<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period From _________ to __________.
Commission File Number: 001-14593
THE MIIX GROUP, INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3586492
(State or other jurisdiction (I.R.S. employer
of incorporation or identification number)
organization)
TWO PRINCESS ROAD, LAWRENCEVILLE, NEW JERSEY 08648
(Address of principal executive offices and zip code)
(609) 896-2404
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES[X] NO [ ]
As of November 11, 1999, the number of outstanding shares of the
Registrant's Common Stock was 15,452,735.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION..............................................................................5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..................................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................19
PART II OTHER INFORMATION.................................................................................20
ITEM 1. LEGAL PROCEEDINGS.................................................................................20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................21
ITEM 5. OTHER INFORMATION.................................................................................21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................21
SIGNATURES ..................................................................................................22
</TABLE>
<PAGE> 3
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-Q, the Company's Annual Report to
Stockholders, any Form 10-K or any Form 8-K of the Company or any other written
or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to: (i) the Company having
sufficient liquidity and working capital; (ii) the Company's strategy to seek
consistent profitable growth; (iii) the Company's ability to increase its market
share; (iv) the Company's ability to diversify its product lines; (v) the
Company's ability to expand into additional states; (vi) the Company's avoidance
of any material loss on collection of reinsurance recoverables; and (vii) the
continued adequacy of the Company's loss and LAE reserves. The words "believe,"
"expect," "anticipate," "project," and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The MIIX Group, Incorporated
We have reviewed the accompanying consolidated balance sheet of The MIIX Group,
Incorporated and subsidiaries as of September 30, 1999, and the related
consolidated statements of income for the three and nine-month periods ended
September 30, 1999 and 1998 and the consolidated statements of cash flows for
the nine-month periods ended September 30, 1999 and 1998 and the consolidated
statement of equity for the nine-month period ended September 30, 1999. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of The MIIX Group, Incorporated and
subsidiaries (formerly the Medical Inter-Insurance Exchange and subsidiaries) as
of December 31, 1998 and 1997, and the related consolidated statements of
income, equity, and cash flows for each of the three years in the period ended
December 31, 1998, not presented herein, and in our report dated March 24, 1999,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ERNST & YOUNG LLP
New York, New York
November 12, 1999
4
<PAGE> 5
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MIIX GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------ ------------
1999 1998
---------- ----------
ASSETS (Unaudited)
<S> <C> <C>
Securities available-for-sale:
Fixed-maturity investments, at fair value (amortized cost: 1999 -
$1,116,114; 1998 - $1,041,192) ....................................................... $ 1,080,157 $ 1,057,739
Equity investments, at fair value (cost: 1999 - $10,988; 1998 - $3,159) ................ 10,710 3,159
Short-term investments, at cost which approximates fair value .......................... 110,514 104,800
----------- -----------
Total investments ................................................................ 1,201,381 1,165,698
Cash ...................................................................................... 2,346 1,408
Accrued investment income ................................................................. 13,404 13,563
Premium receivable, net ................................................................... 22,317 23,876
Reinsurance recoverable on unpaid losses .................................................. 352,107 325,795
Prepaid reinsurance premiums .............................................................. 17,931 26,921
Reinsurance recoverable on paid losses, net ............................................... 301 724
Deferred policy acquisition costs ......................................................... 5,270 2,810
Due from Attorney-in-Fact ................................................................. -- 3,949
Deferred income taxes ..................................................................... 61,512 34,731
Receivable for securities ................................................................. 19 3,414
Net investment in direct financing leases ................................................. 24,955 --
Other assets .............................................................................. 85,962 71,373
----------- -----------
Total assets ..................................................................... $ 1,787,505 $ 1,674,262
=========== ===========
LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses ................................................ $ 1,009,988 $ 951,659
Unearned premiums ......................................................................... 103,249 54,139
Premium deposits .......................................................................... -- 28,392
Funds held under reinsurance treaties ..................................................... 239,026 228,148
Payable for securities .................................................................... 2,287 34,115
Notes payable and other borrowings ........................................................ 19,528 --
Other liabilities ......................................................................... 75,091 54,966
----------- -----------
Total liabilities ................................................................ $ 1,449,169 $ 1,351,419
----------- -----------
Commitments and contingencies (Note 3)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares authorized, 16,445,933 shares
issued, 15,850,333 shares outstanding................................................... 164
Additional paid-in capital ................................................................ 52,930
Surplus/retained earnings ................................................................. 323,228 312,087
Treasury stock, at cost (1999 - 595,600 shares) ........................................... (9,863) --
Stock purchase loans and unearned stock compensation ...................................... (4,457)
Accumulated other comprehensive income (loss) ............................................. (23,666) 10,756
----------- -----------
Total stockholders' equity ....................................................... 338,336 322,843
----------- -----------
Total liabilities and stockholders' equity ....................................... $ 1,787,505 $ 1,674,262
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE> 6
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Net premiums earned .......................................... $ 58,798 $ 40,286 $ 150,285 $ 114,666
Net investment income ........................................ 19,479 16,769 55,214 47,623
Realized investment gains (losses) ........................... (1,668) 29,317 (5,100) 33,563
Other revenue ................................................ 2,838 180 3,111 1,526
--------- --------- --------- ---------
Total revenues .......................................... 79,447 86,552 203,510 197,378
--------- --------- --------- ---------
EXPENSES
Losses and loss adjustment expenses .......................... 54,318 40,098 140,537 113,050
Underwriting expenses ........................................ 12,037 10,419 31,616 27,738
Funds held charges ........................................... 3,342 4,085 10,003 11,885
Other expenses ............................................... 1,168 -- 1,168 --
Restructuring charge ......................................... -- -- 2,409 --
Impairment of capitalized system development costs ........... -- -- -- 12,656
--------- --------- --------- ---------
Total expenses .......................................... 70,865 54,602 185,733 165,329
--------- --------- --------- ---------
Income before income taxes ................................... 8,582 31,950 17,777 32,049
Provision for income taxes ................................... 2,140 10,453 3,835 8,621
--------- --------- --------- ---------
Net income .............................................. $ 6,442 $ 21,497 $ 13,942 $ 23,428
========= ========= ========= =========
Basic earnings per share of common stock ..................... $ .44 $ 1.79 $ 1.09 $ 1.95
========= ========= ========= =========
Diluted earnings per share of common stock ................... $ .44 $ 1.79 $ 1.08 $ 1.95
========= ========= ========= =========
Dividend per share of common stock ........................... $ .05 -- $ .05 --
========= =========
</TABLE>
See accompanying notes
6
<PAGE> 7
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK
PURCHASE
NUMBER LOANS AND ACCUMULATED
OF COMMON ADDITIONAL UNEARNED OTHER TOTAL
SHARES STOCK PAID-IN RETAINED TREASURY STOCK COMPREHENSIVE STOCKHOLDER'S
OUTSTANDING ISSUED CAPITAL EARNINGS STOCK COMPENSATION INCOME (LOSS) EQUITY
------------ ------ ---------- -------- -------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999... $312,087 $ 10,756 $322,843
Net income.................. 13,942 13,942
Other comprehensive income,
net of tax:
Unrealized depreciation on
securities available-for-
sale, net of deferred
taxes..................... (34,422) (34,422)
Shares issued to
distributees............... 11,846,731 118 (118)
Proceeds from initial public
offering, net of offering
and reorganization costs... 3,450,000 35 37,315 37,350
Acquisition of NJSMU........ 814,815 8 10,992 11,000
Shares issued for execution
of stock purchase and loan
agreements................. 288,518 3 3,892 (3,928) (33)
Purchase of treasury stock.. (595,600) (9,863) (9,863)
Cash dividends to
stockholders............... (797) (797)
Cash issued to distributees,
in lieu of common stock.... (1,886) (1,886)
Restricted stock grants and
unearned stock
compensation............... 45,869 731 (529) 202
---------- ----- ------- -------- ------- ------- -------- --------
Balance at
September 30, 1999.......... 15,850,333 $164 $52,930 $323,228 $(9,863) $(4,457) $(23,666) $338,336
========== ===== ======= ======== ======= ======= ======== ========
</TABLE>
See accompanying notes
7
<PAGE> 8
THE MIIX GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................................... $ 13,942 $ 23,428
Adjustments to reconcile net income to net cash provided by
operating activities (net of balances acquired):
Unpaid losses and loss adjustment expenses ................................................... 30,044 60,351
Unearned premiums ............................................................................ 49,088 56,691
Premium deposits ............................................................................. (28,392) (21,024)
Premium receivable, net ...................................................................... 1,559 2,439
Reinsurance balances, net .................................................................... (6,021) (24,825)
Deferred policy acquisition costs ............................................................ (2,460) (4,259)
Realized (gains) losses ...................................................................... 5,100 (33,563)
Depreciation, accretion and amortization ..................................................... (1,092) (149)
Deferred income tax provision ................................................................ (5,236) (5,246)
Due from Attorney-in-Fact .................................................................... (594) (3,013)
Impairment of capitalized system development costs ........................................... -- 12,656
Accrued investment income .................................................................... 207 (2,170)
Net investment in direct financing leases .................................................... 1,521 --
Other assets ................................................................................. 26,573 19,036
Other liabilities ............................................................................ 6,704 16,799
--------- ---------
Net cash provided by operating activities .................................................... $ 90,943 $ 97,151
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales ................................................ 839,573 546,041
Proceeds from fixed-maturity investments matured, called, or prepaid ......................... 77,033 80,321
Proceeds from equity investment sales ........................................................ -- 102,789
Cost of investments acquired ................................................................. (998,346) (834,366)
Purchase of NJSMU (net of cash acquired) ..................................................... (198) --
Realized loss on equity collar termination ................................................... -- (14,000)
Change in short-term investments, net ........................................................ (4,693) (24,223)
Net receivable/payable for securities ........................................................ (28,433) 41,910
--------- ---------
Net cash used in investing activities ........................................................ (115,064) (101,528)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of offering and reorganization costs .............. 37,350 --
Proceeds from notes payable and other borrowings ............................................. 16,228 --
Repayment of notes payable ................................................................... (15,965) --
Purchase of treasury stock ................................................................... (9,863) --
Cash dividends to stockholders ............................................................... (797) --
Cash in lieu of stock paid to distributees ................................................... (1,886) --
Subordinated loan certificates redeemed ...................................................... (8) --
--------- ---------
Net cash provided by financing activities .................................................... $ 25,059 --
Net change in cash ........................................................................... 938 (4,377)
Cash at beginning of period .................................................................. 1,408 4,739
--------- ---------
Cash at end of period ........................................................................ $ 2,346 $ 362
========= =========
</TABLE>
See accompanying notes
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements for the interim periods included herein,
which include the accounts of The MIIX Group Incorporated ("The MIIX Group"),
MIIX Insurance Company and its wholly owned subsidiaries Lawrenceville Holdings,
Inc. ("LHI"), Lawrenceville Property and Casualty Company ("LP&C"), MIIX
Insurance Company of New York ("MIIX New York"), and, from August 4, 1999, New
Jersey State Medical Underwriters, Inc. ("NJSMU"), and its wholly owned
subsidiaries, Medical Brokers, Inc., Pegasus Advisors, Inc., Hamilton National
Leasing Corporation, MIIX Healthcare Group, Inc., Medical Group Management,
Inc., Healthcare Reinsurance Management Services, Inc. (HRMS), and Lawrenceville
Re., Ltd., (collectively, "the Company"), are unaudited. However, they have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in the opinion of management, such information
reflects all adjustments considered necessary for a fair presentation. Such
adjustments are of a normal recurring nature. Operating results for the interim
period are not necessarily indicative of the results to be expected for the full
year.
These consolidated financial statements and notes should be read in conjunction
with the audited consolidated financial statements and notes of the Company for
the year ended December 31, 1998 which were filed with the Securities and
Exchange Commission on Form 10-K.
2. PLAN OF REORGANIZATION AND INITIAL PUBLIC OFFERING
The reorganization of the Medical Inter-Insurance Exchange (Exchange) from a
reciprocal to a stock insurer was consummated on August 4, 1999. In consummating
the reorganization, the Exchange distributed common stock of The MIIX Group and
cash to distributees, and the remaining assets and liabilities of the Exchange
were assumed by MIIX Insurance Company, after which the Exchange was dissolved.
The assumption of assets and liabilities of MIIX Insurance Company was accounted
for at historical cost as the transfers were between entities under common
control. In addition, simultaneously with the reorganization, The MIIX Group
acquired New Jersey State Medical Underwriters, Inc. and its subsidiaries for
814,815 shares of The MIIX Group common stock and $100,000 in cash. The
acquisition was accounted for using the purchase method and gave rise to $7.8
million of goodwill to be amortized on a straight line basis over a 15-year
period. The accompanying consolidated statements of income reflect NJSMU's
results of operations from the date of purchase, August 4, 1999, to September
30, 1999.
The MIIX Group sold 3 million shares of its common stock in an underwritten
public offering (the Offering) that closed on August 4, 1999. Of the offered
shares, 90,000 shares were reserved for sale, and subsequently sold at the
Offering Price ($13.50 per share), to officers and employees of the Company. On
August 11, 1999, an additional 450,000 shares were sold to underwriters of the
Offering pursuant to an over-allotment option contained in the Offering
underwriting agreement. Proceeds from the Offering and related expenses are
summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Gross proceeds from the offering.................... $ 46,575
Less: Offering and reorganization costs............. 9,225
--------
Net proceeds........................................ $ 37,350
========
</TABLE>
3. STOCK BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations. The Company's policy regarding stock options is to issue
options with an exercise price equal to the market price on the date of grant.
Under APB 25 no compensation expense is recognized given the Company's policy.
Certain executive officers, directors, and employees have been granted a total
of 483,750 options to purchase shares of The MIIX Group common stock with
exercise prices ranging from $13.50 to $16.0625, of which 123,750 options were
immediately exercisable. Pursuant to stock purchase and loan agreements, The
MIIX Group loaned certain officers of the Company approximately $3,895,000,
which the officers used to purchase unregistered shares of The MIIX Group common
stock at the Offering Price. On September 15, 1999, 45,515 restricted shares of
The MIIX Group common stock, having a per share market value of $16.0625, were
granted to certain officers and directors, of which 12,597 shares were
immediately vested.
9
<PAGE> 10
4. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, Earnings per Share. Earnings per share for the three and nine
month periods ended September 30, 1999 is computed using the weighted-average
number of common shares outstanding during those periods of 14,483,000 and
12,844,000, respectively. Earnings per share for the periods ended September 30,
1998, gives effect to the reorganization and the allocation of approximately
12,025,000 shares of common stock distributed to MIIX members.
The following table sets for the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
Net income .................................................... $ 6,442 $21,497 $13,942 $23,428
Numerator for:
Basic earnings per share of common stock ...................... $ 6,442 $21,497 $13,942 $23,428
Diluted earnings per share of common stock .................... $ 6,442 $21,497 $13,942 $23,428
Denominator:
Denominator for basic earnings per share of
common stock - weighted-average shares of
outstanding ................................................... 14,483 12,025 12,844 12,025
Effect of dilutive securities:
Stock options .............................................. 47 0 47 0
------- ------- ------- -------
Denominator for diluted earnings per share of
common stock adjusted - weighted - average ................. 14,530 12,025 12,891 12,025
Basic earnings per share of common stock ........................... $ .44 $ 1.79 $ 1.09 $ 1.95
======= ======= ======= =======
Diluted earnings per share of common stock ......................... $ .44 $ 1.79 $ 1.08 $ 1.95
======= ======= ======= =======
</TABLE>
10
<PAGE> 11
5. COMPREHENSIVE INCOME
The Company considers its investment portfolio as available-for-sale and had
unrealized gains (losses) at each balance sheet date that are reflected as
accumulated comprehensive income (loss) in the Consolidated Statement of Equity.
The components of comprehensive income (loss), net of related tax, for the
periods ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income ................................................. $ 6,442 $ 21,497 $ 13,942 $ 23,428
Other comprehensive income:
Unrealized holding gains (losses) arising during
period [net of tax of $4,742, ($6,156), $20,319
and ($8,401) respectively] ............................... (8,806) 11,432 (37,737) 15,601
Reclassification adjustment for (gains) losses
realized in net income [net of tax of ($584),
$10,261, ($1,785), and $11,747 respectively] ............. 1,084 (19,056) 3,315 (21,816)
-------- -------- -------- --------
Net unrealized gains (losses), arising during
the period [net of tax of $4,158, $4,105,
$18,534 and $3,347 respectively] ......................... (7,722) (7,624) (34,422) (6,215)
-------- -------- -------- --------
Comprehensive income (loss) ................................ $ (1,280) $ 13,873 $(20,480) $ 17,213
======== ======== ======== ========
</TABLE>
6. COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK
On January 13, 1998, the Company implemented an "equity collar" (the "Collar")
with a notional value of $85 million around the Company's equity portfolio. The
purpose of the Collar was to reduce equity market volatility and to stabilize
unassigned surplus. The Collar was constructed using European-style S&P 500
options and expired on July 13, 1998 with a net realized loss of $14.0 million.
