The fair value method of accounting is used for equity-based compensation plans. Under the fair value method, compensation cost is measured based on the fair value of the award at the measurement date and recognized over the requisite service period. We use the Black-Scholes model to estimate the fair values on the measurement date for share options and share appreciation rights (“SARs”). The Black-Scholes model uses several assumptions to value a share award. The volatility assumption is based on the historical change in our stock price over the previous five years preceding the measurement date. The risk-free rate of return assumption is based on the five-year U.S. Treasury constant maturity rate on the measurement date. The expected award life is based upon the average holding period over the history of the incentive plan. The expected dividend yield is based on our history and expected dividend payouts.



	For the Years Ended December 31,
	2019	2018	2017
Risk-free rate of return	1.66% to 2.23%	2.61% to 2.96%	1.83% to 2.22%
Expected dividend yields	1.76% to 1.83%	1.71% to 1.87%	1.63% to 1.72%
Expected award life (years)	4.49 to 4.50	4.48 to 4.49	4.48 to 4.49
Expected volatility	18.18% to 19.15%	17.82% to 18.44%	18.13% to 18.70%

In 2018, all outstanding awards were adjusted to reflect the 15% stock dividend, resulting in a 15% increase to the number of awards outstanding and an 13.04% reduction in exercise price.

We estimate forfeitures based on historical forfeitures patterns, thereby recognizing expense only for those awards that are expected to vest. The estimate of forfeitures is adjusted as actual forfeitures differ from our estimate, resulting in recognition of compensation expense only for those awards that actually vest.

The compensation expense recognized under all our share-based payment plans was $16.9 million ($15.5 million, net of tax), $18.3 million ($16.5 million, net of tax) and $12.3 million ($10.3 million, net of tax) for the years ended December 31, 2019, 2018 and 2017, respectively. The compensation expense is included in “underwriting, acquisition and insurance expenses” in our consolidated statements of income (loss).

We present all tax benefits resulting from the exercise of stock options and vesting of non-vested shares as cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options and vested shares in excess of the deferred tax asset attributable to stock compensation costs for such options. Such tax benefits and cash flows were immaterial for all reporting periods.

In May 2019, our shareholders approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which provides equity-based and cash-based performance-related incentives to key employees, non-employee directors and other service providers. The intent of the 2019 Plan is to encourage and provide for the acquisition of an ownership interest in Argo Group, enabling us to attract and retain qualified and competent persons to serve as members of our management team and the Board of Directors. The 2019 Plan authorizes 1,885,000 shares of common stock to be granted as equity-based awards. No further grants will be made under any prior plan; however, any awards under a prior plan that are outstanding as of the effective date shall remain subject to the terms and conditions of, and be governed by, such prior plan.

Awards granted under the 2019 Plan may be in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, other stock-based awards or other cash-based awards. Awards may be granted either alone or in addition to or in tandem with other awards authorized under the 2019 Plan. Awards that are settled in stock will count as one share for the purposes of reducing the share reserve under the 2019 Plan. Shares issued under this plan may be shares that are authorized and unissued or shares that we reacquired, including shares purchased on the open market.

Stock options and stock appreciation rights are required to have an exercise price that is not less than the fair market value on the date of grant. The term of these awards is not to exceed ten years.



	Shares		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019	897,005		$	46.82
Granted	219,202		$	68.50
Vested and issued	(486,239	)	$	40.32
Expired or forfeited	(158,697	)	$	57.96
Outstanding at December 31, 2019	471,271		$	60.09

As of December 31, 2019, there was $18.1 million of total unrecognized compensation cost related to restricted share compensation arrangements granted by Argo Group. The weighted-average period over which this unrecognized expense is expected to be recognized is 2.0 years. The total fair value of shares vested during the year ended December 31, 2019 was $19.5 million.



	Shares		Weighted-Average Exercise Price
Outstanding at January 1, 2019	810,759		$	33.89
Exercised	(178,224	)	$	34.74
Expired or forfeited	(7,167	)	$	37.85
Outstanding at December 31, 2019	625,368		$	33.60

As of December 31, 2019, all stock-settled SARS are fully vested. Upon exercise of the stock-settled SARs, the employee is entitled to receive shares of our common stock equal to the appreciation of the stock as compared to the exercise price. For the year ended December 31, 2019, 178,224 stock-settled SARs were exercised resulting in 69,498 shares being issued. Aggregate intrinsic value of the stock-settled SARs at December 31, 2019 was $20.1 million. The remaining weighted average contractual term at December 31, 2019 was 1.43 years.



	Shares		Weighted-Average Exercise Price
Outstanding at January 1, 2019	58,428		$	30.71
Exercised	(52,298	)	$	30.39
Expired or forfeited	(1,193	)	$	19.37
Outstanding at December 31, 2019	4,937		$	36.80

As of December 31, 2019, all the cash-settled SARs are fully vested. Upon exercise of the cash-settled SARs, the employee is entitled to receive cash payment for the appreciation in the value of our common stock over the exercise price. We account for the cash-settled SARs as liability awards, which require the awards to be revalued at each reporting period. For the year ended December 31, 2019, 52,298 cash-settled SARs were exercised resulting in $2.2 million in cash payments. Aggregate intrinsic value of the cash-settled SARs at December 31, 2019 was $0.1 million. The liability for cash-settled SARs was $0.1 million and $2.1 million at December 31, 2019 and 2018, respectively.

Included in the total shares outstanding at December 31, 2019 are 179,580 restricted shares whose vesting is contingent on the employee meeting defined performance conditions. Employees have a specified time period in which to meet the performance condition (typically one year) and forfeit the grant (on a pro rata basis) if the performance conditions are not met in the specified time frame. We evaluate the likelihood of the employee completing the performance condition and include this estimate in the determination of the forfeiture factor for the grants.

We have established an employee stock purchase plan for eligible employees (Argo Group’s 2007 Employee Share Purchase Plan). Under this plan, newly issued shares of our common stock may be purchased over an offering period of three months at 85% of the lower of the market value on the first day of the offering period or on the designated purchase date at the end of the offering period. We have also established a “Save As You Earn Plan” for our United Kingdom employees. Under this plan, newly issued shares of our common stock may be purchased over an offering period of three or five years at 85% of the market value of the common shares on the first day of the offering period. Expense recognized under these plans for the years ended December 31, 2019, 2018 and 2017 was $0.5 million, $0.4 million and $0.4 million, respectively.