2017 NAMICEXECUTIVE PAY PRACTICES STUDY

COMPILED BY WARD GROUP SPONSORED BY

EXECUTIVE SUMMARY

CORPORATE SPONSOR

TheJacobsonGroupistheleadingglobalproviderofinsurancetalent.For45years,wehavebeenconnectinginsuranceorganizationswithprofessionalsfromtheboardroomtothebackroomonbothapermanentandtemporarybasis.Weofferavarietyofsolutionsincludingexecutivesearch,professionalrecruiting,emergingtalent,RPO,temporarystaffing,subjectmatterexperts,andonsiteandwork-at-homeoperationssupport.

Jacobson’smarketplacelongevitycreatesanextensiveindustrynetwork,auniqueinsider’sperspectiveandareputationforexcellence.Regardlessoftheneedorsituation,Jacobsonistheinsurancetalentsolution.

Formoreinformation,visitwww.jacobsononline.com.

WardGroup,apartofAonplc(NYSE:AON),istheleadingproviderofbenchmarkingandbestpracticesstudiesfortheinsuranceindustry.Weanalyzestafflevels,compensation,businesspracticesandexpensesforallareasofcompanyoperationsandhelpinsurerstomeasureresultscomparedtopeergroups,optimizeperformanceandimproveprofitability.Since1991,wehaveperformedmorethan2,500operationalandcompensationbenchmarkingexercisesforcompaniesofallsizes,including morethanhalfofthetop100U.S.insurancecarriers.

Formoreinformation,pleasevisit www.wardinc.com.

IN PARTNERSHIP WITH

2

NAMICisthelargestproperty/casualtyinsurancetradeassociationinthecountry,withmorethan1,400membercompaniesrepresenting39percentofthetotalmarket.NAMICsupportsregionalandlocalmutualinsurancecompaniesonmainstreetsacrossAmericaandmanyofthecountry’slargestnationalinsurers.

NAMICmembercompaniesservemorethan170millionpolicyholdersandwritemorethan$230billioninannualpremiums.Ourmembersaccountfor54percentofhomeowners,43percentofautomobile,and32percentofthebusinessinsurancemarkets.

ThroughouradvocacyprogramswepromotepublicpolicysolutionsthatbenefitNAMICmembercompaniesandthepolicyholderstheyserveandfostergreaterunderstandingandrecognitionoftheuniquealignmentofinterestsbetweenmanagementandpolicyholdersofmutualcompanies.

NAMICHEADQUARTERS NAMICWASHINGTONOFFICE3601VincennesRoad 122CStreet,N.W.Indianapolis,IN46268 Washington,D.C.20001(317)875-5250 (202)628-1558

www.NAMIC.org

SpecialthankyoutoNAMIC’sPropertyCasualtyConferenceBoardofDirectorsforitsleadershipandsupportofthisproject.

NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES

3

MattMooreExecutiveVicePresidentShelterMutualInsuranceCompany

Christine(Chris)Sears,CPCU,CPAPresident&CEOPennNationalInsurance

DarinNessel,CIPPresident&CEOTheMutualFireInsuranceCompanyofBritishColumbia

PhilFraimPresident&CEOOklahomaAttorneysMutualInsuranceCompany

DaveGrossPresident&CEOSECURAInsurance,AMutualCompany

Liason toNAMICBoardMarieJewettPresident&CEOCo-operativeInsuranceCompanies

StaffLiaisonKristenL.SpriggsSeniorVicePresidentMemberDevelopmentNAMIC

ChairmanMichaelWenos,CPCUPresidentMadisonMutualInsuranceCompany

Chairman-ElectJillWagnerKellyPresidentIntegrityMutualInsuranceCompany

ImmediatePastChairmanRobertZakPresident&CEOMerchantsMutualInsuranceCompany

ViceChairmanDaveKaufmanPresident&CEOMotoristsMutualInsuranceCompany

JosephDeChatelets,CPCUPresident&CEORockfordMutualInsuranceCompany

JeffWrobel,CPCUPresidentMutualAssuranceSocietyofVirginia

AffinityMutualInsuranceCompanyBrotherhoodMutualInsuranceCompanyBuckeyeStateMutualInsuranceCompanyCameronMutualInsuranceColumbiaInsuranceGroupCopperPointMutualInsuranceCompaniesCoverysCumberlandInsuranceGroupFarmersMutualFireInsuranceCompanyofMarble,PAFarmersMutualHailInsuranceofIowaFrankenmuthMutualInsuranceFranklinMutualInsuranceFrederickMutualInsuranceCompanyGrangeInsuranceAssociationHochheim PrairieFarmMutualInsuranceAssociationIslandInsuranceCompaniesJewelersMutualInsuranceCompanyLititzMutualInsuranceCompany

