DEF 14A 1 a2019proxydef14a.htm DEF 14A Document
    






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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Soliciting Material under §240.14a-12
ARCH CAPITAL GROUP LTD.
(Name of Registrant as Specified In Its Charter)
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image3a02.jpg
 
 
 
Arch Capital Group Ltd.
 
Waterloo House, Ground Floor
 
100 Pitts Bay Road
 
Pembroke HM 08, Bermuda
 
 
 
 
T:  (441) 278-9250
 
 
 
 
 
www.archcapgroup.com





March 28, 2019


DEAR FELLOW SHAREHOLDER:

You are cordially invited to join Arch Capital Group Ltd.’s Board of Directors and senior leadership at the 2019 annual meeting of shareholders, which will be held at 8:45 a.m. local time on Wednesday, May 8, 2019. The meeting will be held at our offices located at Waterloo House, Ground Floor, 100 Pitts Bay Road, Pembroke HM 08, Bermuda.
The attached notice of the 2019 annual meeting of shareholders and Proxy Statement provide important information about the meeting and will serve as your guide to the business to be conducted at the meeting. Your vote is very important to us. We urge you to read the accompanying materials regarding the matters to be voted on at the meeting and to submit your voting instructions by proxy. The Board of Directors recommends that you vote “FOR” each of the proposals as listed on the attached notice.
You may submit your proxy either over the telephone or the Internet. In addition, if you have requested or received a paper copy of the proxy materials, you can vote by marking, signing, dating and returning the proxy card or voter instruction form sent to you in the envelope accompanying the proxy materials.
Thank you for your continued support.
Sincerely,
image4a02.jpg
CONSTANTINE IORDANOU
Chairman of the Board



    




NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

When:
Wednesday, May 8, 2019, 8:45 a.m., local time

Where:
Waterloo House, Ground Floor, 100 Pitts Bay Road,
Pembroke HM 08, Bermuda
We are pleased to invite you to the Arch Capital Group Ltd. 2019 Annual Meeting of Shareholders.
Items of Business:
1.
Elect three Class III Directors to serve for a term of three years or until their respective successors are duly elected and qualified (Item 1);
2.
Advisory vote to approve named executive officer compensation (Item 2);
3.
Appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2019 (Item 3);
4.
Elect certain individuals as Designated Company Directors of certain of our non-U.S. subsidiaries, as required by our bye-laws (Item 4);
5.
Conduct other business if properly raised.
You are eligible to vote if you were a shareholder of record at the close of business on March 8, 2019.
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Martin Richardson
Secretary
Hamilton, Bermuda
March 28, 2019
 
Voting Information
Ensure that your shares are represented at the 2019 Annual Meeting of Shareholders by voting in one of several ways:
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Go to the website listed on your proxy card or Notice to vote VIA THE INTERNET.
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Call the telephone number specified on your proxy card or on your Voting Instruction Form to vote BY TELEPHONE.
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If you received paper copies of your proxy materials, mark, sign, date and return your proxy card in the postage-paid envelope provided to vote BY MAIL.
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Scan the QR Code on your proxy card, Notice or Voting Instruction Form to vote with your MOBILE DEVICE.
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Attend the meeting to vote IN PERSON (see Annual Meeting Attendance in Annex A—General Information).

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
This Proxy Statement and 2018 Annual Report to Shareholders are available at www.proxyvote.com. On or about March 29, 2019, we expect to mail to our shareholders a Notice of Internet Availability containing instructions on how to access our proxy materials, including our Proxy Statement and 2018 Annual Report to Shareholders. The Notice of Internet Availability also will instruct you on how to access and submit your proxy through the Internet, by phone or with your mobile device.

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2019 PROXY STATEMENT |
3

    




TABLE OF CONTENTS
PROXY SUMMARY
Roadmap of Voting Matters
Director Nominees
Important Changes to Compensation Program in 2018
Shareholder Engagement
Key Executive Compensation Policies and Practices
General Information
Learn More About Our Company
 
 
GOVERNANCE
Item 1—Election of Directors
Appointed Directors, Continuing Directors and Senior Management
Board
Committees of the Board
Director Compensation
Certain Relationships and Related Transactions
 
 
SHARE OWNERSHIP
Security Ownership of Certain Beneficial Owners and Management
Common Shares
Preferred Shares
Ownership of Watford Holdings Ltd. (“Watford”) Shares
Section 16(a) Beneficial Ownership Reporting Compliance
 
 
COMPENSATION
Item 2—Advisory Vote to Approve Named Executive Officer Compensation
Compensation Discussion and Analysis
Compensation Program at a Glance
Strong Link Between Pay and Performance
2018 Performance at a Glance
Long-Term Performance
Executive Compensation Philosophy
How We Make Compensation Decisions
Shareholder Engagement and Results of Say-on-Pay Votes

Elements of Compensation Program
 
2018 Compensation Decisions for Named Executive Officers
Additional Compensation Policies and Practices
Tax Considerations
Report of the Compensation Committee on the Compensation Discussion and Analysis
Compensation Committee Interlocks and Insider Participation
Executive Compensation Tables
Employment Arrangements
 
 
AUDIT MATTERS
Report of the Audit Committee of the Board
Principal Auditor Fees and Services
Item 3—Appointment of Independent Registered Public Accounting Firm
 
 
SUBSIDIARY DIRECTORS
Item 4—Election of Subsidiary Directors
Nominees
 
 
ANNEX AGENERAL INFORMATION
 
 
ANNEX BNON-GAAP FINANCIAL MEASURES


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| 2019 PROXY STATEMENT
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PROXY SUMMARY
This summary highlights information contained in the Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting. As used in this report, “we,” “us,” “our,” “Arch” or the “Company” refer to the consolidated operations of Arch Capital Group Ltd. (“Arch Capital”) and its subsidiaries. For more complete information regarding the Company’s 2018 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
ROADMAP OF VOTING MATTERS
 
Shareholders are being asked to vote on the following matters at the 2019 Annual Meeting of Shareholders:
 
Our Board’s Recommendation
ITEM 1 - Election of Directors (page 8)
 
The Board and the Nominating and Governance Committee believe that the three Director nominees possess the necessary qualifications and experience to provide quality advice and counsel to the Company’s management and effectively oversee the business and the long-term interests of shareholders.
FOR Each Director Nominee
ITEM 2 - Advisory Vote to Approve Named Executive Officer Compensation (page 27)
 
The Company seeks a non-binding advisory vote to approve the compensation of its named executive officers as described in the Compensation Discussion and Analysis beginning on page 27 and the Executive Compensation Tables beginning on page 51. The Board values shareholders’ opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions.
FOR
ITEM 3 - Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm (page 69)
 
The Audit Committee and the Board believe that the retention of PricewaterhouseCoopers LLP to serve as the Independent Auditors for the fiscal year ending December 31, 2019, is in the best interests of the Company and its shareholders. As required by Bermuda law, shareholders are being asked to appoint the Audit Committee’s selection of the Independent Auditors.
FOR One Year
ITEM 4 - Election of Designated Company Directors of Certain Non-U.S. Subsidiaries (page 70)
 
The Board and management believe that the named Designated Company Director nominees possess the necessary qualifications and experience to provide oversight for the Company’s non-U.S. subsidiaries.
FOR Each Director Nominee


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2019 PROXY STATEMENT |
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DIRECTOR NOMINEES
See page 8.
The Board is comprised of 11 members, divided into three classes, serving staggered three-year terms. The Board intends to present for action at the Annual Meeting the election of the following Class III directors for a term of three years or until their successors are duly elected and qualified:
 
 
 
 
Committee Membership (1)
Name
Age
Director Since
Primary Occupation
UW
A
C
E
FIR
NG
John L. Bunce, Jr.
60
November 2001
Managing Director of Greyhawk Capital Management, LLC and Senior Advisor to Hellman and Friedman LLC
 
 
n
n
n
n
Marc Grandisson
51
March
 2018

President and Chief Executive Officer of Arch Capital
 
 
 
n
 
 
Eugene S. Sunshine
69
July
2014
Former Senior Vice President for Business and Finance at Northwestern University
 
n
n
 
 
n
(1)
UW = Underwriting Oversight Committee; A = Audit Committee; C = Compensation Committee; E = Executive Committee; FIR = Finance, Investment and Risk Committee; NG = Nominating and Governance Committee

 
 
 
 
 
IMPORTANT CHANGES TO COMPENSATION PROGRAM IN 2018
See page 37
We made several key enhancements to our compensation programs in 2018 to continue to improve the link between compensation and our business performance and talent retention strategies as well as the long-term interests of our shareholders.
2018 Short-Term Incentive Plan
Beginning in 2018, we adopted a more formulaic approach to our annual incentive plan design for our senior executive team. In prior years, the results of the formulaic plans, which have been in place at our underwriting units since inception, has been the basis upon which the compensation decisions have been made for our named executive officers. However, with the adoption of our new plan design, we now formally link the financial performance achieved by each of our Reporting Segments (i.e., insurance, reinsurance and mortgage) and of our investment function, as measured
 
under the current formulaic plans, to the specific payments to be made to our named executive officers. Please refer to “Compensation Discussion and Analysis—Elements of Compensation Program—Short-Term Annual Cash Incentive Bonuses.”
2018 Long-Term Incentive Plan
To further align the interests of our named executive officers and shareholders, we have moved away from exclusive time-based vesting to add a majority of performance-based vehicles to the structure of our long-term incentive awards for senior executives. Beginning with grants in 2018, the majority of such awards is in the form of performance shares. Please refer to “Compensation Discussion and Analysis—Elements of Compensation Program—2018 Long-Term Incentive Awards.”
 
SHAREHOLDER ENGAGEMENT
See page 36

We maintain an ongoing, proactive outreach effort with our shareholders. Throughout the year, members of our Investor Relations team and leaders of our business engage with our shareholders to seek their input, to remain well-informed regarding their perspectives and to help increase their understanding of our business. Over the past year, as part of our engagement with our shareholders, members of our Compensation Committee, our lead director and
 
members of senior management had discussions with institutional shareholders representing a significant number of our outstanding common shares to discuss, among other things, our executive compensation program. We remain committed to listening to feedback from shareholders as we continue to review and evaluate our compensation programs.

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| 2019 PROXY STATEMENT
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KEY EXECUTIVE COMPENSATION POLICIES AND PRACTICES
See page 37
Our compensation framework includes these key policies and practices:
What We Do
Structure the majority of pay as performance-based, which is tied to rigorous goals.
Align executive compensation with shareholder returns.
Apply caps on both the annual and long-term incentive plans.
Apply stock ownership and holding guidelines.
Discourage inappropriate risk taking that is inconsistent with the long-term success of the Company.    
Require minimum vesting periods for equity awards.
Include clawback provisions for all incentive-based compensation.
Include double-trigger change in control provisions in equity awards that are assumed by an acquirer.    
Prohibit hedging under our insider trading policy in our Code of Business Conduct.    
Limit shares that can be pledged.    
 
Set the exercise price of our stock options and stock appreciation rights (“SARs”) at the closing share price on the grant date.
Engage an independent compensation consultant that reports directly to the Compensation Committee.
Utilize a peer group approved by our Board.
Engage with our shareholders.
What We Don’t Do
No repricing or reducing the exercise price of stock options or SARs.
No exchanging out of the money stock options or SARs for cash or other property.
No tax gross-ups provided to named executive officers.
No excise tax gross-up payments in connection with change in control payments.
 
 
 
 
 
GENERAL INFORMATION
See page A-1.
Please see “Annex A—General Information” for important information about the proxy materials, voting, the 2019 Annual Meeting, Company documents, communications
 
and the deadlines to submit shareholder proposals and director nominees for the 2020 Annual Meeting of Shareholders.
 
 
 
 
 
LEARN MORE ABOUT OUR COMPANY
 
You can learn more about the Company by visiting:
Our website—www.archcapgroup.com.
Proxy website—www.proxyvote.com, which includes this Proxy Statement and our 2018 Annual Report to Shareholders.

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2019 PROXY STATEMENT |
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GOVERNANCE
ITEM 1—ELECTION OF DIRECTORS
The Board of Arch Capital is currently comprised of 11 members nominated for election, divided into three classes, serving staggered three-year terms. The Board intends to present for action at the annual meeting the election of John L. Bunce, Jr., Marc Grandisson and Eugene S. Sunshine to serve as Class III Directors for a term of three years or until their successors are duly elected and qualified. Such nominees were recommended for approval by the Board by the Nominating and Governance Committee of the Board.
 
Mr. Yiorgos Lillikas, who currently serves as a Class III Director, will not stand for re-election following the completion of his current term.

Unless authority to vote for these nominees is withheld, the enclosed proxy will be voted for these nominees, except that the persons designated as proxies reserve discretion to cast their votes for other persons in the unanticipated event that any of these nominees is unable or declines to serve.
Nominees
John L. Bunce, Jr.
 
 
 
n
60 years old
Mr. Bunce is a Managing Director and founder of Greyhawk Capital Management, LLC and a Senior Advisor to Hellman & Friedman LLC. He joined Hellman & Friedman in 1988 and previously served as a Managing Director of the firm. Before joining Hellman & Friedman, Mr. Bunce was Vice President of TA Associates. Previously, he was employed in the mergers & acquisitions and corporate finance departments of Lehman Brothers Kuhn Loeb. He has served as a director of Duhamel Falcon Cable Mexico, Eller Media Company, Falcon Cable TV, National Radio Partners, VoiceStream Wireless Corporation, Western Wireless Corporation, National Information Consortium, Inc. and Young & Rubicam, Inc. Mr. Bunce also was an advisor to American Capital Corporation and Post Oak Bank. He holds an A.B. from Stanford University and an M.B.A. from Harvard Business School.
Mr. Bunce’s qualifications for service on our Board include his corporate finance background, investment skills, extensive experience in evaluating and overseeing companies in a wide range of industries and service on boards of directors of other companies.



n
Director since November 2001
n
Class III Director of Arch Capital
n
Compensation Committee
n
Executive Committee
n
Finance, Investment and Risk Committee
n
Nominating and Governance Committee
 
 

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| 2019 PROXY STATEMENT
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Marc Grandisson
 
 
 
n
51 years old
Mr. Grandisson was promoted to the position of President and Chief Executive Officer of Arch Capital on March 3, 2018 and was appointed to our Board in March 2018. From January 2016 to March 2018, he was President and Chief Operating Officer of Arch Capital. Prior to that role, he was Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group from 2005 to 2015, and the Chairman and Chief Executive Officer of Arch Worldwide Mortgage Group from February 2014 to December 2015. He joined Arch Reinsurance Ltd. (“Arch Re Bermuda”) in October 2001 as Chief Actuary. He subsequently held various leadership roles, including Chief Underwriting Officer and Actuary, President and Chief Operating Officer, eventually being named President and Chief Executive Officer at Arch Re Bermuda. Prior to joining Arch, he held various positions with the Berkshire Hathaway Group, F&G Re, Inc. and Tillinghast/Towers Perrin. He holds a B.Sc. in Actuarial Science from Université Laval in Canada and an M.B.A. from The Wharton School of the University of Pennsylvania. He is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.
Mr. Grandisson’s qualifications for service on our Board include his financial background, extensive executive management and operating experience in the insurance industry and his in-depth knowledge of our operations.
n
With Arch since October 2001
n
President and Chief Executive Officer of Arch Capital
n
Director since March 2018
n
Class III Director of Arch Capital
n
Executive Committee
Eugene S. Sunshine
 
 
 
n
69 years old
Mr. Sunshine retired at the end of August 2014 as the Senior Vice President for Business and Finance at Northwestern University, the university’s chief financial and administrative officer. Before joining Northwestern in 1997, he was Senior Vice President for Administration at The Johns Hopkins University. Prior to Johns Hopkins, Mr. Sunshine held positions as New York State Deputy Commissioner for Tax Policy and New York State Treasurer as well as Director of Energy Conservation for the New York State Energy Office. He currently is a member of the boards of directors of Chicago Board Options Exchange and Kaufman Hall and Associates. Mr. Sunshine is a former member of the boards of Bloomberg L.P., Keypath Education, National Mentors Holdings and Nuveen Investments. He holds a B.A. from Northwestern University and a Master of Public Administration degree from Syracuse University’s School of Citizenship and Public Affairs.
Mr. Sunshine’s qualifications for service on our Board include his strong financial background and extensive executive management and operating experience.
n
Director since July 2014
n
Class III Director of Arch Capital
n
Audit Committee
n
Compensation Committee
n
Nominating and Governance Committee
Required Vote
A majority of the votes cast will be required to elect the above nominees as Class III Directors of Arch Capital.
Recommendation of the Board
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THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.


