EXCESS OF LOSS REINSURANCE AGREEMENT dated as of December 12, 2006 by and among
Exhibit
10.1
dated
as
of December 12, 2006
by
and
among
XL
INSURANCE (BERMUDA) LTD
XL
INSURANCE SWITZERLAND
XL
EUROPE
LIMITED
XL
INSURANCE COMPANY LIMITED
XL
RE
LATIN AMERICA LTD
XL
INSURANCE ARGENTINA S.A. COMPANIA DE SEGUROS
XL
INSURANCE COMPANY LTD
XL
RE
LTD
XL
RE
EUROPE LIMITED
VITODURUM
REINSURANCE COMPANY
UNDERWRITING
MEMBERS OF LLOYD’S SYNDICATE #1209
and
STONEHEATH
RE
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ARTICLE
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PAGE
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COVERAGE
|
3
|
|
TERM
|
3
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|
EXTENDED
EXPIRATION
|
4
|
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TERRITORY
|
4
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DEFINITIONS
|
4
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RETENTION
AND LIMIT
|
7
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NET
RETAINED LIABILITY
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8
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ULTIMATE
NET LOSS
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8
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PREMIUM
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9
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EXTRA
CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
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10
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|
REPORTS
AND REMITTANCES
|
10
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|
COMMUTATION
AND QUANTUM DISPUTE RESOLUTION
|
11
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TRUST
ACCOUNT
|
13
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NOTICE
OF LOSS AND LOSS SETTLEMENTS
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13
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SALVAGE
AND SUBROGATION
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14
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ENTIRE
AGREEMENT
|
14
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DELAYS,
ERRORS, OR OMISSIONS
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14
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AMENDMENTS
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15
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ACCESS
TO RECORDS
|
15
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CONFIDENTIALITY
|
15
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INSOLVENCY
|
15
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ARBITRATION
|
16
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GOVERNING
LAW
|
17
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TAXES
|
17
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CURRENCY
|
17
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|
AGENCY
|
18
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AFFILIATED
COMPANIES
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18
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NON-ASSIGNMENT;
THIRD PARTIES
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18
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SEVERABILITY
|
18
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-2-
THIS
AGREEMENT (“Agreement”) is made and entered into by and among XL INSURANCE
(BERMUDA) LTD and/or XL INSURANCE SWITZERLAND and/or XL EUROPE LIMITED and/or
XL
INSURANCE COMPANY LIMITED and/or XL RE LATIN AMERICA LTD and/or XL INSURANCE
ARGENTINA S.A. COMPANIA DE SEGUROS and/or XL RE LTD and/or XL INSURANCE COMPANY
LTD and/or XL RE EUROPE LIMITED and/or VITODURUM REINSURANCE COMPANY and/or
UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE #1209 (collectively, with their
respective successors and assigns, hereinafter called the “Company”) of the one
part, and Stoneheath Re (hereinafter called the “Reinsurer”) of the other part.
The
parties hereto agree as set forth below, in consideration of the mutual
covenants contained in the following Articles and upon the terms and conditions
set forth therein:
COVERAGE
Subject
to
the Retention and Limit Article and all other provisions of this Agreement,
the
Reinsurer will indemnify the Company for any Ultimate Net Loss incurred
attributable to Loss Occurrences occurring during the term of this Agreement
arising from Covered Perils under all Policies underwritten and issued by the
Company.
Notwithstanding
any other provision of this Agreement, in no event will the Reinsurer’s
aggregate liability under this Agreement in respect of all periods covered
hereby (including the Original Term, all Extension Terms and any Optional
Extension Terms), whether in respect of Loss Occurrences or otherwise, exceed
the Policy Aggregate Limit.
TERM
This
Agreement will apply to all Loss Occurrences during the term extending from
the
effective date hereof through June 30, 2007, both days inclusive (“Original
Term”). Subject to the Policy Aggregate Limit, and for so long as the Policy
Aggregate Limit has not been completely exhausted, the Company and the Reinsurer
shall extend the term for four continuous one-year increments (each an
“Extension Term”) through and including a one-year term ending June 30,
2011.
If
the
Policy Aggregate Limit has not been completely exhausted on or prior to June
30,
2011, the Company shall have the option of further extending the term hereof
for
an unlimited number of continuous calendar quarters (each twelve-month period
commencing July 1, or the portion of such period prior to expiry of this
Agreement, being an “Optional Extension Term”) by giving written notice to the
Reinsurer prior to the end of any calendar quarter of extension of the term
for
the following calendar quarter.
Notwithstanding
the expiration of this Agreement as hereinabove provided, the provisions of
this
Agreement will continue to apply to all obligations and liabilities of the
parties incurred hereunder such that all obligations and liabilities will be
fully performed and discharged,
-3-
unless
and
until there is an Early Termination Event or obligations are commuted as
prescribed below.
Notwithstanding
the foregoing, in the event of an Early Termination Event, (i) the term of
this Agreement shall end, (ii) this Agreement shall expire immediately,
(iii) all rights and obligations of the parties under this Agreement shall
cease immediately, and (iv) irrespective of any differential between the
amounts of Ultimate Net Loss and payments made hereunder, neither the Company
nor the Reinsurer have any further rights or obligations hereunder; provided,
however,
that the
Reinsurer at its option (to be exercised in writing within 10 Business Days
of
such event) may elect to give to the Company an (otherwise timely) notice of
dispute, and/or to continue outstanding proceedings in respect of a previously
given (otherwise timely) notice of dispute, under the Commutation and Quantum
Dispute Resolution Article below.
