SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
( X )Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000.
( )Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from________
to_________.
Commission File Number: 0-11413
MERIDIAN INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1689161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2955 North Meridian Street
P.O. Box 1980
Indianapolis, IN 46206-1980
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 931-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Shares
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 period that 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value of voting stock owned by non-affiliates at
March 10, 2000, based on the closing sales price, was $97,089,409.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
7,925,666 Common Shares at March 10, 2000.
The Index of Exhibits is located at page 53 in the sequential
numbering system. Total number of pages, including cover page: 212
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference
into this Annual Report on Form 10-K:
Parts of Form 10-K into Which
Identity of Document Document is Incorporated
Definitive Proxy Statement Part III
with respect to the 2000
Annual Meeting of Shareholders
of Registrant
MERIDIAN INSURANCE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
PART I PAGE
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 49
ITEM 11. EXECUTIVE COMPENSATION 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 50
PART I
ITEM 1: BUSINESS
General
Meridian Insurance Group, Inc. ("the Company"), is a holding company
principally engaged in the property and casualty insurance business
through its wholly-owned subsidiaries, Meridian Security Insurance
Company ("Meridian Security"), Meridian Citizens Security Insurance
Company ("Meridian Citizens Security"), and Insurance Company of Ohio
("ICO"). The Company also owns a small service support company,
Meridian Service Corporation, whose results of operations are
insignificant to the total operations of the Company.
Approximately 48.1 percent of the Company's outstanding common shares
are owned by Meridian Mutual Insurance Company ("Meridian Mutual"), a
mutual property and casualty insurance company headquartered in
Indianapolis, Indiana. Meridian Security, Meridian Citizens Security,
ICO, Meridian Mutual and Meridian Citizens Mutual Insurance Company
("Meridian Citizens Mutual") are parties to a reinsurance pooling
agreement ("pooling agreement") under which business written is shared
by the companies on the basis of their percentage participation
defined in the pooling agreement. Effective July 1, 1998, the pooling
arrangement was amended to include business solicited through direct
response marketing as well as the non-standard automobile product
introduced during 1998, effectively pooling all business written by
the insurance companies.
Collectively, the insurance companies participating in this
reinsurance pooling arrangement write a broad line of property and
casualty insurance, including personal, non-standard and commercial
automobile; homeowners, farmowners and commercial multi-peril; and
workers' compensation. Business is written primarily through nearly
1,400 independent insurance agencies in the states of Illinois,
Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri,
North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Virginia,
and Wisconsin.
Relationships with Meridian Mutual and Meridian Citizens Mutual
All of the Company's corporate officers are officers of Meridian
Mutual and five of the eight members that constitute the Company's
Board of Directors are also directors of Meridian Mutual. Each of the
six members of the directors and officers of Meridian Citizens Mutual
are corporate officers of the Company. Effective January 1, 1997, the
Company became the employer for all of the employees of Meridian
Mutual and Meridian Citizens Mutual and the related employee benefit
plans were merged into the Company's plans. Prior to January 1, 1997,
the Company had no employees and was dependent upon Meridian Mutual
and Meridian Citizens Mutual for the sale and underwriting of
insurance, the servicing of policyholder claims and all other aspects
of the Company's operations. Underwriting expenses are shared under
the pooling agreement between each entity in accordance with the
participation percentages of the parties. Other expenses which can be
directly identified with Meridian Mutual, Meridian Citizens Mutual or
the Company are paid by the company to which the expense is
attributable. All other operating expenses relating to the business of
each company (which have not been and are not expected to be
significant in amount) are allocated in accordance with policies
established in good faith by their Boards of Directors.
Pooling Agreement
The pooling agreement currently covers all of the property and
casualty insurance written by Meridian Mutual, Meridian Citizens
Mutual, Meridian Security, Meridian Citizens Security, and ICO. Under
the pooling agreement, premiums, losses, loss adjustment expenses and
other underwriting and administrative expenses of each company are
shared in accordance with the participation percentages established
under the pooling agreement. The participation percentages of the
Company's insurance subsidiaries total 74 percent.
The Boards of Directors of the Company, Meridian Mutual and Meridian
Citizens Mutual have delegated to their respective Audit Committees
the responsibility of monitoring the relationships between each of the
participants under the pooling agreement pursuant to such procedures
as those Committees may deem necessary and appropriate to allocate the
pool participation percentages to each participant of the agreement.
The Audit Committees have established guidelines for reviewing the
participation percentages at least annually and for referring to the
Pooling Committees of each company any decision to change the
participation percentages. Future events that could affect the
participation percentages among the parties include the receipt by
Meridian Mutual of dividends on the common shares it owns of the
Company, changes in the capital structure or asset values of Meridian
Mutual, Meridian Security, Meridian Citizens Mutual, Meridian Citizens
Security, or ICO, different effective rates of income taxation, or
other factors which disproportionately affect the surplus of any of
the participants.
The Company, Meridian Mutual and Meridian Citizens Mutual have
conflicting interests with respect to the establishment of the
respective ratios of each company under the pooling agreement, and
conflicts may arise between the Company, Meridian Mutual and Meridian
Citizens Mutual relating to the allocation of expenses not related to
insurance underwriting, business and investment philosophies, profit
objectives, cash management, dividend policy and other matters. The
business and operations of the Company are integrated with and largely
dependent upon the business and operations of Meridian Mutual and
Meridian Citizens Mutual. The pooling agreement contains no specific
provisions regarding the procedures to be followed in making these
decisions.
In arriving at decisions involving matters in which Meridian Mutual
and/or Meridian Citizens Mutual has an interest, the directors of the
Company will be governed by their fiduciary duties to the Company and
its shareholders, but those directors who also are directors of
Meridian Mutual and Meridian Citizens Mutual also owe fiduciary duties
to the policyholders of Meridian Mutual and Meridian Citizens Mutual
and no procedures have been established under which those decisions
would be made by disinterested directors. The terms of the pooling
agreement preclude conflicts which could arise in deciding which risks
are to be insured by each of the participants by making the results of
the operations of all participants dependent on the results of the
total business covered by the pooling agreement.
The pooling agreement has no fixed term and provides that it is to
remain in force until canceled by the mutual consent of Meridian
Security, Meridian Citizens Security, ICO or Meridian Citizens Mutual
and Meridian Mutual. The pooling agreement may be amended or
terminated without the necessity of a vote by the shareholders of the
Company or the policyholders of any of the parties. In the event of a
termination of the pooling agreement, the terminating party or parties
would transfer back to Meridian Mutual the liabilities ceded to it by
Meridian Mutual and Meridian Mutual would transfer back to the
terminating party the liabilities ceded to it by the terminating
party, and each party would receive assets from the other in an amount
equal to the amount of the policy liabilities received. If the
pooling agreement had been terminated at December 31, 1999,
approximately 16% of the assets and liabilities subject to the pooling
agreement would have been transferred to the Company's insurance
subsidiaries. The Company would continue to own all of the
outstanding common shares of Meridian Security, Meridian Citizens
Security and ICO. The Company would maintain the employee force but
would have reduced sales operations through a smaller independent
agency force.
Regulatory approvals of the states of domicile are required to change
the participation percentages of the parties to the pooling agreement
or to terminate the pooling agreement; however, the requirement for
such approvals is for the protection of the policyholders of the
participating companies and not for the protection of the Company's
shareholders. The Company intends that its insurance subsidiaries
will continue their participation in the pooling agreement, absent
some unforeseen change in circumstances.
A. M. Best Company, Inc., Ratings
Since 1993, Meridian Mutual and Meridian Security have maintained a
group rating of "A" (excellent) by A. M. Best Company, Inc. ("Best").
Subsequent to the July 31, 1996 acquisition, the Meridian group rating
of "A" was also given to Meridian Citizens Security, ICO and Meridian
Citizens Mutual. Best is an independent company which rates insurance
companies on the basis of their opinion as to financial position and
operating performance. Best's ratings are based upon factors related
to the capacity of the insurer to make payment of its obligations to
policyholders and do not relate to the protection of investors or
indicate expected investment results.
Operations
The Company, Meridian Mutual and Meridian Citizens Mutual's operating
territory has expanded geographically into several additional states
in recent years. During 1999, certain of the Meridian companies were
granted licenses in the states of Arizona, Georgia, Kansas, Maryland,
Missouri, North Dakota, South Dakota, and Washington. Additional
state expansion, including Florida, Oregon, Utah, and Washington D.C.
is planned for 2000. This geographic expansion enables the Company to
spread its risk across a larger region. The Company has achieved
certain economies of scale by consolidating functions within its
operations. During 1998, the Meridian Citizens information systems,
as well as two Meridian Mutual regional claim offices, were
consolidated into the Indianapolis operation. During 1999, the
personal and commercial lines processing of the Meridian Citizens'
companies was integrated into Indianapolis and the Red Wing, Minnesota
office was closed.
Underwriting
The underwriting functions are separated into personal, commercial and
farm lines of business. The Company's underwriting personnel are
responsible for establishing risk-selection guidelines for agents and
for the underwriting and monitoring of policy issuance in order to
insure adherence to established guidelines. The underwriting
departments also determine the product pricing and are responsible for
the development of new products and enhancements. The underwriting
personnel work closely with sales representatives and consult
regularly with agents to assess current market conditions.
In establishing prices, underwriting personnel analyze studies of
statistical and actuarial data concerning the impact of price changes
in the markets served and consider data compiled by industry
organizations. This allows for a more accurate assessment of the
anticipated costs of risks underwritten.
Over the last several years, the Company has continued efforts to
reduce the loss ratio by implementing underwriting programs related to
proper risk selection. The Company also continues to monitor rate
adequacy and agency profitability, taking action where appropriate.
The Company's 1999 statutory combined ratio of 105.4 percent was a 2.5
percentage point increase from the 102.9 combined ratio reported in
1998. The increase was attributed to an increased loss ratio.
Weather-related catastrophe claims added over seven percentage points
to the ratios in both 1999 and 1998. The Company continues to focus
on reducing per-unit costs and other expenses in order to improve its
loss adjustment and underwriting expense ratios through increased
automation and expense consolidation. In recent years, the
installation of the automated personal lines underwriting system has
enabled the majority of applications to be processed by computers via
pre-set standards. Human intervention is only necessary when an
application falls outside of specified parameters. This allows the
Company to process a larger volume of business without proportionally
expanding the size of the underwriting staff, thereby reducing per-
unit costs. The Company currently issues most personal automobile and
homeowners policies via the automated underwriting system.
Products and Marketing
Meridian writes a broad line of property and casualty insurance
including personal, non-standard, and commercial automobile;
homeowners, farmowners and commercial multi-peril; and workers'
compensation. Meridian recently began to offer personal automobile
products through direct response marketing in the states of Washington
and Virginia. Meridian markets most of its insurance through
independent insurance agents. Development and maintenance of a strong
agency system is essential. Meridian seeks to provide its agents and
policyholders a level of service that surpasses industry standards.
The Meridian agency network numbers nearly 1,400 independent insurance
agencies spread throughout 15 states. Meridian's independent agencies
are primarily small to medium-sized firms with no agency producing
more than 1 percent of the total written premium. Meridian
continuously monitors its agencies, giving special attention to the
volume and profitability of business written by each agency. Agencies
which consistently write unprofitable business will be rehabilitated
or may be terminated by Meridian, subject to compliance with
applicable state laws.
Each agency enters into a standard agency agreement, under which the
agency is authorized to sell and bind insurance coverage in accordance
with procedures specified in the agreement. Agencies also
collect/remit premiums and submit business subject to Meridian's
underwriting guidelines. The agency receives as a commission a
percentage of the premium for each policy written.
Meridian offers a direct billing service to its agents, under which
premium statements are provided to the insured and the insured pays
the premiums directly to Meridian. Meridian pays the same commission
rates on company-billed and agency-billed policies, thereby allowing
agencies to reduce administrative costs without a reduction in
commission income. Meridian also offers an agency profit-sharing
agreement under which agencies attaining designated premium volume and
profitability requirements receive a bonus.
Meridian has developed separate growth strategies with respect to the
personal, commercial and farm lines of business. With respect to
personal lines, Meridian believes that continued improvements in
service to agents and policyholders, offering broad coverages and
product enhancements, and relying on automation to improve efficiency
will increase penetration of existing markets.
Meridian utilizes agency interface automation. Additionally, the
company has an automated personal lines underwriting system which
processes a majority of personal lines new business. Lower operating
costs and strict adherence to underwriting guidelines will allow
Meridian to be competitive and grow in the personal lines marketplace.
By emphasizing and targeting select lines of business, Meridian
believes moderate growth in personal lines business is achievable
without significantly increasing risk exposure.
During 1998, Meridian launched a growth initiative by entering into a
marketing and sales arrangement with GROUPadvantage. This
arrangement makes Meridian's personal lines products available through
franchised independent agencies to Sam's Club members in certain
states. (GROUPadvantage is a registered service mark of Consumer
Insurance Services of America "CISA" and is used under license from
CISA.) During late 1998, Meridian began to market personal lines
products to members of Sam's Club in Illinois and Michigan, with
Missouri, Ohio, and Pennsylvania added in 1999.
Meridian has identified several segments of its commercial lines
markets in which management believes Meridian can compete effectively.
Meridian has and will continue to focus on mid-sized accounts in the
$15,000 to $50,000 range of annual premium volume. Meridian also
writes commercial business through association programs. Over 35
associations have endorsed Meridian for their insurance program.
Association business is desired in agricultural, contractor, appliance
dealer, cosmetologist, veterinary, optometry, and funeral home
associations, as well as certain other classes of business.
Meridian's farm strategy emphasizes penetration into existing markets.
Meridian targets medium to large farms which meet the Company's
underwriting guidelines. Management believes Meridian enjoys a
competitive advantage in the farmowners market because of its years of
experience, regional focus and the fact that some national insurers
have vacated this market.
The following table sets forth for the periods indicated the net
premiums written, the net underwriting gain (loss), loss and loss
adjustment expense ("LAE") ratios, expense ratios and combined ratios
for the Company's insurance operations, prepared in accordance with
statutory accounting principles. The combined ratio does not reflect
investment income, federal income taxes, or other non-underwriting
income or expense, all of which are included in determining net
income.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Premiums Written
Personal lines:
Automobile $ 96,009 $ 81,219 $ 78,270 $ 68,219 $ 59,444
Homeowners 24,348 24,260 28,051 21,964 19,526
Other 2,518 2,544 2,901 4,819 2,178
Total personal lines 122,875 108,023 109,222 95,002 81,148
Farmowners 10,955 10,961 10,826 9,417 8,775
Commercial lines:
Automobile 19,584 17,514 18,229 14,343 13,107
Workers' compensation 24,043 22,326 23,901 23,380 22,438
Commercial multi-peril 24,420 24,934 27,766 23,453 19,509
Other 4,789 4,313 4,575 3,600 3,764
Total commercial lines 72,836 69,087 74,471 64,776 58,819
Total net premium written $ 206,666 $ 188,071 $ 194,519 $ 169,195 $ 148,742
Net Underwriting Loss $ (13,047)$ (5,099)$ (13,726)$ (13,868)$ (1,610)
Loss and Loss Adjustment Expense Ratio
Personal lines:
Automobile 74.8% 69.3% 78.8% 75.0% 75.0%
Homeowners 95.4 101.7 104.1 110.7 81.2
Other 55.0 43.2 60.9 63.0 34.0
Total personal lines 78.6% 76.3% 84.5% 83.2% 75.5%
Farmowners 82.3% 73.4% 59.4% 95.0% 68.6%
Commercial lines:
Automobile 69.2% 84.0% 86.1% 77.5% 89.1%
Workers' compensation 58.5 45.4 52.8 54.2 58.6
Commercial multi-peril 81.6 72.6 75.0 85.5 45.8
Other 49.3 38.1 46.1 36.9 47.1
Total commercial lines 68.7% 64.7% 68.3% 68.7% 60.5%
Total loss & LAE ratio 75.3% 71.8% 76.8% 78.0% 69.2%
Expense Ratio 30.1% 31.1% 30.3% 30.0% 31.0%
Combined Ratio 105.4% 102.9% 107.1% 108.0% 100.2%
</TABLE>
Claims
Meridian's claim division is responsible for developing and
implementing policies and procedures for the payment and disposition
of claims and for establishing claim reserves. In connection
therewith, it resolves questions concerning policy coverage and
manages reinsurance recoveries and salvage and subrogation matters.
Insurance claims on policies underwritten by Meridian are normally
investigated and settled by Meridian claim adjusters. Independent
adjusters are employed as needed to handle the occasional overload of
claims and in territories in which the volume of claims is not
sufficient to justify having company claim adjusters.
The Company's claim adjusters have authority to settle claims within
policy limits, subject to direction and control by a claim manager or
supervisor. All claims estimated to have a potential value of
$100,000 or more are reviewed by additional levels of claims divisions
management, and all claims in excess of $200,000 must be approved by
the claim division director. A claim review committee provides for
the periodic evaluation of certain claims, including those involving
special circumstances, to enhance the investigation and decision-
making process.
Reserves
Loss reserves are estimates at a given time, based on facts then
known, of what an insurer predicts its exposure to be in connection
with incurred losses. Loss adjustment expense reserves are estimates
of the ultimate liability of the expenses in settling all claims,
including investigation and litigation costs resulting from such
claims. The ultimate liability of the insurer for all losses and loss
adjustment expenses reserved at any point in time may be greater or
less than these estimates.
Meridian maintains reserves for the eventual payment of losses and
loss adjustment expenses with respect to both reported and unreported
claims. Two principal methods are followed in establishing reserves.
For coverages which involve a large volume of claims for relatively
small amounts, such as automobile property damage, comprehensive and
collision insurance, reserves are maintained on an average basis by
reference to the number and amount of paid claims. Adjustments to
average reserves are made periodically, based on claims experience.
Reserves for other claims are established on a case-by-case basis
pursuant to which a reserve amount is assigned to each claim when
reported, based primarily upon an investigation of the circumstances
surrounding each claim, consideration of the liability and the
damages, and the insurance policy provisions relating to the claim.
During the claim settlement process, it is often necessary to adjust
estimates of future liability as additional facts regarding individual
claims become known.
Meridian also establishes reserves for claims which have been incurred
but which have not been reported, utilizing statistical models based
on historical experience. Reserves established pursuant to the
statistical models also are designed to correct historical
deficiencies or redundancies in the reserves established on an average
or a case-by-case basis. Meridian consults periodically with
independent actuaries concerning the adequacy of reserves.
Management believes that reserves for losses and loss adjustment
expenses are adequate to cover the ultimate cost of settling reported
and unreported claims, net of reinsurance, anticipated salvage and
subrogation receipts, and other recoveries. Loss reserves are not
discounted to present value. Inflation is implicitly provided for in
calculating reserves through analysis of cost trends and review of
historical reserve estimates.
The following table sets forth a three-year reconciliation of the
beginning and ending reserves for losses and loss adjustment expenses
for the Company.
Year Ended December 31,
1999 1998 1997
Balance at beginning of period $ 154,253 169,802 161,309
Less reinsurance recoverables 41,804 48,873 41,819
Net balance at beginning of period 112,449 120,929 119,490
Incurred related to:
Current year 157,072 145,328 165,577
Prior years (6,854) (8,708) (16,358)
Total incurred 150,218 136,620 149,219
Paid related to:
Current year 99,472 93,792 97,448
Prior years 51,291 51,308 50,332
Total paid 150,763 145,100 147,780
Net balance at end of period 111,904 112,449 120,929
Plus reinsurance recoverables 34,058 41,804 48,873
Balance at end of period $ 145,962 $ 154,253 $ 169,802
The reconciliations for 1999, 1998, and 1997 show approximately $6.9
million, $8.7 million, and $16.4 million reductions, respectively in
previously established loss reserves. Favorable loss developments
resulting from decreases in the frequency and severity of claims in
prior accident years for the Company's personal automobile liability,
workers' compensation lines and commercial multiple-peril lines of
business were the primary factors in the reductions.
The following table shows the calendar-year development of the unpaid
losses and loss adjustment expenses of the Company's pooled business
for each of the last ten years. The top line of the table shows the
estimated reserves for losses and loss adjustment expenses, net of
reinsurance recoveries, as recorded by the Company for each of the
indicated years. These reserves represent the estimated amount of net
unpaid losses and loss adjustment expenses for claims arising on or
before December 31 of each year, including claims that had not yet
been reported. The data in the upper portion of the table reflect the
cumulative payments made as they have developed through time. The
payments are expressed as a percentage of the year-end reserves shown
in the top line. The data in the lower portion show the change in the
reserve estimate over time.
A redundancy in reserves means that reserves established in prior
years exceeded actual losses and loss adjustment expenses or were re-
evaluated to less than the originally reserved amount. A deficiency
in reserves means that the reserves established in prior years were
less than actual losses and loss adjustment expenses or were re-
evaluated at more than the originally reserved amount.
In evaluating the following information for the Company, it should be
noted that each amount includes the effects of all changes in amounts
for prior periods. For example, the amount of redundancy related to
losses settled in 1999 but incurred in 1992 is included in the
cumulative redundancy amount for each of the years from 1992 through
1998. The table does not present accident or policy-year development
data. The Company's share of pooled losses increased from 62 percent
as of April 1, 1987, to the current level of 74 percent on May 1,
1993. In 1996, the Company acquired approximately $20.7 million in
loss and loss adjustment expense reserves from the acquisition of
Meridian Citizens Security and ICO. Additionally, payments received
on the acquired reserves since the acquisition were spread out over
the ten years based on the accident year in which the original
acquired reserve was established. Conditions and trends that have
affected development of the reserves in the past may not necessarily
occur in the future. Accordingly, the data in the table may not be
indicative of future redundancies or deficiencies.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves for losses
& loss adjustment
expenses $111,904 $112,449 $120,929 $119,490 $92,373 $91,940 $89,630 $72,006 $68,102 $64,742 $62,281
Cumulative paid as
a percent of year-
end reserves:
One year later 45.6% 42.4% 42.1% 40.7% 39.0% 40.7% 29.0% 42.4% 46.6% 46.1%
Two years later 59.6% 61.1% 65.4% 59.0% 59.0% 51.7% 55.0% 68.5% 68.9%
Three years later 70.1% 78.1% 70.9% 68.9% 62.6% 67.5% 74.7% 81.3%
Four years later 85.0% 76.1% 74.6% 67.8% 74.9% 81.6% 84.1%
Five years later 79.9% 77.5% 71.3% 77.4% 85.7% 88.0%
Six years later 79.2% 73.7% 79.9% 87.5% 90.1%
Seven years later 75.2% 81.4% 88.9% 91.8%
Eight years later 82.4% 89.7% 93.0%
Nine years later 90.6% 93.6%
Ten years later 94.2%
Reserves re-estimated
as a percent of
year-end reserves:
One year later 94.4% 93.3% 91.1% 94.6% 92.9% 92.3% 93.6% 97.5% 103.2% 99.7%
Two years later 88.0% 90.8% 103.4% 94.9% 89.0% 84.6% 93.0% 99.0% 100.7%
Three years later 88.4% 101.9% 93.1% 89.2% 83.3% 89.0% 97.9% 99.2%
Four years later 101.4% 91.1% 89.2% 83.6% 89.3% 95.3% 99.3%
Five years later 91.0% 87.6% 83.8% 89.2% 96.3% 97.9%
Six years later 87.3% 83.0% 89.7% 95.4% 98.4%
Seven years later 82.8% 89.3% 96.5% 97.9%
Eight years later 88.9% 96.5% 99.5%
Nine years later 96.5% 99.9%
Ten years later 99.8%
Redundancy (deficiency) 5.6% 12.0% 11.6% -1.4% 9.0% 12.7% 17.2% 11.1% 3.5% 0.2%
</TABLE>
Reinsurance
Meridian follows the customary industry practice of limiting exposure
by ceding to reinsurers a portion of the premiums received and risks
assumed under the policies reinsured. Reinsurance is purchased to
reduce a net liability on individual risks to predetermined limits and
to protect against multiple losses from a single catastrophe or a
series of catastrophes. Although reinsurance does not discharge an
insurer from its primary liability for claims up to the full limits of
the policies, it makes the assuming reinsurer liable to the insurer to
the extent of the reinsurance ceded. Employers Reinsurance
Corporation, rated "A++" by Best, is Meridian's principal reinsurer
providing property and liability excess of loss coverage. Meridian
uses a large number of reinsurers for property's catastrophe and
facultative coverages to reduce the effect of a default by any one
reinsurer. Most of these companies are rated "A-" or better by Best,
or an equivalent rating by other recognized independent rating
agencies. Reinsurers not rated by Best or another independent agency
are analyzed and approved by Meridian's reinsurance broker, E. W.
Blanch, and by Company management.
The reinsurance purchased includes contracts under which certain types
of policies are automatically reinsured up to the contract limits
("treaty reinsurance") and contracts which provide reinsurance on an
individual risk basis which require specific agreement of the
reinsurer as to limits of coverage provided ("facultative
reinsurance"). Meridian Mutual, Meridian Security, Meridian Citizens
Mutual, Meridian Citizens Security, and ICO were each named as insured
parties under the treaty reinsurance contracts, and the coverages
under those contracts applied to all risks written by each of the
companies. Treaty reinsurance coverage was purchased to cover
property and liability exposures in excess of $200,000 and $400,000,
respectively, up to the limits set forth in the individual treaty. In
1998, the retention was $200,000 for property and $350,000 for
liability. Facultative reinsurance was purchased to cover exposures
on both property and liability coverages from losses over and above
the limits provided by the treaty reinsurance.
Catastrophe reinsurance provided coverage for multiple losses caused
by a single catastrophic event such as a windstorm or earthquake. The
combined retention under this contract was $6,000,000 plus five
percent of losses up to contractual limits for windstorms of
$65,000,000 and for earthquakes of $108,000,000. Another catastrophe
reinsurance treaty provided coverage for 95 percent of losses
sustained from multiple catastrophic events which aggregated beyond
specified retentions and per event deductibles, up to the contractual
limits.
As of December 31, 1999, the Company had approximately $34.1 million
of reinsurance recoverable on unpaid losses. Of this amount,
approximately $19.8 million was recoverable from Employers Reinsurance
Corporation and approximately $12.4 million was recoverable from the
Michigan Catastrophic Claims Association, a mandatory state-
administered personal injury protection reinsurance pool in which all
insurers writing automobile business in that state must participate.
The cost of the reinsurance contracts are negotiated annually. If the
relationships were to be terminated with the current reinsurers,
management believes that, under current circumstances, relationships
with other reinsurers could be established without a material adverse
effect on its business.
Meridian assumes a limited amount of reinsurance from third parties.
This business accounted for less than one percent of net premiums
written in 1999.
Investments
Investments of the Company are principally held by Meridian Security,
Meridian Citizens Security and ICO, which are subject to regulation by
their respective departments of insurance. The investment decisions
are made pursuant to guidelines established by the Company's Finance
and Investment Committee. This committee is made up of six directors
of the Company, four of whom are also directors of Meridian Mutual.
All investment transactions are reviewed by this committee.
The investment guidelines established by the Finance and Investment
Committee are intended to reflect a prudent approach to managing
invested assets. Investments are required to be diversified by type
of issuer, type of security and type of industry. Specific
restrictions prohibit investments in real estate mortgages unless the
related credit instruments are collateralized by federal or government
agencies, and also limit the amount which may be invested in common
stocks, based upon the premium-to-surplus ratio of the Company.
The Company's fixed maturity portfolio, which is made up of bonds and
sinking fund preferred stocks, consists almost entirely of investment
grade securities, the average quality of which is rated Aa/AA. The
fixed maturity securities at December 31, 1999 and 1998 were made up
entirely of securities classified as available for sale, which are
carried on the Company's balance sheet at fair market value. The
Company invests in both taxable and tax-exempt securities as part of
its investment strategy. This strategy considers, among other
factors, the impact of the alternative minimum tax. Tax-exempt bonds,
on a carrying value basis, made up approximately 29.0 percent and 17.9
percent of the total fixed maturity portfolio at December 31, 1999 and
1998, respectively. On a carrying value basis, sinking fund preferred
stocks made up approximately 10.8 percent and 9.2 percent of the total
fixed maturity portfolio of the Company at December 31, 1999 and 1998,
respectively.
The Company also holds investments in mortgage-backed pass-through
securities and collateralized mortgage obligations ("CMO") which had a
carrying value of $39.8 million and $44.9 million at December 31, 1999
and 1998, respectively. The Company has attempted to reduce the
prepayment risks associated with mortgage-backed securities by
investing a majority of the Company's CMO holdings in planned
amortization and very accurately defined tranches. These investments
are designed to alleviate the risk of prepayment by providing
predictable principal prepayment schedules within a designated range
of prepayments. If principal is prepaid earlier than originally
anticipated, investment yields may decrease due to reinvestment of
these funds at lower current interest rates and capital gains or
losses may be realized since the book value of securities purchased at
premiums or discounts may be different than the prepayment amount.
As a result of the number of early calls and prepayments, the
estimated weighted average duration of the fixed maturity portfolio is
approximately 4.9 years.
The Company, as approved by the Finance and Investment Committee, has
increased its equity security holdings over the past four years.
Equity securities primarily consist of common stocks and had a fair
market value of $69.0 million and $64.0 million at December 31, 1999
and 1998, respectively. Equity securities accounted for 23.1 percent
and 20.4 percent of the total investment portfolio at December 31,
1999 and 1998, respectively.
Regulation
Numerous aspects of the business and operations of the Company's
insurance subsidiaries and affiliates are subject to supervision and
regulation in each state in which they transact business. The primary
purpose of state supervision and regulation is the protection of
policyholders. The extent of such regulation varies among states but
generally derives from state statutes which delegate regulatory,
supervisory, and administrative authority to state insurance
departments. The authority of state insurance departments generally
extends to the establishment of solvency standards which must be met
and maintained by insurers, the licensing of insurers and agents, the
nature of and limitations on investments and premium rates, the
provisions which insurers must make for current losses and future
liabilities, the deposit of securities for the benefit of
policyholders, the approval of policy forms, the payment of dividends,
the establishment of premium rates and the settlement of claims.
