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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] 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: 0-22280
PHILADELPHIA CONSOLIDATED HOLDING CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2202671
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, Pennsylvania 19004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 617-7900
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 9,
1998 as reported on the NASDAQ National Market System, was $126,441,666. Shares
of Common Stock held by each executive officer and director and by each person
who is known by the Registrant to beneficially own 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 9, 1998, Registrant had outstanding 12,282,370 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the definitive Proxy Statement for Registrant's 1998 Annual
Meeting of Shareholders to be held May 7, 1998 are incorporated by
reference in Part III.
The Exhibit Index is located on Page 52 of 235.
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PART I
Item 1. BUSINESS
GENERAL
As used in this Annual Report on Form 10-K, (i) "Philadelphia Insurance"
refers to Philadelphia Consolidated Holding Corp., (ii) the "Company" refers to
Philadelphia Insurance and its subsidiaries, doing business as Philadelphia
Insurance Companies; (iii) the "Insurance Subsidiaries" refers to Philadelphia
Indemnity Insurance Company ("PIIC") and Philadelphia Insurance Company ("PIC"),
collectively; and (iv) "MIA" refers to Maguire Insurance Agency, Inc., a captive
underwriting manager. Philadelphia Insurance was incorporated in Pennsylvania in
1984, to serve as a holding company for its three wholly owned subsidiaries
(PIIC, PIC, MIA).
1997 represented the fourth consecutive year since its 1993 initial public
offering that the Company has reported growth in gross written premiums and net
income while experiencing a combined ratio substantially lower than the
commercial property and casualty insurance industry as a whole. The Company's
four year compound annual growth rate for gross written premiums, and net income
was 29.2% and 41.3%, respectively, while the four year weighted average combined
ratio (GAAP basis) was 86.8%. The combined ratio is the sum of the net loss and
loss adjustment expenses and acquisition costs and other underwriting expenses
divided by net earned premiums. The Company believes its profitable growth is
attributable to adhering to conservative underwriting guidelines and pricing
discipline while supplementing historically profitable product lines with growth
in certain excess liability products, commercial multi-peril products, and
selected professional liability coverages.
The Insurance Subsidiaries have been assigned an "A" (Excellent) Best's
Rating by A.M. Best Company. According to A.M. Best, the "A" (Excellent) rating
is issued to companies that demonstrate excellent financial strength and ability
to meet its obligations to policyholders. A.M. Best ratings are based upon
factors relevant to policyholders and are not directed toward the protection of
investors. The Insurance Subsidiaries also possess an "A" claims paying ability
rating by Standard & Poor's. According to Standard & Poor's, insurers rated "A"
offer good financial security for policyholders. The Company believes that the
"A" ratings assigned by A.M. Best and Standard & Poor's are important factors in
marketing its products.
BUSINESS STRATEGY
The Company designs property and casualty insurance products incorporating
value-added coverages and services for select target industries or niches. A
mixed marketing strategy is utilized, wherein, the Company's production
underwriting organization markets the Company's insurance products directly to
the insured or through the Company's 35 preferred agents, or also accepts
business from independent insurance brokers. The Company's production
underwriting organization, consisting of 100 professionals at year 1997,
operates from 38 proprietary field offices located across the United States and
includes telemarketing staffs at its regional offices and the Philadelphia Home
Office. Approximately, 53% of the total 1997 gross premium was produced
indirectly either through the Company's 35 preferred agents (11%) or its some
4,000 broker relationships (42%).
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PRODUCT LINES
The following table sets forth, for the years ended December 31, 1997,
1996 and 1995, the gross written premiums on the Company's insurance product
lines and the relative percentages that such premiums represented.
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Dollars Percentage Dollars Percentage Dollars Percentage
------- ---------- ------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross Written Premiums
Commercial Automobile .............. $ 18,415 11.6% $ 18,506 13.5% $ 17,294 16.6%
Excess Liability..................... 59,296 37.3 56,411 41.2 51,907 49.8
Commercial Package................... 60,012 37.7 43,707 32.0 25,064 24.1
Specialty Lines...................... 20,748 13.0 16,558 12.1 8,505 8.2
Involuntary.......................... 620 .4 1,673 1.2 1,410 1.3
-------- ----- -------- ----- -------- -----
Total................................ $159,091 100.0% $136,855 100.0% $104,180 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Commercial Automobile and Excess Liability: The Company has provided
Commercial Automobile Products to the leasing and rent-a-car industries for 35
years. Products offered to the rent-a-car industry include coverage for the
business owner's property, dual interest liability, and physical damage on the
rental vehicle.
Additionally, through arrangements with a number of the largest rent-a-car
companies, the Company also offers its excess liability product at the rental
car counter to rent-a-car customers protecting them against liability for bodily
injury and property damage, which is excess of the statutory coverage provided
with the rental vehicle and primary over the renter's personal automobile
insurance coverage.
In keeping with its marketing philosophy, the Company includes a number of
special features in its rental car products and services in an attempt to
differentiate them from the competition. Such features include: catastrophic
comprehensive coverage for losses due to fire, lightening, windstorm, hail,
flood, earthquake and other specified causes; subrogation services on
self-insured physical damage; liability deductibles; and self-insured retention
programs.
The Company also offers a full range of liability and physical damage
coverages to automobile leasing companies and their customers. For the driver
(the lessee), coverages include both primary liability and physical damage
coverage on the vehicle. For the owner (the lessor), coverages include
contingent and excess liability over the primary liability layer which protects
lessors in the event of a loss when the primary coverage is absent or inadequate
and contingent physical damage coverage. Additional products offered to leasing
companies include interim primary liability and physical damage coverage, which
protects the lessor of the vehicle before and after it is delivered to the
lessee; residual value coverage which guarantees the value of the leased vehicle
at the termination of the lease; and guaranteed asset protection coverage which
protects the lessor and lessee for the difference between the leased vehicle's
actual cash value and the lease or loan net value in instances where the vehicle
is stolen or damaged beyond repair.
Commercial Package: The Company has been providing Commercial Multi Peril
Package Policies ("Package Programs") to specific targeted niche markets for
over 10 years. Among the organizations to which the Company offers its specialty
niche package programs are non-profit social service agencies, introduced in
1988, health and fitness organizations, assisted living facilities, nursing
homes, private and specialty training schools, and condominium / homeowner
association facilities. The package policies provide a combination of
comprehensive
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liability, property and automobile coverages with limits up to $1.0 million and
umbrella limits on an optional basis up to $5.0 million. The package policies
are further tailored to include special value-added features addressing the
unique aspects of each of the above niche markets differentiating the Company's
product offerings from those of its competitors.
Specialty Lines: The Company has been providing specialty professional
liability products for approximately ten years, initially offering Directors &
Officers Liability coverage to Nonprofit 501(c)(3) tax exempt organizations. The
Company's recent efforts have been focused on broadening the target market for
its specialty lines product offerings through the expansion of its field
production underwriting staff along with introducing new product offerings. The
Company has significantly expanded its errors and omissions product offered to
the independent insurance agent along with its miscellaneous professional
liability program which is currently offered to an array of professionals
including: mortgage bankers, claims adjusters, lawyers, title abstractors, and
financial advisors. During 1996, the Company introduced a proprietary package of
coverages in its Executive Safeguard policy offered to public and private
companies. The coverages offered in the Executive Safeguard policy include:
directors and officers liability, employment practices liability, fiduciary
liability, and kidnap ransom insurance.
The following table provides the geographic distribution of the Company's
risks insured as represented by direct earned premiums for all product lines for
the year ended December 31, 1997. No other state accounted for more than 2% of
total direct earned premiums for all product lines for the year ended December
31, 1997.
<TABLE>
<CAPTION>
State Direct Earned Premiums Percent of Total
----- ---------------------- ----------------
<S> <C> <C>
California................................. $31,549,372 21.9%
Florida.................................... 18,177,954 12.6
New York................................... 8,103,169 5.6
Illinois................................... 7,191,090 5.0
New Jersey................................. 7,044,649 4.9
Massachusetts.............................. 6,495,937 4.5
Pennsylvania............................... 5,513,663 3.8
Ohio....................................... 4,971,008 3.4
Hawaii..................................... 4,510,938 3.1
North Carolina............................. 3,370,045 2.3
Oklahoma................................... 3,309,100 2.3
Minnesota.................................. 3,258,377 2.3
Wisconsin.................................. 2,979,051 2.1
Alabama.................................... 2,895,981 2.0
Other...................................... 34,821,033 24.2
------------ -----
Total Direct Earned Premiums............... $144,191,367 100.0%
============ =====
</TABLE>
UNDERWRITING AND PRICING
The Company's underwriting function is segregated into three independent
groups: Commercial Lines, Specialty Lines, and Regional Underwriting. Commercial
and Specialty Lines responsibilities include: pricing all business, managing the
risk selection process, and monitoring loss ratios by product and insured. The
Regional Underwriting group primarily performs preliminary underwriting and
processing functions along with providing customer service.
The Commercial Lines group, which has underwriting responsibility for the
Company's commercial automobile and commercial package products, currently
consists of home office underwriters that are supported by underwriting
assistants, raters, and other policy administration personnel. The Commercial
Lines underwriters and support staff are organized into geographic underwriting
teams responsible for underwriting and servicing specific commercial automobile
and commercial package products. Each underwriting team is under the direction
of a Senior Underwriter who reports to the Vice President of Commercial Lines
Underwriting.
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The Specialty Lines group, which has underwriting responsibility for the
Company's professional liability products, consists of home office underwriters
who report to the Vice President of Specialty Lines Underwriting, and are
supported by underwriting assistants. The Specialty Lines underwriters have
responsibility for underwriting specific professional liability products within
designated Company marketing regions.
During 1997, the Company established a pilot commercial lines underwriting
function in its Southeast regional marketing office to strengthen local market
intelligence, further develop relationships with agents and insureds and enhance
overall customer service. This pilot underwriting function operates under
well-defined underwriting and pricing guidelines developed by the home office
Commercial Lines Underwriting department and has quoting and binding authority
on all risks falling within these guidelines. Risks not falling within the
guidelines are referred to the home office for underwriting decisions.
As a result of the success of this pilot office, the Company plans to
establish commercial lines underwriting functions in its Western and Northeast
regional marketing offices during 1998 under the currently established
structure. In addition, the Specialty Lines division has also identified key
regional offices in which Specialty Lines underwriters will be placed. During
the fourth quarter of 1997, a pilot Specialty Lines Underwriting unit was
established in the Company's Western region. The Specialty Lines underwriters
will also operate under a matrix organization structure similar to that of
Commercial Lines underwriting where final underwriting decisions falling outside
of established guidelines will be referred to the home office. Production and
service decisions will reside with the regional marketing vice president. The
Company anticipates placing Specialty Lines underwriters into approximately four
other of the Company's seven regional marketing offices during 1998.
The Company uses a combination of Insurance Services Office, Inc. ("ISO")
coverage forms and rates and independently filed forms and rates. Coverage forms
and rates are independently developed in situations where the line of business
is not supported by ISO or where management believes the ISO forms and rates do
not adequately address the risk. Departures from ISO forms are also used to
differentiate the Company's products from its competitor's products and are
independently filed.
The Company attempts to follow conservative underwriting and pricing
practices. When necessary, the Company is willing to reunderwrite, sharply
curtail or discontinue a product deemed to present unacceptable risks. Written
underwriting guidelines are maintained, and updated regularly, for all classes
of business underwritten. Adherence to underwriting guidelines is maintained
through underwriting audits. Product price levels are measured utilizing a price
monitoring system which measures the aggregate price level of the book of
business. This system is intended to assist management and underwriters in
recognizing and correcting price deterioration before it results in underwriting
losses.
REINSURANCE
The Company's reinsurance program is principally placed with Swiss Re
America, an "A" (Excellent) rated company by A.M. Best Company, with which the
Company has maintained a reinsurance relationship since 1989.
The Company's casualty reinsurance agreement with Swiss Re America (the
"Reinsurer") provides that the Company bears the first $500,000 layer of
liability on each occurrence with the Reinsurer bearing the remaining
contractual liability to policy limits of $1.0 million. Casualty risks in excess
of $1.0 million up to $6.0 million are reinsured under a casualty treaty
("Excess Treaty") placed through a reinsurance broker. Kemper Re, NAC Re, and
SCOR Re participate on the Excess Treaty at 50%, 25%, and 25%, respectively.
Each of these reinsurers is rated "A-" (Excellent) or better by A.M. Best
Company. Facultative reinsurance is placed for each casualty risk in excess of
$6.0 million.
The Company also has an excess casualty reinsurance agreement with the
Reinsurer providing an additional $5.0 million of coverage for protection from
exposures such as extra-contractual obligations and judgments in excess of
policy limits. Additionally, the Company has an errors and omissions insurance
policy which provides an additional $5.0 million of coverage with respect to
these exposures.
The Company's property reinsurance agreement provides that the Company
bears the first $500,000 layer of loss on each risk with the Reinsurer bearing
the next $1.5 million layer of loss on each risk subject to a maximum
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of $3.5 million recoverable from a single occurrence. The Company has an
automatic facultative arrangement for each property risk in excess of $2.0
million up to $20.0 million.
The Company seeks to limit the risk of a reinsurer's default in a number
of ways. First, the Company principally contracts with large reinsurers that are
rated at least "A-" (Excellent) by A.M. Best. Second, the Company seeks to
collect the obligations of its reinsurers on a timely basis. This collection
effort is supported by a reinsurance recoverable system that is regularly
monitored. Finally, the Company typically does not write casualty policies in
excess of $10.0 million nor property policies in excess of $20.0 million.
The Company regularly assesses its reinsurance needs and seeks to improve
the terms of its reinsurance arrangements as market conditions permit. Such
improvements may involve increases in retentions, modifications in premium
rates, changes in reinsurers and other matters.
MARKETING AND DISTRIBUTION
Proactive risk selection based on sound underwriting criteria and
relationship selling in clearly defined commercial markets continues to be the
foundation of the Company's marketing plan. Within this framework, the Company's
marketing effort is designed to assure a systematic and disciplined approach to
developing business which is anticipated to be profitable. The Company's most
important distribution channel is its production underwriting organization. The
production underwriting organization is currently comprised of 100 employees
located in 38 field offices in major markets across the country. The field
offices are focused daily on interacting with prospective and existing insureds.
In addition to this direct marketing, relationships with approximately 4,000
brokers have been formed either as a result of the broker having a relationship
with the insured, or through seeking the Company's expertise in one of its
specialty products.
During 1996, the Company introduced its preferred agent program wherein
business relationships were formed with brokers specializing in certain of the
Company's business niches. At year end 1997, the Company had 35 preferred agent
relationships, representing approximately $16.2 million in gross written
premium. The Company anticipates increasing the number of these relationships by
approximately 35% in 1998 thereby further increasing the distribution of the
Company's niche products. This mixed marketing concept not only provides the
flexibility to work with the broker and/or policyholder but also provides the
flexibility to seize emerging market opportunities.
The Company supplements its marketing efforts through trade shows, direct
mailings and national advertisements placed in trade magazines serving
industries in which the Company specializes.
In 1997, approximately 85% of the Company's expiring insurance premiums
were renewed. Management attributes this renewal rate in large part to
continuing personal contacts between the Company's production underwriters,
value-added coverage enhancements which differentiates the Company's products,
and servicing its policyholders.
PRODUCT DEVELOPMENT
The Company continually evaluates new product opportunities, consistent
with its strategic focus on selected market niches. Direct contacts between the
Company's field and home office personnel and its customers have produced a
number of new product ideas. All new product ideas are presented to the Product
Development Committee (the "Committee") for consideration. The Committee,
currently composed of the Company's two most senior executives, as well as
officers from the underwriting and claims departments, meets regularly to review
the feasibility of products from a variety of perspectives, including
underwriting risk, marketing and distribution, reinsurance, long-term viability
and consistency with the Company's culture and philosophy. For each new product,
an individualized test market plan is prepared, addressing such matters as the
appropriate distribution channel (e.g., a limited number of selected production
underwriters), an appropriate cap on premiums to be generated during the test
market phase and reinsurance requirements for the test market phase. Test market
products may involve lower retentions than customarily utilized. After a new
product is approved for test marketing, the Company monitors its success based
on specified criteria (e.g., underwriting results, sales success, product demand
and competitive pressures). If expectations are not realized, the Company either
moves to improve results by initiating adjustments or abandons the product.
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CLAIMS MANAGEMENT AND ADMINISTRATION
In accordance with its emphasis on underwriting profitability, the Company
actively manages claims under its policies in an effort to investigate reported
incidents at the earliest juncture, service insureds and minimize fraud. Claim
files are regularly audited by claims supervisors and the Company's reinsurers
in an attempt to ensure that claims are being processed properly and that
reserves are being set at appropriate levels. Claims examiners are expected to
set conservative reserves, an important factor in the Company's reserve
development over the years. See "Loss and Loss Adjustment Expenses."
The Company maintains a Special Investigations Unit to investigate
suspicious claims and to serve as a clearinghouse for information concerning
fraudulent practices primarily within the rental car industry. Working closely
with a variety of industry contacts, including attorneys, investigators and
rental car company fraud units, this unit has uncovered a number of fraudulent
claims.
LOSS AND LOSS ADJUSTMENT EXPENSES
The Company is liable for losses and loss adjustment expenses under its
insurance policies and reinsurance treaties. While the Company's professional
liability policies are written on claims-made forms and while claims on its
other policies are generally reported promptly after the occurrence of an
insured loss, in many cases several years may elapse between the occurrence of
an insured loss, the reporting of the loss to the Company and the Company's
payment of the loss. The Company reflects its liability for the ultimate payment
of all incurred losses and loss adjustment expenses by establishing loss and
loss adjustment expense reserves, which are balance sheet liabilities
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events that have occurred.
When a claim involving a probable loss is reported, the Company
establishes a case reserve for the estimated amount of the Company's ultimate
loss and loss adjustment expense. This estimate reflects an informed judgment,
based on the Company's reserving practices and the experience of the Company's
claims staff. Management also establishes reserves on an aggregate basis to
provide for losses incurred but not reported ("IBNR"), as well as future
development on claims reported to the Company.
As part of the reserving process, historical data are reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, changes in societal attitudes,
inflation and economic conditions. Reserve amounts are necessarily based on
management's estimates and judgments; as new data become available and are
reviewed, these estimates and judgments are revised, resulting in increases or
decreases to existing reserves. To verify the adequacy of its reserves, the
Company engages independent actuarial consultants to perform interim loss
reserve analyses and annual certifications.
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The following table sets forth a reconciliation of beginning and ending
reserves for unpaid loss and loss adjustment expenses, net of amounts for
reinsured losses and loss adjustment expenses, for the years indicated. As a
result of changes in estimates of insured events of prior years, the Company
reduced losses and loss adjustment expenses incurred by $1,716,000, $965,000 and
$925,000 in 1997, 1996 and 1995, respectively. Such favorable development was
due to losses emerging at a lesser rate than had been originally anticipated
when the initial reserves for the applicable accident years were estimated.
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Unpaid loss and loss adjustment expenses at
beginning of year (1) ........................................ $ 85,723 $ 68,246 $ 53,595
--------- -------- --------
Provision for losses and loss adjustment expenses for
current year claims .......................................... 56,725 41,083 34,152
Decrease in estimated ultimate losses and loss
adjustment expenses for prior year claims .................... (1,716) (965) (925)
--------- -------- --------
Total incurred losses and loss adjustment expenses .............. 55,009 40,118 33,227
--------- -------- --------
Loss and loss adjustment expense payments for claims
attributable to:
Current year ................................................. 9,512 7,427 6,186
Prior years .................................................. 22,292 15,214 12,390
--------- -------- --------
Total payments .................................................. 31,804 22,641 18,576
--------- -------- --------
Unpaid loss and loss adjustment expenses at end of year (1) ..... $ 108,928 $ 85,723 $ 68,246
========= ======== ========
</TABLE>
(1) Unpaid loss and loss adjustment expenses differ from the amounts
reported in the Consolidated Financial Statements because of the
inclusion therein of reinsurance receivables of $13,502, $10,919 and
$9,440 at December 31, 1997, 1996 and 1995, respectively.
The following table presents the development of unpaid loss and loss
adjustment expenses, net of amounts for reinsured losses and loss adjustment
expenses, from 1987 through 1997. The top line of the table shows the estimated
reserve for unpaid loss and loss adjustment expenses at the balance sheet date
for each of the indicated years. These figures represent the estimated amount of
unpaid loss and loss adjustment expenses for claims arising in the current year
and all prior years that were unpaid at the balance sheet date, including IBNR
losses. The table also shows the re-estimated amount of the previously recorded
unpaid loss and loss adjustment expenses based on experience as of the end of
each succeeding year. The estimate changes as more information becomes known
about the frequency and severity of claims for individual years.
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<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
(Dollars in Thousands)
UNPAID LOSS AND LOSS
ADJUSTMENT EXPENSES, AS
STATED 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$4,940 $10,615 $12,198 $15,930 $22,248 $31,981 $38,714 $53,595 $68,246
Cumulative Paid as of:
1 year later 1,375 2,955 3,354 4,286 6,698 9,865 10,792 12,391 15,214
2 years later 2,481 4,832 6,249 8,084 12,485 16,290 19,297 23,139 31,410
3 years later 3,025 6,584 8,807 10,838 16,288 21,253 24,991 33,511
4 years later 3,582 7,813 10,155 12,907 17,780 24,299 28,903
5 years later 3,771 8,341 11,217 13,211 19,406 25,793
6 years later 3,881 8,748 11,497 13,792 19,898
7 years later 3,922 8,704 11,760 14,074
8 years later 3,911 8,696 11,902
9 years later 3,916 8,746
10 years later 3,918
Unpaid Loss and Loss Adjustment
Expenses re-estimated as of End of
Year:
1 year later 4,472 9,535 12,628 15,953 22,056 30,538 38,603 52,670 67,281
2 years later 4,056 9,825 12,644 15,712 21,327 30,428 38,016 52,062 66,061
3 years later 3,932 9,645 12,424 14,822 21,198 29,648 37,184 51,149
4 years later 3,924 9,437 11,947 14,811 21,118 29,306 36,272
5 years later 3,970 9,053 11,836 14,841 21,399 28,553
6 years later 4,010 8,859 12,060 14,593 21,106
7 years later 3,952 8,770 12,008 14,606
8 years later 3,926 8,783 12,039
9 years later 3,947 8,804
10 years later 3,959
Cumulative Redundancy
Dollars $ 981 $ 1,811 $ 159 $ 1,324 $ 1,142 $ 3,428 $ 2,442 $ 2,446 $ 2,185
Percentage 19.9% 17.1% 1.3% 8.3% 5.1% 10.7% 6.3% 4.6% 3.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
(Dollars in Thousands)
UNPAID LOSS AND LOSS
ADJUSTMENT EXPENSES, AS
STATED 1996 1997
---- ----
<S> <C> <C>
$85,723 $108,928
Cumulative Paid as of:
1 year later 22,292
2 years later
3 years later
4 years later
5 years later
6 years later
7 years later
8 years later
9 years later
10 years later
Unpaid Loss and Loss Adjustment
Expenses re-estimated as of End of
Year:
1 year later 84,007
2 years later
3 years later
4 years later
5 years later
6 years later
7 years later
8 years later
9 years later
10 years later
Cumulative Redundancy
Dollars $ 1,716
Percentage 2.0%
</TABLE>
(1) Unpaid loss and loss adjustment expenses differ from the amounts reported
in the Consolidated Financial Statements because of the inclusion therein
of reinsurance receivables of $13,502, $10,919, $9,440, $5,580, $5,539,
$1,770, $1,267, $1,672 and $1,591 at December 31, 1997, 1996, 1995, 1994,
1993, 1992, 1991, 1990, and 1989, respectively.
(2) The Company maintains its historical loss records net of reinsurance and
therefore is unable to conform the presentation of this table to the
financial statements.
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The cumulative redundancy represents the aggregate change in the reserve
estimated over all prior years, and does not present accident year loss
development. Therefore, each amount in the table includes the effects of changes
in reserves for all prior years.
The unpaid loss and loss adjustment expense of PIIC and PIC, as reported
in their Annual Statements prepared in accordance with statutory accounting
practices and filed with state insurance departments, differ from those
reflected in the Company's financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") with respect to recording the
effects of reinsurance. Unpaid loss and loss adjustment expenses under statutory
accounting practices are reported net of the effects of reinsurance whereas
under GAAP these amounts are reported without giving effect to reinsurance in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 113.
Under GAAP, reinsurance receivables, with a corresponding increase in unpaid
loss and loss adjustment expense, have been recorded. (See footnote (1) on Page
9 for amounts). There is no effect on net income or shareholders' equity due to
the difference in reporting the effects of reinsurance between statutory
accounting practices and GAAP as discussed above.
OPERATING RATIOS
Statutory Combined Ratio
The statutory combined ratio, which is the sum of (a) the ratio of loss
and loss adjustment expenses incurred to net earned premiums (loss ratio) and
(b) the ratio of policy acquisition costs and other underwriting expenses to net
written premiums (expense ratio), is the traditional measure of underwriting
experience for insurance companies. Generally, if the combined ratio is below
100%, an insurance company has an underwriting profit and if it is above 100%,
the insurer has an underwriting loss.
The following table reflects the consolidated loss, expense and combined
ratios of the Insurance Subsidiaries together with the property and casualty
industry-wide combined ratios after policyholders' dividends.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss Ratio................................................ 55.3% 55.7% 57.1% 59.5% 56.5%
Expense Ratio............................................. 29.1% 31.1% 29.6% 29.9% 34.5%
----- ----- ----- ----- -----
Combined Ratio............................................ 84.4% 86.8% 86.7% 89.4% 91.0%
===== ===== ===== ===== =====
Industry Combined Ratio after Policyholders' Dividends.... 101.1% 105.8% 106.3% 108.3% 106.8%
===== ===== ===== ===== =====
(1) (2) (2) (2) (2)
</TABLE>
(1) Source: Best's Week, December 29, 1997 Issue (Actual September 30, 1997).
(2) Source: Best's Aggregates & Averages, 1997 Edition.
10
<PAGE> 11
Premium-to-Surplus Ratio:
While there are no statutory provisions governing premium-to-surplus
ratios, regulatory authorities regard this ratio as an important indicator as to
an insurer's ability to withstand abnormal loss experience. Guidelines
established by the National Association of Insurance Commissioners (the "NAIC")
provide that an insurer's net premium-to-surplus ratio is satisfactory if it is
below 3 to 1.
The following table sets forth, for the periods indicated, net written
premiums to policyholders' surplus for the Insurance Subsidiaries (statutory
basis):
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ------------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Net Written Premiums.................. $110,790 $83,994 $62,072 $55,398 $40,645
Policyholders' Surplus................ $105,985 $81,906 $67,500 $56,027 $51,197
Premium to Surplus Ratio.............. 1.0 to 1.0 1.0 to 1.0 .9 to 1.0 1.0 to 1.0 .8 to 1.0
</TABLE>
INVESTMENTS
At December 31, 1997, the Company had total investments with a carrying
value of $217.7 million, substantially all of which were held by the Insurance
Subsidiaries. At December 31, 1997, 78.4% of the Company's total investments
were investment grade fixed maturity securities, including U.S. treasury
securities and obligations of U.S. government corporations and agencies,
obligations of states and political subdivisions and corporate debt securities
including collaterized mortgage and asset backed securities totaling $18.6
million. The collaterized mortgage and asset backed securities consist of short
tranche securities possessing favorable pre-payment risk profiles. The remaining
21.6% of the Company's total investments consisted primarily of publicly-traded
common stock securities.
The following table sets forth information concerning the composition of
the Company's total investments at December 31, 1997:
<TABLE>
<CAPTION>
Estimated Percent of
Market Carrying Carrying
Amortized Cost Value Value Value
-------------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed Maturities:
Obligations of States and Political
Subdivisions............................ $105,117 $109,696 $109,696 50.4%
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies............... 15,391 15,655 15,655 7.2
Corporate Debt Securities.................. 44,544 45,327 45,327 20.8
Equity Securities............................ 29,501 46,988 46,988 21.6
-------- -------- -------- -----
Total Investments....................... $194,553 $217,666 $217,666 100.0%
======== ======== ======== ======
</TABLE>
At December 31, 1997, 100% of the Company's fixed maturity securities
consisted of U.S. government securities or securities rated "1" or "2" by the
NAIC; 96.4% of the fixed maturity securities were rated "A" or better (with no
security rated lower than "BBB-") by Standard & Poor's Corporation.
11
<PAGE> 12
The cost and estimated market value of fixed maturity securities at
December 31, 1997, by remaining original contractual maturity, are set forth
below. Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations, with or without
call or prepayment penalties:
<TABLE>
<CAPTION>
Amortized Cost Estimated Market Value
------------------ ----------------------------
(Dollars in Thousands)
<S> <C> <C>
Due in one year or less....................................... $ 4,075 $ 4,079
Due after one year through five years......................... 40,460 41,267
Due after five years through ten years........................ 92,935 96,509
Due after ten years........................................... 27,582 28,823
-------- --------
Total.................................................... $165,052 $170,678
======== ========
</TABLE>
Investments of the Insurance Subsidiaries must comply with applicable laws
and regulations which prescribe the type, quality and diversification of
investments. In general, these laws and regulations permit investments, with
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds, preferred and common equity securities,
real estate mortgages and real estate.
The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best and Standard & Poor's ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investment
portfolios. The portfolio consists of diversified issuers and issues and, as of
December 31, 1997, approximately 76% of the total invested assets (total
investments plus cash equivalents) consisted of investments in fixed maturity
securities.
The Company increased its existing portfolio of fixed maturity securities
by investing in investment grade corporate debt during 1997 due to more
favorable after-tax yields. At the end of 1997, investment grade corporate debt
represented 19.6% of the total invested assets, compared to 6.0% as of the end
of 1996. The Company has also continued to increase its total investments in
common stock of quality growth oriented mid- and large-cap companies seeking to
achieve diversification and capital appreciation in the portfolio. At December
31, 1997, common stocks comprised 20.9% of the invested assets, compared to
15.8% as of the end of 1996.
REGULATION
General: Insurance companies are subject to supervision and regulation in
the states in which they transact business. Such supervision and regulation,
designed primarily for the protection of policyholders and not shareholders,
relates to most aspects of an insurance company's business and includes such
matters as authorized lines of business; underwriting standards; financial
condition standards; licensing of insurers; investment standards; premium
levels; policy provisions; the filing of annual and other financial reports
prepared on the basis of Statutory Accounting Practices ("SAP"); the filing and
form of actuarial reports; the establishment and maintenance of reserves for
unearned premiums; losses and loss adjustment expenses; transactions with
affiliates; dividends; changes in control; and a variety of other financial and
nonfinancial matters. Because the Insurance Subsidiaries are domiciled in
Pennsylvania, the Pennsylvania Department of Insurance (the "Department") has
primary authority over the Company.
Regulation of Insurance Holding Companies: Pennsylvania, like many other
states, has laws governing insurance holding companies (such as Philadelphia
Insurance). Under Pennsylvania law, a person generally must obtain the
Department's approval to acquire, directly or indirectly, 10% or more of the
outstanding voting securities of Philadelphia Insurance or either Insurance
Subsidiary. The Department's determination of whether to approve any such
acquisition is based on a variety of factors, including an evaluation of the
acquiror's financial stability, the competence of its management and whether
competition in Pennsylvania would be reduced.
The Pennsylvania statute requires every Pennsylvania-domiciled insurer
which is a member of an insurance holding company system to register with the
Department by filing and keeping current a registration statement on a form
prescribed by the NAIC.
12
<PAGE> 13
The Pennsylvania statute also specifies that at least one-third of the
board of directors and each committee thereof, of either the domestic insurer or
its publicly owned holding company (if any), must be comprised of outsiders
(i.e., persons who are neither officers, employees nor controlling shareholders
of the insurer or any affiliate). In addition, the domestic insurer or its
publicly held holding company must establish one or more committees comprised
solely of outside directors, with responsibility for recommending the selection
of independent certified public accountants; reviewing the insurer's financial
condition, the scope and results of the independent audit and any internal
audit; nominating candidates for director; evaluating the performance of
principal officers; and recommending to the board the selection and compensation
of principal officers.
Dividend Restrictions: As an insurance holding company, Philadelphia
Insurance will be largely dependent on dividends and other permitted payments
from the Insurance Subsidiaries to pay any cash dividends to its shareholders.
The ability of the Insurance Subsidiaries to pay dividends to the Company is
subject to Pennsylvania insurance laws, which currently require that dividends
be paid from profits and afford the Department 30 days to disapprove the payment
of "extraordinary dividends" from a domestic property and casualty insurer to
its shareholders (i.e., dividends over a twelve-month period that exceed the
greater of (a) 10% of policyholders' surplus shown on the latest Annual
Statement filed with the Department, or (b) the net income for the period
covered by such statement but in no event to exceed the amount of unassigned
funds (i.e., retained earnings plus or minus net unrealized gains or losses). In
addition, the law specifies factors to be considered by the Department to allow
it to determine that policyholders' surplus after the payment of dividends is
reasonable in relation to an insurance company's outstanding liabilities and
adequate to its financial needs. Such factors include, for example, the size of
the company, the extent to which its business is diversified among several lines
of insurance, the number and size of risks insured, the nature and extent of the
company's reinsurance, and the adequacy of the company's reserves. Accumulated
statutory profits of the Insurance Subsidiaries from which dividends may be paid
totaled $59.7 million at December 31, 1997. Of this amount, the Insurance
Subsidiaries are entitled to pay a total of approximately $14.3 million of
dividends in 1998 without obtaining prior approval from the Department.
The National Association of Insurance Commissioners: In addition to
state-imposed insurance laws and regulations, the Insurance Subsidiaries are
subject to the general SAP and reporting formats established by the NAIC. The
NAIC also promulgates model insurance laws and regulations relating to the
financial and operational regulation of insurance companies. These model laws
and regulations generally are not directly applicable to an insurance company
unless and until they are adopted by applicable state legislatures or
departments of insurance. However, NAIC model laws and regulations have become
increasingly important in recent years, due primarily to the NAIC's state
regulatory accreditation program. Under this program, states which have adopted
certain required model laws and regulations and meet various staffing and other
requirements are "accredited" by the NAIC. Such accreditation is the cornerstone
of an eventual nationwide regulatory network and there is a certain degree of
political pressure on individual states to become accredited by the NAIC.
Because the adoption of certain model laws and regulations is a prerequisite to
accreditation, the NAIC's initiatives have taken on a greater level of practical
importance in recent years. The NAIC accredited Pennsylvania under the NAIC
Financial Regulation Standards in March 1994.
All the states have adopted the NAIC's financial reporting form, which is
typically referred to as the NAIC "Annual Statement" and most states, including
Pennsylvania, generally defer to the NAIC with respect to SAP. In this regard,
the NAIC has a substantial degree of practical influence and is able to
accomplish certain quasi-legislative initiatives through amendments to the NAIC
annual statement and applicable accounting practices and procedures. For
instance, in recent years the NAIC has required all insurance companies to have
an annual statutory financial audit and an annual actuarial certification as to
loss reserves by including such requirements within the annual statement
instructions.
Capital and Surplus Requirements: PIC's eligibility to write insurance on
a surplus lines basis in most jurisdictions is dependent on its compliance with
certain financial standards, including the maintenance of a requisite level of
capital and surplus and the establishment of certain statutory deposits. In
recent years, many jurisdictions have increased the minimum financial standards
applicable to surplus lines eligibility. For example, California and certain
other states have adopted regulations which require surplus lines companies
operating therein to maintain minimum capital of $15 million, calculated as set
forth in the regulations. PIC maintains capital to meet these requirements.
13
<PAGE> 14
Risk-Based Capital: Risk-based capital is designed to measure the
acceptable amount of capital an insurer should have based on the inherent
specific risks of each insurer. Insurers failing to meet this benchmark capital
level may be subject to scrutiny by the insurer's domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the standards
currently adopted, the policyholders' surplus at December 31, 1997 is in excess
of the prescribed risk-based capital requirements.
Insurance Guaranty Funds: The Insurance Subsidiaries are subject to
guaranty fund laws which can result in assessments, up to prescribed limits, for
losses incurred by policyholders as a result of the impairment or insolvency of
unaffiliated insurance companies. Typically, an insurance company is subject to
the guaranty fund laws of the states in which it conducts insurance business;
however, companies which conduct business on a surplus lines basis in a
particular state are generally exempt from that state's guaranty fund laws.
During the five years ended December 31, 1997, the amount of such guaranty fund
assessments paid by the Company was not material.
