Toggle SGML Header (+)


Section 1: PRE 14A (PRE 14A)

rli_Proxy_Statement

Table of Contents

Schedule 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.    )

 

Filed by the Registrant ☒

Filed by a party other than the Registrant ☐

 

Check the appropriate box:

☒    Preliminary Proxy Statement

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

☐    Definitive Proxy Statement

☐    Definitive Additional Materials

☐    Soliciting Material Pursuant to Section 24 0.14a-12

 

 

RLI CORP.

...................................................................................................................................................................................

 

(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):

 

☒    No fee required

 

☐    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:

 

☐    Fee paid previously with preliminary materials.

 

☐    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

 

 

 

New Microsoft Word Document_front.gif

RLI CORP. NOTICE OF 2020 ANNUAL MEETING AND PROXY STATEMENT

 

 

 

 

 

    

Table of Contents

 

Picture 2

9025 N. LINDBERGH DRIVE • PEORIA, IL 61615

PHONE: 309-692-1000 • FAX: 309-692-1068

WWW.RLICORP.COM

PRELIMINARY – SUBJECT TO COMPLETION – MARCH 5, 2020

 

RLI Corp.

9025 N. Lindbergh Drive

Peoria, Illinois 61615

 

March [26], 2020

 

Dear Fellow Shareholders:

 

Please consider this letter your personal invitation to attend the 2020 RLI Corp. Annual Shareholders Meeting. It will be held at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614, on May 7, 2020, at 2 p.m. CDT.

 

Business scheduled to be considered at the meeting includes the election of Directors,  an amendment to increase the authorized shares of Common Stock of the Company, an advisory vote on our executive compensation, and ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the current year. In addition, we will review significant events of 2019 and their impact on you and the Company.

 

Again, this year we are furnishing our proxy materials via the Internet. Shareholders will receive a mailed notice card with instructions on how to view our proxy materials over the Internet and other information.

 

Thank you for your interest in RLI as well as your confidence in, and support of, our future.

 

Sincerely,

 

 

 

Jonathan E. Michael

Chairman & Chief Executive Officer

    

Table of Contents

 

 

Picture 8

RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615


Notice of Annual Meeting of Shareholders

May 7, 2020


PRELIMINARY – SUBJECT TO COMPLETION – DATED MARCH 5, 2020

To the Shareholders of RLI Corp.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of RLI Corp. (“Company”) will be held at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614, on Thursday, May 7, 2020, at 2 p.m. Central Daylight Time for the following purposes:

1.

to elect as Directors the eleven (11) nominees named in the attached proxy statement for a one-year term expiring at the 2021 Annual Meeting of Shareholders;

2.

to approve the amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the total number of shares of Common Stock that the Company is authorized to issue from 100,000,000 to 200,000,000;

3.

to hold an advisory vote to approve executive compensation (the “Say-on-Pay” vote);

4.

to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for the current year; and

5.

to transact such other business as may properly be brought before the meeting.

Only holders of Common Stock of the Company of record at the close of business on March 9, 2020, are entitled to notice of and to vote at the Annual Meeting.

 

By Order of the Board of Directors

 

 

 

 

 

Jeffrey D. Fick

 

Sr. Vice President, Chief Legal Officer & Corporate Secretary

 

Peoria, Illinois

March [26], 2020

It is important, regardless of the number of shares you hold, that you personally be present or be represented by proxy at the Annual Meeting. Even if you expect to attend, we encourage you to promptly submit your proxy by any method described below to ensure your vote is counted:

·

By Internet: submit your proxy over the Internet in accordance with the instructions provided on your proxy card or Notice of Internet Availability of Proxy Materials;

·

By Phone: submit your proxy by telephone, toll-free, in accordance with the instructions provided on your proxy card, or

·

By Mail: if you received your proxy card by mail, complete the proxy card and sign, date and return it as promptly as possible.

You have the right to revoke your proxy at any time prior to the Annual Meeting by filing a written notice of revocation with the Corporate Secretary of the Company prior to the convening of the Annual Meeting, or by submitting another proxy card with a later date or voting by telephone or over the Internet at a later date. If you attend the Annual Meeting and desire to vote in person, your proxy may be withdrawn upon request.

 

 

 

Table of Contents

Table of Contents

 

Proxy summary

4

 

 

General Information 

8

Voting and Quorum 

8

Votes Required to Approve the Proposals 

9

Shareholders Entitled to Vote 

9

Attending the Annual Meeting 

10

Proxy Solicitation 

10

Electronic Access to Proxy Materials and Annual Report to Shareholders 

10

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

11

Principal Shareholders 

11

Directors and Officers 

12

Proposal One Election of Directors 

13

General 

13

Nominees 

13

Director Nominee Information 

14

Corporate Governance and Board Matters

19

Corporate Governance Principles 

19

Director Independence 

19

Board Independence Status 

21

Director Evaluation Process 

22

Director Nominations 

22

Code of Conduct 

23

Hedging and Pledging Policy 

23

Shareholder and Interested Parties Communications 

24

Company Policy on Related Party Transactions 

24

Certain Relationships and Related Party Transactions 

24

Board’s ROLE IN RISK OVERSIGHT 

25

Committees of the Board of Directors 

26

Committee Membership 

26

Audit Committee 

26

Executive Resources Committee 

27

Finance and Investment Committee 

28

Nominating/Corporate Governance Committee 

28

Strategy Committee 

28

Board Meetings and Compensation 

28

Meetings 

28

2019 Director Compensation 

29

Nonemployee Director Deferred Compensation Plan 

30

Director Share Ownership 

30

Board Leadership Structure 

30

PROPOSAL TWO APPROVE THE AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK 

31

General 

31

Increase in Authorized Shares of Common Stock 

31

Anti-Takeover Effects of the Proposed Amendment to Increase Authorized Shares of Common Stock 

32

Additional Effects of the Share Increase 

32

Recommendation of the Board of Directors 

32

PROPOSAL THREE NON-BINDING, ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS 

33

Executive Management 

34

Information about our Executive Officers 

34

Executive Resources Committee Report 

34

Members of the Executive Resources Committee 

34

Compensation Discussion & Analysis 

35

Introduction 

35

Executive Summary 

35

Key Attributes of RLI Executive Compensation 

36

HOW THE ERC OPERATES 

36

ERC Responsibilities

36

ERC Meetings 

36

Response to 2019 Say-on-Pay Vote 

37

Input From Management 

37

Compensation Consultant 

37

Market Data 

37

OVERVIEW OF RLI EXECUTIVE COMPENSATION 

37

Objectives 

38

Elements of Company Executive Compensation 

39

Balance of Short-Term and Long-Term Compensation 

39

Market Value Potential Incentive Program — General 

40

Annual Compensation 

41

Base Salary 

41

Market Value Potential Executive Incentive Program —Annual Incentive Compensation Component 

42

Management Incentive Program 

42

Long-Term Compensation 

44

Market Value Potential Executive Incentive Program —Long-Term Incentive Compensation Component and Forfeiture Provisions (Clawback) 

44

Long-Term Incentive Plans 

46

Employee Stock Ownership Plan 

47

401(k) Plan 

47

Deferred Compensation Plan 

47

Key Employee Excess Benefit Plan 

48

Elements of Post-Termination Compensation and Benefits 

54

Stock Ownership/Retention Guideline 

48

Executive Compensation 

48

2019 Summary Compensation Table 

48

2019 Grants of Plan-Based Awards 

51

2019 Outstanding Equity Awards at Fiscal Year-end 

52

2019 Option Exercises and Stock Vested 

53

2019 Non-qualified Deferred Compensation 

53

Elements of Post-Termination Compensation and Benefits 

54

RATIO OF CEO TO MEDIAN EMPLOYEE TOTAL COMPENSATION 

56

SAFEGUARDS AGAINST UNNECESSARY OR EXCESSIVe compensation risk 

56

Senior Management Compensation 

57

Underwriting Compensation 

57

Investment Practices 

58

Employee and Executive Equity Ownership 

58

Equity Compensation Plan Information 

59

PROPOSAL FOUR RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

60

Audit Committee Report 

61

Members of the Audit Committee 

63

FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

63

Shareholder Proposals 

63

Other Business 

64

Investor Information 

65

Annual Shareholders Meeting

65

Internet Voting 

65

Shareholder Inquiries 

65

Direct Stock Purchase & Dividend Reinvestment Plan 

65

Requests for Additional Information 

65

Multiple Shareholders Having the Same Address 

65

Contacting RLI 

66

RLI on the Web 

66

ANNEX A 

67

 

 

RLI Corp. 2020 Proxy Statement    |    1

 

Table of Contents

Proxy Summary

This Proxy Statement Summary (“Summary”) highlights information contained elsewhere in this Proxy Statement.  This Summary does not contain all of the information you should consider, so please read the entire Proxy Statement carefully before voting.  For more information regarding our 2019 performance, please review the Annual Report on Form 10-K for the year ended December 31, 2019, a copy of which is available at the Investors section of our website at www.rlicorp.com.  

MATTERS TO BE VOTED ON:

The following is a summary of the proposals to be voted on at the Annual Meeting and the Board’s voting recommendations with respect to each proposal:

 

 

 

 

 

Board

 

 

Recommendation

Page

PROPOSAL 1: Election of Directors

FOR

13

PROPOSAL 2: Approve the Amendment to the Company’s Amended and Restated Certificate of Incorporation Increasing the Number of Authorized Shares of Common Stock of the Company

FOR

31

PROPOSAL 3: Non-Binding, Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

FOR

33

PROPOSAL 4: Ratification of the Selection of Independent Registered Public Accounting Firm

FOR

60

 

CORPORATE GOVERNANCE HIGHLIGHTS:

·

Annual election of Directors

·

10 of our 11 Director nominees are independent

·

Five new independent Directors in the last four years

·

Comprehensive Code of Conduct that applies to all employees and Directors

·

Executive sessions of independent Directors conducted at regularly scheduled board meeting

·

Independent Lead Director position empowered with broad responsibilities and significant governance duties

·

Oversight of executive succession planning by the Executive Resources Committee of the Board

·

Directors elected by majority vote

·

Regular Board, Committee, and Director Evaluations

·

Ethics and corporate compliance program and anonymous whistleblower hotline

·

Stock ownership guidelines for Directors and Officers

 

 

 

 

 

 

2    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

 

 

COMPANY HIGHLIGHTS

OUR HISTORY:

RLI is a specialty insurance company with more than 50 years of experience serving diverse niche, property, casualty and surety markets.

Picture 29

 

 

OUR PRODUCTS:

Product diversification has fueled our growth & financial success

Picture 37

RLI Corp. 2020 Proxy Statement    |    3

 

Table of Contents

 

 

 

 

OUR BUSINESS MODEL:

RLI is a domestic, specialty insurance company that does its own underwriting.

Picture 30

Underwriting Company

Picture 33

Ownership Culture & Compensation

Picture 35

Diversified Insurance Product Portfolio

Picture 36

Growth by Design

We hire experienced,

entrepreneurial

underwriters

Underwriter

compensation is

tied directly to

underwriting profit

Our products are run as

stand-alone businesses

Organic product growth

We focus on difficult

markets that require

unique expertise

Picture 34

Diversification reduces

corporate risk

Talent acquisition & start-ups

Strong feedback loop

between underwriting

and claims

90% Institutions &

other public investors

Products are convenient and tailored to fill a void in the market

Acquisitions

10% Insiders & ESOP

 

 

 

 

 

OUR STRATEGY:

From our niche product offerings to our business model, our culture to our results — we’re different.

We aspire to:

Be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth.

Remain a destination for talented, entrepreneurial underwriters with ‘narrow & deep’ expertise.

Seek out difficult markets while maintaining a highly diverse product portfolio.

Emphasize profit maximization and enhance our ability to grow over the long term, with a focus on organic opportunities and acquisitions that preserve the unique culture that has made RLI successful.

 

4    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

2019 FINANCIAL PERFORMANCE:

 

 

 

 

 

 

 

Gross Premiums Written (in millions)

$1,065.0

Compared to $983.2 million in the previous year

 

Comprehensive Earnings (in millions)

$258.7

Compared to $30.1 million in the previous year

Combined Ratio (non-GAAP)*

91.9

24th consecutive year below 100

 

Net Cash Flow from Operations (in millions)

$276.9

Highest in Company history

Regular Dividend / Special Dividend

$0.91 / $1.00

44 years of paying and increasing regular dividends

 

Book Value per Share

$22.18

33% increase year over year, inclusive of dividends

 

FINANCIAL STRENGTH:

 

 

 

 

(Superior)

 

 

(Strong)

 

A.M. Best 

A+ (Superior)

 

Standard & Poor’s

A+ (Strong)

Moody’s

A2 (Good)

 

Ward’s 50® Top P&C Performer

29 Consecutive Years

One of three companies named every year since inception

 

 

 

 

*  For more information regarding the Combined Ratio, please refer to the information under the header “GAAP, NON-GAAP AND PERFORMANCE MEASURES” in Part II, Item 7, of Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2019 filed with the SEC on February 21, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

RLI Corp. 2020 Proxy Statement    |    5

 

Table of Contents

RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615

PROXY STATEMENT

Annual Meeting of Shareholders to be held May 7, 2020

GENERAL INFORMATION

This Proxy Statement is furnished to the shareholders of RLI Corp., a Delaware corporation (“Company”), in connection with the solicitation by the Board of Directors of the Company (“Board” or “Board of Directors”), of proxies to be used at the Annual Meeting of Shareholders (“Annual Meeting”) to be held at 2 p.m. Central Daylight Time on Thursday, May 7, 2020, at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois, 61614, and at any adjournments or postponements of the Annual Meeting.

 

This year, we are pleased to again be taking advantage of a Securities and Exchange Commission (“SEC”) rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to our shareholders a Notice of Internet Availability of Proxy Materials (“E-Proxy Notice”) instead of a paper copy of the proxy materials. The E-Proxy Notice contains instructions that will enable shareholders receiving the E-Proxy Notice to access these materials over the Internet and, if so desired, to request a paper copy of these proxy materials by mail. Shareholders who do not receive the E-Proxy Notice will receive a paper copy of the proxy materials by mail. The Company intends to mail the E-Proxy Notice to shareholders on or about March __, 2020.

