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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by Rule 14a-6(e)(2))
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ProAssurance Corporation
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(Name of Registrant as Specified in Its Charter)
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PROASSURANCE CORPORATION
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2005
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TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Annual Meeting") of ProAssurance
Corporation (the "Company") will be held at 10:30 a.m., local time, on
Wednesday, May 18, 2005 at the Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203, for the following purposes:
(1) To elect four (4) directors of the Company, as Class I Directors,
to serve until the 2008 Annual Meeting and until their successors are
elected and qualified; and
(2) To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors set March 31, 2005 as the record date for the Annual
Meeting. Only holders of record of shares of the Company's common stock at the
close of business on the record date will be entitled to notice of, and to vote
at, the Annual Meeting. The stock transfer books will not be closed.
The Annual Meeting may be adjourned from time to time without notice other
than announcement at the meeting or adjournments thereof, and any business for
which notice is hereby given may be transacted at any such adjournment.
Details concerning those matters to come before the Annual Meeting are
provided in the accompanying Proxy Statement. Whether you plan to attend the
Annual Meeting or not, please sign, date and return the enclosed proxy card in
the envelope provided, or vote via the telephone or internet using the
instructions provided in the enclosed proxy materials. Neither returning your
proxy card nor voting electronically will deprive you of your right to attend
the Annual Meeting and to vote your shares in person.
A copy of the Company's Annual Report to the Stockholders for the year
ended December 31, 2004, is enclosed. We hope you will find it informative.
By order of the Board of Directors,
/s/ Howard H. Friedman
Howard H. Friedman
Secretary
April 18, 2005
PROASSURANCE CORPORATION
100 BROOKWOOD PLACE
BIRMINGHAM, ALABAMA 35209
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2005
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of ProAssurance Corporation (sometimes
referred to as "ProAssurance," the "Company," "we" or "our") to be voted at the
Annual Meeting of the Stockholders (the "Annual Meeting") to be held at 10:30
a.m., local time, on Wednesday, May 18, 2005 at the Harbert Center, 2019 Fourth
Avenue North, Birmingham, Alabama 35203, or at any adjournment or postponement
thereof.
At the Annual Meeting, the stockholders will be asked to elect four (4)
members to the Board of Directors of the Company, as Class I Directors, to serve
until the 2008 Annual Meeting.
This Proxy Statement and proxy card are first being mailed to the
stockholders of the Company on or about April 18, 2005.
The Board of Directors has set March 31, 2005 as the record date for the
Annual Meeting. Only stockholders of record at the close of business on the
record date will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on the record date there were 29,201,365 outstanding
shares of our common stock, par value, $0.01 per share (the "Common Stock") with
each stockholder entitled to one vote in person or by proxy for each share of
Common Stock on all matters properly to come before the Annual Meeting.
VOTING INSTRUCTIONS
The record owners of Common Stock may vote their shares on matters properly
presented at the Annual Meeting in one of four ways:
- By signing and returning the enclosed proxy card in the enclosed
envelope; or
- By voting on the Internet in accordance with instructions on the enclosed
proxy card; or
- By telephone using a touchtone telephone and following the instructions
on the enclosed proxy card; or
- By attending the meeting and voting in person.
If you hold shares in "street name" (that is, through a bank, broker or
other nominee), such shares must be voted in accordance with instructions
provided by the nominee. If your shares are held in the name of a nominee and
you would like to attend the Annual Meeting and vote in person, you may contact
the person in whose name your shares are registered and obtain a proxy from that
person and bring it to the Annual Meeting.
If you properly cast your vote, by either voting your proxy electronically
or telephonically or by executing and returning the enclosed proxy card, and
your vote is not subsequently revoked, your vote will be voted in accordance
with your instructions.
If you execute the enclosed proxy card but do not give instructions, the
shares represented by that proxy will be voted FOR the election of each director
nominee nominated by the Board of Directors.
Proxies may be revoked prior to the Annual Meeting by either (i) submitting
to ProAssurance a properly executed proxy and bearing a later date, or (ii) by
voting by telephone or Internet at a later date or in person at the meeting, or
(iii) by giving written notice of revocation to the Secretary of ProAssurance.
The mailing
address of ProAssurance is P.O. Box 590009, Birmingham, Alabama 35259-0009, and
the street address is 100 Brookwood Place, Birmingham, Alabama 35209.
QUORUM AND VOTING REQUIREMENTS
QUORUM
The presence, in person or by proxy, of the holders of one-third of the
shares of Common Stock entitled to vote at the meeting will constitute a quorum
to conduct business at the Annual Meeting. Proxies received but marked as
abstentions and "broker non-votes" (which occur where shares held by brokers or
nominees for beneficial owners are not voted on a matter) will be included in
the calculation of the number of shares considered to be present at the meeting.
VOTING REQUIREMENTS
Directors will be elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. With respect to the election of directors, a
stockholder may vote for all of the nominees or withhold authority to vote for
any or all of the nominees. Because directors are elected by a plurality of the
votes cast, votes to withhold authority with respect to one or more nominees and
broker non-votes will have no effect on the outcome of the election.
EXPENSES OF SOLICITATION
We will pay the expenses of the preparation of proxy materials and the
solicitation of proxies for the Annual Meeting. In addition to the solicitation
of proxies by mail, solicitation may be made by certain directors, officers or
employees of ProAssurance Corporation or its affiliates telephonically,
electronically or by other means of communication, and they will receive no
additional compensation for such solicitation. We will reimburse brokers and
other nominees for costs incurred by them in mailing proxy materials to
beneficial owners in accordance with applicable rules.
AVAILABILITY OF CERTAIN DOCUMENTS
Our Board of Directors has adopted a Policy Regarding Director Independence
Determinations, including categorical standards to assist in determining
independence, and has adopted charters for our Audit Committee, Compensation
Committee, and Nominating/Corporate Governance Committee, as well as Corporate
Governance Principles. All of these documents and policies, together with our
Code of Ethics and Conduct, are available on the Governance section of our
website at www.proassurance.com. Printed copies of our committee charters,
Corporate Governance Principles, Code of Ethics and Conduct, and the Policy
Regarding Director Independence Determinations may be obtained by contacting
Frank O'Neil, Senior Vice President, ProAssurance Corporation, either by mail at
P.O. Box 590009, Birmingham, Alabama 35259-0009, or by telephone at (205)
877-4400 or (800) 282-6242. Our Policy Regarding Director Independence
Determinations is also attached to this Proxy Statement as Exhibit A.
We have enclosed a copy of our 2004 Annual Report to Stockholders, which
includes our Annual Report on Form 10-K for the year ended December 31, 2004.
You also may obtain additional copies of our 2004 Annual Report to Stockholders
and 2004 Annual Report on Form 10-K without charge by contacting Frank O'Neil at
the address shown above, or by telephone at (205) 877-4400 or (800) 282-6242.
These documents also are available through our website at www.proassurance.com.
Our Annual Report to Stockholders and Annual Report on Form 10-K are not proxy
soliciting materials.
ELECTION OF DIRECTORS
INTRODUCTION
The Certificate of Incorporation of ProAssurance provides that the Board of
Directors is comprised of at least three and not more than twenty-four
directors, as determined by the Board of Directors. The Board of
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Directors currently consists of ten members. The Certificate of Incorporation
requires that the directors be divided into three classes as nearly equal as
possible and that the directors serve staggered terms of three years. Any
vacancies on the Board of Directors resulting from the death, resignation or
removal of a director or from any increase in the number of directors may be
filled by action of the remaining directors. A director elected by the directors
to fill a vacancy on the Board of Directors holds office until the next election
of the class of directors for which such director has been chosen.
The Board of Directors has nominated Lucian F. Bloodworth, A. Derrill
Crowe, Robert E. Flowers, and Ann F. Putallaz for election as directors at the
Annual Meeting to fill the vacancy arising upon the expiration of each of their
terms as a Class I Director.
ANNUAL MEETING
At the Annual Meeting, our stockholders will be asked to elect as directors
Lucian F. Bloodworth, A. Derrill Crowe, Robert E. Flowers, and Ann F. Putallaz
as Class I directors, to hold office for terms ending at the Annual Meeting of
stockholders to be held in 2008. The remaining six directors named below will
continue in office. The persons named in the enclosed Proxy have advised that,
unless a contrary direction is indicated on the enclosed Proxy, they intend to
vote the shares appointing them as proxies in favor of the nominees named
herein. If the nominees should be unable to serve, and the Board of Directors
knows of no reason to anticipate this will occur, the Proxies will be voted for
such other person or persons as may be recommended by our Nominating/Corporate
Governance Committee and designated by the Board of Directors, or the Board of
Directors may decide not to elect an additional person as a director. The
persons named in the enclosed Proxy will have no authority to vote for the
election of any person other than the nominees or their substitutes in the
election of directors.
All of the nominees currently are members of the Board of Directors and
have been approved, recommended and nominated for re-election to the Board of
Directors by our Nominating/Corporate Governance Committee and by the Board of
Directors. Set forth below is information regarding the nominees and the
directors continuing in office, which was confirmed by them for inclusion in
this Proxy Statement. Information regarding stock ownership with respect to each
nominee and director is set forth in the table under "Ownership by our Directors
and Executive Officers" in the section titled Beneficial Ownership of our Common
Stock.
