FOR” the approval of the compensation of our named executive officers.

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PROPOSAL 4  

RATIFICATION OF APPOINTMENT OF

ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM FOR 2022

The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for 2022. The Board is asking shareholders to ratify this appointment. SEC regulations and the Nasdaq listing requirements require the Company’s independent registered public accounting firm to be engaged, retained and supervised by the Audit Committee. However, the Board considers the selection of an independent registered public accounting firm to be an important matter to shareholders. Accordingly, the Board considers a proposal for shareholders to ratify this appointment to be an opportunity for shareholders to provide input to the Audit Committee and the Board on a key corporate governance issue.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will be offered the opportunity to make a statement if they so desire. They will also be available to respond to appropriate questions. For additional information regarding our independent registered public accounting firm, see “Independent Public Accountants.”

The Board recommends a vote “FOR” the ratification of Ernst & Young LLP

as the Company’s independent registered public accounting firm.

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Corporate governance and board information

Board of Directors

The Board presently consists of eight non-employee directors and one employee director. The Board is divided into three classes, with each class serving three-year terms. The term of one class expires at each annual meeting of shareholders.

Director Compensation

The elements of compensation payable to our non-employee directors in 2021 are briefly described below.

 

 

Committee Chairs do not receive annual cash retainers for being members of the committees they chair. Directors do not receive additional compensation for serving on our Risk Committee. The Company reimburses directors for reasonable out-of-pocket expenses incurred in connection with their service as directors. Any director who is an employee of the Company does not receive additional compensation for serving as a director.

The amount of restricted stock granted to each non-employee director is equal to $50,000 divided by the closing price of our common stock on the date of the annual meeting of shareholders at which the non-employee director is elected or continues to be a member of the Board. The shares of restricted stock granted to non-employee directors vest at the next annual meeting of shareholders. If a non-employee director is first elected or appointed to the Board at a time other than at an annual meeting of shareholders, the non-employee director is awarded a prorated initial restricted stock grant at that time. Awards to non-employee directors are made under the Director Plan.

On June 11, 2021, each non-employee director was granted 801 shares of restricted stock.

The following table provides information regarding the compensation of our non-employee directors for the year ended December 31, 2021.

 

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Non-Employee Director Stock Ownership and Retention Guidelines

Our Board recognizes that ownership of common stock is an effective means to align the interests of our directors with those of our shareholders. The following is a summary of our stock ownership and retention guidelines for our non-employee directors.

Non-Employee Director Stock Ownership Guidelines. Non-employee directors are expected to acquire and hold during their Board service shares of our common stock equal in value to at least three times the annual cash retainer paid to our directors, or $150,000. Non-employee directors have five years from their initial election to the Board to meet these ownership guidelines.

Non-Employee Director Retention Guidelines. Directors are expected to continuously own sufficient shares to meet the guidelines once attained. Until a director meets the ownership guidelines, the director will be required to hold 75% of the shares of common stock received from any equity award, net of any shares used to pay the tax withholding. If a director attains compliance with the stock ownership guideline and subsequently falls below the guideline because of a decrease in the price of our common stock, the director will be deemed in compliance provided that the director retains the shares then held.

The following table provides the equity ownership of each of our non-employee directors as of December 31, 2021, measured in dollars. Ownership was calculated based on a price of $53.83 per share, the closing price of the Company’s common stock on December 31, 2021, the last trading day of the year.

 

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Corporate Governance  

The Board and senior management of the Company believe that one of their primary responsibilities is to promote a corporate culture of accountability, responsibility and ethical conduct throughout the Company. Consistent with these principles, the Company has, among other things, adopted:

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Our corporate governance guidelines, code of business conduct and ethics, committee charters, majority voting and director resignation policy and certain other governance policies are available on the Company’s website (www.amerisafe.com) in the Investors section. Copies of these documents are also available upon written request to the Company’s Secretary. The Company will post information regarding any amendment to, or waiver from, its code of business conduct and ethics on its website in the Investor Relations section.

Management regularly meets with shareholders and potential investors. In those meetings, investors and shareholders express their views regarding the Company’s executive compensation practices and corporate governance policies. Management reports to the Board and the NCG Committee regarding the discussions at these meetings. The NCG Committee and the Board periodically review the Company’s corporate governance policies and practices. Based on these reviews, input from shareholders and recommendations from the NCG Committee, the Board adopts changes to policies and practices that it believes are in the best interests of the Company, including complying with any new SEC or Nasdaq listing requirements.

The NCG Committee intends to continue to periodically review the Company’s corporate governance policies, taking into consideration, among other things, the views of our shareholders and developments in the governance practices of other public companies.