EXTENDED
EXPIRATION
Should
this Agreement expire while a Loss Occurrence covered hereunder is in progress,
the Reinsurer will be responsible for its portion of the entire loss or damage
caused by such Loss Occurrence, subject to the other conditions of this
Agreement, and provided that no part of said Loss Occurrence is claimed against
any renewal or replacement of this Agreement. Should the Original Term, any
Extension Term or Optional Extension Term end while a Loss Occurrence covered
hereunder is in progress, the entire loss or damage caused by such Loss
Occurrence will be deemed to have occurred during such period, subject to the
other conditions of this Agreement, and no part of said Loss Occurrence shall
be
deemed to have occurred during any subsequent period.
TERRITORY
Worldwide
as respects the Covered Perils.
DEFINITIONS
The
following definitions will apply to this Agreement:
| A. |
“Aggregate
Retention Amount” means $350,000,000 or such other amount (which may be
zero) as may be determined by the Company in its discretion (subject
to
any limitations regarding erosion or exhaustion thereof which may be
determined by the Company) for each six-month period commencing January
1
or July 1 and set forth by written endorsement hereto prior to such
date.
|
| B. |
“Attachment
Point” means for any Loss Occurrence as respects each Covered Peril means
the difference (but not less than zero for the avoidance of doubt)
between
the amount respectively set forth below (or such other respective amounts
points as may be determined by the Company in its discretion for each
six-month period commencing January 1 or July 1 and set forth by written
endorsement hereto prior to such date) and the Non-Ceded Ultimate Net
Loss
in respect of such Loss Occurrence:
|
-4-
|
Covered
Peril
|
Amount
|
|
(i)
United States wind
|
$320,000,000
|
|
(ii)
European wind
|
$150,000,000
|
|
(iii)
California earthquake
|
$320,000,000
|
|
(iv)
Terrorism
|
$300,000,000
|
| C. |
“Business
Day” means a day on which commercial banks and foreign exchange markets
settle payments and are open for general business (including dealings
in
foreign exchange and foreign currency deposits) in Bermuda, the Cayman
Islands, New York City and London.
|
| D. |
“Control”
means the possession, directly or indirectly, of the power to direct
or
cause the direction of the management or policies of any corporation,
limited liability company, trust, joint venture, association, company,
partnership or other entity, whether through the ability to exercise
voting power, by contract or otherwise
|
| E. |
“Covered
Peril” means (i) United States wind (onshore and offshore, including the
Gulf of Mexico, the Caribbean Sea and the North Atlantic Ocean), (ii)
European wind (onshore and offshore, including the North Sea), (iii)
California earthquake, and (iv) Terrorism worldwide, and/or (v) such
other
Covered Perils as may be determined by the Company in its discretion
for
each six-month period commencing January 1 or July 1 and set forth
by
written endorsement hereto prior to such date.
|
| F. |
“Declaratory
Judgment Expense” means all expenses incurred by the Company in direct
connection with declaratory judgment actions brought to determine the
Company’s obligations that are allocable to specific Policies and claims
subject to this Agreement. Declaratory Judgment Expense will be deemed
to
have been incurred by the Company on the date of the actual or alleged
Loss Occurrence giving rise to the action.
|
| G. |
“Early
Termination Event” means that an Early Termination of the XL Preference
Share Agreement (as such term is defined therein) shall have
occurred.
|
| H. |
“Excess
Limits Liability” has the meaning ascribed in the Extra Contractual
Obligations Article.
|
| I. |
“Extension
Term” has the meaning ascribed in the Term
Article.
|
| J. |
“Extra
Contractual Obligations” has the meaning ascribed in the Extra Contractual
Obligations Article.
|
-5-
| K. |
“Final
Redemption Date” has the meaning ascribed in the XL Preference Share
Agreement.
|
| L. |
“Loss
Occurrence” means the aggregation of all individual losses occasioned by
any one disaster, accident, or loss or series of disasters, accidents,
or
losses arising out of an event and/or originating cause. The duration
and
extent of any one Loss Occurrence will be determined by the Company.
|
| M. |
“Non-Ceded
Ultimate Net Loss” means as respects any Loss Occurrence the sum of (i)
the amount of loss sustained with respect to such Loss Occurrence by
XL
Reinsurance America Inc.
(on
its own behalf and as
pool leader on behalf of itself and its members of the pool in which
XL
Reinsurance America Inc. and certain of its affiliates are members),
which
would have been Ultimate Net Loss, net of collectible reinsurance
(including XL Capital group intra-company reinsurance), if such entity
were included within the definition of “Company” hereunder, and (ii) the
product of (a) amount of loss sustained with respect to such Loss
Occurrence by any insurance or reinsurance company in which XL Capital
maintains a direct or indirect beneficial equity ownership less than
or
equal to 90% and equal to or greater than 20% which would have been
Ultimate Net Loss, net of collectible reinsurance (including XL Capital
group intra-company reinsurance), were such company included within
the
definition of “Company” hereunder, and (b) the percentage of XL Capital’s
direct or indirect beneficial equity ownership in such
company.
|
| N. |
“Optional
Extension Term” has the meaning ascribed in the Term
Article.
|
| O. |
“Original
Term” has the meaning ascribed in the Term
Article.
|
| P. |
“Policies”
means all policies, binders, contracts, or agreements of or for insurance
or reinsurance, whether written or oral, and shall include reinsurance
and
retrocessions assumed, whether treaty or facultative, including, without
limitation, XL Capital group intra-company
reinsurance.
|
| Q. |
“Policy
Aggregate Limit” means $350,000,000.
|
| R. |
“Remaining
Aggregate Limit” means, at any date, an amount equal to the Policy
Aggregate Limit minus the sum of (i) all payments theretofore made by
the Reinsurer to the Company pursuant to the Reports and Remittances
Article, and (ii) all amounts distributed from the Trust Account
prior to such date to pay Extraordinary Expenses (as defined in the
XL
Preference Share Agreement).
