GENERAL RE- NEW ENGLAND ASSET MANAGEMENT, INC.
Investment Management Agreement
This Agreement is made as of the 15th day of April, 1997, between
1. GENERAL RE-NEW ENGLAND ASSET MANAGEMENT, INC., a corporation organized under
the laws of the State of Delaware ( "Manager"); and
2. PENN-AMERICA INSURANCE COMPANY and its subsidiary PENN-STAR INSURANCE
COMPANY, corporations organized under the laws of the State of Pennsylvania
("Client").
WHEREAS, Client desires to appoint Manager as the investment manager of
that portion of Client's assets constituting the Account (as defined below);
NOW THEREFORE, in consideration of the mutual agreements herein contained,
it is agreed as follows:
Section 1. The Account
The cash, securities and other assets placed by Client in the account to be
managed under this Agreement (the "Account") are listed on Schedule A. Assets
may be added to the Account at any time with the consent of the Manager. The
Account will include these assets and any changes in them resulting from
transactions directed by Manager, withdrawals made by Client, or dividends,
interest, stock splits and other earnings, gains or losses on the assets.
Assets placed in the Account by Client that are not to be managed by
Manager are separately identified on Schedule A ("Unmanaged Assets"). Manager
will include these assets in its periodic reports to Client, but will exclude
their value from the Account in calculating Manager's fees.
1
Section 2. Management of the Account
Manager will make all investment decisions for the Account, in Manager's
sole discretion and without first consulting or notifying Client, in accordance
with the investment restrictions and guidelines which are attached as Schedule B
(the "Investment Guidelines"). Client may change these Investment Guidelines at
any time, but Manager will be bound by the changes only after it has received
and agreed to them in writing. Other than by the Investment Guidelines and the
terms of this Agreement, the investments made by Manager on behalf of the Client
will not be restricted in any manner, except by operation of law.
Manager will have full power and authority, on behalf of Client, to
instruct any brokers, dealers or banks to buy, sell, exchange, convert or
otherwise trade in all securities, futures or other investments for the Account.
Manager will not be responsible for giving Client investment advice or
taking any other action with respect to Unmanaged Assets.
Client appoints Manager as its true and lawful attorney of the Client for
and in the name, place and stead of Client, in Manager's unrestricted
discretion, to operate and conduct the brokerage accounts of the Client and to
do and perform all and every act and thing whatsoever requisite in furtherance
of the brokerage accounts and this Agreement, including the execution of all
writings related for the purchase or sale (including short sales), assignments,
transfers and ownership of any stocks, bonds, commodities, or other derivatives
or securities. Manager is hereby fully authorized to act and rely on the
authority vested pursuant to said power of attorney.
Effective as of January 1, 1997, and until further notice, Manager will
assist Client in preparing Client's statutory Schedule D. Client acknowledges
that Manager will provide accounting data according to Manager's standard
interpretation of accounting principles, unless expressly instructed otherwise
by Client's prior written notice.
Section 3. Transactions for the Account
Manager will arrange for securities transactions for the Account to be
executed through those brokers, dealers or banks that Manager believes will
provide best execution. In choosing a broker, dealer or bank, Manager will
consider the broker, dealer or bank's execution capability, reputation and
access to the markets for the securities being traded for the Account. Manager
will seek competitive commission rates, but not necessarily the lowest rates
available.
2
Manager may also send transactions for the Account to brokers who charge
higher commissions than other brokers, provided that Manager determines in good
faith that the amount of commissions Manager pays is reasonable in relation to
the value of the brokerage and research services provided, viewed in terms
either of that particular transaction or Manager's overall responsibilities with
respect to all clients whose accounts Manager manages on a discretionary basis.
If Manager decides to purchase or sell the same securities for Client and
other clients at about the same time, Manager may combine Clients order with
those of other clients if Manager reasonably believes that it will be able to
negotiate better prices or lower commission rates or transaction costs for the
combined order than for Client's order alone. Client will pay the average price
and transaction costs obtained for such combined orders. If Manager cannot
obtain execution of the combined orders at prices or for transaction costs that
Manager believes to be desirable, Manager will allocate the securities purchased
or sold as part of the combined order by following its order allocation
procedures.
