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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 ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o

 

Preliminary Proxy Statement

o

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

Soliciting Material under §240.14a-12

 

The Travelers Companies, 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 the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        
 
    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
    (4)   Proposed maximum aggregate value of transaction:
        
 
    (5)   Total fee paid:
        
 

o

 

Fee paid previously with preliminary materials.

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        
 
    (2)   Form, Schedule or Registration Statement No.:
        
 
    (3)   Filing Party:
        
 
    (4)   Date Filed:
        
 

Table of Contents

LOGO  


485 Lexington Avenue
New York, New York 10017
      

April 6, 2018

Dear Shareholders:

Please join us for The Travelers Companies, Inc. Annual Meeting of Shareholders on Wednesday, May 23, 2018, at 9:00 a.m. (Eastern Daylight Time) at the Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103.

Attached to this letter are a Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

At this year's meeting, you will be asked to:

The Board of Directors recommends that you vote FOR each of the nominees listed in the Proxy Statement, FOR items 2 and 3 and AGAINST item 4.

Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the Internet, by telephone, or by completing a paper proxy card and returning it by mail. You may also vote in person at the Annual Meeting.

Thank you for your continued support of Travelers.

Sincerely,

GRAPHIC

Alan D. Schnitzer
Chairman and Chief Executive Officer


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HOW TO VOTE BY PROXY

If, at the close of business on March 27, 2018 (the "Record Date"), you were a shareholder of record or held shares through The Travelers Companies, Inc. (the "Company" or "Travelers") 401(k) Savings Plan or through a broker or nominee, you may vote your shares by proxy on the Internet, by telephone or by mail. For shares held of record or through a broker or nominee, you may also vote in person at the Annual Meeting of Shareholders to be held on May 23, 2018 (the "Annual Meeting"). For shares held through a broker or nominee, you may vote by submitting voting instructions to your broker or nominee. To reduce our administrative and postage costs, we ask that you vote on the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies or change your vote at the times and as described on page 68.

If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 22, 2018 to be counted.

If you hold shares through Travelers' 401(k) Savings Plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 21, 2018 to be counted. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting.

To Vote by Proxy Over the Internet

Go to the website www.proxyvote.com and follow the instructions, 24 hours a day, seven days a week.

You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials (the "Notice") or on your proxy card.

To Vote by Proxy Over the Telephone

From a touch-tone telephone, dial (800) 690-6903 and follow the recorded instructions, 24 hours a day, seven days a week.

You will need the 16-digit number included on your Notice or on your proxy card.

To Vote by Proxy by Mail

If you have not already received a proxy card, you may request a proxy card from us by following the instructions on your Notice of Internet Availability of Proxy Materials.

When you receive the proxy card, mark your selections on the proxy card.

Date and sign your name exactly as it appears on your proxy card.

Mail the proxy card in the postage-paid envelope that will be provided to you.

HOW TO VOTE IN PERSON

If you plan to attend the Annual Meeting and vote in person, you must present a form of personal identification (such as a driver's license) along with your Notice, proxy card or proof of ownership (and if your shares are held in street name, a bank or brokerage account statement as proof of ownership). You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the recordholder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance using one of the voting methods described above so that your vote will be counted if you later decide not to attend the meeting.

Your vote is important. Thank you for voting.


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GRAPHIC

Notice of Annual Meeting of Shareholders

Wednesday, May 23, 2018
9:00 a.m. Eastern Daylight Time


Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103

Items of Business

1.
Elect the 12 director nominees listed in the Proxy Statement.

2.
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2018.

3.
Consider a non-binding vote to approve executive compensation.

4.
Consider a shareholder proposal relating to a diversity report, including EEOC data, if presented at the Annual Meeting.

5.
Consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

Record Date
You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 27, 2018.

Voting by Proxy
To ensure your shares are voted, you may vote your shares by proxy on the Internet, by telephone or by completing a paper proxy card and returning it by mail. Internet and telephone voting procedures are described on the preceding page and in the General Information About the Meeting section beginning on page 68 of the Proxy Statement and on the proxy card.

    By Order of the Board of Directors,

 

 

SIG
    Wendy C. Skjerven
Corporate Secretary

This Notice of Annual Meeting and the accompanying Proxy Statement are being distributed or made available,
as the case may be, on or about April 6, 2018.

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Proxy Statement

TABLE OF CONTENTS

Corporate Governance

   

Item 1 – Election of Directors

  1

Nominees for Election of Directors

  1

Governance of Your Company

  8

Non-Employee Director Compensation

  21

Audit Committee Matters

   

Item 2 – Ratification of Independent Registered Public Accounting Firm

  24

Audit and Non-Audit Fees

  25

Report of the Audit Committee

  25

Executive Compensation

   

Item 3 – Non-Binding Vote to Approve Executive Compensation

  26

Compensation Discussion and Analysis

  27

Compensation Committee Report

  46

Summary Compensation Table

  47

Grants of Plan-Based Awards in 2017

  48

Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2017

  49

Option Exercises and Stock Vested in 2017

  50

Outstanding Equity Awards at December 31, 2017

  51

Post-Employment Compensation

  52

Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control

  56

Shareholder Proposal

   

Item 4 – Shareholder Proposal Relating to a Diversity Report, Including EEOC Data

  61

Other Information

   

Share Ownership Information

  64

CEO Pay Ratio

  66

General Information About the Meeting

  68

Shareholder Proposals for 2019 Annual Meeting

  71

Other Business

  71

Annex A: Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions

  A-1

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Corporate Governance | Item 1 – Election of Directors and Nominees for Election of Directors

ITEM 1 — ELECTION OF DIRECTORS

There are currently 13 members of the Board of Directors (the "Board"). On February 7, 2018, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated the 12 directors listed below for re-election to the Board at the Annual Meeting. Mr. Cleve Killingsworth Jr., who currently serves as a director, notified the Board that he would not stand for re-election to the Board at the Annual Meeting. Mr. Killingsworth's decision was not due to any disagreement with the Company's management or the Board. Mr. Killingsworth will serve out the remainder of his term, which will end at the Annual Meeting. The Company is grateful to Mr. Killingsworth for his many years of service on the Board.

The directors elected at the Annual Meeting will hold office until the 2019 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the form of proxy card (the "proxyholders") attached to this Proxy Statement as filed with the Securities and Exchange Commission ("SEC") intend to vote the proxies held by them for the election of the 12 nominees named below. The proxies cannot be voted for more than 12 candidates for director. The Board of Directors knows of no reason why these nominees should be unable or unwilling to serve, but if that would be the case, proxies received will be voted for the election of such other persons, if any, as the Board of Directors may designate.

Your Board recommends you vote "FOR" the election of all director nominees.

NOMINEES FOR ELECTION OF DIRECTORS



GRAPHIC
Director since 2007

Committees:

Audit
Risk



 


  
Alan L. Beller
 

Background
 
Mr. Beller, 68, is Senior Counsel of the law firm of Cleary Gottlieb Steen & Hamilton LLP ("Cleary"), based in the New York City office. Mr. Beller joined Cleary in 1976 and was a partner in the firm from 1984 through 2001. From 2002 to 2006, he served as the Director of the Division of Corporation Finance of the SEC and as Senior Counselor to the SEC. He returned to Cleary in August 2006 and was a partner in the firm until 2014 when he became Senior Counsel.

Other Board Service
 

Mr. Beller is a member of the Board of Trustees of the IFRS Foundation and the Board of Directors of the Sustainability Accounting Standards Board (SASB) Foundation.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Beller's senior-level public service and his significant experience and expertise in the areas of law, risk management oversight and corporate governance. In addition, the Committee considered Mr. Beller's significant experience and expertise with respect to financial, accounting and auditing matters and their regulation.

LOGO

 

The Travelers Companies, Inc. | Proxy Statement for 2018 Annual Meeting

 


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Corporate Governance | Nominees for Election of Directors



GRAPHIC
Director since 1994

Committees:

Audit
Executive
Risk



 


  
John H. Dasburg
 

Background
 
Mr. Dasburg, 75, has been Chairman and Chief Executive Officer of ASTAR USA, LLC, a holding company investing in aviation operations, since April 2003. He served as Chairman, Chief Executive Officer and President of Burger King Corporation from April 2001 through January 2003. Mr. Dasburg served as President and Chief Executive Officer of Northwest Airlines from 1989 through March 2001. From 1980 to 1989, he held a number of positions at Marriott Corporation, including President of The Lodging Group, Chief Financial Officer and Chief Real Estate Officer. From 1973 to 1980, Mr. Dasburg was employed by KPMG Peat Marwick, serving as a Tax Partner from 1978 to 1980.

Other Board Service
 

Mr. Dasburg is a director of the Miami Cancer Institute.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Dasburg's experience as a public company CEO and his significant experience and expertise in areas of management, accounting and finance.

The Board and Nominating and Governance Committee also considered that Mr. Dasburg will have reached the age of retirement under our Governance Guidelines prior to the Annual Meeting and, accordingly, would not be eligible to be nominated for re-election to the Board at the Annual Meeting absent a waiver of the Governance Guidelines age limit. The Board and Nominating and Governance Committee considered Mr. Dasburg's expertise, his extensive experience with the Company, his position as Lead Director of the Board, as well as the needs of the Company and the benefit his continued service on the Board could provide and decided to waive the age limit with respect to Mr. Dasburg this year to allow for his nomination for election at the Annual Meeting.

 

GRAPHIC
Director since 2001

Committees:

Compensation
Executive

Investment and Capital Markets

Nominating and Governance

 

 
Janet M. Dolan
 

Background
 
Ms. Dolan, age 68, has been President of Act 3 Enterprises, LLC, a consulting services company, since August 2006. She served as President and Chief Executive Officer of Tennant Company, a manufacturer of nonresidential floor maintenance equipment and products, from April 1999 until her retirement in December 2005, and she had served in a number of senior executive positions with Tennant Company from 1986 until April 1999. Prior to joining Tennant Company, Ms. Dolan was a director of the Minnesota Lawyers' Professional Responsibility Board.

Other Board Service
 

Ms. Dolan is a director of Wenger Corporation and was a director of Donaldson Company, Inc. until November 2014.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Ms. Dolan's experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters.

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Table of Contents

Corporate Governance | Nominees for Election of Directors

GRAPHIC
Director since 1998

Committees:

Compensation
Executive

Investment and Capital Markets

Nominating and Governance

 

 
Kenneth M. Duberstein
 

Background
 
Mr. Duberstein, age 73, has been Chairman and Chief Executive Officer of The Duberstein Group, Inc., a strategic advisory and consulting firm, since 1989. Previously, Mr. Duberstein served as Chief of Staff to President Ronald Reagan from 1988 to 1989 and as Deputy Chief of Staff during 1987. From 1984 to 1986, Mr. Duberstein was Vice President of Timmons & Company in Washington, D.C. Prior to that, he held the White House position as Assistant to the President, Legislative Affairs from 1981 to 1983. From 1977 to 1980, Mr. Duberstein was Vice President of the Committee for Economic Development.

Other Board Service
 

Mr. Duberstein is a director of The Boeing Company and Mack-Cali Realty Corporation and was a director of Dell Inc. until October 2013. Mr. Duberstein serves as Chairman of the Harvard Institute of Politics at the Kennedy School of Government, is a director of the Brookings Institution and the National Alliance to End Homelessness and is a lifetime trustee for the Kennedy Center for the Performing Arts.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Duberstein's experience both in the highest levels of the U.S. government and as an outside strategic corporate advisor and his significant experience and expertise in public policy, public and government affairs and corporate governance.

The Board and Nominating and Governance Committee also considered that Mr. Duberstein will have reached the age of retirement under our Governance Guidelines prior to the Annual Meeting and, accordingly, would not be eligible to be nominated for re-election to the Board at the Annual Meeting absent a waiver of the Governance Guidelines age limit. The Board and Nominating and Governance Committee considered Mr. Duberstein's expertise, his extensive experience with the Company, his position as Chair of the Nominating and Governance Committee, as well as the needs of the Company and the benefit his continued service on the Board could provide and decided to waive the age limit with respect to Mr. Duberstein this year to allow for his nomination for election at the Annual Meeting.

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The Travelers Companies, Inc. | Proxy Statement for 2018 Annual Meeting

 


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Corporate Governance | Nominees for Election of Directors



GRAPHIC
Director since 2007

Committees:

Audit
Risk



 


  
Patricia L. Higgins
 

Background
 
Ms. Higgins, age 68, served as President and Chief Executive Officer of Switch and Data Facilities, Inc., a provider of neutral interconnection and collocation services, from September 2000 until her retirement in February 2004. In 1999 and 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairman and Chief Executive Officer of the Research Board, a segment of the Gartner Group. From 1997 to 1999, she served as Corporate Vice President and Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of Unisys Corporation. From 1977 to 1995, she served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent.

Other Board Service
 

Ms. Higgins is a director of Barnes & Noble,  Inc., Internap Corporation, Dycom Industries and the Dali Museum.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Ms. Higgins' experience as a public company Chief Information Officer and her significant experience and expertise in management as well as information technology strategy and operations.

 



GRAPHIC
Director since 2012

Committees:

Audit
Executive
Risk



 


  
William J. Kane
 

Background
 
Mr. Kane, age 67, served as an audit partner with Ernst & Young for 25 years until his retirement in 2010, during which time he specialized in providing accounting, auditing and consulting services to the insurance and financial services industries. Prior to that he served in various auditing roles with Ernst & Young.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Kane's experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial controls, financial reporting, management and the insurance industry.

LOGO

 

The Travelers Companies, Inc. | Proxy Statement for 2018 Annual Meeting

 


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Table of Contents

Corporate Governance | Nominees for Election of Directors

GRAPHIC
Director since 2017

Committees:

Compensation

Investment and Capital Markets

Nominating and Governance

 

 
Clarence Otis Jr.
 

Background
 
Mr. Otis, age 61, served as Chairman and Chief Executive Officer of Darden Restaurants, Inc., the largest company-owned and operated full-service restaurant company in the world. He became Darden's Chief Executive Officer in 2004, assumed the additional role of Chairman in 2005 and served in both capacities until his retirement in 2014. Mr. Otis joined Darden Restaurants, Inc. in 1995 and served in various roles with Darden, including Vice President and Treasurer, and Senior Vice President and Chief Financial Officer.

Other Board Service
 

Mr. Otis is a director of Verizon Communications,  Inc., VF Corporation and MFS Mutual Funds and was a Class B director of the Federal Reserve Bank of Atlanta until December 2015.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Otis's experience as a public company CEO and his significant experience and expertise in operations, financial oversight and risk management.

 

GRAPHIC
Director since 2014

Committees:

Compensation

Investment and Capital Markets

Nominating and Governance

 

 
Philip T. (Pete) Ruegger III
 

Mr. Ruegger, age 68, served as Chairman of the Executive Committee of the law firm Simpson Thacher & Bartlett LLP from 2004 until his retirement in 2013. He was a member of the firm's executive committee from 1993 through June 2013. Mr. Ruegger joined Simpson Thacher & Bartlett LLP in 1974 and became a partner in 1981. At Simpson Thacher & Bartlett LLP, he advised clients on mergers and acquisitions, corporate governance, investigations, corporate finance and general corporate and securities law matters.

Other Board Service
 

Mr. Ruegger is Chairman of the Executive Committee of the Henry Street Settlement, a New York City based not-for-profit.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Ruegger's experience as the leader of a large international corporate law firm and his significant experience and expertise in mergers and acquisitions and other corporate transactional matters, as well as risk management.

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Corporate Governance | Nominees for Election of Directors



GRAPHIC
Director since 2016

Committees:

Audit
Executive
Risk



 


  
Todd C. Schermerhorn
 

Background
 
Mr. Schermerhorn, age 57, served as Senior Vice President and Chief Financial Officer of C. R. Bard, Inc., a multinational developer, manufacturer and marketer of life-enhancing medical technologies, from 2003 until his retirement in 2012. Prior to that, he had been Vice President and Treasurer of C. R. Bard from 1998 to 2003. From 1985 to 1998, Mr. Schermerhorn held various other management positions with C. R. Bard.

Other Board Service
 

Mr. Schermerhorn was a director of The Spectranetics Corporation until August 2017 and was a director of Thoratec Corporation until October 2015.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Schermerhorn's experience as a public company Chief Financial Officer and his significant experience and expertise in management, accounting and business operations, including international operations.

 



GRAPHIC
Director since 2015

Committees:

Executive



 


  
Alan D. Schnitzer
 

Background
 
Mr. Schnitzer, age 52, is Chairman and Chief Executive Officer of Travelers. He was previously the Company's Vice Chairman and Chief Executive Officer, Business and International Insurance from July 2014 to December 2015. He was Vice Chairman—Financial, Professional and International Insurance and Field Management; Chief Legal Officer from May 2012 until July 2014. Prior to that, he was Vice Chairman and Chief Legal Officer since joining the Company in April 2007 and Executive Vice President—Financial, Professional and International Insurance since May 2008. Prior to joining the Company, he was a partner at Simpson Thacher & Bartlett LLP.