Neither the Board of Directors nor the Nominating/Corporate Governance
Committee has implemented a formal policy regarding director attendance at the
Annual Meeting. However, the Board typically holds its annual organizational
meeting directly following the Annual Meeting, and it is customary for directors
to attend the Annual Meeting. All directors attended the Annual Meeting held on
May 19, 2004.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A THREE-YEAR TERM EXPIRING IN
2008
LUCIAN F. BLOODWORTH (Age 64) has served as a director since August 22,
2002. Mr. Bloodworth is the Chairman of Cain Manufacturing, a Birmingham,
Alabama-based firm. Mr. Bloodworth is a director of First American Bank
(formerly National Bank of Commerce of Birmingham, Alabama), and served as
National Bank of Commerce's Executive Vice President from 1983 to 1987. Mr.
Bloodworth has been a fellow of the Society of Actuaries and a member of the
American Academy of Actuaries.
A. DERRILL CROWE, M.D. (Age 68) has served as a Director and as Chairman of
the Board and Chief Executive Officer of ProAssurance since it began operations
in June 2001. Dr. Crowe has served as a director and Chairman, President and
Chief Executive Officer of Medical Assurance, Inc. since its organization in
1995 and as President and Chief Executive Officer and a director of The Medical
Assurance Company, Inc. (formerly Mutual Assurance, Inc.) since its first
operations in 1977.
ROBERT E. FLOWERS, M.D. (Age 55) has served as a director of ProAssurance
since it began operations in June 2001. Prior to that date, Dr. Flowers served
as a director of Medical Assurance, Inc. (since 1995) and as a director of The
Medical Assurance Company, Inc. (since 1985). Dr. Flowers practiced as a
physician with Gynecology Associates of Dothan P.C., Dothan, Alabama, prior to
his retirement in 2001.
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ANN F. PUTALLAZ (Age 59) has served as a director of ProAssurance since it
began operations in June 2001. Prior to that time, Ms. Putallaz served as a
director of Professionals Group, Inc. (since 1996) and its Vice Chairman (since
1999). For the past five years, Ms. Putallaz has been the Director of Data and
Communication Services of Munder Capital Management, an investment advisor to
The Munder Funds, an open end investment company registered under the Investment
Company Act of 1940.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
NOMINEES NOMINATED FOR ELECTION AS DIRECTORS BY THE BOARD OF DIRECTORS.
CLASS II DIRECTORS CONTINUING IN OFFICE -- TERM EXPIRING IN 2006
JOHN J. MCMAHON, JR. (Age 62) has served as a director of ProAssurance
since February 22, 2002. Since 1999, Mr. McMahon has served as Chairman of Ligon
Industries and as Chairman of the Executive Committee of McWane, Inc. in
Birmingham, Alabama. Prior to that time, Mr. McMahon served as Chairman of the
Board of McWane, Inc. Mr. McMahon also serves as a director of Protective Life
Corporation, Alabama National Bancorporation and John H. Harland Co., where he
is a member of its audit committee.
JOHN P. NORTH, JR. (Age 69) has served as a Director of ProAssurance since
it began operations in June 2001, and as a director of Medical Assurance, Inc.
since 1996. Mr. North is a certified public accountant who was a partner of the
accounting firm of Coopers & Lybrand LLP until his retirement in September 1995.
WILLIAM H. WOODHAMS, M.D. (Age 67) has served as a director of ProAssurance
since it began operations in June 2001. Prior to that time, Dr. Woodhams served
as a director of Professionals Group, Inc. (since 1996) and as Chairman (since
1999) and director of ProNational Insurance Company and its predecessor (since
1980). Dr. Woodhams is a board certified family practice physician and has been
in private practice in Kalamazoo, Michigan since 1964.
WILFRED W. YEARGAN, JR., M.D. (Age 65) has served as a director of
ProAssurance since May 28, 2003. Dr. Yeargan has practiced medicine in
Tuscaloosa, Alabama, specializing in ophthalmology, for over thirty years. Dr.
Yeargan has participated as member of the underwriting and claims advisory
committees of The Medical Assurance Company, Inc. since it began operations in
1977.
CLASS III DIRECTORS CONTINUING IN OFFICE -- TERM EXPIRING IN 2007
VICTOR T. ADAMO, ESQ., C.P.C.U. (Age 56) has served as a director and Vice
Chairman, President and Chief Operating Officer of ProAssurance since it began
operations in June 2001. Prior to that time, Mr. Adamo served as a director and
President and Chief Executive Officer of Professionals Group (since 1996). Mr.
Adamo has served as an officer of ProNational Insurance Company since 1990, and
its Chief Executive Officer since 1987. Prior to joining ProNational, Mr. Adamo
was in private legal practice from 1975 to 1985.
PAUL R. BUTRUS (Age 63) has served as a director of ProAssurance since it
began operations in June 2001, and was appointed its Vice Chairman in September
2001. Prior to that time, Mr. Butrus was a director and Executive Vice President
and Chief Operating Officer of Medical Assurance, Inc. (since 1995). Mr. Butrus
has held various positions with The Medical Assurance Company, Inc. since 1977.
INDEPENDENT DIRECTORS
As required by The New York Stock Exchange ("NYSE") Corporate Governance
Listing Standards, the Board of Directors has determined that a majority of the
directors on the Board of Directors are "independent" directors. In compliance
with the corporate governance requirements of Sarbanes-Oxley Act of 2002 and the
applicable NYSE rules, the Board of Directors has adopted a policy that a
director will be presumed to be independent if he or she satisfies certain
specified criteria. A complete description of the
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criteria adopted by the Board of Directors in determining the independence of
directors is set forth in Exhibit A to this Proxy Statement
The Board of Directors has determined that the following directors satisfy
the criteria described above, and therefore constitute "independent" directors:
John J. McMahon, Jr. Lucian F. Bloodworth
John P. North, Jr. Robert E. Flowers
William H. Woodhams Wilfred W. Yeargan, Jr.
Ann Putallaz satisfies all of the independence criteria except that Ms.
Putallaz received fees in 2003 in the amount of $3,000 for service on the
Investment Committee of ProAssurance's subsidiary, MEEMIC Holdings, Inc. Prior
to that time, Ms. Putallaz served on the Board of Directors of MEEMIC, and
received director compensation for her service on the board and its committees,
including the investment committee. The Board found that Ms. Putallaz is
independent notwithstanding her receipt of compensation for service on MEEMIC's
investment committee because she otherwise satisfies the Independence Criteria;
because her services on the investment committee were consistent with those
previously performed by Ms. Putallaz in her capacity as a director of MEEMIC;
and because the compensation for such services was not material, and when added
to her director compensation in 2003, did not exceed the $100,000 compensation
threshold for independence under the NYSE's corporate governance rules.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors held four meetings during 2004. Each of our
incumbent directors attended at least 75% of the meetings of the Board of
Directors and the committees of the Board on which he or she served during 2004.
The By-Laws of ProAssurance establish four standing committees of the Board of
Directors: the Executive Committee, the Nominating/Corporate Governance
Committee, the Compensation Committee and the Audit Committee, each of which is
described below.
EXECUTIVE COMMITTEE
The Executive Committee has the authority during intervals between the
meetings of the Board of Directors to exercise all powers and authority of the
Board of Directors in the management of the business and affairs of
ProAssurance, except that the Executive Committee has no power or authority to
alter or repeal any resolution adopted by the Board of Directors that by its
terms is not subject to amendment or repeal by the Executive Committee or any
resolution relating to the establishment or membership of the Executive
Committee; the Executive Committee may not act with respect to matters required
to be passed upon by the full Board, the independent directors, or by a
committee comprised of independent directors; and the Executive Committee may
not act on any matter which has been delegated to the Audit Committee, the
Nominating/Corporate Governance Committee or the Compensation Committee in their
respective charters. The By-Laws provide that the Executive Committee have at
least three members, including the Chairman and Chief Executive Officer and the
Vice Chairman of the Board. The members of the Executive Committee are: A.
Derrill Crowe, Chairman, Victor T. Adamo, Paul R. Butrus and Robert E. Flowers.
The Executive Committee did not meet during 2004.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The Nominating/Corporate Governance Committee consists of three independent
directors, and operates pursuant to a written Charter that was adopted in
December 2003, which Charter is available on the Governance section of our
website at www.proassurance.com. The primary purposes of the Nominating/
Corporate Governance Committee are to (i) identify individuals qualified to
become directors and recommend to the Board of Directors for its consideration
the candidates for all directorships to be filled by the Board of Directors or
to be elected by the stockholders; (ii) advise the Board with respect to the
Board composition, procedures and committees; (iii) develop and recommend to the
Board a set of corporate governance principles applicable to the Company; (iv)
oversee the evaluation of the Board and the evaluation
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of the Company's management; and (v) otherwise take a leadership role in shaping
the corporate governance of the Company.
The Nominating and Corporate Governance Committee is empowered to engage a
third party search firm to assist in identifying and evaluating director
candidates. However, the committee did not hire any search firm during 2004 and,
accordingly, paid no fees to any such company.
When a vacancy exists on the Board of Directors, the Nominating/Corporate
Governance Committee will consider a nominee for a director candidate that has
been proposed by a stockholder when such nomination has been submitted in
accordance with the provisions contained in the Company's by-laws, which are
described under "Stockholder Proposals" in this proxy statement. A vacancy does
not exist where:
- the Board of Directors desires to re-nominate an incumbent director for
an additional term and, the director consents to stand for re-election
and to serve if elected; or
- the Nominating/Corporate Governance Committee has recommended to the
Board of Directors a candidate to fill a vacancy and, prior to the
receipt of a properly submitted stockholder nomination, such nominee has
agreed to stand for election and serve if elected.
In accordance with Company's by-laws, the Board of Directors may, at any
time, elect not to fill a vacancy arising on the Board. The Board may elect to
not recommend a director candidate nominated by a stockholder even if such
director candidate is the only candidate submitted to the Nominating/Corporate
Governance Committee to fill a vacancy.