This loss offset gains on the related hedged equity securities liquidated in the
third quarter of 1998. To minimize loss exposure due to credit risk, the Company
utilizes only those intermediaries that are approved by the Securities Valuation
Office of the National Association of Insurance Commissioners.
7. DEFERRED POLICY ACQUISITION COSTS
The following represents the components of deferred policy acquisition costs and
the amounts that were charged to expense for the nine months ended September 30,
1999 and 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of period ......................................... $ 2,810 $ 100
Cost deferred during the period ........................................ 11,133 11,018
Amortization expense ................................................... (8,673) (6,759)
-------- --------
Balance at end of period ............................................... $ 5,270 $ 4,359
======== ========
</TABLE>
11
<PAGE> 12
8. RESTRUCTURING CHARGE
The Company undertook a restructuring during the second quarter of 1999 and on
June 23 announced the reduction of regional and home office staff and the
closing of regional offices in Boston and Atlanta to centralize their functions
at the Company's home office. Management believes that the restructuring will
allow the Company to operate with greater efficiency and cost-effectiveness as
the Company's growth continues. The Company recognized a pre-tax charge in the
second quarter of 1999 related to this restructuring of $2.4 million.
9. INCOME TAXES
A reconciliation of income tax computed based on the expected annual effective
federal statutory tax rate to total income expense for the periods ended
September 30 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- -----------------------------
% OF INCOME % OF INCOME
INCOME TAX BEFORE INCOME INCOME TAX BEFORE INCOME
EXPENSE TAXES EXPENSE TAXES
-------------- ------------- -------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Expected annual effective federal
.income tax at 35% ................................... $ 6,222 35.0% $ 11,217 35.0%
Decrease in taxes resulting from:
Tax-exempt interest .................................. (1,817) (10.2)% (2,135) (6.7)%
Other ................................................ (570) (3.2)% (461) (1.4)%
-------- ---- -------- ----
Total income taxes ................................... $ 3,835 21.6% $ 8,621 26.9%
======== ==== ======== ====
</TABLE>
10. RECLASSIFICATION
Certain amounts have been reclassified for the prior years to be comparable to
the 1999 presentation.
11. SEGMENT REPORTING
The Company's operations are classified into one reportable segment: providing
professional liability and related insurance coverage to the healthcare
industry. In connection therewith the Company generally offers three products,
occurrence policies, claims made policies with prepaid tail coverage and claims
made policies in each of its markets. The Company distributes its products both
directly to the insureds and through intermediaries.
12. SUBSEQUENT EVENTS
On October 1, 1999, the Company received 296,134 shares of Manulife Financial
common stock valued at $3,461,066 as part of the demutualization benefit. The
Company recorded a gain in other revenue equivalent to the fair value of the
stock received in the amount of $3,461,066 during the fourth quarter of 1999.
On November 4, 1999, the Company amended its stock repurchase program to buy up
to an additional two million shares of its common stock or $40 million on the
open market. On October 27, 1999, the Company completed the repurchases under
the initial stock repurchase program of up to one million shares or $20 million
authorized on August 16, 1999. One million shares were repurchased under the
previous authorization at a total cost of $16.3 million.
On November 8, 1999, Daniel Goldberg, President and Chief Executive Officer of
the Company, was granted a leave of absence for reasons unrelated to his
position with the Company. Kenneth M. Koreyva was appointed Acting Chief
Executive Officer. Mr. Koreyva formerly served as Executive Vice President and
Chief Financial Officer and has been with the Company since 1991.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes thereto appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net premiums earned. Net premiums earned increased approximately $18.5 million,
or 46.0% to $58.8 million for the three months ended September 30, 1999 from
$40.3 million for the three months ended September 30, 1998. This increase is
mainly attributable to increased direct and assumed premiums written in the
three months ended September 30, 1999, particularly a large assumed excess of
loss reinsurance contract written on an institutional account and bound during
the quarter with effect from January 1, 1999.
Total premiums written were $69.5 million for the three months ended September
30, 1999, an increase of $29.3 million, or 73.0% from total premiums written of
$40.2 million for the three months ended September 30, 1998. This increase is
composed of net increases in direct premiums written of $15.5 million and an
increase in assumed premiums written of $13.8 million. The net increase in
direct premiums written consisted of net increases in direct premiums written in
certain states of $15.8 million offset by net decreases in direct premiums
written in other states of $.3 million. The net increases resulted from new
business of approximately $9.6 million along with approximately $5.9 million
resulting from a significant rate increase on institutional accounts renewed on
July, 1 1999. The net decreases were the result of normal turnover in business.
The increase in assumed premiums written results from a single excess of loss
reinsurance contract written on an institutional account.
Net investment income. Net investment income increased approximately $2.7
million or 16.2% to $19.5 million for the three months ended September 30, 1999
from $16.8 million for the same period in 1998. Average invested assets
increased to approximately $1.2 billion for the three months ended September 30,
1999 compared to approximately $1.1 billion for the same period last year. The
average annualized pre-tax yield on the investment portfolio increased to 6.49%
for the three months ended September 30, 1999 from 6.10% for the same period in
1998 primarily as a result of changes in asset allocation with an increased
concentration in higher pre-tax yielding securities in an increasing market
yield environment.
Realized investment gains (losses). Net realized investment losses were $1.7
million for the three months ended September 30, 1999 compared to net realized
investment gains of $29.3 million for the same period in 1998. In 1999, the
losses are principally due to sales of fixed-maturity investments to reposition
the investment portfolio in an increasing market yield environment. In 1998, the
net gain included net gains of approximately $37.4 million on disposition of the
Company's equity portfolio, partially offset by a $14.0 million loss realized on
the expiration of an equity collar position on July 13, 1998. The remaining net
realized gains of $5.9 million in 1998 resulted from sale of fixed-maturity
investments in a generally falling market yield environment.
Other revenue. Other revenue increased approximately $2.6 million to $2.8
million for the three months ended September 30, 1999 from $0.2 million for the
same period last year. The increase in 1999 consists primarily of $1.4 million
of revenues associated with the leasing, brokerage and other businesses acquired
by the Company in the acquisition of New Jersey State Medical Underwriters, Inc.
and its subsidiaries on August 4, 1999, and death benefit income of $1.0 million
received on a corporate owned life insurance policy.
Loss and loss adjustment expense (LAE). The provision for losses and LAE
increased $14.2 million, or 35.5%, to $54.3 million for the three months ended
September 30, 1999 from $40.1 million for the three months ended September 30,
1998. The provision for losses and LAE is net of ceded losses and LAE of $12.5
million and $26.5 million for the three months ended September 30, 1999 and
1998, respectively. The ratio of net losses and LAE to net premiums earned
improved to 92.4% for the three months ended September 30, 1999 from 99.5% for
the same period in 1998. This improvement is principally attributable to a
reduction in the gross loss and LAE ratio on the Company's occurrence business
written in 1999, combined with an increasing portion of the Company's expansion
business being written on a claims made basis which is expected to result in a
lower ultimate loss and LAE ratio. Changes in loss and LAE reserves held on 1994
and prior accident years also impacted the ratio of net loss and LAE to net
premiums earned for the three months ended September 30, 1999. The changes in
loss and LAE reserves were as follows: gross loss and LAE reserves were reduced
by $3.2 million, ceded loss and LAE reserves were
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reduced by $3.7 million, and ceded premiums earned were reduced by $1.9 million.
There were no adjustments made to loss and LAE reserves held on prior accident
years for the three months ended September 30, 1998.
Underwriting expenses. Underwriting expenses increased $1.6 million or 15.5% to
$12.0 million for the three months ended September 30, 1999, from $10.4 million
for the three months ended September 30, 1998. The increase in expenses was
attributable to the cost of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expenses to net premiums earned, however, declined to 20.5% for the
three months ended September 30, 1999 from 25.9% for the same period in 1998.
This improvement was primarily the result of greater economies of scale present
with the larger premium in 1999 combined with the impact of the Company's cost
reduction restructuring undertaken in June 1999.
Funds held charges. Funds held charges relate to the Company's aggregate
reinsurance contracts and decreased $0.8 million or 18.2% to $3.3 million for
the three months ended September 30, 1999, from $4.1 million for the three
months ended September 30, 1998. The ratio of funds held charges to beginning of
quarter funds held balances also declined, to 1.4% for the three months ended
September 30, 1999 from 2.3% for the three months ended September 30, 1998. This
decrease in the ratio of funds held charges to beginning funds held balance is
the result of three principal factors: profit sharing recognized on the 1993
aggregate reinsurance contract associated with a reduction in 1993 accident year
ceded loss and LAE reserves made in the second quarter of 1999; reduced funds
held charges resulting from net reductions to ceded losses pertaining to other
accident years made during the fourth quarter of 1998 and the first and third
quarters of 1999; and a lower contractual funds held charge rate applicable to
the 1998 and 1999 aggregate reinsurance contracts. Funds held charges are
calculated based upon beginning of quarter funds held balances.
Other expenses. Other expenses amounted to $1.2 million for the three months
ended September 30, 1999 and consist of the costs associated with the leasing,
brokerage and other businesses acquired by the Company in the acquisition of New
Jersey State Medical Underwriters, Inc. and its subsidiaries on August 4, 1999.
Income taxes. Income taxes were $2.1 million for the three months ended
September 30, 1999, resulting in an effective tax rate of 24.9%, compared to
$10.5 million and an effective tax rate of 32.7% for the same period in 1998.
This decrease of $8.4 million was primarily attributable to a decrease in
pre-tax income in 1999 of $23.4 million resulting in reduced tax of $8.2 million
at a 35% rate, and a decrease in taxes of $0.2 million associated with an
increase in tax exempt interest and other items in 1999.
Net income. Net income decreased by $15.1 million to $6.4 million for the three
months ended September 30, 1999, from a net income of $21.5 million for the
three months ended September 30, 1998. This net decrease was primarily the
result of a $31.0 million reduction in realized investment gains offset in part
by all of the following: an increase in premiums earned net of loss and loss
adjustment expenses and underwriting expenses of $2.7 million; an increase of
investment income of $2.7 million; an increase in other revenue net of other
expense of $1.5 million, including death benefit income of $1.0 million; a
reduction of funds held charges of $0.7 million; and a reduction in the
provision for taxes of $8.3 million.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
Net premiums earned. Net premiums earned increased approximately $35.6 million
or 31.1% to $150.3 million for the nine months ended September 30, 1999 from
$114.7 million for the nine months ended September 30, 1998. This increase is
mainly attributable to increased direct and assumed business written in the
three months ended September 30, 1999, particularly a large assumed excess of
loss reinsurance contract written on an institutional account bound during the
quarter with effect from January 1, 1999, and increased direct premiums written
during the latter half of 1998 that are being earned during 1999.
Total premiums written were $223.7 million for the nine months ended September
30, 1999, an increase of $23.5 million or 11.7% from total premiums written of
$200.2 million for the nine months ended September 30, 1998. This increase
consisted of a net increase in direct premiums written of $10.9 million and an
increase in assumed premiums written of $12.6 million. The net increase in
direct premiums written was composed of net increases in direct premiums in
certain states of $20.2 million offset by net decreases in other states of $9.3
million. The net increases resulted primarily from a rate increase on New Jersey
physicians and surgeons business taken as of January 1, 1999, a rate increase
taken on institutional accounts effective July 1, 1999, and new business
generated in New Jersey and other
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<PAGE> 15
states resulting from increased marketing efforts and strong broker
relationships. The net decreases resulted primarily from a loss of Pennsylvania
physicians and surgeons business following a rate increase taken as of January
1, 1999, and because policies written in certain expansion states written during
the nine months ended September 30, 1998 were renewed in the fourth quarter of
1998 and will not again renew until the fourth quarter of 1999. The increase in
assumed premiums written results from a single excess of loss reinsurance
contract written on an institutional account during the three months ended
September 30, 1999 in the amount of $13.8 million, offset by reduced assumed
premium of $1.2 million resulting from discontinued assumed reinsurance
programs.
Net investment income. Net investment income increased $7.6 million or 15.9% to
$55.2 million for the nine months ended September 30, 1999 from $47.6 million
for the same period in 1998. The increase in investment income resulted from an
increase in invested assets during the first nine months of 1999 as well as an
increase in available market yields. Average invested assets increased to
approximately $1.2 billion during the nine months ended September 30, 1999
compared to approximately $1.1 billion for the same period last year. The
average annualized pre-tax yield on the investment portfolio increased to 6.25%
for the nine months ended September 30, 1999 from 6.00% for the same period in
1998 primarily as a result of changes in asset allocation with an increased
concentration in higher pre-tax yielding securities in an increasing market
yield environment.
Realized investment gains (losses). Net realized investment gains(losses)
decreased approximately $38.7 million to net realized losses of $5.1 million for
the nine months ended September 30, 1999 compared to net realized gains of $33.6
million for the same period in 1998. In 1999, substantially all of the losses
are due to sales of fixed-maturity investments to reposition the investment
portfolio in an increasing market yield environment. In 1998 the net gain was
composed of net gains of approximately $38.4 million on the disposition of the
Company's equity portfolio, partially offset by a $14.0 million loss realized on
the expiration of an equity collar position on July 13, 1998. The remaining
gains of $9.2 million resulted from sale of fixed-maturity investments in a
generally falling market yield environment.
Other revenue. Other revenue increased approximately $1.6 million or 103.9% to
$3.1 million for the nine months ended September 30, 1999 from $1.5 million for
the same period last year. The increase in 1999 consists primarily of $1.4
million of revenues associated with the leasing, brokerage and other businesses
acquired by the Company in the acquisition of New Jersey State Medical
Underwriters, Inc. and its subsidiaries on August 4, 1999, and death benefit
income of $1.0 million received on a corporate owned life insurance policy,
somewhat offset by a reduction in finance charge income, which declined as the
Company outsourced its installment payment plans in the second quarter of 1998.
Loss and loss adjustment expenses (LAE). The provision for losses and LAE
increased $27.4 million or 24.3% to $140.5 million for the nine months ended
September 30, 1999 from $113.1 million for the nine months ended September 30,
1998. The provision for losses and LAE is net of ceded losses and LAE of $37.5
million and $59.4 million for the nine months ended September 30, 1999 and 1998
respectively. The ratio of net losses and LAE to net premiums earned improved to
93.5% for the nine months ended September 30, 1999 from 98.6% for the same
period in 1998. This improvement is principally attributable to a reduction in
the gross loss and LAE ratio on the Company's occurrence business written in
1999, combined with an increasing portion of the Company's expansion business
being written on a claims made basis which is expected to result in a lower
ultimate loss and LAE ratio. Changes in loss and LAE reserves held on 1994 and
prior accident years also impacted the ratio of net loss and LAE to net premiums
earned for the nine months ended September 30, 1999. The changes in loss and LAE
reserves were as follows: gross loss and LAE reserves were reduced by $6.0
million, ceded loss and LAE reserves were reduced by $7.3 million, and ceded
premiums earned were reduced by $2.3 million. There were no adjustments to loss
and LAE reserves held on prior accident years for the nine months ended
September 30, 1998.
Underwriting expenses. Underwriting expenses increased $3.9 million or 14.0% to
$31.6 million for the nine months ended September 30, 1999 from $27.7 million
for the nine months ended September 30, 1998. The increase in expenses was
attributable to the costs of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expense to net premiums earned, however, declined to 21.0% for the
nine months ended September 30, 1999 from 24.2% for the nine months ended
September 30, 1998. This improvement was primarily the result of greater
economies of scale present with the larger premium in 1999 combined with the
impact of the Company's cost reduction restructuring undertaken in June 1999.
Funds held charges. Funds held charges decreased $1.9 million or 15.8% to $10.0
million for the nine months ended September 30, 1999 from $11.9 million for the
nine months ended September 30, 1998. The ratio of funds
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<PAGE> 16
held charges to beginning of period funds held balances also declined, to 4.4%
for the nine months ended September 30, 1999 from 6.5% for the nine months ended
September 30, 1998. This decrease in the ratio of funds held charges to
beginning funds held balance is the result of three principal factors: profit
sharing recognized on the 1993 aggregate reinsurance contract associated with a
reduction in 1993 accident year ceded loss and LAE reserves made in the second
quarter of 1999; reduced funds held charges resulting from net reductions to
ceded losses pertaining to other accident years made during the fourth quarter
of 1998 and the first and third quarters of 1999; and a lower contractual funds
held charge rate applicable to the 1998 and 1999 aggregate reinsurance
contracts. Funds held charges are calculated based upon beginning of quarter
funds held balances.
