THIRD SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
made and entered into by and between
MBIA Insurance Corporation, Armonk, New York; and/or MBIA
Assurance S. A., Paris, France; and/or any other insurance or
reinsurance company subsidiaries of MBIA Inc. listed in Exhibit
No. 1 attached to this Agreement (hereinafter referred to as
the"Company"), and
ZURICH REINSURANCE (NORTH AMERICA), INC.
(hereinafter referred to as the "Reinsurer").
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
ARTICLE 1
ACQUISITION
In the event that, following the execution of this Agreement, the Company
notifies the Reinsurer of a proposed acquisition by the Company of an insurance
company (a "Target") and provides the Reinsurer with such due diligence
information as the Reinsurer may reasonably request with respect to such Target
(including without limitation information relating to the effect on this
Agreement of the inclusion of the Target as a reinsured hereunder) (the
"Information"), the Reinsurer shall use its best efforts to provide, within 30
days following receipt of the Information, a written notice to the Company which
notice shall state whether or not the Reinsurer will consent to the inclusion of
such Target as a reinsured hereunder upon consummation of the acquisition of
such Target by the Company. If the Reinsurer consents to the inclusion of a
Target as a reinsured hereunder, such Target shall be included in the term
"Company" from and after the date on which the Company's acquisition of the
Target is consummated, and the Company shall prepare and deliver to the
Reinsurer an addendum to this Agreement that revises Exhibit #1 to include the
name of such Target thereon. The 30-day period referred to above shall not
commence until all of the Information reasonably requested by the Reinsurer has
been received by the Reinsurer.
Effective: September 15, 1998 1 of 12
ARTICLE 2
COMMENCEMENT AND TERMINATION
Covering Incurred Losses from September 15, 1998 (the "Effective Date") through
December 31, 1998 (the "Termination Date"), both days inclusive. "Standard Time"
shall mean the time as described in the Policies.
Notwithstanding the termination of this Agreement as herein provided, the
provisions of this Agreement shall continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities assumed by a party
hereunder prior to such termination shall be fully performed and discharged.
ARTICLE 3
BUSINESS AND TERRITORY COVERED
This Agreement shall cover all Policies in force and attaching on or after the
Effective Date that:
(A) provide insurance against financial loss by reason of nonpayment of
regularly scheduled principal and interest obligations arising under Issues
sold by Issuers domiciled anywhere in the world provided the debt
instruments or any other monetary obligations are denominated or payable in
the currency of (i) an Organization of Economic Cooperation and Development
("OECD") country or (ii) such other country whose sovereign rating is
investment grade; provided, however, with respect to (ii) above, that any
such debt instrument or other monetary obligation that is denominated in a
currency other than the Issuer's domestic currency shall either be (x)
investment grade or (y) the Company shall have entered into a currency swap
with respect to such instrument or obligation that (I) eliminates all
exchange risk thereunder or (II) exchanges the currency risk thereunder for
the risk of an OECD currency that enables the transaction to be of
investment grade quality, and
(B) are classified by the Company as corporate utility debt guarantee
insurance, debt service reserve fund surety bonds, investment grade
asset-backed securities guarantee insurance, investment grade corporate
debt guarantee insurance, investment grade structured finance guarantee
insurance, municipal bond guarantee insurance, or municipal note guarantee
insurance.
The liability of the Reinsurer shall be subject in all respects to all the
general and specific stipulations, clauses, waivers, extensions, modifications
and endorsements of any of the Company's Policies, subject to the exclusions set
forth in the Exclusions Article and the other terms and conditions of this
Agreement as set forth herein.
Effective: September 15, 1998 2 of 12
ARTICLE 4
EXCLUSIONS
The following general exclusions shall apply in respect of all business ceded to
the Reinsurer under this Agreement:
A. Assumed reinsurance. However, not to exclude intercompany reinsurance with
other subsidiaries of MBIA Inc. and/or business structured as reinsurance
which would otherwise be written as insurance; this exception does not
require the Company to cede business covered hereunder that has already
been ceded to another applicable reinsurance cover.
B. Business written by the Company not described in the Business and Territory
Article.
C. All liability of the Company arising by agreement, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund, or other
arrangement, howsoever denominated, established or governed which provides
for any assessment of, or payment, or assumption by the Company of part of
any claim, debt, charge, fee, or other obligation of an insurer, or its
successors, or assigns which has been declared by any competent authority
to be insolvent or which otherwise is deemed unable to meet any claim,
debt, charge, fee, or other obligation in whole or in part.
ARTICLE 5
REINSURANCE CLAUSE
The Reinsurer shall pay up to $70,000,000 Ultimate Net Loss each and every
Occurrence excess of $0 Ultimate Net Loss each and every Occurrence. The
Reinsurer shall pay the Company as Ultimate Net Loss recoverable hereunder is
Incurred. The aggregate limit of this Agreement shall never exceed $70,000,000
over the term of this Agreement.