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2019 PROXY STATEMENT |
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Appointed Directors, Continuing Directors and Senior Management
The following individuals are our appointed and continuing directors:
Eric W. Doppstadt
 
 
 
n
59 years old
Mr. Doppstadt serves as Vice President and Chief Investment Officer of the Ford Foundation. Mr. Doppstadt has been with the Ford Foundation since 1989, most recently as director of private equity investments for the foundation’s endowment. He joined the Ford Foundation as resident counsel, later assuming senior positions managing the Ford’s alternative investment portfolio. He has also served on the investment advisory boards of numerous private equity and venture capital funds. Mr. Doppstadt holds the Chartered Financial Analyst designation from the CFA Institute and is a director of Makena Capital Management, LLC. He holds an A.B. from The University of Chicago and a J.D. from New York University School of Law.

Mr. Doppstadt’s qualifications for service on our Board include his extensive investment experience and investment management skills.

n
Director since November 2010
n
Class II Director of Arch Capital
n
Term expires 2021
n

Finance, Investment and Risk Committee
n
Nominating and Governance Committee
Laurie S. Goodman
 
 
 
n
62 years old
Ms. Goodman is the Vice President at the Urban Institute and Founder and Co-Director of its Housing Finance Policy Center. Before joining the Urban Institute in 2013, Ms. Goodman spent 30 years at several Wall Street firms. From 2008 to 2013, she was Senior Managing Director at Amherst Securities Group LP. From 1993 to 2008, Ms. Goodman was head of global fixed income research and Manager of U.S securitized products research at UBS and predecessor firms. Before that, she was a senior fixed income analyst, a mortgage portfolio manager and a senior economist at the Federal Reserve Bank of New York.
 
Ms. Goodman serves on the board of directors of the real estate investment trust MFA Financial and is an adviser to Amherst Capital Management. She has also served on the Bipartisan Policy Center’s Housing Commission, Fannie Mae’s Affordable Housing Advisory Council, and the Federal Reserve Bank of New York’s Financial Advisory Roundtable. Ms. Goodman has a B.A. in Mathematics from the University of Pennsylvania and an A.M. and Ph.D. in Economics from Stanford University.

Ms. Goodman’s qualifications for service on our Board include her extensive analytics and strategy experience, her housing finance expertise and her service on boards of directors of other companies.
n
Director since May 2018
n
Class II Director of Arch Capital
n
Term expires 2021
n
Audit Committee
n
Underwriting Oversight Committee
 
 
Constantine Iordanou
 
 
 
n
69 years old
Mr. Iordanou has been Chairman of the Board of Arch Capital since November 2009 and was Chief Executive Officer of Arch Capital from August 2003 to March 2018. From March 1992 through December 2001, Mr. Iordanou served in various capacities for Zurich Financial Services and its affiliates, including as Senior Executive Vice President of group operations and business development of Zurich Financial Services, President of Zurich-American Specialties Division, Chief Operating Officer and Chief Executive Officer of Zurich-American and Chief Executive Officer of Zurich North America. Prior to joining Zurich, he served as President of the commercial casualty division of the Berkshire Hathaway Group and served as Senior Vice President with the American Home Insurance Company, a member of the American International Group. Since 2001, Mr. Iordanou has served as a director of Verisk Analytics, Inc. (formerly known as ISO Inc.). He holds an aerospace engineering degree from New York University.
 
Mr. Iordanou’s qualifications for service on our Board include his extensive leadership, executive management and operating experience in the insurance industry, his in-depth knowledge of our operations and service on boards of directors of other companies.
n
Director since January 2002
n
Chairman of the Board and Class II Director of Arch Capital
n
Term ends September 2019
n
Executive Committee
n
Finance, Investment and Risk Committee

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| 2019 PROXY STATEMENT
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Louis J. Paglia
 
 
 
n
61 years old
Mr. Paglia is the founding member of Oakstone Capital LLC, a private investment firm. He previously founded Customer Choice LLC in April 2010, a data analytics company serving the electric utility industry. He previously served as Executive Vice President of UIL Holdings Corporation, an electric utility, contracting and energy infrastructure company. Mr. Paglia also served as UIL Holdings’ Chief Financial Officer and as President of its investment subsidiaries. Prior to joining UIL Holdings, Mr. Paglia was Executive Vice President and Chief Financial Officer of eCredit.com, a credit evaluation software company. Prior to that, Mr. Paglia served as the Chief Financial Officer for TIG Holdings Inc., a property and casualty insurance and reinsurance holding company, and Emisphere Technologies, Inc. He holds a B.S. in Engineering from Massachusetts Institute of Technology and an M.B.A. from The Wharton School of the University of Pennsylvania.
Mr. Paglia’s qualifications for service on our Board include his strong financial background and extensive executive management and operating experience in financial services companies.

n
Director since July 2014
n
Class I Director of Arch Capital
n
Term expires 2020
n
Audit Committee
n
Compensation Committee
n
Nominating and Governance Committee
n
Underwriting Oversight Committee
John M. Pasquesi
 
 
 
n
59 years old
Mr. Pasquesi is the Managing Member of Otter Capital LLC, a private equity investment firm he founded in January 2001. He holds an A.B. from Dartmouth College and an M.B.A. from Stanford Graduate School of Business.
Mr. Pasquesi’s qualifications for service on our Board include his investment skills, extensive experience in evaluating and overseeing companies in a wide range of industries, including the insurance industry, and service on boards of directors of other companies.
n
Director since October 2001
n
Class II Director of Arch Capital
n
Lead Independent Director
n
Term expires 2021
n
Compensation Committee
n
Executive Committee
n
Finance, Investment and Risk Committee
n
Nominating and Governance Committee
n
Underwriting Oversight Committee
Brian S. Posner
 
 
 
n
57 years old
Mr. Posner has been a private investor since March 2008 and is the President of Point Rider Group LLC, a consulting and advisory services firm focused on financial, bio-pharmaceutical, and other services-related companies. From 2005 to March 2008, Mr. Posner served as the President, Chief Executive Officer and Co-Chief Investment Officer of ClearBridge Advisors, LLC, an asset management company and a wholly owned subsidiary of Legg Mason. Prior to that, Mr. Posner co-founded Hygrove Partners LLC, a private investment fund, in 2000 and served as the Managing Member for five years. He served as a portfolio manager and an analyst at Fidelity Investments from 1987 to 1996 and, from 1997 to 1999, at Warburg Pincus Asset Management/Credit Suisse Asset Management where he also served as Co-Chief Investment Officer and director of research. Mr. Posner currently serves on the board of directors of Biogen Inc. and he is a trustee of the AQR Funds. He holds a B.A. from Northwestern University and an M.B.A. from the University of Chicago Booth School of Business.
Mr. Posner’s qualifications for service on our Board include his strong financial background, investment skills and extensive experience as a leading institutional investment manager and advisor.

n
Director since November 2010
n
Class I Director of Arch Capital
n
Term expires 2020
n
Audit Committee
n
Finance, Investment and Risk Committee
n
Underwriting Oversight Committee

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2019 PROXY STATEMENT |
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John D. Vollaro
 
 
 
n
74 years old
Mr. Vollaro has been a Senior Advisor of Arch Capital since April 2009. He was Executive Vice President and Chief Financial Officer of Arch Capital from January 2002 to March 2009 and Treasurer of Arch Capital from May 2002 to March 2009. Prior to joining us, Mr. Vollaro acted as an independent consultant in the insurance industry since March 2000. Prior to March 2000, Mr. Vollaro was President and Chief Operating Officer of W.R. Berkley Corporation from January 1996 and a director from September 1995 until March 2000. Mr. Vollaro was Chief Executive Officer of Signet Star Holdings, Inc., a joint venture between W.R. Berkley Corporation and General Re Corporation, from July 1993 to December 1995. Mr. Vollaro served as Executive Vice President of W.R. Berkley Corporation from 1991 until 1993, Chief Financial Officer and Treasurer of W.R. Berkley Corporation from 1983 to 1993 and Senior Vice President of W.R. Berkley Corporation from 1983 to 1991. Mr. Vollaro currently serves on the board of directors of Tiberius Acquisition Corporation.
Mr. Vollaro’s qualifications for service on our Board include his financial background, extensive executive management and operating experience in the insurance industry and his in-depth knowledge of our operations.

n
Director since November 2009
n
Class I Director of Arch Capital and Senior Advisor
n
Term expires 2020
n
Finance, Investment and Risk Committee
n
Underwriting Oversight Committee
The following individuals are members of senior management, including our executive officers, who do not serve as directors of Arch Capital:
François Morin
 
 
 
n
51 years old
Mr. Morin is Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital, a position he has held since May 2018. Prior to such position, Mr. Morin served as Senior Vice President, Chief Risk Officer and Chief Actuary of Arch Capital, a position he held since May 2015. He joined Arch Capital in October 2011 as Chief Actuary and Deputy Chief Risk Officer. From January 1990 through September 2011, Mr. Morin served in various roles for Towers Watson & Co. and its predecessor firm, Towers Perrin Forster & Crosby, including its actuarial division, Tillinghast. He holds a B.Sc. in Actuarial Science from Université Laval in Canada. He is a Fellow of the Casualty Actuarial Society, a Chartered Financial Analyst, a Chartered Enterprise Risk Analyst and a Member of the American Academy of Actuaries.
n
With Arch since October 2011
n
Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital
Nicolas Papadopoulo
 
 
 
n
56 years old
Mr. Papadopoulo is Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations, executive positions at Arch Capital. From July 2014 to September 2017, Mr. Papadopoulo was Chairman and Chief Executive Officer of Arch Reinsurance Group at Arch Capital. He joined Arch Re Bermuda in December 2001 where he held a variety of underwriting roles. Prior to joining Arch, he held various positions at Sorema N.A. Reinsurance Group, a U.S. subsidiary of Groupama and he was also an insurance examiner with the Ministry of Finance, Insurance Department, in France. Mr. Papadopoulo graduated from École Polytechnique in France and École Nationale de la Statistique et de l’Administration Economique in France with a master’s degree in statistics. He is also a Member of the International Actuarial Association and a Fellow at the French Actuarial Society.
n
With Arch since December 2001
n
Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations

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| 2019 PROXY STATEMENT
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Maamoun Rajeh
 
 
 
n
48 years old
Mr. Rajeh has served as Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group since October 2017. From July 2014 to September 2017, he was Chairman and Chief Executive Officer of Arch Re Bermuda. He joined Arch Re Bermuda in 2001 as an underwriter, ultimately becoming Chief Underwriting Officer in November 2005. Most recently, he was President and Chief Executive Officer of Arch Reinsurance Europe Underwriting Designated Activity Company (“Arch Re Europe”) from October 2012 to July 2014. From 1999 to 2001, Mr. Rajeh served as Assistant Vice President at HartRe, a subsidiary of The Hartford Financial Services Group, Inc. Mr. Rajeh also served in several business analysis positions at the United States Fidelity and Guarantee Company between 1992 and 1996 and as an underwriter at F&G Re from 1996 to 1999. He has a B.S. from The Wharton School of Business of the University of Pennsylvania and he is a Chartered Property Casualty Underwriter.
n
With Arch since December 2001
n
Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group
Andrew T. Rippert
 
 
 
n
58 years old
Mr. Rippert is Chief Innovation and Strategic Investment Officer of Arch Capital, a position he has held since March 2019. Prior to such position, Mr. Rippert served as Chief Executive Officer of the Global Mortgage Group at Arch Capital from January 2014 to February 2019. Prior to that, he served as President and Chief Executive Officer of Arch Insurance (EU) Designated Activity Company (formerly known as Arch Mortgage Insurance Designated Activity Company) from December 2011 to March 2014. Prior to December 2011, he served as senior executive of mortgage insurance at Arch Re Bermuda. He joined Arch Insurance (UK) Limited (formerly known as Arch Insurance Company (Europe) Limited) in September 2010 as a Senior Vice President. Prior to that time, he worked as a consultant to mortgage insurers and mortgage backed security investors. From 2001 through 2006, he held various positions at Radian Guaranty Inc., a subsidiary of Radian Group Inc., including senior vice president and managing director of the international mortgage insurance group. He has also worked in reinsurance as an actuary and underwriter. Mr. Rippert serves on the board of directors of the Mortgage Bankers Association (“MBA”) and the MBA’s Opens Doors Foundation. He is also a member of the Executive Committee of the Housing Policy Council and a voting member of the MBA’s Residential Board of Governors. Mr. Rippert graduated from Drexel University with a B.S. in Physics and Mathematics and has an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Rippert is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.

n
With Arch since September 2010
n
Chief Executive Officer of the Global Mortgage Group through February 2019 and currently Chief Innovation and Strategic Investment Officer of Arch Capital
Dennis R. Brand
 
 
 
n
68 years old
Mr. Brand is Chairman, Worldwide Services at Arch Capital Services Inc. Mr. Brand also serves on the Group Reinsurance Steering Committee. He served as Senior Executive Vice President and Chief Administration Officer for Arch Insurance Group Inc. (“Arch Insurance Group”) until December 2017. Mr. Brand joined Arch Insurance Group in 2004 as Senior Vice President and Chief Reinsurance Officer where he oversaw reinsurance, finance, information technology, actuarial, corporate underwriting, human resources, legal and premium audit departments. Prior to joining Arch Insurance Group, Mr. Brand held various positions in the insurance industry: first in finance, then in assumed underwriting and ceded reinsurance, as well as serving in other operational roles in the industry. Mr. Brand has over 40 years of reinsurance and executive management experience through positions held at Kemper and Reliance National. Mr. Brand holds a B.A. in Business from West Virginia University; he has also served in the United States Navy.


n
With Arch since February 2004
n
Chairman, Worldwide Services at Arch Capital Services Inc.

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David E. Gansberg
 
 
 
n
46 years old
Mr. Gansberg was promoted to the position of Chief Executive Officer of the Global Mortgage Group at ACGL on March 1, 2019, which provides mortgage insurance and reinsurance on a worldwide basis. From February 2013 through February 2019, he was the President and Chief Executive Officer of Arch Mortgage Insurance Company. From July 2007 to February 2013, Mr. Gansberg was Executive Vice President and a director at Arch Reinsurance Company. Prior to that, he held various underwriting, operational and strategic roles at Arch Reinsurance Ltd. and Arch Capital Services Inc., where he joined in December 2001. Prior to joining Arch, Mr. Gansberg held various positions with ACE Bermuda and Cigna Property and Casualty. He holds a B.S. in Actuarial Mathematics from the University of Michigan.


n
With Arch since December 2001
n
Chief Executive Officer of Global Mortgage Group
W. Preston Hutchings
 
 
 
n
62 years old
Mr. Hutchings has served as President of Arch Investment Management Ltd. (“AIM”) since April 2006 and Senior Vice President and Chief Investment Officer of Arch Capital since July 2005. Prior to joining Arch Capital, Mr. Hutchings was at RenaissanceRe Holdings Ltd. from 1998 to 2005, serving as Senior Vice President and Chief Investment Officer. Previously, he was Senior Vice President and Chief Investment Officer of Mid Ocean Reinsurance Company Ltd. from January 1995 until its acquisition by XL Group plc in 1998. Mr. Hutchings began his career as a fixed income trader at J.P. Morgan & Co., working for the firm in New York, London and Tokyo. He graduated in 1978 with a B.A. from Hamilton College and received in 1981 an M.A. in Jurisprudence from Oxford University, where he studied as a Rhodes Scholar.
n
With Arch since July 2005
n
President of Arch Investment Management Ltd. and Senior Vice President and Chief Investment Officer of Arch Capital
Louis T. Petrillo
 
 
 
n
53 years old
Mr. Petrillo has been President and General Counsel of Arch Capital Services Inc. since April 2002. From May 2000 to April 2002, he was Senior Vice President, General Counsel and Secretary of Arch Capital. From 1996 until May 2000, Mr. Petrillo was Vice President and Associate General Counsel of Arch Capital’s reinsurance subsidiary. Prior to that time, Mr. Petrillo practiced law at the New York firm of Willkie Farr & Gallagher LLP. He holds a B.A. from Tufts University and a law degree from Columbia University.
n
With Arch since January 1996
n
President and General Counsel of Arch Capital Services Inc.
Carl D. Sullo
 