Shared Markets: As a condition of its license to do business in various
states, PIIC is required to participate in mandatory property-liability shared
market mechanisms or pooling arrangements which provide various insurance
coverages to individuals or other entities that otherwise are unable to purchase
coverage voluntarily provided by private insurers. In addition, some states
require automobile insurers to participate in reinsurance pools for claims that
exceed a certain amount. PIIC's participation in such shared markets or pooling
mechanisms is generally in amounts related to the amount of PIIC's direct
writings for the type of coverage written by the specific pooling mechanism in
the applicable state.
Possible New Legislation, Regulations or Interpretations: New regulations
and legislation have been (and are being) proposed from time to time to limit
damage awards; to bring the industry under regulation by the federal government;
to control premiums, policy terminations and other policy terms; and to impose
new taxes and assessments. It is not possible to determine whether any of these
proposals will be adopted in any jurisdictions and, if so, in what form or in
what jurisdictions. In addition, the Company could be affected by
interpretations of state insurance regulators with respect to licensing
requirements applicable to the product distribution method currently utilized by
the rent a car companies that are customers of the Company. The impact of these
initiatives on the Company can not be determined.
COMPETITION
The commercial property and casualty insurance industry is highly
competitive. Many of the Company's existing and potential competitors are
larger, have considerably greater financial and other resources, have greater
experience in the insurance industry and offer a broader line of insurance
products than the Company. Not only does the Company compete with other
insurers, it also competes with new forms of insurance organizations such as
risk retention groups and self-insurance mechanisms.
Overall, due to the abundance of capital in the insurance industry, the
current business climate remains competitive from a solicitation and pricing
standpoint. In the context of the current environment, the Company will not
sacrifice pricing guidelines for premium volume and will "walk away" from
writing business that does not meet underwriting or pricing guidelines.
Management believes, though, that the Company's marketing strategy is a strength
in this market environment, in that it provides the flexibility to quickly
deploy the marketing efforts of the Company's direct production underwriters
from soft market segments to market segments with emerging opportunities.
Additionally, through the mixed marketing strategy, the Company's production
underwriters have established relationships with approximately 4,000 brokers,
thus increasing distribution and facilitating a regular flow of submissions.
EMPLOYEES
As of February 26, 1998, the Company had 276 full-time employees and 15
part-time employees. The Company actively encourages its employees to continue
their educational efforts and aids in defraying their educational costs
(including 100% of education costs related to the insurance industry).
Management believes that the Company's relations with its employees are
generally excellent.
14
<PAGE> 15
Item 2. PROPERTIES
The Company leases certain office space in Bala Cynwyd, PA which serves
as its headquarters location and also leases 38 field offices for its
field marketing organization. Additionally, the Company leases its
previous headquarters building, which it owns, in Wynnewood, PA.
Item 3. LEGAL PROCEEDINGS
The Company is not subject to any material pending legal proceedings
other than ordinary routine litigation incidental to its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
15
<PAGE> 16
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
During the fourth quarter of 1997, the Company did not sell any of its
securities which were not registered under the Securities Act of 1933.
The Company's common stock, no par value, trades on The Nasdaq Stock Market
under the symbol "PHLY". As of February 20, 1998, there were 220 holders of
record and approximately 900 beneficial shareholders of the Company's common
stock. The high and low sales prices of the common stock, as reported by the
National Association of Securities Dealers, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------------
Quarter High Low High Low
------------ ------------- -------------- -----------------
<S> <C> <C> <C> <C>
First(1) 15.000 11.250 10.500 8.125
Second(1) 17.563 14.000 11.250 9.125
Third(1) 23.250 16.500 10.875 8.375
Fourth(2) 23.000 15.688 12.125 10.625
</TABLE>
(1) Restated to reflect a two for one split of the Company's common stock
distributed in November 1997.
(2) 1996 Fourth Quarter restated to reflect a two for one split of the
Company's common stock distributed in November 1997.
The Company did not declare cash dividends on its common stock in 1997 or 1996,
and currently intends to retain its earnings to enhance future growth.
The payment of dividends by the Company will be determined by the Board of
Directors and will be based on general business conditions, legal and regulatory
restrictions.
As a holding company, the Company is dependent upon dividends and other
permitted payments from its subsidiaries to pay any cash dividends to its
shareholders. The ability of the Company's insurance subsidiaries to pay
dividends to the Company is subject to regulatory limitations (see "Regulation"
in Item 1. of this Form 10-K and Note 2 to the Consolidated Financial
Statements).
16
<PAGE> 17
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
-----------------------------------------------------------------------
(In Thousands, Except Share and Per Share Data)
1997 1996 1995 1994 1993
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Gross Written Premiums ................................ $ 159,091 $ 136,855 $ 104,180 $ 89,099 $ 57,085
Gross Earned Premiums ................................. $ 150,128 $ 121,820 $ 99,507 $ 84,657 $ 53,506
Net Written Premiums .................................. $ 111,797 $ 83,994 $ 62,072 $ 55,398 $ 40,645
Net Earned Premiums ................................... $ 100,555 $ 72,050 $ 58,188 $ 52,085 $ 37,484
Net Investment Income ................................. 9,703 7,910 6,506 4,902 3,269
Net Realized Investment Gain (Loss) ................... (16) 260 181 (1,697) 1,327
Other Income .......................................... 228 282 309 314 1,169
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE .................................... 110,470 80,502 65,184 55,604 43,249
- --------------------------------------------------------------------------------------------------------------------------------
Net Loss and Loss Adjustment
Expenses ........................................... 55,009 40,118 33,227 31,009 21,165
Acquisition Costs and Other
Underwriting Expenses .............................. 31,344 22,210 17,105 15,541 12,991
Other Operating Expenses .............................. 1,909 1,386 2,564 1,347 3,038
Interest Expense ...................................... -- -- -- -- 459
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LOSSES AND EXPENSES ........................ 88,262 63,714 52,896 47,897 37,653
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes ............................ 22,208 16,788 12,288 7,707 5,596
Total Income Tax Expense ......................... 5,338 3,414 2,458 1,734 1,364
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME ....................................... $ 16,870 $ 13,374 $ 9,830 $ 5,973 $ 4,232
- --------------------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares
Outstanding (1) .................................... 12,193,659 11,879,506 11,627,702 11,627,702 7,046,442
Weighted Average Share Equivalents
Outstanding (1) .................................... 2,736,039 2,373,742 2,049,004 1,647,902 1,771,252
-----------------------------------------------------------------------
Weighted Average Share and Share
Equivalents Outstanding (1) ........................ 14,929,698 14,253,248 13,676,706 13,275,604 8,817,694
- --------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (1) (2)
$ 1.38 $ 1.13 $ 0.85 $ 0.51 $ 0.60
=======================================================================
DILUTED EARNINGS PER SHARE(1) (2)
$ 1.13 $ 0.94 $ 0.72 $ 0.45 $ 0.48
=======================================================================
YEAR END FINANCIAL POSITION:
Total Investments and Cash
and Cash Equivalents ............................... $ 229,599 $ 180,061 $ 140,086 $ 105,720 $ 90,441
Total Assets ....................................... 288,126 225,938 174,148 140,718 116,135
Unpaid Loss and Loss Adjustment
Expenses ......................................... 122,430 96,642 77,686 59,175 44,253
Total Shareholders' Equity ......................... 111,284 85,642 68,316 52,600 49,018
Common Shares Outstanding(1) ....................... 12,242,431 12,079,612 11,627,702 11,627,702 11,627,702
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE OPERATING RATIOS
(STATUTORY BASIS):
Net Loss and Loss Adjustment
Expenses to Net Earned Premiums .................. 55.3% 55.7% 57.1% 59.5% 56.5%
Underwriting Expenses to Net
Written Premiums ................................. 29.1% 31.1% 29.6% 29.9% 34.5%
- --------------------------------------------------------------------------------------------------------------------------------
Combined Ratio ........................................ 84.4% 86.8% 86.7% 89.4% 91.0%
- --------------------------------------------------------------------------------------------------------------------------------
A.M. Best Rating ...................................... A A A A A-
(Excellent) (Excellent) (Excellent) (Excellent) (Excellent)
</TABLE>
(1) 1996, 1995, 1994 and 1993 restated to reflect a two for one split of the
Company's common stock distributed in November 1997.
(2) 1996, 1995, 1994 and 1993 earnings per share amounts restated in
accordance with the provisions of SFAS No. 128 adopted as of December 31,
1997.
17
<PAGE> 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Operations
The Company reported record net income of $16.9 million for 1997, which is a
26.1% increase over its net income of $13.4 for 1996. This increase is
principally due to a 16.2% increase in gross written premiums, a 22.7% increase
in net investment income and profitable underwriting which resulted in a 85.9%
(GAAP basis) combined ratio (the sum of the net loss and loss adjustment
expenses and acquisition costs and other underwriting expenses divided by net
earned premiums). 1997 represented the fourth consecutive year since its 1993
initial public offering that the Company has reported growth in gross written
premiums and net income while experiencing a combined ratio under 90%, which is
substantially lower than the commercial property and casualty insurance industry
as a whole. The Company believes that its continued profitable growth is
attributable to the adherence to the Company's core philosophy of conservative
underwriting guidelines and pricing discipline.
The growth in gross written premiums primarily resulted from: the Company's
recent new product offerings; strengthening of the proprietary field marketing
organization to 100 professionals at year end 1997; and increasing product
distribution through the preferred agent program.
The Company's insurance subsidiaries are rated "A" (Excellent) by A.M. Best
Company and have been assigned an "A" claims paying ability rating by Standard &
Poor's.
Investments
The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best and Standard & Poor's ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investments.
These investments consist of diversified issuers and issues, and as of December
31, 1997 approximately 76% of the total invested assets (total investments plus
cash equivalents) consisted of investments in fixed maturity securities.
The Company increased its existing portfolio of fixed maturity securities by
investing in investment grade corporate debt during 1997 due to more favorable
after-tax yields. At the end of 1997 investment grade corporate debt represented
19.6% of total invested assets, compared to 6.0% as of the end of 1996. The
Company has also continued to increase its investments in common stock of
quality growth oriented mid- and large-cap companies seeking to achieve
diversification and capital appreciation in its invested assets. At December 31,
1997, common stocks comprised 20.9% of invested assets, compared to 15.8% as of
the end of 1996.
During 1997, the Company purchased certain collaterized mortgage and asset
backed securities, totaling $18.6 million in market value at year end. These
securities are short tranche securities possessing favorable prepayment risk
profiles. The Company had no other derivative financial instruments in its total
investments as of December 31, 1997.
RESULTS OF OPERATIONS
(1997 VERSUS 1996)
Premiums: Gross written premiums grew $22.2 million (16.2%) to $159.1
million in 1997 from $136.9 million in 1996; gross earned premiums grew $28.3
million (23.2%) to $150.1 million in 1997 from $121.8 million in 1996; net
written premiums increased $27.8 million (33.1%) to $111.8 million in 1997 from
$84.0 million in 1996; and net earned premiums grew $28.5 million (39.5%) to
$100.6 million in 1997 from $72.1 million in 1996. The overall growth in
premiums and the varying growth rates for gross written premiums, gross earned
premiums, net written premiums and net earned premiums are attributable to a
number of factors including:
18
<PAGE> 19
- - Overall premium growth is primarily attributable to: continued marketing
efforts relating to commercial auto, commercial package, and specialty
lines products, along with the continued development of the Company's
Preferred Agent Program, initiated in 1996, wherein business relationships
are formed with brokers specializing in certain of the Company's business
niches thereby increasing the distribution of the Company's niche
products; the increase of the Company's proprietary field organization to
a total of 100 professionals, production underwriters and customer service
representatives.
- - Net written and net earned premiums grew at higher rates than gross
written and gross earned premiums primarily due to the renegotiation of
the Company's reinsurance program effective January 1, 1997 whereby more
favorable reinsurance rates were realized while substantially the same
retentions and coverages were maintained.
Net Investment Income: Net investment income approximated $9.7 million in
1997 and $7.9 million in 1996. The increase of $1.8 million (22.8%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities and the additional investment income as a
result of the relative percentage increase in corporate taxable securities
versus tax exempt municipal securities.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $14.9 million (37.2%) to $55.0 million in 1997 from $40.1
million in 1996 and the loss ratio decreased to 54.7% in 1997 from 55.7% in
1996. The increase in net loss and loss adjustment expenses was due primarily to
the 39.5% growth in net earned premiums. Additionally, since more earned premium
was retained from the lower cost of reinsurance (see "Premiums", above), there
was relatively higher net earned premium growth on products with low loss
experience, the 37.2% increase in net loss and loss adjustment expenses was
lower than the 39.5% net earned premium growth.
Acquisition Costs and Other Underwriting Expenses: Acquisition costs and
other underwriting expenses increased $9.1 million (41.0%), to $31.3 million in
1997 from $22.2 million in 1996. This increase was due primarily to the 39.5%
growth in net earned premiums.
Income Tax Expense: The Company's effective tax rates for 1997 and 1996
were 24.0% and 20.3%, respectively. The effective rates differed from the 35%
statutory rate principally due to investment income earned on tax-exempt
securities. The increase in the effective tax rate is principally due to a
greater investment in taxable securities relative to tax-exempt securities
during 1997.
RESULTS OF OPERATIONS
(1996 VERSUS 1995)
Premiums: Gross written premiums grew $32.7 million (31.4%) to $136.9
million in 1996 from $104.2 million in 1995; gross earned premiums grew $22.3
million (22.4%) to $121.8 million in 1996 from $99.5 million in 1995; net
written premiums increased $21.9 million (35.3%) to $84.0 million in 1996 from
$62.1 million in 1995; and net earned premiums grew $13.9 million (23.9%) to
$72.1 million in 1996 from $58.2 million in 1995. The overall growth in premiums
and the varying growth rates for gross written premiums, gross earned premiums,
net written premiums and net earned premiums are attributable to a number of
factors:
- - Overall premium growth is primarily attributable to the following factors:
- The prior year's growth in the field production underwriting
organization enabling expansion of the Company's marketing efforts
to non profit organizations, the health and fitness industry and
selected professional liability products.
- The introduction of the Company's Preferred Agent Plan, wherein,
business relationships were formed with brokers specializing in
certain of the Company's business niches, thereby increasing the
distribution of the Company's niche products.
- Continued favorable market conditions for certain leasing
products.
19
<PAGE> 20
- Overall premium growth has been offset in part by designed
reductions in premiums from certain rental products due primarily
to inadequate pricing levels which are currently being experienced
as a result of market competition. However, the Company
anticipates an improvement in these market conditions in the near
future. Additionally, there have been recent consolidations in the
car rental industry the effect of which on the rental car
insurance market, if any, are not known at this time.
Net Investment Income: Net investment income approximated $7.9 million in
1996 and $6.5 million in 1995. The increase of $1.4 million (21.5%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities.
Net Realized Investment Gain (Loss): Net realized investment gains were
$.3 million in 1996 compared to $.2 million in 1995.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $6.9 million (20.8%) to $40.1 million in 1996 from $33.2
million in 1995 and the loss ratio decreased to 55.7% in 1996 from 57.1% in
1995. The increase in net loss and loss adjustment expenses was due primarily to
the 23.9% growth in net earned premiums. Additionally, since there was
relatively higher net earned premium growth on products with low loss
experience, the percentage increase in net loss and loss adjustment expenses
(20.8%) was lower than the 23.9% net earned premium growth.
Acquisition Costs and Other Underwriting Expenses: Acquisition costs and
other underwriting expenses increased $5.1 million (29.8%), to $22.2 million in
1996 from $17.1 million in 1995. The increase in acquisition costs and other
underwriting expenses exceeds the 23.9% growth in net earned premiums, due
primarily to increased commission expense as a result of the Company beginning
to market its niche products through preferred brokers.
Other Operating Expenses: Other operating expenses decreased $1.2 million
(46.2%), to $1.4 million in 1996 compared to $2.6 million in 1995 principally
due to additional expenses related to the opening of new field offices in 1995.
Income Tax Expense: The Company's effective tax rates for 1996 and 1995
were 20.3% and 20.0%, respectively. The effective rates differed from the 34%
statutory rate principally due to investment income earned on tax-exempt
securities.
GROWTH OPPORTUNITIES
The attainment of profitable new business continues to be a primary focus of the
Company. For 1998, the Company anticipates substantially growing its Preferred
Agent program, thereby further increasing the distribution of the Company's
niche products. In addition, the Company has grown its proprietary field
organization during 1997 to 100 professionals, including production underwriters
and customer service representatives and plans to further expand this
organization in 1998, thereby further strengthening its resources to prospect
the Company's existing niches for profitable new business. The Company also
seeks acquisition opportunities to purchase programs or books of business which
complement its niche markets or parallel its conservative underwriting and
pricing discipline. The Company is also exploring financing opportunities in
this regard; however, there is no assurance that an acquisition or financing
will occur.
Overall, due to the abundance of capital in the insurance industry, the current
business climate remains very competitive from a solicitation and pricing
standpoint. In the context of the current environment, the Company will not
sacrifice underwriting standards or pricing guidelines solely for premium volume
and will "walk away", if necessary, from writing business that does not meet
established underwriting standards and pricing guidelines as has occurred in the
commercial auto niche over the past three years. Additionally, in response to
the competitive market, the Company re-underwrote its errors and omissions
product during 1997 by increasing deductible requirements and modifying
underwriting guidelines in certain markets to reduce the size and risk profile
of the product. Management believes, though, that the Company's mixed marketing
strategy is a strength in this market environment, in that, it provides the
flexibility to quickly deploy the marketing efforts of the Company's direct
production underwriters from soft market segments to market segments with
emerging opportunities. Additionally,
20
<PAGE> 21
through the mixed marketing strategy, the Company's production underwriters have
established relationships with approximately 4,000 brokers, thus facilitating a
regular flow of submissions.
LIQUIDITY AND CAPITAL RESOURCES
Philadelphia Insurance is a holding company whose principal assets currently
consist of 100% of the capital stock of the Insurance Subsidiaries and Maguire
Insurance Agency, Inc. Philadelphia Insurance's primary sources of funds are
dividends from its subsidiaries and payments to it pursuant to tax allocation
agreements with the Insurance Subsidiaries. For the year ended December 31,
1997, payments to Philadelphia Insurance pursuant to such tax allocation
agreements totaled $7.3 million. The payment of dividends to Philadelphia
Insurance from the Insurance Subsidiaries is subject to certain limitations
imposed by the insurance laws of the Commonwealth of Pennsylvania. Statutory
profits of the Insurance Subsidiaries from which dividends may be paid totaled
$59.7 million at December 31, 1997. Of this amount, the Insurance Subsidiaries
are entitled to pay a total of approximately $14.3 million of dividends in 1998
without obtaining prior approval from the Insurance Commissioner of the
Commonwealth of Pennsylvania.
Under certain reinsurance agreements, the Company is required to maintain
investments in trust accounts to secure its reinsurance obligations (primarily
the payment of losses and loss adjustment expenses on business it does not write
directly). At December 31, 1997, the investment and cash balances in such trust
accounts totaled approximately $14.6 million. In addition, various insurance
departments of states in which the Company operates require the deposit of funds
to protect policyholders within those states. At December 31, 1997, the balance
on deposit for the benefit of such policyholders totaled approximately $10.9
million.
The Company has reviewed all computer systems in operation within the Company
and determined them to be Year 2000 compliant except for its mainframe policy
administration computer system. The Company will begin the process of preparing
this computer system and related applications for the Year 2000 in the second
quarter 1998. The process involves modifying certain hardware and software.
Management expects to have substantially all hardware and software upgraded as
necessary, for compliance by year-end 1998. Management believes that its level
of preparedness is appropriate. The Company estimates the cumulative costs of
the process, which includes costs of modifying hardware and software, will not
have a material effect on its business, operations or financial condition. The
costs of the project and expected completion dates are based on management's
best estimates.
The Company has produced net cash from operations of $38.0 million in 1997,
$37.6 million in 1996 and $25.2 million in 1995. Management believes that the
Company has adequate liquidity to pay all claims and meet all other cash needs.
The Insurance Subsidiaries, which operate under a pooling agreement, require
policyholders' surplus to support premium writings. Guidelines of the National
Association of Insurance Commissioners (the "NAIC") suggests that a property and
casualty insurer's ratio of annual statutory net premium written to
policyholders' surplus should not exceed 3 to 1. The ratio of combined annual
statutory net premium written by the Insurance Subsidiaries to their combined
policyholders' surplus was 1.0 to 1.0 for both 1997 and 1996. Management
believes that the policyholders' surplus, which was $106.0 million at December
31, 1997 will be sufficient to support current and anticipated premium writings.
Risk-based capital is designed to measure the acceptable amount of capital and
surplus an insurer should have based on the inherent specific risks of each
insurer. Insurers failing to meet this benchmark level may be subject to
scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently contained in the
applicable Pennsylvania Insurance Company statutes, the Company's capital and
surplus is in excess of the prescribed risk-based capital requirements.
INFLATION
Property and casualty insurance premiums are established before the amount of
losses and loss adjustment expenses, or the extent to which inflation may affect
such amounts, is known. The Company attempts to anticipate the potential impact
of inflation in establishing its premiums and reserves. Substantial future
increases in inflation could result in future increases in interest rates which
in turn is likely to result in a decline in the market value of the Company's
investment portfolio and resulting unrealized losses and/or reductions in
shareholders' equity.
21
<PAGE> 22
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", specifying
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock. Under SFAS No. 128, basic
and diluted per share amounts shall be presented for net income on the face of
the statement of operations. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue 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. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for years beginning after
December 15, 1997. This statement establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owners and distributions to owners. The Company will adopt
SFAS No. 130 and begin reporting comprehensive income in the first quarter of
1998.
In June 1997, the Financial Accounting Standards Board also issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for the disclosure of segment results. It requires that
segments be determined using the "management approach", which means the way
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in the
fourth quarter of 1998, and is still evaluating its impact on the Company's
segment disclosures.
FORWARD-LOOKING INFORMATION
From time-to-time, the Company may publish statements which are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new and
existing products, expectations for market segment and growth, and similar
matters. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company provides the following
cautionary remarks regarding important factors which, among others, could cause
the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development, results of the Company's business and the other matters referred to
above include, but are not limited to: (i) changes in the business environment
in which the Company operates, including inflation and interest rates; (ii)
changes in taxes, governmental laws and regulations; (iii) competitive product
and pricing activity; and (iv) difficulties of managing growth profitably.
22
<PAGE> 23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Philadelphia Consolidated Holding Corp. and Subsidiaries
Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Report of Independent Accountants 24
Consolidated Balance Sheets - As of December 31, 1997 and 1996 25
Consolidated Statements of Operations - For the Years Ended December 31,
1997, 1996 and 1995 26
Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended
December 31, 1997, 1996 and 1995 27
Consolidated Statements of Cash Flows - For the Years Ended December 31,
1997, 1996 and 1995 28
Notes to Consolidated Financial Statements 29 - 41
Financial Statement Schedules:
------------------------------
Schedule
--------
I Summary of Investments - Other Than Investments in
Related Parties As of December 31, 1997 S-1
II Condensed Financial Information of Registrant As of
December 31, 1997 and 1996 and For Each of the Three
Years in the Period Ended December 31, 1997 S-2 - S-4
IV Reinsurance For the Years ended December 31, 1997,
1996 and 1995 S-5
VI Supplemental Information Concerning Property-
Casualty Insurance Operations As of and For the Years Ended
December 31, 1997, 1996 and 1995 S-6
</TABLE>
23
<PAGE> 24
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PHILADELPHIA CONSOLIDATED HOLDING
CORP.:
We have audited the accompanying consolidated balance sheets of Philadelphia
Consolidated Holding Corp. and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Philadelphia Consolidated Holding Corp. and Subsidiaries as of December 31, 1997
and 1996 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1998
24
<PAGE> 25
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities Available for Sale at Market
(Amortized Cost $165,052 and $137,757)........................ $ 170,678 $ 141,236
Equity Securities at Market (Cost $29,501 And $19,648)........... 46,988 27,342
--------- ---------
Total Investments........................................... 217,666 168,578
Cash and Cash Equivalents.......................................... 11,933 11,483
Accrued Investment Income.......................................... 2,786 2,626
Premiums Receivable................................................ 15,269 8,112
Prepaid Reinsurance Premiums and
Reinsurance Receivables....................................... 18,573 18,078
Deferred Acquisition Costs......................................... 10,970 9,033
Property and Equipment............................................. 5,797 5,226
Other Assets....................................................... 5,132 2,802
--------- ---------
TOTAL ASSETS................................................ $ 288,126 $ 225,938
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy Liabilities and Accruals:
Unpaid Loss and Loss Adjustment Expenses......................... $ 122,430 $ 96,642
Unearned Premiums................................................ 42,116 33,154
--------- ---------
Total Policy Liabilities and Accruals....................... 164,546 129,796
Other Liabilities.................................................. 7,948 8,312
Deferred Income Taxes.............................................. 4,348 1,240
Income Taxes Payable............................................... -- 948
--------- ---------
TOTAL LIABILITIES........................................... 176,842 140,296
--------- ---------
Commitments and Contingencies
Shareholders' Equity (1):
Preferred Stock, $.01 Par Value,
10,000,000 Shares Authorized,
None Issued and Outstanding...................................
Common Stock, No Par Value, 50,000,000 Shares
Authorized, 12,242,431 and 12,079,612 Shares Issued
and Outstanding............................................... 42,788 41,167
Notes Receivable from Shareholders............................... (1,422) (924)
Unrealized Investment Appreciation (Depreciation),
Net of Deferred Income Taxes.................................. 15,023 7,374
Retained Earnings................................................ 54,895 38,025
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................................. 111,284 85,642
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 288,126 $ 225,938
========= =========
</TABLE>
(1) 1996 share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 26
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Gross Earned Premiums ......................... $ 150,128 $ 121,820 $ 99,507
Ceded Earned Premiums ......................... (49,573) (49,770) (41,319)
------------ ------------ ------------
Net Earned Premiums ........................... 100,555 72,050 58,188
Net Investment Income ......................... 9,703 7,910 6,506
Net Realized Investment Gain (Loss) ........... (16) 260 181
Other Income .................................. 228 282 309
------------ ------------ ------------
TOTAL REVENUE ............................ 110,470 80,502 65,184
------------ ------------ ------------
Losses and Expenses:
Loss and Loss Adjustment Expenses ............. 61,839 44,720 40,661
Net Reinsurance Recoveries .................... (6,830) (4,602) (7,434)
------------ ------------ ------------
Net Loss and Loss Adjustment Expenses ......... 55,009 40,118 33,227
Acquisition Costs and Other
Underwriting Expenses ...................... 31,344 22,210 17,105
Other Operating Expenses ...................... 1,909 1,386 2,564
------------ ------------ ------------
TOTAL LOSSES AND EXPENSES ................. 88,262 63,714 52,896
------------ ------------ ------------
Income Before Income Taxes ...................... 22,208 16,788 12,288
------------ ------------ ------------
Income Tax Expense (Benefit):
Current ....................................... 6,521 3,596 2,760
Deferred ...................................... (1,183) (182) (302)
------------ ------------ ------------
TOTAL INCOME TAX EXPENSE .................. 5,338 3,414 2,458
------------ ------------ ------------
NET INCOME ................................ $ 16,870 $ 13,374 $ 9,830
============ ============ ============
Per Average Share Data:
BASIC EARNINGS PER SHARE(1) ................... $ 1.38 $ 1.13 $ 0.85
============ ============ ============
DILUTED EARNINGS PER SHARE(1) ................. $ 1.13 $ 0.94 $ 0.72
============ ============ ============
Weighted Average Common Shares Outstanding(1) ... 12,193,659 11,879,506 11,627,702
Weighted Average Share Equivalents Outstanding(1) 2,736,039 2,373,742 2,049,004
------------ ------------ ------------
Weighted Average Share and Share Equivalents
Outstanding(1) ................................ 14,929,698 14,253,248 13,676,706
============ ============ ============
</TABLE>
(1) 1996 and 1995 share information restated to reflect a two for one split of
the Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 27
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Common Shares (1):
Balance at Beginning of Year ......................... 12,079,612 11,627,702 11,627,702
Issuance of Shares
Pursuant to Employee Stock Purchase Plan ........... 78,569 156,910 --
Pursuant to Employee Stock Option Plan ............. 84,250 295,000 --
------------ ------------ ------------
BALANCE AT END OF YEAR ........................... 12,242,431 12,079,612 11,627,702
============ ============ ============
Common Stock:
Balance at Beginning of Year ......................... $ 41,167 $ 39,057 $ 39,096
Issuance of Shares
Pursuant to Employee Stock Purchase Plan ........... 898 1,131 --
Exercise of Employee Stock Options, Net of Tax Benefit 723 979 --
Other ................................................ -- -- (39)
------------ ------------ ------------
BALANCE AT END OF YEAR ........................... 42,788 41,167 39,057
------------ ------------ ------------
Notes Receivable from Shareholders:
Balance at Beginning of Year ......................... (924) -- --
Notes Receivable Issued
Pursuant to Employee Stock Purchase Plan ........... (873) (1,131) --
Collection of Notes Receivable ....................... 375 207 --
BALANCE AT END OF YEAR ........................... (1,422) (924) --
Unrealized Investment Appreciation (Depreciation),
Net of Deferred Income Taxes:
Balance at Beginning of Year ....................... 7,374 4,608 (1,317)
Change in Unrealized Investment Appreciation
(Depreciation), Net of Deferred Income Taxes ..... 7,649 2,766 5,925
------------ ------------ ------------
BALANCE AT END OF YEAR ........................... 15,023 7,374 4,608
------------ ------------ ------------
Retained Earnings:
Balance at Beginning of Year ......................... 38,025 24,651 14,821
Net Income ........................................... 16,870 13,374 9,830
------------ ------------ ------------
BALANCE AT END OF YEAR ........................... 54,895 38,025 24,651
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY ....................... $ 111,284 $ 85,642 $ 68,316
============ ============ ============
</TABLE>
(1) 1996 and 1995 share information restated to reflect a two for one split of
the Company's common stock distributed in November 1997, see Note 11.
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 28
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income .............................................. $ 16,870 $ 13,374 $ 9,830
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Net Realized Investment (Gain) Loss ................. 16 (260) (181)
Depreciation and Amortization Expense ............... 1,232 930 951
Deferred Income Tax Benefit ......................... (1,183) (182) (302)
Change in Premiums Receivable ....................... (7,157) (214) 860
Change in Other Receivables ......................... (655) (5,747) (5,748)
Change in Deferred Acquisition Costs ................ (1,937) (3,876) (1,246)
Change in Other Assets .............................. (2,511) (817) (363)
Change in Unpaid Loss and Loss Adjustment
Expenses .......................................... 25,788 18,956 18,511
Change in Unearned Premiums ......................... 8,962 15,035 4,673
Change in Other Liabilities ......................... (575) (184) (1,696)
Change in Income Taxes Payable ...................... (834) 548 (53)
-------- -------- --------
Net Cash Provided by Operating Activities ......... 38,016 37,563 25,236
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from Sales of Investments in Fixed
Maturities Available for Sale ......................... 5,564 2,594 12,543
Proceeds from Maturity of Investments in Fixed
Maturities Available for Sale ......................... 9,305 9,476 1,272
Proceeds from Sale of Investments in Fixed
Maturities Held to Maturity ........................... -- -- 915
Proceeds from Maturity of Investments in Fixed
Maturities Held to Maturity ........................... -- -- 932
Proceeds from Sales of Investments in Equity
Securities ............................................ 5,896 2,168 5,655
Cost of Fixed Maturities Available for Sale
Acquired .............................................. (42,309) (32,783) (47,101)
Cost of Fixed Maturities Held to Maturity
Acquired .............................................. -- -- (301)
Cost of Equity Securities Acquired ...................... (15,536) (12,412) (5,616)
Other - Net ............................................. -- -- (3,000)
Purchase of Property and Equipment, net ................. (1,609) (1,989) (1,319)
-------- -------- --------
Net Cash Used for Investing Activities ............ (38,689) (32,946) (36,020)
-------- -------- --------
Cash Flows from Financing Activities:
Exercise of Employee Stock Options, net of Tax Benefit .. 723 979 --
Collection of Notes Receivable .......................... 375 207 --
Proceeds from Shares Pursuant to Employee Stock
Purchase Plan ..................................... 25 -- --
-------- -------- --------
Net Cash Provided by Financing Activities ......... 1,123 1,186 --
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ..... 450 5,803 (10,784)
Cash and Cash Equivalents at Beginning of Year ........... 11,483 5,680 16,464
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................. $ 11,933 $ 11,483 $ 5,680
======== ======== ========
Cash Paid During the Year for:
Income Taxes ............................................ $ 7,158 $ 3,024 $ 3,323
Non-Cash Transactions:
Issuance of Shares Pursuant to Employee
Stock Purchase Plan in exchange for Notes Receivable .. $ 873 $ 1,131 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
28
<PAGE> 29
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Philadelphia Consolidated Holding Corp. ("Philadelphia Insurance"), and its
subsidiaries (collectively the "Company") doing business as Philadelphia
Insurance Companies, include two Pennsylvania domiciled property and casualty
insurance companies, Philadelphia Indemnity Insurance Company and Philadelphia
Insurance Company ("Insurance Subsidiaries"), and an underwriting manager
Maguire Insurance Agency, Inc. The Company designs, markets, and underwrites
specialty commercial property and casualty insurance products for the rent a car
industry, automobile leasing industry, non-profit organizations, the health,
fitness and wellness industry, and selected classes of professional liability.
All marketing, underwriting, claims management, investment, and general
administration is provided by the underwriting manager.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
prepared in conformity with generally accepted accounting principles. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements requires making estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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. Certain
prior years' amounts have been reclassified for comparative purposes.
(a) INVESTMENTS
Investments classified as Available for Sale are carried at market value with
the change in unrealized appreciation (depreciation) credited or charged
directly to shareholders' equity, net of applicable deferred income taxes.
Income on fixed maturities is recognized on the accrual basis.
The decision to purchase or sell investments is based on management's assessment
of various factors such as foreseeable economic conditions, including current
interest rates and the interest rate risk, and the liquidity and capital
positions of the Company.
Investments in fixed maturities are adjusted for amortization of premiums and
accretion of discounts to maturity date, except for collaterized mortgage and
asset backed securities which are adjusted for amortization of premiums and
accretion of discounts over their estimated lives. Certain collaterized mortgage
and asset backed securities repayment patterns will change based on interest
rate movements and, accordingly, could impact future investment income if the
reinvestment of the repayment amounts are at lower interest rates than the
underlying securities. Collaterized mortgage and asset backed securities
amounted to $18,630,800 and $0 at December 31, 1997 and December 31, 1996,
respectively. The collaterized mortgage and asset back securities held as of
December 31, 1997 are short tranche securities possessing favorable prepayment
risk profiles.
Equity securities are carried at market value with the change in unrealized
appreciation (depreciation) credited or charged directly to shareholders'
equity, net of applicable deferred income taxes.
Realized investment gains and losses are calculated on the specific
identification basis and recorded as income when the securities are sold.
(b) CASH AND CASH EQUIVALENTS
Cash equivalents, consisting of fixed maturity investments with maturities of
three months or less when purchased and money market funds, are stated at cost
which approximates market value.
(c) DEFERRED ACQUISITION COSTS
Policy acquisition costs, which include commissions, premium taxes, fees and
other costs of underwriting policies, are deferred and amortized over the same
period in which the related premiums are earned. Deferred acquisition costs are
limited to the estimated amounts recoverable after providing for losses and
expenses that are expected to be incurred, based
29
<PAGE> 30
upon historical and current experience, as the premiums are earned. Amortization
of policy acquisition costs in the accompanying consolidated statements of
operations was $25,034,000, $17,739,000 and $13,662,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Costs incurred in developing information systems technology are capitalized and
included in property and equipment. These costs are amortized over their useful
lives from the dates the systems technology became operational. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in earnings.
(e) RESERVES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid loss and loss adjustment expenses includes an amount
determined on the basis of claims adjusters' evaluations and an amount, based on
past experience, for losses incurred but not reported. Such liabilities are
necessarily based on estimates, and while management believes that the amount is
adequate, the ultimate liability may be in excess of, or less than, the amount
provided. The methods of making such estimates and establishing the resulting
liabilities are continually reviewed and updated and any adjustments resulting
therefrom are reflected in operations currently.
(f) UNEARNED PREMIUMS
Premiums are generally earned on a pro rata basis over the terms of the
policies. Premiums applicable to the unexpired terms of the policies in-force
are reported as unearned premiums.
(g) REINSURANCE CEDED
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Amounts for reinsurance assets and liabilities are reported
gross.
(h) INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to the differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the enactment date (see Note
8).
(i) EARNINGS PER SHARE
Earnings per share and common stock equivalents outstanding have been
retroactively restated to reflect the increased number of common shares
resulting from a two for one stock split that was announced in October 1997 and
distributed to shareholders on November 5, 1997. A total of 6,119,716 additional
shares were issued as a result of the stock split. The par value of the
Company's stock remained unchanged.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," specifying
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock. Under SFAS No. 128, basic
and diluted per share amounts shall be presented for net income on the face of
the statement of operations. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue 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. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997 and restated all prior period earnings per share
data to conform with the provisions of this Statement.
