DONEGAL MUTUAL INSURANCE COMPANY
DONEGAL GROUP INC.
LONG-TERM EXECUTIVE INCENTIVE PLAN
The Long-Term Executive Incentive Plan (this Plan) provides for the payment of performance-based bonuses to Plan participants based upon the Donegal Insurance Groups achievement of profitable performance over a three-year period. The key performance measure for this Plan is the adjusted statutory combined ratio, as defined in this Plan.
The Compensation Committee of the Boards of Directors of Donegal Mutual Insurance Company and Donegal Group Inc. (the Committee) shall have the sole and absolute discretion to interpret and apply the terms of this Plan, including, but not limited to, the determination of the achievement of the performance objective of Appendix 1.
The calculation of the adjusted statutory combined ratio will be based on the combined statutory financial results for the 2020, 2021 and 2022 calendar years for the Donegal Insurance Group, which includes the following legal entities for the purposes of this Plan:
Donegal Mutual Insurance Company
Atlantic States Insurance Company
Michigan Insurance Company
Mountain States Commercial Insurance Company
Mountain States Indemnity Company
Peninsula Indemnity Company
Peninsula Insurance Company
Southern Insurance Company of Virginia
Southern Mutual Insurance Company
Adjusted Statutory Combined Ratiostatutory combined ratio based on three-year financial results excluding any catastrophe adjustment(s), all executive incentive plan bonus payments and/or accruals and a stock option expense adjustment (see definitions below).
Each participant in this Plan shall be eligible to receive a bonus by multiplying the participants 2022 base salary, as defined in this Plan, by the bonus percentage shown in Appendix 1 that correlates to the average statutory combined ratio over the three-year period.
The calculation methodology is illustrated below:
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Average Statutory Combined Ratio of 97.0% = 40% x 2022 Base Salary = Performance Bonus
Base Salarytotal wages as reported on a participants W-2 for 2022, excluding any taxable fringe benefits, short or long-term disability pay, gains from exercise of stock options and prior-year bonus.
Statutory Combined Ratiosum of the net loss and loss expense ratio (net losses and loss expenses incurred divided by net premiums earned), the expense ratio (underwriting expenses less installment fee income divided by net premiums written) and the dividend ratio (policyholder dividends incurred divided by net premiums earned).