 
 
n
70 years old
Mr. Sullo has served as Chief Human Resources Officer, Real Estate and Administrative Services at Arch Capital Services Inc. since June 2018. Prior to that he served as Senior Vice President, Human Resources, Real Estate and Administrative Services at Arch Insurance Group Inc. from July 2009 to May 2018. Prior to joining Arch Insurance Group, Mr. Sullo has over 40 years of insurance experience through executive and management positions at Catalina Holdings, One Beacon Insurance, Crum & Forster, Reliance National, Colonial Penn Insurance and CIGNA. He has a B.A. in Psychology from Iona College.


n
With Arch since March 2009
n
Chief Human Resources Officer, Real Estate and Administrative Services

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| 2019 PROXY STATEMENT
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Board
Leadership Structure
The Board reviews the Company’s leadership structure from time to time. As part of the transition of the role of chief executive officer from Mr. Iordanou to Mr. Grandisson in early 2018, the Board determined that a split in the role of chairman of the board and chief executive officer was appropriate and in the best interests of the Company’s shareholders. The Board also elected to maintain the role of independent lead director, a role in which John Pasquesi, a non-management/independent director, currently serves. Since then, the Board has decided to retain the split role of chairman of the board and chief executive officer, and has announced that John Pasquesi will assume the role of chairman of the board in September 2019, effective with the completion of Mr. Iordanou’s term as chairman of the board. Mr. Pasquesi has been a director and vice chairman since October 2001 and lead director since November 2017, and has a deep knowledge of Arch and the industry in which we compete.
Several factors ensure that we have a strong and independent Board. All directors, with the exception of Messrs. Grandisson, Iordanou and Vollaro, are independent as defined under the applicable listing standards of The NASDAQ Stock Market LLC (“NASDAQ”), and the Audit, Compensation and Nominating and Governance Committees of our Board are composed entirely of independent directors. The Company’s independent directors bring experience, oversight and expertise from many industries, including the insurance industry. In addition to feedback provided during the course of Board meetings, the independent directors regularly meet in executive session without management present. The Board also has regular access to our management team.
Until September 2019, the lead director will coordinate the activities of the other non-management/independent directors, and perform such other duties and responsibilities as the Board may determine. The lead director presides at all meetings of the Board at which the chairman of the board is not present, including executive sessions of the non-management/independent directors, and has the authority to call meetings of the non-management/independent directors. The lead director also serves as principal liaison among the chairman of the board, the chief executive officer and the non-management/independent directors and works with the chairman of the board to develop an appropriate schedule of Board meetings and to establish the agendas for Board meetings. In addition, the lead director advises the chairman of the board as to the quality, quantity and timeliness of the flow of information from the Company’s management that is
 
necessary for the non-management/independent directors to effectively and responsibly perform their duties. The lead director is also available, when appropriate, for consultation and direct communication with major shareholders.
Board Independence and Composition
Our Board consists of 11 directors, including eight non-employee directors. Our Board has concluded that the following eight non-employee directors are independent in accordance with the director independence standards set forth in Rule 5600 of the rules of NASDAQ: John L. Bunce, Jr., Eric W. Doppstadt, Laurie S. Goodman, Yiorgos Lillikas, Louis J. Paglia, John M. Pasquesi, Brian S. Posner and Eugene S. Sunshine. In making these independence determinations, the Board reviewed the relationships with the directors set forth under the captions “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions”, including ordinary course transactions not meeting the disclosure threshold with insurers, reinsurers and producers in which a director or a fund affiliated with any of our directors maintained at least a 10% ownership interest.
Role in Risk Oversight
Our Board, as a whole and also at the committee level, has an active role in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s business and operations, including with respect to underwriting, investments, capital management, liquidity, financial reporting and compliance, as well as the risks associated with these activities.

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As outlined below, Committees of the Board help oversee the business and operations of the Company.
Underwriting Oversight Committee
Oversees risks relating to our underwriting activities, including with respect to accumulations and aggregations of exposures in our insurance, reinsurance and mortgage businesses.
Audit Committee
Oversees management of financial reporting and compliance risks.
Compensation Committee
Oversees the management of risks relating to the Company’s compensation plans and arrangements, retention of personnel and succession planning.
Finance, Investment and Risk Committee
Oversees risks relating to the financial, investment, operational (including information technology and data security) and other risk affairs of the Company.
Nominating and Governance Committee
Oversees risks associated with the composition of the Board and with corporate governance matters.
Code of Business Conduct, Committee Charters and Corporate Governance Guidelines
We have adopted a Code of Business Conduct, which describes our ethical principles, and charters of responsibilities for all of our standing Board committees, including Underwriting Oversight, Audit, Compensation, Executive, Finance, Investment and Risk and Nominating and Governance Committees. We have also adopted Corporate Governance Guidelines that cover issues such as executive sessions of our Board, director qualification and independence requirements, director responsibilities, access to management, evaluation and communications with the Board in order to help maintain effective corporate governance at the Company. The full text of our Code of Business Conduct, each Committee Charter and our Corporate Governance Guidelines are available on the Company’s website located at www.archcapgroup.com. None of the material on our website is incorporated herein by reference.
Meetings
The Board held four meetings during 2018. Each director attended 75% or more of all meetings of the Board and any committees on which the director served during fiscal year 2018. Directors are encouraged, but not required, to attend our annual meeting of shareholders. All of our then current directors attended the 2018 annual meeting.
 
Communications with the Board
Shareholders may communicate with the Board or any of the directors by sending written communications addressed to the Board or any of the directors, to:
Arch Capital Group Ltd.
Waterloo House, Ground Floor
100 Pitts Bay Road
Pembroke HM 08, Bermuda
Attention: Secretary
Facsimile: (441) 278-9255
All shareholder communications will be compiled by the Secretary for review by the Board.

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| 2019 PROXY STATEMENT
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Committees of the Board
Director
Audit
Compensation
Executive
Finance, Investment and Risk
Nominating and Governance
Underwriting Oversight
John L. Bunce, Jr.
 
 
n
 
n
 
n
 
n
Chair
 
 
Eric W. Doppstadt
 
 
 
 
 
 
n
Chair
n
 
 
 
Laurie S. Goodman
n
 
 
 
 
 
 
 
 
 
n
 
Marc Grandisson
 
 
 
 
n
 
 
 
 
 
 
 
Constantine Iordanou
 
 
 
 
n
Chair
n
 
 
 
 
 
Yiorgos Lillikas
n
 
 
 
 
 
 
 
 
 
n
 
Louis J. Paglia
n
 
n
 
 
 
 
 
n
 
n
Chair1
John M. Pasquesi
 
 
n
 
n
 
n
 
n
 
n
 
Brian S. Posner
n
Chair
 
 
 
 
n
 
 
 
n
 
Eugene S. Sunshine
n
 
n
Chair
 
 
 
 
n
 
 
 
John D. Vollaro
 
 
 
 
 
 
n
 
 
 
n
 
1
Mr. Paglia has served as Chair of the Underwriting Oversight Committee since January 2019. Prior to that, Mr. Vollaro served as Chair from November 2009 through December 2018.
 
Audit Committee
The Audit Committee of the Board assists the Board in monitoring (1) the integrity of our financial statements, (2) the qualifications and independence of the independent registered public accounting firm, (3) the performance of our internal audit function and independent registered public accounting firm and (4) the compliance by the Company with legal and regulatory requirements.
All of our Audit Committee members are considered independent under the listing standards of NASDAQ governing the qualifications of the members of audit committees and the independence requirements under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that Mr. Posner qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission (“SEC”). The Audit Committee held five meetings during 2018.
Compensation Committee
The Compensation Committee of the Board approves the compensation of our senior executives and has overall responsibility for approving, evaluating and making recommendations to the Board regarding our officer compensation plans, policies and programs.
All of our Compensation Committee members are considered independent under the listing standards of
 
NASDAQ governing the qualifications of the members of compensation committees. In addition, no executive officer of the Company served on any board of directors or compensation committee of any entity (other than Arch Capital) with which any member of our Board serves as an executive officer. The Compensation Committee held five meetings during 2018.
Executive Committee
The Executive Committee of the Board may generally exercise all the powers and authority of the Board, when it is not in session, in the management of our business and affairs, unless the Board otherwise determines. The Executive Committee did not meet during 2018.
Finance, Investment and Risk Committee
The Finance, Investment and Risk Committee of the Board oversees the Board’s responsibilities relating to the financial, operational (including information technology and data security) and other risk affairs of the Company and recommends to the Board financial policies, risk tolerances, strategic investments and overall investment policy, including review of manager selection, financial and risk benchmarks and investment performance. The Finance, Investment and Risk Committee held four meetings during 2018.

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Nominating and Governance Committee
The Nominating and Governance Committee of the Board is responsible for identifying individuals qualified to become directors and recommending to the Board the director nominees for consideration at each annual meeting of shareholders.
All of our Nominating and Governance Committee members are considered independent under the listing standards of NASDAQ. The Nominating and Governance Committee held three meetings during 2018.
When the Board determines to seek a new member, whether to fill a vacancy or otherwise, the Nominating and Governance Committee will consider recommendations from Board members, management and others, including shareholders. In general, the Committee will look for new members, including candidates recommended by shareholders, possessing superior business judgment and integrity who have distinguished themselves in their chosen fields of endeavor and who have knowledge and experience in the areas of insurance, reinsurance or other aspects of our business, operations or activities, as well as knowledge of the business environments in the jurisdictions in which we currently operate or intend to operate in the future. The Company endeavors to maintain a Board representing a diverse spectrum of expertise, background, perspective, race, gender and experience.
A shareholder who wishes to recommend a director candidate for consideration by the Nominating and Governance Committee should follow the procedures as described under the caption “Shareholder Proposals for the 2020 Annual Meeting”.
Underwriting Oversight Committee
The Underwriting Oversight Committee of the Board assists the Board by reviewing the underwriting activities of our insurance, reinsurance and mortgage businesses. The Underwriting Oversight Committee held four meetings in 2018. In addition, the members of the Underwriting Oversight Committee regularly participate in the underwriting and business review meetings held in our insurance, reinsurance and mortgage operations throughout the year.

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| 2019 PROXY STATEMENT
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Director Compensation
The Compensation Committee is responsible for reviewing and making recommendations to the Board regarding all matters pertaining to compensation paid to directors for Board, committee and committee chair services.
In making non-employee director compensation recommendations, the Compensation Committee takes various factors into consideration, including, but not limited to, input received from the Compensation Committee’s independent consultant, the responsibilities of directors generally, as well as committee chairs, and the form and amount of compensation paid to directors by comparable companies. The Board reviews the recommendations of the Compensation Committee and determines the form and amount of director compensation.
 
The following table provides information concerning the compensation of our directors for the year ended December 31, 2018. Directors who also serve as employees of the Company do not receive payment for service as directors. In addition to the arrangements described below, all non-employee directors are entitled to reimbursement for their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board or committees. For a complete understanding of the table, please read the footnotes and the narrative disclosures that follow the table. Please also refer to the “2018 Summary Compensation Table” for Messrs. Iordanou and Grandisson’s compensation.
Name
 
 
 
Fees Earned
or Paid in Cash
($)(1)
 
Stock
Awards
($)(2)
 
All Other
Compensation
($)(3)
 
Total
($)
John L. Bunce, Jr.
 
NC
 
178,067

 
94,938

 

 
273,005

Eric W. Doppstadt
 
FC
 
170,567

 
94,938

 

 
265,505

Laurie S. Goodman
 

 
165,000

 
94,938

 
50,000

 
309,938

Yiorgos Lillikas
 

 
173,567

 
94,938

 

 
268,505

Louis J. Paglia (4)
 
UC
 
185,567

 
94,938

 
50,000

 
330,505

John M. Pasquesi
 
LD
 
184,067

 
94,938

 
50,000

 
329,005

Brian S. Posner
 
AC
 
204,567

 
94,938

 
50,000

 
349,505

Eugene S. Sunshine
 
CC
 
204,567

 
94,938

 
18,325

 
317,830

John D. Vollaro (5)(6)
 

 
750,000

 

 
132,318

 
882,318


AC = Audit Committee Chair, CC= Compensation Committee Chair, FC = Finance, Investment and Risk Committee Chair, LD = Lead Director, NC = Nominating and Governance Committee Chair, UC = Underwriting Oversight Committee Chair
(1)
Each non-employee member of our Board of Directors is entitled to receive an annual cash retainer fee in the amount of $125,000. Each such director may elect to receive the retainer fee in the form of common shares instead of cash. If so elected, the number of shares distributed to the non-employee director will be equal to 100% of the amount of the annual retainer fee otherwise payable divided by the fair market value of our common shares on the date of grant. Each non-employee director also receives a meeting fee of $2,500 for each Board meeting attended and $1,500 for each committee meeting attended. This column includes the annual retainer (whether paid in cash or, at the election of the director, in common shares), meeting fees and committee chair and retainer fees, as applicable and as described above. For the 2018–2019 annual period, Mr. Sunshine received his annual retainer fees in the form of cash and Ms. Goodman and Messrs. Bunce, Doppstadt, Lillikas, Paglia, Pasquesi and Posner received their annual retainers in the form of 4,722 common shares.
The following table sets forth the meeting fees and the additional fees payable to our committee chairs, committee members and lead director, effective from May of 2018. In
 
addition, effective January 1, 2019, the Underwriting and Oversight Committee chair receives an annual fee of $50,000.
Committee Chair/Member
Annual Fee
   Audit Committee Chair
$
50,000

   Audit Committee Member
$
25,000

   Finance, Investment and Risk Committee Chair
$
25,000

   Lead Director
$
25,000

   Compensation Committee Chair
$
25,000

   Nominating and Governance Committee Chair
$
25,000

   Executive Committee Chair
$
10,000

(2)
Each year, the non-employee directors are granted a number of restricted shares equal to $95,000 divided by the closing price on the date of grant (i.e., the first day of the annual period of compensation for the non-employee directors), and such shares vest on May 1 of the following year. The grant date fair value indicated in the table has been calculated in accordance with FASB ASC Topic 718 Compensation—Stock Compensation. On May 9, 2018, each

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non-employee director received 3,588 restricted common shares, which will vest on May 1, 2019.
The aggregate number of share awards outstanding (i.e., unvested) as of December 31, 2018 for Ms. Goodman and Messrs. Bunce, Doppstadt, Lillikas, Paglia, Pasquesi, Posner and Sunshine was 3,588 common shares each. In addition, as of December 31, 2018, Mr. Vollaro had 91,800 outstanding SARs, which were awarded while he was chief financial officer of the Company. For additional information on ownership of Arch Capital’s securities, please refer to “Security Ownership of Certain Beneficial Owners and Management”.
(3)
The amounts in the “All Other Compensation” column for Ms. Goodman and Messrs. Paglia, Pasquesi, Posner, Sunshine and Vollaro include matching gifts made under the Company’s matching gift program.
Under the matching gift program, the Company will match eligible contributions to qualified charitable organizations on a dollar-for-dollar basis, up to a maximum of $50,000 per calendar year. During 2018, the Company made an aggregate of approximately $273,000 in matching contributions on behalf of the directors noted in the table above.
 
(4)
Effective January 1, 2019, Mr. Paglia became the Chair of the Underwriting and Oversight Committee, replacing Mr. Vollaro, and became entitled to the applicable chair fee.
(5)
Mr. Vollaro is a senior advisor and an employee of the Company. Mr. Vollaro’s employment agreement provides that he receives an annual base salary of $250,000 and a bonus determined by the Compensation Committee and the Board for his role as Senior Advisor of the Company. For 2018, Mr. Vollaro received a cash bonus of $500,000. In addition, Mr. Vollaro is a member of the Finance, Investment and Risk Committee of the Board and served as chairman of the Underwriting and Oversight Committee of the Board in 2018. A description of Mr. Vollaro’s employment agreement is included below.
(6)
The amount for Mr. Vollaro includes: (a) $33,440 in contributions to our defined contribution plans; (b) $25,710 for club dues; and (c) $55,000 for matching gifts made under the Company’s matching gift program. In addition, the total amount includes the payment for life insurance premiums, tax preparation services and an additional allowance, which did not exceed the greater of $25,000 or 10% of the total amount of these benefits for Mr. Vollaro.
 