30
<PAGE> 31
2. STATUTORY INFORMATION
Accounting Principles. The Philadelphia Indemnity Insurance Company ("PIIC") and
the Philadelphia Insurance Company ("PIC") are domiciled in the Commonwealth of
Pennsylvania. PIIC and PIC are required to report to certain regulatory agencies
on the basis of Statutory Accounting Practices ("SAP"). The statutory financial
statements are prepared in accordance with accounting practices prescribed or
permitted by the Insurance Department of the Commonwealth of Pennsylvania.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as
Commonwealth laws, regulations and general administrative rules. Permitted
Statutory Accounting Practices encompass all accounting practices not so
prescribed.
Generally accepted accounting principles ("GAAP") differ in certain respects
from SAP prescribed or permitted by the Insurance Department of the Commonwealth
of Pennsylvania. The principal differences between SAP and GAAP are as follows:
Under SAP, investments in debt securities are carried at amortized cost,
while under GAAP, investments in debt securities classified as Available
for Sale are carried at fair value;
Under SAP, policy acquisition costs, such as commissions, premium taxes,
fees, and other costs of underwriting policies are charged to current
operations as incurred, while under GAAP, such costs are deferred and
amortized on a pro rata basis over the period covered by the policy;
Under SAP, certain assets, designated as "Non-admitted Assets" (such as
prepaid expenses) are charged against surplus;
Under SAP, federal income taxes are only provided on taxable income for
which income taxes are currently payable, while under GAAP, deferred
income taxes are provided with respect to temporary differences;
Under SAP, certain reserves are established in amounts which differ from
amounts which would be provided in conformity with GAAP.
Financial Information: The statutory capital and surplus of PIIC as of December
31, 1997 and 1996 was $75,894,000 and $60,175,000, respectively. Statutory net
income of PIIC for the years ended December 31, 1997, 1996 and 1995 was
$8,839,000, $5,626,000, and $5,416,000, respectively.
The statutory capital and surplus of PIC as of December 31, 1997 and 1996 was
$30,091,000 and $21,732,000, respectively. Statutory net income of PIC for the
years ended December 31, 1997, 1996 and 1995 was $5,494,000, $3,629,000, and
$3,587,000, respectively.
Dividend Restrictions: The Insurance Subsidiaries are subject to various
regulatory restrictions which limit the maximum amount of annual shareholder
dividends allowed to be paid. The maximum dividend which PIIC may pay to
Philadelphia Insurance during 1998 without prior approval is $8,839,000 and the
maximum dividend which PIC may pay to Philadelphia Insurance during 1998 without
prior approval is $5,494,000.
Risk-Based Capital: Risk-based capital is designed to measure the acceptable
amount of capital an insurer should have based on the inherent specific risks of
each insurer. Insurers failing to meet this benchmark capital level may be
subject to scrutiny by the insurer's domiciliary insurance department and
ultimately rehabilitation or liquidation. Based on the standards, PIIC's and
PIC's capital and surplus at December 31, 1997 is in excess of the prescribed
risk-based capital requirements.
31
<PAGE> 32
3. INVESTMENTS
The Company invests primarily in investment grade fixed maturities, the majority
of which are rated "A" or better by Standard and Poor's. The cost, gross
unrealized gains and losses, estimated market value and carrying value of
investments as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market Carrying
Cost (1) Gains Losses Value (2) Value
---- ----- ------ --------- -----
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed Maturities:
Available for Sale
U.S. Treasury Securities and
Obligations of U.S.
Government Corporations and $ 15,391 $ 273 $ 9 $ 15,655 $ 15,655
Agencies
Obligations of States and 105,117 4,670 91 109,696 109,696
Political Subdivisions
Corporate Debt Securities 44,544 801 18 45,327 45,327
- ---------------------------------------------------------------------------------------------------------------
Total Fixed Maturities
Available for Sale 165,052 5,744 118 170,678 170,678
- ---------------------------------------------------------------------------------------------------------------
Equity Securities 29,501 17,800 313 46,988 46,988
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $194,553 $23,544 $431 $217,666 $217,666
===============================================================================================================
DECEMBER 31, 1996
Fixed Maturities:
Available for Sale
U.S. Treasury Securities and
Obligations of U.S.
Government Corporations and
Agencies $ 20,450 $ 159 $ 52 $ 20,557 $ 20,557
Obligations of States and 105,682 3,369 164 108,887 108,887
Political Subdivisions
Corporate Debt Securities 11,625 236 69 11,792 11,792
- ---------------------------------------------------------------------------------------------------------------
Total Fixed Maturities
Available for Sale 137,757 3,764 285 141,236 141,236
- ---------------------------------------------------------------------------------------------------------------
Equity Securities 19,648 7,930 236 27,342 27,342
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $157,405 $11,694 $521 $168,578 $168,578
===============================================================================================================
</TABLE>
(1) Original cost of equity securities; original cost of fixed maturities
adjusted for amortization of premiums and accretion of discounts.
(2) Estimated market values have been based on quoted market prices.
The Company had no debt or equity investments in a single issuer totaling in
excess of 10% of shareholders' equity at December 31, 1997.
32
<PAGE> 33
The cost and estimated market value of fixed maturity securities at December 31,
1997, by remaining contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Market
Cost (1) Value (2)
---------------- --------------------
<S> <C> <C>
Due in One Year or Less $ 4,075 $ 4,079
Due After One Year Through Five Years 40,460 41,267
Due After Five Years through Ten Years 92,935 96,509
Due After Ten Years 27,582 28,823
- ---------------------------------------------------------------------------------------------------------------------
$ 165,052 $ 170,678
=====================================================================================================================
</TABLE>
(1) Original cost adjusted for amortization of premiums and accretion of
discounts.
(2) Estimated market values have been based on quoted market prices.
The sources of net investment income for the years ended December 31, 1997, 1996
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed Maturities:
Available for Sale $ 8,978 $ 7,377 $ 4,583
Held to Maturity -- -- 1,366
Equity Securities 480 257 217
Cash and Cash Equivalents 602 422 479
- -------------------------------------------------------------------------------------------------------------------
Total Investment Income 10,060 8,056 6,645
Investment Expense (357) (146) (139)
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 9,703 $ 7,910 $ 6,506
===================================================================================================================
</TABLE>
There are no investments in fixed maturity securities that were non-income
producing during the years ended December 31, 1997, 1996 and 1995. Investment
expense includes $164,000, $60,000, and $84,000 in advisory fees paid to a
related party in 1997, 1996 and 1995, respectively.
Realized pre-tax gains (losses) on the sale of investments for the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Fixed Maturities:
Available for Sale
Gross Realized Gains $ 22 $ 47 $ 403
Gross Realized Losses (52) (28) (43)
- ------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) (30) 19 360
- ------------------------------------------------------------------------------------------------------------------
Held to Maturity
Gross Realized Losses -- -- (57)
- ------------------------------------------------------------------------------------------------------------------
Net Loss -- -- (57)
- ------------------------------------------------------------------------------------------------------------------
Equity Securities
Gross Realized Gains 628 280 223
Gross Realized Losses (614) (39) (345)
- ------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 14 241 (122)
- ------------------------------------------------------------------------------------------------------------------
TOTAL NET REALIZED
INVESTMENT GAIN (LOSS) $ (16) $ 260 $ 181
==================================================================================================================
</TABLE>
33
<PAGE> 34
4. RESTRICTED ASSETS
PIIC and PIC have investments, principally U.S. Treasury securities on deposit
with the various states in which they are licensed insurers. At December 31,
1997 and 1996 the carrying value on deposit totaled $10,912,000 and $7,070,000,
respectively.
5. TRUST ACCOUNTS
The Company is required to maintain certain investments in trust accounts under
reinsurance agreements with unrelated insurance companies that cede insurance
risks to the Company. At December 31, 1997 and 1996 the Company had investments
with a carrying value of $2,403,000 and $2,868,000, respectively, in trust
accounts pursuant to a terminated quota share reinsurance agreement. Under the
terms of this agreement, net premiums received by the Company were invested and
held in a trust account to pay future claims. Interest income on these
investments is distributed to the parties to the quota share agreement on a
quarterly basis. The Company receives its interest in net trust investments in
accordance with a formula that specifies certain percentages of funds to be
released over a five-year period as losses are settled.
The Company also maintains investments in trust accounts under current
reinsurance agreements with unrelated insurance companies. These investments
collateralize the Company's obligations under the reinsurance agreements. The
Company possesses sole responsibility for investment and reinvestment of the
trust account assets. All dividends, interest, and other income resulting from
investment of these assets are owned by the Company, and are distributed on a
monthly basis. At December 31, 1997 and 1996 the carrying value of these trust
fund investments were $12,205,000 and $23,223,000, respectively.
The Company's share of the investments in the trust accounts is included in
investments and cash equivalents, as applicable, in the accompanying
consolidated balance sheets.
6. PROPERTY AND EQUIPMENT
The following table summarizes property and equipment at December 31, 1997 and
1996 (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------- Estimated Useful
1997 1996 Lives (Years)
---- ---- -------------
<S> <C> <C> <C>
Furniture, Fixtures and Automobiles
$ 2,473 $ 2,256 5
Computer and Telephone Equipment 7,176 6,004 3 - 7
Land and Building 2,277 2,272 40
Leasehold Improvements 974 812 12
- ------------------------------------------------------------------------------
12,900 11,344
Accumulated Depreciation and
Amortization (7,103) (6,118)
- ------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT $ 5,797 $ 5,226
==============================================================================
</TABLE>
Included in property and equipment are costs incurred in developing or
purchasing information systems technology of $2,516,500 and $2,447,600 in 1997
and 1996, respectively. Amortization of these costs was $180,200, $100,100, and
$115,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Depreciation expense excluding amortization of capitalized information systems
technology costs was $858,200, $530,000, and $395,000, for the years ended
December 31, 1997, 1996 and 1995, respectively.
34
<PAGE> 35
7. LIABILITY FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for Unpaid Loss and Loss Adjustment Expenses is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at January 1 $ 96,642 $ 77,686 $ 59,175
Less Reinsurance Receivables 10,919 9,440 5,580
--------- --------- ---------
Net Balance at January 1 85,723 68,246 53,595
--------- --------- ---------
Incurred related to:
Current Year 56,725 41,083 34,152
Prior Years (1,716) (965) (925)
--------- --------- ---------
Total Incurred 55,009 40,118 33,227
--------- --------- ---------
Paid related to:
Current Year 9,512 7,427 6,186
Prior Years 22,292 15,214 12,390
--------- --------- ---------
Total Paid 31,804 22,641 18,576
--------- --------- ---------
Net Balance at December 31 108,928 85,723 68,246
Plus Reinsurance Receivables 13,502 10,919 9,440
--------- --------- ---------
Balance at December 31 $ 122,430 $ 96,642 $ 77,686
========= ========= =========
</TABLE>
As a result of changes in estimates of insured events of prior years, the
Company reduced losses and loss adjustment expenses incurred by $1,716,000,
$965,000 and $925,000 in 1997, 1996 and 1995, respectively. Such favorable
development was due to losses emerging at a lesser rate than had been originally
anticipated when the initial reserves for the applicable accident years were
estimated.
8. INCOME TAXES
The composition of deferred tax assets and liabilities and the related tax
effects as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
---- ----
<S> <C> <C>
Assets:
Effect of Loss Reserve Discounting $ 5,735 $ 4,725
Excess of Tax Over Financial Reporting Earned Premium 2,709 1,922
Other Assets 128 127
- ------------------------------------------------------------------------------------------------------------------
Total Assets 8,572 6,774
==================================================================================================================
Liabilities:
Deferred Policy Acquisition Costs, Deductible for Tax 3,752 3,074
Property and Equipment Basis 494 416
Tax Effect of Unrealized Appreciation of Securities 8,089 3,798
Other Liabilities 585 726
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 12,920 8,014
- ------------------------------------------------------------------------------------------------------------------
Net Deferred Income Tax Liability $ 4,348 $ 1,240
==================================================================================================================
</TABLE>
35
<PAGE> 36
The following table summarizes the differences between the Company's effective
tax rate for financial statement purposes and the Federal statutory rate
(dollars in thousands):
<TABLE>
<CAPTION>
Amount of Tax Percent
------------------- ----------------
<S> <C> <C>
For the year ended December 31, 1997:
Federal Tax at Statutory Rate $ 7,773 35%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion (1,812) (8)
Other, Net (623) (3)
- ---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE $ 5,338 24%
=====================================================================================================================
For the year ended December 31, 1996:
Federal Tax at Statutory Rate $ 5,708 34%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion (1,670) (10)
Other, Net (624) (4)
- ---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE $ 3,414 20%
=====================================================================================================================
For the year ended December 31, 1995:
Federal Tax at Statutory Rate $ 4,178 34%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion (1,303) (11)
Other, Net (417) (3)
- ---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE $ 2,458 20%
=====================================================================================================================
</TABLE>
As of December 31, 1997, the Company has approximately $0.9 million in net
operating loss carryforwards, which expire in 2000 and 2001, available to offset
future taxable income. Utilization of the loss carryfowards is limited to an
annual amount of $336,000. For financial reporting purposes, the tax benefit of
any utilization of these operating loss carryfowards is applied to reduce
goodwill ($114,000 in 1997) and does not reduce income tax expense.
Philadelphia Insurance has entered into tax sharing agreements with each of its
subsidiaries. Under the terms of these agreements, the income tax provision is
computed as if each subsidiary were filing a separate federal income tax return
including adjustments for the income tax effects of net operating losses and
other special tax attributes regardless of whether those attributes are utilized
in the Company's consolidated federal income tax return.
9. REINSURANCE
In the normal course of business, the Company has entered into various
reinsurance contracts with unrelated reinsurers. The Company participates in
such agreements for the purpose of limiting loss exposure and diversifying
business. Reinsurance contracts do not relieve the Company from its obligation
to policyholders.
The loss and loss adjustment expense reserves ceded under such arrangements were
$13,502,000 and $10,919,000 at December 31, 1997 and 1996, respectively. The
Company evaluates the financial condition of its reinsurers to minimize its
exposure to losses from reinsurer insolvencies. The percentage of ceded
reinsurance reserves that are with companies rated "A" (Excellent) or better by
A.M. Best Company is 100% and 97% as of December 31, 1997 and 1996,
respectively. Additionally, approximately 2%, 4%, and 11% of the Company's net
written premiums for the years ended December 31, 1997, 1996 and 1995,
respectively, were assumed from an unrelated reinsurance company.
36
<PAGE> 37
The effect of reinsurance on premiums written and earned is as follows (in
thousands):
<TABLE>
<CAPTION>
WRITTEN EARNED
------- ------
<S> <C> <C>
For the Year Ended December 31, 1997:
Direct Business $ 157,060 $ 147,514
Reinsurance Assumed 2,031 2,614
Reinsurance Ceded 47,294 49,573
- ---------------------------------------------------------------------------------------------------------------
NET PREMIUMS $ 111,797 $ 100,555
===============================================================================================================
Percentage Assumed of Net 2.6%
===============================================================================================================
For the Year Ended December 31, 1996:
Direct Business $ 132,611 $ 117,354
Reinsurance Assumed 4,244 4,466
Reinsurance Ceded 52,861 49,770
- ---------------------------------------------------------------------------------------------------------------
NET PREMIUMS $ 83,994 $ 72,050
===============================================================================================================
Percentage Assumed of Net 6.2%
===============================================================================================================
For the Year Ended December 31, 1995:
Direct Business $ 97,519 $ 92,046
Reinsurance Assumed 6,661 7,461
Reinsurance Ceded 42,108 41,319
- ---------------------------------------------------------------------------------------------------------------
NET PREMIUMS $ 62,072 $ 58,188
===============================================================================================================
Percentage Assumed of Net 12.8%
===============================================================================================================
</TABLE>
10. SHAREHOLDERS' EQUITY
The Company has established non-qualified stock bonus and stock option plans.
Under the stock bonus plan, the Company has granted a total of 137,500 shares to
certain officers of the Company, of which all such shares have been issued and
are vested.
Under the Company's stock option plan, stock options may be granted for the
purchase of common stock at a price not less than the fair market value on the
date of grant. Options outstanding as of December 31, 1994 are exercisable over
a four to five year vesting period. Options issued in 1997, 1996 and 1995 are
exercisable after the expiration of five years following the grant date. Under
this plan, the Company has reserved 2,475,000 shares of common stock for
issuance pursuant to options granted under the plan.
In addition to stock options granted pursuant to the Company's stock option
plan, the Company's Board of Directors have granted previous awards of 2,613,492
stock options.
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at a fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for the
Company's compensation instruments is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
37
<PAGE> 38
The following is a summary of the Company's option activity, including weighted
average option information:
<TABLE>
<CAPTION>
1997 1996(2) 1995(2)
------------------------------- ------------------------------ -----------------------------
Exercise Exercise Exercise
Price Price Price
Options Per Option(1) Options Per Option(1) Options Per Option(1)
------------ --------------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 3,572,292 $ 3.86 3,200,642 $ 2.84 3,184,742 $ 2.81
Granted 5,000 $ 16.38 917,900 $ 8.39 43,400 $ 6.11
Exercised (84,250) $ 4.42 (292,500) $ 3.33 (20,000) $ 4.47
Canceled (20,000) $ 6.00 (253,750) $ 8.05 (7,500) $ 4.94
------------ ------------ -----------
Outstanding at end of year 3,473,042 $ 3.85 3,572,292 $ 3.86 3,200,642 $ 2.84
============ ============ ===========
Exercisable at end of year 2,768,792 2,819,218 3,097,392
Weighted-average fair
value of options granted
during the year $ 6.38 $ 2.87 $ 2.14
</TABLE>
<TABLE>
<CAPTION>
Exercise Exercisable
Outstanding Price Remaining at Exercise
At December Per Contractual December Price
Range of Exercise Prices 31, 1997 Option(1) Life (Years) 31, 1997 Per Option(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.61 2,691,742 $ 2.61 5.1 2,689,192 $ 2.61
$4.75 to $7.31 108,400 $ 5.52 3.9 79,600 $ 5.37
$8.13 to $9.31 667,900 $ 8.48 8.2 -- --
$16.38 5,000 $ 16.38 9.9 -- --
--------- ---------
3,473,042 $ 3.85 2,768,792 $ 2.69
========= =========
</TABLE>
(1) Weighted Average Exercise Price Per Option.
(2) Restated to reflect a two for one split of the Company's common stock
distributed in November 1997, see Note 11.
The Company has established a non-qualified Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The aggregate maximum number of shares that may be
issued pursuant to the Stock Purchase Plan is 500,000. Shares may be purchased
under the Stock Purchase Plan by eligible employees during designated one-month
offering periods established by the Compensation Committee of the Board of
Directors at a purchase price of the lesser of 85% of the fair market value of
the shares on the first business day of the offering period or the date the
shares are purchased. The purchase price of shares may be paid by the employee
over six years pursuant to the execution of a promissory note. The promissory
note(s) are collateralized by such shares purchased under the Stock Purchase
Plan and are interest free. Under the Stock Purchase Plan, the Company issued
78,569 and 52,144 shares in 1997 and 1996, respectively. The weighted average
fair value of those purchase rights granted in 1997 and 1996 was $1.94 and
$1.51, respectively.
In addition, the Company has also established a non-qualified Directors Stock
Purchase Plan ("Directors Plan") for the benefit of non-employee Directors. The
aggregate maximum number of shares that may be issued pursuant to the Directors
Plan is 50,000. Non-employee Directors, during monthly offering periods, may
designate a portion of his or her fees to be used for the purchase of shares
under the terms of the Directors Plan at a purchase price of the lesser of 85%
of the fair market value of the shares on the first business day of the offering
period or the last business day of the offering period. No shares have been
issued pursuant to the Directors Plan as of December 31, 1997.
38
<PAGE> 39
Since the Company has adopted the disclosure-only provisions of SFAS No. 123, no
compensation cost has been recognized for the Company's compensation
instruments. The following represents pro forma information as if the Company
recorded compensation costs using the fair value of the issued compensation
instruments (the results may not be indicative of the actual effect on net
income in future years) (in thousands, except per average common share data):
<TABLE>
<CAPTION>
1997 1996(1) 1995(1)
------------ ------------ ------------
<S> <C> <C> <C>
Net Income As Reported $ 16,870 $ 13,374 $ 9,830
Assumed Stock Compensation Cost 354 281 22
---------- ---------- ----------
Pro Forma Net Income $ 16,516 $ 13,093 $ 9,808
========== ========== ==========
Diluted Earnings Per Average Common Share as Reported $ 1.13 $ 0.94 $ 0.72
========== ========== ==========
Pro Forma Diluted Earnings Per Average Common Share $ 1.11 $ 0.92 $ 0.72
========== ========== ==========
</TABLE>
(1) Per share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997, see Note 11.
The fair value of options at date of grant was estimated using the Black-Scholes
valuation model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Expected Stock Volatility 25.9% 20.0% 19.3%
Risk Free Interest Rate 5.8% 5.8% 6.4%
Expected Option Life-Years 6.0 6.0 6.0
Expected Dividends 0.0% 0.0% 0.0%
</TABLE>
11. COMMON STOCK SPLIT
On October 16, 1997, the Board of Directors approved a two for one split of the
Company's common stock payable to shareholders of record on October 27, 1997 for
distribution on November 5, 1997. Weighted average common shares outstanding,
common stock equivalents, and earnings per share have been restated to reflect
this stock split.
12. PROFIT SHARING
The Company has a defined contribution Profit Sharing Plan, which includes a
401K feature, covering substantially all employees. Under the plan, employees
may contribute up to an annual maximum of the lesser of 15% of eligible
compensation or the applicable Internal Revenue Code limit in a calendar year.
The Company makes a matching contribution in an amount equal to 50% of the
participant's pretax contribution, subject to a maximum of 6% of the
participant's eligible compensation. The Company may also make annual
discretionary profit sharing contributions at each plan year end. Participants
are fully vested in the Company's contribution upon completion of 7 years of
service. The Company's contributions to the plan were $474,300, $322,400, and
$267,500 in 1997, 1996 and 1995, respectively.
39
<PAGE> 40
13. COMMITMENTS AND CONTINGENCIES
The Company is subject to routine legal proceedings in connection with its
property and casualty insurance business. The Company is not involved in any
pending or threatened legal or administrative proceedings which management
believes can reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations.
The Company currently leases office space to serve as its headquarters location
and 38 field offices for its production underwriters. Rental expense for these
operating leases was $916,700, $736,700, and $187,800 for the years ended
December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1998 $1,256,000
1999 1,067,000
2000 837,000
2001 704,000
2002 and Thereafter 756,000
================================================================================
TOTAL MINIMUM PAYMENTS REQUIRED $4,620,000
================================================================================
</TABLE>
14. SUMMARY OF QUARTERLY FINANCIAL INFORMATION - UNAUDITED
The following quarterly financial information for each of the three months ended
March 31, June 30, September 30 and December 31, 1997 and 1996 is unaudited.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the results of operations for
such periods, have been made for a fair presentation of the results shown (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
Three Months Ended(1)
------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Earned Premiums $ 22,388 $ 25,163 $ 26,492 $ 26,512
Net Investment Income $ 2,211 $ 2,404 $ 2,535 $ 2,553
Net Loss and Loss Adjustment Expenses $ 12,481 $ 13,832 $ 14,429 $ 14,267
Acquisition Costs and Other
Underwriting Expenses $ 6,946 $ 7,858 $ 8,429 $ 8,111
Net Income $ 3,622 $ 3,992 $ 4,468 $ 4,788
Basic Earnings Per Share $ 0.30 $ 0.33 $ 0.37 $ 0.39
Diluted Earnings Per Share $ 0.25 $ 0.27 $ 0.30 $ 0.32
Weighted Average Common Shares
Outstanding 12,133,216 12,175,688 12,223,940 12,240,286
Weighted Average Share Equivalents
Outstanding 2,570,174 2,674,217 2,815,533 2,792,963
----------- ----------- ----------- -----------
Weighted Average Share and Share
Equivalents Outstanding 14,703,390 14,849,905 15,039,473 15,033,249
=========== =========== =========== ===========
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Three Months Ended(1)
------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Earned Premiums $ 15,817 $ 17,190 $ 20,323 $ 18,720
Net Investment Income $ 1,846 $ 1,885 $ 2,041 $ 2,138
Net Loss and Loss Adjustment Expenses $ 8,674 $ 9,089 $ 12,120 $ 10,235
Acquisition Costs and Other
Underwriting Expenses $ 5,107 $ 5,836 $ 5,920 $ 5,347
Net Income $ 2,715 $ 3,057 $ 3,462 $ 4,140
Basic Earnings Per Share $ 0.23 $ 0.26 $ 0.29 $ 0.34
Diluted Earnings Per Share $ 0.19 $ 0.22 $ 0.24 $ 0.29
Weighted Average Common Shares
Outstanding 11,627,702 11,754,382 12,055,068 12,081,944
Weighted Average Share Equivalents
Outstanding 2,372,724 2,394,441 2,128,804 2,387,123
----------- ----------- ----------- -----------
Weighted Average Share and Share
Equivalents Outstanding 14,000,426 14,148,823 14,183,872 14,469,067
=========== =========== =========== ===========
</TABLE>
(1) All periods, except for the three months ended December 31, 1997, were
restated to reflect a two for one split of the Company's common stock
distributed in November 1997, see Note 11.
41
<PAGE> 42
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later that 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's director and executive
officers required by this Item is incorporated by reference to the
Proxy Statement under the caption "Management-Directors and Executive
Officers".
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Proxy Statement under the captions "Executive Compensation","Stock
Option Exercises and Holdings" and "Directors Compensation".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management".
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Proxy Statement under the caption "Additional Information
Regarding the Board".
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
1. The Financial Statements and Financial Statement Schedules listed
in the accompanying index on page 23 are filed as part of this Report.
2. Exhibits: The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as part of, or
incorporated by reference into, this Report.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C> <C>
3.1 * Articles of Incorporation of Philadelphia Insurance, as amended to date.
3.1.1 * Amendment to Articles of Incorporation of Philadelphia Insurance.
3.2 * By-laws of Philadelphia Insurance, as amended to date.
10.1 * (1) Amended and Restated Key Employees' Stock Option Plan.
10.1.1 ********(1) Amended and Restated Key Employees' Stock Option Plan.
10.2 * (1) Key Employees' Stock Bonus Plan.
10.2.1 * (1) Excerpt of Board of Directors and Shareholders Resolution amending Key Employees' Stock
Bonus Plan.
10.6 * Casualty Excess of Loss Reinsurance Agreement No. 14P-106,401,402, effective January 1, 1990, with
Swiss Re, as amended to date.
10.7 * Property Quota Share Reinsurance Agreement No. 14P-202, effective December 9, 1989, with Swiss
Re, as amended to date.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C>
10.8 * Casualty Quota Share Reinsurance Agreement No. 14P-201, effective January 1, 1989, with
Swiss Re, as amended to date.
10.9 * Retrocession Contract No. 80101, effective October 1, 1990, with Swiss Re, as amended to date, together
with related Casualty Quota Share Reinsurance Agreement No. X21-201, as amended to date.
10.10 * Retrocession Contract No. 81100/81101, effective October 1, 1990, with Swiss Re, as amended to date,
together with related Property Quota Share Reinsurance Agreement No. DP2AB, effective
October 1, 1990, as amended to date.
10.11 * Retrocession Contract No. 80100/80103, effective October 1, 1990, with Swiss Re, as amended to date,
together with related Casualty Quota Share Reinsurance Agreement No. DC2ABC, effective
October 1, 1990, as amended to date.
10.12 * Agreement of Reinsurance no. B367, dated June 11, 1991, with General Reinsurance Corporation,
as amended to date.
10.13 * Agreement of Reinsurance No. A271, dated July 2, 1993, with General Reinsurance Corporation.
10.14 * General Agency Agreement, effective December 1, 1987, between MIA and Providence Washington Insurance
Company, as amended to date, together with related Quota Share
Reinsurance Agreements, as amended to date.
10.15 * E & O Insurance Policy effective July 20, 1993.
10.15.1 ******* E & O Insurance Policy effective July 20, 1996.
10.15.2 ********* E & O Insurance Policy effective July 20, 1997.
10.16 * Minutes of the Board of Directors Meeting dated October 20, 1992, and excerpts from the Minutes of the
Board of Directors Meeting dated November 16, 1992.
10.17 * (1) Letter dated July 9, 1993 from James J. Maguire, confirming verbal agreements concerning
options.
10.18 * (1) James J. Maguire Stock Option Agreements.
10.18.1 *** (1) Amendment to James J. Maguire Stock Option Agreements.
10.19 * (1) Wheelways Salary Savings Plus Plan Summary Plan Description.
10.20 * Key Man Life Insurance Policies on James J. Maguire
10.21 * Reinsurance Pooling Agreement dated August 14, 1992, between PIIC and PIC.
10.22 * Tax Sharing Agreement, dated July 16, 1987, between Philadelphia Insurance and PIC, as amended to date.
10.23 * Tax Sharing Agreement, dated November 1, 1986, between Philadelphia Insurance and PIIC, as amended
to date.
10.24 * (1) Management Agreement dated May 20, 1991, between PIIC and MIA, as amended to date.
10.24.1 *******(1) Management Agreement dated May 20, 1991, between PIIC and MIA, as amended September 25, 1996.
10.25 * (1) Management Agreement dated October 23, 1991, between PIC and MIA, as amended to date.
10.25.1 *******(1) Management Agreement dated October 23, 1991, between PIC and MIA, as amended
September 25, 1996.
10.26 * General Mutual Release and Settlement of All Claims dated July 2, 1993, with the Liquidator of
Integrity Insurance Company.
10.27 * Settlement Agreement and General Release with Robert J. Wilkin, Jr., dated August 18, 1993.
10.28 ** Lease tracking portfolio assignment agreement.
10.29 **** (1) James J. Maguire Split Dollar Life Insurance Agreement, Collateral Assignment and Joint and Last
Survivor Flexible Premium Adjustable Life Insurance Policy Survivorship Life.
10.30 ***** Allenbrook Software License Agreement, dated September 26, 1995.
10.31 ***** Sublease Agreement dated August 24, 1995 with CoreStates Bank, N.A.
10.32 ***** Lease Agreement dated August 30, 1995 with The Prudential Insurance Company of America.
10.33 ******(1) Employee Stock Purchase Plan.
10.34 ******(1) Cash Bonus Plan.
10.35 ******(1) Executive Deferred Compensation Plan.
10.36 ********(1) Directors Stock Purchase Plan
10.37 ********* Lease Agreement dated May 8, 1997 with Bala Plaza, Inc.
10.38 ********* Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997, together with Property
Per Risk Excess of Loss Reinsurance Agreement effective January 1, 1997 and Property Facultative
Excess of Loss Automatic Reinsurance Agreement effective January 1, 1997.
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C>
10.39 ********* Automobile Leasing Residual Value Excess of Loss Reinsurance Agreement effective January 1, 1997,
together with Second Casualty Excess of Loss Reinsurance Agreement, effective January 1, 1997.
11 ********* Statement regarding computation of earnings per share.
21 * List of Subsidiaries of the Registrant.
23 ********* Consent of Coopers & Lybrand L.L.P.
24 * Power of Attorney.
27 ********* Financial Data Schedule.
99.1 ********* Report of Independent Accountants of Coopers & Lybrand L.L.P. on Financial Statement
Schedules.
</TABLE>
* Incorporated by reference to the Exhibit filed with the
Registrant's Form S-1 Registration Statement under the Securities
Act of 1933 (Registration No. 33-65958).
** Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated by
reference.
*** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1994 and incorporated
by reference.
**** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995 and incorporated by
reference.
***** Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference.
****** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1996 and incorporated
by reference.
******* Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated by
reference.
******** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997 And incorporated by
reference.
********* Filed herewith.
(1) Compensatory Plan or Arrangement, or Management
Contract.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
44
<PAGE> 45
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.
Philadelphia Consolidated Holding Corp.
By: /s/ James J. Maguire
-----------------------
James J. Maguire
Chairman of the Board of Directors, President,
and Chief Executive Officer
March 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James J. Maguire Chairman of the Board of March 12, 1998
-------------------------------- Directors, President and Chief Executive
James J. Maguire Officer (Principal Executive Officer)
Vice President, Secretary, Treasurer,
/s/ Craig P. Keller and Chief Financial Officer March 12, 1998
-------------------------------- (Principal Financial and
Craig P. Keller Accounting Officer)
/s/ Sean S. Sweeney Senior Vice President, Director March 12, 1998
--------------------------------
Sean S. Sweeney
/s/ James J. Maguire, Jr. Vice President, Director March 12, 1998
--------------------------------
James J. Maguire, Jr.
/s/ William J. Henrich, Jr. Director March 12, 1998
--------------------------------
William J. Henrich, Jr.
/s/ Paul R. Hertel, Jr. Director March 12, 1998
--------------------------------
Paul R. Hertel, Jr.
/s/ Roger L. Larson Director March 12, 1998
--------------------------------
Roger L. Larson
/s/ Thomas J. McHugh Director March 12, 1998
--------------------------------
Thomas J. McHugh
/s/ Michael J. Morris Director March 12, 1998
--------------------------------
Michael J. Morris
/s/ J. Eustace Wolfington Director March 12, 1998
--------------------------------
J. Eustace Wolfington
</TABLE>
45
<PAGE> 46
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule I - Summary of Investments - Other than Investments in Related Parties
As of December 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
Estimated Amount at which
Market shown in the Balance
Type of Investment Cost * Value Sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and Government
Agencies and Authorities $ 15,391 $ 15,655 $ 15,655
States, Municipalities and Political Subdivisions 105,117 109,696 109,696
Public Utilities 3,367 3,456 3,456
All Other Corporate Bonds 39,775 40,483 40,483
Redeemable Preferred Stock 1,402 1,388 1,388
---------- -------- --------
Total Fixed Maturities 165,052 170,678 170,678
---------- -------- --------
Equity Securities:
Common Stocks:
Banks, Trust and Insurance Companies 15,202 12,485 12,485
Industrial, Miscellaneous and all other 14,299 34,503 34,503
---------- -------- --------
Total Equity Securities 29,501 46,988 46,988
---------- -------- --------
Total Investments $ 194,553 $217,666 $217,666
========== ======== ========
</TABLE>
* Original cost of equity securities; original cost of fixed maturities
adjusted for amortization of premiums and accretion of discounts.
S-1
<PAGE> 47
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule II
Condensed Financial Information of Registrant
(Parent Only)
Balance Sheets
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities Available for Sale at Market $ 30 $ 30
Equity Securities at Market -- --
--------- --------
TOTAL INVESTMENTS 30 30
Cash and Cash Equivalents (3) 345
Mortgage Loans (a) 1,125 1,125
Equity in and Advances to Unconsolidated Subsidiaries (a) 109,540 84,072
Goodwill less Accumulated Amortization of $1,495 and $1,313 589 771
Other Assets -- 10
--------- --------
TOTAL ASSETS $ 111,281 $ 86,353
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Income Taxes Payable (Recoverable) $ (162) $ 536
Other Liabilities 159 175
--------- --------
TOTAL LIABILITIES (3) 711
--------- --------
Commitments and Contingencies
Shareholders' Equity (b):
Preferred Stock, $.01 Par Value, 10,000,000 Shares
Authorized, None Issued and Outstanding
Common Stock, No Par Value, 50,000,000 Shares
Authorized; 12,242,431 and 12,079,612 Shares Issued and
Outstanding 42,788 41,167
Notes Receivable from Shareholders (1,422) (924)
Unrealized Investment Appreciation (Depreciation), Net of
Deferred Income Taxes 15,023 7,374
Retained Earnings 54,895 38,025
--------- --------
TOTAL SHAREHOLDERS' EQUITY 111,284 85,642
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 111,281 $ 86,353
========= ========
</TABLE>
(a) These items have been eliminated in the Company's Consolidated Financial
Statements.
(b) 1996 share information restated to reflect a two for one split of the
Company's common stock distributed in November 1997.
See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.
