Exhibit 10.1
Quota Share
Reinsurance Agreement
Between
Colony Insurance Company
Colony National Insurance Company
Colony Specialty Insurance Company
And
Houston Casualty Company
INDEX
ARTICLE SUBJECT PAGE
I. REINSURING CLAUSE .................................................. 1
II. COMMENCEMENT AND TERMINATION ....................................... 2
III. SPECIAL TERMINATION ................................................ 2
IV. LIMITS OF LIABILITY ................................................ 2
V. ULTIMATE NET LOSS .................................................. 3
VI. TERRITORY .......................................................... 3
VII. EXCLUSIONS ......................................................... 3
VIII. REINSURANCE PREMIUM AND COMMISSION ................................. 4
IX. CURRENCY ........................................................... 4
X. REPORTS AND REMITTANCES ............................................ 5
XI. LOSS REPORTING AND SETTLEMENTS ..................................... 5
XII. EXTRA CONTRACTUAL OBLIGATIONS ...................................... 6
XIII. EXCESS OF ORIGINAL POLICY LIMITS ................................... 7
XIV. TAXES .............................................................. 7
XV. ACCESS TO RECORDS .................................................. 8
XVI. ORIGINAL CONDITIONS ................................................ 8
XVII. ENTIRE AGREEMENT ................................................... 8
XVIII. AMENDMENTS IN WRITING .............................................. 8
XIX. OFFSET ............................................................. 8
XX. INSOLVENCY ......................................................... 8
XXI. ERRORS AND OMISSIONS ............................................... 9
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XXII. LEGALITY ........................................................... 9
XXIII. ARBITRATION ........................................................ 10
XXIV. GOVERNING LAW ...................................................... 11
XXV. INTERMEDIARY CLAUSE ................................................ 11
SIGNING PAGE ....................................................... 12
EXHIBIT A
Page 2
Quota Share
Reinsurance Agreement
(Hereinafter referred to as the "Agreement")
Between
Colony Insurance Company
Richmond, Virginia
Colony National Insurance Company
Richmond, Virginia
Colony Specialty Insurance Company
Columbus, Ohio
(Hereinafter collectively referred to as the "Company")
And
Houston Casualty Company
Houston, Texas
(Hereinafter referred to as the "Reinsurer")
ARTICLE I. REINSURING CLAUSE
By this Agreement the Company obligates itself to cede to the Reinsurer and the
Reinsurer obligates itself to accept fifteen percent (15%) of the Company's
Ultimate Net Loss under all contracts, agreements, policies, binders and other
evidences of insurance, whether oral or written, as intended by the Company to
be covered hereunder covering business for the Company's Underwriting Divisions
currently classified as Allied Medical, Industrial Casualty, Excess Liability,
General Casualty, Errors and Omissions, Property, Inland Marine, Environmental,
Garage and Contract (hereinafter referred to as "Policies"). The list of
Underwriting Divisions is intended to include all Underwriting Divisions
operating at April 1, 2003.
The liability of the Reinsurer with respect to each cession hereunder shall
commence obligatorily and simultaneously with that of the Company, subject to
the terms, conditions and limitations hereinafter set forth.
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ARTICLE II. COMMENCEMENT AND TERMINATION
This Agreement shall apply to all loss occurrences on new and renewal Policies
incepting during the Agreement period and attaching hereon as of 12:01 A.M.
Local Standard Time April 1, 2003 for a five (5) year period, terminating on
April 1, 2008, 12:01 A.M. Local Standard Time. The Reinsurer may terminate this
Agreement with ninety (90) days notice of cancellation at any annual anniversary
of the Agreement effective date.
The Reinsurer shall remain liable for all Policies that incept prior to the
expiration or termination date of this Agreement and are still in-force as of
the expiration or termination date. The liability of the Reinsurer shall
continue to apply to such Policies until the earlier of the natural expiration
or cancellation of such Policies and includes any extended reporting periods on
claims made policies. The Company shall not issue any Policy for a term in
excess of twelve (12) months plus odd time to a maximum of eighteen (18) months.
ARTICLE III. SPECIAL TERMINATION
If at any time the Company or the Reinsurer loses in whole or part its paid-up
capital, becomes insolvent, or is placed in conservation, rehabilitation or
liquidation, or has a receiver appointed, or is acquired or controlled by,
merged with, or reinsures its entire business with any other company or
corporation, the other party shall have the right to terminate this Agreement
forthwith upon the giving of thirty (30) days notice in writing.