 

VOTING AND QUORUM

 

Because many shareholders cannot attend the Annual Meeting in person, it is necessary that a large number of our voting shares be represented at the Annual Meeting by proxy to achieve a quorum. Pursuant to the Company’s Bylaws, at least a majority in voting power of the stock issued and outstanding and entitled to vote must be present (in person or by proxy) at the Annual Meeting to conduct the meeting, which is known as a “quorum” of shares. Even if you expect to attend, we encourage you to promptly submit your proxy by any method described below to ensure your vote is counted.

 

Whether you hold your shares directly as the shareholder of record or through a broker, trustee, or other nominee (“in street name”), you may vote by proxy without attending the Annual Meeting in three different ways:

 

·

Internet: Shareholders may submit their proxy over the Internet by following the instructions provided on the proxy card or on the E-Proxy Notice. Shareholders will need to have the control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy over the Internet.

 

·

Telephone: Shareholders may submit their proxy by telephone, toll-free, by following the instructions provided on the proxy card or on the E-Proxy Notice. Shareholders will need to have the control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy by telephone.

 

·

Mail: Shareholders who receive a paper copy of a proxy card by mail may submit their proxy by signing, dating and returning the proxy card as promptly as possible in the envelope enclosed for that purpose.

 

If you submit your proxy by telephone or over the Internet, you do not need to also submit a proxy card, although you may do so as one method of changing your vote as described below. The method of voting will not limit a shareholder’s right to attend the Annual Meeting. You may also vote in person at the Annual Meeting.  Attending the Annual Meeting will not in and of itself revoke a proxy.

6    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

Each proxy will be voted in accordance with the shareholder’s specifications. If you return a signed proxy card without providing voting instructions or do not designate a voting preference when using the other methods, your shares will be voted as recommended by the Board of Directors, except that if your shares are held in the Company’s Employee Stock Ownership Plan (“ESOP”) and no vote is received for those shares, the Trustee (as defined herein) of the ESOP will vote such shares in proportion to other ESOP votes cast, as further explained in note 1 on page 11. All proxies delivered pursuant to this solicitation are revocable at any time prior to the meeting at the option of the shareholder either by giving written notice to the Corporate Secretary at 9025 North Lindbergh Drive, Peoria, Illinois, 61615, or by timely delivery of a properly completed proxy, whether by proxy card or by Internet or telephone vote, bearing a later date, or by voting in person at the Annual Meeting. All shares represented by valid, unrevoked proxies will be voted at the Annual Meeting.

 

VOTES REQUIRED TO APPROVE THE PROPOSALS

 

The election of directors (Proposal One) requires the affirmative vote of a majority of the votes cast with respect to each director to be elected. Shareholders may vote “For,” “Against” or “Abstain” with regard to each nominee. Abstentions are deemed present at the meeting and thus will be counted for quorum purposes but will have no effect on the vote with regard to each nominiee.

 

The proposal to approve the amendment to the Company’s Amended and Restated Certificate of Incorporation increasing the number of authorized shares of Common Stock of the Company (Proposal Two) requires the affirmative vote of a majority of the outstanding shares of our common stock to be approved. Shareholders may vote “For,” “Against” or “Abstain” on this proposal. Abstentions will have the same effect as a vote “Against” Proposal Two.

 

The “Say-on-Pay” vote (Proposal Three) and the proposal to ratify the selection of Deloitte & Touche LLP as the Company’s independent accounting firm (Proposal Four) require the affirmative vote of a majority of the votes cast to be approved. Shareholders may vote “For,” “Against” or “Abstain” on these proposals. Abstentions are deemed present at the meeting, and thus will be counted for quorum purposes, but will have no impact on the vote on Proposals Three and Four.

 

Brokers who hold shares for the accounts of their clients “in street name” may vote such shares either as directed by their clients or at their own discretion if permitted by the New York Stock Exchange (“NYSE”) and other organizations of which they are members. If an executed proxy is returned by a broker on behalf of its client that indicates the broker does not have discretionary authority as to certain shares to vote on one or more matters, such shares will be considered present at the Annual Meeting for purposes of determining a quorum, but are not considered entitled to vote on any matter for which the broker does not have discretionary authority. These are referred to as “broker non-votes.” Broker non-votes will not have any effect on the voting results of the proposals being voted upon at the meeting. If your broker holds your shares “in street name” and you do not instruct your broker how to vote, your broker will have discretion authority to vote your shares on “routine” matters, such as Proposal Four, the ratification of the selection of the Company’s independent public accounting firm, but will not have authority to vote your shares on the other proposals described in this Proxy Statement. Therefore, it is important that you provide your broker with voting instructions on all proposals. If your shares are held by your broker “in street name,” you will receive a voting instruction form from your broker or the broker’s agent asking you how your shares should be voted. Please complete the form and return it as instructed by the broker or agent.

 

SHAREHOLDERS ENTITLED TO VOTE

 

Shareholders of record at the close of business on March 9, 2020, the record date, shall be entitled to vote at the 2020 Annual Meeting. As of the record date, the Company had ________  shares of Common Stock outstanding and entitled to vote. Common share ownership entitles the holder to one vote per share upon each matter to be voted at the 2020 Annual Meeting.

RLI Corp. 2020 Proxy Statement    |    7

 

Table of Contents

ATTENDING THE ANNUAL MEETING

 

All shareholders as of the record date may come to the Annual Meeting and may vote in person by obtaining and submitting a ballot that will be available at the Annual Meeting. However, if your shares are held in street name by a broker or other nominee, then, in order to be able to vote at the Annual Meeting, you must obtain an executed proxy from the broker or nominee indicating that you were the beneficial owner of the shares on March 9, 2020, the record date for voting, and that the broker or nominee is giving you its proxy to vote the shares.

 

If your shares are held in the ESOP, you will not be able to vote your shares at the Annual Meeting.

 

Shareholders who plan to attend the Annual Meeting must present valid, government-issued photo identification along with evidence of beneficial ownership.

 

PROXY SOLICITATION

 

The Company will bear the cost of proxy solicitation. In addition to the use of the mail, proxies may be solicited in person or by telephone, facsimile or other electronic means, by Directors, officers or employees of the Company. No additional compensation will be paid to such persons for their services. In accordance with the regulations of the SEC and the NYSE, the Company will reimburse banks, brokerage firms, investment advisors and other custodians, nominees, fiduciaries and service bureaus for their reasonable out-of-pocket expenses for forwarding soliciting material to beneficial owners of the Company’s Common Stock and obtaining their proxies or voting instructions.

 

ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT TO SHAREHOLDERS

 

This Notice of 2020 Annual Meeting and Proxy Statement and the Company’s 2019 Annual Report to Shareholders are available on the Company’s website at www.rlicorp.com and at www.proxyvote.com.

8    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

PRINCIPAL SHAREHOLDERS

 

The following table includes persons or entities known to the Company who beneficially own more than 5 percent of the Company’s Common Stock as of December 31, 2019:

 

 

 

 

 

 

 

 

Name and Address

 

Number of Shares

 

Percent of Outstanding

 

 

of Beneficial Owner

    

Beneficially Owned

    

Common Stock

 

 

State Street Corporation(1)

 

5,025,232

 

11.21%

 

 

State Street Financial Center

 

 

 

 

 

 

One Lincoln Street

 

 

 

 

 

 

Boston, Massachusetts 02111

 

 

 

 

 

 

 

 

 

 

 

 

 

BlackRock, Inc.(2)

 

4,660,843

 

10.40%

 

 

55 East 52nd Street

 

 

 

 

 

 

New York, New York 10055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Vanguard Group, Inc. (3)

 

4,531,071

 

10.10%

 

 

100 Vanguard Boulevard

 

 

 

 

 

 

Malvern, Pennsylvania 19355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The information shown is based solely on a Schedule 13G dated February 14, 2020, filed with the SEC by State Street Corporation (“State Street”). According to the Schedule 13G, as of December 31, 2019, State Street Bank and Trust Company (“Trustee”), a subsidiary of State Street, in its capacity as trustee of the ESOP, held 3,751,061 shares on behalf of participants in such plan. State Street further disclosed no sole voting or sole dispositive power with respect to any shares beneficially held, shared voting with respect to 4,858,145 shares, and shared dispositive power with respect to 5,025,232 shares. Each ESOP participant or beneficiary may direct the Trustee as to the manner in which the shares allocated to each participant under the ESOP are to be voted. The Trustee has sole voting power with respect to all unallocated shares and sole investment power as to all allocated and unallocated shares. With respect to allocated shares for which no votes are received, the Trustee will vote such shares in proportion to the votes cast on behalf of allocated shares for which votes are received.

 

(2)

The information shown is based solely on a Schedule 13G dated February 4, 2020, filed with the SEC by BlackRock, Inc. (“BlackRock”). According to the Schedule 13G, as of December 31, 2019, BlackRock is the beneficial owner of 4,660,843 shares, has sole voting power with respect to 4,591,609 shares, sole dispositive power with respect to 4,660,843 shares and no shared voting or shared dispositive power with respect to any shares beneficially held.

 

(3)

The information shown is based solely on a Schedule 13G dated February 10, 2020, filed with the SEC by The Vanguard Group, Inc. (“Vanguard”). According to the Schedule 13G, as of January 31, 2020, Vanguard is the beneficial owner of 4,531,071 shares, and has sole voting with respect to 83,574 shares, sole dispositive power with respect to 4,445,887 shares, shared voting power with respect to 6,316 shares and shared dispositive power with respect to 85,184 shares.

RLI Corp. 2020 Proxy Statement    |    9

 

Table of Contents

DIRECTORS AND OFFICERS

 

The following is information regarding beneficial ownership of the Company’s Common Stock by each Director and Named Executive Officer (“NEO”) (whose compensation is disclosed in this Proxy Statement), and the Directors and executive officers of the Company as a group, as of March 9, 2020:  

 

 

 

 

 

 

 

 

Name of Individual or

 

Number of Shares

 

Percent of Outstanding

 

 

Number of Persons in Group

    

Beneficially Owned(1)

    

Common Stock

 

 

Kaj Ahlmann(2)

 

 

 

*

 

 

Michael E. Angelina (2)

 

 

 

*

 

 

John T. Baily (2) (3)

 

 

 

*

 

 

Thomas L. Brown(4) (5) (6)

 

 

 

*

 

 

Todd W. Bryant (4) (6)

 

 

 

*

 

 

Calvin G. Butler, Jr. (2)

 

 

 

*

 

 

David B. Duclos (2)

 

 

 

*

 

 

Jeffrey D. Fick (4) (6)

 

 

 

*

 

 

Susan S. Fleming

 

 

 

*

 

 

Jordan W. Graham (2)

 

 

 

*

 

 

Craig W. Kliethermes (4) (5) (6)

 

 

 

*

 

 

Jennifer L. Klobnak (4) (6)

 

 

 

*

 

 

Jonathan E. Michael (4) (5) (6) (7)

 

 

 

 

 

 

Robert P. Restrepo, Jr.

 

 

 

*

 

 

Debbie S. Roberts (2)

 

 

 

*

 

 

Michael J. Stone (5) (8) (9)

 

 

 

*

 

 

 

 

 

 

 

 

 

Directors and executive officers as a group (18 persons) (4) (5) (6)

 

 

 

 

 

 

*Less than 1% of Class.

 

(1)

Unless otherwise noted, each person has sole voting power and sole dispositive power with respect to the shares reported.

 

(2)

Includes shares held by a bank trustee under an irrevocable trust established by the Company with respect to the RLI Corp. Nonemployee Director Deferred Compensation Plan (“Director Deferred Plan”) for the benefit of the following: Mr. Ahlmann _____ shares; Mr. Angelina _____ shares; Mr. Baily _____ shares; Mr. Butler _____ shares, Mr. Duclos ____shares; Ms. Fleming ___ shares; Mr. Graham ____ shares; and Ms. Roberts ____ shares. Each participating Director has no voting or investment power with respect to such shares.

 

(3)

Includes ___ shares held by Mr. Baily’s spouse.

 

(4)

Includes shares allocated to the named persons under the ESOP with respect to which such persons have sole voting power and no investment power. As of March 9, 2020 the following shares were allocated under the ESOP: Mr. Brown _____ shares; Mr. Fick ______ shares; Mr. Kliethermes ____ shares; Ms. Klobnak _____; and Mr. Michael _____ shares.

 

(5)

Includes shares allocated to the named persons which shares are held by a bank trustee under an irrevocable trust established by the Company with respect to the RLI Corp. Executive Deferred Compensation Plan (“Deferred Plan”) for the benefit of the following: Mr. Brown ____ shares; Mr. Kliethermes _____ shares; Mr. Michael _____shares; and Mr. Stone _____ shares. Each participant has no voting or investment power with respect to such shares.

 

10    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

(6)

Includes shares that may be acquired by the named persons within 60 days after March 9, 2020, under the LTIP (as described herein), upon the exercise of outstanding stock options as follows: Mr. Bryant ____ shares; Mr. ____ shares; Mr. Kliethermes ____ shares; Ms. Klobnak ____ shares; and Mr. Michael ____ shares.

 

(7)

Includes ____ shares allocated under the Key Employee Excess Benefit Plan (“Key Plan”), over which Mr. Michael has no voting or investment power; and ____ shares owned by the Jonathan E. Michael Family Trust, over which Mr. Michael, as Trustee, has sole voting and sole investment power.

 

(8)

Includes ____ shares held by Mr. Stone’s wife, as Custodian — UTMA-FL, as to which Mr. Stone disclaims any beneficial interest.

 

(9)

Includes ____ shares owned by the Michael J. Stone Grantor Retained Annuity Trust, over which Mr. Stone, as Trustee, has sole voting and sole investment power.

 

The information with respect to beneficial ownership of Common Stock of the Company is based on information furnished to the Company by each individual included in the table.