Manager generally will allocate securities purchased or sold as part of a
combined order to Client's Account and to accounts of other clients pro rata in
proportion to the size of the order placed for each client. However, Manager may
increase or decrease the amounts of securities allocated to each client if
necessary to avoid having odd or small numbers of shares held for the account of
any client. Each client that participates in a combined order will receive or
pay the average share price for all transactions executed as part of the
combined order and will pay its pro rata share of the transaction costs.
If Client directs Manager to use particular brokers, dealers or banks to
execute transactions for the Account, Manager will do so, but Manager will not
seek better execution services or prices for Client from other brokers, dealers
or banks, and Client may pay higher prices or transaction costs as a result.
Manager also may not be able to seek better execution services for Client by
combining Client's orders with those of other clients.
Client may direct all transactions for the Account to a particular broker,
dealer or bank, by writing the name and address of that broker, dealer or bank
in the space provided on Schedule A.
Client has the right to withdraw cash at any time with prior written notice
to the Manager.
3
Section 4. Transaction Confirmations
Manager will instruct the brokers, dealers or banks who execute
transactions for the Account to send Client all transaction confirmations,
unless Client chooses not to receive confirmations. If Client does not wish to
receive individual confirmations, this box should be checked. []
Client may elect to receive individual confirmations at any time by giving
Manager written notices.
Section 5. Custody of Account Assets
The assets in the Account will be held for Client by the custodian named on
Schedule A (the "Custodian"). Manager will not have custody of any Account
assets. Client will pay all fees of the Custodian.
Client will authorize the Custodian to follow Manager's instructions to
make and accept payments for, and to deliver or to receive, securities, cash or
other investments purchased, sold, redeemed, exchanged, pledged or loaned for
the Account. Client also will instruct the Custodian to send Client and Manager
monthly statements showing the assets in and all transactions for the Account
during the month, including any payments of Manager's fees.
Client will provide Manager with a copy of its agreement with the
Custodian, and will give Manager reasonable advance notice of any change of
Custodian.
Section 6. Reports to Client
Manager will send Client at least monthly and annually written reports
showing the identity, cost, and current market value of the assets in the
Account, each transaction made for the Account during the period covered by the
report, and the Account's performance. Reports will be provided for each Client
company portfolio, as well as all Client companies, on a consolidated basis.
4
Section 7. Account Valuation
Manager will value the securities in the Account that are listed and traded
on a national securities exchange or on NASDAQ on the valuation date at the
closing price on the principal market where the securities are traded. Manager
will value other securities or investments in the Account in a manner that
Manager believes in good faith reflects their fair market value. Where the
market value of any security is not readily available, Client and the Manager
will each choose one broker dealer and the market value will be deemed to be the
average of the values determined by the two broker dealers.
Section 8. Manager's Fees
For Manager's services, Client will pay a percentage of the value, as
determined under Section 7 of this Agreement, of all assets on a consolidated
portfolio basis in the Account (excluding Unmanaged Assets) as of the last
trading day of each calendar month. The fees are payable at the end of each
calendar quarter for services provided by Manager during the prior three months.
The percentage amount of the fees is shown on Schedule A. In any partial
quarter, the fees will be reduced pro rata based on the number of days the
Account was managed.
Client agrees to pay Manager's fees as follows:
[x] The Custodian will deduct the fees from Client's Account and pay them
to Manager each quarter. Manager will send Client and the Custodian at
the same time a xxxx showing the amount of Manager's fees, the Account
value on which they were based and how they were calculated. The
Custodian will send Client a monthly statement showing all amounts
paid from the Account, including Manager's fees.
[ ] Client will be billed directly by Manager and will pay Manager's fees
within 30 days of receiving the xxxx.
If Manager invests in securities issued by money market funds or other
investment companies for the Account, these securities will be included in the
value of the Account when Manager's fees are calculated. These same assets will
be subject to additional investment management and other fees that are paid by
the investment company but ultimately borne by its shareholders. These
additional fees are described in each investment company's prospectus.
5
Section 9. Proxy Voting
Proxies for securities in the Account should be voted as follows:
[ ] Client directs Manager not to vote proxies for securities held for the
Account.
[x] Client directs Manager to vote all proxies for securities held for
Client's Account in accordance with -
[x] Manager's own discretion
or
[ ] Client's proxy voting guidelines attached as Schedule C.
