Exhibit 99.1

 

 

 

 

ASPEN INSURANCE HOLDINGS LIMITED

Notice of 2012 Annual General Meeting of Shareholders
and
Proxy Statement

 

ASPEN INSURANCE HOLDINGS LIMITED
141 Front Street
Hamilton HM19
Bermuda

 

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON APRIL 25, 2012

 

To our Shareholders:

 

The annual general meeting of shareholders (the “Shareholders”) of Aspen Insurance Holdings Limited (the “Company” or “Aspen Holdings”) will be held at the offices of the Company, 141 Front Street, Hamilton HM19, Bermuda on April 25, 2012 at 12.00 p.m. Bermuda time (the “Annual General Meeting”) for the following purposes:

 

 

The Company will also lay before the meeting the financial statements of the Company for the year ended December 31, 2011 pursuant to the provisions of the Bermuda Companies Act 1981, as amended, and the Company’s Bye-Laws.

 

The close of business on March 2, 2012 has been fixed as the record date for determining the Shareholders entitled to notice of and to vote at the Annual General Meeting or any adjournments thereof. For a period of at least 10 days prior to the Annual General Meeting, a list of Shareholders entitled to vote at the Annual General Meeting will be open for examination by any Shareholder during ordinary business hours at the offices of the Company at 141 Front Street, Hamilton HM19, Bermuda.

 

Shareholders are urged to complete, date, sign and return the enclosed proxy card to Aspen Insurance Holdings Limited, c/o Shareowner Services, P.O. Box 3550, South Hackensack, NJ 07606-9250, in the accompanying envelope, which does not require postage if mailed in the United States. Shareholders who appear on the Company’s register may also vote their ordinary shares by telephone or over the Internet. Signing and returning a proxy card will not prohibit you from attending the Annual General Meeting. Please note that the person designated as your proxy need not be a shareholder. Persons who hold their ordinary shares in a brokerage account or through a nominee will also likely have the added flexibility of directing the voting of their ordinary shares by telephone or over the Internet.

 

By Order of the Board of Directors,

 

Secretary

 

Hamilton, Bermuda

March 16, 2012

ASPEN INSURANCE HOLDINGS LIMITED
141 Front Street
Hamilton HM19
Bermuda

 

PROXY STATEMENT
ANNUAL GENERAL MEETING OF SHAREHOLDERS
April 25, 2012

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be
Held on April 25, 2012

 

The proxy statement and annual report to security holders are available at www.aspen.co

 

GENERAL INFORMATION

 

This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the “Board”) of Aspen Insurance Holdings Limited (the “Company”) to be voted at our annual general meeting of shareholders (the “Shareholders”) to be held at the offices of the Company, 141 Front Street, Hamilton HM19 Bermuda on April 25, 2012 at 12:00 p.m. Bermuda time, or at such other meeting upon any postponement or adjournment thereof (the “Annual General Meeting”). Directions to the meeting may be obtained by contacting the Company at 441-295-8201. This Proxy Statement, the Notice of Annual General Meeting of Shareholders and the accompanying form of proxy are being first mailed to Shareholders on or about March 16, 2011. These proxy materials, along with a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, are also available for viewing at www.aspen.co.

 

As of March 2, 2012, the record date for the determination of persons entitled to receive notice of, and to vote at, the Annual General Meeting, there were 70,899,554 ordinary shares of the Company, par value U.S. 0.15144558¢ per share (the “Ordinary Shares”), issued and outstanding. The Ordinary Shares are our only class of equity securities outstanding currently entitled to vote at the Annual General Meeting.

 

Holders of Ordinary Shares are entitled to one vote for each share held on each matter to be voted upon by the Shareholders at the Annual General Meeting. Pursuant to our Bye-Laws 63 to 67, the voting power of all Ordinary Shares is adjusted to the extent necessary so that there is no 9.5% U.S. Shareholder. For the purposes of our Bye-Laws, a 9.5% U.S. Shareholder is defined as a United States Person (as defined in the Internal Revenue Code of 1986, as amended, of the United States (the “Code”)) whose “controlled shares” (as defined below) constitute nine and one-half percent or more of the voting power of all Ordinary Shares and who would be generally required to recognize income with respect to the Company under Section 951(a)(1) of the Code, if the Company were a controlled foreign corporation as defined in Section 957 of the Code and if the ownership threshold under Section 951(b) of the Code were 9.5%.

 

Because the applicability of the voting power reduction provisions to any particular Shareholder depends on facts and circumstances that may be known only to the Shareholder or related persons, the Company requests that any holder of Ordinary Shares with reason to believe that it is a 9.5% U.S. Shareholder (as described above) contact the Company promptly so that the Company may determine whether the voting power of such holder’s Ordinary Shares should be reduced. By submitting a proxy, unless the Company has otherwise been notified or made a determination with respect to a holder of Ordinary Shares, a holder of Ordinary Shares will be deemed to have confirmed that, to its knowledge, it is not, and is not acting on behalf of, a 9.5% U.S. Shareholder.

 

In order to determine the number of controlled shares owned by each Shareholder, we are authorized to require any Shareholder to provide such information as the Board may deem necessary for the purpose of determining whether any Shareholder’s voting rights are to be adjusted pursuant to the Company’s Bye-Laws. We may, in our reasonable discretion, disregard the votes attached to Ordinary Shares of any Shareholder failing to respond to such a request or submitting incomplete or inaccurate information. “Controlled shares” will include, among other things, all Ordinary Shares that a person is deemed to beneficially own directly, indirectly or constructively (as determined pursuant to Sections 957 and 958 of the Code).

The presence of one or more Shareholders in person or by proxy holding at least 50% of the voting power (that is the number of maximum possible votes of the Shareholders entitled to attend and vote at a general meeting, after giving effect to the provision of our Bye-Laws 63 to 67) of all of the issued and outstanding Ordinary Shares of the Company throughout the meeting shall form a quorum for the transaction of business at the Annual General Meeting.

 

Pursuant to our Bye-Laws 63 to 67, it is currently expected that there will be no adjustments to the voting power of any of the Company’s Shareholders. Therefore, every Shareholder will be entitled to one vote for each ordinary share held by such Shareholder on each matter to be voted upon.

 

At the Annual General Meeting, Shareholders will be asked to take the following actions:

 

1.  To vote FOR the re-election of Messrs. Julian Cusack and Glyn Jones as Class II directors of the Company and the election of Mr. Ronald Pressman as a Class III director of the Company.

 

2.  To vote FOR the appointment of KPMG Audit plc (“KPMG”), London, England, to act as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012 and to authorize the Board through the Audit Committee (the “Audit Committee”) to set the remuneration for the independent registered public accounting firm.

 

At the Annual General Meeting, Shareholders will also receive the report of KPMG and may be asked to consider and take action with respect to such other matters as may properly come before the Annual General Meeting.

 

Each of the proposals require an affirmative vote of the majority of the voting power of the votes cast at the Annual General Meeting (taking into account Bye-Laws 63 to 67). The Company intends to conduct all voting at the Annual General Meeting by poll as requested by the Chairman of the meeting, in accordance with our Bye-Laws.

 

PRESENTATION OF FINANCIAL STATEMENTS

 

In accordance with the Bermuda Companies Act 1981, as amended, and Bye-Law 139 of the Company, the Company’s financial statements for the year ended December 31, 2011 will be presented at the Annual General Meeting. The Board has approved these statements. There is no requirement under Bermuda law that these statements be approved by Shareholders, and no such approval will be sought at the meeting.

 

SOLICITATION AND REVOCATION

 

PROXIES IN THE FORM ENCLOSED ARE BEING SOLICITED BY, OR ON BEHALF OF, THE BOARD. THE BOARD HAS DESIGNATED THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY AS PROXIES. Such persons designated as proxies serve as officers of the Company. Any Shareholder desiring to appoint another person to represent him or her at the Annual General Meeting may do so either by inserting such person’s name in the blank space provided on the accompanying form of proxy, or by completing another form of proxy and, in either case, delivering an executed proxy to the Secretary of the Company at the address indicated above, before the time of the Annual General Meeting. It is the responsibility of the Shareholder appointing such other person to represent him or her to inform such person of this appointment.

 

Each Ordinary Share represented by a properly executed proxy which is returned and not revoked will be voted in accordance with the instructions, if any, given thereon. If no instructions are provided in a properly executed proxy, it will be voted FOR each of the proposals described herein and set forth on the accompanying form of proxy, and in accordance with the proxyholder’s best judgment as to any other business as may properly come before the Annual General Meeting. If a Shareholder appoints a person other than the persons named in the enclosed form of proxy to represent him or her, such person will vote the shares in respect of which he or she is appointed proxyholder in accordance with the directions of the Shareholder appointing him or her. Any Shareholder who executes a proxy may revoke it at any time before it is voted by delivering to the

Secretary of the Company a written statement revoking such proxy, by executing and delivering a later-dated proxy, or by voting in person at the Annual General Meeting. Attendance at the Annual General Meeting by a Shareholder who has executed and delivered a proxy to us shall not in and of itself constitute a revocation of such proxy. For Ordinary Shares held in “street name” by a broker, bank or other nominee, new voting instructions must be delivered to the broker, bank or nominee prior to the Annual General Meeting.

 

To the extent that beneficial owners do not furnish voting instructions with respect to any or all proposals submitted for shareholder action, member brokerage firms of The New York Stock Exchange, Inc. (the “NYSE”) that hold Ordinary Shares in street name for such beneficial owners may not vote in their discretion upon any of the proposals. Any “broker non-votes” and abstentions will be counted toward the presence of a quorum at, but will not be considered votes cast on any proposal brought before, the Annual General Meeting. Generally, “broker non-votes” occur when Ordinary Shares held for a beneficial owner are not voted on a particular proposal because the broker has not received voting instructions from the beneficial owner, and the broker does not have discretionary authority to vote the Ordinary Shares on a particular proposal. If a quorum is not present, the Shareholders who are represented may adjourn the Annual General Meeting until a quorum is present. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice need be given. An adjournment will have no effect on the business that may be conducted at the adjourned meeting.

 

We will bear the cost of solicitation of proxies. We have engaged Phoenix Advisory Partners to be our proxy solicitation agent. For these services, we will pay Phoenix Advisory Partners a fee of approximately $6,000, plus reasonable expenses. Further solicitation may be made by our directors, officers and employees personally, by telephone, Internet or otherwise, but such persons will not be specifically compensated for such services. We may also make, through bankers, brokers or other persons, a solicitation of proxies of beneficial holders of the Ordinary Shares. Upon request, we will reimburse brokers, dealers, banks or similar entities acting as nominees for reasonable expenses incurred in forwarding copies of the proxy materials relating to the Annual General Meeting to the beneficial owners of Ordinary Shares which such persons hold of record.

MANAGEMENT

 

Board of Directors of the Company

 

Pursuant to provisions that were in our bye-laws and a shareholders’ agreement by and among us and certain shareholders prior to our initial public offering in 2003, certain of our shareholders had the right to appoint or nominate and remove directors to serve on the Board. Mr. Cormack was appointed director by Candover, one of our founding shareholders. After our initial public offering, no specific shareholder has the right to appoint or nominate or remove one or more directors pursuant to an explicit provision in our bye-laws or otherwise.

 

Our Bye-Laws provide for a classified Board of Directors, divided into three classes of directors, with each class elected to serve a term of three years. Our incumbent Class I Directors were elected at our 2011 annual general meeting and are scheduled to serve until our 2014 annual general meeting. Our incumbent Class II Directors were elected at our 2009 annual general meeting and are scheduled to serve until our upcoming 2012 annual general meeting. Our incumbent Class III Directors were elected at our 2010 annual general meeting and will be subject for re-election at our 2013 annual general meeting (with the exception of Ronald Pressman who was appointed by the Board with effect from November 17, 2011 and will be subject for election as a Class III Director at our 2012 Annual General Meeting, and subject for re-election as a Class III Director at our 2013 annual general meeting).

 

We have provided information below about our directors including their ages, committee positions, business experience for the past five years and the names of other companies on which they serve, or have served, as director for the past five years. We have also provided information regarding each director’s specific experience, qualifications, attributes and skills that led the Board to conclude that each should serve as a director.

 

As of March 1, 2012, we had the following directors on the Board and committees:

 

 

 

 

Glyn Jones.  With effect from May 2, 2007, Mr. Jones was appointed as Chairman. Mr. Jones has been a director since October 30, 2006. He also has served as a non-executive director of Aspen U.K. since

December 4, 2006. Mr. Jones is the Chairman of Towry Holdings Limited. Mr. Jones was also previously the Chairman of Hermes Fund Managers and Chairman of BT Pension Scheme Management Ltd. Mr. Jones was most recently the Chief Executive Officer of Thames River Capital. From 2000 to 2004, he served as Chief Executive Officer of Gartmore Investment Management in the U.K. Prior to Gartmore, Mr. Jones was Chief Executive of Coutts NatWest Group and Coutts Group, which he joined in 1997, and was responsible for strategic leadership, business performance and risk management. In 1991, he joined Standard Chartered, later becoming the General Manager of Global Private Banking. Mr. Jones was a consulting partner with Coopers & Lybrand/Deloitte Haskins & Sells Management Consultants from 1981 to 1990.

 

Mr. Jones has over 23 years of experience within the financial services sector. He is the former CEO of a number of large, regulated, international financial services groups, such as Gartmore Investment Management and Coutts Natwest Group and has served as chairman of the board in a number of other financial services companies. As a result, Mr. Jones provides the Board leadership for a complex, global and regulated financial services business such as ours.

 

Christopher O’Kane.  Mr. O’Kane has been our Chief Executive Officer and a director since June 21, 2002. He was also the Chief Executive Officer of Aspen U.K. until January 2010 (and is still a director) and was Chairman of Aspen Bermuda until December 2006. Prior to the creation of Aspen Holdings, from November 2000 until June 2002, Mr. O’Kane served as a director of Wellington and Chief Underwriting Officer of Lloyd’s Syndicate 2020 where he built his specialist knowledge in the fields of property insurance and reinsurance, together with active underwriting experience in a range of other insurance disciplines. From September 1998 until November 2000, Mr. O’Kane served as one of the underwriting partners for Syndicate 2020. Prior to joining Syndicate 2020, Mr. O’Kane served as deputy underwriter for Syndicate 51 from January 1993 to September 1998. Mr. O’Kane began his career as a Lloyd’s broker.

 

Mr. O’Kane has over 30 years of experience in the specialty re/insurance industry and is both a co-founder of our Company’s business and its founding CEO. Mr. O’Kane brings his market experience and industry knowledge to Board discussions and is also directly accountable to the Board for the day-to-day management of the Company and the implementation of business strategy.