Other expenses. Other expenses amounted to $1.2 million for the nine months
ended September 30, 1999 and primarily consist of the costs associated with the
leasing, brokerage and other businesses acquired by the Company in the
acquisition of New Jersey State Medical Underwriters, Inc. and its subsidiaries
on August 4, 1999.
Restructuring charge. The Company undertook a restructuring during the second
quarter of 1999 and on June 23, 1999 announced the reduction of regional and
home office staff and the closing of regional offices in Boston and Atlanta to
centralize their functions at the Company's home office. Management believes
that the restructuring will allow the Company to operate with greater efficiency
and cost-effectiveness as the Company's growth continues. The Company recognized
a pre-tax charge of $2.4 million related to this restructuring for the nine
months ended September 30, 1999. No such event occurred during the nine months
ended September 30, 1998.
Impairment of capitalized system development costs. Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121") requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of an asset to exceed the
sum of the expected future cash flow associated with the asset. During the nine
months ended September 30, 1998, management replaced its policy administration
system and accordingly recognized a $12.7 million pre-tax charge which
represents the net book value of capitalized costs associated with the old
computer system which is no longer being used for the Company's operations. No
similar event occurred during the nine months ended September 30, 1999.
Income taxes. Income taxes were $3.8 million for the nine months ended September
30, 1999, resulting in an effective tax rate of 21.6%, compared to $8.6 million
and an effective tax rate of 26.9% for the same period in 1998. This decrease of
$4.8 million was primarily attributable to a decrease in pre-tax income in 1999
of $14.3 million resulting in reduced tax of $5.0 million at a 35% rate, and an
increase in taxes of $0.2 million associated with a decrease in tax exempt
interest and other items in 1999.
Net income. Net income decreased by $9.5 million to $13.9 million for the nine
months ended September 30, 1999, from a net income of $23.4 million for the nine
months ended September 30, 1999. This net decrease was primarily the result of a
$38.7 million reduction in realized investment gains and a $2.4 million
restructuring charge taken in 1999 offset in part by all of the following: an
increase in premiums earned net of loss and loss adjustment expenses and
underwriting expenses of $4.2 million; an increase in investment income of $7.6
million; an increase in other income net of other expense of $0.4 million,
including death benefit income of $1.0 million; a reduction in funds held
charges of $1.9 million; impairment of capitalized systems costs of $12.7
million recorded in 1998, and a reduction in the provision for taxes of $4.8
million.
FINANCIAL CONDITION
Cash and invested assets. Aggregate invested assets, including cash and short
term investments, were $1,203.7 million at September 30, 1999 and $1,167.1
million at December 31, 1998. The net increase of $36.6 million largely resulted
from the net effect of positive cash flows from operations and proceeds from the
initial public offering net of purchased treasury stock, cash dividends to
stockholders, and cash distributions to certain distributees in the
reorganization, somewhat offset by unrealized net depreciation on investments
during the period.
Fixed maturities available for sale, including short-term investments,
aggregated approximately $1.2 billion, or 99.1% of the investment portfolio of
the Company as of September 30, 1999. At that date, the average credit quality
of the fixed income portfolio was "AA-," as defined by Standard & Poor's, while
the total portfolio effective duration (including short-term investments) was
5.13 years.
In 1997, the Company implemented an "equity collar" around its equity securities
of $81.6 million. An "equity collar" is an option position created with the
simultaneous purchase and sale of an equal number of put and call
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<PAGE> 17
options. This resulting option position establishes, for a specified time
period, both a ceiling and a floor with respect to the financial performance of
the underlying asset upon which the equity collar is established. The collar
transaction was executed on July 8, 1997 and expired on January 2, 1998. The
purpose of the collar was to reduce equity market volatility and to stabilize
unassigned surplus. The collar was constructed using European-style S&P 500
options. A "European-style" option is an option contract that may be exercised
only upon expiration of the contract whereas an "American-style" option may be
exercised at any time prior to the expiration of the contract. The reference to
"S&P 500" refers to the underlying asset upon which the option contract's value
will be based. To minimize loss exposure due to credit risk, the Company
utilized intermediaries with a Standard and Poor's rating of "AA" or better.
In 1998, another equity collar was implemented with a notional value of $85
million around the equity portfolio. Again, the purpose of the collar was to
reduce equity market volatility and to stabilize unassigned surplus. The collar
was constructed using European style S&P 500 options. The collar transaction was
executed on January 13, 1998 and expired on July 13, 1998, with a net realized
loss of $14 million. This loss offset gains on the related hedged equity
securities liquidated in the third quarter of 1998.
Since the expiration of the equity collar mentioned above, the Company has not
held any derivative investments.
Unpaid losses and LAE, reinsurance recoverable on unpaid losses and LAE and
funds held under reinsurance treaties. Gross unpaid losses and LAE were $1,010
million at September 30, 1999 and $951.7 million at December 31, 1998.
Reinsurance recoverable on unpaid losses and LAE was $352.1 million at September
30, 1999 and $325.8 million at December 31, 1998. Funds held under reinsurance
treaties, which are unrestricted, collateralize a significant portion of
reinsurance recoverable on unpaid losses and LAE and were $239.0 million at
September 30, 1999, and $228.1 million at December 31, 1998. The increases in
these amounts were consistent with the continued growth in the Company's book of
business.
Equity. Total equity was $338.3 million at September 30, 1999 and $322.8 million
at December 31, 1998. The net increases were primarily attributable to net
income of $13.9 million, net proceeds of $37.3 million from the initial public
offering, and $11.0 million related to the NJSMU acquisition, offset in part by
primary decreases: in unrealized net depreciation on investments of $34.4
million; the purchase of $11.0 million of treasury stock; and $0.8 million and
$1.9 million of cash dividends paid to stockholders, and distributees,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The MIIX Group, Incorporated. The MIIX Group is a holding company whose only
material assets are the capital stock of MIIX Insurance Company, a New Jersey
stock insurer ("MIIX Insurance"), and the New Jersey State Medical Underwriters,
Inc., a New Jersey corporation, and cash and investments resulting from the net
proceeds of the public offering. The net proceeds of the public offering,
conducted on July 30, 1999, will be used for general corporate purposes, which
may include, without limitation, increasing the capitalization of The MIIX
Group's insurance subsidiaries in order to support their continued growth and
for financing potential acquisitions. The MIIX Group's ongoing cash flow will
consist primarily of investment income on its holdings and dividends and other
permissible payments from its subsidiaries. The MIIX Group will depend upon such
payments for funds for general corporate purposes and for the payment of
dividends on the Common Stock.
The payment of dividends to The MIIX Group by MIIX Insurance is subject to
limitations imposed by the New Jersey Holding Company Act. Based upon these
limitations, the maximum amount that will be available for payment of dividends
to The MIIX Group by MIIX Insurance in any year without the prior approval of
regulatory authorities is subject to restrictions related to surplus and net
income. MIIX Insurance's future cash flow available to The MIIX Group may be
influenced by a variety of factors, including cyclical changes in the medical
malpractice insurance market, MIIX Insurance's financial results, insurance
regulatory changes, including changes in the limitations imposed by the New
Jersey Holding Company Act on the payment of dividends by MIIX Insurance, and
changes in general economic conditions. The MIIX Group expects that the current
limitations that will be imposed on MIIX Insurance should not affect its ability
to declare and pay dividends sufficient to support The MIIX Group's initial
dividend policy.
MIIX Insurance. The primary sources of MIIX Insurance's liquidity, on both a
short- and long-term basis, are funds provided by insurance premiums collected,
net investment income, recoveries from reinsurance and proceeds from the
maturity or sale of invested assets. Such funds are generally used to pay
claims, LAE, operating expenses,
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<PAGE> 18
reinsurance premiums and taxes. The Company's net cash flow from operating
activities was approximately $91.0 million and $97.1 million for the nine months
ended September 30, 1999 and 1998 and $90.1 million for the year ended 1998.
Because of the inherent unpredictability related to the timing of the payment of
claims, it is not unusual for cash flow from operations for a medical
malpractice insurance company to vary, perhaps substantially, from period to
period.
The Company held collateral of $239.0 million at September 30, 1999 and $228.1
at December 31, 1998, in the form of funds withheld, for recoverable amounts on
ceded unpaid losses and loss adjustment expenses under certain reinsurance
agreements. Under the contracts, reinsurers may require that a trust fund be
established to hold the collateral should one or more triggering events occur,
such as a downgrade in the Company's A.M. Best rating to B+ or lower, or a
reduction in statutory capital and surplus to less than $60 million. Otherwise,
no restrictions are placed on investments held in support of the funds withheld.
In accordance with the provisions of the reinsurance contracts, the funds
withheld are credited with interest at contractual rates ranging from 7.5% to
8.6%, which is recorded as an expense in the year incurred.
The Company invests its positive cash flow from operations in fixed maturity
securities. The current investment strategy seeks to maximize after-tax income
through a high quality, diversified, duration sensitive, taxable bond and
tax-preferenced municipal bond portfolio, while maintaining an adequate level of
liquidity.
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 funds will be sufficient to meet these liquidity needs.
RECENT DEVELOPMENTS
On October 1, 1999, the Company received 296,134 shares of Manulife Financial
common stock valued at $3,461,066 as part of the demutualization benefit. The
Company recorded a gain in other revenue equivalent to the fair value of the
stock received in the amount of $3,461,066 during the fourth quarter of 1999.
On November 4, 1999, the Company amended its stock repurchase program to buy up
to an additional two million shares of its common stock or $40 million on the
open market. On October 27, 1999, the Company completed the repurchases under
the initial stock repurchase program of up to one million shares or $20 million
authorized on August 16, 1999. One million shares were repurchased under the
previous authorization at a total cost of $16.3 million.
YEAR 2000
Because certain computer software programs have historically been designed to
use a two-digit code to identify the year for date-sensitive material, such
programs may not properly recognize post twentieth century dates. This could
result in system failures and improper information processing that could disrupt
the Company's business operations.
The Company began evaluating this issue in 1996 in connection with an overall
evaluation of the Company's systems and during 1997 assigned a project manager
to study the Company's information systems and computers to determine whether
they will appropriately handle post-1999 date codes. The identification of
compliance issues included the Company's internal systems and processes, as well
as exposure from service providers, brokers and other external business
partners. Software applications, hardware and information technology ("I/T")
infrastructure and non I/T systems such as the Company's telephone, security and
heating and ventilating systems have been reviewed to identify those requiring
upgrading or replacement to improve current computing capabilities and to ensure
that they are Year 2000 compliant. In the course of evaluating the Year 2000
readiness of its internal systems, the Company determined that its claims
administration system was not Year 2000 compliant. The Company has purchased a
replacement system that the vendor has represented to be Year 2000 compliant
which is now in
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operation. The Company also determined that its telephone equipment was not Year
2000 compliant and has upgraded its telephone equipment to make it Year 2000
compliant.
During 1997 and 1998 the Company upgraded all its I/T systems to improve their
performance and efficiency. As part of this process, the Company obtained
certifications from the vendors of such new systems that such systems would be
Year 2000 compliant. The Company has conducted internal tests of its new systems
to ensure that they are Year 2000 compliant and continues to conduct such tests.
To date, such tests have not revealed any Year 2000 issues other than in
connection with the claims administration system discussed above. However, the
Company has retained an outside expert to independently evaluate the Year 2000
readiness of the Company's internal systems. The Company may also be adversely
affected if Year 2000 issues result in additional claims being made against the
Company's insureds. The Company's liability for such claims, if any, is not
clearly established. A number of companies who underwrite liability coverage in
the healthcare industry have submitted applications to various state regulators
requesting that policy exclusions for such liability, if any, be approved. Other
carriers have advised their clients of their intent to deny coverage in certain
circumstances. The Company has not yet taken a formal position.
The Company completed the process of sending inquiries to its service providers,
brokers and other external business partners to determine whether they may
experience Year 2000 problems that could affect the Company. Management has
recently completed the evaluation of alternative contingency plans that could
become necessary if its own or its significant external business partners' Year
2000 remediation efforts fail. Such alternatives will most likely involve the
assignment of internal and external resources to process business manually
during the duration of any non-compliance. Implementation of the contingency
plans are scheduled for completion in the fourth quarter of 1999. It is not
possible at this time to estimate the cost, if any, of such contingency plans or
system failures.
Remediation costs to date (including expenditures associated with replacement
systems) have been approximately $462,000 and are estimated to be less than $1
million through the completion of remediation, which is expected in 1999. These
costs have been considered in preparing the Company's capital and operating
budgets. There can be no assurance, however, that remediation efforts will be
completed within these estimated costs and time periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks since the end
of the most recent fiscal year as described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ACTIONS OPPOSING THE PLAN OF REORGANIZATION
The description of Legal Proceedings in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, as amended, and the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, as amended, and for the quarter
ended June 30, 1999, are incorporated herein by reference. Following the
dismissal of all claims alleged by Plaintiffs in their second amended complaint,
the Company filed a motion to dismiss the additional claims made by Plaintiffs
in their third amended complaint on the grounds that they failed to state a
claim on which relief may be granted and for lack of subject matter
jurisdiction. The additional claims alleged that the prospectus sent to Members
in connection with the special meeting to vote on the Plan of Reorganization
omitted material facts concerning the Company's reserves and assumption of the
Attorney-in-Fact's liabilities, that the compensation and benefits of certain
key executives are unreasonable, that the Salomon Smith Barney Inc. fairness
opinion is misleading and that Plaintiffs did not have an adequate opportunity
to express their views to the Members prior to the vote on the Plan. These
additional claims sought to invalidate the vote of the Members, prevent
implementation of the Plan and unspecified compensatory and punitive damages.
While the Company's motion to dismiss these additional claims was pending,
Plaintiffs filed a motion to stay the Public Offering and for reconsideration of
the dismissal of counts one (declaration of dividend) and six (IPO share price)
of the second amended complaint. Following a hearing on the motions, the court
entered an order granting the Company's motion to dismiss the additional claims,
dismissing the action in its entirety and denying Plaintiffs' motion. Plaintiffs
subsequently filed a notice of appeal of the court's orders to the Appellate
Court. Plaintiffs also filed a motion to conduct discovery pending appeal, which
was denied by the court. The Company intends to vigorously defend against the
appeal.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 30, 1999, the Company commenced an Offering of shares of its common
stock at an offering price of $13.50 per share. The registration statement
relating to the Offering (Reg. No. 333-64707) and registering 3,450,000 shares
of Common Stock in connection therewith became effective on July 29, 1999. First
Union Capital Markets Corp., Friedman, Billings, Ramsey & Co., Inc. and Hoefer &
Arnett Incorporated (the "Underwriters") were the underwriters of the Offering,
which was consummated on August 4, 1999. The Company initially sold 3,000,000
shares of Common Stock in the Offering which resulted in gross proceeds to the
Company of $40.5 million, $2.84 million of which was applied to the underwriting
discount and approximately $1.0 million of which was applied to related
expenses. On August 10, 1999, the Underwriters exercised an overallotment option
to purchase an additional 450,000 shares of Common Stock at $13.50 per share,
resulting in additional gross proceeds and net proceeds to the Company of $6.08
million and $5.65 million, respectively. From July 30, 1999, through November 8,
1999, approximately $16.3 million of the net proceeds of the company's initial
public offering was used to purchase one million shares of treasury stock. The
balance was invested in short-term, interest-bearing, and equity securities.
None of the net proceeds of the Offering were paid by the Company, directly or
indirectly, to any director, officer or general partner of the Company or any of
their associates, or to any persons owning 10% or more of any class of the
Company's equity securities, or any affiliates of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
20
<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The MIIX Group's annual meeting of stockholders was held on June 10, 1999, at
which time the following directors were elected by the Exchange then the sole
stockholder of The MIIX Group to serve as Class I directors for a term expiring
at the Annual Meeting of stockholders to be held in 2002: Daniel Goldberg,
Angelo S. Agro, M.D. and Carl Restivo, Jr., M.D. The terms of the following
directors continued after such meeting : Vincent A. Maressa, Esquire, Paul J.
Hirsch, M.D., Harry M. Carnes, M.D., Robert S. Maurer, D.O., A. Richard Miskoff,
D.O., Charles J. Moloney, M.D., Eileen Marie Moynihan, M.D., Fred M. Palace,
M.D., Gabriel F. Sciallis, M.D., Martin L. Sorger, M.D., and Bessie M. Sullivan,
M.D.
