def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Definitive Proxy Statement |
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Soliciting Material Pursuant to Section 240.14a-12 |
CNA Surety Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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CNA
SURETY CORPORATION
333 S. Wabash Ave., 41st
Floor
Chicago, Illinois 60604
(312) 822-5000
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
On April 29,
2010
To: The Shareholders of CNA Surety Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
of CNA Surety Corporation (the Company) will be held
at the Companys business offices located at
333 S. Wabash Ave., 41st Floor, Chicago, Illinois
60604, on Thursday, April 29, 2010, at
9:00 A.M. CDT, for the following purposes:
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1.
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To elect seven directors;
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To ratify the appointment of the Companys independent
registered public accounting firm, Deloitte & Touche
LLP, for fiscal year 2010; and
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To transact such other business as may properly come before the
meeting or any adjournment thereof.
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Shareholders of record at the close of business on March 9,
2010 are entitled to notice of and to vote at the Companys
Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
Rosemary Quinn
Senior Vice President, General Counsel and Secretary
March 15, 2010
Chicago, Illinois
IMPORTANT:
PLEASE VOTE AS PROMPTLY AS POSSIBLE BY USING THE INTERNET,
TELEPHONE, OR SIGNING, DATING AND RETURNING THE PROXY CARD
INCLUDED WITH THIS NOTICE.
Important Notice Regarding the Availability of Proxy
Materials for the Shareholder Meeting to be held on
April 29, 2010. The Proxy Statement and the 2009 Annual
Report to Shareholders are available at
http://www.cnasurety.com/about/investor_information.htm.
CNA
Surety Corporation
333 S. Wabash Ave., 41st
Floor
Chicago, Illinois 60604
(312) 822-5000
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being mailed or otherwise provided to
you on or about March 15, 2010 in connection with the
solicitation by our Board of Directors of proxies to be voted at
our Annual Meeting of Shareholders (the Annual
Meeting) which will be held on Thursday, April 29,
2010 at our business offices located at 333 S. Wabash
Ave., 41st Floor, Chicago, Illinois 60604, at
9:00 A.M. CDT. Please note that throughout this Proxy
Statement we refer to CNA Surety Corporation as the
Company, we, us, and
our.
MATTERS
TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareholders of the Company will consider
and vote upon:
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(i)
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The election of seven directors to serve one-year terms;
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(ii)
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The ratification of the appointment of the Companys
independent registered public accounting firm,
Deloitte & Touche LLP, for fiscal year 2010; and
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(iii)
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The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
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The date of this Proxy Statement is March 15, 2010.
VOTING
SECURITIES AND PROXIES
Only shareholders of record at the close of business on
March 9, 2010 (the Record Date), have the right
to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. As of the Record Date,
45,642,685 shares of the Companys Common Stock
(Common Stock) were issued and outstanding. Each
outstanding share is entitled to one vote upon each matter to be
voted upon at the Annual Meeting. The shareholders of a majority
of the Companys Common Stock, present in person or
represented by proxy, shall constitute a quorum at the Annual
Meeting.
Our By-Laws provide that the affirmative vote of shares
representing a majority of our Common Stock present and entitled
to vote is required to approve any proposal to be voted on at
this Annual Meeting. Abstentions and broker non-votes are
counted as present for purposes of determining the presence or
absence of a quorum for the transaction of business. However,
shares that are voted to abstain with respect to any matter and
broker non-votes will not be counted and will have no effect on
the outcome of the voting for any matters to be considered at
the Annual Meeting. If a quorum is not present, the Annual
Meeting will reconvene at such time as a quorum is present or
represented without notice to shareholders, other than an
announcement at the prior adjournment of the Annual Meeting,
unless the adjournment is for more than thirty (30) days or
a new record date has been set.
All properly executed proxies received by us prior to the Annual
Meeting will be voted at the meeting. You may revoke your proxy
at any time before it is exercised at the Annual Meeting by
granting a proxy bearing a later date that is duly received by
the Company or by voting in person. The mere presence at the
Annual Meeting of a shareholder who appointed a proxy does not
itself revoke the appointment. If a proxy is duly executed and
returned, the shares of the Companys Common Stock
represented thereby will be voted in accordance with the
specifications made thereon by the shareholder. If no such
specifications are made, such proxy will be voted in accordance
with the
Board of Directors recommendations. Whether or not you
plan to attend the meeting, you may submit a proxy to vote your
shares by internet, telephone, or mail as described below:
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Internet: To submit your proxy by the
internet, go to www.proxyvote.com. You will need to have
your proxy card to obtain the information required to vote. You
have until 11:59 P.M. Eastern Time on April 28, 2010
to transmit your voting instructions by the internet.
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Telephone: To submit your proxy by telephone,
you should dial
(800) 690-6903
and follow the instructions. You may use any touch-tone
telephone to transmit your voting instructions up until
11:59 P.M. Eastern Time on April 28, 2010. You will
need to have your proxy card to obtain the information required
to vote by telephone.
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Mail: You may submit your proxy by signing,
dating, and completing the proxy card provided and returning it
by mail in the enclosed self-addressed, postage-paid envelope or
returning it to Vote Processing,
c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
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ELECTION
OF DIRECTORS
(PROPOSAL 1)
Our Board of Directors has fixed the number of directors
constituting the full Board at seven. Accordingly, at the Annual
Meeting seven directors will be elected to serve one-year terms
commencing immediately upon their election, or to serve until
their respective successors are duly elected and qualified. The
nominees are as follows:
Philip H. Britt
Anthony S. Cleberg
David B. Edelson
D. Craig Mense
Robert A. Tinstman
John F. Welch
Peter W. Wilson
All of the nominees are currently serving as directors of the
Company. For information regarding each nominee, see the
Directors and Executive Officers of the Registrant
section of this Proxy Statement.
At the Annual Meeting, if a quorum is present, the vote of
holders of a majority of the Companys Common Stock having
the power to vote in person or represented by proxy shall elect
the directors. It is the present intention of John F. Corcoran
and Rosemary Quinn, who will serve as the Companys proxy
agents at the Annual Meeting (the Proxy Agents), to
vote the proxies which have been duly executed, dated, and
delivered and which have not been revoked in accordance with the
instructions set forth thereon or if no instruction had been
given or indicated, for the election of the nominees named
above. Our Board has no reason to believe that any of the
nominees will be unwilling or unable to serve as a director.
However, if prior to the election of directors any of the
nominees named above becomes unavailable or unable to serve, the
Board reserves the right to name a substitute nominee or
nominees, and the Proxy Agents expect to vote the proxies for
the election of such substituted nominee or nominees.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE NOMINEES. IF A
CHOICE IS SPECIFIED ON THE PROXY BY A SHAREHOLDER, THE
SHARES WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THE SHARES WILL BE VOTED FOR THE
NOMINEES.
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age, position and offices
with the Company, present principal occupation or employment,
and material occupations and employment for the past five years
of each person who is presently a director, a nominee for
director, or an executive officer of the Company.
Philip H. Britt, age 63; Director of the Company
since 1998; Retired; Senior Vice President Insurance Industry
Division of Bank One, NA (formerly First Chicago NBD) from 1988
through 2002.
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With his experience at Bank One, NA, Mr. Britt brings
valuable insight into the Companys investment management
strategy which is a key part of the Companys overall
strategy. In particular, Mr. Britt understands the
investment considerations that are unique to the surety and
insurance business and has the skills necessary to lead our
Investment Committee.
Anthony S. Cleberg, age 57; Director of the Company
since 2007; Chief Financial Officer (CFO) and
Executive Vice President of Black Hills Corp. since 2008;
Independent Consultant and Investor from 2002 to 2008.
As CFO of Black Hills Corp. and his prior service at
Champion Enterprises as CFO from 2000 to 2002, Mr. Cleberg
has experience dealing with accounting principles, financial
reporting rules and regulations, evaluating financial results,
and overseeing the financial reporting process of a
publicly-traded corporation. His knowledge and experience
positions him well to serve as the Chair of our Audit Committee.
John F. Corcoran, age 45; Senior Vice President and
CFO of the Company since 2004.
Michael A. Dougherty, age 51; Senior Vice President
and Chief Information Officer of the Company since 2007; Senior
Vice President Field Operations and Distribution from 2001 until
2007.
David B. Edelson, age 50; Director of the Company
since 2007 and Chairman since 2009; Since 2005, Senior Vice
President of Loews Corporation (Loews), the parent
corporation of CNA Financial Corporation (CNAF)
(that, through its insurance subsidiaries, owns 61.95% of the
Companys stock as of December 31, 2009); Executive
Vice President and Corporate Treasurer of JPMorgan
Chase & Co. from 2003 until 2005. Mr. Edelson
joined the Board of Directors of AutoNation, Inc. in 2008 and is
also a member of its Audit Committee.
With his years of experience at JPMorgan Chase &
Co. and Loews, Mr. Edelson has demonstrated leadership
capability and extensive knowledge of complex financial and
operational issues facing large organizations. His understanding
of financial strategy and the elements relevant to be a
successful publicly-traded company provide him the skills
necessary to serve as the Chairman of our Board of Directors.
Douglas W. Hinkle, age 57; Senior Vice President and
Chief Underwriting Officer of the Company since 2004.
D. Craig Mense, age 58; Director of the Company
since 2007; Executive Vice President and CFO of CNAF since 2004.
Mr. Mense possesses both financial and operational
knowledge of the insurance and surety industries through his
current CFO responsibilities at CNAF and his prior experience at
the executive level in certain insurance and surety operations
of Travelers Property Casualty Corporation.
Thomas A. Pottle, age 50; Senior Vice President of
the Companys Credit and Field Operations since 2007 and
Senior Vice President since 1999.
Rosemary Quinn, age 55; Senior Vice President,
General Counsel and Secretary of the Company since 2008;
Assistant Vice President and Assistant General Counsel of the
Company from 2006 through 2008; General Counsel of GeoVera
Insurance Company from 2005 through 2006; Assistant Vice
President of St. Paul Travelers Bond Department from 2004
through 2005.
Robert A. Tinstman, age 63; Director of the Company
since 2004; Member of the Board of Directors of Primoris
Services Corporation since 2009; Member of the Board of
Directors of Home Federal Bancorp Inc. and Chairman of its Audit
Committee since 1999. He also serves on the Board of Directors
of IdaCorp., Inc. and Idaho Power Company and has been Chairman
of their Investment and Compensation Committees since 1999.
Mr. Tinstman was Executive Chairman of Angelo Iafrate
Construction Company and James Construction Group from 2002 to
2007.
Mr. Tinstman has extensive knowledge of the financial and
operational issues facing the types of construction firms that
are bonded by our Company based on his positions at Angelo
Iafrate Construction Company and James Construction Group as
well as prior executive positions in the construction industry.
Also, his leadership role on
3
other boards of directors gives Mr. Tinstman a deep
understanding of the role of the Board of Directors and provides
him the skills to serve as the Chair of our Compensation
Committee.
John F. Welch, age 53; Director, President, and
Chief Executive Officer (CEO) of the Company since
June 2003.
In addition to his experience as our CEO and President,
Mr. Welch was previously the President of Afianzadora
Insurgentes SA CA located in Mexico City, Mexico from 2000 to
2002 and the Chief Underwriting Officer of the surety operations
of the St. Paul Companies from 2002 until 2003. His experience
has provided him a deep knowledge of the surety industry, which
includes the financial, operational, and regulatory aspects of
the business. This breadth of exposure to the surety business
positions him well to serve on our Board of Directors.
Peter W. Wilson, age 50; Director of the Company
since 2009; President and Chief Operating Officer of
U.S. operations of CNAFs insurance operations since
2009; Executive Vice President, Global Specialty Lines of the
insurance subsidiaries of CNAF from 2001 until 2009.
Mr. Wilson brings an understanding of the operational,
marketing, financial, and regulatory issues facing the insurance
industry, which includes surety. He also served as the
Companys Board Chairman from 2001 through 2003. His
demonstrated leadership capability and knowledge of the
Companys business provide him the skills to serve on our
Board of Directors.
CORPORATE
GOVERNANCE
Director
Independence
As provided by the listing standards of the New York Stock
Exchange (Exchange or NYSE), the Company
is a Controlled Company because more than 50% of the
voting shares of the Company are held by the insurance
subsidiaries of CNAF. Because the Company is a controlled
company, it is exempt from the Exchanges requirements
relating to maintenance of a majority of independent directors.
Nevertheless, our Board of Directors has determined that the
following directors are independent under the NYSEs
listing standards (each, an Independent Director and
collectively, the Independent Directors): Philip H.
Britt, Anthony S. Cleberg, and Robert A. Tinstman.