 

Julian Cusack, Ph.D.  Mr. Cusack has been our Chief Risk Officer since January 14, 2010 and since February 29, 2012, he has assumed the role of acting Chief Financial Officer pending the appointment of a Chief Financial Officer. He was our Chief Operating Officer from May 1, 2008 to January 14, 2010, and has been a director since June 21, 2002. He was the CEO of Aspen Bermuda from its formation in 2002 until July 1, 2011 and was appointed Chairman of Aspen Bermuda in December 2006. Previously Mr. Cusack was our Chief Financial Officer from June 21, 2002 to April 30, 2007. Mr. Cusack previously worked with Wellington where he was Managing Director of Wellington Underwriting Agencies Ltd. (“WUAL”) from 1992 to 1996, and in 1994 joined the Board of Directors of Wellington Underwriting Holdings Limited. He was Group Finance Director of Wellington Underwriting plc from 1996 to 2002. Mr. Cusack is a director and audit committee member of Hardy Underwriting Bermuda Limited. He was also a director of Parhelion Capital Limited, in which we had a minority investment.

 

Mr. Cusack has over 28 years’ experience within the re/insurance industry having held a number of senior roles previously at Wellington. Mr. Cusack, a qualified accountant, is also a co-founder of our Company. Mr. Cusack currently also serves as the Company’s Chief Risk Officer and has been Chair of our Reserve Committee (a management committee) until January 2011. Accordingly, he provides the Board with valuable input on the Company’s risk framework, risk tolerances and risk mitigation efforts, as well as providing an insight on our reserving practices.

 

Richard Houghton.  Mr. Houghton joined us as our Chief Financial Officer on April 30, 2007 and has been a director since May 2, 2007. Mr. Houghton has stepped down from his position as director and Chief Financial Officer with effect February 29, 2012. He was previously at Royal Bank of Scotland Group plc (“RBS”), where he was Chief Operating Officer, RBS Insurance from 2005 to March 2007, responsible for driving operational efficiency across the finance, IT, risk, HR, claims and actuarial functions of this division. Previously, he was Group Finance Director, RBS Insurance from 2004 to 2005. Mr. Houghton was also Group Finance Director of Ulster Bank, another subsidiary of RBS from 2003 to 2004. While at RBS, Mr. Houghton

was also a member of the Board of various of its subsidiaries. He began his professional career as an accountant at Deloitte & Touche where he spent 10 years working in audit, corporate finance and recovery. He is a Fellow of the Institute of Chartered Accountants in England and Wales.

 

Mr. Houghton is a qualified accountant with over 22 years of broad industry experience. He has held a number of finance and operations roles across the financial services industry. As our Chief Financial Officer, it is important for the Board to have direct interaction with Mr. Houghton to understand the financial performance of the Company and the impact of underwriting and investment performance on the Company’s results.

 

Liaquat Ahamed.  Mr. Ahamed has been a director since October 31, 2007. Mr. Ahamed has a background in investment management with leadership roles that include heading the World Bank’s investment division. From 2004, Mr. Ahamed has been an adviser to the Rock Creek Group, an investment firm based in Washington D.C. From 2001 to 2004, Mr. Ahamed was the Chief Executive Officer of Fischer Francis Trees & Watts, Inc., a subsidiary of BNP Paribas specializing in institutional single and multi-currency fixed income investment portfolios. Mr. Ahamed is a director of the Rohatyn Group and related series of funds, and a member of the Board of Trustees at the Brookings Institution.

 

Mr. Ahamed has over 27 years of experience in investment management and has previously served as a Chief Investment Officer and Chief Executive Officer of Fischer Francis Trees & Watts, Inc., an international fixed income business. Mr. Ahamed’s investment management experience provides the Board with experience to oversee the Company’s investment decisions, strategies and investment risk appetite. As a result of this, Mr. Ahamed also serves as the Chair of the Investment Committee.

 

Albert J. Beer.  Mr. Beer has been a director since February 4, 2011. Since 2006, Mr. Beer has been the Michael J Kevany/XL Professor of Insurance and Actuarial Science at St John’s University School of Risk Management. From 1992 to 2006, Mr. Beer held various senior executive positions at American Re-Insurance Corporation (Munich Re America). Previously, from 1989 to 1992, Mr. Beer held various positions at Skandia — America Reinsurance Company, including that of Chief Actuary. Mr. Beer has been a member of the Actuarial Standards Board, which promulgates standards for the actuarial profession in the United States, since 2008 and its Chair since 2010. He is also the Vice-Chair of United Educators Insurance Company since 2006. Mr. Beer previously served as a member of the Board of the American Academy of Actuaries and the Actuarial Foundation, where he has been a trustee emeritus since 2009. Mr. Beer is also a former President of the Casualty Actuary Society since 2008.

 

Mr. Beer has over 30 years of actuarial experience in the insurance industry. Mr. Beer’s roles at American Re-Insurance Corporation included the active supervision of principal financial and accounting officers. In addition, Mr. Beer has extensive experience in reserving matters, which constitute the principal subjective assessments within the Company’s accounts. As a result, Mr. Beer also serves as a designated financial expert on the Company’s Audit Committee.

 

Richard Bucknall.  Mr. Bucknall has been a director since July 25, 2007, a director of Aspen U.K. since January 14, 2008 and a director of AMAL since February 28, 2008. Mr. Bucknall retired from Willis Group Holdings Limited where he was Vice Chairman from February 2004 to March 2007 and Group Chief Operating Officer from January 2001 to December 2006. While at Willis, Mr. Bucknall served as director on various boards within the Willis Group. He was also previously Chairman/Chief Executive Officer of Willis Limited from May 1999 to March 2007. Mr. Bucknall is currently the non-executive Chairman of FIM Services Limited and the non-executive Chairman of the XIS Group (Ins-Sure Holdings Limited, Ins-Sure Services Limited, London Processing Centre Ltd and LSPO Limited). He is also a non-executive director of Tokio Marine Europe Insurance Limited. He was also previously a director of Kron AS. He is a Fellow of the Chartered Insurance Institute.

 

Mr. Bucknall has over 40 years of experience within the re/insurance broking industry and latterly served as Group Chief Operating Officer of the Willis Group. Since our revenues are primarily derived from brokers as distribution channels, Mr. Bucknall’s background in the insurance broking industry provides the Board with an experienced perspective on broking relationships and their ability to impact our trading operations. Given

his broad background across a number of operational disciplines, Mr. Bucknall serves as the Chair of our Compensation Committee.

 

John Cavoores.  Mr. Cavoores has been a director since October 30, 2006. From October 5, 2010 through December 31, 2011, Mr. Cavoores was Co-CEO of Aspen Insurance, focusing on Aspen Insurance’s casualty and professional lines and U.S. property businesses. Mr. Cavoores had executive oversight for Aspen Insurance’s U.S. platform. From January 1, 2012, Mr. Cavoores re-assumed his role as a non-executive of the Company. Mr. Cavoores was previously an advisor to Blackstone (from September 2006 until March 15, 2010). During 2006, Mr. Cavoores was a Managing Director of Century Capital, a Boston-based private equity firm. Mr. Cavoores previously served as President and Chief Executive Officer of OneBeacon Insurance Company, a subsidiary of the White Mountains Insurance Group, from 2003 to 2005. He was employed with OneBeacon from 2001 to 2005. Among his other positions, Mr. Cavoores was President of National Union Insurance Company, a subsidiary of AIG, Inc. He spent 19 years at Chubb Insurance Group, where he served as Chief Underwriting Officer, Executive Vice President and Managing Director of overseas operations, based in London. Mr. Cavoores previously served as a director of Cyrus Reinsurance Holdings and currently is a director of Alliant Insurance Holdings.

 

Mr. Cavoores has over 30 years of experience within the insurance industry having, among other positions, formerly served as CEO of OneBeacon Insurance, a subsidiary of White Mountains. As a result, Mr. Cavoores provides the Board with broad ranging business experience with particular focus on insurance matters and strategies within the U.S.

 

Ian Cormack.  Mr. Cormack has been a director since September 22, 2003 and has served also as a non-executive director of Aspen U.K. since 2003. From 2000 to 2002, he was Chief Executive Officer of AIG Inc.’s insurance financial services and asset management division in Europe. From 1997 to 2000, he was Chairman of Citibank International plc and Co-Head of the Global Financial Institutions Client Group at Citigroup. He was also Country Head of Citicorp in the United Kingdom from 1992 to 1996. Mr. Cormack is also a director of Phoenix Group Holdings Ltd (previously Pearl Group Ltd.), Phoenix Life Holdings Ltd, and Qatar Financial Centre Authority, Bloomsbury Publishing Plc and National Angels Ltd. Mr. Cormack is also a non-executive chairman and audit committee member of Maven Income and Growth VCT 4 plc, chairman of Entertaining Finance Ltd and deputy chairman of Qatar Insurance Services Ltd (trading as ‘Qatarlyst’). He previously served as Chairman of CHAPS, the high value clearing system in the United Kingdom, as a member of the Board of Directors of Clearstream (Luxembourg), Bank Training and Development Ltd., Klipmart Corp, Carbon Reductions Ltd and as a member of Millennium Associates AG’s Global Advisory Board. He was also previously a non-executive director of MphasiS BFL Ltd. (India), Europe Arab Bank Ltd., Pearl Assurance, London Life Assurance, National Provident Insurance and National Provident Life. He was a member of the U.K. Chancellor’s City Advisory Panel from 1993 to 1998.

 

Mr. Cormack has over 40 years of broad ranging international experience in both the banking and insurance sectors having held senior roles at both Citigroup and AIG Inc. Mr. Cormack also serves on the boards of a number of internationally focused companies and brings his broad ranging global experience to Board debate. Given his wide ranging experience, Mr. Cormack also serves as Chair of our Audit Committee.

 

Heidi Hutter.  Ms. Hutter has been a director since June 21, 2002 and has served as a non-executive director of Aspen U.K. since June 2002. On February 28, 2008, Ms. Hutter was appointed as a director and Chair of AMAL. She has served as Chief Executive Officer of Black Diamond Group, LLC since 2001 and Manager of Black Diamond Capital Partners since 2005. Ms. Hutter began her career in 1979 with Swiss Reinsurance Company in New York, where she specialized in the then new field of finite reinsurance. From 1993 to 1995, she was Project Director for the Equitas Project at Lloyd’s which became the largest run-off reinsurer in the world. From 1996 to 1999, she served as Chief Executive Officer of Swiss Re America and was a member of the Executive Board of Swiss Re in Zurich. She was previously a director of Aquila, Inc. and Talbot Underwriting and related corporate entities. Ms. Hutter currently serves as a director of AmeriLife Group LLC and United Prosperity Life Insurance Company.

 

Ms. Hutter is a qualified actuary with over 30 years of experience within the re/insurance industry. Ms. Hutter is a recognized industry leader with relevant experience both in the U.S. and internationally.

Ms. Hutter has particular experience of insurance at Lloyd’s having served as Project Director for the Equitas Project at Lloyd’s from 1993 to 1995, and having previously served on the Board of Talbot Underwriting Ltd. (corporate member and managing agent of Lloyd’s syndicate) from 2002 to 2007. As a result of her experience, Ms. Hutter provides the Board with insight on numerous matters relevant to insurance practice. Ms. Hutter also serves as Chair of AMAL, the managing agency of our Lloyd’s Syndicate 4711, and as Chair of our Risk Committee.

 

Peter O’Flinn.  Mr. O’Flinn has been a director since April 29, 2009. He currently serves as a director and audit committee member of Sun Life Insurance and Annuity Company of New York, and of Euler ACI Holdings, Inc. From 1999 to 2003, Mr. O’Flinn was Co-Chair of LeBoeuf, Lamb, Greene and MacRae (now Dewey & LeBoeuf LLP).

 

Mr. O’Flinn is a qualified lawyer with over 25 years of private practice experience. Mr. O’Flinn is a corporate lawyer and former Co-Chairman of LeBoeuf, Lamb, Greene & MacRae as well as former Chair of their Corporate Practice and has extensive experience on legal matters relevant to both the re/insurance industry and public company legal matters generally. Mr. O’Flinn provides the Board with input on corporate initiatives, regulatory and governance matters. As a result of his experience, Mr. O’Flinn serves as the Chair of our Corporate Governance and Nominating Committee.

 

Ronald Pressman.  Mr. Pressman was appointed to our Board on November 17, 2011. He worked at General Electric (GE) Corporation for 31 years, where he was most recently President and CEO of GE Capital Real Estate from 2007 until 2011. From 2000 to 2007, Mr. Pressman also served as President and CEO of GE Asset Management and Chairman, and CEO and President of Employers Reinsurance. Earlier in his career Mr. Pressman led GE’s energy businesses in Europe, the Middle East, Africa, Southwest Asia and the United States. Mr. Pressman served as a member of the board of New York Life Insurance Company. Most recently, effective January 30, 2012, he was appointed as Executive Vice President and Chief Operating Officer of TIAA-CREF. He serves as Chairman of the national board of A Better Chance, a non-profit organization which provides leadership development opportunities for children of color in the U.S. He is also a director of Pathways to College, a non-profit organization that prepares young people from deprived communities for college. Mr. Pressman is also a charter trustee of Hamilton College.

 

Mr. Pressman has over 30 years of experience within the financial services sector, in particular real estate, asset management and reinsurance. With his varied experience across such sectors having held senior positions, Mr. Pressman provides further insight on a wide-range of matters including insurance industry and investment management expertise.

 

Related Transactions

 

The review and approval of any direct or indirect transactions between Aspen and related persons is governed by the Company’s Code of Conduct, which provides guidelines for any transaction which may create a conflict of interest between us and our employees, officers or directors and members of their immediate family. Pursuant to the Code of Conduct, we review personal benefits received, personal financial interest in a transaction and certain business relationships in evaluating whether a conflict of interest exists. The Audit Committee is responsible for applying the Company’s policy and approving certain individual transactions.

 

On January 22, 2010, we entered into a sale and purchase agreement to purchase APJ Continuation Limited (“APJ”) and its subsidiaries for an aggregate consideration of $4.8 million. The business writes a specialist book of kidnap & ransom insurance which would complement our existing political and financial risk line of business. Mr. Villers, one of our executive officers, is a director of APJ and was a 30% shareholder of APJ at the time of such purchase.

 

Director Independence

 

Under the NYSE Corporate Governance Standards applicable to U.S. domestic issuers, a majority of the Board of Directors (and each member of the Audit, Compensation and Nominating and Corporate Governance Committees) must be independent. The Company currently qualifies as a foreign private issuer, and as such is

not required to meet all of the NYSE Corporate Governance Standards. The Board of Directors may determine a director to be independent if the director has no disqualifying relationship as enumerated in the NYSE Corporate Governance Standards and if the Board of Directors has affirmatively determined that the director has no direct or indirect material relationship with the Company. Independence determinations are made on an annual basis at the time the Board of Directors approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board of Directors between annual meetings, at such time.

