AMENDED AND RESTATED SERVICES ALLOCATION AGREEMENT
Exhibit (10)(OO)
AMENDED AND RESTATED SERVICES ALLOCATION AGREEMENT
THIS AMENDED AND RESTATED SERVICES ALLOCATION AGREEMENT (this “Agreement”) dated as of the 1st
day of December 2010 among DONEGAL GROUP INC., a Delaware corporation (“DGI”), ATLANTIC STATES
INSURANCE COMPANY, a Pennsylvania stock casualty insurance company (“Atlantic States”), SOUTHERN
INSURANCE COMPANY OF VIRGINIA, a Virginia stock casualty insurance company (“Southern”), LE MARS
INSURANCE COMPANY, an Iowa stock casualty insurance company (“Le Mars”), THE PENINSULA INSURANCE
COMPANY, a Maryland stock casualty insurance company (“Peninsula”), PENINSULA INDEMNITY COMPANY, a
Maryland stock casualty insurance company (“PIC”), SHEBOYGAN FALLS INSURANCE COMPANY, a Wisconsin
stock property and casualty insurance corporation (“SFIC”) and MICHIGAN INSURANCE COMPANY, a
Michigan stock casualty insurance corporation (“MICO,” and, together with Atlantic States,
Southern, Le Mars, Peninsula, PIC and SFIC, the “Insurance Subsidiaries”) and DONEGAL MUTUAL
INSURANCE COMPANY, a Pennsylvania mutual fire insurance company (“Donegal Mutual”).
WITNESSETH:
WHEREAS, DGI, Donegal Mutual and the Insurance Subsidiaries other than MICO entered into an
Amended and Restated Services Allocation Agreement dated as of October 15, 2009 (the “Prior
Agreement”); and
WHEREAS, Donegal Mutual, DGI and the Insurance Subsidiaries believe it is appropriate to amend
Appendix A to the Prior Agreement effective as of 12:01 a.m. on December 1, 2010 by entering into
this Agreement; and
WHEREAS, the Boards of Directors of Peninsula and PIC have authorized Peninsula and PIC to
enter into this Agreement, subject to the filing of a Form D with respect thereto with the
Insurance Administration of the State of Maryland (the “Administration”) and the absence of any
disapproval thereof by the Administration; and
WHEREAS, the Board of Directors of MICO have authorized MICO to enter into this Agreement,
subject to the filing of a Form D with respect thereto with the Office of Financial and Insurance
Regulation of the State of Michigan (the “OFIR”) and the absence of any disapproval thereof by the
OFIR;
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained and
intending to be legally bound hereby, Donegal Mutual, DGI and the Insurance Subsidiaries agree as
follows:
-1-
I. Effective Date. The effective date of this Agreement shall be 12:01 a.m. on
December 1, 2010 (the “Effective Date”). This Agreement shall continue in effect unless and until
terminated pursuant to Section IV.
II. Services To Be Provided.
A. Donegal Mutual agrees to provide employees who shall perform the services described in
Section II.D. for and on behalf of and in the name of Atlantic States, and Donegal Mutual and
Atlantic States agree that all of the costs and expenses of Donegal Mutual in providing those
services and employees to Atlantic States shall be allocated between Donegal Mutual and Atlantic
States in proportion to their respective participation from time to time under the Proportional
Reinsurance Agreement dated as of September 29, 1986 and most recently amended as of March 1, 0000
xxxxxxx Xxxxxxx Xxxxxx xxx Xxxxxxxx Xxxxxx.
B. Donegal Mutual agrees to provide employees who shall, directly or indirectly, perform the
services described in Section II.D. for and on behalf of DGI and the Insurance Subsidiaries other
than Atlantic States, and DGI and the Insurance Subsidiaries other than Atlantic States, agree
either to reimburse Donegal Mutual or to allocate among Donegal Mutual, on the one hand, and DGI
and the Insurance Subsidiaries other than Atlantic States, on the other hand, the costs and
expenses of Donegal Mutual in providing such services and employees to DGI and the Insurance
Subsidiaries other than Atlantic States.