In determining independence, the Board affirmatively determined
whether or not each director or nominee has any material
relationship with the Company. In assessing materiality, the
Board considered all relevant facts and circumstances, not
merely from the standpoint of the director or nominee, but from
that of any person or organization with which the director or
nominee has an affiliation. The Board considers the frequency
and regularity of any services provided by or to, or other
transactions between the Company and the director or nominee or
affiliated organization, whether they are being carried out at
arms length in the ordinary course of business, and
whether they are being provided or conducted substantially on
the same terms as those prevailing at the time from unrelated
parties for comparable transactions. Material relationships can
include commercial banking, industrial, legal, accounting,
charitable, employment, and familial relationships.
Consistent with the listing requirements of the Exchange, the
Board follows the standards provided below to assist it in
determining director independence so that a director would not
be considered independent if any of the following relationships
exists: (i) the director is, or has been within the last
three years, an employee of the Company, or an immediate family
member is, or has been within the last three years, an executive
officer of the Company; (ii) the director has received, or
has an immediate family member who has received, during any
twelve-month period within the last three years, more than
$120,000 in direct compensation from the Company, other than
director and committee fees and pension or other forms of
deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service);
(iii) the director is a current partner or employee or an
immediate family member is a current partner of a firm that is
the Companys internal or external auditor, or an immediate
family member is a current employee of such a firm and
personally works on the Companys audit, or within the last
three years, the director or an immediate family member was a
partner or employee of such a firm and personally worked on the
Companys audit within that time; (iv) the director or
an immediate family member is, or has been within the last three
years, employed as an executive officer of another company where
any of the Companys present executive officers at the same
time serves or served on that companys compensation
4
committee; or (v) the director is a current employee, or an
immediate family member is a current executive officer, of a
company that has made payments to, or received payments from,
the Company for property or services in an amount which, in any
of the last three fiscal years, exceeds the greater of
$1 million or 2% of such other companys consolidated
gross revenues.
Corporate
Governance and Ethics and Communications with the
Board
We have a Code of Business Conduct and Ethics that applies to
all employees, officers, and directors of the Company and its
wholly-owned subsidiaries, including, but not limited to, our
executive officers, principal financial officer, and principal
accounting officer. This Code is available on our website at
www.cnasurety.com and will be provided to any shareholder
at no charge upon request to Gail Carey, representative of the
Company, at 333 S. Wabash Ave., 41st Floor,
Chicago, Illinois 60604,
(312) 822-5199.
Board
Nomination Process
Our Board of Directors does not have a Nominating Committee.
Under the rules of the NYSE, companies like us that have a
controlling shareholder are not required to have a Nominating
Committee. Our Board of Directors, as a whole, performs the
functions of a Nominating Committee. The Board of Directors
considers shareholder director nominees under the same criteria
utilized by the Board of Directors to evaluate nominees proposed
by management or members of the Board of Directors. These
criteria include a potential nominees character, judgment,
business experience, and areas of expertise, among other
relevant considerations, such as requirements of the Exchange.
The Board seeks to create a Board that has a diversity of skills
and experience with respect to knowledge of the construction
industry, surety and insurance markets, finance and accounting,
investment management, and corporate governance. The unique
skills and experience that each nominee brings to the Board of
Directors is described earlier in this Proxy Statement in the
Directors and Executive Officers of the Registrant
section.
Board
Leadership Structure
The positions of Chairman of the Board and Chief Executive
Officer are held by separate people. This is due in part to the
fact that the Company has a controlling shareholder. Our current
Chairman is an executive officer of Loews which is the
controlling shareholder of CNAF. Our Board believes this
structure provides a balance of different perspectives which
fosters discussion during Board meetings. Also, the Chairman
serves as the liaison between the Board and the Companys
senior management which is beneficial when determining agenda
and providing information for the Board meetings.
Risk
Oversight
Our Board oversees an enterprise approach to risk management
that is intended to support the operational and strategic
objectives of the Company. The President reports to and seeks
the involvement of the full Board in setting the Companys
business goals and objectives. Through this process, the Board
and senior management assess the appropriate level of business
risk for the Company. The entire Board receives reports at each
meeting from the President and his executive team on the primary
areas of risk which include financial risk, investment risk,
legal/compliance risk, and operations/strategic risk. The
Company also reports to the full Board each quarter on the
credit risk of the Companys portfolio of bond customers.
While the Board has ultimate oversight responsibility, the
various committees of the Board also have responsibility for
risk management. In particular, the Audit Committee receives
reports at each of its regularly scheduled meetings from the
Companys CFO and the Companys external auditor on
financial risk and compliance with reporting requirements,
including internal controls. The Audit Committee also receives
reports at each quarterly meeting from the Companys
internal auditors.
In addition to setting compensation for the Companys
executive team, the Compensation Committee provides guidance on
the creation of Company-wide bonus programs that encourage
employee risk-taking consistent with the Companys business
strategy. The Investment Committee sets the strategy for the
Companys investment portfolio and meets with the
Companys investment adviser at each meeting to review the
performance of the portfolio. In addition to reviewing and
approving the investment transactions each quarter, the
Investment
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Committee considers whether the level of market risk in the
investment portfolio is consistent with the Companys
business strategy and whether modifications may be appropriate.
BOARD OF
DIRECTORS AND BOARD COMMITTEES
General
Our business is managed under the direction of the Board of
Directors, which is currently comprised of seven members. The
Board of Directors and the Audit Committee annually review their
performance. The Audit Committee and Board of Directors
discussed their anonymous self-evaluations at their respective
meetings on February 3 and 4, 2010. The self-evaluations of both
the Audit Committee and the Board of Directors indicated that
they are functioning well and receive adequate access to and
information from Company management.
Committees
of the Board
The Board has an Executive Committee, an Audit Committee, a
Compensation Committee, and an Investment Committee. As
discussed under the Board Nomination Process section
of this Proxy Statement, the Company does not have a
nominating/corporate governance committee. Our Audit Committee
and Compensation Committee have written charters which can be
found on our website at www.cnasurety.com and are
available in print to any shareholder who requests a copy by
writing to our Corporate Secretary.
Executive Committee. The Executive
Committee is authorized to act on behalf of the full Board in
the management and business affairs of the Company during
intervals between the meetings of the Board. Any action by the
Executive Committee is reported to the Board at its next meeting
and such action is subject to revision and alteration by the
Board, provided that no rights of third persons can be
prejudicially affected by the subsequent action of the Board.
The Executive Committee did not meet during 2009. The members of
the Executive Committee are David B. Edelson, Robert A.
Tinstman, and John F. Welch.
Audit Committee. The Audit
Committees primary function is to assist the Board in
fulfilling its responsibility to monitor the Companys
financial reporting process and internal control system, the
qualifications and independence of our independent auditors, the
performance of our internal auditors and independent auditors,
and our compliance with legal and regulatory requirements. Our
Audit Committee has sole authority to retain, compensate, and
evaluate the Companys independent registered public
accounting firm, and the scope of and fees for their audits. The
Audit Committee also establishes the policy and procedures for
the review and approval of related party agreements and
arrangements between the Company and its affiliates.
The current members of the Audit Committee are Anthony S.
Cleberg (Chairman), Philip H. Britt, and Robert A.
Tinstman, each of whom is independent under SEC
rules and NYSE listing standards applicable to audit committee
members. The Board has determined that each of the Audit
Committee members is financially literate and that
Mr. Cleberg is an audit committee financial
expert under the Exchange and SEC standards. The Audit
Committee held eight meetings during 2009. The Audit Committee
members are annually asked the number of audit committees on
which they serve and no director reported serving on more than
two audit committees during 2009.
Compensation Committee. The
Compensation Committee sets the Companys compensation
policies and reviews and administers all compensation matters
for the Companys executive officers including the five
most highly compensated executive officers. In addition, it
reviews and approves the availability of stock options granted
to all other eligible Company employees. The current members of
the Companys Compensation Committee are Robert A. Tinstman
(Chairman), Philip H. Britt, and Anthony S. Cleberg. During
2009, the Compensation Committee held four meetings.
Investment Committee. The primary
function of the Investment Committee is to establish investment
policies and oversee the management of the Companys
investment portfolio. The current members of the Investment
Committee are Philip H. Britt (Chairman), David B. Edelson, and
John F. Welch. During 2009, the Investment Committee held four
meetings.
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Executive
Sessions of Non-Management Directors
The Board meets without management in Executive Session at its
regularly scheduled meetings. The members have decided that a
presiding director is not necessary and that the independent
directors will rotate the task of presiding over Executive
Sessions.
Director
Attendance at Meetings
The Board of Directors met five times during 2009. Each of the
directors attended all of the Board meetings and meetings of all
committees on which he served as a member. All of our directors
also attended the 2009 Annual Meeting of Shareholders.
COMPENSATION
OF INDEPENDENT DIRECTORS
Our independent directors, who are not employees of the Company
or any of its affiliates or subsidiaries, receive an annual
retainer of $45,000 if the director serves on three committees
or $40,000 if the director serves on two committees. This
arrangement compensates the independent directors for four Board
meetings per year, each committee meeting four times per year,
plus up to four additional meetings per year by either the Board
or committees. If the number of Board
and/or
committee meetings exceeds the number covered by this
compensation structure, the director will be paid $1,500 for
each additional meeting. In recognition of the additional
responsibilities associated with serving as chair of a Board
committee, the chairs of each committee receive the following
additional annual retainer: Audit Chair receives $35,000 and the
Investment and Compensation Chairs each receive $30,000.
The table shown below reflects the compensation paid to our
independent directors during the year ended December 31,
2009. This table includes a fee of $2,500 paid in 2009 to each
independent director for a December 18, 2008 Audit
Committee meeting that was subject to the director payment
arrangements in effect during 2008.
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Change in Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Fees Earned or
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Paid in Cash
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name
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($)
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($)
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($)
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($)
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($)
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($)
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($)
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Philip H. Britt
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$
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79,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,000
|
|
Anthony S. Cleberg
|
|
$
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,000
|
|
Robert A. Tinstman
|
|
$
|
74,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,000
|
|
AUDIT
COMMITTEE REPORT
As discussed above under the heading Committees of the
Board Audit Committee and more fully described
in its charter, the Audit Committees primary
responsibility is the oversight of the Companys financial
reporting process and management of its relationship with the
independent auditors. Management has
day-to-day
responsibility for the Companys financial reporting
process, including assuring that the Company develops and
maintains adequate financial controls and procedures and
monitoring and assessing compliance with those controls and
procedures, including internal control over financial reporting.
The Companys independent auditors are responsible for
auditing the annual financial statements prepared by management,
expressing an opinion as to whether those financial statements
fairly present the financial position of the Company in
conformity with accounting principles generally accepted in the
United States (generally accepted accounting
principles) and discussing with the Audit Committee any
issues they believe should be raised. The independent auditors
are also responsible to the Audit Committee and the Board for
testing the integrity of the financial accounting and reporting
control systems, for issuing a report on the Companys
internal control over financial reporting, and for such other
matters as the Audit Committee and Board determine. The
independent auditors did not provide non-audit services to the
Company in 2009.
In the performance of its oversight function, the Audit
Committee has reviewed and discussed the audited financial
statements with management and the Companys independent
registered public accounting firm. The
7
Audit Committee has also discussed with the independent auditors
the matters required to be discussed by the standard adopted or
referenced by the Public Company Accounting Oversight Board
(PCAOB) including the Statement on Auditing
Standards No. 114, (Codification of Statements on Auditing
Standards, AU380), Communication with Audit Committees,
and SEC
Rule 2-07
as currently in effect. The independent auditors also had
discussions with the Audit Committee concerning the Corporate
Governance Listing Standards of the Exchange. The Audit
Committee has received the written disclosures and the letter
from our independent auditors as required by PCAOB Ethics and
Independence Rule 3526, Communication with Audit
Committees Concerning Independence, and has discussed with
Deloitte & Touche LLP its independence from the Company.
The members of the Audit Committee rely without independent
verification on the information provided to them by management
and the independent registered public accounting firm and on
managements representation that our financial statements
have been prepared with integrity and objectivity. The Audit
Committee members do not provide any expert or special assurance
as to our financial statements or any professional certification
as to the independent registered public accounting firms
work. Accordingly, our Audit Committees oversight does not
provide an independent basis to determine that management has
applied appropriate accounting and financial reporting
principles or internal controls and procedures, that the audit
of our financial statements has been carried out in accordance
with the standards of the PCAOB, that our financial statements
are presented in accordance with generally accepted accounting
principles, or that our independent registered public accounting
firm is in fact independent.
Based upon the reports and discussions described in this report,
and subject to the limitations on the role and responsibilities
of the Audit Committee referred to above, the Audit Committee
recommended to the Board that the audited financial statements
be included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 filed with the SEC.
SUBMITTED
BY THE AUDIT COMMITTEE
OF THE COMPANYS BOARD OF DIRECTORS
Philip
H. Britt
Anthony S. Cleberg
Robert A. Tinstman
COMPENSATION
DISCUSSION AND ANALYSIS
Objectives
of Compensation Program
The Companys philosophy is to provide a compensation
package that attracts, motivates, and retains quality executive
talent. We aim to reward performance and hold executives
accountable for underperformance through financial consequences.