ITEM 5. OTHER INFORMATION
On November 8, 1999, Daniel Goldberg, President and Chief
Executive Officer of the Company, was granted a leave of
absence for reasons unrelated to his position with the
Company. Kenneth M. Koreyva was appointed Acting Chief
Executive Officer. Mr. Koreyva, formerly served as Executive
Vice President and Chief Financial Officer and has been with
the Company since 1991.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are filed herewith:
10.35 Addendum No. 2 to the Combined Quota Share,
Aggregate and Specific Excess of Loss
Reinsurance Treaty, effective November 1, 1998,
among Medical Inter-Insurance Exchange of New
Jersey and Hannover Reinsurance (Ireland) Ltd.;
E&S Reinsurance (Ireland) Ltd.; Underwriters
Reinsurance Company (Barbados) Inc.; London
Life and Casualty Reinsurance Corporation;
Lawrenceville Re, Ltd.; and European
Reinsurance Company of Zurich.
10.36 Addendum No. 3 to the Combined Quota Share,
Aggregate and Specific Excess of Loss
Reinsurance Treaty, effective January 1, 1999,
among Medical Inter-Insurance Exchange of New
Jersey and Hannover Reinsurance (Ireland) Ltd.;
E&S Reinsurance (Ireland) Ltd.; Underwriters
Reinsurance Company (Barbados) Inc.; and
European Reinsurance Company of Zurich.
10.37 Addendum No. 4 to the Combined Quota Share,
Aggregate and Specific Excess of Loss
Reinsurance Treaty, effective January 1, 1999,
among Medical Inter-Insurance Exchange of New
Jersey and Hannover Reinsurance (Ireland) Ltd.;
E&S Reinsurance (Ireland) Ltd.; Underwriters
Reinsurance Company (Barbados) Inc.; and
European Reinsurance Company of Zurich.
10.38 Excess Cession and Event Reinsurance Contract,
effective January 1, 1999, among Medical
Inter-Insurance Exchange and Hannover
Ruckversicherungs-Aktiengesellschaft; and Swiss
Reinsurance Company.
10.39 Excess Cession and Event Reinsurance Contract,
effective January 1, 1999, between Medical
Inter-Insurance Exchange and American
Re-Insurance Company.
15 Acknowledgement of Independent Accountants
27.1 Financial Data schedule.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the
second quarter of 1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MIIX GROUP, INCORPORATED
By: /s/ Kenneth Koreyva
--------------------------------------------------
Acting President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas M. Redman
--------------------------------------------------
Acting Chief Financial Officer
(principal financial and accounting officer)
DATED: NOVEMBER 15, 1999
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MIIX GROUP, INCORPORATED
By:
----------------------------------------------------
Kenneth Koreyva
Acting President and Chief Executive Officer
(principal executive officer)
By:
----------------------------------------------------
Thomas M. Redman
Acting Chief Financial Officer
(principal financial and accounting officer)
DATED: NOVEMBER 15, 1999
23
<PAGE> 1
Exhibit 10.35
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
HANNOVER REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the 40% share of the
Reinsurer is amended to 46%. The share of the Reinsurer shall be separate and
apart from the shares of the other reinsurers and shall not be joint with those
of the other reinsurers and the Reinsurer shall in no event participate in the
interest and liabilities of the other reinsurers.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of
HANNOVER REINSURANCE (IRELAND) LTD
By: /s/ Reinhard Elers
------------------
Title: Managing Director
-----------------
<PAGE> 2
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
E & S REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the 10% share of the
Reinsurer is amended to 11.50%. The share of the Reinsurer shall be separate and
apart from the shares of the other reinsurers and shall not be joint with those
of the other reinsurers and the Reinsurer shall in no event participate in the
interest and liabilities of the other reinsurers.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th of July, 1999 for and on behalf
of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of E &
S REINSURANCE (IRELAND) LTD
By: /s/ Reinhard Elers
------------------
Title: Managing Director
-----------------
<PAGE> 3
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
Rockley, Christ Church, Barbados, W.I.
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the 35% share of the
Reinsurer is amended to 17.50%. The share of the Reinsurer shall be separate and
apart from the shares of the other reinsurers and shall not be joint with those
of the other reinsurers and the Reinsurer shall in no event participate in the
interest and liabilities of the other reinsurers.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Rockley, Christ Church, Barbados, W.I., this 26th day of July, 1999
for and on behalf of UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
By: /s/ Daniel McKay
----------------
<PAGE> 4
Title: President and Chief Executive Officer
-------------------------------------
<PAGE> 5
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
Widley, St. Michael, Barbados, W.I.
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the 14% share of the
Reinsurer is cancelled.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 19th day of August, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Thomas M. Redman
--------------------
Title: Vice President
--------------
Signed in Widley, St. Michael, Barbados, W.I., this 22nd day of July, 1999 for
and on behalf of LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
By: /s/ M. A. Gonsalves
-------------------
Title: Vice President
--------------
<PAGE> 6
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
LAWRENCEVILLE RE LTD.
Hamilton, Bermuda
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the 1% share of the Reinsurer
is cancelled.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 19th day of August, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Thomas M. Redman
--------------------
Title: Vice President
--------------
Signed in Hamilton, Bermuda this 2nd day of August, 1999 for and on behalf of
LAWRENCEVILLE RE LTD.
By: /s/ Allan Dunkle
----------------
Title: Vice President
<PAGE> 7
ADDENDUM NO. 2
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
EUROPEAN REINSURANCE COMPANY OF ZURICH
Zurich, Switzerland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective November 1st, 1998, with respect to business ceded
for the 1999 Coverage Year and thereafter, in that the Reinsurer shall have a
25% share in the interest and liabilities as set forth herein. The share of the
Reinsurer shall be separate and apart from the shares of the other reinsurers
and shall not be joint with those of the other reinsurers and the Reinsurer
shall in no event participate in the interest and liabilities of the other
reinsurers.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Zurich, Switzerland, this 23rd day of July, 1999 for and on behalf of
EUROPEAN REINSURANCE COMPANY OF ZURICH
By: /s/ Dr. Guido Furer
-------------------
<PAGE> 8
Title: Financial Solutions, Director
-----------------------------
<PAGE> 1
Exhibit 10.36
ADDENDUM NO. 3
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
HANNOVER REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
1) ARTICLE 5: COVERAGES AND AGGREGATE LIMITS, Section A, Coverage A, Part B
The final sentence in the second paragraph is deleted and replaced with the
following:
"In no event shall Reinsurers be liable for more than $200,000,000 (two
hundred million dollars) in the aggregate for Coverage A, Part B for each
Coverage Year. This $200,000,000 aggregate limit for each Coverage Year
shall be subject to the sub condition that not more than $15,000,000
(fifteen million dollars) in all (inclusive of Loss Adjustment Expenses)
shall be recoverable from Reinsurers in respect of losses emanating from a
loss layer of $7,000,000 (seven million dollars) each and every loss
(inclusive of Loss Adjustment Expenses) excess of $3,000,000 (three million
dollars) each and every loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a particular
individual Coverage Year, then the Ceding Company shall participate in this
particular individual Coverage Year with the Reinsurers in losses otherwise
recoverable in the proportion calculated as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
----------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding
Company and Reinsurers for Coverage Years 2000 and thereafter."
<PAGE> 2
2) ARTICLE 6: DEFINITIONS, Section F, "Policies"
The definition of "Policies" is amended to add all assumed
reinsurance from MIIX Insurance Company of New York (MIIX NY) in
respect of original policies underwritten by MIIX NY and classified in
accordance with the remainder of the existing definition.
3) ARTICLE 7: NET RETAINED LIABILITY
The third paragraph and maximum Net Retained Liability table
are deleted and replaced with the following:
"The Ceding Company warrants that the maximum Net Retained
Liability is as follows:
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
Property Insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $10,000,000 each and every loss
4) ARTICLE 8: CONSIDERATION, Section B, Reinsurers' Expense Charge
The first paragraph is deleted and replaced with the
following:
"The Ceding Company shall pay Reinsurers for each Coverage
Year a Reinsurers' Expense Charge equal to X%, as detailed in the table
below, of all Coverage A, Part A and Part B Actual Consideration,
including Coverage A, Part A Advance Consideration, subject to a
minimum amount, effective for the 1999 Coverage Year and thereafter, of
$2,650,000 (two million six hundred fifty thousand dollars) inclusive
of intermediary commission, by direct payment to Reinsurers. There
shall be no Reinsurers' Expense Charge in respect of Coverage A
Additional Coverage Consideration, Coverage B Consideration, Coverage C
Consideration and Coverage D Consideration."
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of
HANNOVER REINSURANCE (IRELAND) LTD
By: /s/ Reinhard Elers
------------------
<PAGE> 3
Title: Managing Director
-----------------
<PAGE> 4
ADDENDUM NO. 3
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
E & S REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
1) ARTICLE 5: COVERAGES AND AGGREGATE LIMITS, Section A, Coverage A, Part B
The final sentence in the second paragraph is deleted and replaced with
the following:
"In no event shall Reinsurers be liable for more than $200,000,000 (two
hundred million dollars) in the aggregate for Coverage A, Part B for
each Coverage Year. This $200,000,000 aggregate limit for each Coverage
Year shall be subject to the sub condition that not more than
$15,000,000 (fifteen million dollars) in all (inclusive of Loss
Adjustment Expenses) shall be recoverable from Reinsurers in respect of
losses emanating from a loss layer of $7,000,000 (seven million
dollars) each and every loss (inclusive of Loss Adjustment Expenses)
excess of $3,000,000 (three million dollars) each and every loss
(inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a
particular individual Coverage Year, then the Ceding Company shall
participate in this particular individual Coverage Year with the
Reinsurers in losses otherwise recoverable in the proportion calculated
as follows:
Ceding Company's Share:Amount of SNWP in excess of $300,000,000
----------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding
Company and Reinsurers for Coverage Years 2000 and thereafter."
<PAGE> 5
ARTICLE 6: DEFINITIONS, Section F, "Policies"
The definition of "Policies" is amended to add all assumed
reinsurance from MIIX Insurance Company of New York (MIIX NY) in
respect of original policies underwritten by MIIX NY and classified in
accordance with the remainder of the existing definition.
3) ARTICLE 7: NET RETAINED LIABILITY
The third paragraph and maximum Net Retained Liability table
are deleted and replaced with the following:
"The Ceding Company warrants that the maximum Net Retained
Liability is as follows:
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
Property Insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $10,000,000 each and every loss
4) ARTICLE 8: CONSIDERATION, Section B, Reinsurers' Expense Charge
The first paragraph is deleted and replaced with the
following:
"The Ceding Company shall pay Reinsurers for each Coverage
Year a Reinsurers' Expense Charge equal to X%, as detailed in the table
below, of all Coverage A, Part A and Part B Actual Consideration,
including Coverage A, Part A Advance Consideration, subject to a
minimum amount, effective for the 1999 Coverage Year and thereafter, of
$2,650,000 (two million six hundred fifty thousand dollars) inclusive
of intermediary commission, by direct payment to Reinsurers. There
shall be no Reinsurers' Expense Charge in respect of Coverage A
Additional Coverage Consideration, Coverage B Consideration, Coverage C
Consideration and Coverage D Consideration."
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of E &
S REINSURANCE (IRELAND) LTD
By: /s/ Reinhard Elers
------------------
<PAGE> 6
Title: Managing Director
-----------------
<PAGE> 7
ADDENDUM NO. 3
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
Rockley, Christ Church, Barbados, W.I.
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
1) ARTICLE 5: COVERAGES AND AGGREGATE LIMITS, Section A, Coverage A, Part B
The final sentence in the second paragraph is deleted and
replaced with the following:
"In no event shall Reinsurers be liable for more than
$200,000,000 (two hundred million dollars) in the aggregate for
Coverage A, Part B for each Coverage Year. This $200,000,000 aggregate
limit for each Coverage Year shall be subject to the sub condition that
not more than $15,000,000 (fifteen million dollars) in all (inclusive
of Loss Adjustment Expenses) shall be recoverable from Reinsurers in
respect of losses emanating from a loss layer of $7,000,000 (seven
million dollars) each and every loss (inclusive of Loss Adjustment
Expenses) excess of $3,000,000 (three million dollars) each and every
loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a
particular individual Coverage Year, then the Ceding Company shall
participate in this particular individual Coverage Year with the
Reinsurers in losses otherwise recoverable in the proportion calculated
as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
-----------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding
Company and Reinsurers for Coverage Years 2000 and thereafter."
<PAGE> 8
2) ARTICLE 6: DEFINITIONS, Section F, "Policies"
The definition of "Policies" is amended to add all assumed
reinsurance from MIIX Insurance Company of New York (MIIX NY) in
respect of original policies underwritten by MIIX NY and classified in
accordance with the remainder of the existing definition.
3) ARTICLE 7: NET RETAINED LIABILITY
The third paragraph and maximum Net Retained Liability table
are deleted and replaced with the following:
"The Ceding Company warrants that the maximum Net Retained
Liability is as follows:
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
Property Insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $10,000,000 each and every loss
4) ARTICLE 8: CONSIDERATION, Section B, Reinsurers' Expense Charge
The first paragraph is deleted and replaced with the following:
"The Ceding Company shall pay Reinsurers for each Coverage
Year a Reinsurers' Expense Charge equal to X%, as detailed in the table
below, of all Coverage A, Part A and Part B Actual Consideration,
including Coverage A, Part A Advance Consideration, subject to a
minimum amount, effective for the 1999 Coverage Year and thereafter, of
$2,650,000 (two million six hundred fifty thousand dollars) inclusive
of intermediary commission, by direct payment to Reinsurers. There
shall be no Reinsurers' Expense Charge in respect of Coverage A
Additional Coverage Consideration, Coverage B Consideration, Coverage C
Consideration and Coverage D Consideration."
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Rockley, Christ Church, Barbados, W.I., this 26th day of July, 1999
for and on behalf of UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
<PAGE> 9
By: /s/ Daniel McKay
----------------
Title: President and Chief Executive Officer
-------------------------------------
<PAGE> 10
ADDENDUM NO. 3
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
EUROPEAN REINSURANCE COMPANY OF ZURICH
Zurich, Switzerland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurers hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
1) ARTICLE 5: COVERAGES AND AGGREGATE LIMITS, Section A, Coverage A, Part B
The final sentence in the second paragraph is deleted and
replaced with the following:
"In no event shall Reinsurers be liable for more than
$200,000,000 (two hundred million dollars) in the aggregate for
Coverage A, Part B for each Coverage Year. This $200,000,000 aggregate
limit for each Coverage Year shall be subject to the sub condition that
not more than $15,000,000 (fifteen million dollars) in all (inclusive
of Loss Adjustment Expenses) shall be recoverable from Reinsurers in
respect of losses emanating from a loss layer of $7,000,000 (seven
million dollars) each and every loss (inclusive of Loss Adjustment
Expenses) excess of $3,000,000 (three million dollars) each and every
loss (inclusive of Loss Adjustment Expenses).
If SNWP exceeds $300,000,000 (three hundred million dollars) in a
particular individual Coverage Year, then the Ceding Company shall
participate in this particular individual Coverage Year with the
Reinsurers in losses otherwise recoverable in the proportion calculated
as follows:
Ceding Company's Share: Amount of SNWP in excess of $300,000,000
-----------------------------------------
SNWP
This proportion may be adjusted based on mutual consent of the Ceding
Company and Reinsurers for Coverage Years 2000 and thereafter."
<PAGE> 11
2) ARTICLE 6: DEFINITIONS, Section F, "Policies"
The definition of "Policies" is amended to add all assumed
reinsurance from MIIX Insurance Company of New York (MIIX NY) in
respect of original policies underwritten by MIIX NY and classified in
accordance with the remainder of the existing definition.
3) ARTICLE 7: NET RETAINED LIABILITY
The third paragraph and maximum Net Retained Liability table
are deleted and replaced with the following:
"The Ceding Company warrants that the maximum Net Retained
Liability is as follows:
Policies Classified As: Maximum Net Retained Liability
----------------------- ------------------------------
Property Insurance:
Medical Office Policy $ 2,000,000 any one policy
Other Property Coverage $ 500,000 each and every loss
All Other Policies $10,000,000 each and every loss
4) ARTICLE 8: CONSIDERATION, Section B, Reinsurers' Expense Charge
The first paragraph is deleted and replaced with the
following:
"The Ceding Company shall pay Reinsurers for each Coverage
Year a Reinsurers' Expense Charge equal to X%, as detailed in the table
below, of all Coverage A, Part A and Part B Actual Consideration,
including Coverage A, Part A Advance Consideration, subject to a
minimum amount, effective for the 1999 Coverage Year and thereafter, of
$2,650,000 (two million six hundred fifty thousand dollars) inclusive
of intermediary commission, by direct payment to Reinsurers. There
shall be no Reinsurers' Expense Charge in respect of Coverage A
Additional Coverage Consideration, Coverage B Consideration, Coverage C
Consideration and Coverage D Consideration."
