Exhibit 25
[LOGO OF ALLIED
GROUP INSURANCE
APPEARS HERE]
ADDENDUM A
"Personal Lines Profit Sharing Agreement"
This Addendum A is hereby entered into by and between ALLIED Property and
Casualty Insurance Company, ALLIED Mutual Insurance Company, AMCO Insurance
Company, and Depositors Insurance Company (hereinafter called "Company") and
ALLIED Group Insurance Marketing Company (hereinafter called "Agent").
Effective January 1, 1994, this Addendum A is attached to the existing Agency
Agreement and Amendments thereto, and the Parties hereby agree as follows:
I. Profit Sharing. In addition to the commissions to be paid to
--------------
Agent under the terms of said Agency Agreement and to compensate
Agent for exercising skill, caution, and diligence in the selection
of risks insured by the Company, the Company will pay to Agent a
"Profit Share" (as hereinafter defined and calculated) based on
"Gross Profit" (as hereinafter defined) realized by the Company on
business written by Agent under said Agency Agreement. The Profit
Share shall be calculated using the following formula for each
"Profit Sharing Year" (as hereinafter defined).
A. Method and formula. A "Profit Sharing Year" (PSY) shall be defined as
the accounting period extending from January 1 through December 31 of
each calendar year during which this Agreement is in effect. With the
exception of the first and second Profit Sharing Years, the
calculation of any Profit Share earned by Agent pursuant to this
Agreement for any PSY shall be made according to the following Profit
Share Formula. The Formula is designed to reflect the profitability
of the business written by Agent for Company pursuant to their Agency
Agreement on a three year average which shall include the current PSY
----- ---- -------
(the PSY for which the calculation of profit sharing is being made)
and the two PSY's immediately preceding it. For the first PSY, the
calculation of Profit Share shall be made according to the same
Formula, but Items 1 (Earned Premiums) and 2 (Incurred Losses)
thereof shall reflect only the figures for that PSY, and similarly,
the calculation for the second PSY shall be made using the total of
-----
the figures for Earned Premiums and Incurred Losses for the first and
second PSY. Thus, for the second PSY only, the calculation shall
constitute a two year average.
1
Profit Share Formula
1. Earned Premiums Total (for current and two immediately preceding
PSY's).........................................................$____________
2. Incurred Losses Total (for current and two immediately preceding
PSY's).........................................................$____________
3. Incurred Losses Percentage (#2/#1 x 100)....................... ___________%
4. Gross Profit Percentage (60.0% - #3)........................... ___________%
5. Gross Profit (Sec:I.B.5., current PSY only)....................$____________
6. Agent's Profit Share (50.0% x #5)..............................$____________
(See Formula Definitions, clause I.B.6 for Agent's Profit Share percentages
for the initial two PSY's)
B. Formula definitions (numbers refer to numbered items listed under Section
I.A).
1. Earned Premiums are defined as the Written Premiums on business produced
during the Profit Sharing Year minus the Unearned Premiums as of the end of
the same year plus the Unearned Premiums as of the end of the prior year.
2. Incurred Losses are defined as the net losses paid during the Profit Sharing
Year plus reserves for unpaid losses as of the end of the same year and
minus reserves for unpaid losses as of the end of the prior year. If a
-- -
negative total results, a zero total will be used. Incurred Losses paid or
-------- ----- ------- - ---- ----- ---- -- ----
reserved during a Profit Sharing Year shall not, for the purpose of this
--- --- ------- -- ----
Profit Sharing Agreement only, include more than the stop loss limitation in
------ ------- --------- ----
effect for that Profit Sharing Year as a result of a single event or any one
occurrence. With respect to any loss which exceeds such stop loss limitation
and which has not been paid or closed at the end of the current PSY, if any
adjustment of reserve or other credit shall reduce the loss to an amount
below said stop loss limitation in the PSY, Agent's Incurred Losses shall be
reduced only by a sum equal to the difference between said stop loss
limitation and the amount of the loss at the end of the current PSY. No
reduction in Incurred Losses shall be allowed in the amount of that portion
of any reserve adjustment or other credit by which any loss exceeds said
stop loss limitation. In addition, when Incurred Losses are calculated for
any PSY in which a loss is paid or closed, such Incurred Losses shall be
increased by that portion of any reduction in reserve or other credit which
exceeds the stop loss limitation and for which Agent received credit in any
prior PSY. In each year, the stop loss limitation shall increase or decrease
by a percentage equal to the percentage increase or decrease in the direct
written premiums of the property and casualty industry in the United States.