The Nominating/Corporate Governance Committee is responsible for
determining the appropriate composition of the Board and for the selection of
individual candidates consistent with such determination. The Company's
Corporate Governance Principles do not establish any firm requirement of minimum
qualifications or skills that an individual candidate must possess other than
the maximum age requirements described in the Corporate Governance Principles.
Rather, the Corporate Governance Principles direct the Committee to take into
account all factors it considers appropriate, including a candidate's reputation
for ethical business dealings, knowledge, skill, experience, expertise, and the
extent to which the candidate would fill a present need in the composition of
the board. Subject to the qualifications described above, the Committee will
consider a director candidate nominated by a stockholder in the same manner as
candidates brought before the Committee from other sources. Generally, the
Committee initially evaluates a prospective nominee on the basis of his or her
resume and other background information that has been made available to the
Committee. A member of the Nominating/Corporate Governance Committee will
contact for further review those candidates who the Committee believes are
qualified, who may fulfill a specific board need and who it believes would
otherwise best make a contribution to the Board. If, after further discussions
with the candidate, and other further review and consideration as necessary, the
Nominating/Corporate Governance Committee believes that it has identified a
qualified candidate, it will make a recommendation to the Board.
The members of the Nominating/Corporate Governance Committee are: John J.
McMahon, Jr., Chairman, Robert E. Flowers and William H. Woodhams. The Board of
Directors has found that each member of our Nominating/Corporate Governance
Committee is "independent" within the meaning of the rules of the NYSE. During
2004, our Nominating/Corporate Governance Committee met two times.
COMPENSATION COMMITTEE
The Compensation Committee consists of three independent directors, and
operates pursuant to a written Charter that was adopted in December 2003, which
Charter is available on the Governance section of our website at
www.proassurance.com. The primary purposes of the Compensation Committee are to
(i) represent and assist the Board of Directors in discharging its oversight
responsibility relating to compensation matters, including determining the
compensation arrangements for the Chief Executive Officer and reporting its
determination to the Board of Directors for ratification by a majority of
independent directors and making determinations regarding the compensation
arrangements for other senior management personnel; and (ii) prepare the report
required by the rules and regulations of the SEC. The Compensation Committee
also administers the ProAssurance Corporation Incentive Compensation Stock Plan,
the ProAssurance
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Corporation 2004 Equity Incentive Plan and predecessor plans. The members of the
Compensation Committee are: Robert E. Flowers, Chairman, John J. McMahon, Jr.
and Wilfred W. Yeargan, Jr. The Board of Directors has determined that each
member of our Compensation Committee is "independent" within the meaning of the
rules of the NYSE and, as required by the Compensation Committee Charter, no
member of the Compensation Committee has any interlocking relationships required
to be disclosed under the federal securities laws.
During 2004, our Compensation Committee met four times. The report of the
Compensation Committee is included below.
AUDIT COMMITTEE
The Audit Committee consists of three independent directors, and operates
pursuant to a written Charter that was amended and restated in December 2003.
The amended and restated Charter is available on the Governance section of our
website at www.proassurance.com. The primary purposes of our Audit Committee are
to (A) represent and assist the Board of Directors in discharging its oversight
responsibility relating to (i) the accounting, reporting, and financial
practices of the Company and its subsidiaries and the integrity of the Company's
financial statements; (ii) the surveillance of administration and financial
controls and the Company's legal and regulatory compliance; (iii) the outside
auditor's qualifications and independence; and (iv) the performance of the
Company's internal audit function and the Company's outside auditor; and (B)
prepare the report required by the rules of the SEC to be included in the
Company's annual proxy statement. The Audit Committee is responsible for
carrying out all of the duties and responsibilities required for audit
committees under the Exchange Act and the corporate governance rules of the NYSE
for listed companies.
The Audit Committee reviews the Company's Code of Ethics and Conduct
(available on the Governance section of our website at www.proassurance.com) as
well as programs to monitor compliance with the code, to the extent that this
oversight activity is not performed by the Nominating/Corporate Governance
Committee. The Audit Committee and our Board of Directors have established a
procedure whereby complaints or concerns with respect to accounting, internal
controls and auditing matters may be submitted to the Committee, which is
described below under "Other Matters -- Policies on Reporting of Concerns
Regarding Accounting and Other Matters and Communicating with Directors."
A description of the specific duties and responsibilities of the Audit
Committee can be found in the Audit Committee Charter.
John P. North, Jr. is the Chairman, and Lucian F. Bloodworth and Ann F.
Putallaz are the other current members of our Audit Committee. Our Board of
Directors and the Nominating/Corporate Governance Committee have determined that
each member of the Audit Committee is "independent" within the meaning of the
rules of both the NYSE and the SEC. Our Board of Directors has also determined
that each member of the Audit Committee is financially literate as such
qualification is defined under the rules of the NYSE. In addition, the Board of
Directors has determined that John P. North, Jr., based upon his education and
extensive experience in public accounting, including his leadership role at
Coopers & Lybrand, is an "audit committee financial expert" within the meaning
of the rules of the SEC.
During 2004, the Audit Committee held 10 meetings. The report of the Audit
Committee is included in a later section of this document.
DIRECTOR COMPENSATION
In 2004, non-management directors received a monthly retainer in the amount
of $2,000 per month plus $1,000 for each day that a director attends a Board or
committee meeting, except that in the case of the audit committee, the chairman
received a monthly retainer of $3,000 per month and the other members received
monthly retainers of $2500 per month.
At the meeting held in March 2005, the Board of Directors reviewed a report
on Director Compensation presented by an outside consultant hired to ensure that
ProAssurance's director compensation was fair and
7
consistent with other comparable publicly traded property/casualty insurance
groups. After considering the consultant's recommendations, the Board increased
the director compensation effective April 1, 2005. Non-management directors will
receive a monthly retainer in the amount of $2,000 per month except for the
members of the Audit Committee who will receive a retainer of $2,667 per month.
The Chairman of the Audit Committee will receive an additional amount of $500
per month. Directors will be paid meeting fees of $2,000 for each day the
director attends a Board meeting and $1,000 for Committee meetings that are not
held on the same day as Board meetings. Directors are encouraged to attend
meetings in person, but may attend through a teleconference or video conference
link.
Directors will also receive an annual grant of 1,000 shares each of
ProAssurance Corporation common stock (or equivalent stock based compensation)
to be issued at the close of business on the date of the Annual Meeting of
Shareholders. Directors continue to be eligible to participate in the
ProAssurance Corporation Stock Ownership Plan. Management directors do not
receive any additional cash or stock compensation for their service as a
director.
NON-MANAGEMENT DIRECTORS MEETINGS
Our Corporate Governance Principles require the non-management directors of
the Company to hold executive sessions (at which management, including the CEO,
is not present) on a regularly scheduled basis and not less than two times per
year. The Corporate Governance Principles further provide that the non-
management directors on the Board will select one of the non-management
directors to preside at each executive session. At the annual meeting in May
2004, the non-management directors agreed to generally hold executive sessions
after each regularly scheduled board meeting and selected John P. North, Jr. as
the non-management director to preside at each meeting. The schedule for the
executive sessions and selection of Mr. North as the director to preside at
those meetings are each subject to change by the non-management directors.
During 2004, our non-management directors held three executive sessions after
regularly scheduled Board meetings.
BENEFICIAL OWNERSHIP OF OUR COMMON STOCK
OWNERS OF MORE THAN 5% OF OUR COMMON STOCK
AMOUNT & NATURE
OF BENEFICIAL PERCENT
STOCKHOLDERS (1) OWNERSHIP OF CLASS
---------------- --------------- --------
T. Rowe Price Associates, Inc.(2)
100 East Pratt Street
Baltimore, Maryland 21202................................... 2,445,344 7.8%
---------------
(1) A. Derrill Crowe, M.D., the President and Chief Executive Officer, is a
beneficial owner of over five percent (5%) of the Common Stock. Dr. Crowe's
stockholdings are reflected in his capacity as an executive officer and a
director in the table below.
(2) In a Schedule 13G filed with the SEC, T. Rowe Price Associates, Inc., an
investment adviser, disclosed that as of December 31, 2004, it had sole
dispositive power with respect to 2,445,344 shares of Common Stock. The
Schedule 13G further discloses that T. Rowe Price Associates, Inc. has sole
voting power with respect to 843,200 shares of Common Stock and that the T.
Rowe Price Small-Cap Value Fund, Inc. has sole voting power with respect to
1,540,000 of the shares of Common Stock reported as beneficially owned by T.
Rowe Price Associates, Inc.
OWNERSHIP BY OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 31, 2005, information regarding
the ownership of Common Stock (i) by the executive officers named in the
"Summary Compensation Table" under Executive
8
Compensation ("Named Executive Officers"), (ii) by each of the Company's
directors, and (iii) by all directors and officers of the Company as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
STOCKHOLDERS DIRECTORS OWNERSHIP (1) OF CLASS
---------------------- ----------------- --------
Victor T. Adamo, Esq., CPCU(2)(4)........................... 88,443 *
Lucian F. Bloodworth(4)..................................... 2,372 *
Paul R. Butrus(2)........................................... 235,447 1.5%
A. Derrill Crowe, M.D.(2)(3)................................ 2,153,057 7.8%
Robert E. Flowers, M.D.(4).................................. 25,670 *
John J. McMahon, Jr.(4)..................................... 2,564 *
John P. North, Jr.(4)....................................... 2,733 *
Ann F. Putallaz(4).......................................... 10,838 *
William H. Woodhams, M.D.(4)................................ 12,839 *
Wilfred W. Yeargan, M.D.(4)................................. 5,652
OTHER NAMED EXECUTIVE OFFICERS
Howard H. Friedman(2)(4).................................... 12,567 *
Lynn M. Kalinowski(2)(4).................................... 3,239 *
ALL DIRECTORS AND OFFICERS AS A GROUP (15 PERSONS)(2)(4).... 3,043,641 10.3%
---------------
* Less than 1%.
