STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS

2001 Stock Incentive Plan and Non-Employee Director Stock Incentive Plan

The Company has a stock incentive plan (the “2001 Stock Incentive Plan”) under which employees of RenaissanceRe and its subsidiaries may be granted stock options and restricted stock awards. A stock option award under the Company’s 2001 Stock Incentive Plan allows for the purchase of RenaissanceRe Common Shares at a price that is equal to the fair market value of RenaissanceRe Common Shares as of the grant effective date. Options to purchase RenaissanceRe Common Shares are granted periodically by the Board of Directors, generally vest over four years and generally expire 10 years from the date of grant. Restricted common shares are granted periodically by the Board of Directors and generally vest ratably over a four year period. The Company has also established a Non-Employee Director Stock Incentive Plan to issue stock options and shares of restricted stock to RenaissanceRe’s non-employee directors. The Company’s 2001 Stock Incentive Plan also allows for the issuance of share-based awards, the issuance of restricted common shares and the issuance of shares tendered in connection with option exercises. For purposes of determining the number of shares reserved for issuance under the 2001 Stock Plan, shares tendered to or withheld by the Company in connection with certain option exercises will again be available for issuance. The 2001 Stock Incentive Plan expires on February 6, 2016.

Premium Option Plan

In August 2004, RenaissanceRe’s shareholders approved the 2004 Stock Option Incentive Plan (the “Premium Option Plan”) under which 6.0 million common shares were reserved for issuance upon the exercise of options granted under the Premium Option Plan. On August 15, 2007, the Company terminated the Premium Option Plan, such that no further option grants will be made thereunder. However, options outstanding at the time of the termination will, unless otherwise subsequently amended pursuant to the terms of the Premium Option Plan, remain outstanding and unmodified until they expire, subject to the terms of the Premium Option Plan and any applicable award agreement. The Premium Option Plan provides for, among other things, mandatory premium pricing such that options can generally only be issued thereunder with a strike price at a minimum of 150% of the fair market value on the date of grant, minimum five year cliff vesting (subject to waiver by the compensation committee of the Board of Directors), and no discretionary repricing. The Premium Option Plan includes a dividend protection feature that reduces the strike price for extraordinary dividends and a change in control feature that reduces the strike price based on a pre-established formula in the event of a change in control. Other terms are substantially similar to the 2001 Stock Incentive Plan. The Premium Option Plan expired on May 20, 2014 and at December 31, 2014 there are no options outstanding under the Premium Option Plan.

2010 Cash Settled Restricted Stock Unit Plan

In 2010, the Company instituted a restricted stock unit plan (the “2010 Cash Settled Restricted Stock Unit Plan”) allowing for the issuance of equity awards in the form of restricted stock units which will, subject to vesting requirements consistent with those utilized by the Company in respect of restricted shares, be settled in cash. Restricted stock units are liability awards with fair value measurement based on the market price of RenaissanceRe Common Shares at the end of each reporting period. Restricted share units are granted periodically by the Board of Directors and generally vest ratably over a four year period. During 2010, there were 900,000 restricted stock units reserved under the 2010 Cash Settled Restricted Stock Unit Plan.

2010 Performance-Based Equity Incentive Plan

In May 2010, RenaissanceRe’s shareholders approved the 2010 Performance-Based Equity Incentive Plan (“2010 Performance Plan”) under which 750,000 shares have been reserved (the “Performance Shares”). The Compensation Committee determined that, beginning in 2010 with the Company’s annual target-level incentive award grant cycle, 25% of the annual equity incentive award grants to each member of RenaissanceRe’s Executive Committee, which includes the Company’s Named Executive Officers, will be subject to vesting conditions based on both continued service and the attainment of pre-established performance goals. If performance goals are achieved, the Performance Shares will vest up to a maximum of 250% of target. The 2010 grants vest over a period of three years and are based on annual performance periods. All subsequent grants cliff vest at the end of a three year vesting period. The Performance Shares have a market condition which is the Company’s total shareholder return relative to its peer group. Total shareholder return is based on the average closing share price over the 20 trading days preceding and including the start and end of the performance period.

The Chief Executive Officer (“CEO”) received a special performance award on his promotion to CEO effective July 1, 2013. The special equity award was issued in the form restricted stock and performance shares. The conditions attached to the restricted stock awards are identical to the conditions under the 2001 Stock Incentive Plan and the Non-Employee Director Stock Incentive Plan. If performance goals are achieved, the Performance Shares for the CEO vest up to a maximum of 250% of target. This grant vests over a period of four years, ending December 2016, and is based on annual performance periods.

Valuation Assumptions

Performance Shares

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




	Performance Shares
Year ended December 31,	2014	2013
Expected volatility (1)	14.5% - 18.6%	19.0% - 19.6%
Expected term (in years)	n/a	n/a
Expected dividend yield	n/a	n/a
Risk-free interest rate (1)	0.08% - 1.65%	0.09% - 1.39%


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

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

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

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

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

The total cost of the Performance Shares is determined on the grant date based on the fair value calculated by the Monte Carlo simulation model. The Company recognizes cost equal to fair value per Performance Share multiplied by the target number of Performance Shares on the grant date. The cost is then recognized over the requisite service period net of estimated service-based forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For the year ended December 31, 2014, the Company used a 0% forfeiture rate for performance shares (2013 - 0%).

Restricted Shares

The fair value of restricted shares is determined based on the market value of the Company’s shares on the grant date. The estimated fair value of restricted shares, net of estimated forfeitures, is amortized as an expense over the requisite service period. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For the year ended December 31, 2014, the Company used a 2% forfeiture rate for restricted shares (2013 - 2%).