In addition, with thirty (30) days written notice the Company may terminate this
Agreement if the Reinsurer's A. M. Best rating drops to "A-" or below, and with
thirty (30) days written notice the Reinsurer may terminate its participation in
the Agreement if the Company's A. M. Best rating drops to "B+" or below.
ARTICLE IV. LIMITS OF LIABILITY
The Reinsurer's liability for Ultimate Net Loss under this Agreement shall be
limited to fifteen percent (15%) of the Company's Policy limit, subject to a
maximum Policy limit as shown in Exhibit A attached to this Agreement. In no
event will the Reinsurer's liability exceed fifteen percent 15% of $40,000,000
per occurrence.
The application of per risk, per occurrence or per claim in this Agreement has
the same meaning as in the Policies reinsured by this Agreement.
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The Reinsurer, at its option, may participate with the Company on the Company's
reinsurance protection as common account protection of the original policy limit
and inures to the benefit of this Agreement. The Reinsurer will pay its pro-rata
proportion of the premium paid for the common account reinsurance.
ARTICLE V. ULTIMATE NET LOSS
Ultimate Net Loss as used herein is defined as the amount of any loss payments
and settlements, awards, or judgments paid or payable by the Company, after
deduction for common account reinsurance that inures to the benefit of this
Agreement and includes interest accrued prior to final judgment.
Allocated Loss Adjustment Expenses are payable by the Reinsurer in proportion to
the Reinsurer's share of the Ultimate Net Loss in addition to the Ultimate Net
Loss. Allocated Loss Adjustment Expenses mean the costs attributable to the
investigation, appraisal, adjustment, settlement, litigation, defense and/or
appeal of specific claims, including but not limited to post-judgment interest,
expenses of outside adjusters, and legal expenses, but shall not include office
expenses or salaries of the Company's regular employees or its designated
representative referred to as Unallocated Loss Adjustment Expenses. Any
Allocated Loss Adjustment Expenses that are included within the limits of the
Policy limit are considered part of Ultimate Net Loss.
ARTICLE VI. TERRITORY
The territorial limits of this Agreement shall be those of the Policies.
ARTICLE VII. EXCLUSIONS
This Agreement does not apply to:
A. Business accepted by the Company as reinsurance from other Insurers or
Reinsurers.
B. Injury caused directly or indirectly by hostile or warlike action in time
of peace or war, including
1) Any discharge, explosion or use of any weapon of war employing atomic
fission, fusion, or radioactive force; and
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2) Insurrection, rebellion, revolution, civil war, usurped power, or
action taken by a governmental authority in hindering, combating, or
defending against such occurrence.
C. Any business written by Underwriting Divisions not listed in Article I,
Reinsuring Clause without approval by the Reinsurer.
D. Surety Business
E. Liability of the Company arising, by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, plan, pool, association, fund, or other arrangement,
howsoever denominated, established, or governed that provides for any
assessment of or payment or assumption by the Company of part or all 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 is otherwise deemed unable to meet any claim,
debt, charge, fee or other obligation in whole or in part.
F. Nuclear Energy Risk Exclusion Clauses as attached
G. Nuclear Incident Exclusion Clauses as attached
ARTICLE VIII. REINSURANCE PREMIUM AND COMMISSION
The Company will cede to the Reinsurer its fifteen percent (15%) share of the
Gross Net Written Premium on all Policies subject to this Agreement. The Company
may deduct from the premium ceded to the Reinsurer the Reinsurer's share of the
cost of common account reinsurance protection which inures to the benefit of
this Agreement.
The Reinsurer shall allow the Company a ceding commission equal to the Company's
actual acquisition expenses. The Company shall allow the Reinsurer return
commission on return premiums at the same rate. The Gross Net Written Premium as
used in this Agreement means the total premium charged to the original Insureds
under the Policies plus additional premium or return premium, less return
premium for cancellation.
ARTICLE IX. CURRENCY
Whenever the word "Dollars" or the "$" sign appears in this Agreement, they
shall be construed to mean United States Dollars and all transactions under this
Agreement shall be in United States Dollars.
