EXHIBIT 10(e)
QUOTA SHARE REINSURANCE AGREEMENT
THIS QUOTA SHARE REINSURANCE AGREEMENT (this "Agreement") is made and
entered into as of April 1, 2003 by and among AMERICAN HALLMARK INSURANCE
COMPANY OF TEXAS, an insurance company organized under the laws of the State
of Texas ("Reinsurer"), STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY, an
insurance company organized under the laws of the State of Texas
("Company"), and AMERICAN HALLMARK GENERAL AGENCY, INC., a corporation
organized under the laws of the State of Texas ("General Agent");
W I T N E S S E T H:
THAT, in consideration of the mutual covenants hereinafter contained
and upon the terms and conditions herein below set forth, the parties hereto
agree as follows:
PREAMBLE
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It is understood that the Company, the Reinsurer and the General Agent
(hereinafter identified collectively as the "Parties") hereto wish to enter
into a reinsurance arrangement through which the Company is to bear no
business, credit or insurance risk whatsoever in connection with the
insurance policies issued through the General Agent (the "Subject Program").
In this regard, the Company has reinsured certain risks arising from the
Subject Program through that certain Quota Share Reinsurance Agreement
between Company and Dorinco Reinsurance Company ("Corresponding Reinsurer")
dated effective April 1, 2003 (the "Corresponding Agreement"). As a
condition precedent to the Company's agreement to permit policies to be
issued in the name of the Company pursuant to the Subject Program, the
Reinsurer shall hold the Company harmless and indemnify it for these and all
risks arising from the Subject Program other than those reinsured by the
Corresponding Reinsurer. The sole consideration provided by the Company, in
exchange for the fees set forth in Article VIII herein, is to permit the
Policies (as hereinafter defined) which are reinsured under this Agreement
and under the Corresponding Agreement, to be issued in the name of the
Company. It being understood that nothing in the Corresponding Agreement
extinguishes or diminishes the Reinsurer's ultimate obligation to indemnify
and hold the Company harmless as specified in this Preamble. All provisions
of this Agreement shall be interpreted so as to be in accord with this
Preamble.
ARTICLE I
BUSINESS REINSURED
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1.01 Effective as of the effective date of this Agreement, the Company
obligates itself to cede to the Reinsurer, and the Reinsurer obligates
itself to accept, 45% of the Company's gross liability under all policies,
certificates, contracts, binders, agreements or other proposals or evidences
of insurance, new and renewal policies, binders, and contracts of insurance
(hereinafter called "Policies") issued by and on behalf of the Company, in
its sole discretion, as private passenger automobile in accordance with the
Texas Automobile Manual, including physical damage, liability, personal
injury protection, uninsured/underinsured motorist, and miscellaneous
coverages as endorsed in Texas during the term of this Agreement, produced
by or through the General Agent appointed by the Company at the request of
the Reinsurer as provided in Section 18.02 of this Agreement as well as all
risks arising from the Subject Program other than those reinsured by the
Corresponding Reinsurer.
1.02 This Agreement shall also apply to, and the Reinsurer shall reinsure,
45% coverage for personal injury protection as required under Tex. Ins. Code
Ch. 5, Art. 5.06-3 or any successor statute thereto, for the classes of
business specified under Section 1.01 above.
1.03 Subject to Section 15.05 hereof, the maximum policy limits for Policies
are as follows:
Bodily Injury per person: $ 25,020
Bodily Injury per accident: $ 50,020
Property Damage per Accident: $ 25,020
Physical Damage: Actual Cash Value (ACV),
not to exceed $50,020 per vehicle
Personal Injury Protection: $ 2,520 per person, per accident
Uninsured/Underinsured/B.I.: $ 25,020 per person
$ 50,020 per accident
Uninsured/Underinsured/P.D.: $ 25,020 per accident
In the event of a statutory increase in limits by the State of Texas, or
travel by an insured to a state with greater statutory requirements, the
maximum policy limits shall be increased to statutory limits in effect plus
$20.
It is understood that the General Agent shall not bind the Company to
amounts in excess of those stated above.
ARTICLE II
ORIGINAL CONDITIONS
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2.01 Effective as of the effective date of this Agreement, the Company
obligates itself to cede to the Reinsurer, and the Reinsurer obligates
itself to accept, 45% of the Company's gross liability under all Policies
issued by and on behalf of the Company by the General Agent as well as all
risks arising from the Subject Program other than those reinsured by the
Corresponding Reinsurer.
2.02 Business ceded hereunder shall include every original policy, rewrite,
renewal or extension (whether before or after the termination of this
Agreement) required by applicable statute, or by rule or regulation of any
policy of insurance ceded hereunder by the Company to the Reinsurer.
2.03 The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company as soon as the Company becomes
liable, and the premium on account of such liability shall be credited to
the Reinsurer from the original date of the Company's liability.
2.04 All reinsurance for which the Reinsurer shall be liable, by virtue of
this Agreement, shall be subject, in all respects, to the same rates, terms,
conditions, interpretations, waivers, the exact proportion of premiums paid
to the Company without any deduction for brokerage, and to the same
modifications, alterations and cancellations, as the respective insurance of
the Company to which such reinsurance relates, the true intent of this
Agreement being that the Reinsurer shall, in every case to which this
Agreement applies and in the proportion specified herein, follow the
fortunes of the Company.
2.05 Nothing herein shall in any manner create any obligations, establish
any rights or create any direct right of action against the Reinsurer in
favor of any third party, or other person not party to this Agreement; or
create any privity of contract between the policyholders and the Reinsurer.
ARTICLE III
EXCLUSIONS
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With respect to the classes of business which the General Agent may be
authorized to produce under this Agreement, the General Agent will not
solicit or accept proposals or bind the Company for insurance coverage on
the following risks:
(a) Any automobile not classified as private passenger automobile.
(b) Garagekeepers legal liability.
(c) Vendors single interest.
(d) Nuclear risks as defined in the "Nuclear Incident Exclusion Clause
- Physical Damage - Reinsurance" and the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance" attached to and
forming part of this Agreement.
(e) Liability as a member, subscriber or reinsurer of any Pool,
Syndicate or Association, but this exclusion shall not apply to
Assigned Risk Plans or similar plans.
(f) Mobile homes.
(g) Automobile dealers.
(h) Automobile Liability with respect to any vehicle used principally
as:
1) A Taxicab, public or livery conveyance or bus, it being
understood that this exclusion does not apply to school or
church buses;
2) An ambulance, fire department or law enforcement vehicle;
3) A racing or exhibition vehicle.
(i) Loss or damage caused by or resulting from war, invasion,
hostilities, acts of foreign enemies, civil war, insurrection,
military or usurped power, martial law or confiscation by order of
any government of public authority, but not excluding loss or
damage which would be covered under a policy or standard form
containing a standard war exclusion clause.
(j) Loss or damage or cost or expenses arising from seepage and/or
pollution and/or contamination, other than contamination from
smoke damage. Nevertheless, this exclusion does not preclude any
payments of the cost of the removal of debris of property damage
by a loss otherwise covered hereunder, but subject always to a
limit of 25% of the Company's Property Business loss under the
original policy.
If any business falling within the scope of one or more of the exclusions is
assigned to the Company under an Assigned Risk Plan, such exclusion(s) shall
not apply, it being understood and agreed that the limits of liability
extended by the Company as respects such policies shall not exceed the
minimum statutory limits of liability prescribed in such Assigned Risk Plan.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth
in this Article, these exclusions shall be suspended with respect to such
business until 30 days after an underwriting supervisor of the Company
acquires knowledge of such business.
ARTICLE IV
COMMENCEMENT, TERMINATION, TERMS AND CONDITIONS
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4.01 The effective date of this Agreement is at 12:01 a.m. Central Standard
Time, on April 1, 2003. This Agreement shall remain continuously in force
until terminated according to the provisions set forth herein.