Corporate Responsibility

AMERISAFE is defined by its corporate culture of helping to provide security for employers and their injured employees through the insurance coverage and services we offer, by paying claims to injured workers promptly and fairly during their time of need, by encouraging and supporting our employees to be actively engaged in the communities in which they live, investing in our employees and minimizing the impact we have on the environment. AMERISAFE manages its business with the goal of responsibly delivering long-term value to all of the Company’s stakeholders by adhering to the philosophy that good stewardship is good business.

During 2021, we expanded the responsibilities of our Nominating and Corporate Governance and Compensation Committees to formalize the Board’s oversight of environmental and social matters.  Our Nominating and Corporate Governance Committee is primarily responsible for oversight of the Company’s policies and disclosures related to environmental, safety, corporate social responsibility, and corporate governance matters and coordinates with the Risk committee with respect to such risks as appropriate. Our Compensation Committee is responsible for oversight of human capital and diversity, equity, and inclusion matters. We also published initial sustainability disclosure on our website aligned with both the Sustainability Accounting Standards Board (SASB) Insurance Industry Standard and the Task Force on Climate-related Financial Disclosure (TCFD) framework. Below are highlights regarding our sustainability practices.  We also encourage shareholders to visit the Sustainability section of our website (www.amerisafe.com) to view our SASB and TCFD disclosures.  We intend to publish additional sustainability information on our website prior to our 2023 annual meeting.

  

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Diversity, Equity and Inclusion. With the support of our Board of Directors, we are committed to enhancing diversity at AMERISAFE. We strive to promote inclusion through our Company values and behaviors, and aim to lead by example.  Two of our nine directors are women, one director is African American and one director is Hispanic. Approximately 64% of our current workforce is female and 36% male. Women represent 54% of AMERISAFE’s leadership (defined as vice president level and above), including our CEO. In terms of racial and ethnic diversity, we believe our workforce and board demographics are representative of our geographic location, but we remain focused on enhancing our diversity, equity and inclusion strategy. To that end, we completed a workforce assessment in 2021 to identify areas where we can further progress.  

 

Environmental, Social, and Governance Factors In Investment Management Strategies. We are heavily regulated, and our investment policy statement must comply with applicable laws. Our Board is aware of the value in integrating ESG into our investment policy and will work with our management-level Investment Committee to evaluate and develop any such considerations into its existing investment policy. We also are discussing potential social-oriented metrics that could be used in our screening process for municipal bonds.

Environmental. As a monoline workers compensation insurer, we do not have the same exposure to weather-related events as property and casualty insurers. Currently, our Enterprise Risk Management program, led by our Chief Risk Officer, assesses climate-related risks in terms of the potential impact on the industries of our policyholders and their employees. However, we focus on high risk industries; therefore, we recognize the need to take into account certain geographic metrics in assessing our exposure to climate related factors as they affect the risks we insure.

In addition, we recognize we are exposed to operational risk in light of our Louisiana headquarters location, and have an internal disaster recovery plan in place to mitigate such risk.

We seek opportunities to capture environmental efficiencies. Starting early in the 2000’s, AMERISAFE initiated a program to reduce the use and storage of paper and focus on migrating our records to electronic form. Almost all Company records are now stored electronically. This has decreased our usage of paper and ink, increased efficiency, and saved money for the Company. Additionally, the Company is focused on recycling of paper, cardboard, plastic bottles, aluminum cans and batteries. The Company is also replacing existing florescent and incandescent lighting with LED lights, as well as improved systems that monitor heating and air conditioning, to reduce energy consumption and save costs.

The Communities We Serve. We actively engage and support local communities through agencies such as United Way, the Community Foundation of Southwest Louisiana and the Southwest Louisiana Economic Development Alliance. The Company supports numerous other charitable and social organizations in the communities in which we operate. To encourage a culture of giving back to the communities in which we operate, the Company allows all employees paid time off for volunteer activities.

Protecting the People We Serve. Protecting the people we serve is what matters most. We employ Field Safety Professionals or FSPs with first-hand experience in the industries that we write. With FSPs deployed around the country, we strive to ensure that workers are safe by providing a clear observation of safety practices with verbal and written recommendations for improvement. Even prior to underwriting a policy, we conduct thorough safety inspections that focus on a policyholder’s operations, loss exposures and existing safety controls to prevent potential losses. Our inspections consider employee experience, turnover, training, previous loss history and corrective actions, workplace conditions, equipment conditions and the use of fall protection, respiratory protection or other safety devices. Over 90% of new voluntary business policyholders were inspected prior to offering a premium quote.

In addition to these in-person safety trainings, we provide our policyholders with online resources for education and training that are available 24/7. We believe our inspections and safety training help protect workers and prevent catastrophic workplace accidents. Employers value us for being their safety partners and our agents value the depth of our safety resources. Our mission of providing quality insurance services to our customers is reflective of our commitment to the health and safety of our employees and insureds.