(1) Except as otherwise indicated, the persons named in the above table have
sole voting power and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. The information as to beneficial
ownership of Common Stock has been furnished by the respective persons
listed in the above table. Unless otherwise indicated, the information also
includes the number of shares that may be acquired pursuant to unexercised
options on or before May 30, 2005.
(2) Includes 443,453 shares that may be acquired by all officers and directors
as a group upon exercise of vested stock options on or before May 30, 2005.
Of this amount the named officers and directors hold options for the
following number of shares: Mr. Adamo-7,500 shares; Mr. Butrus-191,238
shares; Dr. Crowe-149,341 shares; Mr. Friedman-45,000 shares; and Mr.
Kalinowski-12,500. Also includes 28,077 shares owned of record by all
officers and directors as a group in the ProAssurance Group Savings and
Retirement Plan. Of this amount, the named officers and directors hold the
following: 391 shares in the account of Mr. Adamo, 9,164 shares in the
account of Mr. Butrus, and 11,742 shares in the account of Dr. Crowe.
(3) Includes 1,162,791 owned of record by Crowe Family Partners, Ltd., a
Colorado limited partnership of which Dr. Crowe is the sole general partner,
1,224 shares owned of record by Dr. Crowe's wife, and 51,468 shares owned of
record by four trusts which Dr. Crowe is named as a trustee that were
created in 1998 for the benefit of the minor children of Dr. Crowe and his
wife.
(4) Includes 6,696 shares subject to forfeiture by all officers and directors as
a group under the Company's Stock Ownership Plan. Of this amount the named
officers and directors hold the following: 685 shares in the account of Mr.
Adamo, 586 shares in the account of Mr. Bloodworth, 586 shares in the
account of Dr. Flowers, 624 shares in the account of Mr. Friedman, 586
shares in the account of Mr. McMahon, 586 in the account of Mr. North, 655
in the account of Ms. Putallaz, 586 shares in the account of Dr. Woodhams,
and 315 shares in the account of Dr. Yeargan.
(5) Includes 4,812 shares due to Dr. Yeargan under provisions of the Medical
Assurance, Inc. Deferred Compensation Plan. These shares were awarded to Dr.
Yeargan for service prior to becoming a director of ProAssurance.
9
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The executive compensation policy of ProAssurance is designed to offer a
competitive compensation package to the senior executives of the Company,
including the CEO, so as to attract and retain qualified executives and to
reward them based on performance that the Committee believes will increase the
value of ProAssurance. With the assistance of a compensation consultant, the
Compensation Committee reviews base salaries and incentive compensation in
comparison to compensation data from other comparable publicly traded
property/casualty insurance groups. There are three components of executive
compensation:
- Base salary compensation;
- Annual incentive compensation; and
- Long-term incentive compensation.
Our goal is to establish base salaries that are competitive and that
reflect our executives' scope of responsibilities, education and training, level
of experience, individual performance, and contribution to the Company. In
establishing base salaries, we review these factors in light of executive
compensation survey data from other comparable publicly traded property/casualty
insurance groups.
We award annual incentive compensation to the senior executives based upon
our assessment of the Company's performance against:
- Certain established corporate goals under the organization's strategic
plans;
- The Net Income per share earned by the Company;
- The market performance of ProAssurance common stock as compared with an
insurance industry benchmark index; and
- The contribution made by each senior executive to the Company's current
and future performance.
In order to further our goal of encouraging stock ownership by senior
executives, the annual incentive awards for 2004 have been paid partly in cash
and partly in grants of common stock.
Long-term incentive compensation is designed to reward senior executives
for taking action that contributes to ProAssurance's long-term growth and
success and to link the interests of the senior executives to those of
ProAssurance's stockholders. For 2004, as for prior years, long-term incentive
compensation has been in the form of options awarded under ProAssurance's 2004
Equity Incentive Plan.
ProAssurance's executive officers are also eligible to participate in
compensation and benefit programs generally available to other employees, such
as the stock ownership plan, 401(k) plan, health care and supplemental life
insurance, disability insurance programs, and deferred compensation plans.
For 2004, the Company's chief executive officer was A. Derrill Crowe, M.D.,
Chairman and Chief Executive Officer. The Summary Compensation Table shows the
amounts and type of compensation paid to Dr. Crowe for 2004. Dr. Crowe's base
salary was determined using survey data of peer executives after giving
consideration to the success of Dr. Crowe's leadership at the Company. For 2004,
Dr. Crowe was awarded an annual incentive award as a result of the Committee's
evaluation of Dr. Crowe's strategic leadership of the Company and the
achievement of corporate goals. Evidence of Dr. Crowe's leadership can be found
in the Company's financial progress during 2004 including an increase in net
income, book value and revenues; excellent claims-paying-ability ratings; and
the continuing emergence of the Company as an industry leader. We also examined
the performance of ProAssurance common stock, which was substantially better
than the performance of the property and casualty insurance industry as a whole.
The key judgment we made in determining Dr. Crowe's 2004 compensation was our
assessment of his ability and dedication to enhancing the long-term value of
ProAssurance for its stockholders by continuing to provide the leadership and
vision that he has provided throughout his tenure at ProAssurance and its
predecessors. For these reasons, we deem Dr. Crowe's compensation package to be
appropriate.
The Compensation Committee:
Robert E. Flowers, Chairman
John J. McMahon, Jr.
Wilfred W. Yeargan, Jr.
March 9, 2005
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of ProAssurance served as a member of the Compensation
Committee (or other board committee performing equivalent functions or, in the
absence of such committee, the entire board) of another entity, one of whose
executive officers served on the compensation committee of ProAssurance. No
executive officer of ProAssurance served as a director of another entity, one of
whose executive officers served on the compensation committee of ProAssurance.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of the compensation paid or
accrued by ProAssurance and its subsidiaries during each of the last three
fiscal years with respect to (i) the Company's Chief Executive Officer, and (ii)
the four most highly-compensated persons considered to be executive officers or
their equivalent.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
------------------------------------------
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------------- RESTRICTED PAYOUT
OTHER ANNUAL STOCK -----------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) OPTIONS/SARS(4) LTIP PAYOUT
--------------------------- ---- ------- -------- --------------- ---------- --------------- -----------
($) ($) ($) ($) (#) ($)
A. Derrill Crowe, M.D.,.... 2004 650,000 646,320 85,373 -0- 50,000 -0-
Chairman and 2003 600,000 545,025 -0- -0- 50,000 -0-
CEO of ProAssurance 2002 550,000 277,205 -0- -0- 100,000 -0-
Victor T. Adamo,........... 2004 486,720 290,379 -0- 6,000 37,500 -0-
Vice Chairman and 2003 468,000 259,922 -0- 6,000 37,500 -0-
President of ProAssurance 2002 450,000 181,906 -0- 3,000 75,000 -0-
Paul R. Butrus,............ 2004 460,000 171,060 -0- -0- 12,500 -0-
Vice Chairman of 2003 457,600 144,502 -0- -0- 12,500 -0-
ProAssurance 2002 440,000 81,125 -0- -0- 25,000 -0-
Howard H. Friedman,........ 2004 375,000 182,735 -0- 6,000 25,000 -0-
Secretary and Senior Vice 2003 360,000 178,020 -0- 6,000 25,000 -0-
President of ProAssurance 2002 325,000 122,781 -0- 6,000 50,000 -0-
Lynn M. Kalinowski,........ 2004 260,000 250,200 -0- 6,000 12,500 -0-
President of MEEMIC 2003 250,000 102,394 -0- 6,000 12,500 -0-
2002 200,000 72,888 -0- -0- -0- -0-
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(5)
--------------------------- ---------------
($)
A. Derrill Crowe, M.D.,.... 10,500
Chairman and 25,537
CEO of ProAssurance 25,386
Victor T. Adamo,........... 20,750
Vice Chairman and 72,108
President of ProAssurance 22,878
Paul R. Butrus,............ 20,750
Vice Chairman of 25,537
ProAssurance 24,886
Howard H. Friedman,........ 20,750
Secretary and Senior Vice 25,537
President of ProAssurance 24,886
Lynn M. Kalinowski,........ 42,597
President of MEEMIC 36,086
30,020
---------------
(1) The bonus compensation was paid in cash and ProAssurance common stock. The
shares of common stock have been issued as stock awards under the
ProAssurance Incentive Compensation Stock Plan and are valued at the closing
price of a share on the New York Stock Exchange on the date of the award.
The bonus compensation includes the following number of shares of Common
Stock for the Named Executive Officers: Dr. Crowe -- 7,305 shares in 2004,
7,617 shares in 2003, and 5,850 shares in 2002; Mr. Adamo -- 3,282 shares in
2004, 3,535 shares in 2003, and 3,835 shares in 2002; Mr. Butrus -- 1,933
shares in 2004, 2,020 shares in 2003, and 1,705 shares in 2002; Mr.
Friedman -- 2,065 shares in 2004, 2,488 shares in 2003, and 2,585 shares in
2002; and Mr. Kalinowski -- 1,203 shares in 2004, and 1,431 shares in 2003.
Mr. Kalinowski's bonus compensation for 2002 was paid entirely in cash
because he did not participate in ProAssurance's Incentive Compensation
Stock Plan because MEEMIC was not a wholly-owned subsidiary.