The compensation practice of the Company for its executive
officers (including those named in the Summary Compensation
Table (the Named Executive Officers, individually referred to as
NEO and collectively referred to as
NEOs)) is to pay base salaries, annual incentive
bonuses, and long term incentives in addition to other benefits
that are competitive, internally consistent, and recognize the
accomplishment of the Companys stated goals of building a
financial services business focusing on surety, fidelity, and
related products. We seek to link executive compensation to the
short and long term performance goals of the Company. As such,
NEOs and other Company executives have a higher percentage of
their total compensation weighted towards variable pay than
other Company managers as they have greater opportunity to
impact bottom line results.
For 2009, the Companys Compensation Committee (the
Compensation Committee) was composed entirely of
independent directors. The Compensation Committee administers
the Companys executive compensation program, oversees the
Companys compensation and benefit plans and policies,
administers our stock option program (including approving stock
option grants to employees), and approves annually all
compensation decisions relating to the Companys NEOs. The
Compensation Committees charter sets forth its general
responsibilities and is available on the Companys website
at www.cnasurety.com.
8
Setting
Compensation Benchmarking
The Process: The CEO, the
Companys Chief Human Resources Officer, and the
Companys Chairman of the Board make recommendations to the
Committee on general compensation philosophy and specific
elements of compensation and goals for the NEOs. Recommendations
for the CEOs compensation are made by the Companys
Chairman of the Board to the Committee.
Surveys Consulted: The Company reviews
a number of general business and property and casualty
compensation surveys. We are in a unique business situation in
that we are the only publicly held surety company. All of the
Companys competitors are either privately held or are
business units of a larger publicly held insurance company.
Thus, there are no direct competitors who have CEOs and an
executive team with public company responsibilities. Because
there are no comparable publicly held companies to use for
benchmarking purposes, the Company utilizes data collected from
an industry survey and broader property and casualty and
financial industry surveys. Those surveys are discussed in more
detail below.
Surety & Fidelity Association of America Salary
Survey: This survey is conducted annually and
includes approximately 25 surety and fidelity organizations. The
positions and data that we use for benchmarking NEO positions
include Top/Chief Bonding Officer, Top Underwriting Officer, and
Top Field Management Officer. In regards to this survey, we look
at the range of
50th to
75th
percentile taking into consideration the size of the
Companys surety writings compared to other surety
operations reflected in the survey.
P&C/Financial Surveys: As noted above,
the Compensation Committee reviews several surveys conducted by
consulting companies for the property and casualty and financial
industries. There are a wide range of companies and thus we
determine an appropriate benchmark based on the premium size of
the companies that participate in each survey. For the surveys
that include companies with less than $2 billion of direct
written premium, we use the
50th
percentile. For surveys that include companies with less than
$25 billion of assets, we discount the midpoint. We
consider this data for the Top Underwriting Executive, Chief
Financial Officer, Chief Information Officer, Top Field
Operations Executive, and the Top Legal Executive positions.
For each of the NEOs, the Compensation Committee considers each
compensation element separately and then considers the
NEOs total compensation. The Compensation Committee
reviews the salary surveys referenced above, as well as the
NEOs experience, individual professional performance, and
individual influence on the Companys current financial
results and long term strategies. The Compensation Committee
also considers internal equity in compensation and accordingly
considers each NEOs total compensation in reference to the
compensation of the Companys other officers. In setting
compensation, the Compensation Committee also considers the
amount of influence each NEO has on the Companys overall
business strategy as well as the abundance or scarcity of
qualified candidates, if finding a replacement should become
necessary.
Neither the Company nor the Compensation Committee consulted
with an outside compensation consultant during 2009. The
Compensation Committee reserves the right to consult with an
outside compensation consultant but to date has not exercised
that right.
The Compensation Committee discusses and approves any changes in
compensation to the NEOs at its first regularly scheduled
meeting of the year, which in 2009 was held in February. Any
changes in base compensation are effective in April (when base
salary increases for all of the Companys employees occur).
Also, at its first scheduled meeting of the year, the
Compensation Committee evaluates the Companys performance
versus its goals and the performance of each NEO, and then
approves all of the following variable compensation pay awards:
Annual Cash Bonuses, Long Term Cash Incentives, and stock option
grants. The Compensation Committee also approves the aggregate
amount of annual bonuses paid to all bonus-eligible employees
based on the achievement of certain net income targets set by
the Compensation Committee. The 2009 targets and achievement are
discussed below under the individual Elements of
Compensation section of this Proxy Statement.
Adjustment
of Awards
The Compensation Committee does not have, and has no current
plans to have, a policy concerning retroactive adjustments to
any cash or equity based incentive compensation if the payment
of such compensation was based on
9
financial performance measures that were subsequently affected
by a restatement. However, to date, the Company has had no
financial statement restatements that resulted in a reduction of
financial performance.
Tax
Considerations Deductibility of
Compensation
The Compensation Committee considers the impact of Internal
Revenue Code (IRC) Sections 409A and 162(m)
when determining forms and amounts of compensation. In 2005, the
Company adopted a nonqualified deferred compensation plan
(2005 Deferred Compensation Plan or the
Plan) intended to permit participants to avoid tax
penalties under IRC Section 409A. The 2005 Deferred
Compensation Plan was amended in 2009 to comply with final
regulations under IRC Section 409A. The 2005 Deferred
Compensation Plan is more fully described in the Deferred
Compensation section of this Proxy Statement. IRC
Section 162(m) places a limit on the tax deduction for
compensation in excess of $1 million paid to certain
executives. The Company does consider the deductibility of
compensation when considering compensation for the CEO, and
structures his annual cash bonus, as performance-based (with the
discretion to decrease the award even if the goal is achieved),
so as to retain the potential for a deduction. In addition, the
CEOs employment contract allows the Compensation Committee
to defer the payment of compensation that would not be
deductible by the Company under IRC Section 162(m) until
the CEOs separation from service. The compensation of the
remaining NEOs will not exceed $1 million for 2009, thus
compensation for the Companys NEOs is expected to be
deductible.
Elements
of Compensation
The core elements of the NEOs compensation, which are
discussed below, include base salary, benefits, performance
based annual incentive awards (cash bonus), long term cash based
incentive awards, and long term equity (stock options).
Base
Salaries
The division between base salaries and cash incentive
compensation for both the CEO and the rest of the NEOs is
similar to the division between cash incentive compensation and
base salaries at many public and private insurers and sureties
that compete with the Company for executive talent. The
Compensation Committee uses the market data discussed in the
Setting Compensation-Benchmarking section of this
Proxy Statement, as well as the salary history, individual
performance, and experience of the individual executive officer,
when assessing base salary. The base salaries of the NEOs and
other officers are reviewed on an annual basis.
Broadly-Available
Benefit Plans During 2009
Our NEOs participate in the same basic benefits package as all
other Company employees. This includes a basic benefits package
consisting of retirement, medical, dental, vision, paid time
off, life insurance and accident insurance plans, and short and
long term disability coverage, as well as flexible spending
arrangements for health care, dependent care, and transit
expenses.
Perquisites
The Company made available to the NEOs in 2009 a modest
allotment for reimbursements for club memberships and financial
counseling services. Please refer to the Executive
Perquisites column of the All Other Compensation
Table in the Executive Compensation section of
this Proxy Statement.
Annual
Cash Bonus
The Companys Annual Incentive Bonus (AIB) Plan
(AIB Plan) is a broad plan that covers eligible
employees, including the NEOs. The AIB Plan delivers short term
incentive compensation based on the Companys achievement
of Net Operating Income (NOI) against established
goals. Under the AIB Plan, the Company may pay out 0% to 150% of
target for NEOs other than the CEO. The CEO makes a
recommendation to the Compensation Committee for individual NEO
bonus payments which is based primarily on the NOI achievement
and then considers overall individual performance. The
Compensation Committee may, in its discretion, establish a bonus
pool of up to 25% of the target bonus pool that it may use to
pay certain employees, including the NEOs, if the
10
threshold goal was not met. The Compensation Committee also
reserves discretion to adjust the bonus pool up or down, if
results were affected by unusual events that in the Compensation
Committees determination were beyond managements
control. The Compensation Committee retains the power to
exercise negative discretion with respect to each NEO even if
the Company achieves an NOI target.
As referenced above, the size of the bonus pool is dependent on
achievement of NOI. The NOI Goals approved by the Committee for
the 2009 AIB Plan are below:
|
|
|
|
|
Achievement
|
NOI Achieved
|
|
% of Target
|
|
< $70 million
|
|
0%
|
$70-$94.9 million
|
|
50%-99%
|
$95-$100 million
|
|
100%
|
$100.1-$109.9 million
|
|
101%-149%
|
$110 million +
|
|
150%
|
For 2009, the Companys NOI was $117.08 million. The
Committee voted at its February 3, 2010 meeting that the
2009 annual cash bonus pool would be 150% of the target.
Annual
Cash Bonuses NEOs other than the CEO
The Compensation Committee considers both NOI and individual
performance when determining the compensation of the NEOs with
NOI being the material factor when determining the annual cash
bonus. The annual process for evaluating achievement of each
NEOs objectives consists of a performance evaluation by
the CEO that is presented to the Compensation Committee for
discussion. Although NOI is the material factor when determining
annual bonuses for the NEOs, the CEO evaluation includes an
analysis of each NEOs individual performance when
determining whether the AIB should be at, above, or below the
target bonus award reflected below in the Executive Annual
Incentive table of this Proxy Statement. Following
discussion of the CEOs evaluation and recommendation, the
Compensation Committee approves, rejects, or modifies the
CEOs recommendation. Set forth below for each NEO, other
than the CEO, is a summary of the individual performance
objectives which were considered, in addition to NOI, by the
Compensation Committee when determining AIB.
For Douglas Hinkle, the individual factors considered for his
2009 performance included adherence to the underwriting expense
plan, effective oversight of the underwriting strategy, and
marketing of key agents and customers. The underwriting expense
goal was $90.5 million and the actual was
$85.8 million, excluding IT impairment and additional
incentive compensation accruals. Numerical targets were not
established for Mr. Hinkles other performance
factors. The CEO noted that again in 2009 Mr. Hinkle
successfully oversaw a sound underwriting strategy and continued
to maintain and expand his strong agent and customer
relationships. Mr. Hinkles oversight of the
Companys underwriting strategy for the several previous
years was credited for the Companys strong NOI in 2009.
The Compensation Committee approved Mr. Welchs bonus
recommendation for Mr. Hinkle as reflected below in the
Executive Annual Incentive table of this Proxy
Statement.
For John Corcoran, the individual objectives in 2009, all
qualitative, were management of the Companys planning,
analysis and financial reporting functions, oversight of the
Companys investment portfolio and investment manager,
management of the Companys capital structure, stewardship
of key relationships with banks, rating agencies and regulators,
and execution of technology projects specific to Finance.
Mr. Welch reported to the Committee that Mr. Corcoran
successfully fulfilled all of his individual objectives. In
particular, under Mr. Corcorans leadership all
external reporting requirements were met, and the regularly
scheduled financial examination by the South Dakota Division of
Insurance was completed with no deficiencies reported. Also,
under Mr. Corcorans leadership our rating agency
relationships remain strong and the investment strategy
continues to perform well in a weak economy. The Compensation
Committee approved Mr. Welchs bonus recommendation
for Mr. Corcoran as reflected below in the Executive
Annual Incentive table of this Proxy Statement.
For Michael Dougherty, the personal objectives in 2009, all
qualitative in nature, included implementing several key IT
initiatives, managing the capital expense budget, developing and
executing on long term strategies for continued improvement in
business operations, and maintaining IT system performance and
stability for the Company. Under his
11
leadership, key technology and business process initiatives were
successfully implemented although one older project was
cancelled following further review with our external
consultants. Mr. Welch reported to the Compensation
Committee that Mr. Dougherty successfully managed the
capital budget and has reduced the Companys capital
expenses. Mr. Dougherty continues to execute on IT and
business operation strategies while maintaining a stable IT
system for the Company. The Compensation Committee approved
Mr. Welchs bonus recommendation for
Mr. Dougherty as reflected below in the Executive
Annual Incentive table of this Proxy Statement.
For Thomas Pottle, the primary individual objective is
management of the Companys field operations which exceeded
performance expectations. His other individual objectives for
2009 included: achievement of the Companys accounts
receivable collection target of less than 4% past due by
90 days; successful management and oversight of branch
audits; effective management and maintenance of credit analysis
function; support for the rate filing analysis; and management
of implementation of branch technology improvements. Our
accounts receivable target was met since only 3% of our accounts
were past due by 90 days or more. All other objectives for
Mr. Pottle are qualitative. Mr. Pottle was also
successful in overseeing branch audits, maintaining the credit
model, and providing technical support to the rate filing
functions. Mr. Pottle continued to provide leadership to
technology projects related to our field operations. The
Compensation Committee approved Mr. Welchs bonus
recommendation for Mr. Pottle as reflected below in the
Executive Annual Incentive table of this Proxy
Statement.