4.02 This Agreement may be terminated as follows:
(a) By any Party hereto the first day of any calendar quarter, by
providing at least ninety (90) days written notice to the other
Parties, such notice to be sent by certified mail, return receipt
requested, postage prepaid;
(b) Immediately by mutual consent of the Company and Reinsurer;
(c) Immediately upon written notice by the Reinsurer or the Company in
the event of the cancellation or non-renewal of the General Agent's
license by the Texas Department of Insurance;
(d) By the Reinsurer after thirty (30) days written notice to the
General Agent and Company of the General Agent's failure to pay to the
Reinsurer all payments of premiums due hereunder, provided, however,
that in the event such payment is received by the Reinsurer prior to
the date of cancellation stated in the Reinsurer's written notice this
Agreement shall not be so terminated and said written notice shall be
of no further force or effect. If the Reinsurer receives such late
premium within a ten (10) day period following receipt of such notice,
the Reinsurer shall inform the Company and the General Agent of such
receipt as soon as the premium is received and the termination of the
Agreement for reason of default shall be rescinded;
(e) Immediately, upon written notice by the Company, if the Reinsurer
or General Agent is found to be insolvent by a State Insurance
Department or court of competent jurisdiction, or is placed in
supervision, conservation, rehabilitation, or liquidation, or has a
receiver or supervisor appointed. By the Reinsurer, upon thirty (30)
days written notice, if the Company or General Agent is found to be
insolvent by a State Insurance Department or court of competent
jurisdiction, or is placed in supervision, conservation, rehabilitation
or liquidation, or has a receiver or supervisor appointed;
(f) By the Company immediately and automatically without prior written
notice should the Texas Department of Insurance require cancellation or
disallow credit for this reinsurance;
(g) After thirty (30) days written notice by any party in the event
that the Company, the Reinsurer or the General Agent amalgamates with
or passes under the control of any other company or corporation or
changes a majority of its officers or board of directors during the
term of this Agreement; or
(h) As provided in Section 23.02 of this Agreement.
4.03 When this Agreement terminates for any reason, reinsurance hereunder
shall continue to apply to the business in force at the time and date of
termination until expiration or cancellation of such business. It is
understood that any Policies with effective dates prior to the termination
date but issued after the termination date are covered under this Agreement.
Additionally, the reinsurance hereunder shall continue to apply as to
Policies which must be issued or renewed, as a matter of state law or
regulation or because a producing agent has not been timely canceled, until
the expiration dates on said Policies. The General Agent agrees that,
notwithstanding anything to the contrary, its appointment by the Company to
produce business terminates when this Agreement terminates unless the
General Agent's authority has been terminated earlier; except that the
Company shall provide the General Agent with the limited agency authority
needed to service the run-off of the business, e.g., issue, cancel, offer
renewal where required by law.
4.04 Upon termination of this Agreement, the Reinsurer and General Agent
shall not be relieved of or released from any obligation created by or under
this Agreement in relation to payment, expenses, reports, accounting or
handling, which relate to insurance business reinsured under this Agreement.
The Parties hereto expressly covenant and agree that they will cooperate
with each other in the handling of all such run-off insurance business until
all Policies have expired either by cancellation or by terms of such
Policies and all outstanding losses and loss adjustment expenses have been
settled. While by law and regulation, the Company recognizes its primary
obligations to its policyholders, the Reinsurer and General Agent recognize
that to the extent possible there shall be no cost to or involvement by the
Company in servicing this run-off. Upon termination of this Agreement, the
General Agent shall service the run-off of the business, and its duties for
such run-off shall include, but not be limited to, handling all claims, and
handling and servicing all policies through their natural expiration,
together with any policy renewals, required to be made by provisions of
applicable law, whether or not the effective date of such renewal is
subsequent to the effective date of cancellation of this Agreement. All
costs and expenses associated with the handling of such run-off business
following the cancellation or termination of this Agreement shall be borne
solely by the General Agent; however, the Reinsurer shall be ultimately
responsible for the run-off and shall pay any such costs and/or expenses if
the General Agent does not for any reason pay or cause to be paid such costs
and expenses. If for any reason the General Agent fails or is unable to
service any such run-off business (or any business while the Agreement is
still in effect), including the payment of claims, then consistent with this
Agreement, the Reinsurer's obligation with respect to such run-off business
shall continue and the Reinsurer shall appoint a successor to the General
Agent, subject to the approval of the Company, to administer and otherwise
handle the run-off as provided herein. However, such approval shall not be
unreasonably withheld. Such successor shall perform all of the duties and
obligations of the General Agent with respect to servicing such run-off
business, including the payment of claims. In addition, the Company in its
sole discretion, subject to commercially reasonable standards, may terminate
the authority of the General Agent or a successor thereto to handle such
run-off business and the Reinsurer shall then appoint a successor to handle
the run-off, subject to the Company's approval, at no cost to the Company.
4.05 In the event this Agreement is terminated, the Reinsurer shall remain
liable to and shall, immediately upon request, reimburse the Company for any
assessment made upon the Company by the Commissioner of Insurance of the
State of Texas under Article 21.28-C (Texas Property and Casualty Insurance
Guaranty Act) of the Texas Insurance Code, which applies to the risks
reinsured hereunder to the effective date of termination. The Company shall
likewise remain liable for, and account to the Reinsurer for any recovery of
such assessment under Section 20 of said Article, or any credit allowed to
it against its premium tax pursuant to Section 21 thereof, applicable to the
risks reinsured hereunder.
4.06 The title and ownership of all undelivered Policies, books, supplies or
other property related to the reinsured business is in the Company, and upon
termination these shall be delivered immediately by the Reinsurer and/or
General Agent to the Company, without compelling the Company to resort to
any legal proceedings to secure the aforesaid described property of the
Company.
4.07 This Agreement provides for termination on a run-off basis. The
relevant provisions of the Agreement shall apply to the business being run-
off and shall survive the termination of this Agreement.
4.08 At the option of the Company, this Agreement may be terminated on a
cut-off basis. If the Company so elects, (i) the Reinsurer shall pay to the
Company (or its designee) an amount equal to the sum of the ceded
outstanding unearned premium as of the date of termination, and (ii) the
Reinsurer shall incur no liability for losses occurring subsequent to the
date of termination.
4.09 Upon termination of this Agreement, the Reinsurer shall ensure the
General Agent takes those actions necessary, including, but not limited to,
sending statutorily prescribed non-renewal notices to insureds in a timely
manner to effectuate the intent that there be no renewals or new policies
(but for those required by applicable law or regulation) after the
termination of this Agreement.
ARTICLE V
LOSS AND LOSS ADJUSTMENT EXPENSE
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5.1 All loss settlements made by the Company or the General Agent under the
terms of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer, and the
Reinsurer shall benefit in all salvage and recoveries. The Reinsurer shall
assume and be liable for and pay on behalf of the Company, 45% of all losses
incurred in connection with the risks covered by this Agreement, including,
but not limited to, judgments (including interest thereon) and settlements
in connection therewith as well as all risks arising from the Subject
Program other than those reinsured by the Corresponding Reinsurer. The
Reinsurer shall also be liable for 45% of and pay on behalf of the Company
all costs, expenses, and fees (including, but not limited to, attorney's
fees) incurred by the Company in connection with the investigation or
settlement or contesting the validity of claims or losses covered under this
Agreement (this shall include but, of course, is not limited to, costs,
expenses and fees resulting from a declaratory judgment or injunctive action
brought by an insured or other person) as well as all risks arising from the
Subject Program other than those reinsured by the Corresponding Reinsurer.
5.2 The Reinsurer's 45% share of losses, expense and loss recovery as well
as all risks arising from the Subject Program other than those reinsured by
the Corresponding Reinsurer, shall be carried into the monthly accounting
for which provision is hereinafter made. It is agreed, however, that if the
Reinsurer's share of any loss is equal to or greater than $100,000 (being
45% of 100,000 = 45,000), the Reinsurer will pay its share of said loss as
promptly as possible after receipt of reasonable evidence of the amount paid
by the General Agent.