(2) Dr. Crowe was the only Named Executive Officer who received perquisites and
other personal benefits, securities or property in an aggregate amount
greater than the lesser of $50,000 or 10% of the annual salary and bonus.
His perquisites had an incremental cost of $85,373 which includes $70,973
for personal use of the Company's airplane.
(3) The shares acquired with grant proceeds under the Amended and Restated
ProAssurance Corporation Stock Ownership Plan are treated as restricted
stock awards in the Summary Compensation Table. The
11
Stock Ownership Plan provides for employee contributions and matching grants
from the Company that are used to purchase shares of the Company's common
stock in the open market for the account of participating employees prior to
vesting. Prior to December 1, 2002, the Company made loans rather than
grants as matching contributions from the Company under the Stock Ownership
Plan. The unvested shares acquired with the matching loans are also treated
as restricted stock awards in the table. The amounts reflected in the table
represent the loans and matching grants made to the Named Executive Officers
under the plan. At December 31, 2004, ProAssurance had outstanding loans and
unvested grants under the plan to Mr. Adamo in the approximate amount of
$15,000 that have been used to purchase 611 shares having a value of $23,896
on that date, to Mr. Friedman in the approximate amount of $31,372 that have
been used to purchase 869 shares having a value of $33,987 on that date and
to Mr. Kalinowski in the approximate amount of $12,000 that have been used
to purchase 315 shares having a value of $12,320 on that date. Loans are
forgiven and shares purchased with grants are fully vested if a participant
remains in the employ of the Company for three years (four years for loans
made prior to January 1, 2002), or until his prior retirement, death or
disability, or until a change of control of the Company. ProAssurance made
no loans to its executive officers and directors under the plan after July
30, 2002, the effective date of the Sarbanes-Oxley Act of 2002.
(4) The table reflects options granted as incentive compensation in the year the
options were granted, regardless of when they become exercisable. See "Stock
Option Grants in 2004."
(5) Other compensation includes (i) contributions in 2004 under the ProAssurance
Group Savings & Retirement Plan in the amount of $20,750 to Messrs. Adamo,
Butrus, Friedman and Kalinowski and $10,500 to Dr. Crowe (he did not
participate in the 401(k) portion of the Plan); (ii) contributions under the
now discontinued Medical Assurance Pension Plan, a qualified defined
contribution retirement plan, to each of Dr. Crowe and Messrs. Butrus,
Friedman, and Morello and in the following amounts: $25,537 for 2003 and
$24,886 for 2002; (iii) contributions for the account of Mr. Adamo under the
ProNational Insurance Company Stock Ownership Plan, a qualified profit
sharing retirement plan, and the ProNational Insurance Company Employees'
Savings and Retirement Plan, a Section 401(k) contributory retirement plan
with discretionary matching contributions of $22,878 for 2002 (includes
contributions to the Medical Assurance Pension Plan for part of 2002); (iv)
$46,175 paid to Mr. Adamo in 2003 as reimbursement for moving expenses; (v)
contributions for the account of Mr. Kalinowski under the 401(k) Retirement
Plan of MEEMIC Holdings: $42,597 for 2004, $34,516 for 2003, and $30,020 for
2002; and (vi) longevity shares issues for service as follows: 50 shares in
2003 to Mr. Kalinowski, 25 shares in 2002 to Dr. Crowe.
12
STOCK OPTION GRANTS IN 2004
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE PRESENT
NAME GRANTED(1) FISCAL YEAR PER SHARE(1) EXPIRATION DATE VALUE(2)
---- ---------- ------------ -------------- --------------- ----------
A. Derrill Crowe.................... 50,000 18% $33.28 10/2014 $651,000
Victor T. Adamo..................... 37,500 14% $33.28 10/2014 $488,250
Paul Butrus......................... 12,500 5% $33.28 10/2014 $162,750
Howard H. Friedman.................. 25,000 9% $33.28 10/2014 $325,650
Lynn M. Kalinowski.................. 12,500 5% $33.28 10/2014 $162,750
---------------
(1) The options were granted on March 9, 2004, pursuant to the Incentive
Compensation Stock Plan at an exercise price equal to $33.28, being the
closing price of a share of Common Stock on the New York Stock Exchange on
that date. The options vest in five equal annual installments commencing
September 10, 2004.
(2) Based on the Black-Scholes Option Pricing Model adopted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend upon the excess of the stock price over the exercise price on
the date the option is exercised, so that there is no assurance that the
value realized by an executive will be at or near the value estimated by the
Black-Scholes Model. The assumptions used in calculating the Black-Scholes
value of the options were expected volatility of .34, risk-free return to
3.4% and a dividend value of -0-, and 6 years before exercise.
OPTION EXERCISES AND OPTION VALUES FOR 2004
The following table sets forth information with respect to exercisable and
unexercisable options held by the Chief Executive Officer and other Named
Executive Officers for the year ended December 31, 2004. For years prior to
2001, the options were granted to the Named Executive Officers (except Mr.
Adamo) under the Medical Assurance Incentive Compensation Stock Plan and were
converted into options to acquire ProAssurance common stock under the
Consolidation Agreement. The Options exercised by Mr. Adamo were granted to him,
and were outstanding, prior to 2001 under Professionals Group's 1996 Long Term
Stock Incentive Plan. They were converted into options to acquire ProAssurance
common stock under the Consolidation Agreement between Medical Assurance and
Professionals Group.
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT FISCAL
SHARES VALUE AT FISCAL YEAR-END (#) YEAR-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
---- ------------ ----------------- ---------------------- ----------------------
A. Derrill Crowe.......... -0- -0- 149,341/110,000 $2,253,391/$1,638,900
Victor T. Adamo........... 60,000 993,900 7,500/82,500 $ 43,725/$734,775
Paul R. Butrus............ -0- -0- 191,238/27,500 $ 2,927,021/$409,725
Howard H. Friedman........ -0- -0- 45,000/55,000 $ 869,550/$819,450
Lynn M. Kalinowski........ -0- -0- 12,500/25,000 $ 185,675/$314,950
---------------
(1) Based on the closing price of $39.11 as reported on the New York Stock
Exchange on December 31, 2004.
STOCK PURCHASE PLAN
The ProAssurance Corporation Stock Ownership Plan (the "Stock Purchase
Plan") is an open market stock purchase plan that allows employees or directors
of ProAssurance and its wholly-owned subsidiaries who have completed six months
or more of service to contribute funds through periodic payroll deductions, or
through a single lump sum deposit, to be used to purchase shares of the
Company's common stock in ordinary
13
brokerage transactions in the open market. Under the terms of the Stock Purchase
Plan, the Company contributes an amount equal to 100% of the first $2,000
contributed by a participating employee during a calendar year and 50% of the
next $8,000 contributed by a participating employee in such calendar year. The
proceeds from the Company contributions are also used to purchase shares of the
Company's common stock in the open market. The shares so purchased are held for
the account of each participant, but do not vest until the first to occur of the
following: (i) the participant remains in the employ of ProAssurance or a
subsidiary for three years; (ii) the participant terminates such employment by
reason of his or her disability, death or retirement; or (iii) a "change of
control" of ProAssurance. All unvested shares are forfeited when the participant
terminates his or her employment.
Prior to December 1, 2002, the Company made loans to contributing employees
instead of grants. The employee contributions and the and loan proceeds were
used to purchase ProAssurance common stock in the open market for the account of
the employees participating in the Stock Purchase Plan. The shares purchased and
any dividends paid thereon are pledged as security for the loans to the
participating employees who are entitled to vote the shares. Each loan is
forgiven and the shares purchased with the deposits and loan proceeds are
released if the employee remains employed with ProAssurance for the requisite
period. ProAssurance ceased making loans to its executive officers and directors
under the Stock Purchase Plan on July 30, 2002, the effective date of the
Sarbanes-Oxley Act of 2002.
BUSINESS OWNED LIFE INSURANCE
During the second quarter of 2003, the Company acquired business owned life
insurance contracts on certain of our key employees, including all of the Named
Executive Officers. The primary purpose of the program is to offset future
employee benefit expenses through earnings on the cash value of the policies. In
addition, as a part of the program, the Company will pay to each insured
employee's beneficiary $50,000 from the proceeds received upon the death of such
employee.
EMPLOYMENT AGREEMENTS
Dr. Crowe currently has an employment agreement with Medical Assurance
which will expire on December 31, 2007. The employment agreement provides for an
annual salary to be established by the Board of Directors each year. Medical
Assurance may terminate the employment agreement only for "good cause," as
defined in the employment agreement. If Medical Assurance terminates Dr. Crowe's
employment agreement other than for "good cause," Medical Assurance is obligated
to pay to Dr. Crowe monthly payments each equal to one-twelfth of Dr. Crowe's
salary for the remainder of the term of his employment agreement. If the Board
of Directors selects someone other than Dr. Crowe as Chief Executive Officer of
Medical Assurance or substantially changes Dr. Crowe's duties without his
consent or agreement, except for "good cause," Medical Assurance is obligated to
pay to Dr. Crowe eight monthly payments each equal to one-twelfth of Dr. Crowe's
salary. The employment agreement automatically renews for three years unless the
Board or Dr. Crowe elects not to renew the employment agreement.
SEVERANCE AGREEMENTS
ProAssurance has entered into a Release and Severance Compensation
Agreement ("Severance Agreement") with the Named Executive Officers (other than
Dr. Crowe and Mr. Butrus) and several other key executives of ProAssurance and
its subsidiaries. The Severance Agreement provides the executive severance
compensation in the event that the executive is terminated without cause, or
voluntarily resigns for "good reason." The severance compensation includes an
amount equal to the executive's annual base salary; an amount equal to the
executive's average annual incentive award (generally calculated as the average
of the prior three years); continuation of health care benefits for 12 months;
and outplacement services. The executive may assert good reason in certain
enumerated circumstances including demotion, relocation, a reduction in base
salary, or the failure of any successor of ProAssurance to assume the Severance
Agreement.