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Customer-focused Approach. We are proud of our personal, high-touch model with policyholders. In the event of a claim, our adjusters are on the ground working with injured workers generally within 48 hours of the filed claim. We are physically there to represent the injured worker, walk them through the claims process, and improve the quality of their outcomes. One adjuster is solely responsible for each injured worker and the claim loads of our adjusters are less than half that of other peers. Our customer-focused approach allows us to provide high quality of service and a customer retention rate of over 90%.  

Our Employees. The retention, growth, and development of our employees is critical to our success.  We believe our average employee tenure of 10.7 years speaks to our successful efforts on these fronts.

We are committed to the health, safety and wellness of our employees, as the success of our business is fundamentally connected to the well-being of our people. Our benefit offerings are designed to meet the varied and evolving needs of a diverse workforce.

We provide employees with a 401K plan with company matching contributions, health insurance plans, dental, vision and other employee benefits. We also provide employees time off for annual wellness exams, reimbursements of health club memberships, confidential counseling services, quarterly wellness luncheons and an annual health fair to promote a culture of wellness. The Company has also established an endowment to provide scholarships to dependents of our employees and members of the community in which we do business, recognizing the importance of educating future generations. Since 2016 we have maintained a partnership with the Community Foundation of Southwest Louisiana to provide tax-free assistance to employees that have experienced a catastrophic event through an employee assistance fund. In addition to funding provided by the Company, this fund also allows employees to make a monetary donation to assist their fellow employees.

COVID-19 Pandemic Response. We continued to monitor the health and safety of our employees during 2021 in response to the ongoing COVID-19 pandemic.  While much of 2020 initially involved efforts to minimize non-essential travel, work-from-home and limited in-person visits due to COVID-19, the Company did begin returning our Safety, Claims, Audit and Sales employees to the field and employees back to the home office in June of 2020, all following local, state and federal health and safety guidelines.  During 2021, we continued to maintain guidelines for in-person employees to ensure safety during the pandemic.  We also have encouraged employees to get vaccinated by offering a monetary incentive, as well as time off for vaccinations and testing.

Board Leadership

The Board has appointed Jared A. Morris as Chairman of the Board. As Chairman, his key responsibilities include:

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Our Corporate Governance Guidelines do not require that the roles of Chairman of the Board and Chief Executive Officer be held by different persons, as the Board believes that effective board leadership structure can depend on the experience, skills and personal interaction among individuals in leadership roles. These leadership roles are currently filled separately by our non-executive Chairman of the Board, Jared A. Morris, and by our Chief Executive Officer, G. Janelle Frost. The Board believes this leadership structure affords the Company an effective combination of management and non-management experience, continuity and independence that currently serves the Board and the Company well.  

Director Independence

As part of the Company’s corporate governance guidelines, the Board has established a policy requiring a majority of the members of the Board to be independent, as that term is defined in the Nasdaq listing requirements. The Board has determined that each of its current non-employee directors, Mr. Brown, Ms. Fontenot, Mr. Garcia, Mr. Greer, Mr. J. Morris, Mr. M. Morris, Mr. Roach and Mr. Traynor, is independent of the Company and its management within the meaning of the Nasdaq listing requirements.

The following Board Diversity Matrix presents our Board diversity statistics in accordance with Nasdaq Rule 5606, as self-disclosed by our directors. While the Board satisfies the minimum objectives of Nasdaq Rule 5605(f)(3) by having at least one director who identifies as female and at least one director who identifies as a member of an Underrepresented Minority (as defined by Nasdaq Rules), as we pursue future Board recruitment efforts, our Nominating and Corporate Governance Committee will continue to seek out candidates who can contribute to the diversity of views and perspectives of the Board. This includes seeking out individuals of diverse races and ethnicities, a balance in terms of gender, and individuals with diverse perspectives informed by other personal and professional experiences.

 

__________

1.Board tenure reflects service on the Board since the Company’s initial public offering in 2005.

 

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Board Meetings

The Board held five meetings during 2021. Each director serving on the Board in 2021 attended at least 75% of the total number of meetings of the Board and committees on which he or she served. Under the Company’s corporate governance guidelines, each director is expected to devote the time necessary to appropriately discharge his or her responsibilities and to rigorously prepare for, attend and participate in all Board meetings and meetings of Board committees on which he or she serves.

Annual Meetings of Shareholders

The Company’s directors are encouraged to attend our annual shareholder meetings, but we do not currently have a policy relating to directors’ attendance at these meetings. Six of our then eight directors, Mr. J. Morris, Mr. Brown, Mr.  Garcia, Ms. Fontenot, Ms. Frost, and Mr. Roach attended our 2021 annual meeting of shareholders, either in person or by teleconference.