S-2
<PAGE> 48
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule II, Continued
Condensed Financial Information of Registrant
(Parent Only)
Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Dividends from Subsidiaries (a) $ -- $ -- $ 6,000
Net Investment Income 10 11 63
Net Realized Investment Gain, (Loss) (b) -- 672 (10)
-------- ------- -------
TOTAL REVENUE 10 683 6,053
-------- ------- -------
Expenses:
Goodwill Amortization 68 79 89
Other 472 417 291
-------- ------- -------
TOTAL EXPENSES 540 496 380
-------- ------- -------
Income, (Loss) Before Income Taxes and Equity in Earnings of
Unconsolidated Subsidiaries (530) 187 5,673
Income Tax Expense (Benefit) (162) 74 (125)
-------- ------- -------
Income, (Loss) Before Equity in Earnings of Unconsolidated
Subsidiaries (368) 113 5,798
Equity in Earnings of Unconsolidated Subsidiaries 17,238 13,261 4,032
-------- ------- -------
NET INCOME $ 16,870 $13,374 $ 9,830
======== ======= =======
</TABLE>
(a) This item has been eliminated in the Company's Consolidated Financial
Statements.
(b) $665 of this amount has been eliminated in the Company's Consolidated
Financial Statements for 1996.
See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.
S-3
<PAGE> 49
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule II, Continued
Condensed Financial Information of Registrant
(Parent Only)
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 16,870 $ 13,374 $ 9,830
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Net Realized Investment (Gain), Loss -- (672) 10
Equity in Earnings of Unconsolidated Subsidiaries (17,238) (13,261) (4,032)
Goodwill Amortization 68 79 89
Change in Other Liabilities (16) 25 150
Change in Other Assets 10 (9) (38)
Change in Income Taxes Payable (584) (88) (343)
-------- -------- -------
Net Cash Provided (Used) by Operating Activities (890) (552) 5,666
-------- -------- -------
Cash Flows From Investing Activities:
Proceeds From Sales of Investments in Equity Securities -- 2,335 2,139
Cost of Fixed Maturities Available for Sale Acquired -- -- (30)
Cost of Equity Securities Acquired -- (119) (509)
Net Transfers to Subsidiaries (a) (581) (2,678) (7,118)
-------- -------- -------
Net Cash Used by Investing Activities (581) (462) (5,518)
-------- -------- -------
Cash Flows From Financing Activities:
Exercise of Employee Stock Options, Net of Tax Benefit 723 979 --
Collection of Notes Receivable 375 207 --
Proceeds from Shares Pursuant to Employee Stock Purchase Plan 25 -- --
-------- -------- -------
Net Cash Provided by Financing Activities 1,123 1,186 --
-------- -------- -------
Net Increase (Decrease) in Cash and Equivalents (348) 172 148
Cash and Cash Equivalents at Beginning of Year 345 173 25
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ (3) 345 $ 173
======== ======== =======
Cash Dividends Received From Unconsolidated Subsidiaries $ -- $ -- $ 6,000
======== ======== =======
Non-Cash Transactions:
Issuance of Shares Pursuant to Employee Stock Purchase Plan in exchange
for Notes Receivable $ 873 $ 1,131 $ --
</TABLE>
(a) These items have been eliminated in the Company's Consolidated Financial
Statements.
See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.
S-4
<PAGE> 50
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule IV - Reinsurance
Earned Premiums
For the Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------------------------------------------------------------------------------------------
Ceded to Assumed from Percentage of
Gross Amount Other Other Amount Assumed to
Companies Companies Net Amount Net
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Property and Casualty Insurance $147,514 $49,573 $2,614 $100,555 2.6%
===============================================================================================================================
1996
Property and Casualty Insurance $117,354 $49,770 $4,466 $ 72,050 6.2%
===============================================================================================================================
1995
Property and Casualty Insurance $ 92,046 $41,319 $7,461 $ 58,188 12.8%
===============================================================================================================================
</TABLE>
S-5
<PAGE> 51
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Schedule VI - Supplemental Information Concerning Property -
Casualty Insurance Operations
As of and For the Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLAIMS AND CLAIMS
ADJUSTMENT EXPENSES
INCURRED RELATED TO
RESERVE FOR
UNPAID
DEFERRED CLAIMS AND DISCOUNT IF
POLICY CLAIM ANY NET NET (1) (2)
AFFILIATION WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME YEAR YEAR
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
PROPERTY - CASUALTY
ENTITIES
December 31, 1997 $10,970 $122,430 $0 $42,116 $100,555 $9,703 $56,725 ($1,716)
December 31, 1996 $ 9,033 $ 96,642 $0 $33,154 $ 72,050 $7,910 $41,083 ($ 965)
December 31, 1995 $ 5,157 $ 77,686 $0 $18,119 $ 58,188 $6,506 $34,152 ($ 925)
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION WITH POLICY AND CLAIM
REGISTRANT ACQUISITION ADJUSTMENT NET WRITTEN
COSTS EXPENSES PREMIUMS
COLUMN A COLUMN I COLUMN J COLUMN K
<S> <C> <C> <C>
CONSOLIDATED
PROPERTY - CASUALTY
ENTITIES
December 31, 1997 $31,344 $31,804 $111,797
December 31, 1996 $22,210 $22,641 $ 83,994
December 31, 1995 $17,105 $18,576 $ 62,072
</TABLE>
S-6
<PAGE> 52
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Exhibit Index
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Exhibit No. Page No. Description
- ----------- -------- -----------
<S> <C> <C>
3.1 * Articles of Incorporation of Philadelphia Insurance, as amended to date.
3.1.1 * Amendment to Articles of Incorporation of Philadelphia Insurance.
3.2 * By-laws of Philadelphia Insurance, as amended to date.
10.1 * (1) Amended and Restated Key Employees' Stock Option Plan.
10.1.1 ********(1) Amended and Restated Key Employers' Stock Option Plan.
10.2 * (1) Key Employees' Stock Bonus Plan.
10.2.1 * (1) Excerpt of Board of Directors and Shareholders Resolution amending Key Employees' Stock
Bonus Plan.
10.6 * Casualty Excess of Loss Reinsurance Agreement No. 14P-106,401,402, effective
January 1, 1990, with Swiss Re, as amended
to date.
10.7 * Property Quota Share Reinsurance Agreement No. 14P-202, effective December 9,
1989, with Swiss Re, as amended to date.
10.8 * Casualty Quota Share Reinsurance Agreement No. 14P-201, effective January 1, 1989,
with Swiss Re, as amended to date.
10.9 * Retrocession Contract No. 80101, effective October 1, 1990, with Swiss Re, as
amended to date, together with related Casualty Quota Share Reinsurance Agreement
No. X21-201, as amended to date.
10.10 * Retrocession Contract No. 81100/81101, effective October 1, 1990, with Swiss Re, as amended to
date, together with related Property Quota Share Reinsurance Agreement No. DP2AB, effective
October 1, 1990, as amended to date.
10.11 * Retrocession Contract No. 80100/80103, effective October 1, 1990, with Swiss Re, as amended to
date, together with related Casualty Quota Share Reinsurance Agreement No. DC2ABC, effective
October 1, 1990, as amended to date.
10.12 * Agreement of Reinsurance no. B367, dated June 11, 1991, with General Reinsurance Corporation,
as amended to date.
10.13 * Agreement of Reinsurance No. A271, dated July 2, 1993, with General Reinsurance Corporation.
10.14 * General Agency Agreement, effective December 1, 1987, between MIA and Providence Washington
Insurance Company, as amended to date, together with related Quota Share Reinsurance
Agreements, as amended to date.
10.15 * E & O Insurance Policy effective July 20, 1993.
10.15.1 ******* E & O Insurance Policy effective July 20, 1996.
10.15.2 ********* Page 55 of 235 E & O Insurance Policy effective July 20, 1997.
10.16 * Minutes of the Board of Directors Meeting dated October 20, 1992, and excerpts from the
Minutes of the Board of Directors Meeting dated November 16, 1992.
10.17 * (1) Letter dated July 9, 1993 from James J. Maguire, confirming verbal agreements concerning
options.
10.18 * (1) James J. Maguire Stock Option Agreements.
10.18.1 *** (1) Amendment to James J. Maguire Stock Option Agreements.
10.19 * (1) Wheelways Salary Savings Plus Plan Summary Plan Description.
10.20 * Key Man Life Insurance Policies on James J. Maguire
</TABLE>
(E-1)
P. 52
<PAGE> 53
<TABLE>
<CAPTION>
Exhibit No. Page No. Description
- ----------- -------- -----------
<S> <C> <C>
10.21 * Reinsurance Pooling Agreement dated August 14, 1992, between PIIC and PIC.
10.22 * Tax Sharing Agreement, dated July 16, 1987, between Philadelphia Insurance and
PIIC, as amended to date.
10.23 * Tax Sharing Agreement, dated November 1, 1986, between Philadelphia Insurance and
PIIC, as amended to date.
10.24 * (1) Management Agreement dated May 20, 1991, between PIIC and MIA, as amended to date.
10.24.1 *******(1) Management Agreement dated May 20, 1991, between PIIC and MIA, as amended
September 25, 1996.
10.25 * (1) Management Agreement dated October 23, 1991, between PIC and MIA, as amended to
date.
10.25.1 *******(1) Management Agreement dated
October 23, 1991, between PIC and MIA,
as amended September 25, 1996.
10.26 * General Mutual Release and Settlement of All Claims dated July 2, 1993, with the
Liquidator of Integrity Insurance Company.
10.27 * Settlement Agreement and General Release with Robert J. Wilkin, Jr., dated August
18, 1993.
10.28 ** Lease tracking portfolio assignment agreement.
10.29 **** (1) James J. Maguire Split Dollar Life Insurance Agreement, Collateral Assignment and
Joint and Last Survivor Flexible Premium Adjustable Life Insurance Policy
Survivorship Life.
10.30 ***** Allenbrook Software License Agreement, dated September 26, 1995.
10.31 ***** Sublease Agreement dated August 24, 1995 with CoreStates Bank, N.A.
10.32 ***** Lease Agreement dated August 30, 1995 with The Prudential Insurance Company of
America.
10.33 ******(1) Employee Stock Purchase Plan.
10.34 ******(1) Cash Bonus Plan.
10.35 ******(1) Executive Deferred Compensation Plan.
10.36 ********(1) Directors Stock Purchase Plan.
10.37 ********* Page 68 of 235 Lease Agreement dated May 8, 1997 with Bala Plaza, Inc.
10.38 ********* Page 78 of 235 Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997, together
with Property Per Risk Excess of Loss Reinsurance Agreement effective January 1, 1997 and
Property Facultative Excess of Loss Automatic Reinsurance Agreement
effective January 1, 1997.
10.39 ********* Page 169 of 235 Automobile Leasing Residual Value Excess of Loss Reinsurance Agreement effective
January 1, 1997, together with Second Casualty Excess of Loss Reinsurance
Agreement, effective January 1, 1997.
11 ********* Page 228 of 235 Statement regarding computation of earnings per share.
21 * List of Subsidiaries of the Registrant.
23 ********* Page 230 of 235 Consent of Coopers & Lybrand L.L.P.
24 * Power of Attorney
27 ********* Page 234 of 235 Financial Data Schedule.
99.1 ********* Page 232 of 235 Report of Independent Accountants of Coopers & Lybrand L.L.P. on Financial
Statement Schedules.
</TABLE>
* Incorporated by reference to the Exhibit filed with the Registrant's
Form S-1 Registration Statement under the Securities Act of 1933
(Registration No. 33-65958).
** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated by reference.
*** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1994 and incorporated by
reference.
**** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995 and incorporated by
reference.
(E-2)
P. 53
<PAGE> 54
***** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated by reference.
****** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1996 and incorporated by
reference.
******* Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and incorporated by reference.
******** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997 and incorporated by
reference.
********* Filed herewith.
(1) Compensatory Plan or Arrangement, or Management Contract.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
(E-3)
P. 54
<PAGE> 1
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY Policy No. IC-700746
SHAND MORAHAN PLAZA Prev. No. IC-700654
EVANSTON, ILLINOIS 60201 Prod. No. 24769
DECLARATIONS - INSURANCE COMPANIES PROFESSIONAL AND
DIRECTORS & OFFICERS LIABILITY INDEMNITY INSURANCE
Claims Made and Reported Coverage: This insurance is limited to liability for
only those CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED DURING THE POLICY
PERIOD OR THE OPTIONAL EXTENSION PERIOD, IF PURCHASED, AND REPORTED TO THE
INSURER DURING THE POLICY PERIOD OR THE OPTIONAL EXTENSION PERIOD, IF PURCHASED,
OR WITHIN SIXTY (60) DAYS AFTER THE EXPIRATION OF THE POLICY PERIOD OR OPTIONAL
EXTENSION PERIOD, IF PURCHASED.
THIS POLICY CONTAINS PROVISIONS THAT REDUCE THE LIMITS OF LIABILITY STATED IN
THE POLICY BY THE COSTS OF LEGAL DEFENSE AND PERMIT LEGAL DEFENSE COSTS TO BE
APPLIED AGAINST THE DEDUCTIBLE.
1 Authorized to act on behalf of Insureds in accordance with GENERAL
CONDITIONS 8, Authorization:
NAME OF ENTITY: PHILADELPHIA CONSOLIDATED HOLDING CORPORATION
PRINCIPAL BUSINESS ADDRESS: ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PA 19004
2. POLICY PERIOD: From July 20, 1997 to July 20, 1998
12:01 A.M. Standard Time at the address of the named
entity stated above.
3. INSURED ENTITIES AND ADDRESSES
A. Coverage A Insured Entities
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PA 19004
B. Coverage B Company Insured Entities:
N/A
C. Coverage C Insured Entities:
1. Employee Benefit Plans:
N/A
2. Sponsoring Employers:
N/A
Page 1 of 3
<PAGE> 2
Policy No. IC-700746
<TABLE>
<CAPTION>
<S> <C> <C>
4. LIMITS OF LIABILITY
A. For Coverage A (Errors and Omissions Liability):
Insurer's Participation in Loss: 100%
SUBJECT TO: Each Claim Limit: $ 5,000,000
Policy Period Aggregate Limit: $ 5,000,000
B. For Coverage B (Directors & Officers Liability):
Insurer's Participation in Loss: N/A
SUBJECT TO: Each Claim Limit:
Policy Period Aggregate Limit: N/A
C. For Coverage C (Fiduciary Liability):
Each Claim Limit: N/A
Policy Period Aggregate Limit: N/A
5. DEDUCTIBLES:
A. For Coverage A (Errors and Omissions Liability): Each Claim: $300,000
B. For Coverage B (Directors & Officers Liability):
1 . Individual Liability Coverage, Section THE COVERAGE 2(a):
Each Claim-Each Director or Officer: N/A
but in no event exceeding in the aggregate
Each Claim-All Directors and Officers N/A
2. Company Reimbursement Coverage, Section THE COVERAGE 2(b):
Each Claim: N/A
C. For Coverage C (Fiduciary Liability): Each Claim: N/A
6. PREMIUM FOR POLICY PERIOD PAID FOR THE FOLLOWING COVERAGES:
Errors and Omissions
PREMIUM: $ 233,927.00
Surplus Lines Tax 3.00%: $7,017.81
TOTAL: $ 240,944.01
</TABLE>
Page 2 of 3
<PAGE> 3
Policy No. IC-700746
7. OPTIONAL EXTENSION PERIOD:
A. Premium:
50% of total annual premium as provided in THE COVERAGE 13 of
the policy, to be paid only if the Insured meets the
eligibility requirements and exercises the option. Such
premium shall be deemed fully earned at the commencement of
the Optional Extension Period.
B. Days:
60 days of Optional Extension Period as provided in THE
COVERAGE 13.
8. ENDORSEMENTS ATTACHED AT POLICY INCEPTION:
1. Insured Entities - Coverage A
2. Amendment of Insured - Holding Company
3. Pending and Prior Litigation Exclusion
4. Insurance Agents, Insurance Brokers/Agency Exclusion
5. Amendment of Professional Services
6. Amendment of Coverage
7. Clarification of Coverage
ALL CLAIMS TO BE REPORTED DIRECTLY TO
Shand Morahan & Company, Inc.
Shand Morahan Plaza
Evanston, Illinois 60201
(847) 866-2800
----------------------------------------
Authorized Representative
Page 3 of 3
<PAGE> 4
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 1
CORPORATION Effective Date: July 20, 1997
INSURED ENTITIES - COVERAGE A
It is agreed that Item 3.A. of the Declarations is amended by the addition of
the following:
3. INSURED ENTITIES AND ADDRESSES:
A. Coverage A Insured Entities:
Philadelphia Insurance Companies
Philadelphia Insurance Company
Philadelphia Indemnity Insurance Company
Maguire Insurance Agency
J. Maguire Brokerage
Maguire Insurance Agency Inc. of Texas
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 5
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 2
CORPORATION Effective Date: July 20, 1997
AMENDMENT OF INSURED - HOLDING COMPANY
It is agreed that THE INSURED 1. is amended to include the following:
1. The Coverage A Insured, which whenever used in this policy
means:
(f) the entity(ies) scheduled below and any director,
officer or employee thereof, solely for liability
imposed by reason of acts, errors and omissions by
any entity described in l(a), l(b), l(c) or 1(d)
above, in the performance of Professional Services
for which coverage is afforded under THE COVERAGE 1.,
Coverage A, Errors and Omissions Liability and Claims
Made and Reported Clause.
SCHEDULE
Maguire Holding Corporation
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 6
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 2 REVISED
CORPORATION Effective Date: July 20, 1997
AMENDMENT OF INSURED - HOLDING COMPANY
It is agreed that THE INSURED 1. is amended to include the following:
1. The Coverage A Insured, which whenever used in this policy
means:
(f) the entity(ies) scheduled below and any director,
officer or employee thereof, solely for liability
imposed by reason of acts, errors and omissions by
any entity described in 1(a), 1(b), 1(c) or 1(d)
above, in the performance of Professional Services
for which coverage is afforded under THE COVERAGE 1.,
Coverage A, Errors and Omissions Liability and Claims
Made and Reported Clause.
SCHEDULE
Philadelphia Consolidated Holding Corporation
All other terms and conditions remain unchanged.
/s/ Illegible Signature
----------------------------------------
Authorized Representative
<PAGE> 7
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 3
CORPORATION Effective Date: July 20, 1997
PENDING AND PRIOR LITIGATION EXCLUSION
It is understood and agreed that this Policy shall not apply to any Claim
(including derivative or representative actions) made against the Insured:
(i) based upon, arising out of, in consequence of, or in any way
involving any prior and/or pending litigation as of June 1,
1990; or
(ii) any fact, circumstance or situation underlying or alleged in
such litigation.
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 8
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 4
CORPORATION Effective Date: July 20, 1997
INSURANCE AGENTS, INSURANCE BROKERS/AGENCY EXCLUSION
It is agreed that THE EXCLUSIONS 4. is amended by the addition of the following:
1. With respect to all Coverages, this policy does not apply to
any Claims or portion thereof made against any Insured:
(k) based upon, arising out of, related to, directly or
indirectly resulting from or in consequence of, or in
any way involving the insolvency, receivership,
bankruptcy, liquidation or financial inability to
pay, of any insurance company in which any Insured
has placed or obtained coverage for a client or
account.
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 9
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 5
CORPORATION Effective Date: July 20, 1997
AMENDMENT OF PROFESSIONAL SERVICES
In consideration of the premium charged for this policy it is hereby understood
and agreed that THE COVERAGE 6. Professional Services is amended to include the
following:
policy rescissions, cancellations and credit and investigatory
activities, insurance agency and insurance brokers activities, tracking
services
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 10
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 6
CORPORATION Effective Date: July 20, 1997
AMENDMENT OF COVERAGE
It is understood and agreed that this policy will respond regardless of the
presence or absence of reinsurance.
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 11
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 7
CORPORATION Effective Date: July 20, 1997
CLARIFICATION OF COVERAGE
As respects any Claim under this policy and losses as defined by this
policy, it is not our intent to subrogate against reinsurers under any
treaty or facultative insurance utilized by Coverage A. Insureds.
All other terms and conditions remain unchanged.
----------------------------------------
Authorized Representative
<PAGE> 12
[MARKEL LOGO]
EVANSTON INSURANCE COMPANY
EVANSTON, ILLINOIS
ENDORSEMENT
Named Insured: Policy No.: IC-700746
PHILADELPHIA CONSOLIDATED HOLDING Endorsement No.: 8
CORPORATION Effective Date: July 20, 1997
AMENDMENT OF PREMIUM FOR POLICY PERIOD
It is agreed that Item 6. of the Declarations is amended to read as follows:
6. PREMIUM FOR POLICY PERIOD PAID FOR THE FOLLOWING COVERAGES:
Errors and Omissions
Premium $ 233,927.00
Surplus Lines Tax 3.00% $7,017.81
TOTAL: $ 240,944.81
All other terms and conditions remain unchanged.
/s/ Illegible Signature
----------------------------------------
Authorized Representative
<PAGE> 1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made on this 8th day of
May, 1997, by and between BALA PLAZA, INC., a Delaware corporation ("Landlord"),
and PHILADELPHIA CONSOLIDATED HOLDING CORP., a Pennsylvania corporation
("Tenant").
BACKGROUND
A. The Prudential Insurance Company of America ("Prudential") and
Tenant entered into a certain Lease, dated as of August, 1995 (the "Lease"),
pursuant to which Prudential leased to Tenant approximately 16,880 rentable
square feet of space on the first floor and 3,550 rentable square feet of space
on the lower level (the "Premises") of the building known as One Bala Plaza
("Building") and upon lands located in Bala Cynwyd, Lower Merion Township,
Montgomery County, Pennsylvania (the "Property"). The Premises are more fully
described in the Lease. Capitalized terms used but not defined herein shall have
the respective meanings ascribed to such terms in the Lease.
B. Landlord heretofore succeeded to the right, title and interest of
Prudential in and to the Building and the Property, and all of Prudential's
right, title and interest as the "Landlord" under the Lease was assigned to
Landlord.
C. Subject to the conditions set forth in this Amendment, Landlord and
Tenant desire to amend the Lease to, among other things, (i) expand the Premises
by adding thereto approximately 2,210 rentable square feet of space located on
the first floor of the Building, shown outlined and hatched in black on the
Floor plan attached hereto as Exhibit A (the "Additional Space"), (ii) provide
for the performance by Landlord of certain improvements to the Additional Space,
(iii) adjust the annual Base Rent payable by Tenant under the Lease, and (iv)
adjust Tenant's Percentage.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein set forth and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Demise of Additional Space. Landlord hereby leases, demises and
lets unto Tenant the Additional Space, and Tenant hereby takes and hires the
Additional Space from Landlord, for the period commencing on the later date
("Additional Space Commencement Date") to occur of (a) August 1, 1997 or (b)
the second business day after the date that the improvements to the Additional
Space to be made by Landlord pursuant to Section 3 of this Amendment are
Substantially Completed (defined below), and terminating on February 28, 2003,
being the scheduled expiration date of the term of the Lease. As used herein,
the term "Substantially Completed" shall mean (i) that state of completion which
will enable Tenant to
<PAGE> 2
reasonably utilize the Additional Space for the conduct of its ordinary
business, even though certain work remains to be completed by Landlord, without
unreasonable interruption or disruption of Tenant's business, and (ii) any
required approvals shall have been issued by the appropriate governmental
agencies.
Landlord and Tenant agree that effective on the Additional Space
Commencement Date, the Additional Space shall be (A) added to the Premises,
which shall comprise an aggregate of approximately 22,640 rentable square feet,
and (B) governed by all of the provisions of the Lease, as amended hereby.
2. Adjustment of Annual Base Rent and Additional Rent.
(a) Effective on the Additional Space Commencement Date and
continuing through the expiration date of the term of the Lease, Tenant shall
pay Landlord annual Base Rent and monthly installments thereof for the
Additional Space as follows:
<TABLE>
<CAPTION>
Annual Monthly Base Rent
Period Base Rent Base Rent Per RSF
- ------ --------- --------- -------
Additional Space
Commencement Date
<S> <C> <C> <C>
to 02/28/98 $48,620.00 $4,051.67 $22.00
03/01/98-02/28/99 $49,725.00 $4,143.75 $22.50
03/01/99-02/28/00 $50,830.00 $4,235.83 $23.00
03/01/00-02/28/01 $51,935.00 $4,327.92 $23.50
03/01/01-02/28/02 $53,040.00 $4,420.00 $24.00
03/01/02-02/28/03 $54,145.00 $4,512.08 $24.50
</TABLE>
Accordingly, effective on the Additional Space Commencement Date and continuing
through the expiration date of the term of the Lease, Tenant shall pay Landlord
annual Base Rent and monthly installments thereof for the entire Premises
(including the Additional Space) as follows:
<TABLE>
<CAPTION>
Annual Monthly Base Rent
Period Base Rent Base Rent Per RSF
- ------ --------- --------- -------
Additional Space
Commencement Date
<S> <C> <C> <C>
to 02/28/98 $381,730.00 $31,810.83 $16.86
03/01/98-02/28/99 $382,835.00 $31,902.92 $16.91
03/01/99-02/28/00 $383,940.00 $31,995.00 $16.96
03/01/00-02/28/01 $385,045.00 $32,087.08 $17.01
03/01/01-02/28/02 $386,150.00 $32,179.17 $17.06
03/01/02-02/28/03 $387,255.00 $32,271.25 $17.10
</TABLE>
2
<PAGE> 3
(b) Effective on the Additional Space Commencement Date and
continuing through the expiration date of the term of the Lease, Tenant shall
pay to Landlord additional rent with respect to the Additional Space, including
without limitation additional rent under Article 5 of the Lease. For that the
purpose, (i) the Base Year under paragraph 5(c)(i) of the Lease shall remain the
1995 calendar year through the expiration date of the term of the Lease, and
(ii) Tenant's Percentage under paragraph 5(c)(iii) shall be increased from
5.593% to 6.198% effective on the Additional Space Commencement Date and
continuing through the expiration date of the term of the Lease.
Notwithstanding any provisions of this Amendment to the contrary, if
the improvements to the Additional Space to be made by Landlord pursuant to
Section 3 of this Amendment are not Substantially Completed by August 1, 1997
because of any action by Tenant including, but not limited to, the failure by
Tenant to deliver Tenant's Drawings (defined in Section 3 hereof) to Landlord on
or before May 15, 1997, Tenant's obligation to pay annual Base Rent and
additional rent (including, without limitation, additional rent under Article 5
of the Lease) with respect to the Additional Space (as detailed in this Section
2) shall begin to accrue on August 1, 1997 as if the delay had not occurred.
3. Improvement of Additional Space. At Landlord's expense, up to a
maximum of $44,200.00 ("Landlord's Additional Space Improvement Allowance"),
Landlord shall construct and improve the Additional Space in Landlord's Building
standard manner, in accordance with (i) Tenant's interior design drawings
("Tenant's Drawings"), (ii) final plans and specifications for such construction
and improvement, to be prepared by Tenant's architect, McGillin Architecture
(the "Plans and Specifications"), and (iii) mechanical and engineering drawings
to be prepared based upon the Plans and Specifications, and at Landlord's
expense (as part of Landlord's Additional Space Improvement Allowance) and shall
be submitted to Landlord on or before May 15, 1997, time being of the essence.
Landlord's Additional Space Improvement Allowance shall cover all design and
construction costs and fees, including a 1.25% construction management fee,
labor and materials, construction permits and reasonable overhead (collectively
"Improvement Costs"). In the event the Improvement Costs of the design and
construction of the Additional Space exceeds Landlord's Additional Space
Improvement Allowance, then Tenant shall pay Landlord the entire amount of the
excess, in lump sum, within ten (10) days after Landlord's billing therefor,
together with an itemization of the Improvement Costs. Landlord and Tenant shall
each have the right to approve the final construction cost set forth in the
applicable construction contract(s) for the construction of the Additional
Space.
Except for the improvements to the Additional Space to be made by
Landlord pursuant to this Section 3 of this Amendment, Tenant accepts the
Additional Space in their "AS IS" condition as of the date of this Amendment.
Tenant acknowledges that neither Landlord, nor Landlord's agents,
representatives, employees, servants or attorneys have made any representations
or promises, whether express or implied, concerning the condition of the
Additional Space, and agrees that Landlord shall have no obligation to make any
alterations or
3
<PAGE> 4
improvements to the Additional Space for or during the remainder of the term of
the Lease, except for the improvements to be made by Landlord pursuant to this
Section 3.
4. Conditions to Effectiveness. The Additional Space is currently
leased by Landlord to Ann Langer, Jennifer Lapin and Gary Lutzky, individuals
doing business as Global Vision (the "Current Tenant") under a lease (the
"Current Tenant Lease") that is scheduled to expire on May 2, 1999. Landlord is
currently negotiating a termination agreement with the Current Tenant pursuant
to which, among other things, the term of the Current Tenant Lease would be
terminated as soon as possible. Landlord and Tenant agree that notwithstanding
any provision of this Amendment to the contrary, all rights and obligations of
each of Tenant and Landlord under this Amendment are subject to the fulfillment
or satisfaction of each of the following conditions: (a) the execution and
delivery by Landlord and Current Tenant on or before September 1, 1997 of a
mutually acceptable agreement pursuant to which the term of the Current Tenant
Lease is terminated, and (b) the Current Tenant and all persons claiming any
rights by or through the Current Tenant shall have vacated and surrendered the
Additional Space to Landlord on or before September 1, 1997. Landlord shall give
Tenant written notice of the fulfillment or satisfaction of such conditions
within five (5) days after such fulfillment or satisfaction. Within ten (10)
days after Tenant's receipt of such notice, Tenant shall pay to Landlord
$6,219.36, representing certain sums owing by Current Tenant to Landlord under
the Current Tenant Lease. The respective dates set forth in Sections 1, 2 and 3
of this Amendment were set based upon the assumption that the conditions set
forth in this Section 4 would be fulfilled or satisfied by April 30, 1997; and
if such conditions are not fulfilled or satisfied by that date, the respective
dates set forth in Sections 1, 2 and 3 of this Amendment will have to be
adjusted accordingly.
5. Restatement of Certain Remedies. Paragraph 25(i) of the Lease is
hereby amended and restated in their entirety as follows:
"(i) CONFESSION OF JUDGMENT FOR MONETARY AMOUNTS.
(a) TENANT HEREBY EXPRESSLY AUTHORIZES THE PROTHONOTARY, CLERK OR ANY
ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO
APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS
CLAIMING UNDER TENANT IN ANY AND ALL ACTIONS BROUGHT HEREUNDER BY
LANDLORD AGAINST TENANT TO ENFORCE PAYMENT OF ANY SUMS OWING HEREUNDER
BY TENANT TO LANDLORD (AS RENT, ACCELERATED RENT OR OTHERWISE), WITH
FIVE PERCENT (5%) ADDED THERETO AS ATTORNEY'S COLLECTION FEE, WITHOUT
ANY LIABILITY ON THE PART OF SAID ATTORNEY, FOR WHICH THIS LEASE SHALL
BE SUFFICIENT WARRANT, AND TENANT AGREES THAT UPON THE ENTRY OF SUCH
JUDGMENT FOR POSSESSION A WRIT OF EXECUTION OR OTHER APPROPRIATE
PROCESS MAY ISSUE FORTHWITH (WITHOUT ANY PRIOR WRIT OR PROCEEDING
WHATSOEVER).
4
<PAGE> 5
IN ANY SUCH ACTION, LANDLORD SHALL FIRST CAUSE TO BE FILED IN SUCH
ACTION AN AFFIDAVIT MADE BY LANDLORD OR SOMEONE ACTING FOR IT SETTING FORTH
FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF WHICH FACTS SUCH
AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE COPY OF THIS LEASE BE
FILED IN SUCH ACTION (AND OF THE TRUTH OF THE COPY SUCH AFFIDAVIT SHALL BE
SUFFICIENT EVIDENCE), IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A
WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY
NOTWITHSTANDING. TENANT AND ALL PERSONS CLAIMING UNDER TENANT HEREBY RELEASE
LANDLORD FROM ANY CLAIMS ARISING FROM ANY ERRORS OR DEFECTS WHATSOEVER IN
ENTERING SUCH ACTION OR JUDGMENT, IN CAUSING SUCH WRIT OF EXECUTION OR OTHER
PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, AND
HEREBY AGREE THAT NO WRIT OF ERROR OR OBJECTION SHALL BE MADE OR TAKEN THERETO.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE EXERCISE
THEREOF, BUT JUDGMENT MAY BE CONFESSED FROM TIME TO TIME AS OFTEN AS OCCASION
THEREFORE SHALL EXIST. SUCH POWERS MAY BE EXERCISED DURING AS WELL AS AFTER THE
EXPIRATION OR TERMINATION OF THE TERM AND DURING AND AT ANY TIME AFTER ANY
EXTENSION OR RENEWAL OF THE TERM OF THIS LEASE.
(b) CONFESSION OF JUDGMENT FOR POSSESSION. TENANT HEREBY EXPRESSLY AUTHORIZES
THE PROTHONOTARY, CLERK OR ANY ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE
OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT AND ALL
PERSONS CLAIMING UNDER TENANT IN ANY AND ALL ACTIONS BROUGHT HEREUNDER BY
LANDLORD AGAINST TENANT TO RECOVER POSSESSION OF THE PREMISES (IN EJECTMENT OR
OTHERWISE), WITHOUT ANY LIABILITY ON THE PART OF SAID ATTORNEY, FOR WHICH THIS
LEASE SHALL BE SUFFICIENT WARRANT, AND TENANT AGREES THAT UPON THE ENTRY OF SUCH
JUDGMENT FOR POSSESSION A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS MAY
ISSUE FORTHWITH (WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER).
IN ANY SUCH ACTION, LANDLORD SHALL FIRST CAUSE TO BE FILED IN SUCH
ACTION AN AFFIDAVIT MADE BY LANDLORD OR SOMEONE ACTING FOR IT SETTING FORTH
FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF WHICH FACTS SUCH
AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE COPY OF THIS LEASE BE
FILED IN SUCH ACTION (AND OF THE TRUTH OF THE COPY SUCH AFFIDAVIT SHALL BE
SUFFICIENT EVIDENCE), IT SHALL NOT BE NECESSARY TO FILE THE
5
<PAGE> 6
ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR
PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT AND ALL PERSONS
CLAIMING UNDER TENANT HEREBY RELEASE LANDLORD FROM ANY CLAIMS ARISING
FROM ANY ERRORS OR DEFECTS WHATSOEVER IN ENTERING SUCH ACTION OR
JUDGMENT, IN CAUSING SUCH WRIT OF POSSESSION OR OTHER PROCESS TO BE
ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, AND HEREBY
AGREE THAT NO WRIT OF ERROR OR OBJECTION SHALL BE MADE OR TAKEN
THERETO.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE
EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED FROM TIME TO TIME AS
OFTEN AS OCCASION THEREFORE SHALL EXIST. SUCH POWERS MAY BE EXERCISED
DURING AS WELL AS AFTER THE EXPIRATION OR TERMINATION OF THE TERM AND
DURING AND AT ANY TIME AFTER ANY EXTENSION OR RENEWAL OF THE TERM OF
THIS LEASE.
(c) THIS PARAGRAPH 25(i) SETS FORTH WARRANTS OF ATTORNEY FOR AN
ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT. IN GRANTING THESE WARRANTS
OF ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT, TENANT, FOLLOWING
CONSULTATION WITH (OR DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL
FOR TENANT AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY
KNOWINGLY, INTELLIGENTLY AND VOLUNTARILY WAIVES UNCONDITIONALLY ANY AND
ALL RIGHTS TENANT HAS OR MAY HAVE TO PRE-JUDGMENT AND PRE-EXECUTION
NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE
CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE
COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE.
TENANT SPECIFICALLY ACKNOWLEDGES THAT LANDLORD HAS RELIED ON THE
WARRANTS OF ATTORNEY SET FORTH IN THIS PARAGRAPH 25(i) IN ENTERING INTO
THIS LEASE WITH TENANT AND THAT THE LANDLORD-TENANT RELATIONSHIP
CREATED HEREBY IS COMMERCIAL IN NATURE.
(d) Landlord hereby agrees that so long as Philadelphia Consolidated
Holding Corp., its parent, affiliate or subsidiary, is Tenant under
this Lease, Landlord will not exercise the remedy under this paragraph
25(i)."
6. Americans with Disabilities Act. In each case where the Lease
requires Tenant to comply with all laws, statutes, ordinances, regulations,
orders and requirements of all governmental authorities having jurisdiction over
the Premises (or imposes a similar requirement), such requirement shall be
deemed to include, without limitation, the Americans
6
<PAGE> 7
with Disabilities Act, 42 U.S.C. Section 1201 et seq., as amended, and
any rules, regulations requirements and directives thereunder
(collectively, the "ADA"). In particular, Tenant shall perform any
alterations, additions or improvements pursuant to the Lease in
compliance with the ADA.
7. Restatement of Address for Notices to Landlord. The address
for notices to Landlord under the Lease, as set forth in Article 31 of
the Lease, is hereby amended and restated in its entirety as follows:
"To Landlord: Bala Plaza, Inc.
c/o GSIC Realty Corporation
255 Shoreline Drive
Suite 600
Redwood City, CA 94065
Attention: Bala Plaza Asset Manager
with a copy to: Premisys Real Estate Services, Inc.