 

The Board reviews various transactions, relationships and arrangements of individual directors in determining whether they are independent. The Board considered Mr. Ahamed’s position as advisor to the Rock Creek Group and as director of the Rohatyn Group. With respect to Mr. Beer, the Board considered his position as chair of the Actuarial Standards Board and as vice-chair, and chair of the compensation committee, of United Educators Insurance Company. With respect to Mr. Bucknall, the Board considered his position as non-executive director of Tokio Marine Europe Insurance Limited, as well as his roles within the XIS Group. With respect to Mr. Cormack, the Board considered his position as non-executive director of Phoenix Group Holdings Ltd. (formerly Pearl Group Ltd.), Phoenix Life Holdings Ltd, Qatar Financial Centre Authority, Bloomsbury Publishing Plc and National Angels Ltd. The Board also considered Mr. Cormack’s positions as chair of Entertaining Finance Ltd. and Maven Income and Growth VCT 4 plc, and his position as deputy chair of Qatar Insurance Services Ltd. With respect to Ms. Hutter, the Board considered her position as non-executive director of AmeriLife Group, LLC and United Prosperity Life Insurance Company. The Board also considered Ms. Hutter’s position as chief executive officer of Black Diamond Group, LLC. With regards to Mr. O’Flinn, the Board considered his role as non-executive director of Sun Life Insurance and Annuity Company and Euler ACI Holdings, Inc. In addition, the Board considered Mr. Pressman’s role as Chief Operating Officer of TIAA-CREF.

 

The Board has made the determination that Messrs. Ahamed, Beer, Bucknall, Cormack, O’Flinn, and Pressman and Ms. Hutter are independent and have no material relationships with the Company.

 

The Board has determined that the Audit Committee is comprised entirely of independent directors, in accordance with the NYSE Corporate Governance Standards. The NYSE Corporate Governance Standards require that all members of compensation committees and nominating and corporate governance committees be independent. As of the date of this report, all members of the Compensation Committee and all members of the Corporate Governance and Nominating Committee are independent.

 

Committees of the Board of Directors

 

Audit Committee:  Messrs. Cormack, Beer, Bucknall, O’Flinn and Ms. Hutter. The Audit Committee has general responsibility for the oversight and supervision of our accounting, reporting and financial control practices. The Audit Committee annually reviews the qualifications of the independent auditors, makes recommendations to the Board as to their selection and reviews the plan, fees and results of their audit. Mr. Cormack is Chairman of the Audit Committee. The Audit Committee held four meetings during 2011. The Board considers Mr. Beer to be an “audit committee financial expert” as defined in the applicable regulations.

 

Compensation Committee:  Messrs. Bucknall, Beer, Cormack and Pressman. The Compensation Committee oversees our compensation and benefit policies and programs, including administration of our annual bonus awards and long-term incentive plans. It determines compensation of the Company’s Chief Executive Officer, executive directors and key employees. Mr. Bucknall is the Chairman of the Compensation Committee. The Compensation Committee held four meetings during 2011. Effective November 17, 2011, Mr. Pressman has become a member of the Compensation Committee.

 

Investment Committee:  Messrs. Ahamed, Jones, Cusack, Houghton and Pressman. The Investment Committee is an advisory committee to the Board which formulates our investment policy and oversees all of our significant investing activities. Mr. Ahamed is Chairman of the Investment Committee. The Investment Committee held four meetings during 2011. Effective November 17, 2011, Mr. Pressman has become a member of the Investment Committee. Effective February 29, 2012, Mr. Houghton stepped down from his role as director and chief financial officer.

Corporate Governance and Nominating Committee:  Messrs. Bucknall and O’Flinn and Ms. Hutter. The Corporate Governance and Nominating Committee, among other things, establishes the Board’s criteria for selecting new directors and oversees the evaluation of the Board and management. Mr. O’Flinn is the Chairman of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee held four meetings during 2011.

 

Risk Committee:  Ms. Hutter, Messrs. Ahamed, Beer, Cavoores, Cormack and Cusack. The Risk Committee’s responsibilities include the establishment of our risk management strategy, approval of our risk management framework, methodologies and policies, and review of our approach for determining and measuring our risk tolerances. Ms. Hutter is the Chair of the Risk Committee. The Risk Committee held four meetings during 2011.

 

The Board may also, from time to time, implement ad hoc committees for specific purposes.

 

Leadership Structure

 

We have separate CEO and Chairman positions in the Company. We believe that while the CEO is responsible for the day-to-day management of the Company, the Chairman, who is not an employee of the Company and who is not part of the Company’s management, provides the appropriate leadership role for the Board and is able to effectively facilitate the contribution of non-executive directors and constructive interaction between management (including executive directors) and the non-executive directors in assessing the Company’s performance, strategies and means of achieving them. As part of his leadership role, the Chairman is responsible for the Board’s effectiveness and sets the Board’s agenda in conjunction with the Chief Executive Officer.

 

Role in Risk Oversight

 

Risk Governance

 

Board of Directors.  The Board considers effective identification, measurement, monitoring, management and reporting of the risks facing our business to be key elements of its responsibilities and those of the CEO and management. Matters relating to risk management reserved to the Board include approval of the internal controls and risk management framework and any changes to the Group’s risk appetite statement. The Board also receives reports at each scheduled meeting from the Group Chief Risk Officer and the Chairman of the Risk Committee and training in risk management processes including the design, operation, use and limitations of the Group’s Internal Model. The Board, assisted by management and its committees, is able to exercise effective oversight of the operation of the risk management strategy described in “Risk Management Strategy” below.

 

Board Committees.  The Board delegates oversight of the management of certain key risks to its Risk, Audit and Investment Committees. Each of the committees is chaired by an independent director of the Company who also reports to the Board on the committees’ discussions and matters arising.

 

The membership of the Board committees is set out under “Management — Committees of the Board of Directors” above.

 

Risk Committee:  The purpose of this committee is to assist the Board in its oversight duties in respect of the management of risk, including:

 

 

Audit Committee:  This committee is primarily responsible for assisting the Board in its oversight of the integrity of the financial statements. It is also responsible for reviewing the adequacy and effectiveness of the Company’s internal controls and receives regular reports from both internal and external audit in this regard.

Investment Committee:  This committee is responsible for, among other things, setting and monitoring the Group’s investment risk and asset allocation policies and ensuring that the Chairman of the Risk Committee is kept informed of such matters.

 

Management Committees.  The Group also has a number of executive management committees which have oversight of certain risk management processes.

 

Group Executive Committee:  This is the main executive committee responsible for making proposals to the Board relating to the strategy and conduct of the business of the Group. To assist in these duties, it receives regular reports from the Group Chief Risk Officer.

 

Capital Allocation Group:  This committee is primarily responsible for making recommendations on matters related to the capital requirements of the Group and its Operating Subsidiaries, the development and use of the Group’s Internal Model, capital allocation, the risk pricing governance arrangements, capital, risk appetite and risk limits and the management of insurance risks including catastrophe risk.

 

Reserve Committee:  This committee is responsible for managing reserving risk and making recommendations to executive management relating to the appropriate level of reserves to include in the Group’s financial statements.

 

Underwriting Committee:  The purpose of this committee is to assist the Group Chief Executive Officer in his oversight duties in respect of underwriting risk including oversight of the assurance activities of the Underwriting Quality Review team and the review of risks referred to it due to their unusual nature or because they are considered outside of normal underwriting guidelines, authorities or risk appetite.

 

Reinsurance Credit Committee:  The purpose of this committee is to seek to minimize credit risks arising from insurance and reinsurance counterparties by the assessment and monitoring of collateralized reinsurance arrangements, direct cedants, intermediaries and reinsurers.

 

Group Chief Risk Officer.  Our Group Chief Risk Officer, Julian Cusack, is a member of the Board and a member of the Risk Committee and the Investment Committee. His role includes providing the Board and the Risk Committee with reports and advice on risk management issues.

 

Risk Management Strategy

 

We operate an integrated risk management strategy designed to deliver shareholder value in a sustainable manner while providing a high level of policyholder protection. The use of the word ‘integrated’ emphasizes that risk management is not simply a support function but is a way of thinking about and managing the business which is central to the formulation of strategy and annual business planning. The execution of our integrated risk management strategy is based on:

 

 

 

Risk Appetite.  Each year the Board approves a Group Risk Appetite Statement.

 

The Risk Appetite Statement is a central component of the Group’s overall risk management framework. It sets out, at a high level, how we think about risk in the context of our business model, Group objectives and strategy. It sets out boundary conditions for the level of risk we assume, together with a statement of what reward we aim to receive for this level of risk.

 

It comprises the following components:

 

 

Risk Components.  The main types of risks that we face are:

 

Insurance risk:  The risk that claims occurring or reported in a period exceed the expected amounts (“underwriting risk”) or that reserves established in respect of prior periods are understated (“reserving risk”).

 

Credit risk:  The risk that a firm is exposed to if another party fails to perform its obligations. This principally comprises credit risks relating to premiums receivable and outward reinsurance. We include credit risks related to our investment portfolio under market risk.

 

Market risk:  The risk that arises from changes in the market value of our investment portfolio and related derivative contracts from fluctuations in interest rates, bond yields, credit spreads and foreign currency exchange rates. This includes the risk of issuer default or ratings downgrades.

 

Operational risk:  The risk of loss resulting from inadequate or failed internal processes, including the failure to comply with procedures and regulations.

 

Liquidity risk:  The risks of failing to maintain sufficient liquid financial resources to meet liabilities as they fall due or to provide collateral as required for commercial or regulatory purposes.

 

We define insurance risk and market risk as core risks meaning that they are risks we intend to take on with a view to making a return for shareholders as a consequence. Other risks are designated as ‘non-core’ and our strategy for them is to seek to reduce exposures to the extent that is practicable and economic to do so.

 

Key Risk Limits.  We use the term risk limit to mean the upper limit of our tolerance for exposure to a given risk. In some cases we set annual risk targets which are lower than our risk limits. Key risk limits are a sub-set of risk limits and are subject to annual approval by the Board on the advice of the Risk Committee as part of the annual business planning process. If a risk exceeds key risk limits, the Chief Risk Officer is required to report the excess and management’s plans for dealing with it to the Risk Committee.

 

Compensation Consultants

 

The Compensation Committee appointed Towers Watson as its compensation consultants to provide (i) input on the Compensation Discussion and Analysis, (ii) benchmarking analysis in respect of CEO, Chairman and non-executive director compensation, (iii) input on peer group filings, (iv) a review of the competitive market for executive positions and (v) input on performance targets under 2011 performance shares and bonus funding. We paid $350,000 in compensation-related fees to Towers Watson in 2011. We also purchased capital modeling software and services in the amount of $588,000 from Towers Watson Software, an affiliate of Towers Watson after the predecessor software company was purchased by Towers Watson in January 2011. Management at the Company previously purchased software and services from such predecessor

company of Towers Watson and, in light of such legacy software systems, the Compensation Committee did not recommend or approve such software and services purchase.

 

Executive Officers of the Company

 

The table below sets forth certain information concerning our executive officers as of March 1, 2012:

 

 

 

 

Brian Boornazian.  Mr. Boornazian was appointed Head of Reinsurance in May 2006 and is CEO of Aspen Reinsurance. Since October 2005, Mr. Boornazian has also served as President of Aspen Re America. From January 2004 to October 2005, he was President of Aspen Re America, Property Reinsurance. Prior to joining us, from 1999 to January 2004, Mr. Boornazian was at XL Re America, where he acted in several capacities and was Senior Vice President, Chief Property Officer, responsible for property facultative and treaty, as well as marine, and Chief Marketing Officer. Mr. Boornazian began his career at Gen Re and also held senior positions at Nac Re, Cologne Re of America and Guy Carpenter.

 

Michael Cain.  Mr. Cain has served as our Group General Counsel since March 3, 2008. Since June 2011, Mr. Cain was also appointed as Head of Group Human Resources. Prior to joining us, Mr. Cain served as Corporate Counsel and Company Secretary to Benfield Group Limited from 2002 to 2008. Previously, Mr. Cain worked at Barlow Lyde & Gilbert and Ashurst, law firms in London.

 

James Few.  Mr. Few is President of Aspen Reinsurance and has been our Head of Property Reinsurance since June 1, 2004. Since July 2011, Mr. Few was appointed as the Chief Executive Officer of Aspen Bermuda. Previously, from November 1, 2004 to July 2011, he was Aspen Bermuda’s Chief Underwriting Officer. Before joining Aspen Bermuda, he had been an underwriter at Aspen U.K. since June 21, 2002. Mr. Few previously worked as an underwriter with Wellington from 1999 until 2002. From 1993 until 1999 he was an underwriter and client development manager at Royal & Sun Alliance.

 

Karen Green.  Ms. Green is Chief Executive Officer of Aspen U.K. and AMAL. She is also Group Head of Corporate Development and Office of the Group CEO. Ms. Green joined us in March 2005 as Head of Strategy and Office of the CEO. From 2001 until 2005, Ms. Green was a Principal with MMC Capital Inc. (now Stone Point Capital), a global private equity firm (formerly owned by Marsh and McLennan Companies Inc.). Prior to MMC Capital Inc. Ms. Green was a director at GE Capital in London from 1997 to 2001, where

she co-ran the Business Development team (responsible for mergers and acquisitions for GE Capital in Europe). She is also a member of the Project Council for the Almeida Theatre, London.

 

Emil Issavi.  Mr. Issavi was appointed Head of Casualty Reinsurance in July 2008, and is also Executive Vice President of Aspen Reinsurance. Since July 2006, Mr. Issavi has also served as Head of Casualty Treaty of Aspen Re America. Prior to joining us, from 2002 to July 2006, Mr. Issavi was at Swiss Re America, where he was Senior Treaty Account Executive responsible for various Global and National Property Casualty clients. Mr. Issavi began his reinsurance career at Gen Re as a Casualty Facultative Underwriter.

 

Stephen Postlewhite.  Mr. Postlewhite is Head of Risk and Chair of the Reserve Committee since January 2011 and was appointed Head of Risk Capital in September 2009. He was previously Deputy Chief Actuary and joined us in 2003. Prior to joining us, Mr. Postlewhite spent a year at the Financial Services Authority working extensively on the development of the Individual Capital Assessment process for non-life insurers and nine years with KPMG, both in London and Sydney, working as a senior general insurance actuarial consultant, predominately on London market, Lloyd’s and reinsurance clients. He has been a fellow of the Institute of Actuaries since 2001. Prior to embarking on an actuarial career, Mr. Postlewhite worked as a management consultant for Andersen Consulting.

 

Kate Vacher.  Ms. Vacher is our Director of Underwriting. Previously, she was our Head of Group Planning from April 2003 to May 2006 and a property reinsurance underwriter since joining Aspen U.K. on September 1, 2002. Ms. Vacher previously worked as an underwriter with Wellington Syndicate 2020 from 1999 until 2002 and from 1995 until 1999 was an assistant underwriter at Syndicate 51.

 

Rupert Villers.  Mr. Villers is Co-CEO of Insurance. He joined us in April 2009 as Global Head of Professional and Financial Lines. He has held a number of positions in the insurance industry. He co-founded SVB Holdings (subsequently renamed Novae Holdings) in 1986, and in his seventeen years there he was Chief Executive Officer from 1991 to 2002 and underwriter of Syndicate 1007 from January 1, 1997 to December 31, 1999. Most recently, he has been Chairman of APJ Continuation Ltd, a company he co-founded in 2005, whose major subsidiary, APJ (Asset Protection Jersey Limited) writes a specialist book of K&R insurance. Mr. Villers is a director of CertaAsig Holdings S.A. (a Luxemburg Holding Company) which is the parent of CertAsig Societate di Asigurare si Reasigurare S.A. (a Romanian insurance company).