Annual
Cash Bonus CEO
The Compensation Committee believes that it is appropriate that
the CEOs incentive compensation, including the annual
target bonus and maximum annual bonus potential, be larger than
the other NEOs. Mr. Welchs annual bonus parameters
are determined by his employment contract and by the yearly NOI
goal set by the Compensation Committee. As provided in his
employment contract, Mr. Welch has a target of 100% of his
base salary of $470,000. At its February 4, 2009 meeting,
the Compensation Committee established a maximum for
Mr. Welchs annual bonus of 1.25% of the
Companys actual NOI for the 2009 performance year.
However, the Compensation Committee retained discretion to
reduce the amount of his annual bonus based upon its evaluation
of his performance. After evaluating his 2009 performance at its
February 3, 2010 meeting, the Compensation Committee voted
to pay Mr. Welch an annual cash bonus of $940,000, or 200%
of his base salary, which is the maximum target, based primarily
on the Companys 2009 NOI of $117.08 million. Although
the material factor used by the Compensation Committee when
determining Mr. Welchs AIB is NOI, it also considers
several qualitative factors which include: strategic directions
and leadership; talent management; drive for results; and
development of relationships with customers, regulators,
analysts, the Board, and the Companys shareholders. The
Compensation Committee concluded that he consistently fulfilled
all of these qualitative factors since becoming the
Companys CEO in 2003 which has resulted in the
Companys financial strength today. In recognition of the
NOI achievement far in excess of the 2009 goal, the Compensation
Committee recommended, and the Board approved, the bonus award
reflected in the table below.
The 2009 annual cash bonus targets and awards for each NEO,
including the CEO, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Annual Incentive
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
|
Target
|
|
|
Target
|
|
|
Award
|
|
|
Actual
|
|
|
|
Payout as a
|
|
|
Award
|
|
|
as a
|
|
|
Award
|
|
|
|
% of Salary
|
|
|
(Dollar Value)
|
|
|
% of Salary
|
|
|
(Dollar Value)
|
|
|
John F. Welch
|
|
|
100
|
%
|
|
$
|
470,000
|
|
|
|
200
|
%
|
|
$
|
940,000
|
|
John F. Corcoran
|
|
|
40
|
%
|
|
$
|
108,000
|
|
|
|
60
|
%
|
|
$
|
162,000
|
|
Douglas W. Hinkle
|
|
|
40
|
%
|
|
$
|
100,000
|
|
|
|
64
|
%
|
|
$
|
160,000
|
|
Michael A. Dougherty
|
|
|
40
|
%
|
|
$
|
92,400
|
|
|
|
56
|
%
|
|
$
|
129,360
|
|
Thomas A. Pottle
|
|
|
40
|
%
|
|
$
|
86,994
|
|
|
|
56
|
%
|
|
$
|
121,792
|
|
Long
Term Incentives
Long Term
Cash Incentive
The Companys Long Term Incentive (LTI) Plan
(LTI Plan) motivates executives to meet the
Companys long term performance objectives as well as
promotes executive continuity. Each year the Compensation
Committee approves an annual Return on Equity (ROE)
target. ROE, for the purposes of the LTI Plan, is operating
12
return on equity based upon the equity at the beginning of the
calendar year adjusted to exclude effects of any unrealized
gains and losses. The Compensation Committee does not use
individual performance measures for LTI bonuses under the LTI
Plan. All NEOs have a target LTI bonus of 20% of their base
salary, except Mr. Welch who has a target LTI bonus of 50%
of his base salary based on his employment agreement. As with
all variable compensation, the Compensation Committee believes
that the CEO has the ultimate responsibility for the
Companys results and believes a greater amount of his
compensation should be variable and dependent upon the
Companys financial results.
If the LTI Plan goals for a performance year are achieved, one
third of the payment attributable to that LTI Plan calendar year
will be paid out each year for the following three years
beginning with the first payment made in March of the year
immediately following the LTI Plan year in which the goal was
achieved. Each March, any LTI payment potentially consists of
portions of awards from three LTI Plan years. Thus, the LTI
payments made on March 12, 2010 represented payments for
performance in three years: 2007, 2008, and 2009 (1/3 of the
award for each year). The NEO must be actively employed on the
payment date to receive any LTI payment for the calendar year.
Pursuant to the terms of his employment agreement, if
Mr. Welchs employment is terminated by the Company
without cause or if he terminates his employment for good
reason, he will be entitled to an LTI payment for the calendar
year in which his employment is terminated based on actual
performance and prorated for the period of service through his
termination date.
At its February 4, 2009 meeting, the Compensation Committee
set the following ROE targets for 2009:
|
|
|
|
|
|
|
% of Target
|
|
ROE Achieved
|
|
LTI Payable
|
|
|
<8.0%
|
|
|
0
|
%
|
8.0% (threshold)
|
|
|
25
|
%
|
10.0-11.0% (target)
|
|
|
100
|
%
|
13.0% + (maximum)
|
|
|
200
|
%
|
The Compensation Committee reserves the discretion to adjust LTI
payments based on events beyond the NEOs control,
including, but not limited to, the impact of the prior
years reserve developments. The Companys ROE for
2009, as defined for the LTI Plan, was 15.1%. Accordingly, the
NEOs were eligible for an LTI payment of 200% of target for the
2009 performance year.
Stock
Options
Equity-based long term incentive awards serve to align the
interests of executives with those of the Companys
shareholders because both shareholders and executives benefit
from any appreciation in the Companys stock price. The
Compensation Committee grants stock options as part of total
compensation to executive officers, officers, and certain other
employees. As a general practice, each year the Compensation
Committee has granted the NEOs, with the exception of the CEO,
stock options equal to approximately 20% of their base salaries
based on a Black-Scholes valuation. Pursuant to his employment
contract, the Compensation Committee has granted the CEO stock
options equal to approximately 50% of his annual base salary
based on a Black-Scholes valuation.
The Compensation Committee approves all grants of stock options.
The Compensation Committee decides and approves stock option
grants at its first regularly scheduled meeting of each year in
order to coincide with the awards of other variable compensation.
At its February 3, 2010 meeting, the Compensation Committee
voted to authorize the NEOs to receive stock options for the
2009 performance year. The following options were granted on
February 5, 2010 with an exercise price equal to the
closing stock price on that date:
|
|
|
|
|
|
|
Number of
|
|
NEO
|
|
Options
|
|
|
John F. Welch
|
|
|
26,300
|
|
John F. Corcoran
|
|
|
6,000
|
|
Douglas W. Hinkle
|
|
|
5,600
|
|
Michael A. Dougherty
|
|
|
5,200
|
|
Thomas A. Pottle
|
|
|
4,900
|
|
13
The Compensation Committees policy is to make no grants of
stock options during the year other than those made at its first
regularly scheduled meeting of the year, except for stock option
grants to certain newly hired senior executives. In the event
the Compensation Committee determines that a newly hired senior
executive should be awarded stock option grants, the
Compensation Committees intention is to grant any such
options at the Compensation Committees first regularly
scheduled meeting after commencement of such executives
employment. Such options will be priced at the closing price of
the Companys stock on the day of the grant.
Stock
Ownership Requirements
The Company does not have formal share ownership guidelines or
requirements for any executive, employee, or director.
CNA
Surety Corporation 401(k) Plan
The CNA Surety Corporation 401(k) plan is a funded,
tax-qualified retirement savings plan. Participating employees
may contribute up to 75% of base salary on a before tax basis
into the plan, subject to a maximum of $16,500 in 2009 ($22,000
for employees over age 50). In addition, the Company
matches an amount equal to one dollar for each dollar
contributed by participating employees on the first 3% of their
eligible compensation and fifty cents for each additional dollar
contributed on the next 3% of their eligible compensation.
Eligible compensation (base salary) does not include bonuses or
other contingent compensation. In addition, eligible
compensation for 2009 was capped at $245,000.
The Company also makes contributions to the 401(k) plan called
the Basic Contribution for all employees, including
the NEOs, equal to 3% of eligible compensation (5% for employees
over age 45).
In addition, the Compensation Committee annually establishes
Company-wide performance targets which, if met, result in an
additional Company contribution called the Performance
Contribution. This Performance Contribution is made to
employee 401(k) accounts of each eligible participant and may
range from 0% to 2% of the participants eligible
compensation. The payment is based on Combined Ratio achievement
against established goals. For the definition of Combined Ratio,
please see Results of Operations in item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations, in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2009. The NEOs, including
the CEO, fall under the same conditions of payout as all other
Company employees. The Combined Ratio target for a 2% payout in
2009 was less than 84.10%. Since the Companys 2009
combined ratio was less than 84.10%, the Compensation Committee,
at its February 3, 2010 meeting, approved a Performance
Contribution equal to 2% of salary to participants
accounts. Set forth below are the Performance Contribution
targets that were established by the Compensation Committee for
2009:
|
|
|
|
|
Combined Ratio
|
|
% Achievement
|
|
|
Less than 84.10
|
|
|
2.00%
|
|
84.10 86.00
|
|
|
1.75%
|
|
86.01 88.00
|
|
|
1.50%
|
|
88.01 90.00
|
|
|
1.25%
|
|
90.01 92.00
|
|
|
1.00%
|
|
92.01 or higher
|
|
|
0.00%
|
|
Deferred
Compensation
The NEOs and certain other officers may participate in the
Companys 2005 Deferred Compensation Plan. Refer to the
Tax Considerations-Deductibility of Compensation
section of this Proxy Statement for additional information
concerning this Plan. The Plan allows eligible officers to defer
receiving up to 20% of their compensation. The amount that the
Company may contribute to the NEOs 401(k) accounts for the
matching funds, Basic Contribution, and the Performance
Contribution is limited by federal legislation. The 2005
Deferred Compensation Plan also allows participants to receive
nonqualified Company contributions to their deferred
compensation accounts in amounts equal to the difference between
the amounts of these Company contributions that actually were
allocated to the participants 401(k) plan account and the
amounts that the participant would have
14
received in the absence of legislation limiting such additions
to the participants 401(k) plan account. Participation in
the Plan is not automatic. The Compensation Committee must
affirmatively vote that an executive be allowed to participate
in the Plan and the executive must execute a deferral agreement
prior to participating in the Plan. Once the executive executes
a deferral agreement, the executive may not change or cease
participation in the Plan or change the deferral amounts during
the Plan year. Each December, Plan participants may change the
amount deferred or cease participation in the Plan for the
following year.
All funds in the Plan are general assets of the Company.
However, the Company has funded grantor trusts established to
make payments under the Plan. The assets of these trusts are
available to the Companys general creditors. These trusts
invest in the same mutual funds as are available through the
401(k) plan as chosen by the executives and consequently the
returns are not considered above market returns.
Participants in the Plan will receive the funds in their
deferred compensation account six months after their termination
of employment from the Company.
Change-In-Control
and Termination Benefits that would have been Payable as of
December 31, 2009
The compensation and benefit plans provided to our employees and
executive officers do not provide for any benefit in the event
of a
change-in-control.
However, under the CNA Surety Corporations 2006 Long Term
Equity Compensation Plan, the Compensation Committee has the
discretion to amend the terms of a stock option award in the
event of a
change-in-control.
The Company did have, as of December 31, 2009, liability
for severance benefits to those executive officers listed below
pursuant to contracts entered with such executives:
|
|
|
|
|
|
|
|
|
|
|
Change-in-
|
|
|
Termination
|
|
Executive
|
|
Control Benefit
|
|
|
Benefit
|
|
|
John F. Welch, CEO*
|
|
|
None
|
|
|
$
|
2,350,000
|
|
John F. Corcoran, CFO**
|
|
|
None
|
|
|
$
|
270,000
|
|
|
|
|
* |
|
See discussion below in the Employment
Agreement section of this Proxy Statement. |
** |
|
See discussion below in the Retention and Severance
Agreements section of this Proxy Statement. |
Employment
Agreement
Under the terms of an employment agreement, approved by the
Compensation Committee, Mr. Welch is entitled to a
severance benefit if his employment is terminated by the Company
without cause or by Mr. Welch for good reason contingent
upon Mr. Welchs execution of a general release and
his continuing compliance with the non-competition,
non-solicitation, and confidentiality provisions of the
agreement. In such event, the severance benefit Mr. Welch
will receive includes: any unpaid base salary prorated to the
termination date and earned but unpaid bonuses from the previous
year; plus his base salary and the target AIB and the target LTI
payments prorated through the end of the contract term which is
December 31, 2011, but in no event less than twelve months.