The percentage increase or decrease in the amount of the stop loss
limitation shall be cumulative. The source of the industry figures shall be
the A.M. Best Company's Executive Data Service, Property and Casualty
Insurance Custom Summary B1. The stop loss
2
limitation amount for any Profit Sharing Year will be based on figures
available from the B1 Summary published for the calendar year two years
prior to such Profit Sharing Year. For example, for any Profit Sharing
Year, the stop loss limitation amount shall be increased or decreased by a
percentage equal to the percentage increase or decrease in industry direct
written premiums as compiled in the B1 Summary for the calendar years two
and three years preceding. Each year the Company shall notify the Agent of
the percentage increase or decrease as soon as practicable after the
Company receives the summary from the A.M. Best Company. However, the
amount of the stop loss limitation shall never be less than that which is
in effect for the first PSY hereunder. Company shall, at its discretion,
establish the dollar amount of the stop loss limitation as is provided for
hereunder. Company will advise Agent on an annual basis of such amount. In
addition, the foregoing notwithstanding, in the case of any loss or losses
which are incurred during any PSY as a result of any single "catastrophe",
as defined by Company, the stop loss limitation to be applied shall equal
the greater of twenty-five percent (25%) of Earned Premiums for such PSY or
------- --
the amount of the single occurrence stop loss limitation as it shall be
calculated for such PSY according to the terms of this paragraph.
3. Incurred Losses Percentage is calculated by dividing the Incurred Losses by
the Earned Premiums and multiplying by 100. If such Percentage is greater
-- ---- ---------- -- -------
than 60.0%, no further calculation will be made.
---- ----- -- ------- ----------- ---- -- ----
4. Gross Profit Percentage is calculated by subtracting the Incurred Losses
Percentage from 60.0%.
5. Gross Profit is calculated by multiplying earned premiums, for the current
--- --- -------
PSY only, by the Gross Profit Percentage.
--- ----
6. Agent's Profit Share shall be calculated by multiplying the Gross Profit by
35.5% for 1994 PSY, by 43.0% for 1995 PSY and by 50.0% for 1996 PSY and
subsequent PSY's.
II. Other Provisions.
----- ----------
A. The foregoing calculations shall be made annually by Company for the
current Profit Sharing Year as soon after December 31 thereof as is
reasonably practicable.
B. Company records shall be considered binding and conclusive as to all
information pertaining to this Agreement.
C. The Profit Share, if any, is not payable unless the Agent has complied with
all the terms of this Agreement and the Agency Agreement. Agent shall
neither deduct from its
3
account(s) nor in any other manner anticipated Profit Share.
D. This Agreement shall continue in force until terminated (1) by either
Party upon written notice to the other, (2) by agreement of the other
Parties, or (3) by termination of their Agency Agreement. In the
event of termination of this Agreement, a final profit Share
calculation shall be made and a final Profit Share shall be paid (if
applicable) but not prior to the time such final Profit Share would
have otherwise been calculated or paid had this Agreement not
terminated.
E. This Agreement or rights hereunder shall not be assignable without
Company's express permission.
F. This Agreement may be altered or amended by Company, unilaterally and
at any time, by mailing written notice thereof to the Agent stating
when thereafter such alteration of amendment shall be effective. Any
such notice must be mailed at least 90 days prior to the beginning of
the PSY during which the alteration or amendment is to be effective.
G. The calculation of Agent's Profit Share hereunder shall include all
premiums, losses, and loss reserves chargeable to Agent by Company
except those applicable to substandard auto business and umbrella
policies.
For Agent For Company
ALLIED Group Insurance Marketing
Company
ALLIED Property and Casualty
Insurance Company
ALLIED Mutual Insurance Company
AMCO Insurance Company
Depositors Insurance Company
By By
-------------------------------- ---------------------------------
Title President AGIMC Title Vice President
----------------------------- ------------------------------
Date 9-22-94 Date 9-12-94
------------------------------ -------------------------------
4