|
| S. |
“Terrorism”
means any act, or preparation in respect of action, or threat of action,
which appears to have been designed to influence the government de
jure or
de facto of any nation or any political division thereof, or in pursuit
of
political, religious, ideological, or similar purposes to intimidate
the
public or a section of the public of any nation by any person or group(s)
of persons whether acting alone or
|
-6-
on
behalf
of or in connection with any organization(s) or government(s) de jure or de
facto, and which action or threatened or contemplated action:
| (i) |
involves
violence against one or more persons; or
|
| (ii) |
involves
damage to property; or
|
| (iii) |
endangers
life other than that of the person committing the action;
or
|
| (iv) |
creates
a risk to health or safety of the public or a section of the public;
or
|
| (v) |
is
designed to interfere with or disrupt an electronic
system.
|
| T. |
“Trust
Account” means the trust account established pursuant to the Trust
Agreement.
|
| U. |
“Trust
Agreement” means the Trust Agreement dated as of the date hereof, among
the Reinsurer, Bank of New York as Trustee, Xxxxxxx Xxxxx International,
as Asset Swap Counterparty, IXIS Financial Products Inc., as Interest
Rate
Swap Party, and the Company, as amended, modified and supplemented
from
time to time in accordance with its
terms.
|
| V. |
“Ultimate
Net Loss” has the meaning ascribed in the Ultimate Net Loss
Article.
|
| W. |
“XL
Capital” means XL Capital Ltd, a Cayman Islands exempted company and its
successors and assigns.
|
| X. |
“XL
Preference Share Agreement” means the Securities Issuance Agreement, dated
as of the date hereof, between XL Capital and Reinsurer, as amended,
modified and supplemented from time to time in accordance with its
terms.
|
RETENTION
AND LIMIT
No
claim
may be made hereunder unless the Company has first incurred, by reason of any
one Loss Occurrence during the Original Term or any Extension Term or Optional
Extension Term, Ultimate Net Loss in excess of the respectively applicable
Attachment Point. Further, no claim may be made hereunder unless such Ultimate
Net Loss in excess of the Attachment Point exceeds, in addition, an aggregate
retention equal to the Aggregate Retention Amount (subject to any applicable
limitations regarding erosion or exhaustion thereof) for such Original Term,
Extension Term or Optional Extension Term, as the case may be, otherwise
recoverable under this Agreement in respect of one or more other Loss
Occurrences (in excess of the respectively applicable Attachment Point(s) as
respects each such Loss Occurrence) during such Original Term, Extension Term
or
Optional Extension Term, as the case may be. If such Aggregate Retention Amount
is eroded but not exhausted by one or more Loss Occurrences and a subsequent
Loss Occurrence in the Original Term or the same Extension Term or Optional
Extension Term, as the case may be, both exhausts the Aggregate Retention Amount
and has Ultimate Net Loss excess thereof, claim may be made hereunder in respect
of such Loss Occurrence as respects such ex-
-7-
cess
Ultimate Net Loss but not for an amount greater than the amount by which the
aggregate retention was eroded by prior Loss Occurrence(s) (“Erosion Amount”).
Notwithstanding the foregoing, the Company in its discretion for each six-month
period commencing January 1 or July 1 and set forth by written endorsement
hereto prior to such date may determine that the loss from any one Loss
Occurrence may both exhaust the aggregate retention and, in excess thereof,
be
recoverable as Ultimate Net Loss hereunder up to the full remaining amount
of
the Policy Aggregate Limit, i.e.,
in
such
case, the aggregate retention shall apply in respect of losses otherwise
recoverable under this Agreement in respect of one or more Loss Occurrences
(in
excess of the respectively applicable Attachment Point(s) as respects each
such
Loss Occurrence) during such Original Term, Extension Term or Optional Extension
Term, as the case may be. The Reinsurer will then be liable for the amount
of
Ultimate Net Loss in excess of the applicable Attachment Point for each
subsequent Loss Occurrence during such Original Term, Extension Term or Optional
Extension Term, as the case may be, but the limit of liability of the Reinsurer
shall not exceed the Erosion Amount, if applicable, and in any event shall
not
exceed the Policy Aggregate Limit with respect to any one Loss Occurrence and
also shall not exceed the Policy Aggregate Limit in respect of any and all
Loss
Occurrences during the Original Term and all Extension Terms and Optional
Extension Terms combined.
NET
RETAINED LIABILITY
This
Agreement will apply to that portion of any insurance or reinsurance that the
Company retains net for its own account net of any collectible reinsurance,
and
such retained portion will be used in calculating the amount of any loss
hereunder as well as the amount in excess of which this Agreement attaches.
ULTIMATE
NET LOSS
“Ultimate
Net Loss” as used in this Agreement will mean the actual loss paid, payable or
incurred by the Company and 100% of Extra Contractual Obligations and 100%
of
Excess Limits Liability, such Ultimate Net Loss to include expenses of
litigation and subrogation, if any, claim-specific Declaratory Judgment
Expenses, and all other loss expenses of the Company (including a pro rata
share
of salaries and expenses of the Company’s field employees and all in-house
attorneys according to the time occupied in adjusting, defending, and settling
such loss, and expenses of all of the Company’s officers and employees incurred
in connection with the loss; except that salaries of officers and employees
engaged in general management and located in the home office of the Company
and
any office expense of the Company will not be included) made in connection
with
the disposition of a claim, loss, or legal proceeding (including any and all
claim-specific declaratory judgment actions; investigation, negotiation, and
legal expenses; court costs; claim-specific statutory penalties; Prejudgment
Interest or Delayed Damages; interest on any judgment or award; and other such
costs and expenses) and Net Reinstatement Premiums (if positive).