Audit Committee

The Audit Committee currently consists of Mr. Garcia (Chair), Mr. Brown, Ms. Fontenot, and Mr. J. Morris. The Audit Committee oversees our accounting and financial reporting processes and the audits of the Company’s financial statements. The functions and responsibilities of the Audit Committee include:

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The Audit Committee met six times during 2021. Our independent registered public accounting firm reports directly to the Audit Committee. Each member of the Audit Committee has the ability to read and understand fundamental financial statements. The Board has determined that each member of the Audit Committee is “independent” as defined in the Nasdaq listing requirements and SEC requirements relating to the independence of audit committee members. The Board has also determined that Mr. Brown, Ms. Fontenot, Mr. Garcia and Mr. J. Morris each meet the requirements of an “audit committee financial expert” as defined by SEC rules. The Audit Committee has the authority to engage independent counsel and other advisors as the Committee deems necessary to carry out its duties.

Compensation Committee

The Compensation Committee currently consists of Mr. Brown (Chair), Mr. Garcia, Mr. J. Morris, Mr. Roach and Mr. Traynor. The Compensation Committee has sole authority for establishing, administering and reviewing the Company’s policies, programs and procedures for compensating our executive officers and the members of the Board. The Compensation Committee may delegate its responsibilities to a subcommittee comprised of Compensation Committee members. The functions and responsibilities of the Compensation Committee include:

The Compensation Committee met six times during 2021. The Board has determined that each member of the Compensation Committee is independent under the Nasdaq listing requirements.

The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of director or executive officer compensation and the sole authority to approve the fees and other retention terms of such compensation consultants. The committee may also retain independent counsel and other independent advisors to assist it in carrying out its responsibilities.

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Nominating and Corporate Governance Committee

The NCG Committee currently consists of Mr. Roach (Chair), Ms. Fontenot, Mr. J. Morris and Mr. Traynor. The functions and responsibilities of the NCG Committee include:

The NCG Committee met four times during 2021. The Board has determined that each member of the NCG Committee is independent under the Nasdaq listing requirements.

The NCG Committee has the sole authority to retain and terminate any search firm to assist in the identification of director candidates and the sole authority to set the fees and other retention terms of such search firms. The committee may also retain independent counsel and other independent advisors to assist it in carrying out its responsibilities.

Qualifications for Director Nominees. In considering director nominees, the NCG Committee considers a number of factors, including the following:

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The NCG Committee will also consider other criteria for director candidates included in its committee charter, the Company’s corporate governance guidelines or as may be established from time to time by the Board. The NCG Committee has not adopted a separate policy pertaining to the consideration of diversity in the selection of nominees to the Board; however, as noted above, diversity is one factor considered by the NCG Committee in evaluating director candidates. The NCG Committee will identify nominees based upon recommendations by committee members or other Board members, members of the Company’s management or, as discussed below, by shareholders of the Company. Upon identifying a potential nominee, members of the NCG Committee will interview the candidate, and based upon that interview, make a recommendation to the Board.

Shareholder Recommendations. The Company has adopted a policy regarding shareholder recommended director candidates, a copy of which is available on the Investors section of the Company’s website.  Consistent with this policy, the NCG Committee will evaluate director candidates recommended by a shareholder according to the same criteria as a candidate identified by the NCG Committee.

Shareholders may recommend candidates at any time, but to be considered by the NCG Committee for inclusion in the Company’s proxy statement for the next annual meeting of shareholders, recommendations must be submitted in writing no later than 150 calendar days before the first anniversary of the date on which the Company first mailed its proxy materials for the prior year’s annual meeting of shareholders. A shareholder’s notice must contain the following:

The shareholder’s notice must be signed by the shareholder recommending the director candidate for consideration and sent to the following address: AMERISAFE, Inc., 2301 Highway 190 West, DeRidder, Louisiana 70634, Attn: Corporate Secretary (Nominating and Corporate Governance Committee Communication/Director Candidate Recommendation).  

 

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Risk Committee and Risk Management

The Board views risk management as one of its primary oversight responsibilities. The Board initially formed the Risk Committee in 2010. The Risk Committee’s charter provides that all members of the Board are members of the Risk Committee. Mr. M. Morris serves as chair of the Risk Committee and establishes the agenda for the meetings. Risk Committee members periodically receive presentations on risk-related topics from the Company’s management. The Committee provides oversight in the areas described below. In performing this oversight function, at least annually and more frequently as may be appropriate, the committee meets with Company management to review these operational areas:

The Committee also coordinates with the Company’s other committees regarding risks stemming from matters over which these other committees have primary oversight responsibility, including risks stemming from the ESG-related matters. Further, on an ad hoc basis, and as otherwise directed by the Board, the Committee reviews specific operational segments of the Company that may pose unusual and significant risks that could have a material impact on the risk profile of the Company.

