<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
REGISTRATION NO. 333-4454
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCPIE HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 95-4557980
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
9441 WEST OLYMPIC BOULEVARD
BEVERLY HILLS, CALIFORNIA 90213-4015
(310) 551-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DONALD J. ZUK, PRESIDENT
9441 WEST OLYMPIC BOULEVARD
P.O. BOX 4015
BEVERLY HILLS, CALIFORNIA 90213-4015
(310) 551-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
DONALD P. NEWELL, ESQ.
LATHAM & WATKINS
701 "B" STREET
SUITE 2100
SAN DIEGO, CALIFORNIA 92101-1234
(619) 236-1234
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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===========================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE FEE(2)
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value...................... 10,500,000 shares $21.00 $220,500,000 $76,035
===========================================================================================================
</TABLE>
(1) Estimated in accordance with Rule 457 under the Securities Act of 1933
solely for the purpose of calculating the registration fee.
(2) Includes an aggregate of $72,414 previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
SCPIE HOLDINGS INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN LOCATION OR HEADING IN
FORM S-4 REGISTRATION STATEMENT PROXY STATEMENT/PROSPECTUS
------------------------------- --------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................. Summary; Risk Factors
4. Terms of the Transaction....................... Summary; Information Concerning the
Special Meeting; The Merger
5. Pro Forma Financial Information................ Selected Financial and Operating Data
6. Material Contacts with the Company Being
Acquired....................................... Summary; The Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................... Not Applicable
8. Interests of Named Experts and Counsel......... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Management -- Limitation of Liability
and Indemnification
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants... Not Applicable
11. Incorporation of Certain Information by
Reference .................................... Not Applicable
12. Information with Respect to S-3 or S-2
Registrants................................... Not Applicable
13. Incorporation of Certain Information by
Reference .................................... Not Applicable
14. Information with Respect to Registrants Other
than S-3 or S-2 Registrants................... Available Information; Summary; Risk
Factors; Comparison of Certain Rights
of Members Before and After the
Merger; Dividend Policy; Business;
Management; Ownership of Common Stock
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN LOCATION OR HEADING IN
FORM S-4 REGISTRATION STATEMENT PROXY STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<S> <C> <C>
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 Companies..... Not Applicable
16. Information with Respect to S-2 or S-3
Companies..................................... Not Applicable
17. Information with Respect to Companies Other
than S-3 or S-2 Companies..................... Available Information; Summary; Divi-
dend Policy; Selected Financial and
Operating Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited............ Outside Front Cover Page; Summary;
Risk Factors; Information Concerning
the Special Meeting; Management; Cer-
tain Relationships and Related
Transactions; Ownership of Common
Stock
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer.......................... Not Applicable
</TABLE>
<PAGE> 4
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
9441 WEST OLYMPIC BOULEVARD
P. O. BOX 4015
BEVERLY HILLS, CALIFORNIA 90213-4015
, 1996
Dear Member:
You are cordially invited to attend a special meeting (the "Special
Meeting") of the members of Southern California Physicians Insurance Exchange, a
California reciprocal insurer (the "Exchange"), to be held on
, 1996, at p.m., Pacific time, at
, Los Angeles, California.
At this important meeting you will be asked to consider and vote upon a
proposal to approve a Plan and Agreement of Merger, dated as of March 21, 1996
(the "Merger Agreement"), pursuant to which the Exchange will merge (the
"Merger") with and into SCPIE Indemnity Company, a California stock insurer and
the surviving corporation of the Merger ("SCPIE Indemnity"). Following the
Merger, SCPIE Indemnity will be a wholly owned subsidiary of SCPIE Holdings
Inc., a Delaware corporation ("SCPIE Holdings"). In the Merger, each member of
the Exchange on , 1996 (an "Eligible Member") will receive shares of
common stock, par value $.0001 per share, of SCPIE Holdings (the "Common
Stock"). Pursuant to the Merger Agreement, 10,000,000 shares of Common Stock
will be allocated to Eligible Members in accordance with the following formula:
(i) each Eligible Member shall be allocated a number of shares of Common Stock
equal to the product of x and y, where "x" equals 9,000,000 shares of Common
Stock and "y" equals the ratio of the Earned Premiums (as defined) of such
Eligible Member on Eligible Policies (as defined) to the total Earned Premiums
of all Eligible Members on Eligible Policies during the period beginning on
January 1, 1993 and ending on but including , 1996, plus
(ii) each Eligible Member who was also a member on March 21, 1996, shall be
allocated a number of shares of Common Stock equal to 1,000,000 shares of Common
Stock divided by the total number of Eligible Members who were also members on
March 21, 1996. It is contemplated that, substantially concurrent with the
consummation of the Merger, SCPIE Holdings will complete an underwritten public
offering of approximately 2,000,000 shares of Common Stock.
The accompanying Proxy Statement/Prospectus describes in detail the
proposed Merger. Please review carefully the information in the attached Proxy
Statement/Prospectus.
THE ENCLOSED GREEN RECORD CARD CONTAINS YOUR NAME AND SHOWS THE ESTIMATED
WHOLE NUMBER OF SHARES OF COMMON STOCK YOU WILL RECEIVE PURSUANT TO THE MERGER
AGREEMENT IF THE MERGER IS APPROVED AND CONSUMMATED.
THE BOARD OF GOVERNORS OF THE EXCHANGE HAS DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF THE EXCHANGE AND ITS MEMBERS AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting in person, your vote
is important. Accordingly, I urge you to review carefully the enclosed
materials, then please sign, date and mail the enclosed proxy card promptly in
the postage-paid envelope that has been provided to you for your convenience. If
you wish to vote in accordance with the recommendations of the Board of
Governors of the Exchange, it is not necessary to specify your choices, you may
merely sign, date and return the enclosed proxy. If you attend the Special
Meeting, you may revoke your proxy by voting in person. Your prompt cooperation
is greatly appreciated.
Sincerely,
Allan K. Briney, M.D.
Chairman of the Board
<PAGE> 5
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
9441 WEST OLYMPIC BOULEVARD
P.O. BOX 4015
BEVERLY HILLS, CALIFORNIA 90213-4015
NOTICE OF SPECIAL MEETING
A special meeting (the "Special Meeting") of the members of Southern
California Physicians Insurance Exchange, a California reciprocal insurer (the
"Exchange"), will take place at , Los Angeles,
California at p.m., Pacific time, on , 1996, to consider and
vote upon:
1. A proposal to approve a Plan and Agreement of Merger, dated as of
March 21, 1996 (the "Merger Agreement"), pursuant to which the Exchange
will merge (the "Merger"), with and into SCPIE Indemnity Company, a
California stock insurer and the surviving corporation of the Merger
("SCPIE Indemnity"). Following the Merger, SCPIE Indemnity will be a wholly
owned subsidiary of SCPIE Holdings Inc., a Delaware corporation ("SCPIE
Holdings"). In the Merger, each member of the Exchange on , 1996
(an "Eligible Member") will receive shares of common stock, par value
$.0001 per share, of SCPIE Holdings (the "Common Stock"). Pursuant to the
Merger Agreement, 10,000,000 shares of Common Stock will be allocated to
Eligible Members in accordance with the following formula: (i) each
Eligible Member shall be allocated a number of shares of Common Stock equal
to the product of x and y, where "x" equals 9,000,000 shares of Common
Stock and "y" equals the ratio of the Earned Premiums (as defined) of such
Eligible Member on Eligible Policies (as defined) to the total Earned
Premiums of all Eligible Members on Eligible Policies during the period
beginning on January 1, 1993 and ending on but including ,
1996, plus (ii) each Eligible Member who was also a member on March 21,
1996, shall be allocated a number of shares of Common Stock equal to
1,000,000 shares of Common Stock divided by the total number of Eligible
Members who were also members on March 21, 1996.
2. Such other business as may lawfully come before the Special
Meeting.
Eligible Members are entitled to notice of, and to vote at, the Special
Meeting. Each Eligible Member is requested to complete, date and sign the
enclosed proxy card and Taxpayer Identification Card and return them promptly in
the enclosed pre-paid envelope whether or not you intend to attend the Special
Meeting. Your proxy may be revoked in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it has been voted at the Special
Meeting.
Approval and adoption of the Merger Agreement require the affirmative vote
of two-thirds (66 2/3%) of the Eligible Members.
By Order of the Board of Governors of
Southern California Physicians
Insurance Exchange
By:
------------------------------------
Henry L. Stoutz, M.D.
Secretary
Beverly Hills, California
, 1996
PLEASE PROMPTLY EXECUTE THE ENCLOSED PROXY CARD AND TAXPAYER IDENTIFICATION
CARD AND RETURN THEM TO THE EXCHANGE IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS
SOON AS POSSIBLE WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
<PAGE> 6
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED AUGUST 8, 1996
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
PROXY STATEMENT
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON , 1996
------------------------
SCPIE HOLDINGS INC.
PROSPECTUS FOR COMMON STOCK
This Proxy Statement/Prospectus is being furnished to Members of Southern
California Physicians Insurance Exchange, a California reciprocal insurer (the
"Exchange"), in connection with the solicitation of proxies by the Board of
Governors of the Exchange to be used at a special meeting of Members (the
"Special Meeting") to take place at , Los Angeles,
California at p.m., Pacific time, on , 1996.
At the Special Meeting, each Member of the Exchange on , 1996
(an "Eligible Member") will be asked to consider and vote upon a proposal to
approve a Plan and Agreement of Merger, dated as of March 21, 1996 (the "Merger
Agreement"), pursuant to which the Exchange will merge (the "Merger") with and
into SCPIE Indemnity Company, a California stock insurer and the surviving
corporation of the Merger ("SCPIE Indemnity"). Following the Merger, SCPIE
Indemnity will be a wholly owned subsidiary of SCPIE Holdings Inc., a Delaware
corporation ("SCPIE Holdings" or the "Company"). In the Merger, each Eligible
Member will receive shares of common stock, par value $.0001 per share, of SCPIE
Holdings (the "Common Stock"). This Proxy Statement/Prospectus constitutes the
Prospectus of SCPIE Holdings with respect to the shares of Common Stock to be
issued in connection with the Merger. Pursuant to the Merger Agreement,
10,000,000 shares of Common Stock (the "Merger Shares") will be allocated to
Eligible Members in accordance with the following formula: (i) each Eligible
Member shall be allocated a number of shares of Common Stock equal to the
product of x and y, where "x" equals 9,000,000 shares of Common Stock and "y"
equals the ratio of the Earned Premiums (as defined) of such Eligible Member on
Eligible Policies (as defined) to the total Earned Premiums of all Eligible
Members on Eligible Policies during the period beginning on January 1, 1993 and
ending on but including , 1996, plus (ii) each Eligible Member who
was also a Member on March 21, 1996, shall be allocated a number of shares of
Common Stock equal to 1,000,000 shares of Common Stock divided by the total
number of Eligible Members who were also Members on March 21, 1996.
It is contemplated that, substantially concurrent with the consummation of
the Merger, SCPIE Holdings will complete an underwritten public offering of
approximately 2,000,000 shares of Common Stock (the "Initial Public Offering").
Approval and adoption of the Merger Agreement require the affirmative vote
at the Special Meeting of two-thirds (66 2/3%) of all Eligible Members.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BEFORE VOTING.
------------------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1996.
<PAGE> 7
All proxies that are properly executed and returned will be voted in
accordance with the instructions noted thereon. ANY PROXY NOT SPECIFYING THE
CONTRARY WILL BE VOTED IN FAVOR OF THE MERGER AGREEMENT. An Eligible Member who
has given a proxy may revoke it at any time prior to its exercise at such
meeting by delivering an instrument of revocation or a duly executed proxy
bearing a later date to the Exchange or by attending the Special Meeting and
voting in person.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed or delivered to the Members of the Exchange on or about
, 1996.
STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO SCPIE
HOLDINGS IN GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF THE COMPANY,
AND THUS INDIRECT CONTROL OF ITS INSURANCE SUBSIDIARIES, UNLESS SUCH PERSON HAS
PROVIDED CERTAIN REQUIRED INFORMATION TO, AND SUCH ACQUISITION IS APPROVED (OR
NOT DISAPPROVED) BY, THE APPROPRIATE INSURANCE REGULATORY AUTHORITIES.
GENERALLY, ANY PERSON ACQUIRING BENEFICIAL OWNERSHIP OF 10% OR MORE OF THE
COMMON STOCK WOULD BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL, UNLESS THE
APPROPRIATE INSURANCE REGULATORY AUTHORITIES UPON ADVANCE APPLICATION DETERMINE
OTHERWISE.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement"), on Form S-4
(Registration No. 333-4454) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock to be issued
pursuant to the Merger Agreement. As permitted by the rules and regulations of
the Commission, this Proxy Statement/Prospectus, which constitutes a part of the
Registration Statement, does not contain all information set forth in the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, please refer to the Registration Statement,
including the exhibits thereto. The Registration Statement, as well as reports,
proxy statements and other information filed by the Company can be inspected and
copied at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at its regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such materials can be obtained from the Commission at prescribed rates from the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Additionally, material filed by the Company can be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005. Statements contained in this Proxy Statement/Prospectus relating to the
contents of any contract or other document referred to herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement and each such statement shall be deemed qualified in its entirety by
such reference.
No person is authorized to give any information or to make any
representation with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein and, if given or made,
such information or representation should not be relied upon as having been
authorized by the Company or any other person. This Proxy Statement/Prospectus
does not constitute an offer to sell, or a solicitation of an offer to purchase,
the securities offered by this Proxy Statement/Prospectus, or make a
solicitation of a proxy, in any jurisdiction in which, or to or from any person
to or from whom, it is unlawful to make such an offer or solicitation. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities hereunder shall under any circumstances be deemed to imply that there
has been no change in the assets, properties or affairs of the Company since the
date hereof or that the information set forth herein is correct as of any time
subsequent to the date hereof.
------------------------
As a result of the offering of Common Stock to be issued pursuant to the
Merger Agreement, the Company will be subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company will fulfill its obligations with respect to such requirements by filing
periodic reports and other information with the Commission. The Company intends
to furnish its stockholders with annual reports containing audited consolidated
financial statements reported upon by its independent auditors and quarterly
reports containing unaudited consolidated financial information for each of the
first three quarters of each fiscal year.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY.............................. 1
Purpose of the Merger.............. 1
The Company........................ 2
The Special Meeting................ 3
Actions to be Taken by Eligible
Members......................... 4
The Plan and the Initial Public
Offering........................ 4
The Merger......................... 5
Certain Federal Income Tax
Considerations.................. 6
Risk Factors....................... 6
Summary Financial and Operating
Data............................ 7
RISK FACTORS......................... 8
Concentration of Business.......... 8
Industry Factors................... 8
Competition........................ 8
Loss and LAE Reserves.............. 9
Changes in Healthcare.............. 10
Entry into New Markets............. 10
Physician and Medical Association
Relationships................... 11
Importance of Ratings.............. 11
Reinsurance........................ 11
Holding Company Structure;
Limitation on Dividends......... 12
Anti-takeover Provisions........... 12
Regulatory and Related Matters..... 12
Shares Eligible for Future Sale.... 13
Lack of Prior Public Market for
Common Stock; No Initial Public
Offering........................ 13
INFORMATION CONCERNING THE SPECIAL
MEETING............................ 13
Time, Date and Place............... 13
Record Date, Quorum and Vote
Required........................ 13
Recommendation of the SCPIE Board
of Governors.................... 14
Interests of Members of the Board
of Governors in the Merger...... 14
Proxies............................ 14
<CAPTION>
PAGE
----
<S> <C>
Proxy Solicitation................. 14
THE MERGER........................... 15
Introduction....................... 15
Background of the Merger........... 15
History; Structure of the Merger
Transactions.................... 17
Determination of Eligible
Members......................... 18
Exchange of Members' Membership
Interests....................... 18
Consideration...................... 18
Opinion of Financial Advisor....... 20
Recommendation of the Board of
Governors....................... 22
The Initial Public Offering........ 23
Description of the Merger
Agreement....................... 24
Conditions to Effectiveness of the
Merger.......................... 25
Additional Aspects of the Merger
and the Plan.................... 25
COMPARISON OF CERTAIN RIGHTS OF
MEMBERS BEFORE AND AFTER THE
MERGER............................. 27
MARKET FOR COMMON STOCK.............. 40
DIVIDEND POLICY...................... 40
CAPITALIZATION....................... 41
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER......... 42
General............................ 42
Eligible Members................... 42
The Exchange and SCPIE Indemnity... 43
Consequence of a Taxable Exchange.. 43
Issuance of Rules Dealing with
Inversions...................... 43
Possible Policyholder Dividend
Treatment....................... 43
Taxpayer Identification Number..... 44
SELECTED FINANCIAL AND OPERATING
DATA............................... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 46
General............................ 46
</TABLE>
i
<PAGE> 9
<TABLE>
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PAGE
----
<S> <C>
Results of Operations.............. 48
Liquidity and Capital Resources.... 50
Effect of Inflation................ 51
BUSINESS............................. 52
Overview........................... 52
Products........................... 53
Marketing and Policyholder
Services........................ 55
Underwriting....................... 56
Rates and Dividends................ 57
Claims............................. 58
Loss Reserves...................... 59
Reinsurance........................ 62
Investment Portfolio............... 64
Competition........................ 66
Regulation......................... 67
A.M. Best Rating................... 70
Employees.......................... 70
Properties......................... 70
Litigation......................... 70
MANAGEMENT........................... 72
Directors and Executive Officers... 72
Committees of the SCPIE Holdings
Board........................... 74
Director Compensation.............. 74
Executive Compensation............. 75
Employment Agreement............... 75
Compensation Plans................. 75
Limitation of Liability and
Indemnification................. 77
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related
Transactions.................... 77
OWNERSHIP OF COMMON STOCK............ 78
DESCRIPTION OF CAPITAL STOCK......... 79
General............................ 79
Common Stock....................... 79
Preferred Stock.................... 79
Delaware Law and Certain Charter
and Bylaw Provisions............ 80
Transfer Agent and Registrar....... 81
LEGAL MATTERS........................ 81
EXPERTS.............................. 82
GLOSSARY OF SELECTED INSURANCE
TERMS.............................. 83
GLOSSARY OF MERGER RELATED TERMS..... 86
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
<TABLE>
<S> <C> <C>
ANNEX I PLAN AND AGREEMENT OF MERGER
ANNEX II OPINION OF THE FINANCIAL ADVISOR
ANNEX III AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF SCPIE
HOLDINGS
ANNEX IV AMENDED AND RESTATED BYLAWS OF
SCPIE HOLDINGS
ANNEX V INSTRUCTIONS FOR COMPLETING THE
TAXPAYER IDENTIFICATION NUMBER
("TIN") CERTIFICATION CARD
</TABLE>
ii
<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Proxy Statement/Prospectus. Financial data and
ratios set forth in this Proxy Statement/Prospectus have been presented in
accordance with generally accepted accounting principles ("GAAP"), unless
otherwise indicated. See "Glossary of Selected Insurance Terms" and "Glossary of
Merger Related Terms" for definitions of certain terms used in this Proxy
Statement/Prospectus. Members are urged to read this Proxy Statement/Prospectus,
including the Annexes hereto, in its entirety. For purposes of this Proxy
Statement/Prospectus, the terms "SCPIE" and the "Company" refer, at all times
prior to the Effective Date, to the Exchange and its subsidiaries, collectively,
and at all times on or after the Effective Date, to SCPIE Holdings Inc. and its
subsidiaries, collectively; the term "SCPIE Holdings" refers at all times, to
SCPIE Holdings Inc., excluding its subsidiaries; and the term "Insurance
Subsidiaries" refers, at all times prior to the Effective Date, to the Exchange,
SCPIE Indemnity and two currently inactive insurance companies, and at all times
on or after the Effective Date, to SCPIE Indemnity and such inactive insurance
companies.
This Proxy Statement/Prospectus is being furnished to Eligible Members in
connection with the solicitation of proxies from Eligible Members by the Board
of Governors of the Exchange (the "Board of Governors"). The proxies are for use
at the Special Meeting of the Members of the Exchange scheduled to be held on
, 1996, at p.m., Pacific time, at in Los
Angeles, California.
At the Special Meeting, Eligible Members will consider and vote upon a
proposal to approve the Merger Agreement, a copy of which is attached hereto as
Annex I, pursuant to which the Exchange would merge with and into SCPIE
Indemnity. As a result of the Merger, SCPIE Indemnity would be the surviving
corporation and a wholly owned subsidiary of SCPIE Holdings, membership rights
in the Exchange would be extinguished, and Eligible Members of the Exchange
would be entitled to receive shares of the Common Stock. Pursuant to the Merger
Agreement, 10,000,000 shares of Common Stock (the "Merger Shares") will be
allocated to Eligible Members in accordance with the following formula: (i) each
Eligible Member will be allocated a number of shares of Common Stock equal to
the product of x and y, where "x" equals 9,000,000 shares of Common Stock and
"y" equals the ratio of the Earned Premiums (as defined) of such Eligible Member
on Eligible Policies (as defined) to the total Earned Premiums of all Eligible
Members on Eligible Policies during the period beginning on January 1, 1993 and
ending on but including , 1996, plus (ii) each Eligible Member who
was also a Member on March 21, 1996, shall be allocated a number of shares of
Common Stock equal to 1,000,000 shares of Common Stock divided by the total
number of Eligible Members who were also Members on March 21, 1996. In addition,
500,000 shares of Common Stock will be issued to SCPIE Indemnity in the Merger
in consideration of the cancellation of the outstanding shares of Common Stock
of SCPIE Holdings currently held by the Exchange which will be cancelled in the
Merger.
It is contemplated that, substantially concurrent with the consummation of
the Merger, SCPIE Holdings will complete an underwritten public offering of
approximately 2,000,000 shares of Common Stock (the "Initial Public Offering").
The Merger will not affect any Eligible Member's policy coverages or
premium and experience credits for 1996 or 1997.
PURPOSE OF THE MERGER
The Merger is part of a plan of reorganization (the "Plan"), which the
Board of Governors unanimously adopted on March 21, 1996, to convert the
Exchange from a reciprocal insurer to a stock insurance company. The principal
purpose of this reorganization is to improve the Company's access to the capital
markets and to raise capital to permit the growth of existing business and
develop new business opportunities in the professional liability insurance
industry. See "The Merger -- History; Structure of the Merger Transactions."
1
<PAGE> 11
THE COMPANY
Overview and Strategy. The Company is the largest provider of medical
malpractice insurance in California, based on net premiums written in 1994.
SCPIE currently insures approximately 10,200 California physicians and oral and
maxillofacial surgeons practicing alone or in medical groups or clinics or other
healthcare organizations. The Company also insures a variety of other healthcare
providers, including hospitals, emergency department facilities, outpatient
surgery centers and hemodialysis, clinical and pathology laboratories.
The Company's total revenues and net income were $165.0 million and $24.4
million, respectively, for the year ended December 31, 1995 and were $93.7
million and $19.9 million, respectively, for the six months ended June 30, 1996.
As of June 30, 1996, the Company had $786.6 million of total assets and $264.8
million of total equity.
Medical malpractice insurance, or medical professional liability insurance,
insures the physician, hospital or other healthcare provider against liabilities
arising from the rendering of or failure to render professional medical
services. Under the typical medical malpractice insurance policy, the insurer
also defends the insured against potentially covered claims. Based on data
compiled by A.M. Best Company, Inc. ("A.M. Best"), in 1994, total medical
malpractice premiums in the United States exceeded $5.8 billion. In California,
the second largest market for medical malpractice insurance based on premiums
written, more than $557.0 million of medical malpractice premiums were written
in 1994. The Company's share of the medical malpractice premiums written in
California in 1994 was approximately 21%. The Company's market share is
substantially higher in Southern California where more than 95% of the Company's
insureds are located.
The Company believes that its leading market share for professional
liability insurance in California is, in large part, due to the loyalty of its
insured physicians. The Company attributes this loyalty to the high quality,
personalized service it provides and its traditional focus on the California
physician marketplace. The professional liability insurance offered by the
Company has been endorsed by twelve county medical associations and specialty
societies in California.
The Company believes that the growth in managed healthcare and the
emergence of multi-state integrated healthcare providers and delivery systems
will lead to major changes in the medical malpractice insurance industry.
Practice management organizations, hospitals, administrators of large group
practices and managed care organizations have had an increasing influence over
the purchasing decision for the professional liability insurance coverages of
their affiliated physicians. As the consolidation of healthcare providers
continues, the number of physicians insured through such organizations will
increase and the Company believes that such organizations increasingly will seek
well-capitalized professional liability insurers that can provide a full range
of products and a high level of service in each state in which such
organizations conduct business.
To position the Company to compete successfully in this changing
environment, the Company has adopted a strategy that includes: (i) expanding the
types of products offered to include hospital coverage, directors and officers
liability insurance for healthcare professional organizations and errors and
omissions insurance for managed care and related organizations; (ii)
diversifying geographically by increasing writings of medical professional
liability insurance in states other than California; (iii) positioning the
Company to take advantage of acquisition and consolidation opportunities
relating to medical malpractice insurance; (iv) maintaining the Company's
relationship with its primary policyholder base of California physician and
medical group insureds; and (v) maintaining sufficient capital to take advantage
of future market opportunities and to retain strong insurance ratings.
The Company believes that the medical malpractice insurance industry in
California is currently experiencing a "soft insurance market," that is, an
insurance market in which the underwriting capacity exceeds current demand and
premium rates are relatively low. The Company believes that its strategy will
position it to expand premium writings and market share when the market
"hardens," that is, when demand coincides more closely with capacity and premium
rates increase to more appropriate levels.
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<PAGE> 12
The Company began to implement its growth strategy in 1994 by offering
professional liability insurance to California hospitals and, in 1995, began
offering errors and omissions coverage to managed care organizations. The
Company currently insures six hospitals and 19 managed care organizations. The
Company believes that providing insurance to hospitals and other healthcare
related organizations represents a significant area for future growth.
To facilitate its geographic expansion, the Company has entered into an
agreement with Sullivan, Kelly and Associates, Inc. ("SKA"), one of the leading
hospital professional liability insurance brokers in the Western United States,
pursuant to which SKA has the exclusive right to market the Company's hospital
coverage in all states and medical group coverage in all states other than
California. The Company believes that its marketing relationship with SKA will
provide a cost-effective means of entering new geographic markets. In order to
write business in these markets, in March 1995, SCPIE Holdings acquired the
outstanding stock of two inactive property and casualty insurance companies, one
of which is licensed in 44 states plus the District of Columbia and the other of
which is licensed in one state.
In addition to its current direct insurance operations, SCPIE also assumes
reinsurance of medical professional liability insurance. The Company intends to
expand its reinsurance business and believes participation in reinsurance and
excess casualty insurance programs will become an increasingly important aspect
of its operations as healthcare entities become larger and obtain higher policy
limits.
History and Structure. The Exchange is a California reciprocal insurer
organized in 1976 to provide medical malpractice insurance to its physician and
other healthcare provider members. The business of the Exchange is managed by
SCPIE Management Company, the attorney-in-fact for the Exchange, which is a
wholly owned subsidiary of the Exchange. SCPIE Management Company also conducts
an insurance agency business through its wholly owned subsidiary corporation,
SCPIE Insurance Services, Inc., and plans to provide risk management and claims
management services through another subsidiary corporation, SCPIE Management
Services, Inc. Prior to July 1996, SCPIE Management Company was a wholly owned
subsidiary of the Organization of Southern California Physicians, Inc., a
California mutual benefit corporation indirectly controlled by the Exchange
("OSCAP"). In July 1996, OSCAP was liquidated into the Exchange and SCPIE
Management Company and its subsidiaries became subsidiaries of the Exchange.
SCPIE Holdings is a Delaware corporation which is a wholly owned subsidiary
of the Exchange. SCPIE Holdings has no historic operations and was organized in
February 1996, as part of the Exchange's plan to reorganize its corporate
structure. SCPIE Indemnity, a wholly owned subsidiary of SCPIE Holdings, is a
California stock insurance corporation that is licensed to write most property
and casualty insurance lines in the State of California. It has conducted no
business prior to the transaction contemplated herein in which the Exchange will
be merged into and become part of SCPIE Indemnity. SCPIE Holdings' principal
executive and business offices are located at 9441 West Olympic Boulevard,
Beverly Hills, California 90213-4015, and its telephone number is (310)
551-5900.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held on ,
1996, at p.m., Pacific time, at , in Los Angeles,
California.
Record Date. Members of the Exchange on , 1996 (the "Record
Date") will be entitled to notice of, and to vote at, the Special Meeting. Such
Members are defined herein as the "Eligible Members." Pursuant to the Merger
Agreement, the Record Date is the date that the Commissioner of the Department
of Insurance of the State of California (the "Insurance Commissioner") approved
the Merger Agreement for submission to the Exchange's members for approval (the
"Approval Date"). See "Information Concerning the Special Meeting -- Record
Date, Quorum and Vote Required."
Quorum. The presence, either in person or by proxy, of a majority of the
Eligible Members entitled to vote at the Special Meeting is necessary to
constitute a quorum.
3
<PAGE> 13
Vote Required. The affirmative vote of two-thirds (66 2/3%) of all Eligible
Members is required to approve the Merger Agreement on behalf of the Exchange.
On the Record Date, there were Eligible Members. Each Eligible Member
is entitled to one vote at the Special Meeting.
ACTIONS TO BE TAKEN BY ELIGIBLE MEMBERS
This Proxy Statement/Prospectus is part of a package designed to enable
Eligible Members to understand and evaluate the Exchange's plan to merge with
SCPIE Indemnity. In addition to the Proxy Statement/Prospectus, this package
contains:
- a blue PROXY CARD (card 1) to be used to vote for or against the Merger
Agreement.
- a yellow TAXPAYER IDENTIFICATION CARD (card 2) which shows the Eligible
Member's social security number (or identification number), if known to
the Exchange, and which is required by the Internal Revenue Service (the
"Service").
- a green RECORD CARD (card 3) showing the estimated whole number of
Merger Shares that an Eligible Member is entitled to receive pursuant to
the Merger Agreement.
PLEASE CAREFULLY REVIEW ALL OF THE MATERIALS THE COMPANY HAS SENT. AFTER DOING
SO, PLEASE:
- Complete, date and sign the enclosed blue PROXY CARD (card 1).
- Fill out and sign the enclosed yellow TAXPAYER IDENTIFICATION CARD (card
2) by including the Eligible Member's taxpayer identification number
(for most individuals, the Eligible Member's taxpayer identification
number is the Eligible Member's social security number).
- Return the completed PROXY CARD and TAXPAYER IDENTIFICATION CARD to the
Exchange in the enclosed postage-paid envelope. THE PROXY CARD MUST BE
RECEIVED BY THE EXCHANGE NO LATER THAN P.M., PACIFIC TIME, ON
, 1996 (THE TIME OF THE SPECIAL MEETING). EACH ELIGIBLE
MEMBER HAS THE RIGHT TO APPEAR AT THE SPECIAL MEETING AND VOTE IN PERSON
OR TO GIVE THE ELIGIBLE MEMBER'S PROXY CARD TO ANOTHER PERSON.
IF ANY ELIGIBLE MEMBER HAS ANY QUESTIONS OR NEEDS HELP IN COMPLETING THE
PROXY CARD OR THE TAXPAYER IDENTIFICATION CARD, PLEASE CALL THE EXCHANGE'S
MERGER INFORMATION CENTER AT 1-800-953-2491 (TOLL FREE).
THE PLAN AND THE INITIAL PUBLIC OFFERING
The Merger is part of the Plan which includes the Initial Public Offering
and the consolidation of the Exchange and its affiliates under SCPIE Holdings.
See "The Merger" and "Comparison of Certain Rights of Members Before and After
the Merger."
The Merger is not conditioned upon completion of the Initial Public
Offering. The Merger will be consummated substantially concurrent with the
Initial Public Offering or on such earlier date as the Board of Governors, the
SCPIE Holdings Board of Directors (the "SCPIE Holdings Board") and the SCPIE
Indemnity Board of Directors (the "SCPIE Indemnity Board"), in their discretion,
shall determine. See "The Merger."
IF THE MERGER AGREEMENT IS NOT APPROVED, THE PLAN AS PRESENTLY
CONTEMPLATED, INCLUDING THE INITIAL PUBLIC OFFERING, WILL NOT PROCEED ON THE
BASIS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND MAY BE ABANDONED.
ACCORDINGLY, A VOTE IN FAVOR OF THE MERGER AGREEMENT IS EFFECTIVELY A VOTE IN
FAVOR OF THE ENTIRE PLAN AND A VOTE AGAINST THE MERGER AGREEMENT IS EFFECTIVELY
A VOTE AGAINST THE ENTIRE PLAN.
4
<PAGE> 14
THE MERGER
Background of the Merger. The Board of Governors determined that the
reorganization of the Exchange into a stock insurance company which is a wholly
owned subsidiary of a publicly held holding company would enable the Company to
obtain increased financial and structural flexibility and greater access to
capital resources than are currently available to the Exchange as a reciprocal
insurer. See "The Merger."
Opinion of Financial Advisor. On June 23, 1995, the Exchange retained
Salomon Brothers Inc (the "Financial Advisor"), to assist it in the
investigation and possible execution of a reorganization of the Exchange from a
California reciprocal insurer to a stockholder-owned company or in some other
transaction involving the issuance of debt and/or equity securities in order to
secure and strengthen the Exchange's position and growth in the future.
On , 1996, the Financial Advisor delivered a fairness
opinion with respect to the Merger. This opinion is subject to certain
limitations and assumptions stated therein. The Financial Advisor's written
opinion, dated , 1996, is set forth fully as Annex II to this Proxy
Statement/Prospectus and should be read in its entirety. Any description of or
reference to the Financial Advisor's opinion is subject, and qualified in its
entirety by reference, to the full text of such opinion. See "The
Merger -- Opinion of Financial Advisor."
Recommendations of the Exchange's Board of Governors. The Board of
Governors has unanimously approved the Merger Agreement and recommends that
Eligible Members vote in favor of the proposal to approve the Merger Agreement.
The SCPIE Holdings Board and the SCPIE Indemnity Board, based upon the unanimous
approval of the Board of Governors, each has approved the Merger Agreement. In
making the determinations described above, the Board of Governors, among other
things, had access to the analysis and advice referred to in "The
Merger -- Background of the Merger" and relied on the advice of the Financial
Advisor regarding the fairness, from a financial point of view, of the aggregate
consideration to be paid in the Merger to the Eligible Members as a group.
Effective Time. On such date as the Board of Governors and the SCPIE
Holdings Board and the SCPIE Indemnity Board determine is appropriate after the
conditions to consummation of the Merger are satisfied or waived (see "The
Merger -- Conditions to Effectiveness of the Merger"), the Merger Agreement,
filed in accordance with the General Corporations Law of the State of California
(the "California Corporations Law") and the Insurance Law of the State of
California (the "California Insurance Law"), shall become effective (the
"Effective Time") in accordance with its terms. If the Board of Governors, the
SCPIE Indemnity Board and the SCPIE Holdings Board determine that the Initial
Public Offering will close substantially concurrent with the consummation of the
Merger, then the Effective Time will occur immediately prior to consummation of
the Initial Public Offering. It is currently contemplated that the Initial
Public Offering will be consummated in 1996. If the Merger has not been
consummated by December 31, 1996, the Merger Agreement shall, unless extended in
accordance with its terms, automatically terminate.
Accounting Treatment. The Merger and related transactions involve a
reorganization of entities under common control, and the assets and liabilities
transferred to effect the Merger and related transactions will be accounted for
at historical cost in a manner similar to that in pooling of interests
accounting. See "The Merger -- Additional Aspects of the Merger and the
Plan -- Accounting Treatment."
Regulatory Approvals. Except for the approval of the Merger Agreement by
the Insurance Commissioner, the filing of the Merger Agreement with the
Secretary of State of the State of California after approval and adoption of the
Merger Agreement pursuant to the California Insurance Law and the California
Corporations Law, and compliance with Federal and state securities laws, the
Company is not aware of any material United States Federal or state regulatory
requirements necessary to be complied with or approval that must be obtained in
connection with the Merger. See "Risk Factors -- Regulatory and Related
Matters."
5
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
ELIGIBLE MEMBERS SHOULD CAREFULLY REVIEW THE MORE DETAILED DISCUSSION UNDER
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER" AND ARE URGED TO CONSULT
THEIR PERSONAL TAX ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX IMPACT ON
THEM OF THE CONSUMMATION OF THE MERGER.
RISK FACTORS
Eligible Members should carefully consider the matters set forth herein
under "Risk Factors" commencing on page 8, as well as the other information
contained in this Proxy Statement/Prospectus.
6
<PAGE> 16
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth selected combined financial data for the
Exchange and OSCAP. The selected combined income statement data set forth below
for each of the years in the three-year period ended December 31, 1995 and the
selected combined balance sheet data as of December 31, 1995 and 1994 are
derived from the combined financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere herein and should be read in
conjunction with, and are qualified by reference to such statements and the
related notes thereto. The selected combined income statement data for the years
ended December 31, 1992 and 1991 and for the six months ended June 30, 1996 and
1995 and the selected combined balance sheet data as of December 31, 1993, 1992
and 1991 and as of June 30, 1996 and 1995, are derived from unaudited combined
financial statements of the Exchange and OSCAP which management believes
incorporate all of the adjustments necessary for the fair presentation of the
financial condition and results of operations for such periods.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS
ENDED JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED INCOME STATEMENT DATA:
Direct premiums written................... $ 62,659 $ 62,216 $122,277 $120,024 $112,459 $107,126 $112,085
======== ======== ======== ======== ======== ======== ========
Premiums earned........................... $ 61,128 $ 59,453 $116,354 $111,659 $113,194 $112,122 $108,895
Net investment income..................... 20,939 20,032 40,424 39,663 39,738 44,044 47,091
Realized investment gains and other
revenue................................. 11,620 4,801 8,231 755 16,254 18,950 11,946
-------- -------- -------- -------- -------- -------- --------
Total revenues.................... 93,687 84,286 165,009 152,077 169,186 175,116 167,932
-------- -------- -------- -------- -------- -------- --------
Losses and loss adjustment expenses....... 58,247 57,533 118,023 108,720 125,354 135,959 124,280
Other operating expenses.................. 6,764 6,270 12,561 11,844 9,734 8,520 8,394
-------- -------- -------- -------- -------- -------- --------
Total expenses.................... 65,011 63,803 130,584 120,564 135,088 144,479 132,674
-------- -------- -------- -------- -------- -------- --------
Income before policyholder dividends and
Federal income taxes.................... 28,676 20,483 34,425 31,513 34,098 30,637 35,258
Policyholder dividends(1)................. 9,000 0 0 0 0 2,366 31,726
Federal income taxes (benefit)............ 5,599 6,167 10,056 9,212 8,618 7,899 (1,375)
-------- -------- -------- -------- -------- -------- --------
Net income........................ $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480 $ 20,372 $ 4,907
======== ======== ======== ======== ======== ======== ========
COMBINED BALANCE SHEET DATA:
Total investments(2)...................... $685,562 $674,564 $695,021 $636,909 $679,257 $629,289 $592,192
Total assets.............................. 786,620 763,052 781,358 751,605 775,667 722,563 694,347
Total liabilities......................... 521,798 510,192 507,539 542,069 548,268 540,920 534,294
Equity(2)................................. 264,822 252,860 273,819 209,536 227,399 181,643 160,053
ADDITIONAL DATA:
Earnings per share(3)..................... $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55 $ 2.04 $ 0.49
Book value per share(3)................... 26.48 25.29 27.38 20.95 22.74 18.16 16.01
GAAP ratios:
Loss ratio.............................. 95.3% 96.8% 101.4% 97.4% 110.7% 121.3% 114.1%
Expense ratio........................... 11.1 10.5 10.8 10.6 8.6 7.6 7.7
Combined ratio.......................... 106.4 107.3 112.2 108.0 119.3 128.9 121.8
Statutory combined ratio.................. 106.8 108.0 112.8 108.2 120.2 129.6 122.6
Statutory surplus......................... $246,555 $208,742 $235,352 $187,299 $171,589 $154,675 $146,765
</TABLE>
- ---------------
(1) Includes $31.0 million of Proposition 103 refunds in 1991. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." In the second quarter of 1996, the Company estimated
an additional $9.0 million of policyholder dividends would be paid due to
favorable loss experience related to policy years 1987 through 1992. This
$9.0 million policyholder dividend will be paid to Members in the form of
premium credits in 1997. Except for this final dividend, after the Merger,
the Company will cease paying such dividends to its policyholders.
(2) Due to the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," on
December 31, 1993, total investments and equity were adjusted to reflect
changes in market values. This change resulted in a decrease to total
investments of $5.2 million, an increase of $10.8 million, an increase of
$24.0 million, a decrease of $28.8 million and an increase of $30.1 million
as of June 30, 1996 and 1995 and as of December 31, 1995, 1994 and 1993,
respectively, and which resulted in a decrease to equity of $3.4 million, an
increase of $7.0 million, an increase of $15.6 million, a decrease of $18.7
million and an increase of $19.6 million as of June 30, 1996 and 1995 and as
of December 31, 1995, 1994 and 1993, respectively.
(3) Gives effect in all periods to the issuance of approximately 10,000,000
shares of Common Stock to Eligible Members. Does not give effect to the sale
of Common Stock in the Initial Public Offering. The 500,000 shares of Common
Stock issued to SCPIE Indemnity are not considered outstanding for purposes
of determining the per share amounts.
7
<PAGE> 17
RISK FACTORS
In considering the matters set forth in this Proxy Statement/Prospectus,
Eligible Members should carefully consider, among other things, the significant
factors described below and under "Comparison of Certain Rights of Members
Before and After the Merger" that may adversely affect Eligible Members if the
Merger Agreement is approved or that may generally adversely affect the value of
an investment in Common Stock.
Certain statements in this Proxy Statement/Prospectus that are not
historical fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the Company to be materially different
from historical results or from any results expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the following risks:
CONCENTRATION OF BUSINESS
Substantially all of the Company's premiums written are generated from
medical malpractice insurance policies issued to physicians and medical groups.
As a result, negative developments in the economic, competitive or regulatory
conditions affecting the medical malpractice insurance industry, particularly as
such developments might affect medical malpractice insurance for physicians,
could have a material adverse effect on the Company's results of operations.
Substantially all of the Company's direct premiums written are generated in
Southern California. The revenues and profitability of the Company are therefore
subject to prevailing regulatory, economic and other conditions in Southern
California. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
The Company's strategy includes expanding and diversifying its insurance
products and geographic operations. There can be no assurance that the Company
will be successful in implementing this strategy. See "-- Entry into New
Markets."
INDUSTRY FACTORS
Many factors influence the financial results of the medical malpractice
insurance industry, several of which are beyond the control of the Company.
These factors include, among other things: changes in severity and frequency of
claims; changes in applicable law and regulatory reform; changes in judicial
attitudes toward liability claims; and changes in inflation, interest rates and
general economic conditions.
The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate in cyclical patterns
characterized by periods of greater competition in pricing and underwriting
terms and conditions (a "soft insurance market") followed by periods of capital
shortage and lesser competition (a "hard insurance market"). In a soft insurance
market, competitive conditions could result in premium rates and underwriting
terms and conditions which may be below profitable levels. For a number of
years, the medical malpractice insurance industry in California has faced a soft
insurance market. There can be no assurance as to whether or when industry
conditions will improve or the extent to which any improvement in industry
conditions may improve the Company's results of operations.
COMPETITION
The Company competes with numerous insurance companies in the California
market. The Company's principal competitors for physicians and medical groups
consist of three physician-owned mutual or reciprocal insurance companies,
several commercial companies and a physicians' mutual protection trust, which
levies assessments primarily on a "claims paid" basis. In addition, commercial
insurance
8
<PAGE> 18
companies such as Farmers Group, Inc. and MMI Companies, Inc. compete for the
medical malpractice insurance business of larger medical groups, hospitals and
other healthcare providers. Several of these competitors have greater financial
resources than the Company. In the last several years, the Company has increased
premium rates, while its competitors have maintained their rates or instituted
smaller increases. The Company has lost some of its policyholders, in part due
to these rate increases, but has realized a modest increase in its premium
volume and improved its underwriting results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General --
Competitive Environment" and "Business -- Rates and Dividends." In addition to
pricing, competitive factors include dividend policy, financial stability,
breadth and flexibility of coverage and the quality and level of services
provided. The Company paid dividends to its Members of $9.5 million, $11.2
million and $18.6 million in 1995, 1994 and 1993, respectively, in the form of
premium credits. Such dividends were paid primarily to insureds who were Members
of the Exchange in 1990 and prior policy years and were based primarily on
underwriting results in such years. The Board of Governors has declared a final
dividend to its Members of $9.0 million which will be paid in the form of
premium credits in 1997. Except for this final dividend, after the Merger, the
Company will cease paying such premium credit dividends to its policyholders.
Therefore, the Company may find it more difficult to compete with other
insurance companies offering such dividends. The competitive environment could
also result in lower premium rates and fees, reduced profitability and loss of
market share. As the Company expands into new product lines and new geographic
markets, it will need to compete with established companies in such markets,
many of which will have existing relationships with the doctors and medical
groups that the Company will be seeking to insure. See "Business -- Competition"
LOSS AND LAE RESERVES
The reserves for losses and loss adjustment expenses ("LAE") established by
the Company are estimates of amounts needed to pay reported and unreported
claims and related LAE. The estimates are based on assumptions related to the
ultimate cost of settling such claims based on facts and interpretation of
circumstances then known, predictions of future events, estimates of future
trends in claims frequency and severity and judicial theories of liability,
legislative activity and other factors. However, establishment of appropriate
reserves is an inherently uncertain process involving estimates of future losses
and there can be no assurance that currently established reserves will prove
adequate in light of subsequent actual experience. The inherent uncertainty is
greater for certain types of insurance, such as medical malpractice, where a
longer period may elapse before a definite determination of ultimate liability
is made, and where the judicial, political and regulatory climates are changing.
Medical malpractice claims and expenses may be paid over a period of ten or more
years, which is longer than most property and casualty claims. Trends in losses
on long-tail lines of business such as medical malpractice may be slow to appear
and, accordingly, the Company's reaction in terms of modifying underwriting
practices and changing premium rates may lag underlying loss trends. In
addition, emerging changes in the practice of medicine, such as the emergence of
new, larger medical groups that do not have an established claims history and
additional claims resulting from restrictions on treatment by managed care
organizations, may require the Company to adjust its underwriting and reserving
practices. See "-- Changes in Healthcare." While the Company believes that its
reserves for losses and LAE are adequate, there can be no assurance that the
Company's ultimate losses and LAE will not deviate, perhaps substantially, from
the estimates reflected in the Company's financial statements. If the Company's
reserves should prove inadequate, the Company will be required to increase
reserves, which could have a material adverse effect on the Company's financial
condition or results of operations.
The Company believes it has been conservative in the establishing loss and
LAE reserves. In recent years, the Company has revised estimates of loss
severity and determined that certain of its reserves were redundant. Redundant
reserves, which have been released in every year since 1985, have contributed
significantly to reported earnings in 1995, 1994 and 1993. The Company reduced
reserves for prior years by $57.8 million, $60.4 million and $43.4 million in
the years ending December 31, 1995, 1994 and 1993, respectively, and by $27.9
million for the six months ended June 30, 1996. See Note 3 of Notes to Combined
Financial Statements. The Company cannot predict whether similar redundancies
will
9
<PAGE> 19
be experienced in future years. The Company continues to establish its loss and
LAE reserves at what it believes is the upper end of a reasonable range of
reserve estimates, but there is no assurance that such reserves will ultimately
prove to be redundant. If such redundancies do not occur or loss and LAE
experience does not improve, the Company's net income could be significantly
reduced or a net loss could occur. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General -- Loss and LAE
Reserves" and "-- Results of Operations" and "Business -- Loss Reserves."
CHANGES IN HEALTHCARE
Significant attention has recently been focused on reforming the healthcare
system at both the Federal and state levels. A broad range of healthcare reform
measures have been suggested, and public discussion of such measures will likely
continue in the future. Proposals have included, among others, spending limits,
price controls, limits on increases in insurance premiums, limits on the
liability of doctors and hospitals for tort claims and changes in the healthcare
insurance system. The Company cannot predict which, if any, reform proposals
will be adopted, when they may be adopted or what impact they may have on the
Company. While some of these proposals could be beneficial to the Company, the
adoption of others could have a material adverse effect on the Company's
financial condition or results of operations.
In addition to regulatory and legislative efforts, there have been
significant market driven changes in the healthcare environment. In recent
years, a number of factors related to the emergence of "managed care" have
negatively impacted or threatened to impact the medical practice and economic
independence of physicians. Physicians have found it more difficult to conduct a
traditional fee for service practice and many have been driven to join or
contractually affiliate with managed care organizations, healthcare delivery
systems or practice management organizations. This consolidation could result in
the elimination or significant decrease in the role of the physician and the
medical group from the medical professional liability purchasing decision. In
addition, this consolidation could reduce primary medical malpractice insurance
premiums paid by healthcare systems, as larger healthcare systems generally
retain more risk by accepting higher deductibles and self-insured retentions or
form their own captive insurance companies.
ENTRY INTO NEW MARKETS
The Company's strategy is to expand and diversify its products and
operations to meet the insurance needs of large healthcare organizations, while
maintaining its traditional personalized service for physicians and medical
groups, both large and small. SCPIE has recently introduced policies providing
hospital professional liability, managed care organization errors and omissions
and directors and officers liability insurance for healthcare organizations.
SCPIE has also participated in recent years as a reinsurer in the excess medical
professional liability market. There is no assurance, however, that this
diversification will be successful.
Another aspect of the Company's strategy is to expand its markets by
offering a variety of healthcare related liability insurance products to
hospitals, large medical groups and managed care and other healthcare systems
outside California. In August 1995, SCPIE entered into an agreement with SKA, a
leading healthcare insurance broker in the Western United States, to exclusively
market the Company's hospital and medical group professional and related
liability policies outside California. The agreement with SKA has been renewed
until October 1997 and will continue to renew on an annual basis unless
terminated by either party on 90 days' notice. SKA has offices in the states of
California, Arizona, Florida, Hawaii, Illinois, Maryland, Oregon, Tennessee,
Texas and Washington. After the Merger, the Company will be licensed to write
liability insurance in California and intends to apply for licenses to write
such insurance in Nevada and Oregon. In March 1995, SCPIE Holdings acquired two
inactive insurance companies, one of which is licensed in 44 states plus the
District of Columbia and the other of which is licensed in one state. The
licenses will have to be modified in a number of states and certain rate filings
will need to be made to permit the writing of medical malpractice insurance. The
Company could
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encounter delays in meeting such regulatory requirements, and there is no
assurance that SKA will be successful in marketing SCPIE's products. SKA also
offers competing programs, including a well-established hospital professional
liability insurance program for an affiliate of Farmers Group, Inc. Through June
30, 1996, the Company had issued one policy through SKA. If SKA is not
successful in marketing SCPIE's products, or if the SKA arrangement is not
renewed, SCPIE may have difficulty in directly marketing its own products in
other states or developing an alternative marketing relationship.
PHYSICIAN AND MEDICAL ASSOCIATION RELATIONSHIPS
The Exchange was organized in 1976 by physicians, received the exclusive
endorsement and active support of a number of local county medical associations
in building its physician and medical group policyholder base and, as a
reciprocal insurance company, has been wholly owned and governed by its members.
The Exchange has relied on its relationship with physicians and medical
associations in marketing its policies in competition with commercial insurance
companies and other physician-owned companies. The Company will endeavor to
maintain its medical association endorsements and to continue its close
relationship with physicians and medical groups through personalized service.
There can be no assurance that the Company will be able to maintain these
relationships.
The members of the Exchange currently have the power to elect all members
of the Board of Governors and otherwise exercise ultimate control over the
Exchange. After the Merger, the voting power of such members will be diluted and
they may have less influence and control over the management and affairs of the
Company. Although immediately following the Merger all nine physician members of
the Exchange's Board of Governors will constitute more than a majority of the
directors of the Company, there is no assurance that this control will continue
for any period of time. See "Management -- Directors and Executive Officers."
IMPORTANCE OF RATINGS
Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. SCPIE is rated "A (Excellent)" by
A.M. Best, the third highest rating of 13 ratings assigned to solvent insurance
companies, which currently range from "A++ (Superior)" to "D (Very Vulnerable)."
A.M. Best's ratings reflect its opinion of an insurance company's financial
strength, operating performance and ability to meet its obligations to
policyholders and are not evaluations directed to purchasers of an insurance
company's securities. In June 1996, A.M. Best reduced the Company's rating from
"A+ (Superior)," citing significant uncertainty in the medical malpractice
marketplace, caused, in part, by evolving managed care issues, the Company's
narrow product line and geographic concentration, and intense competition and
weakening premium rates in the medical malpractice industry. A.M. Best similarly
reduced the ratings of three other medical malpractice insurance companies
domiciled in California. The Company's ability to maintain or improve its rating
by A.M. Best may depend on its ability to implement successfully its business
strategy. See "Business -- A.M. Best Rating." If SCPIE's rating is materially
reduced from its current level by A.M. Best, the Company's results of operations
could be adversely affected. The Insurance Subsidiaries have entered into a
reinsurance pooling arrangement and each of the Insurance Subsidiaries has been
assigned the same "pooled" "A (Excellent)" A.M. Best rating based on their
consolidated performance.
REINSURANCE
The amount and cost of reinsurance available to companies specializing in
medical professional liability insurance are subject, in large part, to
prevailing market conditions beyond the control of the Company. The Company's
ability to provide professional liability insurance at competitive premium rates
and coverage limits on a continuing basis will depend in part upon its ability
to secure adequate reinsurance in amounts and at rates that are commercially
reasonable. Although the Company anticipates that it will continue to be able to
obtain such reinsurance, there can be no assurance that this will be the case.
Further, the Company is subject to a credit risk with respect to its reinsurers
because reinsurance does not relieve the Company of liability to its insureds
for the risks ceded to reinsurers. Although the
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Company places its reinsurance with reinsurers it believes to be financially
stable, a significant reinsurer's inability to make payment under the terms of a
reinsurance treaty could have a material adverse effect on the Company. See
"Business -- Reinsurance."
HOLDING COMPANY STRUCTURE; LIMITATION ON DIVIDENDS
Following the Effective Date, SCPIE Holdings will be an insurance holding
company whose assets will consist of all of the outstanding capital stock of the
Insurance Subsidiaries and, following the Initial Public Offering, will include
a portion of the net proceeds of the Initial Public Offering, if any. As an
insurance holding company, SCPIE Holdings' ability to meet its obligations and
to pay dividends, if any, may depend upon the receipt of sufficient funds from
its subsidiaries. The payment of dividends to SCPIE Holdings by the Insurance
Subsidiaries is subject to general limitations imposed by applicable insurance
laws. See "Business -- Regulation -- Regulation of Dividends from Insurance
Subsidiaries."
ANTI-TAKEOVER PROVISIONS
SCPIE Holdings' amended and restated certificate of incorporation (the
"Restated Certificate") and amended and restated bylaws (the "Bylaws") include
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that stockholders may consider to be in their best
interests. These provisions include: a Board of Directors consisting of three
classes; authorization to issue up to 5,000,000 shares of preferred stock, par
value $1.00 per share (the "Preferred Stock"), in one or more series with such
rights, obligations, powers and preferences as the SCPIE Holdings Board may
provide; a limitation which permits only the SCPIE Holdings Board or the
Chairman or the President of SCPIE Holdings to call a special meeting of
stockholders; a prohibition against stockholders acting by written consent;
provisions which provide that directors may be removed only for cause and only
by the affirmative vote of holders of two-thirds (66 2/3%) of the outstanding
shares of voting securities; provisions which provide that the SCPIE Holdings
Board may increase the size of the board and may fill newly created
directorships; and certain advance notice procedures for nominating candidates
for election to the SCPIE Holdings Board and for proposing business before a
meeting of stockholders. In addition, California law prohibits a person from
acquiring control of SCPIE Holdings without the prior approval of the Insurance
Commissioner. The Company will also be subject to insurance holding company laws
in other states that contain similar regulatory approval requirements. See
"Management" and "Description of Capital Stock -- Delaware Law and Certain
Charter and Bylaw Provisions."
REGULATORY AND RELATED MATTERS
Insurance companies are subject to supervision and regulation by the state
insurance authority in each state in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition, including limitations on lines of business,
underwriting limitations, the setting of premium rates, the establishment of
standards of solvency, statutory surplus requirements, the licensing of insurers
and agents, concentration of investments, levels of reserves, the payment of
dividends, transactions with affiliates, changes of control and the approval of
policy forms. Such regulation is concerned primarily with the protection of
policyholders' interests rather than stockholders' interests. See
"Business -- Regulation."
State regulatory oversight and various proposals at the Federal level may
in the future adversely affect the Company's results of operations. In recent
years, the state insurance regulatory framework has come under increased Federal
scrutiny, and certain state legislatures have considered or enacted laws that
alter and, in many cases, increase state authority to regulate insurance
companies and insurance holding company systems. Further, the National
Association of Insurance Commissioners (the "NAIC") and state insurance
regulators are reexamining existing laws and regulations, which in many states
has resulted in the adoption of certain laws that specifically focus on
insurance company investments, issues relating to the solvency of insurance
companies, risk-based capital ("RBC") guidelines, interpretations of existing
laws, the development of new laws and the definition of extraordinary dividends.
See
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"Business -- Regulation -- Regulation of Dividends from Insurance Subsidiaries,"
"-- Risk-Based Capital" and "-- Regulation of Investments."
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 12,000,000 of the 12,500,000 shares of Common Stock,
including the 10,000,000 shares of Common Stock issued to Eligible Members as
Merger Shares (less fractional shares, which will be paid in cash) and
approximately 2,000,000 shares of Common Stock sold to the public in the Initial
Public Offering, will be eligible for immediate sale in the public market. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of such
shares of Common Stock in the public market following effectiveness of the
Merger and the Initial Public Offering or the perception that such sales could
occur could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities.
LACK OF PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK
PRICE; NO INITIAL PUBLIC OFFERING
Prior to the Merger, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained, or that shares of Common Stock will be able to be resold at or above
the offering price in the Initial Public Offering, if such Initial Public
Offering occurs. The Common Stock has been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange. The Initial Stock
Price for the Common Stock to be sold by the Company will be determined by
agreement between the Company and the underwriters of the Initial Public
Offering, and may bear no relationship to the price at which the Common Stock
will trade after completion of the Initial Public Offering.
Completion of the Initial Public Offering is not a condition to
consummation of the Merger. If the Merger is consummated and the Initial Public
Offering does not occur, the shares of Common Stock distributed to Eligible
Members are expected to be listed on the New York Stock Exchange; however, in
the absence of the Initial Public Offering, there can be no assurance that
either an active or an orderly trading market for the Common Stock will develop.
The absence of an active and orderly trading market could have an adverse effect
on the market price of the Common Stock subsequent to the Merger. See "Market
for Common Stock."
INFORMATION CONCERNING THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Governors of proxies in the accompanying form to be
used at the Special Meeting and any adjournment or postponement thereof.
TIME, DATE AND PLACE
The Special Meeting will be held on , 1996, at p.m.,
Pacific time, at in Los Angeles, California. At the Special
Meeting, including any adjournment or postponement thereof to the next business
day, all Eligible Members will consider and vote upon a proposal to approve and
adopt the Merger Agreement.
RECORD DATE, QUORUM AND VOTE REQUIRED
Eligible Members will be entitled to notice of, and to vote at, the Special
Meeting. Pursuant to the Merger Agreement, the Record Date for the Special
Meeting is , 1996, the date that the Insurance Commissioner approved
the Merger Agreement for submission to the Exchange's Members for approval (the
"Approval Date"). The presence, either in person or by proxy, of a majority of
the Eligible Members entitled to vote at the Special Meeting is necessary to
constitute a quorum. The affirmative vote
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of not less than two-thirds (66 2/3%) of all Eligible Members is required to
approve the Merger Agreement on behalf of the Exchange. The SCPIE Holdings Board
and the SCPIE Indemnity Board, based upon the unanimous approval of the Board of
Governors, each approved the Merger Agreement on , 1996.
On the Record Date, there were Eligible Members. Each Eligible Member
is entitled to one vote at the Special Meeting regardless of the size of the
Policy owned or held by the Eligible Member.
RECOMMENDATION OF THE BOARD OF GOVERNORS
The Board of Governors has unanimously approved the Merger Agreement and
recommends that Eligible Members vote in favor of the proposal to approve such
Merger Agreement. In making the determination described above, the Board of
Governors, among other things, had access to the analysis and advice referred to
in "The Merger -- Background of the Merger" and relied on the fairness opinion
of the Financial Advisor with respect to the Merger. The Board of Governors also
considered, among other things, the proposed terms and conditions of the Merger,
its fiduciary responsibilities, possible alternative transactions, and
information with respect to the financial condition, assets, liabilities,
businesses, results of operations and prospects of the Exchange on a historical,
prospective and current value basis.
The Board of Governors believes that the Merger is in the best interest of,
and is fair to, the Members. ACCORDINGLY, THE BOARD OF GOVERNORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT MEMBERS VOTE IN
FAVOR OF THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
INTERESTS OF MEMBERS OF THE BOARD OF GOVERNORS IN THE MERGER
Pursuant to the Exchange's Bylaws, members of the Board of Governors must
be Members of the Exchange in order to serve on the Board of Governors.
Accordingly, each member of the Board of Governors is an Eligible Member who
will be entitled to vote upon the Merger Agreement and to receive Merger Shares.
The estimated number of Merger Shares to be allocated to members of the Board of
Governors is set forth under "Ownership of Common Stock." Such Merger Shares
will be allocated to members of the Board of Governors solely in their capacity
as Eligible Members and no additional shares of Common Stock will be allocated
in the Merger to members of the Board of Governors or to management.
PROXIES
Each Eligible Member entitled to vote at the Special Meeting will be
entitled to one vote in connection with the approval of the Merger Agreement as
well as any other matter which may properly come before the Special Meeting.
Eligible Members entitled to vote at the Special Meeting which are represented
by properly executed proxies, will, unless such proxies have been revoked, be
voted in accordance with the instructions indicated on such proxies. If no
contrary instructions are indicated, such Eligible Member entitled to vote at
the Special Meeting represented by properly executed proxy will be voted in
favor of approval of the Merger Agreement and, in the discretion of the proxy
holder, as to any other matter which may properly come before the Special
Meeting and as to which such Eligible Member is entitled to vote. An Eligible
Member who has given a proxy may revoke it at any time prior to its exercise at
such meeting by delivering to the Exchange an instrument of revocation or a duly
executed proxy bearing a later date or by attending the Special Meeting and
voting in person.
PROXY SOLICITATION
The Exchange will bear the cost of soliciting proxies to its Members. In
addition to solicitation by mail, proxies may be solicited by the directors,
officers and certain employees of the Exchange, who will not be specifically
compensated for such services, by personal interview, telephone or other
telecommunication. In addition, the Exchange has retained ChaseMellon
Shareholder Services, L.L.C. to assist in soliciting proxies for the Special
Meeting at a fee of approximately $32,000 plus out-of-pocket expenses.
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THE MERGER
Eligible Members who have questions regarding the Merger or who need help
with any of the accompanying materials may call the Exchange's Merger
Information Center at 1-800-953-2491 (toll-free).
Persons wishing to comment to the Department of Insurance of the State of
California (the "California Department") regarding the Merger may write to:
Department of Insurance, 45 Fremont Street, 24th Floor, San Francisco,
California 94105, Attn: James Holmes, Esq., or may send comments to the
California Department via facsimile at (415) 904-5729, Attn: James Holmes, Esq.
Such comments will be lodged in the California Department's public application
file unless confidential treatment is requested.
INTRODUCTION
This general information section describes certain aspects of the Merger
Agreement and the proposed Merger. A copy of the Merger Agreement is included in
this Proxy Statement/Prospectus as Annex I. This Proxy Statement/Prospectus
contains information about the Company and its business, including financial
statements, certain considerations relevant to the ownership of Common Stock and
additional information about the Merger and other matters. Members are urged to
read this Proxy Statement/Prospectus in its entirety.
Overview of the Merger. The Board of Governors approved the Merger on March
21, 1996. If the Merger Agreement is approved, the Exchange will merge into a
stock insurance company. See "Summary -- Purpose of the Merger" and "-- History;
Structure of the Merger Transactions." The principal purpose of the Merger is to
enable the Company to obtain increased financial and structural flexibility and
greater access to capital resources than are currently available to the Exchange
as a reciprocal insurer to help position it for long-term growth. Pursuant to
the Merger Agreement, the Exchange will merge with and into SCPIE Indemnity. As
a result of the Merger, SCPIE Indemnity would be the surviving corporation,
membership rights in the Exchange would be extinguished and Eligible Members
would be entitled to receive shares of Common Stock. See "Comparison of Certain
Rights of Members Before and After the Merger." The Merger will not affect any
Eligible Member's policy coverage, premium, or premium credit dividends for 1996
or 1997. After the Merger, SCPIE Indemnity would remain a wholly owned
subsidiary of SCPIE Holdings, and SCPIE Indemnity will have access to capital
markets through SCPIE Holdings.
If the conditions to the Merger are met, the Effective Date of the Merger
Agreement is expected to occur during 1996. For further details about these
conditions, see "-- Conditions to Effectiveness of the Merger."
BACKGROUND OF THE MERGER
As a result of intense competition in the medical malpractice industry in
the late 1980s premium rates fell. In the 1990s, premium rates have remained at
low levels, while the severity of claims has continued to increase. The Company
believes that these market conditions favor larger, well-capitalized companies
with multi-state operations and broad distribution systems that offer a variety
of products and that companies with one state and one line of business
operations will be the most negatively affected. In light of this competitive
environment, on June 23, 1995, the Exchange engaged the Financial Advisor to
serve as its financial advisor in the investigation and possible execution of a
reorganization of the Exchange from a California reciprocal insurer to a
stockholder-owned company or in some other transaction involving the issuance of
debt and/or equity securities in order to secure and strengthen the Exchange's
market position and growth in the future. No decision was made by the Exchange
with respect to converting the Exchange into a stockholder-owned company or to
participate in any other transaction involving the issuance of debt and/or
equity securities, but it engaged the Financial Advisor in order to explore the
capital raising alternatives available to the Exchange.
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At a meeting of the Board of Governors on September 14, 1995, the Financial
Advisor reviewed in detail with the Board of Governors several capital raising
alternatives for the Exchange. The purpose of the Financial Advisor's report was
to analyze the financial position and operations of the Exchange and alternative
sources for raising capital for a reciprocal insurance company, including a
feasibility and preliminary evaluation analysis of a public securities offering
by the Exchange in the event it is restructured and reorganized as a stock
corporation. The Financial Advisor discussed the following matters with the
Board of Governors: (i) trends in the insurance industry, including the
acquisitions and pending acquisitions of smaller malpractice insurance companies
by publicly held insurers; (ii) projections of operating income for the
Exchange, including the effect of projected reductions in prior years' reserve
estimates; (iii) capital raising alternatives available to reciprocal insurance
companies, including financial reinsurance, the sale of surplus note securities,
the long-term utilization of a downstream holding company and the conversion to
a corporate structure; and (iv) constraints inherent in a single state, single
line of business insurance company.
The Financial Advisor emphasized the need for financial flexibility to
effect strategic initiatives, even though additional capital is not an immediate
need of the Exchange. The Financial Advisor also presented an analysis of the
feasibility of a public stock offering if the Exchange reorganized to a
corporate form, and the Financial Advisor presented different scenarios and the
potential for dilution of the Members' ownership of the Exchange under these
scenarios, including a discussion of both primary and secondary offering
components. The Financial Advisor's conclusion was that it is feasible for the
Exchange to access the public markets and to proceed as a publicly held
corporate insurer. The Financial Advisor also expressed its view that a holding
company structure (under which the Exchange would become a wholly owned
subsidiary of a publicly held holding company) would be ideal, but that if this
structure is not legally possible at the outset, the Exchange could nevertheless
operate as a publicly held insurance company.
The Board of Governors asked questions throughout the presentation and then
discussed various issues related to conversion to a publicly held stock company,
including different methods of valuing the respective interests of the Members
and the appropriate corporate structure. Based on the Board of Governors'
conclusions that it is in the best interest of the Exchange and its Members that
the Board of Governors consider a plan of reorganization of the Exchange to a
stock corporation, the Board of Governors instructed management, in conjunction
with the Exchange's professional advisors, to develop and prepare a detailed
plan of reorganization for the Exchange, pursuant to which the Exchange, by
merger or otherwise, would become a stock corporation, and to present the plan
of corporate reorganization to the Board of Governors for its consideration at a
future meeting. The Board of Governors directed management to include in the
plan of corporate reorganization a detailed analysis and evaluation of the
method of converting the Members' membership interests in the Exchange to
interests in the stock corporation.
Following the September 14, 1995 meeting, numerous drafts of the proposed
Plan were created and exchanged between the Exchange, its attorneys and the
Financial Advisor. Representatives of the Company's management, the Financial
Advisor, and legal counsel to the Company and to the Financial Advisor held
several meetings with the Insurance Commissioner's staff to discuss the
development of the Plan. Meetings were held with the members of the Insurance
Commissioner's legal divisions on December 1, 1995, with members of the
Insurance Commissioner's financial services division on January 4, 1996, and
with members of both the legal and financial services division on January 24,
1996. On March 21, 1996, the Board of Governors met with management, legal
counsel and the Financial Advisor to consider the Plan and the Merger Agreement.
The Financial Advisor advised the Board of Governors that, based upon current
market conditions, the Financial Advisor's due diligence and the current
structure of the Merger, the Financial Advisor was not aware of any reason that
it would not be able to render a fairness opinion with respect to the Merger at
the date of the proxy statement. See "-- Opinion of Financial Advisor." After
discussion of the proposed Merger and the verbal advice of the Financial Advisor
referred to above, the Board of Governors unanimously determined the Merger to
be fair to and in the best interest of the Exchange and its Members and
recommended that Eligible Members
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vote to approve the Merger Agreement. On such date, the Board of Governors, the
SCPIE Holdings Board and the SCPIE Indemnity Board executed and delivered the
Merger Agreement. On , 1996, the Board of Governors amended the Plan
and the Merger Agreement. The Financial Advisor subsequently delivered to the
Board of Governors its opinion, dated , 1996, the date of this Proxy
Statement/Prospectus.
HISTORY; STRUCTURE OF THE MERGER TRANSACTIONS
The Exchange is a California reciprocal insurer organized in 1976 to
provide medical malpractice insurance to its physician and other healthcare
provider members. The business of the Exchange is managed by SCPIE Management
Company, the attorney-in-fact for the Exchange, which is a wholly owned
subsidiary of the Exchange. SCPIE Management Company also conducts an insurance
agency business through its wholly owned subsidiary corporation, SCPIE Insurance
Services, Inc., and plans to provide risk management and claims management
services through another subsidiary corporation, SCPIE Management Services, Inc.
Prior to July 1996, SCPIE Management Company was a wholly owned subsidiary of
OSCAP, a California mutual benefit corporation indirectly controlled by the
Exchange. In July 1996, OSCAP was liquidated into the Exchange and SCPIE
Management Company and its subsidiaries became subsidiaries of the Exchange.
SCPIE Holdings is a Delaware corporation which is a wholly owned subsidiary
of the Exchange. SCPIE Holdings has no historic operations and was organized in
February 1996, as part of the Exchange's plan to reorganize its corporate
structure. SCPIE Indemnity, a wholly owned subsidiary of SCPIE Holdings, is a
California stock insurance corporation that is licensed to write most property
and casualty insurance lines in the State of California. It has conducted no
business prior to the Merger contemplated herein, pursuant to which the Exchange
will be merged with and into SCPIE Indemnity.
The following diagram summarizes the Company's structure after the Merger:
[DIAGRAM]
If the Initial Public Offering described below is consummated, the stockholders
of SCPIE Holdings will include purchasers of Common Stock in the Initial Public
Offering, in addition to the Eligible Members and SCPIE Indemnity.
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DETERMINATION OF ELIGIBLE MEMBERS
A Member's right to vote on the proposal to approve the Merger Agreement is
based on whether a Member was a Member on the Approval Date. Such Members are
referred to herein as "Eligible Members."
Determination of Membership. An individual, corporation, joint venture,
limited liability company, partnership, association, trust, trustee,
unincorporated entity, organization or government or any department or agency of
any kind (a "Person") is a Member of the Exchange if such Person is a subscriber
who is an "insured person" under the name of the Exchange through the facilities
of the attorney-in-fact acting on behalf of the several subscribers. The term
"subscriber" shall include those Persons who have executed a Subscription
Agreement and Power of Attorney or any like agreement of the Exchange. The term
"insured person" shall include (a) each individual physician, surgeon, nurse
anesthetist, professional medical partnership, professional medical corporation
or other healthcare provider to whom or which a policy of insurance has been
issued by the Exchange as "named insured," and (b) each physician, surgeon,
nurse anesthetist or other healthcare provider to whom a certificate insert
(naming such person as a "physician member" or "certificate holder") has been
issued as part of a policy of insurance issued by the Exchange to a professional
medical partnership, professional medical corporation or other healthcare
provider. A "named insured" under a policy of insurance ceases to be an insured
person, subscriber and Member when the "policy period" of such policy terminates
by expiration of time, cancellation or any other reason and a "physician member"
or "certificate holder" ceases to be an insured person, subscriber and Member
when the "coverage period" or "certificate period" under the applicable policy
terminates by expiration of time, cancellation or any other reason.
Whether or not a Member is an Eligible Member for purposes of voting and
receiving consideration is determined by the Exchange's records.
EXCHANGE OF MEMBERS' MEMBERSHIP INTERESTS
Members have certain rights which for purposes of the Merger are called
"Membership Interests." Membership Interests consist of the rights arising under
the Exchange's Subscription Agreements and Bylaws, the California Insurance Law
and otherwise, including, without limitation, the right to vote for the election
of members of the Board of Governors and on other matters and to participate in
any distribution of surplus upon liquidation, but not including contractual
rights arising under Policies. Upon consummation of the Merger, the Membership
Interests of Eligible Members will be cancelled and extinguished and converted
into the right to receive the consideration to be distributed in the Merger, as
described in "-- Consideration." For a comparison of the rights of Members
before and after the Merger, see "Comparison of Certain Rights of Members Before
and After the Merger."
CONSIDERATION
If the Merger becomes effective, Eligible Members will receive
consideration in the form of Common Stock and cash in lieu of fractional shares.
See "-- Exchange of Members' Membership Interests."
Eligible Members. A Person is an Eligible Member if such Person was a
Member on the Approval Date. For more information about this requirement, see
"-- Determination of Eligible Members."
Allocation of Shares. The amount of consideration received by Eligible
Members pursuant to the Merger Agreement will be based on an allocation of
Merger Shares. Subject to the provision discussed below in "-- Adjustment of
Number of Shares," the Merger Shares will be allocated to Eligible Members
pursuant to the Merger Agreement as follows:
(i) each Eligible Member shall be allocated a number of shares of
Common Stock equal to the product of x and y, where "x" equals 9,000,000
shares of Common Stock and "y" equals the ratio of the Earned Premiums of
such Eligible Member on Eligible Policies to the total Earned Premiums of
all Eligible Members on Eligible Policies during the period beginning on
January 1, 1993 and ending on but including the Approval Date, plus
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(ii) each Eligible Member who was also a Member on March 21, 1996,
shall be allocated a number of shares of Common Stock equal to 1,000,000
shares of Common Stock divided by the total number of Eligible Members who
were also Members on March 21, 1996.
This allocation formula reflects the Board of Governor's determination that
the Merger Shares be allocated based principally upon Eligible Members'
respective recent contributions (measured in terms of premiums) to the Exchange,
and that the remaining Merger Shares be allocated based upon Eligible Members'
rights to vote for the election of members of the Board of Governors and on
other matters and to participate in any distribution of surplus upon
liquidation.