Employment Agreement of John Vollaro
Our employment agreement with John Vollaro provides for his employment period to continue on the terms and conditions set forth in the agreement for an indefinite period until terminated by either party by providing at least six months’ prior written notice to the other party. Pursuant to the agreement, Mr. Vollaro has served as Senior Advisor of Arch Capital since April 1, 2009. Mr. Vollaro’s base salary is paid at the rate $250,000 per annum, and the target rate for the annual cash bonus is 100% of the annual base salary. Mr. Vollaro is eligible to receive annual cash bonuses and share-based awards at the discretion of Arch Capital’s Board and is also entitled to participate in employee benefit programs such as major medical, life insurance and disability insurance, the cost of preparation of annual tax returns and associated tax planning, and other fringe benefits customarily provided to similarly situated senior executives. His agreement also provides that the Company will reimburse him for his reasonable expenses incurred traveling between Bermuda and the United States.
The agreement provides that if Mr. Vollaro’s employment is terminated without cause prior to the end of the term, he will be entitled to receive an amount equal to the sum of the total remaining base salary and target annual bonus which would have been paid to Mr. Vollaro under his employment agreement for the period through six months after the date of termination of employment (the “Severance Amount”). The Severance Amount would be
 
payable over 12 months. The agreement also provides that if Mr. Vollaro’s employment is terminated for cause, as a result of his resignation, as a result of death or permanent disability, or by written notice of the intention not to renew the agreement by us or Mr. Vollaro, he (or his estate) will be entitled to receive his base salary through the date of termination. The agreement further provides that if Mr. Vollaro’s employment is terminated by reason of death or permanent disability, he (or his estate) will also be entitled to receive for the period extending through the remainder of the employment period, an amount equal to the Severance Amount, in each case, (i) offset by any proceeds received from any insurance coverages provided by the Company, and (ii) such amount, will be paid to him (or his estate) promptly upon death or permanent disability, as applicable, and in no event later than March 15 of the calendar year following the calendar year of such termination of employment. Mr. Vollaro’s major medical insurance coverage benefits pursuant to his employment agreement will continue for 12 months after the date of termination (or until he is provided by another employer with benefits substantially comparable, with no pre-existing condition limitations, to the benefits provided by such plan) in the event that his employment ends due to permanent disability, or he is terminated other than for cause.
Mr. Vollaro has agreed that, during the employment period and for a period of two years after termination of

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employment for cause or as a result of his resignation, he will not compete with the businesses of Arch Capital or any of its subsidiaries as such businesses exist or are in process or being planned as of the date of termination. If we terminate Mr. Vollaro’s employment without cause, the term of his noncompetition period will extend for one year
 
following termination. Mr. Vollaro also agreed that he will not, for a period of two years following his date of termination, induce or attempt to induce any of our employees to leave his or her position with us or induce any customer to cease doing business with us.
 
 
 
 
 
Matters Relating to Director Share Ownership
In an effort to further align the interests of the non-employee directors with the interests of shareholders, the Company has adopted:
Share Ownership Guidelines: Share ownership guidelines require the directors to retain common shares having a value of at least three times the annual cash retainer fee payable to the director. Each non-employee director has five years to comply with the guidelines, and stock options, SARs and unvested restricted shares/units do not count toward the requirement.
Share Holding Requirements: Until our non-employee directors meet their target ownership levels, they must retain an amount equal to 50% of the net profit shares received from Arch Capital’s equity awards until they have attained the applicable share ownership level. Net profit shares are the shares remaining after payment of the exercise price of an option and taxes owed on exercise of options or SARs, vesting of restricted stock, or vesting and payout under restricted stock units and performance shares.












 
No Hedging Permitted: As part of our Code of Business Conduct, our officers, directors and other employees are not permitted to engage in hedging activities with respect to Arch Capital’s common stock or any other publicly-traded equity or debt securities issued by Arch Capital or any of its subsidiaries. Specifically, they may not engage in short sales, purchase or sale of financial instruments or derivatives, including puts and calls, that hedge or offset any change in the market value of such securities. In addition, our officers, directors and other employees may not otherwise engage in transactions that are designed to, or have, the same effect.

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Certain Relationships and Related Transactions
Generally, transactions with related persons are subject to review by the Board of Arch Capital. The Board has adopted written procedures regarding the review of transactions involving companies affiliated with a company in which a non-employee director or executive officer of Arch Capital has a material interest (each a “portfolio company”), on the one hand, and Arch Capital or one of its subsidiaries, on the other hand.
Under the procedures, these transactions must be reviewed and approved by the management of Arch Capital or the operating subsidiary entering into the transaction (as applicable), and the terms of such transaction should be arm’s-length or on terms that are otherwise fair to Arch Capital and its subsidiaries. In addition, these transactions also require the approval of Arch Capital under its holding company oversight guidelines, except for the following: (1) ordinary course transactions pursuant to which any insurance subsidiary of Arch Capital writes a direct insurance policy for a portfolio company where the Company will receive less than $3.0 million in annual premiums and (2) a transaction in which a U.S.-based subsidiary of Arch Capital (a) assumes reinsurance from, or cedes reinsurance to, a portfolio company or (b) provides direct insurance to a portfolio company pursuant to which the Company will receive $3.0 million or more in annual premiums, in which case, the general counsel of Arch Capital Services Inc. should be pre-notified and appropriate steps will be implemented based on the transaction. In reviewing these proposed transactions, the effects, if any, on the independence of the relevant directors are considered under the governing NASDAQ and SEC standards. Any applicable regulatory, tax and ratings agency matters are also considered. Under these procedures, the Board is provided with an update of related party transactions entered into by the Company in accordance with the procedures on a regular basis.
Graham B.R. Collis, a director of certain of our non-U.S. subsidiaries, is a director of the law firm of Conyers Dill & Pearman Limited, which provides legal services to the Company and its subsidiaries.
See also “Compensation Committee Interlocks and Insider Participation” for a description of transactions with certain related persons.
Based on a Schedule 13G/A filed in February 2019, BlackRock Inc. (“BlackRock”) owned approximately 6.9% of the outstanding common shares of Arch Capital as of December 31, 2018. BlackRock, through its subsidiaries, provides various investment management, investment trade support and risk analysis services to Arch Capital and
 
its subsidiaries. During 2018, the Company incurred $11.2 million of fees, in the aggregate, under these services arrangements with BlackRock.
In January 2017, the Company and Kelso & Co. (“Kelso”), sponsored Premia Reinsurance Ltd., a newly formed multiline Bermuda reinsurance company (“Premia Re”). Premia Re’s strategy is to reinsure or acquire companies or reserve portfolios in the non-life property and casualty insurance and reinsurance run-off market. The initial capitalization of Premia Re’s parent, Premia Holdings Ltd. (“Premia”), consisted of $400.0 million in common equity and $110.0 million in unsecured senior debt. Arch Re Bermuda and certain Arch co-investors, including senior management of Premia, invested $100.0 million and acquired 25.0% of Premia’s common equity as well as warrants to purchase additional common equity. Two of the co-investors included Nicolas Papadopoulo, Chairman and CEO of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations, who invested $2.5 million for a 0.625% stake, and Maamoun Rajeh, Chairman and CEO of Arch Worldwide Reinsurance Group, who invested $0.5 million for a 0.125% stake. Affiliates of Kelso, along with co-investors of Kelso, invested $300.0 million and acquired the balance of Premia’s common equity as well as warrants to purchase additional common equity. Arch Re Bermuda is providing a 25% whole account quota share reinsurance treaty on business written by Premia Re. For the 2018 year, no business was written through the quota share agreement between Premia Re and Arch Re Bermuda. Arch Re Bermuda has appointed two directors to serve on the seven person board of directors of Premia Re. Subsidiaries of Arch Capital are providing certain administrative and support services to Premia pursuant to services agreements.
In 2018, we made a $129,000 contribution to the Urban Institute, a non-profit research organization that employs Laurie S. Goodman.
From time to time, in the ordinary course of our business, we may enter into transactions, including insurance and reinsurance transactions and brokerage or other arrangements for the production of business, with entities in which companies or funds affiliated with beneficial owners of more than 5% of our outstanding voting shares or directors of Arch Capital may have an ownership or other interest.

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| 2019 PROXY STATEMENT
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SHARE OWNERSHIP
Security Ownership of Certain Beneficial Owners and Management
Common Shares
The following table sets forth information available to us as of March 8, 2019 with respect to the ownership of our voting shares by (1) each person known to us to be the beneficial owner of more than 5% of any class of our outstanding voting shares, (2) each director and named executive officer of Arch Capital and (3) all of the directors and executive officers of Arch Capital as a group. Except as otherwise indicated, each person named below has sole investment and voting power with respect to the securities shown.
 
Common Shares
Name and Address of Beneficial Owner
(A)
Number of Common Shares Beneficially Owned (1)

(B)
Rule 13d-3
Percentage Ownership (1)

Artisan Partners Holdings LP (2)
875 East Wisconsin Avenue, Suite 800
Milwaukee, Wisconsin 53202
52,664,200

13.1
%
The Vanguard Group (3)
100 Vanguard Blvd.
Malvern, Pennsylvania 19355
35,009,622

8.7
%
Cascade Investment, L.L.C. (4)
2365 Carillon Point
Kirkland, Washington 98033
34,533,297

8.6
%
BlackRock Inc. (5)
55 East 52nd Street
New York, New York 10022
27,775,928

6.9
%
Baron Capital Group, Inc. (6)
767 Fifth Avenue
New York, New York 10153
23,212,503

5.8
%
Constantine Iordanou (7)
7,282,254

1.8
%
Marc Grandisson (8)
2,834,093

*

John L. Bunce, Jr. (9)
2,072,376

*

Eric W. Doppstadt (10)
56,022

*

Laurie S. Goodman (11)
8,310

*

Yiorgos Lillikas (12)
51,469

*

Louis J. Paglia (13)
29,883

*

John M. Pasquesi (14)
5,178,924

1.3
%
Brian S. Posner (15)
85,127

*

Eugene S. Sunshine (16)
15,972

*

John D. Vollaro (17)
511,818

*

François Morin (18)
200,810

*

Nicolas Papadopoulo (19)
777,062

*

Maamoun Rajeh (20)
637,717

*

Andrew T. Rippert (21)
219,390

*

All directors and executive officers (18 persons) (22)
21,611,932

5.2
%
_________________________
* Denotes beneficial ownership of less than 1%

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(1)
Pursuant to Rule 13d-3 promulgated under the Exchange Act, amounts shown include common shares that may be acquired by a person within 60 days of March 8, 2019. Therefore, column (B) has been computed based on (a) 403,518,712 common shares actually outstanding as of March 8, 2019; and (b) solely with respect to the person whose Rule 13d-3 Percentage Ownership of common shares is being computed, common shares that may be acquired within 60 days of March 8, 2019 upon the exercise of options held only by such person. All references to “options” in the above table and the related footnotes include SARs, as applicable.
(2)
Based on a Schedule 13G/A filed with the SEC on February 7, 2019 jointly by Artisan Partners Limited Partnership (“APLP”), Artisan Investments GP LLC (“Artisan Investments”), Artisan Partners Holdings LP (“Artisan Holdings”), Artisan Partners Asset Management Inc. (“APAM”) and Artisan Partners Funds, Inc. (“Artisan Funds”). APLP is an investment advisor and Artisan Funds is an investment company. Artisan Holdings is the sole limited partner of APLP and the sole member of Artisan Investments. Artisan Investments is the general partner of APLP and APAM is the general partner of Artisan Holdings. The Schedule 13G/A reported that the common shares have been acquired on behalf of discretionary clients of APLP, which holds 52,664,200 common shares, including 25,667,824 common shares on behalf of Artisan Funds. In addition, the Schedule 13G/A reported that (a) APLP, Artisan Investments, Artisan Holdings and APAM each has shared voting with respect to 49,525,137 common shares and shared dispositive power with respect to 52,664,200 common shares and (b) Artisan Funds has shared voting and dispositive power with respect to 25,667,824 common shares.
(3)
Based on a Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group (“Vanguard”). In the Schedule 13G/A it is reported that Vanguard has shared dispositive power with respect to 411,156 common shares, sole voting power with respect to 287,336 shares, shared voting power with respect to 145,205 common shares and sole dispositive power with respect to 34,598,466 common shares.
(4)
Based on a Schedule 13G/A filed with the SEC on February 14, 2013 jointly by Cascade Investment, L.L.C. (“Cascade”) and William H. Gates III. In the Schedule 13G/A, it is reported that Cascade has sole voting and dispositive power with respect to 34,533,297 common shares. In addition, all common shares held by Cascade may be deemed to be beneficially owned by William H. Gates III as the sole member of Cascade.
(5)
Based on a Schedule 13G/A filed with the SEC on February 4, 2019 by BlackRock. In the Schedule 13G/A, it is reported that BlackRock has sole voting power with respect to 24,715,249 common shares and sole dispositive power with respect to 27,775,928 common shares.
(6)
Based upon a Schedule 13G/A filed with the SEC on February 13, 2019 jointly by Baron Capital Group, Inc. (“BCG”), BAMCO, Inc. (“BAMCO”), Baron Capital Management, Inc. (“BCM”) and Ronald Baron (collectively, the “Baron Group”). In the Schedule 13G/A, the Baron Group reported that BAMCO and BCM are subsidiaries of BCG, and Ronald Baron owns a controlling interest in BCG. In addition,
 
the Schedule 13G/A reported that (a) BCG has shared voting power with respect to 22,312,823 common shares and shared dispositive power with respect to 23,212,503 common shares; (b) BAMCO has shared voting power with respect to 21,199,884 common shares and shared dispositive power with respect to 22,099,564 common shares; (c) BCM has shared voting power with respect to 1,112,939 common shares and shared dispositive power with respect to 1,112,939 common shares; and (d) Ronald Baron has shared voting power with respect to 22,312,823 common shares and shared dispositive power with respect to 23,212,503 common shares.
(7)
Amounts in columns (A) and (B) reflect (a) 497,740 common shares owned directly by Mr. Iordanou (including 69,807 restricted shares, which are subject to vesting); (b) 478,334 common shares, which are held by a grantor retained annuity trust; (c) stock options and SARs with respect to 3,410,840 common shares that are exercisable currently or within 60 days of the date hereof; and (d) stock options and SARs with respect to 2,895,340 common shares that are exercisable currently, which are held by two grantor retained annuity trusts. Amounts do not include (a) stock options and SARs with respect to 164,712 common shares that are not exercisable within 60 days of the date hereof, (b) 94,905 restricted common share units that will not be settled in common shares within 60 days of the date hereof; and (c) 39,753 restricted common share units that will be settled in common shares after the termination of Mr. Iordanou’s employment, as provided in the award agreement. Mr. Iordanou holds a security agreement with respect to 424,843 directly owned common shares, which is not currently being utilized.
(8)
Amounts in columns (A) and (B) reflect (a) 1,832,136 common shares owned indirectly by Mr. Grandisson and his spouse; (b) 115,487 restricted shares owned directly by Mr. Grandisson, which are subject to vesting; (c) 1,980 common shares owned by his spouse; and (d) stock options and SARs with respect to 884,490 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 744,451 common shares that are not exercisable within 60 days of the date hereof.
(9)
Amounts in columns (A) and (B) reflect 2,072,376 common shares owned directly by Mr. Bunce.
(10)
Amounts in columns (A) and (B) reflect 56,022 common shares owned directly by Mr. Doppstadt.
(11)
Amounts in columns (A) and (B) reflect 8,310 common shares owned directly by Ms. Goodman.
(12)
Amounts in columns (A) and (B) reflect (a) 51,214 common shares owned directly by Mr. Lillikas and (b) 255 common shares owned by his child.
(13)
Amounts in columns (A) and (B) reflect 29,883 common shares owned directly by Mr. Paglia.
(14)
Amounts in columns (A) and (B) reflect (a) 1,221,693 common shares owned by Otter Capital LLC, for which Mr. Pasquesi serves as the Managing Member; (b) 3,106,098 common shares owned indirectly by revocable trusts for which Mr. Pasquesi and his spouse are the trustees;

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| 2019 PROXY STATEMENT
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(c) 157,545 common shares owned indirectly by a family limited partnership; (d) 690,000 common shares, which are held by a grantor retained annuity trust; and (e) 3,588 common shares owned directly by Mr. Pasquesi. In addition, 1,309,860 common shares held by the trusts and by the family limited partnership are subject to a security agreement. As of the record date, no amounts were outstanding. As of March 12, 2019, 769,860 of these common shares are being used to secure an outstanding loan.
(15)
Amounts in columns (A) and (B) reflect 85,127 common shares owned directly by Mr. Posner.
(16)
Amounts in columns (A) and (B) reflect 15,972 common shares owned directly by Mr. Sunshine.
(17)
Amounts in columns (A) and (B) reflect (a) 420,018 common shares owned by a revocable trust for which Mr. Vollaro serves as trustee and (b) stock options and SARs with respect to 91,800 common shares that are exercisable currently.
(18)
Amounts in columns (A) and (B) reflect (a) 41,481 common shares owned directly by Mr. Morin (including 32,368 restricted shares, which are subject to vesting); (b) 79,491 common shares owned indirectly with his spouse; (c) stock options and SARs with respect to 79,838 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 109,806 common shares that are not exercisable within 60 days of the date hereof.
(19)
Amounts in columns (A) and (B) reflect (a) 670,862 common shares owned directly by Mr. Papadopoulo (including 71,169 restricted shares, which are subject to vesting) and (b) stock
 
options and SARs with respect to 106,200 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 189,008 common shares that are not exercisable within 60 days of the date hereof.
(20)
Amounts in columns (A) and (B) reflect (a) 362,743 common shares owned directly by Mr. Rajeh (including 53,504 restricted shares, which are subject to vesting) and (b) stock options and SARs with respect to 274,974 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 116,633 common shares that are not exercisable within 60 days of the date hereof.
(21)
Amounts in columns (A) and (B) reflect (a) 106,389 common shares owned directly by Mr. Rippert (including 35,283 restricted shares, which are subject to vesting) and (b) stock options and SARs with respect to 113,001 common shares that are exercisable currently or within 60 days of the date hereof. Amounts do not include stock options and SARs with respect to 103,267 common shares that are not exercisable within 60 days of the date hereof.
(22)
In addition to securities beneficially owned by the directors and the named executive officers reflected in the table, includes an aggregate of 1,650,705 common shares, including common shares issuable upon exercise of stock options and SARs that are exercisable currently or within 60 days of the date hereof, which are beneficially owned by executive officers who are not directors of Arch Capital.
Preferred Shares
The following table sets forth information available to us as of March 8, 2019 with respect to the ownership of our non-cumulative preferred shares by (1) each director and named executive officer of Arch Capital who owns such shares and (2) all of the directors and executive officers of Arch Capital as a group. Except as otherwise indicated, each person named below has sole investment and voting power with respect to the securities shown. Our preferred shares are not convertible into common shares, and the holders of the preferred shares do not have any voting rights (except under certain limited circumstances). For a description of the terms of our preferred shares, please see note 19, “Shareholders’ Equity,” of the notes accompanying our consolidated financial statements included in our 2018 Annual Report.
 