ARTICLE 6
DEFINITIONS
A. "Allocated Loss Adjustment Expenses" as used in this Agreement means all
court costs, interest upon judgments, and mitigation, investigation,
adjustment, and legal expenses chargeable to: (i) the mitigation,
investigation, negotiation, settlement of or defense against a Loss, (ii)
loss prevention, mitigation or investigation in respect of Policies as to
which the Company has posted a loss reserve, (iii) the investigation and
workout of a potential Loss, or (iv) the protection, perfection and
exercise of any subrogation or salvage or reimbursement rights or security
interests with respect to a Policy. Allocated Loss
Effective: September 15, 1998 3 of 12
Adjustment Expenses shall exclude all office expenses and salaries of
officials and employees of the Company.
B. "Incurred" as used in this Agreement in respect of the Company's Loss and
Allocated Loss Adjustment Expenses means the date and time such Loss and
Allocated Loss Adjustment Expense is recorded on the books and records of
the Company with respect to the estimated amount of default of the Issuer's
obligation to pay principal or interest pursuant to the terms of a bond,
note, or other instrument insured by a Policy.
C. "Issue" as used in this Agreement means all obligations of one Issuer sold
simultaneously, secured by a single revenue source (with essentially the
same structure) or, in the case of structured finance or asset-backed
securities, secured by a common pool of assets and, in either case, covered
by a Policy. The Company shall be the sole judge of what constitutes one
Issue.
D. "Issuer" as used in this Agreement means, with respect to an Issue, the
entity issuing the bonds, notes, or other instruments comprising the Issue.
The Company shall be the sole judge of what constitutes one Issuer.
E. "Loss" as used in this Agreement means the actual or, in the Company's best
judgment, anticipated amounts of principal and interest for which the
Company is liable with respect to all claims under all Policies.
F. "Occurrence" as used in this Agreement means an: actual or, in the
Company's best judgment, anticipated default by an individual Issuer.
G. "Policy" as used in this Agreement means each binder, policy, surety bond
or contract of insurance or amendment or endorsement thereto issued by the
Company and constituting business covered as defined in the Business and
Territory Covered Article.
H. "Ultimate Net Loss" as used herein shall mean the Company's estimate of the
sum of Loss and Allocated Loss Adjustment Expense Incurred by the Company
from all Issues of an Issuer less reinsurance recoveries which inure to the
benefit of this Agreement, if any, which shall include the remaining limits
on the Company's First and Second Special Per Occurrence Excess of Loss
Programs, less any salvage or subrogation recoveries as appearing on the
Company's books at the time of all interim and/or final adjustment to the
Ultimate Net Loss hereunder.
For the purposes of determining Ultimate Net Loss and the amount of
reinsurance recoverable hereunder prior to the final maturity of any Issue,
the Company's estimated Loss and Allocated Loss Adjustment Expense shall be
determined based on the Company's annual or quarterly statements, as the
case may be.
Effective: September 15, 1998 4 of 12
The following shall apply with respect to Ultimate Net Loss herein:
I. Nothing in this Definition shall be construed as meaning the Reinsurer
shall not pay the amount of reinsurance recoverable hereunder until the
actual Ultimate Net Loss has been determined.
II. The Company shall make quarterly adjustments to its estimates of Ultimate
Net Loss beginning in the third and fourth quarters of 1998. The final
adjustment to any Ultimate Net Loss hereunder shall be made seven years
after the Termination Date of this Agreement (or by mutual agreement at
some other time). Such final adjustment of Ultimate Net Loss shall be based
upon the Company's estimate of Ultimate Net Loss as entered on the
Company's books at such time.
ARTICLE 7
PREMIUM
The Company shall pay to the Reinsurer a flat premium equal to $350,000, payable
upon execution of this Agreement.
ARTICLE 8
ACCOUNTS, REPORTS AND PAYMENTS
A. The Company shall furnish to the Reinsurer quarterly accounts of business
ceded hereunder within 25 days after the close of each calendar year
quarter, showing: the sums of Loss, Allocated Loss Adjustment Expenses,
salvage and subrogation, and Ultimate Net Loss hereunder on paid and
Incurred bases, as well as adjustments thereto.
To the extent that the amount of reinsurance recoverable hereunder
increases, the Reinsurer shall owe the Company such increase in the amount
of reinsurance recoverable hereunder over that recoverable under the prior
account; but in no event shall the Reinsurer's liability over the term of
this Agreement exceed $70,000,000; to the extent that the Company's amount
of reinsurance recoverable hereunder decreases, the Company shall owe the
Reinsurer such decrease in the amount of reinsurance recoverable hereunder
below that recoverable under the prior account.
