EXHIBIT 10.23
ENDORSEMENT NO. 3
Attached to and made a part of
AUTOMOBILE QUOTA SHARE
AGREEMENT OF REINSURANCE NO. 8937
between
SAFE AUTO INSURANCE COMPANY
(herein referred to as the "Company")
and
GENERAL REINSURANCE CORPORATION
(herein referred to as the "Reinsurer")
IT IS MUTUALLY AGREED that as respects new and renewal policies of the Company
becoming effective at and after 12:01 A.M., October 1, 2003, and policies of the
Company in force at 12:01 A.M., October 1, 2003, with respect to claims and
losses resulting from Occurrences taking place at and after the aforesaid time
and date, this Agreement is amended as follows:
I - ARTICLE V is amended to read:
"ARTICLE V - LIABILITY OF THE REINSURER
The Reinsurer shall pay to the Company, with respect to each Occurrence, the
Reinsurer's Quota Share Percentage of the Net Loss sustained by the Company, but
not exceeding the Limit of Liability of the Reinsurer as set forth in the
Schedule of Reinsurance, subject to the provisions of the following paragraphs.
SCHEDULE OF REINSURANCE
Company's Quota Reinsurer's Quota Limit of Liability
Share Percentage Share Percentage of the Reinsurer
---------------- ---------------- ----------------
67.5% 32.5% 32.5% of $50,000
The sum of 32.5% of $900 shall be deducted from the Reinsurer's share of Net
Loss sustained hereunder arising out of each Occurrence.
However, if the Reinsurer's Quota Share Percentage of the Company's Subject
Written Premium for the Agreement Year commencing on October 1, 2003 results in
a reinsurance premium, gross of commission, greater than a cap of $120,000,000,
such Quota Share Percentage of the Company's Subject Written Premium from the
beginning of the calendar quarter during which such cap was exceeded though the
close of the Agreement Year shall be reduced to a percentage which will result
in a reinsurance premium, gross of commission, of $120,000,000 for such
Agreement Year. The Reinsurer's Quota Share Percentage of Net Loss for
Occurrences taking place from the beginning of the calendar quarter during which
such cap was exceeded though the close of the Agreement Year shall be reduced
GENERAL REINSURANCE CORPORATION
A Berkshire Hathaway Company
accordingly and the Company's Quota Share Percentage will be increased
accordingly. The amount of such cap for subsequent Agreement Years shall be
mutually agreed upon.
However, if the Reinsurer's Quota Share Percentage of the Company's Subject
Written Premium in all states other than Ohio, Pennsylvania, South Carolina,
Georgia, Indiana, Kentucky, Mississippi, Louisiana, or Tennessee for any
Agreement Year hereunder results in a reinsurance premium equal to more than 5%
of the total reinsurance premium for any Agreement Year, such Quota Share
Percentage of the Company's Subject Written Premium for all such states for such
Agreement Year shall be reduced to a percentage which will result in a
reinsurance premium of no more than 5% of the total reinsurance premium for such
Agreement Year. The Reinsurer's Quota Share Percentage of Net Loss involving
such states for Occurrences taking place during such Agreement Year shall be
reduced accordingly and the Company's Quota Share Percentage will be increased
accordingly.
Further, the sum of the Reinsurer's payment of Net Loss for Occurrences taking
place during any Agreement Year and fixed commission allocable to such Agreement
Year shall not exceed an Aggregate Limit of Liability equal to 112% of the
reinsurance premiums, gross of fixed commission, paid under this Agreement for
such Agreement Year, subject to the provisions of sub-paragraph (d) of the
article entitled CONTINGENT COMMISSION.
Further, the Reinsurer's payment of Net Loss for Occurrences taking place during
any Agreement Year shall not exceed the Reinsurer's portion of Estimated Net
Loss as evaluated and reported by the Company to the Reinsurer 18 months after
the end of the Agreement Year, or quarterly thereafter, whichever is less."
II - Paragraph (b) of ARTICLE VII-DEFINITIONS are amended to read:
"(b) NET LOSS
This term shall mean all payments by the Company within the terms
and limits of its policies in settlement of claims or losses,
payment of benefits, or satisfaction of judgments or awards,
including prejudgment interest which erodes the policy limit, after
deduction of subrogation and other recoveries and after deduction of
amounts due from all other reinsurance, whether collectible or not.
If the Company becomes insolvent, this definition shall be modified
to the extent set forth in the article entitled INSOLVENCY OF THE
COMPANY.
This term shall also include expenditures by the Company, including
declaratory judgment expenses, allocated to an individual claim or
loss made in connection with the disposition of a claim, loss, or
legal proceeding including investigation, negotiation, and legal
expenses; court costs; prejudgment interest which does not erode the
policy limit; and postjudgment interest
Nothing in this definition shall imply that losses are not
recoverable hereunder until the Company's Net Loss has been finally
ascertained."