5.3 The Company hereby empowers the Reinsurer, and the Reinsurer may, in
its discretion, and under its supervision appoint the General Agent, to
accept notice of and investigate any claim arising under any of the
Policies, to pay, adjust, settle, resist or compromise any such claim,
unless the Company specifically directs to the contrary with respect to any
individual claim. In the latter event, the Reinsurer and/or General Agent
shall follow the instructions of the Company as respects such claim. All
such loss settlements, whether under strict policy conditions or by the way
of compromise, shall be unconditionally binding upon the Reinsurer.
However, should the Company be ordered or instructed by the Texas Department
of Insurance or any other regulatory agency of competent jurisdiction to
take any action or refrain from taking any action with regard to any claim,
the Reinsurer shall be bound by and shall follow the order or instructions
of such regulatory agency as though Reinsurer were the object of such order
or instruction. The Reinsurer will exercise the authority granted hereunder
in good faith and toward the end of paying any and all valid claims.
5.4 All records pertaining to claims arising under insurance policies
issued on behalf of the Company through or by the General Agent subject to
this Agreement shall be deemed to be jointly owned records of the Company
and the Reinsurer, and shall be made available to the Company or the
Reinsurer or their respective representatives or any duly appointed examiner
for any state within the United States; and these records shall be kept in
the State of Texas or such other jurisdiction as may be required by
applicable state law or regulation. Notwithstanding the foregoing, the
Reinsurer is authorized to maintain duplicate working files of all such
records outside the State of Texas. The Company, the Reinsurer and the
General Agent each agree that it will not destroy any such records in its
possession without the prior written approval of the other parties except
that the Company shall not be required to retain files longer than required
by the guidelines set forth by any applicable state department of insurance.
5.5 The Reinsurer shall, or shall cause the General Agent to, establish a
separate claim register or method of recording claims arising under the
Policies covered by this Agreement so that all claims may be segregated and
identified separate and apart from other records of the Reinsurer or General
Agent, with such claims register to identify each claim on an individual
case basis both as to identify the insured(s) and the claimant, the reserve
for loss and adjusting expense. Such claim register shall be kept in a
manner whereby the Company can, at any time, determine the status of any
claim arising under Policies covered by this Agreement. Such records shall
reflect the amount of reserves established for the individual claim and the
date when such reserve was established, and if closed, whether such claim
was closed with or without payment, and if with payment, the amount paid
thereon.
ARTICLE VI
REPORTS AND REMITTANCES
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6.01 In lieu of the Company furnishing the Reinsurer with bordereaux showing
the particulars of all reinsurances ceded hereunder, the Reinsurer shall
furnish or cause to be furnished to the Company, within forty-five (45) days
after the close of each of the respective periods indicated below (on forms
agreeable to the Parties), with monthly, quarterly and annual reports
showing the following statistical data in respect to the business reinsured
hereunder:
(a) Monthly, with the data segregated by major classes.
(i) Ceded gross written premium for the month, as respects
premium finance business;
(ii) Ceded gross written premium for the month, as respects
direct xxxx business;
(iii) Ceded premiums earned for the month, as respects (i) and
(ii) above;
(iv) Provisional ceding commission on (iii) above;
(v) Ceded losses paid during the month (net of any recoveries
during the month for cash calls);
(vi) Ceded paid loss adjustment expense;
(vii) Salvage, subrogation or other recoveries on losses;
(viii) Ceded unearned premium as of the end of the month;
(ix) Ceded outstanding loss reserves as of the end of the month.
(b) Annually, with the data segregated by major classes.
(i) Annual summaries of net premiums written, net losses paid,
net adjusting expenses paid during the year in such form so
as to enable the Company to record such data in its annual
convention statement. Such information is to be furnished
not later than February 15th of the following year. In force
and unearned premium segregated as to advance premiums,
premiums running twelve (12) months or less from inception
date of policy, and premiums running more than twelve (12)
months from inception date of policy in such form as to
enable the Company to record such data in its convention
annual statement.
(ii) Annual summaries of net premiums written by geographical
location within Texas in such form as to enable the Company
to record such premiums in its annual report to the Texas
Catastrophe Property Insurance Association.
(c) Periodic, with data segregated by major lines.
(i) Statistical or other data as may be requested from time to
time by regulatory authorities.
6.02 In order to facilitate the handling of the business reinsured under
this Agreement, the Reinsurer agrees to furnish the Company with any
additional reports necessary to provide the information needed by the
Company to prepare its monthly, quarterly and annual statements to
regulatory authorities.
6.03 Within 60 days after the end of each month, the General Agent shall
remit to the Reinsurer the following:
(a) Ceded gross written premium for the month, as respects premium
finance business;
(b) Ceded gross written premium for the month, as respects direct xxxx
business;
(c) Ceded premiums earned for the month, as respects (a) and
(b) above;
(d) Provisional ceding commission on (c) above;
(e) Ceded losses paid during the month (net of any recoveries during
the month for cash calls);
(f) Ceded paid loss adjustment expense;
(g) Salvage, subrogation or other recoveries on losses;
(h) Ceded unearned premium as of the end of the month;
(i) Ceded outstanding loss reserves as of the end of the month.
Balances due under this Contract will be equal to (c) less (d)
less (e) less (f) plus (g). Any positive balance shown to be due the
Reinsurer shall be remitted by the General Agent within 60 days. Any
negative balance shown to be due the General Agent shall be remitted by the
Reinsurer as promptly as possible after receipt and verification of the
General Agent's report, not to exceed 60 days. The Reinsurer's liability
for its proportionate share of all losses, costs and expenses hereunder
shall not be affected by the General Agent's failure to remit amounts due
under the Agency Agreement or this Contract.
Notwithstanding the foregoing, in the event the reinsurer terminates this
Agreement, reports shall be due within 15 days after the end of the month,
and remittance shall be due within 30 days after the end of the month.
ARTICLE VII
ERRORS AND OMISSIONS
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7.01 The Company shall not be prejudiced in any way by any omission through
clerical error, accident or oversight to cede to the Reinsurer any
reinsurance rightly falling under the terms of this Agreement, or by
erroneous cancellation, either partial or total, or any cession, or by
omission to report, or by erroneously reporting any losses, or by any other
error or omission, but any such error or omission shall be corrected
immediately upon discovery.
7.02 Should the Company suffer any loss whatsoever, the Reinsurer shall
assume loss for its own account and save and hold the Company harmless
therefore.
ARTICLE VIII
PREMIUM AND COMMISSION
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8.01 In consideration of the acceptance by the Reinsurer of forty-five
percent (45%) of the Company's liability on insurance business reinsured
hereunder as well as all risks arising from the Subject Program other than
those reinsured by the Corresponding Reinsurer, the Reinsurer is entitled to
forty-five percent (45%) of the Net Premiums (as hereinafter defined)
received by the General Agent or the Reinsurer on Policies reinsured less
(i) the ceding fee allowed the Company pursuant to Section 8.02 hereof, (ii)
the commission paid to the General Agent and (iii) premium taxes on Policies
subject to reinsurance hereunder. It is expressly agreed that the ceding
commission includes the above items. "Net Premiums" shall mean the gross
premiums (including policy fees) charged on all original and renewal
Policies written on behalf of the Company, less return premiums. Such
amounts as provided in Section 5.09 of the General Agency Agreement (as
hereinafter defined) shall be paid to the Reinsurer or received from the
Reinsurer by the General Agent on behalf of the Company.
8.02 It is understood that the General Agent shall pay, and the Reinsurer
shall guarantee, the Company directly a fee within sixty (60) days following
the end of each month (to the Company's designated agent, TBA, as a ceding
fee), 2% of Net Premiums, plus the amount of assessments and state premium
taxes as provided in this Article VIII. The ceding fee amount shall be
computed on a calendar year basis based on premium written in each annual
period ended December 31st.