These severance payments would be paid in equal monthly
installments. In addition, after the Compensation
Committees review of actual performance results for the
year in which the termination occurs, Mr. Welch is eligible
to receive a prorated AIB and prorated LTI payment based on
actual performance for the year in which Mr. Welchs
employment is terminated. These payments would be made at the
same time that AIB and LTI payments are made to active
employees. Mr. Welch also would be eligible to continue to
participate in the Companys health benefit plan for the
period of severance running concurrently with any benefit
eligibility under COBRA. This agreement also provides that if
the Company fails to extend Mr. Welchs employment
agreement, then Mr. Welchs employment will terminate
on April 12, 2012 and he would receive severance benefits
consisting of (i) payment of one year of
Mr. Welchs then annual base salary, one year target
AIB, and target LTI award payable in twelve monthly
installments; (ii) continuation in the Companys
health benefit plan for the period of severance running
concurrently with any benefit eligibility under COBRA; and
(iii) prorated AIB and LTI payments (based on actual
performance) for the year in which his employment is terminated,
payable when AIB and LTI payments are made to active employees.
To the extent that any portion of Mr. Welchs
severance benefit constitutes deferred compensation for purposes
of IRC Section 409A, the payment of such portion of his
severance benefit will be delayed until six months after his
separation from service.
15
Retention
and Severance Agreements
The Company entered a retention bonus agreement with
Mr. Hinkle in April 2006, with Compensation Committee
approval, which provided for a special bonus of $250,000, paid
out over four installments, to induce Mr. Hinkle to remain
employed with the Company through April 2010. As provided by the
agreement, the Company paid Mr. Hinkle $50,000 in each of
May 2006, April 2007, and April 2008 and the final installment
of $100,000 in April 2009. If Mr. Hinkle terminates his
employment with the Company prior to April 2010 or the Company
terminates Mr. Hinkle for cause, Mr. Hinkle must repay
the final installment of $100,000. The agreement also contains
certain non-compete and non-solicitation provisions.
The severance agreement entered into with Mr. Corcoran,
with the approval of the Compensation Committee, provides that
in the event the Company terminates Mr. Corcorans
employment prior to April 1, 2010, other than for cause,
death or disability, Mr. Corcoran will receive a lump-sum
severance payment equal to one year of his base salary. In
addition, he will be eligible to continue in the Companys
group health plan for a period of one year from the date of
termination running concurrently with any benefit eligibility
under COBRA.
The Compensation Committee approved the continuation of both
agreements discussed above under the same terms and conditions
with a renewal effective date of April 1, 2010.
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee met four times in 2009. In 2009, the
Companys Compensation Committee was composed of Robert A.
Tinstman (Chairman), Philip H. Britt, and Anthony S. Cleberg,
all of whom are independent directors and none of whom had any
relationship requiring disclosure by the Company under the
Certain Relationships and Related Transactions
section of this Proxy Statement. The Board adopted a
Compensation Committee Charter which governs the Compensation
Committee and is available on the Company website at
www.cnasurety.com and will be provided to any shareholder
upon request by contacting Gail Carey, representative of the
Company, at 333 S. Wabash Ave., 41st Floor,
Chicago, Illinois 60604,
(312) 822-5199.
COMPENSATION
COMMITTEE REPORT
The Committee reviewed and discussed the Compensation Discussion
and Analysis set forth above with the management of the Company,
and, based on such review and discussion, recommended to the
Board that the Compensation Discussion and Analysis be included
in this Proxy Statement.
SUBMITTED
BY THE COMPENSATION COMMITTEE
OF THE COMPANYS BOARD OF DIRECTORS
Philip H.
Britt
Anthony S. Cleberg
Robert A. Tinstman
16
EXECUTIVE
COMPENSATION
The following tables show information with respect to the annual
compensation (including option grants) for services rendered to
the Company (or its predecessors) for the years ended
December 31, 2009, December 31, 2008 and
December 31, 2007 by the Chief Executive Officer, the Chief
Financial Officer, and those persons who were, at
December 31, 2009, the three other most highly compensated
executive officers of the Company.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
Stock
|
|
Non-Equity
|
|
Deferred
|
|
All
|
|
|
|
|
|
|
|
|
(i.e. new hire,
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
Other
|
|
|
Name and Principal
|
|
|
|
Salary
|
|
stay,
etc.)(a)
|
|
Awards
|
|
Awards(b)
|
|
Compensation(c)
|
|
Earnings
|
|
Compensation(d)
|
|
Total
|
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
John F. Welch
|
|
|
2009
|
|
|
$
|
470,000
|
|
|
|
|
|
|
|
|
|
|
$
|
184,370
|
|
|
$
|
1,410,000
|
|
|
|
|
|
|
$
|
146,437
|
|
|
$
|
2,210,807
|
|
President and Chief
|
|
|
2008
|
|
|
$
|
435,000
|
|
|
|
|
|
|
|
|
|
|
$
|
152,312
|
|
|
$
|
1,261,500
|
|
|
|
|
|
|
$
|
119,791
|
|
|
$
|
1,968,603
|
|
Executive
|
|
|
2007
|
|
|
$
|
436,346
|
|
|
|
|
|
|
|
|
|
|
$
|
169,048
|
|
|
$
|
762,500
|
|
|
|
|
|
|
$
|
138,750
|
|
|
$
|
1,506,644
|
|
Douglas W. Hinkle
|
|
|
2009
|
|
|
$
|
259,615
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
39,380
|
|
|
$
|
260,000
|
|
|
|
|
|
|
$
|
55,671
|
|
|
$
|
714,666
|
|
Chief Underwriting
|
|
|
2008
|
|
|
$
|
250,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
$
|
34,760
|
|
|
$
|
250,000
|
|
|
|
|
|
|
$
|
45,857
|
|
|
$
|
630,617
|
|
Officer
|
|
|
2007
|
|
|
$
|
243,269
|
|
|
$
|
50,000
|
|
|
|
|
|
|
$
|
35,256
|
|
|
$
|
150,000
|
|
|
|
|
|
|
$
|
46,808
|
|
|
$
|
525,333
|
|
John F. Corcoran
|
|
|
2009
|
|
|
$
|
275,000
|
|
|
|
|
|
|
|
|
|
|
$
|
39,380
|
|
|
$
|
270,000
|
|
|
|
|
|
|
$
|
43,664
|
|
|
$
|
628,044
|
|
Chief Financial
|
|
|
2008
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
$
|
34,760
|
|
|
$
|
240,000
|
|
|
|
|
|
|
$
|
35,332
|
|
|
$
|
560,092
|
|
Officer
|
|
|
2007
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
$
|
38,872
|
|
|
$
|
150,000
|
|
|
|
|
|
|
$
|
34,708
|
|
|
$
|
473,580
|
|
Michael A. Dougherty
|
|
|
2009
|
|
|
$
|
239,884
|
|
|
|
|
|
|
|
|
|
|
$
|
35,800
|
|
|
$
|
221,760
|
|
|
|
|
|
|
$
|
44,835
|
|
|
$
|
542,279
|
|
Senior Vice
|
|
|
2008
|
|
|
$
|
228,038
|
|
|
|
|
|
|
|
|
|
|
$
|
30,968
|
|
|
$
|
207,900
|
|
|
|
|
|
|
$
|
40,389
|
|
|
$
|
507,295
|
|
President
|
|
|
2007
|
|
|
$
|
216,500
|
|
|
|
|
|
|
|
|
|
|
$
|
32,544
|
|
|
$
|
140,800
|
|
|
|
|
|
|
$
|
37,823
|
|
|
$
|
427,667
|
|
Thomas A. Pottle
|
|
|
2009
|
|
|
$
|
224,144
|
|
|
|
|
|
|
|
|
|
|
$
|
33,115
|
|
|
$
|
208,786
|
|
|
|
|
|
|
$
|
39,557
|
|
|
$
|
505,602
|
|
Senior Vice
|
|
|
2008
|
|
|
$
|
211,150
|
|
|
|
|
|
|
|
|
|
|
$
|
29,704
|
|
|
$
|
199,326
|
|
|
|
|
|
|
$
|
34,408
|
|
|
$
|
474,588
|
|
President
|
|
|
2007
|
|
|
$
|
209,494
|
|
|
|
|
|
|
|
|
|
|
$
|
31,640
|
|
|
$
|
126,690
|
|
|
|
|
|
|
$
|
36,021
|
|
|
$
|
403,845
|
|
|
|
|
(a) |
|
For a more detailed discussion, please see Retention and
Severance Agreements section of this Proxy Statement. |
|
(b) |
|
This column reflects the aggregate grant date fair value of the
stock option awards computed in accordance with Accounting
Standards Codification 718. For a more detailed discussion of
the assumptions used in valuing the Companys stock option
awards, please see Note 11 Stockholders
Equity in the Companys Annual Report on Form
10-K for the
year ended December 31, 2009. |
|
(c) |
|
The amounts reported in column (c) represent awards under
the AIB and LTI Plans for performance in 2007, 2008, and 2009.
For more information, please see the discussion under
Annual Cash Bonus and Long Term Cash
Incentive sections of the Compensation Discussion
and Analysis in this Proxy Statement. |
|
|
|
For John F. Welch 2009 Non-Equity Incentive Plan
Compensation includes: an AIB payment of $940,000 and an LTI
award of $470,000. Subject to LTI Plan guidelines, the LTI
amount will be paid out over three installments starting with
the March 12, 2010 payment. The actual amount paid to
Mr. Welch on March 12, 2010 for LTI was $359,667 which
is comprised of 1/3 payments for performance years 2007, 2008,
and 2009. |
|
|
|
For Douglas W. Hinkle 2009 Non-Equity Incentive Plan
Compensation includes: an AIB payment of $160,000, and an LTI
award of $100,000. Subject to LTI Plan guidelines, the LTI
amount will be paid out over three installments starting with
the March 12, 2010 payment. The actual amount paid to
Mr. Hinkle on March 12, 2010 for LTI was $80,000,
which is comprised of 1/3 payments for performance years 2007,
2008, and 2009. |
|
|
|
For John F. Corcoran 2009 Non-Equity Incentive Plan
Compensation includes: an AIB payment of $162,000 and an LTI
award of $108,000. Subject to LTI Plan guidelines, the LTI
amount will be paid out over three installments starting with
the March 12, 2010 payment. The actual amount paid to
Mr. Corcoran on March 12, 2010 for LTI was $82,667
which is comprised of 1/3 payments for performance years 2007,
2008, and 2009. |
17
|
|
|
|
|
For Michael A. Dougherty 2009 Non-Equity Incentive
Plan Compensation includes: an AIB payment of $129,360 and an
LTI award of $92,400. Subject to LTI Plan guidelines, the LTI
amount will be paid out over three installments starting with
the March 12, 2010 payment. The actual amount paid to
Mr. Dougherty on March 12, 2010 for LTI was $73,187,
which is comprised of 1/3 payments for performance years 2007,
2008, and 2009. |
|
|
|
For Thomas A. Pottle 2009 Non-Equity Incentive Plan
Compensation includes: an AIB payment of $121,792 and an LTI
award of $86,994. Subject to LTI Plan guidelines, the LTI amount
will be paid out over three installments starting with the
March 12, 2010 payment. The actual amount paid to
Mr. Pottle on March 12, 2010 for LTI was $68,413,
which is comprised of 1/3 payments for performance years 2007,
2008, and 2009. |
|
(d) |
|
Please refer to the All Other Compensation Table below for
additional information. |
The following table describes each component of the All Other
Compensation column in the Summary Compensation Table for the
year ended December 31, 2009.