C. Donegal Mutual, DGI and the Insurance Subsidiaries agree that the fundamental purposes of
this Agreement are (i) to secure the provision of the services described in Section II.D. to DGI
and the Insurance Subsidiaries and (ii) to assure that Donegal Mutual receives appropriate payments
from DGI and the Insurance Subsidiaries so that Donegal Mutual has no net cost for providing the
services and employees, or, in the case of Atlantic States, for providing Atlantic States’
proportionate share of such services and employees as described in Section II.A., pursuant to this
Agreement. Exhibit A to this Agreement provides specific but non-exclusive guidelines as to how
such allocations and reimbursements shall be calculated and settled, and Exhibit A may be amended
from time to time by the mutual agreement of Donegal Mutual, DGI and the Insurance Subsidiaries.
D. The services are as follows:
1. Underwriting — the development, implementation and administration of policies relating to
underwriting and the acceptance of risks, the maintenance of underwriting manuals and guidelines
and services relating to the development of insurance products and rates, the provision of all
actuarial services necessary or appropriate for the operation of the Insurance Subsidiaries, the
analysis of loss trends and reserve developments and risk concentrations and the arranging for
insurance, loss control
-2-
and other reasonable risk management services in the underwriting process to protect the
Insurance Subsidiaries and their respective properties and other assets against loss, damage and
liabilities;
2. Claims — the admitting, adjusting, compromising, rejection and settlement of claims under
insurance policies issued by the Insurance Subsidiaries and the collection of reinsurance and
recoverables;
3. Reinsurance — the review, negotiation, monitoring and coordination of all reinsurance
contracts and placements, including the determination of the amounts, terms, types and structure of
reinsurance to be obtained and the selection of the reinsurers;
4. Investments — the investment of all available funds in the name of DGI and the Insurance
Subsidiaries pursuant to their respective investment policies, and the management of the respective
investments of DGI and the Insurance Subsidiaries;
5. Information Services — the purchase and maintenance of computer hardware and software
systems and the creation, implementation and maintenance of computer programs utilized within those
systems. Such systems shall include, but not be limited to, accounting and bookkeeping systems,
automated underwriting and policy issuance systems, claims processing systems, premium billing
systems, electronic imaging systems, Internet web systems and storage and processing systems for
maintaining information to enable the preparation and analysis of daily, weekly and monthly
reports;
6. Personnel and Professional Services — the appointment, direction, removal and suspension,
in the name of DGI and the Insurance Subsidiaries, of employees and agents, including the
determination of the appropriate levels thereof, and the ongoing review and analysis of
professional services, including the retention of counsel, accountants, actuaries and other
consultants;
7. Financial Reporting — the analysis and reporting of actual performance to budgeted
performance, including analysis of financial results through the budgeted period and the
preparation of all statements and reports necessary or appropriate for the respective businesses of
DGI and the Insurance Subsidiaries, including reports to insurance regulatory authorities and the
Securities and Exchange Commission;
8. Tax Administration — the ordinary and necessary tax administration services for income
taxes, premium taxes, sales and use taxes, franchise and similar taxes and any other taxes
incurred;
9. Accounting Services — the providing of routine accounting and bookkeeping services
relating to cash, cash equivalents, receivables, supplies and other inventory items, fixed assets
and other asset accounting, accounts payable, notes payable,
-3-
other trade payables, payroll and payroll taxes, other general ledger items, accounting
services relating to investments and the reconciliation of all bank accounts;
10. Policyholder Services — the maintenance of policyholders’ customer relation services and
the maintenance of policyholder information, including names, addresses, policy anniversary dates
and premiums due;
11. Internal Audit and Compliance Services — the providing of internal audit and compliance
services to obtain an ongoing independent and objective evaluation of the internal control systems
designed to provide reasonable assurance regarding the efficiency and effectiveness of operations,
the reliability of financial reporting and compliance with applicable laws and regulations;
12. Actuarial Services — the providing of actuarial services including review and analysis of
claims reserving assumptions, historical claims experience and trends such as reserving patterns,
loss payments, pending levels of unpaid claims and product mix, as well as court decisions,
economic conditions and public attitudes; and
13. Marketing, Sales and Advertising Services — the creation and development of marketing,
sales and advertising programs, media and agency co-op promotional materials to further increase
brand awareness and promote the sales of insurance products and services.