“Prejudgment
Interest or Delayed Damages” means interest or damages added to a settlement,
verdict, award, or judgment based on the period of time prior to the settlement,
verdict, award, or judgment whether or not made part of the settlement, verdict,
award, or judgment.
-8-
“Net
Reinstatement Premiums” means the amount by which reinstatement premiums due
from the Company on ceded or retroceded reinsurances exceeds reinstatement
premiums due to the Company on assumed reinsurances as respects any loss
occurrence (exclusive of reinstatement premiums on XL Capital intra-group
reinsurances).
In
the
event a verdict or judgment is reduced by an appeal or a settlement subsequent
to the entry of the judgment, thereby resulting in an ultimate saving on such
verdict or judgment, or in the event a judgment is reversed outright, subsequent
to a loss settlement under this Agreement, the reduced or avoided amount will
be
for the account of the Company, but (i) the amount thereof (net of
expenses), received prior to commutation in respect of the period in which
the
pertinent Loss Occurrence took place shall be offset from Ultimate Net Loss
subsequently due under this Agreement, and (ii) the expenses incurred in
pursuing any such appeal or settlement prior to any such commutation shall
constitute Ultimate Net Loss. In the event there is no reduction or reversal
of
a verdict or judgment, the loss expense incurred prior to any such commutation
in attempting to secure such reduction or reversal will be added to the Ultimate
Net Loss.
Nothing
in
this Article will be construed to mean that losses under this Agreement are
not
recoverable until the Company’s Ultimate Net Loss has been ascertained.
Whenever
the Company issues a lost instrument bond or a lost instrument letter of
indemnity for salvage purposes or in lieu of loss payment under its bond or
policy, or where the Company posts security which is drawn in lieu of loss
payment under its bond or policy, the Reinsurer agrees to accept liability
under
such bond or letter of indemnity in accordance with the terms of this
Agreement.
PREMIUM
The
Company shall pay premium during the Original Term and each Extension Term
semi-annually in arrears on the second Business Day next preceding April 15
and
October 15 of each year in an amount equal to the product of (i) the average
daily Remaining Aggregate Limit during the semi-annual period ending on (but
not
including) such April 15 or October 15, as applicable, (ii) 2.320% and (iii)
a
fraction (x) the numerator of which is 180, and (y) the denominator of which
is
360.
The
Company shall pay premium during the Optional Extended Periods quarterly in
arrears on the second Business Day next preceding January 15, April 15, July
15
and October 15 of each year in an amount equal to the product of (i) the average
daily Remaining Aggregate Limit during the quarter ending on such January 15,
April 15, July 15 or October 15, as applicable, (ii) 3.170% and (iii) a fraction
(x) the numerator of which is the actual number of days in such quarterly
period, and (y) the denominator of which is 360.
The
obligation of the Company to pay premium hereunder shall end on the date of
expiry of this Agreement or on such earlier date as this Agreement shall
terminate by reason of the occurrence of an Early Termination Event. Following
such expiry or termination, the Company shall pay a final premium hereunder
on
the second Business Day next preceding the earlier of (i) the next following
April 15 or October
15
(in the case of an expiry or termination during the
-9-
Original
Term or an Extension Term) or the next following January 15, April 15, July
15
or October 15 (in the case of an expiry or
termination during an Optional Extended Period), and (ii) the Final Redemption
Date. Such final premium shall be in an amount equal to the product of (i)
the
average daily Remaining Aggregate Limit during the period beginning on the
last
date on which the Company paid premium hereunder and ending on (and including)
the date of such expiry or termination, (ii) 2.320% (if such premium is being
paid during the Original Term or an Extension Term) or 3.170% (if
such
premium is being paid during an Optional Extended Period), and (iii) a fraction,
the numerator of which is the actual number of days in the period referred
to in
the foregoing clause (i) and the denominator of which is 360.
All
premiums shall be paid to the Trust Account in the amounts prescribed above
net
of any applicable withholding taxes.
EXTRA
CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
This
Agreement will protect the Company, within the limits hereof, where the Ultimate
Net Loss includes any Extra Contractual Obligations and/or Excess Limits
Liability.
“Extra
Contractual Obligations” will mean those liabilities not covered under any other
provision of this Agreement and which arise from the handling of any claim
on a
Policy reinsured hereunder, such liabilities arising because of, but not limited
to, the following: failure by the Company to settle within the Policy limit;
by
reason of alleged or actual negligence, fraud, or bad faith in rejecting an
offer of settlement; in the preparation of the defense or in the trial of any
action against its insured or reinsured; or in the preparation or prosecution
of
an appeal consequent upon such action.
“Excess
Limits Liability” will mean any amount payable in excess of the Company’s Policy
limit on a Policy reinsured hereunder, such liabilities arising because of,
but
not limited to, alleged or actual negligence, fraud, or bad faith in failing
to
settle and/or rejecting a settlement within the Policy limit; in the preparation
of the defense or in the trial of any action against the insured or reinsured;
or in the preparation or prosecution of an appeal consequent upon such action.
Excess Limits Liability is any amount which the Company would have been
contractually liable to pay had it not been for the limit of the reinsured
Policy.
The
date
on which any Extra Contractual Obligation and/or Excess Limits Liability is
incurred by the Company will be deemed, in all circumstances, to be the date
of
the original Loss Occurrence.
In
no
event will coverage be provided to the extent that such coverage is not
permitted by applicable law.