State insurance departments also conduct periodic examinations of
insurance companies and require the filing of annual and other reports
relating to the financial condition of insurance companies.
The regulatory agencies of each state have statutory authority to
enforce their laws and regulations through various administrative
orders, civil and criminal enforcement proceedings, and the suspension
or revocation of certificates of authority. In extreme cases,
including insolvency, impending insolvency and other matters, a
regulatory authority may take over the management and operation of an
insurer's business and assets.
Meridian Mutual and Meridian Security are admitted as insurers in the
states of Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Maryland, Michigan, Minnesota, Missouri, North Dakota, Ohio,
Pennsylvania, South Dakota, Tennessee, Virginia, Washington, and
Wisconsin. Meridian Security is also licensed to write insurance in
Arizona. Meridian Citizens Security and Meridian Citizens Mutual hold
licenses to write in Arizona, Iowa, Maryland, Minnesota, Missouri,
North Dakota, Ohio, South Dakota, and Wisconsin. Meridian Citizens
Mutual is also licensed to write insurance in Illinois, Indiana,
Kansas, Kentucky, Michigan, Pennsylvania, Tennessee, and Washington.
ICO is admitted as an insurer in the state of Ohio. Under insolvency
or guaranty laws in the states in which the above companies operate,
insurers doing business in those states can be assessed up to
prescribed limits for losses incurred by policyholders of insolvent
insurance companies. The maximum amounts that can be assessed against
an insurer in any one year under the insolvency or guaranty laws of
the states named above are limited to a specified percentage of the
annual direct premiums written by the company in the state in question
with respect to the affected lines of business. Additionally, the
companies are required to participate in various mandatory pools or
underwriting associations.
The Company is subject to statutes governing insurance holding
companies. Typically, such statutes require the Company to file
information periodically concerning its capital structure, ownership,
financial condition, and material transactions between the Company and
its insurance subsidiaries not in the ordinary course of business.
The Company's insurance subsidiaries are subject to periodic
examination by the insurance departments of the states in which they
do business, and the payment of dividends by the insurance
subsidiaries to the Company is subject to certain limitations. (See
Note 13 of Notes to Consolidated Financial Statements.) Certain
transactions between the Company and its insurance subsidiaries
including changes in the terms of the pooling agreement and certain
loan transactions, if any, may be effected only upon prior approval
thereof by state regulatory authorities in the insurance company's
state of domicile. Certain transactions deemed to constitute a
"change in control" of the Company, including a party's purchase of 10
percent or more of the outstanding common shares, are all subject to
approval by state regulatory authorities.
Changes in the laws or regulations to which the Company is subject
could adversely affect the operations of the Company. Specific
regulatory developments which could materially adversely affect the
operations of the Company include, but are not limited to, the
potential repeal of the McCarran-Ferguson Act (which exempts insurance
companies from a variety of federal regulatory requirements) and rate
rollback legislation. The Company will continue to monitor current
developments closely.
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance, which will replace the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on
statutory accounting. The Codification provides guidance for areas
where statutory accounting has been silent and changes current
statutory accounting in some areas, e.g. deferred income taxes are
recorded.
The Indiana, Ohio, and Minnesota Insurance Departments have adopted
the Codification guidance, effective January 1, 2001. The Company has
not yet estimated the potential effect of the Codification guidance on
statutory surplus.
Competition
The property and casualty insurance industry is highly competitive.
Price competition has been particularly intense during recent years
and is expected to continue for the foreseeable future. Meridian
Mutual, Meridian Security, Meridian Citizens Mutual, and Meridian
Citizens Security all compete with other property and casualty
insurers, both in the recruitment and retention of qualified agents
and in the sale of insurance products to consumers. The Company
believes the principal competitive factors in its markets to be
service to agents and policyholders and price. Success in recruiting
and retaining agents is dependent upon the administrative support
provided to agents, commission rates, and the ability of the insurer
to provide products that meet the needs of the agent and the agent's
customers.
In selling its insurance products, Meridian Mutual, Meridian Security,
Meridian Citizens Mutual, and Meridian Citizens Security compete with
other insurers writing through independent agents (including insurers
represented by the independent agents who represent Meridian), with
insurers having their own agency organizations and with direct sellers
of insurance products. There are numerous companies competing for
business in the geographic areas in which the Company, Meridian Mutual
and Meridian Citizens Mutual operate. No single company dominates the
marketplace, but many of Meridian's competitors have more established
national reputations and substantially greater financial resources and
market share.
Employees
In 1997, the Company became the employer of all employees that were
formerly employed by Meridian Mutual and Meridian Citizens Mutual.
This transfer allows for more freedom in compensation planning, such
as flexibility in the use of the Company's common stock as
compensation, and improves internal efficiencies by combining employee
benefit plans. Prior to the change, the Company had no employees and
relied upon Meridian Mutual and Meridian Citizens Mutual to provide
all management and administrative services required by the Company.
The Company employs approximately 600 people and believes that its
relationship with its employees is satisfactory.
Audit Practices
The Board of Directors has an Audit Committee composed of four
directors who are not employees of the Company or its affiliates.
Usually meeting in conjunction with the Meridian Mutual Audit
Committee, the committee monitors the Company's financial reporting
and internal control systems and reviews the work of the Company's
internal audit function.
The Company retains the firm of PricewaterhouseCoopers LLP as
independent accountants to perform an independent audit of the
financial statements of the Company and its affiliates. The audit is
conducted in accordance with generally accepted auditing standards.
The independent accountants have unlimited access to, and meet
regularly with, the Audit Committee.
ITEM 2: PROPERTIES
The headquarters building of the Company is owned by Meridian Mutual
and is located near downtown Indianapolis, Indiana. The building is a
multi-level structure containing approximately 205,000 square feet of
office space. Expansion efforts completed in 1995, have allowed the
Company and Meridian Mutual to consolidate the two Indianapolis
satellite offices, two regional claim offices, and the Meridian
Citizens Mutual operation previously in Red Wing, Minnesota into the
home office facility.
ITEM 3: LEGAL PROCEEDINGS
The Company's insurance subsidiaries are parties to litigation arising
in the ordinary course of their business. The Company believes that
the resolution of these lawsuits will not have a material adverse
effect on its financial condition.
A civil lawsuit was filed on July 23, 1999, by an insured alleging the
failure of the Company to pay the full collision loss as required by
the automobile insurance policy. The plaintiff's complaint asked the
court to certify a class of plaintiffs comprised of the Company's
insureds in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota,
Missouri, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee,
Virginia, and Wisconsin who had submitted a claim for damages to an
insured automobile for collision or other than collision coverages
from August 15, 1993, forward. Management intends to vigorously
defend this claim and filed a Motion to Dismiss the plaintiff's
complaint. The Company's Motion to Dismiss was granted on March 6,
2000.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
The Company's common stock has traded on the NASDAQ Stock Market under
the symbol "MIGI" since completing an initial public offering of
1,700,000 shares in March 1987 at a price of $12 per share. On May 5,
1993, the Company completed a second public offering of 1,725,000
common shares at $12 per share. As of March 10, 2000, approximately
48.1 percent of the common stock was owned by Meridian Mutual and the
balance was spread among approximately 230 common shareholders of
record, including many brokers holding shares for their individual
clients. The number of individual shareholders on the same date was
approximately 1,100. The number of Common Shares outstanding on March
10, 2000, totaled 7,925,666. Information relating to the common stock
is available through the NASDAQ Stock Market System and the following
table sets forth the high, low and closing sale prices of the common
stock for each quarter of 1999 and 1998. The stock prices reflect the
ten percent stock dividends declared in December 1999 and 1998.
1999 1998
High Low Close High Low Close
Quarter Ended
March 31 $ 18.41 $ 13.64 $ 14.32 $ 16.32 $ 13.64 $ 15.50
June 30 $ 15.46 $ 13.30 $ 15.23 $ 16.84 $ 14.77 $ 15.81
September 30 $ 16.19 $ 14.77 $ 15.34 $ 18.18 $ 14.77 $ 15.39
December 31 $ 15.34 $ 12.00 $ 14.00 $ 18.41 $ 13.22 $ 18.41
Dividend Policy
Since the first quarter of 1996 and prior to the December 1998 and
1999 ten percent stock dividends, the Company paid a quarterly cash
dividend of $0.08 per common share. Subsequent to the stock
dividends, the cash dividend rate remained at $0.08 per common share,
effectively increasing the cash dividend. The continued payment of
dividends is reviewed quarterly by the Board of Directors in relation
to changes in the financial condition and results of operations of the
Company. The ability of the Company to pay dividends is dependent
upon the receipt of dividends from its insurance company subsidiaries,
which are subject to state laws and regulations which restrict their
ability to pay dividends. (See Note 13 of the Notes to Consolidated
Financial Statements.)
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes,
and other financial information included elsewhere in this document.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Operating data:
Premiums earned $ 199,420 189,188 194,587 167,304 143,866
Net investment income 16,325 17,246 16,372 14,908 14,564
Realized investment gains 6,699 7,342 4,477 3,794 1,538
Other income (expense) (15) (59) 1,042 563 (146)
Total revenues 222,429 213,717 216,478 186,569 159,822
Losses and loss adjustment expenses 150,218 136,620 149,219 130,101 99,124
General operating expenses 16,686 16,686 16,505 13,767 14,156
Interest expense 45,556 42,918 42,894 36,443 30,820
Amortization expenses 532 672 732 308 ---
Total expenses 212,992 196,896 209,350 180,619 144,100
Income before taxes and change
in accounting method 9,437 16,821 7,128 5,950 15,722
Income taxes (benefit): 1,893 4,670 207 150 4,105
Income before change in accounting
method 7,544 12,151 6,921 5,800 11,617
Cumulative effect of change in
accounting method, net of tax (294) --- --- --- ---
Net Income $ 7,250 12,151 6,921 5,800 11,617
Weighted average shares outstanding * 7,969 8,021 8,087 8,203 8,192
Basic earnings per share * $ 0.91 1.51 0.85 0.71 1.42
Diluted earnings per share * $ 0.90 1.50 0.85 0.70 1.42
Dividends declared per share * $ 0.30 0.27 0.26 0.26 0.24
Underwriting ratios (statutory basis):
Loss and loss adjustment expense ratio 75.3% 71.8% 76.8% 78.0% 69.2%
Expense ratio 30.1 31.1 30.3 30.0 31.0
Combined ratio 105.4% 102.9% 107.1% 108.0% 100.2%
Balance sheet data at end of period:
Total investments $ 299,578 313,822 308,427 281,689 254,694
Total assets 398,223 408,858 413,586 397,798 322,588
Total liabilities 261,414 266,889 281,692 275,624 204,346
Shareholders' equity 136,809 141,969 131,894 122,174 118,243
Shareholders' equity per share * $ 17.26 17.82 16.45 14.89 14.42
</TABLE>
* Retroactively restated to reflect the 10 percent stock dividends
declared in December 1999 and 1998.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview:
Net income declined in 1999, in spite of an increase in revenues. The
primary factor behind the decrease in earnings was an increase in the
loss ratios for several lines of business. While net investment
income and realized gains on the sales of investments declined
somewhat during 1999, total revenues increased by 4.1 percent, driven
by a 5.4 percent increase in premiums earned. Earned premiums are
expected to continue to increase in 2000, given the trend in net
written premiums, which increased over 9.8 percent in 1999, compared
with 1998.
One of the Company's growing lines of business is non-standard
automobile coverage. The Company began selling this product in 1998.
During 1999 the pool of Meridian companies wrote approximately $21
million in non-standard auto premium. Continued growth is expected in
2000. Non-standard automobile insurance covers drivers with no prior
insurance or with driving records that do not qualify them for
standard or preferred premium rates. Non-standard policies are
generally sold at higher premiums to offset increased risk of loss.
The non-standard auto policies are marketed through the Company's
independent agency force, select non-standard specialty agents, and
directly via the internet in certain states in which the Company does
not sell personal lines through independent agents.
Another source of premium growth is the Company's relationship with
GROUPadvantage. This sales arrangement makes Meridian's personal
lines products available through franchised independent agencies to
Sam's Club members in certain states. In late 1998, the Company began
writing business in Michigan and Illinois through this distribution
channel. During 1999, this arrangement was expanded to include
Missouri, Ohio, and Pennsylvania, with Kansas and Wisconsin added in
early 2000. (GROUPadvantage is a registered serviced mark of Consumer
Insurance Services of America (CISA) and is used under license from
CISA.)
Late in 1999, the Company entered into a marketing arrangement with
InsWeb, a leading Internet insurance marketplace, to quote personal
automobile products on the Internet. Meridian is initially quoting
policies for consumers in Virginia, with Washington and Missouri
expected soon. In addition, during 1999 Meridian added a direct
website, www.meridiandirect.com, through which consumers are able to
apply for Meridianr insurance products, receive quotations and
purchase products in certain states in which the Company does not sell
personal lines through independent agents.
The implementation of new distribution methods does not detract from
the Company's strong support of the independent agency system.
Marketing products through independent agents has been and continues
to be the Company's primary source of distribution. The Company
continues to build these relationships and has a growing group of
nearly 1,400 independent agents.
The Company has been steadily expanding its operations into new
states. At the end of 1994, Meridian operated in seven states,
entirely in the Midwest. The Company has significantly increased its
geographic diversification in recent years and is currently licensed
in 19 states. Additional state expansion, including Florida, Oregon,
Utah, and Washington D.C., is planned for 2000.
In addition to growth initiatives, the Company is working to increase
profitability through consistent exercise of underwriting discipline,
proper pricing, sound investment management, enhanced customer service
and cost control. During 1999 the Company continued its expense
consolidation efforts. The Meridian Citizens personal and commercial
lines processing was successfully integrated into the Company's
Indianapolis headquarters and the Red Wing, Minnesota office was
closed. These actions are expected to save approximately $1.1 million
of costs annually, beginning in 2000.
Forward-Looking Statements
Statements in this annual report that are not strictly historical may
be "forward looking" statements which involve risks and uncertainties.
The Company's future results could differ materially from those
discussed. Risk factors include: variation in catastrophe losses due
to changes in weather patterns or other natural causes; changes in
property and casualty reserves; developments in insurance regulations
or legislation that may affect the Company; technological difficulties
and advancements; general economic conditions; fluctuations in
interest rates or securities markets; or market and competitive
changes affecting pricing or demand for insurance products or the
ability to generate investment income. Growth and profitability have
been and may be affected by these and other factors.
Year 2000 Disclosures
As we approached the end of the century, there was a significant
concern that many information technology products would not recognize
the year 2000. Businesses were at risk for possible calculation
errors or system failures which could cause a disruption in their
operations. This became commonly known as the Year 2000 ("Y2K")
issue.
In 1995, Meridian began the initial planning phase to ensure that all
systems were Y2K compliant. As a result of this planning, it was
determined that Meridian would utilize internal resources to complete
the necessary remediation. This would allow Meridian to contain costs
and maintain control as well as provide consistency in system
applications. As a result of this decision, a team of programmers was
hired under the direction of experienced internal management to
address the issue. It was determined that the Meridian Citizens
project team would operate independently utilizing contracted
personnel to complete the project. Such personnel, our former
contracted outside automation services providers, were under contract
to complete and test the Y2K programming efforts as well as provide
daily systems support.
The next stage of the process was to identify those systems and
programs that contained date sensitive fields throughout the operating
systems. The internal approach taken to address the issue was field
expansion. This expansion allowed the date fields to be expanded and
allowed programs to distinguish dates based upon an eight digit code
as opposed to a six digit code. The Meridian Citizens approach
implemented by the outside automation services provider, took into
account the various operating platforms used to process data. A
combination of field expansion and "windowing" was selected to address
the Y2K issue. The "windowing" approach utilized a two digit year
currently in the date fields and assumed the two digit century field
fell within an established "window." For example, any result over 50
signified the 20th century and any under fifty, the 21st century.
Prioritizing the effort was done by reviewing those systems and
programs which would require the effective date change prior to
January 1, 2000, such as the policy processing systems which required
renewal processing as early as November 1, 1998. Extensive
reprogramming now allows the internal policy processing systems to
recognize the difference between the 20th and the 21st century.
Updated policy processing systems have been in production and
compliant since November 1997. During the third quarter of 1998, code
remediation was also completed for the Meridian management reporting
systems and front-end client server applications. The Meridian
Citizens companies, which operated under a different platform, largely
achieved Y2K compliance as certified by the outside services provider
in August 1998 and have been in production since that time.
Mainframe, front-end client server, and critical network programming
have also been completed. The remediated policy processing systems
were tested and are processing policies with Y2K dates.
During the fourth quarter of 1998, the Information Systems operations
of the Meridian Citizens companies were moved to the Indianapolis home
office location. This change allowed for certain cost savings and a
more consistent application of programming discipline throughout the
organization. Prior to the move, Y2K remediation efforts were
completed by an outside vendor for the Meridian Citizens companies.
While reviewing other processing issues, internal personnel discovered
instances in which remediation efforts had not correctly been
completed. These issues were resolved when discovered. The manner in
which these systems were constructed or designed did not provide for a
test environment. Therefore, a more detailed analysis was performed
by a project team consisting of both internal and external resources.
This extensive analysis encompassed applications which were previously
understood to be compliant. These applications were reviewed for date
sensitive related code to determine that the Y2K remediation was
completed correctly. Re-programming efforts, as required, were
performed to obtain Y2K compliance.
Costs for the Y2K remediation approximated $1.3 million upon
completion. Such incremental costs have been estimated at
approximately $200,000 in 1996, $400,000 in 1997 and 1998, with an
additional $300,000 for 1999. The Company was able to manage the cost
of its Y2K effort because of the early start of the project and the
overall approach of hiring additional internal resources as opposed to
extensively utilizing outside programmers. Approximately 50 percent
of the total costs related to programming personnel. The remainder of
these costs related to the replacement of software applications,
hardware costs, and outside consulting fees. Due to the complexity
and importance of the Y2K project, the Company engaged independent
consultants to review the planning and methods utilized within the
project for all subsidiaries. The written report received from the
independent consultants contained comments and suggestions which were
implemented and incorporated into the final Y2K action plans. Y2K
costs were funded through operating revenues and represented less than
10 percent of the information systems annual budgets. Costs for the
Meridian Citizens remediation were included under the automation
programming charges incurred by the Company on a monthly basis and
were therefore not distinguishable from normal programming fees.
As part of the readiness program, the Company also recognized the
impact that significant outside vendors, agents, and other business
associates could have on the ability to transact business. As a
result, the Company reviewed vendor associated software and hardware
products utilized within the organization to determine the Y2K effort
that would be necessary to achieve readiness. Hardware and software
vendors were required to provide certification of Y2K compliance for
all products or services afforded to the enterprise. All vendor
products purchased within the last two years were certified and
documented. Testing took place for each product in a pseudo Y2K
environment prior to moving to production. Additionally, the Company
established contact with agents and certain vendors to highlight the
Y2K issue. This contact was established for the purpose of reasonably
ascertaining the Y2K impact.
Contingency plans were developed by management of the Information
Resources Division. The plans included the necessary steps to verify
the functionality and to validate the compliance of each system. The
contingency plans included the use of the Company's business
resumption/disaster recovery "hot site" in Chicago. This hot site was
prepared to run mainframe applications with very little lag time
should all other contingencies have failed. While successful testing
was performed at this site on two occasions during 1999, the Company
did not need to utilize this source as the year 2000 began. The
Company required key personnel to work during the holiday weekend
beginning December 31, 1999, to insure a smooth transition into the
year 2000 and found only a minor issue that was immediately resolved
by replacing a personal computer.
No material effect on operations or financial results occurred because
of the calendar year change. Any future problems are anticipated to
be minimal and further reporting of Y2K issues will not be made,
unless the occurrence is material to the Company.
No significant information technology projects having a material
effect on the Company's financial position or results of operations
were deferred as a direct result of Y2K efforts.
The Company did not issue insurance policies covering risks related to
the Year 2000 issue. However, there can be no certainty regarding
future judicial or legislative interpretations of coverage.
Results of Operations:
1999 Compared to 1998
Net income for 1999 declined to $7.3 million, or $0.90 diluted
earnings per share, down from $12.2 million, or $1.50 per diluted
share for 1998. Realized investment gains for 1999 decreased to $6.7
million, or $0.54 per share after tax, from $7.3 million, or $0.59 per
share after tax, for 1998. Earnings per share included a $0.04 first
quarter charge for the cumulative effect of an accounting change for
certain insurance-related assessments. Also included was a fourth
quarter non-recurring charge of approximately $625,000, or $0.05 per
share after tax, for severance and other costs associated with closing
the former Minnesota home office of the Meridian Citizens Insurance
Companies.
The Company's total revenues for 1999 increased 4.1 percent to $222.4
million from $213.7 million in 1998. Premiums earned increased 5.4
percent to $199.4 million for 1999 in comparison to $189.2 million for
1998, while net written premiums were up 9.8 percent over the prior
year. Most of the 1999 growth in written premiums was generated from
the non-standard auto product and from the Sam's Club sales
arrangement through GROUPadvantage, along with approximately 6.0
percent commercial lines growth. Farmowners production was generally
flat, while core personal lines of business generated through
independent agents declined by approximately 1.5 percent.
Net investment income of approximately $16.3 million for 1999
decreased by 5.3 percent in comparison to $17.2 million for 1998. This
decline is attributable to a number of factors, including slight
reductions in yield and in the average balance of fixed maturity
investments held during the year. For the years ended December 31,
1999 and 1998, the Company realized net investment gains of
approximately $6.7 and $7.3 million, respectively. The current year's
realized gains resulted largely from the sale of certain equity
securities, which had been trading at relatively high price/earnings
multiples and had reached the Company's price targets.
Loss and loss adjustment expenses increased from the $136.6 million
reported for 1998 to $150.2 million in 1999. Relative to earned
premiums, the loss and loss adjustment expense ratio increased to 75.3
percent in 1999, compared with 72.2 percent in 1998. Weather -related
catastrophe losses accounted for over seven percentage points of the
ratios in both years, with approximately $14.4 million of such losses
in 1999 compared to $14.7 million in 1998. Due in large part to such
weather-related losses, property lines of business remained
unprofitable, while the casualty lines of business were profitable in
both 1999 and 1998. The personal lines loss ratio of 78.6 percent
increased from 75.8 percent in 1998. The 1999 commercial lines loss
ratio increased to 68.5 percent from 66.3 percent in 1998. The
increases in the 1999 ratios were generally due to loss costs and
severity and, to an extent in certain lines, to prior years' premium
rate actions. Loss frequency was not a major factor, as overall
frequency comparisons changed only a small fraction of one percent
between 1998 and 1999.
General operating and amortization expenses of $62.2 million in 1999
increased from the $59.6 million recorded during 1998. Relative to
the earned premium volume, the Company's 1999 expense ratio decreased
slightly to 31.2 percent compared to 31.5 percent for 1998. The
increase in premium volume over which to spread fixed costs was a
factor behind this decrease, as was cost savings resulting from the
prior year consolidation of the Meridian Citizens information systems
into the Company's Indianapolis location.
For the year ended December 31, 1999, the Company recorded income tax
expense of $1.9 million compared to $4.7 million for the same period
last year. The decrease in the effective tax rate resulted primarily
from the amounts of tax exempt interest and the dividends received
deduction, relative to the reduced level of pre-tax income.
1998 Compared to 1997
Net income for 1998 grew 76 percent to $12.2 million, or $1.50 diluted
earnings per share, up from $6.9 million, or $0.85 per diluted share
for 1997. This improvement was achieved in spite of more than double
the amount of weather-related catastrophe losses in 1998, compared
with 1997. Net catastrophe losses were approximately $14.7 million in
1998 versus approximately $7.3 million for 1997. The Company's
combined ratio improved to 102.9 percent for 1998 from 107.1 percent
in 1997. Realized investment gains for 1998 increased to $7.3
million, or $0.59 per share after tax, from $4.5 million, or $0.36 per
share after tax, for 1997.
The Company's total revenues for 1998 decreased 1.3 percent to $213.7
million from $216.5 million in 1997. Premiums earned decreased 2.8
percent to $189.2 million for 1998 in comparison to $194.6 million for
the previous year. Net written premiums for the Company's personal
lines of business decreased by approximately 1.0 percent. This was
the combination of a 3.8 percent increase in personal automobile
premiums and a 13.5 decrease in written premium for the homeowners
line of business. The personal automobile growth was favorably
affected by the introduction of the new non-standard automobile
product. Net written premiums for the farmowners line of business
increased approximately 1.0 percent. Commercial lines net written
premium decreased approximately 7.0 percent. Underwriting actions were
taken in 1997 and early 1998 to improve profitability, negatively
affecting premium revenue growth in the short-term. Additionally,
intense competition and a soft pricing environment continued to affect
market conditions in the Company's operating territory, particularly
for commercial lines of business.
Net investment income of approximately $17.2 million for 1998
increased 5.3 percent in comparison to $16.4 million for 1997. This
increase was due in part to a larger invested asset base for much of
the year. The Company's pre-tax net investment yield was enhanced by a
reduction in the tax-advantaged portfolio allocation and a reduced
allocation to investment expenses. For the years ended December 31,
1998 and 1997, the Company realized net investment gains of
approximately $7.3 and $4.5 million, respectively. The 1998 realized
gains resulted largely from the sale of certain equity securities, as
well as from certain municipal bond sales motivated by tax planning
strategies.
Loss and loss adjustment expenses decreased from the $149.2 million
reported at year-end 1997 to $136.6 million in 1998. The improvement
was achieved despite the high level of weather-related catastrophe
losses which hit the midwest. Many of the Company's operating states
reported significant weather-related damage. Most significantly,
industry statistics indicated Minnesota, the largest state of
operation for the Meridian Citizens companies, incurred more such
losses in 1998 than in the last 49 years combined. This caused the
Meridian Citizens companies to incur approximately half of the
Company's consolidated catastrophe losses, while generating less than
20 percent of the Company's premium volume. The Company estimated
weather-related losses to approximate $14.7 million in 1998 compared
to $7.3 million in 1997. Despite the record level of catastrophe
weather-related claims, the statutory loss and loss adjustment
expense ratio improved for nearly all lines of business when compared
to 1997. The personal lines loss ratio of 75.8 percent improved 7.6
percentage points from 1997. Personal automobile, the Company's
largest line of business, had a 1998 loss ratio of 69.2 percent,
compared to 78.7 percent for 1997. The 1998 commercial lines loss
ratio of 66.3 percent was also an improvement over the 1997 result of
68.8 percent. Worker's compensation continued to be very profitable
for the Company reporting a 49.5 percent loss ratio in 1998 versus
52.5 percent for 1997. Much of the improvement in the Company's core
book of business was attributed to underwriting actions implemented in
late 1997 and early 1998. The Company generally experienced favorable
trends during 1998 in both the frequency and severity of claims
incurred.
General operating and amortization expenses of $59.6 million in 1998
slightly increased from the $59.4 million recorded during 1997.
Relative to earned premium volume, the Company's 1998 expense ratio
increased to 31.5 percent compared to 30.5 percent for 1997. The
reduction in premium volume over which to spread fixed costs was a
factor behind this increase, as were costs to initiate new growth
strategies. During the fourth quarter of 1998, the Company
consolidated two regional claims centers and the Meridian Citizens
information systems into the Company's Indianapolis location. While
expected to produce cost savings beginning in 1999, incremental costs
to implement these changes were estimated at approximately $0.04 per
share after tax in 1998.
For the year ended December 31, 1998, the Company recorded income tax
expense of $4.7 million compared to $0.2 million for the same 1997
period. The higher level of pre-tax income and a reduction in the tax-
advantaged portfolio allocation to municipal bonds and sinking fund
preferred stocks were the primary factors in the increase.
Liquidity and Capital Resources:
The Company's primary need for liquidity is to pay shareholder
dividends and service debt. Its main source of liquidity is the
receipt of dividends from its subsidiaries. The Company's
subsidiaries are subject to state laws and regulations which restrict
their ability to pay dividends. During each of the years 1999, 1998
and 1997, Meridian Security declared and paid annual dividends to the
Company of $5.0 million. The principal need of the Company's
insurance subsidiaries for liquid funds is the payment of claims and
general operating expenses in the ordinary course of business. The
funds of the Company's insurance subsidiaries are generally invested
in securities with maturities intended to provide adequate cash to pay
such claims and expenses without forced sales of investments. The
average duration of the fixed maturity portfolio is approximately 4.9
years. Over the next year, a relatively small portion of the
Company's bond portfolio is scheduled to mature.
Approximately 76 percent of the Company's investment assets are held
in fixed maturities, substantially all of which are believed to be
readily marketable. Within the fixed maturity portfolio, the Company
holds approximately 18 percent in mortgage-backed pass-through
securities and collateralized mortgage obligations. The Company has
attempted to reduce the prepayment risks associated with mortgage-
backed securities by investing a majority of the collateralized
mortgage obligations in planned amortization and very accurately
defined tranches. These investments are designed to alleviate the
risk of prepayment by providing predictable principal prepayment
schedules within a designated range of prepayments.
The Company's fixed income investment portfolio consists almost
entirely of investment grade securities, the average quality of which
is rated Aa / AA. The Company currently holds all of its fixed
maturity investments in the "available-for-sale" category carried at
market value. The Company at December 31, 1999 recorded unrealized
losses in the fixed maturity portfolio of approximately $3.7 million,
net of deferred income taxes. At year-end 1998, the Company recorded
unrealized gains on the fixed maturity portfolio of approximately $4.8
million, net of deferred income taxes. The Company's equity security
portfolio, which accounted for approximately 23 percent of invested
assets at year-end 1999, had unrealized gains, net of deferred income
taxes, of approximately $9.6 million at December 31, 1999, compared to
approximately $10.2 million at December 31, 1998. Net unrealized
appreciation of investments added $0.76 to the Company's $17.26 book
value per share at December 31, 1999. Net unrealized appreciation
added $1.91 per share to the $17.82 book value at December 31, 1998.