CSRSUs

CSRSUs are revalued at the end of each quarterly reporting period based on the then value of RenaissanceRe’s stock price. The total cost is adjusted each quarter for unvested CSRSUs to reflect the current share price, and this total cost is amortized as an expense over the requisite service period, net of estimated forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior. For the year ended December 31, 2014, the Company used a 11% forfeiture rate for its CSRSUs (2013 - 13%).

Summary of Stock Compensation Activity

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

2001 Stock Incentive and Non-Employee Director Stock Incentive Plans




	Weighted options outstanding		Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value		Range of exercise prices
Balance, December 31, 2011	1,973,307		$	47.33	4.6	$	53,363	$37.51 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(240,668	)	45.30			$	7,910
Balance, December 31, 2012	1,732,639		$	47.61	3.7	$	58,305	$37.51 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(904,547	)	46.55			$	36,800
Balance, December 31, 2013	828,092		$	48.77	2.9	$	40,221	$37.51 - $59.66
Options granted	—		—					—
Options forfeited	—		—
Options expired	—		—
Options exercised	(60,262	)	$	49.52		$	2,900
Balance, December 31, 2014	767,830		$	48.71	2.0	$	37,246	$37.51 - $59.66
Total options exercisable at December 31, 2014	767,830		$	48.71	2.0	$	37,246	$37.51 - $59.66

Premium Option Plan




	Weighted options outstanding		Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value		Range of exercise prices
Balance, December 31, 2011	1,192,000		$	73.94		$	—	$73.06 - $74.24
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	(350,000	)	74.24			1,250
Balance, December 31, 2012	842,000		$	73.82		$	6,265	$73.06 - $74.24
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	(270,000	)	74.24			4,921
Balance, December 31, 2013	572,000		$	73.62		$	13,567	$73.06 - $74.24
Options granted	—		—
Options forfeited	—		—
Options expired	—		—
Options exercised	(572,000	)	73.62			13,414
Balance, December 31, 2014	—		$	—	0.0	$	—	$	—
Total options exercisable at December 31, 2014	—		$	—	0.0	$	—	$	—

2010 Cash Settled Restricted Stock Unit Plan and 2010 Performance-Based Equity Incentive Plan




	Cash Settled Restricted Stock Unit Plan		Performance Shares (1)
	Number of shares		Number of shares		Weighted average grant-date fair value
Nonvested at December 31, 2011	422,973		289,867		$	30.06
Awards granted	225,105		144,635		$	28.17
Awards vested	(128,401	)	(70,843	)
Awards forfeited	(26,121	)	(4,139	)
Nonvested at December 31, 2012	493,556		359,520		$	29.46
Awards granted	149,760		134,358		$	33.46
Awards vested	(176,265	)	(24,606	)
Awards forfeited	(72,906	)	(109,729	)
Nonvested at December 31, 2013	394,145		359,543		$	30.55
Awards granted	119,382		102,668		$	46.45
Awards vested	(159,094	)	—
Awards forfeited	(16,110	)	(213,639	)
Nonvested at December 31, 2014	338,323		248,572		$	39.62

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

Restricted Stock




	Employee restricted stock				Non-employee director restricted stock				Total restricted stock
	Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value		Number of shares		Weighted average grant date fair value
Nonvested at December 31, 2011	764,761		$	53.68	39,585		$	58.43	804,346		$	53.91
Awards granted	226,827		72.46		16,874		71.69		243,701		72.40
Awards vested	(337,683	)	51.06		(20,536	)	54.62		(358,219	)	51.26
Awards forfeited	(7,157	)	53.90		—		—		(7,157	)	53.90
Nonvested at December 31, 2012	646,748		$	61.63	35,923		$	66.83	682,671		$	61.90
Awards granted	241,071		87.85		17,162		87.40		258,233		87.82
Awards vested	(311,334	)	55.63		(21,599	)	66.06		(332,933	)	56.31
Awards forfeited	(6,993	)	58.14		—		—		(6,993	)	58.14
Nonvested at December 31, 2013	569,492		$	76.11	31,486		$	78.57	600,978		$	76.24
Awards granted	215,054		95.79		14,455		95.06		229,509		95.74
Awards vested	(332,725	)	73.74		(15,886	)	74.96		(348,611	)	73.79
Awards forfeited	(99	)	55.80		—		—		(99	)	55.80
Nonvested at December 31, 2014	451,722		$	87.29	30,055		$	88.41	481,777		$	87.36

Shares available for issuance under the Company’s 2001 Stock Incentive Plan, Non-Employee Director Stock Incentive Plan and 2010 Performance Share Plan totaled 3.0 million in the aggregate at December 31, 2014. The total fair value of shares and share units vested during the year ended December 31, 2014 was $48.7 million (2013 – $47.0 million, 2012 – $43.3 million). Cash in the amount of $0.5 million was received from employees as a result of employee stock option exercises during the year ended December 31, 2014 (2013 – $1.6 million, 2012 – $0.9 million). In connection with share vestings and option exercises, there was no excess windfall tax benefit realized by the Company due to its net operating loss position in the taxable jurisdictions in which it operates. RenaissanceRe issues new shares upon the exercise of an option.

The total stock compensation expense recognized in the Company’s consolidated statements of operations for the year ended December 31, 2014 was $37.6 million (2013 – $43.4 million, 2012 – $38.4 million). As of December 31, 2014, there was $30.7 million of total unrecognized compensation cost related to restricted stock awards, $21.6 million related to restricted stock units and $4.3 million related to performance shares expense, which will be recognized, on a weighted average, during the next 1.8, 1.6 and 1.9 years, respectively.

All of the Company’s employees are eligible for defined contribution pension plans. Contributions are primarily based upon a percentage of eligible compensation. The Company contributed $3.6 million to its defined contribution pension plans in 2014 (2013 – $3.5 million, 2012 – $3.4 million).