 

Mario Vitale.  Mr. Vitale joined us in March 2011 as President of U.S. Insurance. Since January 1, 2012, Mr. Vitale also assumed the role of Co-CEO of Aspen Insurance. He has 34 years of global experience across various industry leadership positions. Most recently, he was at Zurich Financial Services from September 2006 until March 2011, where he was CEO, Global Corporate, with responsibility for all corporate business globally. He was also a member of Zurich’s Group Management Board. Previously, Mr. Vitale spent six years at Willis Group Holdings, from 2000 until 2006, including four years as CEO of Willis North America. Mr. Vitale is a member of the board of trustees of St John’s University College of Insurance in New York, the board of directors of AICPCU and the board of Boys Hope Girls Hope of NYC. He has also been a member of the board of the American Insurance Association and formerly of the board of directors of the Council of Insurance Agents & Brokers.

 

Non-Management Directors

 

The Board has adopted a policy of regularly scheduled executive sessions where non-management directors meet independent of management. The non-management directors include all our independent directors and Mr. Jones, our Chairman. The non-management directors held four executive sessions during 2011. The Chairman presided at each executive session. Shareholders of the Company and other interested parties may communicate any queries or concerns to the non-management directors by sending written communications by mail to Mr. Jones, c/o Company Secretary, Aspen Insurance Holdings Limited, 141 Front Street, Hamilton HM19, Bermuda, or by fax to 1-441-295-1829. In 2011, we also held one executive session comprised solely of independent directors.

Attendance at Meetings by Directors

 

The Board conducts its business through its meetings and meetings of the committees. Each director is expected to attend each of our regularly scheduled meeting of the Board, the constituent committees on which that director serves and our annual general meeting of shareholders. All directors attended the annual general meeting of shareholders in 2011. Four meetings of the Board were held in 2011. All of the directors, other than Mr. David Kelso (no longer a director), attended at least 75% of the meetings of the Board and meetings of the committees on which they serve.

 

Code of Ethics, Corporate Governance Guidelines and Committee Charters

 

We adopted a code of business conduct and ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. We have also adopted corporate governance guidelines. We have posted the Company’s code of ethics and corporate governance guidelines on the Investor Relations page of the Company’s website at www.aspen.co.

 

The charters for each of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee are also posted on the Investor Relations page of our website at www.aspen.co. Shareholders may also request printed copies of our code of business conduct and ethics, the corporate governance guidelines and the committee charters at no charge by writing to Company Secretary, Aspen Insurance Holdings Limited, 141 Front Street, Hamilton, HM19, Bermuda.

 

Differences between NYSE Corporate Governance Rules and the Company’s Corporate Governance Practices

 

The Company currently qualifies as a foreign private issuer, and as such is not required to meet all of the NYSE Corporate Governance Standards. The following discusses the significant ways in which our corporate governance practices differ from those followed by companies under the NYSE Corporate Governance Standards and the Company’s corporate governance practices.

 

The NYSE Corporate Governance Standards require chief executive officers of U.S. domestic issuers to certify to the NYSE that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. Because as a foreign private issuer we are not subject to the NYSE Corporate Governance Standards applicable to U.S. domestic issuers, the Company need not make such certification.

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

This section provides information regarding the compensation of our Chief Executive Officer, Chief Financial Officer and the three other most highly-compensated named executive officers (“NEOs”) for 2011, and describes the overall objectives of our compensation program, each element of compensation and key compensation decisions. The Compensation Committee of the Board (the “Compensation Committee”) has responsibility for approving the compensation program for our NEOs.

 

Executive Summary

 

Our compensation policies continue to emphasize aligning our executives’ pay with our performance. While our overall performance for the year was disappointing with a negative net income ROE of (5.3)% and a small reduction in diluted book value per share of 1.2%, within that overall result there were many examples of strong performance. The Compensation Committee’s challenge was to find ways to reflect these two important realities. The overall result saw the strong performance of many units overwhelmed by a large number of costly catastrophe events worldwide, including the Australian and Thai floods and the Japanese earthquake and tsunami that adversely affected a number of our reinsurance lines as well as some insurance lines. The year was also impacted by low investment yields and soft market conditions. Nonetheless, our insurance segment performed very well with a combined ratio of 95.8%, with significant outperformance within certain product lines in that segment. In addition, a number of our reinsurance lines performed well in challenging market conditions, particularly those covering casualty and specialty exposures. These factors affected the insurance industry overall and did not affect us disproportionately. Therefore, our guiding principle, in the long-term interest of the Company, was to reward genuine performance where it could be identified and adjust awards for those in underwriting areas impacted by the string of natural disasters or other areas of under performance.

 

The following highlights the key elements of our compensation program in 2011:

 

 

 

 

Below is a tabular summary of the compensation decisions made in respect of our 2011 NEOs.

 

 

 

 

We encourage a performance-based culture throughout the Company, and at senior levels we have developed an approach to compensation that aligns the executive’s compensation with his or her performance and contribution to the results of the Company. As discussed below, we believe that the three elements of total direct compensation, base salary, annual bonus and long-term incentive awards, should be balanced such that each executive has the appropriate amount of pay that is performance contingent and longer-term. This relationship is illustrated in the table below which depicts each element of target and actual compensation; in each case a majority of the executive’s pay is delivered through performance-based compensation with a significant portion realized over more than one year. Equity awards in particular are intended to encourage aligning interests with shareholders and align executive pay with the value created for shareholders.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, contains a requirement that certain public companies provide a non-binding shareholder vote to approve executive compensation. While we were not required to conduct this vote, we believe that our compensation program would benefit from the periodic feedback that our shareholders would provide through an advisory vote, and therefore decided to seek this vote in 2011. Approximately 93% of the shares voted approved our “say on pay” proposal. The Compensation Committee considered this strong support in evaluating its compensation program in 2011 and, as a result, continued to apply the principles and philosophy it has used in previous years in determining the compensation of the NEOs.

2011 NEO Compensation (1)

 

 

 

 

Executive Compensation Program

 

The Company’s compensation program consists of the following five elements which are common to the market for executive talent and which are used by our competitors to attract, reward and retain executives:

 

 

Our compensation policies are designed with the goal of maximizing shareholder value creation over the long-term. The basic objectives of our executive compensation program are to:

 

 

We seek to consider together all elements that contribute to the total compensation of NEOs rather than consider each element in isolation. This process ensures that judgments made in respect of any individual element of compensation are taken in the context of the total compensation that an individual receives,

particularly the balance between base salary, cash bonus and stock programs. We actively seek market intelligence on all aspects of compensation and benefits.

 

All employees, including senior executives, are set challenging goals and targets both at an individual and team level, which they are expected to achieve, taking into account the dynamics that occur within the market and business environment. These goals include quantitative and qualitative measures. Although the bonus pool is funded through a formula, performance-related pay decisions are not formulaic and are based on a variety of indicators of performance, thus diversifying the risk associated with any single indicator. In particular, individual bonus awards are not tied to formulas that could focus NEOs, executives and employees on specific short-term outcomes that might encourage excessive risk taking.

 

Market Intelligence.  We believe that shareholders are best served when the compensation packages of senior executives are competitive but fair. By fair we mean that the executives will be able to understand that the compensation package reflects their market value and their personal contribution to the business. We seek to create a total compensation opportunity for NEOs with the potential to deliver actual total compensation at the upper quartile of peer companies for high performance relative to competitors and the Company’s internal business targets.

 

We review external market data to ensure that our compensation levels are competitive. Our sources of information include:

 

 

Towers Watson advised the Compensation Committee during 2011 in respect of compensation practices both in the U.S. and the U.K. They reported to the Chair of the Compensation Committee and worked with management under the direction of the Chair. They were asked to provide overviews of our competitors’ compensation programs taken from public filings and to comment on management proposals on compensation awards for NEOs and recommendations on proposals relating to the long-term incentive programs and the funding of the employee bonus pool. We also consider publicly available surveys produced by Towers Watson and PricewaterhouseCoopers. These surveys are used to provide additional data on salaries, bonus levels and long-term incentive awards of other companies in our industry. Together with data provided by the independent advisors drawn from public filings of competitors, the survey data is used to assess the competitiveness of the compensation packages provided to our NEOs. We have also sought advice on specific ad hoc technical benefit issues from PricewaterhouseCoopers who provide services only to management in respect of advice on international compensation and taxation and benefits issues.

 

We predominantly compete for talent with companies based in Bermuda, the U.S. and the U.K., and we seek to understand the competitive practices in those different markets and the extent to which they apply to our senior executives. Our peer group for compensation purposes was reviewed and agreed upon by the Compensation Committee with consideration given to our strategy and the advice from Towers Watson. Based on our review of companies that are similar to us in terms of size and business mix, we established a primary peer group of 12 companies to consider compensation against corporate performance. The peer group consists of:

 

U.S. & Bermuda

Allied World Assurance Co Holdings, AG

Alterra Capital Holdings Limited

Arch Capital Group Ltd.

Axis Capital Holdings Ltd.

Endurance Specialty Holdings Ltd.

Everest Re Group, Ltd.

Validus Holdings Limited

White Mountains Insurance Group

 

U.K.

Amlin Plc

Brit Insurance Holdings Plc

Catlin Group Limited

Hiscox Ltd.

 

 

We have also determined that it may be appropriate under certain circumstances to look at other companies, which we have defined as “near peers” to benchmark against very specific roles. We also compete with the companies in both the peer and near peer groups for talent and, thus, review compensation data available from publicly available sources when considering the competitiveness of the compensation of our executives and to keep informed of their compensation structures and practices.

 

The near peer group consists of the following:

 

U.S. & Bermuda

Montpelier Re Holdings Ltd.

PartnerRe Ltd.

Platinum Underwriters Holdings, Ltd.

RenaissanceRe Holdings Ltd.

Transatlantic Holdings, Inc.

 

U.K.

Beazley Group Plc

 

Cash Compensation

 

Base Salary.  We pay base salaries to provide executives with a predictable level of compensation over the year to enable executives to meet their personal expenses and undertake their roles. The Compensation Committee reviews the compensation recommendations made by management, including base salary, of the most senior employees in the Company, excluding the CEO but including the other NEOs. In the case of the Chief Executive Officer, the Chair of the Compensation Committee develops any recommended changes to base salary and is provided with information and advice by Towers Watson.

 

When reviewing base salaries, we consider a range of factors including:

 

 

Executive officers have employment agreements with the Company that specify their initial base salary. Generally, they are entitled to a review on an annual basis, with any changes effective as of April 1 of the relevant year. Even though we conduct an annual review of base salaries, we are not legally obligated to increase salaries; however, we are not contractually able to decrease salaries. We are generally mindful of our overall goal to pay base salaries for experienced executives at around the median of the peer group and the market for similar roles. We do not apply this principle mechanistically, but take into account the factors outlined above and the total compensation picture for each individual.

 

Base salary is normally a fixed amount determined on the basis of market comparisons and the experience of each employee initially at the point of employment and thereafter at each subsequent annual review date. The annual salary review process is governed by an overall budget related to market conditions in the relevant employment markets and broader economic considerations. Our annual salary review process is not intended to be solely a “cost of living” increase or a contractual entitlement to salary increases. Within this overall governing budget, individual salary reviews are discretionary, and take into account the above-mentioned factors and internal equity. We believe that this approach mitigates the risk associated with linking salary increases to short-term outcomes. In the last three years, the overall budget for salary increases averaged 3.0% per annum.

For purposes of this discussion, all compensation paid in British Pounds has been translated into U.S. Dollars at the exchange rate of $1.6041 to £1, the average exchange rate for 2011.

 

The salaries for each of our NEOs in 2009, 2010 and 2011 and any salary changes are illustrated in the table below:

 

 

 

 

For 2011, the base salary for Chris O’Kane, our CEO, was increased from £480,000 ($769,968) per annum to £527,500 ($846,163) per annum, effective April 1, 2011, an increase of 9.90%. The Compensation Committee took into account the fact that Mr. O’Kane’s base salary was below the lower quartile of the peer group. The Compensation Committee agreed that given Mr. O’Kane’s level of responsibility and experience, it would be reasonable to increase his base salary bringing him closer to the median, in line with our compensation philosophy. Mr. O’Kane’s salary increase also reflected the Company’s solid performance in 2010 having taken into account that 2010, at that time, was considered the sixth largest loss year for catastrophe insured losses since 1980.

 

For 2011, Mr. Houghton’s base salary was increased from £360,000 ($577,476) per annum to £370,000 ($593,517) per annum, effective April 1, 2011, representing an increase of 2.78%. Mr. Houghton’s increase in salary was in line with the overall salary budget increase for 2011, reflected his contribution to the solid results in 2010 and was at the median against the peer group.

 

For 2011, Mr. Villers’ full-time equivalent base salary was increased from £315,000 ($505,292) per annum to £350,000 ($561,435) per annum, effective January 1, 2011, an effective increase of 11.11%. While Mr. Villers’ contract provides that he should work an average of four days per week (for which he earned a pro rated salary of £280,000), Mr. Villers in practice works on a full time basis during key business periods. The increase in Mr. Villers’ effective salary reflected the development in 2010 when Mr. Villers became Co-CEO of Aspen Insurance.

 

Annual Cash Bonuses.  The Company operates an annual bonus plan. Annual cash bonuses are intended to reward executives and other staff for consolidated annual performance, individual team results and individual achievements and contributions over the previous fiscal year. The Compensation Committee approves the bonus pool based on the Company’s Operating Return on Annualized Equity (“Operating ROE”). For a reconciliation of net income ROE to Operating ROE, see “Reconciliation of Non-GAAP Financial Measures” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2012.

 

In order for the 2011 bonus pool to have been funded at the full potential levels (i.e. 100% of all bonus potentials), the Company would have to have achieved an Operating ROE of at least 12%. This level was established with reference to our 2011 business plan and an assessment of the investment and business cycle, but also included an element of “stretch” in so far as it would not deliver on target funding unless the 2011 Operating ROE was 12% or greater. The bonus pool available to our NEOs and employees did not

automatically fund in 2011 if Operating ROE was below 6%. The bonus plan, however, retained an element of discretion for exceptional circumstances enabling the Compensation Committee to apply its judgment where the formula produced a funding level which it did not believe was representative of absolute and relative individual and corporate performance.

 

Based on the Company’s result of a negative Operating ROE of (3.7)% in 2011, the bonus pool funding was zero but the Compensation Committee exercised its discretion and approved a bonus pool to reward the significant positive performance of certain underwriting teams and other support functions notwithstanding the overall group results.

 

The annual bonus component of compensation is intended to encourage all management and staff to work to improve the overall performance of the Company as measured by Operating ROE. Each employee is allocated a ‘bonus potential’ which expresses the amount of bonus they should expect to receive if the Company, the team to which they belong and they as individuals perform well. While individual bonus potentials are not capped, there is a cap on the total bonus payable in any one year, though the Compensation Committee has the discretion to vary the size of the bonus pool.