The Risk Committee met four times in 2021. The Risk Committee has the authority to select, retain, terminate, and approve the fees and other terms of retention of special counsel, experts and consultants. This Committee also has direct access to all Company employees.

In addition to the activities of the Risk Committee, the Board monitors risks arising from financial reporting and controls through its Audit Committee and risks related to compensation through its Compensation Committee.

Succession Planning

Our Board considers the evaluation of management and succession planning to be one of its most important responsibilities. The Board’s goal is to have a long-term program for effective senior leadership and development, with appropriate contingencies in case our chief executive officer, or any of our other executive officers, retires, resigns or is incapacitated.

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In the Board’s succession planning program, internal candidates for the executive positions, including the chief executive officer, are identified and evaluated based on criteria considered predictive of success at the senior management level. This program incorporates 360 reviews and related evaluations for each individual. The assessment includes a development plan, including executive coaching, for each individual.

Our Corporate Governance Guidelines provides that the NCG Committee report to the Board on succession planning at least annually. The chief executive officer is responsible for advising the Board regarding her recommendations and evaluations of potential successors, together with a review of any development plans for these individuals. The Board, with the assistance of the NCG Committee, evaluates potential successors to the CEO, as well as other members of senior management.

Communications with the Board

Any shareholder or other interested party who wishes to communicate directly with the Board or any of its members may do so by writing to: Board of Directors, c/o AMERISAFE, Inc., 2301 Highway 190 West, DeRidder, Louisiana 70634, Attn: Corporate Secretary. The mailing envelope should clearly indicate whether the communication is intended for the Board as a group, the non-employee directors or a specific director.

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COMPENSATION DISCUSSION AND ANALYSIS  

This Compensation Discussion and Analysis, or CD&A, is designed to provide shareholders with an understanding of the Company’s compensation philosophy and objectives, as well as the analysis that the Compensation Committee (referred to in this CD&A as the “Committee”) performed in setting executive compensation. It discusses the determination of how and why, in addition to what, actions were taken by the Committee with respect to compensation for each of our executive officers during 2021. Those individuals are:

Executive Summary

Recent Company Performance

We are a holding company that markets and underwrites workers’ compensation insurance through our insurance subsidiaries. The Company had solid operating performance during 2021, in a declining premium environment, with net income of $65.8 million and a combined ratio of 85.7% in the insurance industry. Our earnings per diluted share were $3.39 and our return on average equity was 15.7% compared with $4.47 and 19.9% in 2020. Total shareholder return was 2.3% in 2021, compared to the P&C Small-Cap Index of 16.5% and the P&C Mid-Cap Index of 21.3%. The Company’s average annual total shareholder return for the three-year and five-year periods ended December 31, 2021 was 6.1% and 4.6%, respectively. The P&C Small Cap Index average annual return for the three and five-year periods ended December 31, 2021 was 8.5% and 7.7%, respectively.  The P&C Mid-Cap Index average annual return for the three-year and five-year periods ended December 31, 2021 was 13.6% and 10.7%, respectively.

The Company also measures its performance by tracking its growth in book value per share plus dividends paid to shareholders.  In 2021, this growth was $3.08 compared to a starting book value per share of $22.70, for a change of 13.6%.  For the three years ended in 2021, this growth was $13.60 off a starting book value of $21.26, for an average annual change of 17.9%.  For the five years ended in 2021, this growth was $19.82 off a starting book value of $23.72, for an average annual change of 12.9%.

In 2021, the Company paid regular quarterly dividends of $1.16 per share and an extraordinary dividend of $4.00 per share, or total dividends of $5.16 per share. Effective February 2022, the Board of Directors increased the regular quarterly dividend from $0.29 per share to $0.31 per share, an increase of 6.9%. Although the Board presently intends to pay a regular quarterly dividend, dividends are considered each quarter for approval.

Compensation Best Practices

The Committee annually reviews and periodically modifies our executive compensation program to retain and attract top executive talent to the Company and ensure that our program is both aligned with the interests of our shareholders and meets evolving governance standards. The following highlights some of the compensation and governance best practices that are part of our program:

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No 2021 Target Compensation Changes

For 2021, the Committee reviewed the base salaries and target annual and long-term incentive compensation of our executive officers. Consistent with the Company’s decision in July 2020 to not increase base salaries for employees due to the pandemic and ensuing economic implications, the Committee did not make any changes to the executive officer base salaries or change any of the annual and long-term incentive targets for the executive officers. In addition, the Committee continues to place greater weight on performance-driven long-term incentive compensation compared to annual incentive compensation, recognizing that, as a mono-line workers’ compensation insurance company, the claims incurred under the policies written by the Company often take several years to develop. In determining the long-term incentive awards for 2021, the Committee adjusted the weighting of the metrics to increase the weight of direct premiums written to align with Company performance goals.