MarysvilleMutualInsuranceCo.MerchantsInsuranceGroupMMGInsuranceCompanyMutualBenefitGroupOhioMutualInsuranceGroupPekinInsurancePreferredMutualInsuranceCompanySECURAInsuranceSFMMutualInsuranceCompanyShelterInsuranceCompaniesSocietyInsuranceSynergyCompInsuranceCompanyTheHarfordMutualInsuranceCompanyTheNorfolkandDedhamGroupVermontMutualInsuranceGroupWayneMutualInsuranceCompanyWesternNationalInsuranceGroup

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS

PARTICIPANTS

4

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS

5

The“futureofwork”hasbecomethenewbusinessreality.Nolongerjustabuzzword,theindustrystandsamidaneconomiccyclewheretheworkplaceisinaconstantstateofflux.Existingtrendsandemerging“normals"areacceleratingandirreversiblychangingtheworkforceasweknowit.

Thebusinessworld—andtheinsuranceindustry,inparticular—isattheonsetofmomentoustransformation.Thefutureofworkisincreasinglycomplex,cutting-edgeandmarkedlydifferent.Onlythoseorganizationswhoreadilyembracethesechangeswillbeabletosuccessfullycompeteinthisnewreality.

THE FUTURE OF WORKToday’snewworkenvironmentistypifiedbyanincreasedlevelofcomplexityandinterconnectedness.ThisemergingworkplaceischaracterizedasVUCA—volatile,uncertain,complexandambiguous.Originallyconceivedasamilitaryacronym,thisterminologyisaperfectdescriptor forabusinessworldthatisinaconstantstateofchange.

Volatility seeschangehappeningrapidlyandonalargescale.Thisincludesevolvingtechnology,emergingautomationandartificialintelligence.Uncertaintyreflectsafuturethatisnolongerabletobepredictedwithprecisionduetoemergingrisksandchangingdemands.Complexity isbeingdrivenbychallengesthatincreasinglyhavemultiplefactorsandfewsinglesolutions.Ambiguity isseenwithindustryeventsandchangeswhoseeffectsareunknown.Thisspansfromtheriseofthe“blended”workforceofpermanentandtemporaryprofessionalstotheflatteningoforganizationalhierarches andtheemergingcorporatelattice.

Inordertofindsuccessinthisrapidlytransformingenvironment,we—asanindustry—mustunderstandthepersonal,organizationalandsocietalimpactofthesechangesandadapt.Onlybyrethinkingcurrentstrategiesandredefiningtheirrealitiescanforward-thinkingorganizations successfullymoveintothefuture.

6

LEADERSHIP IN AN EVOLVED INDUSTRYThefastpaceoftoday’sfutureworkforcerequiresanewtypeofleadership.Reflectingtheevolvingbusinessenvironment,thecompetenciesorganizationsrequirearechanging.Asinsurersfocusonredesigningtheirorganizationstobemoredynamic,team-centricandconnected,theyarelookingforagileleaderswhocanmobilizeandexecutethesemodels.

Thesenewleadersmustbeabletosolvecomplexproblemsacrossboundaries,driveaneco-systemoflearningandcontinuousimprovement,allwhilekeepingabroaderworkforceofemployees,gigcontractors,contingentworkersandfuturetalentconnectedandengaged.

Thisiscertainlyatallorderthatrequiresnewcompetencies,abilitiesandattributes.Drivenbyaninnovativedevelopmentapproachthatblendsbothhorizontalandverticalleadershipdevelopment,theseagileleadersareabletobuildnewcapabilities,aswellasexpandtheirpersonalworldviews.Theyareadaptable,creativeandversatile.Theyareself-aware,networkedandcollaborative.Theyareabletoinspire,managecomplexity anddevelopculturesthatareconducivetosuccessintoday’srapidlychangingenvironment.

Thesetalentedindividualsarekeytodrivingtransformationandnavigatingtheworkplaceofthefuture.Unfortunately,insurers arecompetingagainstanumberofindustriesforthesehighly-talentedandsought-afterleaders.

Asthe“warfortalent”rages,compensationisacriticalcomponentindifferentiatinginsuranceasanindustryofchoice.Increasingly,thewider“hiddenpaycheck”ofemployeebenefitsandlifestyleperksisbeingconsideredbyprofessionalswhenmakingcareerdecisions.Incentiveprograms,professionaldevelopmentopportunities,disabilityincomeprotectionsolutionsandcarriedinterestplansarealladditionsthataddvalue to acompensationpackage.

