REINSURANCE AGREEMENT
This Agreement dated as of the lst day of January, 1999, between MBIA
Insurance Corp. of Illinois, (formerly known as Bond Investors Guaranty
Insurance Company), an Illinois corporation (hereinafter referred to as the
"Ceding Company"), and MBIA Insurance Corporation, (formerly known as Municipal
Bond Investors Assurance Corporation), a New York stock insurance company
(hereinafter referred to as the "Reinsurer").
WITNESSETH:
WHEREAS, the Ceding Company is an Illinois corporation; and
WHEREAS, the Ceding Company has written municipal bond and municipal note
guaranty insurance; and
WHEREAS, the Ceding Company has ceased writing such insurance, except to
honor outstanding commitments, and has entered into a Reinsurance Agreement
dated December 31, 1990 with the Reinsurer (the "Prior Agreement"); and
WHEREAS, the parties hereto now desire to terminate the Prior Agreement on
a cutoff basis as of the Effective Date hereof, and to replace the Prior
Agreement with this Agreement in connection with any losses paid on and after
the Effective Date hereof; and
WHEREAS, the Ceding Company desires to cede and the Reinsurer desires to
reinsure the Ceding Company's liability on all insurance of the Ceding Company
now in force and hereafter written by the Ceding Company to honor outstanding
commitments on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and understandings
contained herein and upon the terms and conditions set forth below, the parties
hereto agree as follows:
ARTICLE I
Cover:
1.1 The Ceding Company hereby cedes as reinsurance to the Reinsurer, and
the Reinsurer hereby accepts as reinsurance from the Ceding Company, one hundred
percent (100%) of the net liability and other obligations of the Ceding Company
under all Covered Business, as defined in Article 2, including extra contractual
obligations relating thereto. In no event shall coverage be provided to the
extent that such coverage is not permitted under New York law.
ARTICLE 2
Covered Business:
2.1 Covered Business shall mean all of the Ceding Company's net retention
on business written by the Ceding Company. Such net retention: (a) is net of
cessions by the Ceding Company to other reinsurers (the "third party
reinsurers"); (b) includes all liabilities assumed by the Ceding Company; (c)
includes the Ceding Company's interest in any contingent commissions due or
which become due to the Ceding Company from third-party reinsurers.
ARTICLE 3
Definitions:
3.1 As used in this Agreement:
(a) "Effective Letter of Credit" shall mean, as of any date, an Eligible
Letter of Credit delivered to the Ceding Company and having an expiration date
at least one month after such date.
(b) "Eligible Letter of Credit" shall mean a clean irrevocable letter of
credit in favor of the Ceding Company issued by a bank chosen by the Reinsurer,
complying with the requirements of applicable law to allow the Ceding Company to
claim reserve credit for liabilities ceded hereunder and complying with
requirements of the Insurance Department of the State of New York and the
Illinois Department of Insurance.
(c) "Effective Security" shall mean, as of any date, the full amount of
Effective Letters of Credit.
(d) "Ceded Reserves" shall mean, as of any date, the aggregate of the
unearned premium reserve and the loss reserve, if any, required to be carried by
the Ceding Company for the liabilities ceded hereunder in accordance with
statutory accounting practices, before giving effect to any reserve credit for
the cession made hereby (but after giving effect to the cessions and assumptions
referred to in Article 2 regardless of whether the Ceding Company is permitted
to claim reserve credit for the cessions referred to in Article 2).
(e) "Contingency Reserve" shall mean contingency reserve as defined in
Section 6903(a) of the New York Insurance Law.
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ARTICLE 4
Period:
4.1. This Reinsurance Agreement shall be effective as of 12:01 A.M.,
Eastern Standard Time, January 1, 1999 (the "Effective Time"). This Reinsurance
Agreement will be terminated or amended in accordance with Section 6906(a) of
the New York Insurance Law. Cancellation will be at year end after first giving
90 days notice.
ARTICLE 5
Reinsurance Premium and Accounts:
5.1. The Ceding Company shall pay to the Reinsurer as of the Effective Time
a reinsurance premium equal to the Ceded Reserves and the Contingency Reserve as
of the Effective Time. An estimated payment of such initial reinsurance premium
shall be made not later than the Effective Time. As soon as practicable but no
later than 60 days thereafter, the Ceding Company will provide the Reinsurer
with a portfolio representing the Ceded Reserves and the Contingency Reserve as
of the Effective Time and if the Ceded Reserves and the Contingency Reserve
differ from the estimated payment made pursuant to the preceding sentence, an
appropriate adjusting payment between the parties shall be made. Such portfolio
shall also set forth the contingency reserve required to be established as of
the Effective Time.
