Share Based Compensation

The Company’s 2007 Share Incentive Plan, as amended (the "Plan") provides for grants of share options, restricted shares and restricted share units. The total number of shares currently reserved for issuance under the Plan is 10,000,000 common shares. The Plan is administered by the Compensation Committee of the Board of Directors. Exercise prices of options will be established at or above the fair market value of the Company’s common shares at the date of grant. Under the Plan, unless otherwise determined by the Compensation Committee and provided in an award agreement, 25% of the options will become exercisable on the first anniversary of the grant date, with an additional 6.25% of the options vesting each quarter thereafter based on the grantee’s continued employment over a four-year period, and will expire ten years after grant date.

Share Options

The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all share option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The adoption of ASC Topic 718 "Compensation - Stock Compensation" fair value method has resulted in share based compensation expense in the amount of $508 and $1,668 for the three and nine months ended September 30, 2013, respectively (September 30, 2012 - $343 and $995, respectively).

The key assumptions used in determining the fair value of options granted in the three and nine months ended September 30, 2013 and a summary of the methodology applied to develop each assumption are as follows:

11. Share Based Compensation (continued)




Assumptions:
Volatility	45.30 – 47.60	%
Risk-free interest rate	0.85 – 1.29	%
Weighted average expected lives in years	6.1 years
Forfeiture rate	1.60	%
Dividend yield rate	3.04 – 3.55	%

Expected Price Volatility — This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. It was not possible to use actual experience to estimate the expected volatility of the price of the common shares in estimating the value of the options granted because the Company's common shares only began trading in May 2008, thus, it does not have enough history over which to calculate an expected volatility representative of the volatility over the expected lives of the options. As a

substitute for such estimate, the Company blended its historical volatility with the historical volatilities of a set of comparable companies in the industry in which the Company operates.

Risk-Free Interest Rate — This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

Expected Lives — This is the period of time over which the options granted are expected to remain outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns. The Company uses the simplified method outlined in SEC Staff Accounting Bulletin No. 107 to estimate expected lives for options granted during the period as historical exercise data is not available and the options meet the requirements set out in the Bulletin. Options granted have a maximum term of ten years. An increase in the expected life will increase compensation expense.

Forfeiture Rate — This is the estimated percentage of options granted that are expected to be forfeited or cancelled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.

Dividend Yield — This is calculated by dividing the expected annual dividend by the share price of the Company at the valuation date. An increase in the dividend yield will decrease compensation expense.

The following schedule shows all options granted, exercised, expired and forfeited under the Plan for the three and nine months ended September 30, 2013 and 2012:



For the Three Months Ended September 30, 2013	Number of Share Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, June 30, 2013	2,673,575		$	6.85	6.39 years
Exercised	(98,611	)	$	7.12	—
Expired	(628	)	$	7.67	—
Forfeited	(112,474	)	$	8.52	—
Outstanding, September 30, 2013	2,461,862		$	6.76	6.00 years



For the Three Months Ended September 30, 2012	Number of Share Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, June 30, 2012	2,870,581		$	6.62	7.13 years
Exercised	(20,907	)	$	4.36	—
Expired	(52,251	)	$	9.90	—
Forfeited	(7,465	)	$	7.76	—
Outstanding, September 30, 2012	2,789,958		$	6.58	6.90 years

11. Share Based Compensation (continued)



For the Nine Months Ended September 30, 2013	Number of Share Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, December 31, 2012	2,795,437		$	6.70	6.75 years
Granted	49,000		$	10.61	—
Exercised	(269,101	)	$	6.08	—
Expired	(628	)	$	7.67	—
Forfeited	(112,846	)	$	8.52	—
Outstanding, September 30, 2013	2,461,862		$	6.76	6.00 years



For the Nine Months Ended September 30, 2012	Number of Share Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, December 31, 2011	2,916,143		$	6.61	7.55 years
Granted	49,500		$	8.77	—
Exercised	(61,061	)	$	4.16	—
Expired	(103,284	)	$	9.88	—
Forfeited	(11,340	)	$	7.54	—
Outstanding, September 30, 2012	2,789,958		$	6.58	6.90 years

The weighted average grant date fair value was $2.04 and $2.00 for all options outstanding at September 30, 2013 and 2012, respectively. There was approximately $707 and $1,630 of total unrecognized compensation cost related to options as of September 30, 2013 and 2012, respectively.

Performance-Based Restricted Share Units (PB-RSUs)

The Compensation Committee of the Board of Directors (the "Committee") approved the formation of a long-term incentive program under the Plan on March 1, 2011. On that date, the Committee determined to award PB-RSUs to executive officers and senior Company employees. The formula for determining the amount of PB-RSUs awarded uses a combination of a percentage of the employee's base salary (based on a benchmarking analysis from our compensation consultant) divided by the closing price on NASDAQ Global Select Market of our common shares on that date. The grants are performance based which require that certain criteria such as return on equity, underwriting performance, revenue growth and operating expense be met during the performance period to attain a payout. Each metric has a corresponding weighted percentage with a target, threshold and maximum level of performance goal set to achieve a payout. Settlement of the grants can be made in either common shares or cash upon the decision of the Committee. The first performance cycle was for two years, 2011-2012, and subsequent performance cycles are for three years. For the years 2011-2012, no RSUs vested as the target level of performance was not met.

Effective February 19, 2013, the Committee approved the award of PB-RSUs to executive officers and senior Company employees for the fiscal year 2013-2015. 50% of the payout is based on criteria such as return on equity, underwriting performance, revenue growth and operating expense being met during the performance period, while the other 50% of the payout is at the discretion of the Committee based on individual performance. For the three and nine months ended September 30, 2013, no accrual was recognized as the calculated weighted percentage of the performance results of the Company did not meet the target levels.

CEO Non-Performance-Based Restricted Share Units ("NPB-RSUs")

On March 1, 2012, the Committee approved an award of NPB-RSUs to the Company's CEO. The award consists of 86,705 restricted share units which will fully vest on December 31, 2013. Each share unit has a fair value of $8.56 which is being amortized over 22 months.

On February 19, 2013, the Committee approved an award of NPB-RSUs to the Company's CEO. The award consists of 149,701 restricted share units, of which one-third automatically vest by February 19, 2014, of which one-third automatically vest by February 19, 2015, and of which one-third automatically vest by February 19, 2016. Each share unit has a fair value of $10.02 which is amortized over 36 months.

11. Share Based Compensation (continued)

Non-CEO Discretionary Non-Performance-Based Restricted Shares ("NPB-RSs")

On February 19, 2013, pursuant to the Plan, the Committee approved an award of NPB-RSs to non-CEO named executive officers and senior leaders of the Company. The award consists of 95,590 restricted shares, 50% of which will vest on the first anniversary of the grant date, with an additional 50% vesting on the second anniversary of the grant date. Each share unit has a fair value of $10.02.