III - Exclusion (k) in ARTICLE VIII-EXCLUSIONS is amended to read:
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GENERAL REINSURANCE CORPORATION
"(k) Unallocated adjustment expense, which is defined as any expenditures
by the Company, other than those described in paragraph (b) of the
article entitled DEFINITIONS, including office expenses and the
salaries and expenses of employees of the Company or of any
subsidiary or related or wholly owned company of the Company;"
IV - ARTICLE XIII is amended to read:
"ARTICLE XIII - CONTINGENT COMMISSION
In addition to the fixed commission set forth in the article entitled
REINSURANCE PREMIUM AND COMMISSION, the Reinsurer shall pay to the Company a
contingent commission equal to 100% of the Positive Experience Account balance
under this Agreement.
With respect to the contingent commission and the calculation thereof, the
following interpretations and reporting provisions shall apply:
(a) EXPERIENCE ACCOUNT BALANCE
This term shall mean:
(1) The reinsurance premium earned from the inception of this
Agreement;
(2) Less 3.5% of the reinsurance premium earned during the first
two Agreement Years and 3.0% of the reinsurance premium earned
during each subsequent Agreement Year, subject to a minimum of
$500,000 for each Agreement Year or portion thereof;
(3) Less the fixed commission allowed on the reinsurance premium
earned from the inception of this Agreement;
(4) Less the Reinsurer's payments of Net Loss from the inception
of this Agreement;
(5) Less the Reinsurer's portion of reported reserves for claims
and losses as of the calculation date;
(6) Less the Reinsurer's portion of reserves for claims and losses
incurred but not reported, as set forth in sub-paragraph (d)
below, as of the calculation date;
(7) Less the amount, if any, of contingent commission previously
paid.
(8) Plus the investment income on the amount, if any, by which the
sum of (1) above and previous investment income credits
exceeds the sum of (2), (3), (4), and (7) above and previous
investment income debits as of October 1, 2003 and quarterly
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GENERAL REINSURANCE CORPORATION
thereafter, based on the one year constant maturity rate,
credited at the end of each calendar quarter;
(9) Less the investment income on the amount, if any, by which the
sum of (2), (3), (4) and (7) above and previous investment
income debits exceeds the sum of (1) above and previous
investment income credits as of October 1, 2003 and quarterly
thereafter, based on the one year constant maturity rate,
credited at the end of each calendar quarter.
(b) POSITIVE EXPERIENCE ACCOUNT BALANCE
This term shall mean the amount by which the sum of (1) and (8) in
sub-paragraph (a) above exceeds the sum of (2), (3), (4), (5), (6),
(7) and (9) in said sub-paragraph.
(c) NEGATIVE EXPERIENCE ACCOUNT BALANCE
This term shall mean the amount by which the sum of (2), (3), (4),
(5), (6), (7) and (9) in sub-paragraph (a) above exceeds the sum of
(1) and (8) in said sub-paragraph.
(d) RESERVES FOR CLAIMS AND LOSSES INCURRED BUT NOT REPORTED
The reserves for claims and losses incurred but not reported (IBNR)
shall be determined by multiplying the reinsurance premium earned,
gross of commission, for each Agreement Year by the appropriate
factor based on the maturity of the Agreement Year from its
commencement date.
MATURITY (IN MONTHS) XXXX XXXXXX
00 25%
24 10%
36 5%
48 and Subsequent 0%
However, the Company may request that the Reinsurer use a lower IBNR
factor in the contingent commission calculation. If a lower factor
is used, the Aggregate Limit of Liability of the Reinsurer
stipulated in the article entitled LIABILITY OF THE REINSURER shall
be equal to the sum of the Reinsurer's payments of Net Loss, the
Reinsurer's portion of reported reserves for claims and losses, and
the lower requested IBNR amount with respect to Occurrences taking
place during each Agreement Year and fixed commission allocable to
such Agreement Year, not to exceed 112% of the reinsurance premiums,
gross of fixed commission, paid for such Agreement Year. Such lower
calculated Aggregate Limit of Liability of the Reinsurer shall apply
regardless of subsequent evaluation of Net Loss.
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GENERAL REINSURANCE CORPORATION
(e) STATEMENTS OF CONTINGENT COMMISSION
As soon as practicable after the end of each calendar quarter, the
Reinsurer shall render to the Company a statement of contingent
commission for the period from the effective date of this Agreement
to the end of such quarter. The amount thereof shall be balanced
against the amount of contingent commission previously paid or
allowed, and the net balance due either party shall be remitted
promptly.