All Other
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Deferred
|
|
Deferred
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
401(k) Plan
|
|
401(k) Plan
|
|
Compensation
|
|
Compensation
|
|
Compensation
|
|
|
|
|
|
|
Executive
|
|
Matching
|
|
Basic
|
|
Discretionary
|
|
Matching
|
|
Basic
|
|
Discretionary
|
|
Life
|
|
|
Name
|
|
Perquisites
|
|
Contributions
|
|
Contributions
|
|
Contribution
|
|
Contributions
|
|
Contributions
|
|
Contributions
|
|
Insurance
|
|
Total
|
|
John F. Welch
|
|
$
|
6,140
|
|
|
$
|
11,025
|
|
|
$
|
12,250
|
|
|
$
|
4,900
|
|
|
$
|
10,125
|
|
|
$
|
72,150
|
|
|
$
|
28,860
|
|
|
$
|
987
|
|
|
$
|
146,437
|
|
Douglas W. Hinkle
|
|
$
|
1,176
|
|
|
$
|
10,748
|
|
|
$
|
12,250
|
|
|
$
|
4,900
|
|
|
$
|
935
|
|
|
$
|
17,564
|
|
|
$
|
7,026
|
|
|
$
|
1,072
|
|
|
$
|
55,671
|
|
John F. Corcoran
|
|
$
|
3,145
|
|
|
$
|
10,607
|
|
|
$
|
7,350
|
|
|
$
|
4,900
|
|
|
$
|
1,768
|
|
|
$
|
10,292
|
|
|
$
|
5,200
|
|
|
$
|
402
|
|
|
$
|
43,664
|
|
Michael A. Dougherty
|
|
$
|
3,098
|
|
|
$
|
9,900
|
|
|
$
|
12,250
|
|
|
$
|
4,900
|
|
|
$
|
895
|
|
|
$
|
9,481
|
|
|
$
|
3,792
|
|
|
$
|
519
|
|
|
$
|
44,835
|
|
Thomas A. Pottle
|
|
$
|
|
|
|
$
|
10,086
|
|
|
$
|
12,250
|
|
|
$
|
4,900
|
|
|
$
|
|
|
|
$
|
8,460
|
|
|
$
|
3,384
|
|
|
$
|
477
|
|
|
$
|
39,557
|
|
Grants of
Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
|
|
Future
|
|
Future
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
Payout
|
|
Payout
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
Under
|
|
Under
|
|
Under
|
|
All Other
|
|
All Other
|
|
|
|
Date
|
|
|
|
|
Non-
|
|
Non-
|
|
Non-
|
|
Stock
|
|
Option
|
|
|
|
Fair
|
|
|
|
|
Equity
|
|
Equity
|
|
Equity
|
|
Awards:
|
|
Awards:
|
|
Exercise
|
|
Value
|
|
|
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
|
Number of
|
|
Number of
|
|
or Base
|
|
of Stock
|
|
|
|
|
Plan
|
|
Plan
|
|
Plan
|
|
Shares of
|
|
Securities
|
|
Price of
|
|
Options
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Awards:
|
|
Stock or
|
|
Underlying
|
|
Option
|
|
and
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Options
|
|
Awards ($
|
|
Awards
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
per
share)(c)
|
|
($)
|
|
John F. Welch
|
|
|
2/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,600
|
|
|
$
|
18.85
|
|
|
$
|
184,370
|
|
|
|
|
(a
|
)
|
|
$
|
235,000
|
|
|
$
|
470,000
|
|
|
$
|
940,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
$
|
58,750
|
|
|
$
|
235,000
|
|
|
$
|
470,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas W. Hinkle
|
|
|
2/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
$
|
18.85
|
|
|
$
|
39,380
|
|
|
|
|
(a
|
)
|
|
$
|
50,000
|
|
|
$
|
100,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
$
|
12,500
|
|
|
$
|
50,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Corcoran
|
|
|
2/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
$
|
18.85
|
|
|
$
|
39,380
|
|
|
|
|
(a
|
)
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
$
|
162,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
$
|
13,500
|
|
|
$
|
54,000
|
|
|
$
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Dougherty
|
|
|
2/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
18.85
|
|
|
$
|
35,800
|
|
|
|
|
(a
|
)
|
|
$
|
46,200
|
|
|
$
|
92,400
|
|
|
$
|
138,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
$
|
11,550
|
|
|
$
|
46,200
|
|
|
$
|
92,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Pottle
|
|
|
2/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,700
|
|
|
$
|
18.85
|
|
|
$
|
33,115
|
|
|
|
|
(a
|
)
|
|
$
|
43,497
|
|
|
$
|
86,994
|
|
|
$
|
130,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
$
|
10,874
|
|
|
$
|
43,497
|
|
|
$
|
86,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These amounts reflect threshold, target, and maximum award
amounts for 2009 under our AIB Plan. The actual amounts earned
by each NEO are set forth in column (c) of the Summary
Compensation Table. See the |
18
|
|
|
|
|
Annual Cash Bonus section of the Compensation
Discussion and Analysis in this Proxy Statement for more
information regarding these awards. |
|
(b) |
|
These amounts reflect threshold, target, and maximum award
amounts for 2009 under our LTI Plan and are administered by the
Compensation Committee. The LTI awards are granted annually and
are earned based on ROE targets over a three-year period and
will become payable only to the extent that specific ROE goals
are achieved. The actual amounts awarded to each NEO are set
forth in column (c) of the Summary Compensation Table.
Please refer to the Long Term Incentives section of
the Compensation Discussion and Analysis section in
this Proxy Statement for more information regarding these awards. |
|
(c) |
|
The exercise price shown is the closing price of the
Companys Common Stock on February 6, 2009 as reported
by the Exchange. |
Outstanding
Equity Awards at FYE Table
The Equity Awards of the NEOs outstanding at December 31,
2009 are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Plan
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Awards:
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Market or
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
Stock
|
|
|
|
Incentive
|
|
Payout Value
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
Awards
|
|
Stock
|
|
Plan
|
|
of Unearned
|
|
|
|
|
Option
|
|
Option
|
|
Awards:
|
|
|
|
|
|
Number of
|
|
Awards
|
|
Awards:
|
|
Shares,
|
|
|
|
|
Awards
|
|
Awards
|
|
Number of
|
|
|
|
|
|
Shares or
|
|
Market
|
|
Number of
|
|
Units, or
|
|
|
|
|
Number of
|
|
Number of
|
|
Securities
|
|
|
|
|
|
Units of
|
|
Value of
|
|
Unearned
|
|
Other
|
|
|
|
|
Securities
|
|
Securities
|
|
Underlying
|
|
|
|
|
|
Stock
|
|
Shares
|
|
Shares, Units,
|
|
Rights
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Unexercised
|
|
Option
|
|
|
|
That
|
|
or Units
|
|
or Other Rights
|
|
That
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unearned
|
|
Exercise
|
|
Option
|
|
Have
|
|
of Stock That
|
|
That
|
|
Have
|
|
|
Date of
|
|
Options (#)
|
|
Options (#)
|
|
Options
|
|
Price
|
|
Expiration
|
|
Not
|
|
Have Not
|
|
Have Not
|
|
Not
|
Name
|
|
Grant
|
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Vested (#)
|
|
Vested ($)
|
|
John F. Welch
|
|
06/30/2003
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
9.85
|
|
|
|
06/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/2003
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/09/2004
|
|
|
29,700
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/25/2005
|
|
|
26,500
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/2007
|
|
|
9,350
|
|
|
|
9,350
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2008
|
|
|
6,025
|
|
|
|
18,075
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/2009
|
|
|
|
|
|
|
20,600
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas W. Hinkle
|
|
08/11/2004
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
$
|
10.58
|
|
|
|
08/11/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/09/2004
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/25/2005
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/2007
|
|
|
1,950
|
|
|
|
1,950
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2008
|
|
|
1,375
|
|
|
|
4,125
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/2009
|
|
|
|
|
|
|
4,400
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Corcoran
|
|
11/11/2003
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/2003
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/09/2004
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/25/2005
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/2007
|
|
|
2,150
|
|
|
|
2,150
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2008
|
|
|
1,375
|
|
|
|
4,125
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/2009
|
|
|
|
|
|
|
4,400
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Dougherty
|
|
11/19/2002
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
$
|
9.35
|
|
|
|
11/19/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/2003
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/09/2004
|
|
|
4,650
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/25/2005
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/2007
|
|
|
1,800
|
|
|
|
1,800
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2008
|
|
|
1,225
|
|
|
|
3,675
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/2009
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Pottle
|
|
03/06/2001
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
$
|
13.05
|
|
|
|
03/06/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/13/2001
|
|
|
7,800
|
|
|
|
|
|
|
|
|
|
|
$
|
14.61
|
|
|
|
11/13/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/19/2002
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
$
|
9.35
|
|
|
|
11/19/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/2003
|
|
|
7,600
|
|
|
|
|
|
|
|
|
|
|
$
|
9.42
|
|
|
|
11/11/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/09/2004
|
|
|
6,100
|
|
|
|
|
|
|
|
|
|
|
$
|
12.06
|
|
|
|
11/09/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/25/2005
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
$
|
13.07
|
|
|
|
10/25/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/2007
|
|
|
1,750
|
|
|
|
1,750
|
|
|
|
|
|
|
$
|
20.70
|
|
|
|
02/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2008
|
|
|
1,175
|
|
|
|
3,525
|
|
|
|
|
|
|
$
|
16.35
|
|
|
|
02/08/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/2009
|
|
|
|
|
|
|
3,700
|
|
|
|
|
|
|
$
|
18.85
|
|
|
|
02/06/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For each grant, 25% of the shares vest annually one year from
the grant date, and then an additional 25% vests annually for
the next three years. For example, for the
11/11/2003
grant date, 25% of the shares granted vested on
11/11/2004,
25% on
11/11/2005,
25% on
11/11/2006,
and 25% on
11/11/2007.
The
11/11/2003
grant date for Mr. Corcoran includes two separate grants:
one grant for his commencement as a newly hired executive; and a
19
second grant as a prorated percentage of the stock grants made
that date to senior executives. Stock options are governed by
the CNA Surety Corporation 2006 Long Term Equity Compensation
Plan which does not have an express
change-in-control
provision. In the event of a
change-in-control,
any changes to stock options would be decided by and
administered by the Compensation Committee.
The following table provides additional information about the
value realized by the NEOs on stock option exercises and stock
awards vesting during the year ended December 31, 2009.
Option
Exercises and Stock Vesting Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
Option
|
|
Number of
|
|
Stock
|
|
|
|
|
Awards:
|
|
Shares
|
|
Awards:
|
|
|
Option Awards:
|
|
Value
|
|
Acquired
|
|
Value
|
|
|
Number of Shares
|
|
Realized on
|
|
on
|
|
Realized
|
|
|
Acquired on
|
|
Exercise
|
|
Vesting
|
|
on Vesting
|
Name
|
|
Exercise (#)
|
|
($)
|
|
(#)
|
|
($)
|
|
John F. Welch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas W. Hinkle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Corcoran
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Dougherty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Pottle
|
|
|
20,200
|
|
|
$
|
120,198
|
|
|
|
|
|
|
|
|
|
The value realized by a NEO upon the exercise of an option is
determined by multiplying the number of options exercised by the
difference between the fair market value on the date of exercise
and the exercise price.
The following table provides information on contributions,
earnings, and account balances for the NEOs in the
Companys 2005 Deferred Compensation Plan and the 2000
Deferred Compensation Plan as of December 31, 2009.
Non
Qualified Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Earnings
|
|
|
|
Balance
|
|
|
Executive
|
|
Registrant
|
|
in Last
|
|
Aggregate
|
|
at Last
|
|
|
Contributions in Last
|
|
Contributions in
|
|
Fiscal
|
|
Withdrawals/
|
|
Fiscal
|
|
|
Fiscal Year
|
|
Last Fiscal Year
|
|
Year
|
|
Distributions
|
|
Year End
|
Name(a)
|
|
($)(b)
|
|
($)(c)
|
|
($)(d)
|
|
($)
|
|
($)(e)
|
|
John F. Welch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
28,200
|
|
|
$
|
111,135
|
|
|
$
|
19,411
|
|
|
|
|
|
|
$
|
415,622
|
|
2000 Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
$
|
2,676
|
|
|
|
|
|
|
$
|
47,863
|
|
Douglas W. Hinkle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
20,769
|
|
|
$
|
25,524
|
|
|
$
|
13,121
|
|
|
|
|
|
|
$
|
124,272
|
|
2000 Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Corcoran
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
27,500
|
|
|
$
|
17,260
|
|
|
$
|
20,184
|
|
|
|
|
|
|
$
|
170,063
|
|
2000 Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
$
|
5,545
|
|
|
|
|
|
|
$
|
19,813
|
|
Michael A. Dougherty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
$
|
14,393
|
|
|
$
|
14,168
|
|
|
$
|
18,855
|
|
|
|
|
|
|
$
|
107,530
|
|
2000 Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
$
|
58,661
|
|
|
|
|
|
|
$
|
286,591
|
|
Thomas A. Pottle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Deferred Compensation Plan
|
|
|
|
|
|
$
|
11,844
|
|
|
$
|
2,460
|
|
|
|
|
|
|
$
|
27,365
|
|
2000 Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
$
|
10,380
|
|
|
|
|
|
|
$
|
98,272
|
|
(a) (b) (c) (d) (e) The 2005 Deferred Compensation
Plan was adopted to replace the Companys 2000 Deferred
Compensation Plan which after December 31, 2004 no longer
accepted contributions. Accordingly, the 2000
20
Deferred Compensation Plan shown in the above chart only shows
Earnings and Aggregate Year End Balances for Fiscal Year End
2009 (FYE 2009).