Client will direct Custodian to send promptly all proxies and related
shareholder communications to Manager and to identify them as relating to
Client's Account. Client understands that Manager will not be able to vote
proxies if they are not received on a timely basis from the Custodian as
properly identified as relating to Client's Account.
These proxy voting instructions may be changed at any time by notifying
Manager in writing.
Section 10. Legal Proceedings
Manager is not the attorney for, nor will it advise or act for Client in
any legal proceedings, including bankruptcies or class actions, involving
securities held in the Account or issuers of those securities.
Section 11. Risk
Subject to Section 12, the Manager cannot guarantee the future performance
of the Account, promise any specific level of performance or promise that its
investment decisions, strategies or overall management of the Account will be
successful. The investment decisions Manager will make for Client are subject to
various market, currency, economic, political and business risks, and will not
necessarily be profitable.
6
Section 12. Standard of Care; Limitation of Liability
Except as may otherwise be provided by law, Manager will not be liable to
Client for any loss (i) that Client may suffer as a result of Manager's good
faith decisions or actions where Manager exercises the degree of care, skill,
prudence and diligence that a prudent person acting in a like fiduciary capacity
would use; (ii) caused by following Client's instructions; or (iii) caused by
the Custodian, any broker, dealer or bank to which Manager directs transactions
for the Account or any other person.
Federal and state securities laws impose liabilities under certain
circumstances on persons who act in good faith, and this Agreement does not
waive or limit Client's rights under those laws, except to the extent Manager
negligently fails to comply with written instructions from Client relating to
Client's investments to the extent the investments must comply with applicable
insurance investment or tax laws .
Manager will not be responsible for Client's own compliance with the
insurance investment laws of Client's state of domicile or for Client's
compliance with applicable tax laws.
In managing the Account, Manager will not consider any other securities,
cash, or other investments or assets Client owns for diversification or other
purposes. Manager shall have no responsibility whatsoever for the management of
the Unmanaged Assets or any assets of Client other than the Account and shall
incur no liability for any loss or damage which may result from the management
of such other assets.
Section 13. Client Directions
The names and specimen signatures of each individual who is authorized to
give directions to Manager on Client's behalf under this Agreement are set forth
on Schedule D. Directions received by Manager from Client must be signed by at
least one such person. If Manager receives directions from Client which are not
signed by a person designated on Schedule D, Manager shall not be required to
comply with such directions until it verifies that the directions are properly
authorized by Client.
Manager shall be fully protected in relying upon any direction signed or
given by a person that is designated on Schedule D hereto, as attested, to give
such directions on Client's behalf. Manager also shall be fully protected when
acting upon an instrument, certificate, or paper that Manager reasonably
believes to be genuine and to be signed or presented by any such person or
persons. Manager shall be under no duty to make any
7
investigation or inquiry as to any statement contained in any writing and may
accept the same as conclusive evidence of truth and accuracy of statements
contained therein.
Section 14. Confidentiality
Except as Client and Manager otherwise agree or as may be required by law,
all information concerning the Account and services provided under this
Agreement shall be kept confidential.
Section 15. Non-Exclusive Agreement
Manager provides investment advice to other clients and may give them
advice or take actions for them, for Manager's own accounts or for accounts of
persons related to or employed by Manager, that is different from advice
provided to or actions taken for Client.
Manager is not obligated to buy, sell or recommend for Client's Account any
security or other investment that Manager may buy, sell or recommend for other
clients or for the account of Manager or its related persons or employees.
Manager will treat all clients fairly and equitably.
If Manager obtains material, non-public information about a security or its
issuer that Manager may not lawfully use or disclose, Manager will have no
obligation to disclose the information to Client or to use it for Client's
benefit.
Section 16. Term of Agreement
Either Client or Manager may cancel this Agreement at any time upon 30 days
written notice. Written notice is complete upon the date(s) of delivery of same
via fax transmittal or U.S. mail postage xxxx. This Agreement will remain in
effect until canceled. Termination of this Agreement will not affect (i) the
validity of any action that Manager or Client has previously taken; (ii) the
liabilities or obligations of Manager or Client for transactions started before
termination; or (iii) Client's obligation to pay Manager's fees through the date
of termination. Upon termination, Manager will have no obligation to recommend
or take any action with regard to the securities, cash or other assets in the
Account.