The terms of the Severance Agreement with Victor T. Adamo are similar in
format, but more expansive than those described above. His severance benefits
are established at two times base salary and average bonus,
14
and include health care benefits for 18 months. Mr. Adamo may voluntarily and
unilaterally terminate his employment and receive severance benefits until the
later of June 27, 2005 or two years after a successor to Dr. Crowe is selected.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own more than 10% of a
registered class of our equity securities, to file reports of ownership of, and
transactions in, our equity securities with the SEC ("Section 16 Reports"). Such
directors, executive officers and 10% stockholders are also required to furnish
us with copies of all Section 16 Reports they file. Purchases and sales of our
equity securities by such person are published in the Investor Relations section
of our website at www.proassurance.com.
Based on a review of the copies of such Section 16 Reports we received, and
on written representations from our reporting persons, we believe that all
Section 16(a) filing requirements applicable to our directors, executive
officers and 10% stockholders were complied with during fiscal 2004.
15
STOCK PERFORMANCE GRAPH
The following graph is included to assess the performance of management by
comparing the market value of ProAssurance Common Stock with other public
companies and public companies in the insurance industry. Upon consummation of
the consolidation of Medical Assurance and Professionals Group on June 27, 2001,
each outstanding share of Medical Assurance common stock was converted into a
share of ProAssurance common stock; the Medical Assurance common stock was
delisted on the New York Stock Exchange; and the ProAssurance common stock began
trading on the New York Stock Exchange on the next business day. The
consolidation of Medical Assurance into ProAssurance was treated as a corporate
reorganization similar to a pooling of interests for accounting purposes and was
treated as a corporate name change from Medical Assurance to ProAssurance for
listing purposes on the New York Stock Exchange. Accordingly, the Stock
Performance Graph tracks the market value of a share of Medical Assurance common
stock for periods prior to June 27, 2001.
The graph sets forth the cumulative total stockholder return (assuming
reinvestment of dividends) to stockholders during the five years ended December
31, 2004, as well as an overall stock market index (Russell 2000) and a peer
group index (SNL Property & Casualty) for the five years ended December 31,
2004.
TOTAL RETURN PERFORMANCE
(PERFORMANCE GRAPH)
--------------------------------------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
--------------------------------------------------------------------------------
ProAssurance
Corporation 100.00 82.70 87.12 104.07 159.33 193.82
Russell 2000 100.00 96.98 99.39 79.03 116.38 137.71
Peer Group 100.00 143.42 143.11 134.23 166.08 182.04
16
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of three independent directors and
operates pursuant to a written Charter that was amended and restated in December
2003, which amended and restated Charter is available in the Corporate
Governance section of our website at www.proassurance.com. During 2004, the
Audit Committee held 10 meetings. In conjunction with some of these meetings,
the Audit Committee met in executive sessions, held private sessions with the
independent auditors and met in private sessions with the Vice President of
Internal Audit.
The management of ProAssurance is responsible for the preparation,
presentation and integrity of ProAssurance's financial statements, accounting
and financial reporting principles and the establishment and effectiveness of
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The independent auditors are
responsible for performing an independent audit of ProAssurance's financial
statements in accordance with generally acceptable auditing standards and
expressing an opinion as to their conformity with generally accepted accounting
principles. The independent auditors are also required to evaluate and attest to
management's assessment of ProAssurance's internal controls over financial
reporting. The Audit Committee is directly responsible in its capacity as a
committee of the Board for the appointment, compensation and oversight of the
work of the independent auditor. The independent auditor reports directly to the
Audit Committee.
In performing its oversight role, the Committee has considered and
discussed the audited financial statements with management and with Ernst &
Young LLP, ProAssurance's independent auditors. The Committee also has discussed
with the independent auditors the matters required to be discussed by Statement
on Accounting Standards ("SAS") No. 61, Communications with Audit Committees, as
currently in effect. SAS No. 61, as amended, requires the independent auditors
to provide ProAssurance with additional information regarding the scope and
results of their audit of ProAssurance's financial statements, including with
respect to (i) their responsibility under generally accepted auditing standards,
(ii) significant accounting policies, including a discussion of their quality,
not just their acceptability, (iii) sensitive judgments and estimates, (iv) any
significant audit adjustments, (v) unadjusted audit differences considered by
management to be immaterial, (vi) any disagreements with management, (vii)
consultations with other accountants, (viii) any difficulties encountered in
performing the audit, (ix) the adoption of or change in an accounting principle,
and (x) methods of accounting for significant unusual transactions and for
controversial or emerging areas.
The Committee has received from Ernst & Young LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, with respect to any
relationships between Ernst & Young LLP and ProAssurance that in their
professional judgment may reasonably be thought to bear on independence. Ernst &
Young LLP has discussed its independence with us, and has confirmed in such
letter that, in its professional judgment, it is independent of ProAssurance
within the meaning of federal securities laws. All non-audit services performed
by the independent auditors must be specifically pre-approved by the Audit
Committee or a member thereof. The Committee approved the non-audit services
rendered by ProAssurance's independent auditors during ProAssurance's most
recent fiscal year as required by Section 10A(i) of the Securities Exchange Act
of 1934 and Rule 2.01(c)(7) of Regulation S-X and considered whether the
approved non-audit services are compatible with maintaining the independence of
such auditors.
Members of the Committee rely without independent verification on the
information provided to them and on the representations made by management and
the independent auditors. Accordingly, the Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations.
During 2004, the Audit Committee performed all of its duties and
responsibilities required under applicable federal laws and regulations and the
then applicable Audit Committee Charter. Based on the reports and discussions
described in this report, and subject to the limitations on the role and
responsibilities of the Committee referred to above and in the Charter, the
Audit Committee recommended to the Board of
17
Directors that the audited financial statements of ProAssurance for 2004 be
included in its Annual Report on Form 10-K for the year ended December 31, 2004,
prior to the filing of such report with the Securities and Exchange Commission.
Audit Committee:
John P. North, Jr., Chairman
Lucian F. Bloodworth
Ann F. Putallaz
March 9, 2005
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP was engaged as independent public accountants of the
Company for 2004. Representatives from Ernst & Young, LLP will be present at the
annual meeting, will have the opportunity to make a statement if they so desire,
and will be available to respond to appropriate questions. As described below,
the Audit Committee is responsible for selecting ProAssurance's independent
public accountants for 2005, and has not yet made its selection.
FEES FOR 2004 AND 2003
The table below sets forth the aggregate fees paid by ProAssurance for
audit, audit-related, tax, and other services provided by Ernst & Young LLP to
ProAssurance during each of the last two years.
2004 2003
---------- ----------
Audit fees.................................................. $1,856,699 $ 889,608
Audit-related fees.......................................... 152,790 78,112
Tax fees.................................................... 0 258,898
All other fees.............................................. 700,949 0
---------- ----------
Total....................................................... $2,710,438 $1,226,618
Audit services for 2004 and 2003 included the audit of ProAssurance's
annual financial statements and review of the Company's quarterly reports on
Form 10Q. Audit services for 2004 increased substantially because of the
evaluation of ProAssurance's internal controls over financial reporting as
required under the Sarbanes-Oxley Act.
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements. These services included audits of employee benefit plans
in 2004 and 2003 and due diligence services in 2004.
Tax services in 2003 consisted of assistance in compliance with and
consultations with respect to federal, state, and local tax requirements and tax
services relating to certain financing transactions.
The other fees in 2004 related to non-audit services provided in connection
with the development of a predictive model for use by our insurance subsidiaries
in underwriting their medical professional liability risks through an analysis
of internal and external data. The Audit Committee believes that these services
are not prohibited non-audit services and also believes that provision of these
services will not impair the independence of the auditor.
All fees paid to Ernst &Young, LLP in 2004 which required the pre-approval
of the Audit Committee were approved in accordance with the Company's
pre-approval policies and procedures described below.
PRE-APPROVAL POLICIES AND PROCEDURES
Audit and Non-Audit Services Pre-Approval Policy. Under the Sarbanes-Oxley
Act, the Audit Committee of the Board of Directors is responsible for the
appointment, compensation and oversight of the work of the independent auditor.
As part of this responsibility, the Audit Committee is required to pre-approve
the audit and non-audit services performed by the independent auditor in order
to assure that they do not impair
18
the auditor's independence from the Company. To implement these provisions of
the Sarbanes-Oxley Act, the SEC has issued rules specifying the types of
services that an independent auditor may not provide to its audit client and
governing the Audit Committee's administration of the engagement of the
independent auditor. Our Audit Committee has adopted an Audit and Non-Audit
Services Pre-Approval Policy (the "Policy"), which sets forth the procedures and
the conditions pursuant to which services proposed to be performed by
ProAssurance's independent auditor may be pre-approved.
For pre-approval, the Audit Committee will consider whether services are
consistent with the SEC's rules on auditor independence. The Audit Committee
will also consider whether the independent auditor is able to provide effective
and efficient service, for reasons such as its familiarity with our business,
people, culture, accounting systems, risk profile, and other factors, and
whether the services will enhance our ability to manage or control risk or
improve audit quality. The Audit Committee is also mindful of the relationship
between fees for audit and non-audit services in deciding whether to pre-approve
any such services. All such factors will be considered as a whole, and no one
factor should necessarily be determinative.