REPORTS
AND REMITTANCES
Within
45
days following the expiration each calendar quarter, the Company will furnish
the Reinsurer with a report of the paid, payable and incurred Ultimate Net
Loss
amounts in respect of all losses hereunder and/or which contribute to erosion
or
exhaustion of any applicable Attachment Point or the Aggregate Retention Amount
or which constitute Ultimate Net Loss in-
-10-
demnifiable
hereunder. If during the interim between such reports the Company in good faith
estimates that Ultimate Net Loss ceded hereunder not previously indemnified
exceeds $25,000,000, the Company in its discretion may submit an interim report
of the paid, payable and incurred Ultimate Net Loss amounts in respect of all
losses hereunder and/or which contribute to erosion or exhaustion of any
applicable Attachment Point or Aggregate Retention Amount or which constitute
Ultimate Net Loss indemnifiable hereunder. The Company will submit a copy of
each such quarterly or interim report to the Trustee together with a duly
executed notice in the form attached as Exhibit C to the Trust Agreement,
specifying the amount then due and owing to the Company under this Agreement.
Any balance shown to be due to the Company in any such quarterly or interim
report and related notice will be paid by the Trustee in immediately available
funds from assets available for such purpose in the Trust Account as directed
by
the Company within 20 Business Days following receipt of the report by the
Reinsurer and related notice by the Trustee; provided,
however, that
all
payments of Ultimate Net Loss hereunder shall be in whole number multiples
of
$10 million, and the excess, if any, of any Ultimate Net Loss otherwise due
hereunder over the largest such multiple which is less than such amount shall
be
carried forward to the next calendar quarter (and thereafter, if applicable).
In
the event there is net favorable development as respects a Loss Occurrence
prior
to commutation in respect of the period in which such Loss Occurrence took
place, no amount will be due from the Company at such time, but such amount
shall be offset from Ultimate Net Loss subsequently due hereunder.
COMMUTATION
AND QUANTUM DISPUTE RESOLUTION
At
any
time after the delivery of the report in respect of any calendar quarter
pursuant to the Reports and Remittances Article, the Company at its option
may
elect by written notice to the Reinsurer to commute its rights and the
Reinsurer’s obligations as respects Ultimate Net Loss for Loss Occurrences
taking place in such calendar quarter and all prior calendar quarters (not
previously commuted) based on the Company’s paid, payable and incurred amounts
reported for such quarters through the date of such commutation (without
limiting coverage for Loss Occurrences in the then current and subsequent
quarters). Such notice shall be accompanied by a report setting forth the
Company’s calculation as to such additional amounts which may be owed by or due
to the Reinsurer as a result of such commutation. The Company will submit a
copy
of such commutation report to the Trustee together with a duly executed notice
in the form attached as Exhibit C to the Trust Agreement specifying the amount,
if any, then due and owing to or from the Company under this Agreement. The
Trustee shall pay to the Company the amount, if any, of payments then due to
the
Company and not previously paid in respect of such quarters as provided in
the
commutation report and related notice in immediately available funds from assets
available for such purpose in the Trust Account as directed by the Company
within 20 Business Days following receipt of the report by the Reinsurer and
related notice by the Trustee, and there shall be deemed to be no carry forward
or further loss development in respect of Loss Occurrences during such commuted
quarters for the purposes of this Agreement. If such commutation report and
notice shows any amount due to the Reinsurer, such amount shall not be due
from
the Company but shall be offset from Ultimate Net Loss subsequently due
hereunder. Upon expiry of this Agreement, the Company shall commute its rights
and the Reinsurer’s obligations hereunder no later than 90 days after such
expiration, which commutation shall extinguish all of the Company’s and the
Reinsurer’s rights and obligations hereunder as respect any subsequent favorable
or adverse development in respect of all Loss Occurrences
hereunder.
-11-
If
at the
time of commutation upon expiry of this Agreement, as respects Loss Occurrences
taking place subsequent to the latest calendar quarter previously commuted
(or
as respects all Loss Occurrences if there has been no prior commutation), the
amount paid to the Company by the Reinsurer hereunder from the Trust Account
in
the aggregate as respects such Loss Occurrences (including any amounts due
from
the Company carried forward from any prior commutations pursuant to the previous
paragraph) exceeds the aggregate of Ultimate Net Loss with respect to such
Loss
Occurrences for which the Company is entitled to indemnification hereunder
(whether by reason of favorable development, net salvage or subrogation or
otherwise), the Company shall pay (without duplication of any amount repaid
pursuant to any determination by the Loss Verification Agent as provided below)
the amount of such excess without interest, to or as directed by XL Insurance
(Bermuda) Ltd..