With respect to a Policy issued to an Eligible Member who was not a Member
on March 21, 1996, Earned Premiums for such a Policy shall consist only of
earned premiums following March 21, 1996, and not earned premiums at any point
prior to such date.
For more information about the allocation of the Merger Shares among
Eligible Members, see Section 2.3 of the Merger Agreement, a copy of which is
included in this Proxy Statement/Prospectus as Annex I.
For information about the number of Merger Shares that will be allocated to
each Eligible Member, see the green RECORD CARD (card 3) distributed with this
Proxy Statement/Prospectus and "-- Estimated Allocation of Shares."
Fractional Shares. No fractional shares shall be issued to any Eligible
Member. In lieu of fractional shares, each Eligible Member who would otherwise
have been entitled to a fraction of a share of Common Stock shall receive cash
based upon the amount of such fraction of a share multiplied by the price per
share at which the Common Stock is sold to the public in the Initial Public
Offering (the "Initial Stock Price") or, in the event that the Initial Public
Offering is not consummated substantially concurrent with the Merger, based upon
the amount of such fraction of a share multiplied by the Fair Market Value of
the Merger Shares, where Fair Market Value is (i) the average closing price of a
share of the Common Stock on the principal exchange on which the Common Stock is
then trading, if any, on the first five trading days following the Effective
Date; or (ii) if the Common Stock is not traded on an exchange but is quoted on
the Nasdaq Stock Market ("Nasdaq") or a successor quotation system, (1) the
average last sales price (if the Common Stock is then listed as a National
Market Issue under the NASD National Market System) or (2) the average of the
mean between the closing representative bid and asked prices (in all other
cases) for the Common Stock on the first five trading days following the
Effective Date as reported by Nasdaq or such successor quotation system.
Estimated Allocation of Shares. Printed on each green RECORD CARD is
information about the number of Merger Shares on which each Eligible Member's
consideration will be based. The green RECORD CARD indicates the estimated whole
number of Merger Shares that an Eligible Member is entitled to receive pursuant
to the Merger Agreement. However, the actual number of shares allocated to an
Eligible Member is subject to adjustment and may vary from the number shown on
the green RECORD CARD. See "-- Adjustment of Number of Shares."
Form of Consideration. Each Eligible Member will be entitled to receive the
Merger Shares allocable to such Eligible Member.
Adjustment of Number of Shares. The Board of Governors and the SCPIE
Holdings Board may adjust the number of Merger Shares to be allocated to
Eligible Members. The purpose of any such adjustment would be to adjust the
Initial Stock Price to within a range which the Company finds appropriate, after
taking into account the advice of the Financial Advisor. This adjustment is the
adjustment referred to on each green RECORD CARD. In the event of such an
adjustment, the Eligible Member will receive consideration having approximately
the same total value as the consideration the Eligible Member would have
received if the adjustment had not been made. Any difference would be the result
of rounding. In the event that the number of Merger Shares is adjusted as
described above, the Exchange would also make proportional adjustments to other
related numbers of Merger Shares specified in the Merger Agreement, including
1,000,000 of the Merger Shares allocated to each Eligible Member
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who was also a Member on March 21, 1996. Accordingly, any such adjustment would
not affect the proportional allocation among Eligible Members. In such event,
the 500,000 shares of Common Stock to be issued to SCPIE Indemnity in the Merger
would also be proportionally adjusted.
Payment of Consideration. After the Effective Date, Eligible Members will
be sent (i) a stock certificate for their shares of Common Stock and (ii) a
check (net of withholding tax required by law, if any) representing the cash
paid in lieu of fractional shares.
OPINION OF FINANCIAL ADVISOR
On June 23, 1995, the Exchange retained the Financial Advisor to assist it
in the investigation and possible execution of a reorganization of the Exchange
from a California reciprocal insurer to a stockholder-owned company or in some
other transaction involving the issuance of debt and/or equity securities in
order to secure and strengthen the Exchange's market position and growth in the
future. See "-- Background of the Merger." In connection with such engagement,
the Exchange instructed the Financial Advisor to evaluate the fairness, from a
financial point of view, to the Eligible Members, as a group, of the exchange of
the aggregate membership interests for shares of Common Stock, pursuant to the
Plan. The Company imposed no limitations on the Financial Advisor with respect
to the investigation made, or the procedures followed, by it in rendering its
opinion. The Exchange selected the Financial Advisor because of its reputation
and expertise as a nationally recognized investment banking firm. The Financial
Advisor, as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with stock repurchases,
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
The Financial Advisor has delivered its written opinion, dated
[ ], 1996, to the Board of Governors stating that, on and as of the
date of such opinion, and based upon the procedures and subject to the
assumptions and qualifications described in such opinion, the exchange of the
aggregate membership interests for shares of Common Stock and for cash in lieu
of fractional shares, pursuant to the Plan, is fair, from a financial point of
view, to the Eligible Members as a group.
THE FULL TEXT OF THE FINANCIAL ADVISOR'S OPINION, DATED [ ], 1996,
WHICH SETS FORTH THE MATTERS REVIEWED, ASSUMPTIONS MADE, FACTORS CONSIDERED,
RELIANCE UPON OTHERS AND LIMITATIONS AS TO THE REVIEW UNDERTAKEN BY IT, IS
ATTACHED HERETO AS ANNEX II AND IS INCORPORATED BY REFERENCE HEREIN. ELIGIBLE
MEMBERS ARE URGED TO READ CAREFULLY THE OPINION OF THE FINANCIAL ADVISOR IN ITS
ENTIRETY. ANY DESCRIPTION OF OR REFERENCE TO THE FINANCIAL ADVISOR'S OPINION IS
SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE FULL TEXT OF SUCH
OPINION. THE PREPARATION OF A FAIRNESS OPINION IS A COMPLEX PROCESS AND IS NOT
NECESSARILY SUBJECT TO PARTIAL ANALYSIS OR SUMMARY DESCRIPTION. THE FINANCIAL
ADVISOR'S OPINION IS DIRECTED TO THE BOARD OF GOVERNORS ONLY AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY ELIGIBLE MEMBER AS TO WHETHER SUCH ELIGIBLE
MEMBER SHOULD VOTE TO APPROVE THE MERGER.
The Financial Advisor was not requested to opine as to, and its opinion
does not address, the underlying business decision of the Board of Governors to
proceed with or effect the Merger. In addition, the Financial Advisor's opinion
expressly excludes any opinion as to: (1) which of the Exchange's policyholders
are to be included among the Eligible Members; (2) the fairness of the proposed
consideration to be paid to any Eligible Member or class of Eligible Members in
connection with the reorganization, including any provisions of the Plan
relating to which Eligible Members receive Common Stock and other provisions of
the Plan which distinguish among Eligible Members; and (3) the price at which
the Common Stock is sold in the Initial Public Offering (the "IPO Price") or the
fair market value of any shares of Common Stock to be issued pursuant to the
Plan or the price at which the Common Stock issued in connection with the Plan
or pursuant to the Initial Public Offering will trade. The Financial Advisor
noted that the IPO Price, if the Initial Public Offering is consummated, will be
a factor of market
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conditions and the recent performance of and outlook for the Company at that
time. Further, the Financial Advisor noted its belief that trading in the Common
Stock for a period following the Effective Date would be characterized by a
redistribution of the Common Stock and that the Common Stock may trade during
such redistribution below the prices at which it would trade on a fully
distributed basis.
In arriving at its opinion, the Financial Advisor reviewed, analyzed and
relied upon material bearing upon the financial and operating condition and
prospects of the Exchange and material prepared in connection with the Plan and
the reorganization. The Financial Advisor considered such financial and other
factors it deemed appropriate under the circumstances, including, among other
things: (1) the statutory annual statements provided by the Exchange for the
years 1991 through 1995; (2) certain GAAP financial data provided by the
Exchange, including the unaudited income statement and balance sheet for the six
month period ended June 30, 1996, the audited income statements for each year of
the three-year period ended December 31, 1995, the audited balance sheets for
each year of the two-year period ended December 31, 1995, the unaudited income
statements for each year of the two-year period ended December 31, 1992, and the
unaudited balance sheets for each year of the three-year period ended December
31, 1993; (3) certain consolidated financial projections for SCPIE Holdings and
its subsidiaries after the Reorganization provided to the Financial Advisor by
the Exchange; (4) the Registration Statement on Form S-1 of SCPIE Holdings dated
May 3, 1996, as amended by Amendment No. 1 dated [ ], 1996; (5) the
Registration Statement on Form S-4 of SCPIE Holdings, dated May 3, 1996, as
amended by Amendment No. 1 dated [ ], 1996; (6) a copy of the Plan
dated March 21, 1996, as amended on , 1996; (7) certain financial
data of the Exchange which the Financial Advisor compared with publicly
available financial information and market data of other companies which it
believed to be comparable; (8) the financial terms of the transactions
contemplated by the Plan and the exhibits thereto which the Financial Advisor
compared with the financial terms of other transactions it deemed to be
relevant; and (9) certain discussions with management and advisors of the
Exchange relating to the business of the Exchange and certain financial and
other aspects of the Plan and the reorganization and such other matters believed
to be relevant to its inquiry. In addition, the Financial Advisor took into
account its assessment of general economic, market and financial conditions and
its knowledge of the insurance industry generally.
In preparing its opinion, the Financial Advisor assumed, at the Exchange's
instruction, that: (1) the Reorganization will meet all applicable legal and
regulatory requirements and that all necessary action will have been taken to
comply with all applicable laws and requirements, including the receipt of all
required approvals by policyholders, regulators and otherwise; (2) the terms of
the Initial Public Offering (which have not yet been determined) will not affect
the legal or tax treatment of the Plan or the reorganization; and (3) the
reorganization will be completed on the basis described in the Plan. The
Financial Advisor has been advised as to certain legal and tax matters by
counsel to the Exchange and, with respect to such matters, has relied upon such
counsel.
In preparing its opinion, the Financial Advisor considered a number of
factors including, among other things (in no particular order): (1) the fact
that the Exchange advised the Financial Advisor that growth is extremely
important to remain an effective and competitive insurer in the future; (2) the
fact that the Exchange advised the Financial Advisor that it is of significant
strategic importance that the Exchange have broader access to external capital
to finance this growth; (3) the A (Excellent) rating of the Exchange by A.M.
Best and the considerations on which such rating is based; (4) that in its
present form as a reciprocal insurer, the Exchange has limited access to the
capital markets for new capital; (5) that following the Reorganization the
Exchange will have a capital structure potentially enabling it to access the
capital markets for new capital; and (6) the illiquidity of Membership
Interests.
In preparing its opinion, the Financial Advisor relied on and assumed the
accuracy and completeness of the financial and other information that was
provided by the Exchange or was publicly available and did not attempt to
independently verify the same. The Financial Advisor assumed that forecasts
provided by the Exchange were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Exchange, and noted that it
expressed no opinion with respect to such forecasts or the
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assumptions on which they are based. In addition, the Financial Advisor did not
make or obtain any evaluations or appraisals of the properties, assets,
liabilities, reserves or surplus of the Exchange.
The Exchange retained the Financial Advisor pursuant to an engagement
letter dated June 23, 1995. The Exchange paid the Financial Advisor an aggregate
fee of $300,000 pursuant to such engagement letter. The Exchange also agreed to
reimburse the Financial Advisor for all reasonable out-of-pocket expenses,
including fees and expenses of counsel, in connection with rendering such
services as contemplated in the engagement letter. The foregoing fees and
expenses were payable whether or not the Financial Advisor gave the Exchange a
favorable fairness opinion. The Company has agreed to indemnify the Financial
Advisor and its affiliated entities, directors, officers, employees, legal
counsel, agents and controlling persons against certain costs, expenses and
liabilities to which they may become subject arising out of or in connection
with their engagement. The Company has also retained the Financial Advisor to
act as lead underwriter in connection with the Initial Public Offering, and the
Financial Advisor will receive fees in connection therewith.
RECOMMENDATION OF THE BOARD OF GOVERNORS
The Board of Governors believes that the terms of the Merger are in the
best interests of the Exchange and are fair to its Members. Accordingly, the
members of the Board of Governors have unanimously adopted and approved the
Plan, the Merger Agreement and the transactions contemplated thereby. The Board
of Governors unanimously recommends that the Eligible Members of the Exchange
vote FOR the approval of the Merger Agreement at the Special Meeting.
The terms of the Merger Agreement were approved unanimously by the Board of
Governors at a meeting held , 1996. At that meeting and at a meeting
held March 21, 1996, members of the Exchange's senior management, together with
its legal and financial advisors, reviewed with the Board of Governors the
background of the proposed transaction, the potential benefits of the
transaction and the terms of the proposed Merger Agreement. On 1996,
the Financial Advisor provided its opinion as to the fairness, from a financial
point of view, to the Members of the Exchange, of the exchange of membership
interests for shares of Common Stock and cash in lieu of fractional shares to be
allocated in the Merger. A summary of such opinion and the procedures followed
in preparing the opinion are set forth in "-- Opinion of Financial Advisor."
In reaching its determination at the 1996, meeting that the
terms of the Merger Agreement are in the best interests of the Exchange and are
fair to its Members, the Board of Governors consulted with the Exchange's
management and its legal and financial advisors, and considered:
1. The Board of Governor's belief that growth and diversification are
important for the Exchange to remain an effective and competitive insurer
in the future and that such growth and diversification can be best
accomplished in a corporate form.
2. The Board of Governor's belief that it is of strategic importance
that the Exchange have broader access to external capital to achieve this
growth, and that in its present form as a reciprocal insurer, the Exchange
has limited access to the capital markets for new capital.
3. The opinion of the Financial Advisor that the exchange of the
aggregate membership interests for shares of Common Stock and for cash in
lieu of fractional shares, pursuant to the Plan, is fair, from a financial
point of view, to the Eligible Members as a group.
4. The fact that the Merger will be a tax free reorganization and that
Eligible Members will not recognize gain or loss for Federal income tax
purposes in the Merger.
5. The fact that the membership interests of Eligible Members are
illiquid, and that the Common Stock, in contrast, will be freely tradable
and will be listed on the New York Stock Exchange.
6. The fact that other professional liability insurance companies have
become publicly held and have, as public companies, been able to grow and
diversify through mergers and acquisitions.
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7. The Board of Governor's familiarity with and review of, in
consultation with the Financial Advisor, the business, operations,
earnings, assets, liabilities and financial condition of the Exchange, on
both a historical and prospective basis.
8. Comments from A.M. Best relating to the Exchange's narrow product
line and geographic concentration, and to the intense competition in the
medical malpractice industry.
9. The fact that, as a result of the Merger, the Eligible Members
would become stockholders of SCPIE Holdings, a Delaware corporation.
Delaware corporate law is widely regarded as the most extensive and well
defined body of corporate law in the United States, and a substantial body
of case law and public policies have developed with respect to Delaware
corporations. As a result, the Board of Governors believes that the Merger
will provide SCPIE Holdings and its stockholders the benefit of greater
predictability with respect to its corporate legal affairs which will
result from SCPIE Holdings being incorporated in Delaware.
In determining Eligible Members and the apportionment of consideration
among Eligible Members, the Board of Governors further considered the terms of
other insurance company conversion transactions, the provisions of California
statutes, prior premium credit dividends to Members, the nature and value of the
Membership Interests being exchanged, the financial results of recent years, and
certain analyses prepared by management. The Board of Governors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the individual factors considered in reaching its determinations.
Based on all of the factors described above, the Board of Governors
believes that the Merger is in the best interest of, and is fair to, the
Eligible Members as a group. Accordingly, the Board of Governors has unanimously
approved the Merger Agreement and unanimously recommends that the Eligible
Members vote in favor of the proposal to approve and adopt the Merger Agreement.
THE INITIAL PUBLIC OFFERING
SCPIE Holdings has filed with the Commission a registration statement under
the Securities Act (the "IPO Registration Statement") pertaining to the shares
of Common Stock to be sold by the Company in the Initial Public Offering. The
IPO Registration Statement will contain a prospectus which will include
information substantially similar to that which appears in this Proxy
Statement/Prospectus. It is anticipated that the Company will issue
approximately 2,000,000 shares of Common Stock in the Initial Public Offering.
Several months may elapse as the Commission reviews the IPO Registration
Statement and marketing by the underwriters is completed. The ability to effect
an Initial Public Offering at any time is uncertain. During many periods in the
past it has been effectively impossible for many companies to accomplish Initial
Public Offerings at attractive prices or at all. Accordingly, even if the Merger
is approved, the Initial Public Offering may not occur because, due to market or
other conditions, the Common Stock cannot be sold at an acceptable price, or at
all. When and if the marketing of the Common Stock is successfully completed the
SCPIE Holdings Board will determine, in consultation with the underwriters, the
price at which the shares of the Common Stock to be included in the Initial
Public Offering can then be sold. The Company believes that investors, in
determining the price which they are willing to pay for the Common Stock, will
consider factors such as prevailing market conditions, the Company's historical
financial performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and
consideration of the above factors in relation to market valuations of companies
in related businesses. The SCPIE Holdings Board may accept the price or request
a delay to determine if conditions and the price will improve. The price at
which the Common Stock will be sold to the public will not be determined until
the Initial Public Offering process is complete. Although the underwriters will
recommend a proposed price range which will be included in the preliminary
prospectus, it is not unusual that the price at which shares of Common Stock are
sold in an initial public offering is outside that range. See "Market for Common
Stock."
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The SCPIE Holdings Board will have exclusive authority to determine if the
price recommended by the underwriters is acceptable. In any event, the Merger
will close in accordance with the Merger Agreement, subject to satisfaction or
waiver of all the conditions therein, regardless of the occurrence or
non-occurrence of the Initial Public Offering. Completion of the Initial Public
Offering is not a condition precedent to the Merger. See "-- Conditions to
Effectiveness of the Merger."
SCPIE Holdings will register the Common Stock under the Exchange Act, on or
prior to the Effective Date, and in accordance with the Exchange Act thereafter
will be required to file reports, proxy statements and other information with
the Commission. SCPIE Holdings intends to furnish holders of Common Stock with
annual reports containing audited consolidated financial statements reported
upon by independent auditors and quarterly reports for the first three quarters
of each fiscal year containing unaudited quarterly consolidated financial
statements. See "Available Information."
THE FOREGOING DOES NOT CONSTITUTE EITHER AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY COMMON STOCK IN THE INITIAL PUBLIC OFFERING.
SUCH OFFERING WILL BE MADE ONLY BY THE PROSPECTUS FOR THE INITIAL PUBLIC
OFFERING.
DESCRIPTION OF THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Annex I and incorporated by reference
herein. The summary contains all the material information concerning the Merger
Agreement, however, the summary is qualified in its entirety by reference to the
full text of the Merger Agreement.
The Merger Agreement was executed by and among the Exchange, SCPIE Holdings
and SCPIE Indemnity on March 21, 1996 and provides that, following the
satisfaction or waiver of certain conditions, in accordance with and subject to
the provisions of the Merger Agreement, the California Insurance Law and the
California Corporations Law, the Exchange shall be merged with and into SCPIE
Indemnity. See "-- Conditions to Effectiveness of the Merger." At and after the
Effective Date, the separate existence of the Exchange shall cease, and SCPIE
Indemnity shall continue as the surviving corporation. The Merger Agreement
further provides that the Merger shall have the effect set forth in the
California Insurance Law and the California Corporations Law.
The Merger Agreement provides that at the Effective Date, by virtue of the
Merger and without any further action on the part of the Exchange or SCPIE
Indemnity or any of the Members or SCPIE Holdings, (i) the Membership Interests
of all Members shall be terminated, (ii) each Eligible Member shall be allocated
and will receive Merger Shares in accordance with the provisions set forth in
"-- Consideration -- Allocation of Shares" and "-- Consideration -- Form of
Consideration" and (iii) SCPIE Indemnity will receive 500,000 Merger Shares
(subject to adjustment by the Board of Governors and the SCPIE Holdings Board as
set forth in "-- Additional Aspects of the Merger and the Plan -- Issuance of
Shares to SCPIE Indemnity").
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto; provided, however, that after
approval and adoption of the Merger Agreement by the Members entitled to vote at
the Special Meeting, no amendment may be made which under applicable law
requires further approval of Eligible Members without such further approval of
Eligible Members.
The Merger Agreement may be terminated and the Merger may be abandoned, at
any time prior to the Effective Date, whether prior to or after approval of the
Merger Agreement by the Members eligible to vote at the Special Meeting: (i) by
mutual written consent of the Board of Governors, the SCPIE Holdings Board and
the SCPIE Indemnity Board; (ii) by the Exchange, if SCPIE Indemnity or SCPIE
Holdings breaches in any material respect any of its covenants or agreements
contained in the Merger Agreement; (iii) by SCPIE Holdings, if the Exchange
breaches in any material respect any of its covenants or agreements contained in
the Merger Agreement; or (iv) by either SCPIE Holdings or the Exchange if:
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(a) the Merger has not been consummated prior to December 31, 1996; or (b) any
court of competent jurisdiction or any other governmental body shall have issued
an order, decree or ruling, or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action,
shall have become final and non-appealable.
CONDITIONS TO EFFECTIVENESS OF THE MERGER
In order for the Merger to become effective, the Merger Agreement must be
approved by the Eligible Members and by the Insurance Commissioner and certain
required tax rulings or opinions of tax counsel must be received. THE OCCURRENCE
OF THE INITIAL PUBLIC OFFERING IS NOT A CONDITION TO THE EFFECTIVENESS OF THE
MERGER. See "-- Introduction" and "-- The Initial Public Offering."
Approval by Eligible Members. One of the conditions for the Merger to
become effective is that the Merger Agreement must be approved by a vote of the
Eligible Members at the Special Meeting. The affirmative vote of two-thirds
(66 2/3%) of the Eligible Members is required to approve the Merger Agreement on
behalf of the Exchange. The presence, either in person or by proxy, of a
majority of the Eligible Members is necessary to constitute a quorum. For more
information about the requirements to be an Eligible Member entitled to vote at
the Special Meeting, see "-- Determination of Eligible Members." For more
information about the Special Meeting, see "Information Concerning the Special
Meeting -- Time, Date and Place" and "-- Record Date, Quorum and Vote Required."
Approval by the Insurance Commissioner. Pursuant to the California
Insurance Law, the Merger must be approved by the Insurance Commissioner for
submission to a vote of Eligible Members entitled to vote at the Special
Meeting. The Insurance Commissioner issued such approval on the Approval Date,
, 1996. Eligible Members are encouraged to review the Insurance
Commissioner's approval letter, which is attached at the beginning of this Proxy
Statement/Prospectus. The Insurance Commissioner must also issue a final
approval of the Merger Agreement prior to the Effective Date.
Tax Rulings. Under the Merger Agreement, tax rulings of the Service or
opinions of tax counsel regarding certain Federal income tax consequences of the
Merger are required to be received in order for the Merger to become effective.
As more fully discussed in "Certain Federal Income Tax Consequences of the
Merger," rulings of the Service or an opinion of tax counsel have been received
regarding all of these matters (although the opinion of tax counsel covering
certain of these matters must be reconfirmed on or before the Effective Date).
Effective Date. The Effective Time shall be when the Merger Agreement is
filed in accordance with the California Corporations Law and the California
Insurance Law. The Effective Date shall be such date as the Board of Governors,
the SCPIE Holdings Board and the SCPIE Indemnity Board determine is appropriate
after the conditions set forth in the Merger Agreement have been satisfied or
waived. If the Merger has not been consummated by December 31, 1996, the Merger
Agreement shall, unless extended in accordance with its terms, automatically
terminate.
ADDITIONAL ASPECTS OF THE MERGER AND THE PLAN
Accounting Treatment. The Merger and related transactions involve a
reorganization of entities under common control, and the assets and liabilities
transferred to effect the Merger and related transactions will be accounted for
at historical cost in a manner similar to that in pooling of interests
accounting.
Expenses of the Merger. All reasonable costs, including those costs
attributable to the use of the staff personnel and outside advisors and
consultants of the California Department related to the Merger, shall be borne
by the Exchange.
Regulatory Approvals. Except for approval by the Insurance Commissioner,
the filing of the Merger Agreement with the Secretary of State of the State of
California after approval and adoption of the Merger Agreement pursuant to the
California Insurance Law and the California Corporations Law, and compliance
with Federal and state securities laws, the Company is not aware of any material
United States Federal or
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state regulatory requirement necessary to be complied with or approval that must
be obtained in connection with the Merger. See "Risk Factors -- Regulatory and
Related Matters."
Insurance Coverage. Following the Merger, each Eligible Member will become
a policyholder of SCPIE Indemnity. The Merger will not affect any Eligible
Member's policy coverage or premium credit dividends for 1996.
Issuance of Shares to SCPIE Indemnity. The Merger Agreement provides that
SCPIE Holdings will issue SCPIE Indemnity 500,000 shares of Common Stock. Such
shares will be issued in consideration of the cancellation of the outstanding
shares of Common Stock of SCPIE Holdings currently held by the Exchange which
will be cancelled in the Merger. The Board of Governors and the SCPIE Holdings
Board may adjust the number of shares of Common Stock issuable to SCPIE
Indemnity in the Merger in order to ensure that the Merger Shares issued to
SCPIE Indemnity have a fair market value equivalent to the fair market value of
the shares of Common Stock currently held by the Exchange which are to be
cancelled in the Merger. The number of shares of Common Stock are also subject
to adjustment as provided in "-- Consideration -- Adjustment of Number of
Shares."
These shares of Common Stock will be issued to SCPIE Indemnity in order to
ensure that the Merger will have the tax consequences set forth in "Certain
Federal Income Tax Consequences of the Merger -- The Exchange and SCPIE
Indemnity." Pursuant to the Delaware General Corporation Law (the "DGCL"), SCPIE
Indemnity will not be entitled to vote the shares of Common Stock it is issued
in the Merger, but such shares will be entitled to receive dividends. Under GAAP
these 500,000 shares will be treated as issued but not outstanding. See
"Capitalization."
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COMPARISON OF CERTAIN RIGHTS OF MEMBERS BEFORE AND AFTER THE MERGER
Members of the Exchange, a reciprocal insurer, have certain rights as
members which are described herein as "Membership Interests." Membership
Interests consist of the rights arising under the Exchange's Subscription
Agreements and Bylaws, the California Insurance Law and otherwise, including,
without limitation, the right to vote for the election of members of the Board
of Governors and on other matters and to participate in any distribution of
surplus upon liquidation, but not including contractual rights under Policies.
Upon consummation of the Merger, the Membership Interests of Eligible Members
will be cancelled and extinguished and converted into the right to receive
Merger Shares, and members of the Exchange will become stockholders of SCPIE
Holdings.
The following is a comparison of certain rights of Members of the Exchange
and holders of SCPIE Holdings' Common Stock. This comparison contains all the
material information concerning the rights of members and shareholders set forth
below, however, it is not intended to be complete and is qualified in its
entirety by reference to the Exchange's Bylaws, copies of which are available
for inspection at the executive offices of the Exchange and will be sent to
Members upon request, and by reference to the Restated Certificate and the
Bylaws, copies of which are attached hereto as Annexes III and IV, respectively.
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
General. Membership in the Exchange is General. The authorized capital stock of
limited to and comprised of those persons SCPIE Holdings consists of (i) 30,000,000
who are "insured persons" of the Exchange. shares of Common Stock, par value $.0001 per
As of the Record Date, there were ___ share, and (ii) 5,000,000 shares of
Members of the Exchange. Each "insured Preferred Stock, par value $1.00 per share.
person" under a policy of insurance issued Immediately after the consummation of the
by the Exchange becomes a Member when the Merger but before the Initial Public
policy is issued and the period of coverage Offering, it is expected that there will be
commences under the policy. "Insured approximately 10,500,000 shares of Common
persons" include each individual physician, Stock outstanding (less fractional shares,
surgeon, nurse anesthetist, professional which, pursuant to the Merger Agreement,
medical partnership, professional medical will be paid in cash) and no shares of
corporation or other healthcare provider to Preferred Stock outstanding, and immediately
whom a policy or certificate insert under a upon consummation of the Initial Public
policy has been issued by the Exchange. Offering, it is expected that there will be
Membership interests in the Exchange approximately 12,500,000 shares of Common
have no preemptive or conversion rights, Stock outstanding (less fractional shares,
redemption rights, or sinking fund which, pursuant to the Merger Agreement,
provisions. will be paid in cash).
Shares of Common Stock have no preemptive
rights, conversion rights, or redemption
rights. No shares of Preferred Stock will be
issued or outstanding immediately following
the Merger or Initial Public Offering. When,
and if, issued the Preferred Stock will have
such rights, powers and preferences as may
be established by the SCPIE Holdings Board.
See "Description of Capital
Stock -- Preferred Stock."
</TABLE>
27
<PAGE> 37
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Liquidity/Marketability. A Membership Liquidity/Marketability. SCPIE Holdings has
Interest is not transferable and ceases applied for listing of the shares of Common
and terminates when the coverage period or Stock on the New York Stock Exchange. As a
certificate period of the Member under the result SCPIE Holdings anticipates that there
policy issued by the Exchange terminates by will be a public market for the shares of
expiration of time, cancellation or Common Stock.
otherwise.
Distributions. If the Board of Distributions. Subject to the rights of
Governors, in its reasonable discretion, holders of Preferred Stock, if any, holders
determines that the surplus of the Exchange of Common Stock will be entitled to
is adequate to meet estimated operating participate equally in dividends if, as and
requirements and provide protection for when declared by the SCPIE Holdings Board,
Members and that there is additional surplus and in the distribution of assets in the
available for distribution to Members, the event of dissolution. See "Dividend Policy."
Board may distribute all or a portion of At the present time, the dividends that the
this additional surplus to Members. Each Company intends to pay to its stockholders
Member's share of such distribution is are significantly lower than the dividends
determined by the Board of Governors in its that the Exchange historically paid to
reasonable discretion. When a person ceases certain of its Members. See "Dividend
to be a Member, such person loses rights to Policy." Accordingly, Eligible Members who
future dividends or other distributions. have received premium credit dividends
The Board has declared premium credit (principally Eligible Members who joined the
dividends to Members each year since 1981 Exchange in 1990 or earlier), may experience
based upon the results of operations for an increase in the net premium amount
particular policy years and each continuing payable to the Company following the Merger.
Member's proportionate share of the premiums
paid by all continuing Members for each such
policy year.
If the Exchange is liquidated, the
assets remaining after payment of all
liabilities would be distributed to the
persons who are Members at the time of such
liquidation, with each Member's share
determined by the Board of Governors in its
reasonable discretion or by a court having
jurisdiction in the event a conservator or
liquidator is appointed.
Income Taxation. The Exchange, as a Income Taxation. SCPIE Holdings is a taxa-
reciprocal insurance company, is taxable ble entity. A holder of Common Stock or
under the Internal Revenue Code as a "mutual Preferred Stock will not be taxed with
insurance company." A holder of a Membership respect to SCPIE Holdings' income, but will
Interest will not be taxed with respect to realize taxable income to the extent that
the Exchange's income, but will realize SCPIE Holdings makes actual distributions to
taxable income to the extent that the such holder that are out of current or
Exchange makes actual distributions (in the accumulated earnings and profits or that are
form of premium credits or other dividends) in excess of the basis in such holder's
to such holder that are out of current or Common Stock or Preferred Stock. As a stock
accumulated earnings and profits of the Ex- corporation, SCPIE Holdings will not receive
change. As a "mutual insurance company" for a deduction for such distributions.
Federal income tax purposes, the Exchange Accordingly, to the extent distributed,
will receive a deduction in the amount of earnings and profits of SCPIE Holdings
such distributions when accrued. generally will be subject to two levels of
Federal income tax.
</TABLE>
28
<PAGE> 38
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Assessments. The Exchange has obtained Assessments. Shares of Common Stock and
an order from the Insurance Commissioner Preferred Stock will not be subject to
that Members are permanently nonassessable further calls or assessments by SCPIE
on policies issued or renewed by the Holdings.
Exchange.
Meetings and Actions. Any actions Meetings and Actions. Any action required or
required to be taken by the Members may be permitted to be taken by the stockholders of
taken at a duly called annual or special SCPIE Holdings must be taken by vote of the
meeting of members of the Exchange or by stockholders at a duly called annual or
unanimous written consent of all Members. special meeting of stockholders and not by
Special meetings of the Members may be written consent. Special meetings of
called only by (i) a majority of the Board stockholders may be called only by (i) a
of Governors, (ii) the Chairman of the Board majority of the SCPIE Holdings Board, (ii)
of Governors or (iii) 20% or more of the the Chairman of the SCPIE Holdings Board, or
Members. (iii) the President of SCPIE Holdings.
Special Meetings may be called for any The business transacted at any special
purpose or purposes. The business transacted meeting of stockholders is confined to
at any special meeting of the Members is matters specified in the notice of meeting.
confined to matters specified in the notice The SCPIE Holdings Bylaws establish an ad-
of meeting. vance notice procedure with regard to the
The Bylaws of the Exchange provide for nomination by stockholders of candidates for
an advance notice procedure with respect to election as directors and with regard to
the nomination by Members of candidates for proposals of business to be brought before
election as members of the Board of an annual meeting of stockholders of SCPIE
Governors and with respect to certain Holdings. Notice as to any such stockholder
matters to be brought before an annual nomination or other proper proposal must be
meeting of Members. Nominations by Members received by SCPIE Holdings not less than 60
require a nominee to be nominated by 10% of days nor more than 90 days prior to the
the Members in writing at least 60 days anniversary date of the immediately preced-
prior to the date of the meeting. Members ing annual meeting. In the event that the
eligible to make such nominations must be date of the annual meeting is more than 30
members both at the date the nominations are days before or more than 60 days after such
made and at December 31 of the preceding anniversary date, however, the Bylaws
year. provide additional time for notice. In
Bylaws of the Exchange may be amended addition, such notice must contain certain
by the proposal of a Member at an annual specified information concerning the person
meeting only if the text of the proposed to be nominated or the matters to be brought
bylaw amendment has been filed with the before the meeting as well as the name and
Secretary of the Exchange at least 60 days address of the stockholder and the class and
prior to the date of the meeting. number of shares beneficially owned by the
stockholder submitting the proposal.
Domiciliary State. California Domiciliary State. Delaware
</TABLE>
29
<PAGE> 39
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Voting. Each Member is entitled to one Voting. Holders of Common Stock are enti-
vote on all matters submitted to the tled to one vote per share on all matters
Members for action or approval, regardless with respect to which the holders of Common
of the number of insurance policies or Stock are entitled to vote (including the
certificate inserts of the Exchange that may election of directors) and, except as
be held by such Member. The Bylaws generally otherwise required by law or by the terms of
require the affirmative vote of a majority any series of Preferred Stock then
of members to approve matters submitted to outstanding, the holders of Common Stock
the Members unless a higher vote is re- will exclusively possess all voting power.
quired by such Bylaws. The Bylaws require Under DGCL in the absence of specific
that the Exchange may be liquidated only requirements in a corporation's certificate
with the affirmative vote of two-thirds of incorporation or bylaws, all matters
(66 2/3%) of the Members and that Bylaws of submitted to stockholders for approval must
the Exchange may be amended or repealed only be approved by the affirmative vote of the
by the affirmative vote of a majority of the holders of a majority of the outstanding
Members entitled to vote. In the election of shares entitled to vote except for election
members of the Board of Governors, there is of directors, which requires a plurality
no cumulative voting, which means that a vote, and certain matters governed by Sec-
majority of the Members voting at the tion 203 of the DGCL, which requires the ap-
meeting will be entitled to elect all of the proval of the Board of Directors and of
members of the Board of Governors to be two-thirds (66 2/3%) vote of disinterested
elected at such meeting if they choose to do stockholders to approve certain types of
so. In that event, any other members will business combinations. See "-- Anti-takeover
not be able to elect any members of the Provisions." Pursuant to the Restated
Board of Governors. Certificate, certain matters require a
two-thirds (66 2/3%) vote of outstanding
Common Stock, including provisions described
under "-- Removal of Directors,"
"-- Amendments to Governing Documents,"
"-- Restrictions on Certain Business
Combinations" and "-- Anti-takeover
Provisions." In the election of members of
the Board of Directors, there is no
cumulative voting, which means that the
holders of a majority of Common Stock
entitled to vote and voting at the meeting
will be entitled to elect all of the members
of the Board of Directors to be elected at
such meeting if they choose to do so.
</TABLE>
30
<PAGE> 40
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Preferred Stock. Not applicable. Preferred Stock. The SCPIE Holdings Board is
authorized, subject to any limitations pre-
scribed by law, without further action by
stockholders, to issue up to 5,000,000
shares of Preferred Stock, from time to
time, in one or more series and, with
respect to each series, to determine the
terms thereof, including the number of
shares, dividend rates, redemption rights,
voting rights and rights on liquidation. See
"Description of Capital Stock -- Preferred
Stock." Because the SCPIE Holdings Board has
the power to establish the preferences,
powers and rights of each series, it may
afford the holders of any particular series
of Preferred Stock preferences, powers and
rights (including dividend rights, voting
powers and liquidation preferences) senior
to the rights of the holders of Common
Stock. No shares of Preferred Stock will be
outstanding immediately following the Merger
and the Initial Public Offering, and the
Company has no immediate plans to issue any
series of Preferred Stock. The issuance of a
series of Preferred Stock could, depending
on the terms of such series, have the effect
of discouraging, delaying or preventing a
third party from acquiring or proposing to
acquire a majority of the outstanding voting
stock of SCPIE Holdings. See "Description of
Capital Stock -- Delaware Law and Certain
Charter and Bylaw Provisions."
Limited Liability. The liability of a Limited Liability. The liability of holders
Member is generally limited to the of Common Stock is generally limited to the
premiums accrued under the current policies price paid for such Common Stock by the
of insurance issued by the Exchange to such holder.
Member. Members of the Exchange are not
subject to assessment.
</TABLE>
31
<PAGE> 41
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Management. The Exchange is a Management. The SCPIE Holdings Board has the
reciprocal insurance company and power and duty to manage the business and
management responsibility is divided between affairs of SCPIE Holdings and, indirectly,
the Board of Governors and its all its subsidiaries. The SCPIE Holdings
attorney-in-fact, SCPIE Management Company Board may designate committees, each
(the "Manager"), appointed by each committee to consist of one or more
subscriber when the subscriber becomes a directors, and has established an audit
Member. The Manager is designated as the committee, a compensation committee and an
attorney-in-fact for each subscriber under a executive committee. Directors are elected
Subscriber Agreement and Power of Attorney by the stockholders of SCPIE Holdings. See
(the "Subscriber Agreement") which each "-- Voting" and "-- Election of Directors."
subscriber must sign when making application The officers of the Company serve at the
for insurance. The Subscriber Agreement discretion of the SCPIE Holdings Board.
describes the general allocation of powers
and duties between the Manager and the Board
of Governors. A more detailed definition of
these matters is set forth in the Management
Agreement between the Manager and the Ex-
change (the "Management Agreement"), which
is subject to renewal annually. If the
Management Agreement is terminated, the
Board of Governors has the right to name a
new attorney-in-fact for the Members.
Under the Subscriber Agreement and the
Management Agreement, the Manager operates
the business of the Exchange, accepts or
rejects applications, formulates the form of
insurance policies, handles and disposes of
claims, and performs all related functions.
The Board of Governors, on the other hand,
retains broad supervisory powers over the
financial aspects of the Exchange, including
investments, and establishes guidelines to
be followed by the Manager in certain key
areas such as policy forms, rates,
underwriting rules, surplus requirements and
dividend policies.
</TABLE>
32
<PAGE> 42
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Board of Governors. The Bylaws of the Board of Directors. The SCPIE Holdings Board
Exchange provide that the Board of consists of a minimum of seven and a maximum
Governors shall consist of nine members, of thirteen directors (not including di-
each of whom must be a Member, and that this rectors who may be selected from time to
bylaw may be amended only by the affirmative time by holders of Preferred Stock), such
vote of a majority of the Members. The Board actual number of directors to be fixed from
of Governors is divided into three classes time to time by the affirmative vote of a
who serve for staggered terms. Each class is majority of the SCPIE Holdings Board.
comprised of three governors, who serve for Accordingly, the SCPIE Holdings Board, and
a term of three years, with one class being not the stockholders, has the authority to
elected at each annual meeting. determine the number of directors, within
certain limits.
Immediately following the
consummation of the Merger, the SCPIE
Holdings Board will consist of twelve
members. The Board of Directors is divided
into three classes who serve staggered terms
(not including directors who may be se-
lected from time to time by holders of
Preferred Stock). Each class is comprised of
four directors, who serve for a term of
three years, with one class being elected at
each annual meeting. See
"Management -- Directors and Executive Of-
ficers."
In the future, if a number of vacancies ex-
isted on the SCPIE Holdings Board, the
Board's ability to determine the number of
directors could delay any stockholder from
obtaining majority representation on the
SCPIE Holdings Board and filling the new
vacancies with its own nominees until the
next stockholder election.
Election of Governors. The Exchange's Election of Directors. The SCPIE Holdings
Bylaws provide that nominations for Bylaws provide that nominations for election
election of members of the Board of of directors may be made only by or at the
Governors may be made only by the Board of direction of the SCPIE Holdings Board or by
Governors or by 10% of the Members. See any stockholders of SCPIE Holdings entitled
"-- Meetings and Actions." to vote on the election of directors who
complies with certain notice procedures and
who was a stockholder of record at the time
of giving such notice. See "-- Meetings and
Actions." Directors are elected at the
annual meeting of stockholders except when
filling vacancies or newly-created vacan-
cies. See "-- Vacancies." A plurality of
votes present in person or by proxy and
entitled to vote on the election of
directors is required for election.
</TABLE>
33
<PAGE> 43
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Removal of Governors. The Exchange's Removal of Directors. The Restated Certifi-
Bylaws provide that a member of the Board cate provides that directors can be removed
of Governors may be removed only by the vote from office only for cause and only with the
of a majority of the Members, and that such vote of two-thirds (66 2/3%) of the voting
removal may be voted upon only at a special power of the then outstanding shares of
meeting of the Members called for that voting stock of SCPIE Holdings, voting
purpose. together as a single class.
Vacancies. Vacancies in the Board of Vacancies. The Restated Certificate pro-
Governors may be filled by a majority of vides that vacancies on the SCPIE Holdings
the remaining governors, though less than a Board and any newly-created directorships
quorum. Any vacancy not filled by the Board resulting from an increase in the authorized
of Governors may be filled by the Members. number of directors may be filled for the
remainder of a term only by an affirmative
vote of a majority of the remaining
directors (even though less than a quorum)
and not by the stockholders of SCPIE
Holdings. The provisions of the Restated
Certificate governing removal of directors
and the filling of vacancies would preclude
a third party from removing incumbent
directors and simultaneously gaining control
of the SCPIE Holdings Board by filling
vacancies created by such removal with its
own nominees unless, among other things,
such third party controls at least
two-thirds (66 2/3%) of the combined voting
power of SCPIE Holdings' voting stock.
</TABLE>
34
<PAGE> 44
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Indemnification. The Exchange's Bylaws Indemnification. The SCPIE Holdings Bylaws
provide that the Exchange shall indemnify provide that SCPIE Holdings shall indemnify
and hold harmless the members of the Board its directors and officers and may indemnify
of Governors, the officers of the Exchange, its employees and agents, who are parties or
and members of any committees appointed by threatened to be made parties to any action,
the Board of Governors from and against suit or proceeding by reason of such
judgments, fines, amounts paid in person's capacity as a director, officer,
settlement, and reasonable expenses incurred employee or agent of SCPIE Holdings, from
in the defense of any actions, suits or and against expenses (including legal fees),
proceedings relating to claims or judgments, fines and settlements arising
liabilities asserted against the management from such action, suit or proceeding to the
or operations of the Exchange, including any fullest extent permitted by applicable law.
derivative actions brought in the name of or Section 145(a) of the DGCL provides that a
on behalf of the Exchange. However, no corporation may indemnify a director,
indemnification may be made for any claim, officer, employee or agent if such person
obligation or liability which arose out of acted in good faith and in a manner
such person's active and deliberate reasonably believed to be in, or not opposed
dishonesty or fraud. to, the best interests of the corporation
The Management Agreement provides for and, with respect to any criminal
similar rights of indemnification by the proceeding, had no reasonable cause to
Exchange of the Manager, its officers, believe the conduct was unlawful. In
directors, employees and shareholders with addition, effective upon consummation of the
respect to acts or omissions of such persons Merger, SCPIE Holdings will enter into
on behalf of the Exchange, the Board of indemnification agreements with each of its
Governors and the Members. However, no directors and certain of its executive
indemnification may be made for any claim, officers that generally provide for similar
obligation or liability which arose out of indemnification. As permitted by the DGCL,
such person's active and deliberate the Restated Certificate eliminates in
dishonesty or fraud. certain circumstances the monetary liability
of the directors of SCPIE Holdings for a
breach of their fiduciary duties as
directors.
Amendments to Governing Documents. Amendments to Governing Documents.
Members of the Exchange may adopt, alter, Stockholders of SCPIE Holdings are entitled
amend or repeal provisions of the Exchange's to adopt, alter, amend, rescind or repeal
Bylaws by the vote of a majority of the provisions of the SCPIE Holdings Bylaws by
Members at an annual or special meeting or the affirmative vote of two-thirds (66 2/3%)
by the unanimous written consent of the of the total voting power of the then
Members. A Member may not propose a new outstanding voting stock, voting together as
bylaw or the amendment or repeal of an a single class. The SCPIE Holdings Board is
existing bylaw at an annual meeting unless also entitled to alter, amend, change or
the text of the proposed change has been repeal provisions of the SCPIE Holdings
filed with the Secretary of the Exchange at Bylaws by majority vote. Generally, under
least 60 days prior to the date of the Section 242 of the DGCL, an amendment to the
annual meeting. Restated Certificate requires adoption by
the SCPIE Holdings Board of a resolution
setting forth the proposed amendment and the
approval thereof by a majority vote of the
Common Stock issued, outstanding and
entitled to vote.
</TABLE>
35
<PAGE> 45
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Financial Reporting. The Exchange is Financial Reporting. SCPIE Holdings will be
not required to provide the Members with subject to the reporting requirements of the
any annual or quarterly income and expense Exchange Act, and will file annual and
statements or balance sheets. The Exchange quarterly reports with the Commission and
is required to file annual and quarterly with the New York Stock Exchange. SCPIE
financial statements prepared in accordance Holdings will also provide to the holders of
with statutory accounting practices ("SAP") Common Stock annual and quarterly reports of
with the California Department, which are its financial condition and results of
open to public inspection. The Exchange has operations, prepared in accordance with GAAP
provided to Members since its inception an and, with respect to the annual reports,
annual report of its financial condition and audited by independent accountants. Fol-
results of operations, prepared in accor- lowing the Merger, the Insurance
dance with SAP and audited by independent Subsidiaries will file annual and quarterly
accountants. financial statements under SAP with the
departments of insurance of their respective
domiciliary states.
Business Combinations. The Bylaws of Business Combinations. The DGCL generally
the Exchange require that the Board of requires that a majority of the stockholders
Governors may elect to voluntarily liquidate approve a merger, consolidation or the sale,
the Exchange only with the affirmative vote lease or exchange of all or substantially
of two-thirds (66 2/3%) of the Members. This all of a corporation's property and assets.
may limit or restrict the Board from taking The DGCL contains additional restrictions
action to sell or transfer the business or where such action or transaction is with, or
assets of the Exchange or to merge the proposed by or on behalf of, an "Interested
Exchange with another insurance company in a Stockholder" (defined generally as a person
transaction in which SCPIE is not the owning 15% or more of SCPIE Holdings'
surviving entity. outstanding voting stock). See
"-- Anti-takeover Provisions" and
"Description of Capital Stock -- Delaware
Law and Certain Charter and Bylaw
Provisions."
</TABLE>
36
<PAGE> 46
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
Anti-takeover Provisions. The Board of Anti-takeover Provisions. SCPIE Holdings is
Governors is divided into three classes of a Delaware corporation and is subject to the
directors, serving staggered three-year provisions of Section 203 of the DGCL. In
terms. As a result, one third of the Board general, Section 203 prevents an "interested
of Governors is elected each year. This stockholder" (defined generally as a person
classified board provision could delay a owning 15% or more of SCPIE Holdings'
majority of Members who do not like the outstanding voting stock) from engaging in a
policies of the Board of Governors from "business combination" (as defined in
removing a majority of the Board of Section 203) with SCPIE Holdings for three
Governors for two years. years following the date that person became
an interested stockholder unless: (i) before
that person became an interested
stockholder, the SCPIE Holdings Board
approved the transaction in which the
interested stockholder became an interested
stockholder or approved the business
combination; (ii) upon completion of the
transaction that resulted in the interested
stockholder becoming an interested
stockholder, the interested stockholder
owned at least 85% of the voting stock of
SCPIE Holdings outstanding at the time the
transaction commenced (excluding stock held
by directors who are also officers of SCPIE
Holdings and by employee stock plans that do
not provide employees with the right to
determine confidentially whether shares held
subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or
following the date on which that person
became an interested stockholder, the
business combination is approved by the
SCPIE Holdings Board and authorized at a
meeting of stockholders by the affirmative
vote of the holders of at least two-thirds
(66 2/3%) of the outstanding voting stock of
SCPIE Holdings not owned by the interested
stockholder.
Under Section 203, these restrictions also
do not apply to certain business
combinations proposed by an interested
stockholder following the announcement or
notification of one of certain extraordinary
transactions involving SCPIE Holdings and a
person who was not an interested stockholder
during the previous three years or who
became an interested stockholder with the
approval of a majority of SCPIE Holdings'
directors, if that extraordinary transaction
is approved or not opposed by a majority of
the directors (but not less than one) who
were directors before any person became an
interested stockholder in the previous three
years or who were recommended for election
or elected to succeed such directors by a
majority of such directors then in office.
</TABLE>
37
<PAGE> 47
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
The SCPIE Holdings Board of Directors is
divided into three classes of directors,
serving staggered three-year terms. The
classified board provisions could have the
effect of discouraging a third party from
making a tender offer or otherwise
attempting to gain control of SCPIE Hold-
ings. The Restated Certificate of SCPIE and
SCPIE Holdings' Bylaws will also contain
certain provisions that may delay, defer or
prevent a change of control of SCPIE
Holdings and make removal of management more
difficult. These provisions are intended to
(i) enhance the likelihood of continuity and
stability in the composition of the SCPIE
Holdings Board and in the policies
formulated by the SCPIE Holdings Board, (ii)
discourage certain types of transactions
which may involve an actual or threatened
change of control of SCPIE Holdings, (iii)
reduce the vulnerability of SCPIE Holdings
to an unsolicited proposal for a takeover of
the Company that does not contemplate the
acquisition of all its outstanding shares or
an unsolicited proposal for the
restructuring or sale of all or part of
SCPIE Holdings, and (iv) discourage certain
tactics that may be used in proxy fights.
In addition, the issuance of shares of Pre-
ferred Stock by SCPIE Holdings (or the
issuance of rights to purchase such shares)
could be used to discourage an unsolicited
acquisition proposal. For instance, the
issuance of a series of Preferred Stock
might (i) impede a business combination by
including class voting rights that would
enable the holders to block such a
transaction or (ii) facilitate a business
combination by including voting rights that
would provide a required percentage vote of
the stockholders. Also, under certain
circumstances, the issuance of Preferred
Stock could adversely affect the voting
power of the holders of Common Stock.
The provisions described in "-- Meetings and
Actions," "-- Board of Directors," "-- Elec-
tion of Directors," "-- Removal of
Directors," "-- Vacancies," and
"-- Amendments to Governing Documents,"
together with the ability of the SCPIE
Holdings Board to authorize the issuance of
Preferred Stock without further stockholder
action, could delay or frustrate the removal
of incumbent directors or the assumption of
control of SCPIE Holdings by the holder of a
large
</TABLE>
38
<PAGE> 48
<TABLE>
<CAPTION>
DESCRIPTION OF CERTAIN RIGHTS OF MEMBERS OF DESCRIPTION OF CERTAIN RIGHTS OF HOLDERS OF
THE EXCHANGE SCPIE HOLDINGS STOCK AFTER THE MERGER
<S> <C>
block of Common Stock. These provisions
could also discourage or make more difficult
a merger, tender offer or proxy contest even
if a majority of the stockholders might
consider such event to be in their best
interest. See "Description of Capital Stock
-- Delaware Law and Certain Charter and
Bylaw Provisions."
</TABLE>
39
<PAGE> 49
MARKET FOR COMMON STOCK
Prior to the Merger, as a reciprocal insurer, the Exchange has not issued
any capital stock. SCPIE Holdings has been organized for the purpose of becoming
the parent company of the Insurance Subsidiaries upon consummation of the
Merger. Prior to the Merger, there has not been any market for the Common Stock.
The Common Stock has been approved for listing, subject to official notice of
issuance, on the New York Stock Exchange under the symbol " ." There can be
no assurance that an active market for the Common Stock will develop after such
listing or, if developed, will continue. Regardless of whether a public market
for such stock develops, if a substantial number of shares of Common Stock are
sold by Eligible Members or any other stockholders, the market price of the
Common Stock may be adversely affected.
Completion of the Initial Public Offering is not a condition to
consummation of the Merger. If the Merger is consummated and the Initial Public
Offering does not occur, the shares of Common Stock distributed to Eligible
Members would still be listed on the New York Stock Exchange; however, in the
absence of the Initial Public Offering, there is no assurance that either an
active or an orderly trading market for the Common Stock will develop. The
absence of an active and orderly trading market could have an adverse effect on
the market price of the Common Stock subsequent to the Merger. See "Risk
Factors -- Lack of Prior Public Market for Common Stock; No Initial Public
Offering" and "Risk Factors -- Shares Eligible for Future Sale."
DIVIDEND POLICY
The Company currently intends to pay regular quarterly cash dividends. The
Company initially expects to pay a quarterly cash dividend of $ per
share commencing . The declaration and payment of dividends
to holders of Common Stock will be at the discretion of the SCPIE Holdings Board
and will be dependent upon SCPIE Holdings' financial condition, results of
operations, cash requirements, future prospects, regulatory restrictions on the
payment of dividends to SCPIE Holdings by the Insurance Subsidiaries and other
factors deemed relevant by the SCPIE Holdings Board. There can be no assurance
that SCPIE Holdings will declare and pay any dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Following the Effective Date, SCPIE Holdings will be an insurance holding
company whose assets will consist primarily of all of the outstanding shares of
the common stock of the Insurance Subsidiaries. Although SCPIE Holdings intends
to retain approximately $ million of the net proceeds from the Initial
Public Offering for general corporate purposes, SCPIE Holdings' ability to pay
dividends to its stockholders and meet its other obligations, including
operating expenses and any debt service, will depend primarily upon the receipt
of sufficient funds from the Insurance Subsidiaries. The payment of dividends by
the Insurance Subsidiaries to SCPIE Holdings will be restricted by applicable
insurance law. See "Risk Factors -- Holding Company Structure; Limitation on
Dividends," "Business -- Regulation -- Regulation of Dividends from Insurance
Subsidiaries" and "Description of Capital Stock."
40
<PAGE> 50
CAPITALIZATION
The information set forth in the table presented below is derived from the
combined financial statements and the related notes thereto included elsewhere
in this Proxy Statement/Prospectus. The table presents the capitalization at
June 30, 1996 of: (i) the Exchange and OSCAP on a combined basis; (ii) SCPIE
Holdings, adjusted to reflect, on a pro forma basis, the Merger and the issuance
of 10,000,000 shares of Common Stock (less fractional shares, which will be paid
in cash) in connection therewith to Eligible Members and 500,000 shares of
Common Stock issued to SCPIE Indemnity; and (iii) SCPIE Holdings as adjusted
further to reflect the sale of 2,000,000 shares of Common Stock in the Initial
Public Offering at an assumed public offering price of $ per share, and the
application of the estimated net proceeds therefrom. See "The Merger." The table
should be read in conjunction with the historical combined financial statements
and the related notes thereto appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total debt.......................................... $ -- $ -- $ --
Equity:
Preferred Stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued and outstanding... -- -- --
Common Stock, $0.0001 par value, 30,000,000 shares
authorized; 0 shares issued and outstanding;
10,500,000 issued and 10,000,000 outstanding,
as adjusted; and 12,500,000 issued and
12,000,000 outstanding, as further adjusted.... -- 1 1
Additional paid-in capital........................ -- 264,672 (1)
Surplus........................................... 264,673 -- --
Net unrealized appreciation of invested assets.... 149 149 149
-------- -------- -------
Total equity.............................. 264,822 264,822 (2)
-------- -------- -------
Total capitalization................................ $264,822 $ 264,822 $ (2)
======== ======== =======
</TABLE>
- ---------------
(1) Reflects estimated expenses of the Merger and related transactions of
$ incurred after June 30, 1996.
(2) As noted above, total equity and total capitalization are based upon an
assumed Initial Stock Price of $ per share. Such price per share is
solely an estimate. The actual Initial Stock Price will not be determined
until after the Special Meeting, and it could vary significantly from the
estimate shown above. If the Initial Stock Price is $ , Total equity as
Further Adjusted would be $ ; and Total capitalization as Further
Adjusted would be $ . If the Initial Stock Price per share is $ ,
the Total equity as Further Adjusted would be $ ; and Total
capitalization as Further Adjusted would be $ . Completion of the
Initial Public Offering is not a condition to consummation of the Merger.
See "Risk Factors -- Lack of Prior Public Market; No Initial Public
Offering."
41
<PAGE> 51
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
This section is limited to a summary of the material Federal income tax
consequences which are expected to result from the Merger and the related
transactions. This summary is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing Treasury Regulations
thereunder and administrative rulings and court decisions, all of which are
subject to changes that can be retroactively applied. The following discussion
is limited to those persons who are citizens or residents of the U.S.,
corporations or partnerships organized in or under the laws of the U.S., and an
estate or trust the income of which is subject to Federal income taxation
regardless of its source.
The Exchange has requested a ruling from the Service that the Merger
between the Exchange and SCPIE Indemnity will constitute a tax-free
reorganization for Federal income tax purposes. In the event the Service does
not so rule or does not issue the ruling prior to the Effective Time of the
Merger, Latham & Watkins, tax counsel to the Company ("Tax Counsel"), will
render its opinion to the Exchange to the effect that the Merger between the
Exchange and SCPIE Indemnity will constitute a tax-free reorganization for
Federal income tax purposes. If a tax opinion is rendered, Tax Counsel will also
render its opinion that this summary addresses all material Federal income tax
consequences which are expected to result from the Merger and the related
transactions. Tax Counsel's opinion is based on current law, certain assumptions
set forth therein, certain representations from the Exchange and certain other
information, data, documentation and materials Tax Counsel deems necessary. A
ruling issued by the Service is generally binding on the Service as well as the
taxpayer receiving the ruling. However, an opinion of counsel (although such
opinion would represent the best interpretation of applicable law by the
counsel) is not binding on the Service, and, therefore, no assurance can be
given that such an opinion will not be challenged by the Service or would be
sustained by a court if challenged.
It is impractical to comment on all aspects of Federal, state, local and
foreign laws that may affect the tax consequences of the Merger as they relate
to the particular circumstances of each Eligible Member. This discussion does
not address any aspect of foreign, state or local law or Federal estate or gift
tax considerations. In addition, the following discussion does not address how
the Federal income tax rules affect all of the possible types of Eligible
Members, some of whom (e.g., tax-exempt entities) may be subject to special
rules not discussed herein.
THE DISCUSSION SET FORTH BELOW ADDRESSES ONLY THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF GENERAL APPLICATION WHICH ARE EXPECTED TO RESULT FROM THE
MERGER. ELIGIBLE MEMBERS SHOULD CONSULT THEIR TAX ADVISORS TO DETERMINE THE TAX
CONSEQUENCES OF THE MERGER, AND HOLDING AND DISPOSITION OF MERGER SHARES TO BE
RECEIVED IN CONNECTION THEREWITH, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS WITH RESPECT TO
THEIR OWN PARTICULAR CIRCUMSTANCES.
GENERAL
Assuming that the Merger and the related transactions will take place as
described elsewhere in this Proxy Statement/Prospectus and that certain factual
matters represented by the Exchange are true and correct, (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
(ii) the Eligible Members will recognize no gain or loss for Federal income tax
purposes by reason of the exchange of their Membership Interests for the Merger
Shares, except to the extent of any cash received in lieu of fractional Merger
Shares and (iii) no gain or loss will be recognized by the Exchange, SCPIE
Holdings or SCPIE Indemnity, as further discussed below.
ELIGIBLE MEMBERS
Eligible Members will not recognize gain or loss for Federal income tax
purposes upon their exchange of Membership Interests for Merger Shares pursuant
to the Merger. The tax basis in their Merger Shares will be equal to their tax
basis in their exchanged Membership Interests, which is deemed to be zero for
Federal income tax purposes. The holding period for the Merger Shares received
by an
42
<PAGE> 52
Eligible Member generally will include the holding period for the exchanged
Membership Interest. Eligible Members who receive cash for fractional Merger
Shares will generally recognize capital gain or loss equal to the amount of the
cash received.
Upon a subsequent sale or other taxable disposition of Merger Shares,
Eligible Members will recognize gain in an amount equal to the amount of cash
and fair market value of any property received upon such sale or other taxable
disposition minus their tax basis in such Merger Shares. Since their tax basis
in the Merger Shares would be zero (as discussed above), the entire amount of
cash and fair market value of any property received would be the amount of gain
subject to tax. Such gain will generally be long-term capital gain if the
holding period of the Merger Shares (which includes the holding period of the
exchanged Membership Interest) is more than one year.
Policies issued by the Exchange before the Merger will not be deemed
reissued or newly issued in exchange for existing policies as a result of the
Merger. Accordingly, the Federal income tax rules that currently apply to each
policy will generally continue to apply after the Merger.
THE EXCHANGE AND SCPIE INDEMNITY
Subject to the discussion below under "-- Issuance of Rules Dealing with
Inversions," no gain or loss will be recognized by the Exchange and SCPIE
Indemnity as a result of the Merger. SCPIE Indemnity's tax basis in the assets
of the Exchange acquired pursuant to the Merger will be equal to the tax basis
of such assets in the hands of the Exchange immediately prior to the Merger.
CONSEQUENCE OF A TAXABLE EXCHANGE
If the Merger were not to qualify as a tax-free reorganization under
Section 368(a) of the Code, Eligible Members would recognize gain equal to the
fair market value of the Merger Shares received in the Merger minus their tax
basis in their exchanged Membership Interests (which, as discussed above, would
be zero). Such gain would generally be capital gain, and would be long-term
capital gain if the Eligible Member has held the Membership Interest for more
than one year. The tax basis of the Merger Shares received pursuant to the
Merger Agreement would generally be equal to the fair market value of that stock
at the Effective Time, and the holding period of the exchanged Membership
Interest would not be included in the holding period of the Merger Shares
received.
In addition, if the Merger were not to qualify as a tax-free
reorganization, the Exchange would recognize, in a taxable transaction, gain
equal to the excess of the fair market value of the total Merger Shares that the
Eligible Members are entitled to receive pursuant to the Merger over the
Exchange's aggregate tax basis in its assets transferred to SCPIE Indemnity in
the Merger.
ISSUANCE OF RULES DEALING WITH INVERSIONS
There is a pending project at the Service dealing with the tax consequences
of a transaction involving an "inversion" of members of an affiliated group
(i.e., the positions of such members are inverted or otherwise reversed). The
Service has announced in Notice 94-93 that any Treasury Regulations addressing
inversion transactions will apply to certain transactions occurring on or after
September 22, 1994. Notice 94-93 provides that future Treasury Regulations may
require, where appropriate, "recognition of income or gain at the time of an
inversion transaction" or "reductions to the basis (or increases in gain on the
sale or other disposition) of the stock of one or more corporations that are
involved in inversion transactions." While the potential scope of any future
Treasury Regulations or other Service positions applicable to inversion
transactions is unclear, Tax Counsel does not believe that income or gain
recognition should be required in connection with the Merger and the related
transactions.
POSSIBLE POLICYHOLDER DIVIDEND TREATMENT
Eligible Members should be aware that a Federal district court recently
rejected a claim by a life insurance company that its distribution to its
policyholders of stock and cash pursuant to its plan of
43
<PAGE> 53
demutualization should be treated as a policyholder dividend distribution,
rather than as part of an exchange. The case might be appealed to a Federal
circuit court. If the distribution were treated for Federal income tax purposes
as a dividend distribution, such company would be entitled to a policyholder
dividend deduction equal to the amount of cash and the fair market value of any
stock distributed, and each policyholder receiving stock or cash would likely be
treated for Federal income tax purposes as if the policyholder had received a
policyholder dividend equal to the amount of cash or the fair market value of
the stock received. The Exchange plans to treat the Merger Shares (and cash in
lieu of a fractional share) as issued in exchange for the Membership Interests
pursuant to a tax-free reorganization and not as a policyholder dividend.
In the event that any portion of the consideration received by an Eligible
Member pursuant to the Merger were treated as a policyholder dividend (an event
which Tax Counsel believes is highly unlikely), the normal tax consequences of
the receipt of a policyholder dividend would apply (rather than the rules
generally summarized above). The tax basis of the Merger Shares received
pursuant to the Merger Agreement would generally be equal to the fair market
value of that stock at the Effective Time, and the holding period of the
exchanged Membership Interest would not be included in the holding period of the
Merger Shares received.
TAXPAYER IDENTIFICATION NUMBER
It is important that each Eligible Member complete, sign and return the
Taxpayer Identification Card accompanying the Eligible Member's Proxy card. (For
most individuals, the Eligible Member's taxpayer identification number is the
Eligible Member's Social Security number.) IF THE ELIGIBLE MEMBER FAILS TO
COMPLETE, SIGN AND RETURN THIS CARD, THE ELIGIBLE MEMBER MAY BE SUBJECT TO A $50
PENALTY AND THE EXCHANGE (OR SCPIE INDEMNITY) MAY BE REQUIRED TO WITHHOLD FOR
FEDERAL INCOME TAXES 31% OF ANY CASH PAYMENT, INCLUDING ANY FUTURE DIVIDENDS ON
MERGER SHARES, THE ELIGIBLE MEMBER WOULD OTHERWISE RECEIVE. This 31% withholding
is not an additional tax and any amount withheld may be claimed on the Eligible
Member's Federal income tax return as a credit against the Eligible Member's
Federal income tax liability. Detailed instructions for completing the Taxpayer
Identification Card are included at Annex V hereto.
44
<PAGE> 54
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected combined financial data for the
Exchange and OSCAP. The selected combined income statement data set forth below
for each of the years in the three year period ended December 31, 1995 and the
selected combined balance sheet data as of December 31, 1995 and 1994 are
derived from the combined financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere herein and should be read in
conjunction with, and are qualified by reference to such statements and the
related notes thereto. The selected combined income statement data for the years
ended December 31, 1992 and 1991 and for the six months ended June 30, 1996 and
1995 and the selected combined balance sheet data as of December 31, 1993, 1992
and 1991 and as of June 30, 1996 and 1995, are derived from unaudited combined
financial statements of the Exchange and OSCAP which management believes
incorporate all of the adjustments necessary for the fair presentation of the
financial condition and results of operations for such periods.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED INCOME STATEMENT DATA:
Direct premiums written.............................. $ 62,659 $ 62,216 $122,277 $120,024 $112,459 $107,126 $112,085
======== ======== ======== ======== ======== ======== ========
Premiums earned...................................... $ 61,128 $ 59,453 $116,354 $111,659 $113,194 $112,122 $108,895
Net investment income................................ 20,939 20,032 40,424 39,663 39,738 44,044 47,091
Realized investment gains and other revenue.......... 11,620 4,801 8,231 755 16,254 18,950 11,946
-------- -------- -------- -------- -------- -------- --------
Total revenues................................... 93,687 84,286 165,009 152,077 169,186 175,116 167,932
-------- -------- -------- -------- -------- -------- --------
Losses and loss adjustment expenses.................. 58,247 57,533 118,023 108,720 125,354 135,959 124,280
Other operating expenses............................. 6,764 6,270 12,561 11,844 9,734 8,520 8,394
-------- -------- -------- -------- -------- -------- --------
Total expenses................................... 65,011 63,803 130,584 120,564 135,088 144,479 132,674
-------- -------- -------- -------- -------- -------- --------
Income before policyholder dividends and Federal
income taxes....................................... 28,676 20,483 34,425 31,513 34,098 30,637 35,258
Policyholder dividends(1)............................ 9,000 0 0 0 0 2,366 31,726
Federal income taxes (benefit)....................... 5,599 6,167 10,056 9,212 8,618 7,899 (1,375)
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480 $ 20,372 $ 4,907
======== ======== ======== ======== ======== ======== ========
COMBINED BALANCE SHEET DATA:
Total investments(2)................................. $685,562 $674,564 $695,021 $636,909 $679,257 $629,289 $592,192
Total assets......................................... 786,620 763,052 781,358 751,605 775,667 722,563 694,347
Total liabilities.................................... 521,798 510,192 507,539 542,069 548,268 540,920 534,294
Equity(2)............................................ 264,822 252,860 273,819 209,536 227,399 181,643 160,053
ADDITIONAL DATA:
Earnings per share(3)................................ $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55 $ 2.04 $ 0.49
Book value per share(3).............................. 26.48 25.29 27.38 20.95 22.74 18.16 16.01
GAAP ratios:
Loss ratio......................................... 95.3% 96.8% 101.4% 97.4% 110.7% 121.3% 114.1%
Expense ratio...................................... 11.1 10.5 10.8 10.6 8.6 7.6 7.7
Combined ratio..................................... 106.4 107.3 112.2 108.0 119.3 128.9 121.8
Statutory combined ratio............................. 106.8 108.0 112.8 108.2 120.2 129.6 122.6
Statutory surplus.................................... $246,555 $208,742 $235,352 $187,299 $171,589 $154,675 $146,765
</TABLE>
- ---------------
(1) Includes $31.0 million of Proposition 103 refunds in 1991. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." In the second quarter of 1996, the Company estimated
an additional $9.0 million of policyholder dividends would be paid due to
favorable loss experience related to policy years 1987 through 1992. This
$9.0 million policyholder dividend will be paid to Members in the form of
premium credits in 1997. Except for this final dividend, after the Merger,
the Company will cease paying such dividends to its policyholders.
(2) Due to the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," on
December 31, 1993, total investments and equity were adjusted to reflect
changes in market values. This change resulted in a decrease to total
investments of $5.2 million, an increase of $10.8 million, an increase of
$24.0 million, a decrease of $28.8 million and an increase of $30.1 million
as of June 30, 1996 and 1995 and as of December 31, 1995, 1994 and 1993,
respectively, and which resulted in a decrease to equity of $3.4 million, an
increase of $7.0 million, an increase of $15.6 million, a decrease of $18.7
million and an increase of $19.6 million as of June 30, 1996 and 1995 and as
of December 31, 1995, 1994 and 1993, respectively.
(3) Gives effect in all periods to the issuance of approximately 10,000,000
shares of Common Stock to Eligible Members. Does not give effect to the sale
of Common Stock in the Initial Public Offering. The 500,000 shares of Common
Stock issued to SCPIE Indemnity are not considered outstanding for purposes
of determining per share amounts.
45
<PAGE> 55
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements and the related notes thereto appearing elsewhere in this
Proxy Statement/Prospectus.
GENERAL
Cyclical Nature of Medical Malpractice Insurance Industry. Many factors
influence the financial results of the medical malpractice insurance industry,
several of which are beyond the control of the Company. These factors include,
among other things, changes in severity and frequency of claims; changes in
applicable law and regulatory reform; changes in judicial attitudes toward
liability claims; and changes in inflation, interest rates and general economic
conditions.
The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate between a soft insurance
market and a hard insurance market. In a soft insurance market, competitive
conditions could result in premium rates and underwriting terms and conditions
which may be below profitable levels. For a number of years, the medical
malpractice insurance industry in California has faced a soft insurance market.
There can be no assurance as to whether or when industry conditions will improve
or the extent to which any improvement in industry conditions may improve the
Company's financial condition and results of operations.
Changing Nature of SCPIE's Business. The vast majority of the Company's
business is professional liability insurance for physicians written on a claims
made and reported basis. The Company believes that the integration of healthcare
delivery in recent years, particularly in California, will result in the growing
importance of large medical groups and other healthcare entities, and a
corresponding change in the entities that make professional liability purchasing
decisions. The Company believes that these changes have created a need for the
Company to further diversify. As a result, the Company has adopted a strategy
that includes expanding the type of products offered by the Company and
diversifying geographically by offering products in states other than
California. The Company began to implement its strategy in 1994 by offering
professional liability insurance to hospitals in California and, in 1995, began
offering errors and omissions coverage for managed care organizations. In
addition, the Company has entered into a marketing arrangement with SKA to
expand its business to other states. See "Business -- Overview."
Competitive Environment. The California medical malpractice insurance
market for medical groups and physicians has become extremely competitive in
recent years. SCPIE's principal competitors are three other physician-owned
companies and a physicians' mutual protection trust. In addition, commercial
insurance companies have recently returned to the California market to insure
medical groups and physicians.
In the late 1980s, many medical malpractice insurance companies began to
experience significantly improved claims cost trends and attempted to attract
medical groups and physicians insured by other companies by reducing premium
rates. Beginning in 1990, the Company implemented annual rate decreases
aggregating more than 25% during the next three years, which resulted in a
reduction in premium volume to approximately $107.1 million in 1992, and a
deterioration of underwriting results. Since 1993, however, SCPIE has instituted
annual overall rate increases ranging from 4.4% to 9.2% in order to improve its
underwriting results. These rate increases have been higher than those
implemented by most of its competitors. As a result, the Company has lost some
of its policyholders, in part due to these rate increases, but has realized a
modest increase in its premium volume and has improved its underwriting results.
See "Risk Factors -- Competition" and "Business -- Rates and Dividends."
Policyholder Dividends. Since 1981, SCPIE has followed a practice of paying
discretionary dividends to its physician and other healthcare provider members
in the form of premium credits on the basis
46
<PAGE> 56
of the results of prior policy years, as the actual experience for such years
becomes known. The Company paid dividends to its Members of $9.5 million, $11.2
million and $18.6 million in 1995, 1994 and 1993, respectively, in the form of
premium credits. Such dividends were paid primarily to insureds who were Members
of the Exchange in 1990 and prior policy years and were based primarily on
underwriting results in such years. These dividends have been accrued as an
expense for the year in which the related premiums were earned and not the year
paid or declared. The Board of Governors has declared a final dividend of $9.0
million to Members of record on the earlier of the date of the Special Meeting
or November 5, 1996, which will be paid in the form of premium credits in 1997.
This dividend is reflected as an expense in the six month period ended June 30,
1996. See "-- Results of Operations -- Six Months Ended June 30, 1996 Compared
to Six Months Ended June 30, 1995." Except for this final dividend, after the
Merger, the Company will cease paying such premium credit dividends to its
policyholders. Therefore, the Company may find it more difficult to compete with
other insurance companies offering such dividends to their members. See "Risk
Factors -- Competition."