Other Board Service
 

Mr. Schnitzer serves as a member of the Board of Trustees of the University of Pennsylvania, the Board of Overseers of the Memorial Sloan Kettering Cancer Center and the Board of Directors of the Connecticut Council for Education Reform.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Schnitzer's position as Chairman and CEO of the Company and his significant experience in the management of the Company in various roles, including as Chief Executive Officer of Business and International Insurance, the Company's largest business segment, as well as his significant experience and expertise in management, finance and law.

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The Travelers Companies, Inc. | Proxy Statement for 2018 Annual Meeting

 


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Table of Contents

Corporate Governance | Nominees for Election of Directors

GRAPHIC
Director since 2009

Committees:

Compensation
Executive

Investment and Capital Markets

Nominating and Governance

 

 
Donald J. Shepard
 

Background
 
Mr. Shepard, age 71, served as Chairman of the Executive Board and Chief Executive Officer of AEGON N.V., an international life insurance and pension company, from April 2002 until his retirement in April 2008. Prior to that, he served as Chief Executive Officer of AEGON USA since 1989, and in 1992, he became a member of the Executive Board of AEGON N.V.

Other Board Service
 

Mr. Shepard is a director of PNC Financial Services Group, Inc. and was a director of CSX Corporation until June 2017.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Mr. Shepard's experience as a public insurance company CEO and his significant experience and expertise in management and international business.

 



GRAPHIC
Director since 2004

Committees:

Audit
Risk



 


  
Laurie J. Thomsen
 

Background
 
Ms. Thomsen, age 60, served as an Executive Partner of New Profit, Inc., a venture philanthropy firm, from 2006 to 2010, and she served on its board from 2001 to 2006. Prior to that, from 1995 to 2004, she was a co-founder, General Partner and Retiring General Partner of Prism Venture Partners, a venture capital firm investing in healthcare and technology companies. From 1984 until 1995, she worked at the venture capital firm Harbourvest Partners in Boston, where she was a General Partner from 1988 until 1995. Ms. Thomsen was in commercial lending at U.S. Trust Company of New York from 1979 until 1984.

Other Board Service
 

Ms. Thomsen is a director of Dycom Industries and MFS Mutual Funds and an emeritus Trustee of Williams College.

Nomination Considerations
 

The Board and the Nominating and Governance Committee considered in particular Ms. Thomsen's experience as a general partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses.

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The Travelers Companies, Inc. | Proxy Statement for 2018 Annual Meeting

 


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Table of Contents

Corporate Governance | Governance of Your Company

GOVERNANCE OF YOUR COMPANY

Governance Highlights

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board's views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee, and any changes deemed

appropriate by the Committee in light of emerging practices or otherwise are submitted to the full Board for consideration. Our Governance Guidelines can be found on the Corporate Governance page of the "For Investors" section on our website at www.travelers.com.

Board Composition and Accountability
Independence   All of our director nominees other than our Chairman and CEO are independent.
Committee independence   All committees are comprised of independent directors other than the Executive Committee on which our Chairman and CEO serves.
Independent Chair or independent Lead Director   The Board has an independent Chair or independent Lead Director whenever the Chair is a member of management or not otherwise independent.
Executive session   Independent members of the Board and each of the committees regularly meet in executive session with no member of management present.
Risk oversight   The Board and committees annually review their oversight of risk and the allocation of risk oversight among the committees.
Director education   The Nominating and Governance Committee oversees educational sessions for directors on matters relevant to the Company, its business plan and risk profile.
Board evaluation   The Board and each of its committees evaluate and discuss their respective performance and effectiveness every year.
Diversity of skills and experience   The composition of the Board encompasses a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to our business.
Board tenure   The Board's balanced approach to refreshment results in an appropriate mix of long-serving and new directors.

 

Shareholder Rights
Annually elected directors   The annual election of directors reinforces the Board's accountability to shareholders.
Majority voting standard for director elections   Directors must be elected under a "majority voting" standard in uncontested elections–a director who receives fewer votes "For" his or her election than "Against" must promptly tender his or her resignation to the Board.
Single voting class   Our common stock is the only class of shares outstanding.
Proxy access   Each shareholder, or a group of up to 20 shareholders, owning 3% or more of our common stock continuously for at least three years may, in accordance with the terms specified in our bylaws, nominate and include in our proxy materials director nominees constituting the greater of two directors or 20% of the Board.
Poison pill   The Company does not have a poison pill.

 

Board Compensation
Director stock ownership   Non-management directors are required to accumulate and retain a level of ownership of our equity securities to align the interests of the non-management directors and the shareholders.
Deferred stock units   Non-management directors receive over 50% of their annual compensation under the Director Compensation Program in the form of deferred stock units, and the shares underlying these units are not distributed to a director until at least six months after the director leaves the Board.
Compensation review   The Nominating and Governance Committee reviews the appropriateness of the Director Compensation Program at least once every two years.

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Table of Contents

Corporate Governance | Governance of Your Company

Governance Structure of the Board – Lead Director

Our bylaws provide that the Board, at its regular meeting each year immediately following the annual shareholders meeting, shall elect a Chairman of the Board. The Board maintains the flexibility to determine whether the roles of Chairman and CEO should be combined or separated, based on what it believes is in the best interests of the Company at a given point in time. The Board believes that this flexibility is in the best interest of the Company and that a one-size-fits-all approach to corporate governance, with a mandated independent Chairman, would not result in better governance or oversight.

Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is a director who does not qualify as an independent director. In August 2017, the Board elected Mr. Schnitzer, the Company's CEO since December 2015, as Chairman of the Board. Upon the election of Mr. Schnitzer as Chairman, the independent directors elected Mr. Dasburg, who was formerly our independent Chairman of the Board, as independent Lead Director of the Board. The Board believes that its current leadership structure is appropriate for the Company at this time. The Board believes that the responsibilities of the Lead Director help to assure appropriate oversight of the Company's management by the Board and optimal functioning of the Board. The effectiveness of the Lead Director is enhanced by the Board's independent character. In addition, as described in more detail under "Nominees for Election of Directors—Nomination Considerations", the Lead Director and the independent directors have substantial experience with public company management and governance, in general, and the Company, in particular. At the same time, the combined role of Chairman and Chief Executive Officer, in the case of the Company, means that the Chair of the Board has longstanding experience with property and casualty insurance and ongoing executive responsibility for the Company. In the Board's view, this enables the Board to better understand the Company and work with management to enhance shareholder value. In addition, the Board believes that this structure enables it

to better fulfill its risk oversight responsibilities and enhances the ability of the Chief Executive Officer to effectively communicate the Board's view to management.

In accordance with our Governance Guidelines, the Lead Director is responsible for coordinating the efforts of the independent and non-management directors "in the interest of ensuring that objective judgment is brought to bear on sensitive issues involving the management of the Company and, in particular, the performance of senior management". Among other things, under our Governance Guidelines, the independent Lead Director has the authority to:

convene, set the agendas for, and chair the regular executive sessions of the independent directors;

convene and chair other meetings of the independent directors as deemed necessary;

provide direction regarding the meeting schedules, information to be sent to the Board and input regarding meeting agenda items;

act as a liaison between the independent directors, committee chairs and senior management;

receive and review correspondence sent to the Company's office addressed to the Board or independent directors and, together with the CEO, to determine appropriate responses if any; and

in concert with the chairs of the Board's committees, recommend to the Board the retention of consultants and advisors who directly report to the Board, without consulting or obtaining the advance authorization of any officer of the Company.

This structure facilitates the continued strong communication and coordination between management and the Board and enables the Board to fulfill its risk oversight responsibilities. A complete description of the role of the independent Lead Director is set forth in our Governance Guidelines.

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Committees of the Board and Meetings

There are six standing committees of the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment and Capital Markets Committee; the Nominating and Governance Committee; and the Risk Committee.

The Board has adopted a written charter for each of these committees, copies of which are posted on our website at www.travelers.com under "For Investors: Corporate Governance: Charter Documents". Each committee reviews its charter annually and, when appropriate, presents to the

Nominating and Governance Committee and the Board any recommended amendments for consideration and approval.

Non-employee members of the Board regularly meet in executive session with no members of management present. Executive sessions are chaired by the independent Lead Director. Each of the committees also meets regularly in executive session.

The following table summarizes the current membership of the standing committees of the Board, as well as the number of times each committee met during 2017.

Director
  Audit
  Compensation
  Executive
  Investment and
Capital Markets

  Nominating
and
Governance

  Risk
Mr. Beller            
Mr. Dasburg         Chair          
Ms. Dolan         Chair    
Mr. Duberstein             Chair    
Ms. Higgins            
Mr. Kane   Chair                
Mr. Killingsworth            
Mr. Otis                  
Mr. Ruegger            
Mr. Schermerhorn                   Chair
Mr. Schnitzer            
Mr. Shepard       Chair          
Ms. Thomsen            
Meetings in 2017   10   5   -   5   4   4

The Board held five meetings in 2017. Directors are encouraged and expected, but not required, to attend each annual meeting of shareholders.

Each of the directors is independent, other than Mr. Schnitzer who currently serves as our Chairman and Chief Executive Officer.

Each committee of the Board, other than the Executive Committee on which Mr. Schnitzer serves, is composed solely of independent directors.
Each director attended 75% or more of the total number of meetings of the Board and of the committees on which each such director served during 2017.

All of the directors serving at the time of last year's annual meeting, other than Mr. Hodgson who retired effective at such meeting, attended last year's annual meeting of shareholders.

Audit Committee

All members of the Audit Committee are "independent", consistent with our Governance Guidelines, the New York Stock Exchange ("NYSE") listing standards and SEC rules applicable to boards of directors in general and audit committees in particular. In addition, the Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE. The Board also has determined that Mr. Kane's extensive experience as an audit partner with Ernst & Young for 25 years qualifies him as an audit committee financial expert. In addition, the Board designated Mr. Dasburg as an audit committee financial expert after considering his experience with KPMG Peat

Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies. The Board also designated Mr. Schermerhorn as an audit committee financial expert after considering his experience as Senior Vice President and Chief Financial Officer with C. R. Bard, Inc. from 2003 to 2012, his service as Vice President and Treasurer of C. R. Bard, Inc. from 1998 to 2003 and his service on the audit committees of other public companies.

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The duties and responsibilities of the Audit Committee include the following:

assist the Board in exercising its oversight of the Company's accounting and financial reporting process and audits of the Company's financial statements;

appoint our independent registered public accounting firm and review its qualifications, performance and independence;

review and pre-approve the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm;
review the adequacy of the work performed by our internal audit group; and

review reports from management, the internal auditors and the independent registered public accounting firm with respect to the adequacy of the Company's internal controls.

With respect to reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Compensation Committee

All members of the Compensation Committee are "independent" consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to boards of directors in general and compensation committee members in particular. In addition, all members of the Compensation Committee qualify as "non-employee directors" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as "outside directors" for purposes of Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). With respect to general compensation matters, the duties and responsibilities of the Compensation Committee include the following:

review and approve the performance goals and individual objectives for our Chief Executive Officer ("CEO") and those members of our Management Committee who are executive officers or report directly to the CEO (together with the CEO, the "Committee Approved Officers");

review the performance and approve the salaries and incentive compensation of the Committee Approved Officers;

review and approve policies with respect to perquisites of the CEO and other members of management;

approve and monitor compliance with stock ownership guidelines applicable to the CEO and other members of management;

review and approve our compensation philosophy and objectives and recommend to the Board for approval compensation and benefit programs determined by the Compensation Committee to be appropriate;
review the operation of our overall compensation program to evaluate its objectives and its execution and recommend to the Board steps to modify our compensation programs to better conform them with the established compensation objectives;

review and approve any new equity compensation plans and material amendments to existing plans where shareholder approval has not been obtained and oversee management's administration of such plans;

review our regulatory compliance with respect to compensation matters;

review and approve any severance or similar termination payments proposed to be made to any current or former executive officer;

review and approve all stock option, restricted stock, restricted stock unit, performance share and similar stock-based grants;

conduct an independence assessment prior to selecting any compensation consultant, legal counsel or other adviser that will provide advice to the Compensation Committee; and

evaluate, at least annually, whether any work provided by the Compensation Committee's compensation consultant raised any conflict of interest.

With respect to reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and discussing the "Compensation Discussion and Analysis" with management and recommending to the Board that it be included in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Establishment of Annual Bonus and Equity Award Pools

The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and all equity awards to employees who are not Committee Approved Officers.

The Compensation Committee considered recommendations from the CEO regarding compensation for each of the executive officers named in the "Summary Compensation Table" on page 47 and other officers.

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Delegation of Authority for "Off-Cycle" Equity Grants

The Compensation Committee has delegated limited authority to the CEO to make equity grants outside of the annual equity grant process, or "off-cycle grants", to employees and new hires who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be

granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for "off-cycle" equity awards. Any grants made "off-cycle" are reported to the Compensation Committee at the next regularly scheduled quarterly meeting following such awards.

Compensation Consultant

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. ("FW Cook") as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation. All executive compensation services provided by FW Cook are conducted under the direction or authority of the Compensation Committee and all work performed by FW Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee. Neither FW Cook nor any of its affiliates maintains any other direct or indirect business relationships with the Company or any of its affiliates, other than advising the Nominating and Governance Committee with respect to director compensation. In November 2017, the Compensation Committee evaluated whether any work provided by its Compensation Committee consultant raised any conflict of interest and determined that it did not.

As requested by the Compensation Committee, in 2017, FW Cook's services to the Compensation Committee included, among other things:

advising with respect to the Compensation Committee meeting materials;
evaluating potential changes to incentive plans;

advising with respect to individual compensation for the Committee Approved Officers;

reviewing and discussing possible aggregate levels of corporate-wide bonus payments and equity awards;

preparing comparative analyses of executive compensation levels and design at peer group companies;

advising as to how actions taken by the Compensation Committee compare to the pay and performance of our peer group companies; and

advising in connection with the preparation of certain of the information included in this Proxy Statement.

An FW Cook representative participated in four of the five Compensation Committee meetings in 2017.

In addition to the independent, outside compensation consultant discussed above, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than with respect to the CEO's recommendations regarding compensation to be paid to executive officers, no executive officer determines or recommends to the Compensation Committee the amount or form of executive compensation to be paid to an executive officer.

Executive Committee

The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals between Board meetings in

order to provide a degree of flexibility and ability to respond to time-sensitive business and legal matters. The Executive Committee meets only as necessary.

Investment and Capital Markets Committee

The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company's management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company (including capital management, such as dividend policy and actions, stock splits, repurchases of stock or other securities, financing arrangements, debt and equity financing and liquidity).

The Investment and Capital Markets Committee also reviews and either approves or recommends appropriate Board action with respect to, among other matters, the issuance of securities, the establishment of bank lines of credit and certain purchases and dispositions of real property, capital expenditure budgets and acquisitions and divestitures of assets.

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Nominating and Governance Committee

All members of the Nominating and Governance Committee are "independent" consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to board of directors in general. The duties and responsibilities of the Nominating and Governance Committee include the following:

establish criteria for the selection of candidates to serve on the Board;

identify and recommend director candidates for election or re-election to the Board;

identify and recommend directors for appointment to serve on the committees of the Board and as chair of such committees;

recommend adjustments, from time to time, to the size of the Board or of any Board committee;

establish procedures for the annual evaluation of Board and director performance;

oversee continuing education of directors in light of the Governance Guidelines;

review the director compensation program and policies and recommend changes to the Board;

establish and review our Governance Guidelines;

review the Code of Business Conduct and Ethics (the "Code of Conduct") applicable to directors and
develop and recommend to the Board standards for determining the independence of directors and the absence of material relationships between the Company and a director;

review succession plans for our CEO and the direct reports to the CEO;

review and approve or ratify all related person transactions under our Related Person Transaction Policy;

review the Company's public policy initiatives;

review and discuss with the Company's head of Government Relations the Company's participation in the political process, including political contributions and lobbying expenditures;

review and discuss with the Company's senior management the Company's strategies and initiatives relating to diversity and inclusion;

review the Company's strategies and initiatives relating to community relations and charitable giving; and

recommend to the Board any guidelines for the removal of directors, as it determines appropriate.

Risk Committee

The Risk Committee assists the Board in exercising its oversight of the Company's operational activities and the identification and review of those risks that could have a material impact on us. The duties and responsibilities of the Risk Committee include oversight of management's risk management activities in the following areas:

our enterprise risk management program;

the underwriting of insurance;

the settlement of claims;
the management of catastrophe exposure;

the retention of insured risk and appropriate levels and types of reinsurance;

the credit risk in our insurance operations and ceded reinsurance program;

our information technology operations, including cyber risk and information security; and

the business continuity and executive crisis management for the Company and its business operations.

Board and Committee Evaluations

Every year, the Board and each of its committees evaluate and discuss their respective performance and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including, but not limited to, the fulfillment of the Board and committee responsibilities identified in the Governance Guidelines and committee charters. The evaluations address the Board's knowledge and understanding of, and performance with respect to, the Company's business, strategy, values and mission, the appropriateness of the

Board's structure and composition, the communication among the directors and between the Board and management and the Board's meeting process. Each committee reviews, among other topics, how the committee has satisfied the responsibilities contained in its charter in the past year as well as the organization of the committee, the committee meeting process and the committee's oversight. Each committee reports the results of its evaluation to the Board.