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
----------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Zurich, Switzerland, this 23rd day of July, 1999 for and on behalf of
EUROPEAN REINSURANCE COMPANY OF ZURICH
<PAGE> 12
By: /s/ Dr. Guido Furer
-------------------
Title: Financial Solutions, Director
-----------------------------
<PAGE> 1
Exhibit 10.37
ADDENDUM NO. 4
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
HANNOVER REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
ARTICLE 27: INTERMEDIARY
Lloyd Thompson Ltd, 6 Crutched Friars, London EC3N 2HT is hereby recognized as
the Intermediary negotiating this Treaty for all business hereunder and through
whom all communication relating hereto (including but not limited to notices,
statements and reports) shall be transmitted to both parties, It is understood,
as regards remittances due either party hereunder, that payment by the Ceding
Company to the Intermediary, shall constitute payment to the Reinsurers but
payment by the Reinsurer to the Intermediary shall only constitute payment to
the Ceding Company to the extent such payments are actually received by the
Ceding Company. Notwithstanding the foregoing, it is agreed that all payments
will be direct from the Reinsurer to the Ceding Company, or from the Ceding
Company to the Reinsurer as appropriate.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of
HANNOVER REINSURANCE (IRELAND) LTD
<PAGE> 2
By: /s/ Reinhard Elers
-------------------------------------
Title: Managing Director
-------------------------------------
<PAGE> 3
ADDENDUM NO. 4
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
E & S REINSURANCE (IRELAND) LTD
Dublin, Ireland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
ARTICLE 27: INTERMEDIARY
Lloyd Thompson Ltd, 6 Crutched Friars, London EC3N 2HT is hereby recognized as
the Intermediary negotiating this Treaty for all business hereunder and through
whom all communication relating hereto (including but not limited to notices,
statements and reports) shall be transmitted to both parties, It is understood,
as regards remittances due either party hereunder, that payment by the Ceding
Company to the Intermediary, shall constitute payment to the Reinsurers but
payment by the Reinsurer to the Intermediary shall only constitute payment to
the Ceding Company to the extent such payments are actually received by the
Ceding Company. Notwithstanding the foregoing, it is agreed that all payments
will be direct from the Reinsurer to the Ceding Company, or from the Ceding
Company to the Reinsurer as appropriate.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Dublin, Ireland, this 20th day of July, 1999 for and on behalf of E &
S REINSURANCE
<PAGE> 4
(IRELAND) LTD
By: /s/ Reinhard Elers
-------------------------------------
Title: Managing Director
-------------------------------------
<PAGE> 5
ADDENDUM NO. 4
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
Rockley, Christ Church, Barbados, W.I.
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurer hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
ARTICLE 27: INTERMEDIARY
Lloyd Thompson Ltd, 6 Crutched Friars, London EC3N 2HT is hereby recognized as
the Intermediary negotiating this Treaty for all business hereunder and through
whom all communication relating hereto (including but not limited to notices,
statements and reports) shall be transmitted to both parties, It is understood,
as regards remittances due either party hereunder, that payment by the Ceding
Company to the Intermediary, shall constitute payment to the Reinsurers but
payment by the Reinsurer to the Intermediary shall only constitute payment to
the Ceding Company to the extent such payments are actually received by the
Ceding Company. Notwithstanding the foregoing, it is agreed that all payments
will be direct from the Reinsurer to the Ceding Company, or from the Ceding
Company to the Reinsurer as appropriate.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Rockley, Christ Church, Barbados, W.I., this 26th day of July, 1999
for and on behalf of UNDERWRITERS REINSURANCE COMPANY (BARBADOS) INC.
By: /s/ Daniel McKay
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
<PAGE> 6
ADDENDUM NO. 4
to the
COMBINED QUOTA SHARE, AGGREGATE AND SPECIFIC EXCESS OF LOSS
REINSURANCE TREATY
(hereinafter referred to as "Reinsurance Treaty")
issued to
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
Lawrenceville, New Jersey
(hereinafter referred to as "Ceding Company")
by
EUROPEAN REINSURANCE COMPANY OF ZURICH
Zurich, Switzerland
(hereinafter referred to as the "Reinsurer")
The Ceding Company and the Reinsurers hereby agree to amend the captioned
Reinsurance Treaty, effective January 1, 1999, with respect to business ceded
for the 1999 Coverage Year and thereafter, as follows:
ARTICLE 27: INTERMEDIARY
Lloyd Thompson Ltd, 6 Crutched Friars, London EC3N 2HT is hereby recognized as
the Intermediary negotiating this Treaty for all business hereunder and through
whom all communication relating hereto (including but not limited to notices,
statements and reports) shall be transmitted to both parties, It is understood,
as regards remittances due either party hereunder, that payment by the Ceding
Company to the Intermediary, shall constitute payment to the Reinsurers but
payment by the Reinsurer to the Intermediary shall only constitute payment to
the Ceding Company to the extent such payments are actually received by the
Ceding Company. Notwithstanding the foregoing, it is agreed that all payments
will be direct from the Reinsurer to the Ceding Company, or from the Ceding
Company to the Reinsurer as appropriate.
In Witness Whereof the parties hereto have caused this Addendum to be executed
by its duly authorized representatives:
Signed in Lawrenceville, New Jersey, this 30th day of July, 1999 for and on
behalf of MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
By: /s/ Daniel J. Goldberg
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Signed in Zurich, Switzerland, this 23rd day of July, 1999 for and on behalf of
EUROPEAN
<PAGE> 7
REINSURANCE COMPANY OF ZURICH
By: /s/ Dr. Guido Furer
-------------------------------------
Title: Financial Solutions, Director
-------------------------------------
<PAGE> 1
Exhibit 10.38
EXCESS CESSION AND EVENT
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1999
ISSUED TO
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER REFERRED TO AS THE "REINSURERS")
ARTICLE I: BUSINESS REINSURED
A. By this Contract, the Reinsurers agree to reinsure the liability which
may accrue to the Company under all of its original policies, contracts,
binders and certificates of insurance or reinsurance (hereinafter
collectively referred to as "original policies") classified by the
Company as:
All business underwritten by New Jersey State Medical Underwriters, Inc.
and classified by the Company as Medical and Dental Practitioner
Professional Liability, Umbrella Liability, Hospital and Other Health
Care Institution Professional Liability and Commercial General Liability
Business, Directors and Officers Liability, Fiduciary Liability, Managed
Care Errors and Omissions Liability, Employment Practice Liability,
Miscellaneous Professional Indemnity (including but not limited to,
Lawyers Professional, Notary Public and Electronic Data Processors
coverage subject to agreement by Reinsurers) unless otherwise excluded
under Article III: Exclusions, issued or renewed on or after the
effective date, subject to the terms, conditions and limitations
hereinafter set forth.
Retroactive dates hereon shall be the same as any retroactive dates
contained in the original policies.
B. It is understood that this Contract applies to losses first occurring
during the original policy period under occurrence policies and Claims
First Made during the original period for claims made policies in respect
of risks attaching during the term of the Contract all following the
underlying terms and conditions.
Permanent Protection Plan policies underwritten by the Company shall in
all cases be deemed to be original policies covering on a losses
occurring during basis. Reinsurers shall be subject to all of the
conditions of the Permanent Protection Plan original policies and all
other original policies including policy limits and aggregate limit
formulas under any extended reporting coverage therein.
<PAGE> 2
C. It is understood that this contract applies only to original policies
with limits in excess of the company's retention.
ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1999 and
shall continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by
giving the other party not less than 90 days prior written
notice.
C. Reinsurers shall remain liable in respect to original policies
issued or renewed during the term their contract is in force
on the basis of the original coverage. Reinsurers shall
receive their share of premiums for such respective original
policies and there shall be no return of unearned premiums in
respect thereto.
D. This Contract shall apply to original policies underwritten by
the Company and incepting during the term of this Contract
subject to a maximum period any one policy not to exceed 36
months plus odd time.
E. In respect of multi-year original policies attaching to this
Contract then reinsurance coverage for the full policy period
shall be provided by those Reinsurers to whom the original net
ceded premium has been allocated to regardless of any
termination of the Contract.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance assumed from American
Medical Mutual, Inc., A Risk Retention Group, Lawrenceville
Property and Casualty Co., Inc., Lawrenceville Re. Ltd., and
MIIX Insurance Company of New York, where the underwriting is
through New Jersey State Medical Underwriters, Inc.
underwritten by the Company for captives or other insurance facilities
of hospitals and all other health care institutions where the
Underwriting is through New Jersey State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the Company with
effective dates after the termination date of this Contract.
3. Financial Guaranty and Insolvency Business.
4. 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, however
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 or
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
<PAGE> 3
whole or in part.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause - Liability. Reinsurance U.S.A. and Canada" except for
incidents arising from nuclear medicine, attached to and
forming part of this Contract.
6. Any business derived from participation in any Pool,
Association or Syndicate.
ARTICLE IV: RETENTION AND LIMITS
A. Retention:
The Company shall retain and be liable for the first $10,000,000 of Ultimate Net
Loss as respects:
i) each original policy; or, where applicable
ii) each and every Event.
B. Limit Excess of Retention:
i) In respect of Medical and Dental Practitioner Liability, Umbrella
Liability, Hospital and other Healthcare Institution Professional
Liability and Commercial Liability Business:
Reinsurers shall be liable for 92% of $65,000,000 of Ultimate Net
Loss as respects each original policy, or, where applicable, each
and every Event, plus Pro rata Loss Adjustment Expenses.
ii) In respect of Directors and Officers Liability, Fiduciary
Liability, Managed Care Errors and Omissions Liability,
Employment Practice Liability, and Miscellaneous Professional
Indemnity (including but not limited to Lawyers Professional,
Notary Public and Electronic Data Processors Business --
coverage subject to agreement by Reinsurers):
Reinsurers shall be liable for 92% of $15,000,000 of Ultimate Net
Loss as respects each original policy, or, where applicable, each
and every Event, plus Pro rata Loss Adjustment Expenses.
ARTICLE V: DEFINITIONS
A. "Ultimate Net Loss" as used herein is defined as the sum or sums
(including Loss in Excess of Policy Limits, Extra Contractual
Obligations, as hereinafter defined) paid or payable by the Company in
settlement of claims including any and all vicarious liability arising
from BUSINESS REINSURED and in satisfaction of judgments rendered on
account of such claims, after deduction of all salvage, all recoveries,
including the Pennsylvania catastrophe fund, if applicable, and all
claims in inuring insurance or reinsurance, whether collectible or not.
Ultimate Net Loss shall not include any Loss Adjustment Expense.
Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the Company's Ultimate Net Loss has
been ascertained. Ultimate Net Loss shall be calculated on a per claim,
per policy per insured basis or, where applicable, on a per Event
basis. If the Company issues multiple policies to an insured, the
policies will be deemed to be one original policy for purposes of
coverage under this Reinsurance Contract.
B. "Loss in Excess of Policy Limits" and "Extra Contractual Obligations"
as used herein
<PAGE> 4
shall be defined as follows:
1. "Loss in Excess of Policy Limits" as used herein shall mean
any amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its policy,
as a result of a settlement by the Company or an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third
party claimant because of the Company's alleged or actual
negligence, breach of contract or bad faith in rejecting a
settlement within policy limits, or in discharging its duty to
defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action. A Loss in
Excess of Policy Limits shall be deemed to have occurred on
the same date as the loss covered or alleged to be covered
under the policy.
2. "Extra Contractual Obligations" as used herein shall mean
any punitive, exemplary, compensatory, multiplied or
consequential damages, other than Loss in Excess of Policy
Limits paid or payable by the Company as a result of an action
against it by its insured, its insured's assignee or a third
party claimant, which action alleges negligence, breach of
contract or bad faith on the part of the Company in handling a
claim under a policy subject to this Contract. An Extra
Contractual Obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under
the policy.
Notwithstanding anything stated herein, this Contract shall not
apply to any Loss in Excess of Policy Limits or Extra Contractual
Obligation incurred by the Company as a result of any fraudulent
and/or criminal act or any officer or director 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 if any claim
covered hereunder.
C. "Incident" as used herein shall mean a single loss occurrence, or
otherwise a series of accidents, acts, errors or omissions including
continuous or repeated exposure to substantially the same general harmful
conditions giving rise to coverage, all as defined and provided within
the original policies underwritten by the Company.
D. "Claims First Made" as used herein shall mean claims reported under
claims made original policies on the earlier date of (1) or (2) below:
1. When the insured first gives notice to the Company that a
claim has been made against the insured; or
2. When the insured first gives notice to the Company of an
Incident involving a particular person which may result in a
claim against the original insured.
Notwithstanding the above, and in all cases, the Claims First Made date
shall be as defined and provided within the underlying policies
underwritten by the Company.
E. 1. "Loss Adjustment Expense" as used herein shall mean
expenses allocable to the investigation defense and/or
settlement of specific claims, including litigation expenses
and postjudgment interest and legal expenses and costs
incurred in connection with coverage questions and legal
actions connected thereto, but not including office expenses
or salaries of the Company's regular employees.
<PAGE> 5
2. "Pro rata Loss Adjustment Expenses" as used herein shall mean the
result obtained by multiplying the covered indemnity percentage,
as calculated below by the Company's "Loss Adjustment Expense"
for a given claim. The percentage shall be determined by dividing
the amount of Ultimate Net Loss indemnity for a coverage section
by the Company's total Ultimate Net Loss for a given claim.
F. "Net Ceded Premium" as used herein shall mean Gross Allocated Premium
to this Contract less 25%.
G. "Gross Allocated Premium" as used herein shall mean the written premium
by the Company allocated to this Contract in annual policies or
instalments on multi-year policies.
H. "Event" as used herein shall mean all original claims arising from an
Incident involving more than one insured under original policies An Event
will be deemed to have occurred at the date of the first occurrence for
original occurrence policies and the Claims First Made date if the
original policy is on a "claims made" basis (for claims made original
policies.
<PAGE> 6
ARTICLE VI: CLAIMS REPORTING AND CLAIMS LOSS SETTLEMENT
A. Within 60 days after the end of each calendar quarter, the
Company shall provide the Reinsurers with a claims bordereau
outlining any claim on which the Company has placed a reserve
value of $3,000,000 or more each loss or event. At each
anniversary the Company shall provide a bordereau outlining
all claims and reserves excess of $250,000 each loss or
$2,000,000 each event. Losses and adjustment expenses
recoverable by the Company are payable immediately after
receipt of proof of loss subject to the retention.
B. The Company shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Name of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. Claims Made date;
6. Loss Occurrence date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
11. Status
12. Narrative Loss Description of claims of $3,000,000 or more
each loss or Event as respects new claims and closed claims
during the quarter or as otherwise upon request of Reinsurers.
C. The Reinsurers shall have the right, at its own expense, to be associated
in the defense of any claim, suit or proceeding involving this
reinsurance.
D. The Company shall, at its full discretion, adjust and settle all claims
and losses. All such adjustments and settlements shall be binding on the
Reinsurers and the Reinsurers agree to pay all amounts for which they may
be liable immediately after receipt of reasonable evidence of the amount
paid by the Company.
ARTICLE VII: SALVAGE AND SUBROGATION
The Reinsurers shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company
<PAGE> 7
and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the Reinsurers, and to prosecute all claims arising out of such rights.
ARTICLE VIII: PREMIUM
The Company shall pay the Reinsurers a Minimum and Deposit Premium of $750,000
annually which shall be payable quarterly as follows:-
31st March, 30th June, 30th September and 31st December.
The Minimum Premium shall be adjusted upwards at 92% of the net ceded premium
within 45 days of 31st December.
ARTICLE IX: OFFSET
The Company and the Reinsurers shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time where the
balances are on account of premiums or losses or otherwise.
ARTICLE X: ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurers at all
reasonable time, and the Reinsurers shall have the right to inspect,
through authorized representatives, all books, records, policies,
endorsements and papers of the Company in connection with any reinsurance
hereunder, or claims in connection herewith.
B. The Reinsurers agree that they will not disclose any confidential
information obtained by them hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
1. When disclosure of such information is required in the normal
course of the Reinsurers' business; or
2. With the prior written consent of the Company; or
3. When the Reinsurers are required by a subpoena or court order to
disclose such information. The Reinsurers shall promptly notify
the Company of any attempt by a third party to obtain from them
any such confidential information.