(c) For the 2005 Deferred Compensation Plan, Column
(c) includes the Companys Deferred Compensation
Basic, Matching, and Discretionary Contributions to the NEOs for
FYE 2009. Additionally, the 2005 Deferred Compensation Plan
amounts in Column (c) are a component of the figures listed
in Column (f) of the Summary Compensation Table of this
Proxy Statement attributable to annual Company contributions to
vested and unvested defined contribution plans. For a more
detailed discussion of the 2005 Deferred Compensation Plan,
refer to the Deferred Compensation section of the
Compensation Discussion and Analysis section of this
Proxy Statement.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal
Shareholders
The following table contains certain information as of
December 31, 2009 (unless otherwise noted) as to all
entities which, to the Companys knowledge, were the
beneficial owners of 5% or more of the outstanding shares of the
Companys Common Stock. Information in the table is based
upon reports filed with the SEC pursuant to Section 13(d)
and 16(a) under the Securities Exchange Act of 1934 and other
written representations received by the Company with respect to
entities named in the tables. Beneficial ownership is defined
for this purpose as the sole or shared power to vote or to
direct the disposition of the Common Stock. Unless otherwise
noted, the persons in the following table have sole voting and
investment power with respect to all shares shown as
beneficially owned by them:
|
|
|
|
|
|
|
|
|
Name and Address of
|
|
Amount
|
|
Percent of
|
Beneficial Owner
|
|
Beneficially
Owned(1)
|
|
Class
|
|
Continental Casualty Company and Affiliates
|
|
|
27,425,147
|
|
|
|
61.95
|
%
|
333 S. Wabash Ave.
|
|
|
|
|
|
|
|
|
Chicago, Illinois 60604
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
3,114,207
|
|
|
|
7.03
|
%
|
Palisades West, Building One
|
|
|
|
|
|
|
|
|
Bee Cave Rd.
|
|
|
|
|
|
|
|
|
Austin, Texas 78746
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of shares of the Companys Common Stock
indicated as beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial
ownership of securities. |
21
MANAGEMENT
AND DIRECTORS
The following table shows certain information, at March 10,
2010, as to the shares of the Companys Common Stock
beneficially owned by each director and nominee, each NEO named
in the Summary Compensation Table, and all of the Companys
executive officers and directors as a group, based on
information furnished by them.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Upon
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Deferred
|
|
|
Exercise of
|
|
|
|
|
|
|
|
|
Name of
|
|
Common
|
|
|
Stock
|
|
|
Stock
|
|
|
|
|
|
|
Percent
|
|
Beneficial Owner
|
|
Stock(1)
|
|
|
Units(2)
|
|
|
Options(3)
|
|
|
Total(1)(2)(3)
|
|
|
|
of Class
|
|
|
Philip H. Britt
|
|
|
3,097
|
|
|
|
9,919
|
|
|
|
|
|
|
|
13,016
|
|
|
|
|
*
|
|
Anthony S. Cleberg
|
|
|
3,291
|
|
|
|
|
|
|
|
|
|
|
|
3,291
|
|
|
|
|
*
|
|
John F. Corcoran
|
|
|
|
|
|
|
|
|
|
|
31,875
|
|
|
|
31,875
|
|
|
|
|
*
|
|
Michael A. Dougherty
|
|
|
6,900
|
|
|
|
|
|
|
|
22,100
|
|
|
|
29,000
|
|
|
|
|
*
|
|
David B.
Edelson(4)
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
|
|
|
*
|
|
Douglas W. Hinkle
|
|
|
|
|
|
|
|
|
|
|
20,875
|
|
|
|
20,875
|
|
|
|
|
*
|
|
D. Craig
Mense(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Thomas A. Pottle
|
|
|
2,000
|
|
|
|
|
|
|
|
39,100
|
|
|
|
41,100
|
|
|
|
|
*
|
|
Robert A. Tinstman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
John F. Welch
|
|
|
|
|
|
|
|
|
|
|
156,025
|
|
|
|
156,025
|
|
|
|
|
*
|
|
Peter W.
Wilson(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All directors and executive officers** as a group
|
|
|
18,488
|
|
|
|
9,919
|
|
|
|
274,065
|
|
|
|
302,472
|
|
|
|
|
*
|
|
|
|
|
* |
|
Less than 1% |
|
** |
|
Includes all executive officers included in Directors and
Executive Officers of the Registrant section of this Proxy
Statement. |
|
(1) |
|
Except as otherwise indicated, the persons listed as beneficial
owners of shares have sole voting and investment power with
respect to those shares. |
|
(2) |
|
In January 1998, the Company established the CNA Surety
Corporation Non-Employee Directors Deferred Compensation
Plan. Under this plan, each director who was not a full-time
employee of the Company or any of its affiliates could defer all
or a portion of the annual retainer fee that would otherwise
have been paid to such director. The deferral amount was deemed
vested in Common Stock Units equal to the deferred fees divided
by the fair market value of the Companys Common Stock as
of each quarterly meeting. The Compensation Committee voted to
eliminate the Non-Employee Director Compensation Plan effective
January 1, 2005. |
|
(3) |
|
Represents beneficial ownership of shares that may be acquired
by the exercise of stock options, which are currently
exercisable as of the date of this table. |
|
(4) |
|
Although not reflected in the above table, Mr. Edelson
currently has 112,496 Stock Appreciation Rights
(SARs) and 45,000 stock options exercisable for
Loews Corporation. Mr. Edelson currently owns
2,000 shares of CNAF stock. |
|
(5) |
|
Although not reflected in the above table, Mr. Mense
currently has 50,000 stock options and 66,250 SARs exercisable
for CNAF stock. Mr. Mense currently owns 17,054 shares
of CNAF stock. |
|
(6) |
|
Although not reflected in the above table, Mr. Wilson
currently has 30,000 stock options and 50,000 SARs exercisable
for CNAF stock. |
22
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number Securities
|
|
|
|
|
|
|
to be Issued Upon
|
|
Weighted-Average
|
|
Number of Securities
|
|
|
Exercise of
|
|
Exercise Price of
|
|
Remaining Available for
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
Future Issuance Under
|
Plan Category
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Equity Compensation Plans
|
|
Equity compensation plans approved by security holders
|
|
|
1,318,288
|
|
|
$
|
15.78
|
|
|
|
2,252,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,318,288
|
|
|
$
|
15.78
|
|
|
|
2,252,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, the shareholders of the Company approved the CNA Surety
Corporation 2006 Long Term Equity Compensation Plan (2006
Plan). The 2006 Plan included 3,000,000 total shares
comprised of: 2,453,598 newly authorized shares and 546,402
carryover shares which were previously available for grant under
the CNA Surety Corporation 1997 Long Term Equity Compensation
Plan (1997 Plan). The 1,318,288 shares listed
above have been granted and are available for exercise, subject
to vesting rules, under the both the 2006 Plan and the 1997
Plan. A total of 217,960 stock options were granted in 2009.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
It is our policy that any transaction involving the Company or
any of its subsidiaries in which any of our directors, executive
officers, or Principal Shareholders had or will have a direct or
indirect material interest be submitted to our Audit Committee
for its consideration. In each case, such consideration and
discussion is without the participation of any Audit Committee
member who may be involved in the transaction. The Audit
Committee, which consists entirely of Independent Directors,
considers all relevant facts in order to determine whether the
transaction is fair and reasonable to us and our shareholders,
including our minority shareholders. Although there is no
written statement of the review procedure, the Audit
Committees review, approval, or ratification of such
related party transactions is reflected in the meeting records
of the Audit Committee. The last such review took place in
February 2010.
Related
Party Reinsurance
The Surety Quota Share Treaty (the Quota Share
Treaty), the Services and Indemnity Agreement, the
Aggregate Stop Loss Reinsurance Contract (the Stop Loss
Contract), and the Surety Excess of Loss Reinsurance
Contract (the Excess of Loss Contract) discussed
below were originally entered on September 30, 1997 (the
Merger Date) and have been renewed or extended since
that time.
Through the Quota Share Treaty, surety business written or
renewed by Continental Casualty Company (CCC) and
Continental Insurance Company (CIC) (CCC and CIC are
subsidiaries of CNAF) after the Merger Date is transferred to
the Companys subsidiary, Western Surety Company
(Western Surety). The Quota Share Treaty, which was
renewed on January 1, 2009 and expired on December 31,
2009, was renewed for one year on January 1, 2010 on
substantially the same terms as 2009 with one exception. As of
January 1, 2010, this treaty no longer covers bonds written
by CCC through its Canadian branch since such business is now
covered by the Canadian quota share treaty discussed below. CCC
and CIC transfer the related liabilities of business covered by
this treaty and pay to Western Surety an amount equal to
CCCs and CICs net written premiums written on all
such business, minus a quarterly ceding commission to be
retained by CCC and CIC equal to $50,000 plus 25% of net written
premiums written on all such business. Under the terms of the
Quota Share Treaty, CCC has guaranteed the loss and loss
adjustment expense reserves transferred to Western Surety as of
the Merger Date by agreeing to pay Western Surety, within
30 days following the end of each calendar quarter, the
amount of any adverse development on such reserves, as
re-estimated as of the end of such calendar quarter. There was
no adverse reserve development for the period from the Merger
Date through December 31, 2009.
The Services and Indemnity Agreement provides the Companys
insurance subsidiaries with the authority to perform various
administrative, management, underwriting, and claim functions
concerning the surety business of
23
CCC and CIC ceded to Western Surety under the Quota Share
Treaty. This Agreement also grants the Company authority to
conduct administrative, management, underwriting, and claim
functions for bonds covered by the Excess of Loss Contract
discussed below until all bonds subject to the Excess of Loss
Contract have settled or closed. As of December 31, 2009,
there were no amounts due our insurance subsidiaries under the
Services and Indemnity Agreement. This Agreement was renewed
with the same terms on January 1, 2010 and expires on
December 31, 2010 and is annually renewable thereafter.
Through the Stop Loss Contract, the Companys insurance
subsidiaries were protected from adverse loss development on
certain business underwritten after the Merger Date. The Stop
Loss Contract between the Companys insurance subsidiaries
and CCC limited the insurance subsidiaries prospective net
loss ratios with respect to certain accounts and lines of
insured business for three full accident years following the
Merger Date. In the event the insurance subsidiaries
accident year net loss ratio exceeds 24% in any of the accident
years 1997 through 2000 on certain insured accounts (the
Loss Ratio Cap), the Stop Loss Contract requires CCC
at the end of each calendar quarter following the Merger Date,
to pay to the insurance subsidiaries a dollar amount equal to
(i) the amount, if any, by which the Companys actual
accident year net loss ratio exceeds the applicable Loss Ratio
Cap, multiplied by (ii) the applicable net earned premiums.
In consideration for the coverage provided by the Stop Loss
Contract, the Companys insurance subsidiaries pay CCC an
annual premium of $20,000. Losses incurred under the Stop Loss
Contract were $49.1 million through December 31, 2009.
At December 31, 2009, the amount received under the Stop
Loss Contract included $2.1 million held by the Company for
losses covered by this contract that were incurred but not paid.
The Company and CCC have been parties to an Excess of Loss
Contract since January 1, 2005, which provides reinsurance
coverage exclusively for the one large national contractor
excluded from the Companys third party reinsurance. This
contract, which was terminated during 2009, provided unlimited
coverage in excess of $60 million retention for the life of
bonds either in force or written during the period from
January 1, 2005 to December 31, 2005. This contract
was extended for twelve months beginning on January 1,
2006, 2007, 2008, and 2009. The Company paid premium of less
than $0.1 million for the extended coverage available
during 2009.
On June 30, 2009, the Company and CCC terminated the Excess
of Loss Contract discussed in the preceding paragraph. Related
to the termination of the Excess of Loss Contract, the Company
and CCC commuted the Quota Share Treaty regarding the premium
and losses for the large national contractor covered by the
Excess of Loss Contract. Under the terms of the agreements
effecting this commutation, the Company paid CCC
$1.8 million. This settlement reflects the difference
between the Companys $60.0 million retention under
the Excess of Loss Contract and the $58.2 million paid by
the Company for losses of the large national contractor through
June 30, 2009.
On January 1, 2010, the Company and CCC entered into two
separate agreements that provide for the transfer of the
Canadian surety business of CCC to Western Surety. These
agreements, which include a quota share treaty (the
Canadian Quota Share Treaty) and a services and
indemnity agreement (the Canadian Services and Indemnity
Agreement), are substantially similar to the Quota Share
Treaty and the Services and Indemnity Agreement discussed above.
The Canadian Services and Indemnity Agreement provides Western
Surety with the authority to supervise various administrative,
underwriting, and claim functions associated with the surety
business written by CCC, through its Canadian branch, on behalf
of Western Surety. Through the Canadian Quota Share Treaty, this
Canadian surety business is transferred to Western Surety.
Pursuant to these agreements, CCC will transfer the subject
premium and related liabilities of such business and pay to
Western Surety an amount equal to CCCs net written
premiums on all such business, minus a ceding commission of
33.5% of net written premiums. Further, Western Surety will pay
an additional ceding commission to CCC in the amount of actual
direct expense in producing such premium. These agreements
expire on December 31, 2010 and are annually renewable
thereafter.
As of December 31, 2009, Western Surety had an insurance
receivable balance from CCC and CIC of $9.8 million,
comprised of premiums receivable. Western Surety had no
reinsurance payables to CCC and CIC as of December 31, 2009.