Preferred Shares
Name of Beneficial Owner
Number of Series E Preferred Shares Beneficially Owned


Percentage of Class Owned
Number of Series F Preferred Shares Beneficially Owned


Percentage of Class Owned
Constantine Iordanou (1)

*
10,000

*
Brian S. Posner
6,000

*
3,000

*
All directors and executive officers (16 persons)
6,000

*
13,000

*
_________________________
* Denotes beneficial ownership of less than 1%
(1) 7,000 of such preferred shares are directly owned by Mr. Iordanou and 3,000 preferred shares are owned by Mr. Iordanou’s spouse.

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Ownership of Watford Holdings Ltd. (“Watford”) Shares
We, through certain of our subsidiaries, serve as insurance portfolio manager for Watford Re, a subsidiary of Watford and a privately held multi-line Bermuda reinsurance company. We own common and preferred interests in Watford and have the right to designate two members of Watford’s board of directors. In addition, Watford has 9,065,200 cumulative redeemable preference shares outstanding with a liquidation preference of $25.00 per share. The preference shares are not convertible into or exchangeable for any other securities or property of Watford and do not have other general rights such as voting powers. For additional information about the terms of the preference shares, please see note 11, “Variable Interest Entity and Noncontrolling Interests,” of the notes accompanying our consolidated financial statements included in our 2018 Annual Report. We consolidate Watford’s financial results under applicable accounting principles. The following table sets forth information available to us as of March 8, 2019 with respect to the ownership of common and preferred shares of Watford, by (1) each director and named executive officer of Arch Capital who owns such shares and (2) all of the directors and executive officers as a group.
 
Common Shares
 
Preferred Shares
Name of Beneficial Owner
 
(A)
Number of Watford
Common Shares
Beneficially
Owned (1)

(B)
Rule 13d-3
Percentage
Owned

 
 
(C)
Number of Watford
Preferred Shares
Beneficially
Owned (2)

(D)
Percentage of Class
Owned

Marc Grandisson
125,000

*

 

*

Constantine Iordanou
50,000

*

 
120,000

1.3
%
François Morin (3)
6,250

*

 

*

Nicolas Papadopoulo
62,500

*

 

*

John M. Pasquesi (4)
125,000

*

 

*

Brian S. Posner
6,250

*

 

*

Maamoun Rajeh
12,500

*

 

*

All directors and executive officers (18 persons)
400,000

1.8
%
 
130,000

1.4
%
_________________________
* Denotes beneficial ownership of less than 1%

(1)    The purchase price for such shares was $40.00 per share.
(2)    The purchase price for such shares was $24.50 per share.
(3)    The shares are beneficially owned by Mr. Morin and his spouse.
(4)    50,631 of such shares are owned directly by Mr. Pasquesi and the balance are held in trusts for the benefit of Mr. Pasquesi’s family.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common shares, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our equity securities. Such persons are also required by SEC regulation to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and representations that no other reports were required, we believe that all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis during the year ended December 31, 2018.

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| 2019 PROXY STATEMENT
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COMPENSATION
ITEM 2—ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
We are pleased to ask our shareholders to approve, on an advisory basis, the compensation of the named executive officers as described in the “Compensation Discussion and Analysis” and the “Executive Compensation Tables.”
In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and Compensation Tables sections. Over the last year, we implemented significant enhancements to our compensation programs to continue to improve the link between compensation and the Company’s business performance and talent retention strategies as well as the long-term interests of our shareholders. We have a “pay-for-performance” philosophy that forms the foundation of all decisions regarding compensation of our named executive officers.
We are requesting shareholder approval of the compensation of our named executive officers pursuant to the compensation disclosure rules of the SEC, including the “Compensation Discussion and Analysis”, the “Executive
 
Compensation Tables” and any related material disclosed in this Proxy Statement. This vote is not intended to address any one specific item of compensation, but instead the overall compensation of our named executive officers and the policies and practices described in this Proxy Statement.
Your vote is advisory and therefore it will not be binding on the Company, the Compensation Committee of the Board or the Board. However, the Board and the Compensation Committee value the views of our shareholders and the Compensation Committee will take into account the outcome of the advisory vote when considering executive compensation.
Recommendation of the Board
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THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
 
Compensation Discussion and Analysis
The Compensation Discussion and Analysis section explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the named executive officers whose compensation information is presented in the tables following this discussion in accordance with SEC rules. Named executive officers for 2018 were:
Name
Title
Marc Grandisson
President, Chief Executive Officer and Class III Director of Arch Capital
François Morin
Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital
Nicolas Papadopoulo
Chairman and Chief Executive Officer of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations
Maamoun Rajeh
Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group
Andrew T. Rippert
Chief Executive Officer of the Global Mortgage Group (1)
Constantine Iordanou
Chairman of the Board and Class II Director of Arch Capital; Chief Executive Officer until March 2, 2018
Mark D. Lyons
Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital until May 25, 2018
(1)
Mr. Rippert held such position until February 28, 2019. Effective March 1, 2019, he was appointed as Chief Innovation and Strategic Investment Officer of Arch Capital. Mr. Gansberg was promoted to Chief Executive Officer of the Global Mortgage Group, effective March 1, 2019.
Leadership Transition
During 2018, we executed our leadership succession plan and transitioned to a new Chief Executive Officer, Marc Grandisson. Mr. Iordanou served in that role until March 2, 2018, and is continuing as Chairman of the Board. In addition, Mr. Morin was appointed as Chief Financial Officer and Treasurer during May 2018, following Mr. Lyons’ resignation. Messrs. Iordanou and Lyons are considered named executive officers for fiscal year 2018 and their compensation is described within this Compensation Discussion and Analysis and the related Executive Compensation Tables.

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Compensation Program at a Glance
As part of the Compensation Committee’s ongoing review of the Company’s programs and in order to help ensure continued alignment between pay and performance, the Compensation Committee evaluates the Company’s
 
compensation programs for its senior management team. The results of this evaluation during last year have included the incorporation of pre-established performance goals into both the annual and long-term incentive programs.

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Base Salary
Short-Term Incentives
Long-Term Share-Based
Performance-Based
Shareholder Return Modifier
 
Long-Term Incentives
 
 
 
 
 
Base salaries attract, retain and compensate executives based on level of responsibility and experience.
Formulaic approach to our annual incentive plan design, which aligns payments made to named executive officers to the financial performance achieved by our Reporting Segments and investment function.
Long-term share-based incentive awards to senior executives comprise (i) 80% performance- based: 55% performance shares and 25% stock options, and (ii) 20% time-based restricted shares. Stock options and time-based restricted stock have three-year ratable vesting.     
Performance-based long-term share-based incentive awards granted to senior executives payout in shares at the end of each three-year period based on growth in tangible book value per share, a strong indicator of growth in shareholder value.
Performance-based long-term share-based incentive awards contain a total shareholder return modifier to further tie awards to long-term shareholder value.
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                                   Performance Metrics
Annual and long-term performance metrics have rigorous target goals and include minimum threshold amounts that must be achieved in order for an executive to receive a payout. Additionally, maximum payout as a percentage of target is capped at 200% for both the annual and long-term incentive plans.



28
| 2019 PROXY STATEMENT
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Strong Link Between Pay and Performance
Our executive compensation programs are designed to link pay and performance and to align the interests of our executives with those of our shareholders by tying significant portions of their compensation to the Company’s financial performance and stock price performance. As noted, in 2018 we adopted a more
 
formulaic approach to our annual incentive plan design for our senior executive team and changed the structure of our long-term incentive awards for senior executives so that the majority of such awards granted are in the form of performance shares.
 
 
 
 
 

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CEO Target Mix of Pay
As illustrated above for our CEO, 73% of target compensation was performance-based and 63% consists of long-term incentives.
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Other Named Executives Target Mix of Pay1
As illustrated above for our other named executives, 67% of target compensation was performance-based and 45% consists of long-term incentives.
1 Excludes Chairman of the Board
 
 
 
 
 
Oversight of Pay and Performance
In assessing overall performance, the Compensation Committee undertakes a rigorous process pursuant to which financial targets are set under the short-term and long-term incentive plans and specific strategic goals are established at the beginning of the year and tracked throughout the year. Each year, senior management prepares a strategic plan and outlines a plan for the accomplishment of the objectives of the strategic plan. The Compensation Committee reviews and approves the Company’s strategic plan and approves key financial and strategic goals and measurements. The attainment of these goals and measures is reflected in the determination of actual payouts under the short-term annual incentive plan.


 
When evaluating pay reported in the Summary Compensation Table, it is important to consider the timing of compensation decisions and which performance period informs each of the annual and long-term equity incentive awards.
The short-term annual incentive awards reported in the Summary Compensation Table for 2018 were decided in February 2019 and reflect achievement of financial metrics and individual strategic metrics related to 2018 year performance. See “Elements of Compensation Program—Short-Term Annual Cash Incentive Bonuses.”
Long-term equity incentive awards reflected in the Summary Compensation Table for 2018 and reported in the 2018 Grants of Plan-Based Awards table were granted in May 2018.

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2018 Performance at a Glance1
performanceataglance032601.jpg
1 Excludes amounts related to the “other” segment (i.e., Watford). All per share amounts are on a diluted basis.
Although, taken together, 2017 and 2018 produced extreme catastrophe insured losses, we performed reasonably well during that period. As pricing for many insurance and reinsurance lines remained under pressure notwithstanding the California wildfires, Hurricane Michael and other natural disasters, our strategic principles served us well, as we continue to grow in mortgage insurance, where market conditions are favorable. Mortgage insurance is an important part of our strategy, complementing our strong positions in specialty insurance and reinsurance and serving to counterbalance the cyclical nature of the property casualty market. Our diversification across these segments, together with our strong balance sheet, allows us to allocate capital between and within segments as market conditions dictate. Although the profitability of our property casualty insurance and reinsurance operations declined due to market softness, this was partly offset by the robust growth and excellent profitability of our mortgage insurance and reinsurance activities.
Our combined ratio of 81.0% for 2018 was at the 88th percentile of our Peer Group (as defined below). Our performance on an average basis for 2018 was at the 57th percentile of our Peer Group for the four key measures we track for compensation purposes: (1) operating income return on average common equity, (2) net income return on average common equity, (3) growth in tangible book value per share and (4) total shareholder return (“TSR”). Our performance is
 
at the 68th percentile when annual TSR performance is excluded. Refer to “Common Share Performance” discussion.
Achievements in 2018
The following are among the highlights of our achievements during 2018 in advancing our strategic initiatives.
Mortgage insurance and reinsurance was our most profitable segment in 2018 and represented 24% of our premium volume. The group also successfully introduced a new means of accepting mortgage credit risk from Fannie Mae and Freddie Mac and participated in several credit-risk transfer programs that are all designed to attract a diversified and robust capital base to the U.S. housing market and encourage market stability through economic cycles.
Reinsurance growth reflected increased writings of motor business in Europe and reinstatement premiums from catastrophe events. The segment also reduced participation in large commoditized risks and continued to uncover deals in a soft market, which speaks to its diversified platform and dynamic portfolio.
The Insurance segment responded to an extended soft market by carving out positions in those specialty areas where it sees attractive opportunities, including increased positions in travel and accident insurance. The Insurance segment also expanded its footprint in both the U.S. and Europe with business acquisitions that will provide a wider network and better service to our customers.

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| 2019 PROXY STATEMENT
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Long-Term Performance
We believe the Company’s performance is best measured over the long term. The following charts highlight certain of our key metrics for evaluating financial performance, which are considered in our compensation decisions. In evaluating the performance of the Company in connection with our compensation programs, we focus primarily on two main benchmarks: growth in book and tangible book value per share, which creates long-term shareholder value, and Net Income Return on Equity (“ROE”) and Operating ROE, which drive book value growth and are key indicators of the efficient use of capital.
Book Value and Tangible Book Value per Common Share
Book Value per Common Share (“BVPS”): Since our recapitalization in 2001, we have delivered strong results to our shareholders as our BVPS has grown by approximately 960% from $2.03 at December 31, 2001 to $21.52 at December 31, 2018. Shareholders who invested in our recapitalization and continue to hold their common shares have seen the book value of their stock increase by 14.9% per year on a compounded basis and the price of their shares increase approximately 1,102% to $26.72 from $2.22.
 
Tangible Book Value per Common Share (“TBVPS”): Growth in this measure, which excludes goodwill and intangible assets, is indicative of our underlying results and is a strong indicator of growth in shareholder value for a property and casualty insurer and reinsurer and a common financial performance measure for companies in our industry. As such, Arch Capital focuses the long-term component of its executive compensation program on building TBVPS over time.
Cumulative Annualized Growth in Book Value and Tangible Book Value per Common Share
 
1 Year

 
3 Year

 
5 Year

 
10 Year

 
17 Year

 
BVPS
6.0
%
 
10.7
%
 
10.3
%
 
14.2
%
 
14.9
%
 
TBVPS
6.6
%
 
8.5
%
 
8.8
%
 
13.6
%
 
14.4
%
 
Our growth in BVPS and TBVPS is aligned with the trading performance of our common stock (refer to “Common Share Performance” below).
Growth in Book Value and Tangible Book Value per Common Share
bvperchart13.jpg
* Annualized growth rate from December 31, 2001 to December 31, 2018.

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Return on Equity
Our ROE for 2018 was adversely impacted by catastrophe losses and continued compressed margins for many property casualty insurance and reinsurance products.  Over a longer term, our ROEs have been closer to our return objectives, but reflect the negative impact of historically low interest rates throughout most of the last 10 years, competitive market conditions in the property casualty industry and significant U.S. and global catastrophe losses in 2011, 2012, 2017 and 2018.
 
Average ROE
 
1 Year

 
3 Year

 
5 Year

 
10 Year

 
Net Income ROE
8.4
%
 
8.5
%
 
9.8
%
 
12.9
%
 
Operating ROE
10.7
%
 
8.3
%
 
9.2
%
 
10.3
%
 

Net Income ROE and Operating ROE
netandoperatingincomechart23.jpg

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Common Share Performance
The chart below summarizes Arch Capital’s cumulative total shareholder return, assuming reinvestment of dividends, from December 31, 2001 to December 31, 2018, compared with the S&P 500 Composite Stock Index (“S&P 500 Index”) and the S&P 500 Property and Casualty Insurance Index (“S&P 500 P&C Index”). During this 17-year period, the price of Arch Capital’s common stock appreciated at a compound
 
annual rate of 14.05%, compared with a compound annual rate of return of 6.84% for the S&P 500 Index and 7.46% for the S&P 500 P&C Index. The share price performance presented below is not necessarily indicative of future results.