The Company does have exposure to market rates and prices. The
Company's primary market risk exposures are changes in price for
equity securities and changes in interest rates and credit ratings for
fixed maturity securities. The Company, with the Board of Directors,
administers and oversees investment risk through the Investment
Committee, which provides executive oversight of investment
activities. The Company has specific investment guidelines and
policies that define the overall framework used daily by investment
portfolio managers to limit the Company's exposure to market risk.
The Company does not own or currently utilize derivative financial
instruments for the purpose of hedging, enhancing the overall return
of its investment portfolio, or reducing the cost of its bank debt.
Meridian, through its outside professional portfolio managers, employs
traditional investment management tools and techniques to address the
yield and valuation exposures of its invested assets. The long term
fixed maturity investment portfolio is managed so as to limit various
risks inherent in the bond market. Credit risk is addressed through
adequate diversification and the purchase of investment grade
securities. Reinvestment rate risk is controlled through asset-
liability matching practices and by addressing call characteristics in
security selection. Market value risk is addressed through maturity
selection. The market value of the Company's long term fixed maturity
investment portfolio is sensitive to fluctuations in the level of
interest rates. The impact of interest rate movements on the long
term fixed maturity investment portfolio generally affects net
realized gains or losses when securities are sold. The Company
estimates that a 100 basis point increase in interest rates from
current levels would result in a possible decline in the $226.4
million market value of the long term fixed maturity investment
portfolio of approximately 4.1 percent, or $9.3 million. With regard
to its $69.0 million equity security portfolio, the Company does not
own nor engage in any type of option writing. A 10% decrease in the
U.S. equity market prices could result in a decrease of $6.9 million
in the market value of the Company's common equities. These possible
declines in values for the bond and stock portfolios would, net of
deferred income taxes, negatively affect the common shareholders'
equity at any point in time, but would not necessarily result in the
recognition of realized investment losses as long as operating cash
flow and the ongoing emergence of bond maturities continued to provide
sufficient funds to meet obligations to policyholders and claimants,
as well as debt service and cash dividend requirements at the holding
company level.
On May 6, 1997, the Company announced that its Board of Directors had
authorized the repurchase of up to 350,000 common shares, or
approximately five percent of the Company's outstanding common stock.
As of December 31, 1999, the Company had repurchased 291,557 shares,
or approximately 83 percent of the authorized total, at a cost of
approximately $4.6 million. On February 23, 2000, the Company
announced that its Board of Directors had authorized the additional
repurchase of up to 400,000 common shares.
In July 1996, the Company completed the acquisition of Citizens
Security Group Inc. of Red Wing, Minnesota. The Company purchased all
of the outstanding shares of Citizens Security Group Inc. and its
wholly-owned property and casualty insurance subsidiaries, Meridian
Citizens Security Insurance Company and Insurance Company of Ohio, for
approximately $30.3 million in cash, including capitalized acquisition
costs, and became affiliated with Meridian Citizens Mutual Insurance
Company. Approximately 60 percent of the purchase price was generated
from the sale of a portion of the Company's investment portfolio. The
remaining $12 million was financed through bank debt and is being
amortized over seven years with a variable interest rate of LIBOR plus
50 basis points. The acquisition was accounted for as a purchase with
the assets acquired and liabilities assumed being recorded at their
estimated fair value at the date of acquisition. The excess cost over
the fair value of the net assets of approximately $14.5 million was
recorded as goodwill, which is being amortized on a straight-line
basis over a 25 year period.
Beginning in 1994, state insurance regulators required companies to
calculate Risk Based Capital ("RBC"). RBC is the capital required to
cover the varying degrees of risk inherent in a company's assets, loss
reserves, underwriting, and reinsurance. The "company action level"
RBC is the minimum amount of capital required in order to avoid
regulatory action. The adjusted capital of the Company's insurance
subsidiaries is well above the required minimum.
Impact of Inflation:
Inflation can have a significant impact on property and casualty
insurers because premium rates are established before the amount of
losses and loss adjustment expenses is known. The Company attempts to
anticipate increases from inflation in establishing rates, subject to
limitations imposed for competitive pricing.
The Company considers inflation when estimating liabilities for losses
and loss adjustment expenses, particularly for claims having a long
period between occurrence and settlement. The liabilities for losses
and loss adjustment expenses are management's estimates of the
ultimate net cost of underlying claims and expenses and are not
discounted for the time value of money. In times of inflation, the
normally higher investment yields available may partially offset
potentially higher claims and expenses.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page
Report of Independent Accountants 26
Financial Statements:
Consolidated Statement of Income 27
Consolidated Balance Sheet 28
Consolidated Statement of Shareholders' Equity 29
Consolidated Statement of Cash Flows 30
Notes to Consolidated Financial Statements 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Meridian Insurance Group, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 50 present fairly, in all
material respects, the financial position of Meridian Insurance Group,
Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In
addition, in our opinion, the financial statement schedules listed in
the index appearing under Item 14(a)(2) on page 50 present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated statements. These financial
statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion
on these financial statements and financial statement schedules based
on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company
changed its method of accounting for insurance-related assessments.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 22, 2000
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the Years Ended December 31, 1999, 1998 and 1997
(Unaudited)
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Premiums earned $ 199,420,059 $ 189,188,422 $ 194,586,632
Net investment income 16,324,820 17,245,684 16,371,711
Realized investment gains 6,699,847 7,342,074 4,477,580
Other income (expense) (15,425) (59,017) 1,042,350
Total revenues 222,429,301 213,717,163 216,478,273
Losses and loss adjustment expenses 150,217,608 136,619,991 149,218,731
General operating expenses 16,686,439 16,686,387 16,505,515
Amortization expenses 45,556,040 42,917,642 42,893,857
Interest expense 532,006 672,630 732,047
Total expenses 212,992,093 196,896,650 209,350,150
Income before taxes and change
in accounting method 9,437,208 16,820,513 7,128,123
Income taxes (benefit):
Current 1,445,000 2,514,968 1,067,000
Deferred 448,000 2,155,000 (860,000)
Total income taxes 1,893,000 4,669,968 207,000
Income before change in accounting
method 7,544,208 12,150,545 6,921,123
Cumulative effect of change in
accounting method, net of tax (293,700) --- ---
Net Income $ 7,250,508 $ 12,150,545 $ 6,921,123
Weighted average shares outstanding 7,969,226 8,021,285 8,087,079
Per share data:
Basic earnings per share before
change in accounting method $ 0.95 $ 1.51 $ 0.86
Accounting change, net of tax, per share (0.04) 0.00 0.00
Basic earnings per share $ 0.91 $ 1.51 $ 0.86
Diluted earnings per share before
change in accounting method $ 0.94 $ 1.50 $ 0.85
Accounting change, net of tax, per share (0.04) 0.00 0.00
Diluted earnings per share $ 0.90 $ 1.50 $ 0.85
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31, 1999 and 1998
December 31,
1999 1998
ASSETS
Investments:
Fixed maturities, available for sale at market
(cost $232,090,000 and $234,632,000) $ 226,431,532 $ 241,993,962
Equity securities, at market
(cost $54,282,000 and $48,338,000) 69,002,099 64,020,661
Short-term investments, at cost, which
approximates market 2,822,215 6,431,482
Other invested assets 1,322,209 1,375,463
Total investments 299,578,055 313,821,568
Cash 1,381,888 854,522
Premium receivable, net of allowance
for bad debts 13,113,315 5,625,470
Accrued investment income 3,314,756 2,950,290
Deferred policy acquisition costs 19,974,450 17,671,856
Goodwill 14,070,480 14,775,426
Reinsurance receivables 34,057,786 41,803,624
Prepaid reinsurance premiums 3,592,121 3,362,441
Due from Meridian Mutual Insurance Company 4,620,574 7,528,333
Other assets 4,519,700 463,990
Total assets $ 398,223,125 $ 408,857,520
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $ 145,962,418 $ 154,252,671
Unearned premiums 88,698,507 81,223,095
Other post-employment benefits 2,204,739 1,935,616
Bank loan payable 8,500,000 10,125,000
Payable for securities --- 3,061,898
Reinsurance payables 9,142,015 9,811,976
Other liabilities 6,906,277 6,478,431
Total liabilities 261,413,956 266,888,687
Shareholders' equity:
Common shares, no par value, Authorized 20,000,000 shares;
issued 8,218,167 and 8,180,883; outstanding 7,926,610 and
7,968,083 at December 31, 1999 and 1998,
respectively (including 10% stock dividend issued
on January 6, 1999, for 658,493 shares, and
January 11, 2000, for 721,872 shares) 44,793,300 44,336,679
Treasury Shares, at cost; 291,557 and 212,800
shares at December 31, 1999 and 1998,
respectively (4,566,809) (3,277,781)
Contributed capital 36,481,864 25,923,462
Retained earnings 54,112,519 59,796,235
Accumulated other comprehensive income 5,988,295 15,190,238
Total shareholders' equity 136,809,169 141,968,833
Total liabilities and shareholders' equity $ 398,223,125 $ 408,857,520
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the Years Ended December 31, 1999, 1998 and 1997
(Unaudited)
<CAPTION>
Accumulated
Other
Common Treasury Contributed Retained Comprehensive Comprehensive
Shares Shares Capital Earnings Income (Loss) Income (Loss)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 $ 44,077,846 $ -- $ 15,058,327 $ 55,895,962 $ 7,141,846
Comprehensive income:
Net income -- -- -- 6,921,123 -- $ 6,921,123
Other comprehensive
income, net of tax:
Unrealized gain on securities,
net of reclassification
adjustment -- -- -- -- 7,207,386 7,207,386
Comprehensive income -- -- -- -- -- $ 14,128,509
Dividends ($0.26 per share) -- -- -- (2,132,637) --
Issuance of 1,989 common shares 32,570 -- -- -- --
Repurchase of 154,500 common shares -- (2,308,188) -- -- --
Balance at December 31, 1997 $ 44,110,416 $ (2,308,188)$ 15,058,327 $ 60,684,448 $ 14,349,232
Comprehensive income:
Net income -- -- -- 12,150,545 -- $ 12,150,545
Other comprehensive
income, net of tax:
Unrealized gain on securities,
net of reclassification
adjustment -- -- -- -- 841,006 841,006
Comprehensive income -- -- -- -- -- $ 12,991,551
Stock dividend (shares issued
658,493) -- -- 10,865,135 (10,865,135) --
Repurchase of 58,300 common shares -- (969,593) -- -- --
Issuance of 3,666 restricted shares 65,209 -- -- -- --
Exercise of stock options for 12,989
common shares 161,054 -- -- -- --
Dividends ($0.27 per share) -- -- -- (2,173,623) --
Balance at December 31, 1998 $ 44,336,679 $ (3,277,781)$ 25,923,462 $ 59,796,235 $ 15,190,238
Comprehensive income:
Net income -- -- -- 7,250,508 -- $ 7,250,508
Other comprehensive
income (loss), net of tax:
Unrealized loss on securities,
net of reclassification
adjustment -- -- -- -- (9,201,943) (9,201,943)
Comprehensive income (loss) -- -- -- -- -- $ (1,951,435)
Stock dividend (shares issued
721,872) -- -- 10,558,402 (10,558,402) --
Repurchase of 78,757 common
shares -- (1,289,028) -- -- --
Issuance of 3,104 restricted
shares 57,618 -- -- -- --
Exercise of stock options for 36,389
common shares 393,439 -- -- -- --
Issuance of 290 common
shares 5,564 -- -- -- --
Dividends ($0.30 per share) -- -- -- (2,375,822) --
Balance at December 31, 1999 $ 44,793,300 $ (4,566,809)$ 36,481,864 $ 54,112,519 $ 5,988,295
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the Years Ended December 31, 1999, 1998 and 1997
(Unaudited)
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,250,508 $ 12,150,545 $ 6,921,123
Reconciliation of net income to net cash
provided by (used in)operating activities:
Amortization 45,556,040 42,917,642 42,893,857
Deferred policy acquisition costs (47,153,688) (42,233,924) (43,125,066)
Deferred income taxes 448,000 2,155,000 (860,000)
Increase (decrease) in unearned premiums 7,475,412 (1,616,238) (1,226,418)
Increase (decrease) in loss and loss
adjustment expenses (8,290,253) (15,548,655) 8,492,087
Decrease (increase) in premium receivables (7,487,845) (1,282,313) 331,827
Decrease in amount due from Meridian Mutual 2,907,759 194,944 1,250,395
Decrease (increase) in reinsurance receivables 7,745,838 7,046,442 (2,999,236)
Decrease (increase) in prepaid reinsurance premiums (229,680) 499,066 1,159,098
Decrease (increase) in other assets (1,598,464) 1,143,489 5,549,960
Increase (decrease) in reinsurance payables (669,961) 733,900 413,718
Increase (decrease) in accrued commissions and
other expenses 1,013,569 (685,937) (144,604)
Increase in payable for federal income taxes 215,964 315,368 642,735
Increase (decrease) in other liabilities 1,191,728 (1,794,478) (1,839,705)
Net realized investment gains (6,699,847) (7,342,074) (4,477,580)
Issuance of restricted common stock 57,618 65,209 ---
Issuance of common stock 5,564 --- 32,570
Cumulative effect of change in accounting method 293,700 --- ---
Other, net (1,017,880) (6,583) 725,432
Net cash provided by (used in) operating activities 1,014,082 (3,288,597) 13,740,193
Cash flows from investing activities:
Purchase of fixed maturities (61,355,250) (99,643,783) (54,141,776)
Proceeds from sale of fixed maturities 42,415,984 78,138,240 26,135,592
Proceeds from calls, prepayments and maturity
of fixed maturities 20,822,177 29,141,214 22,393,353
Purchase of equity securities (22,439,634) (21,960,794) (33,956,533)
Proceeds from sale of equity securities 24,482,244 21,316,297 31,160,867
Net (increase) decrease in short-term investments 3,609,267 (2,435,250) (2,669,598)
Increase in other invested assets (118,999) (489,800) (50,509)
Increase (decrease) in securities payable (3,061,898) 3,071,384 401,707
Net cash provided by (used in) investing activities 4,353,891 7,137,508 (10,726,897)
Cash flows from financing activities:
Dividends paid (2,320,018) (2,124,274) (2,144,839)
Repayment of bank loan (1,625,000) (1,250,000) (500,000)
Repurchase of common stock (1,289,028) (969,593) (2,308,188)
Exercise of stock options 393,439 161,055 ---
Net cash used in financing activities (4,840,607) (4,182,812) (4,953,027)
Increase (decrease) in cash 527,366 (333,901) (1,939,731)
Cash at beginning of year 854,522 1,188,423 3,128,154
Cash at end of year $ 1,381,888 $ 854,522 1,188,423
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Nature of Operations:
Meridian Insurance Group, Inc. ("the Company"), was organized in
1986 as a subsidiary of Meridian Mutual Insurance Company
("Meridian Mutual"), an Indiana mutual insurance company that
currently owns 48.1 percent of the outstanding common shares of
the Company. The Company is a holding company principally engaged
in the business of underwriting property and casualty insurance
through its wholly-owned subsidiaries, Meridian Security Insurance
Company ("Meridian Security") and Meridian Citizens Security
Insurance Company ("Meridian Citizens Security").
Meridian Security, Meridian Citizens Security, and Insurance
Company of Ohio ("ICO," a wholly-owned subsidiary of the Company)
are participants in a reinsurance pooling arrangement with
Meridian Mutual and Meridian Citizens Mutual Insurance Company
("Meridian Citizens Mutual"), in which the underwriting income and
expenses of each entity are shared. The participation percentages
of the Company's insurance subsidiaries total 74 percent. See
Note 6 - Related Party Transactions.
Collectively, the insurance companies participating in this
reinsurance pooling arrangement write a broad line of property and
casualty insurance, including personal, non-standard and
commercial automobile; homeowners, farmowners and commercial multi-
peril; and workers' compensation. Business is written primarily
through nearly 1,400 independent insurance agencies in the states
of Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan,
Minnesota, Missouri, North Dakota, Ohio, Pennsylvania, South
Dakota, Tennessee, Virginia, and Wisconsin.
Basis of Presentation:
The consolidated financial statements have been prepared on the
basis of generally accepted accounting principles which differ in
some respects from those followed in reports to insurance
regulatory authorities. Certain prior year amounts have been
reclassified to conform to the current-year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
and disclosure of certain assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation:
The consolidated financial statements include the accounts of
Meridian Insurance Group, Inc., and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
Investments:
Fixed maturity investments include bonds, notes, mortgage backed
pass-through securities, collateralized mortgage obligations,
other asset backed securities and sinking fund preferred stocks.
The fixed maturity portfolio is invested entirely in securities
classified as available for sale and is carried at quoted market
values. Equity securities, consisting of unaffiliated common and
perpetual preferred stocks, are reported at quoted market values.
Short-term investments are recorded at cost, approximating market
value. Other investments include limited partnerships recorded on
the equity method.
Realized gains or losses on disposition of investments are
determined on a specific identification basis. Unrealized gains
and losses resulting from changes in the valuation of both equity
securities and fixed maturities available for sale are recorded as
a component of other comprehensive income, net of applicable
deferred income taxes.
The Company regularly evaluates its investments based on current
economic conditions, past credit loss experience and other
circumstances. A decline in a security's net market value that is
not a temporary fluctuation is recognized as a realized loss, and
the cost basis of that security is reduced.
Premium Revenue:
Premiums are recognized as revenue on a monthly pro rata basis
over the coverage terms of the respective policies. Any premiums
applicable to the future terms of the policies are included in
liabilities as unearned premiums.
Deferred Policy Acquisition Costs:
Policy acquisition costs, principally commissions, premium taxes,
and variable underwriting and policy issue expenses, have been
deferred. Such costs are amortized as premium revenue is earned.
The method used in computing deferred policy acquisition costs
limits the amount of such deferred costs to their estimated
realizable value. It also considers the effects of anticipated
investment income, losses and loss adjustment expenses, and
certain other costs anticipated to be incurred as the premium is
earned.
Goodwill:
The Company's goodwill represents the excess of cost over the fair
value of identifiable net assets acquired from business
acquisitions and is being amortized on a straight-line basis over
a 25-year period. The Company continually monitors the value of
its goodwill based on estimates of future earnings of the
subsidiaries that were acquired. If it is determined that changes
in such projected earnings no longer support the recoverability of
goodwill over the remaining amortization period, the carrying
value would be reduced with a corresponding charge to expense or
the amortization period would be shortened. As of December 31,
1999 no material changes have occurred.
Losses and Loss Adjustment Expenses:
Reserves for unpaid losses and loss adjustment expenses are based
on both estimates of the ultimate costs of individual claims and
on other non-discounted estimates, such as claims incurred but not
reported and salvage and subrogation. The methods of making such
estimates are continually reviewed and updated, and any reserve
adjustments are reflected in current operating results.
Income Taxes:
Deferred income taxes are provided to reflect the estimated future
tax effects of temporary differences between the tax basis of an
asset or liability and the basis recorded in financial statements.
The deferred tax asset or liability is measured by using enacted
tax rates expected to apply to future taxable income in the
periods in which the temporary differences are expected to be
recovered or settled. Accordingly, changes in future tax rates
cause immediate adjustments to deferred taxes.
Earnings Per Share:
The Company presents basic and diluted earnings per share in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". Basic earnings per share
excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential that could occur if securities or other
contracts to issued common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity.
Stock Dividend:
On both December 9, 1998, and December 15, 1999, a ten percent
stock dividend was declared that was effective for shareholders of
record as of December 21, 1998, and December 27, 1999,
respectively. The financial statements, notes, and other
references to share and per share data have been retroactively
restated to reflect the stock dividend for all periods presented.
Impact of New Accounting Pronouncements:
Effective January 1, 1999, the Company adopted SOP 97-3
"Accounting by Insurance and Other Enterprises for Insurance-
Related Assessments." This statement requires that a liability
for insurance-related assessments be recognized when the
assessments have been imposed or it is probable that an assessment
will be imposed, the event obligating the Company has occurred,
and the amount can be reasonably estimated. SOP 97-3 requires
that a liability for the current calendar year experience be
recognized and that the initial application be treated as a
cumulative effect type accounting change. The Company recorded an
additional liability and a charge to the statement of income of
$293,700 net of income tax, to reflect the cumulative effect of
the accounting change.
In June 1998 the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." In July 1999, the FASB released SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FASB Statement No. 133, An
Amendment of FASB Statement No. 133." SFAS No. 137 defers the
effective date of this pronouncement to fiscal years beginning
after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments (including
derivative instruments that are embedded in other contracts)
and hedging activities. All items that are required to be
recognized must be displayed according to accounting standards
in the statement of financial position at fair value. The Company
does not hold any derivative instruments and does not currently
participate in hedging activities. The Company does not
anticipate a material impact upon adoption of this statement.
2. Investments
The Company's net investment income for the periods ended December 31,
1999, 1998, and 1997 are summarized as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Interest on fixed maturities:
Tax-exempt securities $ 2,688,621 $ 2,531,304 $ 3,909,985
Taxable securities 11,047,013 11,883,195 9,905,146
Dividends on redeemable preferred stock 1,439,793 1,769,286 2,078,536
Dividends on equity securities 1,175,473 1,011,335 879,579
Interest on short-term investments 158,591 229,347 156,128
Other investment income 113,310 149,589 187,159
Total investment income 16,622,801 17,574,056 17,116,533
Investment expenses 297,981 328,372 744,822
Net investment income $ 16,324,820 $ 17,245,684 $ 16,371,711
</TABLE>
Net realized and unrealized gains on investments are summarized as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities $ (294,085) $ 2,628,256 $ 14,108
Equity securities 7,986,729 6,263,104 5,052,295
Other investments (317) (701,038) ---
Total realized investment gains 7,692,327 8,190,322 5,066,403
Investment expenses 992,480 848,248 588,823
Net realized investment gains $ 6,699,847 $ 7,342,074 $ 4,477,580
Net change in unrealized appreciation (depreciation):
Fixed maturities, available for sale $ (13,021,008) $ (1,379,804) $ 4,755,339
Equity securities (962,682) 2,734,114 6,098,280
Limited partnerships (172,253) (61,304) 235,767
Deferred income tax benefit (expense) 4,954,000 (452,000) (3,882,000)
Net change in unrealized appreciation
(depreciation) $ (9,201,943) $ 841,006 $ 7,207,386
</TABLE>
The amortized cost and estimated market values of investments in fixed maturity
securities at December 31, 1999 and 1998, are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1999
Available for sale:
Government and agency
domestic bonds $ 3,258,428 $ 11,307 $ 66,182 $ 3,203,553
Municipal bonds 67,940,463 535,412 1,936,532 66,539,344
Corporate bonds 95,509,178 204,486 3,632,129 92,081,534
Mortgage-backed securities 40,841,608 103,645 1,194,057 39,751,196
Sinking fund preferred stocks 24,540,660 469,103 153,859 24,855,905
Total fixed maturity securities $ 232,090,337 $ 1,323,953 $ 6,982,759 $ 226,431,532
December 31, 1998
Available for sale:
Government and agency
domestic bonds $ 3,681,320 $ 107,949 $ 9,855 $ 3,779,414
Municipal bonds 42,585,763 1,669,262 143,068 44,111,957
Corporate bonds 123,432,824 3,797,535 334,305 126,896,053
Mortgage-backed securities 44,234,647 789,650 95,072 44,929,225
Sinking fund preferred stocks 20,697,205 1,622,315 42,207 22,277,313
Total fixed maturity securities $ 234,631,759 $ 7,986,711 $ 624,507 $ 241,993,962
</TABLE>
The amortized cost and estimated market value of fixed maturity securities
available for sale at December 31, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized Market
Cost Value
Available for sale:
Due in one year or less $ 1,834,471 $ 1,840,032
Due after one year through five years 19,143,159 19,199,604
Due after five years through ten years 60,607,713 58,943,343
Due after ten years through fifteen years 53,241,844 51,038,374
Due after fifteen years through twenty years 27,381,699 27,586,263
Due after twenty years 29,039,843 28,072,720
Subtotal 191,248,729 186,680,336
Mortgage-backed securities 40,841,608 39,751,196
Total fixed maturity securities $ 232,090,337 $ 226,431,532
Proceeds from sales of investments in fixed maturity securities
during 1999, 1998 and 1997, respectively, were $42,415,984,
$78,138,240, and $26,135,592. During 1999, 1998 and 1997,
respectively, gross gains of $110,779, $2,672,721, and $338,920
and gross losses of $404,864, $44,464, and $324,812 were realized
on those sales.
Unrealized appreciation of equity securities at December 31, 1999
totaled $14,720,302 representing $18,850,995 of gains on certain
securities and $4,130,693 of losses on other securities.
3. Other Comprehensive Income
The Company's other comprehensive income consists solely of net
unrealized gains (losses) on securities. The total net unrealized
gain (losses) on securities for the years ended December 31, 1999,
1998 and 1997 consist of the following:
<TABLE>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Unrealized holding gains (losses) before
deferred income taxes $ (6,463,616)$ 9,485,328 $ 16,155,789
Deferred income tax benefit (expense) 2,262,000 (3,320,000) (5,655,000)
Less: Reclassification adjustment for
realized gains 7,692,327 8,190,322 5,066,403
Income tax expense related to
realized gains (2,692,000) (2,866,000) (1,773,000)
Other comprehensive income (loss) $ (9,201,943)$ 841,006 $ 7,207,386
</TABLE>
4. Segment Reporting
The following tables display the Company's reportable segments, a
reconciliation of segment data to total consolidated financial
data, and related disclosure information concerning revenues as
required by SFAS No. 131. Segments were defined based upon the
Company's structure and decision making processes. Personal,
commercial and farm lines are segmented within all internal
reporting mechanisms to aid chief decision makers in achieving
profitable results within each business segment. Amortization was
allocated by segment based upon a ratio of premium. Investment
income was determined consistent with statutory modeling
requirements for the Insurance Expense Exhibit. These guidelines
rely on historical reserve patterns by line of business. Asset
information by reportable segment is not reported, since the
Company does not internally produce such information.
<TABLE>
1999
<CAPTION>
Segment Non-segment
Personal Farmowners Commercial Total Total Total
<S> <C> <C> <C> <C> <C> <C>
Premiums earned $ 117,975,956 $ 10,935,071 $ 70,509,032 $ 199,420,059 $ --- $ 199,420,059
Net investment income 9,657,686 895,161 5,771,973 16,324,820 --- 16,324,820
Net realized gains --- --- --- --- 6,699,847 6,699,847
Other income (expense) --- --- --- --- (15,425) (15,425)
Total revenues 127,633,642 11,830,232 76,281,005 215,744,879 6,684,422 222,429,301
Loss and LAE expense 92,789,256 8,996,924 48,431,428 150,217,608 --- 150,217,608
General operating expense 9,209,248 955,579 6,521,613 16,686,440 --- 16,686,440
Interest expense --- --- --- --- 532,006 532,006
Amortization expenses 25,142,385 2,608,847 17,804,807 45,556,039 --- 45,556,039
Total expenses 127,140,889 12,561,350 72,757,848 212,460,087 532,006 212,992,093
Income (loss) before taxes and
change in accounting method 492,753 (731,118) 3,523,157 3,284,792 6,152,416 9,437,208
Income taxes (benefit) 174,107 (258,330) 1,244,858 1,160,635 732,365 1,893,000
Income (loss) before change in
accounting method 318,646 (472,788) 2,278,299 2,124,157 5,420,051 7,544,208
Cumulative effect of change
in accounting method --- --- --- --- 293,700 293,700
Net income (loss) $ 318,646 $ (472,788) $ 2,278,299 $ 2,124,157 $ 5,126,351 $ 7,250,508
1998
Premiums earned $ 107,806,522 $ 10,878,882 $ 70,503,018 $ 189,188,422 $ --- $ 189,188,422
Net investment income 9,554,172 936,329 6,755,183 17,245,684 --- 17,245,684
Net realized gains --- --- --- --- 7,342,074 7,342,074
Other income (expense) --- --- --- --- (59,017) (59,017)
Total revenues 117,360,694 11,815,211 77,258,201 206,434,106 7,283,057 213,717,163
Loss and LAE expense 82,258,735 7,976,382 46,384,874 136,619,991 --- 136,619,991
General operating expense 8,694,496 1,013,191 6,978,700 16,686,387 --- 16,686,387
Interest expense --- --- --- --- 672,630 672,630
Amortization expenses 22,362,375 2,605,943 17,949,324 42,917,642 --- 42,917,642
Total expenses 113,315,606 11,595,516 71,312,898 196,224,020 672,630 196,896,650
Income before taxes 4,045,088 219,695 5,945,303 10,210,086 6,610,427 16,820,513
Income taxes 1,123,059 60,995 1,650,626 2,834,680 1,835,288 4,669,968
Net income $ 2,922,029 $ 158,700 $ 4,294,677 $ 7,375,406 $ 4,775,139 $ 12,150,545
1997
Premiums earned $ 107,801,599 $ 10,564,810 $ 76,220,223 $ 194,586,632 $ --- $ 194,586,632
Net investment income 9,069,988 888,878 6,412,845 16,371,711 --- 16,371,711
Net realized gains --- --- --- --- 4,477,580 4,477,580
Other income --- --- --- --- 1,042,350 1,042,350
Total revenues 116,871,587 11,453,688 82,633,068 210,958,343 5,519,930 216,478,273
Loss and LAE expense 90,861,513 6,269,043 52,088,175 149,218,731 --- 149,218,731
General operating expense 8,680,147 954,436 6,870,932 16,505,515 --- 16,505,515
Interest expense --- --- --- --- 732,047 732,047
Amortization expenses 22,557,610 2,480,349 17,855,898 42,893,857 --- 42,893,857
Total expenses 122,099,270 9,703,828 76,815,005 208,618,103 732,047 209,350,150
Income (loss) before taxes (5,227,683) 1,749,860 5,818,063 2,340,240 4,787,883 7,128,123
Income taxes (benefit) (151,811) 50,816 168,956 67,961 139,039 207,000
Net income (loss) $ (5,075,872) $ 1,699,044 $ 5,649,107 $ 2,272,279 $ 4,648,844 $ 6,921,123
</TABLE>
As required by SFAS No. 131, the following table delineates the Company's
products and revenues in a manner which is consistent with segment
reporting:
1999 1998 1997
Personal lines:
Automobile $ 91,123,405 $ 79,438,864 $ 78,609,066
Homeowners 24,271,745 25,649,226 26,262,790
Other 2,580,806 2,718,432 2,929,743
Total personal lines $ 117,975,956 $ 107,806,522 $ 107,801,599
Commercial lines:
Automobile $ 18,532,450 $ 17,666,781 $ 17,826,255
Worker's compensation 22,874,065 22,442,522 25,586,297
Commercial multi-peril 24,539,325 25,983,425 28,041,002
Other 4,563,192 4,410,290 4,766,669
Total commercial lines $ 70,509,032 $ 70,503,018 $ 76,220,223
Farm lines:
Farmowners 10,935,071 10,878,882 10,564,810
Total farm lines $ 10,935,071 $ 10,878,882 $ 10,564,810
Total all lines combined $ 199,420,059 $ 189,188,422 $ 194,586,632
5.Bank Loan Payable
The 1996 acquisition of Citizens Security Group acquisition
was funded in part through a $12,000,000 bank loan. The debt
has a variable interest rate of LIBOR plus 50 basis points, which was
6.6613 percent and 5.7388 percent at December 31, 1999 and 1998,
respectively. The bank loan will mature on August 1, 2003.