PROPOSAL ONE: ELECTION OF DIRECTORS

GENERAL

At this year’s Annual Meeting, 11 directors are to be elected, each to hold office for a one-year term expiring at the 2021 Annual Meeting and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Unless otherwise instructed, the shares represented by a signed proxy card will be voted for the election of each of the 11 nominees named below. The affirmative vote of a majority of the votes cast is required for the election of each director. Votes will be tabulated by an Inspector of Election appointed at the Annual Meeting. Shares may be voted for, against or abstained from, each nominee. Cumulative voting for the directors is not permitted under the Company’s Amended and Restated Certificate of Incorporation.

NOMINEES

Dr. Susan S. Fleming, Ms. Debbie S. Roberts and Messrs. Kaj Ahlmann, Michael E. Angelina, John T. Baily, Calvin G. Butler, Jr., David B. Duclos, Jordan W. Graham, Jonathan E. Michael, Robert P. Restrepo, Jr., and Michael J. Stone, each a current Director, are standing for election. Each is nominated to serve for a one-year term expiring at the 2021 Annual Meeting.

 

The Board of Directors has no reason to believe that any nominee will be unable to serve if elected. In the event that any nominee shall become unavailable for election, the shares represented by a proxy will be voted for the election of a substitute nominee selected by the persons appointed as proxies and recommended by the Board, unless the Board should determine to reduce the number of Directors pursuant to the Company’s ByLaws or allow the vacancy to stay open until a replacement is designated by the Board.

 

The Board of Directors recommends that the shareholders vote “FOR” the election of all 11 nominees listed below.

RLI Corp. 2020 Proxy Statement    |    11

 

Table of Contents

Jonathan E. Michael

Picture 16

 

BACKGROUND

Mr. Michael has been Chairman of the Board since May 5, 2011 and President & CEO of the Company since January 1, 2001. He was elected Chairman of the Board & CEO of the Company’s principal insurance subsidiaries on January 1, 2002. Mr. Michael served as Chief Operating Officer of the Company from 1994 to 2001, and prior to that served for several years as Executive Vice President, responsible for running the Company’s insurance operations . Mr. Michael joined the Company in 1982. Prior to 1982, Mr. Michael was associated with Coopers & Lybrand LLP.

Age: 66

Director since: 1997

Management Director

Committees:

 

QUALIFICATIONS

Mr. Michael has over 36 years of experience with the Company and has held various managerial and executive officer positions. This significant experience with the Company provides Mr. Michael with a unique perspective into our operations, our people and the strategic vision needed to meet our performance goals. He has a Bachelor’s degree in Business Administration from Ohio Dominican College.

●    Board Chairman

 

 

OTHER COMPANY BOARD SERVICE

He serves on the Board of Directors of investment management software maker SS&C Technologies Holdings, Inc.; sunglasses manufacturer Maui Jim, Inc.; and business analytic technology firm TADA Cognitive Solutions, LLC. He is currently a member of the OSF St. Francis Medical Center Community Advisory Board; a member of the Bradley University Board of Trustees; and the Chairman of Easterseals Central Illinois. He is a member and Past Chair of Property Casualty Insurers Association of America (now known as American Property Casualty Insurance Association) Board of Governors.

 

Kaj Ahlmann

Picture 22

 

BACKGROUND

Mr. Ahlmann retired after serving from October 2009 through December 2016 as Global Head, Strategic Services and Chair, Advisory Board of Deutsche Bank after having provided independent services to the Council of Global Insurance Asset Management, Deutsche Asset Management, since 2006. From 2001 to 2003, Mr. Ahlmann was the Chairman and CEO of inreon, a global electronic reinsurance venture created by Munich Re, Swiss Re, Internet Capital Group and Accenture. He was Vice Chairman and Executive Officer of E.W. Blanch Holdings, Inc., a provider of integrated risk management and distribution services, from 1999 to 2001. Prior to that, from 1993 to 1999, he was Chairman, President and CEO of Employers Reinsurance Corporation, a global reinsurance company and served as a Director of the parent organization, GE Capital Services.  Mr. Ahlmann, with his family, owns and operates the Six Sigma Ranch & Winery in Lower Lake, California, which produces artisanal wines for retail distribution. 

Age: 69

Director since:  2009

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Ahlmann has broad global reinsurance and insurance expertise and executive management experience.  He brings over 40 years of experience with various companies related to the reinsurance and insurance industries and asset management.  He has a Bachelor’s degree in Mathematics and a Master’s degree in Mathematical Statistics and Probability and Actuarial Science, both from the University of Copenhagen.

●    Audit

●    Nominating/Corporate Governance

 

 

OTHER COMPANY BOARD SERVICE

Mr. Ahlmann served on the boards of Erie Indemnity Company, Erie Insurance Group from 2003 to 2008 and SCPIE Holdings, Inc., from 2006 to 2008.  Mr. Ahlmann currently serves as Senior Advisor to the insurance sector for Arena Investors, LP; Chairman, The Institutes f/k/a American Institute for CPCU (Chartered Property and Casualty Underwriter); and the Advisory Boards of Six Sigma Academy and Insurance Thought Leadership, Inc.

12    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

 

 

 

 

 

Michael E. Angelina

Picture 21

Age: 53

BACKGROUND

Mr. Angelina is the Executive Director of the Maguire Academy of Insurance and Risk Management at Saint Joseph’s University since April 2012. He leads the Risk Management and Insurance program within the Haub School of Business and coordinates the Maguire Academy activities. From June 2005 to April 2012, Mr. Angelina was the Chief Risk Officer and Chief Actuary for Endurance Specialty Holdings, Ltd., where he was a functional leader of pricing, reserving and risk management and the leader of the Enterprise Risk Management Initiative. From January 2000 to June 2005, Mr. Angelina was the Managing Principal of Tillinghast-Towers Perrin where he led the Philadelphia office and co-led the Tillinghast Asbestos practice.

Director since: 2013

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Angelina has significant insurance industry experience including his extensive risk management background. Mr. Angelina has a Bachelor’s degree in Mathematics from Drexel University.

●    Audit

●    Strategy

 

OTHER COMPANY BOARD SERVICE

Mr. Angelina serves as Chairman of the Board on the Board of Directors for The Hagerty Group; a Board Member of QBE Equator Reinsurances Limited; and a member of American Academy of Actuaries Committee on Property & Liability Financial Reporting and former Chair of AAA Casualty

 

 

 

 

 

John T. Baily

Picture 20

Age: 76

BACKGROUND

Mr. Baily retired after serving as President of Swiss Re Capital Partners from 1999 through 2002. In this role, he was involved in investments and acquisitions in the insurance industry. He was previously the National Insurance Industry Chairman and Partner of the accounting firm of Coopers & Lybrand LLP (C&L) (now known as PricewaterhouseCoopers LLP) retiring in 1999 after 33 years, 23 years of which he was a partner. He served as Chairman of the C&L insurance practice for 13 years, where he was responsible for all of the firm’s services to the insurance industry (including audit, tax, actuarial, management consulting). He was also a member of C&L’s governing body, the U.S. Board of Partners.

Director since:  2003

Independent; Lead Director

Committees:

 

QUALIFICATIONS

Mr. Baily has extensive knowledge in accounting and auditing in the insurance and reinsurance industries and brings to the Board in-depth experience of insurance accounting and insurance auditing.  His service on other public company boards allow for him to provide the Board with a variety of perspectives on corporate governance issues. He has a Bachelor’s degree in Economics from Albright College and an MBA from the University of Chicago.

●    Audit

●    Nominating/Corporate Governance

 

 

OTHER COMPANY BOARD SERVICE

Mr. Baily serves on the boards of, Endurance U.S. Holdings Corp., the U.S. holding company for the Sompo International Group, and Golub Capital BDC, Inc. and its affiliates. He previously served on the boards of Endurance Specialty Holdings, Ltd., Erie Indemnity Company, NYMagic, Inc. and CIFG Holdings, Ltd.

 

 

 

 

 

 

 

 

RLI Corp. 2020 Proxy Statement    |    13

 

Table of Contents

Calvin G. Butler, Jr.

Butler

Age: 50

BACKGROUND

Mr. Butler has been the Sr. Executive Vice President of Exelon Corp. and CEO of Exelon Utilities since December 2019 after being appointed the Interim CEO of Exelon Utilities in October 2019. From March 2014 until December 2019 he was the CEO of Baltimore Gas and Electric Company (BGE), an Exelon Corp. company. In February 2008, Mr. Butler joined Exelon and has held various managerial positions through the current date. The positions included VP, State Legislation & Government Affairs; SVP, External Affairs LCS State Legislation & Government Affairs; SVP, ComEd Corporate Affairs; SVP, Human Resources, Exelon Corp.; SVP, Corporate Affairs; SVP, Regulatory & External Affairs. From 1999 to January 2008, Mr. Butler held leadership positions with RR Donnelly, including vice president of manufacturing, senior Director of government affairs, and senior vice president of external affairs. Mr. Butler worked from 1994 to 1999 at CILCORP. (Central Illinois Light Company) in its government affairs, legal and strategy departments.

Director since: 2016

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Butler has extensive executive management experience, together with his regulatory, external affairs, customer service and innovation and technology expertise allows him to provide valuable perspectives and insights on a variety of topics to the Board. He has a Bachelor’s degree in Public Relations from Bradley University, and received his Law degree from Washington University School of Law in St. Louis.

●    Audit

●    Nominating/Corporate Governance

 

OTHER COMPANY BOARD SERVICE

Mr. Butler currently is board chair, Bradley University Board of Trustees; Director, University of Maryland Medical Center; trustee, PNC Funds; board chair, Gridwise Alliance.  In addition, Mr. Butler serves on the boards of directors of several civil and charitable organizations in and around the Baltimore area.

 

 

David B. Duclos

Duclos

 

BACKGROUND

Mr. Duclos retired as CEO of QBE, North America in July 2016, which position he was appointed to in April 2013. He currently is serving as a Non-Executive Director on the QBE Equator Reinsurances Limited and Blue Ocean Limited Boards. He retired December 2012 from XL Group, having served as Chief Executive of XL Insurance from January 2008 through December 2011.  Mr. Duclos joined XL in October 2003 and served in several senior level underwriting and field operations roles, including running XL’s global specialty business.  From September 1999 through July 2003, Mr. Duclos was the President, Small Business Group of Kemper Insurance Company. Mr. Duclos was employed at Cigna Corporation from July 1979 through July 1999 in various underwriting and managerial positions. The positions included Branch Underwriting, Marketing Manager, Branch Executive, AVP-Field Operations, Region President and Specialty Business Leader.  He previously served as a Director of RLI Corp. from August 16, 2012 until February 26, 2013. 

Age: 62

Director since: 2017

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Duclos brings 40 years of experience with various companies related to the insurance and reinsurance industries. Mr. Duclos has broad global reinsurance and insurance expertise, and executive management experience.  Mr. Duclos has a Bachelor’s degree in Business Administration from Eastern Illinois University and is a graduate of the Advanced Insurance Executive Education Program at the Wharton School of the University of Pennsylvania.

●    Executive Resources

●    Finance & Investment

 

 

OTHER COMPANY BOARD SERVICE

Mr. Duclos serves as the non-executive Chairman of Lloyd’s Global Network, an advisory Board of Lloyd’s of London; a Director of Maguire Academy of Insurance and Risk Management at Saint Joseph’s University; and member of the board of the American Association of Insurance Services.  He is a former Director of QBE Latin American Insurance Holdings Limited, formerly known as QBE Emerging Markets Holdings Limited.

 

14    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

Susan S. Fleming

Picture 24

 

BACKGROUND

Dr. Fleming is an executive educator, speaker, entrepreneur in residence, and angel investor.  From 2009 through 2018, she served as a Senior Lecturer of management and entrepreneurship at the School of Hotel Administration and the Johnson Graduate School of Management of Cornell University. From 2004 through 2009, she pursued a Masters and PhD from Cornell University. From 1998 until December 2003, she was Partner and Principal of Capital Z Financial Services Partners, a private equity fund focused on the financial services industry. From 1994 until December 2003 she served as Vice President, Insurance Partners Advisors, L.P., a private equity fund focused on the insurance and healthcare industries.  From 1992 until 1994 she was an analyst with Morgan Stanley & Co.

Age: 49

Director since: 2018

Independent Director

Committees:

 

QUALIFICATIONS

With her years of experience in private equity, investment banking, and education, Dr. Fleming brings to our board expertise in financial services, corporate finance, mergers and acquisitions, and organizational leadership. Dr. Fleming holds a Bachelor’s Degree in Economics and Asian Studies from the University of Virginia and a Master’s Degree and PhD in Management and Organizations from Cornell University.

●    Nominating/Corporate Governance

●    Finance & Investment

 

 

OTHER COMPANY BOARD SERVICE

Dr. Fleming currently serves as a Director for Virtus Investment Partners, Inc. and a trustee at The Paleontological Research Institution.  She was formerly a Director of Endurance Specialty Holdings, Ltd.; Quanta Capital Holdings, Ltd.; Ceres Group, Inc.; PXRE Group, Ltd.; and Universal American Financial Group, Inc.

 

Jordan W. Graham

Picture 17

 

BACKGROUND

Mr. Graham has been Managing Director with Quotient Partners since May 2011, providing business strategy and merger/acquisition advisory services to financial services, digital media, internet and information services companies. From 2010 to 2011, he served as President of FICO Consumer Services and Executive Vice President of Credit Scoring and Predictive Analytics at Fair Isaac, Inc., the leading provider of credit, analytics, and decision management technologies. From 2007 to 2010, Mr. Graham was Managing Director and Head of North America Business Development for the Global Transaction Services (GTS) Division of Citigroup responsible for strategic planning, global partnerships and acquisitions. For the preceding two years, he was retained as a full-time consultant to the CEO of Citigroup GTS and provided strategy and acquisition advisory services. From 1998 to 2004, he was an executive with Cisco Systems, serving as Vice President of the Internet Business Solutions Group, Services Industries Strategy Consulting, leading internet business strategy consulting practices for the financial services, healthcare, energy and media/entertainment industries globally. Previously he was Managing Director and Global Head of Cisco’s Financial Services Industry Consulting Practice providing internet business strategy services to CXO level executives in Global 500 insurance, banking and securities firms. He has also been the CEO of two successful venture capital-backed businesses, a financial services technology company and an internet cloud-based solutions provider.