Total Shareholder Return
totalshareholderreturn201903.jpg
At December 31, 2018, the closing price of our common shares was $26.72. Although the price of our common shares was down 11.7% in 2018, the performance has been strong over the longer term. For example, our common share price appreciated by 5.2% in 2017 and by 13.1% on a compound annualized basis over the past 10 years. While stock valuations tend to fluctuate based on market conditions, our primary metric of value creation is book value growth over time. In addition, at December 31, 2018,
 
our common share price represented approximately 124% of our year-end 2018 book value per common share, which remained healthy relative to our peers, when taking into account our business mix. For the property and casualty industry, price to book value is viewed as an important indicator of company performance by analysts and the investment community.

 
Executive Compensation Philosophy
We are a leading, Bermuda-based specialty insurer and reinsurer with a global presence. Our job as an insurer is to understand and price risk and in doing so to generate superior risk-adjusted returns from the insurance and reinsurance coverages we write. Accordingly, it is critical that we recruit, retain and motivate the best talent in the global marketplace. Over time and in light of our business strategy, we have sought to develop a compensation
 
philosophy that both supports and is consistent with our risk-management practices, and that helps to ensure that our compensation programs align our executives and employees with the long-term interests of our shareholders. Our compensation philosophy seeks to reinforce and reward long-term value creation by motivating our named executive officers through pay practices based substantially on the overall success of the

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Company. To achieve these goals, we have designed our executive compensation programs to retain and reward leaders who create long-term value for our shareholders. The combination of fixed and variable compensation is performance-based, and consists of short-term annual cash incentive bonuses and long-term incentive share-based awards, while the fixed component of the compensation is designed to reflect the significant levels of their experience, duties and scope of responsibility in leading the Company’s underwriting and operating activities.
While we consider a number of factors in our compensation programs, we are guided by four core principles.
Link Pay with Performance: The great majority of our pay for executives is at-risk and performance-based with metrics aligned to the Company’s short-term and long-term financial results and business strategy. Pay should have a clear connection to each executive’s individual contribution to increasing value for our shareholders.
 
Attract, Retain and Align: We maintain programs that will attract and retain critical talent, drive future growth and create strong shareholder alignment within our executive population.
Support Culture: We support the Arch Capital culture of teamwork, underwriting discipline and commitment to the highest ethical standards.
Provide Market Competitive Pay: For each executive position, we consider external market data at median values for base salary, annual target bonus levels and annualized long-term incentive target grants. Based upon the considerable range of unique facts and circumstances pertaining to our executive talent, we adjust opportunities as appropriate to take into consideration various factors such as consistent high performance and value delivery to the Company, retention, succession, successful tenure and other factors.
 
How We Make Compensation Decisions
Compensation Committee Process
The Compensation Committee reviews the performance of, and approves the compensation paid to, the chairman of the board, chief executive officer and the other named executive officers.
The chief executive officer assists in the reviews of the named executive officers other than himself and makes individual recommendations to the Compensation Committee on base salary, annual incentive and long-term share-based compensation. The Compensation Committee reviews, discusses, modifies and approves these compensation recommendations.
The Compensation Committee meets in executive sessions (without management present) as necessary, particularly when making determinations about base salary, annual incentive and long-term equity compensation, or administering any aspect of the compensation program for the chairman of the board and president and chief executive officer of Arch Capital. Determinations about compensation matters in respect of the chairman of the board, president and chief executive officer of Arch Capital, the chief financial officer of Arch Capital, the general counsel of Arch Capital Services Inc., and other senior executives designated by the Compensation Committee are subject to ratification by the Board.
 
To establish levels of base salary, annual incentives, long-term incentives and benefits, the Compensation Committee reviews extensive historical competition data, including detailed tally sheets, information compiled from annual reports on Form 10-K, proxy statements and other publicly available information for a representative sample of publicly-traded insurers and reinsurers that we believe compete directly with us for executive talent (the “Peer Group”). Many of these selected peers are of generally similar size and have generally similar numbers of employees, product offerings and geographic scope.
Risk Management and Compensation Policies
In line with the Company’s requirements for managing risks associated with the Company’s compensation programs, the Compensation Committee seeks to ensure our executive compensation program does not encourage executives to take excessive risks that are inconsistent with the long-term success of the Company. We emphasize long term results both in our short-term incentive program, which is tied to Company underwriting results over a 10-year development period, and in our long-term incentive program where a substantial component of compensation is performance-based and granted in the form of multi-year vesting share-based awards, which make stock price

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appreciation over an extended period of time fundamental in realizing a compensation benefit.
Our compensation philosophy and governance features are also complemented by several specific elements such as (i) a clawback policy, (ii) no hedging and (iii) share ownership guidelines and share holding requirements that are designed to align our compensation with long-term shareholder interests. See “Additional Compensation Policies and Practices” for further detail.
We believe our approach to evaluation of performance and the design of our compensation programs assist in mitigating excessive risk-taking that could harm our Company and have concluded that there is no excessive risk inherent in our programs.
Role of Compensation Consultant
Our Compensation Committee has sole authority to select, retain and terminate any consultants or advisors used to provide independent advice to the Compensation Committee and evaluate executive compensation, including sole authority to approve the fees and any other retention terms for any such consultant or advisor. The Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent executive compensation consultant to assist in establishing compensation policies and programs. During 2018, Meridian:
reviewed and advised the Compensation Committee on matters concerning compensation of the CEO and our other named executive officers;
reported on all aspects of short-term and long-term compensation program design, including incentive mix and our Peer Group;
reported on emerging trends and developments in executive compensation and corporate governance;
prepared formal presentations for the Compensation Committee regarding executive compensation;
reviewed compensation benchmarking analysis for each of the Company’s senior executives; and
reviewed and advised on director compensation.
Meridian did not provide any other services to the Company and no other fees were paid to Meridian except fees related to their services to the Compensation Committee. The Compensation Committee believes that Meridian is independent and no conflict of interest exists.
 
Selected Competitors
For purposes of making compensation decisions and for evaluating our financial performance relative to peers we used compensation and financial data derived from the Peer Group listed below. We periodically review the companies in our Peer Group with Meridian.
The table below describes the multi-step filtering exercise used to choose the Peer Group:
How the Peer Group Was Chosen
Step 1:

Industry Filters
Select industries relative to Arch Capital’s business operations.
Step 2:

Size Filters
Filter companies based on revenue and asset size.
Step 3:

Additional Subjective Filters
Review business descriptions and additional financial measures.
The table below describes the four primary functions for the Peer Group:
How We Use the Peer Group
Pay Comparisons
Determine competitive pay levels and identify differences from general industry market data.
 
Assess ability to attract, retain, engage and motivate top talent.
Compensation Structure
Provide benchmarks for compensation structure (pay mix, performance metrics, leverage, vehicles, etc.).
 
Use as a foundation or reference when making design changes to the compensation program.
Performance Comparisons
Determine performance relative to companies facing similar business challenges.
 
Input to setting incentive plan goals.
Financial Performance
Company performance is measured in absolute terms, as well as versus prior year results, and in relative terms in comparison with the performance of peer companies in our Peer Group on the same financial metrics.

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The Peer Group for 2018 was comprised of 22 competitors as follows:
2018 Peer Group
Alleghany Corporation
American Financial Group, Inc.
AmTrust Financial Services, Inc.*
Argo Group International Holdings, Ltd.
Aspen Insurance Holdings Limited
Assurant, Inc.
AXA XL*
AXIS Capital Holdings Limited
CNA Financial Corporation
Cincinnati Financial Corporation
Essent Group Ltd.
Everest Re Group, Ltd.
First American Financial Corporation
The Hanover Insurance Group, Inc.
The Hartford Financial Services Group
Markel Corporation
Old Republic International Corporation
Radian Group Inc.
RenaissanceRe Holdings Ltd.
Selective Insurance Group, Inc.
Validus Holdings, Ltd.*
W. R. Berkley Corporation

* These three companies that were included in our 2018 Peer Group were omitted for purposes of assessing our 2018 financial performance relative to the Peer Group because they were either acquired or no longer publicly-traded companies.

Shareholder Engagement and Results of Say-on-Pay Votes
At our 2017 annual meeting of shareholders, approximately 72.5% of the votes cast were in favor of the advisory vote to approve executive compensation. We wanted to improve these results and, during the latter half of 2017 and beginning of 2018, the members of our Compensation Committee, our lead director and members of senior management had discussions with institutional shareholders representing a significant number of our outstanding common shares. We took a critical look at our compensation program for our senior executives and, as a result, conducted a review of the programs and listened to feedback received from our institutional shareholders.
As a result of our comprehensive compensation review, we strengthened our pay-for-performance structure for the 2018 performance year to improve alignment between
 
executive compensation with achievement of pre-established financial metrics. The changes made in 2018 reflect (i) a commitment to enhanced pay-for-performance philosophy with incentive compensation more clearly linked to the financial performance achieved by each of our Reporting Segments (i.e., insurance, reinsurance and mortgage) and of our investment function; (ii) the expanded use of pre-defined metrics for the determination of annual incentive payments; and (iii) the introduction of performance criteria within our Long-Term Incentive Plan for our senior executives.
At our 2018 annual meeting of shareholders, 91.5% of the votes cast approved the Company’s executive compensation programs and the resulting compensation described in the 2018 Proxy Statement. Based on this high level of support, the Compensation Committee determined that shareholders support our compensation practices and will continue to work to ensure that our named executive officers’ interests are aligned with our shareholders’ interests to support long-term value creation.
In addition, we continue to reach out to our largest institutional shareholders and engage them in discussions regarding our executive compensation program. We remain committed to listening to feedback from shareholders when designing, reviewing and evaluating our compensation programs and policies.

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Elements of Compensation Program
We have three primary elements of total direct compensation for our executive compensation program: base salary, short-term annual cash incentive bonuses and long-term incentive share-based awards, all of which are described below. We also provide standard retirement and benefit plans and limited perquisites customarily provided to expatriates residing in Bermuda.
Base Salary
Base salary is fixed cash compensation and integral to any employment arrangement. Salary is reviewed annually and adjusted when appropriate. Increases are not automatic or guaranteed. Placement of our named executive officers within a salary range is based on market data for the individual’s position and geographic location as well as his experience, duties and scope of responsibility. From time to time, salaries may be adjusted to reflect promotions, increases in responsibilities and competitive considerations.
Short-Term Annual Cash Incentive Bonuses
For each executive participant, target bonus award levels are established, stated as a percentage of base salary. These levels are based on external market data at median values adjusted as appropriate, to take into consideration various factors such as consistent high performance and value delivery to the Company, retention and succession.
Award levels are designed to provide formulaic payouts to our senior executives and serve as a critical tool for rewarding the achievement of annual corporate and individual goals. Amounts are earned based on the attainment of quantitative and qualitative strategic accomplishments for the relevant year. The table below sets forth the established target bonus award levels for our named executive officers.
2018 Named Executive Officer Target Short-Term Incentive Bonus Opportunity
Name
Base Salary (12/31/2018)
Target (%)
Marc Grandisson1*
$1,000,000
165
%
François Morin2*
$600,000
125
%
Nicolas Papadopoulo
$750,000
135
%
Maamoun Rajeh
$650,000
135
%
Andrew T. Rippert
$700,000
135
%
Constantine Iordanou1*
$500,000
100
%
*
The 2018 bonus payments for Messrs. Grandisson, Morin and Iordanou are based on pro-rated salaries and/or targets for the time spent in their respective roles during 2018.
 
1
In connection with Mr. Grandisson assuming the role of CEO, his base salary was increased to $1.0 million from $900,000 and Mr. Iordanou’s base salary was adjusted to $500,000.
2
In connection with Mr. Morin’s promotion to CFO on May 25, 2018, his base salary and bonus target was increased to $600,000 and 125%, respectively. Prior to May 25, 2018, Mr. Morin’s base salary was $500,000 and his target was 110%, respectively.
Overview
At the beginning of each annual performance period, the Compensation Committee approves the financial performance metrics and reviews the strategic goals that will be considered when determining the ultimate amount of the performance-based annual incentive bonuses upon completion of the year, including establishing specific targets, thresholds and maximums for each specific performance criteria. The specific targets, thresholds and maximums related to the financial level of goal achievement required are set forth in the tables below. Performance below the threshold would result in no payout related to the financial metrics. For 2018, financial performance metrics were given a weighting of 70% and strategic metrics were given a weighting of 30%.
The financial metrics are measured based on the financial performance achieved by each of the Reporting Segments (i.e., Insurance, Reinsurance and Mortgage (collectively the “underwriting units”) and the investment unit) under our existing incentive compensation formula plans. Such plans typically base payouts on the achievement of ROE targets, reflecting the rate of return we earn on our capital and surplus, which supports our goal of growth in tangible book value per share and aligns our executives’ compensation with shareholder returns. At the beginning of each underwriting year, the ROE scale, which establishes the threshold, target and maximum levels, is approved by the Compensation Committee. The threshold and maximum levels have been a consistent percentage of the target level over time. These percentages as well as the 2018 underwriting year ROE scale are set forth in the table below.
Under the formula plans, for underwriting units, bonus payouts are determined based on the unit’s performance during the current calendar year across all open underwriting years (typically the last 10 years), evaluated against the applicable ROE scale and target developed for each such underwriting year and applied over its respective development period (again, typically 10 years). For the investment unit, bonus awards are derived from the unit’s performance as measured by our investment returns compared to the applicable benchmark index over the past one, three and five years.

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Strategic goals are designed to incentivize participants to achieve corporate objectives that cannot be measured by financial metrics and are approved by the Compensation Committee each year. Performance against strategic goals is evaluated during the first quarter of the following year. The strategic goals for each of our named executive officers for 2018 are discussed below under “2018 Compensation Decisions for Named Executive Officers.”
Performance Criteria
The following performance criteria and weights apply for corporate and unit executives.
Corporate executives are senior-level executives that have a broad set of responsibilities across the entire group and do not have specific underwriting unit profit and loss responsibilities. This group includes the chief executive officer and the chief financial officer.
 
Unit executives are senior-level executives with profit and loss responsibilities for a specific underwriting unit. In 2018, this group included Mr. Papadopoulo, Mr. Rajeh and Mr. Rippert.
Corporate executives’ 70% financial performance metric weighting is based on overall group performance, while the unit executives’ 70% financial metric weighting is based 50% on the results of the formula plan for the executive’s unit and 20% on overall group performance. For unit executives, a 20% weight on overall group financial performance is used to further incentivize them to support overall group objectives.
The chart below summarizes the performance criteria structure.

Performance Criteria
Measurement
Weights for Corporate Executives
Weights for
Unit
Executives
Range of Payout Percentages
Financial Metrics— Group Level

The incentive compensation payout level at the group level is based on each of the underwriting units’ incentive compensation formula plan multiples as described in “Overview” above.  In order to calculate a weighted average multiple reflective of the relative contribution of each underwriting unit to the group results, the payout levels for each unit are initially converted to an ROE-equivalent, which is inferred1 using the current underwriting year’s ROE scale. Secondly, a group-wide ROE supporting the incentive compensation formula plans is derived, using the unit-specific inferred ROEs, weighted by capital allocated (or deployed) to each underwriting unit. Thirdly, the relative performance of the group is calculated by comparing the group-wide ROE to the target level ROE for the current year.  Ultimately, this result is used in the pre-defined group-level payout scale to generate the incentive payout level under this category.


70
%
20
%
0–200%
Financial Metrics— Segment Level

The incentive compensation payout level for each unit executive measured under this category is equal to his respective unit’s incentive compensation formula plan multiple (total bonus payout dollars for the unit for the current year expressed as a percentage of the aggregate target bonus pool for the unit for the current year), as described in “Overview” above.



0
%
50
%
0–200%
Strategic Metrics2
Based on year-end performance evaluation.
30
%
30
%
0–250%
Total
 
100
%
100
%
0–200%
1
An ROE equivalent for a given unit is inferred by determining the ROE that would be required under the current underwriting year’s ROE scale to produce a payout multiple equal to the unit’s actual incentive compensation formula plan payout.
2
For the strategic criteria, payout percentages over 200% may only be used if the overall financial criteria payout percentage is 100% (i.e., target level of performance) or higher. The overall maximum bonus payment cannot exceed 200% of the target amount.

