Exhibit 10.1
Execution Copy
QUOTA SHARE REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
GIBRALTAR CASUALTY COMPANY, a Delaware Corporation
(hereinafter referred to as the "Company")
and
PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, an Indiana Corporation
(hereinafter referred to as the "Reinsurer")
(Both the Company and the Reinsurer collectively are referred to as
the "Parties" and individually as "Party")
WHEREAS, The Prudential Insurance Company of America ("Prudential") is the
ultimate parent of the Reinsurer;
WHEREAS Prudential and Everest Reinsurance Holdings, Inc., a Delaware
corporation ("Holdings"), have executed a Stock Purchase Agreement dated as of
February 24, 2000 ("Sale Agreement") wherein Holdings will purchase from
Prudential all issued and outstanding shares of the Company, a wholly owned
subsidiary of Prudential, effective as of the "Closing Date" set forth in the
Sale Agreement.
WHEREAS, Holdings is the parent of Everest Reinsurance Company, formerly known
as Prudential Reinsurance Company ("Everest Re").
WHEREAS, the Company has, and in the future may have, Uncollectible Reinsurance
Recoverables, as defined herein, with regard to business reinsured by or through
the Management Underwriting Facility ("MUF"), as defined in the Sale Agreement.
WHEREAS, the Company desires to procure reinsurance coverage for its
Uncollectible Reinsurance Recoverables.
NOW, THEREFORE, in consideration of mutual covenants, representations,
warranties, and agreements contained herein and in the Sale Agreement, the
Parties agree as follows:
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ARTICLE I - CLASSES OF BUSINESS COVERED
A. By this Agreement and subject to the terms and conditions set forth
below, the Reinsurer agrees to indemnify the Company for the Company's
Uncollectible Reinsurance Recoverables, as defined herein, with regard
to business reinsured by or through MUF respecting Direct Excess
Business and Gibraltar-Sourced Business, as defined herein.
B. "Uncollectible Reinsurance Recoverables", with respect to Reinsurance
Coverage, is defined as including (i) Uncollected Reinsurance and (ii)
Settlement Concessions.
C. "Reinsurance Coverage" is defined as any amount of paid and unpaid
losses and loss adjustment expenses ceded by Everest Re to MUF
reinsurers with respect to Direct Excess Business or Gibraltar-Sourced
Business, whether such amounts were ceded prior to or during the term
of this Agreement.
D. "Uncollected Reinsurance" is defined as Reinsurance Coverage for paid
loss and loss adjustment cessions relating to Direct Excess Business,
with respect to each company on Schedule A hereto, that is unpaid by
the reinsurer after one-hundred-and-eighty (180) days from the date
that such paid loss and loss adjustment cessions were due to be paid by
the reinsurer.
E. "Settlement Concessions" is defined as the difference, with respect to
each company on Schedule A hereto, between the Reinsurance Coverage for
Direct Excess Business or Gibraltar-Sourced Business reinsured by MUF
and ceded to such company and the amount received from such company.
F. "Direct Excess Business" is defined as policies, contracts, and binders
of insurance or reinsurance ("Policies") that were issued by Everest
Re prior to January 1, 1986.
G. "Gibraltar-Sourced Business" is defined as Policies that were issued by
the Company prior to January 1, 1986.
H. Although Everest Re rather than the Company has the direct ceding
relationship with MUF, solely for purposes of this Agreement and only
up to the amounts scheduled in Schedule A hereto, the Parties hereby
deem any Uncollectible Reinsurance Recoverables to belong to the
Company and not to Everest Re.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Agreement shall become effective on the Closing Date. This
Agreement will terminate, with respect to the Reinsurer's Per-Company
Sub-Limit of Liability under Article V, on the earlier of (i) two years
following the Reinsurer's payment of the sub-limit or (ii) the tenth
anniversary of Closing Date. This Agreement shall terminate, with
respect to the Reinsurer's Aggregate Limit of Liability under Article
V, on the earlier of (i) two years following the Reinsurer's payment of
the limit or (ii) the tenth anniversary of the Closing Date.
<PAGE>
B. Neither Party may terminate this Agreement.
ARTICLE III - TERRITORY
The territorial scope of this Agreement shall be identical to that of the
Policies.
