Exhibit 10-17-iii
GENERAL AGENT CONTINGENT
PROFIT COMMISSION ADDENDUM
This Addendum, effective January 1, 2001, made by and between
Penn-America Insurance Company and Penn-Star Insurance Company (hereinafter
collectively referred to as "Penn-America") and [[MANNAM]] (hereinafter referred
to as "Agent"), supersedes and replaces, in its entirety, the General Agency
Profit Sharing Addendum effective January 1, 1999 ("the 1999 Addendum"), by and
between the parties hereto, and forms a part of the General Agency Agreement by
and between Penn-America and Agent dated [[CNTDATE]], and any amendments
thereto, as follows.
1. Agreement: It is agreed that as a reward to Agent for Agent's favorable
underwriting results, Penn-America will pay to Agent, in addition to
the commissions payable in accordance with the General Agency
Agreement, a contingent profit commission based on the underwriting
profits realized by Penn-America on the business written by Agent under
the General Agency Agreement, except such business as is ineligible
herein;
2. Ineligible Business: This Addendum shall not apply to premiums, losses
and expenses applicable to the following businesses: (a) assigned risk;
(b) umbrella policies; (c) that portion of any premiums, losses and
expenses relating to a limit of liability in excess of $1 million,
pursuant to Penn-America's Increased General Liability Limits Program;
(d) personal and commercial automobile liability and physical damage;
and (e) any business hereinafter deemed ineligible by Penn-America;
3. Contingent Profit Commission: If Agent meets the terms, conditions and
qualifications set forth herein, Agent shall be entitled to a
contingent profit commission, calculated as follows:
a. By March 1 of the year following the contingent year,
Penn-America shall perform the following calculation;
(1) Determine a combined ratio for all eligible business
written by the Agent in the aggregate during the
contingent year and two (2) immediately preceding
calendar years. Said combined ratio shall be the sum
of the "Loss and LAE (Loss Adjustment Expenses)
Incurred Ratio", "Commissions and Filed Fees Ratio",
"Premium Tax Ratio" and "Company Expense Ratio"
during the contingent year and two (2) immediately
preceding calendar years;
(2) Determine the growth rate in written premium between
the contingent year and the immediately preceding
calendar year;
(3) Apply the combined ratio and growth rate to the
Contingent Profit Commission Table, attached hereto
as "Exhibit 1", to determine the Contingent Profit
Commission Rate Earned. Note: Final calculations
subject to rounding to the nearest 10th and
interpolation;
(4) Multiply the Contingent Profit Commission Rate Earned
by earned premium for the contingent year to
determine the contingent profit (year) commission;
b. All calculations are on a calendar year basis;
c. An example of the above-stated calculation is attached hereto
as "Exhibit 2";
1
4. Payment Provisions:
a. The contingent profit commission is paid, one hundred (100%)
percent, by March 1 of the year following the contingent year;
b. Payment shall be made 100% in cash, unless Agent notifies
Penn-America in writing that it desires payment in
Penn-America Group, Inc. (NYSE:PNG) common stock - in 25%,
50%, 75% or 100% increments;
c. For purposes of payment in PNG common stock, the stock shall
be valued as of the closing price of the stock on the New York
Stock Exchange at the close of business on December 31st of
the contingent year. If the New York Stock Exchange is not
open on that date, the stock shall be valued on the same basis
as of the close of business on the nearest previous business
day on which the Stock Exchange was open;
d. PNG stock distributed to Agent cannot be sold until August 1
of the year following the contingent year and will be leg
ended accordingly;
e. PNG stock will be delivered free of all commission and
transaction costs. Agent is responsible for any commissions
and/or transaction costs related to any disposition of said
stock subsequent to delivery;
f. The contingent profit commission may be subject to income tax.