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2018 Underwriting Year ROE Scale/Financial Goals/Payout Scale—Applicable to All Executives
The table below shows the (i) 2018 underwriting year ROE scale and (ii) payout scale at the threshold, target and maximum levels for each level of financial goal achievement. Each year, in connection with setting the current year’s threshold, target and maximum ROE measures, the Compensation Committee reviews prevailing financial and economic conditions and uncertainties, the current interest rate environment and peer analysis. The Compensation Committee endeavors to set target ROE measures that are rigorous and responsive to the continued challenging environment in the insurance, reinsurance and mortgage industry and that deliver a pay-for-performance culture.
 
Threshold

Target

Maximum

ROE scale for 2018 underwriting year
5.87
%
11
%
16.87
%
Range of Payouts as % of Target - Financial Goals
Threshold

Target

Maximum

Payout as a % of Target1
20
%
100
%
200
%
Level of Goal Achievement Required: Financial—Corporate Executives
85
%
100
%
115
%
Level of Goal Achievement Required: Financial—Unit Executives
53
%
100
%
153
%
1
Payout for performance achievement between stated levels is interpolated on a straight-line basis.

The table below shows the payout percentages at each performance rating for strategic performance criteria:
Strategic Performance Rating
Payout Modifier1
Exceptional Achievements
250%
Exceeds Expectations
150%
Meets Expectations
100%
Needs Development
50%
Unsatisfactory
0%
1
For the strategic criteria, payout modifiers over 200% may only be used if the overall financial goals achieve the target level of performance or higher. Additionally, maximum payout as a percentage of target is capped at 200%.
See “2018 Compensation Decisions for Named Executive Officers” for details of annual short-term cash incentives paid to the named executive officers and discussion of the strategic goals.

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Long-Term Incentive Plan
Overview
The Company grants long-term equity-based incentive awards to link the compensation of our named executive officers directly to corporate performance over the long term and align the interests of executives to our shareholders. A majority of the economic value is granted in performance-based vehicles. The mix of such long-term awards is approximately (i) 80% performance-based, consisting of 55% performance shares and 25% stock options, and (ii) 20% time-based restricted shares. The performance shares are subject to both service-based conditions and performance-based vesting conditions and directly link pay with performance and create shareholder alignment. The stock options also align executives’ interests with those of shareholders and focus on driving stock price. Time-based restricted shares promote direct retention and shareholder alignment.
 


These awards make up a significant component of total direct compensation and we believe that the combination of awards supports our pay-for-performance philosophy by encouraging long-term performance and shareholder value creation.
Long-term incentive awards have historically been made annually in May of each year (February for years beginning in 2019). Grants of performance shares will be made annually, with three-year overlapping cycles. In addition, during the year, additional equity awards may be granted for critical retention situations, newly hired employees, special recognition and promotional reasons. The summary below describes the vesting conditions and other relevant data relating to the annual long-term equity program.
 
 
 
 
 
 
 
 
 
 
 
 
Performance Shares
55% of Economic Value
 
 
 
Stock Options
25% of Economic Value
 
 
 
Restricted Stock/Units
20% of Economic Value
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Period: 3-years.
Underlying Value: Denoted in shares of Arch Capital stock.
Metrics: Absolute Tangible Book Value per share growth over the 3-year performance period, with a 25% +/- TSR modifier, relative to the TSR of our Peer Group set forth within “How We Make Compensation Decisions—Selected Competitors.”
Opportunities: Pre-established threshold, target and maximum opportunities (e.g., 50%, 100%, 200%). Below threshold performance results in 0% shares earned.
Payout: Earned shares vest in March following the end of the performance period, with the number of vested shares dependent upon the level of goal achievement.
 
+
 
Vesting: 3-year ratable commencing on the first anniversary of the grant date.
Exercise Price: Equal to the closing share price on the grant date.
Life: 10-year maximum term.
 
+
 
Vesting: 3-year ratable commencing on the first anniversary of the grant date.
Underlying Value: Denoted in shares of Arch Capital stock.
Payout: In shares.
Dividends: Accrue and are paid out upon vesting.
 
The financial metric against which we measure Company performance used in grants of performance shares for our named executive officers is based on growth in tangible book value per share. We selected this metric because higher and more consistent tangible book value per share
 
growth over time is an indication of effective and prudent use of capital and is shown to deliver value over time. We also believe that performance in relation to our Peer Group is important in evaluating our long-term performance. Accordingly, we have incorporated a relative TSR modifier

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into the design for several reasons, most significantly its likely correlation to long-term growth in tangible book value per share and direct correlation with our shareholders’ returns over the performance period.
2018 Long-Term Incentive Awards
The Compensation Committee also endeavored to set rigorous goals for the performance share awards made in May 2018. These awards will payout at target if our tangible book value per share grows at an 11% annual rate over the three-year period. As noted above, the resulting vesting level is secondarily modified by the relative TSR modifier. Earned awards can increase by up to 25% if TSR is greater than or equal to the 65th percentile of the Peer Group, or decrease by up to 25% if TSR is less than or equal to the 35th percentile of the Peer Group. Awards are not modified if TSR performance is between the 35th and 65th percentiles. The maximum number of shares that can be earned is 200% of target.

The table below sets forth the threshold, target and maximum performance levels.
Level of Performance
Growth in TBVPS

Shares Earned as a % of Target

Threshold
6
%
50
%
Target
11
%
100
%
Maximum
16
%
200
%
The Compensation Committee sets award targets for long-term incentive compensation for our named executive officers (exclusive of the chairman of the board role) based, in part, on Peer Group analysis and extensive review of competitive benchmarking data. For 2018, the targeted and actual values of the awards, stated as a percentage of base salary are summarized in the table below.
Name
2018
Target (%)

2018
Actual (%)1

Marc Grandisson
450
%
405
%
François Morin2
175
%
158
%
Nicolas Papadopoulo
200
%
180
%
Maamoun Rajeh
200
%
180
%
Andrew T. Rippert
200
%
180
%
1
For 2018, the Compensation Committee adjusted the amount received to 90% of the approved target values reflecting the reduced value of our common share price at the time of grant and to recognize that 2018 was a transition period in the implementation of the long-term incentive compensation targets.
2
Effective January 1, 2019, the Compensation Committee increased Mr. Morin’s long-term incentive target to 200% to reflect his additional responsibilities related to the oversight of the Company’s investment unit.
 
Other Long-Term Incentive Awards
On April 9, 2018 the Compensation Committee approved a  retention grant for Mr. Grandisson in connection with his promotion to CEO of Arch Capital, which will further align his interests with those of shareholders.  The award was in the form of options to purchase 616,284 shares, with an approximate Black-Scholes value of $4.5 million. The stock options vest in three equal annual installments commencing on the first  anniversary of the grant date. The exercise price of $26.79 per share was equal to the fair market value per share on the date of grant. This at-risk compensation will require share price appreciation over an extended period of time in order for Mr. Grandisson to realize any compensation benefit from this award.

In connection with the promotion of Mr. Morin to Executive Vice President, Chief Financial Officer and Treasurer of the Company, on July 24, 2018, he was awarded share-based awards valued at approximately $900,000 in the aggregate, consisting of 55% performance shares, 25% stock options and 20% restricted shares. The performance shares are structured as described above, i.e., with vesting based on growth in tangible book value per share over a three-year performance period with a relative TSR modifier, while the stock options and restricted shares vest in three equal annual installments commencing on the first anniversary of the grant date.
Status of Annual Performance Share Programs
Performance shares that were granted in 2018 have a performance period of January 1, 2018 through December 31, 2020. Absolute growth in tangible book value per common share over the remaining years of the performance period (and relative TSR performance) will determine the number of shares earned, if any. Results will be determined on March 10, 2021 including applying the relative shareholder return modifier.

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2018 Compensation Decisions for Named Executive Officers
 Chief Executive Officer
 
 
Marc Grandisson
President and Chief Executive Officer
 
 
Strategic Goals
 
 
 
Under Mr. Grandisson’s leadership, the company continued to deliver strong operational and financial results as highlighted in the “2018 Performance at a Glance” section. The Compensation Committee took into account the Company’s profitability achieved under his guidance, the Company’s continued strong performance in relation to its Peer Group and the Company’s overall focus on underwriting discipline and its disciplined approach to investments and capital management. The Compensation Committee also reviewed Mr. Grandisson’s oversight of key operational strategic matters such as predictive analytics, strategic M&A initiatives and risk management as well as the launch of a multi-year initiative to upgrade and refresh core processes and systems that will generate productivity, efficiency and consumer centric solutions.

Compensation Decisions
 
 
  Base Salary
Effective March 3, 2018, when Mr. Grandisson assumed the role of President and Chief Executive Officer of Arch Capital, his base salary was increased to $1,000,000 from $900,000 to reflect his additional responsibilities.
Short-Term Cash Incentive (“STI”)
The group financial performance metrics represent the weighted average results under the plan formula for the insurance, reinsurance, mortgage and investment units determined for 2018. The level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The Compensation Committee reviewed Mr. Grandisson’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 175% on the portion of his bonus that was based on strategic performance.
 
2018 STI Metric
Payout Factor
x Weighting
= Adjusted Weighting
x Target Bonus
= Bonus Payout
 
Financial Performance—Group
200%
70%
140%
$1,621,068
$2,270,000
 
Strategic Performance
175%
30%
52.5%
851,000

 
TOTAL

100%
192.5%
 
$3,121,000
 
 
Long-Term Incentive
On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. In addition, as discussed in “Elements of Compensation Program—2018 Long-Term Incentive Awards—Other Long-Term Incentive Awards,” the Compensation Committee approved a retention award on April 9, 2018 for Mr. Grandisson in connection with his promotion to CEO of Arch Capital.
 
 
Performance Shares
Stock Options
Time-Based Restricted Shares

 
 
Grant
Date
Number of Shares
Value1
Number of Shares
Value1
Number of Shares
Value1
Total
 
May 11, 2018
82,449
$2,227,500
133,821
$1,012,500
29,982
$810,000
$4,050,000
 
April 9, 2018
 
 
616,284
$4,499,983
 
 
$4,499,983
 
 
 
 
 
 
 
 
 
 1    The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares.


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 Chief Financial Officer
 
 
François Morin
Executive Vice President, Chief Financial Officer and Treasurer
 
 
Strategic Goals
 
 
 
Mr. Morin has transitioned seamlessly to the Group CFO and Treasurer position since May 2018. The Compensation Committee took into account the strong contribution of Mr. Morin to strategic initiatives such as developing our plan to transform group-wide financial reporting, risk management and treasury operations. Mr. Morin worked towards getting confirmation of agency ratings at satisfactory levels affirmed with a stable outlook. The strategic metrics considered for Mr. Morin’s performance evaluation also include the efficient use of assets to fund M&A initiatives and his continued focus on developing and retaining key talent for his previous role.


Compensation Decisions
 
 
  Base Salary
Effective May 25, 2018, Mr. Morin’s base salary was increased to $600,000 from $500,000 to reflect his additional responsibilities in connection with his promotion to Executive Vice President and Chief Financial Officer of Arch Capital. Effective January 1, 2019, Mr. Morin’s base salary and target were increased to $625,000 and 135%, respectively, to reflect his additional responsibilities related to his oversight of the Company’s investment unit.
Short-Term Cash Incentive
The group financial performance metrics represent the weighted average results under the plan formula for the insurance, reinsurance, mortgage and investment units determined for 2018. The level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The Compensation Committee reviewed Mr. Morin’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 175% on the portion of his bonus that was based on strategic performance.
 
2018 STI Metric
Payout Factor
x Weighting
= Adjusted Weighting
x Target Bonus
= Bonus Payout
 
Financial Performance—Group
200%
70%
140%
$679,863
$952,000
 
Strategic Performance
175%
30%
52.5%
357,000

 
TOTAL
 
100%
192.5%
 

$1,309,000

 
 
 
 
 
 
 
 
 
Long-Term Incentive
On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned. In addition, as discussed in “Elements of Compensation Program—2018 Long-Term Incentive Awards—Other Long-Term Incentive Awards,” the Compensation Committee approved a special award on July 24, 2018 for Mr. Morin in connection with his promotion to CFO of Arch Capital.
 
 
Performance Shares
Stock Options
Time-Based Restricted Shares
Total
 
Grant
Date
Number of Shares
Value1
Number of Shares
Value1
Number of Shares
Value1
Total
 
May 11, 2018
19,239


$519,774

31,224


$236,242

6,996

$189,009

$945,025

 
July 24, 2018
16,993


$495,006

27,534


$224,994

6,179

$179,994

$899,994

 
 
 
 
 
 
 
 
 
1    The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares. In addition, the value of the performance shares in the summary above for the July 24, 2018 award are shown at target based on the closing price of our common shares on the date of grant.



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Insurance Unit Executive
 
 
Nicolas Papadopoulo
Chairman and CEO of Arch Worldwide Insurance Group and Chief Underwriting Officer for Property and Casualty Operations
Strategic Goals
 
Mr. Papadopoulo’s effective oversight of the insurance group during the year brought structure and discipline in our operations reducing our combined ratio and improving the insurance segment ROE. The Compensation Committee also took into account Mr. Papadopoulo’s role in strategic initiatives, including insurance segment acquisitions that solidified our portfolio and distribution in the U.S., as well as accelerated our U.K. retail portfolio growth. Under his leadership, the segment designed and implemented a de-risking strategy that is intended to provide certainty in areas that have had propensity to adverse development and he developed the “Voice of Customer” platform that creates a common customer-centric brand and attitude across the organization.

Compensation Decisions
  Base Salary
Mr. Papadopoulo did not receive a salary adjustment in 2018.

Short-Term Cash Incentive
The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the group financial goal portion of bonuses. The level of goal achievement during 2018 under the formula plan for the open underwriting years under the insurance segment was 99%, which resulted in a payout factor of 99% of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Papadopoulo’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 250% on the portion of his bonus that was based on strategic performance.

 
2018 STI Metric
Payout Factor
x Weighting
= Adjusted Weighting
x Target Bonus
= Bonus Payout
 
Financial Performance—Group
200%
20%
40%
$1,012,500
$405,000
 
Financial Performance—Segment
99%
50%
49.5%
502,000

 
Strategic Performance
250%
30%
75%
759,000

 
TOTAL

100%
164.5%
 
$1,666,000
 
 
 
 
Long-Term Incentive
On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned.
 
 
Performance Shares
Stock Options
Time-Based Restricted Shares
Total
 
Grant
Date
Number of Shares
Value1
Number of Shares
Value1
Number of Shares
Value1
Total
 
May 11, 2018
27,483
$742,499
44,607
$337,498
9,993
$269,978
$1,349,975
 
 
 
 
 
 
 
 
 
 1    The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares.


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Reinsurance Unit Executive
 
 
Maamoun Rajeh
Chairman and Chief Executive Officer of Arch Worldwide Reinsurance Group
 
 
Strategic Goals
 
 
 
Mr. Rajeh’s oversight of the reinsurance group during the year led it to deliver strong performance when compared with our Peer Group. The Compensation Committee reviewed the profitability of the reinsurance group, including the group’s effectiveness in managing the underwriting cycle and catastrophic loss management. The Compensation Committee also took into account Mr. Rajeh’s role in strategic initiatives, including development of the group’s platform in Europe, the implementation of a motor center of excellence, raising the profile of predictive analytics and identifying fertile ground for implementing predictive analytics.


Compensation Decisions
 
 
 Base Salary
Mr. Rajeh did not receive a salary adjustment in 2018.

Short-Term Cash Incentive
The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the group financial goal portion of bonuses. The level of goal achievement during 2018 under the formula plan for the open underwriting years under the reinsurance segment was 101%, which resulted in a payout factor of 101%1of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Rajeh’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 150% on the portion of his bonus that was based on strategic performance.
 
2018 STI Metric
Payout Factor
x Weighting
= Adjusted Weighting
x Target Bonus
= Bonus Payout
 
Financial Performance—Group
200%
20%
40.0%
$877,500
$351,000
 
Financial Performance—Segment1
65%
50%
32.5%
285,000

 
Strategic Performance
150%
30%
45.0%
395,000

 
TOTAL

100%
117.5%
 
$1,031,000
 
1 The payout factor was adjusted for amounts calculated under the reinsurance segment’s formulaic plan attributable to performance for prior underwriting years.
 