E. Donegal Mutual shall use its best efforts to provide the services described above and such
other or additional services as DGI or the Insurance Subsidiaries may from time to time request
pursuant to this Agreement. Notwithstanding the foregoing, DGI and the Insurance Subsidiaries
agree that Donegal Mutual shall have no obligation to provide services to DGI and the Insurance
Subsidiaries of a quality greater than the quality of such services that Donegal Mutual maintains
for its own operations.
F. Donegal Mutual shall, within 90 days after the expiration of each calendar year during the
term of this Agreement, furnish the Boards of Directors of DGI and the Insurance Subsidiaries with
a written report as to the allocations and reimbursements between Donegal Mutual, on the one hand,
and DGI and the Insurance Subsidiaries, on the other hand, during such year as shall be sufficient,
(i) in the discretion of the disinterested members of the Boards of Directors of DGI and the
Insurance Subsidiaries, to provide a commercially reasonable basis to reach the conclusion that the
transactions between Donegal Mutual, on the one hand, and DGI and the Insurance Subsidiaries, on
the other hand, have been fair to DGI and its stockholders under prevailing circumstances and (ii)
as shall be sufficient in the discretion of the disinterested members of Donegal Mutual’s Board of
Directors, to provide a commercially reasonable basis to reach the conclusion that the transactions
between Donegal Mutual, on the one hand, and DGI and the Insurance
-4-
Subsidiaries, on the other hand, have been fair to Donegal Mutual and its policyholders under
prevailing circumstances.
G. Nothing in this Agreement shall constitute or be construed to be or create a partnership or
joint venture relationship between DGI and the Insurance Subsidiaries, on the one hand, and Donegal
Mutual, on the other hand, and Donegal Mutual’s status under this Agreement shall be that of an
independent contractor. In connection with the performance of services under this Agreement,
neither DGI, the Insurance Subsidiaries nor Donegal Mutual shall make any statement or take any
action that is inconsistent with the provisions of this Section II.G. It is understood and agreed
that the management, control and direction of the operations and policies of DGI and the Insurance
Subsidiaries shall remain at all times under the exclusive control of the respective Boards of
Directors of DGI and the Insurance Subsidiaries.
H. In the event that an issue or question arises in the future as to how this Agreement should
be interpreted or whether the provisions of this Agreement should or should not apply in a
particular set of circumstances as to a particular transaction between Donegal Mutual and DGI or
one of the Insurance Subsidiaries, the issue or question shall be referred, upon the request of any
of Donegal Mutual, DGI or the Insurance Subsidiary, for resolution to the Coordinating Committee
maintained by the Boards of Directors of Donegal Mutual and DGI, and the decision of the
Coordinating Committee with respect to such issue or question shall be final and binding on Donegal
Mutual, DGI and the Insurance Subsidiaries.
III. Books and Records.
A. Donegal Mutual shall keep accurate records and accounts of all services provided pursuant
to this Agreement. Such records and accounts shall be maintained in accordance with sound business
practices and shall be subject to such systems of internal control as are required by law. All
records and accounts shall be available for inspection by DGI, the Insurance Subsidiaries and their
respective representatives, including DGI’s independent registered public accounting firm, at any
time upon request during commercially reasonable hours.
B. All such records and accounts maintained by Donegal Mutual for DGI and the Insurance
Subsidiaries under Section III.A. of this Agreement shall be the sole property of DGI and the
Insurance Subsidiaries, subject to the examination rights of insurance and other applicable
regulatory authorities.
C. DGI and the Insurance Subsidiaries, as the case may be, shall be solely responsible,
severally and not jointly, for, and shall hold harmless and indemnify Donegal Mutual, including its
successors, officers, directors, employees, agents and affiliates, from and against all losses,
claims, damages, liabilities and expenses, including any and all
-5-
reasonable expenses and attorneys’ fees and disbursements incurred in investigating, preparing
or defending against any litigation or proceeding, whether commenced or threatened, or any other
claim whatsoever, whether or not resulting in any liability, suffered, incurred, made, brought or
asserted by any person not a party to this Agreement in connection with Donegal Mutual’s provision
of services to DGI and the Insurance Subsidiaries, unless such loss, claim, damage, liability or
expense results from the negligence, willful misconduct or fraud of Donegal Mutual or its officers,
directors, employees, agents or affiliates or any other person engaged by Donegal Mutual to provide
services to DGI and the Insurance Subsidiaries.