Agent should seek the advice of a personal tax advisor in this
regard;
5. Qualifications: To qualify for a contingent profit commission under
this Addendum, Agent recognizes that:
a. Agent must produce total minimum written premium of:
(1) $500,000 as of December 31, 2001;
(2) $750,000 as of December 31, 2002; and,
(3) $1 million as of December 31, 2003 and each
succeeding December 31st calendar year thereafter;
b. Agent must be in compliance with the General Agency Agreement
between Penn-America and Agent;
c. Agent must maintain Errors and Omissions coverage in
conformity with Penn-America's standards for such coverage;
x. Xxxx-America's records and calculations are final;
e. Any contingent profit commission earned may not be deducted by
Agent from Agent's accounts current;
f. Agent cannot pledge, assign, sell or otherwise alienate this
Addendum without the prior written consent of an officer of
Penn-America. Any purported or attempted assignment of this
Addendum without such prior written consent shall not be
binding on Penn-America.
6. Amendment and Termination:
a. This Addendum may be amended at any time by Penn-America by
providing written notice to Agent of such amendment. To the
2
extent that Penn-America amends this Addendum on or before
July 1 of a calendar year, said amendment shall be effective
as of January 1 of said calendar year in which the amendment
is made. To the extent that Penn-America amends this Addendum
subsequent to July 1, said amendment shall not be effective
until January 1 of the next succeeding calendar year;
(1) This Addendum may be terminated at any time in accordance
with the termination provisions of the General Agency
Agreement between the parties hereto, of which this
Addendum forms a part;
(2) If Agent terminates the General Agency Agreement, and/or
if this Addendum is terminated for cause, due to Agent's
breach of the Addendum or General Agency Agreement or
otherwise, Penn-America shall have no further obligation
to Agent relative to alleged outstanding contingent
profit commissions due under this Addendum;
(3) If this Addendum is terminated by Penn-America other than
for cause, Penn-America will honor the Addendum relative
to any payment(s) due only for the contingent year in
which notice of termination is given, as well as for any
previous contingent year for which any applicable
contingent profit commission has not been paid;
7. Definitions:
a. "Calendar year" = From January 1 to December 31;
b. "Commissions and Filed Fees Ratio" = The sum of the actual
amount of regular commissions generated on eligible business
written by Agent in the calendar year, plus filed fees
generated on admitted eligible business written by Agent in
the calendar year, divided by written premium in that same
calendar year;
c. "Company Expense Ratio"= Penn-America's operating expenses,
plus reinsurance costs [costs related to Loss and LAE (Loss
Adjustment Expenses) Incurred in excess of $500,000 per
occurrence, plus property catastrophic reinsurance costs]
related to Agent's eligible business during a calendar year,
divided by written premium in that same calendar year. Said
expenses and costs are subject to change at any time based on
Penn-America's reasonable determination and discretion;
d. "Contingent year" = The calendar year on which an Agent's
performance (which compares revenue growth and profitability
over a period of prior calendar years - irrespective of
whether or not Agent met the eligibility requirements in any
of those prior calendar years) is measured for purposes of
determining the contingent profit commission to be paid the
following year;
e. "Earned premium" = That portion of the written premium
recognized as earned ratably during a calendar year;
f. "Growth rate" = The difference between the contingent year and
the immediately preceding calendar year written premium,
divided by the immediately preceding calendar year written
premium, expressed as a percentage;
g. "Loss" = On eligible business, the losses paid during the
calendar year, less net salvage recovered, plus the sum of the
outstanding loss reserves at the end of the calendar year,
minus the sum of the outstanding loss reserves at the end of
the immediately preceding calendar year, plus the net change
for the calendar year in reserves for incurred but not
reported losses;
3
h. "LAE (Loss Adjustment Expenses)" = The expenses of
investigating and settling claims, including legal fees,
internal and external adjustment expenses and other general
expenses of administering the claims adjustment process,
incurred during a calendar year;
i. "Loss and LAE (Loss Adjustment Expenses) Incurred" = The sum
of Loss and LAE (Loss Adjustment Expenses) incurred in a
calendar year, subject to a maximum limit of $500,000 per
occurrence;
j. "Loss and LAE (Loss Adjustment Expenses) Incurred Ratio" = The
total Loss and LAE (Loss Adjustment Expenses) Incurred in the
calendar year, divided by earned premium for that same
calendar year;
k. "Premium Tax Ratio" = The actual amount of premium taxes
incurred by Penn-America relating to eligible business written
by Agent in a calendar year, divided by written premium for
that same calendar year;
l. "Written premium" = Gross premium written, less policy returns
and cancellations, less ineligible business in a calendar
year.