Compensation Program Objectives

Our compensation program is intended to attract, retain and motivate the key people necessary to enable our Company to operate effectively and profitably over the long-term. The Committee believes that executive compensation should align the interests of the Company’s executives and other key employees with those of the Company and its shareholders. Our compensation program is also designed to differentiate compensation based upon individual contribution, performance and experience with our Company.

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In establishing compensation, the Committee seeks to provide employees, including our executive officers, with a competitive total compensation package. The Committee sets compensation in this manner to ensure that our compensation practices do not put the Company at a disadvantage in attracting and retaining executives and other employees, while also ensuring a competitive cost structure for our Company.

Compensation Processes

Our compensation program for executives is designed and implemented under the direction of the Committee, which is currently comprised of the following five independent directors: Mr. Brown (chair), Mr. Garcia, Mr. J. Morris, Mr. Roach and Mr. Traynor. For additional information regarding our Committee and its authority and responsibilities, see “The Board, Its Committees, and Its Compensation—Compensation Committee.”

2021 Advisory Vote on Executive Compensation

At our annual meeting of shareholders in June 2021, more than 99% of the votes cast on the say-on-pay proposal were in support of our executive compensation program. The Committee considered the results of this advisory vote and believes the results affirm shareholder approval of the Board’s approach to the Company’s executive compensation program. Although the Committee did not adopt any changes to our program as a result of this vote, as noted above the Committee is continually evaluating our executive compensation and has made changes in the past few years to further align the program with our shareholders’ interests and to take into consideration the results of market surveys and other information prepared by the Committee’s compensation consultant.

Role of Compensation Consultant

Since early 2012, the Committee has engaged McLagan, an AON Hewitt Company, as its independent compensation consultant. Pursuant to Company policy, McLagan does not provide services to the Company other than the consulting services it provides to the Committee. The Committee is solely responsible for the appointment, compensation and oversight of the compensation consultant.

McLagan attends Committee meetings, when requested by the Committee, prepares executive compensation surveys, and generally advises on executive compensation matters including the peer group composition for purposes of the surveys, pay levels and pay composition, and annual and long-term incentive plan design. McLagan also provides market data, analysis, and advice regarding the CEO and executive officer compensation to the Committee as well as director compensation surveys and advice. As required by SEC rules, the Committee assessed the independence of McLagan and concluded that McLagan’s work did not raise any conflicts of interest.

Compensation Surveys

McLagan conducted the most recent executive compensation survey in 2019. The “2019 Survey”, reviewed by the Committee in the fall of 2019, was used in setting compensation for 2020 and was referred to when the Committee considered its 2021 compensation decisions. Given the impact and uncertainty of the COVID-19 pandemic, the Committee did not engage McLagan in 2020 for a compensation survey. The Committee did engage McLagan for a survey in 2021 to assess 2022 executive compensation.

The 2019 Survey compared the compensation for our executive officers against a peer group of 16 publicly traded insurance companies. The 2019 Survey also included a review of the Company’s annual and long-term incentive compensation plan design. McLagan used Company target compensation for 2019 and peer group compensation data for 2018 in its preparation of the 2019 Survey. The Committee reviewed the 2019 Survey results in assessing the level of salary and bonuses paid to our executives and approving changes to the target compensation levels and annual and long-term compensation plan design for our executive officers in 2020.

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Peer Group Construction. The Committee used a rigorous process to select peer companies for benchmarking executive pay in the 2019 survey, which included ranking the companies by premiums written, total revenue, combined ratio, lines of insurance business, multi-line versus mono-line property-casualty insurer, number of states doing business in, and investment mix. With the assistance of McLagan, the Committee selected the following 16 publicly traded companies as its peer group for the 2019 Survey:

 

 

As noted in the Company’s 2021 proxy statement, the results of the 2019 Survey indicated that (1) the Company’s aggregate executive officer 2019 target compensation was below the market median for each pay element, (2) the average total target direct compensation for each of the named executive officers was below the market median, (3) the Company delivers a greater percentage of total target direct compensation in the form of incentive (or variable) compensation than its peers and (4) the Company delivers a greater proportion of incentive compensation in annual incentive pay.

Role of Management

Our chief executive officer, Ms. Frost, makes recommendations with respect to changes in base salary for our executive officers, other than for herself. As noted above, there were no increases in the base salaries of our executive officers in 2021. She also makes recommendations regarding the level of achievement of individual performance goals under our annual incentive compensation plan by each executive officer other than herself. Although the Committee considers the recommendations of Ms. Frost, the Committee makes all final determinations regarding executive compensation. Ms. Frost is not present when the Committee discusses or determines her compensation.