The Company is required to make principal payments in accordance
with the following schedule:
2000 $ 2,000,000
2001 2,125,000
2002 2,500,000
2003 1,875,000
Total payments outstanding $ 8,500,000
The principal balance of the bank loan as of December 31, 1999,
approximates its market value. Interest paid on the loan during
1999 and 1998 amounted to $532,000 and $672,000, respectively.
The bank debt includes certain financial covenants, the most
significant of which concern the amounts of risk based capital,
statutory policyholders' surplus, total debt, debt to capitalization
and debt service coverage (the relationship of dividends
available from the Company's insurance subsidiaries to required
principal and interest payments).
6.Related Party Transactions
Meridian Security, Meridian Citizens Security, ICO, Meridian
Mutual, and Meridian Citizens Mutual are parties to a reinsurance
pooling agreement ("pooling agreement") under which essentially
all premiums, loss and loss adjustment expenses, as well as other
underwriting expenses are shared by the companies on the basis of
their percentage participation defined in the pooling agreement.
The reinsurance pool participation percentages of the Company's
insurance subsidiaries total 74 percent. Other expenses are
allocated on the basis of specific identification or estimated
costs. Amounts either due to or due from Meridian Mutual and
Meridian Citizens Mutual result from these transactions, and are
normally reimbursed on a monthly basis. Management believes that
such expenses would not be materially different if incurred
directly by each company.
For the year ended December 31, 1999, approximately 78 percent of
the Company's total premium volume was derived from its
participation in the pooling agreement. In 1998 and 1997,
approximately 86 percent and 88 percent, respectively, were
derived from the pooling arrangement.
Effective January 1, 1997, the Company became the employer of all
of the former Meridian Mutual and Meridian Citizens Mutual
employees. This transfer of employees allowed for the integration
of benefit plans, thus increasing management efficiencies and
allowing for enhanced benefit options, such as the use of the
Company's common stock as compensation.
Also as a result of the employee transfer, the Company assumed the
operations of the previously established benefit plans of Meridian
Mutual. Included in these benefit plans were a non-contributory
pension plan that covers substantially all employees, a non-tax
qualified supplemental retirement plan for certain key employees,
and a multi-employer plan for other post-retirement benefits. See
Note 10-Pension Plan and Other Post-Retirement Benefits. The
Company also assumed a 401(k) plan whereby employees can
contribute up to 16 percent of their compensation, with the
Company contributing 50 percent of the employee contribution on
the first 6 percent. Costs related to these benefit plans are
allocated to each company in accordance with their percentage
participation under the pooling agreement.
7. Liability for Losses and Loss Adjustment Expenses
Activity in the liability for losses and loss adjustment expenses
is summarized as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of period $ 154,252,671 $ 169,801,326 $ 161,309,239
Less reinsurance recoverables 41,803,624 48,872,464 41,819,308
Net balance at beginning of period 112,449,047 120,928,862 119,489,931
Incurred related to:
Current year 157,071,731 145,328,331 165,576,734
Prior years (6,854,123) (8,708,340) (16,358,003)
Total incurred 150,217,608 136,619,991 149,218,731
Paid related to:
Current year 99,470,630 93,792,456 97,447,542
Prior years 51,291,393 51,307,350 50,332,258
Total paid 150,762,023 145,099,806 147,779,800
Net balance at end of period 111,904,632 112,449,047 120,928,862
Plus reinsurance recoverables 34,057,786 41,803,624 48,872,464
Balance at end of period $ 145,962,418 $ 154,252,671 $ 169,801,326
</TABLE>
The reconciliations for 1999, 1998, and 1997 show approximately
$6.9 million, $8.7 million, and $16.4 million reductions,
respectively, in previously established loss reserves. Favorable
loss developments resulting from decreases in the frequency and
severity of claims in prior accident years for the Company's
personal automobile liability, workers' compensation and
commercial multi-peril lines of business were the primary factors
in the reductions.
8.Reinsurance
The companies that participate in the reinsurance pooling
agreement reduce the maximum net loss that can arise from large
risks or risks in concentrated areas of exposure by reinsuring
their insurance business with unrelated third party insurers. In
accordance with industry practice, the Company in its consolidated
financial statements treats risks, to the extent reinsured, as
though they were risks for which the Company is not liable.
Reinsurance recoverables are estimated in a manner consistent with
the claim liability associated with the reinsured policy.
Insurance ceded by the Company's insurance subsidiaries does not
relieve the subsidiaries' primary liability as the originating
insurers.
The reinsurance purchased includes contracts under which certain
types of policies are automatically reinsured up to the contract
limits ("treaty reinsurance") and contracts which provide
reinsurance on an individual risk basis which require a specific
agreement of the reinsurer as to limits of coverage provided
("facultative reinsurance"). Meridian Mutual, Meridian Security,
Meridian Citizens Mutual, Meridian Citizens Security, and ICO were
each named as insured parties under the treaty reinsurance
contracts, and the coverage under those contracts applied to all
risks written by each of the companies. Treaty coverage was
purchased to cover property and liability exposures in excess of
$200,000 and $400,000, respectively, up to the limits set forth in
the individual treaty. (In 1998 and 1997, the exposures were
$350,000 and $200,000, respectively.) Facultative reinsurance was
purchased to cover exposures on both property and liability
coverages from losses over and above the limits provided by the
treaty reinsurance.
Catastrophe reinsurance provided coverage for multiple losses
caused by a single catastrophic event such as a windstorm or
earthquake. The combined retention under this contract was
$6,000,000 plus five percent of losses up to contractual limits
for windstorms of $65,000,000 and for earthquakes of $108,000,000.
Another catastrophe reinsurance treaty provided coverage for 95%
of losses sustained from multiple catastrophic events which
aggregated beyond specified retentions and per event deductibles
up to the contractual limits.
Approximately 97 percent of the Company's ceded reserves for
losses and loss adjustment expenses were with Employers
Reinsurance Corporation, Michigan Catastrophic Claims Association
and Swiss Reinsurance America Corporation. The effect of
reinsurance on premiums written, premiums earned and losses and
loss adjustment expenses for the years ended December 31, 1999,
1998 and 1997 were as follows:
1999 1998 1997
Premiums written:
Direct $ 223,584,026 $ 204,046,222 $ 210,393,552
Assumed 366,751 486,305 718,004
Ceded (17,285,000) (16,461,276) (16,592,247)
Net $ 206,665,777 $ 188,071,251 $ 194,519,309
Premiums earned:
Direct $ 216,078,155 $ 205,534,750 $ 211,105,812
Assumed 397,210 614,042 1,232,165
Ceded (17,055,306) (16,960,370) (17,751,345)
Net $ 199,420,059 $ 189,188,422 $ 194,586,632
Losses and loss adjustment expenses incurred:
Direct $ 160,929,807 $ 151,184,461 $ 168,173,120
Assumed 57,832 624,892 1,355,214
Ceded (10,770,031) (15,189,362) (20,309,603)
Net $ 150,217,608 $ 136,619,991 $ 149,218,731
9. Deferred Policy Acquisition Costs
Changes in deferred policy acquisition costs are summarized as
follows:
1999 1998 1997
Deferred, beginning of period $ 17,671,856 $ 17,651,544 $ 16,690,275
Additions:
Commissions 34,870,279 31,845,030 32,391,959
Premium taxes 3,074,928 2,416,582 2,375,996
Other 9,208,481 7,972,312 8,357,111
Total additions 47,153,688 42,233,924 43,125,066
Amortization expense 44,851,094 42,213,612 42,163,797
Deferred, end of period $ 19,974,450 $ 17,671,856 $ 17,651,544
10. Pension Plan and Other Post-Retirement Benefits
The Company maintains a defined benefit pension plan for the
benefit of eligible employees. Under the plan, all employees of
the Company completing more than 1,000 hours of employment in a 12-
month period become eligible to participate. The plan provides for
a pension annuity beginning at age 65 based on the employee's
average monthly base pay during the five highest consecutive salary
years out of the last ten. Provisions for delayed retirement
benefits, early retirements benefits after age 55, disability and
death benefits, optional methods for benefit payment, payments to
an employee who leaves after a certain number of years of service,
and payments to an employee's surviving spouse are also covered
under the plan.
The Company also maintains a non-tax qualified supplemental
retirement income plan for certain key employees who participate in
the defined benefit pension plan. The plan provides additional
benefits in excess of the limitations imposed by Section 401(a)(17)
and Section 415 of the Internal Revenue Code on plans to which
those sections apply. The benefit is in the form of a straight
life annuity over the lifetime of the participant and commences on
the participant's normal retirement date.
The following table presents a reconciliation of the funded status
for the Company's defined benefit pension plan and the amounts
recognized in the Company's consolidated balance sheet as of
December 31, 1999 and 1998 per FASB 132 requirements:
1999 1998
Reconciliation of benefit obligation:
Obligation at January 1 $ 27,117,622 $ 23,432,716
Service cost 1,345,750 1,067,292
Interest cost 1,748,264 1,608,088
Plan amendments --- 1,131,954
Actuarial (gain) loss (4,679,250) 1,165,040
Benefit payments (1,273,206) (1,287,468)
Obligation at December 31 $ 24,259,180 $ 27,117,622
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1 $ 34,401,026 $ 31,582,957
Actual return on plan assets 6,004,071 4,105,537
Benefit payments (1,273,206) (1,287,468)
Fair value of plan assets at December 31 $ 39,131,891 $ 34,401,026
Funded Status
Funded status at December 31 $ 14,872,711 $ 7,283,404
Unrecognized asset (6,483,880) (7,015,956)
Unrecognized prior service cost 984,688 1,058,321
Unrecognized gain (8,440,374) (603,345)
Accrued asset at December 31 $ 933,145 $ 722,424
The following table presents a reconciliation of the funded status
for the Company's supplemental retirement income plan and the
amounts recognized in the Company's consolidated balance sheet as
of December 31, 1999 and 1998:
1999 1998
Reconciliation of benefit obligation:
Obligation at January 1 $ 1,050,623 $ 760,102
Service cost 46,533 37,193
Interest cost 69,839 59,987
Actuarial (gain) loss (217,298) 193,341
Obligation at December 31 $ 949,697 $ 1,050,623
Funded Status
Funded status at December 31 $ (949,697) $ (1,050,623)
Unrecognized prior service cost 193,522 216,599
Unrecognized loss 29,612 260,908
Accrued liability at December 31 $ (726,563) $ (573,116)
A 7.75 and 6.50 percent weighted average discount rate was assumed
for 1999 and 1998, respectively, in determining the accumulated
benefit obligation and a 5.0 percent average salary increase was
used to project the additional pay increase on all plans. The
expected return on assets for the defined pension plan was assumed
to be 8.25 percent. Net periodic pension costs for the defined
benefit pension plan for the years ended December 31, 1999, 1998,
and 1997 included the following components:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Service costs $ 995,855 $ 789,796 $ 705,872
Interest costs 1,293,715 1,189,985 1,098,786
Expected return on assets (2,106,256) (1,884,093) (1,701,956)
Amortization of asset obligation (393,736) (393,736) (393,736)
Amortization of prior-service cost 54,488 54,488 ---
Net periodic benefit cost/(income) $ (155,934) $ (243,560) $ (291,034)
</TABLE>
Net periodic pension costs for the supplemental retirement income
plan for the years ended December 31, 1999, 1998, and 1997 were
approximately $114,000, $94,000, and $72,000 respectively.
In addition to pension benefits, the Company provides certain
health care and life insurance benefits ("post-retirement
benefits") for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age
while working for the Company. The Company also provides medical
benefits for early retirees (eligible upon attainment of age 55 and
five years service up to age 65) and group term life insurance that
phases out over a five year period from the retirement date.
The following table presents a reconciliation of the funded status
for the Company's post-retirement benefit obligation and the
amounts recognized in the Company's consolidated balance sheet as
of December 31, 1999 and 1998:
1999 1998
Reconciliation of benefit obligation:
Obligation at January 1 $ 1,909,278 $ 1,952,474
Service cost 210,680 211,586
Interest cost 121,129 133,691
Actuarial (gain) loss (223,453) (324,893)
Benefit payments (78,476) (63,580)
Obligation at December 31 $ 1,939,158 $ 1,909,278
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1 $ --- $ ---
Employer contributions 78,476 63,580
Benefit payments (78,476) (63,580)
Fair value of plan assets at December 31 $ --- $ ---
Funded Status
Funded status at December 31 $ (1,939,158) $ (1,909,278)
Unrecognized (gain) loss (265,580) (26,338)
Accrued liability at December 31 $ (2,204,739) $ (1,935,616)
A 7.75 and 6.50 percent weighted average discount rate was used for
1999 and 1998, respectively, to determine the accumulated post-
retirement benefit obligation at December 31, 1999. Net periodic
pension costs for the post-retirement plan for the years ended
December 31, 1999, 1998, and 1997 included the following
components:
1999 1998 1997
Service costs $ 155,903 $ 156,574 $ 107,313
Interest costs 89,636 98,931 75,838
Amortization of net loss (26,898) (11,864) (29,704)
Net periodic benefit cost $ 218,641 $ 243,641 $ 153,447
The assumed rate of future increases in per capita cost of health
care benefits was 9.0 percent for the first year and 5.0 percent
for all years thereafter in 1999, and 7.0 percent for the first
year and 4.0 percent for all years thereafter in 1998. The health
care cost trend rate assumption affects the amounts reported. For
example, increasing the assumed health care cost trend rate by one
percentage point would increase the accumulated post-retirement
benefit obligation by approximately $176,000 and the aggregate of
the service and interest cost components of net periodic post-
retirement benefit cost by approximately $41,000. A decrease in
the assumed health care cost trend rate by one percentage point
would decrease the accumulated post-retirement benefit obligation
by approximately $154,000 and the aggregate of the service and
interest cost components of net periodic post-retirement benefit
cost by approximately $35,000.
11.Income Taxes
Current tax expense for the following periods differed from the
tax expected solely on pre-tax income by applying the applicable
statutory corporate tax rate to the various differences identified
as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Tax at statutory rate $ 3,209,000 $ 5,719,000 $ 2,381,000
Tax-exempt interest (776,000) (757,000) (1,131,000)
Dividends received deduction (518,000) (370,000) (613,000)
Loss, LAE and salvage and subrogation
fresh start --- --- (137,000)
Nondeductible expenses 278,000 277,000 277,000
Other (300,000) (199,032) (570,000)
Total income taxes $ 1,893,000 $ 4,669,968 $ 207,000
</TABLE>
The Tax Reform Act of 1986 allowed for a fresh start deduction for
reserve discounting requirements, which was to be amortized over
the life of the reserve. This produced an aggregate tax benefit
of approximately $900,000. The remainder of the unamortized fresh
start was fully recognized in 1997, resulting in a tax reduction
of approximately $137,000.
Under SFAS No. 109, "Accounting For Income Taxes", the Company
recorded a net deferred tax asset in 1999 and deferred tax
liabilities in 1998 and 1997. The net deferred tax
asset/liability at December 31, 1999, 1998 and 1997, is comprised
of the following:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Deferred tax assets:
Unearned premium reserves $ 5,957,000 $ 5,450,000 $ 5,528,000
Loss and loss adjustment expense reserves
and salvage and subrogation 4,996,000 5,414,000 6,248,000
Other post-employment benefits 772,000 677,000 677,000
Other 381,000 258,000 1,431,000
Total deferred tax assets 12,106,000 11,799,000 13,884,000
Deferred tax liabilities:
Deferred policy acquisition costs 6,991,000 6,185,000 6,178,000
Investments 198,000 209,000 144,000
Unrealized appreciation on investment
securities 3,229,000 8,183,000 7,731,000
Other 14,000 54,000 56,000
Total deferred tax liabilities 10,432,000 14,631,000 14,109,000
Net deferred tax asset (liability) $ 1,674,000 $ (2,832,000) $ (225,000)
</TABLE>
The Company has paid income taxes during the past three years of
$725,000 in 1999, $3,215,000 in 1998, and $1,110,000 in 1997.
12.Earnings Per Share
The following table reflects the reconciliation of the numerators
and denominators of the Company's basic earnings per share and
diluted earnings per share computations reported on the
Consolidated Statement of Income for the years ended December 31,
1999, 1998 and 1997.
<TABLE>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
December 31, 1999
Basic earnings per share
Income available to common stockholders $ 7,250,508 7,969,226 $ 0.91
Effect of dilutive securities
Stock options --- 85,352
Diluted earnings per share
Income available to common stockholders $ 7,250,508 8,054,578 $ 0.90
December 31, 1998
Basic earnings per share
Income available to common stockholders $ 12,150,545 8,021,285 $ 1.51
Effect of dilutive securities
Stock options --- 90,942
Diluted earnings per share
Income available to common stockholders $ 12,150,545 8,112,227 $ 1.50
December 31, 1997
Basic earnings per share
Income available to common stockholders $ 6,921,123 8,087,079 $ 0.86
Effect of dilutive securities
Stock options --- 55,567
Diluted earnings per share
Income available to common stockholders $ 6,921,123 8,142,646 $ 0.85
</TABLE>
13.Statutory Information
Subsidiary retained earnings available for distribution as
dividends to the Company are limited by law to the statutory
unassigned surplus of the subsidiaries on the previous December 31,
as determined in accordance with the accounting practices
prescribed or permitted by insurance regulatory authorities of the
state of Indiana. Subject to this limitation, the maximum dividend
that may be paid during a 12-month period, without prior approval
of the insurance regulatory authorities is the greater of ten
percent of statutory capital and surplus as of the preceding
December 31 or net income for the preceding calendar year
determined on a statutory basis. Meridian Security declared and
paid dividends to the Company of $5,000,000 in 1999, 1998 and 1997.
As of December 31, 1999, approximately $11,600,000 was available
for distribution to the Company without prior approval of
insurance regulatory authorities.
Meridian Security's subsidiaries, Meridian Citizens Security and
ICO, also pay dividends to their parent. Each company's retained
earnings available for distribution as dividends are limited by laws
in their states of domicile, Minnesota and Ohio, respectively. Meridian
Citizens Security declared and paid dividends to Meridian Security of
$400,000 in 1999, $600,000 in 1998, and $300,000 in 1997. ICO
declared and paid dividends to Meridian Security of $150,000 in 1999
and $300,000 in 1998. Dividends were not paid by ICO in 1997.
The following is selected information for the Company's insurance
subsidiaries, as determined in accordance with accounting practices
prescribed or permitted by the Department of Insurance of their
state of domicile:
1999 1998 1997
Statutory capital and surplus $ 135,534,000 $ 133,322,000 $115,280,000
Statutory net investment income $ 14,973,000 $ 16,156,000 $ 15,212,000
Statutory net income $ 6,573,000 $ 15,716,000 $ 6,140,000
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance, which will replace the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on
statutory accounting. The Codification provides guidance for areas
where statutory accounting has been silent and changes current
statutory accounting in some areas, e.g. deferred income taxes are
recorded.
The Indiana, Ohio, and Minnesota Insurance Departments have adopted
the Codification guidance, effective January 1, 2001. The Company
has not yet estimated the potential effect of the Codification
guidance on statutory surplus.
14. Shareholders' Equity
In May 1997, the Shareholders of Meridian Insurance Group, Inc.
approved an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares from 20,000,000 to
20,500,000, with the additional shares being preferred stock. The
amendment provides that the preferred shares may be issued from
time to time in one or more series. The Board of Directors,
without further approval of the holders of common shares, would be
authorized to fix the dividend rights and terms, liquidation
preferences, sinking funds and any other rights, preferences,
privileges, and restrictions applicable to each such series of
preferred shares. On September 8, 1998, the Board of Directors of
Meridian Insurance Group Inc., adopted a Shareholders Rights Plan.
Under the Plan, a dividend of one preferred share purchase right
was paid to shareholders of record on September 28, 1998 for each
outstanding common share. Each Right entitles the holder to
purchase one-thousandth of a share Series A Junior Participating
Preferred Stock of the Company at a price of $75.00 per one-
thousandth of a Preferred Share. If a person or group acquires 20%
or more of the outstanding Common Shares (thereby becoming an
Acquiring Person), each holder of a Right (except those held by the
Acquiring Person and its affiliates and associates) will generally
have the right to purchase Common Shares having equal to two times
the purchase price of the Right. In other words, the Right's
holders, other than the Acquiring Person, may purchase common
shares or their equivalent at a 50 percent discount. The Rights
will expire on September 18, 2008, unless the expiration date is
extended by amendment or unless the Rights are earlier redeemed or
exchanged by the Company.
On December 15, 1999, the Board of Directors of Meridian Insurance
Group, Inc. declared a ten percent stock dividend. Each
shareholder of record as of December 27, 1999, received one
additional share of the company's common stock for every ten shares
held on that date. The ten percent stock dividend was distributed
on January 11, 2000, with the Company issuing 721,872 shares. A
similar ten percent stock dividend was also declared on December 9,
1998, for shareholders of record as of December 21, 1998. The
dividend was distributed on January 6, 1999, with the Company
issuing 658,493 shares. In both years, fractional shares were paid
by the Company in cash. All share and prior per share amounts have
been retroactively restated to give effect for the stock dividend.
In 1987, the Company's Board of Directors and Shareholders
approved an Incentive Stock Plan ("Plan") for the purpose of
attracting and retaining key employees. The maximum number of
common shares to be authorized for issuance was limited to 750,000
shares over a 10 year term. Awards under the Plan may include non-
qualified and incentive stock options, stock appreciation rights,
and restricted stock. Options to purchase common shares granted
under the Plan are to have an exercise price of not less than the
fair market value of the Company's common shares on the date of
grant. Options are to be exercisable beginning one year from the
date of grant and are to expire over various periods not to exceed
ten years from the date of grant. Restricted stock awards may be
granted subject to terms and conditions as prescribed by the
committee which administers the Plan. Under the 1987 Plan, which
expired on January 21, 1997, total options with respect to 477,144
shares were granted and 272,856 options had expired. In early
1996, the Board of Directors and Shareholders approved the 1996
Employee Incentive Stock Plan, which would eventually replace the
1987 Plan. Under the 1996 Plan, which became effective on May 8,
1996, the maximum number of shares authorized for issuance is
750,000 shares over the next ten years. As of December 31, 1999,
options with respect to 299,195 shares have been granted under the
1996 Plan.
The Company also has a Director's Stock Plan that provides for an
aggregate maximum of up to 150,000 common shares to be issued upon
the exercise of stock options granted to outside directors, who are
defined as non-employee directors of the Company or Meridian
Mutual. Each outside director will automatically be granted an
option to purchase 1,210 common shares on the date of each annual
meeting of shareholders up until termination of the plan. The
exercise price per share for each option will be equal to the fair
market value of a common share on the date of grant. Each option
will be exercisable commencing one year after the date of the grant
and will expire no later than 10 years after the date of the grant.
As of December 31, 1999, total options with respect to 79,860
shares have been granted.
In November 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees
based on the fair value method of accounting. The Company
continues to account for stock options in accordance with
Accounting Principles Board Opinion No. 25. Had compensation cost
been determined using the fair value of the options at the grant
dates in accordance with SFAS No. 123, the Company's net income and
earnings per share for the periods ended December 31, 1999, 1998
and 1997 would have been reduced by the following pro-forma
amounts: $49,000, $186,000, and $640,000 and $0.01, $0.02 and
$0.08, respectively. The weighted average grant date fair value of
options granted during the year was estimated to be $17.45, $17.07
and $17.26 using the Black-Scholes model with the following
assumptions for 1999, 1998 and 1997, respectively: risk free
interest rates of 5.94 percent, 5.31 percent and 6.29 percent;
dividend yield of 2.04 percent, 1.80 percent and 2.29 percent; and
volatility of 30.95 percent, 38.10 percent and 26.36 percent. As
of December 31, 1999, options outstanding under these plans had an
exercise price that ranged from $8.26 to $15.50 and a remaining
weighted average contractual life of 8.89 years.
Stock options granted by the Company for the periods ended December
31, 1999, 1998 and 1997, are summarized in the following table:
<TABLE>
1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Price Shares Price Shares Price Shares
Outstanding at January 1 $ 11.70 608,759 $ 11.58 609,952 $ 10.15 367,374
Granted 14.77 12,100 15.50 14,520 13.26 313,713
Exercised during the year 9.83 (40,028) 11.27 (15,713) --- ---
Canceled during the year 14.06 (4,840) --- --- 11.64 (71,135)
Outstanding at December 31 11.87 575,991 11.70 608,759 11.58 609,952
Portion thereof exercisable
at December 31 $ 11.81 551,791 $ 11.48 552,494 $ 11.33 592,215
Available for future grants 766,620 776,300 748,953
</TABLE>
15. Unaudited Selected Quarterly Financial Data
(Amounts in thousands except per-share data)
Quarter Ended
March 31 June 30 September 30 December 31
1999
Revenues $ 52,841 $ 55,761 $ 56,716 $ 57,112
Net income $ 630 $ 2,280 $ 2,602 $ 1,738
Basic earnings per share $ 0.08 $ 0.28 $ 0.33 $ 0.22
Diluted earnings per share $ 0.08 $ 0.28 $ 0.32 $ 0.22
1998
Revenues $ 52,633 $ 54,345 $ 53,833 $ 52,906
Net income $ 2,517 $ 2,494 $ 2,940 $ 4,199
Basic earnings per share $ 0.32 $ 0.31 $ 0.36 $ 0.53
Diluted earnings per share $ 0.31 $ 0.31 $ 0.36 $ 0.52
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the information contained under the captions "Election of
Directors" and "Executive Compensation" in the Company's definitive
proxy statement to be sent to shareholders in connection with the
annual meeting of shareholders to be held May 10, 2000.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the information contained under the caption "Executive
Compensation" in the Company's definitive proxy statement to be sent
to shareholders in connection with the annual meeting of shareholders
to be held on May 10, 2000.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by
reference to the information contained under the caption "Beneficial
Ownership of Common Shares" in the Company's definitive proxy
statement to be sent to shareholders in connection with the annual
meeting of shareholders to be held on May 10, 2000.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the information contained under the caption "Certain
Relationships and Transactions" in the Company's definitive proxy
statement to be sent to shareholders in connection with the annual
meeting of shareholders to be held on May 10, 2000.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Documents filed as a part of this report.
(1) Financial Statements:
Report of Independent Accountants
Financial Statements:
Consolidated Statement of Income for the years ended
December 31, 1999, 1998 and 1997
Consolidated Balance Sheet as of December 31, 1999 and 1998
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules
Financial Statement Schedules:
Schedule I -- Summary of Investments Other Than Investments in
Related Parties
Schedule II -- Condensed Financial Information of Registrant
Schedule IV -- Reinsurance
Schedule VI -- Supplemental Information Concerning
Property-Casualty Insurance Operations
Schedules other than those listed above have been omitted
because the required information is contained in the financial
statements and notes thereto or because such schedules are not
required or applicable.
(3) Exhibits:
See Index to Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this statement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Meridian Insurance Group, Inc.
By: /s/ Steven R. Hazelbaker
Steven R. Hazelbaker
Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on February
23, 2000, on behalf of the registrant in the capacities indicated:
/s/ Ramon L. Humke /s/ John T. Hackett
Ramon L. Humke John T. Hackett
Chairman of the Board Director
/s/ Norma J. Oman /s/ David M. Kirr
Norma J. Oman David M. Kirr
President, Chief Executive Director
Officer and Director
/s/ Timothy J. Hanrahan /s/ James D. Price
Timothy J. Hanrahan James D. Price
Senior Vice President Director
/s/ Carl W. Buedel /s/ Sarah W. Rowland
Carl W. Buedel Sarah W. Rowland
Senior Vice President Director
/s/ Joseph D. Barnette, Jr. /s/ Thomas H. Sams
Joseph D. Barnette, Jr. Thomas H. Sams
Director Director
MERIDIAN INSURANCE GROUP, INC.
FORM 10-K
for the fiscal year ended December 31, 1999
Index to Exhibits
Exhibit Number
Assigned in
Regulation S-K
Item 601 Description of Exhibit
(2) 2.01 Acquisition and Affiliation Agreement by and
among Citizens Security Group, Inc., Citizens Security
Mutual Insurance Company and Meridian Insurance
Group, Inc. (Incorporated by reference to Exhibit
2.01 to the registrant's Form 10-K for the fiscal
year ended December 31, 1996; Commission File No. 0-
11413.)
(3) 3.01 Restated Articles of Incorporation of Meridian
Insurance Group, Inc. (Incorporated by reference
to Exhibit 3.01 to the registrant's Form S-1 Registration
Statement No. 33-11413.)