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Director Nominations

Process and Criteria Generally

Pursuant to our Governance Guidelines, the Nominating and Governance Committee is responsible for recommending to the Board nominees for election as director, and the Board is responsible for selecting nominees for election.

As required by our Governance Guidelines, the Board, based on the Nominating and Governance Committee's recommendation, selects nominees after considering the following criteria:

personal qualities and characteristics, accomplishments and reputation in the business community;

current knowledge and contacts in the communities in which the Company does business and in the Company's industry or other industries relevant to the Company's business;

ability and willingness to commit adequate time to Board and committee matters;

the fit of the individual's skill and personality with those of other directors and potential directors in building a Board
diversity of viewpoints, background, experience and other demographics.

The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the Nominating and Governance Committee and the Board at a minimum assess each candidate's ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters. The Nominating and Governance Committee and the Board do not have specific minimum qualifications that are applicable to all director candidates. The Board seeks to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

Director Search

In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral. During 2017, Mr. Clarence Otis was appointed to the

Company's Board of Directors. Mr. Otis was initially identified as a candidate for the Board by our independent Lead Director. After reviewing Mr. Otis's qualifications, meeting with him several times and discussing his nomination at two separate meetings, the Nominating and Governance Committee voted unanimously to recommend Mr. Otis to the Board of Directors. The entire Board met with Mr. Otis prior to appointing him as a member of the Board. No search fees were paid with respect to the appointment of Mr. Otis.

Diversity

As mentioned above, the Nominating and Governance Committee and the Board include diversity of "viewpoints, background, experience and other demographics" as one of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully consider is the importance to the Company of racial and gender diversity in board composition. Moreover, when considering director

candidates, the Nominating and Governance Committee and the Board seek individuals with backgrounds and qualities that, when combined with those of our incumbent directors, enhance the Board's effectiveness and, as required by the Governance Guidelines, result in the Board having "a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to the Company's business". As part of its annual self-evaluation, the Board assesses and confirms compliance with this Governance Guideline.

Shareholder Recommendations

The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate's full name and address, resume and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc.,

485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.

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Proxy Access

Our bylaws permit a shareholder, or a group of up to 20 shareholders, that has continuously owned for three years at least 3% of the Company's outstanding common shares, to nominate and include in the Company's annual meeting proxy materials up to the greater of two directors or 20% of the number of directors serving on the Board, provided that the shareholder(s) and the nominee(s) satisfy the requirements

specified in our bylaws, which are posted on our website at www.travelers.com. Shareholder requests to include shareholder-nominated directors in the Company's proxy materials for the 2019 annual meeting of shareholders must be received by the Company no earlier than November 7, 2018 and no later than December 7, 2018.

Specific Considerations Regarding 2018 Nominees

Overview

In considering the 12 director nominees named in this Proxy Statement and proposed for election by you at the Annual Meeting, the Nominating and Governance Committee and the Board evaluated and considered, among other factors:

each nominee's experiences, qualifications, attributes and skills, in light of the Governance Guidelines' criteria for nomination discussed on page 14, including the specific skills identified by the Board as relevant to the Company;
the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other needs of the Board;

the tenure of individual directors;

the mix of long-serving and new directors on the Board;

the specific needs of the Company given its business and industry; and

the diversity of viewpoints, background, experience and other demographics of the director nominees.

Individual and Overall Tenure

With respect to the individual and overall tenure of Board members, the Board and the Nominating and Governance Committee believe that the Company's industry is one where a long-term perspective is critical and a historical perspective on risk is important, and, accordingly, the Company benefits from having longstanding directors serve on the Board, including in leadership positions. At the same time, the Board and Nominating and Governance Committee also believe that incorporating new perspectives on the Board through regular refreshment is important to maintaining the right mix and diversity of viewpoints on the Board.

Through this balanced approach to refreshment, more than 50% of the independent directors have joined the Board since mid-2007, and three new independent directors have

joined the Board in the last five years. In considering the 12 director nominees named in this Proxy Statement, the Nominating and Governance Committee and the Board considered the mix of tenure of the director nominees, as illustrated below.

 
  Director Tenure
 
 
  Less than
5 Years

  5 to 11
Years

  Greater
than
11 Years

 

Number of Directors

  4   4   4  
     

In light of the foregoing, the Board and the Nominating and Governance Committee concluded that there was an appropriate mix of long-serving and new directors.

Background and Experiences

The Board and the Nominating and Governance Committee, in considering each nominee, principally focused on the background and experiences of the nominee, as described in the biographies beginning on page 1. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions with significant

responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public and private companies.

Director Age Limit

The Governance Guidelines provide that no person who will have reached the age of 74 on or before the date of the next annual shareholders meeting will be nominated for election at that meeting without an express waiver by the Board.

The Board believes that waivers of this policy should not be automatic and should be based upon the needs of the Company and the individual attributes of the director. The Board approved a waiver of this policy in February 2018 with respect to the

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nomination of each of Mr. Dasburg and Mr. Duberstein for election as a director at the 2018 Annual Meeting. In each case the Board and Nominating and Governance Committee considered the specific expertise of Mr. Dasburg and

Mr. Duberstein as well as the needs of the Company and the benefit that continued service could provide. See "Nominees for Election of Directors" beginning on page 1.

Director Independence and Independence Determinations

Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.

The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director's independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.

Our Governance Guidelines require that:

all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; and

no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its current directors are independent, other than our Chairman and Chief Executive Officer, Mr. Alan Schnitzer. Consequently, assuming election of all the nominees included in this Proxy Statement, approximately 92% of the directors on the Board will be independent. The Board had also determined that Mr. Hodgson, who served as a director until the 2017 annual shareholders meeting, was independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors' questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated. Specifically, the Board's independence determinations included reviewing membership dues, contributions and research fees paid to a trade association and affiliated entities where Mr. Donald Shepard serves as a director (but not as an executive officer or employee). Payments to the organization constituted less than 1% of such organization's consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that the transactions identified were not material and did not affect the independence of such director under either the Company's Governance Guidelines or the applicable NYSE rules.

Board's Role in Risk Management

Enterprise Risk Management

Enterprise Risk Management is a Company-wide initiative that involves the Board and management identifying, assessing and managing risks that could affect our ability to fulfill our business objectives or execute our corporate strategy. Our Enterprise Risk Management activities involve the identification and assessment of a broad range of risks and the development of plans to mitigate their effects. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our enterprise risk management structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees

operational risks and the Company's Enterprise Risk Management activities, and a management-level enterprise risk committee that reports regularly to the Board Risk Committee, enables a high degree of coordination between management and the Board.

We describe our Enterprise Risk Management function in more detail in our Annual Report on Form 10-K, under "Business—Enterprise Risk Management". We also discuss the alignment of our executive compensation with our risk management below under "Risk Management and Compensation".

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Oversight of Corporate Strategy and Sustainability and Allocation of Risk Oversight

The Board works with management to set the short-term and long-term strategic objectives of the Company and to monitor progress on those objectives. In setting and monitoring strategy, the Board, along with management, considers the risks and opportunities that impact the long-term sustainability of the Company's business model and whether the strategy is consistent with the Company's risk appetite. The Board regularly reviews the Company's progress with respect to its strategic goals, the risks that could impact the long-term sustainability of our business and the related opportunities that could enhance the Company's long-term sustainability. The Board oversees these efforts in part through its various committees based on each Committee's responsibilities and expertise.

While the Risk Committee has oversight responsibility generally for our Enterprise Risk Management activities, the Board has allocated and delegated risk oversight responsibility to various committees of the Board in accordance with the following principles:

The Audit Committee is responsible for oversight of risks related to integrity of financial statements, including oversight of financial reporting principles and policies and internal controls, and oversight of the process for establishing insurance reserves, as well as risks related to regulatory and compliance matters generally.

The Risk Committee is responsible for oversight of risks related to business operations, including insurance underwriting and claims; reinsurance; catastrophe risk and the impact of changing climate conditions; credit risk in insurance operations; information technology, including cyber security; and business continuity plans.

The Compensation Committee is responsible for oversight of risks related to compensation programs, including formulation, administration and regulatory compliance with respect to compensation matters.
The Investment and Capital Markets Committee is responsible for oversight of risks in the Company's investment portfolio (including valuation and credit risks), capital structure, financing arrangements and liquidity.

The Nominating and Governance Committee is responsible for oversight of risks related to corporate governance matters, including succession planning, director independence and related person transactions. The Committee also oversees the Company's workforce diversity and inclusion efforts, public policy initiatives and community relations.

Each committee is responsible for monitoring reputational risk to the extent arising out of its allocated subject matter.

As a result, each committee charter contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. In that way, monitoring of strategic objectives, risk oversight responsibilities and oversight of the Company's sustainability more generally are shared by all committees of the Board. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risks and opportunities.

The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board reviews significant risks that management, through its Enterprise Risk Management efforts, has identified. The Board then evaluates, and may change, the allocation among the various committees of oversight responsibility for each identified risk. Further, each committee periodically reports to the Board on its risk oversight activities. In addition, at least annually, the Company's Chief Risk Officer conducts a review of the interrelationships of risks and reports the results to the Risk Committee and the Board. These reports and reviews are intended to inform the Board's annual evaluation of the allocation of risk oversight responsibility.

Risk Management and Compensation

Our compensation structure is intended to encourage a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promote a long-term perspective.

As discussed in more detail under "Compensation Discussion and Analysis" in this Proxy Statement, consistent with our goal of achieving a core return on equity in the mid-teens over time, the Compensation Committee selected adjusted operating return on equity (now referred to as "adjusted core return on equity") as the quantitative performance measure for the performance share portion of our stock-based long-term incentive program and as a material factor, although not the only factor, in determining amounts paid under our annual cash bonus

program. Because core return on equity is a function of both core income and shareholders' equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investing activities and capital management.

In addition, the long-term nature of our stock-based incentive awards (which generally do not vest until three years after the award is granted), our significant executive stock ownership requirements and the fact that more than 40% of our named executive officers' total direct compensation in the aggregate

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was in the form of stock-based long-term incentives for each of the last five years, including 2017, all encourage prudent enterprise risk management and discourage excessive risk taking to achieve short-term gains.

Moreover, neither the long-term incentive awards nor annual cash bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our executives are paid based on a formulaic percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria across our compensation programs,

among other factors, we believe that our compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

Furthermore, the Compensation Committee's independent compensation consultant evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance metrics and the overall compensation framework all support our short- and long-term objectives.

Dating and Pricing of Equity Grants

The Board has adopted a Governance Guideline establishing fixed grant dates for the award of "off-cycle" equity grants, so as to avoid the appearance that equity grant dates have been established with a view to benefiting recipients due to the timing of material public announcements.

In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and the fair value of all

equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Company's stock plans, the Compensation Committee may not take any action with respect to any stock option that would be treated as a "repricing" of such stock option, unless such action is approved by the Company's shareholders in accordance with applicable rules of the NYSE.

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct, which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct provides a framework for sound ethical business decisions and sets forth our expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics. The Code of Conduct may be found on our website at www.travelers.com under "For Investors: Corporate Governance: Code of Conduct". Our Chief Ethics and Compliance Officer is responsible for overseeing compliance with the Code of

Conduct as part of fulfilling her responsibility for overseeing our ethics and compliance functions throughout the organization. Our Chief Ethics and Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements through the use of global, computer-based training, supplemented with focused in-person sessions where appropriate. All employees and directors are required to certify annually that they have reviewed, understand and agree to comply with the contents of the Code of Conduct.

Ethics Helpline

We maintain an Ethics Helpline through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is serviced by an independent company, is available seven days a week, 24 hours a day and can be accessed by individuals through a toll-free number. Employees may also access the helpline system and report integrity concerns via the Internet. In either case, employees can report concerns anonymously. We maintain a formal non-retaliation policy that prohibits retaliation against, or discipline of, an employee who raises an ethical concern in good faith.

Once an Ethics Helpline report is filed, the report is forwarded to the Ethics and Compliance Office, which is responsible for oversight of the helpline. Our Chief Ethics and Compliance Officer or her designee coordinates with management and outside resources, as appropriate, to investigate the matter, and address any ethical or compliance-related issues. The Audit Committee receives quarterly summaries of matters reported through the Ethics Helpline. In addition, any matter reported to the Chief Ethics and Compliance Officer that involves accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls, is reported to the Audit Committee.

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Table of Contents

Corporate Governance | Governance of Your Company

Communications with the Board

As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Lead Director of the Board, the Nominating and Governance Committee, the non-employee directors as a group, or the Audit Committee may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Lead Director; if intended for the Lead Director,

to Mr. John Dasburg; and if intended for the Audit Committee or the Nominating and Governance Committee, to the Chair of such Committee.

All such correspondence should be sent c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul, Minnesota 55102. The office of the Corporate Secretary will forward such correspondence as appropriate.

Shareholder Engagement

In addition to the general correspondence process above, the Nominating and Governance Committee oversees a shareholder engagement program relating to the Company's governance and compensation practices. Under this program, at the direction of the Nominating and Governance Committee, management reaches out to the Company's largest shareholders at least once each year to facilitate a dialogue regarding governance, compensation and other matters. Management reports on the resulting conversations with those investors to the Nominating and Governance Committee and also, as appropriate, to the Compensation Committee. As noted under "Shareholder Engagement" in the "Compensation Discussion and Analysis" section of this Proxy Statement, in 2017 the Company engaged with shareholders representing over 39% of the Company's outstanding shares. In a number of cases, the shareholder engagement program has encouraged

changes to the Company's practices. For example, in the past few years based in part on investor input:

the Compensation Committee enhanced the disclosure in the "Compensation Discussion and Analysis" and raised the Return on Equity thresholds for vesting of performance shares;

the Company provided disclosure on its website regarding its pay equity practices;

the Company made clarifying changes to its policy regarding participation in the political process and provided additional disclosure of political contributions and lobbying activities on its website; and

the Company provided additional disclosure regarding the Board's oversight of the Company's enterprise risk management program, including risks related to changing climate conditions.

Transactions with Related Persons

General

The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as our Governance Guidelines and Code of Conduct.

The Related Person Transaction Policy provides that all related person transactions covered by the policy are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chair of the Nominating and Governance Committee and to our counsel for analysis, to

determine whether the particular transaction constitutes a Related Person Transaction requiring compliance with the policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.

In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:

the commercial reasonableness of the terms;

the benefit (or lack thereof) to the Company;

opportunity costs of alternate transactions;

the materiality and character of the related person's interest, including any actual or perceived conflicts of interest; and

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Corporate Governance | Governance of Your Company

with respect to a non-employee director or nominee, whether the transaction would compromise the director's (1) independence under our Governance Guidelines, the NYSE rules (including those applicable to committee service) and Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee, (2) status as an outside director under Section 162(m), if such non-employee director serves on the Compensation Committee, or (3) status as a "non-employee director" under Rule 16b-3 of the Exchange Act, if such non-employee director serves on the Compensation Committee.

The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the best interests of the Company and our shareholders.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

the Company was or is to be a participant;
the amount involved exceeds $120,000; and

any related person had or will have a direct or indirect material interest.

A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under "For Investors: Corporate Governance: Corporate Governance: Related Person Transaction Policy".

In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The policies of the Company also require that all employees seek approval from our Chief Ethics and Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.

Employment Relationships

We employ approximately 30,800 employees, approximately 7,400 of whom work in and around Hartford, Connecticut. The following employees are related to executive officers:

Mr. Jay Benet is Vice Chairman and Chief Financial Officer of the Company. His stepson, Jon-Paul Mucha, has been employed by the Company since 2003. In 2017, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $125,000. His compensation is commensurate with that of his peers.

Ms. Diane Bengston is Executive Vice President and Chief Human Resources Officer of the Company. Her son, Mr. Scott Bengston, has been employed by the Company since 2010. In 2017, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $140,000. His compensation is commensurate with that of his peers.
Mr. Brian MacLean is President and Chief Operating Officer of the Company. His daughter, Ms. Erin Cha, and his son-in-law, Mr. Junghwan Cha, have been employed by the Company since 2005 and 2009, respectively. In 2017, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $226,000. Their compensation is commensurate with that of their peers.

Mr. MacLean's son-in-law, Mr. Mark Dunlap has been employed by the Company since 2012. In 2017, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $131,000. His compensation is commensurate with that of his peers.