This Addendum constitutes the entire and exclusive agreement between
Penn-America and Agent relative to contingent profit commissions and supersedes
and replaces any and all prior or contemporaneous agreements, representations,
and understandings, written and/or oral, on this subject. The undersigned
signatories hereby warrant that they have full power and authority to execute
this Addendum on behalf of the respective parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as
follows:
PENN-AMERICA INSURANCE COMPANY [[MANNAM]]
PENN-STAR INSURANCE COMPANY
By: By:
--------------------------- -----------------------------
Xxx X. Xxxxxxxx [[PRNNAM]]
President & CEO [[PRNTIT]]
4
PENN-AMERICA INSURANCE GROUP
CONTINGENT PROFIT COMMISSION TABLE
------------------------------------------------------------------------------------------------------------------------------------
Percentage Change in Written Premium Over Prior Year
-----------------------------------------------------------------------------------------------------------------
Combined Ratio -15.0% or Greater -14.9% to -5.0% -4.9% to 4.9% 5.0% to 14.9% 15% or Greater
------------------------------------------------------------------------------------------------------------------------------------
100 0.00% 0.00% 0.00% 0.00% 0.00%
99 0.00% 0.00% 0.00% 0.00% 0.00%
98 0.00% 0.00% 0.50% 0.63% 0.75%
97 0.00% 0.00% 0.75% 0.94% 1.13%
96 0.32% 0.77% 0.90% 1.13% 1.35%
95 0.37% 0.89% 1.05% 1.31% 1.58%
94 0.49% 1.19% 1.40% 1.75% 2.10%
93 0.61% 1.49% 1.75% 2.01% 2.19%
92 0.74% 1.79% 2.10% 2.42% 2.63%
91 0.86% 2.08% 2.45% 2.82% 3.06%
90 0.98% 2.18% 2.80% 3.22% 3.50%
89 1.03% 2.36% 2.95% 3.39% 3.69%
88 1.07% 2.46% 3.07% 3.51% 3.81%
87 1.11% 2.54% 3.18% 3.62% 3.92%
86 1.16% 2.64% 3.30% 3.74% 4.04%
85 1.26% 2.88% 3.60% 3.87% 4.14%
84 1.37% 3.12% 3.90% 4.19% 4.49%
83 1.47% 3.36% 4.20% 4.52% 4.83%
82 1.58% 3.60% 4.50% 4.84% 5.18%
81 1.68% 3.84% 4.80% 5.16% 5.52%
80 1.79% 4.08% 5.10% 5.48% 5.87%
79 1.89% 4.32% 5.40% 5.81% 6.21%
78 2.00% 4.56% 5.70% 6.13% 6.56%
77 2.10% 4.80% 6.00% 6.45% 6.90%
76 2.21% 5.04% 6.30% 6.77% 7.25%
75 2.31% 5.28% 6.60% 7.10% 7.59%
74 2.42% 5.52% 6.90% 7.42% 7.94%
73 2.52% 5.76% 7.20% 7.74% 8.28%
72 2.63% 6.00% 7.50% 8.06% 8.63%
71 2.73% 6.24% 7.80% 8.39% 8.97%
70 2.84% 6.48% 8.10% 8.71% 9.32%
69 2.94% 6.72% 8.40% 9.03% 9.66%
68 3.05% 6.96% 8.70% 9.35% 10.00%
67 3.15% 7.20% 9.00% 9.68% 10.00%
66 3.26% 7.44% 9.30% 10.00% 10.00%
65 3.36% 7.68% 9.60% 10.00% 10.00%
64 3.47% 7.92% 9.90% 10.00% 10.00%
63 3.50% 8.00% 10.00% 10.00% 10.00%
62 3.50% 8.00% 10.00% 10.00% 10.00%
61 3.50% 8.00% 10.00% 10.00% 10.00%
60 3.50% 8.00% 10.00% 10.00% 10.00%
59 3.50% 8.00% 10.00% 10.00% 10.00%
------------------------------------------------------------------------------------------------------------------------------------
Note: Calculations are subject to interpolation to the nearest 10th.
"Exhibit 1"
5