One Bala Plaza
Suite 501
Bala Cynwyd, PA 19004
Attention: Property Manager
and a copy to: Tower Realty Management Corporation
120 Gibraltar Road - Suite 210
Horsham, PA 19044
Attention: General Manager"
8. Brokers. Tenant represents and warrants that Tenant has not
dealt with any broker, agent, finder or other person in connection with
the negotiation for or the obtaining of this Amendment, and that no
broker, agent, finder or other person brought about the transaction
contemplated by this Lease, other than Premisys Real Estate Services,
Inc. and EBI Commercial. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all claims, lawsuits,
liabilities, damages and costs, including attorneys' fees, incurred by
Landlord by reason of any breach of the foregoing warranty. Landlord
shall pay Premisys Real Estate Services, Inc. and EBI Commercial their
respective commissions earned in connection with this Amendment
pursuant to separate agreements. Landlord shall indemnify, defend and
hold Tenant harmless from any claim of any other broker, agent, finder
or other person with whom Landlord may have dealt in connection with
this Amendment.
9. Ratification of Lease. Except as specifically modified by
this Amendment, all of the provisions of the Lease are hereby ratified
and confirmed to be in full force and effect, and shall remain in full
force and effect, including, without limitation, all remedies reserved
to
7
<PAGE> 8
Landlord, with which remedies Tenant hereby acknowledges complete
familiarity, and which remedies are incorporated herein by reference as
though set forth in their entirety.
10. Binding Effect. This Amendment shall be binding upon, and
shall inure to the benefit of Landlord and Tenant and their respective
permitted successors and assigns.
11. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Amendment to be executed by their respective duly authorized officers
as of the day and year first above written.
BALA PLAZA, INC.
By: /s/ Joe Grubb
---------------------------
Name: Joe Grubb
Its: Authorized Signatory
(Corporate Seal) Attest: /s/ Peter Stufall
------------------------
Name:
Its: Authorized Signatory
PHILADELPHIA CONSOLIDATED HOLDING
CORP.
By: /s/ James J. Maguire
-----------------------
Name:
Title:
(Corporate Seal) Attest: /s/ Betty Ann Angelastro
------------------------
Name:
Title:
8
<PAGE> 9
EXHIBIT "A"
ONE BALA PLAZA DEMISED AREA PLAN
FIRST FLOOR
[GRAPHIC OF FLOORPLAN]
KEY May 17, 1996
NON-RENTABLE AREA
AREA NOT INCLUDED IN CALCULATIONS
RIGHT OF FIRST OFFER
BUILDING/PROJECT COMMON AREA
FLOOR COMMON AREA
RIGHT OF SECOND OFFER
TENANT PREMISES USEABLE AREA
FLEXIBLE USEABLE AREA
RIGHT OF FIRST REFUSAL
[SPACE DESIGN INCORPORATED LOGO]
ARCHITECTS
PLANNERS
INTERIOR DESIGNERS
210 West Washington Square
Philadelphia, Pennsylvania 19106 9711
215 592 7070 Fax 215 592 9527
<PAGE> 1
EXHIBIT 10.38
Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997,
together with Property Per Risk Excess of Loss Reinsurance Agreement effective
January 1, 1997 and Property Facultative Excess of Loss Automatic Reinsurance
Agreement effective January 1, 1997.
<PAGE> 2
SWISS RE AMERICA
CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT
NO. TC407A,B,C-R97
EFFECTIVE JANUARY 1, 1997
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
both of Bala Cynwyd, Pennsylvania
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
<PAGE> 3
SWISS RE AMERICA
CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT NO. TC407A,B,C-R97
<TABLE>
<CAPTION>
ARTICLE CONTENTS PAGE
------- -------- ----
<S> <C> <C>
PREAMBLE 1
I BUSINESS COVERED 1
II EFFECTIVE DATE AND TERMINATION 2
III TERRITORY 3
IV LIMIT AND RETENTION 3
V ULTIMATE NET LOSS 4
VI LOSS IN EXCESS OF POLICY LIMITS 5
VII EXTRA CONTRACTUAL OBLIGATIONS 5
VIIII EXCLUSIONS 6
IX LOSS OCCURRENCE 10
X REINSURANCE PREMIUM 11
xi CONTINGENT COMMISSION 13
XII REPORTS AND REMITTANCES 15
XIII CLAIMS 15
XIV SALVAGE AND SUBROGATION 16
XV ACCESS TO RECORDS 16
XVI TAXES 17
XVII CURRENCY 17
XVI-I I OFFSET 17
XIX ERRORS OR OMISSIONS 17
XX DISPUTE RESOLUTION 18
XXI INSOLVENCY 20
XXII SPECIAL TERMINATION 20
XXIII AMENDMENTS 21
SIGNATURES 22
</TABLE>
ATTACHMENTS: INSOLVENCY FUNDS EXCLUSION CLAUSE
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
REINSURANCE - U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
REINSURANCE - CANADA
NUCLEAR INCIDENT EXCLUSION CLAUSE -
REINSURANCE - NO. 4
<PAGE> 4
SWISS RE AMERICA
CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT
NO. TC407A,B,C-R97
(hereinafter referred to as the "Agreement")
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
both of Bala Cynwyd, Pennsylvania
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
(hereinafter referred to as the "Reinsurer")
ARTICLE I - BUSINESS COVERED
A. The Reinsurer shall indemnify the Company on an excess of loss basis in
respect of the Company's Ultimate Net Loss paid or to be paid by the
Company as a result of losses occurring during the term of this Agreement,
for Policies in force as of January 1, 1997, and new and renewal Policies
becoming effective on or after said date, subject to the terms and
conditions contained herein.
B. This Agreement is solely between the Company and the Reinsurer, and
nothing contained in this Agreement shall create any obligations or
establish any rights against the Reinsurer in favor of any person or
entity not a party hereto.
C. The performance of obligations by both parties under this Agreement shall
be in accordance with a fiduciary standard of good faith and fair dealing.
D. The term "Policies" shall mean each of the Company's binders, policies
and contracts of insurance or reinsurance on the business covered
hereunder.
E. Under this Agreement, the indemnity for reinsured loss applies only to
the following Classes of Insurance, except as excluded under Article VIII
- Exclusions of this Agreement.
1. No. TC407A,B,C-R97
<PAGE> 5
SWISS RE AMERICA
CLASSES OF INSURANCE
1. Automobile Liability:
Bodily Injury Liability, Property Damage Liability, Medical Payments,
Uninsured Motorists, Underinsured Motorists and No-Fault Coverage.
2. Liability Other Than Automobile:
Bodily Injury Liability, Property Damage Liability, Kidnap and Ransom
Liability, Fiduciary Liability, Personal and Advertising Injury
Liability, and Medical Payments Coverage when written as part of a
Commercial or Personal Package Policy or on a monoline basis. However,
Kidnap and Ransom Liability shall only apply to this Agreement when
written as part of a Commercial Package Policy or a Commercial General
Liability Coverage Form.
3. Professional Liability:
Directors and Officers Liability, Employment Related Practices
Liability, Errors and Omissions Liability and Professional Liability.
ARTICLE II - EFFECTIVE DATE AND TERMINATION
A. This Agreement shall become effective with respect to losses occurring on
and after 12:01 a.m., Eastern Standard Time, January 1 1997, and shall
remain in full force until terminated. This Agreement may be terminated at
the close of any calendar year by either party giving to the other 90 days
prior written notice by certified mail of its intention to do so.
B. In the event of termination of this Agreement, the Company shall have the
option of continuing or terminating the liability in force at the date of
termination as set forth below. The Company may exercise such option
provided written notice of the Company's election is given by certified
mail to the Reinsurer prior to the date of termination.
1. All Policies covered hereunder and in force at the date of
termination of this Agreement shall continue until their natural
expiry, cancellation or next anniversary of such business, whichever
first occurs; but in no case shall this reinsurance be extended for
longer than one year, plus odd time, after the termination date.
2. All reinsurance hereunder shall be automatically cancelled as of the
date of termination and the Reinsurer shall be released of all
liability as respects losses occurring subsequent to the date of
termination.
2. No. TC407A,B,C-R97
<PAGE> 6
SWISS RE AMERICA
C. If the Company chooses to exercise the option of continuing the liability,
the Company and the Reinsurer shall renegotiate the terms and conditions
relating to such option.
ARTICLE III - TERRITORY
This Agreement applies to Policies issued by the Company within the United
States of America, its territories and possessions, and Canada and shall apply
to losses covered hereunder wherever occurring.
ARTICLE IV - LIMIT AND RETENTION
A. The limits and retentions provided under this Agreement are set forth in
the following Parts I, II and III:
Part I - First Excess of Loss (Accounting Code No. TC407A-R97)
The Company shall retain the first $500,000 of Ultimate Net Loss as
respects any one Loss Occurrence. The Reinsurer shall then be liable for
the amount by which the Company's Ultimate Net Loss exceeds the Company's
retention of $500,000, but the liability of the Reinsurer shall never
exceed $500,000 with respect to any one Loss Occurrence, except as set
forth below.
In the event of a loss involving a combination of the Casualty business
subject to this Agreement and Property business subject to the Company's
Property Per Risk Excess of Loss Reinsurance Agreement No. TP1308A-R97,
further reinsurance is provided when the Company's combined retention
under these two referenced Agreements, resulting from one occurrence,
exceeds $500,000. In regard to such a combination loss, the Company will
retain the first $500,000 of its combined retention each occurrence and
the Reinsurer will reimburse the Company for the amount in excess of
$500,000 subject to a maximum reimbursement under this provision of
$2,000,000 for each occurrence. Such additional reinsurance will be
pro-rated between this Agreement and the Company's Property Per Risk
Excess of Loss Reinsurance Agreement No. TP1308A-R97 in the amount that
the Ultimate Net Loss under each Agreement bears to the combined Ultimate
net Loss, subject to a maximum combined recovery of $2,000,000.
Part II - Second Excess of Loss (Accounting Code No. TC407B-R97) Clash
Layer
The Company shall retain the first $1,000,000 of Ultimate Net Loss as
respects any one Loss Occurrence. The Reinsurer shall then be liable for
the amount by which the Company's Ultimate Net Loss exceeds the Company's
retention of $1,000,000, but the liability of the Reinsurer shall never
exceed $1,000,000 with respect to any one Loss Occurrence.
3. No. TC407A,B,C-R97
<PAGE> 7
SWISS RE AMERICA
Part III - Third Excess of Loss (Accounting Code No. TC407C-R97) Clash
Layer
The Company shall retain the first $2,000,000 of Ultimate Net Loss as
respects any one Loss Occurrence. The Reinsurer shall then be liable for
the amount by which the Company's Ultimate Net Loss exceeds the Company's
retention of $2,000,000, but the liability of the Reinsurer shall never
exceed $4,000,000 with respect to any one Loss Occurrence.
B. The Company's retention and the Reinsurer's limit of liability for each
Loss Occurrence, set forth in Parts I, II and III above, shall apply
irrespective of the number of Policies affected or number of hazards in
one Policy and regardless of the number of Classes of Insurance involved.
C. Reinsurance of the Company's retention, set forth above, shall not be
deducted in arriving at the Company's Ultimate Net Loss herein.
D. The Company warrants that each Policy subject to this Agreement
shall be deemed to have inuring reinsurance coverage for limits greater
than $1,000,000 per occurrence.
ARTICLE V - ULTIMATE NET LOSS
A. The term "Ultimate Net Loss" shall mean the actual sum paid or to be paid
by the Company in settlement of losses or liability including interest
accrued prior to judgment after making deductions for all recoveries,
including subrogation, salvages, and claims upon other reinsurances,
whether collectible or not, which inure to the benefit of the Reinsurer
under this Agreement, and shall include Allocated Loss Adjustment Expenses
incurred by the Company.
B. The term "Ultimate Net Loss" shall include 100% of Extra Contractual
Obligations, as defined herein, but only as respects business covered
under this Agreement.
C. The term "Ultimate Net Loss shall also include Ex-gratia Payments as
defined in Paragraph D. below, subject to the terms and conditions of
this Agreement.
D. The term "Ex-gratia Payments" shall mean payments made as an accommodation
by the Company in settlement of a claim for which no coverage exists under
the Policy reinsured hereunder, subject to the prior approval of the
Reinsurer.
E. The term "Allocated Loss Adjustment Expenses" shall mean all allocated
expenses incurred by the Company in connection with the investigation,
settlement, defense or litigation including court costs and post-judgment
interest of any claim or loss covered by the Policies reinsured under this
Agreement, and shall include
4. No. TC407A, B,C-R97
<PAGE> 8
SWISS RE AMERICA
Declaratory Judgment Expenses. However, the term "Allocated Losses
Adjustment Expenses" shall not include the salaries of Company employees,
office expenses or any other unallocated expenses.
F. The term "Declaratory Judgment Expenses" shall mean all legal expenses,
incurred in the representation of the Company in litigation brought to
determine the Company's defense and/or indemnification obligations, that
are allocable to any specific claim or loss covered by Policies reinsured
under this Agreement. In addition, the Company shall promptly notify the
Reinsurer of any Declaratory Judgment Expenses subject to this Agreement.
G. All recoveries, salvages or payments recovered or received subsequent to a
loss settlement under this Agreement shall be applied as if recovered or
received prior to the aforesaid settlement and all adjustments to the loss
settlement shall be made by the parties hereto.
H. Nothing in this Article shall be construed to mean that losses are not
recoverable hereunder until the Ultimate Net Loss of the Company has been
ascertained.
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS
A. In the event the Company is liable to a policyholder as the result of a
settlement or judgment rendered against the policyholder which is in
excess of the Policy limit, 100% of that portion of the award made to the
third party claimant which is in excess of the Company's Policy limit
shall be added to the amount of the Company's Policy limit and the sum
thereof shall be considered one loss, subject to the provision in
Paragraph B. below and all other provisions set forth in this Agreement.
B. With respect to coverage provided under this Article, recoveries from any
insurance or reinsurance other than this Agreement, shall inure to the
benefit of the Reinsurer and shall be deducted to arrive at the amount of
the Company's Ultimate Net Loss.
ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS
A. "Extra Contractual Obligations" are defined as those liabilities not
covered under any other provision of this Agreement and which arise from
the handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the
Company to settle within the Policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement
or in the preparation of the defense or in the trial of any action against
its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
5. No. TC407A,B,C-R97
<PAGE> 9
SWISS RE AMERICA
B. The date on which an Extra Contractual Obligation is incurred by
the Company shall be deemed, in all circumstances, to be the date
of the original accident, casualty, disaster or loss occurrence.
C. However, coverage hereunder as respects Extra Contractual
Obligations shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a corporate
officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Extra Contractual Obligations shall not include loss arising out
of engineering or other services or any other non-claims related
activity provided to the insured by the Company.
E. Recoveries, collectibles or retention from any other form of
insurance or reinsurance including deductibles or self-insured
retention which protect the Company against Extra Contractual
Obligations shall inure to the benefit of the Reinsurer and shall
be deducted from the total amount of Extra Contractual
Obligations for purposes of determining the loss hereunder.
ARTICLE VIII - EXCLUSIONS
THIS AGREEMENT DOES NOT COVER:
A. THE FOLLOWING GENERAL CATEGORIES
1. Ex-gratia payments greater than $500,000, except with
Reinsurer's prior consent.
2. Risks subject to a deductible or a self-insured retention
excess of $250,000.
3. Loss or damage caused directly or indirectly by: (a) enemy
attack by armed forces including action taken by military,
naval or air forces in resisting an actual or an immediately
impending enemy attack; (b) invasion; (c) insurrection; (d)
rebellion; (e) revolution; (f) intervention; (g) civil war;
and (h) usurped power.
4. Reinsurance assumed by the Company except reinsurance assumed
from an affiliated company.
5. Business derived from any Pool, Association, including Joint
Underwriting Association, Syndicate, Exchange, Plan, Fund or
other facility directly as a member, subscriber or
participant, or indirectly by way of reinsurance or
assessments; provided this exclusion shall not apply to
Automobile assigned risks which may be currently or
subsequently covered hereunder.
6. No. TC407A,B,C-R97
<PAGE> 10
SWISS RE AMERICA
6. Pollution to the extent excluded in the Company's original
Policies. It is warranted that the Reinsurer's prior approval
is required for all changes to the Company's Policy pollution
wording.
7. Insolvency Funds as per the attached Insolvency Funds
Exclusion Clause.
8. Nuclear Incident Exclusion Clauses which are attached and made
part of this Agreement:
a. Nuclear Incident Exclusion Clause - Liability -
Reinsurance - U.S.A.
b. Nuclear Incident Exclusion Clause - Liability -
Reinsurance - Canada.
c. Nuclear Incident Exclusion Clause - Reinsurance - No. 4.
B. THE FOLLOWING INSURANCE COVERAGES
1 Fidelity and Surety.
2. Credit and Financial Guarantee.
3. Securities and Exchange Liability except for liability provided for
in the Company's Directors and Officers Program.
4. Retroactive coverage except as respects claims made policies.
5. Personal and Commercial Excess or Umbrella Liability.
6. Medical Malpractice for Doctors, Physicians, Surgeons, Hospitals
and Clinics.
7. Advertisers,' Broadcasters' and Telecasters' Liability as respects
Personal Injury Liability except as provided under Commercial
Package Policies, Commercial General Liability Coverage Forms or
when written for the Miscellaneous Consultants Errors and Omissions
Program.
8. Kidnap, Extortion and Ransom Liability when written as such except
when written for the Executive Safeguard Program.
9. Boiler and Machinery Insurance.
10. Protection and Indemnity (Ocean Marine).
11. Workers Compensation.
C. THE FOLLOWING RISKS AS RESPECTS AUTOMOBILE LIABILITY
1. Vehicles used in or while in practice or preparation for, a
prearranged racing, speed, exhibition or demolition contest.
7. No. TC407A,B,C-R97
<PAGE> 11
SWISS RE AMERICA
2. All vehicles classified as "Public Automobiles" except
church buses, social service agency automobiles, van pools
and vehicles used for the transportation of employees.
3. Fire, police, emergency or municipal vehicles.
4. Motorcycles.
5. Logging trucks.
6. Vehicles regularly used to haul property of others and
operating beyond a 200 mile radius except when written for
the Lessor's Contingent Liability and Excess Coverage
Program.
7. Newspaper delivery trucks.
8. Vehicles engaged in the transportation or distribution of
fireworks, fuses, explosives, ammunitions, natural or
artificial fuel gas, or liquefied petroleum gases or
gasoline except when written for the Lessor's Contingent
Liability and Excess Coverage Program.
D. THE FOLLOWING AS RESPECTS LIABILITY OTHER THAN AUTOMOBILE
1. The manufacturing, mining, refining, processing,
distribution, installation, removal or encapsulment of
asbestos.
2. Risks involving known exposure to the following substances:
a. dioxin.
b. polychlorinated biphenols.
c. asbestos.
3. Liability as respects Products and Completed Operations:
a. The manufacture, labeling or re-labeling,
importation or resale distribution of:
(i) Drugs or pharmaceuticals.
(ii) Cosmetics.
(iii) Herbicides, insecticides or pesticides.
(iv) Petrochemical or electrical equipment used
for heating, lighting or cooking.
(v) Industrial or toxic chemicals.
(vi) Valves, gaskets or seals of a hydraulic,
petrochemical or high pressure nature.
(vii) Medical supplies.
(viii) Heavy machinery and equipment.
(ix) Power tools.
(x) Medical equipment used for diagnostic or life
sustaining purposes.
b. The manufacture or importing of motorized or
self-propelled vehicles and equipment.
c. The manufacturing, importing, packing, canning,
bottling or processing of foodstuffs.
8. No. TC407A,B,C-R97
<PAGE> 12
SWISS RE AMERICA
d. The blending, mixing, processing or importing of
animal feed.
e. The manufacture, sale, distribution, handling,
servicing or maintenance of aircraft,
aerospacecraft, missiles, satellites or any
component or components thereof.
4. Ownership, operation or use of vessels exceeding 50 feet in
length.
5. All railway operations except sidetrack agreements.
6. Amusement parks, carnivals or circuses.
7. Public assembly exposure in excess of 5,000.
8. Gas, electric and water utility companies.
9. Subaqueous operations.
10. Mining.
11. Blasting operations.
12. Demolition of buildings or structures in excess of two
stories.
13. Shoring, underpinning or moving of buildings or structures.
14. Manufacture, sale, rental, lease, erection or repair of
scaffolds.
15. Construction of bridges, tunnels or dams.
16. a. Manufacturers or importers of fireworks, fuses, or
any substance, as defined and noted below,
intended for use as an explosive.
b. Loading of fireworks, fuses, or any explosive
substance defined below into containers for use as
explosive objects, propellant charges or
detonation devices and the storage thereof.
c. Manufacturers or importers of any product in
which fireworks, fuses, or any explosive substance
defined below is an ingredient.
d. Handling, storage, transportation or use of
fireworks, fuses, or any explosive substance
defined below.
NOTE: An explosive substance is defined as any substance
manufactured for the express purpose of exploding as
differentiated from commodities used industrially and which
are only incidentally explosive.
9. No. TC407A,B,C-R97
<PAGE> 13
SWISS RE AMERICA
17. Manufacture, production, refining, storage, wholesale
distribution or transportation of natural or artificial fuel
gas, butane, propane or liquefied petroleum gases or
gasoline.
18. Onshore and offshore gas and oil drilling operations.
19. Ownership, maintenance or use of any airport or aircraft,
including fueling, or any device or machine intended for
and/or aiding in the achievement of atmospheric flight,
projection or orbit.
20. Municipalities.
E. Those exclusions, set forth under Items 6. and 17. of Section D. shall
not apply if the exposure is incidental to the regular operations of
the insured covered hereunder.
F. In the event the Company is inadvertently bound on any risk which is
excluded under this Agreement and identified below, the reinsurance
provided under this Agreement shall apply to such risk until discovery
by the Company within its Home Office of the existence of such risk
and for 60 days thereafter, and shall then cease unless within the 60
day period, the Company has received from the Reinsurer written notice
of its approval of such risk:
1. As respects Automobile Liability:
Items 2. through 8. of Section C. of this Article.
2. As respects Liability Other Than Automobile:
Items 3. through 20. of Section D. of this Article.
ARTICLE IX - LOSS OCCURRENCE
The term "Loss Occurrence" shall mean any accident or occurrence or series of
accidents or occurrences arising out of any one event and happening within the
term and scope of this Agreement. Without limiting the generality of the
foregoing, the term "Loss Occurrence" shall be held to include:
A. As respects Products Bodily Injury and Products Property Damage
Liability, injuries to all persons and all damage to property of
others occurring during a Policy Period and proceeding from or
traceable to the same causative agency shall be deemed to arise out of
one Loss Occurrence, and the date of such Loss Occurrence shall be
deemed to be the commencing date of the Policy Period. For the purpose
of this provision, each annual period of a Policy which continues in
force for more than one year shall be deemed to be a separate Policy
Period.
10. No. TC407A,B,C-R97
<PAGE> 14
SWISS RE AMERICA
B. As respects Bodily Injury Liability (other than Automobile and
Products), said term shall also be understood to mean, as regards each
original assured, injuries to one or more than one person resulting
from infection, contagion, poisoning, or contamination proceeding from
or traceable to the same causative agency.
C. As respects Property Damage Liability (other than Automobile and
Products), said term shall also, subject to Provisions 1. and 2.
below, be understood to mean loss or losses caused by a series of
operations, events, or occurrences arising out of operations at one
specific site and which cannot be attributed to any single one of such
operations, events or occurrences, but rather to the cumulative effect
of the same. In assessing each and every Loss Occurrence within the
foregoing definition, it is understood and agreed that:
1. the series of operations, events or occurrences shall not
extend over a period longer than 12 consecutive months; and
2. the Company may elect the date on which the period of not
exceeding 12 consecutive months shall be deemed to have
commenced.
In the event that the series of operations, events or occurrences
extend over a period longer than 12 consecutive months, then each
consecutive period of 12 months, the first of which commences on the
date elected under 2. above, shall form the basis of claim under this
Agreement.
D. As respects those Policies of the Company which provide aggregate
limits of liability, the total of all individual losses occurring
during any one Policy year which proceed from or are traceable to the
same causative agency.
ARTICLE X - REINSURANCE PREMIUM
A. The Company shall pay to the Reinsurer a premium for the reinsurance
provided under the First Excess of Loss Layer at a rate set forth
below. Such rates shall be applied to the Company's Subject Earned
Premium for the quarterly period being reported.
Net Rate
--------
First Excess (Accounting Code No. TC407A-R97)
Commercial Package Business 3.50%
Specialty Business 10.00%
11. No. TC407A,B,C-R97
<PAGE> 15
SWISS RE AMERICA
<TABLE>
<CAPTION>
Net Rate
--------
Rental Supplemental Liability Business:
<S> <C>
(i) Private Passenger and light trucks - $0.33 per vehicle,
Gross rate of $6.63 per vehicle, per day, subject to per day
a fixed commission allowance of 95.02%
(ii) Medium trucks and heavy trucks - $1.10 per vehicle,
Gross rate of $9.20 per vehicle, per day, subject to a per day
fixed commission allowance of 88.04%
</TABLE>
B. A deposit premium for the Second and Third Excess Layers set forth
below shall be payable in advance by the Company to the Reinsurer in
four equal installments each due January 1, April 1, July 1 and
October 1. Within 60 days after the end of the calendar year the
Company shall render a statement to the Reinsurer showing the actual
reinsurance premiums due hereunder. If such premium calculations
differ from the deposit previously paid, the debtor party shall pay
the outstanding balance within 30 days upon receipt of said
statement. However, in no event shall the annual adjusted premium be
less than the minimum premium for each layer, set forth below.
<TABLE>
<CAPTION>
Annual Annual Quarterly
Rate Minimum Deposit Deposit
---- ------- ------- -------
<S> <C> <C> <C> <C>
Second Excess 0.096% $110,000 $110,000 $27,500
(Accounting Code
No. TC407B-R97)
Third Excess 0.121% $140,000 $140,000 $35,000
(Accounting Code
No. TC407C-R97)
</TABLE>
C. In the event this Agreement is terminated prior to the end of the calendar
year, it is understood that the annual minimum premium stated above shall
be pro rated accordingly and such annual minimum premium shall be
calculated based on the fraction of expired time subject to the
calculations set forth in Paragraph A. for said period.
D. The term "Subject Earned Premium" as used herein is equal to the sum of
the Net Premiums Written on the business covered hereunder during the
period under consideration, plus the unearned premium reserve as respects
premiums in force at the beginning of such period, less the unearned
premium reserve as respects premiums in force at the end of the period,
said unearned premium is to be calculated on a monthly pro rata basis.
12. No. TC407A,B,C-R97
<PAGE> 16
SWISS RE AMERICA
E. The term "Net Premiums Written" shall mean gross premiums written less
returns, allowances and reinsurances which inure to the benefit of the
Reinsurer.
ARTICLE XI - CONTINGENT COMMISSION
Applicable solely to Part I - First Excess of Loss (Code No. TC407A-R97)
A. The Reinsurer shall allow the Company a contingent commission of
50.00% of the net profit, if any, accruing to the Reinsurer hereunder,
such profit to be computed on the following formula:
CONTINGENT COMMISSION COMPUTATION FOR THE PERIOD
INCOME
1. Premiums received by the Reinsurer as determined under
Article X - Reinsurance Premium of this Agreement, during
the Accounting Period.
OUTGO
2. Losses incurred by the Reinsurer during the Accounting
Period.
3. Allowance for Reinsurer's management expenses during the
Accounting Period of 15% of the Premiums received by the
Reinsurer, as determined under Article X - Reinsurance
Premium of this Agreement, during the Accounting Period.
4. Deficit, or underwriting loss, if any, brought forward from
the preceding period.
The amount by which INCOME exceeds OUTGO is profit.
The amount by which OUTGO exceeds INCOME is deficit.
B. The term "Accounting Period" means the actual time covered by each
adjustment of commission.
C. The term "losses incurred" means losses and loss adjustment expenses
paid less salvages recovered during each Accounting Period, or part
thereof, as respects losses which occurred during the Accounting
Period, plus the reserve for losses outstanding at the end of the
current period for which computation is being made. The reserve for
losses outstanding at the end of each Accounting Period shall include
a reserve for incurred but not reported losses.
13. No. TC407A,B,C-R97
<PAGE> 17
SWISS RE AMERICA
D. The phrase "reserve for incurred but not reported losses" as respects
provisional calculations in each Accounting Period under this
Agreement shall mean the total sum produced by multiplying the
Premiums received by the Reinsurer, as determined under Article X -
Reinsurance Premium of this Agreement, in each Accounting Period for
which calculation is being made by the applicable percentages set
forth in the table below:
Provisional Calculations Percentages Applicable
Each Accounting Period for Each Accounting Period
lst 60%
2nd 40%
3rd 30%
4th 20%
5th 10%
6th and subsequent 0%
E. If for any Accounting Period, the total of Premiums received by the
Reinsurer as shown under "INCOME" of the plan exceeds the total of the
items shown under "OUTGO" of the plan, the Reinsurer shall pay to the
Company 50.00% of the difference. If, for any Accounting Period, the
total of the items shown under "OUTGO" of the plan exceeds the total
of Premiums received by the Reinsurer as shown under "INCOME" of the
plan, the difference shall be carried forward to the next Accounting
Period's calculation of profit or loss as a deficit.
F. The first calculation of profit or loss shall cover the Accounting
Period beginning January 1997 and ending December 31, 1997. Each
subsequent calculation shall cover an Accounting Period of one year,
January 1 through December 31.
G. Provisional computations of profit or loss shall be made by the
Reinsurer within six months after the close of each Accounting Period.
Subsequent calculations of profit or loss for each Accounting Period
shall be made by the Reinsurer annually until all losses occurring
during each Accounting Period have been finally settled.
H. The Reinsurer, upon verification by the Company, shall promptly pay
to the Company the amount of contingent commission, if any, shown in
each provisional calculation and final calculation for each Accounting
Period, less any contingent commission previously paid for the
Accounting Period. If the contingent commission previously paid for
the Accounting Period exceeds the amount of contingent commission, if
any, shown in any calculation for the Accounting Period the Company
shall promptly refund the difference to the Reinsurer.
14. No. TC407A,B,C-R97
<PAGE> 18
SWISS RE AMERICA
I. In case notice of termination of this Agreement shall be given by
either party, calculations and adjustments of profit or loss shall
continue to be made until the termination, expiration, or
cancellation of all liability and the settlement of all losses covered
under this Agreement.
J. In the event this Agreement is terminated at a date other than the end
of an Accounting Period, the fractional part of the last Accounting
Period shall be combined with the previous Accounting Period and such
combined period shall be considered one Accounting Period for which
the calculations of profit or loss shall be made.
ARTICLE XII - REPORTS AND REMITTANCES
A. The Company shall furnish the Reinsurer with all necessary data
respecting premiums and losses for as long as one of the parties
hereto has a claim against the other arising from this Agreement.
B. Within 30 days after the close of each calendar quarter, the Company
shall submit an account to the Reinsurer summarizing Subject Earned
Premium for the First Excess of Loss (Code TC407A-R97) by annual
statement line of business, company program, company business group
and the reinsurance premium due. Such reinsurance premium shall be
remitted within 45 days after the close of each calendar quarter.
C. Payment by the Reinsurer of its portion of loss and Allocated Loss
Adjustment Expenses paid by the Company shall be made by the Reinsurer
to the Company within 15 days after proof of payment is received by
the Reinsurer.
ARTICLE XIII - CLAIMS
A. The Company shall promptly notify the Reinsurer of each claim which
may involve the reinsurance provided hereunder and of all subsequent
developments relating thereto, stating the amount claimed and estimate
of the Company's Ultimate Net Loss and Allocated Loss Adjustment
Expenses.
B. The Company shall advise the Reinsurer of all claims which:
1. Are reserved by the Company for an amount in excess of 50%
of its retention;
2. Originate from fatal injuries;
3. Originate from the following kinds of bodily injury:
a. Brain injuries resulting in impairment of physical
function;
15. No. TC407A,B,C-R97
<PAGE> 19
SWISS RE AMERICA
b. Spinal injuries resulting in a partial or total
paralysis of upper or lower extremities;
c. Amputation or permanent loss of use of upper or
lower extremities;
d. Severe burn injuries;
e. Loss of sight in one or both eyes;
f. All other injuries likely to result in a permanent
disability rate of 50% or more.
C. The Company shall have the responsibility to investigate, defend or
negotiate settlements of all claims and lawsuits related to Policies
written by the Company and reinsured under this Agreement. The
Reinsurer, at its own expense, may associate with the Company in the
defense or control of any claim, suit or other proceeding which
involves or is likely to involve the reinsurance provided under this
Agreement, and the Company shall cooperate in every respect in the
defense of any such claim, suit or proceeding.
ARTICLE XIV - SALVAGE AND SUBROGATION
A. In the event of the payment of any indemnity by the Reinsurer under
this Agreement, the Reinsurer shall be subrogated, to the extent of
such payment, to all of the rights of the Company against any person
or entity legally responsible for damages of the loss. The Company
agrees to enforce such rights; but, in case the Company refuses or
neglects to do so, the Reinsurer is hereby authorized and empowered to
bring any appropriate action in the name of the Company or their
policyholders or otherwise to enforce such rights.
B. From any amount recovered by subrogation, salvage or other means,
there shall first be deducted the expenses incurred in effecting the
recovery. The balance shall then be used to reimburse the excess
carriers in the inverse order to that in which their respective
liabilities attached, before being used to reimburse the Company for
its primary loss.
ARTICLE XV - ACCESS TO RECORDS
The Reinsurer or its duly authorized representatives shall have the right to
examine, at the offices of the Company at a reasonable time, during the currency
of this Agreement or anytime thereafter, all books and records of the Company
relating to business which is the subject of this Agreement.
16. No. TC407A,B,C-R97
<PAGE> 20
SWISS RE AMERICA
ARTICLE XVI - TAXES
The Company shall be liable for all taxes on premiums paid to the Reinsurer
under this Agreement, except income or profit taxes of the Reinsurer, and shall
indemnify and hold the Reinsurer harmless for any such taxes which the Reinsurer
may become obligated to pay to any local, state or federal taxing authority.
ARTICLE XVII - CURRENCY
Wherever the word "dollars" or the "$" symbol is used in this Agreement, it
shall mean dollars of the United States of America, excepting in those cases
where the Policy is issued by the Company in Canadian dollars, in which case it
shall mean dollars of Canada. In the event the Company is involved in a loss
requiring payment in United States and Canadian currency, the Company's
retention and the limit of liability of the Reinsurer shall be apportioned
between the two currencies in the same proportion as the amount of net loss in
each currency bears to the total amount of net loss paid by the Company. For the
purposes of this Agreement, where the Company receives premiums or pays losses
in currencies other than United States or Canadian currency, such premiums and
losses shall be converted into United States dollars at the actual rates of
exchange at which the premiums and losses are entered in the Company's books.
ARTICLE XVIII - OFFSET
Each party to this Agreement together with their successors or assigns shall
have and may exercise, at any time, the right to offset any balance or balances
due the other (or, if more than one, any other). Such offset may include
balances due under this Agreement and any other agreements heretofore or
hereafter entered into between the parties regardless of whether such balances
arise from premiums, losses or otherwise, and regardless of capacity of any
party, whether as assuming insurer and/or ceding insurer, under the various
agreements involved, provided however, that in the event of insolvency of a
party hereto, offsets shall only be allowed in accordance with the provisions of
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.
ARTICLE IX - ERRORS OR OMISSIONS
Errors or omissions of a ministerial nature on the part of the Company shall not
invalidate the reinsurance under this Agreement, provided such errors or
omissions are corrected promptly after discovery thereof; but the liability of
the Reinsurer under this Agreement or any exhibits, addenda, or endorsements
attached hereto shall in no event exceed the limits specified herein nor be
extended to cover any risks, perils,
17. No. TC407A,B,C-R97
<PAGE> 21
SWISS RE AMERICA
lines of business or classes of insurance generally or specifically excluded
herein.
ARTICLE XX - DISPUTE RESOLUTION
Part I - Choice Of Law And Forum
Any dispute arising under this Agreement shall be resolved in the State of
Pennsylvania, and the laws of the State of Pennsylvania shall govern the
interpretation and application of this Agreement.
Part II - Mediation
If a dispute between the Company and the Reinsurer, arising out of the
provisions of this Agreement or concerning its interpretation or validity and
whether arising before or after termination of this Agreement has not been
settled through negotiation, both parties agree to try in good faith to settle
such dispute by nonbinding mediation, before resorting to arbitration.
Part III - Arbitration
A. Resolution of Disputes - As a condition precedent to any right arising
hereunder, any dispute not resolved by mediation between the Company
and the Reinsurer arising out of the provisions of this Agreement or
concerning its interpretation or validity, whether arising before or
after termination of this Agreement, shall be submitted to arbitration
in the manner hereinafter set forth.