Third-Party Transactions

From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations, become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of voting securities of the Company and, as a result, are considered a "related person" under the Related Person Transaction Policy. These organizations may provide services to the Company or its benefit plans. In addition, the Company may provide insurance coverage to these organizations. In 2017, the following transactions occurred with investors who reported beneficial ownership of 5% or more of the Company's voting securities:

An affiliate of BlackRock, Inc. ("BlackRock") provides investment management services to the Company's Canadian Savings Plan. The participants in the Canadian Savings Plan paid approximately $135,000 in management fees to BlackRock in 2017. The investment management agreement was entered into on an arm's-length basis. In 2017, BlackRock paid premiums of approximately $882,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

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Corporate Governance | Non-Employee Director Compensation

An affiliate of State Street Corporation ("State Street") provides investment management services to funds included in the Company's 401(k) Savings Plan. The participants in the 401(k) Savings Plan paid approximately $410,000 in management fees to State Street in 2017. The investment management agreement was entered into on an arm's-length basis. In 2017, State Street paid premiums of approximately $200,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.
An affiliate of The Vanguard Group ("Vanguard") provides investment management services to funds included in the Company's 401(k) Savings Plan and the qualified and non-qualified pension plans. The participants in the 401(k) Savings Plan and the Company paid approximately $1.14 million and $848,000, respectively, in management fees to Vanguard in 2017. The investment management agreements were entered into on an arm's-length basis. In 2017, Vanguard paid premiums of approximately $2.01 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

NON-EMPLOYEE DIRECTOR COMPENSATION

The Nominating and Governance Committee of the Board recommends to the full Board for approval the amount and composition of Board compensation for non-employee directors (the "Director Compensation Program"). Directors who are our employees are not compensated for their service on the Board. In accordance with the Company's Governance Guidelines, the Nominating and Governance Committee reviews the significance and appropriateness of each of the components of the Director Compensation Program at least once every two years. The Compensation Committee's independent compensation consultant, FW Cook, advises the

Nominating and Governance Committee with respect to director compensation.

The objectives of the Nominating and Governance Committee are to compensate directors in a manner that closely aligns the interests of directors with those of our shareholders, to attract and retain highly qualified directors and to structure and set total compensation in such a manner and at such levels that will not call into question any director's objectivity. It is the Board's practice to provide a mix of cash and equity-based compensation to non-employee directors, as discussed below.

Annual Retainer and Committee Chair Fees

The current non-employee Director Compensation Program includes the following: Each non-employee director receives an annual retainer of $130,000. The chairs of certain committees are paid additional fees in cash in connection with their services as follows:

Audit Committee—$25,000;

Compensation Committee—$25,000;

Nominating and Governance Committee—$20,000;

Investment and Capital Markets Committee—$20,000; and

Risk Committee—$25,000.

The Lead Director is paid an additional $35,000 annual cash retainer.

Annual retainers and committee chair fees are paid in quarterly installments, in arrears at the end of each quarter, in cash or, if the director so elects, in common stock units to be credited to his or her deferred compensation account (discussed under "Director Deferral Plan" below) and distributed at a later date designated by the director.

Annual Deferred Stock Award

Under the Director Compensation Program, during 2017, each non-employee director nominated for re-election to the Board was awarded $175,000 in deferred stock units. The deferred stock units were granted under our Amended and Restated 2014 Stock Incentive Plan (the "2014 Stock Incentive Plan") and vest in full one day prior to the date of the annual shareholder meeting occurring in the year following the year of the date of grant so long as the non-employee director continuously serves on the Board through that date. The value of deferred stock units rises or falls as the price of our common stock fluctuates in the market. Dividend equivalents (in an amount equal to the

dividends paid on shares of our common stock) on the deferred stock units are deemed "reinvested" in additional deferred stock units. The accumulated deferred stock units, including associated dividend equivalents, in a director's account are distributed in the form of shares of our common stock either in a lump sum or in annual installments, at the director's election, beginning at least six months following termination of his or her service as a director.

Directors are subject to a stock ownership target as described under "Director Stock Ownership" on page 22.

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Corporate Governance | Non-Employee Director Compensation

Director Deferral Plan

In addition to receiving the annual deferred stock award in the form of deferred stock units, non-employee directors may elect to have all or any portion of their annual retainer and any lead director, independent chairman or committee chair fees paid in cash or deferred through our Deferred Compensation Plan for Non-Employee Directors. Deferrals of the annual retainer and any lead director, independent chairman or committee chair fees are notionally "invested" in common stock units. Any director who elects to have any of his or her fees credited to his or her deferred compensation plan account as common stock units will be deemed to have purchased shares on the date the fees would

otherwise have been paid in cash, based on the closing market price of our common stock on such date.

The value of common stock units rises or falls as the price of our common stock fluctuates in the market. In addition, dividend equivalents (in an amount equal to the dividends paid on shares of our common stock) on the units are "reinvested" in additional common stock units. The accumulated common stock units, including associated dividend equivalents, in a director's account are distributed in the form of shares of our common stock on pre-designated dates, usually following termination of service as a director. Shares of common stock issued in payment of the deferred fees are awarded under our 2014 Stock Incentive Plan.

Director Stock Ownership

The Board believes its non-employee directors should accumulate and retain a level of ownership of our equity securities to align the interests of the non-employee directors and the shareholders. Accordingly, the Board has established an ownership target for each non-employee director equal to four times the director's most recent annual deferred stock award. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board, provided that, if the annual deferred stock award for any of such four years is less than the most recent previous annual deferred stock award, such director is expected to meet or exceed the higher target within five years of his or her election to the Board.

All of our current non-employee directors have achieved stock ownership levels in excess of the target amount, other than Mr. Schermerhorn, who was elected to our Board in 2016, and Mr. Otis, who was elected to our Board in 2017. Non-employee directors receive over 50% of their annual compensation in the form of deferred stock units. The shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. Accordingly, all of our non-employee directors hold equity interests that they cannot sell for so long as they serve on the Board and at least six months afterwards.

Legacy Directors' Charitable Award Program

Prior to 2004, directors of the Company were eligible to participate in a Directors' Charitable Award Program, under which a director could designate up to four tax-exempt charitable, educational or other organizations to receive contributions from the Company over a period of ten years following the death of the director, in an aggregate amount over such period of up to $1 million per director.

This program was discontinued for new participants in April 2004; however, it continues to be actively administered with respect to the vested interests of Messrs. Dasburg and Duberstein. The Company carries life insurance policies on these two current directors. The premiums in connection with this program were fully paid by the Company in 2013.

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Corporate Governance | Non-Employee Director Compensation

Director Compensation for 2017

The 2017 compensation of non-employee directors is displayed in the table below.

Name
Fees Earned or
Paid in Cash(1)
($)

Stock Awards(2)
($)

All Other
Compensation
($)

Total
($)

Alan L. Beller

130,000 174,963



304,963

John H. Dasburg

174,547 174,963 1,084 350,594

Janet M. Dolan

142,418 174,963 317,381

Kenneth M. Duberstein

150,000 174,963 418 325,381

Patricia L. Higgins

130,000 174,963 304,963

Thomas R. Hodgson(3)

59,189 59,189

William J. Kane

145,522 174,963 320,485

Cleve L. Killingsworth Jr.

130,000 174,963 461 305,424

Clarence Otis Jr.

54,049 139,030 193,079

Philip T. Ruegger III

130,000 174,963 304,963

Todd C. Schermerhorn

145,522 174,963 320,485

Donald J. Shepard

155,000 174,963 329,963

Laurie J. Thomsen

137,638 174,963 312,601
(1)
The fees earned for all non-employee directors consist of an annual retainer, committee chair fees and a lead director annual retainer. All of the non-employee directors, other than Mr. Otis, Mr. Ruegger and Mr. Shepard, received all of their fees in cash. Mr. Otis, Mr. Ruegger and Mr. Shepard elected to receive the 2017 annual retainer and Mr. Shepard elected to receive his committee chair fee in the form of common stock units, which will be accumulated in their respective deferred compensation plan account and distributed at a later date (Mr. Otis—415 common stock units, Mr. Ruegger—1,031 common stock units and Mr. Shepard—1,230 common stock units). The table above does not include a value for dividend equivalents attributable to the common stock units received in lieu of cash fees because they are earned at the same rate as the dividends on the Company's common stock and are not preferential. Mr. Otis, who was elected to the Board of Directors effective August 1, 2017, earned a pro-rated annual retainer of $54,049. Mr. Dasburg earned fees for acting in the capacity of independent Chairman through August 1, 2017 and as independent Lead Director from August 2, 2017 through December 31, 2017.

(2)
The dollar amounts represent the grant date fair value of deferred stock units granted in 2017, calculated in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718, Compensation Stock—Compensation ("ASC Topic 718"), without taking into account estimated forfeitures, based on the closing market price on the NYSE of our common stock on the grant date. The dividend equivalents attributable to the annual deferred stock unit awards are deemed "reinvested" in additional deferred stock units and are distributed, together with the underlying deferred stock units, in the form of shares of our common stock beginning at least six months following termination of service as a director. In accordance with the SEC's rules, dividend equivalents on stock awards are not required to be reported because the amounts of future dividends are factored into the grant date fair value of the awards. For a discussion of annual deferred stock awards, see "—Annual Deferred Stock Award" above.

On February 9, 2017, each non-employee director nominated for re-election to the Board was granted 1,473 deferred stock units (determined by dividing $175,000 by the closing market price on the NYSE of our common stock of $118.78 on February 9, 2017). Mr. Otis was elected to the Board effective August 1, 2017 and was granted 1,076 deferred stock units representing a pro-rata portion of the annual non-employee director deferred stock award based on his period of service. The entire award is subject to forfeiture if a director leaves the Board prior to May 22, 2018.

The following table provides information with respect to aggregate holdings of common stock units and unvested and vested deferred stock units beneficially owned by our non-employee directors at December 31, 2017. The amounts below include dividend equivalents credited (in the form of additional common stock units or deferred stock units, respectively) on common stock units and deferred stock units.

Name
Unvested Deferred
Stock Units
(#)

Common Stock Units and
Vested Deferred Stock Units
(#)

Alan L. Beller

1,506 28,223

John H. Dasburg

1,506 71,048

Janet M. Dolan

1,506 40,469

Kenneth M. Duberstein

1,506 57,511

Patricia L. Higgins

1,506 28,223

William J. Kane

1,506 10,462

Cleve L. Killingsworth Jr.

1,506 28,223

Clarence Otis Jr.

1,088 416

Philip T. Ruegger III

1,506 7,628

Todd C. Schermerhorn

1,506 1,559

Donald J. Shepard

1,506 30,518

Laurie J. Thomsen

1,506 41,509
(3)
Mr. Hodgson retired from the Company's Board of Directors effective May 18, 2017, the date of our 2017 annual meeting of shareholders. The fees earned by Mr. Hodgson consist of the pro-rated portion of the annual retainer and the Risk Committee chair fee for such period.

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Audit Committee Matters | Item 2 – Ratification of Independent Registered Public Accounting Firm

ITEM 2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company's financial statements. The Audit Committee has selected KPMG LLP ("KPMG") to serve as our independent registered public accounting firm for 2018.

Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders' views on the Company's independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Travelers Property Casualty Corp. ("TPC") and The St. Paul Companies, Inc. ("The St. Paul") merged in 2004 (the "Merger") to form the Company. KPMG has continuously served as the independent registered public accounting

firm of TPC since 1994. KPMG had continuously served as the independent registered public accounting firm of The St. Paul and its subsidiaries from 1968 through the time of the Merger, when TPC was deemed the acquirer for accounting purposes.

As part of the evaluation of its independent registered public accounting firm, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In addition, in conjunction with the mandated rotation of the independent registered public accounting firm's lead audit partner, the Audit Committee and the Audit Committee Chairman are directly involved in the selection of KPMG's lead audit partner. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company's independent registered public accounting firm is in the best interests of the Company and its shareholders.

Representatives of KPMG are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Your Board recommends you vote "FOR" the ratification of KPMG LLP
as our independent registered public accounting firm for 2018.

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Audit Committee Matters | Audit and Non-Audit Fees and Report of the Audit Committee

AUDIT AND NON-AUDIT FEES

In connection with the audit of the 2017 financial statements, we entered into an agreement with KPMG which set forth the terms by which KPMG would perform audit services for the Company. The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2017 and 2016 and fees billed for other services rendered by KPMG for those periods:

 
  2017
  2016

Audit fees(1)

  $9,364,000   $8,922,000

Audit-related fees(2)

  948,400   761,100

Tax fees(3)

  122,500   295,300

All other fees(4)

  52,400  

Total

  $10,487,300   $9,978,400
(1)
Fees paid were for audits of financial statements, reviews of quarterly financial statements and related reports and reviews of registration statements and certain periodic reports filed with the SEC.
(2)
Services primarily consisted of audits of employee benefit plans, actuarial attestations and reports on internal controls not required by applicable regulations.
(3)
Tax fees related primarily to tax return preparation and assistance services and occasionally to domestic and international tax compliance-related services.
(4)
Other fees related to international regulatory advisory services.

The Audit Committee of the Board considered whether providing the non-audit services included in this table was

compatible with maintaining KPMG's independence and concluded that it was.

Consistent with SEC policies regarding auditor independence and the Audit Committee's charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG's commencement of work on such permitted services within that budget, although the Chair of the Audit Committee must approve any such permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included under the heading "Governance of Your Company—Committees of the Board and Meetings—Audit Committee" in this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company's financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company's financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company's internal controls over financial reporting.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial

statements of the Company with management and with the independent registered public accounting firm. The Audit Committee also received information regarding, and discussed with the independent registered public accounting firm, the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board, including matters concerning the independence of the independent registered public accounting firm.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC.

Submitted by the Audit Committee of the Company's Board of Directors:

William J. Kane (Chair)   Patricia L. Higgins
Alan L. Beller   Todd C. Schermerhorn
John H. Dasburg   Laurie J. Thomsen

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Executive Compensation | Item 3 – Non-Binding Vote to Approve Executive Compensation

ITEM 3 – NON-BINDING VOTE TO APPROVE EXECUTIVE COMPENSATION

The Company is requesting that shareholders vote, on a non-binding basis, to approve the compensation of our named executive officers as discussed in the "Compensation Discussion and Analysis" on page 27 and the tabular executive compensation disclosure on pages 47 to 60, including the "Summary Compensation Table" and accompanying narrative disclosure. At the Company's 2017 annual meeting of shareholders, our shareholders voted to hold the non-binding shareholder vote to approve the compensation of our named executive officers each year. Accordingly, the Company currently intends to hold such votes annually. The next such vote is expected to be held at the Company's 2019 Annual Meeting of Shareholders. While the Board intends to consider carefully the results of this vote, the final vote is advisory in nature and is not binding on the Company or the Board.

The Board recommends that shareholders vote "FOR" the following resolution:

RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the "Compensation Discussion and Analysis", compensation tables and related narrative discussion, is hereby APPROVED.

As described in the "Compensation Discussion and Analysis", our executive compensation programs are structured consistent with our longstanding pay for performance philosophy and utilize performance measures that are intended to align compensation with the creation of shareholder value and to reinforce a long-term perspective.

In deciding how to vote on this proposal, the Board encourages you to read the "Compensation Discussion and Analysis", particularly the "2017 Overview". In making compensation decisions for the 2017 performance year, the Compensation Committee considered the Company's strong results in 2017 and over time on both an absolute basis and relative to our peers, as well as the financial metrics and other factors described in the "Compensation Discussion and Analysis".

Your Board recommends you vote "FOR" approval of named executive officer compensation.

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Executive Compensation | Compensation Discussion and Analysis

COMPENSATION DISCUSSION AND ANALYSIS

2017 Overview

The overview below summarizes a number of performance highlights in 2017 and how that performance affected the amount of variable compensation awarded to the named executive officers in February 2018 with respect to the 2017 performance year.

Continued Strong Performance in 2017

In a year of severe catastrophes, including Hurricanes Harvey, Irma and Maria and the California wildfires, and one impacted by a decade of historically low interest rates and several years of pricing below loss cost inflation, Travelers delivered over $2.0 billion of net income as well as a 8.7% return on equity and a 9.0% core return on equity*—a meaningful spread over the 10-year Treasury and above our cost of equity. We also grew book value per share by 5%, after returning over $2.2 billion of excess capital to our shareholders and making strategic investments in our business.

Particularly in light of severe catastrophe losses in 2017, we were pleased to have generated an underwriting gain* of $350 million after-tax. We also delivered an underlying underwriting margin* (which is our underwriting gain excluding the impact of catastrophes and net favorable prior year reserve development) of over $1.2 billion after-tax with excellent underlying underwriting results in each of our business segments.

Importantly, our profitability also benefited from an 80 basis point improvement year-over-year in our expense ratio, as we increased revenues, made important investments in ongoing and new strategic initiatives and delivered on our objective of improving productivity and efficiency through technology and workflow.

The execution of our marketplace strategy for retaining our best business, improving the profitability of the business that is not meeting our return objectives and creating opportunities to write attractive new business was excellent in 2017, resulting in record net written premiums of $26.2 billion, up 5% year-over-year, with all three business segments contributing to this growth.

Our high-quality investment portfolio generated pre-tax net investment income of $2.4 billion and after-tax net investment income of $1.9 billion in 2017.

Due to our flexible claims handling model, we were able to adjust virtually 100% of the tens of thousands of claims from Hurricane Harvey and Hurricane Irma with our own claim professionals and without the need for independent adjusters. As a result, we were able to close more than 90% of our property claims from these storms within 30 days—a better outcome for our customers and a more efficient outcome for us.

Our total shareholder return for 2017 was 13%, topping off a total shareholder return of 224% for the ten-year period.

While the 2017 results as discussed above were strong: 2017 net income of $2.1 billion and core income* of $2.0 billion each declined from $3.0 billion in 2016; and return on equity of 8.7% and core return on equity* of 9.0% in 2017 declined from 12.5% and 13.3%, respectively, in 2016. These declines were primarily due to the substantially higher catastrophe losses of $1.95 billion in 2017 as compared to $877 million in 2016.