Section 17. Agreement Not Assignable
This Agreement may not be assigned within the meaning of the Investment
Advisers Act of 1940 (the "Advisers Act") by Manager without Client's consent.
8
Section 18. Governing Law
The internal law of Connecticut will govern this Agreement. However,
nothing in this Agreement will be construed contrary to any provision of the
Advisers Act or the rules thereunder.
Section 19. Miscellaneous
If any provision of this Agreement is or becomes inconsistent with any
applicable law or rule, the provision will be deemed rescinded or modified to
the extent necessary to comply with such law or rule. In all other respects,
this Agreement will continue in full force and effect. This Agreement contains
the entire understanding between Manager and Client and may not be changed
except in writing signed by both parties. Failure to insist on strict compliance
with this Agreement or with any of its terms or any continued conduct will not
be considered a waiver by either party under this Agreement.
Section 20. Notices
All notices and instructions with respect to the Account or other matters
covered by this Agreement may be sent by U.S. mail, overnight courier, or
facsimile transmission (with a hard copy sent by U.S. mail) to Client and to
Manager at the addresses at the end of this agreement or to another address
provided in writing.
Section 21. Representations of Client
Client represents and warrants to Manager that (a) Client is the beneficial
owner of all assets in the Account and that there are no restrictions on
transfer or sale of any of those assets; (b) this Agreement has been duly
authorized, executed, and delivered by Client and is Client's valid and binding
obligation; (c) the names of the individuals who are authorized to act under
this Agreement on behalf of Client have been given to Manager in writing; (d) no
government authorizations, approvals, consents, or filings not already obtained
are required in connection with the execution, delivery, or performance of this
Agreement by Client; and (e) the assets in the Account are not and are not
deemed to be assets of any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended. Client agrees to indemnify
and hold harmless Manager from all liability and costs (including costs of
defense) which may be asserted or incurred by reason of any defect in Clients
authority to appoint Manager or any defect in the conduct of Client in making
the appointment under this Agreement.
9
Section 22. Representations of Manager
Manager represents and warrants that this Agreement has been duly
authorized, executed and delivered by Manager and is its valid and binding
obligation.
Section 23. Disclosure
Client has received and reviewed a copy of Part II of Manager's Form ADV
and a copy of this Agreement.
AGREED TO AND ACCEPTED BY:
GENERAL RE NEW ENGLAND PENN-AMERICA INSURANCE
ASSET MANAGER, INC COMPANY
/s/ Xxxxxx X. Xxxxx By: /s/ Xxxxxxxx Xxxxxxx
Xxxxxx X. Xxxxx Xxxxxxxx Xxxxxxx
Its President Vice President,
Treasurer, Secretary
Pond View Corporate Center 000 X Xxxx Xxxx
00 Xxxxxxxxx Xxxx Xxxx Xxxxxxx, XX 00000
Xxxxxxxxxx, Xxxxxxxxxxx 00000
00-0000000
(Taxpayer identification Number)
PENN-STAR INSURANCE COMPANY
By: /s/ Xxxxxxxx Xxxxxxx
Xxxxxxxx Xxxxxxx
Vice President,
Treasurer, Secretary
000 X. Xxxx Xxxx
Xxxxxxx, XX 00000
00-0000000
(Taxpayer Identification Number)
10
SCHEDULE A
ACCOUNT ASSETS.
A. Managed Assets Client has deposited the following securities. cash and
other assets with the Custodian identified below to be managed under this
Agreement:
See List attached hereto.
B. Unmanaged Assets Client also deposited with the Custodian the following
assets which are not to be managed under this Agreement:
Custodial Account number 00-00-000000000
II. CUSTODY OF ACCOUNT ASSETS. The assets to be managed under this Agreement and
any Unmanaged Assets will be held by:
PNC Bank, N.A. Custodial Account Number: 00-00-0000000000
Institutional Custody Service 32-32-0000000000
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
III. FEES. Manager's fees for services provided under this Agreement shall be as
follows:
Annual fee of .20 of 1% on the first $50 million of market value of invested
assets of "Available for Sale" portfolios and .15 of 1% on remaining market
value of invested assets of "Available for Sale" portfolios; and .05 of 1% of
market value of invested assets of "Held to Maturity" portfolios.