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ARTICLE X. REPORTS AND REMITTANCES
Monthly Reports and Remittances
Within forty-five (45) days after the close of each month, the Company shall
furnish the Reinsurer with the following reports:
For each month being reported, segregated by accounting period and Underwriting
Division on each policy:
Gross Written Premium, including all endorsement, audit and
cancellation transactions;
Acquisition Expenses;
Cost of Common Account Reinsurance;
Losses and Allocated Loss Adjustment Expenses paid during the month;
Common Account Reinsurance Losses and Allocated Loss Adjustment
Expenses recovered during the month;
Subrogation and Salvage Recoveries;
Reserves for Losses and Allocated Loss Adjustment Expenses outstanding;
Common Account Reinsurance Reserves for Losses and Allocated Loss
Adjustment Expense outstanding; and
Net Unearned premium reserves as of the end of the month being
reported.
Amounts due the Reinsurer will be remitted with the monthly report. Amounts due
the Company will be remitted within fifteen (15) days following receipt of the
report by the Reinsurer.
Quarterly Reports
Reserves for losses incurred but not reported (IBNR) as of the end of the fiscal
or calendar year being reported, segregated by accounting period and
Underwriting Division.
In addition to the reports required above, the Company shall furnish such other
information as may be reasonably required by the Reinsurer for the completion of
the Reinsurer's monthly, quarterly or annual statements and internal records.
All reports shall be rendered on forms acceptable to the Company and the
Reinsurer.
ARTICLE XI. LOSS REPORTING AND SETTLEMENTS
The Company or its designated representatives shall investigate and settle or
defend all claims and losses. All loss settlements made by the Company, provided
they are within the terms of this Agreement, shall be binding upon the
Reinsurer, who agrees to pay the Ultimate Net Loss for which it may be liable
under this Agreement. When requested by the Reinsurer, the Company
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shall permit the Reinsurer, at the expense of the Reinsurer, to be associated
with the Company in the defense or control of any claim, loss, or legal
proceeding which involves or is likely to involve the Reinsurer. Nothing in this
Article shall be construed as meaning that loss settlements are not recoverable
hereunder until the final loss to the Company has been ascertained.
The Reinsurer shall be credited with its proportionate share of salvage or
subrogation recoveries (i.e., reimbursement obtained or recovery made by the
Company, less the actual cost, excluding salaries of officials and employees of
the Company, of obtaining such reimbursement or making such recovery) on account
of claims and settlements involving reinsurance hereunder.
Any reimbursement received by the Company pursuant to the Terrorism Risk
Insurance Act of 2002 (Act) will reduce the Company's ultimate net loss under
this Agreement for reinsured losses subject to the Act. The allocation of the
reimbursement will be among all insured losses of the Company subject to the
Act, and the reduction of any ultimate net loss under this Agreement will be
proportional.
The Company deductible under the Act and any reimbursement received by the
Company under the Act is based on the Act's definition of Program Year. The
allocation of the amounts recovered for purposes of reducing any ultimate net
loss is also based on the Act's definition of Program Year.
The Company will reduce any one ultimate net loss in a Program Year by the
amount recovered under the Act in that Program Year in the same percent that the
loss reinsured by this Agreement bears to the Company's total insured losses
subject to the Act in a Program Year. No ultimate net loss will be reduced until
such time as the Company has actually received funds as reimbursement for its
insured losses subject to the Act.
ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company in addition to the Ultimate Net Loss
for Extra Contractual Obligations described in this Article and not covered by
any other reinsurance for fifteen percent 15% of one additional policy limit.
"Extra Contractual Obligations" means those liabilities not covered under any
other provision of this Agreement and which arise from the handling of any claim
on Policies covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud, or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its Insured or in the preparation or prosecution of
an appeal consequent upon such action. The date on which the Company incurs any
Extra Contractual Obligation shall be deemed, in all circumstances, to be the
date of the original accident or disaster.
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The Company will notify the Reinsurer of the pendency of any claims for Extra
Contractual Obligations, and the Reinsurer at its own expense may associate with
the Company in the defense or control of Extra Contractual Obligation claims.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the
Company or any other employee with claims settlement authority acting
individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
ARTICLE XIII. EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company in addition to the Ultimate Net Loss
for Excess of Original Policy Limits described in this Article and not covered
by any other reinsurance for fifteen percent 15% of one additional policy limit.