3.02 Amendment to Restated Articles of Incorporation of
Meridian Insurance Group, Inc. effective May 14, 1997
(Incorporated by reference to Exhibit 3.02 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)
3.03 Articles of Amendment to Meridian Insurance Group,
Inc. Articles of Incorporation regarding Series A
Junior Participating Preferred Stock. (Incorporated
by reference to Exhibit 3.01 to the registrant's Form
10-Q for quarter ended September 30, 1998; Commission
File No. 0-11413.)
3.04 Bylaws of Meridian Insurance Group, Inc. as amended
through December 4, 1996. (Incorporated by reference
to Exhibit 3.02 to the registrant's Form 10-K for the
fiscal year ended December 31, 1996; Commission File
No. 0-11413.)
3.05 Amendment to Bylaws of Meridian Insurance Group, Inc.
effective December 9, 1998. (Incorporated by
reference to Exhibit 3.05 to the registrant's Form 10-
K for the fiscal year ended December 31, 1998;
Commission File No. 0-11413.)
(4) 4.01 Text of Certificate for Common Shares of Meridian
Insurance Group, Inc. (Incorporated by reference
to Exhibit 4.01 to the registrant's Form S-1 Registration
Statement No. 33-11413.)
4.02 Additional text of newly issued Certificates for
Common Shares of Meridian Insurance Group, Inc.
(Incorporated by reference to Exhibit 4.02 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1998; Commission File No. 0-11413.)
4.03 Rights Agreement, dated as of September 18, 1998, between
Meridian Insurance Group, Inc. and Harris Trust and
Savings Bank, as Rights Agent. The Rights Agreement
includes the form of Articles of Amendment setting
forth terms of Series A Junior Participating Preferred
Stock as Exhibit A, the form Right Certificate as
Exhibit B and the Summary of Rights to Purchase
Preferred Shares as Exhibit C (Incorporated herein by
reference to Exhibit 1 to the Company's report on Form 8-K
dated September 18, 1998.)
(9) No exhibit.
(10) 10.01 Form of Supplemental Pension Agreement between Meridian
Mutual Insurance Company and Harold C. McCarthy.
(Incorporated by reference to Exhibit 10.06 to the
registrant's Form S-1 Registration Statement No. 33-11413.)**
10.02 Form of Addendum to Supplemental Pension Agreement between
Meridian Mutual Insurance Company and Harold C. McCarthy.
(Incorporated by reference to Exhibit 19.07 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1991; Commission File No. 0-11413.)**
10.03 Form of Supplemental Retirement Income Plan for Employees
of Meridian Mutual Insurance Company. (Incorporated by
reference to Exhibit 19.02 of the registrant's Form 10-K for
the fiscal year ended December 31, 1994; Commission
File No. 0-11413.)**
10.04 Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 10.07 to Amendment
No. 1 to the registrant's Form S-1 Registration Statement
No. 33-11413.)**
10.05 First and Second Amendments to Meridian Insurance Group,
Inc., 1987 Employee Incentive Stock Plan.** *Page 66
10.06 Form of 1994 Incentive Stock Option Agreement under 1987
Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 19.03 to the registrant's
Form 10-K for the fiscal year ended December 31, 1994;
Commission File No. 0-11413.)**
10.07 Form of 1994 Non-qualified Stock Option Agreement under
1987 Meridian Insurance Group, Inc., Incentive Stock Plan.
(Incorporated by reference to Exhibit 19.04 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1994; Commission File No. 0-11413.)**
10.08 Form of 1995 Non-qualified Stock Option Agreement under 1987
Meridian Insurance Group, Inc., Employee Incentive Stock Plan.
(Incorporated by reference to Exhibit 10.38 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1995; Commission File No. 0-11413.)**
10.09 Meridian Insurance Group, Inc., 1996 Employee Incentive
Stock Plan. (Incorporated by reference to Exhibit 10.39 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1995; Commission File No. 0-11413.)**
10.10 First and Second Amendments to Meridian Insurance
Group, Inc. 1996 Employee Incentive Stock Plan.
(Incorporated by reference to Exhibit 10.09 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)**
10.11 Form of March 3, 1997 Non-Qualified Stock Option
Agreement under Meridian Insurance Group, Inc., 1996
Employee Incentive Stock Plan. (Incorporated by reference
to Exhibit 10.50 to the registrant's Form 10-K for the
fiscal year ended December 31, 1996;
Commission File No. 0-11413.)**
10.12 Form of Amendment No. 1 to the March 3, 1997 Non-
Qualified Stock Option Agreement under Meridian
Insurance Group, Inc., 1996 Employee Incentive Stock
Plan. (Incorporated by reference to Exhibit 10.11 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)**
10.13 Form of March 3, 1997 Incentive Stock Option Agreement
under Meridian Insurance Group, Inc., 1996 Employee Incentive
Stock Plan. (Incorporated by reference to Exhibit 10.51 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)**
10.14 Form of Amendment No. 1 to the March 3, 1997 Incentive Stock
Option Agreement under Meridian Insurance Group, Inc., 1996
Employee Incentive Stock Plan. (Incorporated by
reference to Exhibit 10.13 to the registrant's Form
10-K for the fiscal year ended December 31, 1997;
Commission File No. 0-11413.)**
10.15 Form of December 1, 1997 Non-Qualified Stock Option
Agreement under Meridian Insurance Group, Inc., 1996 Employee
Incentive Stock Plan. (Incorporated by reference to Exhibit
10.14 to the registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)**
10.16 Written Description of 1999 Meridian Insurance Group, Inc.,
Executive Incentive Plan. (Incorporated by reference to
Exhibit 10.15 to the registrant's Form 10-K for the fiscal year
ended December 31, 1998; Commission File No. 0-11413.)
10.17 Written Description of 2000 Meridian Insurance Group, Inc.,
Executive Incentive Plan.** *Page 68
10.18 The Meridian Mutual Insurance Company Non-employee
Director's Pension Plan. (Incorporated by reference to
Exhibit 10.11 to the registrant's Form 10-K for the fiscal
year ended December 31, 1988; Commission File No. 0-11413.)**
10.19 Meridian Insurance Group, Inc., 1994 Outside Director Stock
Option Plan. (Incorporated by reference to Exhibit
19.05 to the registrant's Form 10-K for the fiscal year ended
December 31, 1993; Commission File No. 0-11413.) **
10.20 Form of Directors' Non-qualified Stock Option Agreement.
(Incorporated by reference to Exhibit 10.53 to the registrant's
Form 10-K for the fiscal year ended December 31, 1996;
Commission File No. 0-11413.)**
10.21 Meridian Insurance Group, Inc. 401(k) Plan effective
January 1, 1997. (Incorporated by reference to
Exhibit 10.21 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997; Commission File
No. 0-11413.)**
10.22 Form of Termination Benefits Agreement executed
between Meridian Insurance Group, Inc. and Norma J.
Oman, Steven R. Hazelbaker, J. Mark McKinzie, Timothy
J. Hanrahan, and Carl W. Buedel. (Incorporated by
reference to Exhibit 10.23 to the registrant's Form
10-K for the fiscal year ended December 31, 1997;
Commission File No. 0-11413.)**
10.23 Form of Termination Benefits Agreement executed
between Meridian Insurance Group, Inc. and all other
Executive Officers of Meridian Mutual Insurance
Company not mentioned in Exhibit 10.20 above.
(Incorporated by reference to Exhibit 10.24 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)**
10.24 Meridian Insurance Statement of Policy on Inter-Company
Expense Allocation. (Incorporated by reference to
Exhibit 19.06 to the registrant's Form 10-K for the fiscal year
ended December 31, 1992; Commission File No. 0-11413.)
10.25 Reinsurance Pooling Agreement Amended and Restated as
of July 1, 1998, by and among Meridian Mutual
Insurance Company, Meridian Security Insurance
Company, Meridian Citizens Mutual Insurance Company,
Meridian Citizens Security Insurance Company, and
Insurance Company of Ohio. (Incorporated by reference
to Exhibit 10.25 to the registrant's Form 10-K for
the fiscal year ended December 31, 1998; Commission
File No. 0-11413.)
10.26 Management Services Agreement among Meridian Insurance
Group, Inc., Meridian Mutual Insurance Company and their
Affiliates effective January 1, 1997. (Incorporated
by reference to Exhibit 10.32 to the registrant's
Form 10-K for the fiscal year ended December 31,
1996; Commission File No. 0-11413.)
10.27 Term Loan Agreement and Business Credit Note between NBD
Bank, N.A., and Meridian Insurance Group, Inc., dated July 29,
1996. (Incorporated by reference to Exhibit 10.49 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.25 Form of Modification of Term Loan Agreement between NBD Bank,
N.A., and Meridian Insurance Group, Inc., effective
December 31, 1997. (Incorporated by reference to
Exhibit 10.31 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997; Commission File
No. 0-11413.)
10.29 Form of Meridian Insurance Agency Profit-Sharing Agreement.
(Incorporated by reference to Exhibit 10.37 to the registrant's
Form 10-K for the fiscal year ended December 31, 1996;
Commission File No. 0-11413.)
10.30 Form of Meridian Insurance Agency Profit-Sharing Agreement.
(Incorporated by reference to Exhibit 10.33 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)
10.31 Form of Meridian Insurance Agency Agreement (Incorporated by
reference to Exhibit 10.31 to the registrant's Form
10-K for the fiscal year ended December 31, 1998;
Commission File No. 0-11413.)
10.32 Form of Meridian Insurance New Agent's Incentive Compensation
Agreement. (Incorporated by reference to Exhibit
10.32 to the registrant's Form 10-K for the fiscal
year ended December 31, 1998; Commission File No. 0-
11413.)
10.33 Form of Meridian Insurance Non-Standard Automobile
Contingent Commission Agreement. (Incorporated by
reference to Exhibit 10.33 to the registrant's Form
10-K for the fiscal year ended December 31, 1998;
Commission File No. 0-11413.)
10.34 Form of Meridian Insurance Farm Lines Contingent
Commission Agreement. (Incorporated by reference to
Exhibit 10.34 to the registrant's Form 10-K for the
fiscal year ended December 31, 1998; Commission File
No. 0-11413.)
10.35 Property Per Risk Excess of
Loss Reinsurance Agreement between Employers
Reinsurance Corporation, Meridian Mutual Insurance
Company and Meridian Security Insurance Company
effective January 1, 1992. (Incorporated by
reference to Exhibit 10.26 to the registrant's Form S-
2 Registration Statement, File No. 33-58406.)
10.36 Form of Amendment No. 2 to Property Per Risk Excess of Loss
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company,
Meridian Security Insurance Company and Vernon Fire &
Casualty Insurance Company effective January 1, 1997.
(Incorporated by reference to Exhibit 10.37 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)
10.37 Form Amendment No. 3 to Property Per Risk Excess of Loss
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company,
Meridian Security Insurance Company, Vernon Fire &
Casualty Insurance Company, and the Citizens Security
Group effective January 1, 1998. (Incorporated by
reference to Exhibit 10.38 to the registrant's Form
10-K for the fiscal year ended December 31, 1997;
Commission File No. 0-11413.)
10.38 Commercial and Personal
Umbrella Reinsurance Agreement between Employers
Reinsurance Corporation and Meridian Mutual Insurance
Company. (Incorporated by reference to Exhibit 19.09
to the registrant's Form 10-K for the fiscal year
ended December 31, 1993; Commission File No. 0-
11413.) Amendment No. 9 to the Commercial and
Personal Umbrella Reinsurance Agreement effective
January 1, 1997. (Incorporated by reference to
Exhibit 10.41 to the registrant's Form 10-K for the
fiscal year ended December 31, 1996; Commission File
No. 0-11413.)
10.39 Personal Excess Liability
Reinsurance Agreement between Employers Reinsurance
Corporation and Meridian Mutual Insurance Company.
(Incorporated by reference to Exhibit 19.10 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1993; Commission File No. 0-11413.)
Amendment No. 7 to the Personal Excess Liability
Reinsurance Agreement effective January 1, 1997.
(Incorporated by reference to Exhibit 10.39 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.40 Basket Reinsurance Agreement effective January 1,
1997, among Employers Reinsurance Corporation,
Meridian Mutual Insurance Company, Meridian Security
Insurance Company and Citizens Security Group.
(Incorporated by reference to Exhibit 10.42 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.41 Sixth Excess Catastrophe Reinsurance Program
effective January 1, 1997, issued to Meridian Mutual
Group by the Subscribing Reinsurers Executing the
Interests and Liabilities Agreements identified
therein. (Incorporated by reference to Exhibit 10.47
to the registrant's Form 10-K for the fiscal year
ended December 31, 1996; Commission File No. 0-
11413.)
10.42 Form of Addendum No. 1 to the Sixth Excess Catastrophe
Reinsurance Contract effective January 1, 1997,
issued to the Meridian Mutual Group. (Incorporated by
reference to Exhibit 10.47 to the registrant's Form
10-K for the fiscal year ended December 31, 1997;
Commission File No. 0-11413.)
10.43 Property Excess of Loss Reinsurance Binding Agreement between
Meridian Mutual Group and NAC Reinsurance Corporation
effective June 15, 1995 and Endorsement No.1
effective January 1, 1996. (Incorporated by
reference to Exhibit 10.44 to the registrant's Form
10-K for the fiscal year ended December 31, 1995;
Commission File No. 0-11413.)
10.44 Form of Endorsement No. 2, which became effective
January 1, 1997, and Form of Endorsement No. 3, which
became effective June 15, 1996, to the Property
Excess of Loss Reinsurance Binding Agreement.
(Incorporated by reference to Exhibit 10.55 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1997; Commission File No. 0-11413.)
10.45 Endorsement No. 4, Property Excess of Loss
Reinsurance Binding Agreement, effective June 1,
1998. (Incorporated by reference to Exhibit 10.51 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1998; Commission File No. 0-11413.)
10.46 Seventh Excess Catastrophe Reinsurance Contract
effective January 1, 1999, issued to Meridian Mutual
Insurance Company by the Subscribing Reinsurers
Executing the Interest and Liabilities Agreements
identified therein. (Incorporated by reference to
Exhibit 10.52 to the registrant's Form 10-K for the
fiscal year ended December 31, 1998; Commission File
No. 0-11413.)
10.47 Underlying Aggregate Excess Catastrophe Reinsurance
Contract, effective January 1, 1999, issued to
Meridian Mutual Insurance Company by the Subscribing
Reinsurers Executing the Interest and Liabilities
Agreements identified therein. (Incorporated by
reference to Exhibit 10.53 to the registrant's Form
10-K for the fiscal year ended December 31, 1998;
Commission File No. 0-11413.)
10.48 Form of Addendum No. 2 to the Sixth Excess
Catastrophe Reinsurance Contract effective January 1,
1999, issued to Meridian Mutual Group. (Incorporated
by reference to Exhibit 10.54 to the registrant's
Form 10-K for the fiscal year ended December 31,
1998; Commission File No. 0-11413.)
10.49 Excess Catastrophe Reinsurance Contract effective
January 1, 1999, issued to Meridian Mutual Insurance
Company by the Subscribing Reinsurers Executing the
Interest and Liabilities Agreements identified
therein. (Incorporated by reference to Exhibit 10.55
to the registrant's Form 10-K for the fiscal year
ended December 31, 1998; Commission File No. 0-
11413.)
10.50 Amendment No. 1 To Property Per Risk Excess of Loss
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company,
Meridian Security Insurance Company, and Vernon Fire
and Casualty Insurance Company, effective January 1,
1995 *Page 69
10.51 Amendment No. 4 To Property Per Risk Excess of Loss
Reinsurance Agreement between Employers Reinsurance
Corporation, Meridian Mutual Insurance Company,
Meridian Security Insurance Company, Vernon Fire and
Casualty Insurance Company, Citizens Security Mutual
Insurance Company, Citizens Fund Insurance Company,
and Insurance Company of Ohio, effective December 30,
1996 *Page 74
10.52 Liability Excess Reinsurance Agreement between
Employers Reinsurance Corporation, Meridian Mutual
Insurance Company, Meridian Security Insurance
Company, Meridian Citizens Mutual Insurance Company,
Meridian Citizens Security Insurance Company, and
Insurance Company of Ohio, effective January 1, 1999
*Page 76
10.53 Amendment No. 1 To Basket Reinsurance Agreement
between Employers Reinsurance Corporation, Meridian
Mutual Insurance Company, Meridian Security Insurance
Company, Vernon Fire and Casualty Insurance Company,
Citizens Security Mutual Insurance Company, Citizens
Fund Insurance Company, and Insurance Company of Ohio
*Page 95
10.54 Endorsement No. 5 To The Property Excess Of Loss
Reinsurance Binding Agreement between Meridian
Insurance, Meridian Citizens Mutual Insurance
Company, Meridian Citizens Security Insurance
Company, and NAC Reinsurance Corporation, effective
April 1, 1999 *Page 97
10.55 Underlying Aggregate Excess Catastrophe Reinsurance
Contract, effective January 1, 2000, issued to
Meridian Mutual Insurance Group by the Subscribing
Reinsurers Executing the Interest and Liabilities
Agreements identified therein *Page 99
10.56 Excess Catastrophe Reinsurance Contract effective
January 1, 2000, issued to Meridian Mutual Insurance
Group by the Subscribing Reinsurers Executing the
Interest and Liabilities Agreements identified
therein *Page 125
10.57 Form of Addendum No. 1 to the Seventh Excess
Catastrophe Reinsurance Contract effective January 1,
2000, issued to the Meridian Mutual Group *Page 154
10.58 Form of Citizens Security Group Agency Agreement.
(Incorporated by reference to Exhibit 10.55 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.59 Form of Citizens Security Mutual Insurance Company Agency
Agreement. (Incorporated by reference to Exhibit
10.56 to the registrant's Form 10-K for the fiscal
year ended December 31, 1996; Commission File No. 0-
11413.)
10.60 Form of Citizens Security Group Limited Agency Agreement.
(Incorporated by reference to Exhibit 10.58 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.61 Form of Citizens Security Mutual Insurance Company Personal
Partner Agency Agreement. (Incorporated by reference
to Exhibit 10.59 to the registrant's Form 10-K for
the fiscal year ended December 31, 1996; Commission
File No. 0-11413.)
10.62 Form of Citizens Security Group Personal Partner Contingency
Plan. (Incorporated by reference to Exhibit 10.60 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1996; Commission File No. 0-11413.)
10.63 Form of Citizens Security Group Network Agencies Profit
Sharing Plan. (Incorporated by reference to Exhibit
10.61 to the registrant's Form 10-K for the fiscal
year ended December 31, 1996; Commission File No. 0-
11413.)
10.64 Form of Citizens Security Group Individual Agency Profit
Sharing Plan. (Incorporated by reference to Exhibit
10.62 to the registrant's Form 10-K for the fiscal
year ended December 31, 1996; Commission File No. 0-
11413.)
10.65 Form of Meridian Citizens Agency Profit-Sharing Agreement.
(Incorporated by reference to Exhibit 10.65 to the
registrant's Form 10-K for the fiscal year ended
December 31, 1998; Commission File No. 0-11413.)
(11) No exhibit.
(12) No exhibit.
(13) No exhibit.
(16) No exhibit.
(18) No exhibit.
(21) 21.01 Revised list of Subsidiaries of Meridian Insurance Group,
Inc. (Incorporated by reference to Exhibit 21.01 to
the registrant's Form 10-K for the fiscal year ended
December 31, 1998; Commission File No. 0-11413.)
(22) No exhibit.
(23) 23.01 Consent of Independent Accountants dated March 28, 2000
*Page 158
(24) No exhibit.
(27) 27.01 Financial Data Schedule for Meridian Insurance Group,
Inc., for the year ended December 31, 1999 *Page 159
27.02 Restated Financial Data Schedule for Meridian Insurance
Group, Inc., for the year ended December 31, 1998 *Page 160
27.03 Restated Financial Data Schedule for Meridian
Insurance Group, Inc., for the year ended December 31, 1997.
*Page 161
(28) 28.01 Combined Statutory Schedule P Loss and Loss
Adjustment Expense Reserves for the Consolidated
Insurance Subsidiaries of Meridian Insurance Group,
Inc., as of December 31, 1998 *Page 162
* Exhibits filed as a part of this document.
** These exhibits represent management contracts, compensatory plans
or arrangements that are required to be filed by Item 601 of Regulation S-K.
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Schedule I Summary of Investments Other than Investments in Related
Parties 61
Schedule II Condensed Financial Information of Registrant 62
Schedule IV Reinsurance 64
Schedule VI Supplemental Information Concerning Property-Casualty
Insurance Operations 65
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1999
<CAPTION>
Amount at
Which Shown
Market in the
Cost Value Balance Sheet
<S> <C> <C> <C>
Fixed maturities
Available-for-sale:
Bonds
United States Government and government
agencies and authorities $ 13,918,197 $ 13,706,234 $ 13,706,234
States, municipalities, and political
subdivisions 92,627,104 90,703,127 90,703,127
Public utilities 4,101,340 3,957,250 3,957,250
All other corporate bonds 96,903,035 93,209,016 93,209,016
Redeemable preferred stocks 24,540,661 24,855,905 24,855,905
Total fixed maturities 232,090,337 226,431,532 226,431,532
Equity securities
Common stocks
Public utilities 4,978,023 5,654,842 5,654,842
Banks, trust, and insurance companies 5,382,953 9,061,632 9,061,632
Industrial, miscellaneous, and all other 43,920,821 54,285,625 54,285,625
Total equity securities 54,281,797 69,002,099 69,002,099
Other long-term investments 1,159,308 1,322,209 1,322,209
Short-term investments 2,822,215 2,822,215 2,822,215
Total other investments 3,981,523 4,144,424 4,144,424
Total investments $ 290,353,657 $ 299,578,055 $ 299,578,055
</TABLE>
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
BALANCE SHEET
as of December 31, 1999 and 1998
ASSETS
<CAPTION>
1999 1998
<S> <C> <C>
Cash and short-term investments $ 1,965,197 $ 2,271,945
Investment in subsidiaries
(eliminated in consolidation) 147,611,181 153,261,543
Other assets 268,617 265,973
Total assets 149,844,995 155,799,461
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to Meridian Mutual Insurance Company $ 1,188,053 $ 1,045,989
Post-employment benefits 2,204,739 1,935,616
Bank loan payable 8,500,000 10,125,000
Dividends payable 635,303 579,497
Other liabilities 507,731 144,526
Total liabilities 13,035,826 13,830,628
Shareholders' equity
Common shares 44,793,300 44,336,679
Treasury shares, at cost; 291,557 and 212,800 shares
respectively (4,566,809) (3,277,781)
Contributed capital 36,481,864 25,923,462
Accumulated other comprehensive income 5,988,295 15,190,238
Retained earnings 54,112,519 59,796,235
Total shareholders' equity 136,809,169 141,968,833
Total liabilities and shareholders' equity $ 149,844,995 $ 155,799,461
</TABLE>
<TABLE>
STATEMENT OF INCOME
for the Years Ended December 31, 1999, 1998, and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividend income from subsidiaries $ 5,000,000 $ 5,000,000 $ 5,000,000
Other income 15,290 23,115 24,537
Less: General operating expenses 1,404,474 619,405 773,888
Interest expense 532,006 672,630 732,047
Current federal income tax benefit (620,118) (338,581) (191,110)
Income before equity in net income of subsidiaries 3,698,928 4,069,661 3,709,712
Equity in undistributed net income of subsidiaries 3,551,580 8,080,884 3,211,411
Net income $ 7,250,508 $ 12,150,545 $ 6,921,123
</TABLE>
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 7,250,508 $ 12,150,545 $ 6,921,123
Reconciliation of net income to net cash
provided by operations:
Equity in undistributed net income of
subsidiaries (3,551,580) (8,080,884) (3,211,411)
(Increase) decrease in other assets (2,644) (180,224) (66,859)
Increase in due to Meridian Mutual
Insurance Company 142,064 238,795 779,677
Increase in post-employment benefits 269,123 2,435 515,367
Increase (decrease) in other liabilities 363,206 11,763 (524)
Issuance of common shares 5,564 --- ---
Issuance of restricted shares 57,618 65,209 ---
Other, net --- --- 35,579
Net cash provided by operations 4,533,859 4,207,639 4,972,952
Cash flows from financing activities:
Proceeds from stock options 393,439 161,054 ---
Repurchase of common stock (1,289,028) (969,593) (2,308,188)
Repayment of bank loan (1,625,000) (1,250,000) (500,000)
Dividends paid (2,320,018) (2,124,275) (2,144,839)
Net cash used by financing activities (4,840,607) (4,182,814) (4,953,027)
Net increase (decrease) in cash (306,748) 24,825 19,925
Cash at beginning of year 2,271,945 2,247,120 2,227,195
Cash at end of year $ 1,965,197 $ 2,271,945 $ 2,247,120
</TABLE>
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
For the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies(1) Companies(1) Amount to Net
<S> <C> <C> <C> <C> <C>
Property and liability
insurance premiums:
Year ended
December 31, 1999 $ 216,078,155 $ 17,055,306 $ 397,210 $ 199,420,059 0.2%
Year ended
December 31, 1998 $ 205,534,750 $ 16,960,370 $ 614,042 $ 189,188,422 0.3%
Year ended
December 31, 1997 $ 211,105,812 $ 17,751,345 $ 1,232,165 $ 194,586,632 0.6%
</TABLE>
(1) The amounts for the years ended December 31, 1999, 1998 and
1997 represents the Company's insurance subsidiaries share of third
party reinsurance transactions pursuant to the pooling agreement.
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Deferred policy acquisition costs $ 19,974,450 $ 17,671,856 $ 17,651,544
Reserves for losses and loss adjustment expenses $ 145,962,418 $ 154,252,671 $ 169,801,326
Unearned premiums $ 88,698,507 $ 81,223,095 $ 82,839,333
Earned premiums $ 199,420,059 $ 189,188,422 $ 194,586,632
Investment income $ 16,324,820 $ 17,245,684 $ 16,371,711
Losses and loss adjustment expenses incurred related to:
Current years $ 157,071,731 $ 145,328,331 $ 165,576,734
Prior years $ (6,854,123) $ (8,708,340) $ (16,358,003)
Amortization of deferred policy acquisition costs $ 44,851,094 $ 42,213,612 $ 42,163,797
Paid losses and loss adjustment expenses $ 150,762,023 $ 145,099,806 $ 147,779,800
Premiums written $ 206,665,777 $ 188,071,251 $ 194,519,309
</TABLE>
Exhibit 10.05
FIRST AMENDMENT
TO
MERIDIAN INSURANCE GROUP, INC.
1987 EMPLOYEE INCENTIVE STOCK PLAN
WHEREAS, the Meridian Insurance Group, Inc. 1987
Employee Incentive Stock Plan was effective on January 21,
1987; and
WHEREAS, pursuant to Article VII, Section 7.3 of the
Plan, the Board of Directors, with shareholder approval, may
increase the number of shares available for awards under the
Plan; and
WHEREAS, Meridian Insurance Group, Inc. desires to
increase the number of shares available for awards under the
Plan;
NOW, THEREFORE, BE IT RESOLVED, by the Board with the
approval of shareholders that the Plan be and is hereby
amended effective June 23, 1993, as follows:
Article IV, Section 4.3, is amended to increase
the aggregate number of shares of Meridian stock
available under the Plan to no more than 750,000
shares.
IN WITNESS WHEREOF, Meridian Insurance Group, Inc.
has caused this Amendment to be executed by its authorized
officer this 16th day of September, 1993.
MERIDIAN INSURANCE GROUP, INC.
By________________________________
Norma J. Oman
President
SECOND AMENDMENT
TO
MERIDIAN INSURANCE GROUP, INC.
1987 EMPLOYEE INCENTIVE STOCK PLAN
As of March 17, 1999 the 1987 Employee Incentive Stock
Plan is hereby amended as follows:
Section 7.7 is added to Article VII, Miscellaneous
Provisions to read as follows:
Section 7.7. Withholding of Tax. (a) Payment by
Participant. Each Participant shall, no later than the
date as of which the value of an Award or of any Meridian
Stock or other amounts received thereunder first
becomes includable in the gross income of the Participant
for federal income tax purposes, pay to the Company, or
make arrangements satisfactory to the Committee
regarding payment of, any federal, state, or local taxes
of any kind required by law to be withheld with respect to
such income. The Company shall have the right to deduct any
such taxes from the salary of the Participant.
(b) Payment in Meridian Stock. A Participant may elect
to have such tax withholding obligation satisfied, in
whole or in part, by (I) authorizing the Company to
withhold from shares of Meridian Stock to be issued pursuant
to any Award a number of shares with an aggregate Fair
Market Value (as of the date the withholding is effected)
sufficient to cover the amount required to be withheld, or
(ii) transferring to the Company shares of Meridian Stock
owned by the Participant with an aggregate Fair Market
Value (as of the date the withholding is effected)
sufficient to cover the amount required to be withheld.
With respect to any Participant who is subject to
Section 16 of the Securities Exchange Act of 1934, as
amended, the following additional restrictions shall apply:
(A) The election to satisfy tax withholding
obligations relating to an Award in the manner permitted
by this Section 7.7 shall be made either (1) during the
period beginning on the third business day following the
date of release of quarterly or annual summary statements
of sales and earnings of the Company and ending on the
twelfth business day following such date, or (2) at least
six months prior to the date as of which the receipt of
such an Award first becomes a taxable event for federal
income tax purposes;
(B) Such election shall be irrevocable;
(C) Such election shall be subject to the consent
or disapproval of the Committee; and
(D) The Meridian Stock withheld to satisfy tax
withholding must pertain to an Award which has been held
by the Participant for at least six months from the date
of grant of the Award.
Exhibit 10.17
2000 EXECUTIVE INCENTIVE PLAN
1999 SUMMARY
The plan established in 1994 with the assistance of Arthur Andersen
included two components. The annual incentive is a cash award based
on a percent of base salary. Payout occurs if xx% of the 1999
consolidated pretax income goal is achieved.