Risk Assessment

The Committee annually considers the risk to the Company of the design and objectives of its executive compensation plans through review of the compensation surveys provided by McLagan. The primary risk is weighting the premium growth factor too heavily in the annual and long-term incentive plans. Growing premium too rapidly could result in poor underwriting results and ultimately affect the financial strength of the Company.

The Committee recognizes that the design and objectives of the executive compensation plans are based on assumptions that may later be determined to be inaccurate which could present a risk of loss of key personnel resulting in disruption of our operations and adverse effects on our business. The Committee believes the current relative weighting of the metrics in the annual and long-term incentive plans are appropriately balanced to attract, retain and motivate key employees as well as align with shareholder interests.

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Overview of Executive Compensation Program

The principal components of our executive compensation program provide for a combination of fixed and variable compensation. In addition to the principal components, we also provide our executive officers with broad-based employee benefits, certain severance benefits and limited perquisites. For 2021, the principal components, which we refer to as our executive officer’s total direct compensation, are summarized as follows:

 

2021 Executive Compensation Program at a Glance

 

 

The table below summarizes our executive officers’ target direct compensation approved for 2021 as well as the percentage of total target direct compensation represented by each component. As noted, over 60% of our chief executive officer’s total target compensation is at-risk and based on achievement of individual and Company performance objectives. The actual base salary received, the actual annual incentive compensation award earned for 2021 and the grant date value of LTIP awards are reflected in “Executive Compensation—Summary Compensation Table.”

 

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Base Salary. Base salaries are determined on the basis of management responsibilities and level of experience, as well as internal and market comparisons. In setting base salaries for our executive officers, the Committee seeks to provide a reasonable level of fixed compensation that we believe is competitive with base salaries for comparable positions at our peer companies.

 

Consistent with the Company’s decision in July 2020 to not increase base salaries for employees due to the pandemic and ensuing economic implications, the Committee did not make any changes to the executive officer base salaries for 2021.

 

 

Annual Incentive Compensation. The Committee believes that annual incentive compensation is an important element of the total compensation of each executive officer. Similar to the structure of the program in 2020, in 2021, the Committee implemented an annual incentive plan based on achievement of individual performance goals instead of Company-focused performance metrics.

2021 Annual Incentive Compensation. In February 2021, the Committee approved target award opportunities under our annual incentive compensation plan for each executive officer equal to a percentage of each executive’s base salary, which percentages were consistent with those used in the 2020 program.  

As in 2020, the Committee believed it was important to focus each executive on key individual objectives for the year. Further, given that the payout of our long-term incentive compensation awards is driven by key metrics tracking Company performance (combined ratio, direct premiums written and total shareholder return), the Committee determined that structuring the annual incentive program around individual performance goals continues to be appropriate. In 2021, the individual performance goals established were both qualitative and quantitative for all of the executives, including Ms. Frost, to focus management’s goals on improving Company performance in a declining rate environment. The quantitative goal established was designed to support the long-term objective of increasing direct premiums written. Ms. Frost also was evaluated on leadership of the senior management team. For our other executive officers, individual goals were focused on completion of individual special projects.

The following table sets forth the target award opportunity for each named executive officer for 2021.

 

 

Each executive officer could earn between 0% and 150% of the target individual goals based on the level of achievement of the applicable goals. The committee evaluated each executive’s performance against his or her performance goals to determine the achievement levels under the 2021 annual incentive plan, considering the recommendations of Ms. Frost for the executives other than herself. For 2021, the quantitative goal was not achieved, which impacted the percentage target award earned.

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The total annual incentive award payouts for our named executive officers for 2021 were as follows:

 

 

Long-Term Incentive Compensation. Under our current program, the Committee makes LTIP awards on an annual basis, but may adjust the performance factors, the weighting of those factors, and other aspects of the LTIP each year as it evaluates the effectiveness of the program over time. The following principles and objectives guide the Committee in implementing our LTIP each year:

Under the LTIP, target awards are established annually for each executive officer based on a percentage of the executive’s base salary. The target award value is delivered to each executive solely in the form of a performance-based award. The performance award is payable in shares of common stock, with the number of shares earned determined based on the Company achievement of certain quantitative targets measured over a three-year performance period. These performance awards are tied directly to the performance of the Company and better align executive management compensation and shareholder interests.

The Compensation surveys continue to reaffirm the importance of the LTIP in making the Company’s executive compensation program competitive with peers. Awards under the LTIP are made pursuant to our shareholder-approved 2012 Equity and Incentive Compensation Plan.