D. Donegal Mutual shall be solely responsible for, and shall hold harmless and indemnify DGI
and the Insurance Subsidiaries, as the case may be, including their respective successors,
officers, directors, employees, agents and affiliates, from and against all losses, claims,
damages, liabilities and expenses, including any and all reasonable expenses and attorneys’ fees
and disbursements incurred in investigating, preparing or defending against any litigation or
proceeding, whether commenced or threatened, or any other claim whatsoever, whether or not
resulting in any liability, suffered, incurred, made, brought or asserted by any person not a party
to this Agreement resulting from the negligence, willful misconduct or fraud of Donegal Mutual or
its officers, directors, employees, agents or affiliates or any other person engaged by Donegal
Mutual to provide services to DGI and the Insurance Subsidiaries.
IV. Termination. This Agreement shall have a term that initially expires on December
31, 2015, provided, however, that, on each December 31 after the Effective Date of this Agreement,
the term of this Agreement shall be extended by one year so that upon each such automatic renewal
this Agreement shall have a then current term of five years; provided, however, that this Agreement
may be terminated at any time prior to its then termination date in any of the following events,
subject, in all events, to the receipt of any necessary insurance regulatory filings or actions:
A. By Donegal Mutual, upon 180 days prior written notice to DGI and the Insurance
Subsidiaries, if a Change of Control (as defined in this Agreement) of DGI shall have occurred. As
used herein, “Change of Control” shall mean (i) the acquisition of shares of DGI by any “person” or
“group,” as such terms are used in Rule 13d-3 under the Securities Exchange Act of 1934 as now or
hereafter amended, in a transaction or series of transactions that result in such person or group
directly or indirectly becoming the beneficial owner of 25% or more of the voting power of DGI’s
common stock after the Effective Date of this Agreement, (ii) the consummation of a merger or other
business combination after which the holders of voting common stock of DGI do not collectively own
60% or more of such voting common stock of the entity surviving such merger or other business
combination, (iii) the sale, lease, exchange or other transfer in a transaction or series of
transactions of all or substantially all of the assets of DGI, but excluding therefrom the sale and
reinvestment of
-6-
the investment portfolio of DGI and the Insurance Subsidiaries or (iv) as the result of or in
connection with any cash tender offer or exchange offer, merger or other business combination, sale
of assets or contested election of directors or any combination of the foregoing transactions
specified in clauses (i), (ii), (iii) and (iv), each, a “Transaction,” the persons who constituted
a majority of the members of the Board of Directors of DGI on the date of this Agreement and
persons whose election as members of the Board of Directors of DGI was approved by such members
then still in office or whose election was previously so approved after the Effective Date of this
Agreement but before the event that constitutes a Change of Control, no longer constitute such a
majority of the members of the Board of Directors of DGI then in office. A Transaction shall be
deemed to constitute a Change in Control only upon the consummation of the Transaction.
B. By DGI and the Insurance Subsidiaries, upon 30 days prior written notice to Donegal Mutual,
if Donegal Mutual shall have become insolvent or shall have become subject to any voluntary or
involuntary conservatorship, receivership, reorganization, liquidation or bankruptcy case or
proceeding.
C. By Donegal Mutual, DGI and the Insurance Subsidiaries at any time by mutual written
agreement.
D. The aforesaid respective rights of termination of DGI, the Insurance Subsidiaries and
Donegal Mutual may be exercised without prejudice to any other remedy to which DGI, the Insurance
Subsidiaries or Donegal Mutual, as the case may be, is entitled in law or in equity.
V. Miscellaneous.
A. All notices, communications and deliveries under this Agreement shall (i) be made in
writing, signed by the party making the same to the address as specified below, (ii) specify the
section of this Agreement pursuant to which such notice is given and (iii) be deemed to be given if
delivered in person, on the date delivered, or if sent by facsimile, on the date sent (if the party
giving the notice, or its employee or agent, has no reason to believe that the facsimiled notice
was not made or received), or if sent by Federal Express or some other overnight express courier
with costs paid, on the date delivered to such express courier:
-7-
if to DGI, to:
Donegal Group Inc.