Loss and LAE Reserves. Medical malpractice and other property and casualty
loss and LAE reserves are established based on known facts and interpretation of
circumstances, including the company's experience with similar cases and
historical trends involving claim payment patterns, loss payments and pending
levels of unpaid claims, as well as court decisions and economic conditions. The
effects of inflation are considered in the reserving process. Establishment of
appropriate reserves is an inherently uncertain process, and there can be no
assurance that currently established reserves will prove adequate in light of
subsequent actual experience. The Company follows a practice of conservatively
estimating its future liabilities relating to losses already incurred and has
attempted to establish its loss and LAE reserves at the upper end of a
reasonable range of reserve estimates. The Company believes that it has been
particularly difficult to make such estimates for medical malpractice claims in
California because of the uncertain benefits of tort reform measures and more
recently a change in the judicial process. The tort reform measures, known as
the Medical Injury Compensation Reform Act of 1975 ("MICRA"), were not declared
constitutional by the California Supreme Court until the mid-1980s and their
impact on settlements was difficult to evaluate until some years later. The
change in judicial process, known as "fast-track," became fully effective for
most California counties in 1992 and requires, among other things, that all
non-complex civil actions, including most medical malpractice actions, proceed
to trial within approximately one year after filing. Prior to this rule, in some
of California's larger counties, a trial typically did not occur until more than
four years after the related complaint had been filed. "Fast-track" has
accelerated costs and expenses of investigation and defense, but has also led to
more rapid settlements, judicial resolutions and, the Company believes, overall
cost reductions. The Company believes that it has now realized virtually all of
the benefits from the past tort reform legislation and from the institution of
"fast-track."
Beginning in 1988, the Company implemented several changes to its claims
procedures including the establishment of increased levels of authority within
the claims department for approval of reserves and settlement of claims. The
Company believes that these changes resulted in (i) earlier recognition of
liability, and therefore higher case reserves and (ii) faster settlement of
claims, ultimately resulting in lower indemnity payments and reduced legal
expenses.
The Company believes that a combination of the factors discussed above and
other factors have contributed to the recent redundancies in reserves
established by SCPIE for prior years. The original reserves were established
without full knowledge of the effect of these factors. Redundant reserves, which
have been released in every year since 1985, have contributed significantly to
reported earnings in 1995, 1994 and 1993. The Company reduced reserves for prior
years by $57.8 million, $60.4 million and $43.4 million in the years ended
December 31, 1995, 1994 and 1993, respectively. See Note 3 of Notes to Combined
Financial Statements. The Company continues to establish its loss and LAE
reserves at what it believes is the upper end of a reasonable range of reserve
estimates, but there is no assurance that such reserves will ultimately prove to
be redundant. The Company cannot predict whether similar redundancies will be
experienced in future years. If such redundancies do not occur or loss and LAE
experience does not improve, the Company's net income could be significantly
reduced or a net loss could occur. See "Business -- Loss Reserves."
47
<PAGE> 57
Operating Expenses. The Company's planned expansion into other states and
markets may increase operating expense levels to achieve and service this
expansion. The Company believes that its relationship with SKA will increase its
marketing expenses, but it also believes that this relationship will reduce the
need to make other significant expenditures in order to expand into other
states. Commissions for hospital and other healthcare provider liability
policies, which are sold on a brokerage basis through SKA and other brokers,
typically range from 7.5% to 15.0% of premiums, whereas the Company does not
incur commissions on products sold directly. To the extent that hospital and
other healthcare provider policies represent an increased percentage of the
Company's business in the future, expense ratios will increase. See
"Business -- Marketing and Policyholder Services."
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Premiums Earned. Premiums earned increased approximately $1.6 million, or
2.8%, to $61.1 million for the six months ended June 30, 1996 from $59.5 million
for the same period in 1995. The increase was principally attributable to an
average 4.4% increase in premium rates in effect during the 1996 period, which
was partially offset by a 3.9% decrease in the average number of policies in
force during the 1996 period as compared to the 1995 period. Medical malpractice
premiums from physicians and medical groups were approximately $58.3 million for
the six months ended June 30, 1996 compared to $58.1 million for the same period
in 1995. Hospital medical malpractice premiums were approximately $0.8 million
for the six months ended June 30, 1996 compared to $0.5 million for the same
period in 1995. Assumed reinsurance premiums were approximately $1.6 million for
the six months ended June 30, 1996 compared to $0.4 million for the same period
in 1995.
Net Investment Income. Net investment income increased approximately $0.9
million, or 4.5%, to $20.9 million for the six months ended June 30, 1996 from
$20.0 million for the same period in 1995. Average invested assets increased to
$690.0 million during the six months ended June 30, 1996 compared to $653.6
million for the same period in 1995. The average pre-tax yield on the investment
portfolio increased to 6.3% for the six months ended June 30, 1996 compared to
5.9% for the same period in 1995. See "Business -- Investment Portfolio."
Realized Investment Gains and Other Revenue. Realized investment gains were
approximately $11.5 million for the six months ended June 30, 1996 compared to
$4.7 million for the same period in 1995. Approximately $10.0 million of the
gains from 1996 resulted from the sale of equity securities in connection with
the Company's decision in the first quarter to increase the focus of its
investment portfolio on fixed maturity securities. The remainder were
attributable to sales made in the fixed maturity portion of the investment
portfolio to take advantage of more favorable yields or to reposition the
maturity of the portfolio.
Losses and LAE. Losses and LAE increased $0.7 million, or 1.2%, to $58.2
million for the six months ended June 30, 1996 from $57.5 million for the same
period in 1995. As a percentage of premiums earned, losses and LAE decreased to
95.3% for the six months ended June 30, 1996 from 96.8% for the same period in
1995. In the six months ended June 30, 1996, the Company increased its reserves
by $1.1 million for free tail coverage to be provided by the Company to
currently insured physicians at the time of their death, disability or
retirement. See "Business -- Products." This additional expense was more than
offset by a decrease of approximately $27.9 million in loss and LAE reserves for
the six months ended June 30, 1996 for claims incurred in prior policy years,
compared to a decrease in reserves of $31.7 million for the same period in 1995
for claims incurred in prior policy years.
Other Operating Expenses. Other operating expenses increased $0.5 million,
or 7.9%, to $6.8 million for the six months ended June 30, 1996 from $6.3
million for the same period in 1995. This increase was principally attributable
to increases in policy acquisition expenses and payroll of $0.4 million and $0.2
million, respectively. The ratio of other operating expenses to premiums earned
is referred to as the expense ratio, which was 11.1% for the six months ended
June 30, 1996 and 10.5% for the same period in 1995.
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<PAGE> 58
Policyholder Dividends. In the second quarter of 1996, the Company
estimated an additional $9.0 million of policyholder dividends would be paid due
to favorable loss experience related to policy years 1987 through 1992. The
Board of Governors declared a final dividend of $9.0 million to Members of
record on the earlier of the date of the Special Meeting or November 5, 1996 who
were also Members during policy years 1987 through 1992. Such dividend will be
paid in the form of premium credits during 1997. This dividend is reflected as
an expense for the six months ended June 30, 1996. Dividends declared in prior
years have been accrued as an expense for the period in which the related
premiums were earned and not the year paid or declared. Accordingly, there is no
expense reflected for the comparable period in 1995.
Federal Income Taxes. Federal income taxes decreased $0.6 million, or 9.2%
to $5.6 million for the six months ended June 30, 1996 from $6.2 million for the
same period in 1995. The effective tax rate increased to 28.5% for the six
months ended June 30, 1996 from 30.1% for the same period in 1995, due primarily
to an increase in tax-exempt interest for the six months ended June 30, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Premiums Earned. Premiums earned increased $4.7 million, or 4.2%, to $116.4
million in 1995 from $111.7 million in 1994. The increase was principally
attributable to an average 8.9% increase in premium rates in effect throughout
1995, which was partially offset by a 3.4% decrease in the average number of
policies in force during 1995. Medical malpractice premiums from physicians and
medical groups were approximately $113.3 million in 1995 compared to $109.7
million in 1994, while the Company had hospital medical malpractice premiums of
$1.3 million in 1995 compared to $0.3 million in 1994. Assumed reinsurance
premiums were less than $1.0 million in both years.
Net Investment Income. Net investment income increased approximately $0.7
million, or 1.9%, to $40.4 million in 1995 from $39.7 million in 1994. Average
invested assets increased $7.9 million, or 1.2%, to $666.0 million in 1995 from
$658.1 million in 1994. The average pre-tax yield on the investment portfolio
was virtually unchanged at 5.9% in both 1995 and 1994. The increase in
investment income resulted from additional interest of approximately $1.9
million on a Federal income tax refund due the Company and was partially offset
by lower rates available on fixed maturity investments purchased since 1994.
Realized Investment Gains and Other Revenue. Net realized gains were
approximately $8.0 million in 1995 compared to $0.5 million in 1994.
Approximately $4.6 million of the 1995 gains were net gains realized from the
sale of equity securities to take advantage of appreciation in the market price
of those securities. The remainder of the net gains were attributable to sales
made in the fixed maturities portion of the investment portfolio to take
advantage of more favorable yields or to reposition the maturity of the
portfolio.
Losses and LAE. Losses and LAE increased $9.3 million, or 8.6%, to $118.0
million in 1995 from $108.7 million in 1994. As a percentage of premiums earned,
losses and LAE increased to 101.4% in 1995 from 97.4% in 1994. In 1995, SCPIE
increased its prior accident years' reserves by $23.9 million for free tail
coverage to be provided by the Company to currently insured physicians at the
time of their death, disability or retirement. The increase was the result of a
refinement in the actuarial methodology used to calculate this reserve. See
"Business -- Products." This additional expense was more than offset by a
decrease of approximately $81.7 million in loss and LAE reserves in 1995 for
claims incurred in prior accident years, compared to a reserve decrease of $60.4
million in 1994 for claims incurred in prior accident years.
Other Operating Expenses. Other operating expenses increased $0.8 million,
or 6.1%, to $12.6 million in 1995 from $11.8 million in 1994. This increase was
principally attributable to legal and consulting fees incurred in 1995 relating
to an employment law matter in litigation, which the Company successfully
defended, and a small increase in personnel and compensation levels. The expense
ratio was 10.8% in 1995 and 10.6% in 1994.
Federal Income Taxes. Federal income taxes increased $0.9 million, or 9.2%,
to $10.1 million in 1995 from $9.2 million in 1994. The effective tax rate was
29.2% in both years.
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<PAGE> 59
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Premiums Earned. Premiums earned decreased by $1.5 million, or 1.4%, to
$111.7 million in 1994 from $113.2 million in 1993. The decrease in premiums
earned is due to the fact that reinsurance premiums ceded in 1994 were
approximately $7.5 million, while they were negligible in 1993. Reinsurance
premiums in 1993 included an offset of $7.2 million in profits realized on the
1993 commutation of certain reinsurance by SCPIE attributable to prior years.
There was no comparable offset in 1994. Direct premiums written in 1994
increased by approximately $7.5 million, or 6.7%, to $120.0 million in 1994 from
$112.5 million in 1993, due primarily to an average 9.0% rate increase in effect
during 1994, which was partially offset by a 3.3% decrease in the number of
policyholders.
Net Investment Income. Net investment income was virtually unchanged in
1994 as compared to 1993, remaining at approximately $39.7 million. Average
invested assets decreased $5.0 million, or 0.8%, to $658.1 million in 1994 from
$663.1 million in 1993. The average pre-tax yield on the investment portfolio
decreased to 5.9% in 1994 from 6.2% in 1993.
Realized Investment Gains and Other Revenue. Net realized gains were $0.5
million in 1994 compared to $16.0 million in 1993. The Company realized
significant gains in 1993 primarily due to changes in investment mix that
occurred as the Company changed its investment allocation in response to market
conditions and the Company's expected Federal income tax position based on its
underwriting results. These changes were in the fixed maturities portion of the
portfolio, which produced a net gain of $13.2 million. Sale of equity securities
produced a gain of approximately $2.8 million.
Losses and LAE. Losses and LAE decreased $16.7 million, or 13.3%, to $108.7
million in 1994 from $125.4 million in 1993. As a percentage of premiums earned,
losses and LAE also decreased to 97.4% in 1994 from 110.7% in 1993. In 1994,
there was a decrease of approximately $60.4 million in estimated losses and LAE
incurred in prior years compared to a decrease of $43.4 million in 1993. Both
years reflect favorable changes in reserve estimates made in prior years, as
more experience became available for analysis by management.
Other Operating Expenses. Other operating expenses increased $2.1 million,
or 21.7%, to $11.8 million in 1994 from $9.7 million in 1993. This increase was
attributable to general increases in most expense categories, as SCPIE expanded
into hospital liability insurance and other products. The expense ratio was
10.6% in 1994 and 8.6% in 1993.
Federal Income Taxes. Federal income taxes increased $0.6 million, or 6.9%,
to $9.2 million in 1994 from $8.6 million in 1993. The effective tax rate
increased to 29.2% in 1994 from 25.3% in 1993, principally due to an increase in
the Federal income tax marginal rate to 35.0% in 1994 from 34.0% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity are insurance premiums, net
investment income, recoveries from reinsurers and proceeds from the maturity or
sale of invested assets. Funds are used to pay claims, LAE, operating expenses,
reinsurance premiums and taxes. SCPIE has also paid significant dividends, in
the form of premium credits, to its members in each year since 1980. These
premium credit dividends paid to members have totalled more than $160.0 million,
of which SCPIE paid approximately $9.5 million, $11.2 million and $18.6 million
during the years ended December 31, 1995, 1994 and 1993, respectively, and $4.7
million during the first six months of 1996. The Board of Governors has declared
a final dividend to Members of $9.0 million, which will be paid in the form of
premium credits during 1997. Except for this final dividend, after the Merger,
the Company will cease such dividends to its policyholders.
SCPIE had positive cash flow from operations in each of the last three
years. Positive cash flow has resulted from long-term timing differences between
the collection of premiums and payment of claims. Because of uncertainty related
to the timing of the payment of claims, cash from operations for a property and
casualty insurance company can vary substantially from year to year. Cash
provided by operating
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<PAGE> 60
activities for SCPIE, before the payment of dividends to policyholders, was
$21.0 million in 1995 and $14.9 million in 1994. The smaller amount of cash flow
from operations in 1994 compared to 1995 was due to significantly higher
payments of losses and LAE in that year. The Company believes that the greater
amount of paid claims and LAE in 1994 was the result of accelerated payout
patterns due principally to developments in California's "fast-track" rules and
changes in the Company's claims management procedures, emphasizing early
resolution of claims. The Company believes that the trend in accelerated payout
patterns may, over time, favorably impact results of operations, as claims
settled relatively quickly may result in lower losses and LAE. Any such
reductions in loss and LAE payments, however, may be offset entirely or
partially by lower investment income, as loss and LAE reserves are held for
shorter periods.
The Company invests its positive cash flow from operations in both fixed
maturity securities and equity securities. A change in SCPIE's investment
philosophy in 1993 resulted in an increase in the purchase of equity securities
and a reduction in the purchase of fixed maturity securities. The Company's
current policy is to limit its investment in equity securities and real estate
to no more than 8.0% of the total market value of its investments. Accordingly,
the SCPIE portfolio of unaffiliated equity securities was reduced from $61.1
million at December 31, 1995 to less than $21.0 million at June 30, 1996. The
Company plans to continue this focus on fixed maturity securities investments
for the indefinite future. The Company has made limited investments in real
estate which is used almost entirely in the Company's operating activities, with
the remainder leased to third parties.
The Company maintains a portion of its investment portfolio in high
quality, short-term securities to meet short-term operating liquidity
requirements, including the payment of losses and LAE. Short-term investments
totalled $27.8 million, or 4.0% of invested assets at December 31, 1995. The
Company believes that all of its short-term and fixed maturity securities are
readily marketable.
As a holding company, SCPIE Holdings' assets will consist primarily of the
stock of the Insurance Subsidiaries and a portion of the proceeds of the Initial
Public Offering, if any. The Company's principal sources of funds will be
dividends from its subsidiaries and proceeds from the issuance of debt and
equity securities. The Insurance Subsidiaries are restricted by state regulation
in the amount of dividends they can pay in relation to earnings or surplus,
without the consent of the applicable state regulatory authority. See
"Business -- Regulation -- Regulation of Dividends from Insurance Subsidiaries."
SCPIE Holdings' direct subsidiary, SCPIE Indemnity, may pay dividends to SCPIE
Holdings in any year, without regulatory approval, to the extent of the greater
of (i) 10% of its statutory surplus at the end of the preceding year or (ii) its
net income for the preceding year. If SCPIE had been a stock insurer on December
31, 1995, the amount of dividends it would be able to pay during 1996 without
approval from the California Department would have been approximately $23.5
million.
Based on historical trends, market conditions and its business plans, the
Company believes that its sources of funds will be sufficient to meet its
liquidity needs over the next 18 months and beyond. However, because economic,
market and regulatory conditions may change, there can be no assurance that the
Company's sources of funds will be sufficient to meet these liquidity needs. The
short- and long-term liquidity requirements of the Company may vary because of
the uncertainties regarding the settlement dates for unpaid claims.
The Company has no planned material expenditures for property or equipment.
EFFECT OF INFLATION
The primary effect of inflation on the Company is considered in pricing and
estimating reserves for unpaid losses and LAE for claims in which there is a
long period between reporting and settlement, such as medical malpractice
claims. The actual effect of inflation on the Company's results cannot be
accurately known until claims are ultimately settled. Based on actual results to
date, the Company believes that loss and LAE reserve levels and the Company's
ratemaking process adequately incorporate the effects of inflation.
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<PAGE> 61
BUSINESS
OVERVIEW
The Company is the largest provider of medical malpractice insurance in
California, based on net premiums written in 1994. SCPIE currently insures
approximately 10,200 California physicians and oral and maxillofacial surgeons
practicing alone or in medical groups or clinics or other healthcare
organizations. The Company also insures a variety of other healthcare providers,
including hospitals, emergency department facilities, outpatient surgery centers
and hemodialysis, clinical and pathology laboratories.
The Company's total revenues and net income were $165.0 million and $24.4
million, respectively, for the year ended December 31, 1995 and were $93.7
million and $19.9 million, respectively, for the six months ended June 30, 1996.
As of June 30, 1996, the Company had $786.6 million of total assets and $264.8
million of total equity.
Medical malpractice insurance, or medical professional liability insurance,
insures the physician, hospital or other healthcare provider against liabilities
arising from the rendering of, or failure to render, professional medical
services. Under the typical medical malpractice insurance policy, the insurer
also defends the insured against potentially covered claims. Based on data
compiled by A.M. Best, in 1994, total medical malpractice premiums in the United
States exceeded $5.8 billion. In California, the second largest market for
medical malpractice insurance based on premiums written, more than $557.0
million of medical malpractice premiums were written in 1994. The Company's
share of the medical malpractice premiums written in California in 1994 was
approximately 21%. The Company's market share is substantially higher in
Southern California where more than 95% of the Company's insureds are located.
The Company believes that its leading market share for professional
liability insurance in California is in large part due to the loyalty of its
insured physicians. The Company attributes this loyalty to the high quality,
personalized service it provides and its traditional focus on the California
physician marketplace. The professional liability insurance offered by the
Company has been endorsed by twelve county medical associations and specialty
societies in California.
The Company believes that the growth in managed healthcare and the
emergence of multi-state integrated healthcare providers and delivery systems
will lead to major changes in the medical malpractice insurance industry.
Practice management organizations, hospitals, administrators of large group
practices and managed care organizations have an increasing influence over the
purchasing decision for the professional liability insurance coverages of their
affiliated physicians. As the consolidation of healthcare providers continues,
the number of physicians insured through such organizations will increase and
the Company believes that such organizations increasingly will seek
well-capitalized professional liability insurers that can provide a full range
of products and a high level of service in each state in which such
organizations conduct business.
To position the Company to compete successfully in this changing
environment, the Company has adopted a strategy that includes: (i) expanding the
types of products offered to include hospital coverage, directors and officers
liability insurance for healthcare professional organizations and errors and
omissions insurance for managed care and related organizations; (ii)
diversifying geographically by increasing writings of medical professional
liability insurance in states other than California; (iii) positioning the
Company to take advantage of acquisition and consolidation opportunities
relating to medical malpractice insurance; (iv) maintaining the Company's
relationship with its primary policyholder base of California physician and
medical group insureds; and (v) maintaining sufficient capital to take advantage
of future market opportunities and to retain strong insurance ratings.
The Company believes that the medical malpractice insurance industry in
California is currently experiencing a "soft insurance market," that is, an
insurance market in which the underwriting capacity exceeds current demand and
premium rates are relatively low. The Company believes that its strategy will
position it to expand premium writings and market share when the market
"hardens," that is, when demand coincides more closely with capacity and premium
rates increase to more appropriate levels.
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<PAGE> 62
The Company began to implement its strategy in 1994 by offering
professional liability insurance to California hospitals and, in 1995, began
offering errors and omissions coverage to managed care organizations. The
Company currently insures six hospitals and 19 managed care organizations. The
Company believes that providing insurance to hospitals and other healthcare
related organizations represents a significant area for future growth.
To facilitate its geographic expansion, the Company has entered into an
agreement with SKA, one of the leading hospital professional liability insurance
brokers in the Western United States, pursuant to which SKA has the exclusive
right to market the Company's hospital coverage in all states and medical group
coverage in all states other than California. The Company believes that its
marketing relationship with SKA will provide a cost-effective means of entering
new geographic markets. In order to write business in these markets, in March,
1995, SCPIE Holdings acquired the outstanding stock of two inactive property and
casualty insurance companies, one of which is licensed in 44 states plus the
District of Columbia and the other of which is licensed in one state.
In addition to its current direct insurance operations, SCPIE also assumes
reinsurance of medical professional liability insurance. The Company intends to
expand its reinsurance business and believes participation in reinsurance and
excess casualty insurance programs will become an increasingly important aspect
of its operations as healthcare entities become larger and obtain higher policy
limits.
PRODUCTS
SCPIE underwrites professional and related liability policy coverages for
physicians (including oral and maxillofacial surgeons), physician medical groups
and clinics, hospitals, managed care organizations and other providers in the
healthcare industry. The following table summarizes, by product, the direct
premiums written by the Company for the periods indicated:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Physician and medical group
liability:
Physician and medical group
standard professional
liability................... $ 59,121 $ 60,251 $ 116,894 $ 116,425 $ 110,154
Special risk physicians........ 769 181 674 261 164
Emergency medicine program..... 294 275 596 322 113
Urgent care centers............ 119 104 224 263 226
-------- -------- -------- -------- --------
Subtotal medical
liability............ 60,303 60,811 118,388 117,271 110,657
Excess personal liability...... 416 456 877 957 1,012
-------- -------- -------- -------- --------
Subtotal physician and
medical groups....... 60,719 61,267 119,265 118,228 111,669
--------
Hospital liability............... 1,171 528 2,103 960 --
Healthcare provider liability.... 399 351 757 800 790
Managed care organization errors
and omissions.................. 182 34 105 -- --
Directors and officers
liability...................... 188 36 47 36 --
-------- -------- -------- -------- --------
Total.................. $ 62,659 $ 62,216 $ 122,277 $ 120,024 $ 112,459
======== ======== ======== ======== ========
</TABLE>
An affiliated insurance agency allows the Company to meet a wide range of
insurance needs of its customers by offering, on a brokerage basis, coverages
not underwritten by SCPIE, including a comprehensive property protection program
and stop loss insurance related to the provision of managed care services. The
Company intends, in the future, to directly underwrite its own property lines as
part of its overall strategy to meet the principal insurance needs of healthcare
providers.
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Physician and Medical Group Liability. SCPIE offers separate policy forms
for physicians who are sole practitioners and for those who practice as part of
a medical group or clinic. The policy issued to sole practitioners includes
coverage for professional liability that arises in the medical practice and also
for certain other "premises" liabilities that may arise in the non-professional
operations of the medical practice, such as slip and fall accidents, and a
limited defense reimbursement benefit for proceedings by governmental
disciplinary boards. The professional liability insurance for sole practitioners
and for medical groups provides protection against the legal liability of the
insureds for such things as injury caused by or as a result of the performance
of patient treatment, failure to treat and failure to diagnose.
The policy issued to medical groups and their physician members includes
not only professional liability coverage and defense reimbursement benefits, but
also substantially more comprehensive coverages for commercial general liability
and employee benefit programs liability and also provides a small medical
payments benefit to injured persons. The comprehensive general liability
coverage included in the medical group policy does not exclude coverage for
certain employment related liabilities and for pollution, which are normally
excluded under a standard commercial general liability form. SCPIE also offers,
as part of its standard policy forms for both sole and group practitioners,
optional excess personal liability for the insured physicians. Excess personal
liability insurance provides coverage to the physician for personal liabilities
in excess of amounts covered under the physician's homeowners and automobile
policies.
The professional liability coverages are issued primarily on a "claims made
and reported" basis. Coverage is provided for claims reported to the Company
during the policy period arising from incidents that occurred at any time the
insured was covered by the policy. The Company also offers "tail coverage" for
claims reported after the expiration of the policy for occurrences during the
coverage period. The price of the tail coverage is based on the length of time
the insured has been covered under the Company's claims made and reported form.
SCPIE provides free tail coverage for insured physicians who die or become
disabled during the coverage period of the policy and those who have been
insured by SCPIE for at least five consecutive years and retire completely from
the practice of medicine. Free tail coverage is automatically provided to
physicians with at least five consecutive years of coverage who are also at
least 65 years old.
Comprehensive general liability coverage for medical groups and clinics and
the excess personal liability insurance is underwritten on an occurrence basis.
Under occurrence coverage, the coverage is provided for incidents that occur at
any time the policy is in effect, regardless of when the claim is reported. With
occurrence coverage, there is no need to purchase tail coverage.
The Company offers limits of insurance up to $5.0 million per claim or
occurrence, with up to a $10.0 million aggregate policy limit for all claims
reported or occurrences for each calendar year or other 12-month policy period.
The most common limit is $1.0 million per claim or occurrence, subject to a $3.0
million aggregate policy limit. The Company's limit of liability under the
excess personal liability insurance coverage is $1.0 million per occurrence with
no aggregate limit. The defense reimbursement benefit for governmental
disciplinary proceedings is $25,000, and the medical payments benefit for
persons injured in non-professional activities is $10,000.
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<PAGE> 64
The following table summarizes the Company's physician and medical group
professional liability direct premiums written for the year ended December 31,
1995:
<TABLE>
<CAPTION>
DIRECT
PREMIUMS PERCENTAGE
GROUP SIZE WRITTEN OF TOTAL
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Sole practitioner physicians.............. $ 73,436 62.0%
Group with less than five physicians...... 17,322 14.6
Group with five through eight
physicians.............................. 8,890 7.5
Group with nine or more physicians........ 18,740 15.9
-------- -----
Total........................... $ 118,388 100.0%
======== =====
</TABLE>
Hospital Liability. The Company writes primary liability insurance on both
a claims made and reported basis and a modified occurrence basis that in effect
includes tail coverage for up to seven years after the policy terminates. The
policy issued to hospitals provides protection for professional liabilities
related to the operation of a hospital and its various staff committees,
together with the same comprehensive general liability, medical payments and
employee benefit program liability coverages included in the policy for large
medical groups. The limits of coverage under the hospital policies issued by
SCPIE, net of reinsurance, are $500,000 for each claim or occurrence, with no
aggregate limit.
Healthcare Provider Liability. SCPIE offers its professional liability
coverage to a variety of specialty provider organizations, including hospital
emergency departments, outpatient surgery centers, medical urgent care
facilities and hemodialysis, clinical and pathology laboratories. These policies
include the standard professional liability coverage provided to physicians and
medical groups, with certain modifications to meet the special needs of these
healthcare providers. The policies are generally issued on a claims made and
reported basis with the limits of liability up to those offered to larger
medical groups. The limits of coverage under the current healthcare provider
policies issued by SCPIE are between $1.0 million and $5.0 million per incident,
subject to $3.0 million to $10.0 million aggregate policy limits.
Managed Care Organization Errors and Omissions. SCPIE has recently
introduced a policy for managed care organizations that provides coverage for
liability arising from the errors and omissions in managed care operations, for
the vicarious liability of a managed care organization for the acts or omissions
of non-employed physician providers and for liability of directors and officers
of a managed care organization. These policies are generally issued on a claims
made and reported basis. The annual aggregate limits of coverage under the
current managed care organization policies issued by SCPIE are between $1.0
million and $5.0 million.
Directors and Officers Liability. The Company historically has brokered
directors and officers liability coverage through its affiliated agency, which
will become a wholly owned subsidiary of the Company after the Merger. See
"History; Structure of the Merger Transactions." This agency produced
approximately $293,000, $271,000 and $240,000 in premiums for other insurers in
1995, 1994 and 1993, respectively. In 1995, the Company directly wrote one
directors and officers liability policy, accounting for approximately $47,000 of
direct premiums written. Currently, the Company is seeking to write renewals of
the business it produces for other insurers and is marketing its product to
prospective new insureds. The directors and officers liability policies are
generally issued on a claims made and reported basis. The limits of coverage on
directors and officers liability policies written by SCPIE are between $1.0
million and $5.0 million.
MARKETING AND POLICYHOLDER SERVICES
The Company markets directly to its insureds through a marketing
organization with approximately 25 employees providing sales solicitation and
communications services. SCPIE markets to sole practitioner physicians and other
prospective policyholders through its relationships with medical associations,
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<PAGE> 65
referrals by existing policyholders, advertisements in medical journals, the
presentation of seminars on timely topics for physicians, telemarketing and
direct mail solicitation to licensed physicians and members of specialty group
organizations. SCPIE attracts new physicians through special rates for medical
residents and discounts for physicians just entering medical practice. In
addition, SCPIE participates as a sponsor and participant in various medical
group and hospital administrators' programs, medical association and specialty
society conventions and similar programs. The Company believes that this
personal, comprehensive approach to marketing is essential to providing
professional liability insurance, where special knowledge and experience is a
prerequisite.
The SCPIE professional liability program is endorsed by ten Southern
California county medical associations and the statewide associations of oral
and maxillofacial surgeons and osteopathic physicians. SCPIE considers these
endorsements to be helpful in its marketing efforts. The county medical
associations also perform certain limited information verification services for
SCPIE.
SCPIE commenced marketing its own hospital professional liability policies
during 1994 and currently underwrites coverage for six hospitals. In August
1995, SCPIE entered into an agreement with SKA, one of the leading insurance
brokers of hospital and large medical group coverages in the Western United
States. Under the arrangement with SKA, SCPIE markets all of its hospital
coverage through SKA and markets its medical group, healthcare provider, and
managed care organization errors and omissions business outside of California
exclusively through SKA. Through June 30, 1996, the Company had issued one
policy through SKA. SKA is responsible for marketing and the collection and
remittance of premiums. SCPIE provides all claims management under this
agreement. Both SCPIE and SKA participate in account servicing, including the
providing of risk management services.
SCPIE also has a policyholder services department that provides account
information to all insureds and maintains relationships with the small medical
groups and sole practitioners insured by SCPIE. Each of these smaller insureds
has a designated client service representative who can answer most inquiries
and, in other instances, can provide the insured with immediate access to the
person with expertise in a particular department. For hospitals and large and
mid-size medical groups, SCPIE has an account manager assigned to each group who
heads a service team comprised of underwriting, risk management and claims
management representatives, each of whom may be contacted directly by the
policyholder for prompt response. SCPIE also provides online computer access to
the large groups and hospitals so that loss and LAE information can be accessed
immediately.
SCPIE provides comprehensive risk management services designed to heighten
its insureds' awareness of situations giving rise to potential loss exposures,
to educate its insureds as to ways to improve their medical practice procedures,
and to assist its insureds in implementing risk modification measures. The
Company maintains a 24-hour hotline to provide immediate access to its risk
management personnel. SCPIE conducts surveys for hospitals and large medical
groups both to review their practice procedures generally and to focus on
specific areas in which there may be some concern. Complete reports that specify
areas of the insured's medical practice that may need attention are provided to
the policyholder. SCPIE also provides an annual program review for each of its
medical groups. SCPIE presents periodic seminars and evening "town hall"
meetings at medical societies at which pertinent subjects are presented. SCPIE
risk management representatives also regularly participate in programs presented
by healthcare related societies. These educational offerings are designed to
increase risk awareness and the effectiveness of various healthcare
professionals. Additionally, the Company provides risk management and claims
administration services to certain entities on a fee-for-service basis.
UNDERWRITING
The underwriting department consists of a vice president in charge of
underwriting, an assistant underwriting manager, six other underwriters and five
technical and administrative assistants. Certain of these underwriters
specialize in underwriting hospitals, managed care organizations and directors
and officers liability products. The Company's underwriting department is
responsible for the evaluation of applicants for professional liability and
other coverages, the issuance of policies and the establishment and
implementation of underwriting standards for all of the coverages underwritten
by SCPIE.
56
<PAGE> 66
The Company follows a strict procedure with respect to the issuance of all
physician professional liability policies. Each applicant or member of an
applicant medical group is required to complete a detailed application that
provides a personal and professional history, the type and nature of the
applicant's professional practice, certain information relating to specific
practice procedures, hospital and professional affiliations and a complete
history of any prior claims and incidents. The application is forwarded to the
county medical association for verification of educational and professional
information. The Company performs its own independent verification of these
matters and conducts an investigation to determine if there are any lawsuits
that may not have been disclosed in the application.
SCPIE performs a continuous process of reunderwriting its insured
physicians. Information concerning physicians with large losses, a high
frequency of claims or unusual practice characteristics is developed through
online claims and risk management reports. Each year, SCPIE also sends current
practice questionnaires to approximately 15% of its insured physicians. These
questionnaires request information similar to that submitted in connection with
the physician's original application for insurance, and are designed to detect
any changes in the specialty or practice characteristics of the physician that
may require a higher or lower premium rate or possible removal from the program.
The underwriting department submits all recommendations for premium
surcharges or non-renewal to the underwriting committee of SCPIE, which is
comprised solely of physicians many of whom are insureds or retired insureds of
the Company and members of the Board of Governors. Members of the underwriting
committee are not employees of the Company, but receive compensation for their
services on the committee. Physicians have the right to seek reconsideration of
surcharges from the committee. SCPIE has found that physician interchange with
the committee is often helpful in improving the practice characteristics of the
insured.
Although SKA performs the principal hospital marketing functions for the
Company, SCPIE makes all underwriting and rating decisions on this and all of
its direct business. Each hospital is required to submit an application that
provides detailed information on operations, financial position and risk
factors. The Company reviews loss experience for at least the past five years,
prior insurance policies and endorsements, financial reports and reports from
the principal accreditation agencies for the hospital industry. Risk management
surveys are performed as needed to supplement this information.
RATES AND DIVIDENDS
SCPIE establishes, through its own actuarial staff and independent
actuaries, rates and rating classifications for its physician and medical group
insureds based on the loss and LAE experience it has developed over the past 20
years and upon rates charged by its competitors. The Company has various rating
classifications based on practice location, medical specialty and other factors.
SCPIE utilizes various discounts, including discounts for part-time practice,
physicians just entering medical practice and large medical groups. SCPIE has
developed a special risk program for physicians who have unfavorable loss
history or practice characteristics, but whom SCPIE considers insurable.
Policies issued in this program have significant surcharges. SCPIE has
established its premium rates and rating classifications for hospitals and
managed care organizations utilizing data publicly filed by other insurers. The
data for managed care organization errors and omissions liability is extremely
limited, as tort exposures for these organizations are only recently beginning
to develop. All rates for liability insurance in California are subject to the
prior approval of the Insurance Commissioner.
SCPIE instituted annual average rate increases of 4.4%, 8.9%, 9.2% and 7.3%
in 1996, 1995, 1994 and 1993, respectively, on its physician professional
liability policies in order to improve its underwriting results. These rate
increases have been higher than those implemented by most of its competitors.
The number of policyholders insured by the Company has declined by a small
percentage in each of these years, in part due to these rate increases, but the
Company has realized a modest increase in its premium volume and has improved
its underwriting results. See "Risk Factors -- Competition" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Competitive Environment."
57
<PAGE> 67
The Company paid dividends of $9.5 million, $11.2 million and $18.6 million
in 1995, 1994 and 1993, respectively, in the form of premium credits. Such
dividends were paid primarily to insureds who were Members of the Exchange in
1990 and prior policy years and were based primarily on underwriting results in
such years. After the Merger, the Company will cease paying such dividends to
its policyholders. Therefore, the Company may find it more difficult to compete
with other insurance companies offering such dividends.
CLAIMS
The claims department of the Company is responsible for claims
investigation, establishment of appropriate case reserves for loss and LAE,
defense planning and coordination, control of attorneys engaged by the Company
to defend a claim and negotiation of the settlement or other disposition of a
claim. Under most of the Company's policies, except managed care organization
errors and omissions policies and directors and officers liability policies, the
Company is obligated to defend its insureds, which is in addition to the limit
of liability under the policy. Medical malpractice claims often involve the
evaluation of highly technical medical issues, severe injuries and conflicting
expert opinions. In almost all cases, the person bringing the claim against the
physician is already represented by legal counsel when SCPIE learns of the
potential claim.
The claims department staff includes managers, litigation supervisors,
investigators and other experienced professionals trained in the evaluation and
resolution of medical professional liability and general liability claims. The
claims department staff consists of approximately 48 employees, including twelve
clerical personnel. SCPIE has five unit managers responsible for specific
geographic areas, and additional units for specialty areas such as hospitals,
birth injuries and policy coverage issues. The Company also occasionally uses
independent claims adjusters, primarily to investigate claims in remote
locations. SCPIE selects legal counsel from among a group of law firms in the
geographic area in which the action is filed.
California has adopted a standard of judicial administration that requires
its trial courts to set goals to dispose of 90% of all cases within twelve
months after filing and 100% of cases within 24 months. The courts in the
various counties in which SCPIE defends claims have sought to comply with these
"fast-track" standards during the past few years. The effect of this change has
been significant. Before this requirement was implemented, cases in certain
counties did not proceed to trial for many years after filing. The claims
department staff now must make earlier evaluations and reserve estimates,
authorize discovery expenses early in the litigation process and be prepared to
settle the case or proceed to trial within one year.
SCPIE emphasizes early evaluation and aggressive management of claims.
Claims department professionals complete a full evaluation and reserving of
claims under "fast-track" within six months of the filing of a claim and on all
other cases within twelve months after filing. The Company has established
different levels of authority within the claims department for approval of
reserves and settlement of claims. SCPIE has a claims committee comprised solely
of physicians which meets bi-monthly with the vice president in charge of claims
and other claims managers to consider and evaluate cases that have complex
medical issues and subject the Company to large exposures. At June 30, 1996, the
Company had 3,368 open claims.
SCPIE vigorously defends its insureds against claims, but seeks to resolve
expediently cases with high exposure potential. The defense of a medical
professional liability claim requires significant cooperation between the
litigation supervisor or claims department manager responsible for the claim and
the insured physician. California law requires that a medical professional
liability claim cannot be settled for an amount in excess of $30,000 without the
consent of the physician insured. California law further requires that the
insurer report all such settlements to a medical disciplinary board, and Federal
law requires that any claim payment, regardless of amount, be reported to a
national data bank which can be accessed by various state licensing and
disciplinary boards and medical peer evaluation committees. Thus, the physician
is often placed in a difficult position of knowing that a settlement may result
in the
58
<PAGE> 68
initiation of a disciplinary proceeding or some other impediment to the
physician's ability to practice. The claims department supervisor must be able
to fully evaluate considerations of settlement or trial and to communicate
effectively SCPIE's recommendation to its insured. If the insured will not
consent to a settlement offer, the Company may be exposed to a larger judgment
if the case proceeds to trial.
The claims department staff utilizes structured settlements to resolve
certain large claims. In a structured settlement, the Company will typically
purchase an annuity from another insurance company that will satisfy periodic
payments owed to the claimant as part of the settlement. The Company typically
obtains a release from the claimant for its insured and itself and assigns the
annuity to a third party for payment. The Company purchased annuities during the
early 1980s from a life insurance company that subsequently became insolvent and
could not satisfy its obligations. In some instances, SCPIE has concluded that
it is obligated to satisfy any shortfall in these periodic payments and is
making these shortfall payments. The Company has established a reserve to cover
these expected shortfall obligations. See Note 8 of Notes to Combined Financial
Statements.
LOSS RESERVES
The determination of loss reserves is a projection of ultimate losses
through an actuarial analysis of the claims history of the Company and other
professional liability insurers, subject to adjustments deemed appropriate to
the Company due to changing circumstances. Included in its claims history are
losses and LAE paid by the Company in prior periods and case reserves for
anticipated losses and LAE developed by the Company's claims department as
claims are reported and investigated. Actuaries rely primarily on such
historical loss experience in determining reserve levels on the assumption that
historical loss experience provides a good indication of future loss experience
despite the uncertainties in loss cost trends and the delays in reporting and
settling claims. As additional information becomes available, the estimates
reflected in earlier loss reserves may be revised. Any increase in the amount of
reserves, including reserves for insured events of prior years, could have an
adverse effect on the Company's results for the period in which the adjustments
are made.
The uncertainties inherent in estimating ultimate losses on the basis of
past experience have grown significantly in recent years principally as a result
of judicial expansion of liability standards and expansive interpretations of
insurance contracts. These uncertainties may be further affected by, among other
factors, changes in the rate of inflation and changes in the propensities of
individuals to file claims. The inherent uncertainty of establishing reserves is
relatively greater for companies writing long-tail casualty insurance, including
medical malpractice insurance, due primarily to the longer-term nature of the
resolution of claims.
The Company utilizes both its internal actuarial staff and independent
actuaries in establishing its reserves. The Company's independent actuaries
review the Company's reserves for losses and LAE at the end of each fiscal year
and prepare a report that includes a recommended level of reserves. The Company
considers this recommendation as well as other factors, such as known,
anticipated or estimated changes in frequency and severity of claims, loss
retention levels and premium rates, in establishing the amount of its reserves
for losses and LAE. The Company continually refines reserve estimates as
experience develops and further claims are reported and settled. The Company
reflects adjustments to reserves in the results of the periods in which such
adjustments are made. Since medical malpractice insurance is a long-tail line of
business for which the initial loss and LAE estimates may be adversely impacted
by events occurring long after the reporting of the claim, such as sudden severe
inflation or adverse judicial or legislative decisions, SCPIE has attempted to
establish its loss and LAE reserves at the upper end of a reasonable range of
reserve estimates.
59
<PAGE> 69
SCPIE's loss reserve experience is shown in the following table, which sets
forth a reconciliation of beginning and ending reserves for unpaid losses and
LAE for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves for losses and LAE at
beginning of period................. $466,187 $468,743 $468,743 $490,773 $492,004
Less reinsurance recoverables......... 19,560 19,177 19,177 18,644 26,580
-------- -------- -------- -------- --------
Net reserves for losses and LAE at
beginning of period................. 446,627 449,566 449,566 472,129 465,424
-------- -------- -------- -------- --------
Provision for losses and LAE for
claims, net of reinsurance,
occurring in:
The current period.................. 86,160 89,203 175,856 169,143 168,784
Prior periods(1).................... (27,913) (31,670) (57,833) (60,423) (43,430)
-------- -------- -------- -------- --------
Total incurred losses and LAE....... 58,247 57,533 118,023 108,720 125,354
-------- -------- -------- -------- --------
Less Loss and LAE payments for claims,
net of reinsurance, occurring in:
The current period.................. 1,257 988 11,481 10,178 12,971
Prior periods....................... 51,305 59,538 109,481 121,105 105,678
-------- -------- -------- -------- --------
Total payments...................... 52,562 60,526 120,962 131,283 118,649
-------- -------- -------- -------- --------
Net reserves for losses and LAE at end
of period........................... 452,312 446,573 446,627 449,566 472,129
Add reinsurance recoverables.......... 22,086 17,112 19,560 19,177 18,644
-------- -------- -------- -------- --------
Reserves for losses and LAE at end of
period.............................. $474,398 $463,685 $466,187 $468,743 $490,773
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Consists of a reduction in estimated losses and LAE for prior years of $52.0
million at June 30, 1995 and $81.7 million at December 31, 1995 and an
increase in prior years' reserves for free tail coverage provided by the
Company in the amount of $20.3 million at June 30, 1995 and $23.9 million at
December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Year Ended
December 31, 1995 Compared to Year Ended December 31, 1994 -- Losses and
LAE."
The following table reflects the development of losses and LAE reserves for
the periods indicated at the end of that year and each subsequent year. The
first line shows the reserves, net of reinsurance recoverables, as originally
reported at the end of the stated year. Each calendar year-end reserve includes
the estimated unpaid liabilities for that report or accident year and for all
prior report or accident years. The section under the caption "Liability
reestimated as of" shows the original recorded reserve as adjusted as of the end
of each subsequent year to reflect the cumulative amounts paid and all other
facts and circumstances discovered during each year. The line "Cumulative
redundancy" reflects the difference between the latest reestimated reserve
amount and the reserve amount as originally established. The section under the
caption "Cumulative amount of liability paid through" shows the cumulative
amounts paid related to the reserve as of the end of each subsequent year.
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<PAGE> 70
In evaluating the information in the table below, it should be noted that
each amount includes the effects of all changes in amounts of prior periods. For
example, if a loss determined in 1993 to be $100,000 was first reserved in 1985
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1985 through 1995
shown below. This table presents development data by calendar year and does not
relate the data to the year in which the claim was reported or the accident
actually occurred. Conditions and trends that have affected the development of
these reserves in the past will not necessarily recur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and
LAE
reserves.. $218,988 $282,805 $329,369 $389,404 $412,679 $427,049 $439,908 $465,423 $472,129 $449,566 $446,627
Liability
reestimated
as of:
One
year
later... 205,016 261,970 327,627 362,058 375,764 401,878 409,966 421,994 411,915 391,733
Two
years
later... 194,668 269,855 312,956 337,901 348,781 368,124 364,105 368,521 363,562
Three
years
later... 204,583 260,089 295,438 315,718 320,319 324,370 316,220 325,073
Four
years
later... 198,365 248,613 278,339 299,308 294,992 284,628 282,291
Five
years
later... 191,809 234,449 267,880 284,972 266,649 264,582
Six
years
later... 185,373 228,628 260,544 266,423 256,900
Seven
years
later... 180,714 229,152 249,644 262,642
Eight
years
later... 182,897 223,055 248,595
Nine
years
later... 181,127 222,460
Ten
years
later... 180,221
Cumulative
redundancy.. 38,767 60,345 80,774 126,762 155,779 162,467 157,617 140,350 108,567 57,833
Cumulative
amount
of
liability
paid
through:
One
year
later... 41,764 59,435 78,951 93,607 85,771 103,983 101,001 105,678 121,106 109,481
Two
years
later... 84,979 121,037 147,865 155,505 162,264 171,327 171,429 184,883 192,519
Three
years
later... 126,658 167,331 188,038 206,413 204,129 206,499 205,829 219,649
Four
years
later... 156,074 190,148 220,575 232,777 221,479 221,654 221,884
Five
years
later... 167,783 205,362 233,807 242,140 228,922 230,606
Six
years
later... 171,861 211,665 236,809 244,587 234,202
Seven
years
later... 173,446 214,314 238,105 248,319
Eight
years
later... 174,117 215,155 239,652
Nine
years
later... 174,699 215,647
Ten
years
later... 175,121
Net
reserves --
December
31..... $449,566 $446,627
Reinsurance
recoverables... 19,177 19,560
-------- --------
Gross
reserves... $468,743 $466,187
======== ========
</TABLE>
61
<PAGE> 71
SCPIE has historically experienced favorable loss and LAE reserve
development. The Company believes that the favorable loss and LAE reserve
development since 1985 has resulted from four factors: (i) SCPIE's conservative
approach to establishing reserves for medical malpractice insurance losses and
LAE; (ii) the continuing benefits from MICRA, the California tort reform
legislation that was declared constitutional in a series of decisions by the
California Supreme Court in the mid-1980s; (iii) benefits from California's
"fast-track" legislation; and (iv) improved results from a restructuring of
SCPIE's internal claims process. See "-- Regulation -- Medical Malpractice Tort
Reform" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General." The Company believes, based on its analysis
of annual statements filed with state regulatory authorities, that its principal
California competitors have experienced similar favorable loss and LAE reserve
development in past years.
General liability losses have been less than 2.9% of medical malpractice
losses in the last five years. The Company does not have material reserves for
pollution claims and the Company's claims experience for pollution coverage has
been negligible.
While the Company believes that its reserves for losses and LAE are
adequate, there can be no assurance that the Company's ultimate losses and LAE
will not deviate, perhaps substantially, from the estimates reflected in the
Company's financial statements. If the Company's reserves should prove
inadequate, the Company will be required to increase reserves, which could have
a material adverse effect on the Company's financial condition or results of
operation.
REINSURANCE
Reinsurance Ceded. SCPIE follows customary industry practice by reinsuring
a portion of its risks. SCPIE cedes to reinsurers a portion of its risks and
pays a fee based upon premiums received on all policies subject to such
reinsurance. Insurance is ceded principally to reduce net liability on
individual risks and to provide protection against large losses. Although
reinsurance does not legally discharge the ceding insurer from its primary
liability for the full amount of the policies reinsured, it does make the
reinsurer liable to the insurer to the extent of the reinsurance ceded. SCPIE
determines how much reinsurance to purchase based upon its evaluation of the
risks it has insured, consultations with its reinsurance brokers and market
conditions, including the availability and pricing of reinsurance. In 1995,
SCPIE ceded $8.5 million of its earned premiums to reinsurers.
SCPIE's reinsurance arrangements are generally placed through its exclusive
reinsurance broker, Willcox Incorporated Reinsurance Intermediaries. The Company
retains the first $1.0 million of loss incurred per incident and has various
reinsurance treaties covering losses in excess of $1.0 million up to $20.0
million per incident. Losses in excess of $20.0 million would be retained by the
Company. SCPIE often has more than one insured named as a defendant in a lawsuit
or claim arising from the same incident, and therefore multiple policies and
limits of liability may be involved. The Company's reinsurance program is
purchased in several layers, the limits of which may be reinstated under certain
circumstances at the Company's option subject to the payment of additional
premium. SCPIE also reinsures a portion of the reinstatement premiums under a
separate treaty, together with certain other miscellaneous liability exposures,
including retroactive liability for two insurance layers from several past years
and aggregate extension coverage which provides additional aggregate loss limits
for the layer $1.0 million excess of $1.0 million, each occurrence, for
specified years. The reinsurers also bear their proportionate share of loss
expenses for claims in which they have an indemnity obligation.
The Company has a separate quota share reinsurance treaty for 1996 with
respect to its managed care organization errors and omissions policies and any
directors and officers liability policies it may write. Under this treaty, the
reinsurers bear 80% of all losses and LAE under these policies.
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<PAGE> 72
Reinsurance is placed under reinsurance treaties and agreements with a
number of individual companies and syndicates at Lloyd's of London ("Lloyd's")
to avoid concentrations of credit risk. The following table identifies the
Company's most significant reinsurers, their percentage participation in the
Company's aggregate reinsured risk based upon premiums paid by the Company and
their rating as of December 31, 1995. No other single reinsurer's percentage
participation in 1995 exceeded 5% of total reinsurance premiums:
<TABLE>
<CAPTION>
PREMIUMS CEDED PERCENTAGE OF TOTAL
FOR YEAR ENDED REINSURANCE
DECEMBER 31, 1995 RATING(1) PREMIUMS
----------------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Hannover Ruckversicherungs.......... $ 2,389 A+ 30.6%
Lloyd's Syndicates.................. 2,075 NR 26.5
Transatlantic Reinsurance Co. ...... 705 A+ 9.0
Eisen und Stahl Ruckversicherungs... 597 A+ 7.6
Swiss Reinsurance Co. U.S. Branch... 547 A+ 7.0
Zurich Reinsurance (UK) Ltd......... 417 BBB 5.3
Underwriters Reinsurance Co......... 408 A 5.2
------- ----
$ 7,138 91.2%
======= ====
</TABLE>
- ---------------
(1) All ratings are assigned by A.M. Best, except for Zurich Reinsurance (UK)
Ltd., which is a rating by Insurance Services International ("ISI"). The
Company's minimum requirement for ratings of its reinsurers is B or better
from A.M. Best and BB or better from ISI.
The Company analyzes the credit quality of its reinsurers and relies on its
brokers and intermediaries to assist it in such analysis. To date, the Company
has not experienced any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the future ability
of any of the Company's reinsurers to meet their obligations. Among the
reinsurers to which the Company cedes reinsurance are certain Lloyd's
syndicates. In recent years, Lloyd's has reported substantial aggregate losses
which have had adverse effects on Lloyd's in general and on certain syndicates
in particular. In addition, there has been a decrease in the underwriting
capacity of Lloyd's syndicates in recent years. The substantial losses and other
adverse developments could affect the ability of certain syndicates to continue
to trade and the ability of insureds to continue to place business with
particular syndicates. It is not possible to predict what effects the
circumstances described above may have on Lloyd's and the Company's contractual
relationship with Lloyd's syndicates in future years.
Reinsurance and Excess Liability Insurance Assumed. SCPIE assumes a small
amount of reinsurance covering medical professional liability risks primarily in
the United States. The principal reinsurance treaty, which has been in effect
since 1988, is with a Lloyd's syndicate. Under this surplus share treaty, the
Company assumes 50% of one or more layers of coverage above $1.0 million, which
must be retained by the primary insurer. The reinsured receives a ceding
commission and a profit share. The maximum amount of SCPIE's liability for any
one risk is $500,000, and SCPIE does not participate as a reinsurer in any of
its own policies. The annual premiums earned under this treaty have ranged from
$106,000 in 1989 to $674,000 in 1995. In 1996, this treaty will also include
reinsurance of excess layers of workers' compensation and clash casualty risks.
SCPIE's liability for any one risk is limited to $500,000 above a $1.5 million
layer assumed by other members of the syndicate.
The Company also entered into a reinsurance treaty for 1995 with Hannover
Ruckversicherungs ("Hannover Re"). The treaty is a quota share treaty, under
which SCPIE reinsures up to $500,000 for each physician medical malpractice
claim and up to $750,000 for each hospital professional liability claim on
policies or contracts with limits in excess of $2.0 million. The reinsured
receives an override commission earned and is required to retain not less than
20% of the risk, subject to a minimum retention of $1.0 million. Premiums under
this treaty were $106,000 for 1995.
SCPIE is a participant in a program for which SKA is the exclusive broker
that provides excess liability insurance for approximately 700 healthcare
facilities throughout the United States. The program
63
<PAGE> 73
provides excess coverage in layers up to $40.0 million above a primary insurance
layer of $500,000. SCPIE has assumed, as a reinsurer, a 2% share of each loss
above $500,000 up to $2.0 million and 3% of all losses in the higher layers of
coverage.
SCPIE has an indirect quota share participation in a reinsurance program of
Hannover Re that provides high layer excess of loss property catastrophe
coverage for international risks, other than in the United States and Japan.
SCPIE has participated in this program since 1994 through the purchase of a $5.0
million Credit Note issued by a limited liability company organized by Hannover
Re to underwrite a portion of this coverage. SCPIE purchased this note through
the issuance of a letter of credit, which can be drawn to cover SCPIE's
proportionate share of losses in this program. Interest on the note is based
upon profits, if any, of the limited liability company. The outstanding Credit
Note is held by SCPIE in its investment portfolio, and the amount of the letter
of credit is included in "Other Liabilities in the Combined Balance Sheets." See
"-- Investment Portfolio."
The Company intends to seek additional assumed reinsurance arrangements in
future years. The Company believes that as more managed care organizations and
integrated healthcare delivery systems retain a larger part of their own
exposure directly or through captive insurance arrangements, they will need to
obtain excess insurance or reinsurance for the potentially larger losses.
INVESTMENT PORTFOLIO
An important component of the operating results of the Company has been the
return on its invested assets. Investments of the Company are made by investment
managers under policies established and supervised by the Board of Governors.
The Company's investment policy has placed primary emphasis on investment grade,
fixed maturity securities and maximization of after-tax yields. The investment
manager since 1978 for the portfolio of fixed maturity securities is Brown
Brothers Harriman & Co., and the investment manager for the equity securities
portion of the portfolio is Hotchkis & Wiley.
The following table sets forth the composition of the investment portfolio
of the Company at the dates indicated. All of the fixed maturity securities are
held as available-for-sale.
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------ ------------------------
COST OR COST OR COST OR
AMORTIZED AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
Bonds:
U.S. Government and
Agencies.............. $334,341 $331,034 $304,091 $319,119 $300,131 $281,931
State, municipalities
and political
subdivisions.......... 220,771 219,322 149,693 155,118 110,423 109,392
Mortgage-backed
securities, U.S.
Government.............. 88,586 88,240 80,279 81,898 51,175 47,033
Corporate................. 12,696 12,635 46,951 48,889 120,353 115,256
Other..................... 105 105 105 105 2,644 2,284
-------- -------- -------- -------- -------- --------
Total bonds........ 656,499 651,336 581,119 605,129 584,726 555,896
Redeemable preferred
stock................... -- -- 996 1,026 3,018 3,018
-------- -------- -------- -------- -------- --------
Total fixed
maturity
securities....... 656,499 651,336 582,115 606,155 587,744 558,914
-------- -------- -------- -------- -------- --------
Equity securities:
Non-redeemable preferred
stock................... -- -- -- -- 1,061 1,036
Common stock.............. 15,099 20,491 49,396 61,083 42,228 45,404
-------- -------- -------- -------- -------- --------
Total equity
securities....... 15,099 20,491 49,396 61,083 43,289 46,440
-------- -------- -------- -------- -------- --------
Total....................... $671,598 $671,827 $631,511 $667,238 $631,033 $605,354
======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 74
In February 1996, the Company sold all equity securities in the portfolio
with the exception of approximately $20.0 million of publicly traded common
stocks. The Board of Governors has adopted a policy that no more than 8.0% of
the total market value of invested assets may be held in equity securities and
real estate.
The Company's investment portfolio of fixed maturity securities consists
primarily of intermediate-term, investment-grade securities. The Company's
investment policy provides that fixed maturity securities investments are
limited to purchases of investment-grade securities or unrated securities which,
in the opinion of a national investment advisor, should qualify for such rating.
The table below contains additional information concerning the investment
ratings of the Company's fixed maturity investments at June 30, 1996:
<TABLE>
<CAPTION>
AMORTIZED PERCENTAGE OF
TYPE/RATING OF INVESTMENT(1) COST FAIR VALUE FAIR VALUE
---------------------------- --------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
AAA (including U.S. Government and
Agencies)................................... $ 534,023 $ 529,490 81.3%
AA............................................ 78,323 77,504 11.9
A............................................. 39,048 39,237 6.0
Non rated(2).................................. 5,105 5,105 .8
-------- -------- -----
$ 656,499 $ 651,336 100.0%
======== ======== =====
</TABLE>
- ---------------
(1) The ratings set forth above are based on the ratings, if any, assigned by
Standard & Poor's Corporation ("S&P"). If S&P's ratings were unavailable,
the equivalent ratings supplied by Moody's Investors Services, Inc. were
used.
(2) Includes a credit note received from a catastrophe reinsurance limited
liability company controlled by Hannover Re with an amortized cost and fair
value of $5.0 million and redeemable preferred stock with an amortized cost
of $1.0 million and fair value of $1.0 million. See "-- Reinsurance."
The following table sets forth certain information concerning the
maturities of fixed maturity securities in the Company's investment portfolio as
of June 30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMORTIZED COST FAIR VALUE FAIR VALUE
-------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Years to maturity:
One or less............................. $ 13,637 $ 13,504 2.1%
After one through five.................. 118,488 118,530 18.2
After five through ten.................. 194,668 194,434 29.9
After ten............................... 241,120 236,628 36.3
Mortgage-backed securities................ 88,586 88,240 13.5
-------- -------- -----
Totals.......................... $656,499 $ 651,336 100.0%
======== ======== =====
</TABLE>
The average maturity of the securities in the Company's fixed maturity
portfolio as of June 30, 1996 was 6.4 years. The average duration of the
Company's fixed maturity portfolio as of June 30, 1996 was 5.1 years.
The Company also maintains cash and highly liquid equivalent short-term
investments, which at June 30, 1996 totalled $20.3 million.
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<PAGE> 75
The following table summarizes the Company's investment results for the
three years ended December 31, 1995 and for the six months ended June 30, 1996
and 1995:
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED AS OF OR FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
Average invested assets (includes
short-term cash investments)(1)... $639,730 $612,653 $614,492 $614,005 $595,192
Net investment income:
Before income taxes............... 20,817 18,968 37,471 37,705 38,148
After income taxes................ 14,845 13,344 26,481 26,379 27,017
Average annual return on
investments:
Before income taxes............... 6.51% 6.19% 6.10% 6.14% 6.41%
After income taxes................ 4.64% 4.36% 4.31% 4.30% 4.54%
Net realized investment gains after
income tax........................ $ 1,000 $ 1,655 $ 2,202 $ 165 $ 8,579
Net increase (decrease) in
unrealized gains on all fixed
maturity investments after income
taxes............................. (18,982) 25,781 34,366 (38,546) 8,276
EQUITY SECURITIES:
Average invested assets(2).......... $ 37,952 $ 47,123 $ 50,927 $ 43,338 $ 43,983
Net investment income:
Before income taxes............... 530 328 1,506 1,063 1,042
After income taxes................ 480 306 1,189 972 952
Average annual return on
investments:
Before income taxes............... 5.58% 2.79% 2.96% 2.45% 2.37%
After income taxes................ 5.05% 2.60% 2.33% 2.24% 2.17%
Net realized investment gains after
income tax........................ $ 6,473 $ 1,390 $ 2,965 $ 191 $ 1,812
Net increase in unrealized gains on
all equity investments after
income taxes...................... (4,092) 3,257 5,548 (1,618) 4,028
</TABLE>
- ---------------
(1) Fixed maturity securities at cost.
(2) Equities at market.
COMPETITION
The physician professional liability insurance market in California is
highly competitive. The Company competes principally with three physician-owned
mutual or reciprocal insurance companies, Norcal Mutual Insurance Company, The
Doctors' Company and Medical Insurance Exchange of California, with several
commercial insurers, including CNA Insurance Companies and Fremont Indemnity
Company, and also with a physicians' mutual protection trust, Mutual Protection
Trust. The physician-owned insurance companies were organized at approximately
the same time as SCPIE and all of these companies have expanded their operations
in California. Each of these companies is actively engaged in soliciting
insureds in Southern California, SCPIE's primary area of operations, and each
has offered assessments or premiums at very competitive rates during the past
few years. The Company believes that the principal competitive factors, in
addition to pricing, include dividend policy, financial stability, breadth and
flexibility of coverage and the quality and level of services provided. In
addition, commercial insurance companies such as Farmers Group, Inc. and MMI
Companies, Inc. now actively compete for larger medical groups in
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<PAGE> 76
the California market, and companies endorsed by specialty medical societies are
also entering the market.
The Company believes that SCPIE's dividend policy has been an important
competitive factor in the past. On August , 1996, the Board of Governors
declared a dividend to its Members of $9.0 million which will be paid in the
form of premium credits in 1997. However, other than this $9.0 million dividend,
after the Merger, the Company will cease paying dividends in the form of premium
credits to its policyholders. Therefore, the Company may find it more difficult
to compete with other insurance companies offering such dividends. See "Risk
Factors -- Competition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General -- Policyholder Dividends."
The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups, as well as a hospital industry sponsored captive
insurance company, also now actively compete in the hospital professional
liability insurance market. The largest writer of malpractice insurance for
hospitals in California is an affiliate of Farmers Group, Inc., which
underwrites its coverage through SKA. The Company believes that its relationship
with SKA will enable it to expand its hospital policyholders in California and
other states.
The Company expects to encounter similar competition from local
doctor-owned insurance companies and commercial companies in other states as it
carries out its expansion plans. The Company plans to compete in other states
principally through its relationship with SKA and by offering superior
policyholder services. All markets in which the Company now writes insurance and
in which it expects to enter have certain competitors with substantially greater
financial and operating resources than the Company. See "Risk
Factors -- Competition."
REGULATION
General. Insurance companies are regulated by government agencies in
states in which they transact insurance. The extent of regulation varies by
state, but such regulation usually includes: (i) regulating premium rates and
policy forms; (ii) setting minimum capital and surplus requirements; (iii)
regulating guaranty fund assessments; (iv) licensing companies and agents; (v)
approving accounting methods and methods of setting statutory loss and expense
reserves; (vi) setting requirements for and limiting the types and amounts of
investments; (vii) establishing requirements for the filing of annual statements
and other financial reports; (viii) conducting periodic statutory examinations
of the affairs of insurance companies; (ix) approving proposed changes of
control; and (x) limiting the amounts of dividends that may be paid without
prior regulatory approval. Such regulation and supervision are primarily for the
benefit and protection of policyholders and not for the benefit of investors.
The Company has written all of its insurance in California, and SCPIE
Indemnity will be domiciled in that state. California laws and regulations,
including the tort liability laws, and laws relating to professional liability
exposures and reports, have the most significant impact on the Company and its
operations.
Insurance Guaranty Associations. Most states, including California,
require admitted property and casualty insurers to become members of insolvency
funds or associations which generally protect policyholders against the
insolvency of such insurers. Members of the fund or association must contribute
to the payment of certain claims made against insolvent insurers. Maximum
contributions required by law in any one year vary by state, and California
permits a maximum assessment of 1.0% of annual premiums written by a member in
that state during the preceding year. The largest assessment paid by SCPIE was
$697,000 in 1994. However, such payments are recoverable through policy
surcharges.
Holding Company Regulation. SCPIE Holdings will be subject to the
California Insurance Holding Company System Regulatory Act (the "Holding Company
Act"). The Holding Company Act requires the Company periodically to file
information with the California Department and other state regulatory
authorities, including information relating to its capital structure, ownership,
financial condition and general business operations. Certain transactions
between an insurance company and its affiliates,
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<PAGE> 77
including sales, loans or investments which in any twelve-month period aggregate
at least 5% of its admitted assets or 25% of its statutory capital and surplus,
whichever is less, also are subject to prior approval by the California
Department.
The Holding Company Act also provides that the acquisition or change of
"control" of a California insurance company or of any person or entity that
controls such an insurance company cannot be consummated without the prior
approval of the Insurance Commissioner. There is legislation pending in
California which, if adopted, would require 30 days advance notice to the
California Department of a material transaction, rather than prior approval, and
would increase the types of transactions subject to the notice requirement. In
general, a presumption of "control" arises from the ownership of voting
securities and securities that are convertible into voting securities, which in
the aggregate constitute 10% or more of the voting securities of a California
insurance company or of a person or entity that controls a California insurance
company, such as SCPIE Holdings. A person or entity seeking to acquire
"control," directly or indirectly, of the Company is generally required to file
with the Insurance Commissioner an application for change of control containing
certain information required by statute and published regulations and provide a
copy of the application to the Company. The Holding Company Act also effectively
restricts the Company from consummating certain reorganizations or mergers
without prior regulatory approval.
The Company will also be subject to insurance holding company laws in other
states that contain similar provisions and restrictions.
Regulation of Dividends from Insurance Subsidiaries. The Holding Company
Act also limits the ability of SCPIE Indemnity to pay dividends to the Company.
Without prior notice to and approval of the Insurance Commissioner, SCPIE
Indemnity may not declare or pay an extraordinary dividend, which is defined as
any dividend or distribution of cash or other property whose fair market value
together with other dividends or distributions made within the preceding 12
months exceeds the greater of such subsidiary's statutory net income of the
preceding calendar year or 10% of statutory surplus as of the preceding December
31. Applicable regulations further require that an insurer's statutory surplus
following a dividend or other distribution be reasonable in relation to meet its
outstanding liabilities and adequate to meet its financial needs, and permit the
payment of dividends only out of statutory earned (unassigned) surplus unless
the payment out of other funds is approved by the Insurance Commissioner. In
addition, an insurance company is required to give the California Department
notice of any dividend after declaration, but prior to payment.
The other insurance subsidiaries will be subject to similar provisions and
restrictions under the insurance holding company laws of other states.
Risk-Based Capital. The NAIC has developed a new methodology for assessing
the adequacy of statutory surplus of property and casualty insurers which
includes a risk-based capital ("RBC") formula that attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. The formula is designed to allow state insurance
regulators to identify potentially under-capitalized companies. Under the
formula, a company determines its RBC by taking into account certain risks
related to the insurer's assets (including risks related to its investment
portfolio and ceded reinsurance) and the insurer's liabilities (including
underwriting risks related to the nature and experience of its insurance
business). The RBC rules provide for different levels of regulatory attention
depending on the ratio of a company's total adjusted capital to its "authorized
control level" of RBC. At December 31, 1995, SCPIE's RBC was $87.7 million,
exceeding the threshold requiring the least regulatory attention, which was
$39.4 million.
NAIC-IRIS Ratios. The NAIC Insurance Regulatory Information System
("IRIS") was developed by a committee of state insurance regulators and is
primarily intended to assist state insurance departments in executing their
statutory mandates to oversee the financial condition of insurance companies
operating in their respective states. IRIS identifies 12 ratios for the property
and casualty insurance industry and specifies a range of "usual values" for each
ratio. Departure from the "usual value" range on four or more ratios may lead to
increased regulatory oversight from individual state insurance commissioners. In
1993,
68
<PAGE> 78
SCPIE had one ratio outside the usual value range, which resulted from a large
Proposition 103 refund. No ratios outside the usual value range resulted in 1994
or 1995.
Regulation of Investments. The Insurance Subsidiaries are subject to state
laws and regulations that require diversification of their investment portfolios
and limit the amount of investments in certain investment categories such as
below investment grade fixed income securities, real estate and equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as nonadmitted assets
for purposes of measuring statutory surplus and, in some instances, would
require divestiture of such non-qualifying investments over specified time
periods unless otherwise permitted by the state insurance authority under
certain conditions.
Prior Approval of Rates and Policies. Pursuant to the California Insurance
Code the Company must submit rating plans, rates, policies and endorsements to
the Insurance Commissioner for prior approval. The possibility exists that the
Company may be unable to implement desired rates, policies, endorsements, forms,
or manuals if such items are not approved by the Insurance Commissioner. See
"Risk Factors -- Regulatory and Related Matters." In the past, all of the
Company's rate applications have been approved in the normal course of review.
The Company recently acquired two inactive insurance companies, one of which is
licensed in 44 states plus the District of Columbia and the other of which is
licensed in one state. Certain licenses will have to be modified in certain
states and certain rate filings will need to be made to permit the writing of
medical malpractice insurance.
Medical Malpractice Tort Reform. MICRA, enacted in 1975, has been one of
the most comprehensive medical malpractice tort reform measures in the United
States. MICRA currently provides for limitations on damages for pain and
suffering of $250,000, limitations on fees for plaintiffs' attorneys according
to a specified formula, periodic payment of medical malpractice judgments and
the introduction of evidence of collateral source benefits payable to the
injured plaintiff. The Company believes that this legislation has brought
stability to the medical malpractice insurance marketplace in California by
making it more feasible for insurers to assess the risks involved in
underwriting this line of business.
The constitutionality of the various provisions of MICRA were judicially
challenged soon after its enactment, and California trial courts and
intermediate appellate courts reached conflicting decisions. The California
Supreme Court, in a series of decisions rendered during 1984 and 1985, upheld
the constitutionality of MICRA. Bills have been introduced in the California
Legislature from time to time to modify or limit certain of the tort reform
benefits provided to physicians and other healthcare providers by MICRA. In
1987, the principal proponents and opponents of MICRA signed an agreement under
which the parties agreed to a five-year moratorium on amendments to MICRA,
except for an increase in the limits on plaintiffs' attorneys' fees, which was
enacted at the time of this agreement. This moratorium expired by its terms on
December 31, 1992. Neither the proponents or opponents have attempted to enact
significant changes since that time. The Company cannot predict what changes, if
any, to MICRA may be enacted during the next few years or what effect such
changes might have on the Company's medical malpractice insurance operations.
Medical Malpractice Reports. SCPIE is required to report detailed
information with regard to settlements or judgments against its California
physician insureds in excess of $30,000 to the Medical Board of California,
which has responsibility for investigations and initiation of proceedings
relating to professional medical conduct in California. In addition, all
payments must also be reported to the Federal National Practitioners' Data Bank
and such reports are accessible by state licensing and disciplinary authorities,
hospital and other peer review committees and other providers of medical care. A
California statute also requires that defendant physicians must consent to all
medical professional liability settlements in excess of $30,000, unless the
physician waives this requirement. The SCPIE policy provides the physician with
the right to consent to any such settlement, regardless of the amount, but that
the matter of consent may be submitted to a county medical review board by
either party. In virtually all instances, the Company must obtain the consent of
the insured physician prior to any settlement.
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<PAGE> 79
A.M. BEST RATING
A.M. Best, which rates insurance companies based on factors of concern to
policyholders, currently assigns SCPIE an "A (Excellent)" rating. Such rating is
the third highest rating of 13 ratings that A.M. Best assigns to solvent
insurance companies, which currently range from "A++ (Superior)" to "D (Very
Vulnerable)." Publications of A.M. Best indicate that the A rating is assigned
to those companies that in A.M. Best's opinion have a strong ability to meet
their obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews the company's
profitability, leverage and liquidity, as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves, the adequacy of its
surplus, its capital structure, the experience and competence of its management
and its market presence. A.M. Best's ratings reflect its opinion of an insurance
company's financial strength, operating performance and ability to meet its
obligations to policyholders and are not evaluations directed to purchasers of
an insurance company's securities.
In June 1996, A.M. Best reduced the Company's rating from "A+ (Superior),"
citing significant uncertainty in the medical malpractice marketplace, caused,
in part, by evolving managed care issues, the Company's narrow product line and
geographic concentration, and intense competition and weakening premium rates in
the medical malpractice industry. A.M. Best similarly reduced the ratings of
three other medical malpractice insurance companies domiciled in California. See
"Risk Factors -- Importance of Ratings." A.M. Best also noted, however, the
Company's "strong capitalization, favorable loss reserve development and
leadership position in its principal market." No assurance can be given that
A.M. Best will not reduce its current rating of the Company in the future. The
Insurance Subsidiaries have entered into a pooling arrangement and each of the
Insurance Subsidiaries has been assigned the same "pooled" "A (Excellent)" A.M.
Best rating based on their consolidated performance.
EMPLOYEES
As of June 30, 1996, the Company employed 161 persons. None of the
employees is covered by a collective bargaining agreement. The Company believes
that its employee relations are good.
PROPERTIES
The Company is the owner of two office buildings, both located in Beverly
Hills, California. One building contains approximately 25,000 square feet of
office space and is used by the Company and its subsidiaries as a home office.
The other office building contains approximately 24,000 square feet, of which
the Company and its subsidiaries occupy approximately 17,000 square feet and the
remaining 7,000 square feet of the space in this office building are leased to
unaffiliated persons. Both office buildings owned by the Company are currently
unencumbered. The Company leases office space for a claims office in San Diego,
California and a sales office in Oakland, California. The Company believes that
its office space is adequate for its present needs and that it will be able to
secure additional office space in the future if necessary.
LITIGATION
The Company is a defendant in one material litigation, currently on appeal
by SCPIE in the California District Court of Appeal, in which an adverse
judgment was rendered for $4.21 million of compensatory damages and $14.0
million of punitive damages. The case involves an action against SCPIE by the
bankruptcy estate of an uninsured physician who incurred an adverse jury verdict
in a medical malpractice case. The physician's bankruptcy estate alleged that
SCPIE had an undisclosed conflict of interest when it provided the physician
with a free courtesy defense by an attorney who had represented the interests of
SCPIE insureds in other cases. The plaintiff in the malpractice action was an
infant who had suffered severe injuries at birth, and had obtained a judgment
against two SCPIE insured physicians as well as the uninsured physician. The
jury originally rendered a verdict that included $65.0 million in punitive
damages, which was reduced to $14.0 million by the trial judge. SCPIE believes
that the action is entirely without merit and plans to pursue aggressively its
rights on appeal.
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<PAGE> 80
The Company is from time to time named as a defendant in various lawsuits
incidental to its insurance business. In many of these actions, plaintiffs
assert claims for exemplary and punitive damages which are not insurable under
California judicial decisions. The Company vigorously defends these actions,
unless a reasonable settlement appears appropriate. The Company believes that
adverse results, if any, in the actions currently pending should not have a
material adverse effect on the Company's consolidated financial condition.