5.2 Within 20 days following the end of each month, the Ceding Company will
render or cause to be rendered a net account to the Reinsurer for the month
showing the Ceding Company's interest in the following:
(a) Net written premium accounted for during the month (being the gross
written premium less returns and cancellations and net of reinsurance ceded by
the Ceding Company to third-party reinsurers).
(b) Any contingent commission paid to the Ceding Company by third-party
reinsurers during the month.
(c) Any loss or loss expense paid during the month on losses occurring
during the term of this Agreement.
(d) Subrogations, salvage or other recoveries made during the month on
losses occurring during the term of the Agreement.
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5.3 Within 15 days after receipt of the account, the Reinsurer shall send
confirmation of the account or relevant objections to the Ceding Company.
(a) The Ceding Company shall remit any net balance payable to the
Reinsurer at the same time as the account is rendered.
(b) The Reinsurer shall remit any net balance payable to the Ceding
Company at the same time as the account is confirmed, but at the latest
within 15 days following receipt of the account.
(c) Even if the Reinsurer has objections in regard to the account, the
uncontested balance shall be immediately remitted. Following the immediate
clarification of the questions which have arisen, the difference in amount
shall be settled at once by the party in debt.
5.4 Within 30 days following the end of each calendar quarter, the Ceding
Company shall furnish a report as to reserves, together with any other
information which the Reinsurer may require for its accounting records and which
may be reasonably available to the Ceding Company.
5.5 Within 45 days following the end of each calendar year, the Ceding
Company shall furnish to the Reinsurer for the calendar year a summary account
split up per underwriting year for 100% of the business ceded hereunder,
together with any other information which the Reinsurer may require for its
accounting records and which may be reasonably available to the Ceding Company.
5.6 No ceding commission shall be payable in respect of this Reinsurance
Agreement.
5.7 All settlements of account under this Agreement between the Ceding
Company and the Reinsurer shall be made in cash or its equivalent.
ARTICLE 6
Security:
6.1 When a governing body of any jurisdiction in which the Ceding Company
legally operates or to which it submits requires as a condition to credit for
the reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Ceding Company, establish a Trust Account for the
benefit of the Ceding Company or deposit funds under the control of the Ceding
Company, the Reinsurer shall post and maintain such a Letter of Credit,
establish such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Ceding Company to avoid on any statutory financial
statement filed by the Ceding Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
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6.2 Notwithstanding any other provisions of this Agreement, it is agreed
that any Letter of Credit provided under section 6.1 of this Article 6 shall be
drawn upon and utilized by the Ceding Company or its successors in interest only
for one or more of the following purposes:
(a) to reimburse the Ceding Company for losses and loss expenses paid
by the Ceding Company under this Agreement;
(b) to fund an account with the Ceding Company in an amount at least
equal to the deduction allowed for the reinsurance provided by this
Agreement, from the Ceding Company's liabilities for Policies ceded under
the Agreement, such amount to include, if applicable, but not be limited
to, amounts for contingency reserves, loss reserves for paid, reported and
incurred but not reported ("IBNR") losses, loss expense reserves and
unearned premium reserves; or
(c) to pay any other amounts the Ceding Company claims are due under
the Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Ceding Company or Reinsurer.
6.3 If the Reinsurer elects to provide a Letter of Credit under section 6.1
of this Article, the Reinsurer shall cause the Letter of Credit to be issued, in
place and effective no later than the "as of date" of the first quarterly filing
prepared by the Ceding Company for the appropriate regulatory authority after
the effective date of this Agreement.
ARTICLE 7
Service of Covered Business:
7.1 The Ceding Company shall service the Covered Business with respect to
collection and payment of premium, notice, service of process and investigation,
settlement, defense and payment of claims on all Covered Business and with
respect to all reinsurance ceded by the Ceding Company to third-party
reinsurers. The Ceding Company will remit all premiums collected to the
Reinsurer and third-party reinsurers in accordance with their respective
interests.
ARTICLE 8
Claims:
8.1 The Ceding Company shall settle or defend claims. The Reinsurer shall,
within one hour of receiving written or telephonic notice of any claim, (any
telephonic notice to be subsequently confirmed in writing) pay the Reinsurer's
share of all losses and loss expense, excluding unallocated loss expense.
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ARTICLE 9
Salvage:
9.1 The Ceding Company will credit the Reinsurer with its proportionate
share of any recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance hereunder.
9.2 In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that, if the expenses
incurred in obtaining salvage or other recoveries are less than the amount
recovered, such expenses shall be borne by each party in the proportion that
each party benefits from the recoveries, otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and the
remaining expense shall be borne by the Ceding Company and the Reinsurer in
proportion to the liability of each party for the loss before such recovery had
been obtained. Expenses hereunder shall exclude all office expenses and salaries
of officers and employees of the Ceding Company.