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
if to Donegal Mutual, to:
Donegal Mutual Insurance Company
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
if to Atlantic States, to:
Atlantic States Insurance Company
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
if to Southern, to:
Southern Insurance Company of Virginia
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
if to Le Mars, to:
Le Mars Insurance Company
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
-8-
if to Peninsula and/or PIC, to:
The Peninsula Insurance Company
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
if to SFIC, to:
Sheboygan Falls Insurance Company
000 Xxxxx Xxxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
000 Xxxxx Xxxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
if to MICO, to:
Michigan Insurance Company
0000 Xxxx Xxxxxxxx X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: President
Facsimile: 000-000-0000
0000 Xxxx Xxxxxxxx X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: President
Facsimile: 000-000-0000
Such notice shall be given at such other address or to such other representative as a party to this
Agreement may furnish pursuant to this Section V.A. to the other party to this Agreement.
B. No assignment, transfer or delegation, whether by merger or other operation of law or
otherwise, of any rights or obligations under this Agreement shall be made by a party to this
Agreement without the prior written consent of the other party to this Agreement and, if required
by applicable law, the Pennsylvania Commissioner of Insurance and any other insurance regulatory
authority having jurisdiction over this Agreement. This Agreement shall be binding upon the
parties hereto and their respective permitted successors and assigns.
C. This Agreement constitutes the entire agreement of the parties to this Agreement with
respect to its subject matter, supersedes all prior agreements, including the Prior Agreement, and
may not be amended except in writing signed by the party to this Agreement against whom the change
is asserted. The failure of any party to this Agreement at any time or times to require the
performance of any provision of this Agreement shall in
-9-
no manner affect the right to enforce the same and no waiver by any party to this Agreement of
any provision or breach of any provision of this Agreement in any one or more instances shall be
deemed or construed either as a further or continuing waiver of any such provision or breach or as
a waiver of any other provision or breach of any other provision of this Agreement.
D. In case any one or more of the provisions contained herein shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would result in such a
material change as to cause continued performance of this Agreement as contemplated herein to be
unreasonable or materially and adversely frustrate the objectives of the parties in originally
entering into this Agreement as expressed in the Recitals to this Agreement.
E. This Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
-10-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first
above written.
| DONEGAL MUTUAL INSURANCE COMPANY | DONEGAL GROUP INC. | |||||||||
By:
|
/s/ Xxxxxxx X. Xxxxxx | By: | /s/ Xxxxxx X. Xxxxxxxx | |||||||
and Chief Financial Officer |
and Chief Executive Officer |
|||||||||
| ATLANTIC STATES INSURANCE COMPANY | SOUTHERN INSURANCE COMPANY OF VIRGINIA | |||||||||
By:
|
/s/ Xxxxxx X. Xxxxxxxx | By: | /s/ Xxxxxx X. Xxxxxxxx | |||||||
and Chief Executive Officer |
and Chief Executive Officer |
|||||||||
| LE MARS INSURANCE COMPANY | THE PENINSULA INSURANCE COMPANY | |||||||||
By:
|
/s/ Xxxxxx X. Xxxxxxxx | By: | /s/ G. Xxxx Xxxxxxxxx, III | |||||||
and Chief Executive Officer |
||||||||||
| PENINSULA INDEMNITY COMPANY | SHEBOYGAN FALLS INSURANCE COMPANY | |||||||||
By:
|
/s/ G. Xxxx Xxxxxxxxx, III | By: | /s/ Xxx X. Xxxxxx | |||||||
| MICHIGAN INSURANCE COMPANY | ||||||||||
By:
|
/s/ Xxxxx X. Xxxxxxx | |||||||||
-11-
EXHIBIT A
The following information sets forth allocation and reimbursement guidelines to be followed for the
calculation and settlement of amounts pursuant to the Agreement.
1. Personnel Costs.
Personnel Costs as used in this Exhibit A shall be defined to include salaries and payroll tax
expense. Calculation and settlement of allocations and reimbursements of personnel costs shall be
performed as follows:
(a) For DGI and the Insurance Subsidiaries other than Atlantic States receiving services from
Donegal Mutual employees, DGI and the Insurance Subsidiaries shall reimburse Donegal Mutual for the
direct costs of the employees performing such services. Donegal Mutual may also recover an
administration fee to cover its costs of services rendered to maintain records and process payroll
for DGI and the Insurance Subsidiaries.
