STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS

Stock Incentive Compensation Plans and Awards

The Company is authorized to issue restricted stock awards and units, performance shares, stock options and other equity-based awards to its employees and directors pursuant to various stock incentive compensation plans.

On May 16, 2016, the Company’s shareholders approved the Company’s 2016 Long-Term Incentive Plan (the “2016 Long-Term Incentive Plan”). Pursuant to the 2016 Long-Term Incentive Plan, the Company is authorized to issue up to 1,625,000 common shares plus the number of shares that were subject to awards outstanding under the Company’s 2001 Stock Incentive Plan, as amended (the “2001 Stock Incentive Plan”) and the Company’s 2010 Performance-Based Equity Incentive Plan, as amended (the “2010 Performance Plan”) as of the effective date of the 2016 Long-Term Incentive Plan that are forfeited, canceled, settled in cash, or otherwise terminated without delivery after the effective date. The 2016 Long-Term Incentive Plan permits the grant of stock options, restricted stock, restricted stock units, performance awards (including cash-based performance awards) and other share-based awards to employees, officers, non-employee directors and consultants or advisors of the Company and its affiliates.

The 2001 Stock Incentive Plan, which permitted the grant of stock options, restricted stock awards and other share-based awards to employees of RenaissanceRe and its subsidiaries, expired in accordance with its terms on February 6, 2016 and no additional awards may be made under this plan. The 2010 Performance Plan, pursuant to which the Company granted performance shares, was terminated on May 16, 2016 upon approval of the 2016 Long-Term Incentive Plan, and no additional awards will be made under this plan. The terms and conditions of outstanding awards granted under the 2001 Share Incentive Plan and the 2010 Performance Plan were not affected by the respective expiration and termination of these plans.

In 2010, the Company instituted a cash settled restricted stock unit (“CSRSU”) plan, the 2010 Restricted Stock Unit Plan, which allowed for the issuance of equity awards in the form of CSRSUs. In November 2016, the 2010 Restricted Stock Plan was terminated and replaced with a new cash settled restricted stock unit plan, the 2016 Restricted Stock Unit Plan. The terms and conditions of CSRSU awards outstanding under the 2010 Restricted Stock Unit Plan at the time of termination were not affected, but no additional awards will be made under the 2010 Restricted Stock Unit Plan.

The Company’s 2004 Stock Option Incentive Plan (the “Premium Option Plan”) was terminated on August 15, 2007 with respect to future option grants. Options outstanding at the time of the termination remained outstanding and unmodified until they expired. The Premium Option Plan expired on May 20, 2014 and at December 31, 2014, 2015 and 2016, there were no options outstanding under the Premium Option Plan.

Options

The Company has not granted stock options since 2008. Outstanding stock options were granted pursuant to the 2001 Stock Incentive Plan and allow for the purchase of RenaissanceRe common shares at a price that is equal to, or not less than, the fair market value of RenaissanceRe common shares as of the effective grant date. Options generally vested over four years and expire 10 years from the date of grant.

Restricted Stock Awards

Restricted stock awards granted periodically under the 2001 Stock Incentive Plan and the 2016 Long-Term Incentive Plan generally vest ratably over a four year period. The Company has also granted restricted stock awards to non-employee directors, which generally vest ratably over a three year period.

Performance Shares

Performance share awards made periodically to certain of the Company’s executive officers pursuant to the 2010 Performance Plan, 2001 Share Incentive Plan and 2016 Long-Term Incentive Plan are subject to vesting conditions based on both continued service and the attainment of pre-established performance goals. If performance goals are achieved, the performance shares will vest up to a maximum of 250% of target. Grants under this plan generally cliff vest at the end of a three year vesting period based on the attainment of annual performance goals over the vesting period. The performance shares have a market condition, which is the Company’s total shareholder return relative to its peer group. Total shareholder return is based on the average closing share price over the 20 trading days preceding and including the start and end of the annual performance period.

In 2012 and 2013, the Chief Executive Officer received certain special equity awards relating to promotions, which included grants of performance shares which vest over a period of four years, but otherwise have similar terms to other performance share awards.