Upon termination of this Agreement, the Reinsurer shall render to
the Company a statement of contingent commission for the period from
the effective date of this Agreement until such date. The amount
thereof shall be balanced against the amount of contingent
commission previously paid or allowed, and the net balance due
either party shall be remitted promptly. Quarterly thereafter,
revised statements shall be rendered to the Company reflecting
changes in the original statement until all losses which occurred
during the term of this Agreement are fully discharged, and the net
balance due either party because of such changes shall be remitted
promptly."
V - Paragraph (b) of ARTICLE XIV - REPORTS AND REMITTANCES is amended to
read:
"(b) QUARTERLY REPORTS
The Company shall report to the Reinsurer, within 30 days after the
close of each calendar quarter:
(1) The reinsurance premium earned for the quarter by line of
insurance, and
(2) The commission allowed on the reinsurance premium earned for
the quarter, and
(3) The Reinsurer's portion of Net Loss paid during the quarter by
line of insurance and year of claim or loss, and
(4) The Reinsurer's portion of salvage recovered during the quar-
ter by line of insurance and year of claim or loss.
Any amount due the Reinsurer shall be remitted with such report and
any amount due the Company shall be remitted immediately upon
verification of such report.
The Company shall also report to the Reinsurer, within 30 days after
the close of each quarter:
(i) The reinsurance premium written for the quarter by line of
insurance, and
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GENERAL REINSURANCE CORPORATION
(ii) The Reinsurer's portion of reserves for claims and losses at
the end of the quarter by line of insurance and year of claim
or loss, and
(iii) The Estimated Net Loss at the end of the quarter for
Occurrences taking place during each Agreement Year."
VI - In consideration of VI above applying to business in force at 12:01
A.M., October 1, 2003, the Reinsurer shall return to the Company the
reinsurance premium unearned, calculated on the monthly pro rata
basis as of such time and date, less the commission previously
allowed thereon.
VII - ARTICLE XV is amended to read:
"ARTICLE XV - TERMINATION
Either party may terminate this Agreement at any time by sending to the other,
by registered mail to its principal office, notice stating the time and date
when, not less than 90 days after the date of mailing of such notice,
termination shall be effective. Upon termination of this Agreement, the
Reinsurer shall not be liable for any claims or losses resulting from
Occurrences taking place at and after the effective time and date of
termination, except as provided in the following paragraph.
However, if there is a Negative Experience Account Balance, as defined in the
article entitled CONTINGENT COMMISSION, as of the requested termination date,
the Reinsurer has the option of extending the termination date of this Agreement
for one year, subject to all its terms and conditions, except that upon such
extended termination date, at the Reinsurer's option:
(a) The Reinsurer shall continue to be liable, with respect to policies
in force at the time and date of termination, for claims and losses
resulting from Occurrences taking place until the expiration,
cancellation, or next anniversary date, not to exceed one year, of
each such policy of the Company, whichever occurs first. The
reinsurance premium for policies in force at the time and date of
termination shall be calculated by applying the provisions of the
article entitled REINSURANCE PREMIUM AND COMMISSION to the monthly
earned premiums that derive from the unearned premium applicable to
policies in force at the time and date of termination.
(b) The Reinsurer shall not be liable for any claims or losses resulting
from Occurrences taking place at and after the effective time and
date of termination.
Further, the Reinsurer may terminate this Agreement at the end of any calendar
quarter within such one year extended period by sending to the Company, by
registered mail to its principal office, notice stating the time and date when,
not less than 30 days after the date of mailing of such notice, termination
shall be effective, in such event, the Reinsurer's option, as set forth in (a)
and (b) above shall apply.
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GENERAL REINSURANCE CORPORATION
Prior to the termination date, the Reinsurer shall advise the Company as to
which of the above options shall apply."
VIII -The second paragraph of ARTICLE XVI - TERMINATION BY THE REINSURER
UNDER SPECIAL CIRCUMSTANCES is amended to read:
"In any instance that the Reinsurer terminates this Agreement in accordance with
the circumstances described in the immediately preceding paragraphs, the
Reinsurer shall not be liable for claims or losses resulting from Occurrences
taking place after the effective time and date of termination."
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in duplicate,
this 30 day of December,2003,
SAFE AUTO INSURANCE COMPANY
/s/ XXX XXXXX, CEO
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Attest: /s/ Xxxx Xxxxxx
----------------
and this 30 day of December, 2003.
GENERAL REINSURANCE CORPORATION
/s/ Xxx Xxxxxxxx
----------------------------
Vice President
Attest: /S/ Xxxxxxx X. Xxxxxxxxxxx
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Endorsement No. 3
Agreement No. 8937
GENERAL REINSURANCE CORPORATION