(b) Atlantic States shall reimburse Donegal Mutual for its proportionate share of Donegal
Mutual’s personnel costs, after subtracting direct reimbursements from DGI and the Insurance
Subsidiaries other than Atlantic States as described in Paragraph 1(a), in accordance with the
following allocation methods:
| (i) | Underwriting and general personnel costs shall be allocated in proportion to Donegal Mutual’s and Atlantic States’ respective participation under the Proportional Reinsurance Agreement. | ||
| (ii) | Claim personnel costs shall be allocated in proportion to Donegal Mutual’s and Atlantic States’ respective average claim reserves and loss payments | ||
| (iii) | Investment personnel costs shall be allocated in proportion to Donegal Mutual’s and Atlantic States’ respective average invested assets, excluding 50% of the average value of Donegal Mutual’s investment in subsidiaries and affiliates. Such costs shall include the proportionate amount of personnel costs for individuals who perform duties related to Donegal Mutual’s and Atlantic States’ investment portfolios. |
A-1
| (iv) | Information technology and operational services personnel costs shall be allocated proportionately to the allocations calculated in (i) through (iii) above to reflect the provision of information technology and operational services to each of the respective functions. |
(c) Donegal Mutual shall provide to DGI and the Insurance Subsidiaries periodic calculations
of amounts pursuant to Paragraphs 1(a) and (b), and DGI and the Insurance Subsidiaries shall
reimburse Donegal Mutual in the normal course of business, generally within 30 days of receipt of
such calculations.
2. Information Services.
To the extent that Donegal Mutual purchases and maintains the computer hardware and software
systems required to service the business underwritten by Donegal Mutual and one or more of the
Insurance Subsidiaries, calculation and settlement of allocations and reimbursements for such
services shall be performed as follows:
(a) The estimated purchase price and development costs of computer hardware and software
systems required to provide such services shall be divided by the number of years those systems are
reasonably expected to serve the respective information services requirements of Donegal Mutual,
DGI and one or more of the Insurance Subsidiaries. Such estimated annual cost shall then be
allocated to the respective companies based upon their proportionate net written premiums in the
year prior to the establishment of the allocation amounts.
(b) The Insurance Subsidiaries shall reimburse Donegal Mutual for the amounts so allocated on
a monthly basis.
3. Miscellaneous Expenses.
(a) DGI and the Insurance Subsidiaries other than Atlantic States shall reimburse Donegal
Mutual for miscellaneous direct and allocated expenses including, but not limited to, postage,
in-house printing services and insurance purchased by Donegal Mutual on their behalf. DGI and the
Insurance Subsidiaries shall reimburse Donegal Mutual such allocation amounts in the normal course
of business, generally within 30 days of receipt of such allocations.
(b) Atlantic States shall reimburse Donegal Mutual on a monthly basis for its proportionate
share of Donegal Mutual’s expenses other than information systems depreciation expense, real estate
depreciation and any other expenses for services solely benefiting Donegal Mutual and after
subtracting direct reimbursements from DGI and the Insurance Subsidiaries other than Atlantic
States as described in Paragraph 3(a) in accordance with the following allocation methods:
A-2
| (i) | Underwriting and general expenses allocated to the underwriting function shall be allocated in proportion to the respective participation of Donegal Mutual and Atlantic States under the Proportional Reinsurance Agreement. | ||
| (ii) | Claim adjusting expenses and general expenses allocated to the claim function shall be allocated in proportion to the respective average claim reserves and loss payments of Donegal Mutual and Atlantic States. | ||
| (iii) | General expenses allocated to the investment function shall be allocated in proportion to the respective average invested assets of Donegal Mutual and Atlantic States, excluding 50% of the average value of Donegal Mutual’s investment in subsidiaries and affiliates. |
4. Timing of Payments.
The parties to the Agreement agree that all funds collected by Donegal Mutual on behalf of DGI
and the Insurance Subsidiaries shall be held in a fiduciary capacity and all intercompany balances
arising under the Agreement shall be paid within 30 days of the end of the calendar month in which
such transactions occur, unless a different time of payment is expressly specified in the
Agreement.
A-3