Such net balance shown shall be payable by the debtor party at the time the
account is rendered, if the Company is the debtor party, and within 45 days
of the Reinsurer's receipt of the account, if the Reinsurer is the debtor
party.
Effective: September 15, 1998 5 of 12
B. On a quarterly basis, the Company shall provide the Reinsurer with a
listing of all Occurrences with Incurred Ultimate Net Loss in excess of
$25,000,000.
ARTICLE 9
CLAIMS AND LOSSES
The Company shall have complete and sole control of and direction of all efforts
to: (i) mitigate, investigate, negotiate, settle or defend a Loss, (ii) prevent,
mitigate, or investigate a probable Loss under Policies as to which the Company
has posted a loss reserve, (iii) investigate and workout a potential Loss, and
(iv) to protect, perfect and exercise any subrogation, salvage or reimbursement
rights or security interests with respect to any Loss under a Policy, and shall
take any action as it may deem advisable with respect thereto. All Loss
settlements by the Company, all salvage and subrogation settlements, and all
settlements with an Issuer (or with an underlying obligor of that Issuer), shall
be final, conclusive and unconditionally binding upon the Reinsurer.
ARTICLE 10
SALVAGE AND SUBROGATION
(1) The Company shall pay the Reinsurer the Reinsurer's proportionate share of
any Recovery in respect of any Loss covered by a Policy covered under this
Agreement at the times and in the manner specified in the Accounts, Reports
and Payments Article.
(2) "Recovery" as used in this Article means any amount received by the Company
in respect of any Loss covered by a Policy covered under this Agreement
whether by subrogation, salvage, or reimbursement from the Issuer (or from
an underlying obligor of that Issuer).
ARTICLE 11
REINSURANCE FOLLOWS ORIGINAL POLICIES
This Agreement shall be construed as an honorable undertaking between the
parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Company. Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Agreement.
Effective: September 15, 1998 6 of 12
ARTICLE 12
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making Canadian
tax returns or when making tax returns, other than Income or Profits Tax
returns, to any state or territory in the United States of America or to the
District of Columbia.
ARTICLE 13
ACCESS TO RECORDS
The Reinsurer shall have the right to inspect at all reasonable times during the
currency of the Agreement and thereafter, the books, records and documents of
the Company with respect to this Agreement.
ARTICLE 14
CURRENCY
Where the word "dollars" and/or the sign "$" appear in this Agreement, they
shall mean United States dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses in currencies other than United States currency, such premiums or losses
shall be converted into United States dollars at the actual rates of exchange at
which these premiums or losses are entered in the Company's books.
ARTICLE 15
ARBITRATION
(1) As a condition precedent to any right of action hereunder, any dispute
arising out of or related to this Agreement shall be submitted to the
decision of a board of arbitration composed of two arbitrators and an
umpire, meeting in Armonk, New York, unless otherwise agreed.
(2) The members of the board of arbitration shall be active or former and
disinterested officials of insurance or reinsurance companies. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint
its arbitrator within four weeks after being requested to do so by the
claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the
Effective: September 15, 1998 7 of 12
appointment of an umpire within four weeks after their nominations, the
umpire shall be selected within four weeks by the regional director of the
American Arbitration Association in New York, New York, or the regional
director's delegate.
(3) The claimant shall submit its initial brief within 20 days from appointment
of the umpire. The respondent shall submit its brief within 20 days after
receipt of the claimant's brief and the claimant shall submit a reply brief
within 10 days after receipt of the respondent's brief.
(4) The board shall make its decision with regard to the custom and usage of
the insurance and reinsurance business. The board shall issue its decision
in writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding
upon all parties to the proceeding. Judgment may be entered upon the award
of the board in any court having jurisdiction thereof.
(5) Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the
board.
(6) Unless prohibited by applicable law, an arbitral award hereunder and any
Judgment thereon shall bear interest from the date the arbitral award was
rendered at the rate equal from time to time to the rate publicly announced
by Citibank, N. A., as its base rate plus 2%.
(7) The parties consent to the jurisdiction of the Supreme Court of the State
of New York, County of New York, and of the United States District Court
for the Southern District of New York, for all purposes in connection with
such arbitration, including without limitation any application to compel
arbitration or to confirm an arbitration award. The parties consent that
any process or notice of motion or other application to either of said
Courts, and any paper in connection with arbitration, may be served by
certified mail, return receipt requested, or by personal service or in such
other manner as may be permissible under the rules of the applicable court
or panel provided a reasonable time for appearances is allowed. Service
upon the Company shall be directed to the Company, in care of the Company's
General Counsel. Service upon the Reinsurer shall be directed to the
Reinsurer in care of its President.