C. The Reinsurers will provide the Company or its designated representative
with such information as the Reinsurers and Company may agree is
necessary to the Company's handling of the business reinsured herein.
D. The obligations contained in this Article shall survive termination of
this Contract.
ARTICLE XI: LIABILITY OF THE REINSURER
<PAGE> 8
A. The liability of the Reinsurers shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's
policies and any endorsements thereon. However, in no event shall this be
construed in any way to provide coverage outside the terms and conditions
set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurers in favor of any third party or any persons
not parties to this Contract.
ARTICLE XII: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or
reinsurance which the Company retains net for its own account (prior to
deduction of any underlying reinsurance), and in calculating the amount
of any loss hereunder and also in computing the amount or amounts in
excess of which this Contract 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 Reinsurers' 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 XIII: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery. In no event shall later notification of any claim by
the Company constitute a ground upon which the Reinsurers have been prejudiced
by such late notice. As used in this Article, the term "prejudiced" shall mean
that a different outcome in the handling of any claim would have resulted but
for the untimely notice to Reinsurers.
ARTICLE XIV: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XV: FEDERAL EXCISE TAX
If the Reinsurers are subject to the Federal Excise Tax, the Reinsurers agree to
allow, for the purpose of paying Tax, up to 1% of the premium payable hereon to
the extent such premium is subject to the Tax. In the event of any return
premium becoming due hereunder, the Reinsurers will deduct from the amount of
the return premium the same percentage as it allowed, and the Company or its
agents should take steps to recover the Tax from the U.S. Government.
ARTICLE XVI: UNAUTHORIZED REINSURERS
<PAGE> 9
A. If the Reinsurers are unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurers agree to fund their
share of the Company's outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves as determined by the Company,
respectively by:
1. Clean, irrevocable and unconditional letters of credit
issued and confirmed, if confirmation is required by the
insurance regulatory authorities involved, by a bank or banks
meeting the NAIC Securities Valuation Office credit standards
for issuers of letters of credit and acceptable to said
insurance regulatory authorities; and/or
2. Trust accounts in conformity with New York Regulation 114
for the benefit of the Company and as may be required by any
other insurance regulatory authority; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurers, at their sole option, may fund in
other than cash if their method and form of funding are acceptable to the
insurance regulatory authorities involved and the Company.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of
at least one year and will include an "evergreen clause" which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the
Company not less than 30 days prior to said expiration date. The Company
and the Reinsurers further agree, notwithstanding anything to the
contrary in this Contract, that said letters of credit may be drawn upon
by the Company or its successors in interest at any time, without
diminution because of the insolvency of the Company or the Reinsurers,
but only for one or more of the following purposes:
1. To reimburse itself for the Reinsurers' share of the paid
portion of Ultimate Net Loss and/or Pro rata Loss Adjustment
Expenses paid under the terms of policies reinsured hereunder,
unless paid in cash by the Reinsurers;
2. To fund a cash account in an amount equal to the Reinsurers'
share of any outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves funded by means of a
letter of credit which (a) is under non-renewal notice, if
said letter of credit has not been renewed or replaced by the
Reinsurers 10 days prior to its expiration date, or (b) the
Reinsurers have failed to increase to the amount requested by
the Company, it being understood and nothing in this Contract
in any way shall restrict or limit the rights of the Company
under the terms of the letter of credit;
3. To refund to the Reinsurers any sum in excess of the actual
amount required to fund the Reinsurers' share of the Company's
outstanding portion of Ultimate Net Loss and Pro rata Loss
Adjustment Expense reserves if so requested by the Reinsurers.
In the event the amount drawn by the Company on any letter of credit is
in excess of the actual amount required then the Company shall promptly
return to the Reinsurers the excess amount so drawn.
ARTICLE XVII: INSOLVENCY
A. In the event of the Insolvency of the Company, this reinsurance shall be
payable directly to the
<PAGE> 10
Company or to its liquidator, receiver, conservator or statutory
successor immediately upon demand, with reasonable provision for
verification, on the basis of the liability of the Company without
diminution because of the Insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company
has failed to pay all or a portion of any claim. It is agreed, however,
that the liquidator, receiver, conservator or statutory successor of
the Company shall give written notice to the Reinsurers of the pendency
of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the
Reinsurers within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurers may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless Reinsurers are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
Reinsurers shall be chargeable, subject to the approval of the Court,
against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by
the Reinsurers.
B. Where two or more of the Reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this
Contract as though such expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the Insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurers to the Company or to its liquidator, receiver
or statutory successor.
ARTICLE XVIII: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect
to this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to Arbitration. One Arbiter
shall be chosen by the Company, the other by the Reinsurers, and an
Umpire shall be chosen by the two Arbiters before they enter upon
Arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon Arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two
of whom the other shall decline, and the decision shall be made by
drawing lots. Nothing herein shall prevent either party from commencing
a proceeding in the United States District Court having jurisdiction
over the dispute for the purposes of having said court select an Umpire
pursuant to the Federal Arbitration Act 9 USC 1 (er seq).
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honourable engagement rather than merely
as a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. Judgment upon the final
written decision of the Arbiters may be entered in any court of
competent jurisdiction.
<PAGE> 11
C. If more than one of the Reinsurers is involved in the same dispute, all
such Reinsurers shall constitute and act as one party for purposes of
this Article and communications shall be made by the Company to each of
the reinsurers constituting one party, provided, however, that nothing
herein shall impair the rights of such Reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the Reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
Arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
Arbitration shall be equally divided between the two parties.
E. Any Arbitration proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
ARTICLE XVIIII: SERVICE OF SUIT
A. It is agreed that in the event of the failure of the Reinsurers hereon to
pay any amount claimed to be due hereunder, the Reinsurers hereon, at the
request of the Company, will submit to the jurisdiction of a court of
competent jurisdiction within the United States. The foregoing shall not
constitute a waiver of the right of the Reinsurers to commence any suit
in, or to remove, remand or transfer any suit to any other court of
competent jurisdiction in accordance with the applicable statutes of the
state or United States pertinent thereto.
B. It is further agreed that service of process in such suit may be made
upon Saiber Schlesinger Satz & Goldstein, One Gateway Center, Newark, NJ
07102-5311, United States of America, and that in any suit instituted
against any one of them upon this Contract, the Reinsurers will abide by
the final decision of such Court or of any Appellate Court in the event
of an appeal.
C. The above named are authorized and directed to accept service of process
on behalf of the Reinsurers in any 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 Reinsurers behalf in the event such suit
shall be instituted.
D. Further, pursuant to any statute of any state, territory or District of
the United States which makes provision therefor, the Reinsurers hereon
hereby designate the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purposes in the statute, or
his successor or successors in office, as their true and lawful attorney
upon whom may be served any lawful proceeding in any action, suit or
proceeding instituted by or on behalf of the Company or any beneficiary
hereunder arising out of this Contract, and hereby designate the above
named as the person to whom said officer is authorized to mail such
process or a true copy thereof.
ARTICLE XX: INTERMEDIARIES
Medical Brokers, Inc and JLT Risk Solutions are hereby recognized as the
Intermediaries negotiating this Contract for all business hereunder. All
communications (including but not limited to notices of: statements, premium,
return premium, commissions, taxes, losses, Loss Adjustment Expense, salvage and
loss settlements) relating thereto shall be transmitted to the Company or the
Reinsurers through JLT Risk Solutions. Payments by the Company to the
Intermediaries shall be deemed to constitute payment to the Reinsurers. Payments
by the Reinsurers to the Intermediaries
<PAGE> 12
shall be deemed to constitute payment to the Company only to the extent that
such payments are actually received by the Company.
Notwithstanding the above, the Company and Reinsurers hereby agree that all
payments will be direct from the Reinsurers to the Company, or from the Company
to the Reinsurers, as appropriate.
ARTICLE XXI: PROPERTY COVERAGE
The Company may incept at any time during the Contract Period, Property coverage
including Fire, Allied Lines and Extended Coverages, Inland Marine and
Commercial Multi-Peril coverages all when written in conjunction with other
coverages specified elsewhere within the Contract for limits for:-
$14,500,000 Ultimate Net loss plus pro-rata loss adjustment expenses as
respects each and every loss, each original policy
<PAGE> 13
Excess of:-
$ 500,000 Ultimate Net loss plus pro-rata loss adjustment expenses as
respect each and every loss, each original policy
Coverage shall be subject to the following exclusions and conditions:-
1) Earthquake coverages
2) Seepage and Pollution
3) Within 60 days after the end of each quarter the Company shall provide
Reinsurers with a claims bordereaux outlining any claim on which the
Company has placed a reserve value of more than $300,000.
Losses and adjustment expenses are recoverable by the Company immediately
after receipt of proof of loss subject to the retention applicable
herein.
4) Within 60 days after the end of the quarter that any coverage attaches
the Company shall provide the Reinsurers with a Premium bordereaux
outlining the premium applicable to the original policy and also the
premium applicable to reinsurance.
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - U.S.A
1. This Agreement does not cover any loss or liability accruing to the
Cedent 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 all purposes of this Agreement
all the original policies of the Cedent (new, renewal and replacement) of
the classes specified in Clause II of this paragraph (2) from the time
specified in Clause III of 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, to (injury, sickness, disease, death or
destruction (bodily injury or property damage
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.
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
<PAGE> 14
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 Cedent on New York risks, until 90 days
following approval of the Limited Exclusion Provision
by the Governmental Authority having 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 Agreement the original liability policies of the
Cedent (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:
Under an 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 States of America, or any
agency thereof, with any person or organization.
I. Under any Medical Payments Coverage, or under any Supplementary Payment
Provision relating to
(immediate medical or surgical relief,
(first aid,
<PAGE> 15
to expenses incurred with respect to
(bodily injury, sickness, disease or death
(bodily injury
resulting from the hazardous properties of nuclear material
and arising out of the operation of a nuclear facility by any
person or organization.
<PAGE> 16
II. Under any liability Coverage, to
(injury, sickness, disease, death or destruction (bodily injury or
property damage resulting from the hazardous properties or 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 or by or on behalf of an insured; or
(c) (the injury, sickness, disease, death or destruction (the
bodily injury or property damage arises out of the furnishing by an
insured of services, 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 to (injury to or destruction of property at
such nuclear facility. (property damage to such nuclear facility and
any property thereat.
III. 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 to 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 and (2)
resulting from the operation by any person or organization of any
nuclear facility included within the definition of nuclear facility
under paragraph (a) or (b) thereof; "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.
<PAGE> 17
(includes all forms of radioactive contamination of property.
IV. 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 Cedent
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 anyway 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 Cedent in
Canada and that with respect of 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 and in
the Broad Exclusion provision apply only in relation to original
liability policies which include a Limited Exclusion provision or a
Broad Exclusion Provision containing these words.
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
1. This Contract does not cover any loss or liability accruing to the
Company 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 was restricting the operation of paragraph 1 of this
Clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Company, whether new, renewal or
replacement, of the following classes, namely,
Personal Liability,
Farmers Liability,
Storekeepers Liability,
Which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision:
Limited Exclusion Provision
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of
nuclear energy liability insurance (whether the insured is named in
such contract or not and whether or not it is legally enforceable by
the Insured) issued by the Nuclear Insurance Association of Canada or
any other group or pool of insurers or would be an Insured under any
such policy but for its termination upon exhaustion of its limit of
liability.
With respect to property, loss of use of such property shall be deemed
to be property damage.
<PAGE> 18
3. Without in any way restricting the operation of paragraph 1 of this
Clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Company, whether new, renewal or
replacement, of any class whatsoever (other than Personal Liability,
Farmers Liability, Storekeepers Liability or Automobile Liability
contracts), which become effective on or after 31st December 1984,
shall be deemed to include, from their inception dates and thereafter,
the following provision:-
Broad Exclusion Provision
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act; or
(b) to bodily injury or property damage with respect to which an
Insured under this Policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
named in such contract or not and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for
its termination upon exhaustion of its limit of liability; or
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(1) the ownership, maintenance, operation or use of a
nuclear facility by or on behalf if an Insured;
(2) the furnishing by an Insured of services,
materials, parts or equipment in connection with the
planning, construction, maintenance, operation or use
of any nuclear facility; and
(3) the possession, consumption, use, handling,
disposal or transportation of fissionable substances
or of other radioactive material (except radioactive
isotopes away from a nuclear facility, which have
reached the final stage of fabrication so as to be
usable for any scientific, medical, agricultural,
commercial or industrial purpose) used, distributed,
handled or sold by an Insured.
As used in this Policy:
(I) the term "nuclear energy hazard" means the radioactive, toxic,
explosive or other hazardous properties of radioactive
material;
(II) the term "radioactive material" means uranium, thorium,
plutonium, neptunium, their respective derivatives and
compounds, radioactive isotopes of other element and any other
substances that the Atomic Energy Control Board may, by
regulation, designate as being prescribed substances capable
of releasing atomic energy, or as being requisite for the
production, use or application of atomic energy;
(III) The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear
fission in a self-supporting chain reaction or to
contain a critical mass of plutonium, thorium and
uranium or any one or more of them;
(b) any equipment or device designed or used for (i)
separating the
<PAGE> 19
isotopes of plutonium, thorium and uranium or any one
or more of them, (ii) processing or utilizing spent
fuel, or (iii) handling, processing or packaging
waste;
(c) any equipment or device used for the processing,
fabricating or alloying of plutonium, thorium or
uranium enriched in the isotope uranium 233 or in the
isotope uranium 235, or any one or more of them 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 radioactive material; and includes the site on
which any of the foregoing is located, together with
all operations conducted thereon and all premises
used for such operations,
(IV) the term "fissionable substance" means any prescribed substance that
is, or from which can be obtained, a substance capable of releasing
atomic energy by nuclear fission.
(V) With respect to property, loss of use of such property shall be deemed
to be property damage.
<PAGE> 20
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905081
REINSURANCE
POLICY
THE COMPANY IS REQUESTED TO READ THIS POLICY CAREFULLY. IF IT IS BELIEVED TO BE
INCORRECT THE POLICY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<PAGE> 21
----------------------------------------------------------
HANNOVER RUCKVERSICHERUNGS-AKTIENGESELLSCHAFT POLICY
THE COMPANY IS REQUESTED TO READ THIS POLICY CAREFULLY. IF IT IS BELIEVED TO BE
INCORRECT THE POLICY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION, TO THE
PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS POLICY .
-------------------------------------------------------------
IN CONSIDERATION of the Company named in the Schedule having paid the premium
specified in the said Schedule to Hannover Ruckversicherungs-Aktiengesellschaft,
(hereinafter referred to as "Reinsurers"), whose duly authorised representative
has hereunto subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Company against loss as more fully set
forth in this Policy and the attachments hereto during the Period of Reinsurance
stated in the said Schedule, or during any subsequent period as may be mutually
agreed upon between the Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Policy shall not
exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If Reinsurers shall make any claim under this Policy with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Policy shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF I, being a representative of Reinsurers and duly authorised by
the said Reinsurers to sign this Policy on their behalf, have hereunto
subscribed my name.
Dated this 29th day of September, One Thousand Nine Hundred and Ninety-Nine.
/s/ Hartmut Gradtke
<PAGE> 22
Policy Number: 901/LK9905081 Reinsurers reference:
THE SCHEDULE
COMPANY: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey, United
States of America.
PERIOD OF REINSURANCE: Effective 1st January, 1999 covering on a risks
attaching basis for Business Covered and continuous
thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached Policy
This Policy reinsures 4% part of the 92% of the Limit of Liability expressed in
the attached wording.
INTEREST: All as more fully set forth in the attached Policy
PREMIUM: US$30,000 (being 4% of Minimum and Deposit Premium of
US$750,000) annual, payable quarterly on 31st March,
30th June, 30th September and 31st December.
- --------------------------------------------------------------------------------
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligation 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.
<PAGE> 23
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905081
REINSURANCE
POLICY
THE COMPANY IS REQUESTED TO READ THIS POLICY CAREFULLY. IF IT IS BELIEVED TO BE
INCORRECT THE POLICY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<PAGE> 24
-------------------------------------------------------------
SWISS REINSURANCE COMPANY POLICY
THE COMPANY IS REQUESTED TO READ THIS POLICY CAREFULLY. IF IT IS BELIEVED TO BE
INCORRECT THE POLICY SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION, TO THE
PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS POLICY .