ARTICLE IV - CONSIDERATION
The consideration for this reinsurance coverage is deemed paid as of the Closing
Date and, with respect to the Reinsurer, includes, among other things, certain
operational and other assistance (i) previously provided to the Reinsurer by
Prudential, which is deemed paid as of the Closing Date, and (ii) to be provided
to the Reinsurer in connection with this Agreement by Prudential, including
pursuant to the Keepwell Agreement between Prudential and the Reinsurer of even
date herewith. No further consideration shall be due to the Reinsurer.
ARTICLE V - SCHEDULE OF UNCOLLECTIBLE REINSURANCE RECOVERABLES AND REINSURER'S
LIMIT OF LIABILITY
Pursuant to the Sale Agreement, on or before the first Business Day following
the date on which all of the conditions set forth in Articles IX, X, and XI of
the Sale Agreement have been satisfied or waived, Holdings will cause Everest Re
to provide to the Reinsurer a schedule setting forth all expected Uncollectible
Reinsurance Recoverables ("Schedule A"), which shall be incorporated herein by
reference. Schedule A shall identify, by reinsurer name, (1) the expected
amounts of Uncollected Reinsurance attributable to each reinsurer with respect
to Direct Excess Business and (2) the expected amounts of Settlement Concessions
with respect to Direct Excess Business and Gibraltar-Sourced Business. If the
Company identifies a given reinsurer on Schedule A with respect to both
Uncollected Reinsurance and for Settlement Concessions, then the amount
scheduled for Uncollected Reinsurance shall represent only paid loss and loss
adjustment expense amounts and the amount scheduled for Settlement Concessions
shall include only unpaid loss and loss adjustment expense amounts.
The Reinsurer shall pay to the Company one hundred percent (100.0%) of up to the
scheduled amount of the Company's Uncollectible Reinsurance Recoverables with
respect to each company listed on Schedule A ("Per Company Sub-Limit of
Liability"), provided that the Reinsurer's total liability under this Agreement
shall in no event be greater than $8,500,000 ("Aggregate Limit of Liability").
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ARTICLE VI - PAYMENT OF ADVANCES BY REINSURER AND REFUNDS BY COMPANY
Subject to the limits set forth in Article V, pursuant to Article IX the
Reinsurer shall make payments ("Advances") to the Company in the amount of the
Uncollected Reinsurance and Settlement Concessions shown on the Company's
statements.
If after receiving an Advance from the Reinsurer with respect to an Uncollected
Reinsurance amount, the Company actually collects all or a portion of the amount
due from the reinsurer identified on Schedule A, then the Company shall pay to
the Reinsurer a sum equal to the amount so collected ("Refund"), up to the
amount of the corresponding Advance paid by the Reinsurer. Refunds shall not
bear interest except as set forth in Article IX (G), and in no event shall the
Reinsurer be entitled to a Refund in an amount greater than the corresponding
Advance. In the event that a Refund is made to the Reinsurer, the Per Company
Sub-Limit of Liability and the Aggregate Limit of Liability shall each be
replenished by the amount of such Refund. No Refunds shall be due for Advances
paid by the Reinsurer with respect to Settlement Concessions.
ARTICLE VII - OTHER REINSURANCE
On or after the Closing Date, the Company shall be permitted to obtain other
reinsurance, recoveries under which shall inure solely to the benefit of the
Company, and all recoveries under such other reinsurance shall be entirely
disregarded in applying all of the provisions of this Agreement.
ARTICLE VIII - ORIGINAL CONDITIONS
A. The Reinsurer shall follow the fortunes of the Company with respect
to settlements of any Reinsurance Coverage and with respect to
Uncollectible Reinsurance Recoverables.
B. The reinsurance coverage provided under this Agreement shall be subject
to all interpretations, modifications, waivers, and alterations of the
Policies and Reinsurance Coverage.
C. Nothing herein shall in any manner create any obligations or establish
any rights against the Reinsurer in favor of any third party or any
person not a Party to this Agreement.
ARTICLE IX - REPORTS AND REMITTANCES
A. The first statement of account shall be due to the Reinsurer from the
Company on the anniversary of the Closing Date. The first statement
only shall include a charge for interest on any Uncollectible
Reinsurance Recoverables due from the Reinsurer as of the statement
date. Such interest charge shall be equal to the rate of interest
announced by Citibank, N.A. as its prime or base rate as of the
statement date, calculated on the basis of the actual number of days
elapsed since the Uncollectible Reinsurance Recoverables accrued or the
Closing Date, whichever is less, divided by
three-hundred-and-sixty-five (365) days. Such interest charge shall be
included in the Per Company Sub-Limit of Liability set forth on
Schedule A.