2021 Long-Term Incentive Compensation Awards. For the 2021 LTIP awards, the Committee set a target value, which was a percentage of base salary as set forth below, which percentages were consistent with those used in the 2020 program, for each executive officer. Based on the 2019 Survey, the target for Ms. Frost was slightly above the market median and the target for the other executive officers was slightly below the market median for the long-term compensation component of pay. This target value was then awarded to each executive in the form of a performance award.

 

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Description of 2021 Performance Awards. The performance awards provide a target dollar amount that may be earned by the executive, which amount will be paid in shares of our common stock, subject to certain limited exceptions. The amount earned under the performance award will be between 0% and 150% of the award’s target value. The amount earned, if any, is dependent on the Company’s operating performance over a three-year period beginning on January 1, 2021 and ending December 31, 2023, relative to the performance of a designated peer group of insurance companies selected by the Committee. In 2021, the Committee reviewed the peer group selected for the performance awards in 2019 and confirmed that the companies selected continued to be significant competitors of the Company in the workers’ compensation markets in which it operates. The following 22 companies comprise the performance peer group for the 2021 performance awards under the LTIP:

 

 

Consistent with the 2020 awards, the Committee selected the following two metrics to measure the Company’s operating performance under the 2021 performance-based awards: combined ratio (“CR”), and direct premiums written (“DPW”), each determined on the basis of statutory accounting principles used by insurance companies (including the Company) in filings made with state regulatory authorities. The Committee selected these measures as they were deemed to be significant performance benchmarks for insurance companies, including the Company. However, for the 2021 awards, the Committee slightly altered the weight of each metric, reducing the weight of CR by 10% and correspondingly increasing the weight of DPW by the same percentage placing an increased emphasis on the growth of direct written premiums.

 

Calculation of Earned Amounts under the Performance Awards. Following the end of the applicable three-year performance period, the Committee will determine the percentage of the target award earned (the “Earned Value”) as follows:

Step 1: Application of Threshold Basis Points Concept to Calculation of Awards. In designing the performance-based award under the LTIP, the Committee recognized that the Company had demonstrated outstanding operating performance and consistently outperformed the workers’ compensation industry, including the peer companies listed above. As a consequence, the Committee’s award design considered this historical performance when determining the level of performance that would result in maximum payout under the performance-based awards. The Committee incorporated the concept of threshold basis points (“TBP”) into the calculation of the Earned Value. TBP is the amount by

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which the Company’s performance for each measure must exceed the results of the performance peer group for the payout of that measure to equal two times the target level (as noted above, the overall award is limited to 150% of the target award value). TBP is expressed in basis points (“BP”). The first step in the calculation of the Earned Value is to compare the performance of the Company over the performance period to that of the 22 companies in the peer group for the applicable performance and to determine whether the TBP level for each measure has been achieved. For example, the TBP for each measure in the 2021 performance awards were as follows:

 

 

Step 2: Reduction Based on Total Shareholder Return. Following a determination of the payout level based on the metrics described above, the payout will be reduced if the total shareholder return (“TSR”) of the Company is more than 500 basis points lower than the total shareholder return of 50% of the S&P Property Casualty Insurance Small Cap Index and 50% of the S&P Property & Casualty Insurance Mid Cap Index over the three-year period. The TSR measure cannot increase payouts under the awards, but is only used to reduce the payout when the Company TSR lags the index by more than 500 basis points. The TSR measure operates as a third metric in the award design and reduces the uncapped payout factor by 37.5 basis points for every 500 basis points of under-performance in the TSR factor, subject to a maximum 25% reduction in the uncapped payout factor. After the award is reduced by a TSR factor adjustment, if any, the bonus factor is then subject to a 1.5 times target compensation cap.

Step 3: Conversion of Earned Value to Shares of Common Stock. After determination of the Earned Value under each performance award, payment is made in shares of common stock (rounded to the nearest whole share) equal to (a) the Earned Value under the award divided by (b) the volume weighted trading price per share of common stock for the 10 trading days immediately preceding the date the value of the award is approved by the Committee (after the expiration of the three-year performance period).

Payout of the 2018-2020 Performance Awards. The following table sets forth the weighting of performance measures established under the performance awards for the 2018 - 2020 performance

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period, and the results achieved. The shares of common stock earned under this award were issued in May 2021.

 

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The following table sets forth the applicable target values, as well as the final payout, under the performance award for the 2018-2020 performance periods for each named executive officer:

 

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Current Estimates of Potential Payout Value of Outstanding Performance Awards. The following table shows the estimated potential payout of the performance-based awards granted in 2019, 2020 and 2021 as of September 30, 2021, which is the most current information available to the Company. These estimated values are presented for information purposes only, as the actual payout values will be determined following the end of the respective performance periods and will be impacted by the Company’s performance during the remainder of the performance periods.