Resulting In ...
Variable Compensation Awarded to the Named Executive Officers as Follows:

As discussed in this Compensation Discussion and Analysis, the Compensation Committee considered, among other factors, the successful execution of our underwriting strategies, the excellent performance of our claims organization and our 2017 financial results, which although strong were down from the prior year, and made the following compensation decisions:

Mr. Schnitzer's cash bonus decreased by approximately 10% (from $5.2 million to $4.7 million) and his annual equity award decreased approximately 9% (from $9.0 million to $8.2 million), in each case as compared to the 2016 performance year.

The cash bonus for each of Messrs. MacLean, Benet and Heyman decreased approximately 8%, compared to the 2016 performance year.

The annual equity award for each of Messrs. Benet and Heyman decreased approximately 9%, compared to the 2016 performance year. In light of Mr. MacLean's announced retirement, Mr. MacLean did not receive an annual equity award. In lieu of such award, the Company entered into a consulting agreement with Mr. MacLean as discussed below.

Mr. Kess received a cash bonus of $2.5 million and an equity award of $2.4 million for 2017, his first full year as an employee of the Company.

   


* See "Annex A–Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions" on page A-1.

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Consistent Performance Over Time

Our solid results in 2017 in the face of severe catastrophes demonstrate the continued successful execution of our long-term financial strategy, which is to create shareholder value by:

delivering superior returns on equity by leveraging our competitive advantages;

generating earnings and capital substantially in excess of our growth needs; and

thoughtfully rightsizing capital and growing book value per share over time.

Over the last ten years, we have produced an industry-leading return on equity, returned over $35 billion of excess capital to our shareholders, increased dividends per share at an average annual rate of 10%, increased our book value per share by 107% and delivered a total return to shareholders of 224%.

The Company's successful execution of this long-term financial strategy is further demonstrated by the results we have achieved over time as discussed below.

Continued Profitability and Quality Underlying Underwriting Results

Our business starts with risk selection, underwriting and pricing segmentation, and our results in 2017 reflect the continued successful execution of our underwriting strategies. As illustrated by the following chart, our after-tax "underlying underwriting margin" (which is our "underwriting margin" excluding the impact of catastrophes and net favorable prior year reserve development) remained strong in 2017 and was consistent with 2016, while net income and underwriting gain decreased from 2016 primarily due to the severe catastrophes. To put the 2017 results shown in the chart below in historical perspective, our underlying underwriting margin contributed 61% of our core income in 2017 as compared to 32% in each of 2007 and 2006 (our two best years in terms of core income since The St. Paul/Travelers Merger in 2004). The percentage of core income generated by underwriting in 2017 demonstrates the high quality of our earnings in 2017, as well as the remarkable success we have had in the execution of our marketplace strategies over time. Importantly, in a year impacted by a high level of non-catastrophe weather and fire-related losses, a decade of historically low interest rates, and several years of pricing below loss cost inflation, our underlying underwriting profitability continued to be strong, demonstrating the power of our franchise and the strength of our core business.

GRAPHIC

The results we deliver are due to our deliberate and consistent approach to creating shareholder value. While our results for 2017 were down as compared to 2016 due primarily to the increased level of catastrophes, it is important to recognize that our consistently articulated objective is to produce an appropriate return on equity for our shareholders over time. We emphasize that the objective is measured over time because we recognize that weather, reserve developments and interest rates, among a number of other factors, impact our results materially from year-to-year. The Compensation Committee believes that our compensation program should continue to reinforce this long-term perspective, as it has historically.

Achieved a Superior Return on Equity

In 2017, we produced a return on equity of 8.7% and a core return on equity of 9.0%. Our 2017 return on equity exceeded the average return on equity for the domestic property and casualty industry in 2017 of approximately 3.6%, as estimated by the Insurance Information Institute. As demonstrated by the following chart, our return on equity has meaningfully outperformed the average return on equity for the industry in each of the past ten years.

Importantly, over this ten-year time period, our return on equity has been less volatile as compared to every other company in our Compensation Comparison Group. We believe that the consistency of our performance over time demonstrates the soundness of our long-term strategy, the quality of our underwriting and investment approach and the discipline with which we run our business. This performance also demonstrates the value of our competitive advantages.

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Increased Adjusted Book Value Per Share and Returned Significant Excess Capital to Our Shareholders

During 2017, book value per share increased by 5% and adjusted book value per share*, which excludes the after-tax impact of unrealized gains and losses on investments, increased by 4%. Over the last ten years, the compound annual growth rate of our book value per share and adjusted book value per share was 8% and 7%, respectively. We were able to achieve this significant adjusted book value per share growth while at the same time continuing to meaningfully invest in our competitive advantages and returning substantial capital to shareholders.

GRAPHIC

Since we began our current repurchase program in 2006, we have returned over $40 billion of capital to shareholders through share repurchases and dividends, an amount that:

exceeds the Company's market capitalization of approximately $30 billion at the time the repurchase program was initially authorized in 2006; and

is significantly greater relative to market capitalization than any other member of the Compensation Comparison Group during that period.

During 2017, we returned to shareholders over $2.2 billion through approximately $1.44 billion of share repurchases and $789 million of dividends.

Achieved Superior Total Return to Shareholders over Time

Strong financial results have led to outstanding total returns to shareholders (measured as the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment). For the one-year period ended December 31, 2017, our total shareholder return was 13%. For the three-year, five-year and 10-year periods ended December 31, 2017, our shareholder returns were 37%, 112% and 224%, respectively. These returns placed the Company at the 40th, 40th and 70th percentile of our Compensation Comparison Group for each of these periods. In addition, our total shareholder return exceeded the return on the Dow Jones Industrial Average (the Dow 30 Index, of which the Company is a member) and the S&P 500 Index over the ten-year period mentioned above.

The following chart shows total shareholder return for the period beginning January 1, 2008 and ending on December 31, 2017. For each year on the chart, total return is calculated with January 1, 2008 as the starting point and December 31 of the relevant year as the ending point. Consistent with our financial strategy, which is to produce leading returns over time, in assessing total shareholder return, the Compensation Committee generally gives greater weight to performance over a longer period of time. This long-term perspective is especially important in the property and casualty insurance industry, where results can vary substantially when measured year-to-year due to a variety of factors, including the periodic occurrence of significant catastrophes, such as in 2017.

GRAPHIC

Based on the achievements discussed above and elsewhere in this "Compensation Discussion and Analysis", and other factors, the Compensation Committee determined that the Company and the named executive officers had performed at superior levels on both an absolute basis and relative to our peers. Notwithstanding this superior performance and strong results, in light of the year-over-year decrease in core income as described above, the Compensation Committee determined to reduce the performance-based compensation of the named executive officers, as discussed in more detail below.

   


* See "Annex A—Reconciliation of GAAP Measures to Non Non-GAAP Measures and Selected Definitions" on page A-1.

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Pay-for-Performance Philosophy and Objectives of Our Executive Compensation Program

Pay-for-Performance Philosophy

Our compensation program, the objectives and structure of which have been stable over time and aligned with our articulated financial strategy, is designed to, among other things, reinforce a long-term perspective and to align the interests of our executives with those of our shareholders. A long-term perspective is especially vital in the property and casualty insurance industry, where the periodic occurrence of catastrophes, changes in estimates of costs for claims and other economic conditions have historically produced results that vary significantly when measured year-to-year.

Consistent with our longstanding pay-for-performance philosophy, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels. In addition, to a greater extent than many of the companies included in our

Compensation Comparison Group, due to the absence of time-based restricted stock in our ongoing program, a substantial majority of the ultimate value of our named executive officer compensation is performance-based and is tied to, and is dependent on, operating results and increases in shareholder value over time.

While the objectives and structure of our compensation program have been stable over time, compensation levels vary significantly from year-to-year and correlate with our results. The following two charts illustrate the directional relationship for the past ten performance years ("PY") between total direct compensation for the CEO (Mr. Schnitzer for PY2016 and PY2017 and Mr. Jay Fishman, our CEO until December 2015, for PY2008 through PY2015) and the Company's performance, as reflected by core return on equity ("ROE"). As explained under "—Objectives of Our Executive Compensation Program", the Compensation Committee believes that compensation levels should encourage a long-term perspective, and, therefore, while catastrophe losses ("CATs") should impact compensation levels, compensation levels should not be as volatile, from year-to-year, as changes in financial results due to catastrophe losses.

GRAPHIC

GRAPHIC


Differences between total direct compensation for each performance year presented above and the information included in the "Summary Compensation Table" are discussed further below under "—Total Direct Compensation for 2015-2017 (Supplemental Table)" and "—The Differences Between this Supplemental Table and the Summary Compensation Table" on page 46.

(1)
The adjustment to the chart is intended to facilitate a year-to-year comparison of recent core ROE by showing core ROE both as reported and as adjusted to reflect a consistent level of catastrophe losses for each year to eliminate the volatility that undermines the comparison of period-to-period results. The average annual after-tax catastrophe losses for the ten-year period presented was $786 million. Actual catastrophe losses for each year are presented in Annex A.

(2)
Return on equity as reported for each performance year in the ten-year period was as follows:
  PY2008
  PY2009
  PY2010
  PY2011
  PY2012
  PY2013
  PY2014
  PY2015
  PY2016
  PY2017
 
  11.4%   13.5%   12.1%   5.7%   9.8%   14.6%   14.6%   14.2%   12.5%   8.7%  
                   

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Determination of Performance-Based Compensation Amounts

The Compensation Committee evaluates a broad range of financial and non-financial metrics in awarding performance-based incentives each year. In February of each year, the Compensation Committee considers the Company's and the executive's performance in the prior year and awards a cash bonus and an equity award.

The Compensation Committee believes that a formulaic approach to the determination of performance-based compensation, particularly in the property and casualty insurance industry, could

result in unintended consequences and is not an appropriate substitute for the Compensation Committee's informed and thorough deliberation and the application of its reasoned business judgment that balances all of the factors described below. The Compensation Committee's current approach allows it to appropriately assess the quality of performance results and ensures that executives are not unduly rewarded, or disadvantaged, based purely on the application of a mechanical formula.

Annual Cash Bonuses

With regard to annual cash bonuses, core return on equity, in particular, is a principal factor in the Compensation Committee's evaluation of the Company's performance. The Compensation Committee believes that core return on equity should not be viewed as a single metric. Rather, by being a function of both (1) core income and (2) shareholders' equity (excluding unrealized gains and losses on investments), core return on equity reflects a number of separate areas of financial performance related to both the Company's income statement and balance sheet. Accordingly, senior executives, as well as other employees with management responsibility, are encouraged to focus on multiple performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investment decisions, the pricing of our policies, the effectiveness of our claims management and the efficacy of our capital and risk management. When evaluating the Company's core return on equity, the Compensation Committee considers the Company's cost of equity and recent and historical trends with respect to core return on equity for the Company. In addition, the Compensation Committee considers recent and historical trends with respect to return on equity for the domestic property and casualty insurance industry and the Compensation Comparison Group. In 2017, the Compensation Committee also considered that the 2017 decrease in core return on equity was primarily due to a significantly higher level of catastrophes.

The Compensation Committee also reviews a broad range of other financial and non-financial metrics, particularly with respect to its administration of the Company's performance-based annual cash bonus program. As discussed further below, in determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company's performance with respect to a wide range of other metrics included in the financial plan approved by the Board

prior to the beginning of the year, including, among others, core income and core income per diluted share, and the metrics that contribute to those results, such as:

written and earned premiums;

investment income;

insurance losses; and

expense management.

In evaluating performance against the metrics, however, the Compensation Committee does not use a formula or pre-determined weighting, and no one metric is individually material other than core return on equity. In 2017, in setting performance-based compensation, the Compensation Committee also took into account the decline in core income as compared to 2016.

In addition to the metrics discussed above, the Compensation Committee also reviews per share growth in book value and adjusted book value over time in light of the Company's objective to create shareholder value by generating significant earnings and taking a balanced approach to capital management. However, because (1) book value can be volatile due to, among other things, the impact of changing interest rates on the fair value of the Company's fixed-income investment portfolio and (2) the Company's capital management strategy also emphasizes returning excess capital to shareholders, the Compensation Committee does not set a specific target for per share growth in book value or adjusted book value. Further, while it evaluates changes in book value and adjusted book value in the context of overall results, the Compensation Committee does not believe such changes, by themselves, are always the most meaningful indicators of relative performance.

Performance Shares

The Compensation Committee delivers 60% of the yearly equity-based, long-term incentive opportunity in performance shares and the remainder in stock options. In determining the size of the total long-term incentive opportunity, the Compensation Committee considers a number of factors, including the factors described above, with regard to the determination of the annual cash bonus award. Once the performance share award has been granted, the number of shares that a named executive officer will receive upon vesting, if any, depends on the Company's attainment of specific

financial targets related to core return on equity. These targets, which are described on page 40, are specified at the time the awards are granted and, unlike the practice of most companies, disclosed in advance to shareholders to enable a full evaluation of the rigor of our performance goals and how the performance schedule compares to our cost of equity capital. The value provided by the stock options is determined solely on the appreciation of the stock price subsequent to the time of the award.

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Objectives of Our Executive Compensation Program

With our overarching pay-for-performance philosophy in mind, the Compensation Committee has approved the following five primary objectives of our executive compensation program.

1. Link compensation to the achievement of our short- and long-term financial and strategic objectives

The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive.

The Compensation Committee further believes that an executive's total compensation opportunity should be commensurate with his or her position and level of responsibility. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. Thus, the senior-most executives, who are responsible for the development and execution of our strategic and financial plans, have the largest portion of their compensation tied to performance-based incentives, including

stock-based compensation, the ultimate value of which is dependent on changes in stock price and core return on equity. As noted above, in evaluating the Company's overall performance, the Compensation Committee recognizes that our business is subject to events outside of management's control, including natural and man-made catastrophic events, and takes those events into account when awarding compensation. The Compensation Committee believes that, while the impact of catastrophes in any given year can produce significant volatility, management should be focused on achieving the Company's long-term strategic goals. As a result, although the Compensation Committee believes that the impact of catastrophes on the Company's financial results should be reflected in its executive compensation decisions, the Compensation Committee does not believe it is appropriate for compensation levels to be subject to as much volatility year-to-year as may be caused by actual catastrophes.

2. Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent

Our overall compensation levels are designed to attract and retain the best executives in light of the competition for executive talent. We recognize that to continue to produce industry leading results over time, we need to continuously cultivate that talent. We do so with competitive compensation programs that are designed to attract, motivate and retain our best people, development programs that foster personal and professional growth, and a focus on diversity as a business imperative.

In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named

executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels.

The Compensation Committee may also take into account other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing talent.

3. Align the interests of management and shareholders by paying a substantial portion of total compensation in stock-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of the annual stock-based compensation granted to the named executive officers in 2018 and 2017 were stock options and performance shares. In addition, as discussed

below, senior executives are expected to achieve specified stock ownership targets prior to selling any stock acquired upon the exercise of stock options or the vesting of performance shares or restricted stock units. Both the portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increase with successively higher levels of responsibility.

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4. Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program from tax, accounting, cash flow and share dilution perspectives

As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee evaluates the aggregate economic costs and dilutive impact to shareholders of such compensation, the expected accounting treatment and the impact on our financial results. In

addition, we historically have made reasonable efforts to maximize the deductibility of all elements of compensation. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided.

5. Reflect established and evolving corporate governance standards

The Compensation Committee, with the assistance of our Human Resources Department and the Compensation Committee's independent compensation consultant, stays abreast of current and developing corporate governance

standards and trends with respect to executive compensation and adjusts the various elements of our executive compensation program, from time to time, as it deems appropriate.

As a result of this process, the Compensation Committee has adopted the following practices, among others:

    What We DO NOT Do:

  What We DO:

   

No excise tax "gross-up" payments in the event of a change in control

No tax "gross-up" payments on perquisites for named executive officers

No repricing of stock options and no buy-out of underwater options

No excessive or unusual perquisites

No dividends or dividend equivalents paid on unvested performance shares

No above-market returns provided for in deferred compensation plans

No guaranteed equity or bonuses for named executive officers

     

Maintain robust share ownership requirement

Maintain a clawback policy with respect to cash and equity incentive awards to our executive officers

Prohibit hedging transactions as specified in our securities trading policy

Prohibit pledging shares without the consent of the Company (no pledges have been made)

Engage in outreach and maintain a dialogue with shareholders relating to the Company's governance and compensation practices

   

 

For a description of the duties of the Compensation Committee and its use of an independent compensation consultant, see

"Governance of Your Company—Committees of the Board and Meetings—Compensation Committee" on page 11.

Compensation Elements

With our pay-for-performance philosophy and compensation objectives discussed above as our guiding principles, we deliver annual executive compensation through a combination of:

base salary, and

performance-based compensation consisting of:

    an annual cash bonus, and

    stock-based long-term incentive awards.

We also provide benefits and modest perquisites. In addition, from time to time, the Compensation Committee may make special cash or equity awards to one or more of our named executive officers.