8.03 The General Agent shall pay within sixty (60) days of the end of each
month to the Company an amount equal to the state premium tax on the net
written premiums reinsured hereunder for the past month. Should any
additional premium tax be assessed at any time on written premium reinsured
hereunder, the Reinsurer shall pay the Company such additional premium tax
within (fifteen) 15 days of being informed by the Company of such additional
premium tax.
8.04 The Reinsurer hereby guarantees that the Company will receive the
ceding fee provided hereunder irrespective of any events, losses or
developments for the term of this Agreement. Such payment is not dependent
upon the performance of the General Agent, underwriting experience, loss
experience, whether premium is collected or not, or any other event foreseen
or unforeseen by the parties at the inception of this Agreement. The
Reinsurer shall guarantee payment to the Company of its ceding fee on all
premiums reinsured hereunder (prior to deduction of premiums, if any, ceded
by the Company for inuring reinsurance), and in addition guarantees those
amounts described in Section 8.07 of this Agreement and is directly
responsible for payment of the amount described in Article XI. The Company
shall allow return ceding fees on return premiums at the same rates.
8.05 The Reinsurer shall allow the General Agent a provisional commission of
31.0% on all premiums ceded to the Reinsurer hereunder. The General Agent
shall allow the Reinsurer return commission on return premiums at the same
rate. This is an obligation owing directly from the Reinsurer to the
General Agent. The General Agent shall not seek to recover from the
Company, any commissions due and the Reinsurer shall not seek to recover
from the Company, any return commissions due. No funds are due the General
Agent from the Company.
8.06 The provisional commission allowed the General Agent shall be adjusted
for each agreement year in accordance with the provisions set forth below:
(a) The adjusted commission rate shall be calculated as follows, based
on cessions under this Agreement and be applied to ceded premiums
earned for the agreement year under consideration:
(i) If the ratio of losses incurred to premiums earned is 65.50%
or greater, the adjusted commission rate for the period under
consideration shall be 28.0%.
(ii) If the ratio of losses incurred to premiums earned is less
than 65.5%, but not less than 62.50%, the adjusted commission
rate for the period under consideration shall be 28.0%, plus
100% of the difference in percentage points between 65.50%
and the actual ratio of losses incurred to premiums earned.
(iii) If the ratio of losses incurred to premiums earned is
less than 62.50%, but not less than 53.50%, the adjusted
commission rate for the agreement year under consideration
shall be 31.00%, plus 100% of the difference in percentage
points between 62.50% and the actual ratio of losses incurred
to premiums earned;
(iv) If the ratio of losses incurred to premiums earned is 53.50%
or less, the adjusted commission rate for the period under
consideration shall be 40%.
(b) If the ratio of losses incurred to premiums earned for any period
is greater than 65.50%, the difference in percentage points between the
actual ratio of losses incurred to premiums earned and 65.50% shall be
multiplied by premiums earned for the period and the product shall be
carried forward to the next adjustment period as a debit (additional)
to losses incurred. If the ratio of losses incurred to premiums earned
for any period is less than 53.50%, the difference in percentage points
between 53.50% and the actual ratio of losses incurred to premiums
earned shall be multiplied by premiums earned for the period and the
product shall be carried forward to the next adjustment period as a
credit to losses incurred.
Should the Reinsurer have been a participant in this Agreement's
predecessor Agreement effective October 1, 2002, there shall be a
deficit or credit carryforward into this Agreement based on 100% of the
Reinsurer's participation in the predecessor Agreement.
(c) The General Agent shall calculate and report the adjusted
commission on ceded premiums earned after 18 months from the inception
of each agreement year, and after the end of each 12-month period
thereafter until all losses subject hereto have been fully settled. If
the adjusted commission on ceded premiums earned less than commissions
previously allowed by the Reinsurer on ceded premiums earned for the
agreement year, the General Agent shall remit the difference to the
Reinsurer with its report. If the adjusted commission on ceded
premiums earned is greater than commissions previously allowed by the
Reinsurer on ceded premiums earned for the agreement year, the
Reinsurer shall remit the difference to the General Agent as promptly
as possible after receipt and verification of the General Agent's
report.
(d) As respects the final adjustment period, the General Agent shall
calculate and report the adjusted commission on premiums earned within
ninety (90) days after the date of termination, and within ninety (90)
days after the end of each twelve (12) month period thereafter until
all losses subject hereto have been finally settled. Each such
calculation shall be based on cumulative transactions hereunder from
the beginning of the final adjustment period through the date of
adjustment, including, as respects losses incurred, any debit or credit
from the preceding adjustment period. If the adjusted commission on
premiums earned for the final adjustment period as of the date of
adjustment is less than commissions previously allowed by the Reinsurer
on premiums earned for the same period, the General Agent shall remit
the difference to the Reinsurer with its report. If the adjusted
commission on premiums earned for the final adjustment period as of the
date of adjustment is greater than commissions previously allowed by
the Reinsurer on premiums earned for the same period, the Reinsurer
shall remit the difference to the General Agent as promptly as possible
after receipt and verification of the General Agent's report.
(e) "Losses incurred" as used herein shall mean the balance of the
following, all as respects losses and loss adjustment expenses ceded
under this Agreement:
(i) Ceded losses and loss adjustment expenses paid as of the
effective date of calculation; plus
(ii) The ceded reserves for losses and loss adjustment expenses
outstanding as of the effective date of calculation; plus
(iii) As respects second and each subsequent agreement year
hereunder, plus (minus) the debit (credit) from the preceding
agreement year as set forth in paragraph (b) above; plus
(iv) Any assignments and/or assessments as set forth in Article
XI.
(f) "Ceded premiums earned" or "premiums earned" as used herein shall
mean ceded net written premiums allocated to the agreement year (i.e.,
net of cancellations and return premiums), less the unearned portion
thereof as of the effective date of calculation, all as respects
premiums ceded under this Agreement.
(g) "Agreement year" as used herein shall mean the period from April
1, 2003 to April 1, 2004, both days inclusive, and each subsequent
twelve-month period thereafter that this Agreement continues in force.
8.07 It is expressly agreed that the commission allowed the General Agent
includes provision for premium taxes and ceding fees. General Agent shall
pay to the Company all premium taxes payable for policies subject to
reinsurance hereunder. In the event that the ceding fee and premium taxes
are not so paid by the General Agent within 60 days following the end of the
month, the unpaid balance shall be paid directly to the Company by the
Reinsurer.
ARTICLE IX
ACCESS TO RECORDS
-----------------
The Reinsurer or its duly appointed representatives shall have free
access at any and all reasonable times to such books and records of the
Company or General Agent, its departmental or branch offices, as shall
reflect premium and loss transactions of the Company and/or the business
produced hereunder, for the purpose of obtaining any and all information
concerning this Agreement or the subject matter thereof. Likewise, the
Company or its duly appointed representatives shall have free access at any
and all reasonable times to such books and records of the Reinsurer and/or
General Agent, its departmental or branch offices as shall reflect premium
and loss transactions of the Company and/or the business produced hereunder,
for the purpose of obtaining any and all information concerning this
Agreement or the subject matter hereof.
ARTICLE X
ARBITRATION
-----------
10.01 As a condition precedent to any right of action hereunder, in the
event of any dispute or difference of opinion hereafter arising between the
Company and the Reinsurer with respect to this Agreement, or with respect to
these Parties' obligations hereunder, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration.
10.02 One arbiter (an "Arbiter") shall be chosen by the Company and one
Arbiter shall be chosen by the Reinsurer and an umpire (an "Umpire") shall
be chosen by the Arbiters, all of whom shall be active or retired
disinterested executive officers of property and casualty insurance or
reinsurance companies.
10.03 In the event that a party fails to choose an Arbiter within thirty
(30) days following a written request by either party to the other to name
an Arbiter, the party who has chosen its Arbiter may choose the unchosen
Arbiter. Thereafter, the Arbiters shall choose an Umpire before entering
upon arbitration. If the Arbiters fail to agree upon the selection for the
Umpire within thirty (30) days following their appointment, each Arbiter
shall name three nominees, of whom the other shall decline two, and the
decision shall be made by drawing lots.