Market values of Penn America Insurance Company and Penn Star Insurance Company
are aggregated for fee purposes.
IV. BROKERAGE DIRECTION. Client directs Manager to cause all transactions for
the Account to be executed through the following broker, dealer or bank:
Client has read, understands and accepts the limitations that this direction
will place on Manager's ability to seek best execution for the Account. This
direction may be changed by Client at any time by notifying Manager in writing.
V. NAME OF CLIENT: VI. DATE:
PENN-AMERICA INSURANCE COMPANY
By: /s/ Xxxxxxxx Xxxxxxx 4/15/97
SCHEDULE A
ACCOUNT ASSETS.
A. Managed Assets Client has deposited the following securities, cash and
other assets with the Custodian identified below to be managed under this
Agreement:
See List attached hereto.
B. Unmanaged Assets Client also deposited with the Custodian the following
assets which are not to be managed under this Agreement:
II. CUSTODY OF ACCOUNT ASSETS. The assets to be managed under this Agreement and
any Unmanaged Assets will be held by:
PNC Bank, N.A. Custodian Account Number 32-32-300-0000000
Institutional Custody Service
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
III. FEES. Manager's fees for services provided under this Agreement shall be as
follows:
Annual fee of .20 of 1 % on the first $50 million of market value of invested
assets of "Available for Sale" portfolios and .15 of 1% on remaining market
value of invested assets of "Available for Sale" portfolios; and .05 of 1% of
market value of invested assets of "Held to Maturity" portfolios.
Market values of Penn-America Insurance Company and Penn-Star Insurance Company
are aggregated for fee purposes.
IV. BROKERAGE DIRECTION. Client directs Manager to cause all transactions for
the Account to be executed through the following broker, dealer or bank:
Client has read, understands and accepts the limitations that this direction
will place on Manager's ability to seek best execution for the Account. This
direction may be changed by Client at any time by notifying Manager in writing.
V. NAME OF CLIENT: VI. DATE:
PENN-STAR INSURANCE COMPANY
By: /s/ Xxxxxxxx Xxxxxxx 4/15/97
12
SCHEDULE B
INVESTMENT GUIDELINES: The investment guidelines to be followed by Manager in
managing Client's Account are set forth below:
See attached
NAME OF CLIENT DATE:
PENN-STAR INSURANCE COMPANY
BY: /S/ Xxxxxxxx Xxxxxxx 4/15/97
14
SCHEDULE B
INVESTMENT PLAN
OF
PENN-AMERICA INSURANCE COMPANY
Investment Portfolio - Objectives and Guidelines
The Board of Directors of PENN-AMERICA INSURANCE COMPANY (the "Company")
authorizes the Company's officers to engage the services of an Investment
Manager who possesses the necessary personnel and research facilities to manage
the Company's investment portfolio. The portfolio is a balanced accounting
consisting of fixed income obligations, asset based obligations and cash
equivalents.
The policy guidelines for the Investment Portfolio shall be as stated
herein, and are subject to modification with Board approval from time to time by
the Company after consideration of the advice and recommendations of the
Investment Manager.
Execution of All Trades: It is hereby understood that all investment
transactions must have prior approval either written or verbal, of the Chairman
of the Investment Committee, Xxxxx Xxxxxxxx, prior to their initiation by the
Investment Manager.
Investment Portfolio
The Company's investment portfolio consists of funds allocated and invested
in one of two (2) basic forms of investment:
(A) Money market and analogous cash equivalent funds, awaiting permanent
investment into fixed income securities.
(B) Fixed income securities including United States Government and Agency
issues and other issues backed by the full faith and credit of the United
States Government, corporate bonds, collateralized mortgage obligations,
municipal bonds, preferred stocks, and asset based obligations.
The Company shall establish percentage allocation ranges for each category,
which shall be monitored on a regular, periodic basis and which may be changed
from time to time.
Investment Objectives
1. The Company's investment portfolio is to be managed in a conservative,
risk adverse style with the objective of achieving long term performance
superior to the widely followed market averages.
2. Primary investment emphasis shall be placed upon consistency of
performance, i.e., the achievement of investment objectives in such a manner as
to protect the Company's assets from excessive volatility in market value from
year to year.
3. Significant investment emphasis shall also be placed upon the
preservation of the purchasing power of the assets.