 

Once the bonus pool is established, underwriting and functional teams are allocated portions of the bonus pool based on their team performance as assessed by the CEO. The evaluation takes into consideration risk and performance data. The risk data available to the CEO includes internal audit reviews, underwriting reviews and reports of compliance breaches. Individuals, including the NEOs, are allocated bonuses based on their individual contribution to the business and their compliance with the Company’s governance and risk control requirements. Accomplishment of set objectives established at the individual’s annual performance review (as described in more detail below), such as financial goals, enhanced efficiencies, development of talent in their organizations and expense reductions, and any other material achievements are taken into account when assessing an individual’s contribution. We believe that basing awards on a variety of factors diversifies the risk associated with any single indicator. In particular, individual awards are not tied to formulas that could focus executives on specific short-term outcomes that might encourage excessive risk taking.

 

Due to the potentially significant external factors impacting our business, where for example our business plan may be reforecast quarterly, any quantitative measures indicated in an individual’s objectives may be adapted during the year to reflect changes in circumstances. These revisions may occur more than once throughout the year, and the revised plan would be used in the executives’ assessment at year-end instead of the quantification, if any, set out at the beginning of the year. We take this approach in order to ensure that our goals remain fair, relevant and responsive to the complex and dynamic nature of our business and relative to market conditions. The appraisal assesses the performance of each employee by reference to a range of objectives and expected behavioral competencies with no formulaic calculation based on revenue or quantitative targets impacting bonus or salary decisions.

 

In the case of the CEO, the Chairman assesses his performance against the Company’s business plan and other objectives established by the Board and makes compensation recommendations to the Compensation Committee. The Compensation Committee reviews the CEO’s achievements and determines the CEO’s bonus without recommendation from management.

 

The Compensation Committee reviews management’s approach to distributing the bonus pool and specifically approves the bonuses for the senior executives including the NEOs. We benchmark our bonus targets and payouts with our competitive peer group (listed earlier) and other market data from the surveys referred to earlier, to establish our position in the market. We use this information to assist us in developing a methodology for establishing the size of the bonus pool required for the Company as a whole and to establish individual bonus potentials for all employees, including the CEO and the other NEOs. For 2011, the Compensation Committee reviewed the bonus potentials of our NEOs, including our CEO, which were in the range of 100% to 175% of base salary. These levels, where applicable, are unchanged from 2010 except for the Compensation Committee’s approval of the increase of the CEO’s bonus potential from 150% to 175% of salary, to increase the bonus target from below median. The bonus potentials are indicative and do not set a minimum or a maximum limit. For example, in a loss-making year, employees may not get any bonuses. Conversely, in profitable years, employees may receive bonuses in excess of their bonus potentials.

The annual bonus awards for each of our NEOs in 2011 are illustrated in the table below (1):

 

 

 

 

Individual contributions to our corporate goals are taken into consideration through our annual appraisal process, whereby at the outset of each year objectives are established and achievement of these goals is assessed at the end of each performance year. The 2011 performance objectives for Christopher O’Kane, our CEO, were to achieve the 2011 business plan, build our U.S. insurance platform, evaluate and implement specific initiatives by segment as identified in the 2011 business plan, cause the effective implementation of all necessary measures towards achieving internal model approval for and compliance with Solvency II, complete the branding project and define our value proposition to both insurance and reinsurance customers.

 

Mr. O’Kane achieved his objectives except for the Company’s financial performance which was not achieved predominantly as a result of the significant catastrophe losses, which adversely impacted our results in 2011. As a result, the Compensation Committee decided that it was appropriate to award no bonus to the CEO due to the overall corporate performance.

 

The 2011 performance objectives for Richard Houghton, our Chief Financial Officer, included delivery of an excellent business planning process, review and recommendation of enhancements to capital efficiency, review and recommendation of the finance function’s operating model and a review of the current investment portfolio with a consideration of an allocation to equity investments.

 

Notwithstanding Mr. Houghton’s achievement of several of his objectives, the Compensation Committee decided that it was appropriate to award no bonus to the CFO due to the overall corporate performance.

 

The bonus awarded to Mario Vitale, our current Co-CEO of Aspen Insurance and President of Aspen U.S. Insurance, reflected a guaranteed amount as part of the recruitment process to join us in order to reflect lost bonus opportunity at his former employer. The bonus therefore did not specifically reflect Mr. Vitale’s performance, though a significant part of Mr. Vitale’s role was to continue to develop and lead our U.S. insurance platform. At the time that Mr. Vitale joined us, the Compensation Committee also approved a payment of $1 million which was a cash replacement for forfeited bonus and other stock awards from his prior employer. Mr. Vitale will be required to pay this $1 million to the Company if Mr. Vitale terminates his employment agreement within one year after commencement.

 

The 2011 performance objectives for Rupert Villers, our Co-CEO of Aspen Insurance, included delivery of Aspen Insurance’s business plan and Aspen Insurance’s objectives, establishment of an efficient and integrated relationship with the Co-CEO of Aspen Insurance, the development of the U.K. regional and Swiss operations and development of an integrated approach to certain underwriting teams.

The Compensation Committee approved a bonus award of $561,435 (£350,000), 100% of Mr. Villers’ bonus potential in recognition of the insurance segment’s positive contribution to the group’s performance in 2011, and in particular the strong performance of certain accounts within international insurance.

 

The 2011 performance objectives for John Cavoores, our former Co-CEO of Aspen Insurance, included delivery of Aspen Insurance’s business plan, building a proper infrastructure to support build out of U.S. Insurance and where possible, implementing global product/service solutions, and creating a spirit of team across insurance with special attentions to U.S. teams. Mr. Cavoores did not receive a bonus award and was not eligible for bonus consideration as he stepped down from his role as Co-CEO of Aspen Insurance with effect January 1, 2012.

 

Equity Compensation

 

We believe that a substantial portion of each NEO’s compensation should be in the form of equity awards and that such awards serve to align the interests of NEOs and our shareholders. The opportunities for executives to build wealth through stock ownership both attract talent to the organization and also contribute to retaining that talent. Vesting schedules require executives to stay with the organization for defined periods before they are eligible to exercise options or receive shares. Performance conditions are used to ensure that the share awards are linked to the performance of the business. Equity awards to our NEOs are made pursuant to the Aspen Insurance Holdings Limited 2003 Share Incentive Plan, as amended (“2003 Share Incentive Plan”).

 

Long-Term Incentive Awards.  The Company operates a Long-Term Incentive Plan (“LTIP”) for key employees under which annual grants are made. In 2011 the Compensation Committee approved grants of performance shares solely. We believe that performance shares provide stronger retention for executives across the cycle and provide strong incentives for executives to meet the performance conditions required for vesting. The performance criteria are based on a carefully considered business plan. In conjunction with views expressed by Towers Watson, the Compensation Committee are in agreement that the criteria do not cause executives to take undue risks or be careless in their actions for longer term gain.

 

Employees are considered eligible for a long-term incentive award based on seniority, performance and their longer-term potential.

 

The number of performance shares and any other awards available for grant each year are determined by the Compensation Committee. The Compensation Committee takes into account the cost and annual share usage under the 2003 Share Incentive Plan, the number of employees who will be participating in the plan, market data from competitors in respect of the percentage of outstanding shares made available for annual grants to employees and the need to retain and motivate key employees. In 2011, 890,794 performance shares were granted. Performance share awards were made by grant value to all NEOs. In total, we granted performance share awards to 192 employees.

 

As with awards granted in 2010, the performance shares granted in 2011 are subject to a three-year vesting period with a separate annual ROE test for each year. One-third of the grant will be eligible for vesting each year. In response to the economic environment on our business model and to ensure that the targets for our long-term incentive plan involve a degree of stretch, but are not set at levels which are unlikely to be reached or that may cause individuals to focus on top line results that could create a greater risk to the Company, the Compensation Committee agreed to establish the performance criteria for performance share awards made in 2011 (for 1/3 of the grant which is subject to the 2011 performance test) at a lower threshold than those awarded in 2010. The 2011 criteria are as follows:

 

 

 

The Compensation Committee also agreed that it will determine the vesting conditions for the 2012 and 2013 portions of the 2011 performance shares in such years taking into consideration the market conditions and the Company’s business plans at the commencement of the years concerned. At its meeting held on February 1, 2012, the Compensation Committee approved the vesting conditions for the portion of the 2011 performance shares subject to 2012 performance testing. If the ROE achieved in 2012 is less than 5%, then the portion of the performance shares subject to the vesting conditions in such year will be forfeited (i.e. 33.33% of the initial grant). If the ROE achieved in 2012 is between 5% and 10%, then the percentage of the performance shares eligible for vesting will be between 10% and 100% on a straight-line basis. If the ROE achieved in 2012 is between 10% and 20%, then the percentage of the performance shares eligible for vesting will be between 100% and 200% on a straight-line basis.

 

Awards deemed to be eligible for vesting will be “banked” and all shares which ultimately vest will be issued following the completion of the three-year vesting period and approval of the 2013 ROE. The performance share awards are designed to reward executives based on the Company’s performance. By ensuring that a minimum ROE threshold is established before shares can be banked, we ensure executives are not rewarded for a performance that is below the cost of capital. On the other hand, if we achieve an ROE above expectations, executives are rewarded and will bank additional shares. This approach aligns executives with the interests of shareholders and encourages management to focus on delivering strong results. A cap of 21% ROE for the 2011 portion of the grant is seen as a responsible maximum in the current environment, given that returns above such a level may require a level of risk-taking beyond the parameters of our business model.

 

In respect of the 2012 awards, the Compensation Committee approved a mix of performance shares and RSUs. The awards remain predominantly performance-based in line with our compensation philosophy with a smaller portion in RSUs to reflect current market practice. For further details of the 2012 awards, see “Narrative Description of Summary Compensation and Grants of Plan-Based Awards — 2012 Awards” below.

 

With respect to the 2009, 2010 and 2011 performance shares, one-third of the grant subject to the 2011 ROE test were forfeited based on our 2011 ROE of (5.3)%.

 

The outcomes of the performance tests on our current performance share plans are illustrated in the table below.

 

 

 

 

The grants for the NEOs under the LTIP were made in February 2011 (at the time that bonus awards for 2010 were paid), with the exception of Mr. Vitale whose grant under the LTIP was made in March 2011 when

he commenced his employment with the Company, and were as follows (fair values of the awards have been calculated in accordance with FASB ASC Topic 718):

 

 

Mr. O’Kane’s award reflected his very strong performance against his 2010 objectives, which included delivery of solid results for the Company with $312.7 million of net income in a tough environment as well as achievements in several key areas of developing the business. Key achievements included good progress on delivering a group strategy and progress towards preparing the Company for Solvency II, good capital management (particularly the share repurchases) and progress made in reviewing the Company’s brand.

 

Mr. Houghton’s award reflected his work on significant capital management initiatives in 2010, including $407.8 million of share repurchases, and the issuance of $250.0 million 6% Senior Notes in light of favorable market conditions in 2010. In respect of his corporate development role, he led a number of acquisition evaluations which were well handled. Mr. Houghton’s award also reflected his broader responsibilities over IT and Human Resources (HR).

 

Mr. Vitale’s award was to incentivize a new hire as a senior executive in a key position, under which he is responsible for building out the U.S. insurance platform, which is of strategic importance to the Company’s objectives.

 

Mr. Villers’ award reflected the significant work he undertook to reform and reposition our underwriting strategies to improve insurance’s performance, which resulted in many underwriting teams delivering improved performance in 2010. Mr. Villers’ award also reflected his effective leadership as Co-CEO of Aspen Insurance with Mr. Cavoores.

 

Mr. Cavoores’ award was to incentivize him in his new role as an executive, co-leading Aspen Insurance, with particular focus on the U.S. lines.

 

While the bulk of our performance share awards to NEOs have historically been made pursuant to our annual grant program, the Compensation Committee retains the discretion to make additional awards at other times in connection with the initial hiring of a new officer, for retention purposes or otherwise. We refer to such grants as “ad hoc” awards. No “ad hoc” grants were made to NEOs in 2011.

 

Other Stock Grants.  The Company awards time-vesting restricted share units (“RSUs”) selectively to employees under certain circumstances. RSUs vest solely based on continued service and are not subject to performance conditions. Typically, RSUs have been used to compensate newly hired executives for loss of stock value from awards that were forfeited when they left their previous company. The RSUs granted vest in one-third tranches over three years. Mr. Vitale was granted 84,893 RSUs for forfeiture of certain stock awards and other benefits from his prior employer and to incentivize him to accept our offer of employment. Mr. Vitale received this RSU grant on March 21, 2011, the commencement of his employment, where the grant date fair value of the RSUs was determined as $2,125,721. No other RSU grants were made to the NEOs in 2011.

 

Employee Stock Purchase Plans.  Plans were established following shareholder approval for an Employee Share Purchase Plan, a U.K. Sharesave Plan and an International Plan. Alongside employees, NEOs are eligible to participate in the appropriate plan in operation in their country of residence. Participation in the plans is entirely optional.

 

Mr. O’Kane participated in the U.K. Sharesave Plan, whereby he can save up to £250 per month over a three year period, at the end of which he will be eligible to purchase Company shares at the option price of

£13.62 ($21.46) (the price was determined based on the average of the highest and lowest stock for the three days preceding the invitation date of November 22, 2011).

 

Messrs. Cavoores, Houghton, Villers and Vitale elected not to participate in the plan.

 

Stock Ownership Guidelines.  Our stock ownership guidelines are intended to work in conjunction with our established “Policy on Insider Trading and Misuse of Inside Information”, which, among other things, prohibits buying or selling puts or call, pledging of shares, short sales and trading of Company shares on a short term basis. The Stock Ownership guidelines apply to all members of the Group Executive Committee and adhere to the following key principles:

 

 

In reviewing any request to trade, the Chief Executive Officer will take into consideration:

 

 

Further, on February 1, 2012, the Compensation Committee approved further share ownership guidelines applicable to the CEO, which require him to work towards a shareholding of five times base salary by 2017 (shares and awards issued or granted prior to the approval of these guidelines are not taken into account for purposes of these guidelines).

 

Clawback Policy

 

In 2010, the Compensation Committee adopted a clawback policy to bonus and LTIP awards granted to executive officers, including the NEOs. From 2010, in circumstances where there is a subsequent and material

negative restatement of the Company’s published financial results as a result of fraud, the Company will seek to recover any erroneously paid performance-based compensation.

 

Benefits and Perquisites

 

Perquisites.  Mr. Vitale joined the Company in March 2011. In connection with our recruitment of Mr. Vitale, we provided him with relocation and temporary housing benefits, in accordance with our relocation policy, to defray some of the costs he incurred by relocating from Switzerland to the United States to join the Company. As additional recruitment incentives, we agreed to provide supplemental life and long-term disability benefits that are comparable to the coverage Mr. Vitale received from his prior employer, and we also made tax gross up payments to Mr. Vitale in respect of his relocation reimbursement and supplemental life and long-term disability benefits. We also established a Supplemental Executive Retirement Plan in order to maintain the pension levels available to Mr. Vitale at his prior employer. Under the Supplemental Executive Retirement Plan, Mr. Vitale is eligible for Company contributions of amounts that could not be contributed to the Company’s qualified defined contribution plan due to U.S. Internal Revenue Code income limits.