Cash Settled Restricted Stock Units

CSRSUs are liability awards with fair value measurement based on the fair market value of the Company’s common shares at the end of each reporting period. CSRSUs granted periodically by the Board of Directors pursuant to the 2010 Restricted Stock Unit Plan and 2016 Restricted Stock Unit Plan generally vest ratably over four years.

Valuation Assumptions

Performance Shares

The fair value of performance shares is measured on the date of grant using a Monte Carlo simulation model which requires certain of the same inputs underlying the Black-Scholes methodology, that being: share price; expected volatility; expected term; expected dividend yield; and risk-free interest rates. The following are the weighted average-assumptions used to estimate the fair value for all performance shares issued in each respective year.




	Performance Shares
Year ended December 31,	2016	2015
Expected volatility (1)	14.3% - 14.7%	14.3% - 14.4%
Expected term (in years)	n/a	n/a
Expected dividend yield	n/a	n/a
Risk-free interest rate (1)	0.38% - 1.18%	0.07% - 1.02%


(1)	The expected volatility and risk-free interest rate applied are specific to each tranche of performance shares.

Expected volatility: The expected volatility is estimated by the Company based on RenaissanceRe’s historical stock volatility.

Expected term: The expected term is not applicable as the length of the performance periods are fixed and not subject to future employee behavior. Each tranche of the performance shares has a one year period during which performance is measured.

Expected dividend yield: The expected dividend yield is not applicable to performance shares as dividends are paid at the end of the vesting period and do not affect the value of the performance shares.

Risk-free interest rate: The risk free rate is estimated based on the yield on a U.S. treasury zero-coupon issued with a remaining term equal to the vesting period of the performance shares.

The total cost of the performance shares is determined on the grant date based on the fair value calculated by the Monte Carlo simulation model. The Company recognizes cost equal to fair value per performance share multiplied by the target number of performance shares on the grant date. The cost is then amortized as an expense over the requisite service period net of estimated service-based forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For 2016, the Company used a 0% forfeiture rate for performance shares (2015 - 0%).

Restricted Stock Awards

The fair value of restricted stock awards is determined based on the fair market value of RenaissanceRe common shares on the grant date. The estimated fair value of restricted stock awards, net of estimated forfeitures, is amortized as an expense over the requisite service period net of estimated service-based forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For 2016, the Company used a 0% forfeiture rate for restricted stock awards (2015 - 0%).

Cash Settled Restricted Stock Units

CSRSUs are revalued at the end of each quarterly reporting period based on the then fair market value of RenaissanceRe’s common shares. The total cost is adjusted each quarter for unvested CSRSUs to reflect the current share price, and this total cost is amortized as an expense over the requisite service period, net of estimated forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For 2016, the Company used a 13% forfeiture rate for its CSRSUs (2015 - 13%).

Summary of Stock Compensation Activity

The following is a summary of activity under the Company’s stock compensation plans.

Options




	Weighted options outstanding		Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value		Range of exercise prices
Balance, December 31, 2013	828,092		$	48.77	2.9	$	40,221	$37.51 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(60,262	)	49.52			$	2,900
Balance, December 31, 2014	767,830		$	48.71	2.0	$	37,246	$37.51 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(359,618	)	45.09			$	21,205
Balance, December 31, 2015	408,212		$	51.90	1.6	$	25,020	$42.66 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(201,417	)	$	50.59		$	14,806
Balance, December 31, 2016	206,795		$	53.17	0.9	$	17,174	$50.71 - $59.66
Total options exercisable at December 31, 2016	206,795		$	53.17	0.9	$	17,174	$50.71 - $59.66

Premium Option Plan Awards




	Weighted options outstanding		Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value		Range of exercise prices
Balance, December 31, 2013	572,000		$	73.62		$	13,567	$73.06 - $74.24
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	(572,000	)	73.62			13,414
Balance, December 31, 2014	—		$	—		$	—	$	—
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	—		—			—
Balance, December 31, 2015	—		$	—		$	—	$	—
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	—		—			—
Balance, December 31, 2016	—		$	—	0.0	$	—	$	—
Total options exercisable at December 31, 2016	—		$	—	0.0	$	—	$	—