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B. Thereafter, the Company shall submit quarterly statements of account
("quarterly reports") within forty-five (45) days after the end of each
calendar quarter.
C. Such quarterly reports shall be sent by both facsimile transmission
and United States Postal Service or any other delivery service used by
the Company.
D. Such quarterly reports shall include information showing, as applicable
with respect to each company listed on Schedule A, Uncollected
Reinsurance, Settlement Concessions, Advances received, Advances due,
Refunds due, and unpaid amounts outstanding.
E. Remittances shall be on a "Net Basis," defined as amounts owed between
the Parties under this Agreement.
F. Remittances, whether due to the Company from the Reinsurer or to the
Reinsurer from the Company, shall be due within forty-five (45) days
from the date of receipt of the facsimile transmission of each
quarterly report.
G. Failure by the Reinsurer or the Company to pay amounts owed when due
under this Agreement shall result in imposition of an interest penalty
equal to the rate of interest announced by Citibank, N.A. as its prime
or base rate as of the due date of any remittance, calculated on the
basis of the actual number of days elapsed past the due date of any
remittance divided by three-hundred-and-sixty-five (365) days and
payment of other losses, costs, and expenses accrued or incurred by the
Company or Reinsurer as a result of the other Party's late payment.
ARTICLE X - OFFSET
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under this Agreement.
ARTICLE XI - ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer will have the right to inspect, all
books, records, and papers of the Company in connection with any
reinsurance coverage hereunder or any claims in connection herewith.
B. All records reviewed by the Reinsurer are deemed proprietary and
confidential property of the Company. Further, unless pursuant to the
express, written permission of the Company, the Reinsurer shall not
disclose the contents of such information to any other person, persons,
entity, or entities; provided, that the Reinsurer may disclose such
information or portions thereof in connection with any arbitration
hereunder or any legal or regulatory process, or to its directors,
officers and employees and the directors, officers and employees of its
affiliates and to its agents, representatives, attorneys, accountants,
auditors, reinsurers (collectively, "the Reinsurer's Representatives"),
<PAGE>
in each case, who have a legitimate need to know such information
(which would include, but not be limited to the right to dispute and/or
assess in furtherance of a dispute) and who are informed of and agree
to be bound by the confidentiality terms of this Agreement. The
Reinsurer shall indemnify and hold harmless the Company for all damages
resulting from any unauthorized disclosure by the Reinsurer or the
Reinsurer's Representatives of records obtained pursuant to this
Article. Nothing contained in this Agreement shall be construed to
prevent the Company from applying to a court of competent jurisdiction
for equitable relief including injunction and specific performance as a
remedy if the Reinsurer or any of the Reinsurer's Representatives
breach or threaten to breach any of the provisions of this Article.
Without prejudice to the rights and remedies otherwise available at law
or equity to the Company, it is understood and agreed that the Company
would be irreparably injured by a breach of this Article, that money
damages would not be a sufficient remedy for any actual or threatened
breach of this Article by the Reinsurer or any of the Reinsurer's
Representatives and that the Company shall (without proof of actual
damages) be entitled to equitable relief. In the event of litigation
relating to this Article, if a court of competent jurisdiction
determines that the Reinsurer or any of the Reinsurer's Representatives
have breached this Article, then the Reinsurer shall be liable and pay
to the Company the reasonable legal fees incurred by the Company in
connection with the subject litigation, including any appeal therefrom.
ARTICLE XII - ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions in connection with this Agreement or any
transaction hereunder shall not relieve either Party of any liability which
would have attached had such delay, error or omission not occurred, provided
always that such error or omission is rectified as soon as possible after
discovery.
ARTICLE XIII - SECURITY
A. If the Company is or becomes unable to take credit in any financial
statement filed with its domiciliary insurance regulator or with
insurance regulators in New Jersey, California or any other state in
which it currently is approved as a surplus lines insurer (or any
successors to said regulators) for the reinsurance coverage provided
hereunder, or if Prudential's Financial Strength Rating published by
A.M. Best becomes less than "A-," the Reinsurer agrees to fund within
thirty (30) days from receipt of notice from the Company that funding
is required its share of Uncollectible Reinsurance Recoverables (and to
replenish such funding from time to time as necessary) by:
1. Clean, irrevocable and nconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a qualified United States financial
institution acceptable to said insurance regulatory authorities;
<PAGE>
2. cash; and/or
3. a Trust in compliance with the requirements of and acceptable to
said insurance regulatory authorities.