"Excess of Original Policy Limits" means those amounts the Company incurs in
excess of the limit of its original policy, such loss in excess of the limit
having been incurred because of failure by the Company to settle within the
policy limit or by reason of alleged or actual negligence, fraud, or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its Insured or in the preparation or prosecution
of an appeal consequent upon such action. For the purpose of this Article, the
word "loss" shall mean any amounts for which the Company would have been
contractually liable had it not been for the limit of the original policy.
The Company will notify the Reinsurer of any claims likely to incur a loss for
Excess of Original Policy Limits, and the Reinsurer at its own expense may
associate with the Company in the defense or control of Excess of Original
Policy Limits losses.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered.
ARTICLE XIV. TAXES
The Company shall pay all taxes on premiums reported to the Reinsurer. The
Company undertakes not to claim any deduction of the premium hereon when making
tax returns, other than income or profits tax returns, to any state or territory
of the United States of America or to the District of Columbia.
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ARTICLE XV. ACCESS TO RECORDS
The Reinsurer or its designated representatives shall have access to the books
and records of the Company at all reasonable times for the purpose of obtaining
information concerning this Agreement or the business hereunder.
ARTICLE XVI. ORIGINAL CONDITIONS
All reinsurance under this Agreement shall be subject to the same rates, terms,
conditions and waivers and to the same modifications, alterations and
interpretations as the respective Policies of the Company, except as amended by
the Articles contained herein.
ARTICLE XVII. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and supercedes prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
ARTICLE XVIII. AMENDMENTS IN WRITING
No amendment, modification or discharge of this Agreement, and no waiver
hereunder, shall be valid or binding unless set forth in writing and duly
executed by both parties.
ARTICLE XIX. OFFSET
The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other reinsurance agreements
between the parties whether as an assuming company or a ceding company. This
provision shall not be affected by the insolvency of either party to this
Agreement.
ARTICLE XX. INSOLVENCY
In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable on demand, with reasonable provision for verification, on the
basis of claims allowed against the insolvent Company by any court of competent
jurisdiction or by any liquidator, receiver, conservator, or statutory successor
of the Company having authority to allow such
Page 8 of 12
claims, without diminution because of such insolvency or because such
liquidator, receiver, conservator, or statutory successor has failed to pay all
or a portion of any claims. Such payments by the Reinsurer shall be made
directly to the Company or its liquidator, receiver, conservator, or statutory
successor, except as provided by Section 4118(a) of the New York Insurance Law
or except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company, or (b) where the
Reinsurer with the consent of the direct Insured or Insureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such Policies and in substitution for the obligations of the
Company to such payees.
It is agreed, however, that the liquidator, receiver, conservator, or statutory
successor of the insolvent Company shall give written notice to the Reinsurer of
the pendency of a claim against the insolvent Company on the Policies reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that 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 which it may deem available to the
Company or its liquidator, receiver, conservator, or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of liquidation to
the extent of a proportionate share of the benefit, which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.
ARTICLE XXI. ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such omission or error is
rectified upon discovery.
ARTICLE XXII. LEGALITY
If any law or regulation of the federal, state, or local government of the
United States or the rulings of officials having supervision over insurance
companies should render illegal the undertaking of this Agreement, then with
regard to business within the jurisdiction of such authority, the Company may
upon written notice to the Reinsurer suspend, abrogate, or amend this Agreement
insofar as it relates to business within the jurisdiction of such authority, to
the extent as may be necessary to comply with such law, regulation or ruling.
Such suspension, abrogation, or amendment of a portion of this Agreement shall
in no way affect any other portion thereof.
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ARTICLE XXIII. ARBITRATION
Any dispute or other matter in question between the Company and the Reinsurers
arising out of, or relating to, the formation, interpretation, performance, or
breach of this Contract, whether such dispute arises before or after termination
of this Contract, shall be settled by arbitration. Arbitration shall be
initiated by the delivery of a written notice of demand for arbitration by one
party to the other within a reasonable time after the dispute has arisen. This
demand will state in particulars all issues to be resolved in the party's view
and will name the arbitrator appointed by it.
If more than one reinsurer is involved in the same dispute, all such reinsurers
shall constitute and act as one party for the purposes of this Article,
provided, however, that nothing herein shall impair the rights of such
reinsurers to assert several, rather than joint, defenses or claims, nor be
construed as changing the liability of the Reinsurers under the terms of this
Contract from several to joint.