4. Sufficient liquidity shall be maintained to fund any possible corporate
outflows related to the property and casualty insurance business.
Investment Policy Guidelines
Assets are to be managed with a view toward achieving the specific
investment objectives previously described. Consistency of performance,
protection of principal as well as purchasing power and the maintenance of
sufficient liquidity, should be the overriding guidelines for the investment
portfolio.
To underscore these considerations, as well as to recognize the fiduciary
responsibilities associated with the management of the Company's assets, there
are certain characteristics which are expected to be associated with the
portfolio and which shall be viewed as guidelines in formulating investment
strategies.
Fixed Income Securities
1. Allocations. The target range of investments in fixed income securities
is zero percent (0%) to one hundred percent (100%) of the portfolio.
2. Types of Securities. Funds not invested in cash equivalents shall be
invested entirely in marketable debt securities issued by either (a) the United
States Government or agencies of the United States Government, (b) assets backed
by the full faith and credit of the United States Government, (c) issuers of
collateralized mortgage obligations, (d) domestic corporations, including
industrials and utilities and preferred stocks issued
2
by said corporation, and (e) domestic banks and other United States financial
institutions.
At least ninety percent (90%) of the portfolio shall be rated A or better.
These ratings shall be established by recognized rating services (i.e., Moody's,
Standard & Poor's) and reinforced by independent in house credit analysis. An
issue which is split rated will be governed by the lower quality designation.
3. Diversification. Except for Treasury and Agency obligations, the debt
portion of the fixed income securities shall contain no more than five percent
(5%) of a given issuer (irrespective of the number of differing issues). Other
diversification standards shall be developed and applied by the Investment
Manager.
4. Cash Equivalents. At the discretion of the Investment Manager, short
term money market funds and/or instruments may represent a material portion of
the fixed income securities. However, if commercial paper is used, it must have
a minimum quality rating of A 2 or P 2 as established by Moody's or Standard and
Poor's. In addition, bankers' acceptances and certificates of deposit must be
issued by banks incorporated in the United States.
Exclusions
The following categories of securities are not permissible for investment
in the Company's portfolio without prior written approval:
(a) Unregistered or restricted stock;
(b) Commodities, including gold or currency futures;
(c) Conditional sales contracts
(d) Options, including the purchase, sale or writing of options;
(e) Margin buying;
(f) Short selling;
(g) Leasebacks; and
(h) Common or preferred stock.
3
Regulatory and Investment Classification Considerations
* Risk Based Capital
The Company, as an insurance entity, is regulated by various state
insurance departments, NAIC and A.M. Best. One element of the regulation is risk
based capital which has a RBC component related to the investment portfolio.
There are three factors which are evaluated by RBC: quality of invested assets,
mixed of invested, and affiliate risk. Manager should be aware of the RBC's
current factors at all times when evaluating appropriate investment
considerations and not participate in any investment decision which would be
detrimental to the client's overall Risk Based Capital.
* Classifications for Fixed Income Securities
When new securities are purchased for the portfolio, a determination
will be made by manager and client as to their appropriate classification, "Held
to Maturity" or Available for Sale." This may be done after each purchased
transaction or minimally once each quarter. The decision as to the appropriate
investment category will be determined after taking into consideration maturity,
yield, cash flow requirements, and anticipated changes in interest rates.
4/15/97
4
SCHEDULE B
INVESTMENT GUIDELINES: The investment guidelines to be followed by Manager
in managing Client's Account are set forth below:
See attached
NAME OF CLIENT: DATE:
PENN-STAR INSURANCE
COMPANY
/S/ Xxxxxxxx Xxxxxxx 4/15/97
13
SCHEDULE B
INVESTMENT PLAN
OF
PENN-STAR INSURANCE COMPANY
Investment Portfolio - Objectives and Guidelines
The Board of Directors of PENN-STAR INSURANCE COMPANY (the "Company")
authorizes the Company's officers to engage the services of an Investment
Manager who possesses the necessary personnel and research facilities to manage
the Company's investment portfolio. The portfolio is a balanced accounting
consisting of fixed income obligations, asset based obligations and cash
equivalents.
The policy guidelines for the Investment Portfolio shall be as stated
herein, and are subject to modification with Board approval from time to time by
the Company after consideration of the advice and recommendations of the
Investment Manager.