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 that would be
acceptable to the Company's domiciliary insurance regulatory authority,
will be issued for a term of at least one year and will include an
"evergreen clause," that 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 Reinsurer further agree 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 Reinsurer, but only for one or more of the following
purposes:
1. To reimburse itself for the Reinsurer's share of Uncollectible
Reinsurance Recoverables, unless paid in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
3. To fund a cash account in an amount equal to the Reinsurer's
share of Uncollectible Reinsurance Recoverables funded by means
of a letter of credit that is under non-renewal notice, if said
letter of credit has not been renewed or replaced by the Reinsurer
10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the actual
amount required to fund the Reinsurer's share of Uncollectible
Reinsurance Recoverables and other amounts claimed to be due
hereunder, if so requested by the Reinsurer.
C. In the event the amount drawn by the Company on any letter of credit is
in excess of the actual amount required for B (1), B (3) or B (4), or
in the case of B (2), the actual amount determined to be due, the
Company shall promptly return to the Reinsurer the excess amount so
drawn.
D. In the event of funding through a Trust:
1. The Reinsurer shall establish a Trust Account for the benefit
of the Company to fund the amounts receivable under the Agreement
in a qualified United States financial institution reasonably
acceptable to the Company and to said insurance regulatory
authorities.
<PAGE>
2. The assets deposited into the Trust Account shall be valued
according to their current fair market value and shall consist
only of cash (United States legal tender), certificates of
deposit (issued by a United States bank and payable in United
States legal tender) and investments of the type permitted by
and acceptable to said insurance regulatory authorities or any
combination of the above, provided that such investments are
issued by an institution that is not the parent, subsidiary or
affiliate of either the Reinsurer or the Company;
3. The Reinsurer, prior to depositing assets with the trustee,
shall execute assignments, endorsements in blank, or transfer
legal title to the trustee of a ll shares, obligations or any
other assets requiring assignments, in order that the Company,
or the trustee upon the Company's direction, may whenever
necessary negotiate any such assets without consent or signature
from the Reinsurer or any other entity;
4. All settlements of account between the Reinsurer and the Company
shall be in cash or its equivalent;
5. The assets in the trust account may be withdrawn by the
Company at any time, notwithstanding any other provisions in
this Agreement, and shall be utilized by the Company or any
successor by operation of law, including without limitation
any liquidator, rehabilitator, receiver or conservator of the
Company, for the purposes set forth in paragraphs B(1) -B(4)
above.
ARTICLE XIV - INSOLVENCY
In the event of the insolvency of the Company, the reinsurance coverage
hereunder shall be payable directly to the Company or to its domiciliary
liquidator, receiver, conservator or statutory successor on the basis of the
amount of claim allowed in the insolvency proceeding without diminution by
reason of the inability of the Company to pay all or any part of the claim. It
is agreed, however, that the liquidator, receiver, conservator or statutory
successor of the Company shall give written notice to the Reinsurer of the
pendency of a claim against the Company, indicating the Policy or bond covered
hereunder which claim would involve a possible liability on the part of the
Reinsurer, within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the 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 Reinsurer.
<PAGE>
ARTICLE XV - ARBITRATION
A. Except with respect to disputes arising solely out of or solely in
connection with Article XI above (Access to Records), 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
Agreement, including its formation and validity, it is hereby mutually
agreed that such dispute or difference of opinion shall be submitted to
arbitration.
B. Except as provided in subsections A. and D. of this Article or with
respect to judicial proceedings instituted in aid of arbitration, this
Article shall constitute a waiver of the Parties' rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a
transfer of a case to another court as might otherwise be permitted by
the laws of the United States or of any State or other jurisdiction in
the United States.
C. One Arbiter shall be chosen by the Company, the other by the Reinsurer,
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 United States domiciled 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.
D. The Arbiters and the Umpire ("the Arbitration Panel") shall consider
this Agreement as an honorable 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 majority decision
of the Arbitration Panel shall be final and binding on both Parties.
Judgment upon the final decision of the Arbitration Panel may be
entered in any court of competent jurisdiction.
E. Except as provided in sub-section G. of this Article, 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.
F. Any arbitration pursuant to this Article shall be conducted in New
York, New York unless otherwise agreed by the parties; provided,
however, that the Arbitration Panel may choose to take evidence and/or
convene a hearing in a place other than New York for the convenience of
the parties, the witnesses or the Arbitration Panel.