Consistent with recent years, the Compensation Committee has determined that the allocation of compensation between performance-based annual cash bonus and stock-based,

long-term incentives should be somewhat more heavily weighted towards cash bonus as compared to our Compensation Comparison Group. The Compensation Committee believes that this allocation is appropriate in light of the fact that a higher percentage of the named executive officers' total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group. In particular, unlike a number of other companies in our Compensation Comparison Group, annual equity awards made to the named executive officers are typically all performance-based.

The following chart illustrates the mix of performance-based compensation to non-performance-based compensation of our CEO, compared to the CEOs of our Compensation Comparison Group.

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(1)
The Company's CEO Pay Mix reflects the pay mix of total direct compensation for Mr. Schnitzer for the 2017 performance year, as reported in the Supplemental Table on page 46.

(2)
Peer Average CEO Pay Mix reflects the pay mix of total direct compensation for our Compensation Comparison Group for their 2016 performance year (the most recent year for which data was publicly available) and was calculated for the Compensation Committee by its independent compensation consultant. As part of that calculation, the independent compensation consultant annualized special non-recurring long-term incentive grants (for example, new hire, retention and promotion awards) to reflect an estimate of "per year" value.

Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our performance shares only vest if specified return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based; that is, the compensation typically awarded annually to our CEO and other named executive officers generally does not include awards that are earned solely due to the passage of time without regard to performance.

Total Direct Compensation

The following table sets forth the composition of total direct compensation for Mr. Schnitzer, our CEO, and our other named executive officers who served as executive officers for the 2017 performance year:

Compensation Element
  Percentage of Total Direct
Compensation for CEO, Mr. Schnitzer

  Percentage of Average Total Direct
Compensation for Other NEOs(1)

Base Salary

    7.2%   14.5%

Annual Cash Bonus

  33.8%   44.6%

Long-Term Stock Incentives

  59.0%   40.9%
(1)
Given his announced retirement, Mr. MacLean did not receive an equity award for the 2017 performance year. Accordingly, Mr. MacLean's compensation for 2017 has been omitted from the table.

Base Salary

The Compensation Committee's philosophy is to generally set base salary for executive officers other than the CEO at a level that is intended to be on average at or near the 50th percentile for equivalent positions in our Compensation Comparison Group. This positioning supports the attraction and retention of high quality talent, ensures an affordable overall cost structure, and mitigates excessive risk taking that could occur if salaries were artificially low. Individual salaries may range above or below the median based on a variety of factors, including the potential impact of the executive's role at the Company, the terms of the executive's employment agreement, if any, the tenure and experience the executive brings to the position and the performance and potential of the executive in his or her role. Base salaries are reviewed annually, and adjustments are made from time to time as the Compensation Committee deems appropriate to recognize performance, changes in duties and/or changes in the competitive marketplace.

The Compensation Committee did not make any changes in the base salary for the NEOs at its February 2018 and February

2017 meetings. Mr. Schnitzer's current base salary as CEO is below the 10th percentile when compared to other CEOs in our Compensation Comparison Group, and the current base salaries for Messrs. MacLean, Benet and Heyman are above the 75th percentile of our Compensation Comparison Group, in each case based on the most recently available data as provided by the Compensation Committee's independent compensation consultant. The Compensation Committee set the base salary for our CEO below the 50th percentile because it believes that the CEO's compensation should be more heavily weighted to variable performance-based compensation, as shown in the table above. The base salaries of Messrs. MacLean, Benet and Heyman reflect their long tenure in their positions (13, 16 and 16 years, respectively), as well as their considerable expertise and outstanding performance over time. Mr. Kess's base salary was set forth in the offer letter entered into in connection with, and as an inducement for, the commencement of his employment with the Company in 2016 and was set at a level commensurate with his expertise and experience.

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Annual Cash Bonus

The named executive officers are eligible to earn performance-based annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders. The annual bonuses are based upon the individual performance of each executive as well as that of the Company as a whole. The

annual cash bonuses are designed to further our goals described under "—Objectives of Our Executive Compensation Program", including motivating and promoting the achievement of our short-term and long-term financial and strategic objectives.

Description of Senior Executive Performance Plan and Maximum Pool

The Senior Executive Performance Plan was approved by shareholders and was designed to comply with the "qualified performance-based compensation" requirements of Section 162(m) of the Internal Revenue Code so that annual bonus payments to named executive officers could be fully tax deductible. The Senior Executive Performance Plan contains a multi-metric formula that was approved by shareholders and that is used to determine the maximum amount of the annual bonus pool.

The formula in the Senior Executive Performance Plan provides generally that, if our operating return on equity (now referred to as "core return on equity" and determined by dividing (1) "after-tax operating earnings", as defined in the Senior Executive Performance Plan, by (2) total common shareholders' equity as of the beginning of the fiscal year, adjusted to exclude net unrealized appreciation or depreciation of investments) is greater than 8%, then the pool available to pay as "qualified performance-based compensation" under Section 162(m) will equal 1.5% of our "after-tax operating earnings".

Because the amount of our "after-tax operating earnings" can generate a larger bonus pool than necessary for awarding bonuses consistent with the Compensation Committee's objectives, the Compensation Committee can exercise (and in the past has always exercised) its discretion to award less than the maximum amount that could have been awarded under the Plan as "qualified performance-based compensation".

Commencing with our 2018 performance year, we no longer expect to utilize the formula included in the Senior Executive Performance Plan for purposes of annual bonus determination as Section 162(m) of the Internal Revenue Code has been amended to remove the deductibility exception for "qualified performance-based compensation" within the meaning of Section 162(m). We currently expect that the Compensation Committee's process for determining the annual cash bonus amounts will generally remain consistent with its past practice.

Performance Year 2017 Bonuses Payable under the Senior Executive Performance Plan

Our return on equity for the 2017 performance period, calculated as defined in the Senior Executive Performance Plan, was 15.03%, and resulted in a maximum amount available under the Senior Executive Performance Plan of $50.70 million. As discussed below, the Compensation Committee awarded a total of $15.95 million in bonuses (being approximately 31% of

the aggregate bonus pool under the Plan) to the named executive officers.

As it has done in prior years, the Compensation Committee exercised its discretion to award less than the maximum amount that could have been awarded under the Plan as "qualified performance-based compensation".

Factors Considered in Awarding 2017 Bonuses

In determining the actual annual bonuses awarded, the Compensation Committee applied its business judgment and considered a number of factors, including:

our strong financial performance in 2017 despite one of the costliest catastrophe seasons on record, as described above under "2017 Overview";

our successful execution of our marketplace and capital management strategies, as described under "—2017 Overview";

the consolidated, business segment and/or investment results relative to the various financial measures set forth in our 2017 business plan that was established and approved by the Board at the end of 2016;

our effective management of expenses, as we increased revenues, made important investments in ongoing and new strategic initiatives and delivered on our objective of improving productivity and efficiency through technology and workflow which enabled us to keep our general and administrative expenses approximately even with the prior year;
our successful execution of our underwriting strategies as reflected in our strong underwriting results in 2017;

our strategic positioning, including the progress made on strategic initiatives and the execution of the Company's innovation agenda;

our overall response to the 2017 catastrophes and specifically the claim organization's excellent performance based on our flexible claims handling model, which produced a better experience for our customers and a better outcome for us;

our performance relative to the companies in our Compensation Comparison Group along with other companies in the property and casualty insurance industry, with a particular emphasis on core return on equity;

compensation market practices as reflected by the Compensation Comparison Group in the most recent publicly available data;

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the performance of the executive;

the tenure and compensation history of the executive; and

the demonstration of leadership and teamwork.

As discussed below, the Compensation Committee generally weighs financial performance measures, particularly core return on equity, and comparable compensation information more heavily than other factors. In particular, when assessing results, the Compensation Committee considers the Company's overall financial performance relative to prior years' performance, the financial plan, the performance of industry peers and, in the case of core return on equity, the Company's cost of equity.

The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees, nor precludes, the payment of an award, but is considered by the Compensation Committee as one of several factors among the other factors noted above and any additional information available to it at the time, including market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure.

As discussed under "Determination of Performance-Based Compensation Amounts—Annual Cash Bonuses" on page 31, the Compensation Committee believes that a formulaic approach to compensation is not appropriate in the property and casualty insurance industry and is not an appropriate substitute for the Compensation Committee's informed and thorough deliberation and the application of its reasoned business judgment as it would not allow the Compensation Committee to assess the quality of the performance results and could result in negative unintended consequences. For example, a formulaic bonus plan tied to revenue growth (a common metric used in formulaic bonus plans) could create an incentive for management to relax the Company's underwriting or investment standards to increase revenue and reported profit on a short-term basis, thereby driving higher short-term bonuses, but creating excessive risk for shareholders over the longer term. This is of particular concern in the property and casualty insurance industry due to the fact that the "cost of goods sold" (that is, the amount of insured losses) is not known at the time of sale and develops over time—in some cases over many years.

2017 Financial Metrics, Including Core Return on Equity Target

In evaluating the foregoing factors, the Compensation Committee reviewed management's progress in meeting a broad range of financial and operational metrics included in the 2017 financial plan approved by the Board in December 2016. As discussed above, of the various financial metrics evaluated by the Compensation Committee, the Compensation Committee considered core return on equity to be the most important metric in its evaluation of the Company's annual performance, and it reviewed other metrics in light of their contribution to the Company's return on equity goals. In 2017, the Compensation Committee also considered the decline in core income as compared to 2016.

Core Return on Equity Target - The Compensation Committee established in February 2017 specific targets for both: (1) core return on equity and (2) adjusted core return on equity, which excludes catastrophes and prior year reserve development, if any, related to asbestos and environmental coverages. In particular, the 2017 financial plan targeted: (1) a core return on equity of 10.1% and (2) an adjusted core return on equity of 13.0%.

One of management's important responsibilities is to produce an appropriate return on equity for our shareholders and to develop and execute financial and operational plans consistent with our financial goal of achieving a mid-teens core return on equity over time. The Compensation Committee also recognizes, however, the historic cyclicality of our business and that there may be times when the core return on equity achievable in a given year or period is greater than, or less than, a mid-teens level. The targeted returns for 2017 reflected the expectation that interest rates would remain at historically low levels and that catastrophes would be consistent with normalized levels over the past ten years. In addition, in evaluating the appropriateness of the targets set for return on equity, the Compensation Committee considers our return on

equity relative to the Compensation Comparison Group and to the U.S. property and casualty insurance industry generally and relative to our estimated cost of equity. This relationship to industry returns, over time, is described in the chart on page 28. As a result, when the Board approved our 2017 business plan, both management and the Board believed the plan to be reasonably difficult to achieve.

Notably, the Company's financial plan—and thus its targets—did not include any planned reserve development, positive or negative. The Company's actuarial estimates always reflect management's best estimates of ultimate loss as of the relevant date. As a result, when developing financial plans, the Company does not budget for, or target, prior year reserve development. Adjustments to actual adjusted core return on equity for prior year reserve development related to asbestos and environmental coverages are made because, to a significant degree, those items relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, their financial impact is largely beyond the control of current management. The targets in the 2017 plan were lower than the targets in the 2016 plan because the 2017 plan assumed catastrophes at levels slightly higher than 2016, lower net investment income attributable to the continued and persistently low interest rate environment and assumed loss cost trends modestly exceeding earned pricing. In addition, the 2017 plan was lower than the 2016 actual results because 2016 actual results included positive prior year reserve development of $771 million ($510 million after-tax) and included the benefit from the settlement of a reinsurance dispute, which would not recur in 2017.

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For 2017, our results compared to our targets were as follows:

Our core return on equity was 9.0%, which was 1.1 points lower than our target of 10.1%. If catastrophes had been consistent with average levels for the past ten years, our core return on equity would have been 11%.

Our adjusted core return on equity, excluding catastrophes and prior year reserve development related to asbestos and environmental coverages, was 15.0%, which was significantly higher than our target of 13.0%.

The Compensation Committee also considered these results relative to the U.S. property and casualty insurance industry as a whole. In particular, the Company's return on equity of 8.7% in 2017 meaningfully exceeded the average return on equity for domestic property and casualty insurance companies of approximately 3.6%, as estimated by the Insurance Information Institute.

Other Financial Metrics - The Senior Executive Performance Plan is a multiple metric plan. In determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company's performance with respect to not only core return on equity, but also a broad range of other financial metrics including, among other things, core income and core income per diluted share and other metrics that contribute to those amounts, such as written and earned premiums, investment income and expense management. In 2017, other than with respect to the decline in core income, no one of these other financial metrics was individually material to 2017 compensation decisions.

The relevant targets for these other financial metrics were included in the 2017 financial plan approved by the Board at the end of 2016. The following table shows actual 2017 core income, core income per diluted share* and adjusted core

income (excluding prior year reserve development related to asbestos and environmental and catastrophes) compared to the corresponding metrics contained in the Company's 2017 financial plan and to actual 2016 results.

Metric
  2017
Actual

  2017
Target(1)

  2016
Actual

 

Core income

  $ 2.04B   $ 2.25B   $ 2.97B  

Core income per diluted share

  $ 7.28     $ 8.04     $ 10.12    

Core income before A&E and catastrophes

  $ 3.50B   $ 2.91B   $ 3.74B  
(1)
As discussed above, the 2017 targets for core income and core income per diluted share do not include any planned reserve development, either positive or negative, reflect lower net investment income attributable to the continued and persistently low interest rate environment and assume catastrophes consistent with normalized levels for the past ten years.

Core income of $2.04 billion was down from the goal in the Company's financial plan and from actual 2016 results, primarily as a result of the significantly higher catastrophe losses. If catastrophe losses in 2017 had been consistent with normalized losses over the past ten years, the Company would also have exceeded its targets for core income and core return on equity.

Amount of 2017 Annual Cash Bonuses - At its February 2018 meeting, the Compensation Committee considered the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in achieving the 2017 results described above.

The Compensation Committee believed that all of the named executive officers individually performed at superior levels and contributed substantially to our strong results. The Compensation Committee also placed significant weight on the fact that the Company's executive officers, including the named executive officers, have been highly effective working as a team in driving the business over the long-term.

In light of the foregoing, the Compensation Committee determined in its judgment to award cash bonuses for the 2017 performance year as follows:

a cash bonus of $4.7 million to Mr. Schnitzer, which is $500,000, or approximately 10%, lower than that awarded to him for the 2016 performance year; and

aggregate cash bonuses totaling $8.75 million to Messrs. MacLean, Benet, and Heyman, which was approximately 8% lower than the bonuses awarded to them for the 2016 performance year. Mr. Kess received a cash bonus of $2.5 million for 2017, his first full year at the Company. The bonus received by Mr. Kess was calculated to be consistent with the terms of his employment letter and lowered by a similar percentage as the bonus amounts paid to Messrs. MacLean, Benet and Heyman.

Long-Term Stock Incentives

The Compensation Committee believes that the interests of executives and shareholders should be closely aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based long-term incentive awards that are designed to further our goals

described under "—Objectives of Our Executive Compensation Program," including ensuring that our executive officers have a continuing stake in our long-term success and manage the business with a long-term, risk-adjusted perspective.

   


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The Compensation Committee, with advice from its independent compensation consultant, has developed guidelines for the allocation of annual grants of equity compensation between performance shares and stock options. These allocations are intended to result in a mix of annual long-term incentives that is sufficiently performance-based and will result in (1) a large component of total compensation being tied to the achievement of specific, multi-year operating performance objectives and changes in shareholder value (performance shares); and (2) an appropriate portion being tied solely to changes in shareholder value (stock options). Under the guidelines, the mix of long-term incentives for the named executive officers is approximately 60% performance shares and 40% stock options, based on the grant date fair value of the awards. The mix of annual long-term incentive compensation reflects the Compensation Committee's judgment as to the appropriate balance of these incentives to achieve its objectives. While the aggregate grant date fair values of equity awards granted to the named executive officers take into account both individual and Company performance, the mix of equity incentives awarded annually is fixed and generally does not vary from year-to-year. For a description of the equity awards granted in fiscal year 2017, refer to "—Grants of Plan-Based Awards in 2017" on page 48.

At its February 2018 meeting, the Compensation Committee granted Mr. Schnitzer stock-based long-term incentive awards with a grant date fair value of $8.2 million, a decrease of $800,000, or approximately 9%, compared to the grant awarded at the February 2017 meeting. At the same meeting, the Compensation Committee granted stock-based incentive awards to Messrs. Benet, and Heyman with a grant date fair value equal to approximately 2.8 times their base salary, which was approximately 9% lower than the grant awarded to them at the February 2017 meeting of 3.2 times their base salary. The Compensation Committee awarded stock-based incentive awards to Mr. Kess with a grant date fair value of $2.4 million, its first grant of annual stock-based long-term incentive awards to Mr. Kess (prior equity grants were made in connection with the commencement of his employment at the Company). The amount of the stock-based long-term incentive award to Mr. Kess was calculated to be approximately 2.8 times his base salary, the same multiple as the stock-based long-term incentive awards for Messrs. Benet and Heyman. Due to his announced retirement, Mr. MacLean did not receive an annual equity grant at the February 2018 meeting. In lieu of such grant, the Company entered into a consulting agreement with Mr. MacLean as discussed below.