 

Change in Control and Severance Benefits

 

In General.  We provide the opportunity for certain of our NEOs to be protected under the severance and change in control provisions contained in their employment agreements. We provide this opportunity to attract and retain an appropriate caliber of talent for the position. Our severance and change in control provisions for the named executive officers are summarized in “— Employment Agreements” and “— Potential Payments upon Termination or Change in Control.”

 

EXECUTIVE COMPENSATION

 

The following Summary Compensation Table sets forth, for the years ended December 31, 2011, 2010 and 2009, the compensation for services in all capacities earned by the Company’s Chief Executive Officer, Chief Financial Officer and its next three most highly compensated executive officers. These individuals are referred to as the “named executive officers.”

 

2011 Summary Compensation Table (1)

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information concerning grants of options to purchase ordinary shares and other awards granted during the twelve months ended December 31, 2011 to the named executive officers:

 

 

 

 

Narrative Description of Summary Compensation and Grants of Plan-Based Awards

 

Share Incentive Plan

 

We have adopted the Aspen Insurance Holdings Limited 2003 Share Incentive Plan, as amended (the “2003 Share Incentive Plan”) to aid us in recruiting and retaining key employees and directors and to motivate such employees and directors. The 2003 Share Incentive Plan was amended at our annual general meeting in 2005 to increase the number of shares that can be issued under the plan. The total number of ordinary shares that may be issued under the 2003 Share Incentive Plan is 9,476,553. On February 5, 2008, the Compensation Committee of the Board approved an amendment to the 2003 Share Incentive Plan providing delegated authority to subcommittees or individuals to grant RSUs to individuals who are not “insiders” subject to Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) or are not expected to be “covered persons” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.

 

The 2003 Share Incentive Plan provides for the grant to selected employees and non-employee directors of share options, share appreciation rights, restricted shares and other share-based awards. The shares subject to initial grant of options (the “initial grant options”) represented an aggregate of 5.75% of our ordinary shares on a fully diluted basis (3,884,030 shares), assuming the exercise of all outstanding options issued to Wellington and the Names’ Trustee. In addition, an aggregate of 2.5% of our ordinary shares on a fully diluted basis (1,840,540 shares), were reserved for additional grant or issuance of share options, share appreciation rights, restricted shares and/or other share-based awards as and when determined in the sole discretion of the Board or the Compensation Committee. No award may be granted under the 2003 Share Incentive Plan after the tenth anniversary of its effective date. The 2003 Share Incentive Plan provides for equitable adjustment of affected terms of the plan and outstanding awards in the event of any change in the outstanding ordinary shares by reason of any share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or transaction or exchange of shares or other corporate exchange, or any distribution to shareholders of shares other than regular cash dividends or any similar transaction. In the event of a change in control (as defined in the 2003 Share Incentive Plan), the Board or the Compensation Committee may accelerate, vest or cause the restrictions to lapse with respect to all or any portion of an award (except that shares subject to the initial grant options shall vest); or cancel awards for fair value; or provide for the issuance of substitute awards that substantially preserve the terms of any affected awards; or provide that for a period of at least 15 days prior to the change in control share options will be exercisable and that upon the occurrence of the change in control, such options shall terminate and be of no further force and effect.

 

Initial Options.  The initial grant options have a term of ten years and an exercise price of $16.20 per share, which price was calculated based on 109% of the calculated fair market value of our ordinary shares as of May 29, 2003 and was determined by an independent consultant. Sixty-five percent (65%) of the initial grant options are subject to time-based vesting with 20% vesting upon grant and 20% vesting on each December 31 of calendar years 2003, 2004, 2005 and 2006. The remaining 35% of the initial grant options are subject to performance-based vesting determined by achievement of ROE targets, and subject to achieving a threshold combined ratio target, in each case, over the applicable one or two-year performance period. Initial grant options that do not vest based on the applicable performance targets may vest in later years to the extent performance in such years exceeds 100% of the applicable targets, and in any event, any unvested and outstanding performance-based initial grant options will become vested on December 31, 2009. Upon termination of a participant’s employment, any unvested options shall be forfeited, except that if the termination is due to death or disability (as defined in the option agreement), the time-based portion of the initial grant options shall vest to the extent such option would have otherwise become vested within 12 months immediately succeeding such termination due to death or disability. Upon termination of employment, vested initial grant options will be exercisable, subject to expiration of the options, until (i) the first anniversary of termination due to death or disability or, for nine members of senior management, without cause or for good reason (as those terms are defined in the option agreement), (ii) six months following termination without cause or for good reason for all other participants, (iii) three months following termination by the participant for any reason other than those stated in (i) or (ii) above or (iv) the date of termination for cause. As provided in the 2003 Share Incentive Plan, in the event of a change in control unvested and outstanding initial grant options shall immediately become fully vested. As at December 31, 2009, all of the options have vested.

The initial grant options may be exercised by payment in cash or its equivalent, in ordinary shares, in a combination of cash and ordinary shares, or by broker-assisted cashless exercise. The initial grant options are not transferable by a participant during his or her lifetime other than to family members, family trusts, and family partnerships.

 

2004 Options.  In 2004, we granted a total of 500,113 nonqualified stock options to various employees of the Company. Each nonqualified stock option represents the right and option to purchase, on the terms and conditions set forth in the agreement evidencing the grant, ordinary shares of the Company, par value 0.15144558 cent per share. The exercise price of the shares subject to the option is $24.44 per share, which as determined by the 2003 Share Incentive Plan is based on the arithmetic mean of the high and low prices of the ordinary shares on the grant date as reported by the NYSE. Of the total grant of 2004 options, 51.48% have vested. The remaining amounts have been forfeited due to the performance targets not being met.

 

2005 Options.  On March 3, 2005, we granted an aggregate of 512,172 nonqualified stock options. The exercise price of the shares subject to the option is $25.88 per share, which as determined by the 2003 Share Incentive Plan is based on the arithmetic mean of the high and low prices of the ordinary shares on the grant date as reported by the NYSE. We also granted an additional 13,709 nonqualified stock options during 2005; the exercise price of those shares varied from $25.28 to $26.46. The ROE target was not met in 2005, and as a result, all granted options have been forfeited.

 

2006 Options.  On February 16, 2006, we granted an aggregate of 1,072,490 nonqualified stock options. The exercise price of the shares subject to the option is $23.65 per share, which as determined by the 2003 Share Incentive Plan is based on the arithmetic mean of the high and low prices of the ordinary shares on February 17, 2006 as reported by the NYSE. We granted an additional 142,158 options on August 4, 2006, for an exercise price of $23.19. Of the total grant, 92.2% have vested, with the remaining amounts forfeited due to performance targets not being met.

 

2007 Options.  On May 1, 2007, the Compensation Committee approved a grant of an aggregate of 607,641 nonqualified stock options with a grant date of May 4, 2007. The exercise price of the shares subject to the option is $27.28 per share, which as determined by the 2003 Share Incentive Plan is based on the arithmetic mean of the high and low prices of the ordinary shares on May 4, 2007 as reported by the NYSE. The Compensation Committee granted an additional 15,198 options on October 22, 2007, for an exercise price of $27.52.

 

The options became fully vested and exercisable upon the third anniversary of the date of grant, subject to the optionee’s continued employment with the Company (and lack of notice of resignation or termination). The option grants are not subject to performance conditions. In the event the optionee is terminated for cause (as defined in the option agreement), the vested option shall be immediately canceled without consideration to the extent not previously exercised.

 

The optionee may exercise all or any part of the vested option at any time prior to the earliest to occur of (i) the seventh anniversary of the date of grant, (ii) the first anniversary of the optionee’s termination of employment due to death or disability (as defined in the option agreement), (iii) the first anniversary of the optionee’s termination of employment by the Company without cause (for any reason other than due to death or disability), (iv) three months following the date of the optionee’s termination of employment by the optionee for any reason (other than due to death or disability), or (v) the date of the optionee’s termination of employment by the Company for cause (as defined in the option agreement).

 

Restricted Share Units.  In 2009, we granted 97,389 RSUs to our employees which vest in one-third tranches over three years. In 2010, we granted 168,707 RSUs to our employees which vest in one-third tranches over three years. In 2011, we granted 183,019 RSUs to our employees which vest in one-third tranches over three years. Vesting of a participant’s units may be accelerated, however, if the participant’s employment with the Company and its subsidiaries is terminated without cause (as defined in such participant’s award agreement), on account of the participant’s death or disability (as defined in such participant’s award agreement), or, with respect to some of the participants, by the participant with good

reason (as defined in such participant’s award agreement). Participants will be paid one ordinary share for each unit that vests as soon as practicable following the vesting date.

 

Recipients of the RSUs generally will not be entitled to any rights of a holder of ordinary shares, including the right to vote, unless and until their units vest and ordinary shares are issued; provided, however, that participants will be entitled to receive dividend equivalents with respect to their units. Dividend equivalents will be denominated in cash and paid in cash if and when the underlying units vest. Participants may, however, be permitted by the Company to elect to defer the receipt of any ordinary shares upon the vesting of units, in which case payment will not be made until such time or times as the participant may elect. Payment of deferred share units would be in ordinary shares with any cash dividend equivalents credited with respect to such deferred share units paid in cash.

 

2004 Performance Share Awards.  On December 22, 2004, we granted an aggregate of 150,074 performance share awards to various employees of the Company. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE targets. With respect to the 2004 performance share awards, 17.16% of the total grant has vested. The remainder of the 2004 performance share grants was forfeited due to the non-achievement of performance targets.

 

2005 Performance Share Awards.  On March 3, 2005, we granted an aggregate of 123,002 performance share awards to various officers and other employees and an additional 8,225 performance share awards were granted in 2005. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE targets. All 2005 performance share awards were forfeited as the performance targets were not met.

 

2006 Performance Share Awards.  On February 16, 2006, we granted an aggregate of 316,912 performance share awards to various officers and other employees. We granted an additional 1,042 performance share awards on August 4, 2006. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE targets. Of the total grant, 92.2% have vested, with the remaining amounts forfeited due to performance targets not being met.

 

2007 Performance Share Awards.  On May 1, 2007, the Compensation Committee approved a grant of an aggregate of 427,796 performance share awards with a grant date of May 4, 2007. The Compensation Committee granted an additional 11,407 performance shares with a grant date of October 22, 2007. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Of the total grant, 82.9% vested and were issuable upon the filing of the annual report on Form 10-K for the year ended December 31, 2010, with the remaining amounts forfeited due to performance targets not being met.

 

Payment of vested performance shares occurred as soon as practicable after the date the performance shares vested. Participants may be required to pay to the Company, and the Company will have the right to withhold, any applicable withholding taxes in respect of the performance shares. Performance shares may not be assigned, sold or otherwise transferred by participants other than by will or by the laws of descent and distribution.

 

2008 Performance Share Awards.  On April 29, 2008, the Compensation Committee approved a grant of an aggregate of 587,095 performance share awards with a grant date of May 2, 2008. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE tests each year. Of the total grant,

55.2% vested and were issuable upon the filing of the annual report on Form 10-K for the year ended December 31, 2010, with the remaining amounts forfeited due to performance targets not being met.

 

Payment of vested performance shares occurred as soon as practicable after the date the performance shares vested. Participants may be required to pay to the Company, and the Company will have the right to withhold, any applicable withholding taxes in respect of the performance shares. Performance shares may not be assigned, sold or otherwise transferred by participants other than by will or by the laws of descent and distribution.

 

2009 Performance Share Awards.  On April 28, 2009, the Compensation Committee approved a grant of an aggregate of 912,931 performance share awards with a grant date of May 1, 2009. On October 27, 2009, the Compensation Committee approved an additional grant of 15,221 performance share awards with a grant date of October 30, 2009. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE tests each year. Based on the achievement of a 2009 ROE of 18.4%, 164% of one-third of the 2009 performance share award is eligible for vesting. Based on the achievement of a 2010 ROE of 11.2%, 85.6% of one-third of the 2009 performance share award is eligible for vesting. Based on the achiement of a negative 2011 ROE of (5.3)%, one-third of the 2009 performance awards was forfeited. Therefore, of the total grant, 83.2% have vested and are issuable upon the filing of this report, with the remaining amounts forfeited due to performance targets not being met.

 

Payment of vested performance shares will occur as soon as practicable after the date the performance shares become vested. Participants may be required to pay to the Company, and the Company will have the right to withhold, any applicable withholding taxes in respect of the performance shares. Performance shares may not be assigned, sold or otherwise transferred by participants other than by will or by the laws of descent and distribution.

 

2010 Performance Share Awards.  On February 8, 2010, the Compensation Committee approved a grant of an aggregate of 720,098 performance share awards with a grant date of February 11, 2010. An additional 12,346 performance shares were granted on April 16, 2010. On October 26, 2010, the Compensation Committee approved a grant of 17,693 performance shares with a grant date of November 1, 2010. Each performance share award represents the right to receive, on the terms and conditions set forth in the agreement evidencing the award, a specified number of ordinary shares of the Company, par value 0.15144558 cent per share. Payment of performance shares is contingent upon the achievement of specified ROE tests each year.

 

One-third (¹/₃) of the performance shares will become eligible for vesting upon the later of (i) the date the Company’s outside auditors complete the audit of the Company’s financial statements containing the information necessary to compute its ROE for the fiscal year ended December 31, 2010, or (ii) the date such ROE is approved by the Board or an authorized committee thereof (the “2010 Performance Award”). No performance shares will become eligible for vesting for the 2009 Performance Award if the ROE for the 2010 fiscal year is less than 7%. If the Company’s ROE for the 2010 fiscal year is between 7% and 12%, then 10% to 100% of the 2010 Performance Award will be eligible for vesting on a straight-line basis. If the ROE for the 2010 fiscal year is between 12% and 22%, then 100% to 200% of the 2010 Performance Award will become eligible for vesting on a straight-line basis. However, if the ROE for the 2010 fiscal year is greater than 12% and the average ROE over 2010 and the immediately preceding fiscal year is less than 7%, then the percentage of eligible shares for vesting will be 100%. If the ROE for the 2010 fiscal year is greater than 12% and the average ROE over 2010 and the immediately preceding fiscal year is 7% or greater, then the percentage of eligible shares for vesting will vest in accordance with the schedule for vesting described above. There is no additional vesting if the 2010 ROE is greater than 22%. Based on the achievement of a 2010 ROE of 11.2%, 85.6% of one-third of the 2010 performance share award is eligible for vesting.