All
payments of Ultimate Net Loss due hereunder or of any commutation amount (as
described above) shall be based on actual paid and payable amounts and reserves
established by the Company as set forth in any quarterly or interim report
by
the Company per the Reports and Remittances Article or in a report accompanying
notice of commutation as described above in this Article. All calculations
of
Non-Ceded Ultimate Net Loss shall be based on actual paid and payable amounts
and reserves established by the relevant subsidiary or affiliate of XL Capital,
in each case on its books in good faith in the ordinary course of business
using
consistent methodology for all of its loss reserving. In the event that the
Reinsurer within six months of receipt of a quarterly or interim report
(pursuant to the Reports and Remittances Article) or a commutation report as
described above (or within 10 Business Days of an Early Termination Event)
gives
a written notice of dispute of any such paid, payable or reserve amount,
Deloitte & Touche LLP (“Loss Verification Agent”) shall perform an analysis
of the paid and payable losses and reserves in question and shall determine
the
range of Ultimate Net Loss based upon a reasonable range of reserve estimates
in
accordance with standard accounting and actuarial practice. Such a notice or
the
pendency of such an analysis shall not delay the Company’s right to obtain
payment as set forth in its quarterly, interim or commutation report. The Loss
Verification Agent shall share a draft of its conclusion and workpapers with
the
Company and the Reinsurer and shall give them a reasonable opportunity to
comment thereon if either or both of them wish to do so. If in the aggregate
the
amount of Ultimate Net Loss as determined by the Company falls within the range
finally determined by the Loss Verification Agent, the Company’s determination
of such amount shall be deemed final and conclusive hereunder, and the fees
and
expenses of the Loss Verification Agent shall be paid from the Trust Account
(or, to the extent there are not sufficient funds in the Trust Account, by
the
Company). If in the aggregate the amount of Ultimate Net Loss determined by
the
Company does not fall within such range, the end point of such range which
is
closest to the Company’s determination shall be deemed to be the applicable
amount of Ultimate Net Loss and final and conclusive hereunder, and the Company
shall pay the fees and expenses of the Loss Verification Agent. In such case,
the Company shall hold in trust the amount of any overpayment hereunder to
be
(i) applied to future Ultimate Net Loss due hereunder, if any, (ii) if the
overpayment exceeds the aggregate of subsequent Ultimate Net Loss due hereunder,
if any, through the time of commutation upon expiry of this Agreement (or
termination of this Agreement upon the occurrence of an Early Termination Event)
by $25 million or more, then, notwithstanding the provision above providing
for
payment to or at the direction of XL Insurance (Bermuda) Ltd, the Company
promptly shall repay (without duplication of any repayment of excess amounts
above Ultimate Net Loss as provided above) the amount of any such excess,
without
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interest,
into the Trust Account, or (iii) if the overpayment exceeds the aggregate of
subsequent Ultimate Net Loss due hereunder, if any, at the time of commutation
upon expiry of this Agreement (or termination of this Agreement upon the
occurrence of an Early Termination Event) by less than $25 million, then,
subject to the provision above providing for payment to or at the direction
of
XL Insurance (Bermuda) Ltd, the difference is to be retained by the Company
(or,
if applicable as provided above, paid to or as directed by XL Insurance
(Bermuda) Ltd). If no such notice of dispute is given with such six-month period
(or within 10 Business Days of an Early Termination Event), the Ultimate Net
Loss determined by the Company shall be final and conclusive hereunder (subject
to subsequent payments and changes in any reserve estimates for periods for
which there has been no commutation).
TRUST
ACCOUNT
The
Reinsurer shall establish the Trust Account pursuant to the Trust Agreement
and
shall contribute cash or eligible securities (as defined in such Trust
Agreement) to such Trust Account in an amount no less than the Policy Aggregate
Limit. The Trust Agreement will not be amended, modified or supplemented without
the prior written consent of the Company.
All
obligations of and any claims against the Reinsurer under this Agreement shall
be with recourse solely to the Trust Account and the Reinsurer’s assets (other
than its ordinary share capital of U.S.$5,000, the amount equal to U.S.$1,500
paid to the Reinsurer as a transaction fee, any interest income earned on such
excluded amounts and the Cayman Islands bank account in which such amounts
are
held).
Notwithstanding
anything to the contrary in this Agreement, but without limiting the Company’s
rights as respects the Trust Account and the assets therein, all obligations
of
and any claims against the Reinsurer under this Agreement shall be extinguished
and shall not thereafter revive in the event that, at any time, the Reinsurer’s
assets (other than its ordinary share capital of U.S.$5,000, the amount equal
to
U.S.$1,500 paid to the Reinsurer as a transaction fee, any interest income
earned on such excluded amounts and the Cayman bank account in which such
amounts are held) are exhausted. In such case, the Company shall have no further
claim thereafter against the Reinsurer, its directors, officers or shareholders
for any shortfall.
The
Company, by entering into this Agreement, hereby covenants and agrees that
it
will not at any time institute against the Reinsurer, or join in any institution
against the Reinsurer, of any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal,
state or foreign bankruptcy or similar law in connection with any obligations
hereunder until the expiration of one year and one day (or, if longer, the
applicable preference period then in effect (plus one day) under any applicable
law) from the effective date of the termination of this Agreement.
The
provisions of this Section shall survive the termination of this
Agreement.
NOTICE
OF LOSS AND LOSS SETTLEMENTS
The
Company will give notice to the Reinsurer, as soon as reasonably practicable,
of
any Loss Occurrence that results in, or is likely to result in, a claim against
this Agreement; and the
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Company
will keep the Reinsurer advised of all subsequent developments. Inadvertent
omission in dispatching the aforementioned notices will in no way affect the
obligation of the Reinsurer under this Agreement, but the Company shall inform
the Reinsurer of such omission promptly upon discovery.
The
Company will be the sole judge as to what will constitute a claim covered under
the Company’s Policy and as to the Company’s liability thereunder. The Company
will, at its sole discretion, adjust, settle, or compromise all claims and
losses. All such adjustments, settlements, and compromises will be
unconditionally binding on the Reinsurer in proportion to their participation
hereon, provided they are within the terms and conditions of this
Agreement.
The
Company will likewise, at its sole discretion, commence, continue, defend,
or
withdraw from actions, suits or proceedings and generally handle all matters
related to all claims and losses.
The
Reinsurer agrees to abide by the loss settlements of the Company.
SALVAGE
AND SUBROGATION
The
Reinsurer will be credited with its share of salvage and/or subrogation in
respect of claims and settlements under this Agreement as respects any Loss
Occurrence, less recovery expense, if and only if such salvage or subrogation
is
received prior to loss settlement, but (i) the amount of any salvage or
subrogation recovery received thereafter (net of expenses) and prior to
commutation in respect of the period in which such Loss Occurrence took place
(and for the avoidance of doubt not to exceed Ultimate Net Loss paid hereunder
in respect of such Loss Occurrence), shall be offset from Ultimate Net Loss
subsequently due under this Agreement and (ii) the expenses incurred in pursuing
any such salvage or recovery prior to any such commutation shall constitute
Ultimate Net Loss.