10.04 Each party shall present its case to the Arbiters and Umpire
within a reasonable amount of time after selection of the Umpire, unless the
period is extended by the Arbiters and the Umpire in writing and/or at a
hearing in Dallas, Texas. The Arbiters and Umpire shall consider this
Agreement as an honorable engagement, as well as a legal obligation, and
they are relieved of all judicial formalities and may abstain from following
the strict rules of law regarding entering of evidence. The decision in
writing by a majority of the Arbiters and Umpire when filed with the Parties
shall be final and binding on the parties. Judgment upon the final decision
of the Arbiters and Umpire may be entered in any court of competent
jurisdiction.
10.05 In the event of a dispute between the Company and the Reinsurer
concerning this Agreement and the General Agency Agreement (regardless of
whether either party has claims against the General Agent), the entire
dispute between the Company and the Reinsurer shall be subject to
arbitration as provided in this Article X.
10.06 The costs of the arbitration, including the fees of the
arbitrators and the umpire, shall be borne equally unless the Arbiters and
Umpire shall decide otherwise.
10.07 This Agreement shall be interpreted under the laws of Texas and
the arbitration shall be governed and conducted according to the Texas
General Arbitration Act.
ARTICLE XI
ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES
---------------------------------------------
11.01 The Reinsurer hereby assumes liability for any and all assessments
and assignments imposed as a result of Policies reinsured hereunder (whether
before or after the termination of this Agreement) less those risks
reinsured by the Corresponding Reinsurer. The Reinsurer shall immediately
reimburse the Company for any assessments made against the Company pursuant
to those laws and regulations creating obligatory funds (including, but not
limited to, insurance guaranty and insolvency funds), pools, joint
underwriting associations, FAIR plans and similar plans. Amounts owed by
the Reinsurer under this Section shall be payable directly by the Reinsurer
to the Company. The Reinsurer shall be entitled to receive from the Company
on or prior to the 31st day of March of each year thereafter (or such date
on which such premium taxes are paid) a sum equal to the premium tax credit
that is allowed to the Company with respect to such assessments. The
premium tax credit allowed the Reinsurer hereunder is to be on a pro-rata
and first-in, first-out basis. The Company shall promptly return to the
Reinsurer any amount of assessment refunded to or credited to the Company.
11.02 This Agreement shall apply to risks assigned to the Company under
any assigned risk plan if, in the reasonable judgment of the Company, such
risks were assigned to the Company because of the business written and
reinsured hereunder.
11.03 The Reinsurer shall also pay promptly and directly to the Company
100% any fines, penalties and/or any other charge incurred by the Company as
respects the business reinsured hereunder arising out of the actions or
inactions of the General Agent unless such fines, penalties and/or any other
charge was a direct result of any willful misconduct on the part of the
Company, which has been finally determined by a court of competent
jurisdiction after the exhaustion of all appeals. The Reinsurer hereby
acknowledges and agrees that the Corresponding Reinsurer is not accepting
any liability for fines, penalties and/or any other charge incurred by the
Company as respects the business reinsured hereunder and that the Reinsurer
shall pay promptly and directly to the Company 100% any fines, penalties
and/or any other charge incurred by the Company as it relates to this
Section 11.03.
ARTICLE XII
PREMIUM FINANCING
-----------------
With respect to Policies covered under the provisions of this
Agreement, if any premiums are financed, the General Agent shall receive and
accept on behalf of the Company all notices required by statute, contract or
otherwise to be given to the Company, including, without limitation, notices
of the existence of premium finance agreements or of cancellation of
policies the premiums of which are financed ("financed policies"). No
producing agent or any other agent shall be entitled to receive or accept
any notice on behalf of the Company, and the General Agent shall be
responsible for and will indemnify and hold the Company harmless from and
against any and all liabilities, losses, claims, damages and expenses
incurred by reason of or arising out of any action taken or inaction
suffered as a result of receipt of any notice by any person, firm or entity
other than the General Agent or the Company. Notwithstanding any other term
or provision of this Agreement, the General Agent agrees to return and pay
over to any premium finance company (whether affiliated with the Company or
not) which has sent notice of cancellation of a financed policy to the
General Agent pursuant to Chapter 24 of the Texas Insurance Code, on behalf
of the Company, within 30 days of receipt of such notice of cancellation,
any and all unearned commissions as of the date of cancellation, together
with any and all unearned premiums due any premium finance company. The
General Agent agrees to and does hereby relinquish any and all rights to any
unearned commissions for any such financed policy as of the date of
cancellation. The obligation of the General Agent to refund unearned
commissions and unearned premiums on a canceled financed policy shall
survive the termination or cancellation of this Agreement for so long as any
policy written under the terms of this Agreement remains in force. If the
General Agent does not fulfill its obligations to refund unearned
commissions and unearned premiums as provided in this Article XII and/or to
indemnify the Company as provided in this Article XII, then the Reinsurer
shall pay the amount of the refund owed and/or shall indemnify the Company
even if the premium finance company is an affiliate of the Company.
ARTICLE XIII
INSOLVENCY
----------
13.01 In the event of insolvency of the Company, this reinsurance shall
be payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the
Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company has failed to pay all or a portion of any claims.
13.02 It is agreed, however, that the liquidator, receiver, conservator
or statutory successor of the Company shall give written notice to the
Reinsurer of the pendency of a claim against the Company indicating the
policy or bond reinsured which claim would involve a possible liability on
the part of the Reinsurer within thirty (30) days after such claim is filed
in the insolvency, conservation or liquidated proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claims and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may
deem available to the Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as
part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a result
of the defense undertaken by the Reinsurer.
13.03 Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
13.04 It is further understood and agreed that, in the event of the
insolvency of the Company, the reinsurance under this Agreement shall be
payable directly by the Reinsurer to the Company or to its liquidator,
receiver or statutory successor, except (i) as provided by applicable law,
(ii) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company and (iii) where
the Reinsurer with the consent of the direct insured or insureds has assumed
such policy obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligation of the Company to such payees.
ARTICLE XIV
ALTERNATE PAYEE
---------------
14.01 As respects subject business assumed as reinsurance under this
Agreement, it is agreed that if the Company has a conservator, liquidator or
receiver appointed for it, or becomes the subject of any conservation,
liquidation or insolvency proceeding, and the General Agent exercises its
option to require the Company to permit all its liabilities under the
Policies reinsured hereunder to be assumed by another licensed insurer as is
permitted pursuant to the General Agency Agreement, such assuming insurer
shall be substituted for the Company as payee of any reinsurance recoverable
hereunder in respect of losses under Policies subject hereto, and the
Reinsurer, shall make payment thereof directly to the substituted insurer.
In the event of assumption, the Company shall, however, be entitled to any
fronting fees and other sums owing hereunder with respect to Policies
originally issued on its behalf.
14.02 In the event that an assuming insurer is submitted for the Company
under Section 14.01, all the other provisions of this Agreement shall apply
to the substituted insurer in the same manner as if said insurer were
substituted for the Company as the reinsured party hereunder, and to the
extent this Agreement reinsures such substituted insurer, coverage hereunder
shall be excluded as respects the Company.
ARTICLE XV
HOLD HARMLESS PROVISIONS
------------------------
15.01 Notwithstanding anything else contained herein to the contrary, as
respects all matters related to this Agreement, in addition to those
specific provisions insulating the Company from specific risks hereunder,
the Reinsurer hereby covenants and agrees to reimburse and hold the Company
harmless from and against every claim, demand, liability, loss, damage,
cost, charge, attorneys' fees, expense, suit, order, judgment and
adjudication of whatever kind or character regarding (i) this Agreement
and/or (ii) the business reinsured hereunder (including, but not limited to,
underwriting loss, credit loss, and/or run-off expense and/or all legal fees
and expenses incurred by the Company in asserting its rights under this
Agreement) to the extent of its participation hereunder and subject to all
of the terms and conditions hereof, whether or not such claim, demand, loss,
damage, cost, charge, attorneys' fees, expense, suit, order, judgment or
liability is within the terms of Policies written and reinsured hereunder.