TheJacobsonGroupishonoredto—onceagain—sponsorthe2017NAMICExecutivePayPracticesStudy.Thisstudyprovidesarobustviewandinsiderlensintocompensationbestpracticesandstrategies,includingsalaryandincentiveprogramsandperformanceplanguidance.We,asanindustry,shouldusetheseinsightsaspivotpointsfromwhichwecanbuildaneffectiveframeworkforacompetitive,compellingandreal-worldexecutivecompensationstrategy.Onlybydisruptingthestatusquoacrossallbusinesspractices—includingourcompensationstrategies—willwebeabletothriveintoday’sfast-pacedreality.

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS

WardGroupispleasedtobepartneringwithNAMICandTheJacobsonGrouptoconductthisyear’sExecutivePayPracticesStudy.WhenusedinconjunctionwiththeProperty/CasualtyCompensationSurvey,participantsunderstandthecompletepictureoftheexecutiveteam’stotalcompensationpackage,includingactualmarketcompensationforexecutivepositionsandthemeasuresandcomponentsofperformance,funding,andperquisitesfortheseroles.

Thirty-fivecarriersparticipatedinthestudy,providingextensivedataregardingorganizationalstructure,compensationplanning,incentivecompensationdesign,andadditionalbenefitsofferedtoexecutives.Tofurtheranalyzetheresults,fourbenchmarkgroupswheredeveloped.

Belowisabriefsummaryofthestudyfindings.ThefullreportisavailableforpurchasefromNAMICandWardGroup’swebsites.

COMPENSATIONPLANNINGANDCOMPETITIVENESSAmajorityofparticipatingcarriersfelttheirexecutivecompensationprogramswerebothcompetitivewithintheindustryandadequatelyhelpedthemattractandretainkeytalent.However,only17%ofrespondentsstronglyagreedthattheplanwascompetitive.

Whilemanycarriersbelievetheirprogramsarecompetitive,onlyone-thirdofparticipantsreportedthattheydonotreviewtheirexecutivecompensationstrategyonafrequentbasis(bi-annuallyorannually).WardGroupconsidersitabestpracticetoreviewexecutivecompensationstrategyonatleastabi-annualbasisforanumberofreasons.Frequentreviewofcompensationisusefulindeterminingwhethercurrentperformancetargetsareinlinewithrelativeindustryperformanceandaconsistentprocesshelpsreducetensionamongstseniormanagementregardwhethertheirpaylevelsarefairagainstthemarketandperformanceofthecompany.

7

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS

COMPENSATIONAfterafewyearsoflowtoflatbasecompensationincreasesforexecutivemanagementpositions,in2017,carriersweremorelikelytoincreasetheirexecutives’basecompensation.CEObasecompensationincreasedonaveragebymorethan5%andallothermanagementlevelssawaverageincreasesslightlyhigherthan4%.

While2016financialresultswereworsethan2015fortheP&Cindustry,withacombinedratioof100.5,surveyedcompaniesoutperformedpeerswitha95.7.Carrierperformanceresultedinannualbonusesthatfellinlinewithorabovetargetsformostseniormanagementpositions.Forthosecompaniesthatwerehighperformersin2016,CEOannualbonuseswere23%higherthantarget;andannualbonuseswere26%higherthantargetfortheotherexecutivemanagementpositionsinthisbenchmarkgroup.

Long-termincentiveprogramswerelessprevalentatparticipatingcarriersthanannualbonusplans.Only49%ofparticipatingfirmsindicatedhavingalong-termincentiveplaninplaceforseniormanagement.Theseplans,whichvestovera3-5yearperiod,typicallyreliedonfewerperformancemeasuresthantheannualbonusplanandweremorefocusedonfinancialreturns,suchassurplusgrowthorreturnonequity.Theseprogramshaveshowntobeimportantretentiontoolsforkeyexecutives.

8

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS

CarriersizehadthemostpronouncedimpactonoverallcompensationdistributionfortheCEOposition.Ascarriersizegrew,the percentof“at-risk”orincentivecompensationbecamesignificantlylarger.CEOsatsmallcarriershadonaverage35%oftheircompensationat-riskcomparedto47%atlargecarriers.SimilartrendsalsowerenotedattheSVP/EVPlevelandVPlevel.

ADDITIONAL BENEFITSBenefitsbeyondcompensationarealsoanintegralpartofexecutivetotalrewardsprogramsandcanhelpattractandretainkeytalent.Theuseofbenefitssuchasdeferredcompensation,supplementalexecutiveretirementplans(SERP),carallowances,andpaidtimeoffprogramswereusedtovaryingdegreesacrossallcarriers.

9

62% 53% 65% 49%

38% 47% 35% 51%

OverallBenchmark LargeBenchmark SmallBenchmark HighPerformerBenchmark

CompensationDistribution- CEO

Base Incentive

EXECUTIVE PAY PRACTICES STUDY – KEY FINDINGS