The long term incentive (LTI) is a stock options grant. The size of
the 1997 grant was determined as a percent of base salary. One-third
of the grant was to vest in each of the first three years of the ten
year exercise period. The Compensation Committee amended the 1997
Stock Option Grant for executives vesting all of the options on July
23, 1997.
2000 ANNUAL INCENTIVE PROPOSAL
The 2000 proposal essentially mirrors the 1999 plan with payout
at the threshold level of xx% versus xx%. All executives are
included.
MEASUREMENT: 2000 consolidated pretax income goal of $20 million
Threshold - (xx% of pretax income goal)
Target - (xx% of pretax income goal)
Maximum - (xx% of pretax income goal)
LONG TERM INCENTIVE
In March 1997 the Compensation and Stock Plan committees approved a
long term incentive stock option grant for each member of the
Executive Staff. The 1997 stock option grant was designed to vest in
1/3 increments with full vesting to be completed in March 2000. The
vesting schedule was changed on July 23,1997, by action of the
Compensation and Stock Plan committees to immediately vest all options
granted in March. Management is deferring its long term incentive
recommendation until the next Compensation Committee meeting.
Exhibit 10.50
EMPLOYERS REINSURANCE CORPORATION
5200 METCALF, P.O. BOX 2991, Overland Park, Kansas 66201-1391
(913)676-5200, Facsimile (913) 676-6221
A General Electric Capital Services Company
AMENDMENT NO.1
The Property Per Risk Excess of Loss Reinsurance Agreement of January 1,
1992, between EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas
and MERIDIAN MUTUAL INSURANCE COMPANY, VERNON FIRE AND CASUALTY INSURANCE
COMPANY and MERIDIAN SECURITY INSURANCE COMPANY, all of Indianapolis,
Indiana, is hereby amended as follows:
I. As respects occurrences taking place on or after January 1, 1995,
Layer 1 of the Table set out in Article III is hereby deleted and the
following is substituted therefor:
LAYER 1
RETENTION REINSURANCE
$200,000 each risk $1,300,000 each risk
involved in each involved in each
occurrence occurrence excess of
$200,000, subject to a
limit of $3,250,000 all
risks involved in each
occurrence
II. Notwithstanding the provisions of Article VIII, as respect Layer 1,
the reinsurance premium rate for 1995 shall be 3.0%.
III. As respects the annual period commencing January 1, 1996, and each
annual period thereafter, Paragraph B of Article VIII is hereby deleted
and the following is substituted therefor:
B. As respects the annual period commencing January 1, 1996 and
each subsequent annual period, the reinsurance premium rate
shall be determined as follows:
1. If the loss ratio for the experience period is
between 75% and 95%, the reinsurance premium rate
will remain the same as it was for the prior annual
period.
2. If the loss ratio for the experience period is less
than 75%, the reinsurance premium rate shall be:
a. 3.5%, if the reinsurance premium rate for the
immediately preceding annual period had been more
than 3.5%.
b. 0.5 percentage points less than the reinsurance
premium rate for the immediately preceding annual
period if the reinsurance premium rate for the
immediately preceding annual period had been 3.5% or
less, but not less than 2.5% which shall be the
minimum rate.
3. If the loss ratio for the experience period is
greater than 95%, the reinsurance premium rate
shall be:
a. 3.5%, if the reinsurance premium rate for the
immediately preceding annual period had been less
than 3.5%.
b. 0.5 percentage points more than the reinsurance
premium rate for the immediately preceding annual
period if the reinsurance premium rate for the
immediately preceding annual period had been 3.5% or
more; subject to a maximum rate of 4.5%.
IV. As respects the 1995 calendar year and each year thereafter, the
reinsurance premium rate for each annual period for Layer 2, as set forth
in Article VIII, shall be decreased from 1.25% to 1.00%.
V. As respects the accounting period commencing January 1, 1995 and
each accounting period thereafter:
A. The contingent commission rate, as set forth in the first paragraph
of Article IX, is increased from 25% to 35% of all of the net profit
accruing to the CORPORATION under this agreement.
B. The first seven lines of the third paragraph of Article IX are
hereby deleted and the following is substituted therefor:
Computation of contingent commission shall be made in
accordance with the following accounting schedule.
The first interim computation of contingent commission
for each accounting period shall be made as soon
as practicable after the end of the first calendar year
within the accounting period. As soon as practicable after
the end of the second calendar year within the accounting
period a second interim calculation of contingent commission
shall be made with respect to the first two years of the
accounting period. and the first computation of contingent
commission for the full accounting period shall be made as
soon as practicable after the end of the third year within
the accounting period.
C. Article IX is hereby amended by adding the following language after
the accounting schedule:
Distribution of profits, if any, and refund of contingent
commission, if any, shall be made in accordance with
the following:
1.If any interim computation, or any subsequent computation,
for any accounting period results in a net profit, the
CORPORATION shall pay to the REINSURED the contingent
commission which such computation indicates is due to the
REINSURED.
2.If a prior computation with respect to an account period
resulted in the payment of any contingent commission
which, upon subsequent computation, is determined
to be in excess of what is actually due, the REINSURED will
refund to the CORPORATION that part of the contingent
commission previously paid in excess of what is determined
to be due.
In all other respects not inconsistent herewith, said agreement shall
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
EMPLOYERS REINSURANCE CORPORATION
_________________________________
Title: Vice President
_________________________________
Title: Assistant Vice President
MERIDIAN MUTUAL INSURANCE COMPANY
VERNON FIRE AND CASUALTY INSURANCE COMPANY
MERIDIAN SECURITY INSURANCE COMPANY
_____________________________________________
Title: VICE PRESIDENT
_____________________________________________
Title: VICE PRESIDENT
INDEMNITY AGREEMENT
This agreement is made and entered into as of October 20, 1997 by and
between EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas,
(hereinafter called the REINSURER), NAC REINSURANCE CORPORATION of
Greenwich Connecticut (hereinafter call NAC Re) and MERIDIAN MUTUAL
INSURANCE COMPANY of Indianapolis, Indiana (hereinafter called the
REINSURED), WITNESSETH:
WHEREAS, REINSURED has issued and may in the future issue commercial
property, homeowners, and commercial multiple peril insurance policies on
risks in which various mortgagees have an interest, and
WHEREAS, at the request of the REINSURED, the REINSURER may issue on behalf
of itself and all other reinsurers participating in the REINSURED'S
property reinsurance agreements certain reinsurance endorsements under
which the REINSURER agrees to pay in the event of the REINSURED'S
insolvency any loss with respect to which physical damage insurance is
provided under any such policies to the mortgagee:
NOW THEREFORE, in consideration of the REINSURER'S agreement to issue the
reinsurance endorsements the parties hereby agree as follows:
1. In the event that the REINSURER is required to pay any loss
directly to or on behalf of any Insured named in such endorsements, NAC Re
agrees to pay to the REINSURER the same portion of the amount of such loss
paid by the REINSURER that NAC Re would have paid to the REINSURED with
respect to such loss pursuant to the terms of the reinsurance agreements.
2. The REINSURED recognizes NAC Re's obligation hereunder and agrees
that to the extent that NAC Re shall make a payment to the REINSURER
pursuant to this agreement, any liability of NAC Re to the REINSURED in
respect of such loss shall be satisfied. The REINSURED further agrees
that NAC Re's obligations hereunder shall be deemed to be an endorsement
to the reinsurance agreements.
3. The REINSURER and the REINSURED agree that they shall exercise good
faith and due care in issuing and maintaining such reinsurance endorsement
and further agree that they shall not amend or alter such endorsements in
any way which could increase NAC Re's liability under this agreement
without first obtaining NAC Re's prior written consent.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed in triplicate.
MERIDIAN MUTUAL EMPLOYERS REINSURANCE
INSURANCE COMPANY CORPORATION
_________________________________ ______________________________
Title: Title: Vice President
_________________________________ ______________________________
Title: Title: Assistant Vice President
Date:____________________________ Date:__________________________
NAC REINSURANCE
CORPORATION
_________________________________
Title:
_________________________________
Title:
Date:____________________________
Exhibit 10.51
AMENDMENT NO. 4
The Property Per Risk Excess of Loss Reinsurance Agreement of January 1,
1992, between EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas
and MERIDIAN MUTUAL INSURANCE COMPANY, VERNON FIRE AND CASUALTY INSURANCE
COMPANY and MERIDIAN SECURITY INSURANCE COMPANY, all of Indianapolis,
Indiana, and CITIZENS SECURITY MUTUAL INSURANCE COMPANY and CITIZENS FUND
INSURANCE COMPANY, both of Red Wing, Minnesota, and INSURANCE COMPANY OF
OHIO of Mansfield, Ohio, is hereby amended as follows:
I. As respects occurrences taking place on or after December 30, 1996,
VERNON FIRE AND CASUALTY INSURANCE COMPANY is deleted as a named
REINSURED hereunder.
II. In recognition of their corporate name changes, effective June 19,
1998:
A. CITIZENS SECURITY MUTUAL INSURANCE COMPANY shall, from and after
said date, be known as MERIDIAN CITIZENS MUTUAL INSURANCE
COMPANY.
B. CITIZENS FUND INSURANCE COMPANY shall, from and after said
date, be known as MERIDIAN CITIZENS FUND INSURANCE COMPANY.
III. In recognition of its corporate name change, effective July 22, 1998,
MERIDIAN CITIZENS FUND INSURANCE COMPANY shall, from and after said
date, be known as MERIDIAN CITIZENS SECURITY INSURANCE COMPANY.
Therefore, it is understood and agreed that effective July 22, 1998,
the REINSURED hereunder shall be comprised of:
MERIDIAN MUTUAL INSURANCE COMPANY and MERIDIAN SECURITY INSURANCE
COMPANY both of Indianapolis, Indiana, MERIDIAN CITIZENS MUTUAL
INSURANCE COMPANY and MERIDIAN CITIZENS SECURITY INSURANCE
COMPANY both of Red Wing, Minnesota and INSURANCE COMPANY OF OHIO
of Mansfield, Ohio.
In all other respects not inconsistent herewith, said agreement shall
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
MERIDIAN MUTUAL INSURANCE
COMPANY
MERIDIAN SECURITY INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
Date:_________________________ Date:_________________________
MERIDIAN CITIZENS MUTUAL
INSURANCE COMPANY
MERIDIAN CITIZENS SECURITY
INSURANCE COMPANY INSURANCE COMPANY OF OHIO
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
Date:_________________________ Date:_________________________
VERNON FIRE AND CASUALTY
INSURANCE COMPANY
______________________________
Title:
______________________________
Title:
Date:_________________________
Exhibit 10.52
LIABILITY EXCESS REINSURANCE AGREEMENT
(Contract No. 23345-020499)
January 1, 1999
MERIDIAN MUTUAL INSURANCE COMPANY
et al.
Indianapolis, Indiana
LIABILITY EXCESS REINSURANCE AGREEMENT
(Contract No. 23345-020499)
Entered into between
EMPLOYERS REINSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the CORPORATION)
and
MERIDIAN MUTUAL INSURANCE COMPANY
MERIDIAN SECURITY INSURANCE COMPANY
both of
Indianapolis, Indiana
MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY
MERIDIAN CITIZENS SECURITY INSURANCE COMPANY
both of
Red Wing, Minnesota
and
INSURANCE COMPANY OF OHIO
of
Mansfield, Ohio
(hereinafter called the REINSURED)
EFFECTIVE DATE: January 1, 1999
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to the lines of business
and coverages thereunder, as set forth in the following exhibits:
Exhibit A - First Liability Excess
Exhibit B - Second Liability Excess
Exhibit C - Third Liability Excess
This agreement does not apply to:
(a) reinsurance assumed by the REINSURED;
(b) policies written specifically as excess insurance over an underlying
policy on the same insured, except comprehensive policies which are
excess pending expiration of existing policies;
(c) policies written excess of a deductible or retention greater than
$5,000 each occurrence;
(d) business written by the REINSURED as a pro rata participant with one
or more other insurers;
(e) business to the extent that it is reinsured outside of this agreement;
(f) The REINSURED'S liability as a participant, member, subscriber or
reinsurer of any pool, syndicate, association, insolvency fund,
guaranty fund or other combination of insurers or reinsurers formed
for the purpose of covering specific coverages, specific lines of
business or for the purpose of insuring or reinsuring risks located in
specific geographical areas [but this subparagraph (f) does not apply
to any risk assigned to the REINSURED under any automobile insurance
plan].
The Insolvency Clause and the Nuclear Incident Exclusion Clauses are
attached hereto and made a part of this agreement.
ARTICLE II
WARRANTY.
(a) As respects policies other than Sexual Molestation or Misconduct
Liability policies and Part I of Workers' Compensation policies, the
REINSURED warrants that policy limits for policies reinsured hereunder
shall not exceed $1,000,000 each occurrence or it shall be so deemed.
(b) As respects Sexual Molestation or Misconduct Liability policies, the
REINSURED warrants that the policy limits shall not exceed $100,000
each claim, $300,000 in the aggregate, or it shall be so deemed.
(c) As respects Professional Liability policies for optometrists and
opticians, the REINSURED warrants that policy limits for policies
reinsured hereunder shall not exceed $2,000,000 each claim.
ARTICLE III
EXCLUSIONS. Reinsurance does not apply to loss:
(a) under the automobile, including garage liability line of business
arising out of the ownership, maintenance, or use of any public
passenger carrying bus, but this exclusion does not apply to school
busses, church busses, or employers' busses for the conveyance of
employees;
(b) under the general liability and Workers' Compensation and Employers'
Liability lines of business arising out of any of the following
operations carried on by the insured as a principal operation:
1. distribution of electricity except by rural electrification
projects;
2. blasting, or the shoring or moving of buildings or structures;
3. operation or navigation of vessels or barges;
4. repair, cleaning, or demolition of vessels or barges used as
petroleum tankers;
5. operation of a carrier on rails;
6. manufacture of artificial gas, or storage or distribution of
artificial or natural gas;
7. drilling for oil or natural gas, or refining of petroleum;
8. manufacture or storage of explosives, ammunition, magnesium,
fuses, fireworks, celluloid or pyroxylin;
9. construction or maintenance of tunnels or subways more than 50
feet in length;
10. operation of an amusement park or circus;
(c) under the product liability hazard arising out of the manufacture,
sale, handling or distribution of explosives, fireworks, gasses under
pressure, or volatile petroleum products other than gasoline and
kerosene as a principal operation of the insured;
(d) under the Workers' Compensation and Employers' Liability line of
business arising out of any of the following operations carried on by
the insured as a principal operation:
1. aircraft;
2. underground mining.
ARTICLE IV
EXCLUDED RISKS INADVERTENTLY BOUND. If, without the knowledge of a member
of the REINSURED'S underwriting department, the REINSURED becomes bound on
a risk specifically excluded in this agreement, such reinsurance as would
have been afforded for the risk by this agreement if the risk had not been
excluded shall nevertheless apply to such risk with respect to occurrences
taking place prior to the 76th day after discovery by a member of such
underwriting department of the existence of the hazard which makes the
exclusion applicable.
In case, within such 75 day period, the REINSURED shall have forwarded to
the CORPORATION complete underwriting information and shall have received
from the CORPORATION written notice of its approval of the risk, the
reinsurance shall apply with respect to such risk for the policy period
reported in the same manner as if such risk were not so excluded, subject,
however, to the terms of such notice of approval.
ARTICLE V
DEFINITIONS OF LOSS AND CLAIM EXPENSES. The word "loss" shall mean only
such amounts:
(a) within applicable policy limits as are actually paid by the REINSURED
in settlement of claims or in satisfaction of awards or judgments
(including prejudgment interest included in the judgment);
(b) equal to 90% of the amount paid by the REINSURED in excess of
applicable third party liability coverage or uninsured or underinsured
motorists coverage policy limits occasioned by liability imposed upon
the REINSURED on account of the failure of the REINSURED to settle a
claim for an amount within such policy limits;
(c) equal to 90% of the amount paid by the REINSURED for punitive,
exemplary or compensatory damages awarded to the insured and arising
out of the conduct of the REINSURED in the investigation, trial or
settlement of any claim or failure to pay or delay in payment of any
benefits under any policy;
(d) paid by the REINSURED as claim expenses;
provided, however, that in the event of insolvency of the REINSURED, "loss"
shall mean the amount of loss which the insolvent insurer has incurred or
is liable for, and payment by the CORPORATION shall be made to the
liquidator, receiver or other statutory successor of the REINSURED in
accordance with the provisions of the insolvency clause of this agreement.
Recoveries from any form of insurance or reinsurance which protect the
REINSURED against loss as described in subparagraph (b) and (c) above shall
inure to the benefit of this agreement.
Net salvage, subrogation or any other recovery (after expenses) shall be
used to reduce the loss and so much of such recovery shall be paid to the
CORPORATION as will reduce the loss ultimately borne by the CORPORATION to
what it would have been had the recovery preceded any payment of such loss
by the CORPORATION.
The term "claim expenses" shall mean all payments under the supplementary
payments provisions of the REINSURED'S policy, including court costs,
interest upon judgments, and investigation, adjustment, and legal expenses,
including expenses incurred with respect to Declaratory Judgment actions to
determine the liability of the REINSURED under the REINSURED'S policy,
incurred by persons who are not employees of the REINSURED or of any
subsidiary or affiliated company(ies) of the REINSURED.
The word "loss" shall not include:
(a) salaries paid to employees of the REINSURED; or
(b) any statutory penalty imposed upon the REINSURED on account of any
unfair trade practice or any unfair claim practice.
ARTICLE VI
NET PREMIUM INCOME. The term "net premium income" shall mean:
(a) unearned premiums as of the effective date of this agreement; and
(b) written premiums, less unearned premiums returned, entered on the
books and records of the REINSURED thereafter and prior to the
termination date of this agreement; and
(c) less unearned premiums as of the termination date of this agreement;
provided, that as respects the Workers' Compensation and Employers'
Liability line of business in the State of Minnesota, 15% of the premium
written by the REINSURED shall be allocated to this agreement, and as
respects policies with indivisible premiums, the following percentages of
the premium written by the REINSURED shall be allocated to this agreement:
Homeowners - 10%
Farmowners - 10%
Businessowners- 30%
ARTICLE VII
REPORTING AND ACCOUNTING. Within 20 days after the close of each calendar
month the REINSURED shall furnish to the CORPORATION a report (in a form
satisfactory to the CORPORATION) of reinsurance premiums due the
CORPORATION for such month. Such report shall show and properly segregate
(by state and line) the REINSURED'S premium to which the reinsurance
premium rates apply, and such report shall contain such other statistical
information as may be required by the CORPORATION. The amount due the
CORPORATION shall be remitted to the CORPORATION within 45 days after the
close of such month.
ARTICLE VIII
CLAIMS. The REINSURED agrees that it will investigate and will settle or
defend all claims arising under policies with respect to which reinsurance
is afforded by this agreement, and that it will give prompt notice to the
CORPORATION of any claim in excess of the REINSURED'S applicable retention
and prompt notice of any other event or development which would involve the
CORPORATION hereunder, and will forward promptly to the CORPORATION copies
of such pleadings and reports of investigation as may be requested by the
CORPORATION.
The CORPORATION may, at its own expense, participate with the REINSURED in
the investigation, adjustment or defense of claims to which, in the
judgment of the CORPORATION, it is or might become exposed.
Should the right of subrogation or reimbursement arise out of a loss, a
part of which was sustained by the CORPORATION hereunder, the REINSURED
agrees to enforce such right and to prosecute the claim arising therefrom.
The CORPORATION shall reimburse the REINSURED or its legal representative
promptly for loss against which indemnity is herein provided, upon receipt
in the home office of the CORPORATION of satisfactory evidence of payment
of such loss.
ARTICLE IX
OFFSET. The REINSURED or the CORPORATION may offset any balance, whether
on account of premiums, commissions, loss or claim expenses due from one
party to the other under this agreement or under any other reinsurance
agreement heretofore or hereafter entered into between the REINSURED and
the CORPORATION, whether acting as assuming reinsurer or ceding company.
ARTICLE X
INSPECTION OF RECORDS. The CORPORATION may inspect the records of the
REINSURED pertaining to the risks reinsured hereunder.
ARTICLE XI
ASSIGNMENT AND CHANGES OF INTEREST. No assignment or change of the
REINSURED'S interest hereunder, whether voluntary or involuntary and
whether by merger or reinsurance of its entire business with another
company or otherwise, shall be binding upon the CORPORATION.
ARTICLE XII
TERMINATION. This agreement shall continue in effect until terminated by
mutual consent, or by either party's giving to the other party not less
than 90 days' notice by registered mail, stating the termination date.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in duplicate.
MERIDIAN MUTUAL INSURANCE
COMPANY
MERIDIAN SECURITY INSURANCE EMPLOYERS REINSURANCE
COMPANY CORPORATION
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
Date:_________________________ Date:_________________________
MERIDIAN CITIZENS MUTUAL
INSURANCE COMPANY
MERIDIAN CITIZENS SECURITY
INSURANCE COMPANY INSURANCE COMPANY OF OHIO
______________________________ ______________________________
Title: Title:
______________________________ ______________________________
Title: Title:
Date:_________________________ Date:_________________________
EXHIBIT A
FIRST LIABILITY EXCESS
Section 1
APPLICATION OF EXHIBIT. This Exhibit applies to the lines of business and
coverages thereunder, as set forth in the Reinsurance Schedule, as respects
occurrences taking place on or after the effective date and prior to the
termination date of this agreement.
Section 2
RETENTION, REINSURANCE AND REINSURANCE PREMIUM. As respects loss sustained
by the REINSURED under such lines and coverages thereunder, the REINSURED
shall retain as its own net retention loss as indicated in the retention
column of the Reinsurance Schedule and the CORPORATION hereby agrees to
indemnify the REINSURED against loss in excess of such retention subject to
limits as indicated in the reinsurance limit column of the Reinsurance
Schedule.
The REINSURED shall pay to the CORPORATION a reinsurance premium determined
by the application of the reinsurance premium rate specified in the
Reinsurance Schedule.
<TABLE>
Section 3
REINSURANCE SCHEDULE - EXHIBIT A
<CAPTION>
Retention Reinsurance Reinsurance Premiums
(1)(2)
Each Limit (1)(2) Premium To Which
Occurrence Each Rates (8) Rates Apply
Lines of Business Coverages Occurrence
<S> <C> <C> <C> <C> <C>
Automobile Bodily Injury Net
including garage Liability (3) $400,000 $600,000 2.75% Premium
liability but not Income
including garage Benefits on account of
keepers' liability bodily injury, sickness
disease or death
prescribed under the
General Liability automobile accident
including Farmowners' reparations act of state
liability, Businessowners'
liability, Commercial
Package Policy,
Homeowners' liability
Liquor liability and Property Damage Liability
Sexual Molestation
or Misconduct liability Liability (Bodily Injury
(4)(5) but not including Liability and Property
aircraft liability, nor Damage Liability combined
any policy covering subject to a single limit)
professional liability
nor workers' compensation
or employers' liability Medical Payments
written under a
separate policy a. Automobile
i. other than Pacemaker
ii. Pacemaker Medical
Expense, Death
Indemnity and
Disability Benefits
b. General Liability
Personal Injury Liability
Protection Against Uninsured
Motorists (including
Underinsured Motorists)
a. Bodily Injury
b. Property Damage
Professional Beauty & Barber Shop
Liability Optometrists & Opticians
Veterinarians
Morticians & Funeral
Directors
Clergy Counseling
Cemetery
Employee Benefit
Liability
Teachers
Druggists
Hearing Aid Centers
Printers' Errors &
Omissions
Directors and Condominium Directors
Officers Liability and Officers
Church Directors and
Officers
Workers' Compensation X X X X X
and Employers' Liablity
policies (6)(7)
Stop Gap Liability Employers' Liability
Policies for employers maintaining
operations in the States
of Ohio or North Dakota
</TABLE>
(1) With respect to all lines of business other than Professional Liability,
the retention and reinsurance limit shall apply to each occurrence
regardless of the number of policies, persons, coverages or risks involved
in each occurrence.
(2) With respect to the Professional Liability line of business, the retention
and reinsurance limit shall apply to each claim.
(3) Bodily Injury Liability shall include Incidental Medical Malpractice
Injury, as such term is defined in the REINSURED'S policies.
(4) The coverage afforded by this reinsurance agreement to Sexual Molestation
or Misconduct Liability under the General Liability line of business shall
apply only to churches in the State of Pennsylvania.
(5) As respects Sexual Molestation or Misconduct Liability under the General
Liability line of business, each claim shall be deemed to be an occurrence.
(6) In the event of an occurrence involving loss under the Workers'
Compensation line of business in the State of Minnesota and loss under any
other line of business reinsured hereunder, the REINSURED'S retention for
such common occurrence shall be $400,000 or the applicable retention under
the Minnesota Workers' Compensation pool, whichever is less.
(7) Occupational Disease sustained by each employee shall be a separate
occurrence and the occurrence shall be deemed to be the date on which the
employee was last exposed during employment by the insured to conditions
causing such disease; provided that if two or more employees of the same
employer sustain occupational disease of one specific kind or class for
which the dates of occurrence fall within the same policy year, all such
occupational disease shall be deemed to arise out of one occurrence.
(8) As respects non-standard automobile under the Automobile line of business,
the REINSURED shall pay, for reinsurance under Exhibits A, B and C
combined, an annual reinsurance premium of $25,000 and the reinsurance
premium rate stated shall not apply.
Section 4
CONTINGENT COMMISSION. The CORPORATION shall pay to the REINSURED
contingent commission equal to 40% of all of the net profit accruing
to the CORPORATION under this exhibit.
Computation of contingent commission shall be based upon periods of
time (each hereinafter called "accounting period") as hereinafter
specified. The first accounting period shall commence on the
effective date of this exhibit, and shall end December 31, 1999.
From and after January 1, 2000, a new accounting period shall
commence on January 1st of each year and shall end on December 31st
next succeeding; provided, that if this exhibit is terminated to
coincide with the conclusion of an accounting period, then the final
accounting period hereunder shall commence on the second January 1st
preceding the termination date of this exhibit and shall end on the
last day preceding the termination date of this exhibit. If this
exhibit is terminated as of a date other than the final day of an
accounting period, the final accounting period hereunder shall
commence on the third January 1st preceding the termination date of
this exhibit and shall end on the last day preceding the termination
date of this exhibit.
The computation of contingent commission for each accounting period
shall be deferred for twenty-four months after the expiration of the
accounting period involved, with subsequent adjusting computations
to be made annually thereafter until all losses incurred as a result
of occurrences taking place during such accounting period and each
preceding accounting period and for which the CORPORATION is liable
shall have been paid in accordance with the following Accounting
Schedule.
THERE SHALL BE CREDITED TO PROFITS:
1. The amount of earned premium on reinsurance reported by the
REINSURED to the CORPORATION for the accounting period.
2. All salvage received by the CORPORATION attributable to
occurrences to which this exhibit applies taking place during
the accounting period.
---TOTAL CREDITS TO PROFITS
THERE SHALL BE CHARGED TO PROFITS:
1. The amount of losses and claim expenses paid by the CORPORATION
and outstanding which are attributable to occurrences to which
this exhibit applies taking place during the accounting period.
2. A sum for home office expenses equal to 10% of Item 1 of
Credits to Profits.
3. The deficit, if any, at the end of the previous accounting
period and, as respects the first accounting period hereunder,
the deficit under the Contingent Commission Agreement of
January 1, 1980 between the parties hereto.
---TOTAL CHARGES TO PROFIT
---NET PROFIT OR DEFICIT
Distribution of profits, if any, and refund of contingent
commission, if any, shall be made in accordance with the following:
1. If the first computation, or any subsequent computation, for
any accounting period results in a net profit, the CORPORATION
shall pay to the REINSURED contingent commission which such
computation indicates is due to the REINSURED. Contingent
commission payable with respect to any accounting period shall
be paid immediately upon verification of the recomputation by
both parties.
2. If a prior computation with respect to an accounting period
resulted in the payment of any contingent commission which,
upon subsequent computation is determined to be in excess of
what is actually due, the REINSURED will refund to the
CORPORATION that part of the contingent commission previously
paid in excess of what is determined to be due.
"Deficit" as used herein shall mean any excess of charges over
credits with respect to any accounting period, which excess shall be
a charge in the computation for the succeeding accounting period.
"Net Profit" shall mean the excess of credits over charges with
respect to any accounting period.
EXHIBIT B
SECOND LIABILITY EXCESS
Section 1
APPLICATION OF EXHIBIT. This Exhibit applies to the lines of business and
coverages thereunder, as set forth in the Reinsurance Schedule, as respects
occurrences taking place on or after the effective date and prior to the
termination date of this agreement.
Section 2
UNDERLYING AMOUNT, REINSURANCE AND REINSURANCE PREMIUM. As respects loss
sustained by the REINSURED under such lines and coverages thereunder, the
CORPORATION hereby agrees to indemnify the REINSURED against loss in excess
of the underlying amount indicated in the Reinsurance Schedule, subject to
the limit indicated in the reinsurance limit column of the Reinsurance
Schedule.
The REINSURED shall pay to the CORPORATION a reinsurance premium determined
by the application of the reinsurance premium rate specified in the
Reinsurance Schedule.