The Audit Committee will determine from time to time eligible services that
may be provided to ProAssurance by the independent auditors in accordance with
the requirements and guidance of the SEC and the New York Stock Exchange or
other exchanges or market systems in which our stock is traded. The Audit
Committee will also determine whether such services fit in the categories of
Audit Services, Audit Related Services, Tax Services, and other Permitted
Non-Audit Services as described below and as the description of such services
may be modified under subsequent guidance and interpretation of the regulatory
and self-regulatory organizations applicable to ProAssurance, including without
limitation, the SEC and the NYSE. The independent auditor may not provide any
non-audit services that are prohibited under the provisions of Section 10A of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Audit Services. Audit services in the annual audit engagement include the
annual financial statement audit (including required quarterly reviews),
subsidiary audits, equity investment audits, and other procedures required to be
performed by the independent auditor in order for the independent auditor to
form an opinion on the Company's consolidated financial statements. These other
procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control and consultations relating to the annual audit or quarterly review.
Audit services also include the engagement for the independent auditor's report
on management's assessment of internal controls for financial reporting. In
addition to the audit services included in the annual audit engagement, the
Audit Committee may approve other Audit services. Other Audit services are those
services that only the independent auditor can reasonably provide and include
statutory audits or financial audits for subsidiaries or affiliates of the
Company and services associated with SEC registration statements, periodic
reports and other documents filed with the SEC or other documents issued in
connection with a securities offering.
Audit-Related Services. Audit-related services are assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements or that are traditionally performed by the
independent auditor. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with SEC rules on auditor independence, the Audit Committee may grant
pre-approval to Audit-related services. Audit-related services include, among
others, due diligence services pertaining to potential business
acquisitions/dispositions, accounting consultations relating to accounting,
financial reporting or disclosure matters not classified as "audit services,"
assistance with understanding and implementing new accounting and financial
reporting guidance from rule-making authorities, financial audits of employee
benefit plans, agreed upon or expanded audit procedures related to accounting
and/or billing records required to respond or comply with financial, accounting
or regulatory reporting matters, and assistance with internal control reporting
requirements.
Tax Services. The Audit Committee believes that the independent auditor
can provide Tax services to the Company such as tax compliance, tax planning and
tax advice without impairing the auditor's independence, and the SEC has stated
that the independent auditor may provide such services. Hence, the
19
Audit Committee believes it may grant pre-approval to those Tax services (i)
that have historically been provided by the independent auditor, (ii) that the
Audit Committee believes would not impair the independence of the auditor, and
(iii) that are consistent with SEC rules on auditor independence. The Audit
Committee will not permit the retention of the independent auditor in connection
with a transaction initially recommended by the independent auditor, the sole
business purpose of which may be tax avoidance and the tax treatment of which
may not be supported in the Internal Revenue Code and related regulations. The
Audit Committee will consult with the Chief Accounting Officer or outside
counsel to determine that tax planning and reporting positions are consistent
with this policy.
Other Non-Audit Services. The Audit Committee believes, based on the SEC's
rules prohibiting the independent auditor from providing specific non-audit
services, that certain types of non-audit services are permitted. Accordingly,
the Audit Committee believes it may grant pre-approval for those permissible
non-audit services that it believes would not impair the independence of the
auditor and are consistent with the SEC's rules on auditor independence. The
Audit Committee may not pre-approve any of the SEC's Prohibited Non-Audit
Services.
PRE-APPROVAL PROCEDURES
Annual Audit Engagement. The Audit Committee appoints the independent
auditor of the Company and pre-approves the services to be provided in
connection with the preparation or issuance of the annual audit report or
related work. The annual audit services are set forth in an engagement letter
prepared by the independent auditor which is submitted to the Audit Committee
for approval before the services are to be provided. The engagement letter
provides that the independent auditor reports directly to the Audit Committee.
Any audit services within the scope of the engagement letter are deemed to have
been pre-approved by the Audit Committee.
Pre-Approval of Other Audit and Non-Audit Services. Other Audit services,
Audit-related services, Tax services, and Other Non-Audit services may be
pre-approved by the Audit Committee in accordance with the following procedure
either (i) on a specific case-by-case basis as services are needed or (ii) on a
pre-approval basis for services that are expected to be needed. The Audit
Committee of the Company may delegate to one or more designated members of the
Audit Committee, who are independent directors of the Board of Directors, the
authority to grant pre-approval of these services to be performed by the
independent auditors. The member to whom such authority is delegated must
report, for informational purposes only, any pre-approval decisions to the Audit
Committee at its next scheduled meeting.
Requests for pre-approval of eligible services by the independent auditor
may be submitted from time to time by management to the Audit Committee or the
member or members of the Audit Committee to whom pre-approval authority has been
delegated. The request for approval must be sufficiently detailed as to the
particular services to be provided so that the Audit Committee knows precisely
what services it is being asked to pre-approve and so that it can make a well
reasoned assessment of the impact of the service on the auditor's independence.
Budgeted amounts or fee levels for services to be provided by the independent
auditor must be submitted with the request for pre-approval. Requests for
pre-approval of services by the independent auditor must include a joint
statement of the independent auditor and the Chief Accounting Officer as to
whether, in their view, the request or application is consistent with the SEC's
rules on auditor independence.
The Audit Committee will be informed not less frequently than quarterly of
the services rendered by the independent auditor. The Chief Accounting Officer
will be responsible for tracking all independent auditors' fees against the
budget for such services and reporting at least quarterly to the Audit
Committee.
The Audit Committee has designated the internal auditor to monitor the
performance of all services provided by the independent auditor and to determine
whether such services are in compliance with this policy. The internal auditor
will report to the Audit Committee on a periodic basis on the results of its
monitoring. Both the internal auditor and management will immediately report to
the Chairman of the Audit Committee any breach of this policy that comes to the
attention of the internal auditor or any member of management. The Audit
Committee will also review the internal auditor's annual internal audit plan to
determine that the plan provides for monitoring of the independent auditor's
services.
20
POLICIES ON REPORTING OF CONCERNS REGARDING ACCOUNTING AND OTHER MATTERS AND ON
COMMUNICATING WITH DIRECTORS
We have adopted policies on reporting of concerns regarding accounting and
other matters and on communicating with our Directors. Any person, whether or
not an employee, who has a concern about the conduct of ProAssurance or any of
our people, regarding our accounting, internal accounting controls or auditing
issues, may, in a confidential or anonymous manner, communicate that concern to
the members of the Audit Committee by using any of the methods described in the
Corporate Governance section on our website at www.proassurance.com. Any
interested party, whether or not an employee, who wishes to communicate directly
with our non-management directors, or with our Directors as a group, also may
contact them using one of the methods described in the Governance section on our
website at www.proassurance.com. All such communications will be forwarded to
the Company's Internal Corporate Counsel, who will distribute such
communications to all of the members of the Board or to the non-management
directors, as applicable.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
ProAssurance has no present knowledge of any other matters to be presented
at the Annual Meeting. If any other matters should properly come before the
Annual Meeting, or any adjournment or postponement thereof, it is the intention
of the persons named in the accompanying Proxy to vote such Proxy in accordance
with their best judgment.
PROPOSALS OF STOCKHOLDERS
STOCKHOLDER NOMINATIONS FOR DIRECTORS
ProAssurance's Bylaws require that a stockholder who desires to nominate
directors at an annual meeting of stockholders must give ProAssurance written
notice of such stockholder's intent no later than December 1 in the year
preceding the annual meeting or such other date as may be established by the
Board for a particular annual meeting by written notice to the stockholders. The
stockholder's notice must set forth (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record at the time of
such notice and intends to be a holder of record on the record date for such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the Board solicited proxies
for the election of such nominee at the meeting; and (e) the consent of each
nominee to serve as a Director of the Company if so elected.
STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
Stockholders who, in accordance with the SEC's Rule 14a-8, wish to present
proposals for inclusion in the proxy materials to be distributed by us in
connection with our 2006 Annual Meeting must submit their proposals to our
Secretary on or before December 17, 2005, in order for the proposal to be
considered for inclusion in the Proxy Statement for the 2006 Annual Meeting of
Stockholders. As the rules of the SEC make clear, simply submitting a proposal
does not guarantee its inclusion.
ProAssurance's Bylaws require any stockholder who desires to propose any
business at the annual meeting of stockholders (other than the election of
directors) to give ProAssurance written notice no later than December 1 in the
year preceding the annual meeting at which the proposal is to be considered or
such other date as may be established by the Board for a particular annual
meeting by written notice to the stockholders. The stockholder's notice must set
forth (a) a brief description of the business desired to be brought before the
meeting and the reasons for considering such matter or matters at the meeting;
(b) the
21
name and address of the stockholder who intends to propose such matter or
matters; (c) a representation that the stockholder has been a holder of record
of stock of the Company entitled to vote at such meeting for a period of one
year and intends to hold such shares through the date of the meeting and appear
in person or by proxy at such meeting to propose such matter or matters; (d) any
material interest of the stockholder in such matter or matters; and (e) a
description of all understandings or relationships between the stockholder and
any other person(s) (naming such persons) with respect to the capital stock of
ProAssurance as to the matter specified in the notice. The proposal and any
accompanying statement may not exceed 500 words. Stockholders are not permitted
to submit proposals for consideration at special meetings.
OTHER MATTERS
IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS
In accordance with a notice sent to certain street name stockholders of
Common Stock who share a single address, only one copy of this Proxy Statement
and our 2004 Annual Report is being sent to that address unless we received
contrary instructions from any stockholder at that address. This practice, known
as "householding," is designated to reduce our printing and postage costs.