Execution of All Trades: It is hereby understood that all investment
transactions must have prior approval either written or verbal, of the Chairman
of the Investment Committee, Xxxxx Xxxxxxxx, prior to their initiation by the
Investment Manager.
Investment Portfolio
The Company's investment portfolio consists of funds allocated and invested
in one of two (2) basic forms of investment:
(A) Money market and analogous cash equivalent funds, awaiting permanent
investment into fixed income securities.
(B) Fixed income securities including United States Government and Agency
issues and other issues backed by the full faith and credit of the United
States Government, corporate bonds, collateralized mortgage obligations,
municipal bonds, preferred stocks, and asset based obligations.
The Company shall establish percentage allocation ranges for each category,
which shall be monitored on a regular, periodic basis and which may be changed
from time to time.
Investment Objectives
1. The Company's investment portfolio is to be managed in a conservative,
risk adverse style with the objective of achieving long term performance
superior to the widely followed market averages.
2. Primary investment emphasis shall be placed upon consistency of
performance, i.e., the achievement of investment objectives in such a manner as
to protect the Company's assets from excessive volatility in market value from
year to year.
3. Significant investment emphasis shall also be placed upon the
preservation of the purchasing power of the assets.
4. Sufficient liquidity shall be maintained to fund any possible corporate
outflows related to the property and casualty insurance business.
Investment Policv Guidelines
Assets are to be managed with a view toward achieving the specific
investment objectives previously described. Consistency of performance,
protection of principal as well as purchasing power and the maintenance of
sufficient liquidity, should be the overriding guidelines for the investment
portfolio.
To underscore these considerations, as well as to recognize the fiduciary
responsibilities associated with the management of the Company's assets, there
are certain characteristics which are expected to be associated with the
portfolio and which shall be viewed as guidelines in formulating investment
strategies.
Fixed Income Securities
1. Allocations. The target range of investments in fixed income securities
is zero percent (0%) to one hundred percent (100%) of the portfolio.
2. Types of Securities. Funds not invested in cash equivalents shall be
invested entirely in marketable debt securities issued by either (a) the United
States Government or agencies of the United States Government, (b) assets backed
by the full faith and credit of the United States Government, (c) issuers of
collateralized mortgage obligations, (d) domestic corporations, including
industrials and utilities and preferred stocks issued
2
by said corporation, and (e) domestic banks and other United States financial
institutions.
At least ninety percent (90%) of the portfolio shall be rated A or better.
These ratings shall be established by recognized rating services (i.e., Moody's,
Standard & Poor's) and reinforced by independent in house credit analysis. An
issue which is split rated will be governed by the lower quality designation.
3. Diversification. Except for Treasury and Agency obligations, the debt
portion of the fixed income securities shall contain no more than five percent
(5%) of a given issuer (irrespective of the number of differing issues). Other
diversification standards shall be developed and applied by the Investment
Manager.
4. Cash Equivalents. At the discretion of the Investment Manager, short
term money market funds and/or instruments may represent a material portion of
the fixed income securities. However, if commercial paper is used, it must have
a minimum quality rating of A-2 or P-2 as established by Moody's or Standard and
Poor's. In addition, bankers' acceptances and certificates of deposit must be
issued by banks incorporated in the United States.
Exclusions
The following categories of securities are not permissible for investment
in the Company's portfolio without prior written approval:
(a) Unregistered or restricted stock;
(b) Commodities, including gold or currency futures;
(c) Conditional sales contracts;
(d) Options, including the purchase, sale or writing of options;
(e) Margin buying;
(f) Short selling;
(g) Leasebacks; and
(h) Common or preferred stock.
3
Regulatory and Investment Classification Considerations
* Risk Based Capital
The Company, as an insurance entity, is regulated by various state
insurance departments, NAIC and A.M. Best. One element of the regulation is risk
based capital which has a RBC component related to the investment portfolio.
There are three factors which are evaluated by RBC: quality of invested assets,
mixed of invested, and affiliate risk. Manager should be aware of the RBC's
current factors at all times when evaluating appropriate investment
considerations and not participate in any investment decision which would be
detrimental to the client's overall Risk Based Capital.