ARTICLE 16
INDEMNIFICATION AND ERRORS AND OMISSIONS
Any recitals in this Agreement to the terms and provisions of any original
insurance or reinsurance are merely descriptive. The Reinsurer is reinsuring, to
the amount herein provided,
Effective: September 15, 1998 8 of 12
the obligations of the Company under any original insurance or reinsurance. The
Company shall be the sole judge as to:
(a) what shall constitute a claim or loss covered under any original
insurance or reinsurance written by the Company;
(b) the Company's liability thereunder; and
(c) the amount or amounts which it shall be proper for the Company to pay
thereunder.
The Reinsurer shall be bound by the judgment of the Company as to the
obligation(s) and liability(ies) of the Company under any original insurance or
reinsurance.
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
ARTICLE 17
INSOLVENCY
(1) In the event of the insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company under the Policies ceded without diminution
because of the insolvency of the Company or because its liquidator,
receiver, conservator or statutory successor (hereinafter referred to as
the "Liquidator") has failed to pay all or a portion of any claim. The
Liquidator shall give written notice to the Reinsurer of the pendency of a
claim against the Company under any Policy ceded to Reinsurers and covered
by this Agreement within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership. During the
pendency of such claim, the Reinsurer may investigate such claim 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 the Liquidator. 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 the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
(2) The reinsurance provided by this Agreement shall be payable by the
Reinsurer to the Company or to the Liquidator, except as provided by
Section 4118(A)(l)(a) (relating to Fidelity and Surety Risks) of the
Insurance Law of New York or except (a) where the Policy specifically
provides another payee of such reinsurance in the event of the insolvency
of the Company, and (b) where the Reinsurer with the consent of the direct
insured(s) has assumed the obligations of the Company under the Policies as
the direct
Effective: September 15, 1998 9 of 12
obligations of the Reinsurer to the payees under such Policies and in
substitution for the obligations of the Company to such payees.
ARTICLE 18
CONFIDENTIALITY
The Reinsurer agrees that it will maintain the confidentiality of the all
information presented as a result of this Agreement including, but not limited
to the bonds, the basic agreements, the reinsurance undertaken with respect to
the bonds, all underlying transactions and underlying obligations, and all
certificates, reports, agreements, notices, and communications of any sort
relating to any of the foregoing in its communications with third parties,
except to the extent required by law, regulation, or order, and except as may be
made to the Reinsurer's legal counsel, auditors, and accountants, to Standard &
Poor's Corporation, Xxxxx'x Investor Services, Inc., Duff & Xxxxxx Corporation,
or any other rating agency in connection with their rating of the Reinsurer and
except as may be necessary or appropriate in connection with any retrocession,
subject to the receipt of a written confidentiality commitment from the proposed
retrocessional reinsurer. The Reinsurer and its legal counsel, auditors, and
accountants will have no obligation of confidentiality in respect or any
information that may be available to the public or become available to the
public through no fault of such person.
ARTICLE 19
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York.
ARTICLE 20
INTERMEDIARY
Xxx Xxxxxxxxx & Company, Inc., Xxx Xxxxx Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx,
00000, is hereby recognized as the Intermediary by which this Agreement was
negotiated and through which all communications relating hereto including, but
not limited to, notices, statements, premiums, return premiums, commissions,
taxes, Losses, Allocated Loss Adjustment Expenses, salvage and Loss settlements,
shall be transmitted to both parties. It is understood, as regards remittances
due either party hereunder, that payment by the Company to the Intermediary
shall constitute payment to the Reinsurer, but payment by the Reinsurer to the
Intermediary shall constitute payment to the Company only to the extent such
payments are actually received by the Company.
Effective September 15, 1998 10 of 12
ARTICLE 21
PARTICIPATION
The Reinsurer's Percentage Share of the Interests and Liabilities set out in
this Agreement is 100% of up to $70,000,000.
IN WITNESS WHEREOF the parties hereto, by their respective duly authorized
officers, have executed this THIRD SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT, in triplicate, as of the dates recorded below:
ACCEPTED:
At: Armonk, New York
this 31st day of December, 1998.
MBIA INSURANCE CORPORATION
MBIA Assurance, S. A.
and/or any other insurance or reinsurance company subsidiaries
of MBIA Inc. listed in Exhibit No. 1 attached to this Agreement
/s/ Xxxxxxxxx X. Xxxxxxx
------------------------------------------
and at:
this 30th day of December ,1998.
ZURICH REINSURANCE (NORTH AMERICA), INC.
/s/ [ILLEGIBLE]
------------------------------------------
Effective: September 15, 1998 11 of 12
EXHIBIT NO. 1
Insurance and/or Reinsurance Company Subsidiaries
Included within the Definition of Company hereunder
MBIA Assurance S. A.
MBIA Insurance Corporation
MBIA Insurance Corp. of Illinois
Capital Markets Assurance Corporation
Effective: September 15, 1998 12 of 12