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<PAGE> 81
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the individuals who
serve as directors and executive officers of SCPIE Holdings. Messrs. Karlan,
Briney, Moseley and Zuk are currently also directors of SCPIE Indemnity Co., and
each of the physician directors is also a member of the Exchange's Board of
Governors.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Mitchell S. Karlan, M.D. Chairman of the Board
Donald J. Zuk President, Chief Executive Officer and
Director
Patrick S. Grant Senior Vice President, Marketing
Joseph P. Henkes Senior Vice President, Operations and
Actuarial Services
Patrick T. Lo Vice President and Chief Financial
Officer
Jack E. McCleary, M.D. Treasurer and Director
Wendell L. Moseley, M.D. Secretary and Director
Allan K. Briney, M.D. Director
Willis T. King, Jr. Director
Charles B. McElwee, M.D. Director
Donald P. Newell Director
Harriet M. Opfell, M.D. Director
William A. Renert, M.D. Director
Henry L. Stoutz, M.D. Director
Reinhold A. Ullrich, M.D. Director
</TABLE>
The Company's Board of Directors consists of twelve persons, divided into
three classes of directors and elected for staggered terms as follows: Class I,
comprised of four persons and elected for a term expiring at the 1997 Annual
Meeting of stockholders; Class II, comprised of four persons and elected for a
term expiring at the 1998 Annual Meeting of stockholders; and Class III,
comprised of four persons and elected for a term expiring at the 1999 Annual
Meeting of stockholders. Class I directors are Messrs. Briney, King, Ullrich and
Ms. Opfell. Class II directors are Messrs. Karlan, Moseley, McCleary and Newell.
Class III directors are Messrs. Zuk, McElwee, Renert and Stoutz. Following the
expiration of the initial term as described above, directors will serve for
three-year terms.
Mitchell S. Karlan, M.D., 68, has been a member of the Board of Governors
of the Exchange since 1986 and Vice Chairman since 1991. He has been a
board-certified general surgeon in Beverly Hills, California, for more than five
years. He is a former President of the Los Angeles County Medical Association
("LACMA"), a former Chairman of LACMA's Board of Trustees and a recent past
member of the California Medical Association's ("CMA") Board of Trustees. He is
also Chairman of the SCPIE Management Company Board of Directors.
Donald J. Zuk, 59, has been President and Chief Executive Officer of SCPIE
Management Company since 1989. Prior to joining SCPIE Management Company, he
served 22 years with Johnson & Higgins, insurance brokers. His last position
there was Senior Vice President in charge of its Los Angeles Health Care
operations, which included the operations of SCPIE under a contract that then
existed with SCPIE Management Company. Since 1993, Mr. Zuk has served on the
Board of Directors of GCR Holdings Limited, a catastrophe property reinsurance
company.
Patrick S. Grant, 53, has been with SCPIE since 1990 serving initially as
Vice President, Marketing. He was named Senior Vice President, Marketing in
1992. Prior to that time, he spent almost 20 years with the insurance brokerage
firm of Johnson & Higgins. His last position there was Vice President,
Professional Liability. Mr. Grant has worked on SCPIE operations since 1976.
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<PAGE> 82
Joseph P. Henkes, 46, has been with SCPIE since 1990 serving initially as
Vice President, Operations and Actuarial Services. He was named Senior Vice
President, Operations and Actuarial Services in 1992. Prior to that time he
spent almost five years with Johnson & Higgins, where his services were devoted
primarily to SCPIE operations. He has been an Associate of the Casualty
Actuarial Society since 1975, and a member of the American Academy of Actuaries
since 1980.
Patrick T. Lo, 44, has been Vice President and Chief Financial Officer of
SCPIE since 1993. From 1990 to 1993 he served as Vice President and Controller
of SCPIE. Prior to that time, he spent nine years as Assistant Controller,
Assistant Vice President and Vice President at The Doctors' Company, a
California medical malpractice insurance company.
Jack E. McCleary, M.D., 69, has been a member of the Board of Governors of
the Exchange since 1982. He has been a board-certified dermatologist in Sherman
Oaks, California, for more than five years. Dr. McCleary is currently the
President of the CMA. He is a former LACMA President and Speaker of the CMA
House of Delegates.
Wendell L. Moseley, M.D., 68, has been a member of the Board of Governors
of the Exchange since 1983. He has been a board-certified family practitioner in
San Bernardino, California, for more than five years, and is currently on the
clinical faculty of the Loma Linda University School of Medicine. Dr. Moseley is
a past President of the San Bernardino County Medical Society. Dr. Moseley has
served as a CMA delegate for 26 years. He is also a Director of the SCPIE
Management Company.
Allan K. Briney, M.D., 74, has been Chairman of the Board of Governors of
the Exchange since 1976. He has been a board-certified radiologist in Whittier,
California, for more than five years. He is a past President of the LACMA, and
is a former Chairman of the LACMA's Board of Trustees. Dr. Briney has been Vice
Chairman of the SCPIE Management Company Board of Directors since 1981.
Willis T. King, Jr., 52, has been a director and officer of Johnson &
Higgins for more than five years, and since 1986 has been Chairman and Chief
Executive Officer of Willcox Incorporated Reinsurance Intermediaries, a
subsidiary of Johnson & Higgins engaged in reinsurance.
Charles B. McElwee, M.D., 66, has been a member of the Board of Governors
of the Exchange since 1995. He has been a board-certified orthopedic surgeon in
Covina, California, for more than five years, and is also affiliated with the
University of Southern California School of Medicine. Dr. McElwee is a former
President of the LACMA, Chairman of the Board of Trustees of the LACMA and a
member of the Board of Trustees of the CMA. He is also Vice Chairman of the
CALPAC, the legislative arm of the CMA.
Donald P. Newell, 58, has been a partner at the law firm of Latham &
Watkins in San Diego, California, for more than five years. Mr. Newell is also a
director of Mercury General Corporation, an insurance holding company.
Harriet M. Opfell, M.D., 71, has been a member of the Board of Governors of
the Exchange since 1981. She has been a board-certified pediatrician in Orange,
California, for more than five years, and is a clinical professor of pediatrics
at the University of California at Irvine. Dr. Opfell is a former President of
the Orange County Medical Association and served as President of the medical
staff at Children's Hospital of Orange County.
William A. Renert, M.D., 56, has been a member of the Board of Governors of
the Exchange since 1990. He has been a board-certified radiologist in La Mesa,
California, for more than five years. Dr. Renert is a past President of the San
Diego County Medical Society, and is a CMA delegate and an American Medical
Association delegate.
Henry L. Stoutz, M.D., 63, has been a member of the Board of Governors of
the Exchange since 1976. He has been a board-certified urologist in Ventura,
California, for more than five years, and is a clinical instructor, Department
of Urology, at the University of California at Los Angeles ("UCLA") School of
Medicine. He is Chairman of the Ventura County Medical Society Professional
Liability Committee.
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Reinhold A. Ullrich, M.D., 69, has been a member of the Board of Governors
of the Exchange since 1991. He has been a board-certified obstetrician and
gynecologist in Torrance, California, for more than five years, and has been on
the clinical faculty at the UCLA School of Medicine since 1954. Dr. Ullrich is a
former President of the LACMA, and is the immediate past Chairman of its Board
of Trustees. He served on the CMA Board of Trustees from 1989 to 1995.
COMMITTEES OF THE SCPIE HOLDINGS BOARD
The SCPIE Holdings Board will have the following standing committees
immediately after the Merger.
Executive Committee. The Executive Committee will have the authority to
exercise all powers of the SCPIE Holdings Board between meetings of the SCPIE
Holdings Board, except in cases where action of the entire SCPIE Holdings Board
is required by the Restated Certificate, the Bylaws or applicable law. The
Executive Committee will consist of four members, one of whom is required to be
the Chairman of the SCPIE Holdings Board. The members of the Executive Committee
will be Messrs. Karlan (Chairman), Briney, Moseley and Zuk.
Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review the scope of audit
engagement, review letter of comments of such accountants and management's
response thereto, approve professional services provided by such accountants,
review the independence of such accountants, review any major accounting changes
made or contemplated, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. The Audit Committee
will consist of three members, all of whom are independent directors. The
members of the Audit Committee will be Messrs. Moseley (Chairman), Karlan and
McCleary.
Compensation Committee. The Compensation Committee will establish
remuneration levels for the Chief Executive Officer, Chief Financial Officer and
Senior Vice Presidents of the Company, review significant employee benefit
programs and establish, as it deems appropriate, and administer executive
compensation programs, including bonus plans, stock option and other
equity-based programs, deferred compensation plans and any other such cash or
stock incentive programs. The Chief Executive Officer of the Company will
establish remuneration levels for other employees of the Company. The
Compensation Committee will consist of three members. The members of the
Compensation Committee will be Messrs. Karlan (Chairman), Moseley and King.
The SCPIE Holdings Board may from time to time establish certain other
committees to facilitate the management of SCPIE Holdings.
DIRECTOR COMPENSATION
Each non-employee Director will receive an annual retainer of $25,000. The
Chairman of the Board of Directors of SCPIE Holdings will be paid $1,500 per
Board meeting and other non-employee Directors will be paid $1,000 per Board
meeting. Fees to non-employee Directors for participation on committees of the
Board of Directors will be $1,000 per meeting. The Chairman of the Executive
Committee will receive an additional annual retainer of $24,000. All
non-employee Directors will be reimbursed for reasonable travel and other
expenses incurred to attend meetings of the SCPIE Holdings Board and committees
thereof.
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<PAGE> 84
EXECUTIVE COMPENSATION
SCPIE Holdings was organized as a Delaware corporation in February 1996,
and consequently did not pay any cash compensation to its executive officers for
the year ended December 31, 1995. The following Summary Compensation Table sets
forth information concerning the compensation of (i) the Company's President and
Chief Executive Officer and (ii) the three other most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
for the year ended December 31, 1995. During such time period, the Named
Executive Officers were compensated by SCPIE Management Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR(1) SALARY BONUS COMPENSATION(2) COMPENSATION(3)
- ------------------------------- ------- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Donald J. Zuk 1995 $391,378 $52,085 $ 1,581 $28,970
President and Chief Executive
Officer
Joseph P. Henkes 1995 $190,000 $ 5,000 -- $11,400
Senior Vice President,
Operations and Actuarial
Services
Patrick S. Grant 1995 $165,000 $15,000 -- $ 9,990
Senior Vice President,
Marketing
Patrick T. Lo 1995 $131,000 $10,000 -- $ 7,860
Vice President and Chief
Financial Officer
</TABLE>
- ---------------
(1) Under the rules promulgated by the Commission, since the Company was not a
reporting company during the three immediately preceding fiscal years, only
the information with respect to the most recent completed fiscal year is
reported in the Summary Compensation Table.
(2) Other Annual Compensation for Mr. Zuk consists of payments for medical
expenses that are in addition to those covered by the Company's medical
benefit plans.
(3) All Other compensation consists of contributions to the SMC Cash
Accumulation Plan of SCPIE (the "401(k) Plan") for each Named Executive
Officer and expenses related to a company vehicle provided to Mr. Zuk by the
Company.
EMPLOYMENT AGREEMENT
SCPIE Management Company has in effect an employment agreement (the
"Employment Agreement") with Mr. Zuk, which is guaranteed by SCPIE. The
Employment Agreement will be assumed by the Company. The Employment Agreement
provides for a term expiring on December 31, 2000, at a current salary of
$413,409 per annum, with annual increases indexed to increases in the Consumer
Price Index for the preceding calendar year. The Employment Agreement also
provides for payment of bonuses at the discretion of the Board of Directors of
SCPIE Management Company, subject to the approval of the Exchange. In the event
of termination of the Employment Agreement by SCPIE Management Company,
severance pay of up to two years' salary is due under certain circumstances. Mr.
Zuk may also terminate the Employment Agreement at any time, with or without
cause, upon 90 days' written notice to SCPIE Management Company. No other
employment agreements currently exist.
COMPENSATION PLANS
401(k) Plan. Following the Merger, the Company will assume the 401(k) Plan
of the Exchange. The 401(k) Plan offers eligible employees of SCPIE Management
Company an opportunity to contribute to the 401(k) Plan on a regular basis
through payroll deductions. The 401(k) Plan's benefits are based on amounts
contributed and individual account investment performance. All full-time
employees of SCPIE
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<PAGE> 85
Management Company (defined as employees whose work week constitutes at least
38 3/4 hours) who are over age 21 years are eligible to participate in the
401(k) Plan.
The Company matches 100% of an employee's contribution to the 401(k) Plan
up to 6% of such employee's compensation. The amount of matching contributions
made by the Company for the fiscal years ended December 31, 1995, 1994 and 1993
were $436,000, $350,000 and $304,000, respectively. In addition, the Company may
make discretionary contributions to the 401(k) Plan to be allocated among the
employees' accounts on the basis of their relative levels of compensation.
Pension Benefits. Following the Merger, the Company will assume two
retirement plans that provide pensions for employees of SCPIE. The SCPIE
Management Company Retirement Income Plan (the "Retirement Plan") is an employee
non-contributory tax qualified defined benefit plan that provides each employee
with a basic annual benefit at normal retirement (age 65) equal to 1.15% of the
employee's earnings for each year of service after 1989 (subject to applicable
law limitations on the amount of earnings which may be considered for benefit
accrual purposes under tax qualified plans) while with the Company and the
employee's benefit accrued under a prior plan of SCPIE Management Company.
Employees attaining age 35 or attaining age 21 and having completed one year of
service are eligible to participate in the Retirement Plan. Benefits vest after
five years of service. The Supplemental Retirement Plan for Selected Employees
of SCPIE Management Company (the "Supplemental Plan") enhances the benefits
under the Retirement Plan for selected employees of the Company (currently all
15 Vice Presidents and the President of SCPIE Management Company). The enhanced
benefit under the Supplemental Plan provides an annual benefit at normal
retirement age (age 65) equal to 1.5% of the average annual rate of earnings
during the employee's 36 highest consecutive months in his or her last ten years
of service immediately prior to retirement, multiplied by the employee's years
of service with the Company or SCPIE Management Company, less the employee's
benefits under the Retirement Plan and under the Johnson & Higgins Retirement
Income Plan. In addition, the Supplemental Plan provides for a lump sum payment
equal to the difference between (i) the amount of the benefits that the employee
would have accrued under the 401(k) Plan if the Company's contribution allocated
to the employee's account had not been limited by certain provisions of the Code
that limit the amount which can be allocated to the employee's account under the
401(k) Plan and the amount of each employee's annual compensation which can be
taken into account under the 401(k) Plan and (ii) the amount of the benefits
actually accrued by the employee under the 401(k) Plan. The period of service
under both the Retirement Plan and the Supplemental Plan includes any period of
service with Johnson & Higgins, which formerly managed the business of SCPIE.
The following table shows the estimated annual benefits payable under the
Supplemental Plan and the Retirement Plan to Company employees in the higher
salary classifications upon retirement :
<TABLE>
<CAPTION>
SUPPLEMENTAL
PLAN
REMUNERATION
(AVERAGE OF 36 ESTIMATED ANNUAL BENEFIT($)
HIGHEST ------------------------------------------------------------------------
CONSECUTIVE
MONTHS IN FINAL YEARS OF CREDITED SERVICE AT AGE 65
TEN YEARS OF ------------------------------------------------------------------------
SERVICE) 10 15 20 25 30 35
- ---------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
$150,000 22,500 33,750 45,000 56,250 67,500 78,750
$200,000 30,000 45,000 60,000 75,000 90,000 105,000
$250,000 37,500 56,250 75,000 93,750 112,500 131,250
$300,000 45,000 67,500 90,000 112,500 135,000 157,500
$350,000 52,500 78,750 105,000 131,250 157,500 183,750
$400,000 60,000 90,000 120,000 150,000 180,000 210,000
$450,000 67,500 101,250 135,000 168,750 202,500 236,250
$500,000 75,000 112,500 150,000 187,500 225,000 262,500
</TABLE>
The amounts shown in the table are straight life annuities payable under
the plans without reduction for the joint and survivor annuity. Retirement
benefits listed in the table are not subject to any deduction
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<PAGE> 86
for Social Security benefits, but are reduced by any pension amounts payable to
the employee under a Johnson & Higgins retirement plan.
The earnings subject to the retirement plans for each of the executive
officers in the Summary Compensation Table is determined from the compensation
amounts shown under "Salary," but not the amounts shown under "Bonus." As of
December 31, 1995, the years of service of Messrs. Zuk, Henkes, Grant and Lo are
29 years, 24 years and 5 years, respectively.
Frozen Retirement Plan for Members of the SCPIE Board of Governors. The
Exchange has maintained the SCPIE Retirement Plan for Outside Governors and
Affiliated Directors (the "Board of Governors' Retirement Plan"), a nonqualified
supplemental retirement plan that provides a $12,000 annual retirement benefit
for members of the Board of Governors and directors of affiliated entities who
have at least five years of service as defined in the Board of Governors'
Retirement Plan. After the Merger, the Exchange's obligations under the Board of
Governors' Retirement Plan will become the obligations of SCPIE Indemnity.
Participation in the Board of Governors' Retirement Plan will be frozen on
December 31, 1996. Any persons receiving benefits on that date will continue to
receive them. All other eligible persons under the Board of Governors'
Retirement Plan will, on that date, become 100% vested in the benefits accrued
prior to that date and no additional benefits will accrue in the future. No
additional individuals, including directors of SCPIE Indemnity or directors of
SCPIE Holdings, will be eligible to participate in the Board of Governors'
Retirement Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The DGCL permits a Delaware corporation to include in its charter and
bylaws certain provisions to eliminate the personal liability of directors for
monetary damages and to indemnify its directors and officers. In addition,
effective upon consummation of the Merger, SCPIE Holdings will enter into
indemnification agreements with each of its directors and certain of its
executive officers. See "Comparison of Certain Rights of Members Before and
After the Merger -- Indemnification" and "Description of Capital
Stock -- Delaware Law and Certain Charter and Bylaw
Provisions -- Indemnification."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has employed in the past, and intends to employ in the future,
the law firm of Latham & Watkins, to perform legal services. Donald P. Newell, a
director of the Company, is a partner of Latham & Watkins.
The Company has entered into in the past, and intends to enter into in the
future, certain contracts with the firms of Willcox Incorporated Reinsurance
Intermediaries and Johnson & Higgins, for whom Willis T. King, Jr., a director
of the Company, serves as a director and officer. Johnson & Higgins serves as an
insurance broker for the Company and received commissions for these services of
$46,142, $81,658, and $114,559 in 1995, 1994 and 1993, respectively. The Company
has six reinsurance contracts that are placed by Willcox Incorporated
Reinsurance Intermediaries, which is the reinsurance division of Johnson &
Higgins. Willcox Incorporated Reinsurance Intermediaries received commissions on
the placement of these policies of $679,825, $571,615 and $717,807 in 1995, 1994
and 1993, respectively.
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<PAGE> 87
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of the Effective Date by (i) each person who will
own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each director and executive officer named in the Summary Compensation Table and
(iii) all directors and executive officers of SCPIE Holdings as a group. The
number of shares of Common Stock beneficially owned by each director represents
the number of shares each director and certain persons and entities affiliated
with each director will receive as Eligible Members under the Merger Agreement.
This estimate does not include any shares which any director or executive
officer may purchase in the Initial Public Offering. Except as noted below, each
holder listed below will have sole investment and voting power with respect to
the shares beneficially owned by the holder. The address for all stockholders
listed in the table is c/o SCPIE Holdings Inc., 9441 West Olympic Boulevard,
Beverly Hills, California 90213-4015.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE PERCENT
NAME BENEFICIALLY OWNED OF TOTAL
---- ------------------ --------
<S> <C> <C>
Mitchell S. Karlan, M.D.......................... *
Donald J. Zuk.................................... -- --
Patrick S. Grant................................. -- --
Joseph P. Henkes................................. -- --
Patrick T. Lo.................................... -- --
Jack E. McCleary, M.D............................ *
Wendell L. Moseley, M.D.......................... *
Allan K. Briney, M.D............................. *
Willis T. King, Jr............................... -- --
Charles B. McElwee, M.D.......................... *
Donald P. Newell................................. -- --
Harriet M. Opfell, M.D........................... *
William A. Renert, M.D........................... *
Henry L. Stoutz, M.D............................. *
Reinhold A. Ullrich, M.D......................... *
------------------ --------
All directors and executive officers as a group
(15 persons)................................... *
</TABLE>
- ---------------
* Less than 1%.
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<PAGE> 88
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company as of the completion of the
Merger will consist of 30,000,000 shares of Common Stock, $.0001 par value per
share, and 5,000,000 shares of Preferred Stock, the rights, preferences and
powers of which may be designated by the SCPIE Holdings Board. At present, there
are no shares of Preferred Stock issued or outstanding. Assuming that the
Initial Public Offering is held, SCPIE Holdings anticipates that, upon the
completion of the Merger and the Initial Public Offering, there will be
approximately 12,500,000 shares (12,800,000 shares if the underwriters' over-
allotment option is exercised in full) of Common Stock issued and outstanding
(less fractional shares, which, pursuant to the Merger Agreement, will be paid
in cash).
The following description of the capital stock of SCPIE Holdings does not
purport to be complete or to give full effect to Delaware statutory or common
law and is, in all respects, qualified by reference to the applicable provisions
of the DGCL, and the Restated Certificate and the Bylaws.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders and, subject to the prior rights of
the holders of Preferred Stock, to receive dividends ratably when and as
declared by the SCPIE Holdings Board with funds legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to the stockholders in the event of liquidation or dissolution, after payment of
all debts and other liabilities. Holders of the Common Stock are not entitled to
preemptive rights and will have no subscription, redemption or conversion
privileges. The Common Stock does not have cumulative voting rights, which means
the holder or holders of more than one-half of the shares of Common Stock voting
for the election of directors can elect all of the directors then being elected.
All of the outstanding shares of Common Stock are, and the shares to be issued
in the Merger when issued and paid for will be, fully paid and nonassessable.
The rights, preferences and powers of holders of Common Stock are subject to the
rights of the holders of shares of any series of Preferred Stock which the
Company may issue in the future. Pursuant to Section 160 of the DGCL, SCPIE
Indemnity will not be entitled to vote the shares of Common Stock issued to it
in the Merger. See "The Merger -- Additional Aspects of the Merger and the
Plan -- Issuance of Shares to SCPIE Indemnity."
PREFERRED STOCK
The SCPIE Holdings Board will have the authority, without further
stockholder approval, to issue up to 5,000,000 shares of Preferred Stock in one
or more series and to determine the dividend rights, any conversion rights or
rights of exchange, voting powers, rights and terms of redemption (including
sinking fund provisions), liquidation preferences and any other rights,
preferences, powers and restrictions. The number of shares constituting a series
of Preferred Stock and the designation thereof shall be stated in a resolution
or resolutions providing for the issuance of such series of Preferred Stock all
in accordance with the laws of the State of Delaware.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company, making removal of the present
management of the Company more difficult, restricting the payment of dividends
and other distributions to the holders of Common Stock, diluting the voting
power of the Common Stock to the extent that the Preferred Stock has voting
rights or diluting the equity interests of the Common Stock to the extent that
the Preferred Stock is convertible into Common Stock. In addition, issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more difficult
for a third party to acquire a majority of the outstanding shares of voting
stock. Accordingly, the issuance of Preferred Stock may be used as an
"anti-takeover" device without further action on the part of the stockholders of
SCPIE Holdings.
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<PAGE> 89
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The following is a description of certain provisions of the DGCL and the
Restated Certificate and the Bylaws. This summary does not purport to be
complete and is qualified in its entirety by reference to the DGCL, the Restated
Certificate and the Bylaws.
SCPIE Holdings is subject to the provisions of Section 203 of the DGCL.
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes certain mergers, asset
sales and other transactions resulting in a financial benefit to the "interested
stockholder." Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within the past
three years did own, 15% of the corporation's voting stock.
Certain provisions of the Restated Certificate and the Bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by the
SCPIE Holdings Board. In addition, these provisions also are intended to ensure
that the SCPIE Holdings Board will have sufficient time to act in what the Board
of Directors believes to be in the best interests of the Company and its
stockholders. These provisions also are designed to reduce the vulnerability of
SCPIE Holdings to an unsolicited proposal for a takeover of SCPIE Holdings that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of SCPIE
Holdings. The provisions are also intended to discourage certain tactics that
may be used in proxy fights. However, these provisions could delay or frustrate
the removal of incumbent directors or the assumption of control of SCPIE
Holdings by the holder of a large block of Common Stock, and could also
discourage or make more difficult a merger, tender offer or proxy contest, even
if such event would be favorable to the interest of stockholders.
Classified Board of Directors. The Restated Certificate provides for the
SCPIE Holdings Board to be divided into three classes of directors, with each
class as nearly equal in number as possible, serving staggered three-year terms
(other than directors which may be elected by holders of Preferred Stock). As a
result, approximately one-third of the SCPIE Holdings Board will be elected each
year. The classified board provision will help to assure the continuity and
stability of the SCPIE Holdings Board and the business strategies and policies
of SCPIE Holdings as determined by the SCPIE Holdings Board. The classified
board provision could have the effect of discouraging a third party from making
an unsolicited tender offer or otherwise attempting to obtain control of SCPIE
Holdings without the approval of the Board. In addition, the classified board
provision could delay stockholders who do not like the policies of the SCPIE
Holdings Board from electing a majority of the SCPIE Holdings Board for two
years.
No Stockholder Action by Written Consent; Special Meetings. The Restated
Certificate provides that stockholder action can only be taken at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Bylaws provide that special meetings of
stockholders may be called only by the SCPIE Holdings Board, its Chairman or the
President of SCPIE Holdings. Stockholders are not permitted to call a special
meeting of stockholders or to require that the SCPIE Holdings Board call a
special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of SCPIE Holdings (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the SCPIE Holdings
Board or its Chairman, or by a stockholder who has given timely written notice
to the Secretary of SCPIE Holdings prior to the meeting at which directors are
to be elected, will be eligible for election as directors of SCPIE Holdings. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the SCPIE Holdings Board or its Chairman or by a stockholder who
has given timely written notice to the Secretary of SCPIE Holdings of such
stockholder's
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<PAGE> 90
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, if a stockholder desires to submit a proposal or nominate
persons for election as directors at an annual meeting, the stockholder must
submit written notice to SCPIE Holdings not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting. In
addition, under the Stockholder Notice Procedure, a stockholder's notice to
SCPIE Holdings proposing to nominate a person for election as a director or
relating to the conduct of business other than the nomination of directors must
contain certain specified information. If the chairman of a meeting determines
that business was not properly brought before the meeting, in accordance with
the Stockholder Notice Procedure, such business shall not be discussed or
transacted.
Number of Directors; Removal; Filling Vacancies. The Restated Certificate
and the Bylaws provide that the SCPIE Holdings Board will consist of between
seven and thirteen members (other than directors elected by holders of Preferred
Stock), the exact number to be fixed from time to time by resolution adopted by
the directors of SCPIE Holdings. The SCPIE Holdings Board currently consists of
twelve directors. Further, subject to the rights of the holders of any series of
Preferred Stock then outstanding, the Restated Certificate authorizes the SCPIE
Holdings Board to fill newly created directorships. If a number of vacancies
existed in the SCPIE Holdings Board, this provision could delay the ability of a
stockholder from obtaining majority representation on the SCPIE Holdings Board
by permitting the SCPIE Holdings Board to enlarge the SCPIE Holdings Board in
certain circumstances and fill the new directorships with its own nominees. A
director so elected by the SCPIE Holdings Board holds office until the next
election of the class for which such director has been chosen and until his
successor is elected and qualified. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Restated Certificate and the
Bylaws also provide that directors may be removed only for cause and only by the
affirmative vote of holders of two-thirds (66 2/3%) of the outstanding shares of
voting securities. The effect of these provisions is to preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the SCPIE Holdings Board by filling the vacancies created by such
removal with its own nominees.
Indemnification. The Company has included in its Restated Certificate and
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the DGCL and (ii) indemnify its directors and officers to the
fullest extent permitted by Section 145 of the DGCL, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
Bylaws. The Restated Certificate provides that the Bylaws are subject to
adoption, amendment, alteration, repeal or rescission either by (i) a majority
of the authorized number of directors or (ii) the affirmative vote of the
holders of not less than two-thirds (66 2/3%) of the outstanding shares of
voting securities. This provision makes it more difficult for stockholders to
make changes in the Bylaws by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting securities from
amending the Bylaws.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services L.L.C. has been appointed as the transfer
agent and registrar for the Company's Common Stock.
LEGAL MATTERS
The validity of the Common Stock to be issued pursuant to the Merger will
be passed upon for the Company by Latham & Watkins, San Diego, California,
counsel for the Company.
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<PAGE> 91
EXPERTS
The combined financial statements of Southern California Physicians
Insurance Exchange and Subsidiaries and Organization of Southern California
Physicians, Inc. and Subsidiary at December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, and the balance sheet of
SCPIE Holdings Inc. at February 29, 1996 included in the Proxy
Statement/Prospectus of Southern California Physicians Insurance Exchange, which
is referred to and made a part of this Proxy Statement/Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon, appearing elsewhere herein, and
are included in reliance upon such reports given the authority of such firm as
experts in accounting and auditing.
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GLOSSARY OF SELECTED INSURANCE TERMS
Accident year basis........... The annual accounting period in which loss
events occurred, regardless of when the losses
are actually reported, booked or paid.
Calendar year basis........... The matching of all losses incurred within a
given period of time as reported in an income
statement including estimated losses and LAE,
IBNR and changes in estimates of losses and LAE
incurred in prior periods, with premiums earned
during that same period of time. Once
calculated for a given time period, calendar
year experience never changes.
Cede.......................... To transfer risk and related premium in
connection with a reinsurance transaction.
Claims made and reported
basis......................... A liability insurance policy written on a basis
that generally insures only claims that are
reported to the insurer during the policy
period, or reported during any extended
reporting period provided in the policy or any
endorsement thereto, but only if the claims
arise from incidents that occurred after a
retroactive date stated in the policy. A claims
made and reported policy is to be distinguished
from an "occurrence policy."
Combined ratio................ The sum of the loss ratio and the expense ratio
expressed as a percentage. Generally, a
combined ratio below 100% indicates an
underwriting profit and a combined ratio above
100% indicates an underwriting loss.
Direct premiums written....... Total premiums written by an insurer other than
premiums for reinsurance assumed by an insurer.
Excess insurance.............. Insurance which covers the insured only for
losses in excess of a stated amount or a
specific primary policy.
Excess of loss reinsurance.... A generic term describing reinsurance that
indemnifies the reinsured against all or a
specified portion of losses on underlying
insurance policies in excess of a specified
dollar amount, called a "layer" or "retention."
Expense ratio................. Policy acquisition costs and other underwriting
expenses, divided by net premiums earned under
GAAP accounting or by net premiums written
under statutory accounting, expressed as a
percentage.
Frequency..................... Refers to the rate of occurrence. The number of
times a claim or a loss by a specific peril
occurs to a given body of exposures or insureds
during a particular time period.
GAAP.......................... Generally accepted accounting principles in use
throughout the United States in the
preparation of financial statements, including
the financial statements presented in this
Proxy Statement/Prospectus.
Gross premiums written........ Total of (i) direct premiums written, plus (ii)
reinsurance assumed premiums.
83
<PAGE> 93
Incurred but not reported
("IBNR") reserves........... The estimated liabilities for future payments
of losses and LAE that have occurred, but have
not yet been reported to the insurer.
Loss Adjustment Expenses
("LAE")..................... Expenses incurred in the settlement of claims,
including outside adjustment expenses, legal
fees and internal administration costs
associated with the claims adjustment process,
but not including general overhead expenses.
Loss Adjustment Expense
("LAE")
reserves.................... Liabilities established for LAE. LAE includes
an estimated provision for IBNR.
Loss ratio.................... The ratio of net incurred losses and LAE to net
premiums earned. Net incurred losses include an
estimated provision for IBNR.
Net premiums written.......... Gross premiums written less premiums ceded.
Occurrence basis.............. A liability insurance policy written on a basis
that generally insures claims that arise from
incidents that occurred during the policy
period irrespective of when the claims are
reported.
Premiums ceded................ The consideration paid to reinsurers in
connection with reinsurance transactions.
Premiums earned............... The portion of premiums written applicable to
the expired period of policies and,
accordingly, recognized as revenue during a
given period.
Primary insurance............. Insurance which covers an insured from the
first dollar of loss, after any deductible or
self-insured retention, as distinguished from
umbrella or excess insurance.
Quota share basis............. Reinsurance wherein the insurer cedes an agreed
fixed percentage of liabilities, premiums and
losses for each policy covered on a pro rata
basis.
Redundancy (deficiency)....... Estimates in reserves change as more
information becomes known about the frequency
and severity of claims for each year. A
redundancy (deficiency) exists when the
original liability estimate is greater (less)
than the reestimated liability. The cumulative
redundancy (deficiency) is the aggregate net
change in estimates over time subsequent to
establishing the original liability estimate.
Reinsurance................... A procedure whereby an original insurer cedes a
portion of the premium to a reinsurer as
payment for the reinsurer's assumption of a
portion of the risk; referred to as reinsurance
ceded by the original insurer and as
reinsurance assumed by the reinsurer.
Reserves...................... Liabilities established by insurers to reflect
the estimated cost of claims and the related
LAE expenses that the insurer will ultimately
be required to pay in respect of insurance it
has written.
84
<PAGE> 94
Retention..................... The amount or portion of risk that an insurer
retains for its own account. Losses in excess
of the retention level are paid by the
reinsurer. In quota share treaties, the
retention may be a percentage of the original
policy's limit. In excess of loss reinsurance,
the retention is a dollar amount of loss, a
loss ratio or a percentage of loss.
Risk-Based Capital
Requirements
("RBC")..................... Regulatory and rating agency targeted surplus
based on the relationship of statutory surplus,
with certain adjustments, to the sum of slated
percentages of each element of a specified list
of company risk exposures.
Severity...................... The average claim cost, statistically
determined by dividing dollars of losses by the
number of claims.
Statutory Accounting Practices
("SAP")..................... The accounting rules and procedures promulgated
or permitted by the National Association of
Insurance Commissioners ("NAIC") for financial
reporting by insurers licensed in one or more
states of the United States.
Statutory surplus............. Total assets less total liabilities as
determined in accordance with SAP.
Underwriting.................. The process whereby an insurer, directly or
through its agent, reviews applications
submitted for insurance coverage and determines
whether it will accept all or part of the
coverage being requested, and the applicable
premium.
85
<PAGE> 95
GLOSSARY OF MERGER RELATED TERMS
Approval Date................. , 1996, the date that the
Commissioner, pursuant to Section 1552 of the
California Insurance Law, approved the Merger
Agreement for submission to the Eligible
Members for approval.
Board of Governors............ The Board of Governors of the Exchange.
California Department......... The Department of Insurance of the State of
California.
Commissioner.................. The Commissioner of Insurance of the California
Department, or such governmental officer, body
or authority as may succeed such Commissioner
as the primary regulator of the Company's
insurance business under applicable law.
Earned Premiums............... For the applicable period, earned premiums in
respect of a Policy.
Effective Date................ The date on which the Effective Time occurs.
Effective Time................ The time that the Merger Agreement is duly
executed and delivered and filed with the
California Secretary of State, or such other
time as specified in the Merger Agreement.
Eligible Member............... A Person who is a Member of the Company on the
Approval Date.
Eligible Policy............... A Policy issued to an Eligible Member on which
premiums were earned at any time, provided,
however, that with respect to a Policy issued
to an Eligible Member who was not a Member on
March 21, 1996, Earned Premiums for such a
Policy shall consist only of earned premiums
following March 21, 1996, and not earned
premiums at any point prior to such date.
Fair Market Value............. (i) the average closing price of a share of the
Common Stock on the principal exchange on which
the Common Stock is then trading, if any, on
the first five trading days following the
Effective Date; or (ii) if the Common Stock is
not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, (1) the
average last sales price (if the Common Stock
is then listed as a National Market Issue under
the NASD National Market System) or (2) the
average of the mean between the closing
representative bid and asked prices (in all
other cases) for the Common Stock on the first
five trading days following the Effective Date
as reported by Nasdaq or such successor
quotation system.
Initial Stock Price........... The price per share at which the Common Stock
is sold to the public in the Initial Public
Offering.
Manager....................... SCPIE Management Company, a California
corporation that is the Exchange's
attorney-in-fact.
86
<PAGE> 96
Member, subscriber and
insured person.............. A Person is a Member of the Exchange if such
Person is a subscriber who is an "insured
person" under the name of the Exchange through
the facilities of the attorney-in-fact acting
on behalf of the several subscribers. The term
"subscriber" shall include those Persons who
have executed a Subscription Agreement and
Power of Attorney or any like agreement of the
Exchange. The term "insured person" shall
include (a) each individual physician, surgeon,
nurse anesthetist, professional medical
partnership, professional medical corporation
or other healthcare provider to whom or which a
policy of insurance has been issued by the
Exchange as "named insured," and (b) each
physician, surgeon, nurse anesthetist or other
healthcare provider to whom a certificate
insert (naming such person as a "physician
member" or "certificate holder") has been
issued as part of a policy of insurance issued
by the Exchange to a professional medical
partnership, professional medical corporation
or other healthcare provider. A "named insured"
under a policy of insurance ceases to be an
insured person, subscriber and Member when the
"policy period" of such policy terminates by
expiration of time, cancellation or any other
reason and a "physician member" or "certificate
holder" ceases to be an insured person,
subscriber and Member when the "coverage
period" or "certificate period" under the
applicable policy terminates by expiration of
time cancellation, or any other reason.
Membership Interests.......... Rights of members under the subscription
agreements, Company Bylaws, and California
Insurance law (but not including contractual
rights under policies).
Merger Shares................. Shares of Common Stock to be delivered (i) to
Members for their Membership Interests by
virtue of the Merger and (ii) to SCPIE
Indemnity as consideration for the cancellation
of the shares of Common Stock currently held by
the Exchange, which cancellation shall occur as
part of the Merger.
Person........................ An individual, corporation, joint venture,
limited liability company, partnership,
association, trust, trustee, unincorporated
entity, organization or government or any
department or agency thereof.
Policy........................ An insurance policy issued by the Company, but
not including (i) any agreement pursuant to
which the Company has ceded or assumed
insurance or (ii) a reporting endorsement.
Record Date................... , 1996.
87
<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
AND
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Combined Balance Sheets as of December 31, 1995 and 1994 and as of June 30, 1996 and
1995................................................................................ F-3
Combined Statements of Income for the years ended December 31, 1995, 1994 and 1993 and
for the six months ended June 30, 1996 and 1995..................................... F-4
Combined Statements of Policyholders' Equity for the years ended December 31, 1995,
1994, and 1993 and for the six months ended June 30, 1996 and 1995.................. F-5
Combined Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
and for the six months ended June 30, 1996 and 1995................................. F-6
Notes to Combined Financial Statements................................................ F-7
</TABLE>
SCPIE HOLDINGS INC.
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-21
Balance Sheets as of February 29, 1996 and June 30, 1996.............................. F-22
Statement of Income for the four months ended June 30, 1996........................... F-22
Note to Balance Sheets................................................................ F-23
</TABLE>
F-1
<PAGE> 98
REPORT OF INDEPENDENT AUDITORS
Board of Governors
Southern California Physicians Insurance Exchange
Board of Trustees
Organization of Southern California Physicians, Inc.
We have audited the accompanying combined balance sheets as of December 31,
1995 and 1994, of Southern California Physicians Insurance Exchange and
Organization of Southern California Physicians, Inc. and the related combined
statements of income, policyholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position at December 31, 1995
and 1994, of Southern California Physicians Insurance Exchange and Organization
of Southern California Physicians, Inc. and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
At December 31, 1993, Southern California Physicians Insurance Exchange and
Organization of Southern California Physicians, Inc. adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, as described in Note 1.
ERNST & YOUNG LLP
Los Angeles, California
March 5, 1996, except
for Note 9, as to which
the date is July 12, 1996
F-2
<PAGE> 99
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Securities available-for-sale (Note 2):
Fixed maturity investments, at fair value (amortized
cost: 1996 -- $656,499, 1995 -- $582,115,
1994 -- $587,744).................................. $651,336 $606,155 $558,914
Equity investments, at fair value (cost:
1996 -- $15,099, 1995 -- $49,396,
1994 -- $43,289)................................... 20,491 61,083 46,440
-------- -------- --------
Total securities available-for-sale........... 671,827 667,238 605,354
Short-term investments.................................. 13,735 27,783 31,555
-------- -------- --------
Total investments............................. 685,562 695,021 636,909
Cash.................................................... 6,548 3,053 5,180
Accrued investment income............................... 10,970 9,835 11,136
Reinsurance recoverable on paid losses (Note 4)......... 23 27 170
Reinsurance recoverable on unpaid losses (Note 4)....... 22,086 19,560 19,177
Federal income taxes recoverable (Note 5)............... -- 20,363 23,941
Deferred Federal income taxes (Note 5).................. 25,349 11,992 33,635
Deferred policy acquisition costs....................... 531 468 515
Property and equipment, net............................. 19,161 19,145 19,648
Other assets............................................ 16,390 1,894 1,294
-------- -------- --------
Total assets.................................. $786,620 $781,358 $751,605
======== ======== ========
LIABILITIES
Reserves:
Losses and loss adjustment expenses (Note 3).......... $474,398 $466,187 $468,743
Unearned premiums..................................... 22,629 19,916 21,928
-------- -------- --------
Total reserves................................ 497,027 486,103 490,671
Policyholders' dividends payable........................ 12,951 8,646 18,147
Other liabilities....................................... 11,820 12,790 33,251
-------- -------- --------
Total liabilities............................. 521,798 507,539 542,069
Commitments and contingencies (Note 8)
POLICYHOLDERS' EQUITY
Surplus................................................. 264,673 250,596 226,227
Unrealized appreciation (depreciation) on
available-for-sale securities, net of deferred
taxes................................................. 149 23,223 (16,691)
-------- -------- --------
Total policyholders' equity................... 264,822 273,819 209,536
-------- -------- --------
Total liabilities and policyholders' equity... $786,620 $781,358 $751,605
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 100
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums earned (Note 4)........ $61,128 $59,453 $116,354 $111,659 $113,194
Net investment income (Note
2)........................... 20,939 20,032 40,424 39,663 39,738
Realized investment gains (Note
2)........................... 11,496 4,684 7,950 548 15,987
Other revenue................... 124 117 281 207 267
-------- -------- --------
Total revenues.......... 93,687 84,286 165,009 152,077 169,186
Expenses:
Losses and loss adjustment
expenses (Note 3)............ 58,247 57,533 118,023 108,720 125,354
Other operating expenses........ 6,764 6,270 12,561 11,844 9,734
-------- -------- --------
Total expenses.......... 65,011 63,803 130,584 120,564 135,088
-------- -------- --------
Income before policyholder
dividends and Federal income
taxes........................... 28,676 20,483 34,425 31,513 34,098
Policyholder dividends............ 9,000 0 0 0 0
Federal income taxes (Note 5)..... 5,599 6,167 10,056 9,212 8,618
-------- -------- --------
Net income.............. $14,077 $14,316 $ 24,369 $ 22,301 $ 25,480
======== ======== ========
Pro forma net income per share of
common stock (Note 9)........... $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 101
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
COMBINED STATEMENTS OF POLICYHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION TOTAL
(DEPRECIATION) OF POLICYHOLDERS'
INVESTMENTS SURPLUS EQUITY
----------------- -------- --------------
<S> <C> <C> <C>
Balance at January 1, 1993....................... $ 3,197 $178,446 $181,643
Cumulative effect of change in accounting for
investments at December 31.................. 19,555 -- 19,555
Net income..................................... -- 25,480 25,480
Net unrealized appreciation.................... 721 -- 721
-------- -------- --------
Balance at December 31, 1993..................... 23,473 203,926 227,399
Net income..................................... -- 22,301 22,301
Net unrealized depreciation.................... (40,164) -- (40,164)
-------- -------- --------
Balance at December 31, 1994..................... (16,691) 226,227 209,536
Net income..................................... -- 24,369 24,369
Net unrealized appreciation.................... 39,914 -- 39,914
-------- -------- --------
Balance at December 31, 1995..................... $ 23,223 $250,596 $273,819
-------- -------- --------
Net income (unaudited)......................... -- 14,077 14,077
Net unrealized depreciation (unaudited)........ (23,074) -- (23,074)
-------- -------- --------
Balance at June 30, 1996 (unaudited)............. $ 149 $264,673 $264,822
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 102
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30 YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Unpaid losses and loss
adjustment expenses,
and reinsurance
recoverables.......... 5,689 (3,498) (2,796) (21,402) 5,609
Accrued investment
income................ (1,135) 699 1,301 (98) 645
Provision for deferred
Federal income
taxes................. (446) 1,686 158 6,050 4,777
Unearned premiums........ 2,713 (1,426) (2,012) 1,398 614
Policyholders' dividends
payable............... 4,305 (4,770) (9,501) (11,179) (18,588)
Realized investments
gains................. (11,496) (4,684) (7,950) (548) (15,987)
Provisions for
amortization and
depreciation.......... 933 4,305 4,504 4,940 4,542
Accrued expenses and
other liabilities..... (970) 621 430 4,717 (23)
Changes in other
assets................ 5,780 898 3,029 (2,496) (1,278)
-------- -------- -------- -------- -------
Net cash provided
by operating
activities..... 19,450 6,527 11,532 3,683 5,791
INVESTING ACTIVITIES
Purchases -- fixed
maturities............... (298,305) (91,711) (269,149) (193,618) (353,972)
Sales -- fixed
maturities............... 211,974 85,555 235,332 174,705 321,699
Maturities -- fixed
maturities............... 9,476 8,554 15,909 15,211 30,200
Purchases -- equities...... (569) (8,824) (37,033) (42,581) (38,812)
Sales -- equities.......... 47,421 14,108 37,510 35,901 49,993
Change in short-term
investments, net......... 14,048 (15,240) 3,772 8,230 (15,940)
-------- -------- -------- -------- -------
Net cash used in
investing
activities..... (15,955) (7,558) (13,659) (2,152) (6,832)
-------- -------- -------- -------- -------
Increase (decrease) in
cash..................... 3,495 (1,031) (2,127) 1,531 (1,041)
Cash at beginning of
period................... 3,053 5,180 5,180 3,649 4,690
-------- -------- -------- -------- -------
Cash at end of
period......... $ 6,548 $ 4,149 $ 3,053 $ 5,180 $ 3,649
======== ======== ======== ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 103
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been combined using the consolidated balance
sheets and results of operations of the Southern California Physicians Insurance
Exchange (the Exchange) and the Organization of Southern California Physicians,
Inc. (OSCAP), collectively the "Company." The Exchange formed two wholly owned
subsidiaries in 1995, SCPIE Indemnity Company (SCPIE Indemnity) and SCPIE
Holdings Inc. (SCPIE Holdings). Neither subsidiary had any operations since its
formation. OSCAP is the holding company of SCPIE Management Company (SMC), the
Exchange's attorney-in-fact, and is indirectly controlled by the Exchange. SMC
has two wholly owned subsidiaries, SCPIE Insurance Services, Inc. (SIS) and
SCPIE Management Services, Inc. (SMS). All transactions between the Exchange and
OSCAP have been eliminated in the preparation of the combined financial
statements.
The Company writes professional liability insurance for physicians, oral
and maxillofacial surgeons, hospitals and other healthcare providers.
Substantially all of the Company's coverage is written on a "claims made and
reported" basis. Generally, coverage is provided only for claims which are first
reported to the Company during the insured's coverage period and which arise
from occurrences during the insured's coverage period. The Company also makes
"tail" coverage available for purchase by members in order to cover claims which
arise from occurrences during the insured's coverage period, but which are first
reported to the Company after the insured's coverage period and during the term
of the applicable tail coverage.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known which could impact
the amounts reported and disclosed herein.
The accompanying combined financial statements have been prepared in
conformity with generally accepted accounting principles which differ from
statutory accounting practices prescribed or permitted by regulatory
authorities. The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below:
Investments
In 1993, the Financial Accounting Standards Board (FASB) issued Statement
115 (Statement 115), Accounting for Certain Investments in Debt and Equity
Securities. Statement 115 requires that fixed maturity securities are to be
classified as either held-to-maturity, available-for-sale, or trading. The
Company adopted Statement 115 as of December 31, 1993, which had no effect on
net income and increased policyholders' surplus by $19,555,000 (net of deferred
income taxes of $10,500,000) to reflect the net unrealized holding gains on
securities previously carried at amortized cost; there was no effect on net
income.
Recognizing the need for the ability to respond to changes in market
conditions and in tax positions, the Company has designated its entire
investment portfolio as available-for-sale. As required by Statement 115, the
Company adjusted the carrying value of its fixed maturity investments that are
classified as investments available-for-sale to fair value at December 31, 1993.
The Company has no securities classified as "trading" or "held-to-maturity."
Transfers between categories are severely restricted.
F-7
<PAGE> 104
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Changes in fair values of available-for-sale securities, after adjustment
of deferred income taxes, are reported as unrealized appreciation or
depreciation directly in policyholders' equity and, accordingly, have no effect
on net income.
Prior to the adoption of Statement 115, the Company carried all of its
equity securities, including non-redeemable preferred stock, at fair value with
the unrealized gains and losses reported as a separate component of
policyholders' equity. Fixed maturity securities, including redeemable preferred
stock, were previously carried at amortized cost.
For the mortgage-back bond portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield based
on anticipated prepayments and the estimated economic life of securities.
Prepayment assumptions are obtained from dealer surveys or internal estimates
and are based on the current interest rate and economic environment. When actual
prepayments differ significantly from anticipated prepayments, the effective
yield is recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security. That adjustment is included in net investment
income.
In October 1994, the FASB issued Statement 119 (Statement 119), Derivative
Financial Instruments and Fair Value of Financial Instruments. The Company
currently holds no derivative financial instruments subject to Statement 119
disclosure requirements.
Premiums and discounts on investments are amortized to investment income
using the interest method over the contractual lives of the investments.
Short-term investments are carried at cost, which approximates market value.
Realized investment gains and losses are included as a component of revenues
based on specific identification of the investment sold.
Premiums
Premiums are earned on a pro rata basis over the terms of the respective
policies. The reserve for unearned premiums is determined on a monthly pro rata
basis.
Deferred Policy Acquisition Costs
Premium taxes are capitalized and amortized as premiums are earned over the
terms of the related policies. The deferred policy acquisition costs are
amortized over the effective period of the related policies. Anticipated
investment income is considered in determining if premium deficiencies exist.
Reserves for Losses and Loss Adjustment Expenses
Reserves for losses and loss adjustment expenses represent the estimated
liability for reported claims plus those incurred but not yet reported and the
related estimated adjustment expenses. The reserve for unpaid claims and related
adjustment expenses is determined using case-basis evaluations and statistical
analyses and represents estimates of the ultimate cost of all unpaid losses
incurred through December 31 of each year. Although considerable variability is
inherent in such estimates, management believes that the reserve for unpaid
losses and related loss adjustment expenses (LAE) is adequate. The estimates are
continually reviewed and adjusted as necessary; such adjustments are included in
current operations and are accounted for as changes in estimates.
F-8
<PAGE> 105
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Reinsurance
Reinsurance premiums, losses and loss adjustment expenses are accounted for
on bases consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
On January 1, 1993, the Company adopted the provisions of FASB Statement
113 (Statement 113), Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts. At that date, the only effect of adopting Statement
113 was to reclassify as assets those reinsurance ceded amounts that previously
had been reported as reductions of loss and LAE reserves.
Dividends to Policyholders
Dividends to policyholders are accrued during the period in which the
related premiums are earned. Estimates of policyholder dividends are reviewed
and adjusted as necessary; such adjustments are included in current operations
and accounted for as changes in estimates. In the second quarter of 1996, the
Company estimated an additional $9,000,000 of policyholder dividends would be
paid due to favorable loss experience related to policy years 1987 through 1992.
Except for this final dividend, after the merger, the Company will cease paying
such dividends to its policyholders.
Property and Equipment
Property and equipment, principally the Company's home office building and
land, are recorded at cost and depreciated principally under the straight-line
method over the useful life of the assets.
Income Taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes to the liability method prescribed in FASB Statement 109 (Statement
109), Accounting for Income Taxes. Under that method, deferred tax assets and
liabilities are determined based on differences among financial reporting and
tax basis of assets and liabilities and are measured using the enacted tax rates
and laws. The provisions of Statement 109 have been retroactively applied to the
financial statements of the Company for all years beginning in 1990.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and fixed maturities and reinsurance recoverables. The Company places its
temporary cash investments with high credit quality financial institutions and
limits the amounts of credit exposure to any one financial institution.
Concentrations of credit risk with respect to fixed maturities are limited due
to the large number of such investments and their distributions across many
different industries and geographics.
Reinsurance is placed with a number of individual companies and syndicates
at Lloyd's of London to avoid concentration of credit risk. For the year ended
December 31, 1995, approximately 54.9% of total reinsurance premiums ceded were
placed with reinsurance companies with an A.M. Best rating of A or better and
26.5% of total reinsurance premiums ceded were ceded to Lloyd's of London
syndicates. No other single reinsurer's percentage participation in 1995
exceeded 5.3%.
Segment Information
The Company operates in the United States of America and in only one
reportable industry segment which provides professional liability insurance for
physicians, oral and maxillofacial surgeons, hospitals and other health care
providers principally in California.
F-9
<PAGE> 106
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS
The Company's investments in available-for-sale securities are summarized
as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 30, 1996 (UNAUDITED)
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 334,341 $ 3,789 $ 7,096 $331,034
State, municipalities and political
subdivisions.......................... 220,771 1,724 3,173 219,322
Mortgage-backed securities, U.S.
Government............................ 88,586 713 1,059 88,240
Corporate............................... 12,696 3 64 12,635
Other................................... 105 -- -- 105
Redeemable preferred stock................. -- -- -- --
-------- ------- ------- --------
Total fixed maturity securities.............. 656,499 6,229 11,392 651,336
Common stock................................. 15,099 5,838 446 20,491
-------- ------- ------- --------
Total.............................. $ 671,598 $ 12,067 $ 11,838 $671,827
======== ======= ======= ========
DECEMBER 31, 1995
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 304,091 $ 15,458 $ 430 $319,119
State, municipalities and political
subdivisions.......................... 149,693 5,569 144 155,118
Mortgage-backed securities, U.S.
Government............................ 80,279 1,896 277 81,898
Corporate............................... 46,951 2,035 97 48,889
Other................................... 105 -- -- 105
Redeemable preferred stocks................ 996 30 -- 1,026
-------- ------- ------- --------
Total fixed maturity securities.............. 582,115 24,988 948 606,155
Common stocks................................ 49,396 13,530 1,843 61,083
-------- ------- ------- --------
Total.............................. $ 631,511 $ 38,518 $ 2,791 $667,238
======== ======= ======= ========
</TABLE>
F-10
<PAGE> 107
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 300,131 $ 512 $ 18,712 $281,931
State, municipalities and political
subdivisions.......................... 110,423 767 1,798 109,392
Mortgage-backed securities, U.S.
Government............................ 51,175 153 4,295 47,033
Corporate............................... 120,353 358 5,455 115,256
Other................................... 2,644 109 469 2,284
Redeemable preferred stocks................ 3,018 -- -- 3,018
-------- ------- ------- --------
Total fixed maturity securities.............. 587,744 1,899 30,729 558,914
Non-redeemable preferred stocks.............. 1,061 17 42 1,036
Common stocks................................ 42,228 5,563 2,387 45,404
-------- ------- ------- --------
Total.............................. $ 631,033 $ 7,479 $ 33,158 $605,354
======== ======= ======= ========
</TABLE>
The fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services.
The fair values for equity securities are based on quoted market prices.
The amortized cost and estimated fair value of the Company's investments in
fixed maturity securities are summarized by stated maturities as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Years to maturity:
One or less....................... $ 13,637 $ 13,504 $ 168 $ 172
After one through five............ 118,488 118,530 111,332 114,096
After five through ten............ 194,668 194,434 167,105 177,626
After ten......................... 241,120 236,628 223,231 232,363
Mortgage-backed securities.......... 88,586 88,240 80,279 81,898
-------- -------- -------- --------
Totals.............................. $656,499 $651,336 $582,115 $606,155
======== ======== ======== ========
</TABLE>
The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have the
right to call or prepay obligations.
F-11
<PAGE> 108
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The ratings of the Company's fixed maturity securities, using Moody's
Investors Services, Inc. or Standard & Poor's Corporation rating service, are
summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
AAA............................................... 81% 79%
AA................................................ 12 12
A................................................. 6 8
Not rated......................................... 1 1
--- ---
100% 100%
=== ===
</TABLE>
Major categories of the Company's investment income are summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -------------------------------
1996 1995 1994 1993
-------------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities................... $ 20,415 $36,987 $37,968 $38,620
Equities........................... 552 1,627 1,148 1,126
Other.............................. 899 4,250 2,862 2,178
------- ------- ------- -------
Total investment income............ 21,866 42,864 41,978 41,924
Investment expenses................ 927 2,440 2,315 2,186
------- ------- ------- -------
Net investment income.............. $ 20,939 $40,424 $39,663 $39,738
======= ======= ======= =======
</TABLE>
Realized gains and losses from sales of investments are summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1996 1995 1994 1993
-------------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Gross realized gains............ $ 5,337 $ 4,946 $ 3,440 $ 13,520
Gross realized losses........... 3,799 1,558 3,186 321
-------- -------- -------- --------
Net realized gains.............. $ 1,538 $ 3,388 $ 254 $ 13,199
======== ======== ======== ========
Equities:
Gross realized gains............ $ 11,674 $ 6,649 $ 2,430 $ 5,337
Gross realized losses........... 1,716 2,087 2,136 2,549
-------- -------- -------- --------
Net realized gains.............. $ 9,958 $ 4,562 $ 294 $ 2,788
======== ======== ======== ========
</TABLE>
The change in the Company's unrealized appreciation (depreciation) on fixed
maturity securities was $52,870,000, ($58,915,000) and $12,615,000 for the years
ended December 31, 1995, 1994 and 1993, respectively and the corresponding
amounts for equity securities were $8,536,000, ($2,877,000) and $984,000.
At December 31, 1995, the Company's investments in fixed maturity
securities with a carrying amount of $533,000 were on deposit with state
insurance departments to satisfy regulatory requirements.
No investment in any person or its affiliates exceeded 10% of the Company's
policyholders' equity at December 31, 1995.
F-12
<PAGE> 109
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending
reserve balances, net of reinsurance recoverable.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserve for losses and
LAE, net of related
reinsurance
recoverable, at
beginning of period... $446,627 $449,566 $449,566 $472,129 $465,424
Provision for losses and
LAE for claims
occurring in the
current period, net of
reinsurance........... 86,160 89,203 175,856 169,143 168,784
Decrease in estimated
losses and LAE for
claims occurring in
prior periods, net of
reinsurance........... (27,913) (31,670) (57,833) (60,423) (43,430)
-------- -------- -------- -------- --------
Incurred losses during
the period, net of
reinsurance........... 58,247 57,533 118,023 108,720 125,354
-------- -------- -------- -------- --------
Deduct losses and LAE
payments for claims,
net of reinsurance,
occurring during:
Current period........ 1,257 988 11,481 10,178 12,971
Prior periods......... 51,305 59,538 109,481 121,105 105,678
-------- -------- -------- -------- --------
52,562 60,526 120,962 131,283 118,649
-------- -------- -------- -------- --------
Reserve for losses and
LAE, net of related
reinsurance
recoverable, at end of
period................ 452,312 446,573 446,627 449,566 472,129
Reinsurance recoverable
for losses and LAE, at
end of period......... 22,086 17,112 19,560 19,177 18,644
-------- -------- -------- -------- --------
Reserves for losses and
LAE, gross of
reinsurance
recoverable, at end of
period................ $474,398 $463,685 $466,187 $468,743 $490,773
======== ======== ======== ======== ========
</TABLE>
The Company's reserves for unpaid losses and LAE, net of related
reinsurance recoverable, at December 31, 1994, 1993 and 1992 were decreased in
the following year by $57,833,000, $60,423,000, and $43,430,000, respectively,
for claims that had occurred on or prior to those balance sheet dates. Those
redundancies resulted primarily from settling case basis reserves established in
prior years for amounts that were less than expected. The 1995 redundancies were
offset, in part, by a $23,900,000 increase in the loss reserves carried for
physicians who receive free tail coverage in the event of death,
F-13
<PAGE> 110
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
disability or retirement from the medical profession. The increase was the
result of a refinement in the actuarial methodology used to calculate the
reserve for this tail coverage.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors that vary with
the individual type of insurance written. Future average severities are
projected based on historical trends adjusted for implemented changes in
underwriting standards, policy provisions and general economic trends. Those
anticipated trends are monitored based on actual development and are modified if
necessary.
4. REINSURANCE
Certain premiums and benefits are ceded to other insurance companies under
various reinsurance agreements. These reinsurance agreements provide the Company
with increased capacity to write additional risks and maintain its exposure to
loss within its capital resources. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured policy.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition and economic
characteristics of its reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.
The effect of assumed and ceded reinsurance on premiums is summarized in
the following tables.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1996 1995
------------------ ------------------
WRITTEN EARNED WRITTEN EARNED
------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct........................................ $62,659 $63,979 $62,216 $63,294
Assumed....................................... 6,008 1,559 397 397
Ceded......................................... 4,372 4,410 3,961 4,238
------- ------- -------- -------
Net premiums.................................. $64,295 $61,128 $58,652 $59,453
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Direct...................... $122,277 $124,118 $120,024 $118,449 $112,459 $112,428
Assumed..................... 780 780 736 736 782 782
Ceded....................... 8,544 8,544 7,526 7,526 16 16
-------- -------- -------- -------- -------- --------
Net premiums................ $114,513 $116,354 $113,234 $111,659 $113,225 $113,194
======== ======== ======== ======== ======== ========
</TABLE>
Reinsurance premiums ceded reduced loss and loss adjustment expenses by
$1,019,000 in 1995, $2,685,000 in 1994 and $2,501,000 in 1993.
F-14
<PAGE> 111
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES
The components of the Federal income tax provision in the accompanying
statements of income are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current...................................... $6,045 $4,481 $ 9,898 $3,162 $3,841
Deferred..................................... (446) 1,686 158 6,050 4,777
------ ------ ------- ------ ------
Total.............................. $5,599 $6,167 $10,056 $9,212 $8,618
====== ====== ======= ====== ======
</TABLE>
A reconciliation of income tax computed at the U.S. Federal statutory tax
rates to total income tax expense is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ---------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal income tax at 35%....................... $6,887 $7,169 $12,049 $11,029 $11,934
Increase (decrease) in taxes resulting from:
Tax-exempt interest............................. (1,276) (1,029) (2,125) (1,825) (1,986)
Dividends received deduction.................... (96) (116) (216) (290) (323)
Tax rate change................................. -- -- -- -- (1,021)
Other........................................... 84 143 348 298 14
------- ------ ------- ------- -------
Total Federal income tax expense...... $5,599 $6,167 $10,056 $ 9,212 $ 8,618
======= ====== ======= ======= =======
</TABLE>
F-15
<PAGE> 112
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- -------------------
1996 1995 1994
-------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Discounting of loss reserves............................ $ 25,477 $24,771 $25,557
Policyholder dividends.................................. 138 138 3,500
Unrealized investment losses............................ -- -- 8,987
------- ------- -------
Total deferred tax assets....................... 25,615 24,909 38,044
Deferred tax liabilities:
Deferred policy acquisition costs....................... 186 164 180
Unrealized investment gains............................. 80 12,498 --
Interest receivable -- IRS audit........................ -- -- 3,953
Other................................................... -- 255 276
------- ------- -------
Total deferred tax liabilities.................. 266 12,917 4,409
======= ======= =======
Net deferred tax assets......................... $ 25,349 $11,992 $33,635
======= ======= =======
</TABLE>
Federal income taxes paid during 1995, 1994 and 1993 were $9,900,000,
$3,250,000 and $3,816,000, respectively.
The Internal Revenue Service (IRS) had proposed adjustments to increase the
Company's tax liability for 1986 and 1987 by $60,815,000 as a result of its
examinations. The Company's management disagreed with the deficiencies proposed
by the IRS and worked with the IRS Appeals Office. The Appeals Office reversed
the $60,815,000 proposed adjustment and concluded that there would be no change
in the 1986 or 1987 tax amounts. The Appeals Office has allowed the Company's
refund claim for $9,120,000 in tax which arose from issues in the 1985 IRS
examination which the IRS previously disallowed. The Appeals Office has also
approved an outstanding claim for refund of $3,563,000 in tax resulting from an
amended filing of the 1988 return. Both the 1985 and 1988 refunds were paid by
the IRS with interest of $13,220,000 in January 1996. At December 31, 1995 the
Company has recorded these refunds totaling $25,903,000 in Federal income taxes
recoverable.
In November 1995, the IRS proposed a $13,023,000 adjustment to increase the
Company's 1991 tax liability and in June 1996, proposed a $3,673,000 adjustment
to increase the Company's 1992 tax liability for the issue asserted in the 1986
and 1987 examinations. The Company's management disagrees with the proposed
adjustment and intends to pursue all administrative and judicial remedies
available to satisfactorily settle this dispute. The Company filed a petition in
Tax Court to contest the 1991 tax deficiency in February 1996, and will file a
similar petition related to the 1992 deficiency. Based on the results of the
1986 and 1987 IRS examinations, the Company's management believes that the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations and no accrual has been
recorded in the accompanying financial statements. Because this matter may have
to be appealed or litigated, the Company's management believes that it is
unlikely that this issue will be resolved in the foreseeable future.
F-16
<PAGE> 113
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. STATUTORY ACCOUNTING PRACTICES
The Company is domiciled in California and prepares its statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by the California Department of Insurance. "Prescribed" statutory
accounting practices include state laws, regulations and general administrative
rules, as well as a variety of publications of the National Association of
Insurance Commissioners (NAIC). "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices may
differ from state to state, may differ from company to company within a state,
and may change in the future. The NAIC currently is in the process of codifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Policyholders'
surplus and net income, as reported to the domiciliary state insurance
department in accordance with its prescribed or permitted statutory accounting
practices, for the Company are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income for the year............... $ 24,393 $ 17,730 $ 16,886
Statutory surplus at year end................... 235,352 187,299 171,589
</TABLE>
The Company offers its insureds free tail coverage in the event of death,
total and permanent disability and complete and permanent retirement. In 1993,
the NAIC published guidelines for establishing a reserve for future free tail
policies when the claims-made policy includes a provision for waiving a premium
charge in the event of death, disability or retirement of the insured. Based on
the NAIC guidelines, this reserve should be recorded as an unearned premium
reserve. Alternatively, it can be considered an unpaid loss with the permission
of the insurance entity's state insurance department. In 1995, the Company
received written approval from the California Department of Insurance to record
this reserve as an unpaid loss. The Company's statutory surplus would be
unaffected if the California Department of Insurance were to rescind its
permission for this treatment.
7. BENEFIT PLANS
The Company has a 401(k) defined contribution plan and a non-contributory
defined benefit plan which provide retirement benefits to all its employees.
Under the 401(k) plan, the Company presently matches the employees'
contribution. The contribution expense for the 401(k) plan was $436,000,
$350,000 and $304,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. An additional defined contribution plan that no longer accepts
contributions will remain with the trustee as funded at December 31, 1989 until
retirement or termination of all employees vested in the plan.
SMC also maintains a defined benefit pension plan whose benefits are based
on years of service and salary levels. The Company's policy is to fund the
pension plan up to the maximum deductible contributions the Federal laws and
regulations permit. Plan assets consist of investment funds and cash held in a
bank money market account.
F-17
<PAGE> 114
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Net pension expense consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the year............... $ 223 $252 $191
Interest on projected benefit obligation................... 73 55 44
Actual return on plan assets............................... (282) (60) (51)
Net amortization and deferral.............................. 201 1 25
----- ---- ----
Net pension expense........................................ $ 215 $248 $209
===== ==== ====
</TABLE>
The following table sets forth the funding status of the plan:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of
$759,000 in 1995 and $489,000 in 1994........................ $(1,078) $ (694)
======= =======
Projected benefit obligation................................... $(1,370) $ (910)
Plan assets.................................................... 1,423 863
------- -------
Plan assets in excess of (less than) projected benefit
obligations.................................................. 53 (47)
Unrecognized net loss from past experience different from that
assumed...................................................... 31 48
Unrecognized past service cost................................. (15) (16)
Unrecognized net asset at January 1............................ (35) (39)
------- -------
Prepaid (accrued) pension expense.............................. $ 34 $ (54)
======= =======
</TABLE>
The projected benefit obligation for 1995, 1994 and 1993 was determined
using an assumed discount rate of 7%, 8% and 7%, respectively, and an assumed
rate of compensation increase of 5% for 1995, 1994 and 1993. The expected
long-term rate of return on plan assets was 8% in 1995, 1994 and 1993.
The Company also has enacted a non-qualified supplemental employee
retirement agreement for selected employees which provides benefits
retroactively from January 1, 1990. At December 31, 1995, the projected benefit
obligation for this plan was $1,891,000 of which the accumulated benefit
obligation of $1,101,000 is accrued as a liability in the combined balance
sheet. Pension expense for this plan was approximately $258,000 in 1995,
$291,000 in 1994 and $19,000 in 1993.
F-18
<PAGE> 115
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under lease agreements expiring from
1996 to 2001. Future minimum payments under noncancellable operating leases at
December 31, 1995 consisted of the following (in thousands):
<TABLE>
<S> <C>
1996................................. $195
1997................................. 195
1998................................. 185
1999................................. 175
2000................................. 175
Thereafter........................... 9
----
Total minimum payments
due...................... $934
====
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$46,000, $42,000 and $39,000, respectively.
The Company is a defendant in an action brought by the bankruptcy estate of
an uninsured physician. The bankruptcy estate alleged that the Company had an
undisclosed conflict of interest when it provided the physician with a free
courtesy defense by an attorney who had represented the interests of the
Company's insureds in other cases. The punitive damages rendered by the jury
were reduced to $14,000,000 by the trial judge. The Company believes that the
action is entirely without merit and plans to aggressively pursue its rights on
appeal. However, the ultimate resolution of this matter cannot be determined at
this time and could result in a loss to the Company.
The Company is named as defendant in various legal actions primarily
arising from claims made under insurance policies and contracts. These actions
are considered by the Company in estimating the loss and loss adjustment expense
reserves. The Company's management believes that the resolution of these actions
will not have a material adverse effect on the Company's financial position or
results of operations.
Since 1981, the Company has purchased annuities from life insurance
companies to fund obligations under structured settlement agreements with
certain medical malpractice claimants. Annuities having an aggregate purchase
price of $12,294,000 were purchased from Executive Life Insurance Company (ELIC)
which was placed in conservatorship during 1991 by the California Insurance
Commissioner. On August 13, 1993, the California Superior Court for Los Angeles
County approved a Rehabilitation Plan (the Plan) under which the annuities were
restructured to reduce their account values and amounts payable to
beneficiaries. Under the Plan, substantially all of the assets of ELIC have been
transferred to another insurer, which has assumed the restructured annuities and
is obligated to pay varying percentages of the original annuity benefits as they
become due. Certain state insurance guaranty associations have agreed to enhance
the annuity benefits up to the monetary limits permitted by applicable state
laws. Under many of the annuities purchased by the Company, there remains a
significant shortfall from the benefits provided in the original contracts.
Certain creditors of ELIC have appealed the court's decision approving the Plan
and the Plan was upheld in all material respects by the Court of Appeals. The
Company has determined that it is contractually obligated for the shortfall
amounts under certain of these annuities and at December 31, 1995, included in
losses incurred a reserve in the amount of $7,036,000 and included in
reinsurance recoverables expected recoverables of $3,036,000 related to these
expected shortfall payments. During 1995, the Company made shortfall payments
totaling $93,000 ($260,000 in 1994). The shortfall amounts paid by the Company
in 1995 were reduced by a distribution to all annuitants of certain ELIC assets
held in trust, pending the completion of various
F-19
<PAGE> 116
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
transactions and claims. The Company has been advised that there will be at
least two additional distributions of assets from the ELIC Trusts, which will
further reduce the shortfall under the ELIC annuities. The extent of the
Company's obligations with respect to these and other ELIC annuities purchased
by the Company cannot be determined until various transactions under the Plan
are completed and claims with respect to the annuities and the pending appeal
are resolved including claims on the remaining assets held in the ELIC Trusts.
The Company believes that the amount of its obligations in excess of the
existing reserves, if any, is not material to its financial position or results
of operations.
9. REORGANIZATION
On March 21, 1996, the Board of Governors of the Exchange adopted a Plan
and Agreement of Merger (the Merger Agreement) whereby the Exchange will
reorganize from a reciprocal insurer to a stock insurance company and become a
wholly owned subsidiary of SCPIE Holdings (the Reorganization). Pursuant to the
Reorganization, the Exchange will merge with and into SCPIE Indemnity, a newly
organized California stock insurer and a wholly owned subsidiary of SCPIE
Holdings that will be the surviving corporation of the Reorganization. The
assets and liabilities of the Exchange that will be merged into SCPIE Indemnity
will be accounted for at a historical cost in a manner similar to that in a
pooling of interests. SCPIE Indemnity is licensed to write property and casualty
insurance lines in the state of California, but has not conducted business prior
to the Reorganization. Prior to the Reorganization, OSCAP will be liquidated
into the Exchange, so that SCPIE Management Company will become a subsidiary of
SCPIE Indemnity after the Reorganization. The Reorganization also involves the
consolidation of certain other affiliated entities and SCPIE Holdings.
The principal purpose of the Reorganization is to improve SCPIE's access to
the capital markets and to raise capital to permit the growth of existing
business and develop new business opportunities in the professional liability
insurance industry. The Reorganization will also provide Members of the Exchange
with shares of Common Stock in exchange for their membership interests in the
Exchange.
A special meeting of SCPIE Members will be held to approve the Merger
Agreement.
Unaudited pro forma net income per share generated in the Combined
Statements of Income gives effect in all periods to the Reorganization and the
issuance of 10,000,000 shares of Common Stock (less fractional shares, which
will be paid in cash) to Eligible Members of the Exchange.
On July 12, 1996, OSCAP was liquidated into the Exchange and SMC and its
subsidiaries became subsidiaries of the Exchange.
F-20
<PAGE> 117
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SCPIE Holdings Inc.
We have audited the accompanying balance sheet of SCPIE Holdings Inc. as of
February 29, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of SCPIE Holdings Inc. as of February
29, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
May 1, 1996
F-21
<PAGE> 118
SCPIE HOLDINGS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY
JUNE 30, 29,
1996 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
Assets
Cash.......................................................... $ 415,331 $ 600,010
Deposit....................................................... -- 400,000
Investment in subsidiaries.................................... 13,569,300 --
Other......................................................... 418,472 --
----------- ----------
Total assets............................................... $14,403,103 $1,000,010
============ ==========
Liabilities
Due to affiliates............................................. $ 392,843 --
Other......................................................... 3,591 --
----------- ----------
Total liabilities.......................................... $ 396,434 --
============ ==========
Stockholder's Equity
Common stock -- $.01 par value, 1,000 shares authorized, 500
shares issued and outstanding.............................. $ 5 $ 5
Additional paid-in capital...................................... 13,999,995 999,995
Retained earnings............................................... 6,669 10
----------- ----------
Total stockholder's equity................................. $14,006,669 $1,000,010
============ ==========
Total liabilities and stockholder's equity................. $14,403,103
============
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
JUNE 30, 1996
-----------------
(UNAUDITED)
<S> <C>
Net investment income...................................................... $10,361
Federal income taxes....................................................... 3,692
-----------------
Net income............................................................ $ 6,669
===============
</TABLE>
See accompanying note.
F-22
<PAGE> 119
SCPIE HOLDINGS INC.