* Classifications for Fixed Income Securities
When new securities are purchased for the portfolio, a determination
will be made by manager and client as to their appropriate classification, "Held
to Maturity" or Available for Sale." This may be done after each purchased
transaction or minimally once each quarter. The decision as to the appropriate
investment category will be determined after taking into consideration maturity,
yield, cash flow requirements, and anticipated changes in interest rates.
4/15/97
4
SCHEDULE C
PROXY VOTING GUIDELINES: The proxy voting guidelines to be followed by Manager
in voting securities held in the Account are set forth below:
(If none, check here (X)
NAME OF CLIENT: DATE:
PENN-AMERICA INSURANCE
COMPANY
Bv: /s/ Xxxxxxxx Xxxxxxx 4/15/97
15
SCHEDULE C
PROXY VOTING GUIDELINES: The proxy voting guidelines to be followed by Manager
in voting securities held in the Account are set forth below:
(If none, check here (X)
NAME OF CLIENT: DATE:
PENN-STAR INSURANCE COMPANY
By: /s/ Xxxxxxxx Xxxxxxx 4/15/97
16
SCHEDULE D
SECRETARY'S CERTIFICATE
I, Xxxxxxxx X. Xxxxxxx, the Secretary of Penn America Insurance Company
(the "Corporation"), a Corporation organized and existing under the laws of the
State of Pennsylvania, hereby certify that each of the following officers of the
Corporation, acting singly, is authorized in the name and on behalf of the
Corporation, to give instructions to General Re - New England Asset Management,
Inc. ("Manager") with respect to any and all matters, including investment and
reinvestment of securities, pertaining to the Investment Management Agreement
between the Corporation and Manager, and to execute and deliver any and all
documents and to take any and all other action to carry out the purposes of said
Investment Management Agreement. I further certify that the specimen signature
set forth next to the names of such officers, is the true and genuine signature
of such persons.
Name of Officer Title Signature
Xxxxx Saltzrnan Chairman /s/ Xxxxx Xxxxxxxx
Xxx X. Xxxxxxxx President and CEO /s/ Xxx X Xxxxxxxx
Xxxxxxxx X. Xxxxxxx V.P., Treasurer, & Secretary /s/ Xxxxxxxx Xxxxxxx
Xxxx Xxxxxx Controller /s/ Xxxx Xxxxxx
Xxxx Xxxxxx Investment Manager /s/ Xxxx X Xxxxxx
This Certificate shall be in effect from the date hereof until written
notice is given on behalf of the Corporation to terminate or revise it.
IN WITNESS WHEREOF, I set my hand and seal of the Corporation.
(Corporate Seal) /s/ Xxxxxxxx Xxxxxxx 4/15/97
Secretary
Xxxxxxxx X. Xxxxxxx
17
SCHEDULE D
SECRETARY'S CERTIFICATE
I, Xxxxxxxx X. Xxxxxxx, the Secretary of Penn-Star Insurance Company (the
"Corporation"), a Corporation organized and existing under the laws of the State
of Pennsylvania, hereby certify that each of the following officers of the
Corporation, acting singly, is authorized in the name and on behalf of the
Corporation, to give instructions to General Re-New England Asset Management,
Inc. ("Manager") with respect to any and all matters, including investment and
reinvestment of securities, pertaining to the Investment Management Agreement
between the Corporation and Manager, and to execute and deliver any and all
documents and to take any and all other action to carry out the purposes of said
Investment Management Agreement. I further certify that the specimen signature
set forth next to the names of such officers, is the true and genuine signature
of such persons.
Name of Officer Title Sign
Xxxxx Xxxxxxxx Chairman /s/ Xxxxx xxxxxxxx
Xxx X. Xxxxxxxx President and CEO /s/ Xxx X. Xxxxxxxx
Xxxxxxxx X. Xxxxxxx V.P. Treasurer & Secretary /s/ Xxxxxxxx X Xxxxxxx
Xxxx Xxxxxx Controller /s/ Xxxx Xxxxxx
Xxxx Xxxxxx Investment Manager /s/ Xxxx Xxxxxx
This Certificate shall be in effect from the date hereof until written
notice is given on behalf of the Corporation to terminate or revise it.
IN WITNESS WHEREOF, I set my hand and seal of the Corporation.
(Corporate Seal) /s/ Xxxxxxxx Xxxxxxx 4/15/97
Secretary
Xxxxxxxx X. Xxxxxxx
18