B. Composition of Panel - Unless the parties agree upon a single
arbitrator within 15 days after the receipt of a notice of intention
to arbitrate, all disputes shall be submitted to an arbitration panel
composed of two arbitrators and an umpire chosen in accordance with
Paragraph C. hereof.
C. Appointment of Arbitrators - The members of the arbitration panel
shall be chosen from persons knowledgeable in the insurance and
reinsurance business. Unless a single arbitrator is agreed upon, the
party requesting arbitration (hereinafter referred to as the
"claimant") shall appoint an arbitrator and give written notice
thereof by certified mail, to the other party (hereinafter referred to
as the "respondent") together with its notice of intention to
arbitrate. Within 30 days after receiving such notice, the respondent
shall also appoint an arbitrator and notify the claimant thereof by
certified mail. Before instituting a hearing, the two arbitrators so
appointed shall choose an umpire. If, within 20 days after the
appointment of the arbitrator chosen by the respondent, the two
arbitrators fail to agree upon the appointment of an umpire, each of
them shall nominate three individuals to serve as umpire, of whom the
other shall decline two and the umpire shall be chosen from
18. No. TC407A,B,C-R97
<PAGE> 22
SWISS RE AMERICA
the remaining two by drawing lots. The name of the individual first
drawn shall be the umpire.
D. Failure of Party to Appoint an Arbitrator - If the respondent fails to
appoint an arbitrator within 30 days after receiving a notice of
intention to arbitrate, the claimant's arbitrator shall appoint an
arbitrator on behalf of the respondent, such arbitrator shall then,
together with the claimant's arbitrator, choose an umpire as provided
in Paragraph C. of Part III of this Article.
E. Involvement of Other Reinsurers - 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 the one
party; provided, however, nothing herein shall impair the right of
such reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the reinsurers
under the terms of this Agreement from several to joint.
F. If the Company is involved in a dispute under the terms of this
Agreement and in one or more separate disputes with one or more other
reinsurers in which common questions of law or fact are in issue, the
Company or the Reinsurer, at its option, may join with such other
reinsurers in a common arbitration proceeding under the terms of this
Article. If the Company and such other reinsurers have commenced
arbitration, the Reinsurer may at its option join such proceeding for
the determination of the dispute between the Company and the
Reinsurer.
G. Submission of Dispute to Panel - Unless otherwise extended by the
arbitration panel or agreed to by the parties, each party shall submit
its case to the panel within 30 days after the selection of the
umpire.
H. Procedure Governing Arbitration - All proceedings before the panel
shall be informal and the panel shall not be bound by the formal rules
of evidence. The panel shall have the power to fix all procedural
rules relating to the arbitration proceeding. In reaching any
decision, the panel shall give due consideration to the customs and
usages of the insurance and reinsurance business.
I. Arbitration Award - The arbitration panel shall render its decision
within 60 days after termination of the proceeding, which decision
shall be in writing, stating the reasons therefor. The decision of the
majority of the panel shall be final and binding on the parties to the
proceeding.
J. Cost of Arbitration - Unless otherwise allocated by the panel, each
party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other parties the expense of the umpire and
the arbitration.
19. No. TC407A,B,C-R97
<PAGE> 23
SWISS RE AMERICA
ARTICLE XXI - INSOLVENCY
A. In the event of insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company as respects Policies covered hereunder,
without diminution because of such insolvency, directly to the Company
or its liquidator, receiver, conservator or statutory successor except
as provided in Sections 4118(a)(1)(A) and 1114(c) of the New York
Insurance Law.
B. The Reinsurer shall be given written notice of the pendency of each
claim or loss which may involve the reinsurance provided by this
Agreement within a reasonable time after such claim or loss is filed
in the insolvency proceedings. The Reinsurer shall have the right to
investigate each such claim or loss and interpose, at its own expense,
in the proceedings where the claim or loss is to be adjudicated, any
defense which it may deem available to the Company, its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of
liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
C. In addition to the offset provisions set forth in Article XVIII -
Offset, any debts or credits, liquidated or unliquidated, in favor of
or against either party on the date of the receivership or liquidation
order (except where the obligation was purchased by or transferred to
be used as an offset) are deemed mutual debts or credits and shall be
set off with the balance only to be allowed or paid. Although such
claim on the part of either party against the other may be
unliquidated or undetermined in amount on the date of the entry of the
receivership or liquidation order, such claim will be regarded as
being in existence as of such date and any claims then in existence
and held by the other party may be offset against it.
D. Nothing contained in this Article is intended to change the
relationship or status of the parties to this Agreement or to enlarge
upon the rights or obligations of either party hereunder except as
provided herein.
ARTICLE XXII - SPECIAL TERMINATION
A. Notwithstanding the termination provisions set forth in Article II -
Effective Date and Termination, this Agreement may be:
1. Terminated by either party upon the happening of any of the
following events:
20. No. TC407A,B,C-R97
<PAGE> 24
SWISS RE AMERICA
a. Entry of an order of liquidation, rehabilitation,
receivership or conservatorship with respect to
the Company or the Reinsurer by any court or
regulatory authority;
b. Assignment of this Agreement by either party;
c. Any transfer of control of either party by change
in ownership or otherwise;
d. General reinsurance of any portion of the
Company's business it retains net for its own
account, as determined under the provisions of
this Agreement without prior consent of the
Reinsurer.
2. Terminated in accordance with the provisions set forth in
this Paragraph, upon the discovery of the following event:
A reduction of 50% or more of the Company's
policyholders surplus during any calendar year.
Such reduction shall be determined by calculating
the difference between the Company's prior year
annual statement and each subsequent quarterly
statutory statement within such current calendar
year.
As respects the event set forth in this Paragraph A.2., the
Company shall be obligated to notify the Reinsurer in
writing within 30 days after the filing of its quarterly
statement. Upon receipt of such notification the Reinsurer
shall have the right to terminate this Agreement, by giving
not less than 30 days notice of its intention to do so.
B. Any notice of termination pursuant to provisions set forth in
Paragraph A.2. above shall be sent by certified mail, return receipt
requested. Such notice period shall commence upon the other party's
receipt of the notice of termination.
C. In the event of termination, the Reinsurer shall not be liable for
losses occurring subsequent to the date of termination.
ARTICLE XXIII - AMENDMENTS
This Agreement may be amended by mutual consent of the parties expressed in an
addendum; and such addendum, when executed by both parties, shall be deemed to
be an integral part of this Agreement and binding on the parties hereto.
21. No. TC407A,B,C-R97
<PAGE> 25
SWISS RE AMERICA
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the following dates:
In Bala Cynwyd, Pennsylvania, this 28th day of September, 1997.
ATTEST: PHILADELPHIA CONSOLIDATED HOLDING
CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
/s/ James J. Maguire /s/ Christopher J. Maguire
- -------------------- -------------------------------------
And in New York, New York, this 18th day of September, 1997.
ATTEST: SWISS REINSURANCE AMERICA CORPORATION
/s/ Peter Thomson /s/ Gerard M. Hopkins
- -------------------- -------------------------------------
Member of Management Member of Senior Management
22. No. TC407A,B,C-R97
<PAGE> 26
SWISS RE AMERICA
SUPPLEMENT TO THE ATTACHMENTS
DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS
A. Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other
term is used to designate the reinsured company or companies within the
various attachments to the reinsurance agreement, the term shall be
understood to mean Company or Reinsured or Reassured or whatever other term
is used in the attached reinsurance agreement to designate the reinsured
company or companies.
B. Wherever the term "Agreement" or "Contract" or "Policy" or whatever other
term is used to designate the attached reinsurance agreement within the
various attachments to the reinsurance agreement, the term shall be
understood to mean Agreement or Contract or Policy or whatever other term is
used to designate the attached reinsurance agreement.
C. Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever
other term is used to designate the reinsurer or reinsurers in the various
attachments to the reinsurance agreement, the term shall be understood to
mean Reinsurer or Reinsurers or Underwriters or whatever other term is used
to designate the reinsuring company or companies.
<PAGE> 27
SWISS RE AMERICA
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE> 28
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.
N.M.A. 1590
1 This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operation of paragraph 1. of this Clause
it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II. in this paragraph 2. from the time specified
in Clause III. in this paragraph 2. shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION*
I. It is agreed that the policy does not apply under any liability
coverage, to INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION,
bodily injury or property damage with respect to which an insured
under the policy is also an insured under a nuclear energy
liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an insured
under any such policy but for its termination upon exhaustion of
its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liabilities Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II. above, whether new, renewal or replacement, being
policies which either
- 1 -
<PAGE> 29
SWISS RE AMERICA
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph 2.
shall not be applicable to Family Automobile Policies, Special
Automobile Policies, or policies or combination policies of a
similar nature, issued by the Reassured on New York risks, until
90 days following approval of the Limited Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
3. Except for those classes of policies specified in Clause II. of paragraph 2.
and without in any way restricting the operation of paragraph 1. of this
Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal
and replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or Garage Liability) shall
be deemed to include with respect to such coverages, from the time specified
in Clause V. of this paragraph 3., the following. provision (specified as
the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to INJURY, SICKNESS, DISEASE, DEATH OR
DESTRUCTION, bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada,
or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
- 2 -
N.M.A. 1590
<PAGE> 30
SWISS RE AMERICA
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is required to
maintain financial protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (2) the insured is, or had
this policy not been issued would be, entitled to indemnity from
the United States of America, or any agency thereof, under any
agreement entered into by the United States of America, or any
agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to IMMEDIATE MEDICAL OR SURGICAL RELIEF,
first aid, to expenses incurred with respect to BODILY INJURY,
SICKNESS, DISEASE OR DEATH, bodily injury resulting from the hazardous
properties of nuclear material and arising out of the question of a
nuclear facility by any person or organization.
III. Under any Liability Coverage, to INJURY, SICKNESS, DISEASE, DEATH OR
DESTRUCTION, bodily injury or property damage resulting from the
hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
(c) the INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION, bodily injury
or property damage arises out of the furnishing by an insured of
services, materials, parts or equipment in connection with the
planning, construction, maintenance, operation or use of any
nuclear facility, but if such facility is located within the United
States of America, its territories, or possessions or Canada, this
exclusion (c) applies only to INJURY TO OR DESTRUCTION OF PROPERTY
AT SUCH NUCLEAR FACILITY, property damage to such nuclear facility
and any property thereat.
- 3 -
N.M.A. 1590
<PAGE> 31
SWISS RE AMERICA
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special nuclear
material or byproduct material; "source material," special nuclear
material," and "byproduct material" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
fuel" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "waste"
means any waste material (1) containing byproduct material other than
the tailings or wastes produced by the extraction or concentration of
uranium or thorium from any ore processed for its source material
content and (2) resulting from the operation by any person or
organization of any nuclear facility included within the definition of
nuclear facility under paragraph (a) or (b) thereof; "nuclear facility"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent
fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to
contain a critical mass of fissionable material; WITH RESPECT TO INJURY
TO OR DESTRUCTION OF PROPERTY, THE WORD "INJURY" OR "DESTRUCTION"
INCLUDES ALL FORMS OF RADIOACTIVE CONTAMINATION OF PROPERTY; "property
damage" includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph 3., whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph 3. shall not be applicable to
N.M.A. 1590 - 4 -
<PAGE> 32
SWISS RE AMERICA
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) Statutory liability insurance required under Chapter 90,
General Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraph 1. of this
Clause, it is understood and agreed that paragraphs 2. and 3. above are not
applicable to original liability policies of the Reassured in Canada, and
that with respect to such policies, this Clause shall be deemed to include
the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
*NOTE: The words printed in BOLD TYPE in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a
Broad Exclusion Provision containing those words.
N.M.A. 1590 - 5 -
<PAGE> 33
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA
N.M.A. 1979
1. This Agreement does not cover any loss or liability accruing to the Company
as a member of, or subscriber to, any association of insurers or reinsurers
formed for the purpose of covering nuclear energy risks or as a direct or
indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operation of Paragraph 1. of this Clause,
it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of
the following classes, namely,
Personal Liability
Farmers' Liability
Storekeepers' Liability
which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following
provision:
Limited Exclusion Provision -
This Policy does not apply to bodily injury or property damage with respect
to which the Insured is also insured under a contract of nuclear energy
liability insurance (whether the Insured is unnamed in such contract and
whether or not it is legally enforceable by the Insured) issued by the
Nuclear Insurance Association of Canada or any other group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limits of liability.
With respect to property, loss of use of such property shall be deemed to be
property damage.
3. Without in any way restricting the operation of Paragraph 1. of this Clause,
it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of
any class whatsoever (other than Personal Liability, Farmers' Liability,
Storekeepers' Liability or Automobile Liability contracts), which become
effective on or after 31st December 1984, shall be deemed to include, from
their inception dates and thereafter, the following provision:
- 1 -
<PAGE> 34
SWISS RE AMERICA
Broad Exclusion Provision -
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability Act; nor
(b) to bodily injury or property damage with respect to which an Insured under
this Policy is also insured under a contract of nuclear energy liability
insurance (whether the Insured is unnamed in such contract and whether or
not it is legally enforceable by the Insured) issued by the Nuclear
Association of Canada or any other insurer or group or pool of insurers or
would be an Insured under any such policy but for its termination upon
exhaustion of its limit of liability; nor
(c) to bodily injury or property, damage resulting directly or indirectly from
the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or use of a nuclear facility
by or on behalf of an Insured;
(ii) the furnishing of an Insured of services, materials, parts or
equipment in connection with the planning, construction, maintenance,
operation or use of any nuclear facility; and
(iii) the possession, consumption, use, handling, disposal or transportation
of fissionable substances, or of other radioactive material (except
radioactive isotopes, away from a nuclear facility, which have reached
the final stage of fabrication so as to be usable for any scientific,
medical, agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
As used in this Policy:
(1) The term "nuclear energy hazard" means the radioactive, toxic, explosive, or
other hazardous properties of radioactive material,
(2) The term "radioactive material" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive isotopes
of other elements and any other substances that the Atomic Energy Control
Board may, by regulation, designate as being prescribed substances capable
of releasing atomic energy, or as being requisite for the production, use or
application of atomic energy;
N.M.A. 1979 - 2 -
<PAGE> 35
SWISS RE AMERICA
(3) The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of
plutonium, thorium and uranium or any one or more of them;
(b) any equipment or device designed or used for (i) separating the isotopes
of plutonium, thorium and uranium or any one or more of them, (ii)
processing or utilizing spent fuel, or (iii) handling, processing or
packaging waste;
(c) any equipment or device used for the processing, fabricating or alloying
of plutonium, thorium or uranium enriched in the isotope uranium 233 or
in the isotope uranium 235, or any one or more of them if at any time
the total amount of such material in the custody of the Insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or used for
the storage or disposal of waste radioactive material;
and includes the site on which any of the foregoing is located, together
with all operations conducted thereon and all premises used for such
operations.
(4) The term "fissionable substance" means any prescribed substance that is, or
from which can be obtained, a substance capable of releasing atomic energy
by nuclear fission.
(5) With respect to property, loss of use of such property shall be deemed to be
property damage.
N.M.A. 1979 - 3 -
<PAGE> 36
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operations of Nuclear Incident Exclusion
Clauses, - Liability, - Physical Damage, - Boiler and Machinery and
paragraph 1. of this Clause, it is understood and agreed that for all
purposes of the reinsurance assumed by the Reinsurer from the Reinsured, all
original insurance policies or contracts of the Reinsured (new, renewal and
replacement) shall be deemed to include the applicable existing Nuclear
Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
subsequent revisions thereto as agreed upon and approved by the Insurance
Industry and/or a qualified Advisory or Rating Bureau.
<PAGE> 37
SWISS RE AMERICA
PROPERTY PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
NO. TP1308A-R97
EFFECTIVE January 1, 1997
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
both of Bala Cynwyd, Pennsylvania
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
<PAGE> 38
SWISS RE AMERICA
PROPERTY PER RISK EXCESS OF LOSS REINSURANCE AGREEMENT NO. TP1308A-R97
ARTICLE CONTENTS PAGE
PREAMBLE 1
I BUSINESS COVERED 1
II EFFECTIVE DATE AND TERMINATION 2
III TERRITORY 3
IV LIMIT AND RETENTION 3
V ULTIMATE NET LOSS 4
VI LOSS IN EXCESS OF POLICY LIMITS 5
VII EXTRA CONTRACTUAL OBLIGATIONS 5
VIII DEFINITION OF RISK 6
IX EXCLUSIONS 6
X LOSS OCCURRENCE 8
XI REINSURANCE PREMIUM 9
XII CONTINGENT COMMISSION 9
XIII REPORTS AND REMITTANCES 11
XIV CLAIMS 12
XV SALVAGE AND SUBROGATION 12
XVI ACCESS TO RECORDS 12
XVII TAXES 12
XVIII CURRENCY 13
XIX OFFSET 13
XX ERRORS OR OMISSIONS 13
XXI DISPUTE RESOLUTION 14
XXII INSOLVENCY 16
XXIII SPECIAL TERMINATION 16
XXIV AMENDMENTS 17
SIGNATURES 18
ATTACHMENTS: INSOLVENCY FUNDS EXCLUSION CLAUSE
POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
TOTAL INSURED VALUE EXCLUSION CLAUSE
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - CANADA
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE NO. 4
<PAGE> 39
SWISS RE AMERICA
PROPERTY PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
NO. TP1308A-R97
(hereinafter referred to as the "Agreement")
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
both of Bala Cynwyd, Pennsylvania
(hereinafter referred to individually or collectively as the "Company")
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
(hereinafter referred to as the "Reinsurer")
ARTICLE I - BUSINESS COVERED
A. The Reinsurer shall indemnify the Company on an excess of loss basis in
respect of the Company's Ultimate Net Loss paid or to be paid by the
Company as a result of losses occurring during the term of the
Agreement, for Policies in force as of January 1, 1997, and new and
renewal Policies becoming effective on or after said date, subject to
the terms and conditions contained herein.
B. This Agreement is solely between the Company and the Reinsurer, and
nothing contained in this Agreement shall create any obligations or
establish any rights against the Reinsurer in favor of any person or
entity not a party hereto.
C. The performance of obligations by both parties under this Agreement
shall be in accordance with a fiduciary standard of good faith and fair
dealing.
D. The term "Policies" shall mean each of the Company's binders, policies
and contracts of insurance or reinsurance on the business covered
hereunder.
E. Under this Agreement, the indemnity for reinsured loss applies to those
Policies issued by the Company with respect to the following Lines of
Business as classified in the Company's Annual Statement, subject to
the exclusions set forth in Article IX - Exclusions.
1. No. TP1308A-R97
<PAGE> 40
SWISS RE AMERICA
NAIC
CODE: LINES OF BUSINESS:
01 Fire
02 Allied Lines
21 Commercial Auto Physical Damage -
Comprehensive (coverage written on a garage open lot basis)
09 Inland Marine
05 Commercial Multiple Peril (Section I only)
ARTICLE II - EFFECTIVE DATE AND TERMINATION
A. This Agreement shall become effective with respect to losses occurring
on and after 12:01 a.m., Eastern Standard Time, January 1, 1997, and
shall remain in full force until terminated. This Agreement may be
terminated at the close of any calendar year by either party giving to
the other 90 days prior written notice by certified mail of its
intention to do so.
B. In the event of termination of this Agreement, the Company shall have
the option of continuing or terminating the liability in force at the
date of termination as set forth below. The Company may exercise such
option provided written notice of the Company's election is given by
certified mail to the Reinsurer prior to the date of termination.
1. All Policies covered hereunder and in force at the date of
termination of this Agreement shall continue until their
natural expiry, cancellation or next anniversary of such
business, whichever first occurs; but in no case shall this
reinsurance be extended for longer than one year, plus odd
time, after the termination date.
2. All reinsurance hereunder shall be automatically cancelled as
of the date of termination and the Reinsurer shall be released
of all liability as respects losses occurring subsequent to
the date of termination.
C. If the Company chooses to exercise the option of continuing the
liability, the Company and the Reinsurer shall renegotiate the terms
and conditions relating to such option.
D. If this Agreement shall terminate while a loss covered hereunder is in
progress, it is agreed that, subject to the other conditions of this
Agreement, the Reinsurer shall indemnify the Company as if the entire
loss had occurred during the time this Agreement is in force provided
the loss covered hereunder started before the date of termination.
2.
No. TP1308A-R97
<PAGE> 41
SWISS RE AMERICA
ARTICLE III - TERRITORY
This Agreement applies to risks located in the United States of America, its
territories and possessions, and Canada, except that with respect to Inland
Marine and Multiple Peril Policies covered hereunder, the territorial limits of
this Agreement shall be those of the original Policies when such Policies are
written to cover risks primarily located in the United States of America, its
territories and possessions, and Canada.
ARTICLE IV - LIMIT AND RETENTION
A. The limit and retention provided under this Agreement is set forth
below:
(i) As respects one or more than one Line of Business covered
under this Agreement, the Company shall retain the first
$500,000 of Ultimate Net Loss as respects each risk in any one
Loss Occurrence. The Reinsurer shall then be liable for the
amount by which the Company's Ultimate Net Loss exceeds the
Company's retention of $500,000, but the liability of the
Reinsurer shall never exceed $1,500,000 each risk any one Loss
Occurrence, nor shall the Reinsurer's liability from all risks
in each Loss Occurrence exceed $3,500,000.
(ii) Notwithstanding the provisions set forth in Paragraph B. of
Article V - Ultimate Net Loss, the Reinsurer shall provide
coverage for 100% of losses arising out of Extra Contractual
Obligations as defined herein in addition to the Company's
retention and Reinsurer's limit of liability set for in (i)
above, subject to a maximum limit of liability of $4,500,000.
(iii) However, in the event an Ultimate Net Loss exceeds $500,000 as
respects each risk in any one Loss Occurrence, the liability
of the Reinsurer shall be increased to $1,700,000 each risk
any one Loss Occurrence and the retention of the Company shall
be reduced to $300,000 each risk any one Loss Occurrence as
respects subsequent losses resulting from that same Loss
Occurrence, however, in no event shall the Reinsurer's
liability from all risks in such Loss Occurrence exceed
$3,500,000.
B. In the event of a loss involving a combination of the Property business
subject to this agreement and Casualty business subject to the
Company's Casualty Excess of Loss Reinsurance Agreement No.
TC407A,B,C-R97, further reinsurance is provided when the Company's
combined retention under these two referenced agreements, resulting
from one occurrence, exceeds $500,000. In regard to such a combination
loss, the Company will retain the first $500,000 of its combined
retention each occurrence and the Reinsurer will reimburse the Company
for the amount in excess of $500,000 subject to a
3.
No. TP1308A-R97
<PAGE> 42
SWISS RE AMERICA
maximum reimbursement under this provision of $2,000,000 for each
occurrence. Such additional reinsurance will be pro-rated between this
agreement and the Company's Casualty Excess of Loss Reinsurance
Agreement No. TC407A,B,C-R97 in the amount that the Ultimate Net Loss
under each agreement bears to the combined Ultimate Net Loss, subject
to a maximum combined recovery of $2,000,000.
C. Reinsurance of the Company's retention, set forth above, shall not be
deducted in arriving at the Company's Ultimate Net Loss herein.
ARTICLE V - ULTIMATE NET LOSS
A. The term "Ultimate Net Loss" shall mean the actual sum paid or to be
paid by the Company in settlement of losses or liability after making
deductions for all recoveries, including subrogation, salvages, and
claims upon other reinsurances, whether collectible or not, which inure
to the benefit of the Reinsurer under this Agreement, and shall include
Allocated Loss Adjustment Expenses incurred by the Company.
B. The term "Ultimate Net Loss" shall include 100% of Extra Contractual
obligations, as defined herein, but only as respects business covered
under this Agreement.
C. The term "Ultimate Net Loss" shall also include "Ex-gratia Payments" as
defined in Paragraph D. below, subject to the terms and conditions of
this Agreement.
D. The term "Ex-gratia Payments" shall mean payments made as an
accommodation by the Company in settlement of a claim for which no
coverage exists under the Policy reinsured hereunder, subject to the
prior approval of the Reinsurer.
E. The term "Allocated Loss Adjustment Expenses" shall mean all allocated
expenses incurred by the Company in connection with the investigation,
settlement, defense or litigation of any claim or loss covered by the
Policies reinsured under this Agreement, and shall exclude the salaries
of Company employees, office expenses or any other unallocated
expenses.
F. All recoveries, salvages or payments recovered or received subsequent
to a loss settlement under this Agreement shall be applied as if
recovered or received prior to the aforesaid settlement and all
necessary adjustments to the loss settlement shall be made by the
parties hereto.
G. Nothing in this Article shall be construed to mean that losses are not
recoverable hereunder until the Ultimate Net Loss of the Company has
been ascertained.
4.
No. TP1308A-R97
<PAGE> 43
SWISS RE AMERICA
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS
A. In the event the Company is liable to a policyholder as the result of a
settlement or judgment rendered against the policyholder which is in
excess of the Policy limit, 100% of that portion of the award made to
the third party claimant which is in excess of the Company's Policy
limit shall be added to the amount of the Company's Policy limit and
the sum thereof shall be considered one loss, subject to the provision
in Paragraph B. below and all other provisions set forth in this
Agreement.
B. With respect to coverage provided under this Article, recoveries from
any insurance or reinsurance other than this Agreement, shall inure to
the benefit of the Reinsurer and shall be deducted to arrive at the
amount of the Company's Ultimate Net Loss.
ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS
A. "Extra Contractual Obligations" are defined as those liabilities not
covered under any other provision of this Agreement and which arise
from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following:
failure by the Company to settle within the Policy limit, or by reason
of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the
original accident, casualty, disaster or loss occurrence.
C. However, coverage hereunder as respects Extra Contractual Obligations
shall not apply where the loss has been incurred due to the fraud of a
member of the Board of Directors or a corporate officer of the Company
acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
D. Extra Contractual Obligations shall not include loss arising out of
engineering or other services or any other non-claims related activity
provided to the insured by the Company.
E. Recoveries, collectibles or retention from any other form of insurance
or reinsurance including deductibles or self-insured retention which
protect the Company against Extra Contractual Obligations shall inure
to the benefit of the Reinsurer and shall be deducted from the total
amount of Extra Contractual Obligations for purposes of determining the
loss hereunder.
5. No. TP1308A-R97
<PAGE> 44
SWISS RE AMERICA
ARTICLE VIII - DEFINITION OF RISK
The Company shall be the sole judge of what constitutes one risk provided,
however, that:
A. A risk shall never be less than all insurable values at one general
location regardless of the number of policies involved, and whether
there is a single, multiple or unrelated named insureds involved in
such risk.
B. A risk shall be determined from the standpoint of the predominant peril
and such peril shall be noted in the Company's records.
ARTICLE IX - EXCLUSIONS
THIS AGREEMENT DOES NOT COVER:
A. THE FOLLOWING GENERAL CATEGORIES
1. All Lines of Business not specifically listed in Article I -
Business Covered.
2. Policies issued with a deductible of $100,000 or more;
provided this exclusion shall not apply to Policies which
customarily provide a percentage deductible on the perils of
earthquake or windstorm.
3. Reinsurance assumed, except pro rata local agency reinsurance
on specific risks and except reinsurance assumed from an
affiliated company.
4. Ex-gratia Payments greater than $500,000, except with
Reinsurer's prior consent.
5. Loss or damage occasioned by war, invasion, revolution,
bombardment, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, martial
law, or confiscation by order of any government or public
authority, but not excluding loss or damage which would be
covered under a standard form of policy containing a standard
war exclusion clause.
6. Insolvency Funds as per the attached Insolvency Funds
Exclusion Clause, which is made part of this Agreement.
7. Pool, Association and Syndicate business as per the attached
Pools, Associations and Syndicates Exclusion Clause, which is
made part of this Agreement.
8. Risks where the Total Insured Value, per risk, exceeds the
figure specified as per the attached Total Insured Value
Exclusion Clause, which is made part of this Agreement.
6. No. TP1308A-R97
<PAGE> 45
SWISS RE AMERICA
B. THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS
1. Mortgage Impairment.
2. Growing and/or standing crops.
3. Mortality and Health covering birds, animals or fish.
4. All onshore and offshore gas and oil drilling rigs.
5. Petrochemical operations engaged in the production, refining
or upgrading of petroleum or petroleum derivatives or natural
gas.
6. Satellites.
7. All railroad business.
8. As respects Inland Marine business:
a. Registered Mail and Armored Car Policies.
b. Jeweler's Block Policies.
C. Furrier's Customers Policies.
d. Rolling Stock.
e. Parcel Post when written to cover banks and financial
institutions.
f. Commercial Negative Film Insurance.
g. Garment Contractors Policies.
h. Mining Equipment while underground.
i. Radio and Television Broadcasting Towers.
j. Motor Truck Cargo Insurance written for common
carriers operating beyond a radius of 200 miles.
9. Overhead transmission and distribution lines and their
supporting structures other than those on or within 1,000 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.
C. THE FOLLOWING PERILS
1. Flood and/or Earthquake when written as such.
2. Difference in Conditions, however styled.
3. Pollution to the extent excluded in the Company's original
Policies. It is warranted that the Reinsurer's prior approval
is required for all changes to the Company's Policy pollution
wording.
4. Nuclear Incident Exclusion Clauses which are attached and made
part of this Agreement:
a. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - U.S.A.
7. No. TP1308A-R97
<PAGE> 46
SWISS RE AMERICA
b. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - Canada
c. Nuclear Incident Exclusion Clause - Reinsurance - No.
4.
D. In the event the Company is inadvertently bound on any risk which is
excluded under this Agreement the reinsurance provided under this
Agreement shall apply to such risk until discovery by the Company
within its Home Office of the existence of such risk and for 60 days
thereafter, and shall then cease unless within the 60 day period, the
Company has received from the Reinsurer written notice of its approval
of such risk.
ARTICLE X - LOSS OCCURRENCE
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
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.
8. No. TP1308A-R97
<PAGE> 47
SWISS RE AMERICA
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. For all Loss Occurrences 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 except for
those Loss Occurrences referred to in 1. and 2. above, where only one
such period of 72 consecutive hours shall apply with respect to one
event, regardless of the duration of the event.
C. 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 XI - REINSURANCE PREMIUM
A. The premium to the Reinsurer for this Agreement shall be calculated by
applying a rate of 5.00% to the Subject Earned Premium by the Company
for the quarterly period being reported on the Lines of Business
reinsured by this Agreement.
B. The term "Subject Earned Premium" as used herein is equal to the sum of
the Net Premiums Written on the Lines of Business covered hereunder
during the period under consideration, plus the unearned premium
reserve as respects premiums in force at the beginning of such period,
less the unearned premium reserve as respects premiums in force at the
end of the period, said unearned premium is to be calculated on the
monthly pro rata basis.
C. The term "Net Premiums Written" shall mean gross premiums written less
returns, allowances and reinsurances that inure to the benefit of the
Reinsurer.
ARTICLE XII - CONTINGENT COMMISSION
A. The Reinsurer shall allow the Company a contingent commission of 50% of
the profit, if any, accruing to the Reinsurer hereunder, such profit
shall be computed on the following formula:
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CONTINGENT COMMISSION COMPUTATION FOR THE PERIOD
INCOME
1. Earned Premium received by the Reinsurer during the
Period.
OUTGO
2. Losses Incurred of the Reinsurer during the Period.
3. Allowance for Reinsurer's management expenses during
the Period of 15% of the Earned Premium received by
the Reinsurer during the Period.
4. Deficit, if any, brought forward from the preceding
Period.
The amount by which Income exceeds Outgo is profit.
The amount by which Outgo exceeds Income is deficit.
B. The term "Losses Incurred" means losses and loss adjustment expenses
paid less salvages recovered during each Accounting Period, or part
thereof, as respects losses which occurred during the Accounting
Period, plus the reserve for losses outstanding at the end of the
current period for which computation is being made.
C. The term "Earned Premium" means the total of the Net Premiums Written,
ceded during the current Period plus the unearned premiums at the close
of the preceding Period less the unearned premiums at the close of the
current Period, said unearned premiums to be calculated on a monthly
pro rata basis.
D. The term "Period" means the actual time covered by each adjustment of
commission.
E. Within 90 days after the close of each Period, the Company shall
calculate the commission adjustment for such Period. The first
calculation of commission adjustment shall cover the Period January
1, 1997 through December 31, 1999, and thereafter adjustments shall be
made annually for each subsequent Period commencing January 1 and
ending the following December 31.
F. If, for any Period, the Income of the plan exceeds the total of the
Items shown under Outgo of the plan, the Reinsurer shall pay to the
Company, within 30 days after verification of the Company's
calculations, 50% of the difference. If, for any Period, the total of
the Items shown under Outgo of the plan exceeds the Income of the plan,
the difference shall be carried forward to the next Period's
calculation of commission adjustment as a deficit.
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SWISS RE AMERICA
G. The Reinsurer, upon verification by the Company, shall promptly pay to
the Company the amount of contingent commission, if any, shown in each
provisional calculation and final calculation for each Accounting
Period, less any contingent commission previously paid for the
Accounting Period. If the contingent commission previously paid for the
Accounting Period exceeds the amount of contingent commission, if any,
shown in any calculation for the Accounting Period the Company shall
promptly refund the difference to the Reinsurer.
H. In case notice of termination has been given, no further adjustments of
commission shall be made until the expiration of all liability and the
settlement of all losses covered under this Agreement.
ARTICLE XIII - REPORTS AND REMITTANCES
A. The Company shall furnish the Reinsurer with all necessary data
respecting premiums and losses for as long as one of the parties hereto
has a claim against the other arising from this Agreement.
B. Within 30 days after the close of each calendar quarter, the Company
shall submit an account to the Reinsurer summarizing Subject Earned
Premium by Line of Business, and the reinsurance premium due. Such
reinsurance premium shall be remitted within 45 days after the close of
each calendar quarter.
C. Payment by the Reinsurer of its portion of loss and Allocated Loss
Adjustment Expenses paid by the Company shall be made by the Reinsurer
to the Company within 15 days after proof of payment is received by the
Reinsurer.
D. The Company shall furnish the following to the Reinsurer with respect
to occurrences designated as catastrophes by Property Claim Services:
1. Prompt preliminary estimate of amount recoverable from the
Reinsurer;
2. Within 30 days after the close of each quarter the amount of
losses and Allocated Loss Adjustment Expenses paid, less all
recoveries, including salvage and subrogation, at the end of
each quarter segregated by Line of Business;
3. Within 30 days after the close of each quarter the amount of
losses and Allocated Loss Adjustment Expenses outstanding at
the end of each quarter segregated by Line of Business.
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ARTICLE XIV - CLAIMS
A. The Company shall promptly notify the Reinsurer of each claim which may
involve the reinsurance provided hereunder and of all subsequent
developments relating thereto, stating the amount claimed and estimate
of the Company's Ultimate Net Loss and Allocated Loss Adjustment
Expenses.
B. The Company shall have the responsibility to investigate, defend or
negotiate settlements of all claims and lawsuits related to Policies
written by the Company and reinsured under this Agreement. The
Reinsurer, at its own expense, may associate with the Company in the
defense or control of any claim, suit or other proceeding which
involves or is likely to involve the reinsurance provided under this
Agreement, and the Company shall cooperate in every respect in the
defense of any such claim, suit or proceeding.
ARTICLE XV - SALVAGE AND SUBROGATION
A. In the event of the payment of any indemnity by the Reinsurer under
this Agreement, the Reinsurer shall be subrogated, to the extent of
such payment, to all of the rights of the Company against any person or
entity legally responsible for damages of the loss. The Company agrees
to enforce such rights; but, in case the Company refuses or neglects to
do so, the Reinsurer is hereby authorized and empowered to bring any
appropriate action in the name of the Company or their policyholders or
otherwise to enforce such rights.
B. From any amount recovered by subrogation, salvage or other means, there
shall first be deducted the expenses incurred in effecting the
recovery. The balance shall then be used to reimburse the excess
carriers in the inverse order to that in which their respective
liabilities attached, before being used to reimburse the Company for
its primary loss.
ARTICLE XVI - ACCESS TO RECORDS
The Reinsurer or its duly authorized representatives shall have the right to
examine, at the offices of the Company at a reasonable time, during the currency
of this Agreement or anytime thereafter, all books and records of the Company
relating to business which is the subject of this Agreement.
ARTICLE XVII - TAXES
The Company shall be liable for all taxes on premiums paid to the Reinsurer
under this Agreement, except income or profit taxes of the Reinsurer, and shall
indemnify and hold the Reinsurer harmless for any
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SWISS RE AMERICA
such taxes which the Reinsurer may become obligated to pay to any local, state
or federal taxing authority.