Age: 59

Director since: 2004

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Graham has strong financial services, strategy, merger/acquisition and advisory experience as well as deep information technology and internet background.  He has over 30 years of experience working both in and providing information technology based products and services to the financial services industry globally.  Mr. Graham has a Bachelor’s degree in Business Entrepreneurship from the University of Southern California.

●    Executive Resources

●    Finance & Investment

 

 

OTHER COMPANY BOARD SERVICE

Mr. Graham was previously a board Director and member of the Investment Committee for Securitas Capital, a SwissRe and Credit Suisse backed private equity fund investing in insurance and risk related ventures. Mr. Graham currently serves on the board of Yiftee, Inc.

RLI Corp. 2020 Proxy Statement    |    15

 

Table of Contents

Robert P. Restrepo, Jr.

Picture 15

 

BACKGROUND

Mr. Restrepo retired in May 2015 as CEO and President of State Auto Insurance Companies and as Chairman in December 2015. Mr. Restrepo joined and was appointed Chairman, CEO and President of State Auto in 2006. From 2005 to 2006, Mr. Restrepo served as Senior Vice President, Insurance Operations of Main Street America Group and was responsible for personal lines, commercial lines, bonds, claims, marketing, information technology and customer service. From 1998 to 2003, Mr. Restrepo was the President and CEO, Property & Casualty of Allmerica Financial. From 1996 to 1998, Mr. Restrepo was the President and CEO, Personal Lines at Travelers Property & Casualty and was responsible for the newly combined personal property and casualty operations of Travelers and Aetna. In 1972 Mr. Restrepo joined Aetna Life & Casualty and held various managerial positions through 1996, including positions in marketing, technology and field management, and ended as Senior Vice President, Personal Lines.

Age: 69

Director since: 2016

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Restrepo brings over 40 years of experience with various companies related to the insurance industries. He has extensive insurance expertise, executive management, finance, regulatory, and risk management experience.  He has a Bachelor’s degree in English from Yale University.

●    Executive Resources

●    Strategy

 

OTHER COMPANY BOARD SERVICE

Mr. Restrepo serves on the Board of Directors of Majesco; Genworth Financial; Big I Reinsurance Company; Nuclear Electric Insurance Limited; and the Larry H. Miller Group.  Mr. Restrepo is a former Director of Property Casualty Insurers Association of America (now known as American Property Casualty Insurance Association); Insurance Information Institute; and The Institutes.

 

Debbie S. Roberts

Picture 25

 

BACKGROUND

Ms. Roberts retired from McDonald’s Corporation in 2018 from the position of President East Zone, a position she had held since 2016. From 2014 to 2016, Ms. Roberts served as President Northeast Zone. In her 28-year career at McDonald’s Corporation, she gained increasingly progressive responsibilities in the areas of accounting, marketing and operations including roles as Sr. Vice President, Restaurant Support Officer-East, President Northeast Zone and most recently as President East Zone being responsible for $18.7 billion in sales and a total of 7,000 restaurants.

Age: 55

Director since: 2018

Independent Director

Committees:

 

QUALIFICATIONS

Ms. Roberts brings over 30 years of experience, expertise and background in accounting matters as well as various executive management experience.  Ms. Roberts holds a Bachelor’s degree in Accounting from the University of Illinois.

●    Executive Resources

●    Strategy

 

OTHER COMPANY BOARD SERVICE

Ms. Roberts currently serves as a Director on the Board of The American Red Cross. She is a former member of the University of Illinois Champaign Alumni, and Women’s Foodservice Forum.  She is a former member of the Catalyst Board of Directors and serves on the Executive Leadership Council.

 

 

 

16    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

Michael J. Stone

Picture 11

 

BACKGROUND

Mr. Stone is the former President and Chief Operating Officer of the Company’s principal insurance subsidiaries from January 2002 until his retirement in December 2015. Mr. Stone joined the Company in May 1996 and held various executive officer positions. From 1977 to May 1996, Mr. Stone held various managerial and executive officer positions with Travelers Insurance Group.

Age: 71

Director since: 2012

Independent Director

Committees:

 

QUALIFICATIONS

Mr. Stone has nearly 40 years of insurance industry expertise and 19 years at the Company where he was responsible for the overall direction of the Company’s principal insurance subsidiaries. He has a Bachelor’s degree in Political Science from Bellarmine College, and received his Law degree, magna cum laude, from the University of Louisville.

●    Finance & Investment

●    Strategy

 

 

OTHER COMPANY BOARD SERVICE

Mr. Stone serves on the Board of Directors for UnityPoint Health; and Eagle Indemnity Acquisitions, Inc.  He is also a member of the Bellarmine University Board of Trustees.

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

CORPORATE GOVERNANCE PRINCIPLES

 

The Company is committed to having sound corporate governance principles that are designed to ensure that the Board exercises reasonable business judgment in discharging its obligations to the Company and its shareholders. Corporate governance practices also help to ensure that full and transparent disclosures are made to the Company’s shareholders and the SEC.

 

The Company’s published Corporate Governance Guidelines, which are publicly available on the Company’s website under the Investors section at www.rlicorp.com, outline the Directors’ responsibilities, which include attendance at shareholder, Board and committee meetings. All 12 Directors  then in office attended the 2019 Annual Meeting of Shareholders and were available to respond to appropriate questions from shareholders.

 

The Company has developed an orientation process for new Directors and also encourages new Directors to attend a Director seminar in their first year as a Director.  Directors are required to maintain the necessary level of expertise to perform their responsibilities and to help ensure that they remain currently informed on corporate governance, financial and accounting practices, ethical issues for Directors and management, industry related topics, and similar matters.  Directors are encouraged to attend annually a forum or conference that will contribute to their performance on the Company Board and the Company reimburses Directors for the reasonable costs of attending Director education programs.

 

DIRECTOR INDEPENDENCE

 

The Board is required to affirmatively determine the independence of each Director and to disclose such determination in the Proxy Statement for each Annual Meeting of Shareholders of the Company. The Board has established guidelines,

RLI Corp. 2020 Proxy Statement    |    17

 

Table of Contents

which are set forth below, to assist it in making this determination, which incorporate all of the NYSE independence standards. Only independent Directors  may serve on the Company’s Audit Committee, Executive Resources Committee and Nominating/Corporate Governance Committee.

 

It is the policy of the Board of Directors of the Company that a majority of its members be independent, which is also a requirement for listing on the NYSE. To be considered independent under the NYSE Listing Standards, the Board must affirmatively determine that a Director or Director nominee (collectively referred to as “Director”) has no material relationship with the Company (directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and also meets other specific independence tests. The Board examines the independence of each of its members once per year, and again if a member’s outside affiliations change substantially during the year.

 

The Board has established the following categorical standards, incorporating the NYSE’s independence standards to assist it in determining Director independence:

 

(a)

A  Director will not be independent if:

 

(i)

the Director is, or has been within the last three years, an employee of RLI, or an immediate family member of the Director is, or has been within the last three years, an executive officer of RLI;

 

(ii)

the Director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from RLI, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

 

(iii)

(A) the Director is a current partner or employee of a firm that is RLI’s internal or external auditor; (B) the Director has an immediate family member who is a current partner of such firm; (C) the Director has an immediate family member who is a current employee of such firm and personally works on RLI’s audit; or (D) the Director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on RLI’s audit within that time;

 

(iv)

the Director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of RLI’s present executive officers at the same time serves or served on that company’s compensation committee; or

 

(v)

the Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, RLI for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues.

 

(b)

The following commercial and charitable relationships will not be considered to be material relationships that would impair a Director’s independence:

 

(i)

if a Director, or an immediate family member of the Director, is an executive officer, Director, employee or holder of an equity interest of a company that has made payments to, or received payments from, RLI for property or services in an amount which, in the last fiscal year, does not exceed the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues;

 

(ii)

lf a Director, or an immediate family member of the Director, is an executive officer, Director, employee or holder of an equity interest of a company that is indebted to RLI, or to which RLI is indebted, and the total

18    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

amount of either company’s indebtedness to the other does not exceed the greater of $1 million, or 2 percent of such other company’s total consolidated assets;

 

(iii)

if a Director, or an immediate family member of the Director, is an executive officer, Director or employee of a company in which RLI owns an equity interest, and the amount of RLI’s equity interest in such other company does not exceed the greater of $1 million, or 2 percent of such other company’s total shareholders’ equity;

 

(iv)

if a Director, or an immediate family member of the Director, is a holder of an equity interest of a company of which a class of equity security is registered under the Exchange Act and in which RLI owns an equity interest;

 

(v)

if a Director, or an immediate family member of the Director, is an executive officer, Director, employee or holder of an equity interest of a company that owns an equity interest in RLI; and

 

(vi)

if a Director, or an immediate family member of the Director, serves as an officer, Director or trustee of a tax exempt organization, and the contributions from RLI to such tax exempt organization in the last fiscal year do not exceed the greater of $1 million, or 2 percent of such tax exempt organization’s consolidated gross revenues. (RLI’s automatic matching of employee charitable contributions will not be included in the amount of RLI’s contributions for this purpose.)

 

(c)

For relationships not covered by the standards in subsection (b) above, the determination of whether the relationship is material or not, and therefore whether the Director would be independent or not, shall be made by the Directors who satisfy the independence standards set forth in subsections (a) and (b) above. RLI is required to explain in its proxy statement the basis for any Board determination that a relationship was immaterial, despite the fact that it did not meet the categorical standards of immateriality set forth in subsection (b) above.

 

BOARD INDEPENDENCE STATUS

 

The following table identifies the independence status of our Director nominees and former Directors who served on the Board during 2019:

 

 

 

 

 

 

Director

Independent

    

Management

Kaj Ahlmann

 

 

Michael E. Angelina

 

 

John T. Baily

 

 

Calvin G. Butler, Jr.

 

 

David B. Duclos

 

 

Susan S. Fleming

 

 

Jordan W. Graham

 

 

Jonathan E. Michael

 

 

Robert P. Restrepo, Jr.

 

 

Debbie S. Roberts

 

 

James J. Scanlan*

 

 

Michael J. Stone**

 

 

*  Mr. Scanlan ceased serving on the Board on June 9, 2019.

** Mr. Stone retired from employment with the Company effective December 31, 2015. The Company entered into a consulting agreement with Mr. Stone to provide general consulting services through December 31, 2016.  Mr. Stone was not deemed to be an independent Director for the three years after his consulting agreement with the Company ended. Effective January 1, 2020, the Board deemed Mr. Stone to be an Independent Director pursuant to the NYSE Listing Standards, as adopted by the Company.

 

RLI Corp. 2020 Proxy Statement    |    19

 

Table of Contents

The following relationships were reviewed in connection with determining Director independence but were determined to not be material relationships and to not affect such person’s independence under the Board independence standards:

 

·

Mr. Baily was previously a Director of Endurance Specialty Holdings Ltd. (“Endurance”), affiliates of which include reinsurance companies. Endurance Specialty Holdings, Ltd. was acquired by SOMPO Holdings, Inc.  After the acquisition, Mr. Baily became a Director of Endurance U.S. Insurance Holdings Corp. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with Endurance and its affiliates.

 

·

Mr. Baily and Mr. Scanlan are former partners with PricewaterhouseCoopers LLP (“PwC”), and retired from PwC in 1999 and 2014, respectively.  Each of Mr. Baily and Mr. Scanlan receives a pension payment from PwC. From time to time, the Company engages PwC for special projects and services in actuarial, tax, and other areas.

 

·

Mr. Angelina is a Director of QBE Equator Reinsurances Limited, a subsidiary of QBE Re. Mr. Duclos is a non-executive Director of QBE Equator Reinsurances Limited and Blue Ocean Limited and a former Director of QBE Emerging Markets and Latin American Insurance Holdings Limited. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with QBE Re.

 

·

Mr. Angelina is a Director of The Hagerty Group (“Hagerty”) and Mr. Graham provides consulting services to Hagerty.  Hagerty Insurance Agency, a subsidiary of Hagerty, produces insurance business for the Company’s principal insurance subsidiaries.

 

·

Mr. Restrepo is a Director of Majesco, which provides billing and collection software services to the Company.

 

DIRECTOR EVALUATION PROCESS

 

To ensure that thorough attention is given to individual and collective Directors’ performance and optimizing the composition of our Board, the Board and Committees utilize an annual evaluation process. Each Director completes a self-evaluation and assesses the performance of the Committees on which he/she serves and the Board as a whole. In addition, members of senior management evaluate the Board annually. Detailed composites are prepared to obtain perspective on each Committee’s performance in relationship to its respective Charter, effectiveness, functionality, areas of improvement and overall performance. The Annual Board Evaluation focuses on board processes, policies, effectiveness, strategy, and individual Director performance. This process is handled by the Nominating/Corporate Governance Committee.

 

Further, annually the Chairman of the Board and the Lead Director meet or confer separately with each Director to discuss, among other matters, (1) Director and Board performance; (2) recommendations to improve meetings; (3) Committees’ structure and leadership; (4) the effectiveness of the Lead Director; (5) whether key topics are sufficiently considered by the Board; (6) support from management; (7) succession planning; and (8) compensation.  The Chairman of the Board and Lead Director summarize their discussions with the Nominating/Corporate Governance Committee.

 

Based on the cumulative results of each Director’s overall performance, the Nominating/Corporate Governance Committee reviews and evaluates the Board candidates and their respective qualifications in detail to determine if it is in the best interest of the Company and its shareholders to nominate each Director to stand for election.

 

DIRECTOR NOMINATIONS

 

The Nominating/Corporate Governance Committee of our Board considers Director candidates based upon a number of qualifications.  As minimum qualifications, a nominee should have:

 

·

A reputation for the highest professional and personal ethics and values, fairness, honesty and good judgment;

·

A significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities;

20    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

·

Been in a generally recognized position of leadership in his or her field of endeavor; and

·

A commitment to enhancing shareholder value.

A nominee should not have a conflict of interest that would impair the nominee’s ability to represent the interests of the Company’s shareholders and fulfill the responsibilities of a Director.  