-------------------------------------------------------------
IN CONSIDERATION of the Company named in the Schedule having paid the premium
specified in the said Schedule to Swiss Reinsurance Company, (hereinafter
referred to as "Reinsurers"), whose duly authorised representative has hereunto
subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Company against loss as more fully set
forth in this Policy and the attachments hereto during the Period of Reinsurance
stated in the said Schedule, or during any subsequent period as may be mutually
agreed upon between the Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Policy shall not
exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If Reinsurers shall make any claim under this Policy with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Policy shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF I, being a representative of Reinsurers and duly authorised by
the said Reinsurers to sign this Policy on their behalf, have hereunto
subscribed my name.
Dated this 29th day of September, One Thousand Nine Hundred and Ninety-Nine.
/s/ Werner Schlapfer
<PAGE> 25
Policy Number: 901/LK9905081 Reinsurers reference:
THE SCHEDULE
COMPANY: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey, United
States of America.
PERIOD OF REINSURANCE: Effective 1st January, 1999 covering on a risks
attaching basis for Business Covered and continuous
thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached Policy
This Policy reinsures 60% part of the 92% of the Limit of Liability expressed in
the attached wording.
INTEREST: All as more fully set forth in the attached Policy
PREMIUM: US$450,000 (being 60% of Minimum and Deposit Premium
of US$750,000) annual, payable quarterly on 31st
March, 30th June, 30th September and 31st December.
- --------------------------------------------------------------------------------
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligation 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.
<PAGE> 1
Exhibit 10.39
EXCESS CESSION AND EVENT
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1999
BETWEEN
MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
LAWRENCEVILLE, NEW JERSEY
(HEREINAFTER REFERRED TO AS THE "COMPANY")
AND
THE REINSURERS SUBSCRIBING THE RESPECTIVE
INTERESTS AND LIABILITIES AGREEMENTS HERETO
(HEREINAFTER REFERRED TO AS THE "REINSURERS")
ARTICLE I: BUSINESS REINSURED
A. By this Contract, the Reinsurers agree to reinsure the liability which
may accrue to the Company under all of its original policies,
contracts, binders and certificates of insurance or reinsurance
(hereinafter collectively referred to as "original policies")
classified by the Company as:
All business underwritten by New Jersey State Medical Underwriters, Inc.
and classified by the Company as Medical and Dental Practitioner
Professional Liability, Umbrella Liability, Hospital and Other Health Care
Institution Professional Liability and Commercial General Liability
Business, Directors and Officers Liability, Fiduciary Liability, Managed
Care Errors and Omissions Liability, Employment Practice Liability,
Miscellaneous Professional Indemnity (including but not limited to, Lawyers
Professional, Notary Public and Electronic Data Processors - coverage
subject to agreement by Reinsurers) unless otherwise excluded under Article
III: Exclusions, issued or renewed on or after the effective date, subject
to the terms, conditions and limitations hereinafter set forth.
Retroactive dates hereon shall be the same as any retroactive dates
contained in the original policies.
B. It is understood that this Contract applies to losses first occurring
during the original policy period under occurrence policies and Claims
First Made during the original period for claims made policies in
respect of risks attaching during the term of the Contract all
following the underlying terms and conditions.
Permanent Protection Plan policies underwritten by the Company shall in all
cases be deemed to be original policies covering on a losses occurring
during basis. Reinsurers shall be subject to all of the conditions of the
Permanent Protection Plan original policies and all other original policies
including policy limits and aggregate limit formulas under any extended
reporting coverage therein.
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C. It is understood that this contract applies only to original policies with
limits in excess of the company's retention.
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ARTICLE II: COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1999 and
shall continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by
giving the other party not less than 90 days prior written
notice.
C. Reinsurers shall remain liable in respect to original policies issued or
renewed during the term their contract is in force on the basis of the
original coverage. Reinsurers shall receive their share of premiums for
such respective original policies and there shall be no return of
unearned premiums in respect thereto.
D This Contract shall apply to original policies underwritten by the
Company and incepting during the term of this Contract subject to a
maximum period any one policy not to exceed 36 months plus odd time.
E. In respect of multi-year original policies attaching to this Contract
then reinsurance coverage for the full policy period shall be provided by
those Reinsurers to whom the original net ceded premium has been
allocated to regardless of any termination of the Contract.
ARTICLE III: EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed, except reinsurance assumed from American Medical
Mutual, Inc., A Risk Retention Group, Lawrenceville Property and Casualty
Co., Inc., Lawrenceville Re. Ltd., and MIIX Insurance Company of New York,
where the underwriting is through New Jersey State Medical Underwriters,
Inc.
In addition this exclusion shall not apply to assumed reinsurance underwritten
by the Company for captives or other insurance facilities of hospitals and all
other health care institutions where the Underwriting is through New Jersey
State Medical Underwriters, Inc.
2. Claims emanating from policies issued by the Company with effective dates
after the termination date of this Contract.
3. Financial Guaranty and Insolvency Business.
4. 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, however 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 or 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.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability. Reinsurance U.S.A. and Canada" except for incidents arising from
nuclear medicine, attached to and
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forming part of this Contract.
6. Any business derived from participation in any Pool, Association or
Syndicate.
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ARTICLE IV: RETENTION AND LIMITS
A. Retention:
The Company shall retain and be liable for the first $10,000,000 of
Ultimate Net Loss as respects:
i) each original policy; or, where applicable
ii) each and every Event.
B. Limit Excess of Retention:
i) In respect of Medical and Dental Practitioner Liability,
Umbrella Liability, Hospital and other Healthcare Institution
Professional Liability and Commercial Liability Business:
Reinsurers shall be liable for 92% of $65,000,000 of Ultimate
Net Loss as respects each original policy, or, where
applicable, each and every Event, plus Pro rata Loss
Adjustment Expenses.
ii) In respect of Directors and Officers Liability, Fiduciary
Liability, Managed Care Errors and Omissions Liability,
Employment Practice Liability, and Miscellaneous Professional
Indemnity (including but not limited to Lawyers Professional,
Notary Public and Electronic Data Processors Business
--coverage subject to agreement by Reinsurers):
Reinsurers shall be liable for 92% of $15,000,000 of Ultimate
Net Loss as respects each original policy, or, where
applicable, each and every Event, plus Pro rata Loss
Adjustment Expenses.
ARTICLE V: DEFINITIONS
A. "Ultimate Net Loss" as used herein is defined as the sum or sums
(including Loss in Excess of Policy Limits, Extra Contractual
Obligations, as hereinafter defined) paid or payable by the Company in
settlement of claims including any and all vicarious liability arising
from BUSINESS REINSURED and in satisfaction of judgments rendered on
account of such claims, after deduction of all salvage, all recoveries,
including the Pennsylvania catastrophe fund, if applicable, and all
claims in inuring insurance or reinsurance, whether collectible or not.
Ultimate Net Loss shall not include any Loss Adjustment Expense.
Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the Company's Ultimate Net Loss has
been ascertained. Ultimate Net Loss shall be calculated on a per claim,
per policy per insured basis or, where applicable, on a per Event
basis. If the Company issues multiple policies to an insured, the
policies will be deemed to be one original policy for purposes of
coverage under this Reinsurance Contract.
B. "Loss in Excess of Policy Limits" and "Extra Contractual Obligations" as
used herein shall be defined as follows:
1. "Loss in Excess of Policy Limits" as used herein shall mean
any amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its policy,
as a result of a settlement by the Company or an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third
party claimant because of the Company's alleged or actual
negligence, breach of contract or bad faith in rejecting a
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settlement within policy limits, or in discharging its duty to
defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action. A Loss in
Excess of Policy Limits shall be deemed to have occurred on
the same date as the loss covered or alleged to be covered
under the policy.
2. "Extra Contractual Obligations" as used herein shall mean any
punitive, exemplary, compensatory, multiplied or consequential
damages, other than Loss in Excess of Policy Limits paid or
payable by the Company as a result of an action against it by
its insured, its insured's assignee or a third party claimant,
which action alleges negligence, breach of contract or bad
faith on the part of the Company in handling a claim under a
policy subject to this Contract. An Extra Contractual
Obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall not apply
to any Loss in Excess of Policy Limits or Extra Contractual Obligation
incurred by the Company as a result of any fraudulent and/or criminal
act or any officer or director 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 if any claim covered hereunder.
C. "Incident" as used herein shall mean a single loss occurrence, or
otherwise a series of accidents, acts, errors or omissions including
continuous or repeated exposure to substantially the same general harmful
conditions giving rise to coverage, all as defined and provided within
the original policies underwritten by the Company.
D. "Claims First Made" as used herein shall mean claims reported under
claims made original policies on the earlier date of (1) or (2) below:
1. When the insured first gives notice to the Company that a
claim has been made against the insured; or
2. When the insured first gives notice to the Company of an
Incident involving a particular person which may result in a
claim against the original insured.
Notwithstanding the above, and in all cases, the Claims First Made date shall be
as defined and provided within the underlying policies underwritten by the
Company.
E. 1. "Loss Adjustment Expense" as used herein shall mean expenses
allocable to the investigation defense and/or settlement of
specific claims, including litigation expenses and
postjudgment interest and legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto, but not including office expenses or salaries of the
Company's regular employees.
2. "Pro rata Loss Adjustment Expenses" as used herein shall mean
the result obtained by multiplying the covered indemnity
percentage, as calculated below by the Company's "Loss
Adjustment Expense" for a given claim. The percentage shall be
determined by dividing the amount of Ultimate Net Loss
indemnity for a coverage section by the Company's total
Ultimate Net Loss for a given claim.
F. "Net Ceded Premium" as used herein shall mean Gross Allocated Premium
to this Contract less 25%.
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G. "Gross Allocated Premium" as used herein shall mean the written premium
by the Company allocated to this Contract in annual policies or
instalments on multi-year policies.
H. "Event" as used herein shall mean all original claims arising from an
Incident involving more than one insured under original policies An
Event will be deemed to have occurred at the date of the first
occurrence for original occurrence policies and the Claims First Made
date if the original policy is on a "claims made" basis (for claims
made original policies.
ARTICLE VI: CLAIMS REPORTING AND CLAIMS LOSS SETTLEMENT
A. Within 60 days after the end of each calendar quarter, the
Company shall provide the Reinsurers with a claims bordereau
outlining any claim on which the Company has placed a reserve
value of $3,000,000 or more each loss or event. At each
anniversary the Company shall provide a bordereau outlining
all claims and reserves excess of $250,000 each loss or
$2,000,000 each event. Losses and adjustment expenses
recoverable by the Company are payable immediately after
receipt of proof of loss subject to the retention.
B. The Company shall include with each claim bordereau, the following
information as respects new claims, pending claims and closed claims
during the quarter:
1. Claim number or reference number;
2. Name of Insured;
3. Name of Claimant;
4. Subject policy limit;
5. Claims Made date;
6. Loss Occurrence date;
7. Indemnity (paid and outstanding);
8. Expenses (paid and outstanding);
9. Indemnity recovery; if any;
10. Expense recovery; if any;
11. Status
12. Narrative Loss Description of claims of $3,000,000 or more
each loss or Event as respects new claims and closed claims
during the quarter or as otherwise upon request of Reinsurers.
C. The Reinsurers shall have the right, at its own expense, to be
associated in the defense of any claim, suit or proceeding involving
this reinsurance.
D. The Company shall, at its full discretion, adjust and settle all claims
and losses. All such adjustments and settlements shall be binding on
the Reinsurers and the Reinsurers agree to pay all amounts for which
they may be liable immediately after receipt of reasonable evidence of
the amount paid by the Company.
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ARTICLE VII: SALVAGE AND SUBROGATION
The Reinsurers shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the Reinsurers, and to prosecute all claims arising out of such rights.
ARTICLE VIII: PREMIUM
The Company shall pay the Reinsurers a Minimum and Deposit Premium of $750,000
annually which shall be payable quarterly as follows:-
31st March, 30th June, 30th September and 31st December.
The Minimum Premium shall be adjusted upwards at 92% of the net ceded premium
within 45 days of 31st December.
ARTICLE IX: OFFSET AND SECURITY
(a) Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of premiums or losses or
otherwise, due from such party to another party under this Agreement or
any other reinsurance agreement heretofore or hereafter entered into
between them, against any amounts, whether on account of premiums or
losses or otherwise due from the latter party to the former party. The
party asserting the right of offset may exercise this right, whether as
assuming or ceding insurer or in both roles in the relevant agreement or
agreements.
(b) Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement to
receive premium or loss payments at any time from such other party
("Collateral"), to secure its premium or loss obligations to such other
party at any time under this Agreement and any other reinsurance
agreement heretofore or hereinafter entered into by and between them
("Secured Obligations"). If at any time a party is in default under any
Secured Obligation or shall be subject to any liquidation,
rehabilitation, reorganization or conservation proceeding, each other
party shall be entitled in its discretion, to apply, or to withhold for
the purpose of applying in due course, any Collateral assigned and
pledged to it by the former party and otherwise to realize upon such
Collateral as security for such Secured Obligations.
(c) The security interest described herein, and the term "Collateral," shall
apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall be
deemed evidenced only by the counterpart of this Agreement delivered to
such party.
(d) Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled
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thereto, and no waiver, delay, or failure to exercise, in respect of any
right, shall constitute a waiver of any other right. The provisions of
this Article shall survive any cancellation or other termination of this
Agreement.
(e) In the event of the insolvency of a party hereto, offsets shall only be
allowed in accordance with The laws of the insolvent party's state of
domicile.
ARTICLE X: ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurers at all
reasonable time, and the Reinsurers shall have the right to
inspect, through authorized representatives, all books, records,
policies, endorsements and papers of the Company in connection
with any reinsurance hereunder, or claims in connection herewith.
B. The Reinsurers agree that they will not disclose any confidential
information obtained by them hereunder to parties not subject to this
Contract except under the following circumstances and then only when
necessary:
1. When disclosure of such information is required in the normal
course of the Reinsurers' business; or
2. With the prior written consent of the Company; or
3. When the Reinsurers are required by a subpoena or court order to
disclose such information. The Reinsurers shall promptly notify
the Company of any attempt by a third party to obtain from them
any such confidential information.
C. The Reinsurers will provide the Company or its designated representative
with such information as the Reinsurers and Company may agree is
necessary to the Company's handling of the business reinsured herein.
D. The obligations contained in this Article shall survive termination of
this Contract.
ARTICLE XI: LIABILITY OF THE REINSURER
A. The liability of the Reinsurers shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's
policies and any endorsements thereon. However, in no event shall this be
construed in any way to provide coverage outside the terms and conditions
set forth in this Contract.
B. Nothing herein shall in any manner create any obligation or establish any
rights against the Reinsurers in favor of any third party or any persons
not parties to this Contract.
ARTICLE XII: NET RETAINED LIABILITY
A. This Contract applies only to that portion of any insurance or
reinsurance which the Company retains net for its own account (prior to
deduction of any underlying reinsurance), and in calculating the amount
of any loss hereunder and also in computing the amount or amounts in
excess of which this Contract attaches only loss or losses in respect of
that portion of any
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policy which the Company retains net for its own account shall be
included.
B. The amount of the Reinsurers' 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.
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ARTICLE XIII: DELAYS, ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connections with this Contract
or any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery. In no event shall later notification of any claim by
the Company constitute a ground upon which the Reinsurers have been prejudiced
by such late notice. As used in this Article, the term "prejudiced" shall mean
that a different outcome in the handling of any claim would have resulted but
for the untimely notice to Reinsurers.
ARTICLE XIV: CURRENCY
Whenever the word "Dollars" or the "$" appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.
ARTICLE XV: FEDERAL EXCISE TAX
If the Reinsurers are subject to the Federal Excise Tax, the Reinsurers agree to
allow, for the purpose of paying Tax, up to 1% of the premium payable hereon to
the extent such premium is subject to the Tax. In the event of any return
premium becoming due hereunder, the Reinsurers will deduct from the amount of
the return premium the same percentage as it allowed, and the Company or its
agents should take steps to recover the Tax from the U.S.
Government.