<PAGE>
G. The Arbitration Panel shall have the power to award costs, expenses,
and interest to the prevailing Party in an arbitration.
ARTICLE XVI - SERVICE OF SUIT
A. It is agreed that in the event of the failure of the Reinsurer to pay
any amount claimed to be due hereunder or to otherwise perform its
obligations hereunder, the Reinsurer will, at the request of the
Company, submit to the jurisdiction of any court of competent
jurisdiction within the State of New Jersey or such other jurisdiction
within the United States as the Company can select as a forum, and will
comply with all requirements necessary to give such court jurisdiction
and all matters arising hereunder shall be determined in accordance
with the law and practice of such court.
B. Service of process in such suit may be made on the Reinsurer by serving
the Commissioner of Insurance of the State of New Jersey, who shall
forward such process to the Reinsurer in accordance with Article XXI or
at such other address as the Reinsurer shall advise. In any suit
instituted, the Reinsurer will abide by the final decision of such
court.
C. Further, pursuant to any statute of any state, territory, or district
of the United States of America which makes provisions therefore, the
Reinsurer herein hereby designates the superintendent, commissioner or
director of insurance or other officer specified for that purpose in
the statute, or his successor or successors in office, as its true and
lawful attorney upon whom may be served any lawful process in any
action, suit or proceeding instituted by or on behalf of the Company or
any beneficiary hereunder arising out of this Agreement of reinsurance
and hereby designates the above-named person to whom the said office is
authorized to mail such process or a true copy thereof.
D. This Article is not meant to supersede Article XV of this Agreement
or override the obligation of the parties to arbitrate their disputes
in accordance with Article XV.
ARTICLE XVII - ENTIRE AGREEMENT
This Agreement, the Sale Agreement and the Guaranty, and any exhibits to such
agreements, collectively constitute the entire agreement between the Parties
regarding the subject matter hereof and supercede all prior agreements and
understandings, both written and oral and do not confer any rights or remedies
to any other party or any other person.
ARTICLE XVIII - AMENDMENTS AND ALTERATIONS
This Agreement shall not be changed, supplemented, modified, or amended except
by an endorsement/addendum signed by the Parties and attached hereto.
<PAGE>
ARTICLE XIX - NO WAIVER
No forbearance to enforce any provision or right hereunder shall be deemed a
waiver thereof, and no waiver of any breach of any term or covenant herein shall
be construed as a waiver of any other breach of the same, or any other term or
covenant herein.
ARTICLE XX - CONSTRUCTION
This Agreement is the result of arms-length negotiations between the Parties and
has been prepared jointly by the Parties. In applying and interpreting the
provisions of this Agreement, there shall be no presumption that either the
Company or the Reinsurer prepared this Agreement, or that this Agreement shall
be construed in favor of or against either the Company or the Reinsurer.
ARTICLE XXI - NOTICES
Any notice or other communication required or permitted hereunder shall be in
writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission, or sent by certified, registered or express mail,
postage prepaid, to:
If to the Reinsurer, to:
Richard Green,
Vice President
Prudential Property and Casualty Insurance Company
23 Main St., 4th Floor
Holmdel, NJ 07032
Phone: 732-946-5082
Fax: 732-946-5029
with a copy to:
Doreen Faga
President, Gibraltar Operations
The Prudential Insurance Company of America
Eisenhower Corporate Center, Building 3
290 West Mt. Pleasant Avenue
Livingston, NJ 07039
Phone: 973-548-5980
Fax: 973-548-5950
<PAGE>
If to the Company, to:
Janet J. Burak
Senior Vice President and General Counsel
Everest Reinsurance Holdings
477 Martinsville Road
P.O. Box 830
Liberty Corner, NJ 07938
Phone: 908-604-3170
Fax: 908-604-3450
or in each case to such other address as a party may designate for itself by
like notice to the other party.
ARTICLE XXII - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
Livingston, New Jersey, this 19th day of September 2000.
/S/ DOREEN FAGA
---------------------------------
Doreen Faga
President, Gibraltar Casualty Co.
IN WITNESS WHEREOF, the Reinsurer, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
Holmdel, New Jersey, this 19th day of September 2000.
/S/ RICHARD M. GREEN
---------------------------------
Richard M. Green