ARTICLE 10
Access to Records:
10.1 The Reinsurer shall, at all reasonable times during the term of this
Agreement and thereafter, have the right to inspect the books, records and
documents of the Ceding Company with respect to the Covered Business.
ARTICLE 11
Reserves:
11.1 The Reinsurer agrees to maintain proper unearned premium, loss and
loss expense reserves upon the liabilities ceded hereunder in accordance with
accounting practices prescribed or permitted by each of the Insurance
Departments of the States of New York and California. The Reinsurer shall also
establish as of the Effective Time a statutory contingency reserve in an amount
equal to the statutory contingency reserve required to be carried by the Ceding
Company immediately prior to the Effective Time.
ARTICLE 12
Original Conditions:
12.1 All insurances and reinsurances falling under this Agreement shall be
subject to the same terms, rates, conditions and waivers, and to the same
modifications, alterations and cancellations, as the respective policies
constituting the Covered Business.
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ARTICLE 13
Follow the Fortunes:
13.1 This Agreement shall be construed as an honorable undertaking between
the parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Ceding Company. Nothing herein shall 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.
ARTICLE 14
Errors and Omissions:
14.1 Any inadvertent error, omission or delay in connection with this
Agreement shall not affect the liability which otherwise would have attached to
either party, provided such error, omission or delay is rectified as soon as
possible after discovery.
ARTICLE 15
Offset:
15.1 Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement, and may
offset the same against any balance or balances due or to become due to the
former from the latter under the same. The party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or to
become due to such party from the other are on account of premiums or on account
of losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
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ARTICLE 16
Insolvency:
16.1 In the event of the insolvency of the Ceding Company or its successor
in interest this reinsurance shall be payable directly to the Ceding Company, or
directly to its liquidator, receiver, conservator or statutory successor, on the
basis of the liability of the Ceding Company without diminution because of the
insolvency of the Ceding Company or because the liquidator, receiver,
conservator or statutory successor of the Ceding Company has failed to pay all
or a portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Ceding Company shall give written
notice to the Reinsurer of the pendency of the claim against the Ceding Company
indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
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 that it may deem available to the Ceding
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Ceding Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer.
16.2 The Reinsurance shall be payable by the Reinsurer to the Ceding
Company or to 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 policy specifically provided another payee of such reinsurance in
the event of the insolvency of the Ceding Company and (b) where the Reinsurer
with the consent of the direct insured or insureds has assumed such policy
obligations of the Ceding Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the Ceding
Company to such payees.
ARTICLE 17
Effective Date: Termination of Prior Agreement
17.1 This Agreement shall take effect as of January 1, 1999 (the "Effective
Date") and shall apply to all losses paid by the Ceding Company on or after that
date and during the term hereof.
17.2 The parties agree that the Prior Agreement shall be terminated as of
said Effective Date, and the Reinsurer shall not be liable under the Prior
Agreement for losses on or after the Effective Date, which shall be covered by
this Agreement.
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17.3 The Ceding Company shall transfer to the Reinsurer all Ceded Reserves
and Contingency Reserves held by it as of the Effective Date of this Agreement
in connection with Covered Business subject to the Prior Agreement.
ARTICLE 18
Miscellaneous:
18.1 This Agreement shall be governed by the laws of the State of New York.
18.2 The parties hereto agree to execute and deliver such further
instruments and do such further acts as may be necessary and proper to carry out
the purposes of this Reinsurance Agreement.
18.3 If any provision of this Reinsurance Agreement or the applicability
thereto to any person or circumstance is held invalid, the remainder of this
Reinsurance Agreement, including the remainder of the section in which such
provision appears, or the applicability of such provision to other persons or
circumstances, shall not be affected thereby.
18.4 This Reinsurance Agreement contains the entire understanding of the
parties with respect to the subject matter hereto. There are no restrictions,
promises, warranties, covenants or undertakings with respect to such subject
matter, other than those expressly set forth herein. This Reinsurance Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. This Reinsurance Agreement is binding on and
shall inure to the benefit of the parties hereto, their successors and assigns.
At Armonk, MBIA INSURANCE CORP. OF ILLINOIS
New York
By: /s/ Xxxxx X. Xxxxxxx
------------------------------
President
Xxxxx X. Xxxxxxx
At Armonk, MBIA INSURANCE CORPORATION
New York
By: /s/ Xxxxxxx X. Xxxxx
------------------------------
President
Xxxxxxx X. Xxxxx
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