 

One-third (¹/₃) of the performance shares will become eligible for vesting upon the later of (i) the date the Company’s outside auditors complete the audit of the Company’s financial statements containing the information necessary to compute its ROE for the fiscal year ended December 31, 2011, or (ii) the date such ROE is approved by the Board or an authorized committee thereof (the “2011 Performance Award”). No

performance shares will become eligible for vesting for the 2011 Performance Award if the ROE for the 2011 fiscal year is less than 7%. If the Company’s ROE for the 2011 fiscal year is between 7% and 12%, then 10% to 100% of the 2011 Performance Award will be eligible for vesting on a straight-line basis. If the ROE for the 2011 fiscal year is between 12% and 22%, then 100% to 200% of the 2011 Performance Award will become eligible for vesting on a straight-line basis. However, if the ROE for the 2011 fiscal year is greater than 12% and the average ROE over 2011 and 2010 is less than 7%, then the percentage of eligible shares for vesting will be 100%. If the ROE for the 2010 fiscal year is greater than 12% and the average ROE over 2011 and 2010 is 7% or greater, then the percentage of eligible shares for vesting will vest in accordance with the schedule for vesting described above. There is no additional vesting if the 2010 ROE is greater than 22%. Based on the achievement of a negative 2011 ROE of (5.3)%, one-third of the 2011 performance award was forfeited.

 

One-third (1/3) of the performance shares will become eligible for vesting upon the later of (i) the date the Company’s outside auditors complete the audit of the Company’s financial statements containing the information necessary to compute its ROE for the fiscal year ended December 31, 2012, or (ii) the date such ROE is approved by the Board or an authorized committee thereof (the “2012 Performance Award”). No performance shares will become eligible for vesting for the 2012 Performance Award if the ROE for the 2012 fiscal year is less than 7%. If the Company’s ROE for the 2012 fiscal year is between 7% and 12%, then 10% to 100% of the 2012 Performance Award will be eligible for vesting on a straight-line basis. If the ROE for the 2012 fiscal year is between 12% and 22%, then 100% to 200% of the 2012 Performance Award will become eligible for vesting on a straight-line basis. However, if the ROE for the 2012 fiscal year is greater than 12% and the average ROE over 2012 and 2011 is less than 7%, then the percentage of eligible shares for vesting will be 100%. If the ROE for the 2012 fiscal year is greater than 12% and the average ROE over 2011 and 2010 is 7% or greater, then the percentage of eligible shares for vesting will vest in accordance with the schedule for vesting described above. There is no additional vesting if the 2012 ROE is greater than 22%.

 

Performance shares which are eligible for vesting, as described above, as part of the 2010 Performance Award, the 2011 Performance Award and the 2012 Performance Award will vest upon the later of (i) the date the Company’s outside auditors complete the audit of the Company’s financial statements containing the information necessary to compute its ROE for the fiscal year ended December 31, 2012, or (ii) the date such 2012 ROE is approved by the Board or an authorized committee thereof, subject to the participant’s continued employment (and lack of notice of resignation or termination) until such date.

 

Payment of vested performance shares will occur as soon as practicable after the date the performance shares become vested. Participants may be required to pay to the Company, and the Company will have the right to withhold, any applicable withholding taxes in respect of the performance shares. Performance shares may not be assigned, sold or otherwise transferred by participants other than by will or by the laws of descent and distribution.

 

2011 Performance Share Awards.  On February 3, 2011, the Compensation Committee approved a grant of an aggregate of 853,223 performance share awards with a grant date of February 9, 2011. On March 21, 2011, an additional grant of 31,669 performance shares was approved and on May 2, 2011 an additional grant of 5,902 performance shares was approved. The performance shares will be subject to a three-year vesting period with a separate annual ROE test for each year. One-third of the grant will be eligible for vesting each year based on a formula, and will only be issuable at the end of the three-year period. If the ROE achieved in 2011 is less than 6%, then the portion of the performance shares subject to the vesting conditions in such year will be forfeited (i.e. 33.33% of the initial grant). If the ROE achieved in 2011 is between 6% and 11%, then the percentage of the performance shares eligible for vesting will be between 10% and 100% on a straight-line basis. If the ROE achieved in 2011 is between 11% and 21%, then the percentage of the performance shares eligible for vesting will be between 100% and 200% on a straight-line basis. Based on the achievement of a negative 2011 ROE of (5.3)%, one-third of the 2011 performance award was forfeited.

 

The Compensation Committee will determine the vesting conditions for the 2012 and 2013 portions of the grant in such years taking into consideration the market conditions and the Company’s business plans at the commencement of the years concerned. At its meeting held on February 1, 2012, the Compensation

Committee approved the vesting conditions for the portion of the 2011 performance shares subject to 2012 performance testing. If the ROE achieved in 2012 is less than 5%, then the portion of the performance shares subject to the vesting conditions in such year will be forfeited (i.e. 33.33% of the initial grant). If the ROE achieved in 2012 is between 5% and 10%, then the percentage of the performance shares eligible for vesting will be between 10% and 100% on a straight-line basis. If the ROE achieved in 2012 is between 10% and 20%, then the percentage of the performance shares eligible for vesting will be between 100% and 200% on a straight-line basis.

 

Notwithstanding the vesting criteria for each given year, if in any given year, the shares eligible for vesting are greater than 100% for the portion of such year’s grant and the average ROE over such year and the preceding year is less than the average of the minimum vesting thresholds for such year and the preceding year, then only 100% (and no more) of the shares that are eligible for vesting in such year shall vest. If the average ROE over the two years is greater than the average of the minimum vesting thresholds for such year and the preceding year, then there will be no diminution in vesting and the shares eligible for vesting in such year will vest in accordance with the vesting schedule without regard to the average ROE over the two-year period.

 

2012 Awards.  On February 1, 2012, the Compensation Committee approved a grant of performance shares with a grant date of February 8, 2012. The performance shares will be subject to a three-year vesting period with a separate annual diluted book value per share adjusted to add back ordinary dividends to shareholders’ equity for the end of the year (“Adjusted Diluted BVPS”) growth test for each year. For a reconciliation of Adjusted Diluted BVPS to Diluted BVPS, see “Reconciliation of Non-GAAP Financial Measures” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 28, 2012. One-third of the grant will be eligible for vesting each year based on a formula, and will only be issuable at the end of the three-year period. If the BVPS growth achieved in 2012 is less than 5%, then the portion of the performance shares subject to the vesting conditions in such year will be forfeited (i.e. 33.33% of the initial grant). If the BVPS growth achieved in 2012 is between 5% and 10%, then the percentage of the performance shares eligible for vesting will be between 10% and 100% on a straight-line basis. If the BVPS growth achieved in 2012 is between 10% and 20%, then the percentage of the performance shares eligible for vesting will be between 100% and 200% on a straight-line basis. The Compensation Committee will determine the vesting conditions for the 2013 and 2014 portions of the grant in such years taking into consideration the market conditions and the Company’s business plans at the commencement of the years concerned. Notwithstanding the vesting criteria for each given year, if in any given year, the shares eligible for vesting are greater than 100% for the portion of such year’s grant and the average BVPS growth over such year and the preceding year is less than the average of the minimum vesting thresholds for such year and the preceding year (or, in the case of the 2012 portion of the grant, less than 5% of BVPS growth), then only 100% (and no more) of the shares that are eligible for vesting in such year shall vest. Notwithstanding the foregoing, if in the judgment of the Compensation Committee, the main reason for the BVPS growth metric in the earlier year falling below the minimum threshold (or below 5% in the case of 2011 BVPS growth) is the impact of rising interest rates and bond yields, then the Compensation Committee may, in its discretion, disapply this limitation on 100% vesting.

 

On February 1, 2012, the Compensation Committee also approved a grant of RSUs with a grant date of February 8, 2012. The RSUs will be subject to a three-year vesting period based on continued service, with one-third of the grant vesting on each of the first, second and third anniversaries of the date of grant. RSUs shall be paid in the Company’s shares upon vesting, with one share paid for each RSU.

 

Employment-Related Agreements

 

The following information summarizes the (i) service agreements for Mr. O’Kane, which commenced on September 24, 2004, (ii) service agreement for Mr. Houghton dated April 3, 2007, (iii) employment agreement for Mr. Vitale which commenced March 21, 2011, (iv) service agreement for Mr. Villers which commenced on

January 1, 2011 and (v) employment agreement for Mr. Cavoores which commenced October 27, 2010. In respect of each of the agreements with Messrs. O’Kane, Houghton, Vitale, Villers and Cavoores:

 

(i) in the case of Messrs. O’Kane, Houghton and Villers, employment may be terminated for cause if:

 

 

(ii) in the case of Mr. O’Kane, employment may be terminated if the employee breaches a material provision of the shareholders’ agreement with Aspen Holdings and such breach has a material adverse effect on the Company and its affiliates and is not cured by the employee within 21 days after receiving notice from the Company;

 

(iii) in the case of Messrs. Vitale and Cavoores, employment may be terminated for cause if:

 

 

(iv) in the case of Messrs. O’Kane, Houghton and Villers, employment may be terminated by the employee without notice for good reason if:

 

 

(v) in the case of Messrs. Vitale and Cavoores, employment may be terminated by the employee for good reason upon 90 days’ notice if:

 

 

(vi) in the case of Mr. O’Kane, if the employee is terminated without cause or resigns with good reason, the employee is entitled (subject to execution of a release) to (a) salary at his salary rate through the date in which his termination occurs; (b) the lesser of (x) the target annual incentive award for the year in which the employee’s termination occurs, and (y) the average of the annual incentive awards received by the employee in the prior three years (or, number of years employed if fewer), multiplied by a fraction, the numerator of which is the number of days that the employee was employed during the applicable year and the denominator of which is 365; (c) a severance payment to two times the sum of (x) the employee’s highest salary during the term of the agreement and (y) the average annual bonus paid to the executive in the previous three years (or lesser period if employed less than three years); and (d) the unpaid balance of all previously earned cash bonus and other incentive awards with respect to performance periods which have been completed, but which have not yet been paid, all of which amounts shall be payable in a lump sum in cash within 30 days after termination. Fifty percent of this severance payment is paid to the employee within 14 days of the execution by the employee of a valid release and the remaining 50% is paid in four equal installments during the 12 months following the first anniversary of the date of termination, conditional on the employee complying with the non-solicitation provisions applying during that period;

 

(vii) in the case of Messrs. Houghton and Villers, if the employee is terminated without cause or resigns with good reason, the employee is entitled (subject to execution of a release) to (a) salary at his salary rate through the date in which his termination occurs; (b) the lesser of (x) the target annual incentive award for the year in which the employee’s termination occurs, and (y) the average of the annual incentive awards received by the employee in the prior three years (or, number of years employed if fewer), multiplied by a fraction, the numerator of which is the number of days that the employee was employed during the applicable year and the denominator of which is 365; (c) a severance payment of the sum of (x) the employee’s highest salary rate during the term of the agreement and (y) the average bonus under the Company’s annual incentive plan actually earned by the employee during the three years (or number of complete years employed, if fewer) immediately prior to the year of termination; and (d) the unpaid balance of all previously earned cash bonus and other incentive awards with respect to performance periods which have been completed, but which have not yet been paid, all of which amounts shall be payable in a lump sum in cash within 30 days after termination. In the event that the employee is paid in lieu of notice under the agreement (including if the Company exercises its right to enforce garden leave under the agreement) the severance payment will be inclusive of that payment;

 

(viii) In the case of Mr. Vitale, if the employee is terminated without cause or resigns with good reason, the employee is entitled (subject to execution of a release) to (a) salary at his salary rate through the date in which his termination occurs, payable within 20 days after the normal payment date; (b) a lump sum payment equal to the employee’s then current base salary, payable within 60 days after the termination date, (c) a lump sum payment equal to the lesser of (x) the employee’s then current bonus potential or (y) the average bonus under the Company’s annual incentive plan actually earned by the employee during the three years immediately prior to the year of termination, payable within 60 days after the termination date; (d) continued vesting of the restricted stock units granted to the employee pursuant to his employment agreement and (e) any earned but unpaid annual bonus, earned but unpaid equity and/or incentive awards, accrued but unpaid vacation days and unreimbursed business expenses, payable within 20 days after the normal payment date. In the event Mr. Vitale’s employment is terminated

due to his death or disability, the employee (or his estate or personal representative in the case of his death) is entitled to (a) a prorated annual bonus based on the actual annual bonus earned for the year in which the termination occurs, prorated based on the fraction of the year the employee was employed and (b) immediate vesting and distribution of the restricted stock units granted to the employee pursuant to his employment agreement;

 

(ix) in the case of Mr. Cavoores, if the employee is terminated without cause or resigns with good reason, the employee is entitled (subject to execution of a release) to (a) salary at his salary rate through the date in which his termination occurs, payable within 20 days after the normal payment date; (b) a lump sum payment equal to the employee’s then current base salary, payable within 20 days after the termination date, (c) a lump sum payment equal to the lesser of (x) the employee’s then current bonus potential or (y) the average bonus under the Company’s annual incentive plan actually earned by the employee during the three years immediately prior to the year of termination, payable within 20 days after the termination date; (d) a payment equal to the lower of (x) the employee’s then current bonus potential or (y) if the termination date occurs after March 15, 2012, any such lower annual bonus that was paid to the employee, payable within 20 days after the termination date; and (e) any earned but unpaid annual bonus, earned but unpaid equity and/or incentive awards, accrued but unpaid vacation days and unreimbursed business expenses, payable within 20 days after the normal payment date. In the event Mr. Cavoores’ employment is terminated due to his death or disability, the employee (or his estate or personal representative in the case of his death) is entitled to a prorated annual bonus based on the actual annual bonus earned for the year in which the termination occurs, prorated based on the fraction of the year the employee was employed;

 

(x) in the case of Messrs. O’Kane, Houghton, Vitale, Villers and Cavoores, if the employee is terminated without cause or resigns for good reason in the six months prior to a change of control or the two-year period following a change of control, in addition to the benefits discussed above, all share options and other equity-based awards granted to the executive during the course of the agreement shall immediately vest and remain exercisable in accordance with their terms. In addition, in the case of Mr. O’Kane, he may be entitled to excise tax gross-up payments;

 

(xi) the agreements contain provisions relating to reimbursement of expenses, confidentiality, non-competition and non-solicitation; and

 

(xii) in the case of Messrs. O’Kane, Houghton and Villers, the employees have for the benefit of their respective beneficiaries life insurance (and in the case of Messrs. Vitale and Cavoores, supplemental life insurance benefits). There are no key man insurance policies in place.

 

Christopher O’Kane.  Mr. O’Kane entered into a service agreement with Aspen U.K. Services and Aspen Holdings under which he has agreed to serve as Chief Executive Officer of Aspen Holdings and Aspen U.K. and director of both companies, terminable upon 12 months’ notice by either party. The agreement originally provided that Mr. O’Kane shall be paid an annual salary of £346,830, subject to annual review. Mr. O’Kane’s service agreement also entitles him to participate in all management incentive plans and other employee benefits and fringe benefit plans made available to other senior executives or employees generally, including continued membership in the Company’s pension scheme, medical insurance, permanent health insurance, personal accident insurance and life insurance. The service agreement also provides for a discretionary bonus to be awarded annually as the Compensation Committee of the Board may determine. In 2011, the Compensation Committee approved an increase of the bonus potential from 150% to 175% of salary which may be exceeded, partly in response to analysis of peer groups and partly to address exchange rate considerations. Effective April 1, 2009, Mr. O’Kane’s salary was £480,000. For 2010, no salary increase was approved. Effective April 1, 2011, Mr. O’Kane’s salary was increased to £527,500. Effective April 1, 2012, Mr. O’Kane’s salary will be £543,325.