However, if any stockholder residing as such an address wishes to receive a
separate copy of this Proxy Statement or our 2004 Annual Report, he or she may
contact Frank O'Neil, Senior Vice President, ProAssurance Corporation, either by
mail at P.O. Box 590009, Birmingham, Alabama 35259-0009, or by telephone at
(205) 877-4400 or (800) 282-6242, and we will deliver those documents to such
stockholder promptly upon receiving the request. Any such stockholder may also
contact Mellon Shareholder Services at 1-800-851-4218 if he or she would like to
receive separate proxy statements and annual reports in the future. If you are
receiving multiple copies of our annual report and proxy statement, you may
request householding in the future by contacting Mellon Shareholder Services at
1-800-851-4218.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement is incorporated by reference into
any other filing by ProAssurance under the Securities Act of 1933 or the
Securities Exchange Act of 1934, the sections of this Proxy Statement entitled
"Report of the Compensation Committee," "Report of the Audit Committee," (to the
extent permitted by the rules of the SEC) and "Stock Price Performance," as well
as the exhibits to this Proxy Statement, will not be deemed incorporated, unless
specifically provided otherwise in such filing.
VOTING VIA THE INTERNET OR BY TELEPHONE
Provision has been made for you to vote your shares of Common Stock via the
Internet or by telephone. You may also vote your shares by mail. Please see the
proxy card or voting instruction form accompanying this Proxy Statement for
specific instructions on how to cast your vote by any of these methods.
Votes submitted via the Internet or by telephone must be received by 11:59
p.m., Birmingham, Alabama time, on May 17, 2005. Submitting your vote via the
Internet or by telephone will not affect your right to vote in person should you
decide to attend the Annual Meeting.
The Internet and telephone voting procedures are designated to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. We have been advised that the Internet and telephone voting procedures
that have been made available to you are consistent with the requirements of
applicable law. Stockholders voting via the Internet and by telephone should
understand that there may be costs associated with voting in these manners, such
as usage charges from Internet access providers and telephone companies, which
must be borne by the stockholder.
22
EXHIBIT A
POLICY REGARDING DETERMINATION OF DIRECTOR INDEPENDENCE
The New York Stock Exchange ("NYSE") Rules require that a majority of the
Directors on the Board of Directors be independent Directors. In order for a
Director to be considered independent, the Board of Directors must affirmatively
determine that the Director and his or her immediate family has no material
relationship with the listed company. In accordance with the provisions of the
NYSE Rules, the Board of Directors of ProAssurance Corporation has adopted
certain standards, which if satisfied by a Director, establish a presumption
that such Director is independent. If a Director fails to satisfy the specified
criteria, the Board of Directors can still make a determination that the
Director is independent, provided that the basis for such determination is
specifically disclosed and the Director does not have a relationship which is
otherwise prohibited under the NYSE Rules.
In accordance with this policy, a Director will be presumed to be
independent if he or she satisfies the following criteria:
- During the past three (3) years, such Director has not been employed by
ProAssurance; has no immediate family members who were employed by
ProAssurance as an officer; has not been employed by or affiliated with
ProAssurance's independent auditors; and has no immediate family members
who were employed by ProAssurance's independent auditor as a partner,
principal or manager.
- If such director or a member of his or her immediate family has served as
an executive officer, director or trustee of a foundation, university or
other non-profit entity during the past three (3) years, the total annual
donations by ProAssurance to such entity constitute less than one percent
(1%) of that organization's total annual receipts during each fiscal year
ended in such period (any matching of employee charitable contributions
will not be included in the amount of ProAssurance's contributions for
this purpose).
- If such Director or a member of his or her immediate family has served as
an executive officer, partner or controlling shareholder of another
company that has done business with ProAssurance during the past three
(3) years (other than the purchase of insurance in the ordinary course of
business or for personal needs), the sales to, or purchases from,
ProAssurance were less than one percent (1%) of the annual revenues of
such company during each fiscal year ended in such period.
- If during the past three (3) years such director or a member of his or
her immediate family has served as an executive officer, partner or
controlling shareholder of another company that has purchased insurance
from the Company's insurance subsidiaries in the ordinary course of
business or if such director has purchased insurance from the Company's
insurance subsidiaries for personal needs of the director and his
immediate family, the premiums paid to the Company's insurance
subsidiaries were less than $1,000,000 during each fiscal year ended in
such period.
- If such Director or a member of his or her immediate family has served as
an executive officer, partner or controlling shareholder of another
company that was indebted to ProAssurance, or to which ProAssurance was
indebted during the past three (3) years, the total amount of either
company's indebtedness to the other is less than one percent (1%) of the
total consolidated assets of such company during each fiscal year ended
in such period.
- During the past three (3) years, such Director has not received any
compensation, consulting, advisory or other fees from ProAssurance, other
than (i) director compensation and expense reimbursement; and (ii)
compensation for services as a member of a regional underwriting/claims
committee of an insurance subsidiary of the Company in a manner that is
consistent with the Company's Corporate Governance Principles, provided
that the total compensation payable to a director for director
compensation and for service on regional underwriting/claims committees
may not exceed $100,000 in any 12-month period.
A-1
- During the past three (3) years, such Director has not been employed by
any company where the chief executive officer or other executive officer
of ProAssurance serves on the board of directors of such company.
- During the past three (3) years, such Director has no immediate family
member that has been employed by any company where the chief executive
officer or other executive officer of ProAssurance serves on the board of
directors of such company.
"PROASSURANCE" refers to ProAssurance Corporation and any direct or
indirect subsidiary of ProAssurance Corporation. Professionals Group and its
subsidiaries are considered subsidiaries of ProAssurance before and after June
21, 2001.
"PAST THREE YEARS" refers to a period of not less than 36 months extending
from October 1, 2001 to the date of determination.
"IMMEDIATE FAMILY MEMBER" includes a person's spouse, parents, children,
siblings, mothers-and fathers-in-law, sons-and daughters-in-law, brothers-and
sisters-in-law, and anyone (other than domestic employees) who shares such
person's home.
A-2
REVOCABLE PROXY
PROASSURANCE CORPORATION
PROXY SOLICITED ON BEHALF OF THE YOUR BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2005
The Stockholder executing this Proxy appoints Howard H. Friedman and Frank B.
O'Neil and each of them, each with full power to appoint his or her substitute,
attorneys and proxies to represent the Stockholder and to vote and act with
respect to all shares of common stock of ProAssurance Corporation
("ProAssurance") the Stockholder would be entitled to vote on all matters which
come before the Annual Meeting of Stockholders of ProAssurance referred to above
(the "Annual Meeting") and at any adjournment(s) or postponement(s) of the
Annual Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PROASSURANCE
CORPORATION. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF PROASSURANCE
COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, SUCH SHARES WILL BE VOTED FOR THE ELECTION
AS DIRECTORS OF ALL NOMINEES LISTED HEREIN. THE SHARES OF PROASSURANCE COMMON
STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES
ON ANY OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING.
(Continued and to be signed on reverse side)
ADDRESS/CHANGE/COMMENTS (Mark the corresponding box on the reverse side)
*FOLD AND DETACH HERE*
YOU CAN NOW ACCESS YOUR PROASSURANCE CORPORATION ACCOUNT ONLINE.
Access your ProAssurance Corporation stockholder account on line via Investor
ServiceDirect(R) (ISD)
Mellon Investor Services LLC, Transfer Agent for ProAssurance Corporation, now
makes it easy and convenient to get current information on your stockholder
account.
- View account status - View payment history for dividends
- View certificate history - Make address changes
- View book-entry information - Obtain a duplicate 1099 tax form
- Establish/change your PIN
VISIT US ON THE WEB AT http://www.melloninvestor.com
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN 9AM-7PM
MONDAY-FRIDAY EASTERN TIME
MARK HERE [ ]
FOR ADDRESS
CHARGE OR COMMENTS
SEE REVERSE SIDE
1. ELECTION OF FOUR (4) DIRECTORS, each to serve FOR WITHHOLD
until the year 2008 or until his/her successor ALL NOMINEES AUTHORITY
is duly elected and qualified: LISTED HEREIN TO VOTE FOR ALL
(EXCEPT AS MARKED NOMINEES LISTED
TO THE CONTRARY) HEREIN
01. Lucian F. Bloodworth [ ] [ ]
02. A. Derrill Crowe, M.D. [ ] [ ]
03. Robert E. Flowers, M.D. [ ] [ ]
04. Ann F. Putallaz [ ] [ ]
CONSENTING TO RECEIVE ALL FUTURE
NOTE: TO WITHHOLD AUTHORITY TO VOTE ANNUAL MEETING MATERIALS AND
FOR ANY INDIVIDUAL NOMINEE STRIKE SHAREHOLDER COMMUNICATIONS
A LINE THROUGH THE NOMINEE'S NAME ELECTRONICALLY IS SIMPLE AND FAST!
IN THE LIST ABOVE. Enroll today at www.mellonInvestor.com/ISD
for secure online access
to your proxy materials, statements,
tax documents, and other important
shareholder or correspondence.
Dated , 2005
----------------------
---------------------------------
Signature
---------------------------------
Signature if held jointly
Please sign exactly as name
appears on this proxy. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a corporation,
please sign in full corporate name by an
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
* FOLD AND DETACH HERE *
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE
http://www.eproxy.com/pra 1-800-435-6710 MAIL
Use the Internet to vote your proxy. OR Use any touch-tone telephone to OR Mark, sign and date
Have your proxy card in hand when vote your proxy. Have your proxy your proxy card and
you access the web site. card in hand when you call. return it in the
enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY ON THE INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT ON THE INTERNET AT
www.proassurance.com/pdf/2005AR.pdf
AND THE PROXY STATEMENT ON THE INTERNET AT
www.proassurance.com/pdf/2005Proxy.pdf