NOTE TO BALANCE SHEETS
1. ORGANIZATION
SCPIE Holdings Inc. (SCPIE Holdings) is a Delaware corporation which is a
wholly owned subsidiary of Southern California Physicians Insurance Exchange
(the Exchange). SCPIE Holdings has no historic operations and was organized in
February 1996, as part of the Exchange's plan to reorganize its corporate
structure.
In March 1996 SCPIE Holdings acquired the outstanding stock of two inactive
property and casualty insurance companies, FG Insurance Corporation and FG
Casualty Company, for $12.5 million, and an additional contribution of $1.05
million was made during the second quarter of 1996. The transaction will be
accounted for as a purchase and the excess of the purchase price over the net
book value of the underlying assets will be recorded as goodwill and amortized
over a period of 10 years. SCPIE Holdings plans to utilize these companies to
enter geographic markets outside California.
F-23
<PAGE> 120
ANNEX I
FORM OF AMENDED
PLAN AND AGREEMENT OF MERGER
<PAGE> 121
FORM OF AMENDED
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
SCPIE HOLDINGS INC.
A DELAWARE CORPORATION,
AND
SCPIE INDEMNITY COMPANY
A CALIFORNIA CORPORATION,
AND
SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE
A CALIFORNIA INTER-INSURANCE EXCHANGE
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I THE MERGER...................................................................... 1
1.1 The Merger................................................................. 1
1.2 Effective Time of the Merger............................................... 2
1.3 Effect of the Merger....................................................... 2
1.4 Subsequent Actions......................................................... 2
1.5 Governing Documents........................................................ 2
1.6 Directors and Officers..................................................... 2
II CONVERSION OF MEMBERSHIP INTERESTS, ALLOCATION AND PAYMENT OF MERGER
CONSIDERATION................................................................... 3
2.1 Certain Definitions........................................................ 3
2.2 Conversion of Membership Interests......................................... 4
2.3 Allocation of Merger Shares................................................ 4
2.4 Adjustment of Share Numbers................................................ 5
2.5 Fractional Shares.......................................................... 5
2.6 Cancellation and Issuance of Holdings Stock................................ 5
2.7 Issuance of Consideration.................................................. 5
2.8 No Further Interest in the Company......................................... 5
III APPROVAL BY THE COMMISSIONER.................................................... 5
3.1 Commissioner's Approval.................................................... 5
IV REPRESENTATIONS AND WARRANTIES BY THE COMPANY................................... 5
4.1 Organization and Qualification............................................. 5
4.2 Authority Relative to this Plan; Recommendation to Eligible Members........ 5
4.3 Compliance................................................................. 6
V REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER...................... 6
5.1 Organization and Qualification............................................. 6
5.2 Capitalization............................................................. 7
5.3 Authority Relative to this Plan............................................ 7
5.4 Compliance................................................................. 7
VI ADDITIONAL AGREEMENTS........................................................... 7
6.1 Cooperation................................................................ 7
6.2 Special Meeting of Eligible Members of the Company......................... 8
6.3 Officers' and Directors' Insurance; Indemnification........................ 9
6.4 Continuity of Obligations Regarding Policyholders.......................... 9
VII CONDITIONS PRECEDENT............................................................ 10
7.1 Conditions to Obligations of Each Party to Effect the Merger............... 10
VIII TERMINATION..................................................................... 10
8.1 Termination................................................................ 10
8.2 Effect of Termination...................................................... 11
</TABLE>
ANNEX I-i
<PAGE> 123
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
IX GENERAL PROVISIONS.............................................................. 11
9.1 Amendment.................................................................. 11
9.2 Extension; Waiver.......................................................... 11
9.3 Nonsurvival of Representations and Warranties.............................. 11
9.4 Entire Plan................................................................ 11
9.5 Counterparts............................................................... 11
9.6 Severability............................................................... 11
9.7 Notices.................................................................... 12
9.8 Public Announcements....................................................... 12
9.9 Section Headings........................................................... 12
9.10 Benefits and Assignment.................................................... 12
9.11 Applicable Law............................................................. 12
</TABLE>
ANNEX I-ii
<PAGE> 124
THIS AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER (the "Plan"), dated
as of , 1996, is among SCPIE HOLDINGS INC., a Delaware corporation
("Holdings"), SCPIE INDEMNITY COMPANY, a California corporation and a wholly
owned subsidiary of Holdings ("New Insurer"), and SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, a California inter-insurance exchange (the "Company").
RECITALS
WHEREAS, the Company is a California reciprocal or inter-insurance exchange
organized pursuant to the provisions of Division I, Part 2, Chapter 3
(commencing with Section 1280) of the Insurance Code of the State of California
(the "California Insurance Law").
WHEREAS, New Insurer is a corporation of the State of California authorized
to transact insurance under the California Insurance Law.
WHEREAS, Holdings is a corporation of the State of Delaware and a wholly
owned subsidiary of the Company.
WHEREAS, the General Corporations Law of the State of California (the
"California Corporations Law") and the California Insurance Law permit a merger
of a California reciprocal or inter-insurance exchange with and into a
corporation authorized to transact insurance in California.
WHEREAS, in furtherance of such merger, it is contemplated that the
Membership Interests (as hereinafter defined) of Eligible Members (as
hereinafter defined) of the Company will be exchanged for the consideration
described herein.
WHEREAS, the Board of Governors of the Company (the "Board of Governors")
and the respective Boards of Directors of New Insurer and Holdings have each
duly approved the merger contemplated by this Plan (the "Merger") upon the terms
and subject to the conditions set forth in this Plan and in accordance with
California Corporations Law and the California Insurance Law, with the result
that the Company shall be merged with and into New Insurer and the Eligible
Members of the Company shall receive, pursuant to the Merger, shares of the
Common Stock, par value $.0001 per share, of Holdings (the "Common Stock").
WHEREAS, the Company intends to prepare and mail to all Eligible Members of
the Company a proxy statement with respect to a special meeting (the "Special
Meeting") of Members of the Company at which Eligible Members will be asked to
approve this Plan.
WHEREAS, the parties entered into a plan and agreement of merger, dated
March 21, 1996, relating to the Merger (the "Original Plan"); and
WHEREAS, the parties desire to amend and restate the Original Plan by
entering into this Plan, and the parties intend for the terms and conditions of
this Plan to supersede all terms and conditions of the Original Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Holdings, New Insurer and the Company
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the conditions of Article VII being satisfied
or duly waived, and in accordance with and subject to (i) the provisions of this
Plan, (ii) the California Corporations Law and
ANNEX I-1
<PAGE> 125
(iii) the California Insurance Law, the Company shall be merged with and into
New Insurer in the Merger. At and after the Effective Time, the separate
existence of the Company (except as may be continued by operation of law) shall
cease, and the New Insurer shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. The Company
and the New Insurer are sometimes hereinafter referred to as the "Constituent
Entities" and New Insurer is sometimes hereinafter referred to as the "Surviving
Corporation."
1.2 Effective Time of the Merger. The Merger shall become effective at the
time (herein called the "Effective Time") this Plan is filed with the Secretary
of State of the State of California in the manner provided under Section 1113(g)
of the California Corporations Law and Section 1556(a) of the California
Insurance Law. The day on which the Effective Time occurs is hereinafter called
the "Effective Date." The Effective Date shall be such date as the Board of
Governors and the Boards of Directors of Holdings and New Insurer determine is
appropriate after the conditions set forth herein have been satisfied or waived.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the California Corporations
Law and the California Insurance Law, including, without limitation, Section
1107 of California Corporations Law and Section 1557 of the California Insurance
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the rights and property of the Company shall accrue to,
and become the rights and properties of, the Surviving Corporation, which shall
succeed to and assume all the obligations and liabilities (including
policyholder obligations and liabilities) of the Company; and all rights of
creditors (including policyholders) and liens of the Company shall become the
rights of creditors (including policyholders) and liens of the Surviving
Corporation. After the Effective Time, any reference to the Company in any
writing, including but not limited to any power or powers of attorney or agency
agreement or agreements authorizing the execution of any surety bonds or
contracts or policies of insurance, or authorizing the acceptance of service of
process or any other act on behalf of the Constituent Entities and any and all
other contracts, policies, agreements, instruments and documents to which either
Constituent Entity is a party, whether executed or taking effect before or after
the Merger, shall be deemed a reference to the Surviving Corporation if not
inconsistent with the other provisions of such writing, and all such writings
are hereby ratified, confirmed and approved by the Surviving Corporation, and
the Surviving Corporation shall be deemed to be substituted in the place and
stead of either Constituent Entity as a party thereto.
1.4 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Plan, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of the
Company, all such deeds, bill of sale, assignments and assurances and to take
and do, in the name and on behalf of such corporation or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Plan.
1.5 Governing Documents. The Articles of Incorporation and Bylaws of New
Insurer shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation, as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and under California Corporations Law.
1.6 Directors and Officers. The members of the Board of Directors of the
New Insurer immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, and the officers of the New Insurer
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their successors are duly elected and
qualified.
ANNEX I-2
<PAGE> 126
ARTICLE II
CONVERSION OF MEMBERSHIP INTERESTS,
ALLOCATION AND PAYMENT OF MERGER CONSIDERATION
2.1 Certain Definitions. As used in this Article II and elsewhere in this
Plan, the terms listed below shall have the following meanings:
"Approval Date" means the date that the Commissioner, pursuant to Section
1552 of the California Insurance Law, approves this Plan for submission to the
Eligible Members for approval.
"Attorney-in-Fact" means SCPIE Management Company, a California corporation
that is the Company's attorney-in-fact.
"California Department" means the Department of Insurance of the State of
California.
"Commissioner" means the Commissioner of Insurance of the California
Department, or such governmental officer, body or authority as may succeed such
Commissioner as the primary regulator of the Company's insurance business under
applicable law.
"Earned Premiums" means, for the applicable period, earned premiums in
respect of a Policy.
"Eligible Member" means a Person who is a Member of the Company on the
Approval Date.
"Eligible Policy" means a Policy issued to an Eligible Member on which
premiums were earned at any time, provided, however, that with respect to a
Policy issued to an Eligible Member who was not a Member on March 21, 1996,
Earned Premiums for such a Policy shall consist only of earned premiums
following March 21, 1996, and not earned premiums at any point prior to such
date.
"Fair Market Value" means (i) the average closing price of a share of the
Common Stock on the principal exchange on which the Common Stock is then
trading, if any, on the first five trading days following the Effective Date; or
(ii) if the Common Stock is not traded on an exchange but is quoted on Nasdaq or
a successor quotation system, (1) the average last sales price (if the Common
Stock is then listed as a National Market Issue under the NASD National Market
System) or (2) the average of the mean between the closing representative bid
and asked prices (in all other cases) for the Common Stock on the first five
trading days following the Effective Date as reported by Nasdaq or such
successor quotation system.
"Initial Public Offering" means the initial public offering by Holdings of
shares of Common Stock pursuant to an effective registration statement on Form
S-1.
"Initial Stock Price" means the price per share to the public at which the
Common Stock is sold in the Initial Public Offering.
"Member," "subscriber" and "insured person." A Person is a Member of the
Company if such Person is a subscriber who is an "insured person" under the name
of the Company through the facilities of the Attorney-in-Fact acting on behalf
of the several subscribers. The term "subscriber" shall include those Persons
who have executed a Subscription Agreement and Power of Attorney or any like
agreement of the Company. The term "insured person" shall include (a) each
individual physician, surgeon, nurse anesthetist, professional medical
partnership, professional medical corporation or other health care provider to
whom or which a policy of insurance has been issued by the Company as "named
insured," and (b) each physician, surgeon, nurse anesthetist or other health
care provider to whom a certificate insert (naming such person as a "physician
member" or "certificate holder") has been issued as part of a policy of
insurance issued by the Company to a professional medical partnership,
professional medical corporation or other health care provider. A "named
insured" under a policy of insurance ceases to be an insured person, subscriber
and Member when the "policy period" of such policy terminates by expiration of
time, cancellation or any other reason and a "physician member" or "certificate
holder" ceases to be an insured person, subscriber and Member when the "coverage
period" or "certificate period" under the applicable policy terminates by
expiration of time cancellation, or any other reason.
ANNEX I-3
<PAGE> 127
"Merger Shares" means the shares of Common Stock to be delivered (i) to
Members upon conversion of their Membership Interests by virtue of the Merger
and (ii) to New Insurer as consideration for the cancellation of the shares of
Common Stock held by the Company, which cancellation shall occur immediately
prior to the Merger as set forth in Section 2.6.
"Person" means an individual, corporation, joint venture, limited liability
company, partnership, association, trust, trustee, unincorporated entity,
organization or government or any department or agency thereof.
"Policy" means an insurance policy issued by the Company but does not
include (i) any agreement pursuant to which the Company has ceded or assumed
insurance or (ii) a reporting endorsement.
2.2 Conversion of Membership Interests. At the Effective Time, by virtue
of the Merger and without any action on the part of the Company, New Insurer,
Holdings, the Surviving Corporation or the holder of any of the following
securities:
(a) The rights of Members of the Company arising under the
subscription agreements between Members and the Company (the "Subscription
Agreements"), the Company's Bylaws, the California Insurance Law and
otherwise, including, without limitation, the right to vote for members of
the Board of Governors and on other matters and to participate in any
distribution of surplus on liquidation of the Company (but not including
contractual rights arising under Policies (the "Membership Interests"), in
existence immediately prior to the Effective Time shall be cancelled and
extinguished and be converted into the right to receive shares of Common
Stock as set forth in this Agreement.
(b) The Members entitled to receive Merger Shares shall be the
Eligible Members. The Merger Shares shall be allocated among the Eligible
Members as described in this Article II.
(c) Each share of common stock of New Insurer issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
2.3 Allocation of Merger Shares.
(a) Subject to the provisions of Section 2.4, the number of Merger
Shares allocable to each Eligible Member shall be determined as follows:
(i) Each Eligible Member shall be allocated a number of shares of
Common Stock equal to the product of x and y, where
"x" equals 9,000,000 shares of Common Stock and
"y" equals the ratio of the Earned Premiums of such Eligible Member
on Eligible Policies to the total Earned Premiums of all Eligible
Members on Eligible Policies during the period beginning on January 1,
1993 and ending on but including the Approval Date,
plus
(ii) Each Eligible Member who was also a Member on March 21, 1996
shall be allocated a number of shares of Common Stock equal to 1,000,000
shares of Common Stock divided by the total number of Eligible Members who
were also Members on March 21, 1996.
(b) Subject to the provisions of Section 2.4, the number of Merger
Shares allocable to New Insurer shall be (i) 500,000 or (ii) such other
number as the Board of Directors of Holdings and the Board of Governors of
the Company determine is appropriate in order to insure that the Merger
Shares issued to New Insurer pursuant to the Merger have a fair market
value equivalent to the fair market value of the shares of Common Stock
held by the Company which are to be cancelled in the Merger pursuant to
Section 2.6 hereof.
ANNEX I-4
<PAGE> 128
2.4 Adjustment of Share Numbers. In order to effect a filing range (in the
registration statement under the Securities Act of 1933, as amended, relating to
the Initial Public Offering) for the Initial Stock Price which Holdings and the
managing underwriters of the Initial Public Offering deem appropriate, the
Company and Holdings may adjust, by vote of the Board of Governors or a duly
authorized committee thereof at any time and the Board of Directors of Holdings
or any duly authorized committee thereof before the Effective Date and with the
prior approval of the Commissioner, the number of shares of Common Stock set
forth in Section 2.3. Upon such an adjustment, the number of Merger Shares set
forth in Sections 2.3(a)(i) and (ii) and Section 2.3(b) shall be adjusted
proportionately. The number of shares resulting from any such adjustment shall
be rounded up to the next higher whole share.
2.5 Fractional Shares. No fractional shares of Common Stock shall be
issued to any Eligible Member upon surrender of Membership Interests. In lieu of
any fractional shares, each Eligible Member shall be paid an amount in cash
(without interest) rounded to the nearest cent, determined (i) by multiplying
(a) the Initial Stock Price by (b) the fractional interest to which such
Eligible Member would otherwise be entitled or (ii) in the event that the
Initial Public Offering does not occur on the Effective Date, by multiplying (a)
the Fair Market Value by (b) the fractional interest to which such Eligible
Member would otherwise be entitled.
2.6 Cancellation and Issuance of Holdings Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the Company, New
Insurer, Holdings or the Surviving Corporation:
(a) the Common Stock of Holdings held by the Company shall be
cancelled; and
(b) the Merger Shares allocable to New Insurer pursuant to Section
2.3(b) shall be issued.
2.7 Issuance of Consideration. As soon as reasonably practicable after the
Effective Date, Holdings shall prepare and issue (i) stock certificates
representing the Merger Shares allocated to each Eligible Member and to New
Insurer, and (ii) checks representing the cash paid in lieu of fractional
shares, as calculated pursuant to Section 2.5 hereof.
2.8 No Further Interest in the Company. As of the Effective Time, each
Member of the Company shall cease to be a Member, and shall have no further
interest in the Company or the Surviving Corporation, except for such interest
that each such Member may have as a holder of Common Stock.
ARTICLE III
APPROVAL BY THE COMMISSIONER
3.1 Commissioner's Approval. This Plan is subject to the approval of the
Commissioner pursuant to Sections 1552 et. seq. of the California Insurance Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
The Company represents and warrants to Holdings that, as of the date of
this Plan and as of the Effective Time:
4.1 Organization and Qualification. The Company is a reciprocal or
inter-insurance exchange duly organized, validly existing and in good standing
under the laws of the State of California. The Company has all requisite power
and authority required for it to own (or lease) and use its properties and carry
on its business as presently conducted. The Company is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
nature of business or the character of its properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of the Company taken as a whole.
ANNEX I-5
<PAGE> 129
4.2 Authority Relative to this Plan; Recommendation to Eligible
Members. The Company has full right, power, and authority to execute, deliver
and perform the terms of this Plan. Subject only to favorable action by the
Company's Eligible Members at the Special Meeting referred to in Section 6.2,
the execution, delivery and performance of this Plan by the Company have been
duly and validly authorized and approved by all required action on the part of
the Company. The Company's Board of Governors has unanimously approved the
execution, delivery and performance of this Plan. Subject only to approval of
the Company's Eligible Members as described above, this Plan constitutes the
valid and binding agreement of the Company and is enforceable in accordance with
its terms.
4.3 Compliance. Neither the execution and delivery of this Plan by the
Company nor the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of (a) the management agreement between the
Company and the Attorney-in-Fact, or the Company's Bylaws or (b) any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any direct or indirect
subsidiary of the Company is a party, or to which any of them, or any of their
respective properties or assets, may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any direct or indirect subsidiary of the Company or
any of their respective properties or assets, except, in the case of each of
clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances, which, in the aggregate, would not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of the Company and its subsidiaries taken as a
whole.
Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), and the "takeover" or "blue sky" laws
of various states, no notice to, filing with, or authorization, consent or
approval of, any domestic or foreign public body or authority is necessary for
the consummation the Company of the transactions contemplated by this Plan,
except where failure to give such notice, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the transactions contemplated hereby or on the
condition (financial or other), business or operations of the Company taken as a
whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER
Each of Holdings and New Insurer each, jointly and severally, represents
and warrants to the Company as follows:
5.1 Organization and Qualification. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. New Insurer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Holdings and
New Insurer is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the nature of their respective businesses
or the character of their respective properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of Holdings and New Insurer, taken
as a whole. New Insurer holds a certificate of authority from the
ANNEX I-6
<PAGE> 130
Commissioner to transact specified classes of insurance in the State of
California, and such certificate of authority is in full force and effect.
5.2 Capitalization. As of the date of this Plan, Holdings has an
authorized capital stock of 1,000 shares of Common Stock, par value $.0001 per
share, of which 500 shares are duly and validly issued and outstanding, fully
paid and nonassessable, all of which are held by the Company. As of the date of
this Plan, New Insurer has an authorized capital stock of 100,000 shares of
common stock, par value $260.00 per share, of which 10,000 shares are duly and
validly issued and outstanding, fully paid, nonassessable, all of which are held
by the Company.
5.3 Authority Relative to this Plan. Each of Holdings and New Insurer has
full corporate power and authority to execute and deliver this Plan and to
perform its respective obligations hereunder. All corporate action required on
the part of Holdings and New Insurer in order to authorize such execution,
delivery and performance has been taken. This Plan constitutes the valid and
binding obligation of each of Holdings and New Insurer, enforceable against each
in accordance with its terms.
5.4 Compliance. Neither the execution and delivery of this Plan by
Holdings and New Insurer nor the consummation of the transactions contemplated
hereby nor compliance by Holdings and New Insurer with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Holdings or New
Insurer or any other direct or indirect subsidiary under any of the terms,
conditions or provisions of (a) the respective charters or bylaws of Holdings or
New Insurer or (b) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Holdings or
New Insurer is a party, or to which either of them, or any of their respective
properties or assets, may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Holdings or New Insurer or any of their respective properties or
assets, except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances, which, in the
aggregate, would not have a material adverse effect on the transactions
contemplated hereby or on the condition (financial or other), business or
operations of Holdings and its subsidiaries taken as a whole.
Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Exchange Act, the
Securities Act, and the "takeover" or "blue sky" laws of various states, no
notice to, filing with, or authorization, consent or approval of, any domestic
or foreign public body or authority is necessary for the consummation by
Holdings or New Insurer of the transactions contemplated by this Plan, except
where failure to give such notice, make such filings, or obtain authorizations,
consents or approvals would, in the aggregate, not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of Holdings and New Insurer taken as a whole.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Cooperation. Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Plan and to cooperate with each other in
connection with the foregoing, including using its best efforts to:
(a) prepare and file with the California Department as soon as is
reasonably practicable all necessary permit applications and other
necessary registrations and filings, including, but not limited
ANNEX I-7
<PAGE> 131
to, all filings and other submissions of information to governmental
authorities with respect to the transactions contemplated by this Plan, and
use its best efforts to obtain such permits and approvals as promptly as
possible;
(b) prepare and file with the SEC as soon as is reasonably practicable
a Registration Statement, including a proxy statement/prospectus (the
"Registration Statement") with respect to the transactions contemplated by
this Plan, and use its best efforts to have such Registration Statement
declared effective by the SEC under the Securities Act as promptly as
possible;
(c) mail, as soon as is reasonably practicable after receiving any
required regulatory approvals, a proxy statement, together with a form of
proxy, with respect to the meeting of the Company's Eligible Members at
which the Eligible Members of the Company will vote upon this Plan and the
Merger (the "Proxy Statement"). The term "Proxy Statement" shall mean such
proxy or information statement at the time it initially is mailed to the
Company's Eligible Members and all amendments or supplements thereto, if
any, similarly filed and mailed. The information provided and to be
provided by the Company, Holdings and New Insurer, respectively, for use in
the Proxy Statement shall, on the date the Proxy Statement is first mailed
to the Company's Eligible Members and on the date of the meeting of the
Company's Eligible Members referred to in Section 6.2, be true and correct
in all material respects and shall not omit to state any material fact
necessary in order to make such information not misleading, and each of the
Company, Holdings and New Insurer agrees to correct any information
provided by it for use in the Proxy Statement that shall have become false
or misleading;
(d) take all such actions as may be required under state blue sky or
securities laws in connection with the transactions contemplated by this
Plan;
(e) arrange for the listing of the Common Stock on a national
securities exchange;
(f) obtain all necessary waivers, consents and approvals from other
parties to material loan agreements, leases and other contracts;
(g) obtain all necessary consents, approvals and authorizations as are
required to be obtained under any Federal, state or foreign law or
regulations;
(h) defend all lawsuits or other legal proceedings, formal or
informal, challenging this Plan or the consummation of the transactions
contemplated hereby; and
(i) lift, rescind or mitigate the effect of any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby.
6.2 Special Meeting of Eligible Members of the Company. (a) After approval
by the Commissioner of this Plan pursuant to Section 1552 of the California
Insurance Law, the Company shall take all action necessary, in accordance with
California Corporations Law, the California Insurance Law, the Subscription
Agreements and the Company's Bylaws, to convene the Special Meeting of the
Eligible Members as promptly as practicable to consider and vote upon this Plan
and the Merger.
(b) The record date for the Special Meeting shall be the Approval Date.
(c) Each Eligible Member shall be entitled to vote in person or by proxy in
a manner to be prescribed by the Commissioner and the Company's Bylaws;
provided, however, that any vote cast shall be by ballot and not viva voce.
(d) The Proxy Statement shall contain the recommendation of the Board of
Governors that the Eligible Members of the Company vote to adopt and approve the
Merger and this Plan.
(e) The Company shall use its best efforts to solicit from Eligible Members
proxies in favor of such adoption and approval and to take all other action
necessary or, in the reasonable judgment of the Company, helpful to secure the
vote or consent of the Eligible Members.
ANNEX I-8
<PAGE> 132
(f) The Company shall mail notice of the Special Meeting to all Eligible
Members. Such notice shall set forth the reasons for the Special Meeting and the
time and place of the Special Meeting, and shall enclose a proxy for each
Eligible Member. Such notice and proxy shall be mailed by first class mail to
the address of each Eligible Member, as such address appears on the records of
the Company, at least 35 days prior to the Special Meeting, and such notice and
proxy shall be in a form satisfactory to the Commissioner. Notice of the Special
Meeting shall be accompanied by information relevant to the Special Meeting.
(g) Notice of the Special Meeting also shall be given by the Company
through publication in a newspaper of general circulation in Los Angeles County,
State of California, the county of the Company's principal place of business.
Such publication shall be made at least twice and shall be published in a
business day edition of the newspaper. Such publication shall be made at least
30 days prior to the Special Meeting.
(h) The affirmative vote of the Eligible Members required for adoption and
approval of this Plan and the Merger shall be 66 2/3% of the Eligible Members.
6.3 Officers' and Directors' Insurance; Indemnification. It is understood
and agreed that the Company shall indemnify and hold harmless and, after the
Effective Time, the Surviving Corporation will indemnify and hold harmless, each
present and former member of the Board of Governors and officer of the Company,
and each director and officer of the Attorney-in-Fact (the "Indemnified
Parties") to the full extent permitted by applicable law against any losses,
claims, damages, liabilities, costs, expenses, judgments and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission which arise
out of or relate to the transactions contemplated by this Plan, and the Company
and the Surviving Corporation, as the case may be, will advance expenses to each
such person upon receipt of an undertaking to: (i) repay such amount if it shall
be determined ultimately that such person is not entitled to indemnification
under the applicable law; and (ii) reasonably cooperate with the Company (of,
after the Effective Time, the Surviving Corporation) concerning the action,
suit, proceeding or investigation. In the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (a) the Indemnified Parties may
retain counsel satisfactory to them and the Company (or them and the Surviving
Corporation after the Effective Time), (b) the Company (or after the Effective
Time, the Surviving Corporation) shall pay all reasonable fees and expenses of
such counsel for the Indemnified Parties promptly as statements therefor are
received, and (c) the Company (or after the Effective Time, the Surviving
Corporation) will use its best efforts to assist in the vigorous defense of any
such matter, provided, that neither the Company nor the Surviving Corporation
shall be liable for any such settlement effected without their written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 6.3, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the
Company or the Surviving Corporation thereof and shall deliver to the Company or
the Surviving Corporation an undertaking to repay any amounts advanced pursuant
hereto when and if a court of competent jurisdiction shall ultimately determine,
after exhaustion of all avenues of appeal, that such Indemnified Party was not
entitled to indemnification under this Section. In addition, upon the occurrence
of the Effective Time, New Insurer shall be deemed expressly to have assumed any
obligations of the Company to its directors and officers for indemnification,
whether under the Company's Bylaws or the Subscription Agreements, or otherwise,
for acts or occurrences prior to the Effective Time. This Section 6.3 shall
survive the consummation of the Merger.
6.4 Continuity of Obligations Regarding Policyholders. It is understood
and agreed that after the Effective Time: (i) the Surviving Corporation shall be
a corporation of the State of California authorized to transact insurance under
the California Insurance Law, (ii) the policyholders of the Company prior to the
Effective Time shall become policyholders of the Surviving Corporation; (iii)
the Surviving Corporation shall, as required by Section 1070.6(b) of the
California Insurance Law, be available to such policyholders to obtain policy
changes and endorsements, to receive payment of premiums and refund unearned
premiums, to serve notice of claim, proof of loss, summons, process and other
papers, and for purposes
ANNEX I-9
<PAGE> 133
of suit; and (iv) the Surviving Corporation shall timely file with the
Commissioner the financial statements and tax returns required by Section
1070.6(c) of the California Insurance Law, and shall timely pay all taxes found
to be due relating to the business of the Company in the State of California
during the calendar year of the Merger, in accordance with said Section
1070.6(c).
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) the Registration Statement shall have become effective under the
Securities Act and no stop order with respect to the Registration Statement
shall have been issued;
(b) all consents, authorizations, orders or approvals of the
California Department and any other governmental commission, board or other
regulatory body that the parties mutually agree are essential to effect the
Merger and for New Insurer to conduct the business of New Insurer and the
Company in substantially the same matter as now conducted shall have been
received;
(c) this Plan and the Merger shall have been approved and adopted by
the requisite vote or consent of the Eligible Members of the Company
required by California Corporations Law and California Insurance Law, by
the requisite vote or consent of the shareholders of New Insurer required
by California Corporations Law; and by the requisite vote or consent of the
stockholder of Holdings;
(d) the Company shall have received either a private letter ruling
from the Internal Revenue Service, or an opinion from a law firm of
recognized standing, to the effect that for Federal income tax purposes,
the Eligible Members generally will recognize no gain or loss on the
exchange of their Membership Interests for shares of Common Stock pursuant
to the Merger;
(e) the Company shall have contributed, for no consideration, all of
the outstanding shares of Common Stock of New Insurer to Holdings;
(f) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect, which would prevent the consummation of the
Merger or make the consummation of the Merger illegal; and
(g) prior to the Effective Time, the Company and Holdings shall have
received from an investment banking firm of recognized standing an opinion
that the exchange of the aggregate Membership Interests for the Merger
Shares and the cash in lieu of fractional shares to be paid to the Eligible
Members in the Merger in the aggregate is fair, from a financial point of
view, to the Eligible Members as a group.
ARTICLE VIII
TERMINATION
8.1 Termination. This Plan may be terminated, and the Merger contemplated
herein may be abandoned, at any time prior to the Effective Time, whether prior
to or after approval of the Merger by the Eligible Members:
(a) by mutual written consent of the Board of Directors of Holdings,
the Board of Directors of New Insurer and the Board of Governors of the
Company; or
ANNEX I-10
<PAGE> 134
(b) by the Company, if New Insurer or Holdings breaches in any
material respect any of its covenants or agreements contained in this Plan;
or
(c) by Holdings, if the Company breaches in any material respect any
of its covenants or agreements contained in this Plan; or
(d) by either Holdings or the Company:
(i) if the Merger has not been consummated prior to December 31,
1996; or
(ii) if any court of competent jurisdiction or other governmental
body shall have issued an order, decree or ruling, or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
non-appealable.
8.2 Effect of Termination. In the event of the termination of this Plan as
provided in Section 7.1, this Plan shall forthwith become void, and there shall
be no liability on the part of the Company, Holdings or New Insurer, except as
described in Section 6.3 and as set forth in the last sentence of this Section
8.2. Nothing contained in this Section 8.2 shall relieve the Company, Holdings
or New Insurer from liability for any breach of this Plan.
ARTICLE IX
GENERAL PROVISIONS
9.1 Amendment. This Plan may be amended by an instrument in writing signed
on behalf of each of the parties hereto; provided, however, that after approval
of the Merger by the Eligible Members, no amendment may be made which under
applicable law requires further approval of Eligible Members without such
further approval of Eligible Members.
9.2 Extension; Waiver. At any time prior to the Effective Time any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto; (ii) waive any inaccuracies in the
representations and warranties contained in this Plan and (iii) waive compliance
with any of the agreements of the other parties or conditions to its own
obligations contained in this Plan. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
9.3 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, New Insurer and Holdings
contained herein shall expire with, and be terminated and extinguished upon,
consummation of the Merger, and thereafter none of the Company, New Insurer and
Holdings or any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty. This
Section 9.3 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation of the Merger.
9.4 Entire Plan. This Plan contains the entire agreement among the
Company, New Insurer and Holdings with respect to the subject matter hereof and
supersedes all prior arrangements and understandings, both written and oral,
among such parties with respect thereto.
9.5 Counterparts. This Plan may be executed in one or more counterparts,
all of which shall be considered one and same agreement and shall become binding
when one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.6 Severability. It is the desire and intent of the parties that the
provisions of this Plan be enforced to the fullest extent permissible under the
law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Plan would be held
in any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Plan or affecting the
ANNEX I-11
<PAGE> 135
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Plan or affecting the validity or enforceability of
such provision in any other jurisdiction.
9.7 Notices. Any notice given by any party under this Plan (each, a
"notice") shall be in writing and shall be deemed duly given (i) when personally
delivered, or (ii) when five days have elapsed after its transmittal by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party to whom directed at that party's address as it appears
below or another address of which that party has given notice as provided
herein, or (iii) when transmitted by telex or telecopy (or equivalent service),
the sender's receiving apparatus having printed the answerback (if any) of the
addressee on a copy of the telex or telecopy message. Notices of address change
shall be effective only upon receipt notwithstanding the previous sentence.
If to the Company, to:
Southern California Physicians Insurance Exchange
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
If to Holdings to:
SCPIE Holdings Inc.
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
If to New Insurer, to:
SCPIE Indemnity Company
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
In each case, with copy to:
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attention: Donald P. Newell, Esq.
Telecopy No.: (619) 696-7419
9.8 Public Announcements. Unless otherwise required by law, prior to the
Effective Time, no news release or other public announcement pertaining to the
transactions contemplated by this Plan will be made by any party without the
prior written consent of the other party hereto.
9.9 Section Headings. The section headings contained in this Plan are
inserted for reference purposes only and shall not affect the meaning or
interpretation of this Plan.
9.10 Benefits and Assignment. This Plan is not intended to convey upon any
person other than the parties any rights or remedies hereunder. This Plan shall
not be assigned by operation of law or otherwise.
ANNEX I-12
<PAGE> 136
9.11 Applicable Law. This Plan and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and to be performed therein.
IN WITNESS WHEREOF, each of the parties has caused this Plan to be executed
as of the date first above written, which is sometimes referred to herein as
"the date of this Plan."
SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, by SCPIE
Management Company, its
Attorney-in-Fact
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By
/s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
SCPIE INDEMNITY COMPANY
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By
/s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
SCPIE HOLDINGS INC.
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By
/s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
ANNEX I-13
<PAGE> 137
ANNEX II
OPINION OF THE FINANCIAL ADVISOR
ANNEX II-1
<PAGE> 138
, 1996
The Board of Governors
Southern California Physicians Insurance Exchange
9441 West Olympic Boulevard
Beverly Hills, CA 90213-4015
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the Eligible Members of Southern California
Physicians Insurance Exchange ("SCPIE" or the "Company"), as a group, of the
exchange of the aggregate Membership Interests for shares of Common Stock of
SCPIE Holdings Inc. (the "Holding Company"), and cash in lieu of fractional
shares, pursuant to the Plan and Agreement of Merger among the Company, the
Holding Company and SCPIE Indemnity Company, a California stock insurance
company, dated March 21, 1996 and amended , 1996 (as so amended, the
"Plan"). Capitalized terms not otherwise defined herein are used as defined in
the Plan.
The Plan provides for a merger and related transactions pursuant to Section
1550 et seq. of the California Insurance Law (the "Reorganization") and further
provides, among other things, that: (1) the Company will merge with and into
SCPIE Indemnity Company, the surviving corporation of the Merger; (2) following
the Reorganization, SCPIE Indemnity Company will be a wholly owned subsidiary of
the Holding Company; (3) the Membership Interests in SCPIE will be extinguished;
(4) Eligible Members will receive shares of Common Stock of the Holding Company
and cash in lieu of fractional shares as compensation for the extinguishment of
their Membership Interests in SCPIE; and (5) at the discretion of the board of
directors of the Holding Company, shares of Common Stock of the Holding Company
may be offered to the public in the Initial Public Offering.
As you are aware, Salomon Brothers Inc has been retained by SCPIE to
provide investment banking advice and SCPIE has agreed to retain Salomon
Brothers Inc as lead manager in connection with the proposed Initial Public
Offering. The Company has agreed to indemnify us for certain liabilities arising
out of the rendering of this opinion.
Pursuant to California Insurance Law, the Plan must be approved by (a) the
Commissioner of Insurance of the California Insurance Department (the
"Commissioner") and (b) not less than two-thirds of the Eligible Members at a
special meeting of the policyholders. If approved by Eligible Members and the
Commissioner, and if the other conditions set forth in the Plan or required by
law are satisfied, the Merger contemplated by the Plan will become effective on
the Effective Date.
You have not asked for our opinion and we do not express any opinion as to:
(1) which of the Company's policyholders are to be included among the Eligible
Members; (2) the fairness of the proposed consideration to be paid to any
Eligible Member or to any class of Eligible Members in connection with the
Reorganization, including any provisions of the Plan relating to which Eligible
Members receive Common Stock of the Holding Company, the allocation of such
Common Stock among Eligible Members and other provisions of the Plan which
distinguish among Eligible Members; and (3) the price at which the common stock
is sold in the Initial Public Offering (the "IPO Price"), the fair market value
of any shares of Common Stock of the Holding Company to be issued pursuant to
the Plan or the price at which the Common Stock of the Holding Company issued in
connection with the Plan or pursuant to the Initial Public Offering will trade.
We note that the IPO Price will be a function of market conditions and the
recent performance of and outlook for the Company at that time. We believe that
trading in the Common Stock of the Holding Company for a period following the
completion of a distribution of the Common Stock of the Holding Company,
including the Initial Public Offering, would be characterized by a
redistribution of the Common Stock of the Holding Company among Eligible Members
that were issued shares of Common Stock and other investors. It is possible that
during these periods of
<PAGE> 139
redistribution the Common Stock of the Holding Company may trade at prices below
the prices at which it would trade on a fully distributed basis.
In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition and prospects of the
Company and material prepared in connection with the Plan and the
Reorganization, and we have considered such financial and other factors as we
have deemed appropriate under the circumstances, including, among other things,
the following: (1) the statutory annual statements provided by the Company for
the years 1991 through 1995; (2) certain GAAP financial data provided by the
Company, including the unaudited income statement and balance sheet for the
three month period ending March 31, 1996, the audited income statements for each
year of the three year period ending December 31, 1995, the audited balance
sheets for each year of the two year period ending December 31, 1995, the
unaudited income statements for each year of the two year period ending December
31, 1992, and the unaudited balance sheets for each year of the three year
period ending December 31, 1993; (3) certain consolidated financial projections
for the Holding Company and its subsidiaries after the Reorganization provided
to us by the Company; (4) the Registration Statement on Form S-1 of the Company
dated May 3, 1996 as amended June , 1996; (5) the Registration Statement on
Form S-4 of the Company dated May 3, 1996 as amended June , 1996; (6) a copy
of the Plan dated March 21, 1996 as amended , 1996; (7) certain
financial data of the Company which we compared with publicly available
financial information and market data of other companies which we believed to be
comparable; and (8) the financial terms of the transactions contemplated by the
Plan and the exhibits thereto which we compared with the financial terms of
other transactions we deemed to be relevant. We have also conducted discussions
with management and advisors of the Company relating to the business of the
Company and certain financial and other aspects of the Plan and the
Reorganization and such other matters we believe relevant to our inquiry. We
have also taken into account our assessment of general economic, market and
financial conditions, our experience in securities valuation and our knowledge
of the insurance industry generally.
Furthermore, you have directed us to assume and we have assumed that: (1)
the Reorganization will meet all applicable legal and regulatory requirements
and that all necessary action will have been taken to comply with all applicable
laws and requirements, including the receipt of all required approvals by
policyholders, regulators and otherwise; and (2) the terms of the Initial Public
Offering (which have not yet been determined) will not affect the legal or tax
treatment of the Plan or the Reorganization. We have also assumed that, as of
the date hereof, the Reorganization will be completed on the basis described in
the Plan. We have been advised as to certain legal and tax matters by counsel to
the Company and, with respect to such matters, we have relied upon such counsel.
We have assumed that the Company will receive, prior to the Effective Date,
a private letter ruling from the Internal Revenue Service or an opinion from its
tax counsel as to certain tax matters as described in Section 7.1(d) of the
Plan. For purposes of our opinion, we have assumed that, if an opinion from tax
counsel is delivered, then such opinion of tax counsel is correct and will be
confirmed as of the Effective Date with no changes or exceptions whatsoever.
In preparing our opinion we have taken into account a number of factors
including but not limited to, the following (in no particular order): (1) the
fact that the Company has advised us that growth is extremely important to
remain an effective and competitive insurer in the future; (2) the fact that the
Company has advised us that it is of significant strategic importance that it
have broader access to external capital to finance this growth; (3) the
Company's A+ (Superior) rating by A.M. Best and the considerations on which such
rating is based; (4) in its present form as a reciprocal insurer, the Company
has limited access to the capital markets for new capital; (5) following the
Reorganization the Company will have a capital structure potentially enabling it
to access the capital markets for new capital; and (6) the illiquidity of
Membership Interests.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of the financial and other information
provided to us or publicly available and have not attempted to independently
verify the same. With respect to the financial forecasts, we have assumed
<PAGE> 140
that such forecasts have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company, and we express no
opinion with respect to such forecasts or the assumptions on which they are
based. We have not made or obtained any evaluations or appraisals of the
properties, assets, liabilities, reserves or surplus of the Company. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the Eligible Members of the exchange of the aggregate membership interests
for shares of Common Stock of the Holding Company, and cash in lieu of
fractional shares, pursuant to the Plan, and does not address the Company's
underlying business decision to participate in the Plan and Reorganization, and
does not constitute a recommendation to any Eligible Member as to how such
Eligible Member should vote with respect to the Plan. Our opinion is necessarily
based upon conditions as they exist and can be evaluated on the date hereof and
the information made available to us through the date hereof.
It is understood that this letter is for the information of the Board of
Governors of the Company only and is not to be quoted or referred to, in whole
or in part, in any document or used for any other purpose without the prior
written consent of Salomon Brothers Inc, except that it may be referred to in,
and attached as an exhibit to, the Proxy Statement/Prospectus to be sent to
Eligible Members, and copies of it may be provided to the Commissioner.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the exchange of the aggregate Membership
Interests for shares of Common Stock of the Holding Company, and for cash in
lieu of fractional shares pursuant to the Plan is fair, from a financial point
of view, to the Eligible Members of the Company, as a group.
Very truly yours,
<PAGE> 141
ANNEX III
RESTATED CERTIFICATE OF INCORPORATION OF SCPIE HOLDINGS
ANNEX III-1
<PAGE> 142
ANNEX IV
BYLAWS OF SCPIE HOLDINGS
ANNEX IV-1
<PAGE> 143
ANNEX V
INSTRUCTIONS FOR COMPLETING
THE TAXPAYER IDENTIFICATION NUMBER ("TIN")
CERTIFICATION CARD
INSTRUCTIONS TO TAXPAYER
(Section References are to the Internal Revenue Code).
PURPOSE OF FORM. -- A person who is required to file an information return with
the Internal Revenue Service (IRS) must obtain your correct taxpayer
identification number (TIN) to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an individual retirement
arrangement (IRA). Use Form W-9 to furnish your correct TIN to the requester
(the person asking you to furnish your TIN), and, when applicable, (1) to
certify that the TIN you are furnishing is correct (or that you are waiting for
a number to be issued), (2) to certify that you are not subject to backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding.
Note: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form. The TIN Certification Card is a "Substitute" Form
W-9.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (for individuals)
from your local office of the Social Security Administration, or Form SS-4,
Application for Employer Identification Number (for businesses and all other
entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied For" in the
space for the TIN on the form, sign and date the form, and give it to the
requester. Generally, you will then have 60 days to obtain a TIN and furnish it
to the requester. If the requester does not receive your TIN within 60 days,
backup withholding, if applicable, will begin and continue until you furnish
your TIN to the requester. For reportable interest or dividend payments, the
payer must exercise one of the following options concerning backup withholding
during this 60-day period. Under option (1), a payer must backup withhold on any
withdrawals you make from your account after 7 business days after the requester
receives this form back from you. Under option (2), the payer must backup
withhold on any reportable interest or dividend payments made to your account,
regardless of whether you make any withdrawals. The backup withholding under
option (2) must begin no later than 7 business days after the requester receives
this form back. Under option (2) the payer is required to refund the amounts
withheld if your certified TIN is received within the 60-day period and you were
not subject to backup withholding during that period.
Note: Writing "Applied For" on the form means that you have already applied for
a TIN OR that you intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
Certification, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) The IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for reportable interest and dividends only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for reportable interest and dividend accounts
opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and
information reporting. See Payees and Payments Exempt From Backup Withholding,
below, and Exempt Payees and Payments under Specific Instructions, on page 94 if
you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13), and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or any
of their political subdivisions, agencies or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or
possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries, Inc.,
Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding also include the following:
- -- Payments to nonresident aliens subject to withholding under section 1441.
- -- Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
- -- Payments of patronage dividends not paid in money.
- -- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- -- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct TIN to the payer.
- -- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- -- Payments described in section 6049(b)(5) to nonresident aliens.
- -- Payments on tax-free covenant bonds under section 1451.
- -- Payments made by certain foreign organizations.
- -- Mortgage interest paid by you.
ANNEX V-1
<PAGE> 144
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 60.41A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and the regulations under those sections.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to the
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown
on your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name and both the last name shown on
your social security card and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter your business name below your
individual name. Enter your name(s) as shown on your social security card and/or
as it was used to apply for your EIN on Form SS-4.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are required to furnish
your correct TIN, but you are not required to sign the certification.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item (2) in the certification before signing the form.
(3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may
cross out item (2) of the certification if you wish.
(4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. -- You are required to furnish your correct TIN,
but you are not required to sign the certification.
(6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup
withholding, you should complete this form to avoid possible erroneous backup
withholding. Enter your correct TIN on the form, circle "EXEMPT" in 2(i) of the
certification, sign and date the form. If you are a nonresident alien or foreign
entity not subject to backup withholding, give the requester a completed Form
W-8, Certification of Foreign Status.
(7) TIN "APPLIED FOR." -- Follow the instructions under How To Obtain a TIN,
on page 93, sign and date this form.
SIGNATURE. -- For a joint account, only the person whose TIN is shown on the
form should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
ANNEX V-2
<PAGE> 145
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------------------------------------------
GIVE THE NAME AND GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: EMPLOYER
NUMBER OF: IDENTIFICATION
NUMBER OF:
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more individuals The actual owner of 7. A valid trust, estate, Legal entity(4)
joint (account) the account or, if or pension trust
combined funds, the
first individual on 8. Corporate The corporation
the account(1)
9. Association, club, The organization
3. Custodian account of a minor The minor(2) religious, charitable,
(Uniform Gift to Minors Act) educational or other
tax-exempt organization
4. a. The usual revocable savings The grantor-trustee(1)
trust (grantor is 10. Partnership The partnership
also trustee)
11. A broker or registered The broker or nominee
b. So-called trust account that The actual owner(1) nominee
is not a legal or valid
trust under State law 12. Account with the The public entity
Department of Agriculture
5. Sole proprietorship The owner(3) in the name of a public
entity (such as a state or
local government, school
district or prison) that
receives agricultural
program payments.
- ------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the individual's name. See item 5 or 6. You may also enter business
name.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identification number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
Note: If no name is circled when there is more than one name, the number will
considered to be that of the first name listed.
ANNEX V-3
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article Seventh of the Restated Certificate of Incorporation of SCPIE
Holdings Inc. (the "Registrant") provides with respect to the indemnification of
directors that no director shall be liable to Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not permitted
under the DGCL. Article V of Registrant's Bylaws provides that Registrant shall
indemnify every person who was or is a party or is or was threatened to be made
a party to any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, (an "Action") by reason of the fact that he is
or was a director or officer of Registrant or, while a director or officer of
Registrant, is or was serving at the request of Registrant as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including counsel fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, to the full extent
permitted by applicable law. Article V further provides that Registrant shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of Registrant. Article VI of Registrant's Bylaws
provides that Registrant may, at its option, indemnify every person who was or
is a party or is or was threatened to be made a party to any Action, by reason
of the fact that he is or was an employee or agent of Registrant or, while an
employee or agent of Registrant, is or was serving at the request of Registrant
as an employee or agent or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including counsel fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the extent permitted by applicable law. In addition to the
foregoing, Registrant intends to enter into indemnification agreements with each
of its directors and certain of its executive officers. The information
contained in the Prospectus under the caption "Description of Capital
Stock -- Delaware Law and Certain Charter and ByLaw Provisions" is incorporated
by reference herein. It is the position of the Commission that indemnification
of officers and directors of liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DOCUMENT
------ --------
<S> <C>
2. Form of Amended Plan and Agreement of Merger by and among SCPIE Holdings
Inc., SCPIE Indemnity Company, and Southern California Physicians
Insurance Exchange, dated 1996.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated Bylaws.
5 Opinion of Latham & Watkins.*
10.1 Amended and Restated Employment Agreement dated January 2, 1996, between
SCPIE Management Company and Donald J. Zuk.**
10.2 Operational Agreement between Southern California Physicians Insurance
Exchange and Sullivan, Kelly and Associates, Inc. dated August 25,
1995.**
10.3 Letter of Credit Agreement dated January 11, 1995 between First
Interstate Bank and Southern California Physicians Insurance Exchange in
the amount of $27,368,087.
</TABLE>
II-1
<PAGE> 147
<TABLE>
<CAPTION>
NUMBER DOCUMENT
------ -------------------------------------------------------------------------
<S> <C>
10.4 Letter of Credit Agreement dated January 26, 1995 between First
Interstate Bank and Southern California Physicians Insurance Exchange for
a $5,000,000 Secured Standby Letter of Credit Facility.
10.5 First Excess of Loss Treaty No. 01-95-0020 with various subscribing
reinsurers.
10.6 Second Excess of Loss Treaty No. 01-95-0021 with various subscribing
reinsurers.
10.7 Third Excess of Loss Treaty No. 01-95-0022 with various subscribing
reinsurers.
10.8 Fourth Excess of Loss Treaty No. 01-95-0599 with various subscribing
reinsurers.
10.9 Per Policy Excess of Loss Treaty No. 01-94-0365 with various subscribing
reinsurers.
10.10 Reinstatement/Retroactive/Aggregate Extension Excess of Loss Treaty No.
01-95-0879 with various subscribing reinsurers.
10.11 Medical Malpractice Surplus Reinsurance Treaty between SCPIE and Lloyd's
Syndicate No. 1010 and Syndicates comprising 1007 Group underwritten for
by CW Spreckley, Esq. and others, effective date January 1, 1996, Treaty
No. 01-95-0374.**
10.12 Physician Medical Malpractice/Hospital Professional Liability Quota Share
Reinsurance Agreement between Hannover Ruckversicherungs -- Aktiengesell-
schaft/Eisen Und Stahl Ruckversicherungs -- Aktiengesellschaft, Hannover,
Germany, and various subscribing reinsurers, effective date January 1,
1995, Treaty No. 01-95-0694.*
10.13 SCPIE Management Company Retirement Income Plan, as amended and restated,
effective January 1, 1989.**
10.14 Supplemental Employee Retirement Plan for Selected Employees of SCPIE
Management Company dated January 1, 1995.**
10.15 Retirement Plan for Outside Governors and Affiliated Directors, effective
January 1, 1994 as amended.
10.16 The SMC Cash Accumulation Plan dated July 1, 1991, as amended.**
10.17 Inter-Company Pooling Arrangement as of April 1, 1996.
10.18 Form of Indemnification Agreement.
11. Statement re: computation of per share earnings, reference is made to
page F-4.
21. Subsidiaries of the registrant.**
24.1 Consent of Ernst & Young LLP, reference is made to page S-1.
24.2 Consent of Latham & Watkins, reference is made to Exhibit 5.*
25. Power of Attorney, reference is made to page II-3.
27. Financial Data Schedule.
99.1 Form of Proxy Card.**
99.2 Form of Taxpayer Identification Card.**
99.3 Form of Record Card.**
</TABLE>
- ---------------
(*) To be filed by Amendment.
(**) Previously filed.
B. FINANCIAL STATEMENT SCHEDULES
Schedules I, II, III, IV and VI have been omitted as all required data is
included in the Financial Statements and corresponding footnotes. All other
schedules for which provision is made in the
II-2
<PAGE> 148
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are not applicable and therefore
have been omitted.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement
(Registration No. 333-4454) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Beverly Hills, State of California, on
August 8, 1996.
SCPIE HOLDINGS INC.
By: /s/ DONALD J. ZUK
------------------------------------
Donald J. Zuk
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement (Registration No. 333-4454) has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<S> <C> <C>
* Chairman of the Board August 8, 1996
- ---------------------------------------------
Mitchell S. Karlan, M.D.
/s/ DONALD J. ZUK President, Principal August 8, 1996
- --------------------------------------------- Executive Officer, Director
Donald J. Zuk
* Vice President, Chief August 8, 1996
- --------------------------------------------- Financial Officer, (Principal
Patrick T. Lo Financial Officer and
Principal Accounting Officer)
* Director August 8, 1996
- ---------------------------------------------
Allan K. Briney, M.D.
* Director August 8, 1996
- ---------------------------------------------
Willis T. King, Jr.
* Treasurer and Director August 8, 1996
- ---------------------------------------------
Jack E. McCleary, M.D.
* Director August 8, 1996
- ---------------------------------------------
Charles B. McElwee, M.D.
* Secretary and Director August 8, 1996
- ---------------------------------------------
Wendell L. Moseley, M.D.
* Director August 8, 1996
- ---------------------------------------------
Donald P. Newell
</TABLE>
II-4
<PAGE> 150
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director August 8, 1996
- ---------------------------------------------
Harriet M. Opfell, M.D.
* Director August 8, 1996
- ---------------------------------------------
William A. Renert, M.D.
* Director August 8, 1996
- ---------------------------------------------
Henry L. Stoutz, M.D.
* Director August 8, 1996
- ---------------------------------------------
Reinhold A. Ullrich, M.D.
* By: /s/ DONALD J. ZUK
-----------------------------------------
Donald J. Zuk
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 151
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 5, 1996, except for Note 9, as to which the date
is July 12, 1996, and May 1, 1996, in Amendment No. 1 to Registration Statement
(Form S-4 No. 333-4454) and related Prospectus of SCPIE Holdings Inc. for the
registration of 10,500,000 shares of its common stock.
ERNST & YOUNG LLP
Los Angeles, California
August 6, 1996
S-1
<PAGE> 152
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------------
<S> <C> <C>
2. Form of Amended Plan and Agreement of Merger by and among SCPIE Holdings
Inc., SCPIE Indemnity Company, and Southern California Physicians Insurance
Exchange, dated 1996................................................
3.1 Form of Amended and Restated Certificate of Incorporation..................
3.2 Form of Amended and Restated Bylaws........................................
5 Opinion of Latham & Watkins*...............................................
10.1 Amended and Restated Employment Agreement dated January 2, 1996, between
SCPIE Management Company and Donald J. Zuk**...............................
10.2 Operational Agreement between Southern California Physicians Insurance
Exchange and Sullivan, Kelly and Associates, Inc. dated August 25,
1995**.....................................................................
10.3 Letter of Credit Agreement dated January 11, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange in the amount of
$27,368,087................................................................
10.4 Letter of Credit Agreement dated January 26, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange for a $5,000,000
Secured Standby Letter of Credit Facility..................................
10.5 First Excess of Loss Treaty No. 01-95-0020 with various subscribing
reinsurers.................................................................
10.6 Second Excess of Loss Treaty No. 01-95-0021 with various subscribing
reinsurers.................................................................
10.7 Third Excess of Loss Treaty No. 01-95-0022 with various subscribing
reinsurers.................................................................
10.8 Fourth Excess of Loss Treaty No. 01-95-0599 with various subscribing
reinsurers.................................................................
10.9 Per Policy Excess of Loss Treaty No. 01-94-0365 with various subscribing
reinsurers.................................................................
10.10 Reinstatement/Retroactive/Aggregate Extension Excess of Loss Treaty No.
01-95-0879 with various subscribing reinsurers.............................
10.11 Medical Malpractice Surplus Reinsurance Treaty between SCPIE and Lloyd's
Syndicate No. 1010 and Syndicates comprising 1007 Group underwritten for by
CW Spreckley, Esq. and others, effective date January 1, 1996, Treaty No.
01-95-0374**...............................................................
10.12 Physician Medical Malpractice/Hospital Professional Liability Quota Share
Reinsurance Agreement between Hannover Ruckversicherungs --
Aktiengesellschaft/Eisen Und Stahl Ruckversicherungs -- Aktiengesellschaft,
Hannover, Germany, and various subscribing reinsurers, effective date
January 1, 1995, Treaty No. 01-95-0694*....................................
10.13 SCPIE Management Company Retirement Income Plan, as amended and restated,
effective January 1, 1989**................................................
10.14 Supplemental Employee Retirement Plan for Selected Employees of SCPIE
Management Company dated January 1, 1995**.................................
10.15 Retirement Plan for Outside Governors and Affiliated Directors, effective
January 1, 1994 as amended.................................................
10.16 The SMC Cash Accumulation Plan dated July 1, 1991, as amended**............
10.17 Inter-Company Pooling Agreement as of April 1, 1996........................
10.18 Form of Indemnification Agreement..........................................
11. Statement re: computation of per share earnings, reference is made to page
F-4........................................................................
21. Subsidiaries of the registrant**...........................................
24.1 Consent of Ernst & Young LLP, reference is made to page S-1................
24.2 Consent of Latham & Watkins, reference is made to Exhibit 5*...............
25. Power of Attorney, reference is made to page II-3..........................
27. Financial Data Schedule....................................................
99.1 Form of Proxy Card**.......................................................
99.2 Form of Taxpayer Identification Card**.....................................
99.3 Form of Record Card**......................................................
</TABLE>
- ---------------
(*) To be filed by Amendment.
(**) Previously filed.
<PAGE> 1
EXHIBIT 2
FORM OF AMENDED
PLAN AND AGREEMENT OF MERGER
<PAGE> 2
FORM OF AMENDED
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
SCPIE HOLDINGS INC.
A DELAWARE CORPORATION,
AND
SCPIE INDEMNITY COMPANY
A CALIFORNIA CORPORATION,
AND
SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE
A CALIFORNIA INTER-INSURANCE EXCHANGE
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I THE MERGER...................................................................... 1
1.1 The Merger................................................................. 1
1.2 Effective Time of the Merger............................................... 2
1.3 Effect of the Merger....................................................... 2
1.4 Subsequent Actions......................................................... 2
1.5 Governing Documents........................................................ 2
1.6 Directors and Officers..................................................... 2
II CONVERSION OF MEMBERSHIP INTERESTS, ALLOCATION AND PAYMENT OF MERGER
CONSIDERATION................................................................... 3
2.1 Certain Definitions........................................................ 3
2.2 Conversion of Membership Interests......................................... 4
2.3 Allocation of Merger Shares................................................ 4
2.4 Adjustment of Share Numbers................................................ 5
2.5 Fractional Shares.......................................................... 5
2.6 Cancellation and Issuance of Holdings Stock................................ 5
2.7 Issuance of Consideration.................................................. 5
2.8 No Further Interest in the Company......................................... 5
III APPROVAL BY THE COMMISSIONER.................................................... 5
3.1 Commissioner's Approval.................................................... 5
IV REPRESENTATIONS AND WARRANTIES BY THE COMPANY................................... 5
4.1 Organization and Qualification............................................. 5
4.2 Authority Relative to this Plan; Recommendation to Eligible Members........ 5
4.3 Compliance................................................................. 6
V REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER...................... 6
5.1 Organization and Qualification............................................. 6
5.2 Capitalization............................................................. 7
5.3 Authority Relative to this Plan............................................ 7
5.4 Compliance................................................................. 7
VI ADDITIONAL AGREEMENTS........................................................... 7
6.1 Cooperation................................................................ 7
6.2 Special Meeting of Eligible Members of the Company......................... 8
6.3 Officers' and Directors' Insurance; Indemnification........................ 9
6.4 Continuity of Obligations Regarding Policyholders.......................... 9
VII CONDITIONS PRECEDENT............................................................ 10
7.1 Conditions to Obligations of Each Party to Effect the Merger............... 10
VIII TERMINATION..................................................................... 10
8.1 Termination................................................................ 10
8.2 Effect of Termination...................................................... 11
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
IX GENERAL PROVISIONS.............................................................. 11
9.1 Amendment.................................................................. 11
9.2 Extension; Waiver.......................................................... 11
9.3 Nonsurvival of Representations and Warranties.............................. 11
9.4 Entire Plan................................................................ 11
9.5 Counterparts............................................................... 11
9.6 Severability............................................................... 11
9.7 Notices.................................................................... 12
9.8 Public Announcements....................................................... 12
9.9 Section Headings........................................................... 12
9.10 Benefits and Assignment.................................................... 12
9.11 Applicable Law............................................................. 12
</TABLE>
ii
<PAGE> 5
THIS AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER (the "Plan"), dated
as of , 1996, is among SCPIE HOLDINGS INC., a Delaware corporation
("Holdings"), SCPIE INDEMNITY COMPANY, a California corporation and a wholly
owned subsidiary of Holdings ("New Insurer"), and SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, a California inter-insurance exchange (the "Company").
RECITALS
WHEREAS, the Company is a California reciprocal or inter-insurance exchange
organized pursuant to the provisions of Division I, Part 2, Chapter 3
(commencing with Section 1280) of the Insurance Code of the State of California
(the "California Insurance Law").
WHEREAS, New Insurer is a corporation of the State of California authorized
to transact insurance under the California Insurance Law.
WHEREAS, Holdings is a corporation of the State of Delaware and a wholly
owned subsidiary of the Company.
WHEREAS, the General Corporations Law of the State of California (the
"California Corporations Law") and the California Insurance Law permit a merger
of a California reciprocal or inter-insurance exchange with and into a
corporation authorized to transact insurance in California.
WHEREAS, in furtherance of such merger, it is contemplated that the
Membership Interests (as hereinafter defined) of Eligible Members (as
hereinafter defined) of the Company will be exchanged for the consideration
described herein.
WHEREAS, the Board of Governors of the Company (the "Board of Governors")
and the respective Boards of Directors of New Insurer and Holdings have each
duly approved the merger contemplated by this Plan (the "Merger") upon the terms
and subject to the conditions set forth in this Plan and in accordance with
California Corporations Law and the California Insurance Law, with the result
that the Company shall be merged with and into New Insurer and the Eligible
Members of the Company shall receive, pursuant to the Merger, shares of the
Common Stock, par value $.0001 per share, of Holdings (the "Common Stock").
WHEREAS, the Company intends to prepare and mail to all Eligible Members of
the Company a proxy statement with respect to a special meeting (the "Special
Meeting") of Members of the Company at which Eligible Members will be asked to
approve this Plan.
WHEREAS, the parties entered into a plan and agreement of merger, dated
March 21, 1996, relating to the Merger (the "Original Plan"); and
WHEREAS, the parties desire to amend and restate the Original Plan by
entering into this Plan, and the parties intend for the terms and conditions of
this Plan to supersede all terms and conditions of the Original Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Holdings, New Insurer and the Company
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the conditions of Article VII being satisfied
or duly waived, and in accordance with and subject to (i) the provisions of this
Plan, (ii) the California Corporations Law and
1
<PAGE> 6
(iii) the California Insurance Law, the Company shall be merged with and into
New Insurer in the Merger. At and after the Effective Time, the separate
existence of the Company (except as may be continued by operation of law) shall
cease, and the New Insurer shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. The Company
and the New Insurer are sometimes hereinafter referred to as the "Constituent
Entities" and New Insurer is sometimes hereinafter referred to as the "Surviving
Corporation."
1.2 Effective Time of the Merger. The Merger shall become effective at the
time (herein called the "Effective Time") this Plan is filed with the Secretary
of State of the State of California in the manner provided under Section 1113(g)
of the California Corporations Law and Section 1556(a) of the California
Insurance Law. The day on which the Effective Time occurs is hereinafter called
the "Effective Date." The Effective Date shall be such date as the Board of
Governors and the Boards of Directors of Holdings and New Insurer determine is
appropriate after the conditions set forth herein have been satisfied or waived.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the California Corporations
Law and the California Insurance Law, including, without limitation, Section
1107 of California Corporations Law and Section 1557 of the California Insurance
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the rights and property of the Company shall accrue to,
and become the rights and properties of, the Surviving Corporation, which shall
succeed to and assume all the obligations and liabilities (including
policyholder obligations and liabilities) of the Company; and all rights of
creditors (including policyholders) and liens of the Company shall become the
rights of creditors (including policyholders) and liens of the Surviving
Corporation. After the Effective Time, any reference to the Company in any
writing, including but not limited to any power or powers of attorney or agency
agreement or agreements authorizing the execution of any surety bonds or
contracts or policies of insurance, or authorizing the acceptance of service of
process or any other act on behalf of the Constituent Entities and any and all
other contracts, policies, agreements, instruments and documents to which either
Constituent Entity is a party, whether executed or taking effect before or after
the Merger, shall be deemed a reference to the Surviving Corporation if not
inconsistent with the other provisions of such writing, and all such writings
are hereby ratified, confirmed and approved by the Surviving Corporation, and
the Surviving Corporation shall be deemed to be substituted in the place and
stead of either Constituent Entity as a party thereto.
1.4 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Plan, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of the
Company, all such deeds, bill of sale, assignments and assurances and to take
and do, in the name and on behalf of such corporation or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Plan.
1.5 Governing Documents. The Articles of Incorporation and Bylaws of New
Insurer shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation, as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and under California Corporations Law.
1.6 Directors and Officers. The members of the Board of Directors of the
New Insurer immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, and the officers of the New Insurer
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their successors are duly elected and
qualified.
2
<PAGE> 7
ARTICLE II
CONVERSION OF MEMBERSHIP INTERESTS,
ALLOCATION AND PAYMENT OF MERGER CONSIDERATION
2.1 Certain Definitions. As used in this Article II and elsewhere in this
Plan, the terms listed below shall have the following meanings:
"Approval Date" means the date that the Commissioner, pursuant to Section
1552 of the California Insurance Law, approves this Plan for submission to the
Eligible Members for approval.
"Attorney-in-Fact" means SCPIE Management Company, a California corporation
that is the Company's attorney-in-fact.
"California Department" means the Department of Insurance of the State of
California.
"Commissioner" means the Commissioner of Insurance of the California
Department, or such governmental officer, body or authority as may succeed such
Commissioner as the primary regulator of the Company's insurance business under
applicable law.
"Earned Premiums" means, for the applicable period, earned premiums in
respect of a Policy.
"Eligible Member" means a Person who is a Member of the Company on the
Approval Date.
"Eligible Policy" means a Policy issued to an Eligible Member on which
premiums were earned at any time, provided, however, that with respect to a
Policy issued to an Eligible Member who was not a Member on March 21, 1996,
Earned Premiums for such a Policy shall consist only of earned premiums
following March 21, 1996, and not earned premiums at any point prior to such
date.
"Fair Market Value" means (i) the average closing price of a share of the
Common Stock on the principal exchange on which the Common Stock is then
trading, if any, on the first five trading days following the Effective Date; or
(ii) if the Common Stock is not traded on an exchange but is quoted on Nasdaq or
a successor quotation system, (1) the average last sales price (if the Common
Stock is then listed as a National Market Issue under the NASD National Market
System) or (2) the average of the mean between the closing representative bid
and asked prices (in all other cases) for the Common Stock on the first five
trading days following the Effective Date as reported by Nasdaq or such
successor quotation system.
"Initial Public Offering" means the initial public offering by Holdings of
shares of Common Stock pursuant to an effective registration statement on Form
S-1.
"Initial Stock Price" means the price per share to the public at which the
Common Stock is sold in the Initial Public Offering.
"Member," "subscriber" and "insured person." A Person is a Member of the
Company if such Person is a subscriber who is an "insured person" under the name
of the Company through the facilities of the Attorney-in-Fact acting on behalf
of the several subscribers. The term "subscriber" shall include those Persons
who have executed a Subscription Agreement and Power of Attorney or any like
agreement of the Company. The term "insured person" shall include (a) each
individual physician, surgeon, nurse anesthetist, professional medical
partnership, professional medical corporation or other health care provider to
whom or which a policy of insurance has been issued by the Company as "named
insured," and (b) each physician, surgeon, nurse anesthetist or other health
care provider to whom a certificate insert (naming such person as a "physician
member" or "certificate holder") has been issued as part of a policy of
insurance issued by the Company to a professional medical partnership,
professional medical corporation or other health care provider. A "named
insured" under a policy of insurance ceases to be an insured person, subscriber
and Member when the "policy period" of such policy terminates by expiration of
time, cancellation or any other reason and a "physician member" or "certificate
holder" ceases to be an insured person, subscriber and Member when the "coverage
period" or "certificate period" under the applicable policy terminates by
expiration of time cancellation, or any other reason.
3
<PAGE> 8
"Merger Shares" means the shares of Common Stock to be delivered (i) to
Members upon conversion of their Membership Interests by virtue of the Merger
and (ii) to New Insurer as consideration for the cancellation of the shares of
Common Stock held by the Company, which cancellation shall occur immediately
prior to the Merger as set forth in Section 2.6.
"Person" means an individual, corporation, joint venture, limited liability
company, partnership, association, trust, trustee, unincorporated entity,
organization or government or any department or agency thereof.
"Policy" means an insurance policy issued by the Company but does not
include (i) any agreement pursuant to which the Company has ceded or assumed
insurance or (ii) a reporting endorsement.
2.2 Conversion of Membership Interests. At the Effective Time, by virtue
of the Merger and without any action on the part of the Company, New Insurer,
Holdings, the Surviving Corporation or the holder of any of the following
securities:
(a) The rights of Members of the Company arising under the
subscription agreements between Members and the Company (the "Subscription
Agreements"), the Company's Bylaws, the California Insurance Law and
otherwise, including, without limitation, the right to vote for members of
the Board of Governors and on other matters and to participate in any
distribution of surplus on liquidation of the Company (but not including
contractual rights arising under Policies (the "Membership Interests"), in
existence immediately prior to the Effective Time shall be cancelled and
extinguished and be converted into the right to receive shares of Common
Stock as set forth in this Agreement.
(b) The Members entitled to receive Merger Shares shall be the
Eligible Members. The Merger Shares shall be allocated among the Eligible
Members as described in this Article II.
(c) Each share of common stock of New Insurer issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
2.3 Allocation of Merger Shares.
(a) Subject to the provisions of Section 2.4, the number of Merger
Shares allocable to each Eligible Member shall be determined as follows:
(i) Each Eligible Member shall be allocated a number of shares of
Common Stock equal to the product of x and y, where
"x" equals 9,000,000 shares of Common Stock and
"y" equals the ratio of the Earned Premiums of such Eligible Member
on Eligible Policies to the total Earned Premiums of all Eligible
Members on Eligible Policies during the period beginning on January 1,
1993 and ending on but including the Approval Date,
plus
(ii) Each Eligible Member who was also a Member on March 21, 1996
shall be allocated a number of shares of Common Stock equal to 1,000,000
shares of Common Stock divided by the total number of Eligible Members who
were also Members on March 21, 1996.
(b) Subject to the provisions of Section 2.4, the number of Merger
Shares allocable to New Insurer shall be (i) 500,000 or (ii) such other
number as the Board of Directors of Holdings and the Board of Governors of
the Company determine is appropriate in order to insure that the Merger
Shares issued to New Insurer pursuant to the Merger have a fair market
value equivalent to the fair market value of the shares of Common Stock
held by the Company which are to be cancelled in the Merger pursuant to
Section 2.6 hereof.
4
<PAGE> 9
2.4 Adjustment of Share Numbers. In order to effect a filing range (in the
registration statement under the Securities Act of 1933, as amended, relating to
the Initial Public Offering) for the Initial Stock Price which Holdings and the
managing underwriters of the Initial Public Offering deem appropriate, the
Company and Holdings may adjust, by vote of the Board of Governors or a duly
authorized committee thereof at any time and the Board of Directors of Holdings
or any duly authorized committee thereof before the Effective Date and with the
prior approval of the Commissioner, the number of shares of Common Stock set
forth in Section 2.3. Upon such an adjustment, the number of Merger Shares set
forth in Sections 2.3(a)(i) and (ii) and Section 2.3(b) shall be adjusted
proportionately. The number of shares resulting from any such adjustment shall
be rounded up to the next higher whole share.
2.5 Fractional Shares. No fractional shares of Common Stock shall be
issued to any Eligible Member upon surrender of Membership Interests. In lieu of
any fractional shares, each Eligible Member shall be paid an amount in cash
(without interest) rounded to the nearest cent, determined (i) by multiplying
(a) the Initial Stock Price by (b) the fractional interest to which such
Eligible Member would otherwise be entitled or (ii) in the event that the
Initial Public Offering does not occur on the Effective Date, by multiplying (a)
the Fair Market Value by (b) the fractional interest to which such Eligible
Member would otherwise be entitled.
2.6 Cancellation and Issuance of Holdings Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the Company, New
Insurer, Holdings or the Surviving Corporation:
(a) the Common Stock of Holdings held by the Company shall be
cancelled; and
(b) the Merger Shares allocable to New Insurer pursuant to Section
2.3(b) shall be issued.
2.7 Issuance of Consideration. As soon as reasonably practicable after the
Effective Date, Holdings shall prepare and issue (i) stock certificates
representing the Merger Shares allocated to each Eligible Member and to New
Insurer, and (ii) checks representing the cash paid in lieu of fractional
shares, as calculated pursuant to Section 2.5 hereof.
2.8 No Further Interest in the Company. As of the Effective Time, each
Member of the Company shall cease to be a Member, and shall have no further
interest in the Company or the Surviving Corporation, except for such interest
that each such Member may have as a holder of Common Stock.
ARTICLE III
APPROVAL BY THE COMMISSIONER
3.1 Commissioner's Approval. This Plan is subject to the approval of the
Commissioner pursuant to Sections 1552 et. seq. of the California Insurance Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
The Company represents and warrants to Holdings that, as of the date of
this Plan and as of the Effective Time:
4.1 Organization and Qualification. The Company is a reciprocal or
inter-insurance exchange duly organized, validly existing and in good standing
under the laws of the State of California. The Company has all requisite power
and authority required for it to own (or lease) and use its properties and carry
on its business as presently conducted. The Company is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
nature of business or the character of its properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of the Company taken as a whole.
5
<PAGE> 10
4.2 Authority Relative to this Plan; Recommendation to Eligible
Members. The Company has full right, power, and authority to execute, deliver
and perform the terms of this Plan. Subject only to favorable action by the
Company's Eligible Members at the Special Meeting referred to in Section 6.2,
the execution, delivery and performance of this Plan by the Company have been
duly and validly authorized and approved by all required action on the part of
the Company. The Company's Board of Governors has unanimously approved the
execution, delivery and performance of this Plan. Subject only to approval of
the Company's Eligible Members as described above, this Plan constitutes the
valid and binding agreement of the Company and is enforceable in accordance with
its terms.
4.3 Compliance. Neither the execution and delivery of this Plan by the
Company nor the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of (a) the management agreement between the
Company and the Attorney-in-Fact, or the Company's Bylaws or (b) any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any direct or indirect
subsidiary of the Company is a party, or to which any of them, or any of their
respective properties or assets, may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any direct or indirect subsidiary of the Company or
any of their respective properties or assets, except, in the case of each of
clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances, which, in the aggregate, would not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of the Company and its subsidiaries taken as a
whole.
Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), and the "takeover" or "blue sky" laws
of various states, no notice to, filing with, or authorization, consent or
approval of, any domestic or foreign public body or authority is necessary for
the consummation the Company of the transactions contemplated by this Plan,
except where failure to give such notice, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the transactions contemplated hereby or on the
condition (financial or other), business or operations of the Company taken as a
whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER
Each of Holdings and New Insurer each, jointly and severally, represents
and warrants to the Company as follows:
5.1 Organization and Qualification. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. New Insurer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Holdings and
New Insurer is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the nature of their respective businesses
or the character of their respective properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of Holdings and New Insurer, taken
as a whole. New Insurer holds a certificate of authority from the
6
<PAGE> 11
Commissioner to transact specified classes of insurance in the State of
California, and such certificate of authority is in full force and effect.
5.2 Capitalization. As of the date of this Plan, Holdings has an
authorized capital stock of 1,000 shares of Common Stock, par value $.0001 per
share, of which 500 shares are duly and validly issued and outstanding, fully
paid and nonassessable, all of which are held by the Company. As of the date of
this Plan, New Insurer has an authorized capital stock of 100,000 shares of
common stock, par value $260.00 per share, of which 10,000 shares are duly and
validly issued and outstanding, fully paid, nonassessable, all of which are held
by the Company.
5.3 Authority Relative to this Plan. Each of Holdings and New Insurer has
full corporate power and authority to execute and deliver this Plan and to
perform its respective obligations hereunder. All corporate action required on
the part of Holdings and New Insurer in order to authorize such execution,
delivery and performance has been taken. This Plan constitutes the valid and
binding obligation of each of Holdings and New Insurer, enforceable against each
in accordance with its terms.
5.4 Compliance. Neither the execution and delivery of this Plan by
Holdings and New Insurer nor the consummation of the transactions contemplated
hereby nor compliance by Holdings and New Insurer with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Holdings or New
Insurer or any other direct or indirect subsidiary under any of the terms,
conditions or provisions of (a) the respective charters or bylaws of Holdings or
New Insurer or (b) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Holdings or
New Insurer is a party, or to which either of them, or any of their respective
properties or assets, may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Holdings or New Insurer or any of their respective properties or
assets, except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances, which, in the
aggregate, would not have a material adverse effect on the transactions
contemplated hereby or on the condition (financial or other), business or
operations of Holdings and its subsidiaries taken as a whole.
Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Exchange Act, the
Securities Act, and the "takeover" or "blue sky" laws of various states, no
notice to, filing with, or authorization, consent or approval of, any domestic
or foreign public body or authority is necessary for the consummation by
Holdings or New Insurer of the transactions contemplated by this Plan, except
where failure to give such notice, make such filings, or obtain authorizations,
consents or approvals would, in the aggregate, not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of Holdings and New Insurer taken as a whole.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Cooperation. Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Plan and to cooperate with each other in
connection with the foregoing, including using its best efforts to:
(a) prepare and file with the California Department as soon as is
reasonably practicable all necessary permit applications and other
necessary registrations and filings, including, but not limited
7
<PAGE> 12
to, all filings and other submissions of information to governmental
authorities with respect to the transactions contemplated by this Plan, and
use its best efforts to obtain such permits and approvals as promptly as
possible;
(b) prepare and file with the SEC as soon as is reasonably practicable
a Registration Statement, including a proxy statement/prospectus (the
"Registration Statement") with respect to the transactions contemplated by
this Plan, and use its best efforts to have such Registration Statement
declared effective by the SEC under the Securities Act as promptly as
possible;
(c) mail, as soon as is reasonably practicable after receiving any
required regulatory approvals, a proxy statement, together with a form of
proxy, with respect to the meeting of the Company's Eligible Members at
which the Eligible Members of the Company will vote upon this Plan and the
Merger (the "Proxy Statement"). The term "Proxy Statement" shall mean such
proxy or information statement at the time it initially is mailed to the
Company's Eligible Members and all amendments or supplements thereto, if
any, similarly filed and mailed. The information provided and to be
provided by the Company, Holdings and New Insurer, respectively, for use in
the Proxy Statement shall, on the date the Proxy Statement is first mailed
to the Company's Eligible Members and on the date of the meeting of the
Company's Eligible Members referred to in Section 6.2, be true and correct
in all material respects and shall not omit to state any material fact
necessary in order to make such information not misleading, and each of the
Company, Holdings and New Insurer agrees to correct any information
provided by it for use in the Proxy Statement that shall have become false
or misleading;
(d) take all such actions as may be required under state blue sky or
securities laws in connection with the transactions contemplated by this
Plan;
(e) arrange for the listing of the Common Stock on a national
securities exchange;
(f) obtain all necessary waivers, consents and approvals from other
parties to material loan agreements, leases and other contracts;
(g) obtain all necessary consents, approvals and authorizations as are
required to be obtained under any Federal, state or foreign law or
regulations;
(h) defend all lawsuits or other legal proceedings, formal or
informal, challenging this Plan or the consummation of the transactions
contemplated hereby; and
(i) lift, rescind or mitigate the effect of any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby.
6.2 Special Meeting of Eligible Members of the Company. (a) After approval
by the Commissioner of this Plan pursuant to Section 1552 of the California
Insurance Law, the Company shall take all action necessary, in accordance with
California Corporations Law, the California Insurance Law, the Subscription
Agreements and the Company's Bylaws, to convene the Special Meeting of the
Eligible Members as promptly as practicable to consider and vote upon this Plan
and the Merger.
(b) The record date for the Special Meeting shall be the Approval Date.
(c) Each Eligible Member shall be entitled to vote in person or by proxy in
a manner to be prescribed by the Commissioner and the Company's Bylaws;
provided, however, that any vote cast shall be by ballot and not viva voce.
(d) The Proxy Statement shall contain the recommendation of the Board of
Governors that the Eligible Members of the Company vote to adopt and approve the
Merger and this Plan.
(e) The Company shall use its best efforts to solicit from Eligible Members
proxies in favor of such adoption and approval and to take all other action
necessary or, in the reasonable judgment of the Company, helpful to secure the
vote or consent of the Eligible Members.
8
<PAGE> 13
(f) The Company shall mail notice of the Special Meeting to all Eligible
Members. Such notice shall set forth the reasons for the Special Meeting and the
time and place of the Special Meeting, and shall enclose a proxy for each
Eligible Member. Such notice and proxy shall be mailed by first class mail to
the address of each Eligible Member, as such address appears on the records of
the Company, at least 35 days prior to the Special Meeting, and such notice and
proxy shall be in a form satisfactory to the Commissioner. Notice of the Special
Meeting shall be accompanied by information relevant to the Special Meeting.
(g) Notice of the Special Meeting also shall be given by the Company
through publication in a newspaper of general circulation in Los Angeles County,
State of California, the county of the Company's principal place of business.
Such publication shall be made at least twice and shall be published in a
business day edition of the newspaper. Such publication shall be made at least
30 days prior to the Special Meeting.
(h) The affirmative vote of the Eligible Members required for adoption and
approval of this Plan and the Merger shall be 66 2/3% of the Eligible Members.
6.3 Officers' and Directors' Insurance; Indemnification. It is understood
and agreed that the Company shall indemnify and hold harmless and, after the
Effective Time, the Surviving Corporation will indemnify and hold harmless, each
present and former member of the Board of Governors and officer of the Company,
and each director and officer of the Attorney-in-Fact (the "Indemnified
Parties") to the full extent permitted by applicable law against any losses,
claims, damages, liabilities, costs, expenses, judgments and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission which arise
out of or relate to the transactions contemplated by this Plan, and the Company
and the Surviving Corporation, as the case may be, will advance expenses to each
such person upon receipt of an undertaking to: (i) repay such amount if it shall
be determined ultimately that such person is not entitled to indemnification
under the applicable law; and (ii) reasonably cooperate with the Company (of,
after the Effective Time, the Surviving Corporation) concerning the action,
suit, proceeding or investigation. In the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (a) the Indemnified Parties may
retain counsel satisfactory to them and the Company (or them and the Surviving
Corporation after the Effective Time), (b) the Company (or after the Effective
Time, the Surviving Corporation) shall pay all reasonable fees and expenses of
such counsel for the Indemnified Parties promptly as statements therefor are
received, and (c) the Company (or after the Effective Time, the Surviving
Corporation) will use its best efforts to assist in the vigorous defense of any
such matter, provided, that neither the Company nor the Surviving Corporation
shall be liable for any such settlement effected without their written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 6.3, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the
Company or the Surviving Corporation thereof and shall deliver to the Company or
the Surviving Corporation an undertaking to repay any amounts advanced pursuant
hereto when and if a court of competent jurisdiction shall ultimately determine,
after exhaustion of all avenues of appeal, that such Indemnified Party was not
entitled to indemnification under this Section. In addition, upon the occurrence
of the Effective Time, New Insurer shall be deemed expressly to have assumed any
obligations of the Company to its directors and officers for indemnification,
whether under the Company's Bylaws or the Subscription Agreements, or otherwise,
for acts or occurrences prior to the Effective Time. This Section 6.3 shall
survive the consummation of the Merger.
6.4 Continuity of Obligations Regarding Policyholders. It is understood
and agreed that after the Effective Time: (i) the Surviving Corporation shall be
a corporation of the State of California authorized to transact insurance under
the California Insurance Law, (ii) the policyholders of the Company prior to the
Effective Time shall become policyholders of the Surviving Corporation; (iii)
the Surviving Corporation shall, as required by Section 1070.6(b) of the
California Insurance Law, be available to such policyholders to obtain policy
changes and endorsements, to receive payment of premiums and refund unearned
premiums, to serve notice of claim, proof of loss, summons, process and other
papers, and for purposes
9
<PAGE> 14
of suit; and (iv) the Surviving Corporation shall timely file with the
Commissioner the financial statements and tax returns required by Section
1070.6(c) of the California Insurance Law, and shall timely pay all taxes found
to be due relating to the business of the Company in the State of California
during the calendar year of the Merger, in accordance with said Section
1070.6(c).
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) the Registration Statement shall have become effective under the
Securities Act and no stop order with respect to the Registration Statement
shall have been issued;
(b) all consents, authorizations, orders or approvals of the
California Department and any other governmental commission, board or other
regulatory body that the parties mutually agree are essential to effect the
Merger and for New Insurer to conduct the business of New Insurer and the
Company in substantially the same matter as now conducted shall have been
received;
(c) this Plan and the Merger shall have been approved and adopted by
the requisite vote or consent of the Eligible Members of the Company
required by California Corporations Law and California Insurance Law, by
the requisite vote or consent of the shareholders of New Insurer required
by California Corporations Law; and by the requisite vote or consent of the
stockholder of Holdings;
(d) the Company shall have received either a private letter ruling
from the Internal Revenue Service, or an opinion from a law firm of
recognized standing, to the effect that for Federal income tax purposes,
the Eligible Members generally will recognize no gain or loss on the
exchange of their Membership Interests for shares of Common Stock pursuant
to the Merger;
(e) the Company shall have contributed, for no consideration, all of
the outstanding shares of Common Stock of New Insurer to Holdings;
(f) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect, which would prevent the consummation of the
Merger or make the consummation of the Merger illegal; and
(g) prior to the Effective Time, the Company and Holdings shall have
received from an investment banking firm of recognized standing an opinion
that the exchange of the aggregate Membership Interests for the Merger
Shares and the cash in lieu of fractional shares to be paid to the Eligible
Members in the Merger in the aggregate is fair, from a financial point of
view, to the Eligible Members as a group.
ARTICLE VIII
TERMINATION
8.1 Termination. This Plan may be terminated, and the Merger contemplated
herein may be abandoned, at any time prior to the Effective Time, whether prior
to or after approval of the Merger by the Eligible Members:
(a) by mutual written consent of the Board of Directors of Holdings,
the Board of Directors of New Insurer and the Board of Governors of the
Company; or
10
<PAGE> 15
(b) by the Company, if New Insurer or Holdings breaches in any
material respect any of its covenants or agreements contained in this Plan;
or
(c) by Holdings, if the Company breaches in any material respect any
of its covenants or agreements contained in this Plan; or
(d) by either Holdings or the Company:
(i) if the Merger has not been consummated prior to December 31,
1996; or
(ii) if any court of competent jurisdiction or other governmental
body shall have issued an order, decree or ruling, or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
non-appealable.
8.2 Effect of Termination. In the event of the termination of this Plan as
provided in Section 7.1, this Plan shall forthwith become void, and there shall
be no liability on the part of the Company, Holdings or New Insurer, except as
described in Section 6.3 and as set forth in the last sentence of this Section
8.2. Nothing contained in this Section 8.2 shall relieve the Company, Holdings
or New Insurer from liability for any breach of this Plan.
ARTICLE IX
GENERAL PROVISIONS
9.1 Amendment. This Plan may be amended by an instrument in writing signed
on behalf of each of the parties hereto; provided, however, that after approval
of the Merger by the Eligible Members, no amendment may be made which under
applicable law requires further approval of Eligible Members without such
further approval of Eligible Members.
9.2 Extension; Waiver. At any time prior to the Effective Time any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto; (ii) waive any inaccuracies in the
representations and warranties contained in this Plan and (iii) waive compliance
with any of the agreements of the other parties or conditions to its own
obligations contained in this Plan. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
9.3 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, New Insurer and Holdings
contained herein shall expire with, and be terminated and extinguished upon,
consummation of the Merger, and thereafter none of the Company, New Insurer and
Holdings or any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty. This
Section 9.3 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation of the Merger.
9.4 Entire Plan. This Plan contains the entire agreement among the
Company, New Insurer and Holdings with respect to the subject matter hereof and
supersedes all prior arrangements and understandings, both written and oral,
among such parties with respect thereto.
9.5 Counterparts. This Plan may be executed in one or more counterparts,
all of which shall be considered one and same agreement and shall become binding
when one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.6 Severability. It is the desire and intent of the parties that the
provisions of this Plan be enforced to the fullest extent permissible under the
law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Plan would be held
in any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Plan or affecting the
11
<PAGE> 16
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Plan or affecting the validity or enforceability of
such provision in any other jurisdiction.
9.7 Notices. Any notice given by any party under this Plan (each, a
"notice") shall be in writing and shall be deemed duly given (i) when personally
delivered, or (ii) when five days have elapsed after its transmittal by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party to whom directed at that party's address as it appears
below or another address of which that party has given notice as provided
herein, or (iii) when transmitted by telex or telecopy (or equivalent service),
the sender's receiving apparatus having printed the answerback (if any) of the
addressee on a copy of the telex or telecopy message. Notices of address change
shall be effective only upon receipt notwithstanding the previous sentence.
If to the Company, to:
Southern California Physicians Insurance Exchange
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
If to Holdings to:
SCPIE Holdings Inc.
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
If to New Insurer, to:
SCPIE Indemnity Company
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924
In each case, with copy to:
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attention: Donald P. Newell, Esq.
Telecopy No.: (619) 696-7419
9.8 Public Announcements. Unless otherwise required by law, prior to the
Effective Time, no news release or other public announcement pertaining to the
transactions contemplated by this Plan will be made by any party without the
prior written consent of the other party hereto.
9.9 Section Headings. The section headings contained in this Plan are
inserted for reference purposes only and shall not affect the meaning or
interpretation of this Plan.
9.10 Benefits and Assignment. This Plan is not intended to convey upon any
person other than the parties any rights or remedies hereunder. This Plan shall
not be assigned by operation of law or otherwise.
12
<PAGE> 17
9.11 Applicable Law. This Plan and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and to be performed therein.
IN WITNESS WHEREOF, each of the parties has caused this Plan to be executed
as of the date first above written, which is sometimes referred to herein as
"the date of this Plan."
SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, by SCPIE
Management Company, its
Attorney-in-Fact
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
SCPIE INDEMNITY COMPANY
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
SCPIE HOLDINGS INC.
By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer
By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary
13
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SCPIE HOLDINGS INC.
SCPIE HOLDINGS INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), DOES HEREBY CERTIFY:
1. The Corporation's original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
September 18, 1995 under the name SCPIE HOLDINGS INC.
2. That by action taken at a special meeting of the
Board of Directors on May 9, 1996, resolutions were duly adopted setting forth
a proposed amendment and restatement of the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and
directing its officers to submit said amendment and restatement to the
stockholder of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment and restatement is as follows:
"THEREFORE, BE IT RESOLVED, that the Certificate of
Incorporation of the Corporation is hereby amended and restated to
read in its entirety as follows, subject to the required consent of
the stockholder of the corporation:
FIRST: The name of the Corporation (hereinafter the
"Corporation") is
SCPIE HOLDINGS INC.
SECOND: The address, including street, number, city and
county, of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington,
County of New Castle, and the name of the registered agent of
the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
<PAGE> 2
THIRD: The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue shall be thirty five
million (35,000,000), divided as follows: (i) thirty million
(30,000,000) shares of Common Stock with a par value of $.0001
per share, and (ii) five million (5,000,000) shares of
Preferred Stock with a par value of $1.00 per share.
Shares of Preferred Stock may be issued from
time to time in one or more series, each of such series to
have such terms as stated in the resolution or resolutions
providing for the establishment of such series adopted by the
Board of Directors of the Corporation as hereinafter provided.
Except as otherwise expressly stated in the resolution or
resolutions providing for the establishment of a series of
Preferred Stock, any shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise expressly provided by law.
Authority is hereby expressly granted to the
Board of Directors of the Corporation to issue, from time to
time, shares of Preferred Stock in one or more series, and, in
connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting
powers, full or limited, or no voting powers, and such other
powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications,
limitations and restrictions thereof, if any including,
without limitation, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be
stated in such resolution or resolutions, all to the fullest
extent permitted by the General Corporation Law of the State
of Delaware. Without limiting the generality of the
foregoing, the resolution or resolutions providing for the
establishment of any series of Preferred Stock may, to the
extent permitted by law, provide that such series shall be
superior to, rank equally with or be junior to the Preferred
Stock of any other series. Except as otherwise expressly
provided in the resolution or resolutions providing for the
establishment of any series of Preferred Stock, no vote of the
holders of shares of Preferred Stock or Common Stock shall be
a prerequisite to the issuance of any shares of any series of
the Preferred Stock authorized by and complying with the
conditions of this Amended and Restated Certificate of
Incorporation.
FIFTH: 1. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors
consisting of (not including directors elected by one or more
series of Preferred Stock) not less than 7 nor more than 13
directors, the exact number of directors to be determined from
time to time solely by resolution adopted by the affirmative
vote of a majority of the directors.
2
<PAGE> 3
2. The directors of the Corporation, other than
directors elected by one or more series of Preferred Stock,
shall be divided into three classes, designated Class I, Class
II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors
(other than directors elected by one or more series of
Preferred Stock) constituting the entire Board of Directors.
Each director (other than directors elected by one or more
series of Preferred Stock) shall serve for a term ending on
the date of the third annual meeting of stockholders next
following the annual meeting at which such director was
elected, provided that directors initially designated as Class
I directors shall serve for a term ending on the date of the
1997 annual meeting, directors initially designated as Class
II directors shall serve for a term ending on the date of the
1998 annual meeting, and directors initially designated as
Class III directors shall serve for a term ending on the date
of the 1999 annual meeting. Notwithstanding the foregoing,
each director shall hold office until such director's
successor shall have been duly elected and qualified or until
such director's earlier death, resignation, disqualification
or removal. If the authorized number of directors (other than
directors elected by one or more series of Preferred Stock and
other than directors to be elected at an annual meeting of
stockholders) is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, but in no
event will a decrease in the number of directors shorten the
term of any incumbent director. Vacancies on the Board of
Directors resulting from death, resignation, removal or
otherwise and newly created directorships resulting from any
increase in the number of directors may be filled (other than
directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although
less than a quorum) or by a sole remaining director, and each
director so elected shall hold office for a term that shall
coincide with the remaining term of the class to which such
director shall have been elected. Whenever the holders of one
or more series of Preferred Stock shall have the right, voting
separately as a series, to elect directors, the nomination,
election, term of office, filling of vacancies, removal and
other features of such directorships shall not be governed by
this ARTICLE SIXTH unless otherwise provided for in the
certificate of designation for such series.
3. No director (other than directors elected by one or
more series of Preferred Stock) may be removed from office by
the stockholders except for cause and, in addition to any
other vote required by law, upon the affirmative vote of the
holders of not less than 66 2/3% of the total voting power of
all outstanding securities of the Corporation then entitled to
vote generally in the election of directors, voting together
as a single class.
SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of
the Corporation and for the further definition of the powers
of the Corporation and its directors and stockholders:
1. The Board of Directors shall have the power to adopt,
amend or repeal the by-laws of the Corporation.
The stockholders may adopt, amend, alter, repeal or
rescind the by-laws of the Corporation only with, in addition
to any other vote required by law, the
3
<PAGE> 4
affirmative vote of the holders of not less than 66 2/3% of
the total voting power of all outstanding securities of the
Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
2. Elections of directors need not be by written ballot
unless the by-laws of the Corporation so provide.
3. Any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken only
upon the vote of stockholders at an annual or special meeting
duly noticed and called in accordance with the General
Corporation Law of the State of Delaware, and may not be taken
by written consent of stockholders without a meeting.
4. Special meetings of stockholders may be called by the
Board of Directors, the Chairman of the Board of Directors or
the President of the Corporation and may not be called by any
other person. Notwithstanding the foregoing, whenever holders
of one or more series of Preferred Stock shall have the right,
voting separately as a series, to elect directors, such
holders may call special meetings of such holders pursuant to
the certificate of designation for such series.
SEVENTH: A director of this Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing
paragraph shall not adversely affect any right or protection
of a director of the Corporation existing hereunder with
respect to any act or omission occurring prior to such repeal
or modification.
EIGHTH: The Corporation reserves the right at any time, and
from time to time, to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, and
other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights
reserved in this article.
3. That thereafter, at a meeting of the sole stockholder
of the Corporation in accordance with Section 228 of the General Corporation
Law of the State of Delaware, all of the shares of Common Stock of the
Corporation were voted in favor of the amendment.
4
<PAGE> 5
4. That said Amended and Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, SCPIE HOLDINGS INC. has caused this
Certificate to be signed by Donald J. Zuk, its President, this ___ day of May,
1996.
SCPIE HOLDINGS INC.
a Delaware corporation
By:__________________________________________
Name: Donald J. Zuk
Title: President
5
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SCPIE HOLDINGS INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------
Section 1. REGISTERED OFFICES . . . . . . . . . . . . . . . . . . . 1
Section 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 1
------------------------
Section 1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS . . . . . . . . . . . . . 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF . . . . . . 1
Section 4. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 3
Section 7. NOTICE OF STOCKHOLDER . . . . . . . . . . . . . . . . . 3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST . . . . . 5
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------
Section 1. THE NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . 6
Section 2. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4. PLACE OF DIRECTORS' MEETINGS . . . . . . . . . . . . . . 7
Section 5. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . 7
Section 6. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 7
Section 7. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . 8
Section 9. TELEPHONIC MEETINGS . . . . . . . . . . . . . . . . . . . 8
Section 10. COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . 8
Section 11. MINUTES OF COMMITTEE MEETINGS . . . . . . . . . . . . . 9
Section 12. COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . 9
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
Section 1. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2. ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . 10
Section 3. SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . 10
Section 4. COMPENSATION OF OFFICERS . . . . . . . . . . . . . . . . 10
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES . . . . . . . . . . 10
Section 6. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . 11
Section 7. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . 11
Section 9. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10. ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . 12
Section 11. TREASURER . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 12. ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . 13
ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . 13
-----------------------------------------
ARTICLE VI INDEMNIFICATION OF EMPLOYEES AND AGENTS . . . . . . . . . . . 14
---------------------------------------
ARTICLE VII CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . . 14
---------------------
Section 1. CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. SIGNATURES ON CERTIFICATES . . . . . . . . . . . . . . . 14
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES . . . 15
Section 4. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . 15
Section 5. TRANSFERS OF STOCK . . . . . . . . . . . . . . . . . . . 16
Section 6. FIXED RECORD DATE . . . . . . . . . . . . . . . . . . . . 16
Section 7. REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . 16
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 17
------------------
Section 1. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES . . . . . . . . . 17
Section 3. CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . 17
Section 6. MANNER OF GIVING NOTICE . . . . . . . . . . . . . . . . . 18
Section 7. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
OF
SCPIE HOLDINGS INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall
be held at any place within or outside the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual
meeting of stockholders shall be held each year on a date and a time designated
by the Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A
majority of the voting power of the shares of capital stock of the corporation
issued and outstanding and entitled to vote at any meeting of stockholders, the
holders of which are present
<PAGE> 5
in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws. A quorum, once established, shall not
be broken by the withdrawal of enough votes to leave less than a quorum and the
votes present may continue to transact business until adjournment. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, a majority of the voting power of the shares of capital stock
represented in person or by proxy may adjourn the meeting from time to time,
without notice other than announcement at the meeting of the time and place of
the adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting,
in all matters other than the election of directors, the vote of the holders of
stock representing a majority of the voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the Certificate
of Incorporation, or these By-Laws, or any rule, regulation or statutory
provision applicable to the corporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote
on the election of directors.
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<PAGE> 6
Section 5. PROXIES. At each meeting of the stockholders,
each stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless said instrument provides for a longer
period. All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Each stockholder shall have one vote for each share of common stock having
voting power, registered in his name on the books of the corporation on the
record date set by the Board of Directors as provided in Article VI, Section 6
hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose, or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Board of
Directors, the Chairman of the Board or the President. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (1) of this By-Law, the stockholder
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<PAGE> 7
must have given timely notice thereof in writing to the Secretary of the
corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the corporation not later
than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made by
the corporation. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14A-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the nomination or proposal is made and
(c) as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address of
such
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<PAGE> 8
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are
owned beneficially and of record by such stockholder and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors
(other than directors elected by one or more series of Preferred Stock) which
shall constitute the whole Board shall be not less than seven (7) nor more than
thirteen (13), the exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a majority of the
directors. The directors need not be stockholders. The directors shall be
elected at the annual
5
<PAGE> 9
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is duly elected
and qualified.
Section 2. VACANCIES. Vacancies on the Board of Directors by
reason of death, resignation, removal, or otherwise, and newly created
directorships resulting from any increase in the number of directors may be
filled (other than directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although less than a
quorum) or by a sole remaining director. Each director so chosen shall hold
office until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation, disqualification
or removal. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3. POWERS. The property and business of the
corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
6
<PAGE> 10
Section 4. PLACE OF DIRECTORS' MEETINGS. The directors may
hold their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board
of Directors may be held without notice at such time and place as shall from
time to time be determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the President on forty-eight hours' notice to
each director, either personally or by mail, telecopier, or other means of
electronic transmission at the address of such director on the books and
records of the corporation; special meetings shall be called by the President
or the Secretary in like manner and on like notice on the written request of
two directors.
Section 7. QUORUM. At all meetings of the Board of Directors
a majority of the then authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these By-Laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 8. ACTION WITHOUT MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting,
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<PAGE> 11
if all members of the Board or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, each such committee to consist of one or more of the directors
of the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the
8
<PAGE> 12
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the By-Laws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall
be chosen by the Board of Directors and shall include a Chairman of the Board
of Directors or a President, or both, and a Secretary. The corporation may
also have at the discretion of the Board of Directors such other officers as
are desired, including a Vice-Chairman of the Board of Directors, a Chief
Executive Officer, a Treasurer, one or more Vice Presidents, one or more
Assistant Secretaries and Assistant Treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 3 hereof. In the
event there are two or more Vice Presidents, then one or
9
<PAGE> 13
more may be designated as Executive Vice President, Senior Vice President, or
other similar or dissimilar title. At the time of the election of officers,
the directors may by resolution determine the order of their rank. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at
its first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all
officers and agents of the corporation shall be fixed by the Board of
Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The
officers of the corporation shall hold office until their successors are chosen
and qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the members of the Board of Directors. If the office of any officer or
officers becomes vacant for any reason, the vacancy shall be filled by the
Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if such an officer be elected, shall, if present, preside at all meetings of
the Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or
prescribed by these By-Laws. If there is no President, the Chairman
10
<PAGE> 14
of the Board shall in addition be the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 7 of
this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the Chief Executive Officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall be an ex-officio member of all committees
and shall have the general powers and duties of management usually vested in
the office of President and Chief Executive Officer of corporations, and shall
have such other powers and duties as may be prescribed by the Board of
Directors or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all
sessions of the Board of Directors and all meetings of the stockholders and
record all votes and the minutes of all proceedings in a book to be kept for
that purpose; and shall perform like duties for the standing committees when
required by the Board of Directors. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other
11
<PAGE> 15
duties as may be prescribed by the Board of Directors or these By-Laws. He
shall keep in safe custody the seal of the corporation, and when authorized by
the Board, affix the same to any instrument requiring it, and when so affixed
it shall be attested by his signature or by the signature of an Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. TREASURER. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement
12
<PAGE> 16
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 12. ASSISTANT TREASURER. The Assistant Treasurer, or
if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Treasurer designated by the Board of Directors, shall, in the absence
or disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall indemnify every person who was or is a
party or is or was threatened to be made a party to any action, suit, or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer of the corporation or,
while a director or officer of the corporation, is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including counsel fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent permitted by applicable law.
The corporation shall be required to indemnify a person in connection with a
proceeding (or part thereof) initiated by such person only if the proceeding
(or part thereof) was authorized by the Board of Directors of the corporation.
The indemnification provided for in these Bylaws shall not be deemed
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<PAGE> 17
exclusive of any other rights to which those seeking indemnification may be
entitled under these Bylaws, or any agreement, vote of stockholders or
otherwise.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify every person who
was or is a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was an employee or agent of the corporation
or, while an employee or agent of the corporation, is or was serving at the
request of the corporation as an employee or agent or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including counsel fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the extent permitted by
applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the
corporation shall be entitled to have a certificate signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer of the corporation,
certifying the number of shares represented by the certificate owned by such
stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer,
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<PAGE> 18
transfer agent, or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES,
PRIVILEGES. If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of the State
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct
15
<PAGE> 19
as indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the
corporation, or the transfer agent of the corporation, of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of the stockholders, or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors may
fix a record date which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
16
<PAGE> 20
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before
payment of any dividend there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
17
<PAGE> 21
Section 6. MANNER OF GIVING NOTICE. Whenever, under the
provisions of the Certificate of Incorporation, or of these By-Laws, or any
rule, regulation or statutory provision applicable to the corporation, notice
is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given (unless
otherwise provided) in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail. Notice to
directors may also be given by mail, telecopier, or other means of electronic
transmission at the address of such director on the books and records of the
corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provisions of the Certificate of Incorporation or of
these By-Laws, or any rule, regulation or statutory provision applicable to the
corporation, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These
By-Laws may be altered, amended or repealed or new By-Laws may be adopted by
the affirmative vote of the holders of not less than two-thirds of the total
voting power of all outstanding shares of securities of the corporation then
entitled to vote generally in the election of directors or by the Board of
Directors, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
By-Laws be contained in the notice of such special meeting.
18
<PAGE> 22
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of
SCPIE HOLDINGS INC., a Delaware corporation; and
(2) That the foregoing amended and restated by-laws
constitute the bylaws of said corporation as duly adopted by the written
consent of the stockholder of said corporation as of May 9, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this
9th day of May, 1996.
_______________________________
Wendell L. Moseley, M.D.
Secretary
19
<PAGE> 1
EXHIBIT 10.3
FIRST INTERSTATE BANK
OF CALIFORNIA
Beverly Hills Office
{LOGO} Box 11229
Beverly Hills, CA 90213
310 285-5700
January 11, 1995
Mr. Patrick T. Lo
Vice President and Chief Financial Officer
Southern California Physicians Insurance Exchange
9441 West Olympic Boulevard
Beverly Hills, CA 90212
Dear Mr. Lo:
On behalf of First Interstate Bank of California ("Bank"), I am pleased to
offer to Southern California Physicians Insurance Exchange ("Borrower" or
"Company") a credit arrangement subject to the following terms and conditions.
TERMS AND CONDITIONS:
Amount and Nature
Of Facility: A standby Letter of Credit in the amount of
$27,368,087.
Maturity Date: One year from date of issuance of Letter of
Credit. The Letter of Credit shall automatically
renew for one (1) year from the expiration date,
or any future expiration date, unless the Bank
provides notice to the Company forty-five (45) days
prior to any expiration date of a decision not to
renew for any additional period.
Collateral: A first priority security interest in the
Acceptable Liquid Collateral. Borrower is to
pledge Acceptable Liquid Collateral to the Bank
with a minimum market value such that the face
amount of the Letter of Credit does not exceed a
commitment to market value ratio of 80%.
Acceptable Liquid Collateral is defined as cash or
triple-A rated U.S. Treasury Securities or
equivalent securities acceptable to Bank.
We go the extra mile for you.(SM)
<PAGE> 2
Fee: Annual Letter of Credit fee of $54,736, payable in
advance quarterly payments of $13,684.
Conditions Precedent:
1. Legal counsel of Borrower to submit an opinion letter confirming
enforceability of documentation and a letter confirming Bank's secured
interest priority over regulatory authorities, including in the event
of insolvency, satisfactory to the Bank.
2. Borrower to submit a list of litigation involving Company and/or its
insured involving claims in excess of $10,000,000 with Company
counsel's opinion as to the status and likely resolution of each
claim, satisfactory to Bank.
3. Borrower to submit evidence of good standing with the State of
California Insurance Commissioner, satisfactory to Bank.
4. Chief Financial Officer of Borrower to submit a listing of the 1]
names of reinsurers with their respective Standard & Poor's and
Moody's Investor Service ratings; 2] amount ceded to each reinsurer;
3] description of retention of risk; and 4] maximum exposure for any
one policyholder, satisfactory to Bank.
5. Borrower to submit a management letter from its Certified Public
Accountants, for the fiscal year end 1993 audit, expressing that no
significant internal control issues were in existence, satisfactory to
Bank.
6. Borrower to submit its actuarial report evidencing the adequacy of
reserves, satisfactory to Bank.
7. Borrower to submit CPA audited and Statutory fiscal year end financial
statements of Company for the past three years, including interim
Company-prepared and Statutory financial statements for the current
fiscal year.
Financial Information Requirements:
1. CPA Audited and Statutory fiscal year end financial statements of
Company shall be submitted within ninety (90) days of each fiscal year
end. Corporate tax returns shall be submitted within fifteen (15)
days of filing. Company-prepared and Statutory quarterly financial
statements shall be submitted within sixty (60) days of each quarter
end.
2. All other information submitted to insurance regulatory authorities.
2
<PAGE> 3
3. Such other information as Bank deems necessary during the course of
this facility.
Special Requirements:
1. All collateral pledged is required to be in the ownership and name of
Borrower and held by Bank.
2. If at any time, and from time to time during the commitment period, a
decrease in the collateral value causes the commitment to market value
ratio to exceed 80%, Borrower is required to pledge additional
Acceptable Liquid Collateral to return the commitment to market value
ratio to no more than 80% within fifteen (15) days of notification to
Borrower of the violation.
3. If the call date of the pledged collateral occurs during the lifetime
of this facility, the funds are to be reinvested into Acceptable
Liquid Collateral.
4. Company agrees to maintain a minimum total capital and surplus, on a
statutory basis, in the amount of $150,000,000.
5. Company agrees not to incur any indebtedness in excess of $5,000,000,
in the aggregate, with the exception of normal operating liabilities
without the prior written consent of Bank.
6. Borrower agrees to submit annually, the first being upon the execution
of the loan documents, a list of litigation involving Company and/or
its insured involving claims in excess of $10,000,000 with Company
counsel's opinion as to the status and likely resolution of each
claim, satisfactory to Bank.
7. Promptly upon request by Bank, Borrower shall provide Bank such
further information, documents, instruments, opinions and assurances
as may be requested from time to time by Bank in connection with the
facility.
In addition to the items specified above, the final documentation would include
representations and warranties, affirmative and negative covenants, events of
default and miscellaneous provisions that are customary in Bank's financing of
this type.
All terms set forth in any note, security agreements or other document executed
in connection with the facility provided herein or therein shall be in full
force and effect.
3
<PAGE> 4
Any breach of the terms of this letter agreement shall constitute a breach of
any note or other agreement executed in connection herewith, and shall entitle
Bank to terminate this facility and/or make demand for immediate payment in
full of all obligations owed Bank, notwithstanding any terms to the contrary
set forth in such documents.
This commitment is provided to the Company solely for the purposes described
herein and may not be disclosed to, or relied upon by, any other party without
prior written consent of Bank.
Kindly indicate your agreement to this commitment by signing the enclosed copy
and returning it to us. This offer shall expire at 5:00 p.m. on January 13,
1995, unless prior to such time we have received such copy executed by you. If
you have any questions, please contact me at (310) 285-5780.
Sincerely,
First Interstate Bank of California
Beverly Hills Regional Commercial Center
JULIANA P. HAZLETT
-----------------------------------------------
Juliana P. Hazlett
Vice President
JAMES M. HIRANO
-----------------------------------------------
James M. Hirano
Assistant Vice President
4
<PAGE> 5
ACKNOWLEDGED AND AGREED TO:
Southern California Physicians Insurance Exchange
by: SCPIE Management Company, a California Corporation, as
Attorney-in-Fact.
By: DONALD J. ZUK Date: 1/11/95
-----------------------------------
Name: Donald J. Zuk
Title: President/CEO
BY: PATRICK T. LO
-----------------------------------
Name: Patrick T. Lo
Title: Vice President/CFO
5
<PAGE> 1
EXHIBIT 10.4
First Interstate Bank
of California
Beverly Hills Regional Commercial Center
{LOGO} 9601 Wilshire Boulevard
Beverly Hills, CA 90210
310 285-5784
Fax 310 285-5829
January 26, 1995
Mr. Patrick T. Lo
Vice President and Chief Financial Officer
Southern California Physicians Insurance Exchange
9441 West Olympic Boulevard
Beverly Hills, CA 90212
Dear Mr. Lo:
On behalf of First Interstate Bank of California ("Bank"), we are pleased to
offer to Southern California Physicians Insurance Exchange ("Borrower" or
"Company" ) a renewal of the existing credit arrangement subject to the
following terms and conditions.
TERMS AND CONDITIONS:
Amount and Nature
Of Facility: A $5,000,000 Secured Standby Letter of Credit
Facility for the issuance of Letter(s) of Credit in
favor of Kover, Ltd.
Maturity/Expiration
Date: January 31, 1996. Letter(s) of Credit issued under
the facility shall automatically renew for one (1)
year from the expiration date, unless the Bank
provides notice to the Company thirty (30) days prior
to any expiration date of a decision not to renew for
any additional period.
Collateral: A first priority security interest in the Acceptable
Liquid Collateral. Borrower is to pledge Acceptable
Liquid Collateral to the Bank and agrees to maintain
a minimum market value of $6,000,0000. Acceptable
Liquid Collateral is defined as cash or double-A
rated Municipal Bonds or equivalent securities
acceptable to Bank.
<PAGE> 2
Southern California Physicians Insurance Exchange
Fee: Annual Letter of Credit fee of 20 basis points,
payable in advance. Other standard origination,
amendment and negotiation fees will apply, when
applicable.
Conditions Precedent:
1. Legal counsel of Borrower to submit a letter discussing the Bank's
secured interest priority over regulatory authorities, including in
the event of insolvency, satisfactory to the Bank.
2. Borrower to submit a list of litigation involving Company and/or its
insured involving claims in excess of $10,000,000 with Company
counsel's opinion as to the status and likely resolution of each
claim, satisfactory to Bank.
3. Borrower to submit evidence of good standing with the State of
California Insurance Commissioner, satisfactory to Bank.
4. Chief Financial Officer of Borrower to submit a listing of the 1]
names of reinsurers with their respective Standard & Poor's and
Moody's Investor Service ratings; 2] amount ceded to each reinsurer;
3] description of retention of risk; and 4] maximum exposure for any
one policyholder, satisfactory to Bank.
5. Borrower to submit a management letter from its Certified Public
Accountants, for the fiscal year end 1993 audit, expressing that no
significant internal control issues were in existence, satisfactory to
Bank.
6. Borrower to submit its actuarial report evidencing the adequacy of
reserves, satisfactory to Bank.
7. Borrower to submit CPA audited and Statutory fiscal year end financial
statements of Company for the past three years, including interim
Company-prepared and Statutory financial statements for the current
fiscal year.
Financial Information Requirements:
1. CPA Audited and Statutory fiscal year end financial statements of
Company shall be submitted within ninety (90) days of each fiscal year
end. Corporate tax returns shall be submitted within fifteen (15)
days of filing. Company-prepared and Statutory quarterly financial
statements shall be submitted within sixty (60) days of each quarter
end.
2
<PAGE> 3
Southern California Physicians Insurance Exchange
2. All other information submitted to insurance regulatory authorities.
3. Such other information as Bank deems necessary during the course of
this facility.
Special Requirements:
1. All collateral pledged is required to be in the ownership and name of
Borrower and held by Bank.
2. If at any time, and from time to time during the commitment period,
the collateral value decreases below $6,000,000, Borrower is required
to pledge additional Acceptable Liquid Collateral to return the
collateral market value to the minimum $6,000,000 requirement within
fifteen (15) days of notification to Borrower of the violation.
3. If the maturity/call date of the pledged collateral occurs during the
lifetime of this facility, the funds are to be reinvested into
Acceptable Liquid Collateral.
4. Company agrees to maintain a minimum total capital and surplus, on a
statutory basis, in the amount of $150,000,000.
5. Company agrees not to incur any indebtedness in excess of $5,000,000,
in the aggregate, with the exception of normal operating liabilities
without the prior written consent of Bank.
6. Borrower agrees to submit annually, the first being upon the execution
of the loan documents, a list of litigation involving Company and/or
its insured involving claims in excess of $10,000,000 with Company
counsel's opinion as to the status and likely resolution of each
claim, satisfactory to Bank.
7. Promptly upon request by Bank, Borrower shall provide Bank such
further information, documents, instruments, opinions and assurances
as may be requested from time to time by Bank in connection with the
facility.
8. Company shall pay each draw under a Letter(s) of Credit upon demand.
In addition to the items specified above, the final documentation would include
letter of credit application form, representations and warranties, affirmative
and negative covenants, events of default and miscellaneous provisions that are
customary in Bank's financing of this type.
3
<PAGE> 4
Southern California Physicians Insurance Exchange
All terms set forth in any note, security agreements or other document executed
in connection with the facility provided herein or therein shall be in full
force and effect.
Any breach of the terms of this letter agreement shall constitute a breach of
any note or other agreement executed in connection herewith, and shall entitle
Bank to terminate this facility and/or make demand for immediate payment in
full of all obligations owed Bank (including prepayment of any outstanding
Letter(s) of Credits), notwithstanding any terms to the contrary set forth in
such documents.
This commitment is provided to the Company solely for the purposes described
herein and may not be disclosed to, or relied upon by, any other party without
prior written consent of Bank.
Kindly indicate your agreement to this commitment by signing the enclosed copy
and returning it to us. This offer shall expire at 3:00 p.m. on January 30,
1995, unless prior to such time we have received such copy executed by you. We
are available to further discuss and answer any questions you may have
regarding the above.
Sincerely,
First Interstate Bank of California
Beverly Hills Regional Commercial Center
JULIANA P. HAZLETT
----------------------------------------
Juliana P. Hazlett
Vice President
JAMES M. HIRANO
----------------------------------------
James M. Hirano
Assistant Vice President
4
<PAGE> 1
01-95-0020
EXHIBIT 10.5
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and the terms
and conditions subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amount of ultimate net loss which the Company may pay as the
result of claims made during the term of this Agreement under the Company's
Physicians and Surgeons Comprehensive Professional and Business Liability
policies, including Clinics and Clinical Laboratories, Professional and
Business Liability policies for Hospitals and Errors and Omissions Liability
policies for Managed Care Organizations which are in force or may hereinafter
come into force during the term of this Agreement, except as excluded under the
Exclusions Article subject to the limitations set forth in the Limits of Cover
Article.
ED 9/28/95 Page 1 of 15
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<PAGE> 2
01-95-0020
ARTICLE II
EXCLUSIONS:
This Agreement specifically excludes:
1. All 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 which 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.
2. Loss or Liability excluded by the provisions of the attached
"Nuclear Incident Exclusion Clause - Liability - Reinsurance".
3. All Assumed Reinsurance.
ARTICLE III
TERM:
A. Except as provided in paragraph C. below, this Agreement shall apply
to claims made during the twelve month period beginning January 1, 1995. In
the event a loss, as defined in Article VI, involves a loss or losses covered
under the current Agreement Year and a prior Agreement Year(s) no recovery
shall be made hereunder in respect of any loss which occurred prior to:
1. January 1, 1979 as regards Extra Contractual Obligation (as
provided for in Article XI hereof)
2. January 1, 1976 as regards all other business.
B. It is understood however, that in respect of Personal Liability and
Discovery Period coverage for Deceased, Disabled, Retired and Withdrawing
Physicians and for Physicians ceasing Medical Practice within the State, this
Agreement covers claims made during the period of this Reinsurance Agreement.
In the event this Agreement is not renewed, all such liability shall be assumed
by the Company with effect from the date of cancellation.
C. The provisions of paragraphs A. and B. notwithstanding, the Company
may, at its option, elect to continue to cover the in force portfolio of
liability on the date of expiration for a further period of twelve months.
Should the Company exercise this option, the Company shall give the Reinsurer
notice prior to expiration that they wish to exercise this option. The Company
shall pay to the Reinsurer an additional premium thereon at the rates set forth
in the Premium Article applied to the Company's Gross Net Earned Premium Income
(GNEPI) for policies in force at the date of expiration.
ED 2/27/95 Page 2 of 15
(231)/pc/jk
<PAGE> 3
01-95-0020
D. If any law or regulation of the Federal, State or Local Government or
any jurisdiction in which the Company is doing business shall render illegal
the arrangements made herein, this Agreement can be terminated immediately
insofar as it applies to such jurisdiction by the Company giving notice to the
Reinsurer to such effect.
E. Notwithstanding the expiration of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
ARTICLE IV
ATTACHMENT OF LIABILITY:
A. For purposes of determining the attachment of the Reinsurer's
liability hereunder as respects any one loss, all losses (including Discovery
Period Losses) involving one or more Original Insureds, arising from the same
medical incident, and in which First Notice of Claim or Circumstance is
notified to the Company during the term of this Agreement shall be covered
hereunder. Where First Notice falls in Agreement Years prior to January 1,
1992 paragraph D. (Interlocking Clause) of Article V below, shall apply hereon
for Physicians and Surgeons Comprehensive Professional Liability policies only.
B. The date of loss hereunder shall be the earliest date, within the term
of this Agreement, that the Company has received First Notice of Claim or
Circumstance.
ARTICLE V
LIMITS OF COVER:
A. The Company shall retain for its own account and pay under one or more
of the Company's policies the first $1,000,000 ultimate net loss, each and
every loss and the Reinsurer agrees to reimburse the Company for the amount of
ultimate net loss paid in excess of $1,000,000, each and every loss, but the
Reinsurer's maximum liability shall not exceed $1,000,000 resulting from each
and every loss.
B. Notwithstanding the foregoing, it is a condition hereto that an Annual
Aggregate Deductible of losses otherwise recoverable hereunder equal to 1% of
GNEPI shall first be deducted before any liability attaches to the Reinsurer
hereon.
C. The Reinsurer's maximum liability from all losses during the term of
this Agreement shall not exceed $8,500,000 or 182.5% of the Company's
Reinsurance Premiums Earned during the period, whichever is greater. It is
further agreed that the Reinsurer's maximum liability, as respects any elected
run off period, shall be limited to $8,500,000 or 182.5% of the Company's
Reinsurance Premiums Earned, whichever is greater, for said run-off period.
D. (This paragraph shall apply only to those claims where first notice of
claim or circumstance falls in Agreement Years prior to January 1, 1992.) As
respects each and every loss where this Agreement responds on a claims made
basis, and more than one insured or policy
ED 2/27/95 Page 3 of 15
(231)/pc/jk
<PAGE> 4
01-95-0020
is covered under this Agreement period with claims made dates falling in more
than one reinsurance agreement period, the limit and retention as respects
claims covered under this Agreement shall be the percentage of the Limit and
Retention under this Agreement that the amount of covered claim or claims
hereunder bears to the total of all covered claims from the same loss.
ARTICLE VI
DEFINITIONS:
A. The term "each and every loss" shall mean the happening of one or a
series of related acts, errors, or omissions to act, accidents or occurrences
arising out of one event.
B. The term "Gross Net Earned Premium Income" shall mean the gross earned
premium on business the subject matter hereof less cancellations and return
premiums and less premiums paid for reinsurance recoveries under which would
inure to the benefit of the Reinsurer. Such Premium Income shall be understood
to include:
1. that content of pre-paid premiums under policies in respect of
Deceased, Disabled and Retired Insureds, the coverage for
which becomes effective during the Agreement period.
2. the premium transferred internally by the Company from a prior
Agreement year or years, in respect of Deceased, Disabled and
Retired Insureds and in respect of other withdrawing Insureds
who have purchased extended coverage under Reporting
Endorsements.
C. The term "claims made" as used herein shall mean (A) In respect of
Claims Made Policies, claims first notified to the Company during the term of
this Agreement on any in force policy or reporting endorsement arising out of
incidents subsequent to the retroactive date of said policy as the result of
the rendering of or failure to render a professional service or the reporting
of losses which arise from the insured premises and operations incidental to
the practice of a physician, hospital or managed care organization and/or (B)
In respect of Occurrence Policies, claims or losses first notified to the
Company during the term of this Agreement.
ARTICLE VII
NET RETAINED LINES:
A. This Agreement applies to only that portion of any insurance which the
Company retains net for its own account; and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
insurance which the Company retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.
ED 2/27/95 Page 4 of 15
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<PAGE> 5
01-95-0020
ARTICLE VIII
ULTIMATE NET LOSS:
A. The term "ultimate net loss" as used herein shall be understood to
mean the sum actually paid by the Company in settlement of losses for which it
is held liable, including pre judgment interest when made part of the award or
judgment, 80% of Extra Contractual Obligations in accordance with the
provisions of Article XI and Excess of Original Policy Limits in accordance
with the provisions of Article X, after making proper deductions for all
recoveries, salvages, and claims upon other reinsurances and insurances which
inure to the benefit of the Reinsurer under this Agreement, whether collectible
or not, and shall exclude all loss adjustment expenses (which shall be
separately allocated and paid as provided in paragraph B. below); provided,
however, that in the event of the insolvency of the Company, "ultimate net
loss" shall mean the amount of loss which the Company has incurred or for which
it is liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Insolvency Article in this Agreement. Nothing in this
clause, however, shall be construed to mean that losses under this Agreement
are not recoverable until the ultimate net loss of the Company has been
ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under its
original policies reinsured hereunder, including pre judgment interest when not
part of an award or judgment and post judgment interest, shall be apportioned
in proportion to the respective interests of the parties hereto in the ultimate
net loss. Office expenses and salaries of officials and employees not
classified as loss adjusters are not chargeable as expenses for the purpose of
this paragraph.
C. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
ARTICLE IX
PROFIT COMMISSION:
A. The Reinsurer shall make a Profit Commission allowance of 90% to the
Company on the net profits accruing to the Reinsurer under this Agreement
period (January 1, 1995 through December 31, 1995), computed as follows.
INCOME
1. Premiums earned by the Reinsurer during the Agreement period.
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OUTGO
1. Losses and loss adjustment expenses incurred by the Reinsurer
during the Agreement period.
2. Allowance for Reinsurer's management expenses during the
Agreement period of 25% on the reinsurance premiums earned
during the Agreement period.
3. Deficit or underwriting loss, if any, brought forward from the
preceding Agreement period.
The amount by which INCOME exceeds OUTGO is profit.
The amount by which OUTGO exceeds INCOME is deficit.
B. The first calculation of Profit Commission shall be computed as of
December 31, 1995, and annually thereafter, and the first and final payment of
any Profit Commission shall be made by the Reinsurers to the Company as of
December 31, 1999. The Company agrees that Payment of any Profit Commission
shall be subject to complete commutation as respects all losses known and
unknown within the Profit Commission period. Payment of any Profit Commission
by the Reinsurers shall constitute full and final release from all further loss
development.
C. For the purposes of this Article the phrase "losses incurred" means
losses paid plus loss adjustment expenses paid less salvages recovered in
respect of claims made during the period for which computation is being made,
plus the reserve for unpaid outstanding losses and loss adjustment expenses at
the close of the period, in respect of claims made during the period.
ARTICLE X
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it 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.
B. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
C. For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
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ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under any
other provision of this Agreement and which arise from handling of any claim on
business 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 reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss and furthermore, for the purposes hereof
be deemed to follow the claims made provisions of this Agreement, subject
always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
ARTICLE XII
CLAIMS:
A. In the event of a claim arising hereunder which either results in or
appears to be of serious enough nature as probably to result in a loss
involving this Agreement, the Company shall give notice as soon as reasonably
practicable to Reinsurers and the Company shall keep the Reinsurer advised of
all subsequent developments in connection therewith.
B. The Company shall also promptly notify the Reinsurers of all incidents
involving the following injuries for which the Company has established an
indemnity reserve of $550,000 or greater and with policy limits to affect
Reinsurers:-
1. Death of high wage earner with two or more dependents.
2. Brain Injury.
3. Nerve Injury.
4. Paralysis - cord injury.
5. Amputations.
6. Internal injuries which require continuous treatment (e.g.
Dialysis, Hyperalimentation, failure to diagnose).
7. Blindness.
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C. All loss settlements made by the Company provided they are within the
terms of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable to the Company in accordance with the provisions set
forth in paragraph C. of Article XV.
ARTICLE XIII
COMMUTATION CLAUSE:
The Company or the Reinsurer may, at any time express their desire to
the other party to commute all losses which are applicable to any Agreement
year and which are still unsettled. In such event the Company and the
Reinsurer shall mutually determine and evaluate such losses and the payment by
the Reinsurer of their proportion of the amount so ascertained and mutually
agreed to be the value of such losses shall relieve them of all further
liability, in respect of that Agreement year both in respect of known or
unknown losses.
ARTICLE XIV
PREMIUM:
A. The Company shall pay to the Reinsurer a deposit premium of $3,750,000
payable in equal quarterly installments of $937,500 on January 1st, April 1st,
July 1st and October 1st, 1995. In the event the Company elects to run off its
policies in force until natural expiration, not to exceed 12 months from the
expiration date hereon, the Company shall pay to the Reinsurer a run-off
premium equal to 50% of the Actual Earned Reinsurance Premium, as set forth in
paragraph B. on such policies. The run-off premium shall be paid in equal
quarterly installments on January 1st, April 1st, July 1st and October 1st,
1996.
B. As soon as practicable after expiration of this Agreement, the Company
shall calculate the premium due the Reinsurer based on a rate of 3.34% of the
Gross Net Earned Premium Income accounted for by the Company during the term of
this Agreement on all business subject matter of the Agreement, subject to a
minimum premium of $3,500,000. In the event the premium due hereunder is
greater than the deposit premium paid, the difference shall be paid to the
Reinsurer forthwith. If the actual premium is less than the deposit premium
paid, the difference shall be refunded to the Company, subject to the minimum
premium.
ARTICLE XV
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer within forty-five (45) days at
the end of each quarter, all necessary data respecting premiums and losses,
including reserves thereon, as at dates and on forms mutually acceptable to the
Company and the Reinsurer.
B. Payments of deposit premium, provisional premium and adjusted premium
shall be made in accordance with the provisions of the Premium Article.
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C. Payment by the Reinsurer of its portion of loss and loss expenses paid
by the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVI
CONFIDENTIALITY CLAUSE:
A. This Agreement and the pre Agreement documentation may contain
confidential or proprietary information of either party to this Agreement. All
parties shall maintain the confidentiality of this information and shall not
disclose these to any third party without both parties approval.
B. Notwithstanding the above, any party may disclose such information
without further approval from the other party in answer to interrogations,
subpoenas or other legal/arbitration process as well as to the Company's
reinsurance intermediary hereon, the Reinsurer's retrocessionaires or in
response to requests by governmental and regulatory agencies. In addition the
parties may disclose such information to their accountants and outside legal
counsel as may be necessary.
ARTICLE XVII
CURRENCY:
Premiums shall be payable by the Company and losses shall be paid to
the Company in United States currency.
ARTICLE XVIII
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the
Federal Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the extent
such premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the aforesaid percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States government.
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ARTICLE XIX
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 delay, omission
or error is rectified immediately upon discovery; provided, however, this
Article is not to override retroactive dates specified in the Term Article.
ARTICLE XX
ACCESS TO RECORDS:
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect, through
its authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims procedures
who shall report to the Reinsurer the results of such.
ARTICLE XXI
FUNDING:
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply
for and secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank which is acceptable to the
regulatory authority(ies) having jurisdiction over the Company's loss reserves
in an amount equal to the Reinsurer's proportion of reserves in respect of
known outstanding losses that have been reported to the Reinsurer and allocated
loss expenses relating thereto, plus reserves for losses incurred but not
reported, as shown in the statement prepared by the Company.
B. The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior to any
expiration date the issuing bank shall notify the Company by registered mail
that the bank elects not to consider the Letter of Credit extended for any
additional period. An issuing bank, not a member of the Federal Reserve System
or not chartered in New York State shall provide sixty (60) days notice to the
Company prior to any expiration in the event of non-extension.
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C. Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for one
or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by this Agreement,
the payment of which has been agreed by the Reinsurer and
which has not been otherwise paid.
2. To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of
known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit
shall be held in an interest bearing account separate from the
Company's other assets, and interest thereon shall accrue to
the benefit of the Reinsurer.
D. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
E. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating thereto,
plus reserves for losses incurred but not reported. If the statement shows
that Reinsurer's share of such losses and allocated loss expenses exceeds the
balance of credit as of the statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurer's share of known and reported outstanding losses plus allocated loss
expenses relating thereto, plus reserves for losses incurred but not reported
is less than the balance of credit as of the statement date, the Company shall,
within thirty (30) days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letter of
Credit reducing the amount of credit available by the amount of such excess
credit.
ARTICLE XXII
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects
any outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Agreement.
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B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Funding Article in
respect of Letters of Credit shall apply. If the Reinsurer has already funded
obligations hereunder in accordance with the Funding Article in this Agreement,
it agrees that such funds as are required to pay overdue losses may immediately
be drawn down by the Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of
loss and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to be the date upon which the Reinsurer received such additional
substantive material necessary to approve payment of the claim, or the date the
claim is presented in a manner acceptable to the Reinsurer.
ARTICLE XXIII
ARBITRATION:
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt requested.
B. One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the deficiency shall be supplied
on the application of the party requesting arbitration by an appointment made
by the American Arbitration Association. Notwithstanding the appointment of
any third Arbitrator by the American Arbitration Association, the arbitration
proceedings shall not be governed by the American Arbitration Association's
commercial arbitration rules.
D. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
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E. Within thirty (30) days after notice of appointment of all
arbitrators, the panel shall meet and determine timely periods for briefs,
discovery procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in Beverly Hills, California, but the
venue may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel looks to substantive
law, it shall consider the law of the State of California. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel
is empowered to grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within sixty (60) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.
H. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
ARTICLE XXIV
SERVICE OF SUIT CLAUSE (U.S.A.):
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 725 South Figueroa, Suite
1990, Los Angeles, CA 90017, and that in any suit instituted, the Reinsurer
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
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C. Further, pursuant to any statute of any state, territory or district
of the United States which makes provision therefor, the Reinsurer hereon
hereby designates the Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer, when
such portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the policy or policies reinsured without diminution because
of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable immediately on
demand, with reasonable provision for verification, on the basis of claims
allowed against the insolvent Company(ies) by any court of competent
jurisdiction or by any liquidator, receiver, or statutory successor of the
Company(ies) having authority to allow such claims, without diminution because
of such insolvency or because such liquidator, receiver, 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 or
statutory successor, except where the contract of insurance or reinsurance
provides another payee of such reinsurance in the event of the insolvency of
the Company(ies).
C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on the
policy or 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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable, subject to court approval, against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Company(ies) solely as a result of the
defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent Company(ies).
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ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized
as the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ARTICLE XXVII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
ARTICLE XXVIII
SEVERAL LIABILITY NOTICE:
The subscribing reinsurers' obligations under contracts of reinsurance
to which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
ARTICLE XXIX
OFFSET:
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this
Agreement. The party asserting the right of offset may exercise such right any
time whether the balances due are on account of premiums or losses or
otherwise.
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INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
TRANSATLANTIC REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 15.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 15.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
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The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in New York, NY
this 2nd day of May, 1996
TRANSATLANTIC REINSURANCE COMPANY
By: /s/ Ref. # TRC-1086
- ------------------------------------
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INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
HANNOVER RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 22.50% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 22.50% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
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The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Hannover, Germany
this 9th day of November, 1995
On behalf of each of the following Companies, whose liability shall be
several and not joint, for their respective shares of the percentage shown on
page one of this Contract.
HANNOVER RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3001
By: /s/ HANNOVER RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT
---------------------------------------------------------
EISEN UND STAHL RUCKVERSICHERVNGS-AKTIENGESELLSCHAFT
North American Treaty Dpt.-VR11
ED 9/28/95 Page 2 of 2
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<PAGE> 20
01-95-0020
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
UNDERWRITERS REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 10.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 10.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 21
01-95-0020
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Woodland Hills, California
this 2nd day of November, 1995
UNDERWRITERS REINSURANCE COMPANY
By: /s/ JUDY L. MANN
---------------------------------
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<PAGE> 22
01-95-0020
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 10.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 10.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
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<PAGE> 23
01-95-0020
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Zurich, Switzerland
this 7th day of November, 1995
SWISS REINSURANCE COMPANY
By: /s/
---------------------------------
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<PAGE> 24
01-95-0020
WX 950126
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS COMPANIES
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a % participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer % of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 25
01-95-0020
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
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<PAGE> 26
SIGNING SCHEDULE
WX950126
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST OF JANUARY, 1995
REINSURERS' SHARE: 15.336% BEING 36.085% OF 42.500%
[STAMP]
<TABLE>
<CAPTION>
SHARE CODE COMPANY/REFERENCE
- ----------------------------------------------------------------------
<S> <C> <C>
*6.573% C409 CNA INTERNATIONAL REINSURANCE CO. LTD.
06381895
8.763% Z4508 ZURICH RE (UK) LIMITED
Z65044005695
</TABLE>
* CNA will not provide LOC IRO IBNR
[STAMP]
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW1001 08/94 (REINSURANCE)
[STAMP]
NOW KNOW YE that We, the Reinsurers each of us to the extent of the
amount/percentage underwritten by us respectively, do hereby assume the burden
of the Reinsurance, and promise and bind ourselves, each for itself only and not
one for the other and in respect only of the due proportion of each of us, to
the Reinsured, their Executors, Administrators and Assign, for the true
performance and fulfillment of this Contract.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA Member and authorised to sign this Contract (either itself or
by delegation to LIRMA) on behalf of all the other CCSA Companies.
Signed: MARIE-LOUISE ROSSI
------------------------------------------
Director of Policy Signing Services
-----------------------------------------
9 5 0 3 2 8 0 0 5 0 0 9 1
-----------------------------------------
<PAGE> 27
01-95-0020
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS LLOYD'S UNDERWRITERS
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 27.164% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled First Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 27.164% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 28
01-95-0020
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
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<PAGE> 29
SIGNING SCHEDULE
----------------
WX950126
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURER'S SHARE: 27.164% BEING 63.915% OF 42.500%
LLOYD'S UNDERWRITERS:
<PAGE> 30
NOW KNOW YE THAT We the Underwriters, Members of the Syndicates whose
definitive numbers in the after-mentioned List of Underwriting Members of
Lloyd's are set out in the attached Table, hereby bind ourselves each for his
own part and not one for another, our Heirs, Executors and Administrators, and
in respect of his due proportion only, to pay or make good to the Assured or to
the Assured's Executors or Administrators or to indemnify him or them against
all such loss, damage or liability as herein provided, such payment to be made
after such loss, damage or liability is proved and the due proportion for which
each of us, the Underwriters, is liable shall be ascertained by reference to his
share, as shown in the said List, of the Amount, Percentage or Proportion of the
total sum insured hereunder which is in the Table set opposite the definitive
number of the Syndicate of which such Underwriter is a Member AND FURTHER THAT
the List of Underwriting Members of Lloyd's referred to above shows their
respective Syndicates and Shares therein, is deemed to be incorporated in and to
form part of this policy, bears the number specified in the attached Table and
is available for inspection at Lloyd's Policy Signing Office by the Assured or
his or their representatives and a true copy of the material parts of the said
List certified by the General Manager of Lloyd's Policy Signing Office will be
furnished to the Assured on application.
IN WITNESS whereof the General Manager of Lloyd's Policy Signing Office
has subscribed his name on behalf of each of us.
(NM) LLOYD'S POLICY SIGNING OFFICE,
Definitive Numbers of Syndicates and
Amount, Percentage or Proposition General Manager.
of the Total Sum insured hereunder
shared between the Members of those
Syndicates.
<TABLE>
<CAPTION>
FOR LPSO USE ONLY BROKER LPSO NO. & DATE
<S> <C> <C>
UX01 2205 0452 61170 29/03/95
5
- -------------------------------------------------------------------------------
AMOUNT, PERCENTAGE UNDERWRITER'S PAGE
OR PROPORTION SYNDICATE REFERENCE
1
PERCENT
13.145 1007 FH318A95A454
4.381 435 12519500
2.629 376 083V25922FRA
1.314 190 1962N01457
1.314 227 00714CFABW2X
4.381 1003 C143C0001029
THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 1995
YEAR OF ACCOUNT
- -------------------------------------------------------------------------------
TOTAL LINE NO. OF SYND. FOR LPSO USE ONLY
27.164 6 USE3 3238
</TABLE>
[STAMP]
<PAGE> 31
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 32
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured
( of services, bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
Page 2 of 2
<PAGE> 1
01-95-0021
EXHIBIT 10.6
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and the terms
and conditions subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amount of ultimate net loss which the Company may pay as the
result of claims made during the term of this Agreement under the Company's
Physicians and Surgeons Comprehensive Professional and Business Liability
policies, including Clinics and Clinical Laboratories, Professional and
Business Liability policies for Hospitals and Errors and Omissions Liability
policies for Managed Care Organizations with respect to 1) claims
made during the term of this Agreement under subject policies which
are in force or may hereinafter come into force during the term of
this Agreement and are reported to the Reinsurer within 7 years from the
expiration hereof, and 2) losses which were first reported to the Company
ED 9/28/95 Page 1 of 15
(231)/pc/jk
<PAGE> 2
01-95-0021
during the period January 1, 1986 to December 31, 1989 and are first reported
to the Reinsurer during the term of this Agreement, except as excluded under
the Exclusions Article subject to the limitations set forth in the Limits of
Cover Article.
ARTICLE II
EXCLUSIONS:
This Agreement specifically excludes:
1. All 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 which 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.
2. Loss or Liability excluded by the provisions of the attached
"Nuclear Incident Exclusion Clause - Liability - Reinsurance."
3. All Assumed Reinsurance.
ARTICLE III
TERM:
A. Except as provided in paragraph C. below, this Agreement shall apply to
claims made during the twelve month period beginning January 1, 1995. In the
event a loss, as defined in Article VI, involves a loss or losses covered under
the current Agreement Year and a prior Agreement Year(s) no recovery shall be
made hereunder in respect of any loss which occurred prior to:
1. January 1st, 1979 as regards Extra Contractual Obligation (as
provided for in Article X hereof)
2. January 1st, 1976 as regards all other business.
B. It is understood however that, in respect of Personal Liability and
Discovery Period coverage for Deceased, Disabled, Retired and Withdrawing
Physicians and for Physicians ceasing Medical Practice within the State, this
Agreement covers claims made during the period of this Reinsurance Agreement.
In the event this Agreement is not renewed, all such liability shall be assumed
by the Company with effect from the date of cancellation.
ED 2/27/95 Page 2 of 15
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<PAGE> 3
01-95-0021
C. The provisions of paragraphs A. and B. notwithstanding, the Company
may, at its option, elect to continue to cover the in force portfolio of
liability covered under Sections A.1. and A.3. of Article V of this Agreement
on the date of expiration for a further period of 12 months. Should the
Company exercise this option, the Company shall give the Reinsurer notice prior
to expiration that they wish to exercise this option. The Company shall pay to
the Reinsurer an additional premium thereon at the rates set forth in the
Premium Article applied to the Company's Gross Net Earned Premium Income
(GNEPI) for policies in force at the date of expiration.
D. As respects Sections A.1. and A.3. of Article V only, it is further
agreed that all claims hereunder shall be notified with full particulars by the
Company to the Reinsurer within 7 years from the expiration of this Agreement
(December 31, 1995) and no liability shall attach hereunder for any claim or
claims not notified within this period.
E. If any law or regulation of the Federal, State or Local Government or
any jurisdiction in which the Company is doing business shall render illegal
the arrangements made herein, this Agreement can be terminated immediately
insofar as it applies to such jurisdiction by the Company giving notice to the
Reinsurer to such effect.
F. Notwithstanding the expiration of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
ARTICLE IV
ATTACHMENT OF LIABILITY:
A. For purposes of determining the attachment of the Reinsurer's liability
hereunder as respects any one loss, all losses (including Discovery Period
Losses) involving one or more Original Insureds, arising from the same medical
incident, and in which First Notice of Claim or Circumstance is notified to the
Company during the term of this Agreement shall be covered hereunder. Where
First Notice falls in Agreement Years incepting prior to January 1, 1992
paragraph B. (Interlocking Clause) of Article V below, shall apply hereon for
Physicians and Surgeons Comprehensive Professional Liability policies only.
B. The date of a loss hereunder shall be the earliest date, within the
term of this Agreement, that the Company has received First Notice of Claim or
Circumstance.
ARTICLE V
LIMITS OF COVER:
A.1. As respects policies in force during the term of this Agreement, the
Company shall retain for its own account and pay under one or more of the
Company's policies the first $2,000,000 ultimate net loss, each and every loss
and the Reinsurer agrees to reimburse the Company for the amount of ultimate
net loss paid in excess of $2,000,000, each and every loss, but the Reinsurer's
maximum liability shall not exceed $3,000,000 resulting from each and every
loss.
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A.2. As respects losses which were first reported to the Company during the
period January 1, 1986 to December 31, 1989 and are first reported to the
Reinsurer during the term of this Agreement, the Company shall retain for its
own account and pay under one or more of the Company's policies the first
$2,000,000 ultimate net loss, each and every loss and the Reinsurer agrees to
reimburse the Company for the amount of ultimate net loss paid in excess of
$2,000,000, each and every loss, but the Reinsurer's maximum liability shall
not exceed $3,000,000 resulting from each and every loss. The coverage
provided hereunder shall be no narrower nor broader in scope than that which
was provided to the Company under their Second Excess of Loss Reinsurance
Agreement in force for the same period (see attached Cover Note Numbers
10710-003/86, 01-87-0021, 01-88-0021 and 01-89-0021).
A.3. As respects policies in force during the term of this Agreement
covering losses from Professional and Business Liability policies for Hospitals
and Errors and Omissions Liability policies for Managed Care Organizations, the
Company shall retain for its own account and pay under one or more of the
Company's policies the first $2,000,000 ultimate net loss, each and every loss
each policy and the Reinsurer agrees to reimburse the Company for the amount of
ultimate net loss paid in excess of $2,000,000, each and every loss each
policy, but the Reinsurer's maximum liability shall not exceed $3,000,000
resulting from each and every loss each policy.
It is understood that the Maximum Annual Aggregate Amount recoverable
under A.1., A.2. and A.3. combined is $9,000,000 in all during the period of
this Agreement.
B. (This paragraph shall apply only to those claims where first notice of
claim or circumstance falls in Agreement Years prior to January 1, 1992.) As
respects each and every loss where this Agreement responds on a claims made
basis, and more than one insured or policy is covered under this Agreement
period with claims made dates falling in more than one reinsurance agreement
period, the limit and retention as respects claims covered under this Agreement
shall be the percentage of the Limit and Retention under this Agreement that
the amount of covered claim or claims hereunder bears to the total of all
covered claims from the same loss.
C. With respect to Sections A.1. and A.2. the Company warrants that
maximum original policy limits shall not exceed $10,000,000 subject to inuring
protection of $8,000,000 excess of $2,000,000 or so deemed.
D. With respect to Section A.3. the Company warrants the following:
1. In respect of Professional and Business Liability policies for
Hospitals, policy limits greater than $5,000,000 shall be reinsured
elsewhere on an Excess of Loss basis or so deemed.
2. In respect of Errors and Omissions Liability policies for
Managed Care Organization, maximum original policy limit shall not
exceed $5,000,000.
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ARTICLE VI
DEFINITIONS:
A. The term "each and every loss" shall mean the happening of one or a
series of related acts, errors, or omissions to act, accidents or occurrences
arising out of one event.
B. The term "Gross Net Earned Premium Income" shall mean the gross earned
premium on business the subject matter hereof less cancellations and return
premiums and less premiums paid for reinsurance recoveries under which would
inure to the benefit of the Reinsurer. Such Premium Income shall be understood
to include:
1. that content of pre-paid premiums under policies in respect of
Deceased, Disabled and Retired Insureds, the coverage for which
becomes effective during the Agreement period.
2. the premium transferred internally by the Company from a prior
Agreement year or years, in respect of Deceased, Disabled and
Retired Insureds and in respect of other withdrawing Insureds
who have purchased extended coverage under Reporting
Endorsements.
C.1. With respect to recoveries made under Sections A.1. and A.3. of Article
V, the term "claims made" as used herein shall mean (A) In respect of Claims
Made Policies, claims first notified to the Company during the term of this
Agreement on any in force policy or reporting endorsement arising out of
incidents subsequent to the retroactive date of said policy as the result of
the rendering of or failure to render a professional service or the reporting
of losses which arise from the insured premises and operations incidental to
the practice of a physician, hospital or managed care organization and/or (B)
In respect of Occurrence Policies, claims or losses first notified to the
Company during the term of this Agreement.
C.2. With respect to recoveries made under Section A.2. of Article V, the
term "claims made" as used herein shall mean claims first reported to the
Company during the period January 1, 1986 to December 31, 1989 and first
reported to the Reinsurer during the term of this Agreement.
ARTICLE VII
NET RETAINED LINES:
A. This Agreement applies to only that portion of any insurance which the
Company retains net for its own account; and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
insurance which the Company retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.
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ARTICLE VIII
ULTIMATE NET LOSS:
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which it is
held liable, including pre judgment interest when made part of the award or
judgment, 80% of Extra Contractual Obligations in accordance with the
provisions of Article X and Excess of Original Policy Limits in accordance with
the provisions of Article IX, after making proper deductions for all
recoveries, salvages, and claims upon other reinsurances and insurances which
inure to the benefit of the Reinsurer under this Agreement, whether collectible
or not, and shall exclude all loss adjustment expenses (which shall be
separately allocated and paid as provided in paragraph B. below); provided,
however, that in the event of the insolvency of the Company, "ultimate net
loss" shall mean the amount of loss which the Company has incurred or for which
it is liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Insolvency Article in this Agreement. Nothing in this
clause, however, shall be construed to mean that losses under this Agreement
are not recoverable until the ultimate net loss of the Company has been
ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under its
original policies reinsured hereunder, including pre judgment interest when not
part of an award or judgment and post judgment interest, shall be apportioned
in proportion to the respective interests of the parties hereto in the ultimate
net loss. Office expenses and salaries of officials and employees not
classified as loss adjusters are not chargeable as expenses for the purpose of
this paragraph.
C. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
D. It is understood that the Company has in effect a First Excess of Loss
Reinsurance Agreement and recoveries thereunder will be for the sole benefit of
the Company and will be disregarded when computing the ultimate net loss of the
Company.
ARTICLE IX
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it 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.