<TABLE>
Section 3
REINSURANCE SCHEDULE - EXHIBIT B
<CAPTION>
Underlying Reinsurance Reinsurance Premiums
Amount Limit Premium To Which
(1)(2) (1)(2) Rates Rates Apply
Lines of Business Coverages Each Each (7)
Occurrence Occurrence
<S> <C> <C> <C> <C> <C>
Automobile Bodily Injury Liability (3) Net
including garage liability $1,000,000 $4,000,000 .28% Premium
but not including garage Benefits on account of Income
keepers' liability bodily injury, sickness,
disease or death prescribed
General Liability under the automobile
including Farmowners' accident reparations act of
liability, Businessowners' any state
liability, Commercial
Package Policy, Homeowners' Property Damage Liability
liability, Liquor
liability and Sexual Liability (Bodily Injury
Molestation or Misconduct Liability Liability and
liablity (4)(5) but not Property Damage Liability
including aircraft Liability combined subject
liability, nor any policy to a single limit)
covering professional
liability nor workers' Medical Payments
compensation or
employers' liability a. Automobile
liability written under
a separate policy i. other than Pacemaker
ii.Pacemaker Medical
Expense, Death
Indemnity and
Disability Benefits
b. General Liability
Personal Injury Liability
Protection Against Uninsured
Motorists (including
Underinsured Motorists)
a. Bodily Injury
b. Property Damage
Professional Beauty & Barber Shop
Liability Optometrists & Opticians
Veterinarians
Morticians & Funeral
Directors
Clergy Counseling
Cemetery
Employee Benefit Liability
Teachers
Druggists
Hearing Aid Centers
Printers' Errors & Ommissions
Directors and Officers Condominium Directors and
Liability Officers
Church Directors and
Officers
Workers' Compensation X X X X X
and Employers'
Liability policies (6)
Stop Gap Liability Employers' Liability and
Policies employers maintaining
maintaining operations in
States of Ohio or North
Dakota
</TABLE>
(1) With respect to all lines of business other than Professional Liability,
the underlying amount and reinsurance limit shall apply to each occurrence
regardless of the number of policies, persons, coverages or risks involved
in such occurrence.
(2) With respect to the Professional Liability line of business, the
underlying amount and reinsurance limit shall apply to each claim.
(3) Bodily Injury Liability shall include Incidental Medical Malpractice
Injury, as such term is defined in the REINSURED'S policies.
(4) The coverage afforded by this reinsurance agreement to Sexual Molestation
or Misconduct Liability under the General Liability line of business shall
apply only to churches in the State of Pennsylvania.
(5) As respects Sexual Molestation or Misconduct Liability under the General
Liability line of business, each claim shall be deemed to be an occurrence.
(6) Occupational Disease sustained by each employee shall be a separate
occurrence and the occurrence shall be deemed to be the date on which the
employee was last exposed during employment by the insured to conditions
causing such disease; provided that if two or more employees of the same
employer sustain occupational disease of one specific kind or class for
which the dates of occurrence fall within the same policy year, all such
occupational disease shall be deemed to arise out of one occurrence.
(7) As respects non-standard automobile under the Automobile line of business,
the REINSURED shall pay, for reinsurance under Exhibits A, B and C
combined, an annual reinsurance premium of $25,000 and the reinsurance
premium rate stated shall not apply.
EXHIBIT C
THIRD LIABILITY EXCESS
Section 1
APPLICATION OF EXHIBIT. This Exhibit applies to the lines of business and
coverages thereunder, as set forth in the Reinsurance Schedule, as respects
occurrences taking place on or after the effective date and prior to the
termination date of this agreement.
Section 2
UNDERLYING AMOUNT, REINSURANCE AND REINSURANCE PREMIUM. As respects loss
sustained by the REINSURED under such lines and coverages thereunder, the
CORPORATION hereby agrees to indemnify the REINSURED against loss in excess
of the underlying amount indicated in the Reinsurance Schedule, subject to
the limit as indicated in the reinsurance limit column of the Reinsurance
Schedule.
The REINSURED shall pay to the CORPORATION a reinsurance premium determined
by the application of the reinsurance premium rate specified in the
Reinsurance Schedule.
<TABLE>
Section 3
REINSURANCE SCHEDULE - EXHIBIT B
<CAPTION>
Underlying Reinsurance Reinsurance Premiums
Amount Limit Premium To Which
(1)(2) (1)(2) Rates Rates Apply
Lines of Business Coverages Each Each (7)
Occurrence Occurrence
<S> <C> <C> <C> <C> <C>
Automobile Bodily Injury Liability (3) Net
including garage liability $5,000,000 $5,000,000 .16% Premium
but not including garage Benefits on account of Income
keepers' liability bodily injury, sickness,
disease or death prescribed
General Liability under the automobile
including Farmowners' accident reparations act of
liability, Businessowners' any state
liability, Commercial
Package Policy, Homeowners' Property Damage Liability
liability, Liquor
liability and Sexual Liability (Bodily Injury
Molestation or Misconduct Liability Liability and
liablity (4)(5) but not Property Damage Liability
including aircraft Liability combined subject
liability, nor any policy to a single limit)
covering professional
liability nor workers' Medical Payments
compensation or
employers' liability a. Automobile
liability written under
a separate policy i. other than Pacemaker
ii.Pacemaker Medical
Expense, Death
Indemnity and
Disability Benefits
b. General Liability
Personal Injury Liability
Protection Against Uninsured
Motorists (including
Underinsured Motorists)
a. Bodily Injury
b. Property Damage
Professional Beauty & Barber Shop
Liability Optometrists & Opticians
Veterinarians
Morticians & Funeral
Directors
Clergy Counseling
Cemetery
Employee Benefit Liability
Teachers
Druggists
Hearing Aid Centers
Printers' Errors & Ommissions
Directors and Officers Condominium Directors and
Liability Officers
Church Directors and
Officers
Workers' Compensation X X X X X
and Employers'
Liability policies (6)
Stop Gap Liability Employers' Liability and
Policies employers maintaining
maintaining operations in
States of Ohio or North
Dakota
</TABLE>
(1) With respect to all lines of business other than Professional
Liability, the underlying amount and reinsurance limit shall apply to
each occurrence regardless of the number of policies, persons,
coverages or risks involved in such occurrence.
(2) With respect to the Professional Liability line of business, the
underlying amount and reinsurance limit shall apply to each claim.
(3) Bodily Injury Liability shall include Incidental Medical Malpractice
Injury, as such term is defined in the REINSURED'S policies.
(4) The coverage afforded by this reinsurance agreement to Sexual
Molestation or Misconduct Liability under the General Liability line of
business shall apply only to churches in the State of Pennsylvania.
(5) As respects Sexual Molestation or Misconduct Liability under the
General Liability line of business, each claim shall be deemed to be an
occurrence.
(6) Occupational Disease sustained by each employee shall be a separate
occurrence and the occurrence shall be deemed to be the date on which
the employee was last exposed during employment by the insured to
conditions causing such disease; provided that if two or more employees
of the same employer sustain occupational disease of one specific kind
or class for which the dates of occurrence fall within the same policy
year, all such occupational disease shall be deemed to arise out of one
occurrence.
(7) As respects non-standard automobile under the Automobile line of
business, the REINSURED shall pay, for reinsurance under Exhibits A, B
and C combined, an annual reinsurance premium of $25,000 and the
reinsurance premium rate stated shall not apply.
Exhibit 10.53
AMENDMENT NO. 1
The Basket Reinsurance Agreement of January 1, 1997, between
EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas
and MERIDIAN MUTUAL INSURANCE COMPANY, VERNON FIRE AND
CASUALTY INSURANCE COMPANY and MERIDIAN SECURITY INSURANCE
COMPANY, all of Indianapolis, Indiana, and CITIZENS SECURITY
MUTUAL INSURANCE COMPANY and CITIZENS FUND INSURANCE
COMPANY, both of Red Wing, Minnesota, and INSURANCE COMPANY
OF OHIO of Mansfield, Ohio, is hereby amended as follows:
I. Effective January 1, 1997, VERNON FIRE AND CASUALTY
INSURANCE COMPANY is deleted as a named REINSURED hereunder.
II. In recognition of their corporate name changes,
effective June 19, 1998:
A. CITIZENS SECURITY MUTUAL INSURANCE COMPANY shall, from
and after said date, be known as MERIDIAN CITIZENS MUTUAL
INSURANCE COMPANY.
B. CITIZENS FUND INSURANCE COMPANY shall, from and
after said date, be known as MERIDIAN CITIZENS FUND
INSURANCE COMPANY.
III. In recognition of its corporate name change, effective
July 22, 1998, MERIDIAN CITIZENS FUND INSURANCE COMPANY
shall, from and after said date, be known as MERIDIAN
CITIZENS SECURITY INSURANCE COMPANY.
Therefore, it is understood and agreed that effective
July 22, 1998, the REINSURED hereunder shall be comprised
of:
MERIDIAN MUTUAL INSURANCE COMPANY and MERIDIAN SECURITY
INSURANCE COMPANY both of Indianapolis, Indiana, MERIDIAN
CITIZENS MUTUAL INSURANCE COMPANY and MERIDIAN CITIZENS
SECURITY INSURANCE COMPANY both of Red Wing, Minnesota and
INSURANCE COMPANY OF OHIO of Mansfield, Ohio.
As respects occurrences taking place on or after January 1,
1999:
A. The reference in Article I to the "Multiple Layer
Reinsurance Agreement of January 1, 1991" and the "Multiple
Layer Agreement" are hereby deleted and reference to the
"Liability Excess Reinsurance Agreement of January 1, 1999"
and the "Liability Excess Agreement", respectively, are
hereby substituted therefor.
B. The reference in Article II to "a $250,000 net retention" is
hereby deleted and "a $400,000 net retention" is substituted
therefor.
In all other respects not inconsistent herewith, said
agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this
amendment to be executed in duplicate.
MERIDIAN MUTUAL INSURANCE COMPANY
MERIDIAN SECURITY INSURANCE COMPANY
____________________________________
Title:
____________________________________
Title:
Date:________________________________
EMPLOYERS REINSURANCE CORPORATION
____________________________________
Title:
____________________________________
Title:
Date:________________________________
MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY
MERIDIAN CITIZENS SECURITY INSURANCE COMPANY
____________________________________
Title:
____________________________________
Title:
Date:________________________________
INSURANCE COMPANY OF OHIO
____________________________________
Title:
____________________________________
Title:
Date:________________________________
VERNON FIRE AND CASUALTY
INSURANCE COMPANY
____________________________________
Title:
____________________________________
Title:
Date:________________________________
Exhibit 10.54
Endorsement No. 5
to the
Property Excess of Loss Reinsurance Binding Agreement
between
Meridian Insurance
CITIZENS SECURITY GROUP
of Indianapolis, Indiana
(both hereinafter referred to as the "COMPANY")
and
NAC Reinsurance Corporation
New York, NY
(hereinafter referred to as the "REINSURER")
IT IS MUTUALLY AGREED that effective 12:01 a.m. Central
Standard Time, April 1, 1999, the following changes are
made a part of this Agreement:
1. The Parties to this Agreement are amended to read:
Meridian Insurance
Meridian Citizen's Mutual Insurance Company
Meridian Citizen's Security Insurance Company
Indianapolis, Indiana
(hereinafter collectively referred to as the "COMPANY")
and
NAC Reinsurance Corporation
New York, NY
(hereinafter referred to as the "REINSURER")
2. Article 5 - Territory is deleted in its entirety and
replaced by the following:
ARTICLE 5
TERRITORY
This agreement shall apply to policies covering risks
located in Illinois, Indiana, Kentucky, Michigan, Ohio,
Wisconsin, Tennessee, Iowa, Pennsylvania, South Dakota,
North Dakota, Missouri, Minnesota, Virginia, Georgia
and Maryland in accordance with the Company's
regulatory filing. The Company shall notify the Reinsurer
in advance of any regulatory filing to insure risks
in additional states, and subject to the Reinsurer's
approval, the territory clause of this Agreement will
be amended.
All other terms and conditions remain unchanged.
The parties have caused this Endorsement No. 5 to the
Property Excess of Loss Reinsurance Binding Agreement
to be executed in duplicate in Indianapolis, Indiana, this
15th day of April, 1999.
Meridian Insurance
Meridian Citizen's Mutual Insurance Company
Meridian Citizen's Security Insurance Company
By:_______________________________
and in Greenwich, Connecticut, Illinois, this _____ day of
_____________, 1999.
NAC Reinsurance Corporation
By:_______________________________
Deborah Bousson Skoby
Assistant Vice President
Exhibit 10.55
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 2000
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
Table of Contents
Article Page
Preamble 1
I Classes of Business Reinsured 1
II Term 1
III Territory 2
IV Exclusions 2
V Retention and Limit 5
VI Definitions 6
VII Loss Occurrence (NMA 2244/BRMA 27A) 6
VIII Loss Notices and Settlements 7
IX Salvage and Subrogation 8
X Premium 8
XI Late Payments 9
XII Offset (BRMA 36C) 10
XIII Access to Records (BRMA 1D) 11
XIV Net Retained Lines (BRMA 32B) 11
XV Errors and Omissions (BRMA 14F) 11
XVI Currency (BRMA 12A) 11
XVII Taxes (BRMA 50C) 11
XVIII Federal Excise Tax (BRMA 17A) 12
XIX Unauthorized Reinsurers 12
XX Insolvency 14
XXI Arbitration 14
XXII Service of Suit (BRMA 49C) 15
XXIII Agency Agreement 16
XXIV Intermediary (BRMA 23A) 16
Underlying Aggregate Excess Catastrophe
Reinsurance Contract
Effective: January 1, 2000
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Preamble
The "Meridian Mutual Insurance Group" for purposes of this
Contract shall consist of Meridian Mutual Insurance Company,
Indianapolis, Indiana, Meridian Security Insurance Company,
Indianapolis, Indiana, Meridian Citizens Security Insurance
Company, Red Wing, Minnesota, Meridian Citizens Mutual Insurance
Company, Red Wing, Minnesota, and Insurance Company of Ohio,
Mansfield, Ohio. The application of this Contract shall be to
the parties comprising the Meridian Mutual Insurance Group as a
group and not separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Fire and Allied Lines, Homeowners (property perils
only), Mobile Homeowners (property perils only), Farmowners
(property perils only), Commercial Multiple Peril (property
perils only), Businessowners (property perils only), Earthquake,
Inland Marine and Automobile Physical Damage (comprehensive
coverage only) business, subject to the terms, conditions and
limitations hereinafter set forth.
Article II - Term
A. This Contract shall become effective on January 1, 2000, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 2000, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
C. In the event this Contract is under termination notice and
renewal negotiations for this Contract are not completed by
January 1, 2001, the expiration date of this Contract may, at
the Company's option, be extended to March 31, 2001.
Article III - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the United States of America, its territories or possessions,
Puerto Rico, the District of Columbia and Canada; but this
limitation shall not apply to moveable property if the Company's
policies provide coverage when said moveable property is outside
the aforesaid territorial limits.
Article IV - Exclusions
This Contract shall not apply to:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached
hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Boatowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination
from smoke. Nevertheless, this exclusion does not
preclude payment of the cost of removing debris of
property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25.0% of the Company's
property loss under the applicable original policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities
extension and/or suppliers extension and/or contingent
business interruption coverages are not subject to this
exclusion provided that these are not part of a
transmitters' or distributors' policy.
18. Extra Contractual Obligations and Loss in Excess of
Policy Limits.
"Loss in excess of policy limits" and "extra
contractual obligations" as used herein shall be defined
as follows:
a. "Loss in excess of policy limits" 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 an action against it by its
insured or its insured's assignee to recover damages
the insured is legally obligated to pay because of the
Company's alleged or actual negligence 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.
b. "Extra contractual obligations" shall mean any
punitive, exemplary, compensatory 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 or its insured's assignee,
which action alleges negligence or bad faith on the
part of the Company in handling a claim under a policy
subject to this Contract.
Article V - Retention and Limit
A. No claim shall be made hereunder until the Company's subject
ultimate net loss arising out of loss occurrences commencing
during the term of this Contract exceeds 3.75% of net earned
premium for the term of this Contract, subject to a minimum
retention of $10,600,000. The Reinsurer shall then be liable
for 95.0% of the amount by which the Company's subject
ultimate net loss for the term of this Contract exceeds the
Company's retention, but the liability of the Reinsurer shall
not exceed 95.0% of $10,000,000 during the term of this
Contract.
B. "Subject ultimate net loss" as used herein shall mean the
Company's ultimate net loss in excess of $1,000,000 arising
out of any one loss occurrence, not to exceed $3,000,000 in
any one loss occurrence. No loss occurrence shall be included
in subject ultimate net loss unless said loss occurrence
involves at least two risks. The Company shall be the sole
judge of what constitutes "one risk."
C. The Company shall maintain in force excess per risk
reinsurance, recoveries under which shall inure to the benefit
of this Contract.
Article VI - Definitions
A. "Ultimate net loss" as used herein is defined as the sum or
sums (including any loss adjustment expense, as hereinafter
defined) paid or payable by the Company in settlement of
claims and in satisfaction of judgments rendered on account of
such claims, after deduction of all salvage, all recoveries
and all claims on inuring insurance or reinsurance, whether
collectible or not. 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.
B. "Loss adjustment expense" as used herein shall mean expenses
assignable to the investigation, appraisal, adjustment,
settlement, litigation, defense and/or appeal of specific
claims, regardless of how such expenses are classified for
statutory reporting purposes. Loss adjustment expense shall
include, but not be limited to, interest on judgments,
expenses of outside adjusters, legal expenses incurred in
connection with coverage questions and legal actions related
thereto, a pro rata share of salaries and expenses of the
Company's field employees according to the time occupied in
adjusting a subject loss and expenses of the Company's
officials incurred in connection with the loss, but shall not
include office expenses or salaries of the Company's
officials. For purposes of this Contract, legal expenses
incurred in connection with coverage questions and legal
actions related thereto arising out of any one loss occurrence
shall not exceed 25.0% of the contractual loss under all
policies involved in the loss occurrence. Legal expenses
incurred in connection with coverage questions and legal
actions related thereto shall be deemed to have occurred on
the same date as the loss covered or alleged to be covered
under the policy.
Article VII - Loss Occurrence (NMA 2244/BRMA 27A)
A. The term "loss occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses
arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "loss occurrence" shall be
limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising
out of and directly occasioned by the same event, except that
the term "loss occurrence" shall be further defined as
follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72
consecutive hours may be extended in respect of individual
losses which occur beyond such 72 consecutive hours during
the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicentre of which need
not necessarily be within the territorial confines
referred to in paragraph A of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
B. Except for those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, the Company may
choose the date and time when any such period of consecutive
hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster,
accident or loss, and provided that only one such period of
168 consecutive hours shall apply with respect to one event.
C. However, as respects those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, if the disaster,
accident or loss occasioned by the event is of greater
duration than 72 consecutive hours, then the Company may
divide that disaster, accident or loss into two or more "loss
occurrences," provided that no two periods overlap and no
individual loss is included in more than one such period, and
provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster,
accident or loss.
D. No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "loss
occurrence" claimed under the 168 hours provision.
Article VIII - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (or within the terms
of extra contractual obligations coverage, if any, provided
under this Contract) and within the terms of this Contract,
shall be binding upon the Reinsurer. The Reinsurer agrees to
pay all amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company shall be the sole judge of
what is covered by an original policy.
C. If the aggregate subject excess ultimate net paid losses
occurring during the term of this Contract exceed the
provisional retention, the Reinsurer shall make preliminary
payment of the Reinsurer's portion of such subject ultimate
net losses. The provisional retention shall be calculated
based upon 3.75% of the estimated net earned premium for the
term of this Contract, as estimated at the inception hereof.
Any such preliminary payment shall be adjusted to actual as
soon as the Company's net earned premium is known.
Article IX - Salvage and Subrogation
The Reinsurer 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 Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Premium
A. As premium for the reinsurance provided hereunder, the Company
shall pay the Reinsurer 1.16% of its net earned premium for
the term of this Contract, subject to a minimum premium of
$3,300,000 (or $4,125,000 if this Contract is extended to 15
months as provided in paragraph C of Article II).
B. The Company shall pay the Reinsurer a deposit premium of
$3,300,000 in four equal installments of $825,000 on
January 1, April 1, July 1 and October 1 of 2000. In the
event this Contract is extended to 15 months as provided in
paragraph C of Article II, the deposit premium shall be
increased to $4,125,000 and the Company will pay an additional
installment of $825,000 on January 1, 2001.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with
paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.
D. "Net earned premium" as used herein is defined as gross earned
premium of the Company for all classes of business issued by
the Company, less the earned portion of premiums ceded by the
Company for reinsurance which inures to the benefit of this
Contract.
Article XI - Late Payments
A. The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to
this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in Article
XXIV (hereinafter referred to as the "Intermediary") by the
payment due date, the party to whom payment is due may, by
notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365ths of the 12-month United States Treasury Bill
Rate, as quoted in The Wall Street Journal on the first
business day of the month for which the calculation is
made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects the payment of routine deposits and
premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 30 days after the
date of transmittal by the Intermediary of the initial
billing for each such payment.
2. Any claim or loss payment due the Company hereunder
shall be deemed due 10 business days after the proof of
loss or demand for payment is transmitted to the Reinsurer
or received by the Reinsurer, whichever is soonest. If
such loss or claim payment is not received with the 10
days, interest will accrue on the payment or amount
overdue in accordance with paragraph B above, from the
date the proof of loss or demand for payment, in
accordance with the provisions of Article VIII, was
transmitted to the Reinsurer.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 10 business days
following transmittal of written notification that the
provisions of this Article have been invoked.
For purposes of interest calculations only, amounts hereunder
shall be deemed paid upon receipt by the Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting a
subscribing reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit, or prohibiting either party from contesting the
validity of any payment or from initiating any arbitration or
other proceeding in accordance with the provisions of this
Contract. If the debtor party prevails in an arbitration or
other proceeding, then any interest penalties due hereunder on
the amount in dispute shall be null and void. If the debtor
party loses in such proceeding, then the interest penalty on
the amount determined to be due hereunder shall be calculated
in accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XIV - Net Retained Lines (BRMA 32B)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account, and in
calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this
Contract attaches, only loss or losses in respect of that
portion of any policy which the Company retains net for its
own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XV - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVI - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign 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.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVII - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XVIII - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XIX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves
(including all case reserves plus any reasonable amount
estimated to be unreported from known loss occurrences) 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. Escrow accounts for the benefit of the Company;
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 Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves (including all case reserves
plus any reasonable amount estimated to be unreported from
known loss occurrences) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
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.
C. 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 Reinsurer 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 Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, 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 any ceded outstanding loss and loss
adjustment expense reserves (including all case reserves
plus any reasonable amount estimated to be unreported from
known loss occurrences) funded by means of a letter of
credit which 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
the Company's ceded outstanding loss and loss adjustment
expense reserves (including all case reserves plus any
reasonable amount estimated to be unreported from known
loss occurrences), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XX - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, 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 Reinsurer 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 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.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense 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 one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXI - 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 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 insurance or reinsurance companies or Lloyd's
London Underwriters. 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, the two Arbiters shall request the American
Arbitration Association to appoint the Umpire. If the
American Arbitration Association fails to appoint the Umpire
within 30 days after it has been requested to do so, either
party may request a justice of a Court of general jurisdiction
of the state in which the arbitration is to be held to appoint
the Umpire.
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 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 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 decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer 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
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXII - Service of Suit (BRMA 49C)
(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)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, 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 Contract.
Article XXIII - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXIV - Intermediary (BRMA 23A)
E. W. Blanch Co., Inc. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Inc., 3600 West 80th Street,
Minneapolis, Minnesota 55431. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this ________ day of __________________ in the year
________.
__________________________________________________
Meridian Mutual Insurance Group
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on
the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material," and
for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other products
of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st
December 1957 shall be free from the application of the other
provisions of this Clause until expiry date or 31st December 1960
whichever first occurs whereupon all the provisions of this Clause
shall apply.
(b) with respect to any risk located in Canada policies issued
by the Reassured on or before 31st December 1958 shall be free from
the application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
12/12/57
N.M.A. 1119
BRMA 35B
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
CANADA
1. This Agreement does not cover any loss or liability accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this clause,
this Agreement does not cover any loss or liability accruing to the Reinsured,
directly or indirectly, and whether as Insurer or Reinsurer, from any insurance
against Physical Damage (including business interruption or consequential loss
arising out of such Physical Damage) to:
(a) nuclear reactor power plants including all auxiliary property
on the site, or
(b) any other nuclear reactor installation, including
laboratories handling radioactive materials in connection with
reactor installations, and critical facilities as such, or
(c) installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances, and for
reprocessing, salvaging, chemically separating, storing or disposing
of spent nuclear fuel or waste materials, or
(d) installations other than those listed in (c) above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.
3. Without in any way restricting the operation of paragraphs 1 and 2 of this
clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith, except that this paragraph 3 shall not
operate:
(a) where the Reinsured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1, 2 and 3 of
this clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. This clause shall not extend to risks using radioactive isotopes in any form
where the nuclear exposure is not considered by the Reinsured to be the primary
hazard.
6. The term "prescribed substances" shall have the meaning given to it by the
Atomic Energy Control Act R.S.C. 1985(c), A-16 or by any law amendatory
thereof.
7. Reinsured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of
this clause, this Agreement does not cover any loss or liability accruing to
the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer,
caused:
(1) by any nuclear incident, as defined in the Nuclear Liability
Act or any other nuclear liability act, law or statute, or any law
amendatory thereof or nuclear explosion, except for ensuing loss or
damage which results directly from fire, lightning or explosion of
natural, coal or manufactured gas;
(2) by contamination by radioactive material.
NOTE: Without in any way restricting the operation of paragraphs 1, 2, 3 and
4 of this clause, paragraph 8 of this clause shall only apply to all
original contracts of the Reinsured, whether new, renewal or
replacement, which become effective on or after December 31, 1992.
N.M.A. 1980 (2/19/93)
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
Section A:
Excluding:
(a) All business derived directly or indirectly from any
Pool, Association or Syndicate which maintains its own
reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory)
formed after March 1, 1968 for the purpose of insuring
property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the
same perils, which is known at the time to be insured by, or in
excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals,
Improved Risk Mutuals,
Any Pool, Association or Syndicate formed for the purpose of
writing Oil, Gas or Petro-Chemical Plants and/or Oil or Gas
Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters.
Section B does not apply:
(a) Where The Total Insured Value over all interests of
the risk in question is less than $250,000,000.
(b) To interests traditionally underwritten as Inland
Marine or stock and/or contents written on a blanket
basis.
(c) To Contingent Business Interruption, except when the
Company is aware that the key location is known at the
time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section
B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only.
Where this clause attaches to Catastrophe Excesses,
the following Section C is added:
Section C:
Nevertheless the Reinsurer specifically agrees that
liability accruing to the Company from its participation in
residual market mechanisms including but not limited to:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association ("FWUA")
Louisiana Insurance Underwriting Association
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting
Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" and "Rural Risk Plan" business
AND
(3) The Florida Property and Casualty Joint Underwriting
Association ("FPCJUA"), the Florida Residential Property
and Casualty Joint Underwriting Association ("RPCJUA") and
the California Earthquake Authority (CEA)
for all perils otherwise protected hereunder shall not be
excluded, except, however, that this reinsurance does not include
any increase in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" and/or "Fair Plan" and/or "Rural Risk Plan"
and/or Residual Market Mechanisms to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair
Plan" and/or "Rural Risk Plan" and/or Residual Market
Mechanisms, or any participant therein, including the
Company, whether by way of subrogation or otherwise,
brought by or on behalf of any insolvency fund (as defined
in the Insolvency Fund Exclusion Clause incorporated in
this Contract).
Section D:
(1) Notwithstanding Section C above, in respect of the
CEA, where an assessment is made against the Company by
the CEA, the Company may include in its Ultimate Net Loss
only that assessment directly attributable to each
separate loss occurrence covered hereunder. The Company's
initial capital contribution to the CEA shall not be
included in the Ultimate Net Loss.
(2) Notwithstanding Section C above, in respect of the
FWUA, FPCJUA and RPCJUA, where an assessment is made
against the Company by the FWUA, the FPCJUA, the RPCJUA,
or any combination thereof, the maximum loss that the
Company may include in the Ultimate Net Loss in respect of
any loss occurrence hereunder shall not exceed the lesser
of:
(a) The Company's assessment from the relevant entity
(FWUA, FPCJUA and/or RPCJUA) for the accounting year in
which the loss occurrence commenced, or
(b) The product of the following:
(i) The Company's percentage participation in
the relevant entity for the accounting year in which
the loss occurrence commenced; and
(ii) The relevant entity's total losses in such
loss occurrence.
Any assessments for accounting years subsequent to that in
which the loss occurrence commenced may not be included in
the Ultimate Net Loss hereunder. Moreover,
notwithstanding Section C above, in respect of the FWUA,
the FPCJUA and/or the RPCJUA, the Ultimate Net Loss
hereunder shall not include any monies expended to
purchase or retire bonds as a consequence of being a
member of the FWUA, the FPCJUA and/or the RPCJUA. For the
purposes of this Contract, the Company may not include in
the Ultimate Net Loss any assessment or any percentage
assessment levied by the FWUA, the FPCJUA and/or the
RPCJUA to meet the obligations of an insolvent insurer
member or other party, or to meet any obligations arising
from the deferment by the FWUA, the FPCJUA and/or the
RPCJUA of the collection of monies.
_________________________________________________________________
NOTES: Wherever used herein the terms:
"Company" shall be understood to mean
"Company", "Reinsured", "Reassured" or
whatever other term is used in the attached
reinsurance document to designate the
reinsured company or companies.
"Agreement" shall be understood to mean
"Agreement", "Contract", "Policy", or whatever
other term is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean
"Reinsurers", "Underwriters" or whatever other
term is used in the attached reinsurance
document to designate the reinsurer or
reinsurers.
Exhibit 10.56
Excess Catastrophe
Reinsurance Contract
Effective: January 1, 2000
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
Table of Contents
Article Page
Preamble 1
I Classes of Business Reinsured 1
II Term 1
III Territory 2
IV Exclusions 2
V Retention and Limit 4
VI Reinstatement 5
VII Definitions 6
VIII Other Reinsurance 7
IX Loss Occurrence (NMA 2244/BRMA 27A) 7
X Loss Notices and Settlements 9
XI Salvage and Subrogation 9
XII Premium 9
XIII Late Payments 10
XIV Offset (BRMA 36C) 12
XV Access to Records (BRMA 1D) 12
XVI Net Retained Lines (BRMA 32E) 12
XVII Errors and Omissions (BRMA 14F) 12
XVIII Currency (BRMA 12A) 13
XIX Taxes (BRMA 50C) 13
XX Federal Excise Tax (BRMA 17A) 13
XXI Unauthorized Reinsurers 13
XXII Insolvency 15
XXIII Arbitration 16
XXIV Service of Suit (BRMA 49C) 17
XXV Agency Agreement 17
XXVI Intermediary (BRMA 23A) 17
Schedule A
Excess Catastrophe
Reinsurance Contract
Effective: January 1, 2000
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Preamble
The "Meridian Mutual Insurance Group" for purposes of this
Contract shall consist of Meridian Mutual Insurance Company,
Indianapolis, Indiana, Meridian Security Insurance Company,
Indianapolis, Indiana, Meridian Citizens Security Insurance
Company, Red Wing, Minnesota, Meridian Citizens Mutual Insurance
Company, Red Wing, Minnesota, and Insurance Company of Ohio,
Mansfield, Ohio. The application of this Contract shall be to
the parties comprising the Meridian Mutual Insurance Group as a
group and not separately to each.