ENTIRE
AGREEMENT
This
Agreement, the XL Preference Share Agreement and the Trust Agreement constitute
the entire agreement between the parties with respect to the business being
reinsured hereunder and no understandings exist between the parties other than
those expressed in this Agreement, the XL Preference Share Agreement and the
Trust Agreement, including any letters of understanding issued by the Company
from time to time relating to underwriting methods and practices employed by
the
Company in respect of business reinsured hereunder.
DELAYS,
ERRORS, OR OMISSIONS
Any
inadvertent delay, error, or omission will not be held to relieve either party
hereto from any liability that would attach to it hereunder if such delay,
error, or omission had not been made. Any error or omission will be rectified
upon discovery except to the extent it would reduce any prior loss settlement.
Nothing herein will be deemed to override any other term, clause or condition
of
this Agreement.
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AMENDMENTS
This
Agreement may be altered or amended in any of its terms and conditions by mutual
written consent of the Company and the Reinsurer either by endorsement(s) hereto
or by an exchange of letters; such addenda or letters will then constitute
a
part of this Agreement. As set forth above, the Company may unilaterally elect
to extend the term of this Agreement for one or more Extension Terms and may
determine the Covered Perils, Attachment Points and Aggregate Retention Amounts
with respect thereto by endorsement hereto.
ACCESS
TO RECORDS
The
Company’s books and records related to this Agreement and any Loss Occurrences
hereunder will be open to inspection by authorized representatives of the
Reinsurer at any reasonable time during the existence of this Agreement or
of
any liability hereunder. The Reinsurer is required to give at least 14 days
notice of an inspection. A request by the Reinsurer to carry out an inspection
will not be a reason for non-payment or delayed payment.
CONFIDENTIALITY
Materials
contained in this Agreement and in the treaty prospectus, or marketing package
contain confidential, proprietary information of the Company. These statements
and representations, either written or oral, are intended for the sole use
of
the parties to this Agreement (or their retrocessionaires, shareholders,
auditors, or legal counsel, as may be necessary) in analyzing and/or accepting
a
participation in this Agreement. Copying, duplicating, disclosing or using
this
information for any purpose beyond this expressed purpose is forbidden without
the prior consent of the Company.
INSOLVENCY
In
the
event of the Company’s insolvency, the reinsurance afforded by this Agreement
will be payable by the Reinsurer on the basis of the Company’s liability under
the policies reinsured without diminution because of the Company’s insolvency or
because its liquidator, receiver, conservator, or statutory successor has failed
to pay all or a portion of any claims, subject however to the right of the
Reinsurer to offset against such funds due hereunder, any sums that may be
payable to them by said insolvent Company in accordance with applicable law.
The
reinsurance will be payable by the Reinsurer directly to the Company, or to
its
liquidator, receiver, conservator, or statutory successor except (a) where
this
Agreement specifically provides another payee of such reinsurance in the event
of the Company’s insolvency or (b) where the Reinsurer, with the consent of the
direct insured or insureds, have assumed such policy obligations of the Company
as direct obligations of themselves to the payees under such policies in
substitution for the Company’s obligation to such payees. Then, and in that
event only, the Company is entirely released from its obligation and the
Reinsurer will pay any loss directly to payees under such policies.
The
Company’s liquidator, receiver, conservator, or statutory successor will give
written notice of the pendency of a claim against the Company under the policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such
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claim,
the
Reinsurer may investigate said claim and interpose in the proceeding where
the
claim is to be adjudicated, at their own expense, any defense that they may
deem
available to the Company, or to its liquidator, receiver, conservator, or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable against the Company, subject to court approval, as part of the
expense of conservation or liquidation to the extent that such proportionate
share of the benefit will accrue to the Company solely as a result of the
defense undertaken by the Reinsurer. Where two or more Reinsurer are involved
in
the same claim, and a majority in interest elect to interpose defense to such
claim, the expense will be apportioned in accordance with the terms of this
Agreement as though such expense had been incurred by the Company.
ARBITRATION
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A.
|
Except
as provided in the Commutation and Quantum Dispute Resolution Article
above, any dispute, controversy or claim arising out of or relating
to
this Contract or the breach, termination or invalidity thereof will
be
finally and fully determined in London, England under the provisions
of
the Arbitration Xxx 0000 and/or any statutory modifications or amendments
thereto, for the time being in force, by a Board composed of three
arbitrators to be selected for each controversy as
follows:
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|
1.
|
Any
party may, in the event of such a dispute, controversy or claim,
notify
the other party or parties to such dispute, controversy or claim
of its
desire to arbitrate the matter, and at the time of such notification
the
party desiring arbitration will notify any other party or parties
of the
name of the arbitrator selected by it. The other party who has been
so
notified will within 30 calendar days thereafter select an arbitrator
and
notify the party desiring arbitration of the name of such second
arbitrator. If the party notified of a desire for arbitration will
fail or
refuse to nominate the second arbitrator within 30 calendar days
following
receipt of such notification, the party who first served notice of
a
desire to arbitrate will, within an additional period of 30 calendar
days,
apply to a judge of the High Court of Justice in England and Wales
for the
appointment of a second arbitrator and in such a case the arbitrator
appointed by such a judge will be deemed to have been nominated by
the
party or parties who failed to select the second arbitrator. The
two
arbitrators, chosen as above provided, will within 30 calendar days
after
the appointment of the second arbitrator choose a third arbitrator.
In the
event of the failure of the first two arbitrators to agree on a third
arbitrator within said 30 calendar day period, either of the parties
may
within 30 calendar days thereafter, after notice to the other party
or
parties, apply to a judge of the High Court of Justice of England
and
Wales for the appointment of a third arbitrator and in such case
the
person so appointed will be deemed and will act as the third arbitrator.
Upon acceptance of the appointment by said third arbitrator, the
Board of
Arbitration for the controversy in question will be deemed fixed.