ARTICLE XVIII - CURRENCY
Wherever the word "dollars" or the "$" symbol is used in this Agreement, it
shall mean dollars of the United States of America, excepting in those cases
where the Policy is issued by the Company in Canadian dollars, in which case it
shall mean dollars of Canada. In the event the Company is involved in a loss
requiring payment in United States and Canadian currency, the Company's
retention and the limit of liability of the Reinsurer shall be apportioned
between the two currencies in the same proportion as the amount of net loss in
each currency bears to the total amount of net loss paid by the Company. For the
purposes of this Agreement, where the Company receives premiums or pays losses
in currencies other than United States or Canadian currency, such premiums and
losses shall be converted into United States dollars at the actual rates of
exchange at which the premiums and losses are entered in the Company's books.
ARTICLE XIX - OFFSET
Each party to this Agreement together with their successors or assigns shall
have and may exercise, at any time, the right to offset any balance or balances
due the other (or, if more than one, any other). Such offset may include
balances due under this Agreement and any other agreements heretofore or
hereafter entered into between the parties regardless of whether such balances
arise from premiums, losses or otherwise, and regardless of capacity of any
party, whether as assuming insurer and/or ceding insurer, under the various
agreements involved, provided however, that in the event of insolvency of a
party hereto, offsets shall only be allowed in accordance with the provisions of
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.
ARTICLE XX - ERRORS OR OMISSIONS
Errors or omissions of a ministerial nature on the part of the Company shall not
invalidate the reinsurance under this Agreement, provided such errors or
omissions are corrected promptly after discovery thereof; but the liability of
the Reinsurer under this Agreement or any exhibits, addenda, or endorsements
attached hereto shall in no event exceed the limits specified herein nor be
extended to cover any risks, perils, lines of business or classes of insurance
generally or specifically excluded herein.
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ARTICLE XVIII - DISPUTE RESOLUTION
Part I - Choice Of Law And Forum
Any dispute arising under this Agreement shall be resolved in the State of
Pennsylvania, and the laws of the State of Pennsylvania, shall govern the
interpretation and application of this Agreement.
Part II - Mediation
If a dispute between the Company and the Reinsurer, arising out of the
provisions of this Agreement or concerning its interpretation or validity and
whether arising before or after termination of this Agreement has not been
settled through negotiation, both parties agree to try in good faith to settle
such dispute by non binding mediation, before resorting to arbitration.
Part III - Arbitration
A. Resolution of Disputes - As a condition precedent to any right arising
hereunder, any dispute not resolved by mediation between the Company
and the Reinsurer arising out of the provisions of this Agreement or
concerning its interpretation or validity, whether arising before or
after termination of this Agreement, shall be submitted to arbitration
in the manner hereinafter set forth.
B. Composition of Panel - Unless the parties agree upon a single
arbitrator within 15 days after the receipt of a notice of intention to
arbitrate, all disputes shall be submitted to an arbitration panel
composed of two arbitrators and an umpire chosen in accordance with
Paragraph C. hereof.
C. Appointment of Arbitrators - The members of the arbitration panel shall
be chosen from persons knowledgeable in the insurance and reinsurance
business. Unless a single arbitrator is agreed upon, the party
requesting arbitration (hereinafter referred to as the "claimant")
shall appoint an arbitrator and give written notice thereof by
certified mail, to the other party (hereinafter referred to as the
"respondent") together with his notice of intention to arbitrate.
Within 30 days after receiving such notice, the respondent shall also
appoint an arbitrator and notify the claimant thereof by certified
mail. Before instituting a hearing, the two arbitrators so appointed
shall choose an umpire. If, within 20 days after the appointment of the
arbitrator chosen by the respondent, the two arbitrators fail to agree
upon the appointment of an umpire, each of them shall nominate three
individuals to serve as umpire, of whom the other shall decline two and
the umpire shall be chosen from the remaining two by drawing lots. The
name of the individual first drawn shall be the umpire.
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D. Failure of Party to Appoint an Arbitrator - If the respondent fails to
appoint an arbitrator within 30 days after receiving a notice of
intention to arbitrate, the claimant's arbitrator shall appoint an
arbitrator on behalf of the respondent, such arbitrator shall then,
together with the claimant's arbitrator, choose an umpire as provided
in Paragraph C. of Part III of this Article.
E. Involvement of Other Reinsurers - 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 the one
party; provided, however, nothing herein shall impair the right of such
reinsurers to assert several, rather than joint, defenses or claims,
nor be construed as changing the liability of the reinsurers under the
terms of this Agreement from several to joint.
F. If the Company is involved in a dispute under the terms of this
Agreement and in one or more separate disputes with one or more other
reinsurers in which common questions of law or fact are in issue, the
Company or the Reinsurer, at its option, may join with such other
reinsurers in a common arbitration proceeding under the terms of this
Article. If the Company and such other reinsurers have commenced
arbitration, the Reinsurer may at its option join such proceeding for
the determination of the dispute between the Company and the Reinsurer.
G. Submission of Dispute to Panel - Unless otherwise extended by the
arbitration panel or agreed to by the parties, each party shall submit
its case to the panel within 30 days after the selection of the umpire.
H. Procedure Governing Arbitration - All proceedings before the panel
shall be informal and the panel shall not be bound by the formal rules
of evidence. The panel shall have the power to fix all procedural rules
relating to the arbitration proceeding. In reaching any decision, the
panel shall give due consideration to the customs and usages of the
insurance and reinsurance business.
I. Arbitration Award - The arbitration panel shall render its decision
within 60 days after termination of the proceeding, which decision
shall be in writing, stating the reasons therefor. The decision of the
majority of the panel shall be final and binding on the parties to the
proceeding.
J. Cost of Arbitration - Unless otherwise allocated by the panel, each
party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other parties the expense of the umpire and
the arbitration.
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ARTICLE XXII - INSOLVENCY
A. In the event of insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company as respects Policies covered hereunder,
without diminution because of such insolvency, directly to the Company
or its liquidator, receiver, conservator or statutory successor except
as provided in Sections 4118(a)(1)(A) and 1114(c) of the New York
Insurance Law.
B. The Reinsurer shall be given written notice of the pendency of each
claim or loss which may involve the reinsurance provided by this
Agreement within a reasonable time after such claim or loss is filed in
the insolvency proceedings. The Reinsurer shall have the right to
investigate each such claim or loss and interpose, at its own expense,
in the proceedings where the claim or loss is to be adjudicated, any
defense which it may deem available to the Company, its liquidator,
receiver, conservator or statutory successor. The expense thus incurred
by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the
Reinsurer.
C. In addition to the offset provisions set forth in Article XVIII -
Offset, any debts or credits, liquidated or unliquidated, in favor of
or against either party on the date of the receivership or liquidation
order (except where the obligation was purchased by or transferred to
be used as an offset) are deemed mutual debts or credits and shall be
set off with the balance only to be allowed or paid. Although such
claim on the part of either party against the other may be unliquidated
or undetermined in amount on the date of the entry of the receivership
or liquidation order, such claim will be regarded as being in existence
as of such date and any claims then in existence and held by the other
party may be offset against it.
D. Nothing contained in this Article is intended to change the
relationship or status of the parties to this Agreement or to enlarge
upon the rights or obligations of either party hereunder except as
provided herein.
ARTICLE XXIII - SPECIAL TERMINATION
A. Notwithstanding the termination provisions set forth in Article II -
Effective Date and Termination, this Agreement may be:
1. Terminated by either party upon the happening of any of the
following events:
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SWISS RE AMERICA
a. Entry of an order of liquidation, rehabilitation,
receivership or conservatorship with respect to the
Company or the Reinsurer by any court or regulatory
authority;
b. Assignment of this Agreement by either party;
c. Any transfer of control of either party by change in
ownership or otherwise;
d. General reinsurance of any portion of the Company's
business it retains net for its own account, as
determined under the provisions of this Agreement
without prior consent of the Reinsurer.
2. Terminated in accordance with the provisions set forth in this
Paragraph, upon the discovery of the following event:
A reduction of 50% or more of the Company's
policyholders surplus during any calendar year. Such
reduction shall be determined by calculating the
difference between the Company's prior year annual
statement and each subsequent quarterly statutory
statement within such current calendar year.
As respects the event set forth in this Paragraph A.2., the
Company shall be obligated to notify the Reinsurer in writing
within 30 days after the filing of its quarterly statement.
Upon receipt of such notification the Reinsurer shall have the
right to terminate this Agreement, by giving not less than 30
days notice of its intention to do so.
B. Any notice of termination pursuant to provisions set forth in Paragraph
A.2. above shall be sent by certified mail, return receipt requested.
Such notice period shall commence upon the other party's receipt of the
notice of termination.
C. In the event of termination, the Reinsurer shall not be liable for
losses occurring subsequent to the date of termination.
ARTICLE XXIV - AMENDMENTS
This Agreement may be amended by mutual consent of the parties expressed in an
addendum; and such addendum, when executed by both parties, shall be deemed to
be an integral part of this Agreement and binding on the parties hereto.
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SWISS RE AMERICA
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed
in duplicate, by their duly authorized representatives.
In Bala Cynwyd, Pennsylvania, this 25th day of September, 1997.
ATTEST: PHILADELPHIA CONSOLIDATED HOLDING
CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
/s/ James J. Maguire /s/ Christopher J. Maguire
- --------------------------- ---------------------------
And in New York, New York, this 18th day of September, 1997.
ATTEST: SWISS REINSURANCE AMERICA CORPORATION
/s/ Peter Thomson /s/ Gerard M. Hopkins
- --------------------------- ---------------------------
Member of Management Member of Senior Management
MC:sb
MA130897
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<PAGE> 57
SWISS RE AMERICA
SUPPLEMENT TO THE ATTACHMENTS
DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS
A. Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other
term is used to designate the reinsured company or companies within the
various attachments to the reinsurance agreement, the term shall be
understood to mean Company or Reinsured or Reassured or whatever other term
is used in the attached reinsurance agreement to designate the reinsured
company or companies.
B. Wherever the term "Agreement" or "Contract" or "Policy" or whatever other
term is used to designate the attached reinsurance agreement within the
various attachments to the reinsurance agreement, the term shall be
understood to mean Agreement or Contract or Policy or whatever other term is
used to designate the attached reinsurance agreement.
C. Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever
other term is used to designate the reinsurer or reinsurers in the various
attachments to the reinsurance agreement, the term shall be understood to
mean Reinsurer or Reinsurers or Underwriters or whatever other term is used
to designate the reinsuring company or companies.
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE> 58
SWISS RE AMERICA
POOLS, ASSOCIATIONS AND 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 (successor to Factory Insurance Association and Oil
Insurance Association); 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.
(d) To risks as follows: Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than Railroad Schedules) and
Builders Risks on the classes of risks specified in this subsection (d)
only.
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SWISS RE AMERICA
SECTION C
NEVERTHELESS the Reinsurer specifically agrees that Liability accruing to the
Company from its participation in:
(a) The following so-called "Coastal Pools":
ALABAMA INSURANCE UNDERWRITING ASSOCIATION
FLORIDA WINDSTORM UNDERWRITING ASSOCIATION
GEORGIA UNDERWRITING ASSOCIATION
LOUISIANA INSURANCE UNDERWRITING ASSOCIATION
MISSISSIPPI WINDSTORM INSURANCE UNDERWRITING ASSOCIATION
NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION
SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION
TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION
and
(b) All "Fair Plan" and "Rural Risk Plan" Business
for all perils otherwise protected hereunder will not be excluded, except
however, that this reinsurance does not include any increase in such liability
resulting from:
(1) The inability for any other participant in such "Coastal Pool" and/or
"Fair Plan" and/or "Rural Risk Plan" to meet its liability.
(2) Any Claim against such "Coastal Pool" and/or "Fair Plan" and/or "Rural
Risk Plan" 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 Funds Exclusion Clause
incorporated in this agreement).
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SWISS RE AMERICA
TOTAL INSURED VALUE EXCLUSION CLAUSE
It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.
It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.
It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.
Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.
<PAGE> 61
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.
N.M.A. 1119
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 operation of paragraphs 1. and 2. of this
Clause, 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 the Reassured 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. 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.
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SWISS RE AMERICA
4. Without in any way restricting the operation of paragraphs 1., 2. and 3. of
this Clause, 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 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 to it by
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.
N.M.A. 1119
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SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE -
CANADA
N.M.A. 1980
1. This Agreement does not cover any loss or liability accruing to the Company
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 Company,
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 Company, 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 Company 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.
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SWISS RE AMERICA
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 Company, 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 Company 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. 1974 or by any law amendatory thereof.
7. Company 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 Company, directly or indirectly, and whether as Insurer or Reinsurer,
caused by any nuclear incident as defined in The Nuclear Liability Act,
nuclear explosion or 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 apply to all
original contracts of the Company whether new, renewal or replacement
which become effective on or after December 31, 1984.
N.M.A. 1980
- 2 -
<PAGE> 65
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operations of Nuclear Incident Exclusion
Clauses, - Liability, - Physical Damage, - Boiler and Machinery and
paragraph 1. of this Clause, it is understood and agreed that for all
purposes of the reinsurance assumed by the Reinsurer from the Reinsured, all
original insurance policies or contracts of the Reinsured (new, renewal and
replacement) shall be deemed to include the applicable existing Nuclear
Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
subsequent revisions thereto as agreed upon and approved by the Insurance
Industry and/or a qualified Advisory or Rating Bureau.
<PAGE> 66
SWISS RE AMERICA
PROPERTY FACULTATIVE EXCESS OF LOSS
AUTOMATIC REINSURANCE AGREEMENT
NO. PSA-31
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
Both of Bala Cynwyd, Pennsylvania
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
<PAGE> 67
SWISS RE AMERICA
PROPERTY FACULTATIVE EXCESS OF LOSS AUTOMATIC REINSURANCE AGREEMENT
NO. PSA-31
<TABLE>
<CAPTION>
ARTICLE CONTENTS PAGE
- ------- -------- ----
<S> <C> <C>
I PREAMBLE 1
II TERM 2
III TERRITORY 2
IV LIMITS AND RETENTION 2
V ULTIMATE NET LOSS 2
VI SPECIAL ACCEPTANCES 3
VII BINDING METHOD AND DECLINATIONS 3
VIII PREMIUM AND COMMISSIONS 3
IX EXCLUSIONS 4
X REPORTS AND REMITTANCES 6
XI LOSS PROCEDURE 7
XII SALVAGE AND SUBROGATION 7
XIII CANCELLATION 8
XIV LOSS OCCURRENCE 8
XV ACCESS TO RECORDS 9
XVI TAXES 10
XVII INSOLVENCY 10
XVIII ARBITRATION 10
XIX ERRORS AND OMISSIONS 11
XX AMENDMENT PROVISIONS 11
XXI REINSURER CERTIFICATE PROVISION 11
SIGNATURES 11
</TABLE>
ATTACHMENTS: INSOLVENCY FUNDS EXCLUSION CLAUSE
POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
TOTAL INSURED VALUE EXCLUSION CLAUSE
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - U.S.A.
POLLUTION AND SEEPAGE EXCLUSION CLAUSE
COASTAL PROPERTY UNDERWRITING GUIDELINES
GENERAL CONDITIONS
<PAGE> 68
SWISS RE AMERICA
PROPERTY FACULTATIVE EXCESS OF LOSS
AUTOMATIC REINSURANCE AGREEMENT
NO. PSA-31
(hereinafter referred to as the "Agreement")
between
PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
Both of Bala Cynwyd, Pennsylvania
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE AMERICA CORPORATION
New York, New York
(hereinafter referred to as the "Reinsurer")
ARTICLE I - PREAMBLE
A. This is a property facultative reinsurance agreement which provides
reinsurance of policies written or renewed by the Company and ceded in
accordance with the terms and conditions of this Agreement.
B. The Reinsurer shall indemnify the Company on an excess of loss basis in
respect of the Company's Ultimate Net Loss paid or to be paid by the
Company as a result of losses occurring during the term of the
Agreement, for Policies ceded on or after January 1, 1997, subject to
the terms and conditions contained herein.
C. Cessions to this Agreement may be made only on an excess of loss basis.
The Reinsurer's liability shall attach excess of the Company's net
retained liability as outlined in Article IV - Limits and Retention.
D. Under this Agreement, the indemnity for reinsured loss applies to those
Policies issued by the Company with respect to the following Lines of
Business as classified in the Company's Annual Statement, subject to
the exclusions set forth in Article IX - Exclusions.
NAIC
CODE: LINES OF BUSINESS
01 Fire
02 Allied Lines
21 Commercial Auto Physical Damage - Comprehensive (coverage
written on a garage open lot basis)
09 Inland Marine
05 Commercial Multiple Peril (Section I only)
1. No. PSA-31
<PAGE> 69
SWISS RE AMERICA
ARTICLE 11 - TERM
This Agreement applies to policies written, bound or renewed by the Company and
ceded to the Reinsurer on or after 12:01 a.m., January 1, 1997, and shall remain
in force until cancelled or terminated as provided in accordance with Article
XIII - Cancellation.
ARTICLE III - TERRITORY
This Agreement shall follow the territorial limits of the Company's original
policies but is limited to policies issued covering property located in the
United States of America, its territories and possessions.
ARTICLE IV - LIMITS AND RETENTION
A. The Company shall retain the first $2,000,000 of Ultimate Net Loss as
respects any one risk, any one loss occurrence. The Reinsurer shall
then be liable for the amount by which the Company's Ultimate Net Loss
exceeds the Company's retention of $2,000,000, but the liability of the
Reinsurer shall never exceed $18,000,000 any one: risk, any one loss
occurrence.
B. The Company shall be the sole judge of what constitutes one risk.
C. Reinsurance of the Company's retention, set forth above, shall not be
deducted in arriving at the Company's Ultimate Net Loss herein.
ARTICLE V - ULTIMATE NET LOSS
A. The term "Ultimate Net Loss" shall mean the actual sum paid or to be
paid by the Company in settlement of losses or liability after making
deductions for all recoveries, including subrogation, salvages and
claims upon other reinsurances, whether collectible or not, which inure
to the benefit of the Reinsurer under this Agreement, and shall include
Allocated Loss Adjustment Expenses incurred by the Company.
B. The term "Ultimate Net Loss" shall include 90% of Extra Contractual
Obligations, as defined herein, but only as respects business covered
under this Agreement.
C. The term "Allocated Loss Adjustment Expenses" shall mean all allocated
expenses incurred by the Company in connection with the investigation,
settlement, defense or litigation of any claim or loss covered by the
Policies reinsured under this Agreement, and shall exclude the salaries
of Company employees, office expenses or any other unallocated
expenses.
2. No. PSA-31
<PAGE> 70
SWISS RE AMERICA
D. All recoveries, salvages or payments recovered or received subsequent
to a loss settlement under this Agreement shall be applied as if
recovered or received prior to the aforesaid settlement and all
necessary adjustments to the loss settlement shall be made by the
parties hereto.
E. Nothing in this Article shall be construed to mean that losses are not
recoverable hereunder until the Ultimate Net Loss of the Company has
been ascertained.
ARTICLE VI - SPECIAL ACCEPTANCES
Risks which are beyond the terms, conditions or limitations of this Agreement
may be submitted to the Reinsurer as Special Acceptances. Reporting of such
risks and premium, therefore, shall be subject to the terms, conditions or
limitations of this Agreement.
ARTICLE VII - BINDING METHOD AND DECLINATIONS
A. The liability of the Reinsurer shall attach at the time the Company
marks the reinsurance in its records. Each cession, after being bound,
is to be reported to the Reinsurer on a monthly bordereau. If the
reinsurance inception is prior to the date on which the cession is made
(or revised), the cession must be made on the basis "Warranted No Known
or Reported Losses" as of the date on which the cession was made. No
cession shall be made when the inception of the "Reinsurance Term" is
more than forty-five (45) days prior to the date on which the
reinsurance is bound.
B. If the reinsurance is unacceptable to the Reinsurer for any reason, the
Reinsurer shall so notify the Company in writing of its declination
within fifteen (15) days of the Reinsurer's receipt of the bordereau.
The Company shall replace the reinsurance promptly, but within a period
not to exceed thirty (30) days after receipt by the Company of the
notice of declination from the Reinsurer, or as soon as practicable
under applicable state regulation, but in no event to exceed sixty (60)
days.
ARTICLE VIII - PREMIUM AND COMMISSIONS
The Company shall rate each submission to this Agreement in accordance with
either the Swiss Reinsurance America Corporation Electronic Rating software,
where applicable, or the hard copy Swiss Reinsurance America Corporation Rating
Scales, but in all cases in accordance with instructions provided by Swiss
Reinsurance America Corporation concerning the applicability of "Sprinklered" or
"Non-Sprinklered" scales. The Company shall deduct 30% commission allowance from
the calculated gross reinsurance premium to determine the excess premium for
each risk. However, in no case will the final rate for calculation of excess
premium be less than .04 gross of commission per $100 of exposure.
3. No. PSA-31
<PAGE> 71
SWISS RE AMERICA
Excess of Loss policies shall be ceded on a net premium basis with no ceding
commission allowed to the Company.
ARTICLE IX - EXCLUSIONS
THIS AGREEMENT DOES NOT COVER:
A. THE FOLLOWING GENERAL CATEGORIES
1. All Lines of Business not specifically listed in Article I -
Business Covered.
2. Policies issued with a deductible of $100,000 or more;
provided this exclusion shall not apply to Policies which
customarily provide a percentage deductible on the perils of
earthquake or windstorm.
3. Reinsurance assumed, except pro rata local agency reinsurance
on specific risks and except reinsurance assumed from an
affiliated company.
4. Ex-gratia Payments greater than $500,000, except with
Reinsurer's prior consent.
5. The Company's liability for all damages, including but not
limited to punitive, exemplary, compensatory or consequential
damages, to an insured or any other party resulting from any
legal proceeding by an insured or any other party against the
Company.
6. Loss or damage occasioned by war, invasion, revolution,
bombardment, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, martial
law, or confiscation by order of any government or public
authority, but not excluding loss or damage which would be
covered under a standard form of policy containing a standard
war exclusion clause.
7. Insolvency Funds as per the attached Insolvency Funds
Exclusion Clause, which is made part of this Agreement.
8. Pool, Association and Syndicate business as per the attached
Pools, Associations and Syndicates Exclusion Clause, which is
made part of this Agreement.
9. Risks where the Total Insured Value, per risk, exceeds the
figure specified as per the attached Total Insured Value
Exclusion Clause, which is made part of this Agreement.
B. THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS
1. Mortgage Impairment.
4. No. PSA-31
<PAGE> 72
SWISS RE AMERICA
2. Growing and/or standing crops.
3. Mortality and Health covering birds, animals or fish.
4. Contingent Business Interruption.
5. All onshore and offshore gas and oil drilling rigs.
6. Petrochemical operations engaged in the production, refining
or upgrading of petroleum or petroleum derivatives or natural
gas.
7. Satellites.
8. All railroad business.
9. As respects Inland Marine business:
a. Registered Mail and Armored Car Policies.
b. Jeweler's Block Policies.
c. Furrier's Customers Policies.
d. Rolling Stock.
e. Parcel Post when written to cover banks and financial
institutions.
f. Commercial Negative Film Insurance.
g. Garment Contractors Policies.
h. Mining Equipment while underground.
i. Radio and Television Broadcasting Towers.
j. Motor Truck Cargo Insurance written for common
carriers operating beyond a radius of 200 miles.
10. Overhead transmission and distribution lines and their
supporting structures other than those on or within 1,000 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.
C. THE FOLLOWING PERILS
1. Flood and/or Earthquake when written as such.
2. Difference in Conditions, however styled.
3. Pollution to the extent excluded in the Company's original
Policies. It is warranted that the Reinsurer's prior approval
is required for all changes to the Company's Policy pollution
wording.
4. Nuclear Incident Exclusion Clauses which are attached and made
part of this Agreement:
5. No. PSA-31
<PAGE> 73
SWISS RE AMERICA
a. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - U.S.A.
b. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - Canada
c. Nuclear Incident Exclusion Clause - Reinsurance - No.
4.
5. Risks in wind exposed areas as per the attached Coastal
Property Underwriting Guidelines.
D. In the event the Company is inadvertently bound on any risk which is
excluded under this Agreement the reinsurance provided under this
Agreement shall apply to such risk until discovery by the Company
within its Home Office of the existence of such risk and for 60 days
thereafter, and shall then cease unless within the 60 day period, the
Company has received from the Reinsurer written notice of its approval
of such risk.
ARTICLE X - REPORTS AND REMITTANCES
A. The Company shall keep sufficient records for the express purpose of
recording therein the amounts and other particulars of reinsurance
ceded hereunder.
B. Payment by the Reinsurer of its portion of loss and Allocated Loss
Adjustment Expenses paid by the Company shall be made by the Reinsurer
to the Company within 15 days after proof of payment is received by the
Reinsurer.
C. The Company shall furnish the Reinsurer with the following reports:
1. Monthly:
Monthly account current consisting of total written premiums,
less return premiums, on transactions accounted for during the
month in question.
2. Annually:
As soon as practical following the close of each calendar
year, the Company will furnish the Reinsurer with unearned
premiums and losses and allocated loss adjustment expenses
outstanding.
3. Payment of Balances:
Within 30 days after the close of each month, the Company
shall render the monthly account current specified above, for
such month and the balance due thereunder shall be payable by
the debtor within 60 days after the close of the month under
adjustment. It is agreed, however, that the Reinsurer will
immediately pay upon request any loss, their share of which
exceeds $50,000, arising from any one event. Nevertheless, the
Reinsurer shall have the right to reduce any such payment by
the amount, if any, standing in its favor per current account.
6. No. PSA-31
<PAGE> 74
SWISS RE AMERICA
4. Losses:
The Company shall report all losses to the Reinsurer on an
individual case basis.
ARTICLE XI - LOSS PROCEDURE
A. The Company shall promptly notify the Reinsurer of each claim which may
involve the reinsurance provided hereunder and of all subsequent
developments relating thereto, stating the amount claimed and estimate
of the Company's Ultimate Net Loss and Allocated Loss Adjustment
Expenses. Notwithstanding the provisions set forth in any other
Article herein, prompt notification of loss shall be considered a
condition precedent to liability under this Agreement.
B. The Company shall have the responsibility to investigate, defend or
negotiate settlements of all claims and lawsuits related to Policies
written by the Company and reinsured under this Agreement. The
Reinsurer, at its own expense, may associate with the Company in the
defense or control of any claim, suit or other proceeding which
involves or is likely to involve the reinsurance provided under this
Agreement, and the Company shall cooperate in every respect in the
defense of any such claim, suit or proceeding.
C. Payment of Reinsurance Recoveries
Recoveries under this Agreement shall be made on an individual case
basis for all claims settlements and the Reinsurer will remit forthwith
its share of any loss covered hereunder upon receipt of satisfactory
evidence of such loss having been paid by the Company unless otherwise
mutually agreed.
ARTICLE XII - SALVAGE AND SUBROGATION
A. In the event of the payment of any indemnity by the Reinsurer under
this Agreement, the Reinsurer shall be subrogated, to the extent of
such payment, to all of the rights of the Company against any person or
entity legally responsible for damages of the loss. The Company agrees
to enforce such rights; but, in case the Company refuses or neglects to
do so, the Reinsurer is hereby authorized and empowered to bring any
appropriate action in the name of the Company or their policyholders or
otherwise to enforce such rights.
B. From any amount recovered by subrogation, salvage or other means, there
shall first be deducted the expenses incurred in effecting the
recovery. The balance shall then be used to reimburse the excess
carriers in the inverse order to that in which their respective
liabilities attached, before being used to reimburse the Company for
its primary loss.
7. No. PSA-31
<PAGE> 75
SWISS RE AMERICA
ARTICLE XIII - CANCELLATION
A. Cancellation
1. This Agreement may be terminated at the close of any calendar
quarter by either party giving to the other 90 days prior
written notice by certified mail of its intention to do so.
2. Upon termination of this Agreement, the Reinsurer shall be
liable for losses occurring prior to the date of termination;
however, the Reinsurer shall have no liability for losses
occurring subsequent to the termination of this Agreement.
3. If this Agreement shall terminate while a loss covered
hereunder is in progress, it is agreed that, subject to the
other conditions of this Agreement, the Reinsurer shall
indemnify the Company as if the entire loss had occurred
during the time this Agreement is in force provided the loss
covered hereunder started before the date of termination.
B. Termination
Notwithstanding any other provisions of this Agreement to the contrary,
this Agreement shall automatically terminate upon the happening of the
following events:
1. Insolvency of the Company or Reinsurer which results in the
intervention of insurance regulatory authorities; or
2. Entry of an order of liquidation, rehabilitation, receivership
or conservation with respect to the Company or Reinsurer by
any court of regulatory authority.
ARTICLE XIV - LOSS OCCURRENCE
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.
8. No. PSA-31
<PAGE> 76
SWISS RE AMERICA
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
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. For all Loss Occurrences 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 except for
those Loss Occurrences referred to in 1. and 2. above, where only one
such period of 72 consecutive hours shall apply with respect to one
event, regardless of the duration of the event.
C. 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 XV - ACCESS TO RECORDS
The Reinsurer shall have the right to examine, at any reasonable time, all
papers, books, accounts, documents and other records in the possession of the
Company related to the business effected hereunder. Upon request, the Company
shall supply the Reinsurer with copies of such records. The Reinsurer's right of
inspection shall continue to exist after termination of this Agreement as long
as one of the parties hereto has a claim against the other.
9. No. PSA-31
<PAGE> 77
SWISS RE AMERICA
ARTICLE XVI - TAXES
A. The Company shall be responsible for paying all taxes (other than
income or profit taxes levied on the Reinsurer) on reinsurance effected
under this Agreement.
B. If the Reinsurer is obligated to pay taxes (other than income or profit
taxes) on reinsurance effected hereunder, the Company shall reimburse
the Reinsurer. However, the Company shall not be required to pay the
same tax twice.
ARTICLE XVII - INSOLVENCY
In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable by the Reinsurer on the basis of the liability of the Company
without diminution because of such insolvency, directly to the Company or its
liquidator, receiver or statutory successor. Nothing contained herein shall in
any manner create any obligations of the Reinsurer or establish any rights
against the Reinsurer in favor of the Company's policyholder or any other
person not party to the Agreement. The Reinsurer shall be given written notice
of the pendency of each claim which may involve the reinsurance afforded by this
Agreement within a reasonable time after such claim is filed in the insolvency
proceeding. The Reinsurer shall have the right to investigate each such claim
and interpose, at its own expense, in the proceeding where the claim is to be
adjudicated, any defense which it may deem available to the Company or its
liquidator, receiver or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent of a proportionate
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.
ARTICLE XVIII - ARBITRATION
Any dispute between the Company and the Reinsurer arising out of the provisions
of this Agreement or concerning its interpretation or validity shall be
submitted to arbitration. Any party may initiate arbitration by giving written
notice to the other party of its intention to arbitrate together with the name
of its selected arbitrator. Within thirty (30) days of receiving such notice,
the other party shall appoint an arbitrator. In the event that any party fails
to appoint an arbitrator within the time specified, the other party shall have
the right to appoint the said arbitrator forthwith. The two arbitrators named
shall select a third arbitrator. The arbitrators shall be officials or former
officials of insurance or reinsurance companies not under the control or
management of any party to this Agreement. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the
10. No. PSA-31
<PAGE> 78
SWISS RE AMERICA
arbitrators, all costs of the arbitration proceeding, including the fees of the
arbitrators, shall be borne equally by the parties.
ARTICLE XIX - ERRORS AND OMISSIONS
Errors or omissions made in connection with the reporting of any premium, or
with the reporting of any business reinsured hereunder, shall not relieve either
party from any liability which would have attached had such error or omission
not occurred, and provided such error or omission is rectified promptly upon
discovery.
ARTICLE XX - AMENDMENT PROVISIONS
This Agreement may, by mutual consent, be altered in any of its terms and
conditions by a signed addendum thereto.
ARTICLE XXI - REINSURER CERTIFICATE PROVISION
Each cession shall be subject to the General Conditions of the Reinsurer's
certificate of facultative reinsurance which is attached to and made part
hereof, except where in conflict with this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives, as of the following dates:
In Bala Cynwyd, Pennsylvania this 5th day of February, 1998.
ATTEST: PHILADELPHIA CONSOLIDATED HOLDING
CORPORATION'S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
/s/ Florence R. McCallum /s/ Christopher J. Maguire V.P. Underwriting
- -------------------- ---------------------------------------------
And in New York, New York, this 23rd day December, 1997.
ATTEST: SWISS REINSURANCE AMERICA CORPORATION
/s/ Joe Boyer /s/ Maria A. Hilcox
- -------------------- --------------------------------------------
Member of Management Member of Management Committee
MC:sb
PHIL-PSA31-97
11. No. PSA-31
<PAGE> 79
SWISS RE AMERICA
SUPPLEMENT TO THE ATTACHMENTS
DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS
A. Wherever the term "Company" or "Reinsured" or "Reassured" or whatever
other term is used to designate the reinsured company or companies
within the various attachments to the reinsurance agreement, the term
shall be understood to mean Company or Reinsured or Reassured or
whatever other term is used in the attached reinsurance agreement to
designate the reinsured company or companies.
B. Wherever the term "Agreement" or "Contract" or "Policy" or whatever
other term is used to designate the attached reinsurance agreement
within the various attachments to the reinsurance agreement, the term
shall be understood to mean Agreement or Contract or Policy or whatever
other term is used to designate the attached reinsurance agreement.
C. Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or
whatever other term is used to designate the reinsurer or reinsurers in
the various attachments to the reinsurance agreement, the term shall be
understood to mean Reinsurer or Reinsurers or Underwriters or whatever
other term is used to designate the reinsuring company or companies.
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE> 80
SWISS RE AMERICA
POOLS, ASSOCIATIONS AND 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 (successor to Factory Insurance Association
and Oil Insurance Association); 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.
(d) To risks as follows: Offices, Hotels, Apartments, Hospitals,
Educational Establishments, Public Utilities (other than Railroad
Schedules) and Builders Risks on the classes of risks specified in this
subsection (d) only.
<PAGE> 81
SWISS RE AMERICA
TOTAL INSURED VALUE EXCLUSION CLAUSE
It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.
It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.
It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.
Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.
<PAGE> 82
SWISS RE AMERICA
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.
N.M.A. 1119
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 operation of paragraphs 1. and 2. of
this Clause, 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 the Reassured 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. 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.
-1-
<PAGE> 83
SWISS RE AMERICA
4. Without in any way restricting the operation of paragraphs 1., 2. and
3. of this Clause, 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 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 to it
by 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.
N.M.A. 1119
- 2 -
<PAGE> 84
SWISS RE AMERICA
POLLUTION AND SEEPAGE EXCLUSION CLAUSE
This Reinsurance does not apply to:
1. Pollution, seepage, contamination or environmental impairment
insurances (hereinafter collectively referred to as
"pollution"), however styled;
2. Loss or damage caused directly or indirectly by pollution,
unless said loss or damage follows as a result of a loss
caused directly by a peril covered hereunder;
3. Expenses resulting from any governmental direction or request
that material present in or part of or utilized on an
insured's property be removed or modified, except as provided
in 5. below;
4. Expenses incurred in testing for and/or monitoring pollutants;
5. Expenses incurred in removing debris, unless (A) the debris
results from a loss caused directly by a peril covered
hereunder, and (B) the debris to be removed is itself covered
hereunder, and (C) the debris is on the insured's premises,
subject, however, to a limit of $5,000 plus 25% of (i) the
property damage loss, any risk, any one location, any one
original insured, and (ii) any deductible applicable to the
loss;
6. Expenses incurred to extract pollutants from land or water at
the insured's premises unless (A) the release, discharge, or
dispersal of pollutants results from a loss caused directly by
a peril covered hereunder, and (B) such expenses shall not
exceed $10,000;
7. Loss of income due to any increased period of time required to
resume operations resulting from enforcement of any law
regulating the prevention, control, repair, clean-up or
restoration of environmental damage;
8. Claims under 5. and/or 6. above, unless notice thereof is
given to the Company within 180 days after the date of the
loss occurrence to which such claims relate.
"Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or reclaimed.
-3-
<PAGE> 85
SWISS RE AMERICA
Where no pollution exclusion has been accepted or approved by an insurance
regulatory authority for use in a policy that is subject to this Agreement or
where a pollution exclusion that has been used in a policy is overturned, either
in whole or in part, by a court having jurisdiction, there shall be no recovery
for pollution under this Agreement unless said pollution loss or damage follows
as a result of a loss caused directly by a peril covered hereunder.
Nothing herein shall be deemed to extend the coverage afforded by this
reinsurance to property or perils specifically excluded or not covered under the
terms and conditions of the original policy involved.