 

Richard Houghton.  Mr. Houghton entered into a service agreement with Aspen U.K. Services under which he agreed to serve as Chief Financial Officer of Aspen Holdings, terminable upon 12 months’ notice by either party. The agreement originally provided that Mr. Houghton shall be paid an annual salary of £320,000, subject to annual review. Mr. Houghton’s service agreement also entitles him to participate in all management

incentive plans and other employee benefits and fringe benefit plans made available to other senior executives or employees generally, including continued membership in the Company’s pension scheme and to medical insurance, permanent health insurance, personal accident insurance and life insurance. The service agreement also provides for a discretionary bonus, based on a bonus potential of 100% of salary which may be exceeded, to be awarded annually as the Compensation Committee of the Board may determine. Effective April 1, 2009, Mr. Houghton’s salary was £360,000. For 2010, no salary increase was approved. Effective April 1, 2011, Mr. Houghton’s salary was increased to £370,000. The Compensation Committee had approved a salary increase to £382,000 effective April 1, 2012. However, as previously disclosed, Mr. Houghton has left the Company with effect from February 29, 2012.

 

Under the terms of an employment agreement dated April 3, 2007 between Mr. Houghton and Aspen UK Services, Mr. Houghton is entitled to certain payments in connection with his departure, which are described above. Aspen UK Services has, however, entered into a compromise agreement with Mr. Houghton dated February 22, 2012 (the “Compromise Agreement”) under which, in respect of any severance payments that might otherwise have been due to Mr. Houghton under his employment agreement, the Company will pay Mr. Houghton severance payments up to £657,804 in the aggregate (the “Severance Payments”). The Severance Payments are payable over a 12-month period in equal monthly instalments, and eliminated or reduced to reflect any alternative employment commenced by Mr. Houghton during this 12-month period (subject to a minimum payment of three months, during which time Mr. Houghton will be subject to certain non-compete restrictions). On February 23, 2012, RSA announced that it has appointed Mr. Houghton as its Group Chief Financial Officer when he is expected to commence his role in early June 2012. As a result, on this basis, we expect to pay Severance Payments until Mr. Houghton’s employment with RSA commences in June 2012. Mr. Houghton will also receive continued medical benefits through February 2013 or until he receives equivalent benefits from a new employer and continued pension contributions while he is receiving Severance Payments. In addition, under the terms of the Compromise Agreement, Mr. Houghton will receive the amount of shares in the Company which are eligible for vesting under his 2009 performance share agreement (83.2% of total grant) and 2010 performance share agreement (85.6% of one-third of the grant based on 2010 performance). Mr. Houghton will forfeit his remaining 2010 performance shares, the entire 2011 performance share award, and the 2012 awards recently granted to him. The Compromise Agreement also provides that the Company and Mr. Houghton will release each other of all claims.

 

Mario Vitale.  Mr. Vitale entered into an employment agreement with Aspen U.S. Services under which he has agreed to serve as President of U.S. Insurance of the Aspen Insurance Group for a one-year term, with annual extensions thereafter. The agreement provides that Mr. Vitale will be paid an annual salary of $750,000, subject to review from time to time, as well as a discretionary bonus, based on a bonus potential of 120% of salary which may be exceeded. The agreement provides that, in lieu of a discretionary bonus for 2011, Mr. Vitale’s 2011 bonus will be $900,000. Mr. Vitale will be eligible to participate in the Company’s long-term incentive plan in 2011 and future years, with any grant to be in the discretion of the Co-Chief Executive Officer of Aspen Insurance and Compensation Committee of the Board, for a value of $850,000 per year. The employment agreement provides that following the effective date of the agreement, Mr. Vitale would receive an award of $2,276,000 in RSUs, which vest over three years, and a one-time cash replacement award of $1,000,000, which Mr. Vitale will be required to repay if he terminates the employment agreement within one year. Mr. Vitale shall be eligible to participate in all incentive compensation, retirement deferred compensation and benefit plans available generally to senior officers, and is entitled to supplemental disability coverage. In addition, Mr. Vitale will be entitled to (i) participate in an arrangement whereby he will be eligible for retirement funding by Aspen U.S. Services in amounts that would not be contributed to his 401(k) plan account due to U.S. Internal Revenue Code income limits, (ii) relocation benefits including temporary housing for six months, and (iii) indemnification for damages and costs arising from any action by Mr. Vitale’s former employer relating to his employment with Aspen U.S. Services (other than damages that arise out of willful malfeasance by Mr. Vitale). Mr. Vitale’s salary for 2012 will remain at $750,000. Mr. Vitale became co-Chief Executive Officer of Aspen Insurance effective January 1, 2012.

 

Rupert Villers.  Mr. Villers entered into a service agreement with Aspen U.K. Services under which he agreed to serve as Chief Executive Officer of Aspen Insurance, terminable upon 12 months’ notice by either

party. The agreement provides that Mr. Villers will commit to work an average of four days per week. The agreement provides that Mr. Villers shall be paid an annual salary of £280,000 (based on the full time equivalent salary of pro rata £350,000), subject to annual review. Mr. Villers’s service agreement also entitles him to participate in all management incentive plans and other employee benefits and fringe benefit plans made available to other senior executives or employees generally, including membership in the Company’s pension scheme and medical insurance, permanent health insurance, personal accident insurance and life insurance. The service agreement also provides for a discretionary bonus, based on a bonus potential of 125% of salary which may be exceeded, to be awarded annually as the Compensation Committee of the Board may determine. Effective April 1, 2012, Mr. Villers’ salary will be £290,000 (pro rata based on a full time equivalent of £362,500).

 

John Cavoores.  Mr. Cavoores entered into an employment agreement with Aspen U.S. Services under which he agreed to serve as Co-Chief Executive Officer of Aspen Insurance for a two-year and one month term, for employment three days per week. The agreement provided that Mr. Cavoores would be paid an annual salary of $360,000, subject to review from time to time, as well as a discretionary bonus, based on a bonus potential of 125% of salary which may be exceeded. Mr. Cavoores would be eligible to participate in the Company’s long-term incentive plan in 2010 and 2011, for a value of $500,000 for 2010 and $1,500,000 for 2011, which awards will be performance based and vest over three years (including following his termination of employment due to expiration of the term). Mr. Cavoores was eligible to participate in all incentive compensation, retirement deferred compensation and benefit plans available generally to senior officers, and is entitled to supplemental disability coverage. Mr. Cavoores stepped down as co-Chief Executive Officer of Aspen Insurance effective January 1, 2012.

Retirement Benefits

 

We do not have a defined benefit plan. Generally, retirement benefits are provided to our named executive officers according to their home country.

 

United Kingdom.  In the U.K. we have a defined contribution plan which was established in 2005 for our U.K. employees. All permanent and fixed term employees are eligible to join the plan. Messrs. O’Kane and Houghton were participants in the plan during 2011. Each participating employee contributes 3% of their base salary into the plan. The employer contributions made to the pension plan are based on a percentage of base salary based on the age of the employee. There are two scales: a standard scale for all U.K. participants and a directors’ scale which applies to certain key senior employees who were founders of the Company or who are executive directors of the Board. Messrs. O’Kane and Houghton were paid employer contributions based on the directors’ scale. Employer contributions for Mr. Villers were based on the standard scale.

 

 

The employee and employer contributions are paid to individual investment accounts set up in the name of the employee. Employees may choose from a selection of investment funds although the day-to-day management of the investments is undertaken by professional investment managers. At retirement this fund is then used to purchase retirement benefits.

 

If an employee leaves the Company before retirement all contributions to the account will cease. If an employee has at least two years of qualifying service, the employee has the option of (i) keeping his or her account, in which case the full value in the pension will continue to be invested until retirement age, or (ii) transferring the value of the account either to another employer’s approved pension plan or to an approved personal pension plan. Where an employee leaves the Company with less than two years of service, such employee will receive a refund equal to the part of their account which represents their own contributions only. This refund is subject to U.K. tax and social security.

 

In the event of death in service before retirement, the pension plan provides a lump sum death benefit equal to four times the employee’s basic salary, plus, where applicable, a dependent’s pension equal to 30% of the employee’s basic salary and a children’s pension equal to 15% of the employee’s basic salary for one child and up to 30% of the employee’s basic salary for two or more children. Under U.K. legislation, these benefits are subject to notional earnings limits (currently £108,600 for 2006/2007, £112,800 for 2007/2008, £117,600

for 2008/2009, £123,600 for 2009/2010 and 2010/2011 and £129,600 for 2011/2012). From April 2011, the notional earnings limit has been removed due to a change in our life insurance provider whereby the standard life assurance cover has been combined with the accepted life assurance cover, which has the impact of removing the notional earnings limit. Where an employee’s basic salary is greater than the notional earnings maximum, an additional benefit is provided through a separate cover outside the pension plan.

 

Changes in the rules regarding U.K. tax relief on pension contributions relating both to the total annual contribution amounts and to a “life-time” allowance limit have reduced the tax effectiveness of the defined scheme for some staff that have or may have either higher levels of contribution or higher levels of pension savings.

 

For those employees who would have employer pension contribution over the annual limit, we have agreed that we may pay an annual lump sum (subject to statutory deductions) of the difference between the employer plan contribution rate and the annual contribution limit. For those employees who have or are likely to have total pension savings over the “life-time” allowance limit, we have agreed that we may pay them a monthly amount (subject to statutory deductions) equal to their employer pension contribution.

 

These arrangements are subject to review depending on future legislation and regulation of U.K. pension schemes.

 

In 2010, we established an Employer-Financed Retirement Benefits Scheme which was, at that time, particularly suitable for our U.K. employees. All employees between the ages of 18 and 60 whose duties are performed outside of Guernsey were eligible to participate. Messrs. O’Kane and Houghton participated in the plan during 2010. The plan is a trust based, defined contribution pension vehicle, whereby the funds are invested by the trustees in order to provide retirement benefits. Funds were held in a trust in Guernsey.

 

Employer contributions are made in respect of employees, as agreed between us and the employee, in return for a reduction in his or her remuneration. Each participating employee will have a separate account under the plan, reflecting the value of employer contributions on his or her behalf, the investment return and charges.

 

Due to changing tax conditions within the U.K. we have closed this arrangement. This involved seeking the agreement of members and the Trustees of the scheme. Contributions were made by the members up until March 2011, after which no further contributions were made. Disinvestment of the scheme funds contributed by the members commenced in December 2011 and in January 2012 all funds were received by the members. The scheme was closed in the first quarter of 2012 and the individual fund amounts have either been paid to employees, subject to appropriate statutory deductions, or transferred (if possible under the scheme rules and legislation) to the defined contribution scheme. Messrs. O’Kane and Houghton have ceased to be members of the scheme and have received refunds of contributions, subject to statutory deductions.

 

United States.  In the U.S. we operate a 401(k) plan. Employees of Aspen U.S. Services are eligible to participate in this plan. Mr. Cavoores participated in this plan in 2011. Due to having reached applicable IRS limitations in respect of contributions under a 401(k) plan from his previous employment in the year, Mr. Vitale did not participate in the 401(k) plan at the Company in 2011. He did, however, receive profit sharing contributions as part of his pension contributions to him by the Company. Mr. Vitale will participate in the 401(k) plan from 2012.

 

Participants may elect a salary reduction contribution into the 401(k) plan. Their taxable income is then reduced by the amount contributed into the plan. This lets participants reduce their current federal and most state income taxes. The 401(k) safe harbor plan allows employees to contribute a percentage of their salaries (up to the maximum deferral limit set forth in the plan). We make a qualified matching contribution of 100% of the employee’s salary reduction contribution up to 3% of their salary, plus a matching contribution of 50% of the employee’s salary reduction contribution from 3% to 5% of their salary for each payroll period. The employer’s matching contribution is subject to limits based on the employee’s earnings as set by the IRS annually. Participants are always fully vested in their 401(k) plan with respect to their contributions and the employer’s matching contributions.

Discretionary profit sharing contributions are made annually to all employees by Aspen U.S. Services and are based on the following formula:

 

 

Profit sharing contributions are paid in the first quarter of each year in respect the previous fiscal year. The profit sharing contributions are subject to a limit based on the employee’s earnings as set by the IRS annually. The profit sharing contributions are subject to the following vesting schedule:

 

 

Once the employee has three years of service, his or her profit sharing contributions are fully vested and all future contributions are vested.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information concerning outstanding options to purchase ordinary shares and other stock awards by the named executive officers outstanding as of December 31, 2011:

 

 

 

2011 Non-Qualified Deferred Compensation

 

 

 

 

In addition to the 401(k) plan operated in the U.S., we adopted a Supplemental Executive Retirement Plan (“SERP”) in order to provide certain individuals of management or highly compensated employees, as designated and approved by the Compensation Committee, with supplemental retirement benefits. The SERP is put in place due primarily to the limitations imposed on benefits payable under tax-qualified retirement plans. It is intended that the SERP, by providing this supplemental retirement benefit, will assist the Company in retaining and attracting individuals of exceptional ability.

 

Contributions for each participant will be determined each year by the Compensation Committee. Contributions made may consist of matching contributions, profit sharing contributions, and any other discretionary contributions as determined by the Compensation Committee. Matching contributions are made in order to equal the full amount of contributions that would have been made under the usual pension plan, assuming the maximum amount of elective deferral contributions permitted were contributed, where the actual amount of matching contributions made was less than that maximum amount. Profit sharing contributions are made where the participant’s compensation in the prior calendar year is in excess of the compensation limits under the Code. A designated percentage of the value of compensation in excess if this limit is contributed as profit sharing. Contributions are subject to three-year cliff resting.

Mr. Vitale was the only participant in this plan during 2011. The balance of 6% of his base salary is placed in this plan after 401(k) and profit sharing limits are applied. Mr. Vitale already reached these maximum limits under his 401(k) plan in his previous employment. Therefore, all pension-related contributions made by the Company to Mr. Vitale since his commencement of employment on March 17, 2011 were made under the SERP.

 

Option Exercises and Stock Vested

 

The following table summarizes stock option exercises and share issuances by our named executive officers during the twelve months ended December 31, 2011:

 

 

 

 

Potential Payments Upon Termination or Change in Control

 

Assuming the employment of our named executive officers were to be terminated without cause or for good reason (as defined in their respective employment agreements), each as of December 31, 2011, the following individuals would be entitled to payments and to accelerated vesting of their outstanding equity awards, as described in the tables below. The calculations in the tables below do not include amounts under contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of executive officers and that are available generally to salaried employees.

 

 

 

 

 

 

 

 

 

 

 

We are not obligated to make any cash payments to these executives if their employment is terminated by us for cause or by the executive not for good reason. A change in control does not affect the amount or timing of these cash severance payments.

Non-Employee Director Compensation