Donegal Group Inc. 2020 Long-Term Executive Incentive Plan
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:
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).
Catastrophe Adjustmentan adjustment will be provided to the statutory combined ratio for the purpose of this Plan to limit the net effect of up to two catastrophe events per year. For purposes of this provision, a catastrophe event is defined as an event for which the Property Claims Services unit of Insurance Services Office issues a catastrophe serial number and for which the net effect to the Donegal Insurance Group exceeds $5 million when aggregating losses incurred, loss expenses incurred and reinstatement premiums. The statutory combined ratio for the purposes of this Plan will be charged with:
The first $5 million of the net effect of a catastrophe
One-half of the amount between $5 million and $10 million
None of the net effect above $10 million
In the event that more than two catastrophe events, as defined above, occur within a given calendar year, the statutory combined ratio for the purposes of this Plan will be charged with all of the net effect of the third and subsequent catastrophe events in that calendar year.
Stock Option Expense Adjustmentan adjustment will be provided to statutory combined ratio for the purpose of this Plan to remove the effect of stock option compensation expense included in the statutory financial statements.
Participants must be employed by Donegal Mutual Insurance Company on or before January 1, 2020 to be eligible to participate in this Plan. Participants must be employed by the Donegal Mutual Insurance Company on December 31, 2022 in order to receive a bonus payment under this Plan.
A 50% reduction in the bonus payable under this Plan will occur if the employees and managers of Donegal Mutual Insurance Company fail to qualify for bonuses under their respective annual incentive plans in any calendar year included in the three-year period covered by this Plan.
Any bonuses earned under this Plan shall be paid prior to March 15, 2023.
Approved participants in this Plan are listed in Appendix 1. Any changes to the participants in this Plan must be approved by the Committee.
This plan expires on December 31, 2022. The incentive payment will be a one-time payment based on the three-year average statutory combined ratio. Upon the expiration of this Plan, the Committee will be responsible for determining whether to implement a new long-term executive incentive plan.
Payment of bonuses under this Plan may be capped by the Committee in their sole discretion.
LONG-TERM EXECUTIVE INCENTIVE PLAN
Calendar Years 2020, 2021 and 2022
99.0 - 99.99%
98.0 - 98.99%
97.0 - 97.99%
96.0 - 96.99%
95.0 - 95.99%
94.0 - 94.99%
The participants eligible for the 2020-2022 Long-Term Executive Incentive Plan are as follows:
Kevin G. Burke
Jeffrey D. Miller
Richard G. Kelley
Daniel J. Wagner
Kristi S. Altshuler
William A. Folmar
Francis J. Haefner, Jr.
Christina M. Hoffman
Jeffrey A. Jacobsen
Robert R. Long, Jr.
V. Anthony Viozzi