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B. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
C. For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under any
other provision of this Agreement and which arise from handling of any claim on
business 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 reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss and furthermore, for the purposes hereof
be deemed to follow the claims made provisions of this Agreement, subject
always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
ARTICLE XI
CLAIMS:
A. In the event of a claim of $1,500,000 or greater arising hereunder
which either results in or appears to be of serious enough nature as probably
to result in a loss involving this Agreement, the Company shall give notice as
soon as reasonably practicable to Reinsurers and the Company shall keep the
Reinsurer advised of all subsequent developments in connection therewith.
B. All loss settlements made by the Company provided they are within the
terms of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable to the Company in accordance with the provisions set
forth in paragraph C. of Article XV.
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ARTICLE XII
COMMUTATION CLAUSE:
The Company or the Reinsurer may, at any time express their desire to
the other party to commute all losses which are applicable to any Agreement
year and which are still unsettled. In such event the Company and the
Reinsurer shall mutually determine and evaluate such losses and the payment by
the Reinsurer of their proportion of the amount so ascertained and mutually
agreed to be the value of such losses shall relieve them of all further
liability, in respect of that Agreement year both in respect of known or
unknown losses.
ARTICLE XIII
PREMIUM:
A. The Company shall pay to the Reinsurer a deposit premium of $1,240,000
payable in equal quarterly installments of $310,000 on January 1st, April 1st,
July 1st and October 1st, 1995. In the event the Company elects to run off its
policies in force until natural expiration, not to exceed 12 months from the
expiration date hereon, the Company shall pay to the Reinsurer a run-off
premium equal to 50% of the Actual Earned Reinsurance Premium, as set forth in
paragraph B. on such policies. The run-off premium shall be paid in equal
quarterly installments on January 1st, April 1st, July 1st and October 1st,
1996.
B. As soon as practicable after expiration of this Agreement, the Company
shall calculate the premium due the Reinsurer based on a rate of 1.16% of the
Gross Net Earned Premium Income accounted for by the Company during the term of
this Agreement on all business subject matter of this Agreement, subject to a
minimum premium of $1,000,000. In the event the premium due hereunder is
greater than the deposit premium paid, the difference shall be paid to the
Reinsurer forthwith. If the actual premium is less then the deposit premium
paid, the difference shall be refunded to the Company, subject to the minimum
premium.
ARTICLE XIV
REINSTATEMENT:
A.1. As respects Sections A.1. and A.3. of Article V:
1. In the event of any portion of the coverage under this
Agreement being depleted or exhausted by loss, the amount so depleted
or exhausted may, at the option of the Company, be reinstated from the
time claim is first made and the Company will pay the Reinsurer for
such reinstatement an additional premium calculated as follows:
a. For the first reinstatement, 125% of the annual
reinsurance premium pro rated as to the amount so
reinstated;
b. For the second reinstatement, 200% of the annual
reinsurance premium pro rated as to the amount so
reinstated.
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2. All calculations of reinstatement premiums shall be based on
paid losses only. The decision of the Company to exercise its
reinstatement option must be relayed to Reinsurers within three (3)
months from the time any reserve invades this Agreement.
Plus,
A.2. As respects Section A.2. of Article V:
1. In the event of a paid loss arising under this Section,
additional to the reinstatement premium payable above, a further
reinstatement premium shall be payable to the Reinsurer, to be
calculated at pro rata as respects amount reinstated and 100% as
respects premium based on an annual premium of $450,000 if First
Reinstatement, and based on an annual premium of $675,000 if Second
Reinstatement.
2. It is understood and agreed that the payment of reinstatement
premiums arising from losses recoverable under Section A.2. above shall
be mandatory and not at the option of the Company.
B. Nevertheless, the Reinsurer's liability will never be more than
$3,000,000 in respect of any claim made nor more than the Maximum Annual
Aggregate Amount Recoverable under Sections A.1., A.2. and A.3. combined of
$9,000,000 in all during the term of the Agreement.
ARTICLE XV
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer within forty-five (45) days at
the end of each quarter, all necessary data respecting premiums and losses,
including reserves thereon, as at dates and on forms mutually acceptable to the
Company and the Reinsurer.
B. Payments of deposit premium and annual adjustments shall be made in
accordance with the provisions of the Premium Article.
C. Payment by the Reinsurer of its portion of loss and loss expenses paid
by the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVI
CONFIDENTIALITY:
A. This Agreement and the pre Agreement documentation may contain
confidential or proprietary information of either party to this Agreement. All
parties shall maintain the confidentiality of this information and shall not
disclose these to any third party without both parties approval.
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B. Notwithstanding the above, any party may disclose such information
without further approval from the other party in answer to interrogations,
subpoenas or other legal/arbitration process as well as to the Company's
reinsurance intermediary hereon, the Reinsurer's retrocessionaires or in
response to requests by governmental and regulatory agencies. In addition the
parties may disclose such information to their accountants and outside legal
counsel as may be necessary.
ARTICLE XVII
CURRENCY:
Premiums shall be payable by the Company and losses shall be paid to
the Company in United States currency.
ARTICLE XVIII
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the
Federal Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the extent
such premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the aforesaid percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States government.
ARTICLE XIX
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 delay, omission
or error is rectified immediately upon discovery; provided, however, this
Article shall not invalidate the provisions of paragraph D. in Article III or
override the retroactive dates in Article III.
ARTICLE XX
ACCESS TO RECORDS:
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect, through
its authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
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B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims procedures
who shall report to the Reinsurer the results of such.
ARTICLE XXI
FUNDING:
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply
for and secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank which is acceptable to the
regulatory authority(ies) having jurisdiction over the Company's loss reserves
in an amount equal to the Reinsurer's proportion of reserves in respect of
known outstanding losses that have been reported to the Reinsurer and allocated
loss expenses relating thereto, plus reserves for losses incurred but not
reported, as shown in the statement prepared by the Company.
B. The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior to any
expiration date the issuing bank shall notify the Company by registered mail
that the bank elects not to consider the Letter of Credit extended for any
additional period. An issuing bank, not a member of the Federal Reserve System
or not chartered in New York State shall provide sixty (60) days notice to the
Company prior to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for one
or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by this Agreement,
the payment of which has been agreed by the Reinsurer and which
has not been otherwise paid.
2. To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of
known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit shall
be held in an interest bearing account separate from the
Company's other assets, and interest thereon shall accrue to
the benefit of the Reinsurer.
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D. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
E. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating thereto,
plus reserves for losses incurred but not reported. If the statement shows
that Reinsurer's share of such losses and allocated loss expenses exceeds the
balance of credit as of the statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurer's share of known and reported outstanding losses plus allocated loss
expenses relating thereto, plus reserves for losses incurred but not reported
is less than the balance of credit as of the statement date, the Company shall,
within thirty (30) days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letter of
Credit reducing the amount of credit available by the amount of such excess
credit.
ARTICLE XXII
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Funding Article in
respect of Letters of Credit shall apply. If the Reinsurer has already funded
obligations hereunder in accordance with the Funding Article in this Agreement,
it agrees that such funds as are required to pay overdue losses may immediately
be drawn down by the Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss
and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to be the date upon which the Reinsurer received such additional
substantive material necessary to approve payment of the claim, or the date the
claim is presented in a manner acceptable to the Reinsurer.
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ARTICLE XXIII
ARBITRATION:
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt requested.
B. One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the deficiency shall be supplied
on the application of the party requesting arbitration by an appointment made
by the American Arbitration Association. Notwithstanding the appointment of
any third Arbitrator by the American Arbitration Association, the arbitration
proceedings shall not be governed by the American Arbitration Association's
commercial arbitration rules.
D. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
E. Within thirty (30) days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in Beverly Hills, California, but the
venue may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel looks to substantive
law, it shall consider the law of the State of California. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel
is empowered to grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within sixty (60) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.
H. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
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ARTICLE XXIV
SERVICE OF SUIT CLAUSE (U.S.A.):
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 725 South Figueroa, Suite
1990, Los Angeles, CA 90017, and that in any suit instituted, the Reinsurer
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
C. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer, when
such portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the policy or policies reinsured without diminution because
of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable immediately on
demand, with reasonable provision for verification, on the basis of claims
allowed against the insolvent Company(ies) by any court of competent
jurisdiction or by any liquidator, receiver, or statutory successor of the
Company(ies) having authority to allow such claims, without diminution because
of such insolvency or because such liquidator, receiver, 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 or
statutory successor, except where the contract of insurance or reinsurance
provides another payee of such reinsurance in the event of the insolvency of
the Company(ies).
ED 9/28/95 Page 14 of 15
(231)/pc/jk
<PAGE> 15
01-95-0021
C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on the
policy or 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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable, subject to court approval, against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Company(ies) solely as a result of the
defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent Company(ies).
ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized as
the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ARTICLE XXVII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
ARTICLE XXVIII
SEVERAL LIABILITY NOTICE:
The subscribing reinsurers' obligations under contracts of reinsurance
to which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co- subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
ARTICLE XXIX
OFFSET:
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this
Agreement. The party asserting the right of offset may exercise such right any
time whether the balances due are on account of premiums or losses or
otherwise.
ED 4/23/96 Page 15 of 15
(231)/pc/jk
<PAGE> 16
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
NAVIGATORS INSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 17
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this 21st day of November, 1995
NAVIGATORS INSURANCE COMPANY
By: /s/
----------------------------------
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 18
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 52.50% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 52.50% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 19
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Hannover, Germany
this 9th day of November, 1995
On behalf of each of the following companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 20%
Reference # 0-411222-3002
By: /s/ HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
------------------------------------------------------
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
North American Treaty Dpt. - VR11
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 20
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
FAI GENERAL INSURANCE COMPANY LIMITED
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 2.50% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 2.50% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 21
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Sydney, Australia
this 10th day of November, 1995
FAI GENERAL INSURANCE COMPANY LIMITED
through
J. B. BODA & COMPANY, LTD.
By: /s/ FAI
------------------------------------
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 22
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 23
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Zurich, Switzerland
this 7th day of November, 1995
SWISS REINSURANCE COMPANY
By: /s/
-----------------------------
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 24
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
TRANSATLANTIC REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 25
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in New York, NY
this 2nd day of May, 1996
TRANSATLANTIC REINSURANCE COMPANY
By: /s/ Ref. # TRC-1089
---------------------------------
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 26
01-95-0021
WX 950127
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS COMPANIES
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 9.651% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 9.651% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 27
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 28
SIGNING SCHEDULE
WX950127
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURERS' SHARE: 9.651% BEING 32.170% OF 30.000%
<TABLE>
<CAPTION>
SHARE CODE COMPANY/REFERENCE
- -------------------------------------------------------------------------------
<S> <C> <C>
*4.196% C4009 CNA INTERNATIONAL REINSURANCE CO. LTD.
063819951
4.196% Z4508 ZURICH RE (UK) LIMITED
Z65044105694
1.259% S0289 SPHERE DRAKE INSURANCE PLC
PER SPHERE DRAKE
(UNDERWRITING) MANAGEMENT LTD.
95MWCCI13083
</TABLE>
*CNA WILL NOT PROVIDE LOC IRO IBNR
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under
contracts of reinsurance to which they subscribe
are several and not joint and are limited solely
to the extent of their individual subscriptions.
The subscribing reinsurers are not responsible for
the subscription of any co-subscribing reinsurer
who for any reason does not satisfy all or part of
its obligations.
LSW1001 08/94 (REINSURANCE)
LIRMA BAS
STAMP
NOW KNOW YE that We, the Reinsurers each of us to the extent of the
amount/percentage underwritten by us respectively, do hereby assume the burden
of the Reinsurance, and promise and bind ourselves, each for itself only and
not one for the other and in respect only of the due proportion of each of us,
to the Reinsured, their Executors, Administrators and Assigns, for the true
performance and fulfilment of this Contract.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA Member and authorised to sign this Contract (either itself or
by delegation to LIRMA) on behalf of all the other CCSA Companies.
Signed: /s/ MARIE-LOUISE ROSSI
---------------------------------------
Director of Policy Signing Services
9503280050109
<PAGE> 29
01-95-0021
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS LLOYD'S UNDERWRITERS
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 20.349% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Second Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 20.349% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(16)
<PAGE> 30
01-95-0021
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
(231)/pc/jk(17)
<PAGE> 31
SIGNING SCHEDULE
----------------
WX950127
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURANCE'S SHARE: 20.349% BEING 67.830% OF 30.000%
LLOYD'S UNDERWRITERS:
<PAGE> 32
NOW KNOW WE THAT We that Underwriters, Members of the Syndicates whose
definitive numbers in the after-mentioned List of Underwriting Members of
Lloyd's are set out in the attached Table, hereby bind ourselves each for his
own part and not one for another, our Heirs, Executors and Administrators, and
in respect of his due proportion only, to pay or make good to the Assured or to
the Assured's Executors or Administrators or to indemnify him or them against
all such loss, damage or liability as herein provided, such payment to be made
after such loss, damage or liability is proved and the due proportion for which
each of us, the Underwriters, is liable shall be ascertained by reference to his
share, as shown in the said List, of the Amount, Percentage or Proportion of the
total sum insured hereunder which is in the Table set opposite the definitive
number of the Syndicate of which such Underwriter is a Member AND FURTHER THAT
the List of Underwriting Members of Lloyd's referred to above shows their
respective Syndicates and Shares therein, is deemed to be incorporated in and to
form part of this policy, bears the number specified in the attached Table and
is available for inspection at Lloyd's Policy Signing Office by the Assured or
his or their representatives and a true copy of the material parts of the said
List certified by the General Manager of Lloyd's Policy Signing Office will be
furnished to the Assured on application.
IN WITNESS whereof the General Manager of Lloyd's Policy Signing Office
has subscribed his name on behalf of each of us.
(NM) LLOYD'S POLICY SIGNING OFFICE,
Definitive Numbers of Syndicates and /s/
Amount, Percentage or Proposition General Manager.
of the Total Sum insured hereunder
shared between the Members of those
Syndicates.
<TABLE>
<CAPTION>
FOR LPSO USE ONLY BROKER LPSO NO. & DATE
<S> <C> <C>
UX01 2205 0452 61191 29/03/95
1
- -------------------------------------------------------------------------------
AMOUNT, PERCENTAGE UNDERWRITER'S PAGE
OR PROPORTION SYNDICATE REFERENCE
1
PERCENT
7.343 1007 FH161N95A154
4.196 435 00476500
1.259 1096 02718A95A
2.098 1003 C144C0002025
1.259 122 CD223F95A470
1.259 570 95EX10017KS
2.097 1212 AF472D95AT62
0.838 780 A7951FEA516X
THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 1995
YEAR OF ACCOUNT
- -------------------------------------------------------------------------------
TOTAL LINE NO. OF SYND. FOR LPSO USE ONLY
20.349 8 USE3 6225
</TABLE>
<PAGE> 33
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 34
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured
( of services, bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
Page 2 of 2
<PAGE> 1
01-95-0022
EXHIBIT 10.7
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and the terms
and conditions subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amount of ultimate net loss which the Company may pay as the
result of claims made during the term of this Agreement under the Company's
Physicians and Surgeons Comprehensive Professional and Business Liability
policies, including Clinics and Clinical Laboratories, Professional and
Business Liability policies for Hospitals and Errors and Omissions Liability
policies for Managed Care Organizations with respect to 1) claims made during
the term of this Agreement under subject policies which are in force or may
hereinafter come into force during the term of this Agreement and are reported
to the Reinsurer within 7 years from the expiration hereof, and 2) losses which
were first reported to the Company
ED 9/28/95 Page 1 of 15
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<PAGE> 2
01-95-0022
during the period January 1, 1986 to December 31, 1989 and are first reported
to the Reinsurer during the term of this Agreement, except as excluded under
the Exclusions Article subject to the limitations set forth in the Limits of
Cover Article.
ARTICLE II
EXCLUSIONS:
This Agreement specifically excludes:
1. All 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 which 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.
2. Loss or Liability excluded by the provisions of the attached
"Nuclear Incident Exclusion Clause - Liability - Reinsurance".
3. All Assumed Reinsurance.
ARTICLE III
TERM:
A. Except as provided in paragraph C. below, this Agreement shall apply to
claims made during the twelve month period beginning January 1, 1995. In the
event a loss, as defined in Article VI, involves a loss or losses covered under
the current Agreement Year and a prior Agreement Year(s) no recovery shall be
made hereunder in respect of any loss which occurred prior to:
1. January 1st, 1979 as regards Extra Contractual Obligation (as
provided for in Article X hereof)
2. January 1st, 1976 as regards all other business.
B. It is understood however, that in respect of Personal Liability and
Discovery Period coverage for Deceased, Disabled, Retired and Withdrawing
Physicians and for Physicians ceasing Medical Practice within the State, this
Agreement covers claims made during the period of this Reinsurance Agreement.
In the event this Agreement is not renewed, all such liability shall be assumed
by the Company with effect from the date of cancellation.
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<PAGE> 3
01-95-0022
C. The provisions of paragraphs A. and B. notwithstanding, the Company
may, at its option, elect to continue to cover the in force portfolio of
liability covered under Section A.1. of Article V of this Agreement on the date
of expiration for a further period of 12 months. Should the Company exercise
this option, the Company shall give the Reinsurer notice prior to expiration
that they wish to exercise this option. The Company shall pay to the Reinsurer
an additional premium thereon at the rates set forth in the Premium Article
applied to the Company's Gross Net Earned Premium Income (GNEPI) for policies
in force at the date of expiration.
D. As respects Section A.1. of Article V only, it is further agreed that
all claims hereunder shall be notified with full particulars by the Company to
the Reinsurer within 7 years from the expiration of this Agreement (December
31, 1995) and no liability shall attach hereunder for any claim or claims not
notified within this period.
E. If any law or regulation of the Federal, State or Local Government or
any jurisdiction in which the Company is doing business shall render illegal
the arrangements made herein, this Agreement can be terminated immediately
insofar as it applies to such jurisdiction by the Company giving notice to the
Reinsurer to such effect.
F. Notwithstanding the expiration of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
ARTICLE IV
ATTACHMENT OF LIABILITY:
A. For purposes of determining the attachment of the Reinsurer's liability
hereunder as respects any one loss, all losses (including Discovery Period
Losses) involving one or more Original Insureds, arising from the same medical
incident, and in which First Notice of Claim or Circumstance is notified to the
Company during the term of this Agreement shall be covered hereunder. Where
First Notice falls in Agreement Years incepting prior to January 1, 1992
paragraph B. (Interlocking Clause) of Article V below, shall apply hereon for
Physicians and Surgeons Comprehensive Professional Liability policies only.
B. The date of a loss hereunder shall be the earliest date, within the
term of this Agreement, that the Company has received First Notice of Claim or
Circumstance.
ARTICLE V
LIMITS OF COVER:
A.1. As respects policies in force during the term of this Agreement, the
Company shall retain for its own account and pay under one or more of the
Company's policies the first $5,000,000 ultimate net loss, each and every loss
and the Reinsurer agrees to reimburse the Company for the amount of ultimate
net loss paid in excess of $5,000,000, each and every loss, but the Reinsurer's
maximum liability shall not exceed $5,000,000 resulting from each and every
loss.
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01-95-0022
A.2. As respects losses which were first reported to the Company during the
period January 1, 1986 to December 31, 1989 and are first reported to the
Reinsurer during the term of this Agreement, the Company shall retain for its
own account and pay under one or more of the Company's policies the first
$5,000,000 ultimate net loss, each and every loss and the Reinsurer agrees to
reimburse the Company for the amount of ultimate net loss paid in excess of
$5,000,000, each and every loss, but the Reinsurer's maximum liability shall
not exceed $5,000,000 resulting from each and every loss. The coverage
provided hereunder shall be no narrower nor broader in scope than that which
was provided to the Company under their Third Excess of Loss Reinsurance
Agreement in force for the same period (see attached Cover Note Numbers
10710-004/86, 01-87-0022, 01-88-0022 and 01-89-0022).
It is understood that the Maximum Annual Aggregate Amount recoverable
under A.1. and A.2. combined is $10,000,000 in all during the period of this
Agreement.
B. (This paragraph shall apply only to those claims where first notice of
claim or circumstance falls in Agreement Years prior to January 1, 1992.) As
respects each and every loss where this Agreement responds on a claims made
basis, and more than one insured or policy is covered under this Agreement
period with claims made dates falling in more than one reinsurance agreement
period, the limit and retention as respects claims covered under this Agreement
shall be the percentage of the Limit and Retention under this Agreement that
the amount of covered claim or claims hereunder bears to the total of all
covered claims from the same loss.
C. The Company warrants the following in respect of the business covered
hereunder:
1. In respect of Physicians and Surgeons Comprehensive
Professional and Business Liability policies, including Clinics
and Clinical Laboratories, the Company warrants the maximum
original policy limits shall not exceed $10,000,000 subject to
inuring protection of $8,000,000 excess of $2,000,000 or so
deemed.
2. In respect of Professional and Business Liability policies for
Hospitals, policy limits greater than $5,000,000 shall be
reinsured elsewhere on an excess of loss basis or so deemed.
3. In respect of Errors and Omissions Liability policies for
Managed Care Organizations, the maximum original policy limit
is $5,000,000.
ARTICLE VI
DEFINITIONS:
A. The term "each and every loss" shall mean the happening of one or a
series of related acts, errors, or omissions to act, accidents or occurrences
arising out of one event.
B. The term "Gross Net Earned Premium Income" shall mean the gross earned
premium on business the subject matter hereof less cancellations and return
premiums and less premiums paid for reinsurance recoveries under which would
inure to the benefit of the Reinsurer. Such Premium Income shall be understood
to include:
ED 2/27/95 Page 4 of 15
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<PAGE> 5
01-95-0022
1. that content of pre-paid premiums under policies in respect of
Deceased, Disabled and Retired Insureds, the coverage for which
becomes effective during the Agreement period.
2. the premium transferred internally by the Company from a prior
Agreement year or years, in respect of Deceased, Disabled and
Retired Insureds and in respect of other withdrawing Insureds
who have purchased extended coverage under Reporting
Endorsements.
C.1. With respect to recoveries made under Section A.1. of Article V, the
term "claims made" as used herein shall mean (A) In respect of Claims Made
Policies, claims first notified to the Company during the term of this
Agreement on any in force policy or reporting endorsement arising out of
incidents subsequent to the retroactive date of said policy as the result of
the rendering of or failure to render a professional service or the reporting
of losses which arise from the insured premises and operations incidental to
the practice of a physician, hospital or managed care organization and/or (B)
In respect of Occurrence Policies, claims or losses first notified to the
Company during the term of this Agreement.
C.2. With respect to recoveries made under Section A.2. of Article V, the
term "claims made" as used herein shall mean claims first reported to the
Company during the period January 1, 1986 to December 31, 1989 and first
reported to the Reinsurer during the term of this Agreement.
ARTICLE VII
NET RETAINED LINES:
A. This Agreement applies to only that portion of any insurance which the
Company retains net for its own account; and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
insurance which the Company retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.
ARTICLE VIII
ULTIMATE NET LOSS:
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which it is
held liable, including pre judgment interest when made part of the award or
judgment, 80% of Extra Contractual Obligations in accordance with the
provisions of Article X and Excess of Original Policy Limits in accordance
with the provisions of Article IX, after making proper deductions for all
recoveries, salvages, and claims upon other reinsurances and insurances which
inure to the benefit of the Reinsurer
ED 2/27/95 Page 5 of 15
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<PAGE> 6
01-95-0022
under this Agreement, whether collectible or not, and shall exclude all loss
adjustment expenses (which shall be separately allocated and paid as provided
in paragraph B. below); provided, however, that in the event of the insolvency
of the Company, "ultimate net loss"shall mean the amount of loss which the
Company has incurred or for which it is liable, and payment by the Reinsurer
shall be made to the liquidator, receiver or statutory successor of the Company
in accordance with the provisions of the Insolvency Article in this Agreement.
Nothing in this clause, however, shall be construed to mean that losses under
this Agreement are not recoverable until the ultimate net loss of the Company
has been ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under its
original policies reinsured hereunder, including pre judgment interest when not
part of an award or judgment and post judgment interest, shall be apportioned
in proportion to the respective interests of the parties hereto in the ultimate
net loss. Office expenses and salaries of officials and employees not
classified as loss adjusters are not chargeable as expenses for the purpose of
this paragraph.
C. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
D. It is understood that the Company has in effect First and Second Excess
of Loss Reinsurance Agreements and recoveries thereunder will be for the sole
benefit of the Company and will be disregarded when computing the ultimate net
loss of the Company.
ARTICLE IX
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it 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.
B. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
C. For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
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01-95-0022
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under
any other provision of this Agreement and which arise from handling of any
claim on business 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 reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss and furthermore, for the purposes hereof
be deemed to follow the claims made provisions of this Agreement, subject
always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
ARTICLE XI
CLAIMS:
A. In the event of a claim of $3,000,000 or greater arising hereunder
which either results in or appears to be of serious enough nature as probably
to result in a loss involving this Agreement, the Company shall give notice as
soon as reasonably practicable to Reinsurers and the Company shall keep the
Reinsurer advised of all subsequent developments in connection therewith.
B. All loss settlements made by the Company provided they are within the
terms of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable to the Company in accordance with the provisions set
forth in paragraph C. of Article XV.
ARTICLE XII
COMMUTATION CLAUSE:
The Company or the Reinsurer may, at any time express their desire to
the other party to commute all losses which are applicable to any Agreement
year and which are still unsettled. In such event the Company and the
Reinsurer shall mutually determine and evaluate such losses and the payment by
the Reinsurer of their proportion of the amount so ascertained and mutually
agreed to be the value of such losses shall relieve them of all further
liability, in respect of that Agreement year both in respect of known or
unknown losses.
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01-95-0022
ARTICLE XIII
PREMIUM:
A. The Company shall pay to the Reinsurer a minimum and deposit premium of
$450,000 payable in equal quarterly installments of $112,500 on January 1st,
April 1st, July 1st and October 1st, 1995. In the event the Company elects to
run off its policies in force until natural expiration, not to exceed 12 months
from the expiration date hereon, the Company shall pay to the Reinsurer a
run-off premium equal to 50% of the Actual Earned Reinsurance Premium, as set
forth in paragraph B. on such policies. The run-off premium shall be paid in
equal quarterly installments on January 1st, April 1st, July 1st and October
1st, 1996.
B. As soon as practicable after expiration of this Agreement, the Company
shall calculate the premium due the Reinsurer based on a rate of .357% of the
Gross Net Earned Premium Income accounted for by the Company during the term of
this Agreement on all business subject matter of the Agreement. In the event
the premium due hereunder is greater than the minimum and deposit premium
paid,the difference shall be paid to the Reinsurer forthwith.
ARTICLE XIV
REINSTATEMENT:
A.1. As respects Section A.1. of Article V:
1. In the event of any portion of the coverage under this
Agreement being depleted or exhausted by loss, the amount so depleted
or exhausted may, at the option of the Company, be reinstated from the
time claim is first made and the Company will pay to the Reinsurer for
such reinstatement an additional premium calculated at 100% of the
annual reinsurance premium pro rated as to the amount so reinstated.
2. All calculations of reinstatement premium shall be based on
paid losses only. The decision of the Company to exercise its
reinstatement option must be relayed to Reinsurers within three (3)
months from the time any reserve invades this Agreement.
Plus,
A.2. As respects Section A.2. of Article V:
1. In the event of a paid loss arising under this Section,
additional to the reinstatement premium payable above, a further
reinstatement premium shall be payable to the Reinsurer, to be
calculated at pro rata as respects amount reinstated and 100% as
respects premium based on an annual premium of $125,000.
2. It is understood and agreed that the payment of reinstatement
premiums arising from losses recoverable under Section A.2. above shall
be mandatory and not at the option of the Company.
B. Nevertheless, the Reinsurer's liability will never be more than
$5,000,000 in respect of any claim made nor more than the Maximum Annual
Aggregate Amount Recoverable under Sections A.1. and A.2. combined of
$10,000,000 in all during the term of the Agreement.
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01-95-0022
ARTICLE XV
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer within forty-five (45) days at
the end of each quarter, all necessary data respecting premiums and losses,
including reserves thereon, as at dates and on forms mutually acceptable to the
Company and the Reinsurer.
B. Payments of deposit premium and annual adjustments shall be made in
accordance with the provisions of the Premium Article.
C. Payment by the Reinsurer of its portion of loss and loss expenses paid
by the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVI
CONFIDENTIALITY:
A. This Agreement and the pre Agreement documentation may contain
confidential or proprietary information of either party to this Agreement. All
parties shall maintain the confidentiality of this information and shall not
disclose these to any third party without both parties approval.
B. Notwithstanding the above, any party may disclose such information
without further approval from the other party in answer to interrogations,
subpoenas or other legal/arbitration process as well as to the Company's
reinsurance intermediary hereon, the Reinsurer's retrocessionaires or in
response to requests by governmental and regulatory agencies. In addition the
parties may disclose such information to their accountants and outside legal
counsel as may be necessary.
ARTICLE XVII
CURRENCY:
Premiums shall be payable by the Company and losses shall be paid to
the Company in United States currency.
ARTICLE XVIII
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the
Federal Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the extent
such premium is subject to the Federal Excise Tax.
ED 9/28/95 Page 9 of 15
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<PAGE> 10
01-95-0022
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the aforesaid percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States government.
ARTICLE XIX
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 delay, omission
or error is rectified immediately upon discovery; provided, however, this
Article shall not invalidate the provisions of paragraph D. in Article III or
override the retroactive dates specified in Article III.
ARTICLE XX
ACCESS TO RECORDS:
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect, through
its authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims procedures
who shall report to the Reinsurer the results of such.
ARTICLE XXI
FUNDING:
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply
for and secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank which is acceptable to the
regulatory authority(ies) having jurisdiction over the Company's loss reserves
in an amount equal to the Reinsurer's proportion of reserves in respect of
known outstanding losses that have been reported to the Reinsurer and allocated
loss expenses relating thereto, plus reserves for losses incurred but not
reported, as shown in the statement prepared by the Company.
ED 2/27/95 Page 10 of 15
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<PAGE> 11
01-95-0022
B. The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior to any
expiration date the issuing bank shall notify the Company by registered mail
that the bank elects not to consider the Letter of Credit extended for any
additional period. An issuing bank, not a member of the Federal Reserve System
or not chartered in New York State shall provide sixty (60) days notice to the
Company prior to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for one
or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by this Agreement,
the payment of which has been agreed by the Reinsurer and which
has not been otherwise paid.
2. To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of
known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit shall
be held in an interest bearing account separate from the
Company's other assets, and interest thereon shall accrue to
the benefit of the Reinsurer.
D. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
E. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating thereto,
plus reserves for losses incurred but not reported. If the statement shows
that Reinsurer's share of such losses and allocated loss expenses exceeds the
balance of credit as of the statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurer's share of known and reported outstanding losses plus allocated loss
expenses relating thereto, plus reserves for losses incurred but not reported
is less than the balance of credit as of the statement date, the Company shall,
within thirty (30) days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letter of
Credit reducing the amount of credit available by the amount of such excess
credit.
ED 2/27/95 Page 11 of 15
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01-95-0022
ARTICLE XXII
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Funding Article in
respect of Letters of Credit shall apply. If the Reinsurer has already funded
obligations hereunder in accordance with the Funding Article in this Agreement,
it agrees that such funds as are required to pay overdue losses may immediately
be drawn down by the Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss
and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to be the date upon which the Reinsurer received such additional
substantive material necessary to approve payment of the claim, or the date the
claim is presented in a manner acceptable to the Reinsurer.
ARTICLE XXIII
ARBITRATION:
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt requested.
B. One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
ED 2/27/95 Page 12 of 15
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<PAGE> 13
01-95-0022
C. If the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the deficiency shall be supplied
on the application of the party requesting arbitration by an appointment made
by the American Arbitration Association. Notwithstanding the appointment of
any third Arbitrator by the American Arbitration Association, the arbitration
proceedings shall not be governed by the American Arbitration Association's
commercial arbitration rules.
D. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
E. Within thirty (30) days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in Beverly Hills, California, but the
venue may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel looks to substantive
law, it shall consider the law of the State of California. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel
is empowered to grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within sixty (60) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.
H. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
ARTICLE XXIV
SERVICE OF SUIT CLAUSE (U.S.A.):
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 725 South Figueroa, Suite
1990, Los Angeles, CA 90017, and that in any suit instituted, the Reinsurer
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
ED 2/27/95 Page 13 of 15
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<PAGE> 14
01-95-0022
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
C. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer, when
such portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the policy or policies reinsured without diminution because
of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable immediately on
demand, with reasonable provision for verification, on the basis of claims
allowed against the insolvent Company(ies) by any court of competent
jurisdiction or by any liquidator, receiver, or statutory successor of the
Company(ies) having authority to allow such claims, without diminution because
of such insolvency or because such liquidator, receiver, 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 or
statutory successor, except where the contract of insurance or reinsurance
provides another payee of such reinsurance in the event of the insolvency of
the Company(ies).
C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on the
policy or 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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable, subject to court approval, against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Company(ies) solely as a result of the
defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent Company(ies).
ED 9/28/95 Page 14 of 15
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<PAGE> 15
01-95-0022
ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized as
the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ARTICLE XXVII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
ARTICLE XXVIII
SEVERAL LIABILITY NOTICE:
The subscribing reinsurers' obligations under contracts of reinsurance
to which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co- subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
ARTICLE XXIX
OFFSET:
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this
Agreement. The party asserting the right of offset may exercise such right any
time whether the balances due are on account of premiums or losses or
otherwise.
ED 4/23/96 Page 15 of 15
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<PAGE> 16
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS LLOYD'S UNDERWRITERS
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 53.731% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 53.731% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 17
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 1995
ED 9/28/95 Page 2 of 2
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<PAGE> 18
SIGNING SCHEDULE
----------------
WX950128
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURERS' SHARE: 53.731% BEING 89.552% OF 60.000%
LLOYD'S UNDERWRITERS:
NOW KNOW YE THAT We the Underwriters, Members of the Syndicates whose
definitive numbers in the after-mentioned List of Underwriting Members of
Lloyd's are set out in the attached Table, hereby bind ourselves each for his
own part and not one for another, our Heirs, Executors and Administrators, and
in respect of his due proportion only, to pay or make good to the Assured or to
the Assured's Executors or Administrators or to indemnify him or them against
all such loss, damage or liability as herein provided, such payment to be made
after such loss, damage or liability is proved and the due proportion for which
each of us, the Underwriters, is liable shall be ascertained by reference to his
share, as shown in the said List, of the Amount, Percentage or Proportion of the
total sum insured hereunder which is in the Table set opposite the definitive
number of the Syndicate of which such Underwriter is a Member AND FURTHER THAT
the List of Underwriting Members of Lloyd's referred to above shows their
respective Syndicates and Shares therein, is deemed to be incorporated in and to
form part of this policy, bears the number specified in the attached Table and
is available for inspection at Lloyd's Policy Signing Office by the Assured or
his or their representatives and a true copy of the material parts of the said
List certified by the General Manager of Lloyd's Policy Signing Office will be
furnished to the Assured on application.
IN WITNESS whereof the General Manager of Lloyd's Policy Signing Office
has subscribed his name on behalf of each of us.
(NM) LLOYD'S POLICY SIGNING OFFICE,
Definitive Numbers of Syndicates and
Amount, Percentage or Proposition /s/ General Manager.
of the Total Sum insured hereunder
shared between the Members of those
Syndicates.
<TABLE>
<CAPTION>
FOR LPSO USE ONLY BROKER LPSO NO. & DATE
<S> <C> <C>
UX01 0306 0452 61149 29/03/95
140
- -------------------------------------------------------------------------------
AMOUNT, PERCENTAGE UNDERWRITER'S PAGE
OR PROPORTION SYNDICATE REFERENCE
1
PERCENT
4.478 205 083N10254LRA
5.373 362 X1595K000040
6.716 1007 FM991B95A154
6.716 435 004777MS
5.373 219 676957114800
4.478 1212 AA299N95AT62
2.687 * 570 95EX10018HS
2.687 376 083R04387ZRA
2.239 780 A7952QEA516X
1.343 1027 95AE12521BXX
0.896 958 PYXAXREN0309
1.343 227 00715AFABW2X
0.896 51 GAF57XX11190
1.791 314 02532V95A
2.687 727 9N401X3264
1.343 529 T2G102836000
1.343 1096 02719H95A
1.342 991 0193295AA000
THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 1995
YEAR OF ACCOUNT
- -------------------------------------------------------------------------------
TOTAL LINE NO. OF SYND. FOR LPSO USE ONLY
53.731 18 USE3 11086
</TABLE>
<PAGE> 19
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
AXA REASSURANCE
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 7.50% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 7.50% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 20
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Paris this 29th day of May, 1996
AXA REASSURANCE THROUGH
COURTAGE DE REASSURANCE
H. DES COURTIS S.A.
By: /s/
----------------------------------
ED 9/28/95 Page 2 of 2
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<PAGE> 21
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
TRANSATLANTIC REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 22
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in New York, N.Y.
this 2nd day of May, 1996
TRANSATLANTIC REINSURANCE COMPANY
By: /s/
--------------------------------
Ref #TRC-944
ED 9/28/95 Page 2 of 2
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<PAGE> 23
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
NAVIGATORS INSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
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<PAGE> 24
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this 20th day of November, 1995
NAVIGATORS INSURANCE COMPANY
By: /s/
------------------------------
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<PAGE> 25
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 7.50% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 7.50% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 26
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Hanover, Germany
this 9th day of November, 1995
On behalf of each of the following companies, whose liability shall be several
and not joint, and for their respective shares of the percentage shown on page
one of this contract.
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3003
By: /s/ HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
----------------------------------------------------------
North American Treaty Dpt.-VR 11
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<PAGE> 27
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 28
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Zurich, Switzerland
this 7th day of November, 1995
SWISS REINSURANCE COMPANY
By: /s/
-----------------------------
ED 9/28/95 Page 2 of 2
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<PAGE> 29
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
WESTERN ATLANTIC REINSURANCE CORPORATION
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 10.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 10.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 30
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in New York, NY
this 2nd day of November, 1995
WESTERN ATLANTIC REINSURANCE CORPORATION
By: /s/
---------------------------------
ED 9/28/95 Page 2 of 2
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<PAGE> 31
01-95-0022
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS COMPANIES
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 6.269% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Third Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 6.269% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 32
01-95-0022
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
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<PAGE> 33
SIGNING SCHEDULE
WX950128
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
THIRD EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURERS' SHARE: 6.269% BEING 10.448% OF 60.000%
<TABLE>
<CAPTION>
SHARE CODE COMPANY/REFERENCE
- -------------------------------------------------------------------------------
<S> <C> <C>
*4.478% C4009 CNA INTERNATIONAL REINSURANCE CO. LTD.
06382095
1.791% S0289 SPHERE DRAKE INSURANCE PLC
PER SPHERE DRAKE (UNDERWRITING)
MANAGEMENT LTD.
95MWCCI13084
</TABLE>
*CNA WILL NOT PROVIDE LOC IRO IBNR
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under
contracts of reinsurance to which they subscribe
are several and not joint and are limited solely
to the extent of their individual subscriptions.
The subscribing reinsurers are not responsible for
the subscription of any co-subscribing reinsurer
who for any reason does not satisfy all or part of
its obligations.
LSW1001 08/94 (REINSURANCE)
LIRMA BAS
STAMP
NOW KNOW YE that We, the Reinsurers each of us to the extent of the
amount/percentage underwritten by us respectively, do hereby assume the burden
of the Reinsurance, and promise and bind ourselves, each for itself only and
not one for the other and in respect only of the due proportion of each of us,
to the Reinsured, their Executors, Administrators and Assigns, for the true
performance and fulfilment of this Contract.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA Member and authorised to sign this Contract (either itself or
by delegation to LIRMA) on behalf of all the other CCSA Companies.
Signed: /s/ MARIE-LOUISE ROSSI
---------------------------------------
Director of Policy Signing Services
9503280050117
LIRMA 1
<PAGE> 34
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 35
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured
( of services, bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
Page 2 of 2
<PAGE> 1
01-95-0599
EXHIBIT 10.8
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and the terms
and conditions subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amount of ultimate net loss which the Company may pay as the
result of claims made during the term of this Agreement under the Company's
Physicians and Surgeons Comprehensive Professional and Business Liability
policies, including Clinics and Clinical Laboratories, Professional and
Business Liability policies for Hospitals and Errors and Omissions Liability
policies for Managed Care Organizations, which are in force or may hereinafter
come into force during the term of this Agreement, and are reported to the
Reinsurer within 7 years from the expiration hereof, except as excluded under
the Exclusions Article subject to the limitations set forth in the Limits of
Cover Article.
ED 9/28/95 Page 1 of 14
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<PAGE> 2
01-95-0599
ARTICLE II
EXCLUSIONS:
This Agreement specifically excludes:
1. All 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 which 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.
2. Loss or Liability excluded by the provisions of the attached
"Nuclear Incident Exclusion Clause - Liability - Reinsurance".
3. All Assumed Reinsurance.
ARTICLE III
TERM:
A. Except as provided in paragraph C. below, this Agreement shall apply to
claims made during the twelve month period beginning January 1, 1995. In the
event a loss, as defined in Article VI, involves a loss or losses covered under
the current Agreement Year and a prior Agreement Year(s) no recovery shall be
made hereunder in respect of any loss which occurred prior to:
1. January 1st, 1979 as regards Extra Contractual Obligation (as
provided for in Article X hereof)
2. January 1st, 1976 as regards all other business.
B. It is understood however, that in respect of Personal Liability and
Discovery Period coverage for Deceased, Disabled, Retired and Withdrawing
Physicians and for Physicians ceasing Medical Practice within the State, this
Agreement covers claims made during the period of this Reinsurance Agreement.
In the event this Agreement is not renewed, all such liability shall be assumed
by the Company with effect from the date of cancellation.
C. The provisions of paragraphs A. and B. notwithstanding, the Company
may, at its option, elect to continue to cover the in force portfolio of
liability on the date of expiration for a further period of 12 months. Should
the Company exercise this option, the Company shall give the Reinsurer notice
prior to expiration that they wish to exercise this option. The Company shall
pay to the Reinsurer an additional premium thereon at the rates set forth in
the Premium Article applied to the Company's Gross Net Earned Premium Income
(GNEPI) for policies in force at the date of expiration.
ED 2/27/95 Page 2 of 14
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<PAGE> 3
01-95-0599
D. It is further agreed that all claims hereunder shall be notified with
full particulars by the Company to the Reinsurer within 7 years from the
expiration of this Agreement (December 31, 1995) and no liability shall attach
hereunder for any claim or claims not notified within this period.
E. If any law or regulation of the Federal, State or Local Government or
any jurisdiction in which the Company is doing business shall render illegal
the arrangements made herein, this Agreement can be terminated immediately
insofar as it applies to such jurisdiction by the Company giving notice to the
Reinsurer to such effect.
F. Notwithstanding the expiration of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
ARTICLE IV
ATTACHMENT OF LIABILITY:
A. For purposes of determining the attachment of the Reinsurer's liability
hereunder as respects any one loss, all losses (including Discovery Period
Losses) involving one or more Original Insureds, arising from the same medical
incident, and in which First Notice of Claim or Circumstance is notified to the
Company during the term of this Agreement shall be covered hereunder. Where
first notice falls in Agreement Years incepting prior to January 1, 1992
paragraph B. (Interlocking Clause) of Article V below, shall apply hereon for
Physicians and Surgeons comprehensive Professional Liability policies only.
B. The date of a loss hereunder shall be the earliest date, within the
term of this Agreement, that the Company has received First Notice of Claim or
Circumstance.
ARTICLE V
LIMITS OF COVER:
A. The Company shall retain for its own account and pay under one or more
of the Company's policies the first $10,000,000 ultimate net loss, each and
every loss and the Reinsurer agrees to reimburse the Company for the amount of
ultimate net loss paid in excess of $10,000,000, each and every loss, but the
Reinsurer's maximum liability shall not exceed $10,000,000 resulting from each
and every loss; subject further to a maximum liability of the Reinsurer of
$20,000,000 in the aggregate for all losses during the period of this
Agreement.
B. (This paragraph shall apply only to those claims where first notice of
claim or circumstance falls in Agreement Years prior to January 1, 1992.) As
respects each and every loss where this Agreement responds on a claims made
basis, and more than one insured or policy is covered under this Agreement
period with claims made dates falling in more than one reinsurance agreement
period, the limit and retention as respects claims covered under this Agreement
shall be the percentage of the Limit and Retention under this Agreement that
the amount of covered claim or claims hereunder bears to the total of all
covered claims from the same loss.
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C. The Company warrants the following in respect of the business covered
hereunder:
1. In respect of Physicians and Surgeons Comprehensive
Professional and Business Liability policies, including Clinics
and Clinical Laboratories, the Company warrants the maximum
original policy limits shall not exceed $10,000,000 subject to
inuring protection of $8,000,000 excess of $2,000,000 or so
deemed.
2. In respect of Professional and Business Liability policies for
Hospitals, policy limits greater than $5,000,000 shall be
reinsured elsewhere on an excess of loss basis or so deemed.
3. In respect of Errors and Omissions Liability policies for
Managed Care Organizations, the maximum original policy limit
is $5,000,000.
ARTICLE VI
DEFINITIONS:
A. The term "each and every loss" shall mean the happening of one or a
series of related acts, errors, or omissions to act, accidents or occurrences
arising out of one event.
B. The term "Gross Net Earned Premium Income" shall mean the gross earned
premium on business the subject matter hereof less cancellations and return
premiums and less premiums paid for reinsurance recoveries under which would
inure to the benefit of the Reinsurer. Such Premium Income shall be understood
to include:
1. that content of pre-paid premiums under policies in respect of
Deceased, Disabled and Retired Insureds, the coverage for which
becomes effective during the Agreement period.
2. the premium transferred internally by the Company from a prior
Agreement year or years, in respect of Deceased, Disabled and
Retired Insureds and in respect of other withdrawing Insureds
who have purchased extended coverage under Reporting
Endorsements.
C. The term "claims made" as used herein shall mean (A) In respect of
Claims Made Policies, claims first notified to the Company during the term of
this Agreement on any in force policy or reporting endorsement arising out of
incidents subsequent to the retroactive date of said policy as the result of
the rendering of or failure to render a professional service or the reporting
of losses which arise from the insured premises and operations incidental to
the practice of a physician, hospital or managed care organization and/or (B)
In respect of Occurrence Policies, claims or losses first notified to the
Company during the term of this Agreement.
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ARTICLE VII
NET RETAINED LINES:
A. This Agreement applies to only that portion of any insurance which the
Company retains net for its own account; and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
insurance which the Company retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.
ARTICLE VIII
ULTIMATE NET LOSS:
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which it is
held liable, including pre judgment interest when made part of the award or
judgment, 80% of Extra Contractual Obligations in accordance with the
provisions of Article X and Excess of Original Policy Limits in accordance
with the provisions of Article IX, after making proper deductions for all
recoveries, salvages, and claims upon other reinsurances and insurances which
inure to the benefit of the Reinsurer under this Agreement, whether collectible
or not, and shall exclude all loss adjustment expenses (which shall be
separately allocated and paid as provided in paragraph B. below); provided,
however, that in the event of the insolvency of the Company, "ultimate net
loss" shall mean the amount of loss which the Company has incurred or for which
it is liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Insolvency Article in this Agreement. Nothing in this
clause, however, shall be construed to mean that losses under this Agreement
are not recoverable until the ultimate net loss of the Company has been
ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under its
original policies reinsured hereunder, including pre judgment interest when not
part of an award or judgment and post judgment interest, shall be apportioned
in proportion to the respective interests of the parties hereto in the ultimate
net loss. Office expenses and salaries of officials and employees not
classified as loss adjusters are not chargeable as expenses for the purpose of
this paragraph.
C. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
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D. It is understood that the Company has in effect First, Second and Third
Excess of Loss Reinsurance Agreements and recoveries thereunder will be for the
sole benefit of the Company and will be disregarded when computing the ultimate
net loss of the Company.
ARTICLE IX
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it 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.
B. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
C. For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under
any other provision of this Agreement and which arise from handling of any
claim on business 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 reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss and furthermore, for the purposes hereof
be deemed to follow the claims made provisions of this Agreement, subject
always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
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ARTICLE XI
CLAIMS:
A. In the event of a claim of $3,000,000 or greater arising hereunder
which either results in or appears to be of serious enough nature as probably
to result in a loss involving this Agreement, the Company shall give notice as
soon as reasonably practicable to Reinsurers and the Company shall keep the
Reinsurer advised of all subsequent developments in connection therewith.
B. All loss settlements made by the Company provided they are within the
terms of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable to the Company in accordance with the provisions set
forth in paragraph C. of Article XV.
ARTICLE XII
COMMUTATION CLAUSE:
The Company or the Reinsurer may, at any time express their desire to
the other party to commute all losses which are applicable to any Agreement
year and which are still unsettled. In such event the Company and the
Reinsurer shall mutually determine and evaluate such losses and the payment by
the Reinsurer of their proportion of the amount so ascertained and mutually
agreed to be the value of such losses shall relieve them of all further
liability, in respect of that Agreement year both in respect of known or
unknown losses.
ARTICLE XIII
PREMIUM:
A. The Company shall pay to the Reinsurer a minimum and deposit premium of
$555,000 payable in equal quarterly installments of $138,750 on January 1st,
April 1st, July 1st and October 1st, 1995. In the event the Company elects to
run off its policies in force until natural expiration, not to exceed 12 months
from the expiration date hereon, the Company shall pay to the Reinsurer a
run-off premium equal to 50% of the Actual Earned Reinsurance Premium, as set
forth in paragraph B. on such policies. The run-off premium shall be paid in
equal quarterly installments on January 1st, April 1st, July 1st and October
1st, 1996.
B. As soon as practicable after expiration of this Agreement, the Company
shall calculate the premium due the Reinsurer based on a rate of .50% of the
Gross Net Earned Premium Income accounted for by the Company during the term of
this Agreement on all business subject matter of the Agreement. In the event
the premium due hereunder is greater than the deposit premium paid, the
difference shall be paid to the Reinsurer forthwith. If the actual premium is
less then the deposit premium paid, the difference shall be refunded to the
Company, subject to the minimum premium.
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ARTICLE XIV
REINSTATEMENT:
A. In the event of any portion of the coverage under this Agreement being
depleted or exhausted by loss, the amount so depleted or exhausted may, at the
option of the Company, be reinstated from the time claim is first made and the
Company will pay to the Reinsurer for such reinstatement an additional premium
calculated at 100% of the annual reinsurance premium pro rated as to the amount
so reinstated. Nevertheless, the Reinsurer's liability will never be more than
$10,000,000 in respect of any one claim made nor more than $20,000,000 in all
during the term of this Agreement.
B. All calculations of reinstatement premium shall be based on paid losses
only. The decision of the Company to exercise its reinstatement option must be
relayed to Reinsurers within three (3) months from the time any reserve invades
this Agreement.
ARTICLE XV
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer within forty-five (45) days at
the end of each quarter, all necessary data respecting premiums and losses,
including reserves thereon, as at dates and on forms mutually acceptable to the
Company and the Reinsurer.
B. Payments of deposit premium and annual adjustments shall be made in
accordance with the provisions of the Premium Article.
C. Payment by the Reinsurer of its portion of loss and loss expenses paid
by the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVI
CONFIDENTIALITY:
A. This Agreement and the pre Agreement documentation may contain
confidential or proprietary information of either party to this Agreement. All
parties shall maintain the confidentiality of this information and shall not
disclose these to any third party without both parties approval.
B. Notwithstanding the above, any party may disclose such information
without further approval from the other party in answer to interrogations,
subpoenas or other legal/arbitration process as well as to the Company's
reinsurance intermediary hereon, the Reinsurer's retrocessionaires or in
response to requests by governmental and regulatory agencies. In addition the
parties may disclose such information to their accountants and outside legal
counsel as may be necessary.
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ARTICLE XVII
CURRENCY:
Premiums shall be payable by the Company and losses shall be paid to
the Company in United States currency.
ARTICLE XVIII
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the
Federal Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the extent
such premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the aforesaid percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States government.
ARTICLE XIX
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 delay, omission
or error is rectified immediately upon discovery; provided, however, this
Article shall not invalidate the provisions of paragraph D. in Article III or
override the retroactive dates specified in Article III.
ARTICLE XX
ACCESS TO RECORDS:
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect, through
its authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims procedures
who shall report to the Reinsurer the results of such.
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ARTICLE XXI
FUNDING:
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply
for and secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank which is acceptable to the
regulatory authority(ies) having jurisdiction over the Company's loss reserves
in an amount equal to the Reinsurer's proportion of reserves in respect of
known outstanding losses that have been reported to the Reinsurer and allocated
loss expenses relating thereto, plus reserves for losses incurred but not
reported, as shown in the statement prepared by the Company.
B. The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior to any
expiration date the issuing bank shall notify the Company by registered mail
that the bank elects not to consider the Letter of Credit extended for any
additional period. An issuing bank, not a member of the Federal Reserve System
or not chartered in New York State shall provide sixty (60) days notice to the
Company prior to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for one
or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by this Agreement,
the payment of which has been agreed by the Reinsurer and which
has not been otherwise paid.
2. To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of
known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit shall
be held in an interest bearing account separate from the
Company's other assets, and interest thereon shall accrue to
the benefit of the Reinsurer.
D. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
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E. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating thereto,
plus reserves for losses incurred but not reported. If the statement shows
that Reinsurer's share of such losses and allocated loss expenses exceeds the
balance of credit as of the statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurer's share of known and reported outstanding losses plus allocated loss
expenses relating thereto, plus reserves for losses incurred but not reported
is less than the balance of credit as of the statement date, the Company shall,
within thirty (30) days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letter of
Credit reducing the amount of credit available by the amount of such excess
credit.
ARTICLE XXII
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Funding Article in
respect of Letters of Credit shall apply. If the Reinsurer has already funded
obligations hereunder in accordance with the Funding Article in this Agreement,
it agrees that such funds as are required to pay overdue losses may immediately
be drawn down by the Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss
and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to be the date upon which the Reinsurer received such additional
substantive material necessary to approve payment of the claim, or the date the
claim is presented in a manner acceptable to the Reinsurer.
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ARTICLE XXIII
ARBITRATION:
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt requested.
B. One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the deficiency shall be supplied
on the application of the party requesting arbitration by an appointment made
by the American Arbitration Association. Notwithstanding the appointment of
any third Arbitrator by the American Arbitration Association, the arbitration
proceedings shall not be governed by the American Arbitration Association's
commercial arbitration rules.
D. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
E. Within thirty (30) days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in Beverly Hills, California, but the
venue may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel looks to substantive
law, it shall consider the law of the State of California. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel
is empowered to grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within sixty (60) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.
H. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
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ARTICLE XXIV
SERVICE OF SUIT CLAUSE (U.S.A.):
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 725 South Figueroa, Suite
1990, Los Angeles, CA 90017, and that in any suit instituted, the Reinsurer
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
C. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer, when
such portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the policy or policies reinsured without diminution because
of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable immediately on
demand, with reasonable provision for verification, on the basis of claims
allowed against the insolvent Company(ies) by any court of competent
jurisdiction or by any liquidator, receiver, or statutory successor of the
Company(ies) having authority to allow such claims, without diminution because
of such insolvency or because such liquidator, receiver, 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 or
statutory successor, except where the contract of insurance or reinsurance
provides another payee of such reinsurance in the event of the insolvency of
the Company(ies).
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C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on the
policy or 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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable, subject to court approval, against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Company(ies) solely as a result of the
defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent Company(ies).
ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized as
the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ARTICLE XXVII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
ARTICLE XXVIII
SEVERAL LIABILITY NOTICE:
The subscribing reinsurers' obligations under contracts of reinsurance
to which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
ARTICLE XXIX
OFFSET:
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this
Agreement. The party asserting the right of offset may exercise such right any
time whether the balances due are on account of premiums or losses or
otherwise.
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INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS LLOYD'S UNDERWRITERS
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 71.370% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 71.370% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
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<PAGE> 16
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
(231)/pc/jk(16)
<PAGE> 17
SIGNING SCHEDULE
----------------
WX950129
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURERS' SHARE: 71.370% BEING 92.090% OF 77.500%
LLOYD'S UNDERWRITERS:
NOW KNOW YE THAT We the Underwriters, Members of the Syndicates whose
definitive numbers in the after-mentioned List of Underwriting Members of
Lloyd's are set out in the attached Table, hereby bind ourselves each for his
own part and not one for another, our Heirs, Executors and Administrators, and
in respect of his due proportion only, to pay or make good to the Assured or to
the Assured's Executors or Administrators or to indemnify him or them against
all such loss, damage or liability as herein provided, such payment to be made
after such loss, damage or liability is proved and the due proportion for which
each of us, the Underwriters, is liable shall be ascertained by reference to his
share, as shown in the said List, of the Amount, Percentage or Proportion of the
total sum insured hereunder which is in the Table set opposite the definitive
number of the Syndicate of which such Underwriter is a Member AND FURTHER THAT
the List of Underwriting Members of Lloyd's referred to above shows their
respective Syndicates and Shares therein, is deemed to be incorporated in and to
form part of this policy, bears the number specified in the attached Table and
is available for inspection at Lloyd's Policy Signing Office by the Assured or
his or their representatives and a true copy of the material parts of the said
List certified by the General Manager of Lloyd's Policy Signing Office will be
furnished to the Assured on application.
IN WITNESS whereof the General Manager of Lloyd's Policy Signing Office
has subscribed his name on behalf of each of us.
(NM) LLOYD'S POLICY SIGNING OFFICE,
Definitive Numbers of Syndicates and /s/
Amount, Percentage or Proportion -------------------------------
of the Total Sum insured hereunder General Manager.
shared between the Members of those
Syndicates.
<TABLE>
<CAPTION>
FOR LPSO USE ONLY BROKER LPSO NO. & DATE FOR LPSO USE ONLY BROKER LPSO NO. & DATE
<S> <C> <C> <S> <C> <C>
UX01 0306 0452 61212 29/03/95 0452 61212 29/03/95
136 137
- ------------------------------------------------------ ------------------------------------------------------
AMOUNT, PERCENTAGE UNDERWRITER'S PAGE AMOUNT, PERCENTAGE UNDERWRITER'S PAGE
OR PROPORTION SYNDICATE REFERENCE OR PROPORTION SYNDICATE REFERENCE
1 2
PERCENT PERCENT
10.946 435 280305MP 2.189 727 9N401X1862
5.254 219 676957501300 0.657 958 PYXAXREN2022
4.816 205 083N30200VRA 0.657 990 X95E000388UD
6.568 1007 GE253V95A154 3.503 138 20288AXXQ97
7.444 362 X1595Z000041 1.314 227 06245DFABW2X
4.379 623 T3369L95ANAC 1.314 51 GAF57XX11190
2.627 570 95EX10095AS 1.095 314 10473B95A
2.189 376 083R22698BRA 0.876 529 T2G102837000
2.189 780 A6184FEA516X 1.751 1096 03754J95A
1.314 190 1963N02450 1.751 991 0036195AA000
1.314 1027 95AE12522ZXX 4.378 1003 C140C0003029
1.970 1212 AA298E95AT62 0.875 122 CQ645K95A470
THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 1995
YEAR OF ACCOUNT
- ------------------------------------------------------- -------------------------------------------------------
TOTAL LINE NO. OF SYND. FOR LPSO USE ONLY TOTAL LINE NO. OF SYND. FOR LPSO USE ONLY
71.370 24 USE3 14152
</TABLE>
<PAGE> 18
01-95-0599
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
AXA REINSURANCE
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 19
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Paris
this 29th day of May, 1996
AXA REASSURANCE
Through
COURTAGE DE REASSURANCES
H. DES COURTIS S.A.
By: /s/
----------------------------------
ED 9/28/95 Page 2 of 2
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<PAGE> 20
01-95-0599
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 7.50% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 7.50% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 21
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Zurich, Switzerland this 7th day of November, 1995
SWISS REINSURANCE COMPANY
By: /s/
----------------------------------
By: /s/
----------------------------------
ED 9/28/95 Page 2 of 2
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<PAGE> 22
01-95-0599
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
FAI GENERAL INSURANCE COMPANY LIMITED
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(15)
<PAGE> 23
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Sydney, Australia
this 10th day of November, 1995
FAI GENERAL INSURANCE LIMITED
Through
J.B. BODA & COMPANY, LTD.
By: /s/ FAI
---------------------------------
ED 9/28/95 Page 2 of 2
(231)/pc/jk(16)
<PAGE> 24
01-95-0599
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 5.00% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 5.00% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
(231)/pc/jk(15)
<PAGE> 25
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in Hannover, Germany
this 9th day of November, 1995
On behalf of each of the following companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 20%
Reference #0-411222-3006
By: /s/ HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
---------------------------------------------------------
North American Treaty Dpt.-VR 11
ED 9/28/95 Page 2 of 2
(231)/pc/jk(16)
<PAGE> 26
01-95-0599
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
VARIOUS COMPANIES
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 6.130% participation in the
Interests and Liabilities of the Reinsurer as set forth in the Agreement
attached hereto entitled Fourth Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 6.130% of all
premiums due or which may become due the Reinsurer in accordance with the
provisions of the Agreement attached.
This Contract shall attach on January 1, 1995, and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 9/28/95 Page 1 of 2
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<PAGE> 27
01-95-0599
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________
Signed in
this day of , 199
ED 9/28/95 Page 2 of 2
(231)/pc/jk(16)
<PAGE> 28
SIGNING SCHEDULE
WX950129
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
FOURTH EXCESS OF LOSS REINSURANCE AGREEMENT
12 MONTHS AT 1ST JANUARY, 1995
REINSURERS' SHARE: 6.130% BEING 7.910% OF 77.500%
<TABLE>
<CAPTION>
SHARE CODE COMPANY/REFERENCE
- -------------------------------------------------------------------------------
<S> <C> <C>
*4.379% C4009 CNA INTERNATIONAL REINSURANCE CO. LTD.
06382195
1.751% S0289 SPHERE DRAKE INSURANCE PLC
PER SPHERE DRAKE UNDERWRITING
MANAGEMENT LIMITED
</TABLE>
*CNA WILL NOT PROVIDE LOC IRO IBNR
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under
contracts of reinsurance to which they subscribe
are several and not joint and are limited solely
to the extent of their individual subscriptions.
The subscribing reinsurers are not responsible for
the subscription of any co-subscribing reinsurer
who for any reason does not satisfy all or part of
its obligations.
LSW1001 08/94 (REINSURANCE)
LIRMA BAS
STAMP
LIRMA BAS
STAMP
NOW KNOW YE that We, the Reinsurers each of us to the extent of the
amount/percentage underwritten by us respectively, do hereby assume the burden
of the Reinsurance, and promise and bind ourselves, each for itself only and
not one for the other and in respect only of the due proportion of each of us,
to the Reinsured, their Executors, Administrators and Assigns, for the true
performance and fulfilment of this Contract.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA Member and authorised to sign this Contract (either itself or
by delegation to LIRMA) on behalf of all the other CCSA Companies.
Signed: /s/ MARIE-LOUISE ROSSI
---------------------------------------
Director of Policy Signing Services
9503280050125
LIRMA 1
<PAGE> 29
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 30
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured
( of services, bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
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01-94-0365
EXHIBIT 10.9
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter called the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and the terms
and conditions subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amount of ultimate net loss which the Company may pay as the
result of claims made during the term of this Agreement under the Southern
California Physician's Insurance Exchange's Physicians and Surgeons
Comprehensive Professional and Business Liability policies, including Clinical
Laboratories, which are in force or may hereinafter come into force during the
term of this Agreement, except as excluded under the Exclusions Article subject
to the limitations set forth in the Limits of Cover Article.
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ARTICLE II
EXCLUSIONS:
This Agreement specifically excludes:
1. All 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 which 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.
2. Loss or Liability excluded by the provisions of the Nuclear
Incident Exclusion Clause - Liability - Reinsurance, as per
clause attached hereto.
ARTICLE III
TERM:
A. Except as provided in paragraph B. below, this Agreement shall apply to
claims made, on policies in force, issued or renewed, during the thirty-six
month period beginning January 1, 1994 and ending December 31, 1996.
B. It is understood and agreed that if the Reinsurers loss ratio (i.e. the
ratio of the Reinsurers losses and loss adjustment expenses incurred to the
Company's reinsurance premiums earned net of ceding commission) exceeds 115%,
subject to 120 days notice to any December 31, the terms and conditions can be
amended subject to mutual agreement between the parties hereto.
C. It is further understood and agreed that the Company shall declare to
the Reinsurers hereunder all policies issued providing limits greater than
$5,000,000/$5,000,000 per physician, per occurrence. Upon review of such
policies should the Reinsurers deem the exposure under this Agreement to be
measurably altered then the terms and conditions hereunder can be amended
subject to mutual agreement between the parties hereto.
D. It is specially agreed that in such case the Company will refrain from
ceding any new policies for limits greater than $5,000,000/$5,000,000 per
physician, per occurrence until such mutual agreement has been attained.
E. Notwithstanding the expiration of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
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01-94-0365
ARTICLE IV
LIMITS OF COVER:
A. The Company shall retain for its own account the first $2,000,000
ultimate net loss, each and every loss occurrence each policy and the Reinsurer
agrees to reimburse the Company for the amount of ultimate net loss paid in
excess of $2,000,000, each and every loss occurrence each policy, but the
Reinsurer's maximum liability shall not exceed $8,000,000 resulting from each
and every loss occurrence each policy.
B. In addition to the limits set forth above, the Reinsurer's maximum
liability from all occurrences under this Agreement shall be $8,000,000 during
each twelve months period and 175% of Reinsurance Premiums Earned hereunder or
$10,000,000 (losses plus loss adjustment expenses), whichever is the greater,
in all during the Agreement term.
ARTICLE V
DEFINITIONS:
A. The term "loss occurrence" shall mean the happening of one or a series
of related acts, errors, or omissions to act, accidents or occurrences arising
out of one event.
B. The term "losses and loss adjustment expense incurred" shall mean the
total of losses and loss adjustment expense paid by the Reinsurer under this
Agreement as respects claims made during the term of the Agreement plus a
reserve for outstanding losses and loss adjustment expenses thereon which
claims were made during the period of this Agreement.
C. The term "Company's Reinsurance Premium Earned" shall mean the total of
the net premiums written (i.e., gross premiums, deposits plus additions less
premiums ceded for reinsurance which inures to the benefit of the Reinsurer) by
the Company on the business covered hereunder during the period for which the
calculation is being made.
ARTICLE VI
NET RETAINED LINES:
A. This Agreement applies to only that portion of any insurance or any
Extra Contractual Obligations the Company retains net for its own account; and
in calculating the amount of any loss hereunder and also in computing the
amount or amounts in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurance or any Extra Contractual
Obligations which the Company retains net for its own account shall be
included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.
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ARTICLE VII
ULTIMATE NET LOSS:
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which it is
held liable, including interest accrued prior to judgment, 80% of Extra
Contractual Obligations in accordance with the provisions of Article IX and
Excess of Original Policy Limits in accordance with the provisions of Article
VIII, after making proper deductions for all recoveries, salvages, and claims
upon other reinsurances and insurances which inure to the benefit of the
Reinsurer under this Agreement, whether collectible or not, and shall exclude
all loss adjustment expenses (which shall be separately allocated and paid as
provided in paragraph B. below); provided, however, that in the event of the
insolvency of the Company, "ultimate net loss" shall mean the amount of loss
which the Company has incurred or for which it is liable, and payment by the
Reinsurer shall be made to the liquidator, receiver or statutory successor of
the Company in accordance with the provisions of the Insolvency Article in this
Agreement. Nothing in this clause, however, shall be construed to mean that
losses under this Agreement are not recoverable until the ultimate net loss of
the Company has been ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under its
original policies reinsured hereunder, shall be apportioned in proportion to
the respective interests of the parties hereto in the ultimate net loss.
C. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
ARTICLE VIII
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it 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 reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
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01-94-0365
B. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
C. For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
ARTICLE IX
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under any
other provision of this Agreement and which arise from handling of any claim on
business 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 reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss occurrence and furthermore, for the
purposes hereof be deemed to follow the Claims Made provisions of this
Agreement, subject always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred
due to the fraud of 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 hereunder.
ARTICLE X
CLAIMS:
A. In the event of a claim arising hereunder which either results in or
appears to be of serious enough nature as probably to result in a loss
involving this Agreement, the Company shall give notice as soon as reasonably
practicable to Reinsurers and the Company shall keep the Reinsurer advised of
all subsequent developments in connection therewith.
B. All loss settlements made by the Company provided they are within the
terms of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable upon reasonable evidence of the amount paid being
given by the Company.
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01-94-0365
ARTICLE XI
COMMUTATION CLAUSE:
The Company may, at any time after December 31, 1998 express its desire
to the Reinsurer to commute all outstanding losses which are applicable to this
Agreement. In such event the Company and the Reinsurer shall mutually
determine and evaluate such losses and the payment by the Reinsurer of their
proportion of the amount so ascertained and mutually agreed to be the value of
such losses shall relieve the Reinsurer of all further liability, under this
Agreement.
ARTICLE XII
PREMIUM:
A. The Company shall pay to the Reinsurer an annual minimum and deposit
premium of $950,000 payable in installments of $237,500 as of each January 1st,
April 1st, July 1st and October 1st, during the term of this Agreement, subject
to adjustment at each December 31st.
B. Within 60 days after each December 31st, the Company shall calculate
the actual original gross premium charged by the Company for policy limits in
excess of $2,000,000, as respects policies issued or renewed during each 12
months period January 1st to December 31st during the term of this Agreement.
If the premium calculation is greater than the minimum and deposit premium paid
during the 12 months period, the Company shall promptly remit the difference to
the Reinsurer.
ARTICLE XIII
CEDING COMMISSION:
A. The Reinsurer shall make a commission allowance of 15% to the Company
on the premiums ceded under this Agreement. On all return premiums the Company
shall return to the Reinsurer the commission allowance of 15%.
B. The commission allowance which the Reinsurer makes to the Company on
the business transacted under this Agreement includes provision for all taxes,
assessments and any other expenses whatsoever, except loss adjustment expenses.
ARTICLE XIV
PROFIT COMMISSION:
A. The Company shall receive a profit commission equal to 80% of the net
profit accruing to the Reinsurers during the term of this Agreement computed as
follows:
1. Reinsurance Premiums Earned;
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01-94-0365
2. Less: Losses and Loss Adjustment Expenses Incurred;
3. Less: Ceding Commission of 15% of the Reinsurance Premiums
Earned as in (1) above;
4. Less: Management expenses of 23.5% of Reinsurance Premiums
Earned as in (1) above;
unlimited deficit carry forward to next Agreement period.
B. The term "Agreement" shall mean the 3 year period commencing January 1,
1994 and ending December 31, 1996 both days inclusive. It is further agreed
that the first calculation of profit commission shall be computed as of
December 31, 1996, and annually thereafter until all losses hereunder are
settled or commuted. No payment of any profit commission shall be made prior
to December 31, 1998. The Company agrees that payment of any profit commission
shall be contingent upon complete commutation as respects all losses arising
during the term of this Agreement. Commutation of losses and payment thereof,
together with payment of any profit commission by the Reinsurers shall
constitute full and final release from all further liability under this
Agreement.
ARTICLE XV
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer with all necessary data
respecting premiums and losses, including reserves thereon, as at dates and on
forms mutually acceptable to the Company and the Reinsurer.
B. Payments of minimum deposit premium shall be made within 60 days of
respective due date and in accordance with the provisions of the Premium
Article.
C. Payment by the Reinsurer of its portion of loss and loss expenses paid
by the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVI
CONFIDENTIALITY CLAUSE:
All terms and conditions of this Agreement and any materials provided
in the course of inspection shall be kept confidential by the Reinsurer as
against third parties, subject to disclosure pursuant to process of law, unless
the Reinsurer has obtained the Company's prior written consent to divulge the
information to third parties who will provide a written confirmation agreeing
to maintain the confidentiality of the materials provided. Said confirmation
shall be subject to the satisfaction of the Company.
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01-94-0365
ARTICLE XVII
CURRENCY:
Premiums shall be payable by the Company and losses shall be paid to
the Company in United States currency.
ARTICLE XVIII
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the
Federal Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the extent
such premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the aforesaid percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States government.
ARTICLE XIX
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 delay, omission
or error is rectified immediately upon discovery.
ARTICLE XX
ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect, through
its authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims procedures
who shall report to the Reinsurer the results of such.
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ARTICLE XXI
FUNDING:
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such loss reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply
for and secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank which is acceptable to the
regulatory authority(ies) having jurisdiction over the Company's loss reserves
in an amount equal to the Reinsurer's proportion of reserves in respect of
known outstanding losses that have been reported to the Reinsurer and allocated
loss expenses relating thereto as shown in the statement prepared by the
Company. Under no circumstances shall any amount relating to reserves in
respect of Incurred But Not Reported Losses be included in the amount of the
Letter of Credit.
B. The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior to any
expiration date the issuing bank shall notify the Company by registered mail
that the bank elects not to consider the Letter of Credit extended for any
additional period. An issuing bank, not a member of the Federal Reserve System
or not chartered in New York State shall provide sixty (60) days notice to the
Company prior to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for one
or more of the following purposes only:-
1. To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by this Agreement,
the payment of which has been agreed by the Reinsurer and which
has not been otherwise paid.
2. To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of
known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit shall
be held in an interest bearing account separate from the
Company's other assets, and interest thereon shall accrue to
the benefit of the Reinsurer.
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01-94-0365
D. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
E. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating thereto.
If the statement shows that Reinsurer's share of such losses and allocated loss
expenses exceeds the balance of credit as of the statement date, the Reinsurer
shall, within thirty (30) days after receipt of notice of such excess, secure
delivery to the Company of an amendment of the Letter of Credit increasing the
amount of credit by the amount of such difference. If, however, the statement
shows that the Reinsurer's share of known and reported outstanding losses plus
allocated loss expenses relating thereto is less than the balance of credit as
of the statement date, the Company shall, within thirty (30) days after receipt
of written request from the Reinsurer, release such excess credit by agreeing
to secure an amendment to the Letter of Credit reducing the amount of credit
available by the amount of such excess credit.
ARTICLE XXII
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Funding Article in
respect of Letters of Credit shall apply. If the Reinsurer has already funded
obligations hereunder in accordance with the Funding Article in this Agreement,
it agrees that such funds as are required to pay overdue losses may immediately
be drawn down by the Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss
and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to
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01-94-0365
be the date upon which the Reinsurer received such additional substantive
material necessary to approve payment of the claim, or the date the claim is
presented in a manner acceptable to the Reinsurer.
ARTICLE XXIII
SERVICE OF SUIT CLAUSE (U.S.A.):
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Clause constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 725 South Figueroa, Suite
1990, Los Angeles, CA 90017, and that in any suit instituted, the Reinsurer
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give written undertaking to the Company that they will enter a
general appearance upon Reinsurer's behalf in the event such a suit shall be
instituted.
C. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this agreement, and
hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXIV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer, when
such portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the policy or policies reinsured without diminution because
of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable immediately on
demand, with reasonable provision for verification, on the basis of
claims allowed against the insolvent Company(ies) by any
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court of competent jurisdiction or by any liquidator, receiver, or statutory
successor of the Company(ies) having authority to allow such claims, without
diminution because of such insolvency or because such liquidator, receiver, 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 or statutory successor.
C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on the
policy or 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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will be
chargeable, subject to court approval, against the insolvent Company(ies) as
part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Company(ies) solely as a result of the
defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent Company(ies).
ARTICLE XXV
ARBITRATION:
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt requested.
B. One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the third arbitrator shall be
selected from a list of six individuals (three named by each arbitrator) by a
judge of the federal district court having jurisdiction over the geographical
area in which the arbitration is to take place, or if the federal court
declines to act, the state court having general jurisdiction in such area.
D. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
ED 8/4/94 Page 12 of 13
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01-94-0365
E. Within thirty (30) days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in Beverly Hills, California, but the
venue may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel looks to substantive
law, it shall consider the law of the State of California. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel
is empowered to grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within sixty (60) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.
H. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized as
the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ARTICLE XXVII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
ED 8/4/94 Page 13 of 13
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01-94-0365
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT/
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 100% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Per Policy Excess of Loss Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and the Subscribing Reinsurer
shall under no circumstances participate in the Interests and Liabilities, if
any, of the other subscribing reinsurers in said Agreement.
The Company shall pay to the Subscribing Reinsurer 100% of all premiums
due or which may become due the Reinsurer in accordance with the provisions of
the Agreement attached.
This Contract shall attach at January 1, 1994 and is subject to the
provisions contained in the Term Article of the attached Agreement, which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 8/4/94 Page 1 of 2
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01-94-0365
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this 8th day of November, 1994
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By: /s/ DONALD J. ZUK
-----------------------------------
Signed in Hannover, Germany
this 10th day of March, 1994
On behalf of each of the following Companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3004
By: /s/ HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
-------------------------------------------------------
ED 8/4/94 Page 2 of 2
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<PAGE> 16
01-94-0365
ADDENDUM NUMBER 1
This Addendum attaches to and forms a part of the
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT/
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the instrument attached to this Contract
entitled Per Policy Excess of Loss Reinsurance Agreement shall be amended in
accordance with the provisions of the attached Endorsement Number 1, effective
as specified therein.
ED 8/4/94 Page 1 of 2
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<PAGE> 17
01-94-0365
IN WITNESS WHEREOF, the parties hereto have caused this Addendum Number
1 to be signed in duplicate by their duly authorized representatives.
Signed in Beverly Hills, California
this 8th day of November, 1994
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By: /s/ DONALD J. ZUK
------------------------------------
Signed in Hannover, Germany
this 7th day of September, 1994
On behalf of each of the following Companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3004
By: /s/ HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
-------------------------------------------------------
ED 8/4/94 Page 2 of 2
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<PAGE> 18
01-94-0365
ENDORSEMENT NUMBER 1
This Endorsement attaches to and forms a part of the
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter called the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
IT IS HEREBY AGREED that, effective January 1, 1994 this Agreement will
be amended as follows:
1. The named Companies hereon, collectively referred to as the "Company",
shall be revised as follows:
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter called the "Company")
ED 8/4/94 Page 1 of 3
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<PAGE> 19
01-94-0365
2. Article VII, "Ultimate Net Loss", paragraph A. shall be revised as
follows:
A. The term "ultimate net loss" as used herein shall be understood
to mean the sum actually paid by the Company in settlement of losses
for which it is held liable, including interest accrued prior to
judgment, 80% of Extra Contractual Obligations in accordance with the
provisions of Article IX and Excess of Original Policy Limits in
accordance with the provisions of Article VIII, after making proper
deductions for all recoveries, salvages, and claims upon other
reinsurances and insurances which inure to the benefit of the Reinsurer
under this Agreement, whether collectible or not, and shall exclude all
loss adjustment expenses (which shall be separately allocated and paid
as provided in paragraph B. below); provided, however, that in the
event of the insolvency of the Company, "ultimate net loss" shall mean
the amount of loss which the Company has incurred or for which it is
liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Insolvency Article in this Agreement. Nothing in
this clause, however, shall be construed to mean that losses under this
Agreement are not recoverable until the ultimate net loss of the
Company has been ascertained.
3. Article XXIV, "Insolvency", shall be revised as follows:
ARTICLE XXIV
INSOLVENCY:
A. The portion of any risk or obligation assumed by the Reinsurer,
when such portion is ascertained, shall be payable on demand of the
Company at the same time as the Company shall pay its net retained
portion of such risk or obligation, with reasonable provision for
verification before payment, and the reinsurance shall be payable by
the Reinsurer, on the basis of the liability of the Company under the
policy or policies reinsured without diminution because of the
insolvency of the Company.
B. In the event of the insolvency of one or more than one of the
Companies, reinsurance under this Agreement shall be payable
immediately on demand, with reasonable provision for verification, on
the basis of claims allowed against the insolvent Company(ies) by any
court of competent jurisdiction or by any liquidator, receiver, or
statutory successor of the Company(ies) having authority to allow such
claims, without diminution because of such insolvency or because such
liquidator, receiver, 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 or statutory
successor.
C. It is agreed, however, that the liquidator or receiver or
statutory successor of the insolvent Company(ies) will give written
notice to the Reinsurer of the pendency of a claim against the
insolvent Company(ies) on the policy or policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding
and that
ED 8/4/94 Page 2 of 3
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<PAGE> 20
01-94-0365
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(ies) or its liquidator or receiver or
statutory successor. The expense thus incurred by the Reinsurer will
be chargeable, subject to court approval, against the insolvent
Company(ies) as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company(ies)
solely as a result of the defense undertaken by the Reinsurer.
D. Where two or more reinsurers 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 insolvent
Company(ies).
4. Article XXV, "Arbitration", paragraph G. shall be revised to read as
follows:
G. The panel shall interpret this Agreement as if it were an
honorable engagement rather than as merely a legal obligation and shall
make its decision considering the custom and practice of the applicable
insurance and reinsurance business within sixty (60) days following the
termination of the hearings. Judgment upon the award may be entered in
any court having jurisdiction thereof.
5. Article XXVI, "Intermediary", shall be revised to read as follows:
ARTICLE XXVI
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby
recognized as the Intermediary negotiating this Agreement 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 Reinsurer
through Willcox Incorporated Reinsurance Intermediaries, 180 Maiden
Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer.
Payments by the Reinsurer 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.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
ED 8/4/94 Page 3 of 3
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<PAGE> 21
01-96-0365
ADDENDUM NUMBER 2
This Addendum attaches to and forms a part of the
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT/
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Agreement attached to this Contract
entitled Per Policy Excess of Loss Reinsurance Agreement shall be amended in
accordance with the provisions of the attached Endorsement Number 2, effective
as specified therein.
ED 4/5/96 Page 1 of 2
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<PAGE> 22
01-96-0365
IN WITNESS WHEREOF, the parties hereto have caused this Addendum Number
2 to be signed in duplicate by their duly authorized representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________________
Signed in Hannover, Germany
this 20th day of May, 1996
On behalf of each of the following Companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3004
By: /s/ HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
-------------------------------------------------------
North American Treaty Dpt. - VR11
ED 4/5/96 Page 2 of 2
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<PAGE> 23
01-96-0365
ENDORSEMENT NUMBER 2
This Endorsement attaches to and forms a part of the
PER POLICY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
IT IS HEREBY AGREED that, effective January 1, 1996, this Agreement
will be amended as follows:
1. The named Companies hereon, collectively referred to as the "Company",
shall be revised as follows:
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
ED 4/5/96 Page 1 of 3
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<PAGE> 24
01-96-0365
2. Article XXI, "Funding", shall be revised as follows:
ARTICLE XXI
UNAUTHORIZED REINSURANCE:
(Applies only to a Reinsurer who does not qualify for full credit with
any insurance regulatory authority having jurisdiction over the
Company's reserves.)
A. As regards policies or bonds issued by the Company coming
within the scope of this Agreement, the Company agrees that when it
shall file with the insurance regulatory authority or set up on its
books reserves for losses covered hereunder which it shall be required
by law to set up, it will forward to the Reinsurer a statement showing
the proportion of such reserves which is applicable to the Reinsurer.
The Reinsurer hereby agrees to fund such reserves in respect of known
outstanding losses that have been reported to the Reinsurer and
allocated loss adjustment expense relating thereto, losses and
allocated loss adjustment expense paid by the Company but not recovered
from the Reinsurer, plus reserves for losses incurred but not reported,
as shown in the statement prepared by the Company (hereinafter referred
to as "Reinsurer's Obligations") by funds withheld, cash advances or a
Letter of Credit. The Reinsurer shall have the option of determining
the method of funding provided it is acceptable to the insurance
regulatory authorities having jurisdiction over the Company's reserves.
B. When funding by a Letter of Credit, the Reinsurer agrees to
apply for and secure timely delivery to the Company of a clean,
irrevocable and unconditional Letter of Credit issued by a bank and
containing provisions acceptable to the insurance regulatory
authorities having jurisdiction over the Company's reserves in an
amount equal to the Reinsurer's proportion of said reserves. Such
Letter of Credit shall be issued for a period of not less than one (1)
year, and shall be automatically extended for one (1) year from its
date of expiration or any future expiration date unless thirty (30)
days (sixty (60) days where required by insurance regulatory
authorities) prior to any expiration date the issuing bank shall notify
the Company by certified or registered mail that the issuing bank
elects not to consider the Letter of Credit extended for any additional
period.
C. The Reinsurer and Company agree that the Letters of Credit
provided by the Reinsurer pursuant to the provisions of this Agreement
may be drawn upon at any time, notwithstanding any other provision of
this Agreement, and be utilized by the Company or any successor, by
operation of law, of the Company including, without limitation, any
liquidator, rehabilitator, receiver or conservator of the Company for
the following purposes, unless otherwise provided for in a separate
Trust Agreement:
1. to reimburse the Company for the Reinsurer's
Obligations, the payment of which is due under the
terms of this Agreement and which has not been
otherwise paid;
ED 4/5/96 Page 2 of 3
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<PAGE> 25
01-96-0365
2. to make refund of any sum which is in excess of the
actual amount required to pay the Reinsurer's
Obligations under this Agreement;
3. to fund an account with the Company for the Reinsurer's
Obligations. Such cash deposit shall be held in an
interest bearing account separate from the Company's
other assets, and interest thereon not in excess of the
prime rate shall accrue to the benefit of the
Reinsurer;
4. to pay the Reinsurer's share of any other amounts the
Company claims are due under this Agreement.
D. In the event the amount drawn by the Company on any Letter of
Credit is in excess of the actual amount required for 1. or 3., or in
the case of 4., the actual amount determined to be due, the Company
shall promptly return to the Reinsurer the excess amount so drawn. All
of the foregoing shall be applied without diminution because of
insolvency on the part of the Company or the Reinsurer.
E. The issuing bank shall have no responsibility whatsoever in
connection with the propriety of withdrawals made by the Company or the
disposition of funds withdrawn, except to ensure that withdrawals are
made only upon the order of properly authorized representatives of the
Company.
F. At annual intervals, or more frequently as agreed but never
more frequently than quarterly, the Company shall prepare a specific
statement of the Reinsurer's Obligations, for the sole purpose of
amending the Letter of Credit, in the following manner:
1. If the statement shows that the Reinsurer's Obligations
exceed the balance of credit as of the statement date,
the Reinsurer shall, within thirty (30) days after
receipt of notice of such excess, secure delivery to
the Company of an amendment to the Letter of Credit
increasing the amount of credit by the amount of such
difference.
2. If, however, the statement shows that the Reinsurer's
Obligations are less than the balance of credit as of
the statement date, the Company shall, within thirty
(30) days after receipt of written request from the
Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing
the amount of credit available by the amount of such
excess credit.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
ED 4/5/96 Page 3 of 3
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<PAGE> 26
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 27
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured
( of services, bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
Page 2 of 2
<PAGE> 1
01-95-0879
EXHIBIT 10.10
REINSTATEMENT/RETROACTIVE/AGGREGATE EXTENSION
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. MANAGEMENT SERVICES, INC.
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and on the
terms and conditions and subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter 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 I
BUSINESS COVERED:
A. The Reinsurer agrees to reimburse the Company, on an excess of loss
basis for amounts of reinstatement premium, reinstatement extension,
retroactive liability or ultimate net loss as specifically set forth in the
Limits Article arising directly or indirectly from losses under the Company's
Physicians and Surgeons Comprehensive Professional and Business Liability
Policies, including Clinics and Clinical Laboratories, Professional and
Business Liability Policies for Hospitals and Errors and Omissions Liability
Policies for Managed Care Organizations, except as excluded under the
Exclusions Article of this Agreement, subject to the limitations set forth in
the Limits Article.
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01-95-0879
B. The term "policies" as used herein means each of the Company's binders,
policies and contracts providing insurance and reinsurance on the Classes of
Insurance covered hereunder.
ARTICLE II
TERM:
A. This Agreement shall commence January 1, 1995 and shall end December
31, 1999 both days inclusive, Pacific Standard Time.
B. Notwithstanding the expiration of this Agreement the provisions of this
Agreement shall continue to apply to all unfinished business hereunder to the
end and that all obligations and liabilities incurred by each party hereunder
prior to such termination shall be fully performed and discharged.
ARTICLE III
EXCLUSIONS:
The reinsurance provided under this Agreement does not apply to:
1. Insolvency Funds, per the attached "Insolvency Funds Exclusion
Clause".
2. Nuclear Incidents, per the attached "Nuclear Incident Exclusion
Clause - Liability -Reinsurance".
ARTICLE IV
TERRITORY:
This Agreement will apply as per the Company's original policies.
ARTICLE V
LIMITS:
A. The Reinsurance coverage provided hereunder is in three Sections,
Section (A), Section (B) and Section (C), as follows:
Section (A): Reinstatement Premium Protection:
The Company has purchased Excess of Loss Reinsurance for limits
of $3,000,000 excess of $2,000,000, each occurrence, $5,000,000 excess
of $5,000,000 each occurrence, and $10,000,000 excess of $10,000,000
each occurrence. In the event of a loss, and the Company elects
reinstatement thereunder, the Company must pay to the Reinsurers on
said covers an additional premium as called for under the original
contracts. In the event of
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01-95-0879
such a contingency, the Reinsurer hereunder shall reimburse the Company
the reinstatement premiums paid under said original contracts up to the
following maximum amounts:
<TABLE>
<CAPTION>
$3,000,000 $5,000,000 $10,000,000
XS XS XS
Year: Reinstatement: $2,000,000: $5,000,000: $10,000,000
----- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1987 1st $1,862,696 $ 509,137 Nil
2nd $2,794,043 Nil Nil
1988 1st $2,118,125 $ 578,954 Nil
2nd $3,262,500 Nil Nil
1989 1st $2,175,000 $ 594,500 Nil
2nd $3,262,500 Nil Nil
1990 1st $1,687,896 $ 500,000 Nil
2nd $2,531,844 Nil Nil
1991 1st $1,533,062 $ 500,000 Nil
2nd $2,299,592 Nil Nil
1992 1st $1,462,500 $ 425,000 $450,000
2nd $2,193,750 Nil Nil
1993 1st $1,672,391 $ 450,000 $557,463
2nd $2,508,586 Nil Nil
1994 1st $1,791,639 $ 450,000 $581,504
2nd $2,687,459 Nil Nil
</TABLE>
Section (B): Retroactive Liability:
In consideration for the premium set forth in the Premium
Article, as respects this Section, the Reinsurer agrees to assume
retroactively for the years 1989 and 1990 the limits of $1,000,000
excess of $1,000,000 each occurrence and for the years 1987 through
1990 the limits of $3,000,000 each occurrence, each policy in excess of
$2,000,000 each occurrence, each policy; subject to a maximum amount
recoverable under this Section of $6,000,000 in all during the term of
this Agreement.
Section (C): First Excess Aggregate Extension:
In consideration for the premium set forth in the Premium
Article, the Reinsurer agrees to provide the Company with an additional
aggregate extension limit for the layer $1,000,000 excess of
$1,000,000, each occurrence, separately for the years 1991, 1992, 1993
and 1994, such additional limit being $5,000,000 excess of $8,500,000
or 182.5%
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01-95-0879
of the Gross Reinsurance Premium Earned during each Agreement term,
whichever is the greater, subject to a maximum amount recoverable under
this Section of $6,000,000 in all during the term of this Agreement.
B. Notwithstanding the individual limitations set forth in each Section
outlined above, the maximum amount recoverable hereunder shall not exceed 150%
of total reinsurance premiums paid at January 1, 1995 or $9,000,000, whichever
is the greater, during each twelve (12) months period, January 1 to December
31, both days inclusive, or $25,000,000 in all during the term of this
Agreement.
C. With the exception of the coverage provided under Section (B), the
Company deems to have carried the following additional reinsurances:
<TABLE>
<S> <C> <C>
1986 - $1,000,000 excess of $1,000,000, each occurrence.
1987 - $1,000,000 excess of $1,000,000, each occurrence.
1988 - $1,000,000 excess of $1,000,000, each occurrence.
1989 - $1,000,000 excess of $1,000,000, each occurrence
(commuted as of December 31, 1993).
1990 - $1,000,000 excess of $1,000,000, each occurrence.
(Commuted as of December 31, 1994).
1991 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
1992 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
1993 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
1994 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
</TABLE>
ARTICLE VI
DEFINITIONS OF OCCURRENCE:
The term "occurrence" as used herein means each accident or occurrence
or series of accidents or occurrences on which claim is first made to the
Company in accordance with the provisions of the original policy.
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ARTICLE VII
NET RETAINED LINES:
A. This Agreement applies only to that portion of any policy which the
Company retains net for its own account, and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
policy which the Company retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Company
to collect from any other reinsurer(s), whether specific or general, any
amounts which may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE VIII
ULTIMATE NET LOSS;
A. The term "ultimate net loss" as used herein shall be understood to
mean the sum actually paid by the Company in settlement of losses for which it
is held liable, including 100% of loss in Excess of Original Policy Limits and
80% of any Extra Contractual Obligations in accordance with the provisions of
the respectively captioned Articles herein and interest accrued prior to
judgment, after making proper deductions for all recoveries, salvages, and
claims upon other reinsurances or insurances which inure to the benefit of the
Reinsurer under this Agreement, whether collectible or not; provided, however,
that in the event of the insolvency of the Company, "ultimate net loss" shall
mean the amount of loss which the Company has incurred or for which it is
liable, and payment by the Reinsurer shall be made to the liquidator, receiver
or statutory successor of the Company in accordance with the provisions of the
Insolvency Clause in this Agreement.
B. All office expenses of the Company and all salaries and expenses of
its officials and employees shall be excluded under this Agreement.
C. All expenses other than as provided in B. above, including taxed court
costs, postjudgment interest, and loss expenses incurred in investigation,
adjustment and litigation, defense and settlement of claims made against the
Company under its original policies reinsured hereunder, shall be apportioned
to each party in proportion to the respective interests of the parties hereto
in the ultimate net loss, shall be in addition to the Company's ultimate net
loss and not subject to the limit(s) of this Agreement.
D. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a judgment, resulting in an ultimate
saving on such verdict or judgment, or a judgment is reversed outright, the
expense incurred in securing such final reduction or reversal shall (1) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each party's
interest in such verdict or judgment; or (2) when the terms and conditions of
the Company's original policies reinsured hereunder include expenses as part of
the policy limit, be added to the Company's ultimate net loss.
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01-95-0879
ARTICLE IX
EXCESS OF ORIGINAL POLICY LIMITS:
A. This Agreement shall protect the Company, within the limits hereof, in
connection with ultimate net loss in excess of the limit of its original
policy, such loss in excess of the limit having been incurred because of
failure by it 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 reinsured or in the preparation or prosecution of an appeal
consequent upon such action.
B. 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 hereunder.
C. For the purpose of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original policy.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS:
A. This Agreement shall protect the Company within the limits hereof,
where the ultimate net loss includes any Extra Contractual Obligations. The
term "Extra Contractual Obligations" is defined as those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on business 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 reinsured, or
in the preparation or prosecution of an appeal consequent upon such action.
B. The date on which any Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
disaster and/or casualty.
C. 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 hereunder.
ARTICLE XI
SUBROGATION AND SALVAGE:
A. The Reinsurer shall be subrogated, as respects any loss for which the
Reinsurer shall actually pay or become liable, but only to the extent of the
amount of payment by or the amount of liability to the Reinsurer, to all the
rights of the Company against any person or other entity
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01-95-0879
who may be legally responsible in damages for said loss. The Company hereby
agrees to enforce such rights, but in case the Company shall refuse or neglect
to do so the Reinsurer is hereby authorized and empowered to bring any
appropriate action in the name of the Company or its policyholders, or
otherwise to enforce such rights.
B. Any recoveries, salvages or reimbursements applying to risks covered
under this Agreement shall always be used to reimburse the excess carriers
(from the last to the first, beginning with the carrier of the last excess),
according to their participation, before being used in any way to reimburse the
Company for its primary loss.
C. 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 then 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 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 of the Company
and all salaries and expenses of its officials and employees.
ARTICLE XII
CLAIMS:
A. The Company shall advise the Reinsurer promptly of all occurrences
which, in the opinion of the Company, may result in a claim hereunder and of
all subsequent developments thereto which, in the opinion of the Company, may
materially affect the position of the Reinsurer.
B. The Company has the obligation to investigate and, to the extent that
may be required by the policies reinsured, defend any claim affecting this
reinsurance and to pursue such claim to final determination.
C. All loss settlements made by the Company, provided they are within the
terms of this Agreement shall be unconditionally binding upon the Reinsurer,
and amounts falling due to the share of the Reinsurer shall be payable by the
Reinsurer in accordance with the provisions set forth in the Reports and
Remittances Article herein.
D. It is understood that when so requested the Company will afford the
Reinsurer an opportunity to be associated with the Company, at the expense of
the Reinsurer, in the defense of any claim or suit or proceeding involving
this reinsurance; and the Company will cooperate in every respect in the
defense of such claim, suit or proceeding.
ARTICLE XIII
PREMIUM:
A. The Company shall pay to the Reinsurer in full as of January 1, 1995,
the following reinsurance premium, in respect of the various Sections covered
hereunder:
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<TABLE>
<S> <C>
Section (A) $2,983,071
Section (B) $1,847,218
Section (C) $1,132,166
</TABLE>
subject to additional premium as set forth in paragraph B. below.
B. In the event that the Reinsurer's payment of its liabilities under one
or more of the Sections in this Agreement as of any December 31 exceed
$12,000,000 the Company shall pay, as additional premium to the Reinsurer, 60%
of the difference between such paid amount and 100% of the premium payable
hereunder as of January 1, 1995.
ARTICLE XIV
PROFIT COMMISSION:
A. As of December 31, 1995 and annually thereafter the Reinsurer shall
allow the Company a profit commission on the results under this Agreement in
accordance with the following formula:
Income:
1. 95% of the reinsurance premiums paid or payable under Sections
(A), (B) and (C) of the Premium Article, including additional premium,
if any as of January 1, 1995; plus
2. Interest Credit computed at 6.25% annual interest rate on Net
Cash held by the Reinsurer from January 1, 1995. The term "Net Cash"
shall mean 95% of premiums paid as of January 1, 1995 hereunder, less
payments under the provisions of Sections (A), (B) and (C) and less any
provisional profit commission paid in previous calculations.
Outgo:
100% of all paid and outstanding liabilities under Sections (A), (B)
and (C) as at the date of calculation.
The amount by which Income exceeds Outgo is profit.
The amount by which Outgo exceeds Income is deficit.
B. It is understood and agreed that payment of Profit Commission to the
Company shall be as of December 31, 1999 and shall be subject to a full and
final release of the Reinsurer's liability under this Agreement. However,
notwithstanding the foregoing, the Company, at its option, can elect to receive
as of any December 31 an annual provisional payment of 20% of the expected
total Profit Commission hereunder. Should the provisional Profit Commission
calculation result in a deficit, then any previous provisional payment of
Profit Commission paid to the Company shall be returned to the Reinsurer to the
extent required to eliminate any deficit. Likewise, for purposes of all Profit
Commission calculations hereunder any allocation under "Outgo" for incurred but
not reported loss reserves shall be subject to mutual agreement of the parties
hereto.
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ARTICLE XV
COMMUTATION:
The Company or the Reinsurer may, at any time express their desire to
the other party to commute all liabilities which are applicable to one or more
of the Sections under this Agreement and which are still unsettled. In such
event the Company and the Reinsurer shall mutually determine and evaluate such
liabilities and the payment by the Reinsurer of their proportion of the amount
so ascertained and mutually agreed to be the value of such liabilities shall
relieve them of all further liability, in respect of that Section or Sections
covered under this Agreement.
ARTICLE XVI
REPORTS AND REMITTANCES:
A. The Company will provide the Reinsurer with all necessary data
respecting premiums, losses and recoveries on forms mutually acceptable to the
Company and the Reinsurer.
B. The premium and any additional premium shall be paid in accordance with
the provisions of the Premium Article.
C. The Company shall provide to the Reinsurer, as promptly as possible
after the close of each year the information necessary for Annual Statement
purposes.
D. Payment by the Reinsurer of its proportion of liabilities paid by the
Company will be made by the Reinsurer to the Company as soon as possible but
not later than sixty (60) days after proof of payment by the Company is
received by the Reinsurer.
ARTICLE XVII
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, providing such delay, omission
or error is rectified as soon as possible after discovery.
ARTICLE XVIII
TAXES:
The Company will be liable for all taxes on premiums reported to the
Reinsurer hereunder and will reimburse the Reinsurer for such taxes where the
Reinsurer is required to pay the same.
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ARTICLE XIX
FEDERAL EXCISE TAX:
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Code) to the extent such premium is
subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the
Reinsurer will deduct the applicable percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax from
the United States Government.
ARTICLE XX
CURRENCY:
A. Wherever the word "Dollars" or the "$" sign appear in this Agreement,
they shall be construed to mean United States Dollars and all transactions
under this Agreement shall be in United States Dollars.
B. Amounts paid or received by the Company in any other currency shall be
converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Company.
ARTICLE XXI
INSOLVENCY:
A. In the event of the insolvency of the Company, reinsurance under this
Agreement will be payable on demand, with reasonable provision for verification
on the basis of the liability of the Company under contract or contracts
reinsured without diminution because of the insolvency of the Company to the
Company or to its liquidator, receiver, or statutory successor, except as
provided by Section 4118(a) of the New York Insurance Law, or except:
1. where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company; or
2. 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.
B. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company will give written notice to the Reinsurer of
the pendency of a claim against the insolvent Company on the contract or
contracts reinsured within a reasonable time after such
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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 or
receiver or statutory successor. The expense thus incurred by the Reinsurer
will 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.
C. Where two or more reinsurers 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 insolvent Company.
D. Should the Company go into liquidation or should a receiver be
appointed, the Reinsurer will be entitled to deduct from any sums which may be
or may become due to the Company under this Reinsurance Agreement, any sums
which are due to the Reinsurer by the Company under this Reinsurance Agreement
and which are payable at a fixed or stated date, as well as any other sums due
the Reinsurer which are permitted to be offset under applicable law.
ARTICLE XXII
ARBITRATION:
A. Should an irreconcilable difference of opinion arise between the
parties to this Agreement, whether before or after termination, as to the
interpretation of this Agreement or a transaction with respect to this
Agreement, such difference will be submitted to arbitration upon the written
request of one of the parties. One arbiter is to be chosen by the Company and
one by the Reinsurer. An umpire will be chosen by the two arbiters before they
enter into arbitration.
B. Should the arbiters fail to agree upon the choice of an umpire within
thirty (30) days of the appointment of the last arbiter, then each arbiter will
nominate one umpire. The selection will be made by drawing lots, and the name
of the party first drawn will be the umpire.
C. In the event that either party should fail to choose an arbiter within
sixty (60) days following the written request by the other party to enter upon
arbitration, the requesting party may choose two arbiters who will in turn
choose an umpire before entering into arbitration.
D. Each party will present its case to the arbiters and the umpire within
thirty (30) days of the appointment of the umpire. The written decision of any
two of the three will be final and binding upon the Company and the Reinsurer.
If either of the parties should fail to carry out any award, the other party
may apply for its enforcement to a court of competent jurisdiction.
E. The decision of the arbiters and the umpire will be rendered in writing
within ninety (90) days of their appointment unless this time is extended by
mutual consent of the contracting parties and, such decision shall be made in
regard to the custom and practice of the insurance and reinsurance business.
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F. The arbiters will have the power to fix all procedural rules for the
holding of the arbitration including discretionary power to make orders as to
any matter which it may consider proper with regard to pleadings, discovery,
inspection of documents, examination of witnesses and any other matter
whatsoever relating to the conduct of the arbitration. The arbiters may
receive and act upon such evidence whether oral or written, strictly admissible
or not, as they deem advisable.
G. The arbiters and the umpire will be active or retired disinterested
persons employed or engaged in a senior position of insurance or reinsurance
companies or Lloyd's Underwriters.
H. Each party will pay the fee of its chosen arbiter and half of the fee
of the umpire; the remaining costs of arbitration will be paid as the written
decision directs. In the event both arbiters are chosen by one party, the fees
of the arbiters and the umpire will be equally divided between the parties.
I. Unless otherwise mutually agreed between the Company and the Reinsurer,
any arbitration will take place in Los Angeles, California.
ARTICLE XXIII
OFFSET CLAUSE:
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; and 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 insurer or as ceding insurer, in which each party acted under the
agreement involved, provided, however, that, in the event of the insolvency of
a party hereto, offsets shall only be allowed in accordance with the provisions
of the Insurance Law of the State of New York.
ARTICLE XXIV
UNAUTHORIZED REINSURANCE:
(Applies only to a Reinsurer who does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company's
reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that when it shall file with the
insurance regulatory authority or set up on its books reserves for losses
covered hereunder which it shall be required by law to set up, it will forward
to the Reinsurer a statement showing the proportion of such reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees to fund such reserves
in respect of known outstanding losses that have been reported to the
Reinsurer and allocated loss adjustment
ED 6/28/95 Page 12 of 16
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01-95-0879
expense relating thereto, losses and allocated loss adjustment expense paid by
the Company but not recovered from the Reinsurer, plus reserves for losses
incurred but not reported, as shown in the statement prepared by the Company
(hereinafter referred to as "Reinsurer's Obligations") by funds withheld, cash
advances or a Letter of Credit. The Reinsurer shall have the option of
determining the method of funding provided it is acceptable to the insurance
regulatory authorities having jurisdiction over the Company's reserves.
B. When funding by a Letter of Credit, the Reinsurer agrees to apply for
and secure timely delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit issued by a bank and containing provisions
acceptable to the insurance regulatory authorities having jurisdiction over the
Company's reserves in an amount equal to the Reinsurer's proportion of said
reserves. Such Letter of Credit shall be issued for a period of not less than
one year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days (sixty (60)
days where required by insurance regulatory authorities) prior to any
expiration date the issuing bank shall notify the Company by certified or
registered mail that the issuing bank elects not to consider the Letter of
Credit extended for any additional period.
C. The Reinsurer and Company agree that the Letters of Credit provided by
the Reinsurer pursuant to the provisions of this Agreement may be drawn upon at
any time, notwithstanding any other provision of this Agreement, and be
utilized by the Company or any successor, by operation of law, of the Company
including, without limitation, any liquidator, rehabilitator, receiver or
conservator of the Company for the following purposes, unless otherwise
provided for in a separate Trust Agreement:
1. to reimburse the Company for the Reinsurer's Obligations, the
payment of which is due under the terms of this Agreement and
which has not been otherwise paid;
2. to make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's Obligations under this
Agreement;
3. to fund an account with the Company for the Reinsurer's
Obligations. Such cash deposit shall be held in an interest
bearing account separate from the Company's other assets, and
interest thereon not in excess of the prime rate shall accrue
to the benefit of the Reinsurer;
4. to pay the Reinsurer's share of any other amounts the Company
claims are due under this Agreement.
D. In the event the amount drawn by the Company on any Letter of Credit is
in excess of the actual amount required for 1. or 3., or in the case of 4., the
actual amount determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn. All of the foregoing shall be applied
without diminution because of insolvency on the part of the Company or the
Reinsurer.
E. The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
ED 6/28/95 Page 13 of 16
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01-95-0879
F. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement of
the Reinsurer's Obligations, for the sole purpose of amending the Letter of
Credit, in the following manner:
1. If the statement shows that the Reinsurer's Obligations exceed
the balance of credit as of the statement date, the Reinsurer
shall, within thirty (30) days after receipt of notice of such
excess, secure delivery to the Company of an amendment to the
Letter of Credit increasing the amount of credit by the amount
of such difference.
2. If, however, the statement shows that the Reinsurer's
Obligations are less than the balance of credit as of the
statement date, the Company shall, within thirty (30) days
after receipt of written request from the Reinsurer, release
such excess credit by agreeing to secure an amendment to the
Letter of Credit reducing the amount of credit available by the
amount of such excess credit.
ARTICLE XXV
SPECIAL FUNDING CLAUSE:
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it will
fund uncollected paid losses and loss adjustment expenses within thirty (30)
days from the date of written demand by the Company to so fund. Such demand
shall not be made unless balances are sixty (60) days or more past the due date
of payment specified in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the aforesaid
loss by a Letter of Credit, the procedures set forth in the Unauthorized
Reinsurance Article in respect of Letters of Credit shall apply. If the
Reinsurer has already funded obligations hereunder in accordance with the
Unauthorized Reinsurance Article in this Agreement, it agrees that such funds
as are required to pay overdue losses may immediately be drawn down by the
Company.
C. The phrase "any loss payable" as used in paragraph A. above shall mean
any ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss
and such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied is
insufficient or not in accordance with the contractual conditions, then the
payment due date as defined in the Reports and Remittances Article, will be
deemed to be the date upon which the Reinsurer received such additional
substantive material necessary to approve payment of the claim, or the date the
claim is presented in a manner acceptable to the Reinsurer.
ED 6/28/95 Page 14 of 16
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01-95-0879
ARTICLE XXVI
SERVICE OF SUIT:
(This Article only applies to Reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company.)
A. It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States. It is further agreed that service of process in
such suit may be made upon Messrs. Mendes & Mount, 750 Seventh Avenue, New
York, New York 10019-6829, and that in any suit instituted, the Reinsurer will
abide by the final decision of such court or of any appellate court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
C. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement of
reinsurance, and hereby designates the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
ARTICLE XXVII
INTERMEDIARY:
Willcox Incorporated Reinsurance Intermediaries is hereby recognized as
the Intermediary negotiating this Agreement 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 Reinsurer through Willcox Incorporated Reinsurance Intermediaries, 180
Maiden Lane, New York, New York 10038-4993. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer 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.
ED 6/28/95 Page 15 of 16
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01-95-0879
ARTICLE XXVIII
GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, U.S.A.
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<PAGE> 17
01-95-0879
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
REINSTATEMENT/RETROACTIVE/AGGREGATE EXTENSION
EXCESS OF LOSS REINSURANCE AGREEMENT
It is hereby mutually agreed by
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. MANAGEMENT SERVICES, INC.
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
that the Subscribing Reinsurer shall have a 100% participation in the Interests
and Liabilities of the Reinsurer as set forth in the Agreement attached hereto
entitled Reinstatement/Retroactive/ Aggregate Extension Excess of Loss
Reinsurance Agreement.
Such participation shall be several and not joint with the
participation of other subscribing reinsurers, and under no circumstances shall
the Subscribing Reinsurer participate in the Interests and Liabilities, if any,
of the other subscribing reinsurers in said Agreement.
The Company shall pay 100% of all premiums due or which may become due
the Subscribing Reinsurer in accordance with the provisions of the Agreement
attached.
This Contract shall attach at January 1, 1995 and is subject to
provisions contained in the Term Article of the attached Agreement which are
hereby incorporated by reference into this Contract and which shall apply as
though they had been specifically provided for herein.
ED 6/28/95 Page 1 of 2
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01-95-0879
The Agreement to which this Contract is attached and therefore the
Interests and Liabilities of the Subscribing Reinsurer therein, may be changed,
altered and amended as the parties may agree, provided such change, alteration
and amendment is evidenced in writing or by Addendum to this Contract, executed
by the Company and the Subscribing Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Contract to be signed in duplicate by their duly authorized
representatives.
Signed in Beverly Hills, California
this 20th day of September, 1995
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. MANAGEMENT SERVICES, INC.
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By: /s/ DONALD J. ZUK
---------------------------------
Signed in Hannover, Germany
this 24th day of July, 1995
On behalf of each of following Companies, whose liability shall be several and
not joint, for their respective shares of the percentage shown on page one of
this Contract.
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3008
By: /s/ HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
----------------------------------------------------
EISEN UND STAHL RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT
North American Treaty Dpt. - VR11
ED 6/28/95 Page 2 of 2
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<PAGE> 19
01-96-0879
ADDENDUM NUMBER 1
This Addendum attaches to and forms a part of the
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as the "Contract")
to the
REINSTATEMENT/RETROACTIVE/AGGREGATE EXTENSION
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT/
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Agreement attached to this Contract
entitled Reinstatement/Retroactive/Aggregate Extension Excess of Loss
Reinsurance Agreement shall be amended in accordance with the provisions of the
attached Endorsement Number 1, effective as specified therein.
ED 4/5/96 Page 1 of 2
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<PAGE> 20
01-96-0879
IN WITNESS WHEREOF, the parties hereto have caused this Addendum Number
1 to be signed in duplicate by their duly authorized representatives.
Signed in Beverly Hills, California
this day of , 199
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
By:_________________________________________
Signed in Hannover, Germany
this 20th day of May, 1996
On behalf of each of the following Companies, whose liability shall be several
and not joint, for their respective shares of the percentage shown on page one
of this Contract.
HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 80%
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT - 20%
Reference #: 0-411222-3008
By: /s/ HANNOVER RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
------------------------------------------------------
EISEN UND STAHL RUCKVERSICHERUNGS - AKTIENGESELLSCHAFT
North American Treaty Dpt.- VR11
ED 4/5/96 Page 2 of 2
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<PAGE> 21
01-96-0879
ENDORSEMENT NUMBER 1
This Endorsement attaches to and forms a part of the
REINSTATEMENT/RETROACTIVE/AGGREGATE EXTENSION
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. MANAGEMENT COMPANY
and/or S.C.P.I.E. MANAGEMENT SERVICES, INC.
and/or S.C.P.I.E. INSURANCE AGENCY
and/or S.C.P.I.E. INDEMNITY COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
IT IS HEREBY AGREED that, effective December 31, 1995, Pacific Standard
Time, this Agreement will be amended as follows:
1. The named Companies hereon, collectively referred to as the "Company",
shall be revised as follows:
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
and/or S.C.P.I.E. INDEMNITY COMPANY
and/or S.C.P.I.E. MANAGEMENT COMPANY
while acting on behalf of:
S.C.P.I.E. MANAGEMENT COMPANY
Beverly Hills, California
(hereinafter collectively referred to as the "Company")
ED 4/5/96 Page 1 of 6
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<PAGE> 22
01-96-0879
2. Article V, "Limits", shall be revised as follows:
ARTICLE V
LIMITS:
A. The Reinsurance coverage provided hereunder is in three
Sections, Section (A), Section (B) and Section (C), as follows:
Section (A): Reinstatement Premium Protection:
The Company has purchased Excess of Loss Reinsurance
for limits of $3,000,000 excess of $2,000,000, each occurrence,
$5,000,000 excess of $5,000,000 each occurrence, and
$10,000,000 excess of $10,000,000 each occurrence. In the
event of a loss, and the Company elects reinstatement
thereunder, the Company must pay to the Reinsurers on said
covers an additional premium as called for under the original
contracts. In the event of such a contingency, the Reinsurer
hereunder shall reimburse the Company the reinstatement
premiums paid under said original contracts up to the following
maximum amounts:
<TABLE>
<CAPTION>
$3,000,000 $5,000,000 $10,000,000
XS XS XS
Year: Reinstatement: $2,000,000: $5,000,000: $10,000,000
----- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1987 1st $1,862,696 $ 509,137 Nil
2nd $2,794,043 Nil Nil
1988 1st $2,118,125 $ 578,954 Nil
2nd $3,262,500 Nil Nil
1989 1st $2,175,000 $ 594,500 Nil
2nd $3,262,500 Nil Nil
1990 1st $1,687,896 $ 500,000 Nil
2nd $2,531,844 Nil Nil
1991 1st $1,533,062 $ 500,000 Nil
2nd $2,299,592 Nil Nil
1992 1st $1,462,500 $ 425,000 $450,000
2nd $2,193,750 Nil Nil
1993 1st $1,672,391 $ 450,000 $557,463
2nd $2,508,586 Nil Nil
</TABLE>
ED 4/5/96 Page 2 of 6
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<PAGE> 23
01-96-0879
<TABLE>
<CAPTION>
$3,000,000 $5,000,000 $10,000,000
XS XS XS
Year: Reinstatement: $2,000,000: $5,000,000: $10,000,000
----- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994 1st $1,791,639 $ 450,000 $581,504
2nd $2,687,459 Nil Nil
1995 1st $1,771,431 $ 450,000 $610,838
2nd $2,834,290 Nil Nil
</TABLE>
Section (B): Retroactive Liability:
In consideration for the premium set forth in the
Premium Article, as respects this Section, the Reinsurer agrees
to assume retroactively for the years 1989, 1990 and 1991, the
limits of $1,000,000 excess of $1,000,000 each occurrence and
for the years 1987 through 1993 the limits of $3,000,000 each
occurrence, each policy in excess of $2,000,000 each
occurrence, each policy; subject to a maximum amount
recoverable under this Section of $8,000,000 in all during the
term of this Agreement.
Section (C): First Excess Aggregate Extension:
In consideration for the premium set forth in the
Premium Article, the Reinsurer agrees to provide the Company
with an additional aggregate extension limit for the layer
$1,000,000 excess of $1,000,000, each occurrence, separately
for the years 1991, 1992, 1993, 1994 and 1995, such additional
limit being $5,000,000 excess of $8,500,000 or 182.5% of the
Gross Reinsurance Premium Earned during each Agreement term,
whichever is the greater, subject to a maximum amount
recoverable under this Section of $8,000,000 in all during the
term of this Agreement.
B. Notwithstanding the individual limitations set forth in each
Section outlined above, the maximum amount recoverable hereunder shall
not exceed $30,000,000 in all during the term of this Agreement.
C. With the exception of the coverage provided under Section (B),
the Company deems to have carried the following additional
reinsurances:
<TABLE>
<S> <C> <C>
1987 - $1,000,000 excess of $1,000,000, each occurrence.
1988 - $1,000,000 excess of $1,000,000, each occurrence.
1989 - $1,000,000 excess of $1,000,000, each occurrence
(commuted as of December 31, 1993).
</TABLE>
ED 4/5/96 Page 3 of 6
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<PAGE> 24
01-96-0879
<TABLE>
<S> <C> <C>
1990 - $1,000,000 excess of $1,000,000, each occurrence.
(Commuted as of December 31, 1994).
1991 - $1,000,000 excess of $1,000,000, each occurrence.
(Commuted as of December 31, 1995).
$8,000,000 excess of $2,000,000 each occurrence, each policy.
(Commuted as of December 31, 1995).
1992 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
(Commuted as of December 31, 1995).
1993 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
(Commuted as of December 31, 1995).
1994 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
1995 - $1,000,000 excess of $1,000,000, each occurrence.
$8,000,000 excess of $2,000,000 each occurrence, each policy.
</TABLE>
3. Article VIII, "Ultimate Net Loss", paragraph A. shall be revised as
follows:
ARTICLE VIII
ULTIMATE NET LOSS;
A. The term "ultimate net loss" as used herein shall be understood
to mean the sum actually paid by the Company in settlement of losses
for which it is held liable, including 100% of loss in Excess of
Original Policy Limits and 80% of any Extra Contractual Obligations in
accordance with the provisions of the respectively captioned Articles
herein and interest accrued prior to judgment, after making proper
deductions for all recoveries, salvages, and claims upon other
reinsurances or insurances which inure to the benefit of the Reinsurer
under this Agreement, whether collectible or not; provided, however,
that in the event of the insolvency of the Company, "ultimate net loss"
shall mean the amount of loss which the Company has incurred or for
which it is liable, and payment by the Reinsurer shall be made to the
liquidator, receiver or statutory successor of the Company in
accordance with the provisions of the Insolvency Clause in this
Agreement. Nothing in this clause, however, shall be construed to mean
that losses under this Agreement are not recoverable until the ultimate
net loss of the Company has been ascertained.
ED 4/5/96 Page 4 of 6
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<PAGE> 25
01-96-0879
4. Article XIII, "Premium", shall be revised as follows:
ARTICLE XIII
PREMIUM:
A. The Company shall pay to the Reinsurer in full as of January 1,
1995 and December 31, 1995, the following reinsurance premium, in
respect of the various Sections covered hereunder:
<TABLE>
<CAPTION>
January 1, 1995 December 31, 1995
--------------- -----------------
<S> <C> <C>
Section (A) $2,983,071 $1,821,299
Section (B) $1,847,218 $1,129,205
Section (C) $1,132,166 $ 692,094
</TABLE>
subject to additional premium as set forth in paragraph B. below.
B. In the event that the Reinsurer's payment of its liabilities
under one or more of the Sections in this Agreement as of any December
31 exceed $14,000,000 the Company shall pay, as additional premium to
the Reinsurer, 60% of the difference between such paid amount and 100%
of the premium payable hereunder as of January 1, 1995 and December 31,
1995 combined.
5. Article XIV, "Profit Commission", shall be revised as follows:
ARTICLE XIV
PROFIT COMMISSION:
A. As of December 31, 1995 and annually thereafter the Reinsurer
shall allow the Company a profit commission on the results under this
Agreement in accordance with the following formula:
Income:
1. 95% of the reinsurance premiums paid or payable under
Sections (A), (B) and (C) of the Premium Article, including
additional premium, if any as of January 1, 1995 and December
31, 1995; plus
2. Interest Credit computed at 6.25% annual interest rate
on Net Cash held by the Reinsurer from January 1, 1995 and
5.50% annual interest rate on Net Cash held by the Reinsurer
from December 31, 1995. The term "Net Cash" shall mean 95% of
premiums paid as of January 1, 1995 and December 31, 1995
hereunder, less payments under the provisions of Sections (A),
(B) and (C) and less any provisional profit commission paid in
previous calculations.
ED 4/5/96 Page 5 of 6
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<PAGE> 26
01-96-0879
Outgo:
100% of all paid and outstanding liabilities under Sections
(A), (B) and (C) as at the date of calculation.
The amount by which Income exceeds Outgo is profit.
The amount by which Outgo exceeds Income is deficit.
B. It is understood and agreed that payment of Profit Commission
to the Company shall be as of December 31, 1999 and shall be subject to
a full and final release of the Reinsurer's liability under this
Agreement. However, notwithstanding the foregoing, the Company, at its
option, can elect to receive as of any December 31 an annual
provisional payment of 20% of the expected total Profit Commission
hereunder. Should the provisional Profit Commission calculation result
in a deficit, then any previous provisional payment of Profit
Commission paid to the Company shall be returned to the Reinsurer to
the extent required to eliminate any deficit. Likewise, for purposes
of all Profit Commission calculations hereunder any allocation under
"Outgo" for incurred but not reported loss reserves shall be subject to
mutual agreement of the parties hereto.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
ED 4/5/96 Page 6 of 6
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<PAGE> 27
INSOLVENCY FUND EXCLUSION CLAUSE
This Agreement excludes all 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, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which provides for
any assessment of or payments 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.
NOTES: Wherever used herein the term:
"Company" shall be understood to mean "Reassured", "Reinsured" or whatever
other term is used in the attached reinsurance Agreement to designate the
reinsured company.
"Agreement" shall be understood to mean "Contract",
"Policy" or whatever other term is used to designate the attached
reinsurance document.
May 1983 WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES Page 1 of 1
<PAGE> 28
NUCLEAR INCIDENT EXCLUSION CLAUSE --
LIABILITY -- REINSURANCE U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph
(1) of this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III in this paragraph (2) shall be
deemed to include the following provision (specified as the Limited Exclusion
Provision);
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage.
( injury, sickness, disease, death or destruction
to ( with respect to which an insured
( under the policy is also an insured
( bodily injury or property damage
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association. Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only). Special Automobile
Policies (private passenger automobiles, liability only).
Farmers Comprehensive Personal Liability Policies (liability
only). Comprehensive Personal Liability Policies (liability
only) or policies of a similar nature; and the liability portion
of combination forms related to the four classes of policies
stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960 or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies.
Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
have jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph
(1) of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle
or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
1. Under any Liability Coverage to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association. Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof,
or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered
into by the United State of America, or any agency thereof,
with any person or organization.
WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES
Page 1 of 2
<PAGE> 29
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
( immediate medical or surgical death
to ( to expenses incurred with respect
( first aid.
( bodily injury, sickness, disease or death
to ( resulting from the hazardous
( properties of nuclear material and bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
( injury, sickness, disease, death or
III. Under any Liability Coverage to ( destruction
( bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
( injury, sickness, disease, death or destruction
(c) ( arises out of the furnishing by an insured of services,
( bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United States
of America, its territories or possessions or Canada, this
exclusion (c) applies only
( injury to or destruction of property at such nuclear facility.
to (
( property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or by-product material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BY-PRODUCT MATERIAL" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing by-product material other than
tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two
paragraphs of the definition of nuclear facility; "NUCLEAR FACILITY"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste;
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury"
or "destruction"
"property damage" includes all forms of radioactive contamination of
property;
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New
York risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
*NOTE: The words printed in italics in the Limited Exclusion Provision in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
- -------------------------------------------------------------------------------
Page 2 of 2
<PAGE> 1
EXHIBIT 10.15
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE (SCPIE)
Retirement Plan for Outside Governors and Affiliated Directors
EFFECTIVE DATE OF PLAN: January 1, 1994
ARTICLE I
Purpose
1.1 The purpose of this Retirement Plan is to provide Governors of SCPIE
and Directors of SCPIE Affiliates who are not employees of SCPIE or
SCPIE Affiliates with benefit payments after retirement in recognition
of their service to the Company and the SCPIE Affiliates and to ensure
that the overall compensation for Governors and Directors is adequate
to attract and retain highly qualified individuals.
ARTICLE II
Definitions
2.1 "Board" or "Board of Governors" means the Board of Governors of the
Company.
2.2 "Company" means Southern California Physicians Insurance Exchange
(SCPIE).
2.3 "Directors" means an individual serving on the Board of Directors of a
SCPIE Affiliate who is not an employee of the Company or a SCPIE
Affiliate during the period he is serving on such a Board of
Directors.
2.4 "Governor" means an individual serving on the Board of Governors who
is not an employee of the Company or a SCPIE Affiliate during the
period he is serving on the Board.
2.5 "Participant" means a Governor or Director who is eligible for or
entitled to receive benefits under this plan.
2.6 "Plan" means this Retirement Plan for Outside Governors and Affiliated
Directors effective January 1, 1994.
2.7 "SCPIE Affiliates" means each of SCPIE Management Company, a
California corporation, and Organization of Southern California
Physicians, Inc., a California nonprofit corporation.
2.8 "Service" means any period during which an individual is serving on
the Board of Governors of the Company as a Governor or on the Board of
Directors of a SCPIE Affiliate as a Director, excluding service as an
employee.
<PAGE> 2
ARTICLE III
Eligibility
3.1 All Governors of the Company, who are duly elected, shall be eligible
to participate in this Plan as of January 1, 1994, or the effective
date of their first election as a Governor, whichever is later.
Governors who have retired from the Board or who otherwise were not
serving on the Board as of the effective date of this Plan or the date
designated by the Board and are not later elected to the Board are not
eligible for benefits. All Directors who are designated in writing by
the Board shall be eligible to participate in this Plan as of the date
designated by the Board.
3.2 A Governor or a Director shall be eligible for retirement benefits
hereunder upon completion of at least five (5) years of Service.
ARTICLE IV
Retirement Benefits
4.1 Participants shall be paid an annual retirement benefit in accordance
with the terms and conditions of this Plan.
4.2 A participant's annual retirement benefit shall be $12,000 per year.
The last payment may be a pro rata portion of $12,000.
4.3 A Participant shall be credited with Service for any period during
which he served on the Board of Directors of the Company as a Governor
or on the Board of Directors of a SCPIE Affiliate as a Director.
4.4 Benefits will be paid for a period equal to one-half the number of
years of Service, including partial years of Service.
4.5 Payment of retirement benefits hereunder shall be in the form of
annual payments commencing on the first day of the month following the
date of retirement.
4.6 In the event a Participant dies prior to retirement from the Board or
the Board of Directors of a SCPIE Affiliate but after completing five
years of Service, his surviving spouse will be entitled to receive the
retirement benefits the Governor or Director would have received if he
had retired on the day preceding his death, provided however that all
benefits shall cease upon the death of the surviving spouse.
4.7 In the event a Participant dies after retirement from the Board or the
Board of Directors of a SCPIE Affiliate but before receiving all Plan
benefits, his surviving spouse will be entitled to receive the unpaid
portion of his retirement benefits, provided however that all benefits
shall cease upon the death of the surviving spouse.
2
<PAGE> 3
ARTICLE V
Status of the Plan
5. This Plan is a nonqualified supplemental retirement plan. As such,
all payments from this Plan shall be made from the general assets of
the Company. This Plan shall not require the Company to set aside,
segregate, earmark, pay into a trust or special account, or otherwise
restrict the use of its assets in the operations of its business. A
Participant shall have no greater right or status than as an unsecured
creditor of the Company with respect to any amounts owed to any
Participant hereunder.
ARTICLE VI
Rights Nonassignable
6.1 All payments to persons entitled to benefits hereunder shall be made
to such persons and shall not be grantable, transferable, or otherwise
assignable in anticipation or payment thereof, in whole or in part, by
the voluntary or involuntary acts of any such persons or by operation
of law. In addition, such payments shall not be subject to
garnishment, attachment, or any other legal process of creditors of
such persons.
ARTICLE VII
Administration
7.1 Full power and authority to construe, interpret, and administer this
Plan shall be vested in the Board. The Board shall have full power
and authority to make each determination provided for in this Plan.
All determinations made by the Board shall be conclusive and binding
upon the Company and each Participant or former Participant.
ARTICLE VIII
Plan Termination
8.1 The Board of Governors may terminate this Plan at any time. Upon
termination of the Plan, benefits shall continue to be paid in
accordance with Article IV to any Participant who is receiving
benefits prior to the date of termination of the Plan. All other
Participants on the date of termination will become 100% vested in the
benefits accrued prior to the date the Plan was terminated, and will
be paid in accordance with Article IV. The Company will be
responsible for the payment of all benefits earned prior to the date
of Plan termination. No additional benefits shall accrue for Service
after the date of Plan termination.
3
<PAGE> 4
ARTICLE IX
Amendment
9.1 The Board of Governors may, in its discretion, amend this Plan from
time to time. In addition, the Board may from time to time amend this
Plan to make such administrative changes as it may deem necessary or
desirable. No such amendment shall decrease the benefits to which any
Participant would have been entitled under Article IV and VIII if the
Plan has been terminated on the effective date of such amendment.
ARTICLE X
Liquidation
10.1 Notwithstanding Article VIII and IX, if the Company is liquidated, the
Board shall have the right to determine the present value of the total
amount payable under Article VIII to all Participants and to cause the
amount so determined to be paid in one or more installments or upon
such other terms and conditions and at such other time as the Board
determines to be just and equitable.
ARTICLE XI
Miscellaneous
11.1 If the person to receive payment is deemed by the Board or is adjudged
to be legally incompetent, the payments shall be made to duly
appointed guardian of such incompetent, or they may be made to such
person or persons who the Board believes are caring for or supporting
such incompetent; and the receipt by such persons or persons shall be
a complete acquittance for the payment of the benefit.
11.2 The expenses of administration hereunder shall be borne by the
Company.
11.3 This Plan shall be construed, administered, and enforced according to
the laws of the State of California.
11.4 The masculine pronouns shall be deemed to include the feminine, and
the singular to include the plural, unless a different meaning is
plainly intended by context.
4
<PAGE> 5
ARTICLE XII
Effective Date
12.1 The effective date of this Plan is January 1, 1994.
Executed this 26th day of October, 1994.
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
By: /s/ DR. ALLAN K. BRINEY
---------------------------
Attest: /s/ DR. MITCHELL KARLAN
--------------------------------------------
Date: October 31, 1994
--------------------------------------------
5
<PAGE> 6
AMENDMENT NO. 1
TO
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE ("SCPIE")
RETIREMENT PLAN FOR
OUTSIDE GOVERNORS AND AFFILIATED DIRECTORS
The Southern California Physicians Insurance Exchange ("SCPIE")
Retirement Plan for Outside Governors and Affiliated Directors (the "Plan") is
hereby amended as follows:
Section 8.1 of the Plan shall be deleted and replaced with the following:
"8.1 The Plan will be terminated as of December 31, 1996.
Upon termination of the Plan, benefits shall continue
to be paid in accordance with Article IV to any
Participant who is receiving benefits prior to the
date of termination of the Plan. All other
Participants on the date of termination will become
100% vested in the benefits accrued prior to the date
the Plan was terminated, and will be paid in
accordance with Article IV. The Company or its
successor will be responsible for the payment of all
benefits earned prior to the date of Plan
termination. No additional benefits shall accrue for
Service after the date of Plan termination."
Executed this 21st day of March, 1996.
SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE
By: SCPIE MANAGEMENT COMPANY,
Attorney-In-Fact
By: /s/ JOSEPH P. HENKES
------------------------------------------
Joseph P. Henkes, Assistant Secretary
<PAGE> 1
EXHIBIT 10.17
INTER-COMPANY POOLING AGREEMENT ("Agreement")
as of
April 1, 1996
This Agreement is made this 12th day of July, 1996, effective as of
12:01 A.M., April 1, 1996, ("Effective Date") by and between Southern
California Physicians Insurance Exchange ("SCPIE"), and the following companies
(collectively, the "Pool Members"): SCPIE Indemnity Company ("SCPIE
Indemnity"), FG Insurance Corporation ("FG Insurance") and FG Casualty Company
("FG Casualty").
WITNESSETH:
WHEREAS, the Pool Members are direct or indirect subsidiaries of SCPIE
which owns all their outstanding stock; and
WHEREAS, the parties hereto, in the interests of economy and efficiency,
desire to pool all their gross in-force, new and renewal business as well as
all their gross reported and incurred but not reported claims and losses,
statutory liabilities and assets held against them, past due balances and
underwriting expenses; and
WHEREAS, it is the intent of such pooling arrangement that the Annual
Statements of the parties shall, as respects all underwriting items, be in
fixed proportions;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
ARTICLE I - DEFINITIONS
For the purpose of this Agreement the following terms have the meanings
indicated:
A. "Expenses" shall mean all Underwriting Expenses and unallocated
loss adjustment expenses.
B. "Gross Losses" shall mean gross direct liability and allocated
loss adjustment expenses on insurance policies, contracts and
reinsurance assumed, all net of salvage, subrogation, and
facultative reinsurance, except liability assumed hereunder.
C. "Net Expenses" means gross Expenses less ceding commission
allowances under reinsurance contracts that inure to the benefit
of this Agreement.
D. "Net Losses" means gross losses less salvage, subrogation and
reinsurance that inure to the benefit of this agreement.
E. "Net Unearned Premiums" means gross unearned premiums, less
unearned reinsurance premiums.
F. "Net Written Premiums" means gross premiums, less reinsurance
premiums effected by the Pool Members or SCPIE, and less return
premium and cancellations.
Page 1 of 6
<PAGE> 2
G. "Ultimate Net Liability" means the sum or sums each party pays,
or becomes liable to pay (1) in the settlement of claims or
suits, or (2) in satisfaction of judgments under policies of
insurance or reinsurance issued by the parties hereto.
H. "Underwriting Expenses" shall mean all expenses incurred by
SCPIE or the Pool Members or both in the underwriting and
placing of insurance on its or their books and shall include but
shall not be limited to expenses incurred for commissions, all
other agency obligations, agency supervision, underwriting,
engineering, policy audits, advertising, supervision as it
relates to the production of business, taxes, other than federal
income taxes and such other expenses as may be mutually
agreeable to the parties
ARTICLE II - Cession to Pool
Each Pool Member individually shall cede to SCPIE and SCPIE shall assume
from each Pool Member:
A. 100% of the Net Losses of such Pool Member on all classes of in
force, new and renewal business wherever located which shall be
assumed by such Pool Members and becoming effective on or after
12:01 A.M., April 1, 1996, including statutory liabilities and
assets held against them, and past due balances; and
B. 100% of the Net Unearned Premium on each and every risk in force
as of the Effective Date and 100% of the Net Written Premium on
each and every risk assumed thereafter by way of primary
insurance, reinsurance or retrocession.
C. SCPIE shall credit the Pool Members with:
(i) A ceding commission on the Net Unearned Premium
reserve transferred in accordance with Article II B above.
The ceding commission will be an amount equal to the actual
costs incurred by the respective Pool Member for Underwriting
Expenses.
(ii) 100% of the amount of all Net Expenses paid by the
Pool Members while this Agreement is in force, except:
(a) United States Federal and any State income
tax.
(b) Investment Expenses.
D. Each Pool Member shall credit SCPIE with 100% of the reserves on
its books for unpaid expenses, excluding the reserves for United
States Federal and any state income tax and investment expenses,
outstanding on the Effective Date.
E. All reinsurance other than certain facultative reinsurance
placements in effect on or before April 1, 1996, and that
ultimately ceded hereunder to Pool Members shall be placed by
SCPIE on behalf of the Pool Members and each Pool Member shall
participate in such reinsurance in proportion to its pool share
as set forth in Article IV.
Page 2 of 6
<PAGE> 3
ARTICLE III - Cession from Pool
Pool Members shall reinsure and SCPIE shall cede and transfer to Pool
Members as follows:
A. SCPIE shall add business ceded to it under Article II to its own
business thus forming a pool (called the "SCPIE Pool") which shall
then be redistributed by SCPIE in accordance with the respective
percentages of participation ("pool share") set forth in Article IV.
B. Pool Members shall reinsure, and SCPIE shall cede and transfer to Pool
Members, their respective pool shares of the SCPIE Pool's Ultimate Net
Liability under all policies and contracts of insurance on which the
SCPIE Pool is subject to liability and which are outstanding and in
force at the effective date of this agreement.
SCPIE hereby cedes and the Pool Members hereby assume their
respective pool shares of the SCPIE Pool's Ultimate Net Liability for
Net Losses payable while this agreement is in force.
C. Premium to the Pool Members for their respective pool shares of the
reinsurance provided in Article III B shall be their respective poll
shares of the Net Unearned Premium on each and every risk in force as
of the Effective Date and their respective pool shares of the Net
Written Premium on each and every risk assumed thereafter by way of
primary insurance, reinsurance or retrocession.
D. The Pool Members shall credit SCPIE with:
(i) A ceding commission on the Net Unearned Premium
reserve transferred in accordance with Article III C above.
The ceding commission will be an amount equal to each Pool
Members respective pool share of the actual costs incurred
by SCPIE for Underwriting Expenses relating to such Net
Unearned Premium reserve.
(ii) Their respective pool share of the amount of all Net
Expenses incurred by SCPIE while this Agreement is in force,
except:
(a) United States Federal and any State income
tax.
(b) Investment Expenses.
E. SCPIE shall credit the Pool Members with their respective pool shares
of the net pooled reserves on its books at the Effective Date for
unpaid expenses, excluding the reserves for United States Federal and
any state income tax and investment expenses.
ARTICLE IV - Pool Shares
The percentage of participation applicable to the respective Pool
Members shall be in accordance with the following table:
SCPIE 94.7 percent
SCPIE Indemnity 2.4 per cent
Page 3 of 6
<PAGE> 4
FG Insurance 2.2 per cent
FG Casualty 0.7 per cent
The Pool Share of SCPIE and any individual Pool Member may be changed at any
time to be a different percentage upon mutual consent in writing of all Pool
Members and SCPIE subject, however, to all terms and conditions of this
Agreement.
ARTICLE V - Empowerment
SCPIE agrees to fulfill all of the obligations of each Pool Member under the
policies or contracts hereby reinsured and to adjust and pay all claims
thereunder at its own expense, and each Pool Member hereby transfer to SCPIE
all its rights, powers and privileges under all such policies or contracts, so
that SCPIE may act therein in all respects as if it had itself issued said
policies or contracts.
SCPIE will accept all proofs of loss or notices that insured may have the
right to give the individual Pool Member; it being the intention of this
Agreement that SCPIE shall take the place of the individual Pool Member as to
policies or contracts reinsured hereunder in all respects.
SCPIE agrees to reimburse any Pool Member for all losses, loss adjustment
expenses or underwriting expenses that such Pool Member may expend.
SCPIE may delegate to any Pool Member the authority to perform on its behalf
the rights and powers in this Article provided.
ARTICLE VI - Mutual Rights and Obligations
A. This Agreement shall be subject in all respects to the
same terms, rates, conditions, modifications, alterations and cancellations as
the respective policies of insurance or reinsurance of the parties hereto. The
true intent of this Agreement being that the parties hereto shall follow each
other's fortunes.
B. The parties hereto shall not be prejudiced in any way
by inadvertent errors or omissions, provided that such errors or omissions are
corrected immediately upon discovery.
C. This Agreement may be canceled at any time by any
party giving at least 90 (ninety) days written notice to the other parties at
their principal offices of its desire to do so. Any such cancellation
shall be effective as of December 31, or as may be mutually agreed.
ARTICLE VII - Payments
A. The pool members shall furnish to SCPIE on business
covered by Article II no later than forty-five (45) days following the end of
each month, an account current which shall set forth Net Written Premiums, less
ceding commission thereon for the month, less Net Expenses paid and less Net
Losses paid during the month in question.
B. SCPIE shall furnish to Pool Members on business
covered by Article III no later than forty-five (45) days following the end of
each month, an account current which shall set forth the respective pool shares
of Net Written Premiums, less ceding commission thereon for the month, Less Net
Expenses paid and less Net Losses paid during the month in question.
Page 4 of 6
<PAGE> 5
C. The net balance in accordance with paragraphs A and B of this
Section shall be paid by the debtor party as soon as possible and no later than
forty-five (45) days following the applicable quarter end.
D. This Agreement shall not apply to the investment operations or
liabilities for Federal and any state income taxes of the parties hereto.
E. The President and Chief Executive Officer of SCPIE or any
officer of SCPIE designated by the President and Chief Executive Officer shall
determine, in accordance with statutory accounting practices and generally
accepted accounting principles, the methods and procedures including account
transactions by which the terms of this Agreement shall be performed by and on
behalf of the parties hereto.
ARTICLE VIII - Insolvency
Each of the Pool Members and SCPIE agrees that all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable on demand of the assuming reinsurer at the same time as the ceding
insurer shall pay its net retained portion of such risk or obligation, with
reasonable provision for verification before payment, and the reinsurance shall
be payable by the assuming reinsurer, on the basis of the liability of the
ceding insurer under the policy or policies reinsured without diminution
because of the insolvency of the ceding insurer.
In the event of the insolvency of the ceding insurer, reinsurance under
this Agreement shall be payable immediately on demand, with reasonable
provision for verification, on the basis of claims allowed against the ceding
insurer by any court of competent jurisdiction or by any liquidator, receiver,
or statutory successor of the ceding insurer having authority to allow such
claims, without diminution because of such insolvency or because such
liquidator, receiver, or statutory successor has failed to pay all or a portion
of any claims. Such payments by the assuming reinsurer shall be made directly
to the ceding insurer or its liquidator, receiver or statutory successor,
except where the contract of insurance or reinsurance provides another payee of
such reinsurance in the event of the insolvency of the ceding insurer.
It is agreed, however, that the liquidator or receiver or statutory
successor of the ceding insurer will give written notice to the assuming
reinsurer of the pendency of a claim against the insolvent ceding insurer on
the policy or policies reinsured within a reasonable time after such claim is
filed in the insolvency proceeding and that during the pendency of such claim
the assuming 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 ceding insurer or its liquidator or
receiver or statutory successor. The expense thus incurred by the assuming
reinsurer will be chargeable, subject to court approval, against the insolvent
ceding insurer as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the ceding insurer
solely as a result of the defense undertaken by the assuming reinsurer.
Where two or more assuming reinsurers 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 insolvent ceding insurer.
Page 5 of 6
<PAGE> 6
IN WITNESS WHEREOF, the said parties have caused this Agreement to be
signed by their duly authorized representatives.
Signed in Beverly Hills, California
this 12th day of July, 1996
SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
By: /s/ DONALD J. ZUK
------------------------------
Donald J. Zuk, President and
Chief Executive Officer
Signed in Beverly Hills, California
this 12th day of July, 1996
SCPIE INDEMNITY COMPANY
By: /s/ DONALD J. ZUK
-------------------------------
Donald J. Zuk, President and
Chief Executive Officer
Signed in Beverly Hills, California
this 12th day of July, 1996
FG INSURANCE CORPORATION
By: /s/ DONALD J. ZUK
------------------------------
Donald J. Zuk, President and
Chief Executive
Signed in Beverly Hills, California
this 12th day of July, 1996
FG CASUALTY CORPORATION
By: /s/ DONALD J. ZUK
------------------------------
Donald J. Zuk, President and
Chief Executive Officer
Page 6 of 6
<PAGE> 1
Exhibit 10.18
FORM OF INDEMNIFICATION AGREEMENT
This Agreement is made as of the _____day of____________, 1996, by and
between SCPIE Holdings, Inc., a Delaware corporation ("the Company"), and the
undersigned Director of the Company (the "Indemnitee"), with reference to the
following facts:
The Indemnitee is currently serving as a Director of the Company and
the Company wishes the Indemnitee to continue in such capacity. The Indemnitee
is willing, under certain circumstances, to continue serving as a Director of
the Company.
The Company and the Indemnitee agree that they should enter into this
Indemnification Agreement in order to provide greater protection to Indemnitee
against certain risks associated with his service to the Company.
Section 145 of the General Corporation Law of the State of Delaware,
under which Law the Company is incorporated, empowers corporations to indemnify
a person serving as a director, officer, employee or agent of the corporation
and a person who serves at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, and said Section 145 and the By-Laws of the Company
specify that the indemnification set forth in said Section 145 and in the
By-Laws, respectively, shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise.
In order to induce the Indemnitee to continue to serve as a Director of
the Company and in consideration of his continued service, the Company hereby
agrees to indemnify the indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee, his
executors, administrators or assigns, for any Expenses (as defined
below) which the Indemnitee is or becomes legally obligated to pay in
connection with any Proceeding. As used in this Agreement the term
"Proceeding" shall include any threatened, pending or completed claim,
action, suit or
1
<PAGE> 2
proceeding, whether brought by or in the right of the Company or otherwise and
whether of a civil, criminal, administrative or investigative nature, in which
the Indemnitee may be or may have been involved as a party, witness, or
otherwise, by reason of the fact that Indemnitee is or was a director or officer
of the Company, by reason of any actual or alleged error, omission or
misstatement or misleading statement made or suffered by the Indemnitee, by
reason of any action taken by him or of any inaction on his part while acting as
such director or officer, or by reason of the fact that he was serving at the
request of the Company as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust, entity or other
enterprise; provided, that in each such case Indemnitee acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, in the case of a criminal proceeding, in addition
had no reasonable cause to believe that his conduct was unlawful. As used in
this Agreement, the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" shall include (without limitations) any excise tax assessed with respect
to any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, judgments, fines, penalties, settlements
and costs, attorneys' fees and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request for indemnification or
advancement of expenses under this Agreement is not paid by the Company, or on
its behalf, within thirty days after a written claim or request has been
received by the Company, the Indemnitee may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim or request and if
successful in whole or in part, the Indemnitee shall be entitled to be paid
also the Expenses of prosecuting such suit to the extent Indemnitee is
successful therein. The Company shall have
2
<PAGE> 3
the right to recoup from the Indemnitee the amount of any item or items of
Expenses theretofore paid by the Company pursuant to this Agreement, to the
extent such Expenses are not reasonable in nature or amounts; provided,
however, that the Company shall have the burden of proving such Expenses to be
unreasonable. The burden of proving that the Indemnitee is not entitled to
indemnification for any other reason shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement
to pay any Expenses in connection with any claim made against the Indemnitee:
(a) to the extent that payment is actually made to the
Indemnitee under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and
actually paid otherwise than pursuant to this Agreement;
(c) in connection with a judicial action by or in the right
of the Company, in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable for gross negligence or
misconduct in the performance of his duty to the Company unless and only
to the extent that any court in which such action was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper;
3
<PAGE> 4
(d) if it is proved by final judgment in a court of law or
other final adjudication to have been based upon or attributable to the
Indemnitee's in fact having gained any personal profit or advantage to
which he was not legally entitled;
(e) for a disgorgement of profits made from the purchase and
sale by the Indemnitee of securities pursuant to Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any state statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgement or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty, (ii) with actual
dishonest purpose and intent, and (iii) which acts were material to the
cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is
prohibited by applicable law from paying as Indemnity or for any other
reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding
any other provision of this Agreement, to the extent that the Indemnitee has
been successful on the merits or otherwise in defense of any Proceeding or in
defense of any claim, issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against any and all Expenses incurred
in connection therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.
4
<PAGE> 5
8. Advance of Expenses. Expenses incurred by the Indemnitee in
connection with any Proceeding, except the amount of any settlement, shall be
paid by the Company in advance upon request of the Indemnitee that the Company
pay such Expenses. The Indemnitee hereby undertakes to repay to the Company the
amount of any Expenses theretofore paid by the Company to the extent that it is
ultimately determined that such Expenses were not reasonable or that the
Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be
sought under this Agreement shall be incurred without the prior consent of the
Company, which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to
his right to be indemnified or have expenses advanced under this Agreement,
shall give to the Company notice in writing as soon as practicable of any claim
made against him for which indemnity or advancement of expenses will or could be
sought under this Agreement. Notice to the Company shall be given at its
principal office and shall be directed to the Corporate Secretary (or such other
address as the Company shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
the Company such information and cooperation as it may reasonably require and as
shall be within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall
be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
By-Laws of the Company and amendments thereto or under law.
5
<PAGE> 6
13. Governing Law. This Agreement shall be governed by and
construed in accordance with Delaware law.
14. Saving Clause. Wherever there is conflict between any
provision of this Agreement and any applicable present or future statute,
law or regulation contrary to which the Company and the Indemnitee have no
legal right to contract, the latter shall prevail, but in such event the
affected provisions of this Agreement shall be curtailed and restricted
only to the extent necessary to bring them within applicable legal
requirements.
15. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, or
agent of the Company or of any other corporation, partnership, joint
venture, trust, entity or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of any Proceeding then
pending in respect of which Indemnitee is granted rights of indemnification
or advancement of expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 3 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors and assigns
and shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
SCPIE HOLDINGS INC.
By --------------------------------
[Name of Authorized Officer]
-----------------------------------
(Name of Director or Officer)
6
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 651,336 606,155
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 20,491 61,083
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 685,562 695,021
<CASH> 6,548 3,053
<RECOVER-REINSURE> 23 27
<DEFERRED-ACQUISITION> 531 468
<TOTAL-ASSETS> 786,620 781,358
<POLICY-LOSSES> 474,398 466,187
<UNEARNED-PREMIUMS> 22,629 19,916
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<POLICY-HOLDER-FUNDS> 12,951 8,646
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0 0
0 0
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<OTHER-SE> 264,822 273,819
<TOTAL-LIABILITY-AND-EQUITY> 786,620 781,358
61,128 116,354
<INVESTMENT-INCOME> 20,939 40,424
<INVESTMENT-GAINS> 11,496 7,950
<OTHER-INCOME> 124 281
<BENEFITS> 56,247 118,023
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 6,764 12,561
<INCOME-PRETAX> 19,676 34,425
<INCOME-TAX> 5,599 10,056
<INCOME-CONTINUING> 14,077 24,369
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,077 24,369
<EPS-PRIMARY> 1.41 2.44
<EPS-DILUTED> 1.41 2.44
<RESERVE-OPEN> 446,627 449,566
<PROVISION-CURRENT> 86,160 175,856
<PROVISION-PRIOR> (27,913) (57,833)
<PAYMENTS-CURRENT> 1,257 11,481
<PAYMENTS-PRIOR> 51,305 109,481
<RESERVE-CLOSE> 452,312 446,627
<CUMULATIVE-DEFICIENCY> 0 0
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