The Compensation Committee set the amounts of these incentive grants in order to position the total direct

compensation for these named executive officers lower for 2017 compared to 2016, reflecting the strong 2017 performance, particularly in light of the high level of catastrophes in 2017, but taking into account the decline in core income year-over-year. These equity awards, approved at the February 2018 meeting, will be reflected in the Summary Compensation Table in our Proxy Statement for our 2019 annual meeting.

At its February 2017 meeting, the Compensation Committee granted Mr. Schnitzer stock-based long-term incentive awards with a grant date fair value of $9 million, an increase of $4 million over his 2016 grants in light of the very successful completion of his first full year as CEO and the need to reposition his compensation relative to our Compensation Comparison Group to reflect the increased responsibilities of that role. At the same meeting, the Compensation Committee granted stock-based incentive awards to Messrs. Benet and Heyman with a grant date fair value equal to the grant date value for 2015. The Compensation Committee granted stock-based incentive awards to Mr. MacLean with a grant date fair value of approximately $3.24 million, down $1.76 million from 2015. Mr. MacLean's awards for 2015 included approximately $1.76 million in additional equity awards granted in connection with Mr. MacLean's assumption of direct leadership of the Business and International Insurance segment and his role in the 2015 leadership transition. The Compensation Committee set the amounts of these incentive grants in order to position the total direct compensation for these named executive officers somewhat lower for 2016 performance as compared to 2015, reflecting the strong 2016 performance but also taking into account the decline in the core income year-over-year. As contemplated by the offer letter entered into in connection with, and as an inducement for, the commencement of Mr. Kess's employment in December 2016, the Compensation Committee granted Mr. Kess stock-based long-term incentive awards with a grant date fair value of $2,550,000. The equity awards approved for the NEOs at the February 2017 meeting, are reflected in the "Summary Compensation Table" on page 47.

The ultimate value of stock-based long-term incentive awards at the time of vesting or, in the case of stock options, exercise may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. The grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote (1) to the "Summary Compensation Table" on page 47.

Performance Shares

Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of vice president (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of

our common stock based upon our attainment of specified performance goals. The performance goals for performance share awards granted in 2018 and 2017 are based upon our attaining various adjusted returns on equity over three-year performance periods commencing January 1, 2018 and ending

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December 31, 2020 and commencing January 1, 2017 and ending December 31, 2019, respectively (in each case, "Performance Period Return on Equity"). Performance Period Return on Equity represents the average of the "Adjusted Return on Equity" for each of the three calendar years in the performance period. The "Adjusted Return on Equity" for each calendar year is determined by dividing "Adjusted Operating Income" by "Adjusted Shareholders' Equity" for the year, each as defined in the Performance Share Awards Program and described below.

"Adjusted Operating Income", as defined in the Performance Share Awards Program and referred to herein as "Adjusted Core Income", excludes the after-tax effects of:

specified losses from officially-designated catastrophes,

asbestos and environmental reserve charges or releases,

net realized investment gains or losses in the fixed maturities and real estate portfolios,

extraordinary items, and

the cumulative effect of accounting changes and federal income tax rate changes, and restructuring charges, each as defined by GAAP and each as reported in our financial statements (including accompanying footnotes and management's discussion and analysis);

and is then reduced by the after-tax dollar amount for expected "normal" catastrophe losses. In the first year of the performance period, such expected "normal" catastrophe losses are represented by a fixed amount set forth in the terms of the performance shares ($655 million for 2017). In the two subsequent years of the performance period, such fixed amount for catastrophes is adjusted up or down by formula to reflect any increases or decreases, as the case may be, in written premiums in specified catastrophe-exposed commercial and personal lines.

"Adjusted Core Income" is also reduced by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed-income investments. The Compensation Committee believes this reduction of Adjusted Core Income is appropriate because credit losses in our fixed-income portfolio are part of reported net income but not core income and thus, absent making this reduction, would not be reflected in Adjusted Core Income. Specifically, for performance share awards granted in February 2018 and February 2017, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts (on an after-tax basis) for each year in the performance period.

"Adjusted Shareholders' Equity" for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders' equity, as reported on our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders' Equity, our total common shareholders' equity as of the beginning

and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Core Income.

The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period, as described further above under "—Pay-for-Performance Philosophy and Objectives of Our Executive Compensation Program".

The Compensation Committee seeks to establish the Performance Period Return on Equity standards such that 100% vesting requires a level of performance over the performance period that is expected to be in the top tier of the industry. In considering what would constitute such top tier performance over a future three-year period, the Compensation Committee considers recent and historical trends in return on equity for the domestic property and casualty insurance industry and our Compensation Comparison Group and recent and historical trends in core return on equity for the Company. In addition, the Compensation Committee considers current and expected underwriting and investment market conditions, our business plan and the Company's cost of equity. For example, the Compensation Committee noted in respect of the performance shares granted in 2018 that the Performance Period Return on Equity of 10% that is required for 100% vesting would meaningfully exceed the average return on equity for the domestic property and casualty insurance industry of 3.6%, as estimated by the Insurance Information Institute for 2017. Accordingly, while the Compensation Committee decided not to implement a formulaic calculation based on performance relative to other companies in the industry, which it believed could result in over or under compensation, it did set the Performance Period Return on Equity standards after considering the level of historical and expected performance that would constitute superior returns. See the chart on page 28, which shows historical returns on equity for the Company and the domestic property and casualty insurance industry. In addition, in establishing the Performance Period Return on Equity standards shown in the chart below, the Compensation Committee also considered our financial goal of achieving a core return on equity in the mid-teens over time and that such a core return on equity would, in its view, be reasonably difficult to achieve over the next three-year period. The Compensation Committee also considered that, because the Company's actuarial estimates reflect management's best estimates of ultimate loss as of the relevant date, the Company's future financial plans do not include any prior year reserve development, positive or negative.

For performance shares granted in 2018 and 2017, actual distributions are contingent upon our attaining Performance Period Return on Equity as indicated on the following chart. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting percentage (for example, a Performance Period Return on Equity of 14% will yield a vesting of 115%).

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Performance Shares Granted in 2018 and 2017:
Performance Period Return on Equity Standards

 
  Vesting
Percentage

  Performance
Period Return
on Equity for
Performance
Shares Granted
in 2018 and 2017

Maximum

  150%   ³16.0%

  140%   15.5%

  130%   15.0%

  120%   14.5%

  110%   13.5%

  100%   10.0%

  75%   8.5%

Threshold

  50%   8.0%

  0%   <8.0%

The performance shares are a long-term incentive intended to align a significant portion of our executives' compensation with return on equity objectives over time. The Compensation Committee from time to time makes adjustments to the Performance Period Return on Equity standards for a year's awards when, at the time of grant, it determines that there have been significant changes in the returns that it expects should constitute top tier performance.

For performance shares granted in 2018, the Compensation Committee decided not to make any changes to the Performance Period Return on Equity standards. This decision reflected the fact that the Compensation Committee believed that returns that qualify as top tier performance over the next several years will continue to be somewhat lower than longer term historical levels.

The Committee also observed that the Performance Period Return on Equity required for 100% vesting exceeds the actual average return on equity for the domestic property and casualty insurance industry for each of the last ten years as estimated by the Insurance Information Institute.

In granting future awards, the Compensation Committee intends to continue to review Performance Period Return on Equity standards in light of the then current operating environment and will consider adjustments if, among other reasons, investment yields increase to more normal levels by historical standards.

To support our recruitment and retention objectives and to encourage a long-term focus on our operations, the performance shares vest subject to both the satisfaction of the requisite performance goals and the participant meeting specified

service period criteria. The program provides for accelerated vesting and/or waiver of service requirements in the event of death or disability or qualifying "retirement," as defined in the awards. In the event of a participant's voluntary termination for "good reason" or involuntary termination without "cause" within 24 months following a change in control of the Company, the service vesting requirements with respect to the 2017 and 2018 performance share grants will be waived. Further, under his employment agreement, Mr. Schnitzer is entitled to conversion of all of his performance shares into time-vesting awards upon a change in control and he is entitled to accelerated vesting of all of his equity awards if his equity awards are not assumed by the surviving entity following a change in control or in the event of a voluntary termination for "good reason" or an involuntary termination without "cause" (each as defined in his employment letter) within 24 months following a change in control of the Company. These provisions are included to minimize the potential influence of the treatment of these equity awards in connection with a change in control on Mr. Schnitzer's and our other executives' decision-making process and to conform the terms of our program more closely to compensation practices among our peers. The Compensation Committee believes that these provisions will enhance Mr. Schnitzer's and our other executives' independence and objectivity when considering a potential transaction. Under the terms of Mr. Kess's offer letter, Mr. Kess's 2017 performance share grant (representing part of his initial sign-on equity grants) took into account the forfeiture of his pension arrangements resulting from his relinquishment of his former partnership interest and, accordingly, included special terms providing for waiver of service vesting requirements in the event of his voluntary termination for "good reason" or involuntary termination without "cause" at any time prior to the scheduled settlement date for such award. These provisions are described in more detail under "—Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Schnitzer's Employment Letter and Mr. Kess's Offer Letter".

New performance share cycles commence annually and overlap one another, helping to foster retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid only when and if performance shares vest, and are paid, in shares, at the same vesting percentage as the underlying performance shares.

The number of performance shares granted is determined by dividing the grant date fair values by the closing price of our common stock on the date of grant ($140.85 and $118.78 for 2018 and 2017, respectively).

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The Compensation Committee awarded performance shares as follows:

Mr. Schnitzer — performance shares with a grant date fair value of $4.92 million in February 2018 and $5.40 million in February 2017.

Messrs. Benet and Heyman — each performance shares with a grant date fair value of $1.44 million in February 2018 and $1.575 million in February 2017. Mr. MacLean did not receive an award of performance shares in 2018 due to his announced retirement. In lieu of such grant, the Company entered into a consulting agreement with Mr. MacLean as discussed below. Mr. MacLean was awarded performance shares with a grant date fair value of approximately $1.9 million in February 2017.

Mr. Kess — performance shares with a grant date fair value of $1.44 million in February 2018.

Payment of Performance Shares Granted for the 2015-2017 Period — In February 2018, the Compensation Committee reviewed and subsequently certified the results for the performance shares granted to the named executive officers in 2015. Payout of shares under these performance share awards was subject to attaining specified adjusted returns on

equity over the three-year performance period commencing on January 1, 2015 and ending on December 31, 2017. The adjusted return on equity for such performance period was 13.7%, which resulted in the vesting of the performance shares at 112%.

Stock Options

All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally vests 100% three-years after the date of grant and has a maximum expiration date of ten years from the date of grant. Following a change of control, Mr. Schnitzer has been, and, beginning with respect to stock options granted in February 2017, other executive officers are,

entitled to accelerated vesting of their stock options under the corresponding situations, and for the same reasons, described above with respect to their performance shares.

Under the 2014 Stock Incentive Plan, stock options cannot be "repriced" unless such repricing is approved by our shareholders.

The Compensation Committee awarded stock options as follows:

Mr. Schnitzer — stock options with a grant date fair value of $3.28 million in February 2018 and $3.6 million in February 2017.

Messrs. Benet and Heyman — each stock options with a grant date fair value of $960,000 in February 2018 and $1.05 million in February 2017.

Mr. MacLean did not receive an award of stock options in 2018 due to his announced retirement. In lieu in such grant, the Company entered into a consulting agreement with Mr. MacLean as discussed below. Mr. MacLean was awarded stock options with a grant date fair value of approximately $1.3 million in February 2017.

Mr. Kess — stock options with a grant date fair value of $960,000 in February 2018.

Consulting Agreement

On February 13, 2018, the Company entered into a consulting agreement with Mr. MacLean. Under the terms of the consulting agreement, Mr. MacLean will provide strategic and other advice to the Company following his retirement on April 2, 2018

and through March 31, 2019 for a fee of $50,000 per month. As discussed above, the terms of the consulting agreement took into account the fact that Mr. MacLean did not receive an equity award for his 2017 performance.

Other Compensation

Pension Plans

We provide retirement benefits as part of a competitive pay package to retain employees. Specifically, we currently offer all of our U.S. employees a tax-qualified defined benefit plan with a cash-balance formula, with some grandfathered participants accruing benefits under a final average pay formula. Also, a number of employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash-balance formula,

each enrolled employee has a hypothetical account balance, which grows with interest and pay credits each year.

In addition, we sponsor a non-qualified excess benefit retirement plan that covers all U.S. employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up

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for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan. The purpose of this plan is to ensure that employees who receive retirement benefits only through the qualified

cash-balance plan and employees whose qualified plan benefit is limited by the Internal Revenue Code are treated substantially the same. The details of the existing plans are described more fully under "—Post-Employment Compensation—Pension Benefits for 2017" on page 52.

Deferred Compensation

In the United States, we offer a tax-qualified 401(k) plan to all of our employees and a non-qualified deferred compensation plan to employees who hold positions of vice president or above. Both plans are available to the named executive officers.

The non-qualified deferred compensation plan allows an eligible employee to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for

employees to save for retirement on a tax-deferred basis. The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.

For further details, see "—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2017" on page 55.

Other Benefits

We also provide other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives

related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Personal Security

We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by an outside security consultant. In accordance with the security policy, a Company car and driver or other ground transportation arrangements are provided to our CEO for business and personal travel. These ground transportation services provide security for our CEO and enable him to conduct business on behalf of the Company while in transit. The methodologies we use to value the personal use of a Company car and driver and other ground transportation arrangements as a perquisite are described in footnote (5) to the "Summary Compensation Table". In 2017, the aggregate incremental cost for personal use of a Company car and driver and other ground transportation provided pursuant to our security policy for our CEO was $22,320.

In accordance with the security policy, our CEO uses our aircraft for business and personal air travel. Use of our Company aircraft provides the necessary security for our CEO and enables him to be immediately available to respond to business priorities

from any location and to use his travel time productively for the Company's benefit. Our CEO reimburses the Company for personal travel on our aircraft in an amount equal to the incremental cost to the Company associated with such personal travel, provided that the amount does not exceed the maximum amount legally payable under FAA regulations, in which case our CEO reimburses such maximum amount.

Our CEO is responsible for all taxes due on any income imputed to him in connection with his personal use of Company-provided transportation.

In addition, under the security policy described above, we provide our CEO with additional home security enhancements and other protections. The methodology we use to value the incremental costs of providing additional home security enhancements and other protections to our CEO is the actual cost to us of the installation of home security and other equipment and any other incremental related expenses. In 2017, the aggregate incremental cost of security for our CEO was $35,621 as shown in footnote (5) to the "Summary Compensation Table".

Other Transportation on Company Aircraft

We also on occasion provide transportation on Company aircraft for spouses or others, although under SEC rules, such spousal or other travel may not always be considered to be directly and integrally related to our business. Consistent with past practice,

we only reimburse the named executive officers for any tax liabilities incurred with respect to travel by spouses or others if such travel is considered directly and integrally related to business.

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers.

Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.

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Compensation Comparison Group

Our Compensation Comparison Group includes:

our key competitors in the property and casualty insurance industry; and

general financial services and life and health insurance companies that in general are of relatively similar size and complexity. We regard these general financial services and life and health insurance companies as potential competition for executive talent.

The Compensation Comparison Group consisted of the following companies in the property and casualty insurance business:

Allstate Corporation

Chubb Ltd.

Hartford Financial Services Group

Progressive Corporation

The Compensation Comparison Group also included the following general financial services and life and health insurance companies:

Aetna, Inc.

American Express

CIGNA Corporation

Manulife Financial Corporation

MetLife Inc.

Prudential Financial Inc.

As of December 31, 2017, the Company was in approximately the 30th percentile of the Compensation Comparison Group based on assets, the 20th percentile based on revenues and the 20th percentile based on market capitalization.

The Compensation Comparison Group has not changed since 2009 (aside from the merger of Ace Ltd. and Chubb Corporation in January 2016); however, the Compensation Committee reviews the composition of our peer group annually to ensure that the companies constituting the peer group continue to provide meaningful and relevant compensation comparisons.

Non-Competition Agreements

All members of our Management Committee, including the named executive officers, have signed non-competition agreements. The agreements provide that, upon an executive's termination of employment, we may elect to, and in the event of Mr. Schnitzer's voluntary termination for "good reason" or involuntary termination without "cause" within the 24-month period following a change in control, we have elected to, impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other country where we are physically present and engaged in the property and casualty insurance business as of the executive's termination date.

If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:

receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six-months' base salary plus (2) 50% of the executive's average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive's average annual equity awards for the prior two years; and

reimbursement for the cost of continuing health benefits on similar economic terms as in place immediately prior to the executive's termination date during the six-month non-competition period or payment of an equivalent amount, payable at the end of the six-month restricted period.

Severance and Change in Control Agreements

All of our current senior executives, other than Mr. Schnitzer, are covered by our severance plan. Mr. Schnitzer's letter agreement, discussed at greater length below under "—Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control—Summary of Key Agreements" on page 59, contains severance benefits that are triggered under some circumstances, including some circumstances related to a change in control of the Company.