ARTICLE XVI: UNAUTHORIZED REINSURERS
A. If the Reinsurers are unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurers agree to fund their
share of the Company's outstanding portion of Ultimate Net Loss and Pro
rata Loss Adjustment Expense reserves as determined by the Company,
respectively by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC
Securities Valuation Office credit standards for issuers of
letters of credit and acceptable to said insurance regulatory
authorities; and/or
2. Trust accounts in conformity with New York Regulation 114 for the
benefit of the Company and as may be required by any other
insurance regulatory authority; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurers, at their sole option, may fund in
other than cash if their method and form of funding are acceptable to the
insurance regulatory authorities involved and the Company.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued
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for a term of at least one year and will include an "evergreen clause"
which automatically extends the term for at least one additional year at
each expiration date unless written notice of non-renewal is given to the
Company not less than 30 days prior to said expiration date. The Company
and the Reinsurers further agree, notwithstanding anything to the
contrary in this Contract, that said letters of credit may be drawn upon
by the Company or its successors in interest at any time, without
diminution because of the insolvency of the Company or the Reinsurers,
but only for one or more of the following purposes:
1. To reimburse itself for the Reinsurers' share of the paid portion
of Ultimate Net Loss and/or Pro rata Loss Adjustment Expenses paid
under the terms of policies reinsured hereunder, unless paid in
cash by the Reinsurers;
2. To fund a cash account in an amount equal to the Reinsurers' share
of any outstanding portion of Ultimate Net Loss and Pro rata Loss
Adjustment Expense reserves funded by means of a letter of credit
which (a) is under non-renewal notice, if said letter of credit
has not been renewed or replaced by the Reinsurers 10 days prior
to its expiration date, or (b) the Reinsurers have failed to
increase to the amount requested by the Company, it being
understood and nothing in this Contract in any way shall restrict
or limit the rights of the Company under the terms of the letter
of credit;
3. To refund to the Reinsurers any sum in excess of the actual amount
required to fund the Reinsurers' share of the Company's
outstanding portion of Ultimate Net Loss and Pro rata Loss
Adjustment Expense reserves if so requested by the Reinsurers.
4. In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required then the Company
shall promptly return to the Reinsurers the excess amount so
drawn.
ARTICLE XVII: INSOLVENCY
A. In the event of the Insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the Insolvency of the Company
or because the liquidator, receiver, conservator or statutory successor
of the Company has failed to pay all or a portion of any claim. It is
agreed, however, that the liquidator, receiver, conservator or statutory
successor of the Company shall give written notice to the Reinsurers of
the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of
the Reinsurers within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurers may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or
statutory successor. Accidental failure to give such notice shall not
excuse the obligation unless Reinsurers are substantially prejudiced by
the failure to give such notice. The expense thus incurred by the
Reinsurers shall be chargeable, subject to the approval of the Court,
against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurers.
B. Where two or more of the Reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this
Contract as though such expense had been incurred by the Company.
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C. It is further understood and agreed that, in the event of the Insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurers to the Company or to its liquidator, receiver
or statutory successor.
ARTICLE XVIII: ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect to
this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to Arbitration. One Arbiter
shall be chosen by the Company, the other by the Reinsurers, and an
Umpire shall be chosen by the two Arbiters before they enter upon
Arbitration, all of whom shall be active or retired disinterested
executive officers of insurance or reinsurance companies. In the event
that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon Arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two of
whom the other shall decline, and the decision shall be made by drawing
lots. Nothing herein shall prevent either party from commencing a
proceeding in the United States District Court having jurisdiction over
the dispute for the purposes of having said court select an Umpire
pursuant to the Federal Arbitration Act 9 USC 1 (er seq).
B. Each party shall present its case to the Arbiters within 30 days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honourable engagement rather than merely as
a legal obligation and they are relieved of all judicial formalities and
may abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to
agree, they shall call in the Umpire and the decision of the majority
shall be final and binding upon both parties. Judgment upon the final
written decision of the Arbiters may be entered in any court of competent
jurisdiction.
C. If more than one of the Reinsurers is involved in the same dispute, all
such Reinsurers shall constitute and act as one party for purposes of
this Article and communications shall be made by the Company to each of
the reinsurers constituting one party, provided, however, that nothing
herein shall impair the rights of such Reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the Reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
Arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
Arbitration shall be equally divided between the two parties.
E. Any Arbitration proceedings shall take place at a location in
Lawrenceville, New Jersey. All proceedings pursuant hereto shall be
governed by the law of the State of New Jersey.
ARTICLE XVIIII: SERVICE OF SUIT
(Applicable if the Reinsurer is not domiciled in the United States of America
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
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A. It is agreed that in the event of the failure of the Reinsurers hereon to
pay any amount claimed to be due hereunder, the Reinsurers hereon, at the
request of the Company, will submit to the jurisdiction of a court of
competent jurisdiction within the United States. The foregoing shall not
constitute a waiver of the right of the Reinsurers to commence any suit
in, or to remove, remand or transfer any suit to any other court of
competent jurisdiction in accordance with the applicable statutes of the
state or United States pertinent thereto.
B. It is further agreed that service of process in such suit may be made
upon Saiber Schlesinger Satz & Goldstein, One Gateway Center, Newark, NJ
07102-5311, United States of America, and that in any suit instituted
against any one of them upon this Contract, the Reinsurers will abide by
the final decision of such Court or of any Appellate Court in the event
of an appeal.
C. The above named are authorized and directed to accept service of process
on behalf of the Reinsurers in any 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 Reinsurers behalf in the event such suit
shall be instituted.
D. Further, pursuant to any statute of any state, territory or District of
the United States which makes provision therefor, the Reinsurers hereon
hereby designate the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purposes in the statute, or
his successor or successors in office, as their true and lawful attorney
upon whom may be served any lawful proceeding in any action, suit or
proceeding instituted by or on behalf of the Company or any beneficiary
hereunder arising out of this Contract, and hereby designate the above
named as the person to whom said officer is authorized to mail such
process or a true copy thereof.
ARTICLE XX: INTERMEDIARIES
Medical Brokers, Inc and JLT Risk Solutions are hereby recognized as the
Intermediaries negotiating this Contract for all business hereunder. All
communications (including but not limited to notices of: statements, premium,
return premium, commissions, taxes, losses, Loss Adjustment Expense, salvage and
loss settlements) relating thereto shall be transmitted to the Company or the
Reinsurers through JLT Risk Solutions. Payments by the Company to the
Intermediaries shall be deemed to constitute payment to the Reinsurers. Payments
by the Reinsurers to the Intermediaries shall be deemed to constitute payment to
the Company only to the extent that such payments are actually received by the
Company.
Notwithstanding the above, the Company and Reinsurers hereby agree that all
payments will be direct from the Reinsurers to the Company, or from the Company
to the Reinsurers, as appropriate.
ARTICLE XXI: PROPERTY COVERAGE
The Company may incept at any time during the Contract Period, Property coverage
including Fire, Allied Lines and Extended Coverages, Inland Marine and
Commercial Multi-Peril coverages all when written in conjunction with other
coverages specified elsewhere within the Contract for limits for:-
$14,500,000 Ultimate Net loss plus pro-rata loss adjustment expenses as
respects each and every loss, each original policy
<PAGE> 15
Excess of:-
$ 500,000 Ultimate Net loss plus pro-rata loss adjustment expenses as
respect each and every loss, each original policy
Coverage shall be subject to the following exclusions and conditions:-
1) Earthquake coverages
2) Seepage and Pollution
3) Within 60 days after the end of each quarter the Company shall provide
Reinsurers with a claims bordereaux outlining any claim on which the
Company has placed a reserve value of more than $300,000.
Losses and adjustment expenses are recoverable by the Company
immediately after receipt of proof of loss subject to the retention
applicable herein.
4) Within 60 days after the end of the quarter that any coverage attaches
the Company shall provide the Reinsurers with a Premium bordereaux
outlining the premium applicable to the original policy and also the
premium applicable to reinsurance.
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - U.S.A
1. This Agreement does not cover any loss or liability accruing to the
Cedent 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 all purposes of this Agreement
all the original policies of the Cedent (new, renewal and replacement) of
the classes specified in Clause II of this paragraph (2) from the time
specified in Clause III of 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, to (injury, sickness, disease, death or destruction
(bodily injury or property damage 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.
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.
<PAGE> 16
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 Cedent on New
York risks, until 90 days following approval of the Limited
Exclusion Provision by the Governmental Authority having
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
Agreement the original liability policies of the Cedent (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:
I. Under an 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 States of America, or any agency
thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payment Provision relating to (immediate medical or surgical
relief, (first aid, to expenses incurred with respect to
<PAGE> 17
(bodily injury, sickness, disease or death (bodily injury
resulting from the hazardous properties of nuclear material and
arising out of the operation of a nuclear facility by any person
or organization.
III. Under any liability Coverage, to (injury, sickness, disease, death
or destruction (bodily injury or property damage resulting from
the hazardous properties or 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 or by or on behalf of an insured;
or
(c) (the injury, sickness, disease, death or destruction (the
bodily injury or property damage arises out of the
furnishing by an insured of services, 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 to (injury to or destruction of
property at such nuclear facility. (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 to 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 and (2) resulting from the operation by any person or
organization of any nuclear facility included within the
definition of nuclear facility under paragraph (a) or (b) thereof;
"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,
<PAGE> 18
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 Cedent 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 anyway 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 Cedent in Canada and
that with respect of 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 and in
the Broad Exclusion provision apply only in relation to original
liability policies which include a Limited Exclusion provision or a Broad
Exclusion Provision containing these words.
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
1. This Contract does not cover any loss or liability accruing to the
Company 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 was restricting the operation of paragraph 1 of this
Clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Company, whether new, renewal or
replacement, of the following classes, namely,
Personal Liability,
Farmers Liability,
Storekeepers Liability,
Which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision:
Limited Exclusion Provision
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of nuclear
energy liability insurance (whether the
<PAGE> 19
insured is named in such contract or not and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance Association
of Canada or any other group or pool of insurers or would be an Insured
under any such policy but for its termination upon exhaustion of its
limit of liability.
With respect to property, loss of use of such property shall be deemed to
be property damage.
3. Without in any way restricting the operation of paragraph 1 of this
Clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Company, whether new, renewal or
replacement, of any class whatsoever (other than Personal Liability,
Farmers Liability, Storekeepers Liability or Automobile Liability
contracts), which become effective on or after 31st December 1984, shall
be deemed to include, from their inception dates and thereafter, the
following provision:-
Broad Exclusion Provision
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act; or
<PAGE> 20
(b) to bodily injury or property damage with respect to which an
Insured under this Policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is named
in such contract or not and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(1) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf if an Insured;
(2) the furnishing by an Insured of services, materials, parts
or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility; and
(3) the possession, consumption, use, handling, disposal or
transportation of fissionable substances or of other
radioactive material (except radioactive isotopes away from
a nuclear facility, which have reached the final stage of
fabrication so as to be usable for any scientific, medical,
agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
As used in this Policy:
(I) the term "nuclear energy hazard" means the radioactive, toxic,
explosive or other hazardous properties of radioactive material;
(II) the term "radioactive material" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive
isotopes of other element and any other substances that the Atomic
Energy Control Board may, by regulation, designate as being
prescribed substances capable of releasing atomic energy, or as
being requisite for the production, use or application of atomic
energy;
(III) The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission
in a self-supporting chain reaction or to contain a
critical mass of plutonium, thorium and uranium or any one
or more of them;
(b) any equipment or device designed or used for (i) separating
the isotopes of plutonium, thorium and uranium or any one
or more of them, (ii) processing or utilizing spent fuel,
or (iii) handling, processing or packaging waste;
(c) any equipment or device used for the processing,
fabricating or alloying of plutonium, thorium or uranium
enriched in the isotope uranium 233 or in the isotope
uranium 235, or any one or more of them 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;
<PAGE> 21
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste
radioactive material; and includes the site on which any of
the foregoing is located, together with all operations
conducted thereon and all premises used for such
operations,
(IV) the term "fissionable substance" means any prescribed substance
that is, or from which can be obtained, a substance capable of
releasing atomic energy by nuclear fission.
(V) With respect to property, loss of use of such property shall be
deemed to be property damage.
<PAGE> 22
IN ALL COMMUNICATIONS PLEASE QUOTE
THE FOLLOWING REFERENCE
901/LK9905081
REINSURANCE
AGREEMENT
THE COMPANY IS REQUESTED TO READ THIS AGREEMENT CAREFULLY.
IF IT IS BELIEVED TO BE INCORRECT THE AGREEMENT SHOULD BE
IMMEDIATELY RETURNED, WITH AN EXPLANATION TO:
JLT Risk Solutions Limited
6 Crutched Friars,
London,
EC3N 2PH.
<PAGE> 23
- --------------------------------------------------------------------------------
AMERICAN RE-INSURANCE COMPANY
THIS AGREEMENT made and entered into by and between the MEDICAL INTER-INSURANCE
EXCHANGE OF NEW JERSEY (hereinafter referred to as the "Company") and the
AMERICAN RE-INSURANCE COMPANY, a Delaware Corporation with Administrative
Offices in Princeton, New Jersey (hereinafter referred to as "Reinsurers")
THE COMPANY IS REQUESTED TO READ THIS AGREEMENT CAREFULLY. IF IT IS BELIEVED TO
BE INCORRECT THE AGREEMENT SHOULD BE IMMEDIATELY RETURNED, WITH AN EXPLANATION,
TO THE PERSON OR ENTITY DESIGNATED ON THE BACK PAGE OF THIS AGREEMENT.
- --------------------------------------------------------------------------------
IN CONSIDERATION of the Company having paid the premium specified in the
Schedule to Reinsurers, whose duly authorised representative has hereunto
subscribed his name.
REINSURERS HEREBY AGREE to reinsure the Company against loss as more fully set
forth in this Agreement and the attachments hereto during the Period of
Reinsurance stated in the said Schedule, or during any subsequent period as may
be mutually agreed upon between the Company and Reinsurers.
PROVIDED that the liability of Reinsurers subscribing to this Agreement shall
not exceed their proportion of the limits of liability expressed in the said
Schedule or such other limits of liability as may be substituted therefor by
Addendum hereon or attached hereto signed by or on behalf of Reinsurers.
If the Company shall make any claim under this Agreement with knowledge that the
same is false or fraudulent as regards amount or otherwise, this Agreement shall
become null and void forthwith and any and all claims hereunder shall be
forfeited and of no force and effect.
IN WITNESS HEREOF the parties hereto have caused this Agreement to be executed
in duplicate this 28th day of September, One Thousand Nine Hundred and
Ninety-Nine.
ACCEPTED BY:
AMERICAN RE-INSURANCE COMPANY MEDICAL INTER-INSURANCE EXCHANGE OF
NEW JERSEY
/s/ John S. Chace /s/ Thomas M. Redman
- ----------------------------- -----------------------------------
<PAGE> 24
Contract Number: 901/LK9905081 Reinsurers reference:
THE SCHEDULE
COMPANY: MEDICAL INTER-INSURANCE EXCHANGE OF NEW JERSEY
ADDRESS: Two Princess Road, Lawrenceville, New Jersey,
United States of America.
PERIOD OF REINSURANCE: Effective 1st January, 1999 covering on a risks
attaching basis for Business Covered and
continuous thereafter unless terminated.
LIMIT OF LIABILITY: All as more fully set forth in the attached wording
This Contract reinsures 28% part of the 92% of the Limit of Liability expressed
in the attached wording.
INTEREST: All as more fully set forth in the attached wording
PREMIUM: US$210,000 (being 28% of Minimum and Deposit Premium
of US$750,000) annual, payable quarterly on 31st
March, 30th June, 30th September and 31st December.
- --------------------------------------------------------------------------------
<PAGE> 25
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligations under this contract of reinsurance 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.
<PAGE> 1
Exhibit 15
ACKNOWLEDGEMENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The MIIX Group, Incorporated
We are aware of the incorporation by reference in the Registration Statement
(Form S-8, Reg. No. 333-85035) of the MIIX Group, Incorporated, pertaining to
the 1998 Long Term Incentive Equity Plan of the MIIX Group, Incorporated, of our
report dated November 12, 1999 relating to the unaudited consolidated interim
financial statements of The MIIX Group, Incorporated and subsidiaries included
in this Form 10-Q for the quarter ended September 30, 1999.
ERNST & YOUNG LLP
New York, New York
November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements contained in Form 10-Q of which this schedule
forms a part and is qualified in its entirety by reference to such financial
statements.
See accompanying notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 1,080,157
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 10,710
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,201,381
<CASH> 2,346
<RECOVER-REINSURE> 352,107
<DEFERRED-ACQUISITION> 5,270
<TOTAL-ASSETS> 1,787,505
<POLICY-LOSSES> 1,009,988
<UNEARNED-PREMIUMS> 103,249
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 338,336
<TOTAL-LIABILITY-AND-EQUITY> 1,787,505
150,285
<INVESTMENT-INCOME> 55,214
<INVESTMENT-GAINS> (5,100)
<OTHER-INCOME> 3,111
<BENEFITS> 140,537
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 31,616
<INCOME-PRETAX> 17,777
<INCOME-TAX> 3,835
<INCOME-CONTINUING> 13,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,942
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.08
<RESERVE-OPEN> 625,864
<PROVISION-CURRENT> 139,265
<PROVISION-PRIOR> 1,272
<PAYMENTS-CURRENT> 1,969
<PAYMENTS-PRIOR> 106,551
<RESERVE-CLOSE> 657,881
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