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Fire and Allied Lines, Homeowners (property perils
only), Mobile Homeowners (property perils only), Farmowners
(property perils only), Commercial Multiple Peril (property
perils only), Businessowners (property perils only), Earthquake,
Inland Marine and Automobile Physical Damage (comprehensive
coverage only) business, subject to the terms, conditions and
limitations set forth herein and in Schedule A attached to and
forming part of this Contract.
Article II - Term
A. This Contract shall become effective on January 1, 2000, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 2000, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
C. In the event this Contract is under termination notice and
renewal negotiations for this Contract are not completed by
January 1, 2001, the expiration date of this Contract may, at
the Company's option, be extended to March 31, 2001.
Article III - Territory
The liability of the Reinsurer shall be limited to losses under
policies covering property located within the territorial limits
of the United States of America, its territories or possessions,
Puerto Rico, the District of Columbia and Canada; but this
limitation shall not apply to moveable property if the Company's
policies provide coverage when said moveable property is outside
the aforesaid territorial limits.
Article IV - Exclusions
This Contract shall not apply to:
1. Reinsurance accepted by the Company other than:
a. Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement; or
b. Local agency reinsurance on a share basis accepted
in the normal course of business.
2. Nuclear incident per the following clauses attached
hereto:
a. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - U.S.A." (NMA 1119);
b. "Nuclear Incident Exclusion Clause - Physical
Damage Reinsurance - Canada" (NMA 1980).
3. Pool, association, or syndicate business as excluded
by the provisions of the "Pools, Associations and
Syndicates Exclusion Clause" attached to and forming part
of this Contract.
4. Any liability of the Company arising from its
participation or membership in any insolvency fund.
5. Credit, financial guarantee and insolvency business.
6. War risks as excluded in any standard policy.
7. Policies written to apply in excess of underlying
insurance or policies written with a deductible or
franchise of more than $10,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with earthquake or
windstorm.
8. Insurance on growing crops.
9. Insurance against flood, surface water, waves, tidal
water or tidal wave, overflow of streams or other bodies
of water or spray from any of the foregoing, all whether
driven by wind or not, when written as such; however, this
exclusion shall not apply as respects the foregoing perils
included in Commercial Multiple Peril, Homeowners Multiple
Peril, Farmowners Multiple Peril, Inland Marine,
Businessowners, Mobile Homeowners, and Automobile Physical
Damage policies, and in endorsements to Fire and Extended
Coverage policies.
10. Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an
insured with respect to its mortgagee interest in property
or its owner interest in foreclosed property.
11. Difference in conditions insurance and similar kinds
of insurance, howsoever styled.
12. Risks which have a total insurable value of more than
$250,000,000.
13. Any collection of fine arts with an insurable value
of $5,000,000 or more.
14. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect
to ocean, lake, or inland waterways vessels;
c. Commercial negative film insurance and cast
insurance;
d. Drilling rigs, except water well drilling rigs;
e. Furriers' customers policies;
f. Garment contractors policies;
g. Insurance on livestock under so-called "mortality
policies," when written as such;
h. Jewelers' block policies and furriers' block
policies;
i. Mining equipment while underground;
j. Radio and television broadcasting towers;
k. Registered mail insurance when the limit of any
one addressee on any one day is more than $50,000;
l. Watercraft other than watercraft insured under
personal property floaters, yacht and/or outboard
policies, homeowners, farmowners, or recreational
vehicle policies.
15. Automobile physical damage business with respect to
the following:
a. Insurance against collision;
b. Insurance against theft or larceny;
c. Manufacturers' stocks at factories or warehouses.
16. This Contract excludes loss and/or damage and/or
costs and/or expenses arising from seepage and/or
pollution and/or contamination, other than contamination
from smoke. Nevertheless, this exclusion does not
preclude payment of the cost of removing debris of
property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25% of the Company's property
loss under the applicable original policy.
17. Losses in respect of overhead transmission and
distribution lines and their supporting structures other
than those on or within 150 meters (or 500 feet) of the
insured premises.
It is understood and agreed that public utilities extension
and/or suppliers extension and/or contingent business
interruption coverages are not subject to this exclusion
provided that these are not part of a transmitters' or
distributors' policy.
Article V - Retention and Limit
A. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain and be liable for
the first amount of ultimate net loss, shown as "Company's
Retention" for that excess layer in Schedule A attached
hereto, arising out of each loss occurrence. The Reinsurer
shall then be liable, as respects each excess layer, for 95.0%
of the amount by which such ultimate net loss exceeds the
Company's applicable retention, but the liability of the
Reinsurer under each excess layer shall not exceed 95.0% of
the amount, shown as "Reinsurer's Per Occurrence Limit" for
that excess layer in Schedule A attached hereto, as respects
any one loss occurrence.
B. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain, net and
unreinsured elsewhere, in addition to its initial retention
for each loss occurrence, 5.0% of the excess ultimate net loss
to which the excess layer applies.
C. No claim shall be made under any excess layer of reinsurance
coverage provided by this Contract in any one loss occurrence
unless at least two risks insured or reinsured by the Company
are involved in such loss occurrence. For purposes of this
Article, the Company shall be the sole judge of what
constitutes one risk.
Article VI - Reinstatement
A. In the event all or any portion of the reinsurance under any
excess layer of reinsurance coverage provided by this Contract
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss occurrence
commences hereon. For each amount so reinstated the Company
agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit for the excess
layer reinstated (based on the loss paid by the Reinsurer
under that excess layer); times
2. The earned reinsurance premium for the excess layer
reinstated for the term of this Contract (exclusive of
reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
loss under any excess layer hereunder, the Company shall
submit a statement to the Reinsurer of reinstatement premium
due the Reinsurer for that excess layer. If the earned
reinsurance premium for any excess layer for the term of this
Contract has not been finally determined as of the date of any
such statement, the calculation of reinstatement premium due
for that excess layer shall be based on the annual deposit
premium for that excess layer and shall be readjusted when the
earned reinsurance premium for that excess layer for the term
of this Contract has been finally determined. Any
reinstatement premium shown to be due the Reinsurer for any
excess layer as reflected by any such statement (less prior
payments, if any, for that excess layer) shall be payable by
the Company concurrently with payment by the Reinsurer of the
requested loss for that excess layer. Any return
reinstatement premium shown to be due the Company shall be
remitted by the Reinsurer as promptly as possible after
receipt and verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer under any excess layer of reinsurance coverage
provided by this Contract shall not exceed either of the
following:
1. 95.0% of the amount, shown as "Reinsurer's Per
Occurrence Limit" for that excess layer in Schedule A
attached hereto, as respects loss or losses arising out of
any one loss occurrence; or
2. 95.0% of the amount, shown as "Reinsurer's Annual
Limit" for that excess layer in Schedule A attached
hereto, in all during the term of this Contract.
Article VII - 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 and any loss adjustment expense, as
hereinafter defined) paid or payable by the Company in
settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. 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.
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" shall mean 90.0% of
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 an action against it by its insured
or its insured's assignee to recover damages the insured
is legally obligated to pay because of the Company's
alleged or actual negligence 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. However, for
purposes of this Contract, a loss in excess of policy
limits arising out of any one loss occurrence shall not
exceed 25.0% of the contractual loss under all policies
involved in the loss occurrence.
2. "Extra contractual obligations" shall mean 90.0% of
any punitive, exemplary, compensatory 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 or its insured's assignee, which action
alleges negligence 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. However, for
purposes of this Contract, extra contractual obligations
arising out of any one loss occurrence shall not exceed
25.0% of the contractual loss under all policies involved
in the loss occurrence.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of
any fraudulent and/or criminal act by 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 of any claim covered hereunder.
C. "Loss adjustment expense" as used herein shall mean expenses
assignable to the investigation, appraisal, adjustment,
settlement, litigation, defense and/or appeal of specific
claims, regardless of how such expenses are classified for
statutory reporting purposes. Loss adjustment expense shall
include, but not be limited to, interest on judgments,
expenses of outside adjusters, legal expenses incurred in
connection with coverage questions and legal actions related
thereto, a pro rata share of salaries and expenses of the
Company's field employees according to the time occupied in
adjusting a subject loss and expenses of the Company's
officials incurred in connection with the loss, but shall not
include office expenses or salaries of the Company's
officials. For purposes of this Contract, legal expenses
incurred in connection with coverage questions and legal
actions related thereto arising out of any one loss occurrence
shall not exceed 25.0% of the contractual loss under all
policies involved in the loss occurrence. Legal expenses
incurred in connection with coverage questions and legal
actions related thereto shall be deemed to have occurred on
the same date as the loss covered or alleged to be covered
under the policy.
Article VIII - Other Reinsurance
A. The Company shall maintain in force excess per risk
reinsurance, recoveries under which shall inure to the benefit
of this Contract.
B. The Company shall be permitted to carry underlying aggregate
excess catastrophe reinsurance, recoveries under which shall
inure solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
C. The Company shall be permitted to purchase other reinsurance,
recoveries under which may inure to the benefit of this
Contract.
Article IX - Loss Occurrence (NMA 2244/BRMA 27A)
A. The term "loss occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses
arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "loss occurrence" shall be
limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising
out of and directly occasioned by the same event, except that
the term "loss occurrence" shall be further defined as
follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72
consecutive hours may be extended in respect of individual
losses which occur beyond such 72 consecutive hours during
the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicentre of which need
not necessarily be within the territorial confines
referred to in paragraph A of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
B. Except for those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, the Company may
choose the date and time when any such period of consecutive
hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster,
accident or loss, and provided that only one such period of
168 consecutive hours shall apply with respect to one event.
C. However, as respects those "loss occurrences" referred to in
subparagraphs 1 and 2 of paragraph A above, if the disaster,
accident or loss occasioned by the event is of greater
duration than 72 consecutive hours, then the Company may
divide that disaster, accident or loss into two or more "loss
occurrences," provided that no two periods overlap and no
individual loss is included in more than one such period, and
provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster,
accident or loss.
D. No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "loss
occurrence" claimed under the 168 hours provision.
Article X - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (or within the terms
of extra contractual obligations coverage, if any, provided
under this Contract) and within the terms of this Contract,
shall be binding upon the Reinsurer. The Reinsurer agrees to
pay all amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company shall be the sole judge of
what is covered by an original policy.
Article XI - Salvage and Subrogation
The Reinsurer 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 Reinsurer, and to prosecute all claims
arising out of such rights.
Article XII - Premium
A. As premium for each excess layer of reinsurance coverage
provided by this Contract, the Company shall pay the Reinsurer
the greater of the following:
1. The amount, shown as "Annual Minimum Premium" for
that excess layer in Schedule A attached hereto, unless
the term of this Contract is extended to 15 months in
accordance with paragraph C of Article II, in which event
the "15-Month Minimum Premium" for that excess layer shall
apply; or
2. The percentage, shown as "Premium Rate" for that
excess layer in Schedule A attached hereto, of the
Company's net earned premium for the term of this
Contract.
B. The Company shall pay the Reinsurer an annual deposit premium
for each excess layer of an amount, shown as "Annual Deposit
Premium" for that excess layer in Schedule A attached hereto,
in four equal installments of an amount, shown as "Quarterly
Deposit Premium" for that excess layer in Schedule A attached
hereto, on January 1, April 1, July 1 and October 1 of 2000.
C. Notwithstanding the provisions of paragraph B above, if the
term of this Contract is extended to 15 months in accordance
with paragraph C of Article II, the Company shall pay the
Reinsurer a 15-month deposit premium for each excess layer of
the amount, shown as "15-Month Deposit Premium" for that
excess layer in Schedule A attached hereto, in five equal
installments of the amount, shown as "Quarterly Deposit
Premium" for that excess layer in Schedule A attached hereto,
on January 1, April 1, July 1 and October 1 of 2000 and
January 1, 2001.
D. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder for each excess layer, computed in
accordance with paragraph A, and any additional premium due
the Reinsurer or return premium due the Company for each such
excess layer shall be remitted promptly.
E. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less the earned portion of premiums ceded by the
Company for reinsurance which inures to the benefit of this
Contract. For purposes of calculating net earned premium, 90%
of the total basic policy premium as respects Homeowners,
Mobile Homeowners and Farmowners business, 70% of the total
basic policy premium as respects Businessowners and Commercial
Multiple Peril business and 100% of the Comprehensive portion
of the premium for Automobile Physical Damage business shall
be considered subject premium.
Article XIII - Late Payments
A. The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to
this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in Article
XXVI (hereinafter referred to as the "Intermediary") by the
payment due date, the party to whom payment is due may, by
notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365ths of the 12-month United States Treasury Bill
Rate, as quoted in The Wall Street Journal on the first
business day of the month for which the calculation is
made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects the payment of routine deposits and
premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 30 days after the
date of transmittal by the Intermediary of the initial
billing for each such payment.
2. Any claim or loss payment due the Company hereunder
shall be deemed due 10 business days after the proof of
loss or demand for payment is transmitted to the Reinsurer
or received by the Reinsurer, whichever is soonest. If
such loss or claim payment is not received within the
10 days, interest will accrue on the payment or amount
overdue in accordance with paragraph B above, from the
date the proof of loss or demand for payment, in
accordance with the provisions of Article X, was
transmitted to the Reinsurer.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 10 business days
following transmittal of written notification that the
provisions of this Article have been invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting a
subscribing reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit, or prohibiting either party from contesting the
validity of any payment or from initiating any arbitration or
other proceeding in accordance with the provisions of this
Contract. If the debtor party prevails in an arbitration or
other proceeding, then any interest penalties due hereunder on
the amount in dispute shall be null and void. If the debtor
party loses in such proceeding, then the interest penalty on
the amount determined to be due hereunder shall be calculated
in accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XIV - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XVI - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), 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 Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection 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 is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign 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.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XIX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves
(including all case reserves plus any reasonable amount
estimated to be unreported from known loss occurrences) 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. Escrow accounts for the benefit of the Company;
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 Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves (including all case reserves
plus any reasonable amount estimated to be unreported from
known loss occurrences) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
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.
C. 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 Reinsurer 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 Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, 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 any ceded outstanding loss and loss
adjustment expense reserves (including all case reserves
plus any reasonable amount estimated to be unreported from
known loss occurrences) funded by means of a letter of
credit which 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
the Company's ceded outstanding loss and loss adjustment
expense reserves (including all case reserves plus any
reasonable amount estimated to be unreported from known
loss occurrences), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, 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 Reinsurer 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 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.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense 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 one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - 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 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 insurance or reinsurance companies or Lloyd's
London Underwriters. 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, the two Arbiters shall request the American
Arbitration Association to appoint the Umpire. If the
American Arbitration Association fails to appoint the Umpire
within 30 days after it has been requested to do so, either
party may request a justice of a Court of general jurisdiction
of the state in which the arbitration is to be held to appoint
the Umpire.
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 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 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 decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer 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
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXIV - Service of Suit (BRMA 49C)
(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)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, 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 Contract.
Article XXV - Agency Agreement
Meridian Mutual Insurance Company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co., Inc. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Inc., 3600 West 80th Street,
Minneapolis, Minnesota 55431. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Indianapolis, Indiana,this ________ day of _________________ in the year
________.
__________________________________________________
Meridian Mutual Insurance Group
Schedule A
Excess Catastrophe
Reinsurance Contract
Effective: January 1, 2000
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
Second Third Fourth Fifth
Excess Excess Excess Excess
Company's Retention $6,000,000 $10,000,000 $18,000,000 $30,000,000
Reinsurer's Per
Occurrence Limit
(95.0% of) $4 ,000,000 $8,000,000 $12,000,000 $35,000,000
Reinsurer's Annual
Limit (95.0% of) $8,000,000 $16,000,000 $24,000,000 $70,000,000
Annual Minimum
Premium $1,003,200 $410,400 $313,600 $558,400
15-Month Minimum
Premium $1,254,000 $513,000 $392,000 $698,000
Premium Rate 1.2712% .5200% .3976% .7078%
Annual Deposit
Premium $1,254,000 $513,000 $392,000 $698,000
Quarterly Deposit
Premium $313,500 $128,250 $98,000 $174,500
15-Month Deposit
Premium $1,567,500 $641,250 $490,000 $872,500
The figures listed above for each excess layer shall apply to
each Subscribing Reinsurer in the percentage share for that
excess layer as expressed in its Interests and Liabilities
Agreement attached hereto.
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on
the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material," and
for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other products
of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st
December 1957 shall be free from the application of the other
provisions of this Clause until expiry date or 31st December 1960
whichever first occurs whereupon all the provisions of this Clause
shall apply.
(b) with respect to any risk located in Canada policies issued
by the Reassured on or before 31st December 1958 shall be free from
the application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
12/12/57
N.M.A. 1119
BRMA 35B
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
CANADA
1. This Agreement does not cover any loss or liability accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this clause,
this Agreement does not cover any loss or liability accruing to the Reinsured,
directly or indirectly, and whether as Insurer or Reinsurer, from any insurance
against Physical Damage (including business interruption or consequential loss
arising out of such Physical Damage) to:
(a) nuclear reactor power plants including all auxiliary property
on the site, or
(b) any other nuclear reactor installation, including
laboratories handling radioactive materials in connection with
reactor installations, and critical facilities as such, or
(c) installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances, and for
reprocessing, salvaging, chemically separating, storing or disposing
of spent nuclear fuel or waste materials, or
(d) installations other than those listed in (c) above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.
3. Without in any way restricting the operation of paragraphs 1 and 2 of this
clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith, except that this paragraph 3 shall not
operate:
(a) where the Reinsured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1, 2 and 3 of
this clause, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. This clause shall not extend to risks using radioactive isotopes in any form
where the nuclear exposure is not considered by the Reinsured to be the primary
hazard.
6. The term "prescribed substances" shall have the meaning given to it by the
Atomic Energy Control Act R.S.C. 1985(c), A-16 or by any law amendatory
thereof.
7. Reinsured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of
this clause, this Agreement does not cover any loss or liability accruing to
the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer,
caused:
(1) by any nuclear incident, as defined in the Nuclear Liability
Act or any other nuclear liability act, law or statute, or any law
amendatory thereof or nuclear explosion, except for ensuing loss or
damage which results directly from fire, lightning or explosion of
natural, coal or manufactured gas;
(2) by contamination by radioactive material.
NOTE: Without in any way restricting the operation of paragraphs 1, 2, 3 and
4 of this clause, paragraph 8 of this clause shall only apply to all
original contracts of the Reinsured, whether new, renewal or
replacement, which become effective on or after December 31, 1992.
N.M.A. 1980 (2/19/93)
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
Section A:
Excluding:
(a) All business derived directly or indirectly from any
Pool, Association or Syndicate which maintains its own
reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory)
formed after March 1, 1968 for the purpose of insuring
property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the
same perils, which is known at the time to be insured by, or in
excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals,
Improved Risk Mutuals,
Any Pool, Association or Syndicate formed for the purpose of
writing
Oil, Gas or Petro-Chemical Plants and/or Oil or Gas
Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters.
Section B does not apply:
(a) Where The Total Insured Value over all interests of
the risk in question is less than $250,000,000.
(b) To interests traditionally underwritten as Inland
Marine or stock and/or contents written on a blanket
basis.
(c) To Contingent Business Interruption, except when the
Company is aware that the key location is known at the
time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section
B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only.
Where this clause attaches to Catastrophe Excesses,
the following Section C is added:
Section C:
Nevertheless the Reinsurer specifically agrees that
liability accruing to the Company from its participation in
residual market mechanisms including but not limited to:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association ("FWUA")
Louisiana Insurance Underwriting Association
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting
Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" and "Rural Risk Plan" business
AND
(3) The Florida Property and Casualty Joint Underwriting
Association ("FPCJUA"), the Florida Residential Property
and Casualty Joint Underwriting Association ("RPCJUA") and
the California Earthquake Authority (CEA)
for all perils otherwise protected hereunder shall not be
excluded, except, however, that this reinsurance does not include
any increase in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" and/or "Fair Plan" and/or "Rural Risk Plan"
and/or Residual Market Mechanisms to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair
Plan" and/or "Rural Risk Plan" and/or Residual Market
Mechanisms, or any participant therein, including the
Company, whether by way of subrogation or otherwise,
brought by or on behalf of any insolvency fund (as defined
in the Insolvency Fund Exclusion Clause incorporated in
this Contract).
Section D:
(1) Notwithstanding Section C above, in respect of the
CEA, where an assessment is made against the Company by
the CEA, the Company may include in its Ultimate Net Loss
only that assessment directly attributable to each
separate loss occurrence covered hereunder. The Company's
initial capital contribution to the CEA shall not be
included in the Ultimate Net Loss.
(2) Notwithstanding Section C above, in respect of the
FWUA, FPCJUA and RPCJUA, where an assessment is made
against the Company by the FWUA, the FPCJUA, the RPCJUA,
or any combination thereof, the maximum loss that the
Company may include in the Ultimate Net Loss in respect of
any loss occurrence hereunder shall not exceed the lesser
of:
(a) The Company's assessment from the relevant entity
(FWUA, FPCJUA and/or RPCJUA) for the accounting year in
which the loss occurrence commenced, or
(b) The product of the following:
(i) The Company's percentage participation in
the relevant entity for the accounting year in which
the loss occurrence commenced; and
(ii) The relevant entity's total losses in such
loss occurrence.
Any assessments for accounting years subsequent to that in
which the loss occurrence commenced may not be included in
the Ultimate Net Loss hereunder. Moreover,
notwithstanding Section C above, in respect of the FWUA,
the FPCJUA and/or the RPCJUA, the Ultimate Net Loss
hereunder shall not include any monies expended to
purchase or retire bonds as a consequence of being a
member of the FWUA, the FPCJUA and/or the RPCJUA. For the
purposes of this Contract, the Company may not include in
the Ultimate Net Loss any assessment or any percentage
assessment levied by the FWUA, the FPCJUA and/or the
RPCJUA to meet the obligations of an insolvent insurer
member or other party, or to meet any obligations arising
from the deferment by the FWUA, the FPCJUA and/or the
RPCJUA of the collection of monies.
_________________________________________________________________
NOTES: Wherever used herein the terms:
"Company" shall be understood to mean
"Company", "Reinsured", "Reassured" or
whatever other term is used in the attached
reinsurance document to designate the
reinsured company or companies.
"Agreement" shall be understood to mean
"Agreement", "Contract", "Policy", or whatever
other term is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean
"Reinsurers", "Underwriters" or whatever other
term is used in the attached reinsurance
document to designate the reinsurer or
reinsurers.
Exhibit 10.57
(Revised: January 1, 2000)
Seventh Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1999
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
Reinsurers Participations
Erie Insurance Exchange 2.0%
The Nissan Fire & Marine Insurance Co., Ltd. 2.5
Odyssey Reinsurance Corporation 4.0
Renaissance Reinsurance, Ltd. 70.5
Shelter Reinsurance Company 10.0
SOREMA North America Reinsurance Company 6.0
Total 95.0% part of
100% share
in the
interests
and
liabilities
of the
"Reinsurer"
Addendum No. 1
to the
Seventh Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1999
issued to
Meridian Mutual Insurance Group
Indianapolis, Indiana
(hereinafter referred to as the "Company")
It Is Hereby Agreed, effective January 1, 2000, with respect to
losses arising out of loss occurrences commencing on or after
that date, that this Contract shall be amended as follows:
1. Paragraph A of Article V - Retention and Limit - shall be
deleted and the following substituted therefor:
"A. Coverage A: As respects losses arising from the
perils of earthquake and fire following earthquake subject
to this Contract, the Company shall retain and be liable
for the first $65,000,000 of ultimate net loss arising out
of each loss occurrence. The Reinsurer shall then be
liable for 95% of the amount by which such ultimate net
loss exceeds the Company's retention, but the liability of
the Reinsurer shall not exceed 95% of $18,000,000 as
respects any one loss occurrence."
2. Article VIII - Loss Occurrence - shall be deleted and the
following substituted therefor:
"Article VIII - Loss Occurrence (NMA 2244/BRMA 27A)
A. The term `loss occurrence' shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or
losses arising out of one event which occurs within the
area of one state of the United States or province of
Canada and states or provinces contiguous thereto and to
one another. However, the duration and extent of any one
`loss occurrence' shall be limited to all individual
losses sustained by the Company occurring during any
period of 168 consecutive hours arising out of and
directly occasioned by the same event except that the term
`loss occurrence' shall be further defined as follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage,
all individual losses sustained by the Company
occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same
event. However, the event need not be limited to one
state or province or states or provinces contiguous
thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the
area of one municipality or county and the
municipalities or counties contiguous thereto arising
out of and directly occasioned by the same event. The
maximum duration of 72 consecutive hours may be
extended in respect of individual losses which occur
beyond such 72 consecutive hours during the continued
occupation of an assured's premises by strikers,
provided such occupation commenced during the aforesaid
period.
3. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to in the opening paragraph of this Article)
and fire following directly occasioned by the
earthquake, only those individual fire losses which
commence during the period of 168 consecutive hours may
be included in the Company's `loss occurrence.'
4. As regards `freeze,' only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting of frozen pipes and
tanks) may be included in the Company's `loss
occurrence.'
B. Except for those `loss occurrences' referred to in
subparagraphs 1 and 2 of paragraph A above, the Company
may choose the date and time when any such period of
consecutive hours commences provided that it is not
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, accident or loss and
provided that only one such period of 168 consecutive
hours shall apply with respect to one event.
C. However, as respects those `loss occurrences'
referred to in subparagraphs 1 and 2 of paragraph A above,
if the disaster, accident or loss occasioned by the event
is of greater duration than 72 consecutive hours, then the
Company may divide that disaster, accident or loss into
two or more `loss occurrences,' provided no two periods
overlap and no individual loss is included in more than
one such period, and provided that no period commences
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, accident or loss.
D. No individual losses occasioned by an event that
would be covered by 72 hours clauses may be included in
any `loss occurrence' claimed under the 168 hours
provision."
It Is Further Agreed, effective January 1, 2000, that this
Contract shall be amended as follows:
1. Paragraphs A, B and D of Article XI - Premium - shall be
deleted and the following substituted therefor:
"A. As premium for the reinsurance provided hereunder
during each contract year, the Company shall pay the
Reinsurer 2.129% of its net earned premium for the second
contract year.
B. As respects the second contract year, the Company
shall pay the Reinsurer an annual minimum and deposit
premium of $2,100,000 in four equal installments of
$525,000 on January 1, April 1, July 1 and October 1 of
2000. As respects the third contract year, the Company
shall pay the Reinsurer an annual minimum and deposit
premium of $2,300,000 in four equal installments of
$575,000 on January 1, April 1, July 1 and October 1 of
2001."
"D. `Net earned premium' as used herein is defined as
gross earned premium of the Company for the classes of
business reinsured hereunder, less the earned portion of
premiums ceded by the Company for reinsurance which inures
to the benefit of this Contract. For purposes of
calculating net earned premium, 90.0% of the total basic
policy premium as respects Homeowners, Mobile Homeowners
and Farmowners business, 70.0% of the total basic policy
premium as respects Businessowners and Commercial Multiple
Peril business and 100% of the Comprehensive portion of
the premium for Automobile Physical Damage business shall
be considered subject premium."
2. Article XXV - Intermediary (BRMA 23A) - shall be deleted and
the following substituted therefor:
"Article XXV - Intermediary (BRMA 23A)
E. W. Blanch Co., Inc. is hereby recognized as the
Intermediary negotiating this Contract for all business
hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions,
taxes, losses, loss adjustment expense, salvages and loss
settlements) relating thereto shall be transmitted to the
Company or the Reinsurer through E. W. Blanch Co., Inc., 3600
West 80th Street, Minneapolis, Minnesota 55431. Payments by
the Company to the Intermediary shall be deemed to
constitute payment to the Reinsurer. Payments by the
Reinsurer to the Intermediary shall be deemed to constitute
payment to the Company only to the extent that such payments
are actually received by the Company."
The provisions of this Contract shall remain otherwise unchanged.
In Witness Whereof, the Company by its duly authorized
representative has executed this Addendum as of the date
undermentioned at:
Indianapolis, Indiana,this ________ day of ________________________ in the year
________.
__________________________________________________
Meridian Mutual Insurance Group
Exhibit 23.01
Consent of Independent Public Accountants
We consent to the incorporation by reference in Registration No.
33-69313 on Form S-8 effective December 18, 1998, in Registration
No. 33-10943 on Form S-8 effective August 28, 1996; in
Registration Statement No.33-31003 on Form S-8 as amended by Post-
Effective Amendment No. 1 effective July 31, 1997; in
Registration Statement No. 33-42771 on Form S-8 effective
December 18, 1997; in Registration Statement No. 33-11413 on Form
S-1 as amended by Post-Effective Amendment No. 1 effective March
19, 1987; and in Registration Statement No. 33-58406 on Form S-2
effective April 27, 1993 of Meridian Insurance Group, Inc. of our
report, dated February 22, 2000, on our audits of the
consolidated financial statements and financial statement
schedules of Meridian Insurance Group, Inc. as of December 31,
1999 and 1998 and for each of the three years in the period ended
December 31, 1999, which report is included in the Annual Report
on Form 10-K.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 28, 2000
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