The Companys Consolidated Balance Sheets also include a
Deposit with affiliated ceding company of
$26.9 million at December 31, 2009. In 2005, pursuant
to an agreement with the claimant on a bond regarding certain
aspects of the claim resolution, the Company deposited
$32.7 million with an affiliate to enable the affiliate to
establish a trust to fund future payments under the bond. The
bond was written by the affiliate and assumed by one
24
of the Companys insurance subsidiaries pursuant to the
Quota Share Treaty. The Company is entitled to the interest
income earned by the trust. Prior to the establishment of the
trust, the Company had fully reserved its obligation under the
bond and the claim remains fully reserved.
Under the terms of an excess of loss agreement with First
Insurance Company of Hawaii, Ltd. and its subsidiaries which
include First Indemnity Insurance of Hawaii, Inc., First Fire
and Casualty Insurance of Hawaii, Inc., and First Security
Insurance of Hawaii, Inc. (collectively, FICOH),
Western Surety assumed $0.1 million of premium in 2009.
This agreement provides that FICOH retains losses of
$2 million per principal and Western Surety assumes 80% of
$5 million per principal subject to an aggregate annual
limit of $8 million. CNAF, through its insurance
subsidiaries, owns approximately 50% of the outstanding common
stock of First Insurance Company of Hawaii, Ltd.
All agreements discussed above were approved by the Audit
Committee.
Other
Related Party Transactions
CNA Surety and CCC are parties to an Administrative Services
Agreement (ASA), which has been in effect since
July 1, 2004, that allows the Company to purchase
and/or have
access to certain services provided by CCC and its affiliates,
including the leasing of executive and branch offices. Pursuant
to the ASA, the Company paid CCC an annual management fee of
$2.1 million for 2009 in addition to charges of
$6.9 million for leased office space and services. The
Company was also charged $0.2 million in 2009 for the
direct costs incurred by CCC on the Companys behalf. The
Company had a $0.4 million payable balance to CCC related
to the ASA as of December 31, 2009. As provided by the ASA,
CCC paid the Company $1.4 million for the year ended
December 31, 2009 for insurance agent licensing services
provided by the Company. This agreement shall remain in effect
until CNAF or its affiliates or shareholders cease being a
majority shareholder of CNA Surety unless otherwise terminated
by either party. This agreement is approved annually by the
Audit Committee.
Western Surety previously provided surety bonds guaranteeing
insurance premium payment obligations of certain customers of
CCC and its affiliates under retrospectively rated insurance
policies underwritten by CCC and its affiliates. The
Companys remaining exposure under these bonds expired as
of December 31, 2009.
Pursuant to procedures approved by the Audit Committee, Western
Surety from time to time provides license and permit bonds and
appeal bonds for CCC and its affiliates as well as for clients
of CCC and its affiliates. As of December 31, 2009, the
aggregate outstanding liability of these bonds was
$42.5 million. The premium for all such bonds written was
approximately $0.3 million in 2009.
Western Surety also has liability, either directly or through
assumed reinsurance, under bonds written for Loews and certain
of its subsidiaries which include Diamond Offshore Drilling,
Inc. (Diamond Offshore), Boardwalk Pipeline
Partners, LP (Boardwalk Pipeline), Mexdrill
Offshore, S. DE R.L. DE C. V, which is a subsidiary of
Diamond Offshore, and Gulf South Pipeline Company, LP, which is
a subsidiary of Boardwalk Pipeline. As of December 31,
2009, Loews owns 50.4% of Diamond Offshore and 72% of Boardwalk
Pipeline. As of December 31, 2009, the aggregate liability
under all such bonds was approximately $108.5 million and
the premium was approximately $0.2 million in 2009. All
bonds for Loews and its subsidiaries were approved by the Audit
Committee.
Section 16(A)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the Companys officers and directors, and persons
who own more than ten percent of the Companys outstanding
Common Stock (Reporting Persons), to file reports of
ownership and changes in ownership of such securities with the
SEC. Reporting Persons are required to deliver copies of all
Section 16(a) forms to the Company simultaneously for
filing with the SEC. Based solely upon review of the copies of
the forms furnished to the Company, and written representations
from certain Reporting Persons that no other reports were
required, the Company believes that for 2009 all reports
required by Section 16(a) of the Exchange Act have been
timely filed.
25
RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
(PROPOSAL 2)
The Audit Committee has selected Deloitte & Touche LLP
as the Companys independent registered public accounting
firm for the 2010 fiscal year. Deloitte & Touche LLP
has served as the Companys independent auditor since the
last three months ended December 31, 1997. A representative
of Deloitte & Touche LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if he
or she so desires and will be available to respond to
appropriate questions. A description of the fees paid to
Deloitte & Touche LLP in fiscal year 2009 is outlined
below.
At the Annual Meeting, if a quorum is present, the vote of
holders of a majority of the Companys Common Stock having
the power to vote in person or represented by proxy shall ratify
the appointment, by the Board of Directors, of
Deloitte & Touche LLP as the Companys
independent registered public accounting firm. It is the present
intention of the Companys Proxy Agents to vote at the
Annual Meeting the proxies which have been duly executed, dated,
and delivered and which have not been revoked in accordance with
the instructions set forth thereon or if no instruction had been
given or indicated, for the ratification of the appointment of
Deloitte & Touche LLP as the Companys
independent registered public accounting firm.
For the years ended December 31, 2009 and 2008,
professional services were performed by Deloitte &
Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates (collectively, Deloitte).
Audit
Fees
The aggregate fees billed for the audit of the Companys
annual financial statements for the fiscal years ended
December 31, 2009 and 2008 and for the reviews of the
financial statements included in the Companys Quarterly
Reports on
Form 10-Q
were $1,210,000 and $1,329,000, respectively. The fees for the
fiscal year ended December 31, 2009 reflect those fees
billed by Deloitte & Touche LLP as of March 8, 2010.
Audit-Related
Fees
The aggregate fees billed for the audit-related services for the
years ended December 31, 2009 and 2008 were $12,000 and
$25,651, respectively. These fees generally include fees for
consents and comfort letters, accounting consultations,
Sarbanes-Oxley Act Section 404 advisory services, and SEC
related matters.
Tax
Fees
None.
All Other
Fees
None.
The Audit Committee has established a pre-approval policy with
regard to audit, audit-related, and certain non-audit
engagements by the Company of its independent registered public
accounting firm. Under this policy, the Audit Committee annually
pre-approves certain limited, specified recurring services which
may be provided by Deloitte & Touche LLP, subject to
maximum dollar limitations. All other engagements for services
to be performed by Deloitte & Touche LLP must be separately
pre-approved by the Audit Committee. The Audit Committee has
also designated the Chairperson of the Committee as having
authority to pre-approve such engagements as allowed by the
policy, subject to reporting on such pre-approvals to the Audit
Committee at its next scheduled meeting. All audit fees and
audit related fees were pre-approved by the Audit Committee.
Vote
Required
The proposal to ratify the Audit Committees appointment of
the Companys independent registered public accounting
firm, Deloitte & Touche LLP, for fiscal year 2010
requires an affirmative vote of holders of a majority of the
voting power represented by shares of our Common Stock present
in person or represented by proxy and entitled to vote at the
Annual Meeting.
26
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR
2010. IF A CHOICE IS SPECIFIED ON THE PROXY BY THE SHAREHOLDER,
THE SHARES WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SHARES WILL BE VOTED FOR RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
SHAREHOLDERS
PROPOSALS FOR 2011 ANNUAL MEETING
If you wish to submit a proposal for the 2011 Annual Meeting, it
must be received by November 15, 2010 and addressed to the
Companys Corporate Secretary, CNA Surety Corporation, 333
S. Wabash Ave., 41st Floor, Chicago, Illinois 60604 in order to
be eligible under the SECs shareholder proposal rule (Rule
14a-8) for inclusion in the proxy materials for the 2011 Annual
Meeting.
Any shareholder proposal to be considered at the Companys
2011 Annual Meeting, but not included in the proxy material,
must be received at the above address not less than fifty (50)
days nor more than seventy-five (75) days prior to the 2011
Annual Meeting. However, in the event that less than sixty-five
(65) days notice or prior public disclosure of the date of the
2011 Annual Meeting is given or made to the shareholders, a
shareholder proposal, in order to be timely, must be so received
not later than the close of business on the fifteenth day
following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. If your
proposal is not timely, as defined above, then proxies solicited
by us for the 2011 Annual Meeting may confer discretionary
authority to us to vote on that proposal.
OTHER
MATTERS
The Company knows of no business which will be presented at the
Annual Meeting, other than the election of Directors to the
Board and the ratification of the Companys independent
registered public accounting firm. However, if other matters
properly come before the meeting, it is the intention of the
Proxy Agents to vote upon such matters in accordance with their
good judgment in such matters.
The cost of this proxy solicitation is anticipated to be nominal
and will be borne by the Company. The solicitation generally
will be effected by mail but officers, directors, or employees
of the Company may solicit proxies personally or by telephone,
e-mail, or
facsimile without additional compensation for such activity. The
Company will arrange for brokerage houses, nominees, and other
custodians holding Common Stock of the Company to forward
proxy-soliciting material to the beneficial owners of such
shares, and will reimburse such record owners for the reasonable
out-of-pocket
expenses incurred by them.
Shareholders are concurrently being furnished with a copy of the
Companys 2009 Annual Report to Shareholders, which
contains the Companys audited financial statements for the
year ended December 31, 2009. Additional copies may be
obtained through the Companys website as provided below or
by contacting Gail Carey, representative of the Company, at
333 S. Wabash Ave., 41st Floor, Chicago, Illinois
60604,
(312) 822-5199,
and such copies will be furnished at no expense.
The Proxy Statement and the 2009 Annual Report to
Shareholders are available at
http://www.cnasurety.com/about/investor_information.htm.
27
COMMUNICATIONS
WITH US BY SHAREHOLDERS AND OTHERS
If any shareholder or any other interested party wishes to
communicate with our Board of Directors, you my do so by writing
to our General Counsel, 333 S. Wabash Ave.,
41st Floor,
Chicago, Illinois, 60604. All such communications will be
delivered to the director or directors to whom they are
addressed.
By Order of the Board of Directors
Rosemary Quinn
Secretary
28
VOTE BY INTERNET www.proxyvote.com Use the Internet to transmit your voting instructions and
for electronic delivery of information up until 11:59 P.M. Eastern Time on April 28, 2010. Have
your proxy card in hand when you access the web site and follow the instructions to obtain your
records and to create an electronic voting instruction form. CNA SURETY CORPORATION VOTE BY PHONE -
1-800-690-6903 333 S. WABASH AVENUE, 41ST FLOOR Use any touch-tone telephone to transmit your
voting instructions up until 11:59 CHICAGO, IL 60604 P.M. Eastern Time on April 28, 2010. Have your
proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date
your proxy card and return it in the postage-paid envelope we have provided or return it to Vote
Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE
OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. For Withhold For All To withhold authority to
vote for any All All Except individual nominee(s), mark For All Except and write the number(s) of
the The Board of Directors recommends that you nominee(s) on the line below. vote FOR the
following: 0 0 0 1. Election of Directors Nominees 01 Philip H. Britt 02 Anthony S. Cleberg 03
David B. Edelson 04 D. Craig Mense 05 Robert A. Tinstman 06 John F. Welch 07 Peter W. Wilson The
Board of Directors recommends you vote FOR the following proposal(s): For Against Abstain 2 To
ratify the Audit Committees appointment of the Companys independent registered public accounting
firm, Deloitte & Touche 0 0 0 LLP, for the fiscal year 2010 NOTE: To transact such other business
as may properly come before the meeting or any adjournment or adjournments thereof. R2.09.05.010 1
Please sign exactly as your name(s) appear(s) hereon. When signing as 0000050192 attorney,
executor, administrator, or other fiduciary, please give full title as such. Joint owners should
each sign personally. All holders must sign. If a corporation or partnership, please sign in full
corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date
Signature (Joint Owners) Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice,
Proxy Statement and Annual Report is/ are available at www.proxyvote.com . CNA SURETY CORPORATION
Annual Meeting of Shareholders April 29, 2010 at 9:00 AM This proxy is solicited by the Board of
Directors The shareholders hereby appoint John F. Corcoran and Rosemary Quinn, or either of them,
as proxies, each with the power of substitution, and hereby authorize them to represent and to
vote, as designated on the reverse side of this ballot, all of the shares of Common stock of CNA
SURETY CORPORATION that the shareholders are entitled to vote at the Annual Meeting of Shareholders
to be held at 09:00 AM, CDT on April 29, 2010, at the Company business offices located at 333 S.
Wabash Avenue, 41st Floor Chicago, IL 60604, and any adjournment or postponement thereof. This
proxy, when properly executed, will be voted in the manner directed herein. If no such direction is
made, this proxy will be voted in accordance with the Board of Directors recommendations.
R2.09.05.010 2 0000050192 Continued and to be signed on reverse side |