The Reinsurer's obligation hereto relates to, but is not limited to the
following: all liability for agents' balances; return premiums and
commissions; deceptive trade practice liability; premiums, policy fees or
other charges (whether collected or not); costs, liability, damages, fees
and/or expenses incurred by the Company due to a lawsuit between the
Reinsurer and/or the General Agent (any dispute involving the Company and
the Reinsurer is subject to arbitration); all actions or inactions by
General Agent relating to this Agreement, any agreement with a premium
finance company or claims administrator; and/or all fees and/or commissions
owing to the General Agent under this and the aforementioned related
agreements.
15.02 The Company shall not be liable to the Reinsurer for premiums
unless the Company itself has actually received those premiums and
wrongfully not remitted them to the Reinsurer. The Reinsurer may not offset
any balances on account of losses, loss adjustment expenses or any other
amounts due except as to premiums actually received by the Company itself
(as distinct from premiums not collected, or premiums collected by the
General Agent, or premium placed in the premium trust account pursuant to
the General Agency Agreement) which have wrongfully not been transmitted to
the Reinsurer.
15.03 If for any reason the General Agent fails or is unable to
administer the policies reinsured hereunder (whether the Agreement is still
in effect or the business is being run-off), (i) the Reinsurer shall appoint
a party (acceptable and approved by the Company) to administer the business
and the Reinsurer shall be responsible for 45% of the cost of said
administration and (ii) the General Agent will fully cooperate with the
Company (or its designated representative) in providing access to such of
the General Agent's personnel, computer systems or other assets or
procedures as the Company may deem necessary to provide for an orderly
transition of the administration of the Policies reinsured hereunder. If
return premiums or other funds need to be returned to premium finance
companies, policyholders or sub-agents, the Reinsurer shall pay these
amounts if the successor or administrator does not.
15.04 The Reinsurer shall not xxx, or seek arbitration, against the
Company for any acts of the General Agent for any monies which the General
Agent owes unless the Company has actually received those monies and has
wrongfully not remitted them to the Reinsurer; and the Reinsurer shall
indemnify the Company for any damages, liabilities and expenses incurred by
reason of the General Agent's acts or failure to act. The Company is not
responsible for any commissions or other monies payable to the General Agent
in connection with this Agreement and the General Agent shall not xxx, or
seek arbitration against, the Company for any actions by, or debts owing
from, the Reinsurer. The Reinsurer shall not seek to recover from, or offset
against, the Company any sums, whether premiums or other monies, which the
General Agent was unable or unwilling to remit to the Company or the
Reinsurer.
15.05 In the event the Reinsurer, or any agent appointed pursuant to
this Agreement, binds the Company for insurance coverage on insurance risks
which are in excess of the policy limits set forth in Article I, and/or are
not within the terms of business specified in Article I, and/or are not
within the territory specified in Article I, and/or are excluded under
Article II, whether intentional or not, the Reinsurer and General Agent will
do such things and take such actions as may be necessary to reduce the
Company's exposure to such risks and to hold the Company harmless against
any liability or loss which may be incurred by the Company in excess hereof.
At the Company's request, the General Agent in accordance with applicable
law, and policy terms, shall cancel or not renew any risk bound which is not
in conformance with this Agreement. Any such insurance coverage on
insurance risks bound contrary to the limitations which are in excess of the
policy limits set forth in Article I, and/or are not within the classes of
business specified in Article I, and/or are not within the territory
specified in Article I, and/or are excluded under Article II, whether
intentional or not, shall be 45% reinsured and subject to this Agreement.
15.06 In furtherance of the protections afforded to the Company under
this Agreement, the Reinsurer expressly acknowledges that certain
circumstances may come to exist with respect to the Policies reinsured
hereunder that require adjustment to the timing of Reinsurer remittances.
If, in the sole discretion of the Company, an advance payment or payments of
the Reinsurer's obligations under this Agreement is necessary to avoid
irreparable harm to the Company (as, for example, in the circumstance where
the funds available in the premium trust account established pursuant to
Section 2.01 of the General Agency Agreement are insufficient to provide for
timely payment of claims), the Reinsurer shall make such payment or payments
promptly upon the Reinsurer's receipt of the Company's good faith estimate
or calculation of the necessity thereof.
15.07 In the event any provision, term and/or condition of this
Agreement (other than the Preamble hereof) is inconsistent with the
provision, terms and/or conditions of Section 15.01above, the provision,
terms, and/or conditions of said Section 15.01 above shall control over and
supercede such inconsistent provision, terms, and/or conditions.
15.08 When a claim is asserted or action commenced, including class
actions regardless of whether the class has been certified, relating in any
way to the Policies produced under this Agreement, the General Agent shall
assume the defense and associated costs and expenses thereof. The Company
may elect, however, at its sole discretion, on a case-by-case basis, to
engage counsel directly on its own behalf, and the expenses and costs
related to such defense shall be passed on to and paid by the General Agent
within 60 days written notice from the Company. In such cases where the
claim or action relates to business written by more than one agent of the
Company, costs and expenses shall be proportioned among applicable agents at
the Company's sole discretion. Should the General Agent fail to remit any
amounts due to Company under this Section 15.07, then the Reinsurer shall
pay such amounts within 60 days written notice from the Company.
ARTICLE XVI
LOSS IN EXCESS OF POLICY LIMITS/ECO
-----------------------------------
16.01 In the event the Company pays or is held liable to pay an amount
of loss in excess of its policy limit, but otherwise within the terms of its
policy (hereinafter called "loss in excess of policy limits") or any
punitive, exemplary, compensatory or consequential damages, other than loss
in excess of policy limits (hereinafter called "extra contractual
obligations") because of alleged or actual bad faith or negligence on its
part in rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action against its
policyholder, or in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a claim under a
policy subject to this Agreement, 45% of the loss in excess of policy limits
and/or 45% of the extra contractual obligations shall be added to the
Company's loss, if any, under the Policy involved, and the sum thereof shall
be reinsured 45% under this Agreement up to a maximum of $10,000,000 (being
45% of $10,000,000 = $4,500,000).
16.02 An extra contractual obligation shall be deemed to have occurred
on the same date as the loss covered or alleged to be covered under the
Policy.
16.03 Notwithstanding anything stated herein, this Agreement shall not
apply to any loss incurred by the Company as a result of any fraudulent
and/or criminal act which has been finally determined by a court of
competent jurisdiction, after the exhaustion of all appeals, by any officer
or director of the Company acting individually or collectively or in
collusion with any individual, corporation or any other organization or
party involved in the presentation, defense or settlement of any claim
covered hereunder.
ARTICLE XVII
REGULATORY MATTERS
------------------
17.01 It is the Parties' understanding that any premiums which are
overdue from the General Agent to the Company may be deemed non-admitted
assets. In confirmation of the liabilities assumed by the Reinsurer under
this Agreement, the Reinsurer hereby assumes 100% of all liability and
responsibility for all premiums in the course of collection.
17.02 The Reinsurer shall agree, at no cost to the Company, to take
those actions (including, but not limited to, modifications in how funds are
handled and how accounts are cleared, settled and the manner in which
incurred losses are accounted for) and agree to those arrangements necessary
to ensure that the Company suffers no adverse impact because of this
reinsurance program and is in compliance with any applicable laws of a state
insurance department, insofar as this reinsurance program is concerned.
ARTICLE XVIII
THE GENERAL AGENT
-----------------
18.01 The Company, the Reinsurer and the General Agent have entered into
a General Agency Agreement effective April 1, 2003 (the "General Agency
Agreement"), a complete copy of which is attached hereto as Exhibit "A" and
fully incorporated herein by this reference. The Reinsurer has selected the
General Agent to administer the business reinsured hereunder. While for
regulatory purposes, the General Agent will need to be appointed as the
Company's agent, it is recognized that the General Agent is acting on behalf
of the Reinsurer. The Company is making no evaluation of the General
Agent's qualification, has no obligation to furnish reports or statistics to
the Reinsurer, or to monitor the performance of the General Agent. The
Company shall file with the State all reports requested by the State based
upon information received from the General Agent and Reinsurer.