Within sixty (60) days of receipt of the arbitration demand, the opposing party
shall notify the claimant of its appointed arbitrator and any other issues it
believes needs to be resolved. The two appointed arbitrators shall then appoint
a third arbitrator. If respondents refuse or neglect to appoint an arbitrator
within sixty (60) days, the other party may appoint the second arbitrator. If
the two arbitrators do not agree on a third arbitrator within sixty (60) days of
their appointment, the Company shall petition the American Arbitration
Association to appoint the third arbitrator. If the American Arbitration
Association fails to appoint the third arbitrator within thirty (30) days after
it has been requested to do so, either party may request a justice of a Court of
general jurisdiction of the state in which the arbitration is to be held to
appoint the third arbitrator. The arbitrators shall be active or retired
officers of insurance or reinsurance companies or Lloyd's London Underwriters;
the arbitrators shall not have a personal or financial interest in the result of
the arbitration. In the event of the resignation or death of any arbitrator, a
replacement will be appointed in the same manner as the resigning or deceased
member was originally appointed.
The arbitration hearings shall be held in Houston, Texas or such other place as
may be mutually agreed. Each party shall submit its case to the arbitrators
within sixty (60) days of the selection of the third arbitrator or within such
longer period as may be agreed by the arbitrators. The arbitrators shall not be
obliged to follow judicial formalities or the rules of evidence except to the
extent required by governing law, that is, the state law of the situs of the
arbitration as herein agreed; they shall make their decisions according to the
practice of the reinsurance business. The decision rendered by a majority of the
arbitrators shall be final and binding on both parties. Such decision shall be a
condition precedent to any right of legal action arising out of the arbitrated
dispute, which either party may have against the other. Judgement upon the award
rendered may be entered in any court having jurisdiction thereof.
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Each party shall pay the fee and expenses of its own arbitrator and one-half of
the fees and expenses of the third arbitrator. All other expenses of the
arbitration shall be equally divided between the parties.
Except as provided above, arbitration shall be based, insofar as applicable,
upon the procedures of the American Arbitration Association.
ARTICLE XXIV. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
ARTICLE XXV. INTERMEDIARY CLAUSE
Xxxxxxx Xxxxxxxxx (Bermuda) Limited is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including but not limited to notices, statements, premium, return premium,
commissions, taxes, losses, loss adjustment expense, salvages and loss
settlements relating thereto shall be transmitted to the Company or the
Reinsurers through Xxxxxxx Xxxxxxxxx (Bermuda) Limited, 00 Xxxxx Xxxxxx,
Xxxxxxxx, Xxxxxxx XX XX. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurers. Payments by the Reinsurers to
the Intermediary shall be deemed to constitute payment to the Company only to
the extent that such payments are actually received by the Company.
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IN WITNESS WHEREOF, the parties hereto, have executed this Agreement in
duplicate as of the following date:
In Richmond, Virginia In Houston, Texas
COLONY INSURANCE COMPANY HOUSTON CASUALTY COMPANY
COLONY NATIONAL INSURANCE
COMPANY
COLONY SPECIALTY INSURANCE By: /s/ Xxxxxxx X. Xxxxxx
COMPANY ----------------------------
President
By: /s/ Xxxx X.Xxxxxx III Date: March 31, 2003
------------------------------ ----------------
Title: Chairman
------------------------------
Date: March 31, 2003
------------------------------
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EXHIBIT A
Attached to the
Quota Share Reinsurance Agreement
Effective April 1, 2003
Between
Colony Insurance Company
Colony National Insurance Company
Colony Specialty Insurance Company
And
Houston Casualty Company
For purposes of this Agreement, the maximum policy limits issued by the Company
are as follows or so deemed:
--------------------------------------------------------------------------------
Line of Business Maximum
Policy Limit
--------------------------------------------------------------------------------
Property & Allied Lines $10,000,000 Per Risk
Inland Marine $40,000,000 Per Occurrence/Event
--------------------------------------------------------------------------------
Other Liability
Professional Liability
Pollution Liability $ 6,000,000 Per Insured, Each Occurrence
Product Liability
Automobile Liability
Excess/Umbrella Liability
--------------------------------------------------------------------------------
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