Mr. Rajeh also received an additional bonus amount of $474,000 calculated under the reinsurance segment’s formulaic plan for prior underwriting years.
Long-Term Incentive
On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned.
 
 
Performance Shares
Stock Options
Time-Based Restricted Shares
Total
 
Grant
Date
Number of Shares
Value1
Number of Shares
Value1
Number of Shares
Value1
Total
 
May 11, 2018
23,820
$643,537
38,661
$292,510
8,661
$233,991
$1,170,038
 
 
 
 
 
 
 
 
 
 1    The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares.



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Mortgage Unit Executive
 
 
Andrew Rippert
Chief Executive Officer of the Global Mortgage Group until February 2019
Strategic Goals
 
 
 
The Mortgage segment, under Mr. Rippert’s leadership, continued to strengthen the Company’s financial performance in relation to its Peer Group and maintained high ROE despite competitive pressures. In addition, Mr. Rippert introduced new products and services that generated meaningful fee based income with the potential for future growth. The Compensation Committee considered his oversight of strategic initiatives such as risk management, including the programmatic use of the capital markets through the Bellemeade transactions. Finally, the Compensation Committee took into account Mr. Rippert’s role in obtaining approval for our Australian-based mortgage operations.

Compensation Decisions
 
 
  Base Salary
Effective January 1, 2018, Mr. Rippert’s base salary was increased to $700,000 from $650,000. 
Short-Term Cash Incentive
The group level of goal achievement during 2018 for the open underwriting years was 126%, which resulted in a payout factor of 200% of target for the financial goal portion of bonuses. The level of goal achievement during 2018 for the open underwriting years under the formula plan for the mortgage segment was 132%, which resulted in a payout factor of 160%1 of target for the segment financial goal portion of bonuses. The Compensation Committee reviewed Mr. Rippert’s performance against the stated strategic metrics established, which resulted in a performance multiplier of 150% on the portion of his bonus that was based on strategic performance.

 
2018 STI Metric
Payout Factor
x Weighting
= Adjusted Weighting
x Target Bonus
= Bonus Payout
 
Financial Performance—Group
200%
20%
40%
$945,000
$378,000
 
Financial Performance—Segment1
120%
50%
60%
567,000

 
Strategic Performance
150%
30%
45%
425,250

 
TOTAL
 
 

100%
145%
 
$1,370,250
 
1 The payout factor was adjusted for amounts calculated under the mortgage segment’s formulaic plan attributable to performance for prior underwriting years.
 
Mr. Rippert also received an additional bonus amount of $346,000 calculated under the mortgage segment’s formulaic plan for prior underwriting years.
Long-Term Incentive
On May 11, 2018, the Compensation Committee approved the annual award summarized in the table below. The performance shares are reflected at target, since performance will be measured over the forward looking three-year period, which will ultimately determine the number of shares earned.
 
 
Performance Shares
Stock Options
Time-Based Restricted Shares
Total
 
Grant
Date
Number of Shares
Value1
Number of Shares
Value1
Number of Shares
Value1
Total
 
May 11, 2018
25,650
$692,978
41,634
$315,004
9,327
$251,984
$1,259,966
 
 
 
 
 
 
 
 
 
 1    The total long-term incentive value provided in the summary above for the May 11, 2018 awards differs from the grant date fair value reported in the 2018 Summary Compensation and 2018 Grants of Plan-Based Awards Tables. The values in the summary above were based on an estimated share price ahead of the grant date. The values in the Summary Compensation and Grants of Plan-Based Awards Tables were determined at the grant date and, in the case of the performance shares, based on a Monte Carlo Simulation methodology instead of the target amount shown in the summary above. In both cases the stock options are valued based on the Black-Scholes option pricing methodology and restricted shares are valued based on the closing price of our common shares.


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Other Named Executive Officers
Constantine Iordanou
Chairman of the Board
Strategic Goals
 
In 2018, Mr. Iordanou served as Chairman of the Board and Chief Executive Officer of ACGL through March 2, 2018. He continued as Chairman of the Board when Mr. Grandisson became Chief Executive Officer on March 3, 2018. As Chairman, Mr. Iordanou continued to work toward ensuring a successful transition.
Compensation Decisions
  Base Salary
Effective March 3, 2018, when Mr. Iordanou continued as Chairman of the Board, his base salary was adjusted to $500,000.
Short-Term Cash Incentive
Mr. Iordanou received an annual bonus of $500,000. Mr. Iordanou elected to receive all of his annual bonus in the form of stock options under the Company’s existing election program, which resulted in an award, on March 15, 2019, of 63,956 stock options.
Long-Term Incentive
Mr. Iordanou received a long-term incentive grant for 2018 performance on May 9, 2018 valued at $805,441 consisting of restricted common shares and stock options. The award was pro-rated to reflect his time as CEO of Arch and vests in annual installments over a two-year period.
 
 
 
 
 
Additional Compensation Policies and Practices
Arch Capital’s compensation philosophy and related governance features are also complemented by several specific elements that are designed to align our compensation with long-term shareholder interests. These elements include the following:
Clawback Policy
The Company has a clawback policy covering all executive officers, including the chief executive officer. This policy provides that, in the event the Company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, the Compensation Committee will review all incentive-based compensation that was paid to current or former executive officers during the three-year period preceding the required restatement. If any such incentive-based compensation would have been lower as a result of the restated financial results, the Compensation Committee will require the reimbursement of the incremental portion of the incentive-based compensation in excess of the compensation that would have been paid based on the restated financial results (to the extent permitted by applicable law). This policy will be interpreted in accordance with the applicable rules of NASDAQ (or other securities exchange on which our common shares are listed from time to time).

 
No Excise Tax Gross-Ups
The Company does not provide excise tax gross-up payments to any of its executives in connection with change in control payments.
No Tax Gross-Ups
The Company does not include tax gross-up provisions in employment agreements and does not provide tax gross-ups to our named executive officers.
Share Ownership Guidelines
In an effort to further align the interests of the senior management team with the interests of shareholders, the Company has share ownership guidelines that require these executives to maintain designated levels of ownership of the common shares of Arch Capital. Specifically, these guidelines require common share ownership levels as follows: (1) chief executive officer of Arch Capital—six times base salary; (2) named executive officers and other executives who file reports under Section 16 of the Exchange Act and certain other members of senior management designated from time to time—four times base salary; and (3) other designated members of senior operating management—three times base salary. Each executive has five years to comply with the guidelines, and

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stock options, SARs and unvested restricted shares/units do not count toward the requirement. See also “Director Compensation—Matters Relating to Director Share Ownership” for a description of share ownership guidelines that require our non-employee directors to maintain designated levels of ownership of common shares of Arch Capital.
Share Holding Requirements for Executives
To ensure each of our senior executives meets our share ownership guidelines, the Company requires each senior executive retain 50% of the net profit shares received from Company equity awards until the executive meets target ownership levels. Net profit shares are the shares remaining after payment of the exercise price of an option and taxes owed on exercise of options or SARs, vesting of restricted stock or vesting and payout under restricted stock units and performance shares. See also “Director Compensation—Matters Relating to Director Share Ownership” for a description of share retention guidelines that require our non-employee directors to maintain designated levels of ownership of common shares of Arch Capital.
No Hedging Permitted
As part of our Code of Business Conduct, our officers, directors and other employees are not permitted to engage in hedging activities with respect to Arch Capital’s common stock or any other publicly-traded equity or debt securities issued by Arch Capital or any of its subsidiaries. Specifically, they may not engage in short sales, purchase or sale of financial instruments or derivatives, including puts and calls, that hedge or offset any change in the market value of such securities. In addition, our officers, directors and other employees may not otherwise engage in transactions that are designed to, or have, the same effect.
Limits on Pledging
Our Code of Business Conduct discourages the pledging of our common shares as collateral for loans and includes limitations.
In no event may any executive officer or director of the Company pledge an amount of common shares that exceeds the lesser of 30% of the common shares beneficially owned by the individual (as reported or would be reported in our Proxy Statement) or 0.5% of the then outstanding common shares of Arch Capital; and
any securities pledged would not count toward satisfying any required ownership level of securities under relevant share retention guidelines.
 
Double-Trigger Change in Control Provision
The equity-based compensation award agreements for the named executive officers provide that, in the event the officer’s employment is terminated by the Company other than for cause, or by the officer for good reason, within two years following the consummation of a change in control in which the awards are assumed by the acquirer, unvested awards would immediately vest, and the options and SARs would have a remaining term of 90 days from termination.
Options and SARs
Our plans do not permit granting of stock options or SARs at an exercise price below the closing price on the grant date and also do not allow for repricing or reducing the exercise price of a stock option or SAR. We also do not allow out-of-the-money options or SARs to be exchanged for cash or other property.
Procedures Regarding Share-Based Compensation
The Compensation Committee, or a subcommittee comprised of at least two of its members, approves all grants of share-based compensation to the named executive officers and other executives who file Section 16 reports with the SEC, and these awards have generally also been approved by the full Board.
The grant date for annual grants of share-based compensation is determined on the dates of regularly scheduled meetings of the full Board to provide assurance that grant timing is not being manipulated for employee gain. Generally, awards are granted to the named executive officers as part of the annual process, which encompassed 752 employees worldwide for awards granted in 2018. We may grant a small percentage of awards at other times throughout the year on the date of regularly scheduled meetings of the Compensation Committee or the full Board in connection with hiring or the promotion of an executive or special retention circumstances. In the case of new hires, the awards have grant dates corresponding to the date the employment commences for the new hire.
Retirement and Benefit Plans
Our named executive officers participate in retirement and benefit plans provided to other employees. The benefit plans include medical coverage and life and disability insurance. Our health and welfare plans help ensure that the Company has a productive and focused workforce through reliable and competitive healthcare and other benefits. Defined contribution retirement plans are provided for all employees according to local market practice. Retirement plans help employees save and prepare for retirement.

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In addition, the Company maintains an Executive Supplemental Non-Qualified Savings and Retirement Plan covering our U.S.-based senior executives which is described under “2018 Non-Qualified Deferred Compensation.” Our named executive officers are Bermuda-based and not permitted to participate in the non-qualified defined contribution retirement plan. In lieu of pension and matching contributions through the non-qualified plan, we have provided comparable benefits in the form of current cash payments, which are included in the “2018 Summary Compensation Table” in the “All Other Compensation” column.
 
Other Personal Benefits
The Company provides our named executive officers with perquisites and other benefits that the Company and Compensation Committee believe are reasonable and consistent with market practice in Bermuda to better enable the Company to attract and retain key employees. Such amounts have been included in the “2018 Summary Compensation Table” in the “All Other Compensation” column.
 
Tax Considerations
Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986m as amended (the “Code”) generally limits the deductible amount of annual compensation paid to a “covered employee” (i.e., the chief executive officer, chief financial officer and certain other current or former executive officers) to no more than $1,000,000 each. Since Arch Capital will not generally be subject to United States income tax, the limitation on deductibility will not directly apply to it. However, the limitation would apply to a United States subsidiary of Arch Capital if it employs a covered employee. The Compensation Committee believes that its primary responsibility is to provide a compensation program that will attract, retain and reward the executive talent necessary to our success. Consequently, the Compensation Committee recognizes that the loss of a tax deduction could be necessary or advisable in some circumstances due to the restrictions of Section 162(m).
Sections 409A and 457A
Section 409A of the Code, which governs deferred compensation arrangements, generally provides that distributions of deferred compensation to our senior officers as a consequence of termination of employment
 
may not be made sooner than six months after termination and governs the timing of elections and distributions of deferred compensation. In addition, Section 457A of the Code generally prohibits U.S. taxpayers from deferring U.S. income tax on compensation attributable to services performed after December 31, 2008 for certain Bermuda-based employers. As a result, for periods on or after January 1, 2009, certain employees of Arch Capital, including our named executive officers, are no longer permitted to participate in the non-qualified defined contribution retirement plan. In lieu of pension and matching contributions previously provided to these former participants through the non-qualified plan, we provide comparable benefits to these participants in the form of current cash payments subject to taxation. In addition, in light of Section 457A, and in an effort to maintain comparable benefits for all employees, the Company has provided certain of its Bermuda-based employees who are U.S. taxpayers with the opportunity to receive a portion of their annual incentive bonus in the form of stock options or restricted shares. There are no matching or additional Company contributions associated with this election and, as a result, the Company will not incur any additional expense by providing this benefit.
 
 
 
 
 
Report of the Compensation Committee on the Compensation Discussion and Analysis
The Compensation Committee reviewed and discussed the “Compensation Discussion and Analysis” section included in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” section be included in the 2018 Annual Report and this Proxy Statement for filing with the SEC.
 
 
 
 
 
COMPENSATION COMMITTEE
Eugene S. Sunshine (Chairman)
John L. Bunce, Jr.
Louis J. Paglia
John M. Pasquesi



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Compensation Committee Interlocks and Insider Participation
During 2018, the Compensation Committee consisted of Eugene S. Sunshine (chairman), John L. Bunce, Jr., Louis J. Paglia and John M. Pasquesi.
From time to time, in the ordinary course of our business, we may enter into transactions, including insurance and reinsurance transactions and brokerage or other arrangements for the production of business, with entities in which companies or funds affiliated with directors of Arch Capital may have an ownership or other interest.
Certain of our directors and executive officers acquired shares of Watford at the time of its launch in March 2014 at the same price per share paid by other investors. We own common and preferred interests in Watford and have the right to designate two members of Watford’s board of directors. We consolidate Watford’s financial results under applicable accounting principles. See “Ownership of Watford Holdings Ltd. Shares” in this Proxy Statement and notes 11, “Variable Interest Entity and Noncontrolling Interests,” and 4, “Segment Information,” of the notes accompanying our consolidated financial statements included in our 2018 Annual Report (as defined below) for more information about Watford.
During 2015, a subsidiary of Arch Capital, Arch Reinsurance Company (“Arch Re U.S.”), invested $8 million for an approximately 19% equity interest in Sojourner Holding Company LLC, which through its subsidiary Spinnaker Insurance Company (“Spinnaker”), conducts a property-
 
focused program business. In connection with its investment, the Company has the right to appoint one member of Sojourner’s board of managers, and also has a right of first refusal to provide, on market terms, a specified percentage of certain reinsurance purchased by Spinnaker. At the same time, Otter Capital Partners LP (“OCP”) invested $10 million on the same economic terms for an approximately 24% equity interest in Sojourner. The general partner of OCP is Otter Capital LLC and John M. Pasquesi, one of Arch Capital’s directors, serves as the sole member. Otter Capital also has the right to appoint one member of Sojourner’s board of managers. We have a right of first refusal on certain of the business of Spinnaker, and, from time to time, may enter into reinsurance transactions with Spinnaker in the ordinary course of business. Arch Re U.S. entered into a quota share agreement with Spinnaker covering property risks which renewed in 2018 at a 30% share and generated net premiums written and earned of $3.4 million and $1.8 million, respectively, for 2018. Arch Re U.S. also entered into property catastrophe excess of loss agreements with Spinnaker which renewed in 2018 and generated net premiums written and earned of $1.0 million and $.8 million, respectively, for 2018. Additionally, in November 2016, Arch Re Bermuda entered into a quota share agreement with Spinnaker covering property business, with a 40% share. For the 2018 year, there was no business written through the quota share agreement between Spinnaker and Arch Re Bermuda.
 


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Executive Compensation Tables
The following tables, narrative and footnotes discuss the compensation of the (i) chief executive officer, (ii) chief financial officer, (iii) the three other most highly compensated executive officers during 2018, (iv) the chairman of the board, who also served as chief executive officer through March 2, 2018, and (v) Mark D. Lyons, who was the Chief Financial Officer through May 25, 2018. These individuals are referred to as the named executive officers.
2018 Summary Compensation Table
Name and Principal Position
Year
Salary
($) (1)

Annual Bonus
($)

 
Stock
Awards
($)(2)

Option
Awards
($)(3),(6)

Non-Equity
Incentive Plan
Compensation
($) (4)

All Other
Compensation
($)(5)

Total
($)

Marc Grandisson(6)
2018
982,576




2,828,662

5,500,589

3,121,000

451,360

12,884,187

President, Chief Executive Officer and Class III Director of Arch Capital
2017
900,000

3,000,000



2,233,232

572,270


426,243

7,131,745

2016
900,000

3,700,000

(7
)
832,437

202,748


416,167

6,051,352

François Morin(8)
2018
563,406




1,299,874

458,462

1,309,000

271,642

3,902,384

Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital


































Nicolas Papadopoulo
2018
750,000




942,861

333,535

1,666,000

392,117