18.02 The Company will, at the request of the General Agent and the
Reinsurer, appoint producing agents to produce business through the General
Agent. The Company, in its sole discretion, may refuse to appoint any such
agent; provided, however, that such appointment shall not be unreasonably
withheld. The General Agent will not establish any sub-general agencies or
any agencies with the authority of a general agency. The Reinsurer shall
hold the Company harmless from and indemnify it for any damage, liability,
claim, expense, cost or fees (including attorneys' fees and expenses) of
whatever kind or character caused directly or indirectly by any action of or
failure to act, by any such producing agent.
18.03 The General Agent shall be responsible for the control of the
producing agents appointed by the Company at the request of and on behalf of
the Reinsurer, including compliance with state licensing laws and the
financial condition of such agents.
18.04 The Reinsurer shall guarantee payment to the Company of any
amounts due the Company (or the Company's designated agent, TBA) from
business produced by and/or policies issued by or through the producing
agents appointed by the Company at the request of and on behalf of the
General Agent and the Reinsurer. The Reinsurer and the General Agent shall
be solely responsible for notifying such agents of this Agreement and of any
termination hereof, and the Reinsurer shall be responsible for the
consequences of any failure to provide such notification.
18.05 The General Agent shall not xxx, or seek arbitration, against the
Company for any acts of the Reinsurer and shall indemnify and hold the
Company harmless from and against any damages, liabilities and expenses
incurred by reason of the Reinsurer's acts or failures to act.
18.06 The Company shall conduct or have conducted the examinations of
the General Agent as provided in Section 5.13 of the General Agency
Agreement. The examinations provided for herein shall be at no cost to the
Company, and the Reinsurer shall indemnify and hold the Company completely
harmless as respects any liability, damage, charge, cost, fine, or penalty,
the Company may incur as a result of such examinations.
ARTICLE XIX
REINSURER OR GENERAL AGENT SALE OR TRANSFER
-------------------------------------------
The Reinsurer or the General Agent agree to give the Company or its
designated agent, XXX, 00 days advance written notice of any sale or
transfer of such party's business, or such party's consolidation with a
successor firm, in order that the Company may, in its sole discretion:
(a) Assign this Agreement to the successor; or
(b) Enter into a new reinsurance agreement with the successor; or
(c) Terminate this Agreement as provided in Section 4.02(g) of this
Agreement.
ARTICLE XX
MISCELLANEOUS
-------------
20.01 This Agreement has been made and entered into in the State of
Texas and the Agreement shall be subject to and construed under the laws of
the State of Texas. This Agreement shall be deemed performable at the
Company's administrative office in Fort Worth, Texas, and it is agreed that
the venue of any controversy arising out of this Agreement, or any breach
thereof, shall be in Tarrant County, Texas.
20.02 All notices required to be given hereunder shall be deemed to have
been duly given by personally delivering such notice in writing or by
mailing it, Certified Mail, return receipt requested, with postage prepaid.
Any Party may change the address to which notices and other communications
hereunder are to be sent to such Party by giving the other Party written
notice thereof in accordance with this provision.
20.03 This Agreement shall be binding upon the Parties hereto, together
with their respective successors and permitted assigns. Neither the
Reinsurer nor the General Agent may assign any of its rights or obligations
under this Agreement without the prior written consent of the Company.
20.04 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20.05 This Agreement is the entire agreement between the parties and
supersedes any and all previous agreements, written or oral, and amendments
thereto with respect to the subject matter hereof.
20.06 This Agreement may be amended, modified or supplemented only by a
written instrument executed by all Parties hereto.
20.07 A waiver by the Company, Reinsurer or General Agent of any breach
or default by the other party under this Agreement shall not constitute a
continuing waiver or a waiver by the Company or the Reinsurer of any
subsequent act in breach or of default hereunder.
20.08 Headings used in this Agreement are for reference purposes only
and shall not be deemed a part of this Agreement.
20.09 The Parties hereto intend all provisions of this Agreement to be
enforced to the fullest extent permitted. Accordingly, should a court of
competent jurisdiction or arbitration panel determine that the scope of any
provision is too broad to be enforced as written, the Parties intend that
the court or arbitration panel should reform the provision to such narrower
scope as it determines to be enforceable under present or future law; such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision were never
a part hereof; and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid,
or unenforceable provision or by its severance.
20.10 This Agreement is not exclusive and the Company reserves the right
to appoint or contract with other reinsurers, agents and/or managing agents
in the territory covered by this Agreement.
20.11 The Reinsurer or General Agent shall not insert any advertisement
respecting the Company or the business to be written under this Agreement in
any publication or issue any circular or paper referring to the Company or
such business without first obtaining the written consent of the Company.
The Reinsurer and/or General Agent shall establish and maintain records of
any such advertising as required by Texas statute and regulation.
20.12 Policy cancellations at the Company's request will be made
strictly subject to requirements imposed by the Company's underwriting rules
and practices or the Reinsurer's underwriting rules and practices, as
approved by the Company, and in compliance with applicable statutes and
regulations and the applicable provisions contained in this Agreement and
the pertinent policy. Such cancellation authority shall be exercised only
for causes inherent in the particular risk and shall not be construed as
authority to make general or indiscriminate cancellations or replacement of
the Policies with those of another Company, except upon specific written
instructions from the Company. When directed by the Company, the Reinsurer
will cancel any and all Policies produced by it for any reason the Company
deems necessary.
20.13 This Agreement shall be interpreted in conformance with applicable
Texas law and regulation. If it is found or ordered by a court or
regulatory body that a term or provision of this Agreement does not conform
to such law or regulation then this Agreement shall be deemed to be amended
and modified in accordance with such law. However, where this Agreement is
found not to comply with applicable law or regulation, the Company may in
its sole discretion terminate this Agreement immediately and without prior
notice.
20.14 The Company agrees that the Reinsurer shall have the right, with
the approval of the Company, to determine the rates and prepare the rate
filing for the Company to file during the term of this Agreement and during
the term of the run-off. The Reinsurer and General Agent understand and
agree that no business shall be produced, until a written approval of the
applicable rate rules and forms is received from the regulatory authority of
competent jurisdiction.
ARTICLE XXI
RUN-OFF RISK, CREDIT RISK, LOSS AND UNEARNED PREMIUM RESERVE FUNDING
--------------------------------------------------------------------
21.01 The Reinsurer will secure its obligations under this Agreement,
including the obligations for Run-Off Risk, Credit Risk, Unearned Premiums
Reserves, if any, and Loss Reserves; via a security fund (via a security
fund agreement in a form and content acceptable to the Company).
(a) At a minimum, the security fund must:
(i) comply with the provisions of Texas Insurance Code, art 5.75-
1(d)(3) and 28 Texas Administrative Code d7.610;and;
(ii) be issued by or held with a Qualified United States Financial
Institution (as defined by the foregoing statute and
regulation).
(a) Company may draw the full amount of the security fund to satisfy,
in whole or in part the obligations of reinsurer hereunder or, if:
(i) Reinsurer fails to comply with the provisions of this Article
XXI; or
(ii) the issuer of the security fund gives Company notice of
cancellation or non-renewal of the security fund.
21.02 Within 10 business days prior to the end of each calendar quarter,
the Company shall provide Reinsurer with a good faith estimate of the
expected sum of Reinsurer's Credit Risk, Run-Off Risk, ceded outstanding
Unearned Premium and Loss Reserves as of the end of the forthcoming calendar
quarter (the "Estimate"). The Reinsurer shall, within two business days
prior to the commencement of such forthcoming calendar quarter, fund/obtain
a security fund in an amount equivalent to 100% of the Estimate.