All
claims, demands, denials of claims and notices pursuant to this Article
will be given in writing and given by hand, prepaid express courier,
airmail or
|
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telecopier
properly addressed to the appropriate party and will be deemed as having been
effected only upon actual receipt.
|
2.
|
The
Board of Arbitration will fix, by a notice in writing to the parties
involved, a reasonable time and place for the hearing and may prescribe
reasonable rules and regulations governing the course and conduct
of the
arbitration proceeding, including without limitation discovery by
the
parties.
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|
3.
|
The
Board of Arbitration will, within 90 calendar days following the
conclusion of the hearing, render its decision on the matter or matters
in
controversy in writing and will cause a copy thereof to be served
on all
the parties thereto. In case the Board fails to reach a unanimous
decision, the decision of the majority of the members of the Board
will be
deemed to be the decision of the Board and the same will be final
and
binding on the parties thereto. Such decision will be a complete
defense
to any attempted appeal or litigation of such decision of the Board
of
Arbitration by, any court or other body to the fullest extent permitted
by
applicable law.
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|
4.
|
Any
order as to the costs of the arbitration will be in the sole discretion
of
the Board of Arbitration, who may direct to whom and by whom and
in what
manner they will be paid.
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GOVERNING
LAW
Save
as
otherwise set out above, this Agreement, including all matters relating to
formation, validity and performance thereof, will be governed by the internal
Laws of England and Wales without reference to choice of law
principles.
TAXES
The
Company will pay all applicable taxes (including, if applicable, Federal Excise
Tax as imposed under Section 4371 of the Internal Revenue Code), if any, on
premiums reported to the Reinsurer on this Agreement, which taxes shall be
in
addition to the premiums due hereunder (i.e.,
to
the
extent necessary, the Company shall gross up premiums due hereunder so that
the
Reinsurer receives the amount specified herein net of taxes).
CURRENCY
All
limits
and retentions hereunder are expressed in United States currency, and all
payments hereunder will be made in that currency. For the purposes of this
Agreement, amounts paid or received by the Company in currencies other than
United States currency will be converted into United States Dollars at the
actual rates of exchange at which they are entered in the Company’s
books.
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AGENCY
The
reinsured company that is set forth first in the definition of “Company” in the
Preamble to this Agreement will be deemed the agent of all other reinsured
companies referenced in the Preamble for the purpose of this Agreement, the
Trust Agreement and all related transactions. In no event, however, will any
reinsured company be deemed the agent of another with respect to the terms
of
the Insolvency Article.
AFFILIATED
COMPANIES
Whenever
the word “Company” is used in this Agreement, such term will be held to include
any and/or all of the subsidiary operating insurance or reinsurance companies
which may hereafter come under the Control of the XL Capital group upon prior
written notice from the Company to the Reinsurer; provided,
however, that
any
such company in which XL Capital maintains a direct or indirect beneficial
equity ownership less than or equal to 90% shall not be deemed to be a “Company”
except for the purposes of “Non-Ceded Ultimate Net Loss” and as provided in the
definition of such term.
If
XL
Capital shall cease to control any entity included within the Company, any
Policies or Loss Occurrences arising out of the operations of such entity for
which no other Company has liability shall cease to be covered
hereunder.
The
retention of the Company and the liability of the Reinsurer and all other
benefits accruing to the Company as provided in this Agreement or any amendments
hereto, will apply to the affiliated companies comprising the Company as a
group
and not separately to each of the affiliated companies.
NON-ASSIGNMENT;
THIRD PARTIES
Nothing
herein will in any manner create any obligations or establish any rights against
the Reinsurer in favor of any third parties or any persons not parties to this
Agreement except as provided in the Insolvency Article.
Nothing
herein will in any manner create any obligations or establish any rights against
the Company in favor of any third parties or any persons not parties to this
Agreement.
Neither
the Company nor the Reinsurer may assign to any third parties or any persons
not
parties to this Agreement any rights or obligations hereunder without the prior
written consent of the other.
SEVERABILITY
In
the
event any provision of this Agreement is rendered illegal or unenforceable
in
any jurisdiction, such provision will be considered void as respects that
jurisdiction only, and such a consideration will not affect the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
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IN
WITNESS
WHEREOF this Agreement is executed in duplicate by the parties’ duly authorized
officers on the dates indicated below with an effective date of December 12,
2006.
XL
INSURANCE (BERMUDA) LTD
on
behalf
of itself and as Attorney-in-Fact for:
XL
INSURANCE (BERMUDA) LTD
XL
INSURANCE SWITZERLAND
XL
EUROPE
LIMITED
XL
INSURANCE COMPANY LIMITED
XL
RE
LATIN AMERICA LTD
XL
INSURANCE ARGENTINA S.A. COMPANIA
DE SEGUROS
XL
INSURANCE COMPANY LTD
XL
RE
LTD
XL
RE
EUROPE LIMITED
VITODURUM
REINSURANCE COMPANY
UNDERWRITING
MEMBERS OF LLOYD’S SYNDICATE #1209
By /s/
C.
Xxxxxxx Xxx
Name:
C.
Xxxxxxx Xxx
Title:
SVP, Chief Financial Officer
Date:
December 12, 2006
Attest:
/s/
Xxxxxxxxx Xxxxx
Name:
Xxxxxxxxx Xxxxx
Title:
Asst. Secretary
Date:
December 12, 2006
Reinsurance
Agreement
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STONEHEATH
RE
By /s/
Xxxxx Xxxxxxxxx
Name:
Xxxxx Xxxxxxxxx
Title:
Director
Date:
December 12, 2006
Attest: /s/
Xxx
Xxxxxxxxx
Name:
Xxx
Xxxxxxxxx
Title:
Assistant Manager
Reinsurance
Agreement
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