Cash Settled Restricted Stock Units




	Number of shares
Nonvested at December 31, 2013	394,145
Awards granted	119,382
Awards vested	(159,094	)
Awards forfeited	(16,110	)
Nonvested at December 31, 2014	338,323
Awards granted	160,817
Awards vested	(144,440	)
Awards forfeited	(28,622	)
Nonvested at December 31, 2015	326,078
Awards granted	135,119
Awards vested	(133,278	)
Awards forfeited	(19,575	)
Nonvested at December 31, 2016	308,344

Performance Shares




	Number of shares (1)		Weighted average grant-date fair value
Nonvested at December 31, 2013	359,543		$	30.55
Awards granted	102,668		$	46.45
Awards vested	—
Awards forfeited	(213,639	)
Nonvested at December 31, 2014	248,572		$	39.62
Awards granted	103,024		$	44.98
Awards vested	—
Awards forfeited	(121,325	)
Nonvested at December 31, 2015	230,271		$	41.40
Awards granted	77,045		$	48.31
Awards vested	(58,032	)	$	38.80
Awards forfeited	(37,903	)
Nonvested at December 31, 2016	211,381		$	44.63

(1) For performance shares, the number of shares is stated at the maximum number that can be attained if the performance conditions are fully met. Forfeitures represent shares forfeited due to vesting below the maximum attainable as a result of the Company not fully meeting the performance conditions.

Restricted Stock Awards




	Employee restricted stock awards				Non-employee director restricted stock awards				Total restricted stock awards
	Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value
Nonvested at December 31, 2013	569,492		$	76.11	31,486		$	78.57	600,978		$	76.24
Awards granted	215,054		95.79		14,455		95.06		229,509		95.74
Awards vested	(332,725	)	73.74		(15,886	)	74.96		(348,611	)	73.79
Awards forfeited	(99	)	55.80		—		—		(99	)	55.80
Nonvested at December 31, 2014	451,722		$	87.29	30,055		$	88.41	481,777		$	87.36
Awards granted	195,337		102.17		14,575		102.90		209,912		102.22
Awards vested	(168,019	)	82.75		(17,744	)	86.37		(185,763	)	83.10
Awards forfeited	—		—		—		—		—		—
Nonvested at December 31, 2015	479,040		$	94.95	26,886		$	97.61	505,926		$	95.09
Awards granted	179,003		112.41		14,727		114.71		193,730		112.59
Awards vested	(255,873	)	93.98		(16,068	)	96.83		(271,941	)	94.15
Awards forfeited	—		—		—		—		—		—
Nonvested at December 31, 2016	402,170		$	103.34	25,545		$	107.95	427,715		$	103.61

There were 1,762,185 shares available for issuance under the 2016 Long-Term Incentive Plan at December 31, 2016 and no shares available for issuance under the 2001 Stock Incentive Plan or 2010 Performance Share Plan at December 31, 2016.

The aggregate fair value of restricted stock awards, performance shares and CSRSUs vested during 2016 was $54.5 million (2015 – $34.0 million, 2014 – $48.7 million). Cash in the amount of $Nil was received from employees as a result of employee stock option exercises during 2016 (2015 – $0.1 million, 2014 – $0.5 million). In connection with share vestings and option exercises, there was no excess windfall tax benefit realized by the Company due to its net operating loss position in the taxable jurisdictions in which it operates. RenaissanceRe issues new shares upon the exercise of an option.

The total stock compensation expense recognized in the Company’s consolidated statements of operations during 2016 was $47.4 million (2015 – $38.3 million, 2014 – $37.6 million). As of December 31, 2016, there was $28.9 million of total unrecognized compensation cost related to restricted stock awards, $28.9 million related to CSRSUs and $3.4 million related to performance shares, which will be recognized, on a weighted average basis, during the next 1.6, 1.7 and 1.6 years, respectively.

All of the Company’s employees are eligible for defined contribution pension plans. Contributions are primarily based upon a percentage of eligible compensation. The Company contributed $4.0 million to its defined contribution pension plans in 2016 (2015 – $4.3 million, 2014 – $3.6 million).