 

The Nominating/Corporate Governance Committee conducts an annual assessment of the composition of the Board and its committees. In its annual assessment and when conducting a director search, the Nominating/Corporate Governance Committee reviews the appropriate skills and characteristics required of Board members with a goal of establishing diversity among directors reflecting, but not limited to, profession, background, experience, geography, skills, ethnicity, and gender.  The Nominating/Corporate Governance Committee is committed to actively seek highly qualified women and minority candidates for each director search it undertakes.  Annually, the Nominating/Corporate Governance Committee will review this Policy and assess its effectiveness in bringing forth both diverse and non-diverse Board candidates that meet the qualifications and have the capabilities to provide strategic direction, governance and oversight to the Company.

 

The Nominating/Corporate Governance Committee relies upon recommendations from a wide variety of its business contacts, including current executive officers, Directors, community leaders, and shareholders as sources for potential director candidates, and may also utilize third party search firms. The Nominating/Corporate Governance Committee will consider qualified director candidates recommended by shareholders as further set forth under SHAREHOLDER PROPOSALS on page 63, but the Nominating/Corporate Governance Committee has no obligation to recommend such candidates.  Assuming the appropriate biographical and background material (including qualifications) is provided for candidates recommended by shareholders, the Nominating/Corporate Governance Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources.

 

CODE OF CONDUCT

 

The Company has adopted a Code of Conduct, which is designed to help directors, officers, and employees maintain ethical behavior and resolve ethical issues in an increasingly complex global business environment. The Code of Conduct applies to all Directors, officers and employees, including specifically the Chief Executive Officer, the Chief Financial Officer, the Controller, the Chief Legal Officer and any other employee with any responsibility for the preparation and filing of documents with the SEC. The Code of Conduct covers topics including, but not limited to, ethical behavior, conflicts of interest, corporate opportunities, confidentiality of information and compliance with laws and regulations. The Company conducts an annual compliance acknowledgement to be completed by all d  irectors, officers, and employees to ensure compliance with the Code of Conduct as well as other Company policies.  A copy of our Code of Conduct is available at the Company’s website under the Investors section at www.rlicorp.com. Any amendments to the Code of Conduct or waiver that applies to a director or executive officer will be posted on our website.

 

HEDGING AND PLEDGING POLICY

 

The Company implemented a formal policy in 2015, prohibiting the NEOs from using financial instruments to reduce the risk of holding company stock (hedging); or from using Company shares for margin trading or collateral purpose.  At the time the policy was implemented, none of the NEOs had engaged in hedging, pledging, or margining shares of RLI stock.

 

The Company’s Insider Trading Policy prohibits Directors, Executive Officers, and other officers of the Company at the level of Vice President or higher from engaging in hedging transactions involving the Company’s securities, including, without limitation, short sales or put or call options. In addition, it prohibits Directors and Executive Officers from holding Company securities in a margin account or pledging Company securities as collateral for a loan. Officers of the Company at the level of Vice President or higher who are not Executive Officers may hold in margin accounts or pledge as collateral for loans a limited number of Company securities, subject to certain preclearance procedures.

 

RLI Corp. 2020 Proxy Statement    |    21

 

Table of Contents

Other employees of the Company are not prohibited from hedging or pledging RLI shares, but may not enter into such a transaction during a Company blackout period established prior to each quarterly earnings release (and, which may be established, in connection with other transactions or events).

 

SHAREHOLDER AND INTERESTED PARTIES COMMUNICATIONS

 

Any shareholder or other interested party who desires to communicate with the Board’s Lead Director of the Board’s independent directors or any of the other members of the Board of Directors may do so electronically by sending an email to the following address: [email protected] Alternatively, a shareholder or other interested party may communicate with the Lead Director or any of the other members of the Board by writing to: Lead Director, RLI Corp. 9025 N. Lindbergh Drive, Peoria, Illinois 61615. Communications may be addressed to the Lead Director, an individual Director, a Board Committee, the independent directors, or the full Board. Communications received by the Lead Director will then be distributed to the appropriate directors. Solicitations for the sale of merchandise, publications, or services of any kind will not be forwarded to the directors.

 

COMPANY POLICY ON RELATED PARTY TRANSACTIONS

 

The Company recognizes that related party transactions present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof) and therefore has adopted a written Related Party Transaction Policy which shall be followed in connection with all related party transactions involving the Company. The Related Party Transaction Policy generally requires approval by the Nominating/Corporate Governance Committee prior to the original or renewal effective date for all transactions above $10,000 to be entered into between the Company and its  directors, officers, shareholders owning in excess of 5 percent of the Common Stock of the Company, and their family members and affiliates. Since January 1, 2019, the Nominating/Corporate Governance Committee approved one related party transaction between the Company and SS&C Technologies Holdings, Inc. (“SS&C”) as described immediately below.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Since January 1, 2019, the transactions or series of similar transactions to which the Company was a party in which the amount involved exceeded $10,000 and in which any Director, executive officer, or holder of more than 5 percent of the Common Stock of the Company (or any of their immediate family members) had a direct or indirect material interest, include only the Company’s transaction with SS&C Technologies Holdings, Inc. (“SS&C”). 

 

In 2013, the Company entered into a business arrangement with SS&C to provide investment portfolio accounting and data processing services for a five-year term. In June 2018, the Nominating/Corporate Governance Committee approved a renewal contract with SS&C for a five-year term effective October 1, 2018. In 2019, the Nominating/Corporate Governance Committee approved an addendum to the contract with SS&C to provide upgrades and enhancements to the investment portfolio accounting and data processing services. The addendum commenced on July 1, 2019 for a five-year term.  The Company’s President & CEO (Mr. Michael) is a member of the Board of Directors of SS&C. The Chairman and CEO of SS&C is the brother of Mr. Stone, a Director and former Officer of the Company’s principal insurance subsidiaries. The Company paid SS&C $331,051 in 2019. In addition, one of the Company’s insurance company subsidiary’s issued a cyber-security policy of insurance to SS&C.  These transactions fall within the purview of the Related Party Transaction Policy described in the previous paragraphs and were subject to review and approval by the Nominating/Corporate Governance Committee pursuant to that Policy. The Nominating/Corporate Governance Committee approved the renewal contract with SS&C for its five-year term and approved the Company’s insurance company subsidiary issuing a cyber-security policy to SS&C for a one-year term.

 

22    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

BOARD’S ROLE IN RISK OVERSIGHT

 

The Board’s risk oversight is accomplished both at the full Board level and through its committee structure.  The Company’s Strategy Committee has responsibility for overall oversight of the Company’s enterprise risk management (“ERM”) program.  The Strategy Committee also has oversight for specific areas of ERM, as do the other Board committees, as specified in their respective charters, which can be found at the Company’s website at www.rlicorp.com, and which are listed below.

   

 

 

Board Committee

Areas of ERM oversight

Strategy

Overall ERM oversight

Underwriting

Information Technology

Growth

Insurance markets

Executive Resources

Executive resources

Human resources

Compensation

Finance and Investment

Investments

Capital

Nominating/Corporate Governance

Corporate governance

Regulatory and legislative

Audit

Catastrophe 

Reserving

Reinsurance

Business Continuity

Cybersecurity

 

Annually, the Strategy Committee ensures that processes are in place to enable Board oversight of each area of ERM by conducting an ERM risk mapping review.  The mapping review catalogs, for each ERM area, management reports regularly provided to Board committees and the frequency at which such reports are provided.  The mapping review also provides a summary description of each risk, mitigating factors, and means by which each risk is monitored by the Company. 

In addition to regular reports from management related to areas of ERM, detailed reports, from time-to-time, are provided on select topics.  In 2019, detailed presentations on information technology and cybersecurity risk, regulatory risk, and vendor risk were made to the Strategy Committee.  In addition, management and the Board conducted a tabletop exercise demonstrating the Company’s response to a hypothetical cybersecurity attack, considering issues related to response, prevention, and disclosure, among others.

The Board’s role in risk oversight is consistent with the Company’s leadership structure, with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its committees providing oversight in connection with these efforts.

 

 

 

 

RLI Corp. 2020 Proxy Statement    |    23

 

Table of Contents

COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board has five standing committees: Audit, Executive Resources, Finance and Investment, Nominating/Corporate Governance, and Strategy. The Audit, Executive Resources and Nominating/Corporate Governance Committees are composed solely of independent Directors in compliance with the Company’s requirements and the NYSE Listing Standards. The Nominating/Corporate Governance Committee annually evaluates both Committee members and Committee Chairs, and rotates members as deemed necessary. In his discretion, the Chairman of the Board may attend any or all Committee meetings. All committees meet at least quarterly and also hold informal discussions from time to time. Charters for each Committee are available on the Company’s website under the Investors section at www.rlicorp.com.

 

COMMITTEE MEMBERSHIP

 

 

 

 

 

 

 

Director

Board

Audit

Executive

Resources

Nominating/

Corporate Governance

Finance and

Investment

Strategy

Kaj Ahlmann

 

 

 

Michael E. Angelina

Chair*

 

 

 

John T. Baily (Lead Director)

 

Chair

 

 

Calvin G. Butler, Jr.

 

 

 

David B. Duclos

 

Chair

 

 

Susan S. Fleming

 

 

 

Jordan W. Graham

 

 

Chair

 

Jonathan E. Michael

Chair

 

 

 

 

 

Robert P. Restrepo, Jr.

 

 

 

Debbie S. Roberts

 

 

 

James J. Scanlan*

 

 

 

Michael J. Stone

 

 

 

Chair

Number of Meetings in 2019

6

9

8

6

4

6

*   Mr. Scanlan ceased serving on the Board on June 9, 2019, on which date Mr. Angelina became Chair of the Committee.

 

AUDIT COMMITTEE

 

The Company’s Audit Committee, composed exclusively of independent Directors, met nine times in 2019 to consider various audit and financial reporting matters, including the Company’s outside audit firm relationship and to discuss the planning of the Company’s annual outside audit and its results. The Audit Committee also:

 

·

monitored the Company’s management of its exposures to risk of financial loss;

 

·

reviewed the adequacy of the Company’s internal controls, including the Company’s continued adherence to the Committee of Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework (COSO) 2013 update;

 

·

reviewed the extent and scope of audit coverage;

 

·

reviewed quarterly financial results;

 

·

monitored selected financial reports;

 

24    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

·

assessed the auditors’ performance; and

 

·

selected the Company’s independent registered public accounting firm.

 

The Audit Committee also meets in executive session, with no members of management present, after its regular meetings, as well as private executive sessions with the independent registered public accounting firm and various members of management.

 

The Chair of the Audit Committee is notified directly by the Company’s anonymous whistleblower complaint hotline provider any time a complaint is made through that system.

 

The Audit Committee is responsible for approving every engagement of an independent registered public accounting firm to perform audit or non-audit services on behalf of the Company or any of its subsidiaries before any of the above mentioned firms provide those services, with the Chair of the Audit Committee being authorized to pre-approve non-audit services and then reporting those services to the full Audit Committee, as described in the Audit Committee Report. The Audit Committee evaluates the effects that the provision of non-audit services may have on such firms’ independence with respect to the current, or potential, audit of our financial statements.  

 

The Audit Committee is also responsible for enterprise risk management in the areas of business continuity risk, catastrophe risk, cybersecurity risk, reinsurance risk, reserving risk, and third party risk.  The Audit Committee receives either quarterly, semi-annual, or annual reports for each risk focus area to ensure the Audit Committee provides appropriate compliance oversight.

 

The Board of Directors  has determined that each of the Audit Committee members qualifies as an “audit committee financial expert” as defined by the SEC.

 

From August 16, 2018 through June 9, 2019, the members of the Audit Committee were Messrs. Scanlan (Chair), Ahlmann, Angelina, Butler and Ms. Roberts. After June 9, 2019, the members of the Audit Committee were Messrs. Angelina (Chair), Ahlmann, Baily, and Butler. 

 

EXECUTIVE RESOURCES COMMITTEE

 

The Company’s ERC, composed exclusively of independent Directors, met eight times in 2019 to evaluate and recommend compensation of the President & CEO and certain key executive officers of the Company, discuss and evaluate the Company’s Market Value Potential Executive Incentive Program (“MVP Program”), to develop objective criteria for the selection and ongoing management of the Company’s compensation peer group, and to enhance the overall effectiveness of the executive compensation programs.  The ERC also reviews and evaluates the corporate goals for the senior leadership team, management development, and succession planning and the Company’s annual and long-term incentive programs, and retirement and medical programs. For additional details on the ERC, see “Compensation Discussion & Analysis – How ERC Operates.”

 

The ERC is also responsible for enterprise risk management in the area of people risk and includes human resources and compensation, including management succession and development, incentive compensation, employee benefits, talent, and culture.  The ERC receives either quarterly, semi-annual, or annual reports for the risk focus area to ensure the ERC provides appropriate compliance oversight.

 

From May 3, 2018 through June 9, 2019,  the members of the ERC were Messrs. Duclos (Chair), Graham, Restrepo and Scanlan.  After June 9, 2019, the members of the ERC were Messrs. Duclos (Chair), Graham, and Restrepo and Ms. Roberts.

 

RLI Corp. 2020 Proxy Statement    |    25

 

Table of Contents

FINANCE AND INVESTMENT COMMITTEE

 

The Company’s Finance and Investment Committee oversees the Company’s investment and corporate finance transactions, policies and guidelines, which includes reviewing investment performance, investment risk management exposure and the Company’s capital structure. The Finance and Investment Committee met four times in 2019 to discuss ongoing financial, investment and capital matters.  

 

The Finance and Investment Committee is also responsible for enterprise risk management in the area of investment risk management, capital and financial management including interest rate risk, credit risk, capital risk, and liquidity risk.  The Finance and Investment Committee receives either quarterly, semi-annual, or annual reports for the each of the risk focus areas to ensure the Finance and Investment Committee provides appropriate compliance oversight.

 

From May 3, 2018 through June 9, 2019, the members of the Finance and Investment Committee were Messrs. Graham (Chair), Baily, Duclos, Stone and Dr. Fleming. After June 9, 2019 the members of the Committee were Messrs. Graham (Chair), Duclos, Stone and Dr. Fleming.