21.03 If at any time, based upon the monthly reporting provided to
Company under this Agreement, it shall be determined by the Company or
Reinsurer that the amount of the security fund may not be equivalent to 100%
of Reinsurer's Credit Risk, Run-Off Risk, ceded outstanding Unearned Premium
and Loss Reserves as of the end of the current calendar quarter (the
"Revised Estimate"), then upon written notice from Company, Reinsurer shall
immediately, and no later than thirty (30) days after receipt of such
written notice, increase the amount of the security fund to an amount
equivalent to 100% of the Revised Estimate
21.04 For the purpose of this Article XXI, Unearned Premiums means, as
of any given date, the aggregate premium attributable to the unexpired
coverage period of all insurance policies produced under the Agreement, as
determined in accordance with generally accepted statutory accounting
principles consistently applied. For this purpose, premium shall be the
written premium charged on the insurance policy for the period such policy
is in force irrespective of the subsequent billing and collection of such
premium.
21.05 For the purpose of this Article XXI, Loss Reserves means, as of
any given date, the reserve attributable to losses incurred but not reported
and losses reported but not paid with respect to the insurance policies
produced under this Agreement, and shall include provision for both
allocated and unallocated loss adjustment expense, in each instance as
determined in accordance with generally accepted accounting principles
consistently applied.
21.06 For the purpose of this Article XXI, the Credit Risk is
$3,000,000. The calculation of the Credit Risk is based on average monthly
written premium of $4,000,000 (the "Target Premium"). If the average
monthly written premium during any calendar quarter is more or less than the
Target Premium, the Credit Risk shall be adjusted on a pro rata basis. The
collateralization for Credit Risk shall be funded as soon as possible or
within 10 business days of the effective date of this Agreement.
21.07 For the purpose of this Article XXI, the Run-Off Risk is
$1,100,000. The calculation of the Run-Off Risk is based on average monthly
written premium of $4,000,000 (the "Target Premium"). If the average
monthly written premium during any calendar quarter is more or less than the
Target Premium, the Run-Off Risk shall be adjusted on a pro rata basis. The
collateralization for Run-Off Risk shall be funded in four equal
installments via the security fund. The first installment shall be funded
as soon as possible or within 10 business days of the effective date of this
Agreement. The second, third and fourth installments shall be funded within
10 business days prior to the end of each calendar quarter thereafter.
Within 10 business days following the end of each calendar quarter, the
General Agent shall provide a report to the Company and Reinsurer setting
forth the actual run off risk hereunder (in force policy count x $7.20 per
month to policy expirations = total run off risk) for that calendar quarter
and the Company and Reinsurer shall immediately adjust the security fund
accordingly.
21.08 The Company shall at all times be in possession of a security fund
equivalent to 100% of Reinsurer's anticipated Run-Off Risk, Credit Risk,
ceded outstanding Unearned Premium and Loss Reserves as of the end of the
current calendar quarter.
21.09 Should the amount of the security fund at the end of any calendar
quarter be greater than the amount required in this Article XXI, the
Reinsurer shall be entitled to reduce the amount of the security fund to an
amount not less than the amount required in this Article XXI. The Qualified
United States Financial Institution shall permit such reduction upon receipt
by it of the Company's written statement that Reinsurer is entitled to such
reduction, which written statement shall not be unreasonably withheld by
Company.
ARTICLE XXII
T.B.A. INSURANCE GROUP, LTD. ("T.B.A.")
---------------------------------------
The Company has contracted with TBA as its designated intermediate
agent to perform certain duties on the Company's behalf and to issue certain
checks on behalf of the Company in exchange for certain fees. The Reinsurer
agrees that TBA is to bear no business, credit or insurance risk and can
bear no liability whatsoever to the Reinsurer save liability for any actual
fraud or violation of criminal law it commits, which has been finally
determined by a court of competent jurisdiction after the exhaustion of any
appeals. TBA shall receive all the protections from liability, which are
contained herein for the benefit of the Company.
ARTICLE XXIII
SAVINGS CLAUSE
--------------
23.01 If any law or regulation of any Federal, State or local government
of the United States of America, or the ruling of officials having
supervision over insurance companies, should prohibit or render illegal this
Agreement, or any portion thereof, as to risks or properties located in the
jurisdiction of such authority, either the Company or the Reinsurer may upon
written notice to the other suspend or abrogate this Agreement insofar as it
relates to risks or properties located within such jurisdiction to such
extent as may be necessary to comply with such law, regulations or ruling.
Such illegality shall in no way affect any other portion thereof; provided,
however, that the Reinsurer or the Company may terminate or suspend this
Agreement insofar as it relates to the business to which such law or
regulation may apply.
23.02 This Agreement shall be interpreted in accordance with the laws of
the State of Texas. All provisions of this Agreement are intended to be
enforced to the fullest extent permitted. Accordingly, should a court of
competent jurisdiction or arbitration panel determine that the scope of any
provision is too broad to be enforced as written, the Parties intend that
the court or arbitration panel should reform the provision to such narrower
scope as it determines to be enforceable under present or future law; such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision were never
a part hereof; and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid,
or unenforceable provision or by its severance; provided, however, that
where this Agreement is so found not to comply with applicable law or
regulation, the Company may in it sole discretion terminate this Agreement
immediately without prior notice.
ARTICLE XXIV
INTERMEDIARY ARTICLE
--------------------
Xxxxxxxx Xxxxxx Inc. (known as Xxxxxxxx Inc., on or after April 7, 2003) is
hereby recognized as the Intermediary negotiating this Contract for all
business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses,
loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through the
Intermediary located at 0000 Xxxx 00xx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx 00000. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to
the Intermediary shall be deemed to constitute payment to the Company only
to the extent that such payments are actually received by the Company.
IN WITNESS WHEREOF, the Parties hereto by their respective duly
authorized representatives have executed this Agreement as of the date first
above written.
STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY
BY: _________________________________
ITS: _________________________________
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
BY: _________________________________
ITS: _________________________________
AMERICAN HALLMARK GENERAL AGENCY, INC.
BY: _________________________________
ITS: _________________________________
TABLE OF CONTENTS
Page
PREAMBLE 1
ARTICLE I BUSINESS REINSURED 1
ARTICLE II ORIGINAL CONDITIONS 2
ARTICLE III EXCLUSIONS 3
ARTICLE IV COMMENCEMENT, TERMINATION, TERMS & CONDITIONS 4
ARTICLE V LOSS AND LOSS ADJUSTMENT EXPENSE 6
ARTICLE VI REPORTS AND REMITTANCES 7
ARTICLE VII ERRORS AND OMISSIONS 9
ARTICLE VIII PREMIUM AND COMMISSION 10
ARTICLE IX ACCESS TO RECORDS 13
ARTICLE X ARBITRATION 13
ARTICLE XI ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES 14
ARTICLE XII PREMIUM FINANCING 14
ARTICLE XIII INSOLVENCY 15
ARTICLE XIV ALTERNATE PAYEE 16
ARTICLE XV HOLD HARMLESS PROVISIONS 16
ARTICLE XVI LOSS IN EXCESS OF POLICY LIMITS/ECO 18
ARTICLE XVII REGULATORY MATTERS 19
ARTICLE XVIII THE GENERAL AGENT 19
ARTICLE XIX REINSURER OR GENERAL AGENT SALE OR TRANSFER 20
ARTICLE XX MISCELLANEOUS 20
ARTICLE XXI RUN OFF, CREDIT RISK, LOSS AND UNEARNED PREMIUM
RESERVE FUNDING 22
ARTICLE XXII T.B.A. INSURANCE GROUP, LTD. ("T.B.A.") 23
ARTICLE XXIII SAVINGS CLAUSE 24
ARTICLE XXIV INTERMEDIARY CLAUSE 24
QUOTA SHARE REINSURANCE AGREEMENT
AMONG
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
AND
STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY
AND
AMERICAN HALLMARK GENERAL AGENCY, INC.
EFFECTIVE: APRIL 1, 2003