Each of our named executive officers, other than Mr. Schnitzer, has entered into an agreement with us pursuant to which the named

executive officer is granted enhanced severance benefits in exchange for agreeing to non-solicitation and non-disclosure provisions. Under the terms of such agreements, these named executive officers are eligible to receive a severance benefit if they are involuntarily terminated due to a reduction in force or for reasons other than "cause" or if they are asked to take a substantial demotion. The terms of these agreements, including a description of the severance package included in Mr. Kess's offer letter, are described more fully under "—Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control—Summary of Key Agreements" on page 59.

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In addition, based on the advice of its compensation consultant and consistent with market practice, the equity awards made in February 2018 and 2017, including those made to the named executive officers, provide for protection in the event of a voluntary termination for "good reason" or an involuntary termination without "cause" within 24 months of a change in control.

The Compensation Committee believes that these severance agreements and, in some circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. The Compensation Committee also believes that these severance and change in control programs allow our executives to focus on duties at hand

and provide security should their employment be terminated as a result of an involuntary termination without cause or a constructive discharge or following a change of control, as applicable. For these reasons, and based on advice of the Compensation Committee's independent compensation consultant, the Compensation Committee believes that these arrangements are appropriate and consistent with similar provisions agreed to by members of our Compensation Comparison Group and their executive officers.

None of the severance and change in control agreements with the named executive officers include excise tax gross-up protections.

Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions

We maintain an executive stock ownership policy under which executives are expected to accumulate and retain specified levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on an analysis of policies instituted at our peer competitors. Under the policy, the CEO has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary. Vice chairmen and executive vice presidents have target ownership levels established as the lesser of 30,000 shares or the equivalent value of 300% of base salary, and senior vice presidents have target ownership levels established as the lesser of 5,000 shares or the equivalent value of 100% of base salary. Executives who have not achieved these levels of stock ownership are expected to retain the shares acquired upon exercising stock options or upon the vesting of restricted stock, restricted stock units or performance shares (other than shares used to pay the exercise price of options and withholding taxes) until the requirements are met.

The stock ownership levels of all persons subject to this policy are calculated on a quarterly basis. In determining an executive's share ownership level, the following are included:

100% of shares held directly by the executive;

100% of shares held indirectly through our 401(k) Savings Plan or deferred compensation plan;

50% of unvested performance shares (assuming 100% of the performance shares will vest); and

a number of shares with a market value equal to 50% of any unrealized appreciation in stock options, whether vested or unvested.

As of December 31, 2017, each of our named executive officers was in compliance with our stock ownership policy.

We have a securities trading policy that sets forth guidelines and restrictions applicable to employees' and directors' transactions involving our stock. Among other things, this policy prohibits our employees and directors from engaging in short-term or speculative transactions involving our stock, including purchasing our stock on margin, short sales of our stock (that is, selling stock that is not owned and borrowing shares to make delivery), buying or selling puts, calls or other derivatives related to our stock and arbitrage trading or day trading of our stock. Directors and executive officers are not allowed to pledge Company stock without the consent of the Company, and no shares beneficially owned by them are pledged.

Recapture/Forfeiture Provisions

Our Board has adopted a policy requiring the reimbursement and/or cancellation of all or a portion of any incentive cash bonus or stock-based incentive compensation awarded after February 1, 2010 to members of our Management Committee or other officers who are subject to Section 16 of the Exchange Act when the Compensation Committee has determined that all of the following factors are present:

the award and/or payout of an award was predicated upon the achievement of financial results that were subsequently the subject of a restatement;

the employee engaged in fraud or willful misconduct that was a significant contributing factor in causing the restatement; and
a lower award and/or payout of an award would have been made to the employee based upon the restated financial results.

Incentive compensation is granted subject to the policy that, in each such instance described above, the Company will, to the extent permitted by applicable law and subject to the discretion and approval of the Compensation Committee, taking into account such facts and circumstances as it deems appropriate, including the costs and benefits of doing so, seek to recover the employee's cash bonus and/or stock-based incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. If the Compensation Committee determines, however, that, after recovery of an excess amount

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Executive Compensation | Compensation Discussion and Analysis

from an employee, the employee is nonetheless unjustly enriched, it may seek recovery of more than such excess amount up to the entire amount of the bonus or other incentive compensation.

In addition, under the terms of our executive equity award agreements, in the event that the employment of an executive, including the named executive officers, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon his or her termination.

Further, in connection with equity awards, the named executive officers and other recipients of equity awards are parties to an agreement that provides for the forfeiture of unexercised or unvested awards and the recapture by us of any compensatory value, including any amount included as compensation in his or her taxable income, that the former executive received or realized by way of payment, exercise or vesting during the

period beginning 12 months prior to the date of termination of employment with us, and ending 12 months after the date of the termination of employment with us, if during the 12-month period following his or her termination, the executive:

fails to keep all confidential information strictly confidential;

uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of ours to discontinue business with us after accepting a position with a direct competitor;

is directly and personally involved in the negotiation or solicitation of the transfer of business away from us; or

solicits, hires or otherwise attempts to affect the employment of any person employed by us at any time during the last three months of the executive's employment or thereafter, without our consent.

Timing and Pricing of Equity Grants

The Compensation Committee typically makes annual awards of equity at its meeting held in early February, which is set in advance as part of the Board's annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us. Under our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the next succeeding 15th day of the calendar month (or if the 15th is not a business day, the business day immediately preceding the 15th), or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of stock option grants is the closing market price of our common stock on the date of grant.

As discussed under "Governance of Your Company—Committees of the Board and Meetings—Compensation Committee" on page 11, the Compensation Committee has delegated to the CEO, subject to the prior written consent of our Executive Vice President and General Counsel, the authority to make limited "off-cycle" grants to employees who are not Committee Approved Officers on the grant dates established by our Governance Guidelines. For these grants, as discussed above, the grant date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.

Under the 2014 Stock Incentive Plan, stock options cannot be "repriced" unless such repricing is approved by our shareholders. See "Governance of Your Company—Dating and Pricing of Equity Grants" on page 18.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

Shareholder Engagement

Management has had numerous conversations with investors about compensation and governance practices, and management has reported on those conversations to the Compensation Committee. Specifically, during 2017, management contacted our largest shareholders and received feedback from beneficial owners of shares aggregating over 39% of our outstanding shares in which shareholders were generally supportive of our compensation program. After considering our conversations with investors and the results of the shareholder

advisory vote on executive compensation in 2017, pursuant to which more than 93% of the shares voting "FOR" or "AGAINST" at the meeting voted in favor of the compensation paid to our named executive officers, the Compensation Committee concluded that our executive compensation programs are performing as intended and, consistent with the advice of its independent compensation consultant, determined not to make changes to the core structure of our executive compensation programs.

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Executive Compensation | Compensation Committee Report

Total Direct Compensation for 2015-2017 (Supplemental Table)

The following table shows the base salary actually earned during each of the last three years as well as annual cash bonuses paid and equity awards granted to our named executive officers in February in respect of the immediately preceding performance year. Mr. Kess's compensation for 2016 is not included in the following table because his employment with the Company did

not commence until December 30, 2016. Accordingly, his 2016 compensation was primarily related to his recruitment to the Company and the forfeiture of his pension arrangements resulting from his relinquishment of his prior partnership interest, and accordingly is not meaningful for comparative purposes.

Name and
Principal Position

  Year
  Salary
($)

  Bonus
($)

  Equity
Awards
($)

  Total
($)

  Increase
(Decrease)
from
Prior Year
(%)

Alan D. Schnitzer   2017   1,000,000   4,700,000   8,200,000   13,900,000   (9)

Chairman and

  2016   1,000,000   5,200,000   9,000,000   15,200,000   67

Chief Executive Officer

  2015   853,448   3,250,000   5,000,000   9,103,448   43
Jay S. Benet   2017     850,000     2,550,000     2,400,000     5,800,000   (7)

Vice Chairman and

  2016     825,096     2,775,000     2,625,000     6,225,096   (2)

Chief Financial Officer

  2015     750,000     3,000,000     2,625,000     6,375,000   (3)
Brian W. MacLean   2017   975,000   3,400,000   (1) 4,375,000   N/A(1)

President and

  2016   962,548   3,700,000   3,237,500   7,900,048   (20)

Chief Operating Officer

  2015   925,000   4,000,000   5,000,000   9,925,000   22
William H. Heyman   2017     850,000     2,800,000     2,400,000     6,050,000   (7)

Vice Chairman and

  2016     825,096     3,050,000     2,625,000     6,500,096   (3)

Chief Investment Officer

  2015     750,000     3,300,000     2,625,000     6,675,000   (3)
A.J. Kess   2017   850,000   2,500,000   2,400,000   5,750,000   N/A

Vice Chairman and

                       

Chief Legal Officer

                       
(1)
Mr. MacLean did not receive equity awards in 2018 due to his announced retirement. In lieu of such grants, the Company entered into a consulting agreement with Mr. MacLean as discussed above under "Consulting Agreement".

The Purpose Behind This Supplemental Table

This Supplemental Table has been included to provide investors with additional compensation information for the last three performance years. As part of reaching its compensation decisions for a performance year, the Compensation Committee refers to this data. Accordingly, this supplemental information enables investors to better understand the actions of

the Compensation Committee with respect to total direct compensation for a performance year. This Supplemental Table is not, however, intended to be a substitute for the information provided in the "Summary Compensation Table" on page 47, which has been prepared in accordance with the SEC's disclosure rules.

The Differences Between this Supplemental Table and the Summary Compensation Table

The information contained in this Supplemental Table differs substantially from the total direct compensation information contained in the "Summary Compensation Table" for the relevant year because the stock awards and option awards columns for a particular year in the Summary Compensation Table on page 47 report awards actually granted in that fiscal year (not equity awards granted in respect of that performance year). For example, for 2017, the "Summary

Compensation Table" on page 47 includes awards made in February 2017 in respect of the 2016 performance year, but does not include awards made in February 2018 in respect of the 2017 performance year. On the other hand, the "2017" rows in the Supplemental Table presented above include stock-based grants made in February 2018 in respect of the 2017 performance year and not the stock-based grants made in February 2017 in respect of the 2016 performance year.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has discussed and reviewed the foregoing "Compensation Discussion and Analysis" with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Company's Board of Directors:

Donald J. Shepard (Chair)
Janet M. Dolan
Kenneth M. Duberstein
  Cleve L. Killingsworth Jr.
Clarence Otis Jr.
Philip T. Ruegger III

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Executive Compensation | Summary Compensation Table

SUMMARY COMPENSATION TABLE

The following table provides summary information concerning compensation paid or accrued by us to our Chairman and Chief Executive Officer, our Vice Chairman and Chief Financial Officer and each of our three other most highly compensated executive officers who served in such capacities at December 31, 2017. We refer to these individuals collectively as the "named executive officers".

Name and
Principal Position

Year
Salary
($)

Bonus
($)

Stock
Awards(1)
($)

Option
Awards(2)
($)

Non-Equity
Incentive Plan
Compensation(3)
($)

Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings(4)
($)

All Other
Compensation(5)
($)

Total
($)

 
Alan D. Schnitzer 2017 1,000,000 5,399,976 3,599,987 4,700,000 455,777 78,019 15,233,759  

Chairman and

2016 1,000,000 3,000,013 2,000,015 5,200,000 280,194 77,897 11,558,119  

Chief Executive Officer

2015 853,448 1,575,012 1,049,991 3,250,000 146,295 70,205 6,944,951  
Jay S. Benet 2017 850,000 1,575,023 1,050,000 2,550,000 359,320 6,702 6,391,045  

Vice Chairman and

2016 825,096 1,574,970 1,050,005 2,775,000 365,569 9,722 6,600,362  

Chief Financial Officer

2015 750,000 1,575,012 1,049,991 3,000,000 332,979 6,000 6,713,982  
Brian W. MacLean 2017 975,000 1,942,528 1,295,004 3,400,000 464,903 10,632 8,088,067  

President and

2016 962,548 3,000,013 2,000,015 3,700,000 467,342 13,335 10,143,253  

Chief Operating Officer

2015 925,000 1,942,547 1,294,992 4,000,000 396,461 13,673 8,572,673  
William H. Heyman 2017 850,000 1,575,023 1,050,000 2,800,000 363,243 6,500 6,644,766  

Vice Chairman and

2016 825,096 1,574,970 1,050,005 3,050,000 361,806 7,929 6,869,806  

Chief Investment Officer

2015 750,000 1,575,012 1,049,991 3,300,000 355,060 6,000 7,036,063  
Avrohom J. Kess(6) 2017 850,000 1,539,954 1,019,992 2,500,000 11,500 5,921,446  

Vice Chairman and

2016 3,257 500,000 3,000,025 499,892 4,711,730 8,714,904  

Chief Legal Officer

 
(1)
The dollar amounts represent the aggregate grant date fair value of stock awards granted during each of the years presented. The grant date fair value of an award is measured in accordance with FASB ASC Topic 718 using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2017 included in the Company's Annual Report on Form 10-K filed with the SEC on February 15, 2018 (the "Form 10-K"), without taking into account estimated forfeitures. Stock awards for 2016 for Messrs. MacLean and Kess include restricted stock units with grant date fair values of $1,057,543 and $3,000,025, respectively, and stock awards for 2017 for Mr. Kess include restricted stock units with a grant date fair value of $9,949. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded. Assuming the highest level of performance is achieved (which would result in the vesting of 150% of the performance shares granted), the aggregate grant date fair value of the performance shares reflected in the table above would be:
Name
2017
2016
2015

Alan D. Schnitzer

$8,099,965 $4,500,019 $2,362,571

Jay S. Benet

$ 2,362,534 $2,362,454 $2,362,571

Brian W. MacLean

$ 2,913,792 $2,913,704 $2,913,873

William H. Heyman

$ 2,362,534 $2,362,454 $2,362,571

Avrohom J. Kess

$2,295,067
(2)
The dollar amounts represent the aggregate grant date fair value of stock option awards granted during each of the years presented. The grant date fair value of a stock option award is measured in accordance with FASB ASC Topic 718 using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2017 included in the Company's Form 10-K, without taking into account estimated forfeitures. For a discussion of specific stock option awards granted during 2017, see "Grants of Plan-Based Awards in 2017" below and the narrative discussion that follows.

(3)
Reflects annual cash incentive compensation paid in 2018 for performance year 2017, cash incentive compensation paid in 2017 for performance year 2016 and cash incentive compensation paid in 2016 for performance year 2015, respectively. For a discussion of the Company's Senior Executive Performance Plan, see "Compensation Discussion and Analysis—Total Direct Compensation—Annual Cash Bonus".

(4)
These amounts represent the aggregate change in actuarial present value of accumulated pension benefits for each of the years presented, using the same pension plan measurement date used for financial statement reporting purposes. We do not provide any of our executives with any above-market or preferential earnings on non-qualified deferred compensation. For additional information about pension benefits, see "Post-Employment Compensation—Pension Benefits for 2017" below.

(5)
For 2017, "All Other Compensation" for Mr. Schnitzer includes $22,320 for personal use of a Company car and driver and other ground transportation arrangements, calculated as described below, and $35,621 of personal security expenses incurred on his behalf pursuant to the Company's executive security program.

Pursuant to our security policy, in 2017, we provided a car and driver or other ground transportation arrangements to Mr. Schnitzer for business and personal travel. We calculated the incremental cost to us for the personal use of any Company car and driver (including commuting and business travel not considered directly and integrally related to the performance of the executive's duties) based on the operating costs, such as fuel and maintenance, related to such travel. Compensation and benefits for the employee drivers are not included in the calculation of incremental cost because the employee drivers are members of our security staff and, consistent with our executive security policy, we would have otherwise incurred such costs for business purposes, whether or not the driver was available to Mr. Schnitzer for personal travel. The incremental costs of personal trips using other ground transportation arrangements, such as car services, are valued at the actual cost to us.

Mr. Schnitzer uses Company aircraft for business and personal air travel in accordance with our security policy. Mr. Schnitzer reimburses the Company for personal travel on Company aircraft in an amount equal to the incremental cost to the Company associated with such travel up to the maximum amount legally payable under FAA regulations. Incremental cost in excess of the amount legally payable under FAA regulations in the amount of $9,155 is included in "All Other Compensation" for 2017.

Executive Compensation | Grants of Plan-Based Awards in 2017

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Executive Compensation | Grants of Plan-Based Awards in 2017

(6)
In connection with the commencement of his employment with the Company in December 2016, Mr. Kess was awarded a $500,000 cash bonus. Performance-based annual cash bonuses are reported in the "Non-Equity Incentive Plan Compensation" column.

GRANTS OF PLAN-BASED AWARDS IN 2017

The following table provides information on stock awards and stock options granted in 2017 to each of our named executive officers.

      Estimated
Future
Payouts
Under
Non-Equity
Incentive Plan
Awards
  Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
  All Other
Stock
Awards –
Number of
Shares of
Stock or
  All Other
Option Awards:
Number of
Securities
Underlying
  Exercise
or
Base
Price
of Option
    Grant Date
Fair Value
of Stock and
Option
 

Name

  Grant Date   Target(1)
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
  Units(3)
(#)
  Options(4)
(#)
  Awards
($/Sh)
    Awards(5)
($)
 

A.D. Schnitzer

  2/09/2017     22,731   45,462   68,193         5,399,976  

  2/09/2017