 

NOMINATING/CORPORATE GOVERNANCE COMMITTEE

 

The Company’s Nominating/Corporate Governance Committee, composed exclusively of independent Directors, met six times in 2019 to guide the Company’s corporate governance program and to monitor and discuss current and emerging corporate governance principles and procedures. The Nominating/Corporate Governance Committee also counsels the Board with respect to Board and Committee organization, compensation, membership, function, and Board and Committee performance assessments, individually and collectively. The Nominating/Corporate Governance Committee identifies and reviews qualified individuals as potential new Director candidates.

 

For 2019, the members of the Nominating/Corporate Governance Committee were Messrs. Baily (Chair), Ahlmann, Butler and Dr. Fleming.

 

STRATEGY COMMITTEE

 

The Company’s Strategy Committee met six times in 2019 to oversee the Company’s strategic plan and its implementation. The Strategy Committee also provides oversight for overall enterprise risk management, risk profile and risk assessment, including risks from the Company’s underwriting, information technology, insurance market, and business growth. 

 

From August 16, 2018 through June 9, 2019, members of the Strategy Committee were Messrs. Angelina (Chair), Restrepo, Stone and Ms. Roberts.  After June 9, 2019, members of the Strategy Committee were Messrs. Stone (Chair), Angelina, Restrepo, and Ms. Roberts.

BOARD MEETINGS AND COMPENSATION

 

MEETINGS

 

During 2019, six meetings of the Board of Directors were held. All Directors were in attendance, except for one Director who missed one meeting due to a previously identified scheduling conflict. No Director attended fewer than 75 percent of the aggregate number of meetings of the Board and Board committees for the period in which he or she served. In connection with each Board meeting, the independent Directors meet in executive session with no members of management present. Effective May 5, 2011, the Lead Director position was established, which position exists when the Company’s CEO is also the Board Chairman. Pursuant to the Charter for the Lead Director position, the Chairman of the Board’s

26    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

Nominating/Corporate Governance Committee also serves as Lead Director of the Board. Among other responsibilities, the Lead Director presides at the Board’s executive sessions.

 

2019 DIRECTOR COMPENSATION 

 

During 2019, the Company’s Independent Directors were compensated as follows:

 

 

 

 

 

Annual Board Retainer:

    

$

80,000

Annual Committee Retainer:

 

 

 

Audit

 

$

15,000

All Other Committees

 

$

10,000

Lead Director Retainer (if Nonemployee Director):

 

$

10,000

Additional Annual Committee Chair Retainer:

 

 

 

Audit

 

$

20,000

Executive Resources

 

$

20,000

All Other Committees

 

$

10,000

Restricted Stock Units*:

 

$

50,000

*Each Director was granted $50,000 in Restricted Stock Units (“RSUs”), with a one-year vesting period, upon election at the 2019 Annual Shareholders’ Meeting. Directors can elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those shares under the Nonemployee Director Deferred Compensation Plan (the “Director Deferred Plan”). In addition, the RSUs have dividend rights, which accrue as additional RSUs payable upon vesting [or distribution from the Director Deferred Plan.

 

Directors are reimbursed for actual travel and related expenses incurred and are provided a travel accident policy funded by the Company. Directors are also eligible to participate in the Company’s charitable foundation matching gift program pursuant to which the Company will match qualifying charitable contributions of up to $3,000 per calendar year.

 

The following table provides the compensation of the Company’s Board of Directors earned for the fiscal year ended December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Pension

 

 

 

 

 

 

 

Value and

 

 

 

 

 

 

 

Nonqualified

 

 

 

Fees Earned

 

 

Non-Equity

Deferred

 

 

 

or Paid in

Stock

Option

Incentive Plan

Compensation

All Other

 

Name

Cash ($)(1)

Awards ($)(2)

Awards ($)

Compensation ($)

Earnings

Compensation ($)

Total ($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

Kaj Ahlmann

105,000

50,009

 

 

 

 

155,009

Michael E. Angelina

120,616

50,009

 

 

 

 

170,626

John T. Baily

122,808

50,009

 

 

 

 

172,818

Calvin G. Butler, Jr.

105,000

50,009

 

 

 

 

155,009

David B. Duclos

120,000

50,009

 

 

 

 

170,009

Susan S. Fleming

100,000

50,009

 

 

 

 

150,009

Jordan W. Graham

110,000

50,009

 

 

 

 

160,009

Jonathan E. Michael (3)

 

50,009

 

 

 

 

50,009

Robert P. Restrepo, Jr.

100,000

50,009

 

 

 

 

150,009

Debbie S. Roberts

102,195

50,009

 

 

 

 

152,204

James J. Scanlan (4)

54,795

52,804

 

 

 

 

107,599

Michael J. Stone

105,616

50,009

 

 

 

 

155,626

 

(1)

Outside Directors elect the form of their Annual Board Retainer, Annual Committee Retainer, Lead Director Retainer and Annual Committee Chair Retainer, if applicable, which may be received either in cash or deferred, in accordance with the Director Deferred Plan. Amounts shown in column (b) shows total fees earned, whether or not deferred.

 

(2)

605 RSUs, with a one-year vesting period, were granted upon election at the 2019 Annual Shareholders’ Meeting. Directors can elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those

RLI Corp. 2020 Proxy Statement    |    27

 

Table of Contents

shares under the Director Deferred Plan. In addition, the RSUs have dividend rights which accrue as additional RSUs payable upon vesting or distribution from the Director Deferred Plan. The amount reported in this column were calculated in accordance with FASB ASC Topic 718 based on the Company’s stock price as of the grant date. Please refer to footnote 2 to the beneficial ownership table on page 11 for the number of share held for each Director in the rabbi trust established with respect to the Director Deferred Plan.

 

(3)

Mr. Michael, as Chairman of the Board and a management Director, does not receive Director fees. His compensation as President & CEO is disclosed under the Executive Compensation 2019 Summary Compensation Table.

 

(4)

Mr. Scanlan ceased serving on the Board on June 9, 2019.  His fees reflected above include first quarter 2019 fees and prorated second quarter 2019 fees. At the time of his resignation, the Board accelerated the vesting of his 2019 RSU award which otherwise would not have vested until May 2020.  The amount reflected in column (c) for Mr. Scanlan also reflects the incremental fair value of the 2019 RSU award based on the fair value at the time of acceleration.

 

NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN (DIRECTOR DEFERRED PLAN)

 

Prior to the beginning of each year, a nonemployee Director may elect to defer the compensation otherwise payable or awarded to the Director during the succeeding year pursuant to the Director Deferred Plan. Under the Director Deferred Plan, a Director is credited with RLI stock credits equal to the number of RLI shares that could be purchased by the amount of compensation deferred, with any cash dividend similarly converted to additional RLI stock credits. The Company transfers to a bank trustee, under an irrevocable trust established by the Company, cash equal to the compensation deferred which is used to purchase an equivalent amount of Company Common Stock to be held in the trust. Dividends on these shares are used to purchase additional shares of RLI stock. In general, Director Deferred Plan benefits are distributable, in the form of Company Common Stock, beginning when the Director’s status terminates.

 

DIRECTOR SHARE OWNERSHIP

 

Nonemployee Directors  are encouraged to own shares of the Common Stock of the Company having a dollar value of $500,000 to be met within five years of initial appointment to the Board. Shares held directly and amounts notionally invested in Company deferred compensation plans are counted to satisfy the guideline.    The Nominating/Corporate Governance Committee monitors Directors’ share ownership. Shares owned by each Director are reflected in the table on page 11. As of December 31, 2019, all Directors have met their respective goal or are within the five-year transition period.

 

BOARD LEADERSHIP STRUCTURE

 

Immediately following the 2019 Annual Shareholders Meeting, Mr. Michael was re-appointed Chairman of the Board in addition to his current officer positions of President and CEO of the Company.

 

The Company does not have a formal policy regarding separation of the offices of Chairman of the Board and chief executive officer. The Board believes that the decision whether to combine or separate such positions depends upon the Company’s particular circumstances at a given point in time.

 

The Board believes that a joint Board Chairman and chief executive officer position is advisable and in the best interests of the Company and its shareholders given our current Board and Lead Director configuration. This structure promotes unified leadership, continuity, and direction for the Company. This combined position also provides a clear focus for management to execute the Company’s strategy and business plan, while fostering clear accountability and decision-making in such roles. The Board believes the designation of an empowered “Lead Director” provides a counterbalancing governance structure and enables an appropriate balance between strategic execution and independent oversight of management.

 

28    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

The Lead Director (an independent Director) is the Chairperson of the Board’s Nominating/Corporate Governance Committee and is elected/confirmed by the Board’s independent Directors. The Lead Director (a) presides over executive sessions of the independent Directors, (b) serves as a liaison between the Chairman and the independent Directors, (c) assists in setting Board meeting agendas and schedules, (d) assists in determining information sent to Directors for meetings, (e) may call meetings of the independent Directors, (f) may consult with major shareholders if requested by the Chairman of the Board, (g) consults with the Chairman/CEO regarding results of annual performance reviews of the Board Committees and Board members, all as set forth in the Charter for the Lead Director position.

 

Several factors promote a strong and independent Board at our Company. Currently, all Directors except for Mr. Michael are independent as defined in the applicable NYSE listing standards (as adopted by the Company). Also, our independent Directors meet quarterly in executive session without management present. Consequently, with our Lead Director position, we believe our Board continues to be strong and independent and provides appropriate counterbalance to a combined Chairman/CEO position.

 

 

PROPOSAL TWO:  APPROVE THE AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

 

GENERAL   

 

The Company’s Board of Directors has unanimously approved, and submits for authorization and approval of shareholders, a proposal to amend Article Fourth of the Company’s Amended and Restated Certificate of Incorporation (“Certificate”) to increase the number of shares of authorized Common Stock from 100 million shares to 200 million. The Proposed Amendment is attached to this Proxy Statement as Annex A.

 

INCREASE IN AUTHORIZED SHARES OF COMMON STOCK   

 

The Company’s Certificate currently authorizes the issuance of a total of 100 million shares of Common Stock, par value $0.01 per share, and 5 million shares of Preferred Stock, par value $0.01 per share, for a total of 105 million shares.  The proposed amendment would increase the number of authorized shares of Common Stock from 100 million to 200 million (the “Share Increase”) and thereby increase the total number of authorized shares of all capital stock from 105 million to 205 million shares.  The proposed amendment does not increase the amount of authorized shares of Preferred Stock, or make any other changes to the Certificate.  As of March 9, 2020 (record date), _________ shares of Common Stock were outstanding (_________ shares were issued and outstanding if treasury shares are included), and no shares of Preferred Stock were outstanding.  As of March 9, 2020,  _________ shares of Common Stock were reserved for issuance pursuant to the Company’s 2015 Long Term Incentive Plan.  The number of shares to be issued upon exercise of outstanding options as of March 9, 2020, is ___________.

 

The Share Increase will constitute additional authorized but unissued shares of the existing Common Stock and, if and when issued, will have the same rights and privileges as the shares of Common Stock currently authorized.  The Share Increase only increases our amount of authorized shares, but will not increase the current number of issued and outstanding shares.

The Share Increase would enable the Company, without further shareholder approval, (unless shareholder approval is required by law, the SEC or under the rules of the NYSE) to issue shares from time to time as may be required for various purposes.  The purposes contemplated by Company management and the Board for the additional authorized shares include potential stock splits, stock dividends, potential strategic transactions, present and future employee benefit programs (including stock option plans), raising additional capital for ongoing operations, and other general corporate purposes.  The current number of authorized shares of Common Stock was established 11 years ago (in 2009), and has not been increased since then.  Company management and the Board believe the Share Increase is reasonable and advisable in view of our growth and capital structure needs since that time, and to support the Company’s future corporate growth.  For example, with the current number of available common shares, the Company could not accomplish a 2-for-1 stock split.  Likewise, a combination of other potential beneficial uses of stock — such as stock dividends, use in acquisitions or raising capital — could be impaired by the lack of available shares or reduce the available share cushion to unacceptably low levels.  As the

RLI Corp. 2020 Proxy Statement    |    29

 

Table of Contents

Company has grown over time, its capital structure and needs for capital stock have grown as well.  Company management and the Board believe it is prudent to enhance its capital structure at this time so that it has the flexibility to prepare for, and adapt to, future corporate stock needs.  Approval of the Share Increase at the Annual Meeting will enable us to take timely advantage of market conditions and other opportunities that may become available to us without the expense and delay of arranging a special meeting of shareholders in the future. Other than the routine practices of issuing shares pursuant to employee stock plans and employee equity incentive awards, we have no present plans, proposals, or arrangements with respect to the issuance of any of the newly-authorized shares of Common Stock.

 

The Share Increase could have a number of effects on the Company’s shareholders, depending upon the exact nature and circumstances of any actual issuances of these authorized shares. These effects are described further below.

 

ANTI-TAKEOVER EFFECTS OF THE PROPOSED AMENDMENT TO INCREASE AUTHORIZED SHARES OF COMMON STOCK

 

The Share Increase and the subsequent issuance of such shares could have the effect of delaying or preventing a change of control of the Company without further action by the shareholders.  For example, shares of authorized and unissued Common Stock could be issued (within the limits imposed by applicable law) in one or more transactions that would make a change of control of the Company more difficult, or be issued to discourage persons from attempting to gain control of the Company.

 

In addition, the Share Increase authorized by the proposed amendment could permit the Company to issue Common Stock to persons supportive of management’s position, who may then be in a position to vote to prevent or delay a proposed business combination that is deemed unacceptable to the Board of Directors.  Similarly, the issuance of additional shares to certain persons allied with the Company’s management could have the effect of making it more difficult to remove the Company’s current management by diluting the stock ownership or voting rights of persons seeking to cause such removal.  Likewise, shares could be used to facilitate the adoption of measures intended to deter unfair or coercive takeover tactics not believed to be in the best interests of shareholders.

 

The Board of Directors is not aware of any attempt or contemplated attempt to acquire control of the Company, and the Share Increase is not being presented with the intent that it be utilized as a type of anti-takeover device.

 

ADDITIONAL EFFECTS OF THE SHARE INCREASE

 

Although the Share Increase will not affect the terms or rights of holders of existing shares of Common Stock, an issuance of additional Common Stock will generally have the effect of diluting the earnings per share and book value per share of outstanding shares of Common Stock and the equity and voting rights of holders of shares of Common Stock.  Depending on the amount of consideration received for any issuance of additional Common Stock, subsequent issuances may also reduce shareholder’s equity on a per share basis.

 

RECOMMENDATION OF THE BOARD OF DIRECTORS

 

The Board of Directors has unanimously approved the proposed amendment and has determined that the Share Increase is in the best interests of the Company and its shareholders.

 

If our shareholders approve this proposal, the proposed amendment will become effective immediately upon the filing of the proposed amendment with the Secretary of State of the State of Delaware.

 

The affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock of the Company is required for adoption of this proposal.

 

The Board of Directors recommends the shareholders vote “FOR”  the proposal to approve the amendment of the Company’s Amended and Restated Certificate of Incorporation to increase the authorized shares of Common Stock.

 

30    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

PROPOSAL THREE: NON-BINDING, ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS

The Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC regulations require that we seek an advisory (non-binding) vote from our shareholders to approve the compensation of our Named Executive Officers (“NEOs”) as disclosed in the Compensation Discussion & Analysis (“CD&A”), compensation tables and related disclosures in this Proxy Statement.

 

As discussed in our CD&A starting on page 35, our executive compensation programs have been designed to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success.

 

The Executive Resources Committee of our Board (“ERC”) developed an overall compensation philosophy that is built on a foundation of the following principles:

 

·

The focus is on the linkage between long-term shareholder value creation and executive pay;

 

·

Incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company;

 

·

Compensation should reflect both the Company’s and individual’s performance;

 

·

A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests;

 

·

The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract, motivate and retain the best talent; and

 

·

Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company.

 

We are asking you to indicate your support for our executive compensation programs as described in this Proxy Statement. This proposal gives you the opportunity to express your views on our 2019 executive compensation policies and procedures for NEOs. This non-binding vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the policies and procedures described in this Proxy Statement. Accordingly, we ask the shareholders to vote “FOR” the following resolution at the Annual Meeting:

 

RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the CD&A, compensation tables and any related material disclosed in the Company’s Proxy Statement is hereby APPROVED.

 

Your vote is advisory, and therefore not binding on the ERC or the Board. However, we value your opinions and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns. The ERC will evaluate whether any actions are necessary to address those concerns.

 

The Board of Directors recommends that the shareholders vote “FOR” the proposal to approve the compensation of the Company’s NEOs as described in this Proxy Statement.

 

RLI Corp. 2020 Proxy Statement    |    31

 

Table of Contents

EXECUTIVE MANAGEMENT

 

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

 

Information regarding our executive officers is provided below:

 

 

 

 

 

Name

Age

Position with Company

Executive Officer Since

Jonathan E. Michael

66

President & Chief Executive Officer

1985

Craig W. Kliethermes

55

President & Chief Operating Officer of the Company’s principal insurance subsidiaries

2007

Todd W. Bryant (1)

51

Vice President, Chief Financial Officer

2009

Jennifer L. Klobnak (2) 

48

Sr. Vice President, Operations of the Company’s principal insurance subsidiaries

2016

Jeffrey D. Fick (3) 

59

Sr. Vice President, Chief Legal Officer & Corporate Secretary

2016

Seth A. Davis (4)

48

Vice President and Controller

2019

Aaron P. Diefenthaler

46

Vice President, Chief Investment Officer, Treasurer

2012

(1)

Mr. Bryant was promoted to Vice President, Chief Financial Officer effective July 1, 2019.  Prior to his promotion, Mr. Bryant was Vice President, Finance, and Controller since 2009.

 

(2)

Ms. Klobnak was promoted to Sr. Vice President, Operations of the Company’s principal insurance subsidiaries in January 2016.  Prior to her promotion, Ms. Klobnak had been Senior Vice President, Risk Services from May 2014 through December 2015 and Vice President, Risk Services from July 2012 through April 2014.

 

(3)

Mr. Fick was promoted to Sr. Vice President, Chief Legal Officer & Corporate Secretary on January 1, 2020. Prior to his promotion, Mr. Fick had been Sr. Vice President, Chief Legal Officer from October 2016 through December 2019 and Vice President, Human Resources from October 2005 through October 2016.

 

(4)

Mr. Davis was promoted to Vice President and Controller on July 1, 2019.  Prior to his promotion, Mr. Davis was Vice President, Corporate Services from June 2018 through June 2019 and Vice President, Internal Audit from December 2005 through May 2018.

EXECUTIVE RESOURCES COMMITTEE REPORT

 

The Executive Resources Committee has reviewed and discussed with management of the Company the Compensation Discussion & Analysis section of this Proxy Statement. Based on the Executive Resources Committee’s review and discussions, it recommended to the Board, and the Board approved, that the Compensation Discussion and Analysis be included in this Proxy Statement and its Annual Report on Form 10-K for the year ended December 31, 2019.

 

MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE

 

David B. Duclos (Chair)

Jordan W. Graham

Robert P. Restrepo, Jr.

Debbie S. Roberts

32    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

COMPENSATION DISCUSSION & ANALYSIS 

 

INTRODUCTION

 

The Executive Resources Committee (“ERC”) of the Company’s Board of Directors, with the review and approval of the Board of Directors, administers specific compensation programs for senior executive officers and oversees other executive compensation programs and management succession and development processes. The following Compensation Discussion & Analysis (“CD&A”) describes our executive compensation programs and actions with respect to the following Named Executive Officers (“NEOs”):

 

Jonathan E. Michael, President & Chief Executive Officer

Craig W. Kliethermes, President & Chief Operating Officer of the Company’s principal insurance subsidiaries

Todd W. Bryant, Vice President, Chief Financial Officer (after July 1, 2019)

Jennifer L. Klobnak, Sr. Vice President, Operations of the Company’s principal insurance subsidiaries

Thomas L. Brown, Sr. Vice President, Chief Financial Officer (prior to June 30, 2019)

Jeffrey D. Fick, Sr. Vice President, Chief Legal Officer & Corporate Secretary

 

EXECUTIVE SUMMARY

 

With the exception of Gross Premiums Written, the following financial metrics are used as targets in our incentive plans and actual results are used to calculate annual incentives for our senior executive officers. These financial measures (other than Gross Premiums Written) are non-GAAP and should not be considered substitutes for GAAP measures.  We consider them key performance indicators and employ them as well as other factors in determining senior management incentive compensation. The calculation of these non-GAAP metrics can be found in the discussions below with respect to the incentive plans in which those metrics are used:

 

 

 

 

 

 

 

Our Results in 2019:

    

2019

    

2018

    

Gross Premiums Written:

 

$1.1 billion

 

$ 983.2 million

 

Operating Earnings

 

$ 116.1 million

 

$ 92.1 million

 

(Net Earnings minus Realized Gains and Unrealized Gains (Losses) on Equity Securities Net of Tax)

 

 

 

 

 

Combined Ratio

 

91.9

 

94.7

 

(Net Loss and Operating Expense/Net Premiums Earned)

 

 

 

 

 

Operating Return on Equity

 

14.4%

 

10.8%

 

(Operating Earnings/Shareholders' Equity)

 

 

 

 

 

Market Value Potential (MVP)

 

$152.1 million

 

$ 12.1 million

 

(After Tax Returns Above Cost of Capital)

 

 

 

 

 

Five-Year Growth in Book Value: Rank Among Peer Companies

 

2/14

 

2/13

 

 

In 2019, we continued to grow revenue and post solid underwriting and operating performance. Our top-line, reflected as gross premiums written, advanced to $1.1 billion, the first time above $1 billion, an increase of 8% over 2018. Premium growth helped in our achievement of $276.9 million in net cash flow from operating activities, a record amount for the Company. Our strong cash flow was used to support insurance operations and expand our investment portfolio and allowed us to return capital to our shareholders in the form of ordinary and special dividends.

 

We achieved a 91.9 combined ratio. (Combined ratio is a common industry measure of profitability defined as expenses and losses as a percentage of Net Premiums Earned.  Thus, a combined ratio below 100 signifies an underwriting profit.)  We expect the property and casualty insurance industry to post a combined ratio near 96.8 for 2019.  Our result not only beats the industry’s projection but also represents our 24th consecutive year of a combined ratio below 100.

 

Market Value Potential (“MVP”), which is a measure of our after-tax returns above our cost of capital (explained in more detail on pages  40-41) increased to $152.1 million from $12.1 million last year driven by improvements in underwriting

RLI Corp. 2020 Proxy Statement    |    33

 

Table of Contents

income and gains in investments. At year-end 2019, our rank for five-year growth in book value comparing RLI and our thirteen Peer Companies remained at second, the same as in 2018.

 

KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION

 

·

Performance-based compensation: Total executive compensation is directly linked to Company performance. As in prior years, all executives participate in an incentive plan, through which they are eligible to earn compensation based on achievement of Company financial objectives and personal objectives that are designed to be aligned with shareholder value creation.

 

·

At risk compensation: A significant portion of annual incentive compensation for our CEO, COO, CFO, Sr. Vice President, Operations and each product group vice president is paid over time through a bonus bank concept to provide an incentive for sustained shareholder value creation. Amounts credited to the bonus bank are reduced dollar-for-dollar, should negative results occur in a future period. As a result, net losses in a future period reduce the amount available in the bonus bank and could result in a negative balance.

 

·

Compensation based on relative company performance: Each year we conduct a review of executive compensation within an insurance peer group to evaluate whether the Company’s executive compensation remains fair, competitive and consistent with the Company’s absolute and relative performance. The MVP Program for the CEO; COO; CFO; and Sr. Vice President, Operations includes an adjustment factor (positive and negative) for relative company performance compared to selected Peer Companies.

 

·

Significant executive stock ownership: Our compensation programs encourage our employees to build and maintain an ownership interest in the Company. We have established specific executive stock ownership guidelines and our NEOs as well as our other executive officers, currently maintain significant share ownership in the Company.  As reflected on page 13, as of December 31, 2019, executive officers and Directors beneficially held ___% percent of Company shares, providing strong alignment with shareholders.

 

The ERC believes that the Company’s overall compensation approach provided meaningful incentives for the talented management team at the Company to provide outstanding results for shareholders again this year.

HOW THE ERC OPERATES

 

ERC RESPONSIBILITIES

 

The ERC operates under a Charter, which can be found on the Company’s website under the Investors section at www.rlicorp.com. The ERC Charter is reviewed annually by the ERC and any proposed changes to the Charter are submitted to the Nominating/Corporate Governance Committee for recommendation to the full Board for approval. The ERC is responsible to the Board for: (1) reviewing and providing advice regarding the Company’s executive compensation; (2) reviewing and providing advice regarding the Company’s management succession and development processes; (3) monitoring compensation actions by management below the executive level; (4) producing an annual report on executive compensation for approval by the Board for inclusion in the Company’s proxy statement; and (5) reviewing the Company’s employee benefit plans.

 

ERC MEETINGS

 

The ERC held eight meetings in 2019. The agenda for each ERC meeting is established by the Chair of the ERC in consultation with other ERC members, and with Mr. Michael and Kathleen M. Kappes, Vice President, Human Resources.  ERC materials are prepared by Mr. Michael and Ms. Kappes with input from members of senior management and are

34    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

reviewed and approved by the ERC Chair in advance of distribution to ERC members. The ERC meetings are attended by Mr. Michael, Ms. Kappes and from time-to-time, other members of senior management, who are excused from the meeting during the Committee’s executive session.

 

RESPONSE TO 2019 SAY-ON-PAY VOTE

 

At the 2019 Annual Shareholder’s Meeting, we held a shareholder advisory vote on the compensation of our named executive officers, referred to as a Say-on-Pay vote, with over 96 percent of shareholder votes cast on that item in favor of our executive compensation programs. We considered this vote to represent strong support by shareholders for our long-standing executive compensation policies and practices. In 2019, therefore, the ERC continued its general approach to executive compensation, as described above in “KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION,” and did not make any changes to the Company’s executive compensation programs in response to the 2019 Say-on-Pay vote. 

 

INPUT FROM MANAGEMENT

 

Mr. Michael plays an important role in the ERC’s consideration of executive compensation levels and the design of executive compensation plans and programs for other senior executive officers. For these individuals, Mr. Michael recommends the following components of executive compensation to the ERC for review and recommendation to the Board:

 

·

annual base salary levels;

 

·

annual incentive targets and financial and personal goals; and

 

·

the form and amount of long-term incentives.

 

Mr. Michael makes such compensation recommendations based on external market data; achievement of respective performance criteria by each executive; and his judgment related to internal pay equity among Company executives, potential for advancement, and contribution to team initiatives. Mr. Michael also relies upon the input of the senior leadership team when making such recommendations. Mr. Michael does not make recommendations with respect to his own compensation.

 

COMPENSATION CONSULTANT

 

The ERC Charter specifically provides that if a compensation consultant is to assist in the evaluation of CEO or senior executive compensation, the ERC has sole authority to retain and terminate the consulting firm including sole authority to approve the firm’s fees and retention terms. Management also has authority to retain a compensation consultant, but may not retain the same compensation consulting firm retained by the ERC without approval in advance by the ERC. The ERC did not retain a compensation consultant in 2019. Management retained Lockton Financial Advisors, LLC in 2019 to provide advice regarding elements of executive compensation. The Company has assessed the independence of Lockton Financial Advisors, LLC pursuant to the NYSE rules and the Company concluded that Lockton Financial Advisors, LLC’s work did not raise any conflict of interest.

 

MARKET DATA

 

For 2019, the ERC considered market pay practices when setting executive compensation, but did not target percentile ranks of specific compensation elements or total compensation against the market data. Instead, the ERC used market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program.

 

The following Peer Companies were used to evaluate 2019 executive compensation, which was the same list of Peer Companies as used in 2018, with the exception of the removal of AmTrust Financial Services, Inc. due to its acquisition in 2018 and the additions of Kinsale Capital Group, Inc. and W.R. Berkley Corporation.

RLI Corp. 2020 Proxy Statement    |    35

 

Table of Contents

 

 

 

 

 

Peer Companies for Assessing 2019 Compensation (“Peer Company(ies)”).

Alleghany Corporation 

Argo Group Intl Holdings, Ltd.

Aspen Insurance Holdings Limited

Global Indemnity Limited

The Hanover Insurance Group, Inc.

             James River Group Holdings, Ltd.

             Kinsale Capital Group, Inc.

            

The Navigators Group, Inc.

Old Republic International Corporation 

ProAssurance Corporation

Protective Insurance Corporation (formerly Baldwin & Lyons, Inc.)

Selective Insurance Group, Inc.

W.R. Berkley Corporation

 

The ERC selected these Peer Companies based on its judgment. Each of the Peer Companies competes within the property and casualty insurance industry and sells a variety of specialty insurance products that serve both commercial entities and individuals that can generally be defined as specialty in nature, or targeted toward niche markets. The Peer Companies have established records of financial performance, and most have been publicly traded for at least five years, facilitating the comparison of the Company’s financial performance to that of the Peer Companies. The ERC also reviews the market capitalization of the Company compared to the Peer Companies to ensure that the Company is at or near the median market capitalization among those companies. For the Peer Company comparison performed in 2019, the Company’s market capitalization was sixth among fourteen companies within the Peer Companies.

Each year, the ERC compares the relative ranking among the Company and Peer Companies based on the most recently available public data (2018 data reviewed in 2019) for base salaries and total compensation for the CEO, COO and CFO positions to the relative performance ranking for the following publicly available performance metrics for the prior year: price-to-book ratio; return on equity; combined ratio; and total shareholder return ("TSR") for one, three and five-year time frames to determine the overall competitiveness of the Company’s executive compensation. The Company’s rank among the Peer Companies for 2019, based on 2018 results, is shown in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Metric

    

Price/Book

    

Return on Equity

    

Combined Ratio

    

One-Year TSR

    

Three-Year TSR

    

Five-Year TSR

  

RLI Rank

 

2

 

6

 

2

 

4

 

9

 

6

 

 

Base salaries and total compensation for other NEOs and executive positions are established by reference to the publicly available survey data, including median base salary levels, for comparable executives in the insurance industry.

OVERVIEW OF RLI EXECUTIVE COMPENSATION

 

OBJECTIVES

 

The objective of the Company’s executive compensation program is to provide a competitive total executive compensation program linked to Company performance that will attract, retain, and motivate talented executives critical to the Company’s long-term success.

 

36    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

ELEMENTS OF COMPANY EXECUTIVE COMPENSATION

 

The Company’s total executive compensation program is comprised of the following components, each of which is described in greater detail below:

 

1.

Total annual cash compensation consisting of:

 

(a)

Base salary;

 

(b)

Annual incentive awards under the MVP Program, which incorporates annual and long-term design features, for the CEO; COO; CFO; and Sr. Vice President, Operations;

 

(c)

Annual incentive awards under the Management Incentive Program (“MIP”) for other home office executives;

 

(d)

Annual incentive awards under the Underwriter Profit Program for product group executives;

 

2.

Long-term incentive compensation granted: under the LTIP to all NEOs and other management members; and under the MVP Program for the CEO; COO; CFO; and Sr. Vice President, Operations.

 

3.

Limited perquisites. All Company executives are provided with travel accident insurance and are reimbursed for out of pocket costs for an annual health examination not covered by the Company’s health plan. The CEO and COO are permitted to use the Company’s fractionally-owned aircraft for personal use for an hourly rate approved by the Board of Directors, with maximum annual use limited to total charges of 6.5 percent of annual base salary. The Company generally does not provide any income tax gross-ups for our executive compensation. In 2019, a retirement gift to Mr. Brown, as disclosed in note 4 to the 2019 Summary Compensation Table on page 48, was grossed up to approximately offset the effect of federal and state income taxes.

 

BALANCE OF SHORT-TERM AND LONG-TERM COMPENSATION

 

The ERC works to balance short-term and long-term elements of total compensation, as described in the following sections. The goal is to provide a meaningful level of long-term compensation to align with long-term value creation and mitigate the risk that members of management make decisions or take actions solely to increase short-term compensation while adding excessive risk to the Company. In that regard, the ERC believes that a greater percentage of total compensation should be in the form of long-term compensation for more senior positions. The Committee also takes into account the significant ownership of Company stock by Mr. Michael when determining his long-term incentive award.  

 

We consider those salary and annual incentive amounts earned in 2019 and paid in 2019 to be short-term compensation. MVP Program payments in 2019 made from amounts earned in prior years and credited to the bonus bank for prior year MVP Program awards and the grant date fair value of stock options awards in 2019, on the other hand, are considered to be long-term compensation. The following table compares the percentage of total compensation which is short-term in nature, to the percentage which is long-term in nature. The percentages shown in this table reflect greater percentages for short-term compensation than depicted in 2018 due to significantly lower annual bonuses under the MVP Program in 2018, which

RLI Corp. 2020 Proxy Statement    |    37

 

Table of Contents

in turn increased the relative percentage of long-term compensation from the payment of amounts from the bonus bank for prior years.

 

 

 

 

 

 

 

 

Short-Term as % of Total Compensation

 

Long-Term as % of Total Compensation

 

 

(Salary and Annual Incentive Earned

 

(Payment from Bonus Bank for Prior Years and

Name

    

and Paid in 2019)

    

Grant Date Fair Value of Stock Options Awarded)(1)(2)

Jonathan E. Michael

 

61%

 

39%

Craig W. Kliethermes

 

65%

 

35%

Thomas L. Brown (1)

 

68%

 

32%

Todd W. Bryant (2)

 

76%

 

24%

Jennifer L. Klobnak

 

74%

 

26%

Jeffrey D. Fick (3)

 

77%

 

23%

 

(1)

Mr. Brown retired as Sr. Vice President, Chief Financial Officer and ceased serving as an executive officer on July 1, 2019.  He retired from the Company effective December 31, 2019.

 

(2)

Mr. Bryant was promoted to Vice President, Chief Financial Officer on July 1, 2019.  Prior to his promotion Mr. Bryant participated in MIP instead of MVP and consequently his long-term percentage is less than those NEOs participating in MVP.

 

(3)

Mr. Fick does not participate in the MVP Program, but instead participates in the MIP, which does not have a bonus bank or long-term payout feature, and consequently his long-term percentage is less than the other NEOs.

 

MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM (MVP PROGRAM) — GENERAL

 

MVP Defined. As discussed in further detail below, the MVP Program provides a mechanism with which the ERC can correlate incentive compensation to long-term shareholder value creation. The MVP Program uses an economic profit measure called “Market Value Potential” (“MVP”), which measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in adjusted GAAP book value as defined immediately below), less (2) the Required Return (beginning capital multiplied by the blended cost of capital). If the Company does not earn the Required Return in a given year and MVP is negative, no incentive award is made pursuant to the MVP Program for that year.

 

For the purposes of the MVP Program, the increase or decrease in GAAP book value is calculated as ending capital less beginning capital. Ending capital is defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term debt instruments at the end of the period; and adjusted for capital transactions during the year. Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. The cost of equity capital is the average ten-year U.S. Treasury Note rate, plus a market risk premium of five percent modified by the Company’s ten-year beta versus the S&P 500 index. The Company’s cost of debt capital is the forward market rate on its outstanding long-term debt.

 

MVP Program Participation. Participation in the MVP Program, percentage incentive awards and the formula to calculate MVP are recommended by the ERC and approved annually by the independent Directors of the Board for Mr. Michael and by the entire Board for other participants. In 2019, participation in the MVP Program was limited to Messrs. Michael, Kliethermes, Brown, Bryant and Ms. Klobnak. Mr. Brown ceased participation in the MVP Program on July 1, 2019 and Mr. Bryant became a participant on July 1, 2019. The Board has concluded based on the position responsibilities and ongoing assessment of individual performance against operational and financial goals that the senior executive management team (comprised of the CEO, COO, CFO and Sr. Vice President, Operations) is most responsible for the operating and investment decisions and actions that directly impact the creation of long-term shareholder value, and, therefore, should be rewarded with a portion of their incentive compensation being directly and exclusively tied to the creation of MVP.

38    |    RLI Corp. 2020 Proxy Statement

 

 

Table of Contents

MVP Components. As discussed in more detail below, there are two components to the MVP Program. The first component, based on strategic objectives, represents annual compensation. The second component, based on financial objectives, is paid out over time out of amounts credited to a bonus bank, which is at risk of forfeiture based on future performance and as such represents long-term compensation. The component based on financial objectives is also adjusted based on a relative comparison of the Company's five-year growth in book value to that of its Peer Companies. (The Company’s relative growth in book value, in turn, is calculated by comparing its compound annual growth rate (“CAGR”) in GAAP comprehensive earnings over the applicable five-year period to that of its Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year.)

 

MVP Percentage Award. For 2019, each participant in the MVP Program received a MVP incentive award expressed as a percentage of MVP created by the Company in that calendar year. Each year the ERC confirms that the percentage awards remain appropriate by reviewing historical incentive award payouts, projected future payouts and resulting total compensation for MVP Program participants, which in turn, is compared to the performance of the Company necessary to achieve such payouts. The ERC compares the performance of the Company and total compensation of the MVP Program participants with comparable performance metrics and compensation at the Peer Companies.. The MVP percentage award, expressed as a percentage of MVP, for each participant for 2019 was as follows, the same as for 2018: 2.5 percent for Mr. Michael, 1.8 percent for Mr. Kliethermes, 1.0 percent for Mr. Brown, and 1.0 percent for Ms. Klobnak. On June 30, 2019, Mr. Brown retired from his position of Senior Vice President, Chief Financial Officer, and his participation in the MVP Program ended, although he remained eligible for a pro-rated award for service through June 30, 2019. Mr. Bryant was promoted to Vice President, Chief Financial Officer on July 1, 2019 and began participating in the MVP program at 1.0 percent, the same percentage award as his predecessor.  The ERC set the percentage incentive awards for 2019 based on the factors described above and based on the range of expected MVP to be created by the Company in 2019 and the projected incentive awards and incentive payouts that would result. 

 

Individual MVP Award payments during any fiscal year, including payments from amounts credited to a bonus bank in prior years, are capped at $7.5 million under the terms of the RLI Corp. Annual Incentive Compensation Plan.  Pursuant to the Annual Incentive Compensation Plan, under which the MVP Program operates, the Board of Directors may exercise discretion to alter MVP Awards based on such objective or subjective criteria it deems appropriate.

ANNUAL COMPENSATION

BASE SALARY

 

Executive base salaries are targeted to be at the median base salary for comparable positions in the insurance industry, taking into account performance, experience, potential and the level of base salary necessary to attract and retain top executive talent.

 

In 2019, the ERC set base salary ranges for the CEO, CFO and COO based on publicly available executive compensation data for 2019 from the Peer Companies described above. 

At the May 2019 Board meeting, when the annual review of base salaries was conducted by the ERC, Mr. Michael recommended no base salary increase for himself or Mr. Brown due to his upcoming retirement.  Based on an assessment of annual cash compensation levels (base salary and annual incentive payouts from the MVP Program), Mr. Michael recommended a 5.00% increase for Mr. Kliethermes.  In addition, Mr. Michael recommended an increase of 17.86% for Mr. Bryant in anticipation of his promotion to Vice President, Chief Financial Officer, with such amount determined based on compensation received by Mr. Bryant’s predecessor and the Peer Companies.  Mr. Michael also recommended a 8.82% increase for Ms. Klobnak and a 3.03% increase for Mr. Fick in light of the placement of their respective base salaries compared to other similar positions in the insurance industry. The ERC and Board approved Mr. Michael’s recommendations.

RLI Corp. 2020 Proxy Statement    |    39

 

Table of Contents

MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — ANNUAL INCENTIVE COMPENSATION COMPONENT

 

Twenty percent of the preliminary MVP award calculated for each participant is evaluated against annual objectives and an achievement rating of 0 to 100 percent is assigned to that portion of the award. This amount represents the annual compensation component of the MVP Program award (The long-term incentive component of the MVP Program is explained under the section Long-Term Compensation on pages 44-46). For 2019, Messrs. Michael, Kliethermes, Brown, and Bryant and Ms. Klobnak shared five equally-weighted annual objectives. These annual performance objectives generally fell within the categories of: the advancement of operational efficiencies through the strengthening of core infrastructure; the improvement of the customer experience; talent development; relative annual financial performance; and growth initiatives. Under each annual objective category, each NEO had a number of underlying pre-established goals against which the NEO’s performance would be assessed to determine whether the NEOs had achieved the annual objectives. The evaluation of an executive’s performance relative to these objectives is inherently subjective, involving a high degree of judgment by the CEO and the Board. The annual objectives are established as difficult stretch goals, requiring superior effort and execution to achieve 100% on all goals.  The annual objectives component of an MVP award will only be paid if objectives are achieved and if positive MVP is created for shareholders. If MVP is positive and annual objectives are achieved, the annual objectives component of the award will be paid annually to provide direct linkage of annual incentive compensation for the achievement of those annual goals. However, if MVP is negative for a year, no MVP award will be made for that year with respect to the annual objectives component.

 

In 2018 and prior years, Mr. Bryant participated in the MIP discussed immediately below. Under the MIP, annual bonuses are paid out in their entirety, compared to annual bonuses under the MVP Program which are credited to a bonus bank, with 33 percent of the bonus bank paid out annually. As a transition from participation in MIP to the MVP Program, the ERC agreed that for 2019 and 2020, Mr. Bryant would be paid the greater of the bonus calculated under MIP or the MVP Program. Based on 2019 results, the bonus payable to Mr. Bryant was greater under the MVP Program. For 2019, annual objectives were evaluated by the Committee and a  91 percent overall achievement factor was applied. The following annual incentive compensation component was paid to each participant under the MVP Program:

 

Calculation of MVP Program Annual Incentive Award

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A)

 

(B)

 

(C = A x B)

 

(D = C x 20%)

 

(E = % Achieved)

 

(F = D x E)

 

 

 

2019 MVP

 

Percentage

 

2019 Preliminary

 

20% Annual Component

 

Achievement

 

2019 Annual

 

Participant

 

Created

 

Award

 

MVP Award

 

Based on Strategic Goals