-2-
<PAGE> 86
SWISS RE AMERICA
COASTAL PROPERTY UNDERWRITING GUIDELINES
<TABLE>
<CAPTION>
Miles Maximum
Construction From Coast Gross Line
------------ ---------- ----------
<S> <C> <C>
1. Frame 10 $ 150,000
2. Joisted Masonry 5 $ 500,000
3. Non-Combustible 5 $1,000,000
4. Masonry Non-Combustible 3 $1,000,000
5. Modified Fire Resistive 2 $2,000,000
6. Fire Resistive 2 $2,000,000
</TABLE>
DEDUCTIBLES
<TABLE>
<CAPTION>
Minimum
Miles Minimum Contents
From Coast Bldg. Ded. (only) Ded.
- ---------- ---------- -----------
<S> <C> <C>
10 or more $1,000 $ 500
5 or more $1,500 $ 500
2 or more $2,500 $1,000
</TABLE>
If a % deductible is available, the maximum % deductible will apply.
- - No windstorm coverage will be written if risk is eligible for a
windstorm pool.
- - No blanket coverage in coastal counties.
- - Risks with multiple locations within a four-mile radius should have
facultative per reinsurance.
MC:sb
PHIL-PSA31-97
<PAGE> 87
SWISS RE AMERICA
This Certificate is an Agreement of Facultative Reinsurance under which the
Reinsurer, in consideration of the payment of the reinsurance premium and
subject to the terms, conditions and limits stated herein, indemnifies the
Company with respect to its insurance liability for payments made by the
Company on the policy reinsured hereunder. In no event shall anyone other than
the Reinsurer, the Company, its or their receiver, liquidator or statutory
successor have any rights under this Certificate.
REINSURER'S OBLIGATION. The Reinsurer's obligation to indemnify the Company
shall follow the terms and conditions of this Certificate and of the Company's
policy furnished to the Reinsurer at the effective date of this Certificate,
unless otherwise specifically provided herein by endorsement made a part of this
Certificate. Any change in the terms and/or conditions of the policy
reinsured hereunder, subsequent to the effective date of the Certificate, shall
not increase or extend the Reinsurer's liability hereunder unless such change
is made a part of this Certificate by endorsement issued by the Reinsurer.
B. RETENTION OF THE COMPANY. This Certificate is issued in reliance of the
Company's not reducing its net interest in the policy reinsured hereunder as
determined by the amount specified in Item 3 (Company Retention). Should the
Company Retention be reduced by reinsurance or otherwise without notice to the
Reinsurer (except as the Company Retention may be covered by nonspecific excess
of loss catastrophe reinsurance applying to more than one of the Company's
policies in a single event) the Reinsurer shall in no event be liable for a
larger proportion of any loss otherwise fully collectible hereunder than the
percentage which the actual amount of the Company Retention at the time of loss
bears to the amount stipulated in Item 3; and there shall be no return premium
to the Company on account of any such reduction in the Reinsurer's liability
for loss.
C. COOPERATION OF THE COMPANY. The Company shall furnish the Reinsurer with a
copy of its policy reinsured hereunder and all endorsements thereto, which in
any manner affect this Certificate, and shall make available for inspection and
place at the disposal of the Reinsurer at reasonable times, at the office of
the Company during business hours, any of its records relating to this
reinsurance or claims in connection therewith.
D. NOTICE OF LOSS OR CLAIM. The Company shall give prompt written notice to the
Reinsurer (1) of any occurrence or claim in which the Company's estimate of the
value of injuries or damages sought, without regard to liability, might result
in a judgement in an amount sufficient to involve this Certificate; (2) if
this reinsurance is on an excess of loss basis, of any occurrence or claim in
which the Company has created a loss reserve equal to or greater than one-half
of the Company Retention stipulated in Item 3; (3) if this reinsurance is on a
pro rata basis, when notice of claim is received by the Company; and (4) all
material developments pertaining to any notice provided hereunder.
E. DEFENSE OF CLAIMS OR SUITS. The Company shall investigate and defend all
claims involving the reinsurance provided by this Certificate. While the
Reinsurer does not undertake to investigate or defend claims or suits, it shall
nevertheless have the right and be given the opportunity to associate with the
Company and its representatives at its own expense in the defense and control
of any claim, suit or proceeding involving this reinsurance with full
cooperation of the Company.
F. LOSS PAYABLE. The Reinsurer shall indemnify the Company for all losses paid
in accordance with the terms, conditions and limits of this Certificate and the
terms, conditions and limits of the policy reinsured hereunder. The Reinsurer
shall pay to the Company its proportion of such losses promptly following
receipt of satisfactory proof of loss in the following manner:
(1) If this reinsurance is on an excess of loss basis, the amount of the
Reinsurer's liability for loss hereunder shall be its indicated proportion of
the excess amount, if any, by which ultimate loss to the policy reinsured
hereunder exceeds the amount or amounts in excess of which this reinsurance
attaches, after first having deducted all recoveries from any source except
those from such portions of other excess of loss reinsurance which do not
overlap or duplicate this coverage.
(2) If this reinsurance is on a pro rata basis, the amount of the Reinsurer's
liability for each loss shall be in the proportion that the sum reinsured
hereunder bears to the total sum insured by the reinsured policy at the time
this Certificate becomes effective or at the time of loss, whichever proportion
is less (unless otherwise endorsed hereto).
In addition, the Reinsurer shall pay its proportion of expenses which are
within the terms of the policy reinsured hereunder (other than Company
salaries, travel and office expenses) and incurred by the Company in the
investigation and settlement of claims or suits as well as its proportion of
court costs and interest on that part of any judgment or settlement award fixing
the amount of the Company's insurance liability under the reinsured policy as
follows: (i) With respect to reinsurance provided on an excess of loss basis,
in the ratio that the Reinsurer's loss payment bears to the Company's gross
loss payment under the policy reinsured. In the event there is no loss payment
by the Reinsurer, there shall be no expense, court cost or interest payment.
(ii) With respect to reinsurance provided on a pro rata basis, in the ratio
that the Reinsurer's limit of liability bears to the Company's gross limit of
liability under the policy reinsured.
G. SALVAGE. The Reinsurer will be paid or credited by the Company with its
proportion of salvage, i.e. reimbursement obtained or recovery made by the
Company. If the reinsurance afforded by the Certificate is on an excess of loss
basis, salvage shall be applied in the inverse order in which liability
attaches. All costs (other than Company salaries, travel and office expenses) of
such salvage or reimbursement shall be borne by the Company and the Reinsurer in
proportion to the ultimate benefits accruing to each.
H. TAXES. The Company will be liable for all taxes (except income taxes) on
business ceded to the Reinsurer under this Certificate.
I. INSOLVENCY. In the event of the insolvency of the Company, reinsurance under
this Certificate shall be payable by the Reinsurer on the basis of the
liability of the Company without diminution because of such insolvency,
directly to the Company or its liquidator, receiver or statutory successor.
Nothing contained herein shall in any manner create any obligations of the
Reinsurer or establish any rights against the Reinsurer in favor of the
Company's policy holder or any other person not parties to the Certificate. The
Reinsurer shall be given written notice of the pendency of each claim which may
invoke the reinsurance afforded by this Certificate within a reasonable time
after such claim is filed in the insolvency proceeding. It shall have the right
to investigate each such claim and interpose, at its own expense, in the
proceedings where the claim is to be adjudicated, any defense which it may deem
available to the Company or its liquidator, receiver, or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to
court approval, against the insolvent Company as part of the expense of
liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
J. ARBITRATION. Any dispute between the Company and the Reinsurer arising out
of the provisions of this Certificate or concerning its interpretation or
validity shall be submitted to arbitration. Any party may initiate arbitration
by giving written notice to the other party of its intention to arbitrate
together with the name of its selected arbitrator. Within 30 days of receiving
such notice the other party shall appoint an arbitrator. In the event that any
party fails to appoint an arbitrator within the time specified, the other party
shall have the right to appoint said arbitrator forthwith. The two arbitrators
named shall select a third arbitrator. The arbitrators shall be officials or
former officials of insurance or reinsurance companies not under the control or
management of any part of this Certificate. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the arbitrators, all costs of the arbitration
proceedings, including the fees of the arbitrators, shall be borne equally by
the parties.
K. CANCELLATION. Cancellation of the policy reinsured hereunder shall
constitute automatic cancellation of this Certificate. This Certificate may be
cancelled by either the Company or the Reinsurer by mailing written notice
stating when, not less than 30 days thereafter, such cancellation shall be
effective. Proof of mailing shall be deemed proof of notice. If the reinsured
policy is cancelled, the return premium hereunder shall be proportional to
the original premium returned by the Company, subject to the stipulated
Certificate minimum premium. If the Reinsurer cancels, the return premium shall
be on a pro rata basis with the Certificate minimum premium waived.
In Witness Whereof, the Reinsurer has caused the Certificate to be signed by
its Chairman at New York, N.Y. and countersigned by a duly authorized
representative of the Reinsurer.
/s/ Leidi E. Lutter
CHAIRMAN & CHIEF EXECUTIVE OFFICER
<PAGE> 88
SWISS RE AMERICA
This Certificate is an Agreement of Facultative Reinsurance under which the
Reinsurer, in consideration of the payment of the reinsurance premium and
subject to the terms, conditions and limits stated herein, indemnifies the
Company with respect to its insurance liability for payments made by the
Company on the policy reinsured hereunder. In no event shall anyone other than
the Reinsurer, the Company, its or their receiver, liquidator or statutory
successor have any rights under this Certificate.
A. REINSURER'S OBLIGATION. The Reinsurer's obligation to indemnify the Company
shall follow the terms and conditions of this Certificate and of the Company's
policy furnished to the Reinsurer at the effective date of this Certificate,
unless otherwise specifically provided herein by endorsement made a part of this
Certificate. Any change in the terms and/or conditions of the policy reinsured
hereunder, subsequent to the effective date of the Certificate, shall not
increase or extend the Reinsurer's liability hereunder unless such change is
made a part of this Certificate by endorsement issued by the Reinsurer.
B. RETENTION OF THE COMPANY. This Certificate is issued in reliance of the
Company's not reducing its net interest in the policy reinsured hereunder as
determined by the amount specified in Item 3 (Company Retention). Should the
Company Retention be reduced by reinsurance or otherwise without notice to the
Reinsurer (except as the Company Retention may be covered by nonspecific excess
of loss catastrophe reinsurance applying to more than one of the Company's
policies in a single event) the Reinsurer shall in no event be liable for a
larger proportion of any loss otherwise fully collectible hereunder than the
percentage which the actual amount of the Company Retention at the time of loss
bears to the amount stipulated in Item 3; and there shall be no return premium
to the Company on account of any such reduction in the Reinsurer's liability
for loss.
C. COOPERATION OF THE COMPANY. The Company shall furnish the Reinsurer with a
copy of its policy reinsured hereunder and all endorsements thereto, which in
any manner affect this Certificate, and shall make available for inspection and
place at the disposal of the Reinsurer at reasonable times, at the office of
the Company during business hours, any of its records relating to this
reinsurance or claims in connection therewith.
D. NOTICE OF LOSS OR CLAIM. The Company shall give prompt written notice to
the Reinsurer (1) of any occurrence or claim in which the Company's estimate of
the value of injuries or damages sought, without regard to liability, might
result in a judgement in an amount sufficient to involve this Certificate; (2)
if this reinsurance is on an excess of loss basis, of any occurrence or claim
in which the Company has created a loss reserve equal to or greater than
one-half of the Company Retention stipulated in Item 3; (3) if this reinsurance
is on a pro rata basis, when notice of claim is received by the Company; and
(4) all material developments pertaining to any notice provided hereunder.
E. DEFENSE OF CLAIMS OR SUITS. The Company shall investigate and defend all
claims involving the reinsurance provided by this Certificate. While the
Reinsurer does not undertake to investigate or defend claims or suits, it shall
nevertheless have the right and be given the opportunity to associate with the
Company and its representatives at its own expense in the defense and control of
any claim, suit or proceeding involving this reinsurance with full cooperation
of the Company.
F. LOSS PAYABLE. The Reinsurer shall indemnify the Company for all losses paid
in accordance with the terms, conditions and limits of this Certificate and the
terms, conditions and limits of the policy reinsured hereunder. The Reinsurer
shall pay to the Company its proportion of such losses promptly following
receipt of satisfactory proof of loss in the following manner:
(1) If this reinsurance is on an excess of loss basis, the amount of the
Reinsurer's liability for loss hereunder shall be its indicated proportion of
the excess amount, if any, by which ultimate loss to the policy reinsured
hereunder exceeds the amount or amounts in excess of which this reinsurance
attaches, after first having deducted all recoveries from any source except
those from such portions of other excess of loss reinsurance which do not
overlap or duplicate this coverage.
(2) If this reinsurance is on a pro rata basis, the amount of the Reinsurer's
liability for each loss shall be in the proportion that the sum reinsured
hereunder bears to the total sum insured by the reinsured policy at the time
this Certificate becomes effective or at the time of loss, whichever proportion
is less (unless otherwise endorsed hereto).
In addition, the Reinsurer shall pay its proportion of expenses which are
within the terms of the policy reinsured hereunder (other than Company
salaries, travel and office expenses) and incurred by the Company in the
investigation and settlement of claims or suits as well as its proportion of
court costs and interest on that part of any judgment or settlement award
fixing the amount of the Company's insurance liability under the reinsured
policy as follows:
(i) With respect to reinsurance provided on an excess of loss basis, in the
ratio that the Reinsurer's loss payment bears to the Company's gross loss
payment under the policy reinsured. In the event there is no loss payment by the
Reinsurer, there shall be no expense, court cost or interest payment.
(ii) With respect to reinsurance provided on a pro rata basis, in the ratio
that the Reinsurer's limit of liability bears to the Company's gross limit of
liability under the policy reinsured.
G. SALVAGE. The Reinsurer will be paid or credited by the Company with its
proportion of salvage, i.e. reimbursement obtained or recovery made by the
Company. If the reinsurance afforded by the Certificate is on an excess of loss
basis, salvage shall be applied in the inverse order in which liability
attaches. All costs (other than Company salaries, travel and office expenses)
of such salvage or reimbursement shall be borne by the Company and the
Reinsurer in proportion to the ultimate benefits accruing to each.
H. TAXES. The Company will be liable for all taxes (except income taxes) on
business ceded to the Reinsurer under this Certificate.
I. INSOLVENCY. In the event of the insolvency of the Company, reinsurance
under this Certificate shall be payable by the Reinsurer on the basis of the
liability of the Company without diminution because of such insolvency,
directly to the Company or its liquidator, receiver or statutory successor.
Nothing contained herein shall in any manner create any obligations of the
Reinsurer or establish any rights against the Reinsurer in favor of the
Company's policy holder or any other person not parties to the Certificate. The
Reinsurer shall be given written notice of the pendency of each claim which may
invoke the reinsurance afforded by this Certificate within a reasonable time
after such claim is filed in the insolvency proceeding. It shall have the right
to investigate each such claim and interpose, at its own expense, in the
proceedings where the claim is to be adjudicated, any defense which it may deem
available to the Company or its liquidator, receiver, or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to
court approval, against the insolvent Company as part of the expense of
liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
J. ARBITRATION. Any dispute between the Company and the Reinsurer arising out
of the provisions of this Certificate or concerning its interpretation or
validity shall be submitted to arbitration. Any party may initiate arbitration
by giving written notice to the other party of its intention to arbitrate
together with the name of its selected arbitrator. Within 30 days of receiving
such notice the other party shall appoint an arbitrator. In the event that any
party fails to appoint an arbitrator within the time specified, the other party
shall have the right to appoint said arbitrator forthwith. The two arbitrators
named shall select a third arbitrator. The arbitrators shall be officials or
former officials of insurance or reinsurance companies not under the control or
management of any part of this Certificate. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the arbitrators, all costs of the arbitration
proceedings, including the fees of the arbitrators, shall be borne equally by
the parties.
K. CANCELLATION. Cancellation of the policy reinsured hereunder shall
constitute automatic cancellation of this Certificate. This Certificate may be
cancelled by either the Company or the Reinsurer by mailing written notice
stating when, not less than 30 days thereafter, such cancellation shall be
effective. Proof of mailing shall be deemed proof of notice. If the reinsured
policy is cancelled, the return premium hereunder shall be proportional to the
original premium returned by the Company, subject to the stipulated Certificate
minimum premium. If the Reinsurer cancels, the return premium shall be on a pro
rata basis with the Certificate minimum premium waived.
In Witness Whereof, the Reinsurer has caused the Certificate to be signed by
its Chairman at New York, N.Y. and countersigned by a duly authorized
representative of the Reinsurer.
/s/ Leidi E. Lutter
--------------------------
CHAIRMAN & CHIEF EXECUTIVE OFFICER
<PAGE> 1
EXHIBIT 10.39
Automobile Leasing Residual Value Excess of Loss Reinsurance Agreement effective
January 1, 1997, together with Second Casualty Excess of Loss Reinsurance
Agreement effective January 1, 1997.
<PAGE> 2
SUMMARY
AND
AGREEMENT WORDING
FOR
PHILADELPHIA INDEMNITY INSURANCE COMPANY
AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1997
<PAGE> 3
SUMMARY OF
AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
REINSURED COMPANY: PHILADELPHIA INSURANCE COMPANY and/or (PREAMBLE)
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
both of Bala Cynwyd, Pennsylvania (hereinafter
together called the "Company").
BUSINESS REINSURED: Policies classified by the Company as Auto- ARTICLE 1
mobile Leasing Residual Value, that insure
leases enrolled prior to 12:01 a.m., Eastern
Standard Time, January 1, 1997.
ACCOUNT BASIS: Losses occurring
COVER: $9,613,818 (being 60% of GNEPI) Ultimate Net ARTICLE 2
Loss in the aggregate in respect of the term
of this Agreement, excess of $16,023,030 (being
100% of GNEPI) Ultimate Net Loss in the
aggregate in respect of the term of this
Agreement.
TERM: This Agreement shall become effective at 12:01 ARTICLE 3
a.m., Eastern Standard Time, January 1, 1997,
and shall remain in full force and effect until
all Policies covered hereunder have expired.
TERRITORY: Per original Policies. ARTICLE 4
EXCLUSIONS: Per Agreement wording. ARTICLE 5
PREMIUM: The Company will pay the Reinsurer a premium of ARTICLE 6
$500,000 for the term of this Agreement, to be
paid in full at inception.
DEFINITIONS: Ultimate Net Loss (Includes allocated loss ARTICLE 7
adjustment expense and 100% of Extra Contractual
Obligations.) For all purposes of this Agreement,
a loss is deemed to occur on the expiration date
of the lease.
Policy (Defined as coverage on an individual lease,
rather than a master policy. Lease extensions
to be part of the original Policy.)
Gross Net Earned Premium Income
CLAUSES: Net Retained Lines ARTICLE 8
Currency - U.S. Dollar ARTICLE 9
Loss Funding ARTICLE 10
Taxes (Reinsurers pay FET as applicable) ARTICLE 11
Notice of Loss and Loss Settlements ARTICLE 12
Extra Contractual Obligations ARTICLE 13
Delay, Omission or Error ARTICLE 14
Inspection ARTICLE 15
</TABLE>
Page A
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Arbitration ARTICLE 16
Service of Suit ARTICLE 17
Insolvency ARTICLE 18
Sedgwick Re Intermediary Clause ARTICLE 19
PARTICIPATION: ARTICLE 20
REGULATION 98: Premium and loss payments made to Sedgwick Re
shall be deposited in a Premium and Loss Account in
accordance with Section 32.3(a)(1) of Regulation 98
of the New York Insurance Department. The parties
hereto consent to withdrawals from said Account in
accordance with Section 32.3(a)(3) of the Regulation,
including interest and Federal Excise Tax.
INFORMATION: Gross Net Earned Premium Income subject to this
Agreement: $16,023,030.
</TABLE>
Page B
<PAGE> 5
AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
This Agreement is made and entered into by and between PHILADELPHIA INSURANCE
COMPANY, and PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd,
Pennsylvania (hereinafter together called the "Company") and the Reinsurer
specifically identified on the signature page of this Agreement (hereinafter
called the "Reinsurer").
ARTICLE 1
BUSINESS REINSURED
This Agreement is to indemnify the Company in respect of the net excess
liability as a result of any loss or losses which may occur during the term of
this Agreement under any Policies that insure leases enrolled prior to 12:01
a.m., Eastern Standard Time, January 1, 1997, and classified by the Company as
Automobile Leasing Residual Value Business, subject to the terms and conditions
herein contained.
ARTICLE 2
COVER
The Reinsurer will be liable in the aggregate in respect of the term of this
Agreement for the Ultimate Net Loss over and above an initial Ultimate Net Loss
of $16,023,030 (being 100% of Gross Net Earned Premium Income), subject to a
limit of liability to the Reinsurer of $9,613,818 (being 60% of Gross Net Earned
Premium Income) in the aggregate in respect of the term of this Agreement.
ARTICLE 3
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard Time,
January 1, 1997, and shall remain in full force and effect until all Policies
covered hereunder have expired.
ARTICLE 4
TERRITORY
This Agreement will cover wherever the Company's original Policies cover.
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ARTICLE 5
EXCLUSIONS
This Agreement does not cover:
A. Policies on leases incepting before 12:01 a.m., Eastern Standard Time,
January 1, 1994.
B. Business excluded by the attached Nuclear Incident Exclusion Clauses:
1. Nuclear Incident Exclusion Clause - Liability - Reinsurance -
U.S.A., No. 08-31.1.
2. Nuclear Incident Exclusion Clause - Liability - Reinsurance -
Canada, No. 08-32.1.
3. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - U.S.A., No. 08-33.
4. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - Canada, No. 08-34.2.
C. Pools, Associations and Syndicates.
D. Liability of the Company arising by contract, operation of law or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee or other obligation of
an insurer or its successors or assigns which has been declared by any
competent authority to be insolvent or which is otherwise deemed unable
to meet any claim, debt, charge, fee or other obligation in whole or in
part.
E. Leases enrolled under Policies PHRV100082-1, PHRV100082-2 and
PHRV100013.
ARTICLE 6
PREMIUM
The Company will pay the Reinsurer a premium of $500,000 for the term of this
Agreement, to be paid in full at inception.
Within 90 days after the end of each calendar year, the Company will furnish the
Reinsurer with any information which the Reinsurer may require to prepare its
Annual Statement which is reasonably available to the Company.
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ARTICLE 7
DEFINITIONS
A. The term "Ultimate Net Loss" as used in this Agreement shall mean the
actual loss paid by the Company or for which the Company becomes liable
to pay, such loss to include 100% of any Extra Contractual Obligation
(and expense) as defined in the EXTRA CONTRACTUAL OBLIGATIONS ARTICLE,
expenses of litigation and interest, and all other loss expense of the
Company including subrogation, salvage, and recovery expenses (office
expenses and salaries of officials and employees not classified as loss
adjusters are not chargeable as expenses for purposes of this
paragraph), but salvages and all recoveries, including recoveries under
all reinsurances which inure to the benefit of this Agreement (whether
recovered or not), shall be first deducted from such loss to arrive at
the amount of liability attaching hereunder.
All salvages, recoveries or payments recovered or received subsequent
to loss settlement hereunder shall be applied as if recovered or
received prior to the aforesaid settlement, and all necessary
adjustments shall be made by the parties hereto.
For purposes of this definition, the phrase "becomes liable to pay"
shall mean the existence of a judgment which the Company does not
intend to appeal, or a release has been obtained by the Company, or the
Company has accepted a proof of loss.
Nothing in this clause shall be construed to mean that losses are not
recoverable hereunder until the Company's Ultimate Net Loss has been
ascertained.
For all purposes of this Agreement, a loss is deemed to occur on the
expiration date of the lease.
B. The term "Policy" as used in this Agreement shall mean any binder,
policy, or contract of insurance or reinsurance issued, accepted or
held covered provisionally or otherwise, by or on behalf of the
Company. For purposes of this Agreement, "Policy" refers to coverage on
an individual lease, rather than a master policy. Lease extensions are
deemed to be part of the original Policy.
C. The term "Gross Net Earned Premium Income" as used in this Agreement
shall mean gross earned premium income on business the subject of this
Agreement less earned premium income paid for reinsurances, recoveries
under which would inure to the benefit of this Agreement.
ARTICLE 8
NET RETAINED LINES
This Agreement applies only to that portion of any insurances or reinsurances
covered by this Agreement which the Company retains net for its own account, and
in calculating the amount of any loss hereunder and also in computing the amount
in excess of which this Agreement attaches, only loss or losses in respect of
that portion of any insurances or reinsurances which the Company retains net for
its own account shall be included, it being understood and agreed that 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 reinsurers, whether specific or general, any amounts
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which may have become due from them whether such inability arises from the
insolvency of such other reinsurers or otherwise.
ARTICLE 9
CURRENCY
The currency to be used for all purposes of this Agreement shall be United
States of America currency.
ARTICLE 10
LOSS FUNDING
With respect to losses, funding will be in accordance with the attached Loss
Funding Clause No. 1301.2.
ARTICLE 11
TAXES
The Company will be liable for taxes (except Federal Excise Tax) on premiums
reported to the Reinsurer hereunder.
Federal Excise Tax applies only to those Reinsurers, excepting Underwriters at
Lloyd's, London and other Reinsurers exempt from the Federal Excise Tax, who are
domiciled outside the United States of America.
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax 1% of the premium payable hereon to the extent such premium is subject to
Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer will
deduct 1% from the amount of the return, and the Company or its agent should
take steps to recover the Tax from the U.S. Government.
ARTICLE 12
NOTICE OF LOSS AND LOSS SETTLEMENTS
The Company will advise the Reinsurer promptly of all claims which in the
opinion of the Company may involve the Reinsurer and of all subsequent
developments on these claims which may materially affect the position of the
Reinsurer.
The Reinsurer agrees to abide by the loss settlements of the Company, provided
that retroactive extension of Policy terms or coverages made voluntarily by the
Company and not in response to court decisions (whether such court decision is
against the Company or other companies affording the same or similar coverages)
will not be covered under this Agreement.
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When so requested the Company will afford the Reinsurer an opportunity to be
associated with the Company, at the expense of the Reinsurer, in the defense of
any claim or suit or proceeding involving this reinsurance and the Company will
cooperate in every respect in the defense of such claim, suit or proceeding.
The Reinsurer will pay its share of loss settlements immediately upon receipt of
proof of loss from the Company.
ARTICLE 13
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company, subject to the Reinsurer's limit of
liability appearing in the COVER ARTICLE of this Agreement, where the loss
includes any Extra Contractual Obligations as provided for in the definition of
Ultimate Net Loss. "Extra Contractual Obligations" are defined as those
liabilities not covered under any other provision of this Agreement and which
arise from handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the Company to
settle within the Policy limit, or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial of any action against its insured or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss.
However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 14
DELAY, OMISSION OR ERROR
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay, omission or
error is rectified upon discovery.
ARTICLE 15
INSPECTION
The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Company in connection with
any reinsurance hereunder or claims in connection herewith.
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ARTICLE 16
ARBITRATION
Any irreconcilable dispute between the parties to this Agreement will be
arbitrated in Bala Cynwyd, Pennsylvania in accordance with the attached
Arbitration Clause No. 22-01.1.
ARTICLE 17
SERVICE OF SUIT
The attached Service of Suit Clause No. 20-01.5 - U.S.A. will apply to this
Agreement.
ARTICLE 18
INSOLVENCY
In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable by the Reinsurer on the basis of the liability of the Company
under Policy or Policies reinsured without diminution because of the insolvency
of the Company, to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance Law
or except when the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company and when 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.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Company shall give written notice to the Reinsurer of the pendency
of a claim against the insolvent Company on the Policy or Policies reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding when such claim is to
be adjudicated, any defense or defenses which it may deem available to the
Company or its liquidator or receiver or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
When 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 Agreement as though such
expense had been incurred by the insolvent Company.
Should the Company go into liquidation or should a receiver be appointed, the
Reinsurer shall be entitled to deduct from any sums which may be due or may
become due to the Company under this reinsurance Agreement any sums which are
due to the Reinsurer by the Company under this reinsurance Agreement and which
are payable at a fixed or stated date as well as any other sums due the
Reinsurer which are permitted to be offset under applicable law.
In the event of the insolvency of any company or companies included in the
designation of "Company," this clause will apply only to the insolvent company
or companies.
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ARTICLE 19
INTERMEDIARY
Sedgwick Re, Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications, including notices,
premiums, return premiums, commissions, taxes, losses, loss adjustment expenses,
salvages and loss settlements relating thereto shall be transmitted to the
Reinsurer or the Company through Sedgwick Re, Inc., 1501 Fourth Avenue, Suite
1400, Seattle, Washington 98101. 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 only to constitute payment to the
Company to the extent that such payments are actually received by the Company.
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ARTICLE 20
PARTICIPATION: AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for _____________% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
PARTICIPATING REINSURERS
<TABLE>
<CAPTION>
<S> <C>
Constitution Reinsurance Corporation 10.00%
Sedgwick Re Limited
GIO Insurance Ltd., Trading as GIO Reinsurance 20.00%
Everest Reinsurance Company 70,00%
------
TOTAL: 100.00%
</TABLE>
Upon completion of Reinsurers' signing, fully executed signature pages will be
forwarded to you for the completion of your file.
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ARTICLE 20
PARTICIPATION: AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGRE
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 10.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In New York, New York, this 6th day of May, 1997.
CONSTITUTION REINSURANCE CORPORATION
New York, New York
By /s/ Thomas C. Bredahl
----------------------------------
(signature)
Thomas C. Bredahl
----------------------------------
(name)
Vice President
----------------------------------
(title)
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ARTICLE 20
PARTICIPATION: AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGRE
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 20.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In Sydney, Australia, this 10th day of April, 1997.
GIO INSURANCE LTD. ACN 052 179 647
Trading as GIO REINSURANCE
Sydney, Australia
By /s/ Annie Chong Ref PT 314
---------------------------------
(signature)
Annie Chong
-----------------------------------
(name)
Senior Contract Manager
-----------------------------------
(title)
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ARTICLE 20
PARTICIPATION: AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGRE
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 70.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In Newark, New Jersey, this 11th day of April, 1997.
EVEREST REINSURANCE COMPANY
Dover, Delaware
By /s/ MAI Huang
---------------------------------
(signature)
-----------------------------------
(name)
VP
-----------------------------------
(title)
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and in Bala Cynwyd, Pennsylvania, this day of , 1997.
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
By /s/ Christopher J. Maguire
--------------------------------------
(signature)
Christopher J. Maguire
----------------------------------------
(name)
VP Underwriting
----------------------------------------
(title)
AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
issued to
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
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NUCLEAR INCIDENT EXCLUSION CLAUSE -- LIABILITY -- REINSURANCE -- U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage,
injury, sickness, disease, death or destruction
to
bodily injury or property damage
with respect to which an insured under the policy is also an insured
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or would be an
insured under any such policy but for its termination upon exhaustion
of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited Exclusion
Provision set out above; provided this paragraph (2) shall not be
applicable to Family Automobile Policies, Special Automobile
Policies, or policies or combination policies of a similar nature,
issued by the Reassured on New York risks, until 90 days following
approval of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability,
Product Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile Liability
(including Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
injury, sickness, disease, death or destruction
I. Under any Liability
Coverage, to
bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada,
or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the Atomic
Energy Act of 1954, or any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be, entitled
to indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of
America, or any agency thereof; with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
immediate medical or surgical relief
to
first aid,
to expenses incurred with respect
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(- bodily injury, sickness, disease or death
to (
(- bodily injury
resulting from the hazardous properties of nuclear material and
arising out of the operation of a nuclear facility by any person or
organization.
II. Under any Liability Coverage, to (- injury, sickness, disease death or
( destruction
(- bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged or
dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used, processed, stored, transported or disposed of
by or on behalf of an insured; or
(c) the (- injury, sickness, disease, death or destruction
(
(- bodily injury or property damage
arises out of the furnishing by an insured of services,
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility,
but if such facility is located within the United States of America,
its territories or possessions or Canada, this exclusion (c) applies
only
to (- injury to or destruction of property at such nuclear facility.
(- property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or byproduct material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," and "BYPRODUCT MATERIAL" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT FUEL"
means any fuel element or fuel component, solid or liquid, which has been
used or exposed to radiation in a nuclear reactor; "WASTE" means any
waste material (1) containing byproduct material other than tailings or
wastes produced by the extraction or concentration of uranium or thorium
from any ore processed primarily for its source material content, and (2)
resulting from the operation by any person or organization of any nuclear
facility included under the first two paragraphs of the definition of
nuclear facility; "NUCLEAR FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent fuel,
or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total amount of
such material in the custody of the insured at the premises where such
equipment or device is located consists of or contains more than 25 grams
of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or used
for the storage or disposal of waste,
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain
a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury" or
destruction includes all forms of radioactive contamination
of property.
"property damage" includes all forms of radioactive contamination of
property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New York
risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are
not applicable to original liability policies of the Reassured in Canada
and that with respect to such policies this Clause shall be deemed to
include the Nuclear Energy Liability Exclusion Provisions adopted by the
Canadian Underwriters' Association or the Independent Insurance Conference
of Canada.
- --------------------------------------------------------------------------------
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
- -----------------------------------------------------------------------------
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NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA
1. This Agreement does not cover any loss or liability accruing to the
Company as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of the
following classes, namely,
Personal Liability.
Farmers Liability.
Storekeepers Liability.
which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision:
LIMITED EXCLUSION PROVISION.
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of nuclear
energy liability insurance (whether the Insured is unnamed in such contract
and whether or not it is legally enforceable by the Insured) issued by the
Nuclear Insurance Association of Canada or any other group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limits of liability.
With respect to property, loss of use of such property shall be
deemed to be property damage.
3. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of any
class whatsoever (other than Personal Liability, Farmers Liability, Storekeepers
Liability or Automobile Liability contracts), which become effective on or after
31st December 1984, shall be deemed to include, from their inception dates and
thereafter, the following provision of:
BROAD EXCLUSION PROVISION.
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act; nor
(b) to bodily injury or property damage with respect to which an
Insured under this Policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
unnamed in such contract and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly form the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured;
(ii) the furnishing by an Insured of services, materials, parts
or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility; and
(iii) the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other
radioactive material (except radioactive isotopes, away
from a nuclear facility, which have reached the final
stage of fabrication so as to be useable for any
scientific, medical, agricultural, commercial or
industrial purpose) used, distributed, handled or sold by
an Insured.
As used in this Policy:
1. The term "nuclear energy hazard" means the radioactive, toxic,
explosive, or other hazardous properties of radioactive material;
2. The term "radioactive material" means uranium, thorium,
plutonium, neptunium, their respective derivatives and compounds,
radioactive isotopes of other elements and any other substances
that the Atomic Energy Control Board may, by regulation,
designate as being prescribed substances capable of releasing
atomic energy, or as being requisite for the production, use or
application of atomic energy;
3. The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission in
a self-supporting chain reaction or to contain a critical
mass of plutonium, thorium and uranium or any one or more of
them;
(b) any equipment or device designed or used for (i) separating
the isotopes of plutonium, thorium and uranium or any one or
more of them, (ii) processing or utilizing spent fuel, or
(iii) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating
or alloying of plutonium, thorium or uranium enriched in the
isotope uranium 233 or in the isotope uranium 235, or any
one or more of them if at any time the total amount of such
material in the custody of the Insured at the premises where
such equipment or device is located consists of or contains
more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste radioactive
material;
and includes the site on which any of the foregoing is located,
together with all operations conducted thereon and all premises
used for such operations.
4. The term "fissionable substance" means any prescribed substance
that is, or from which can be obtained, a substance capable of
releasing atomic energy by nuclear fission.
5. With respect to property, loss of use of such property shall be
deemed to be property damage.
<PAGE> 20
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.
1. This Contract 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 Contract 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 Contract 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 the 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 Contract 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. The 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.
<PAGE> 21
NUCLEAR INCIDENT EXCLUSION CLAUSE
PHYSICAL DAMAGE - REINSURANCE - CANADA
1. This Agreement does not cover any loss or liability accruing to the
Company 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
Company, 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 Company, 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 Company 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 Company, 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 in not considered by the Company 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. Company 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 Company, directly or indirectly, and whether as Insurer or Reinsurer caused:
(a) 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, lightening or
explosion of natural, coal or manufactured gas;
(b) 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 Company whether new, renewal or replacement
which become effective on or after December 31, 1992.
<PAGE> 22
LOSS FUNDING
This clause is only applicable to those Reinsurers who cannot qualify for credit
by the State having jurisdiction over the Company's loss reserves.
As regards policies or bonds issued by the Company coming within the scope of
this Agreement, the Company agrees that when it shall file with the insurance
department or set up on its books reserves for losses covered hereunder which it
shall be required to set up by law it will forward to the Reinsurer a statement
showing the proportion of such loss reserves which is applicable to them.
The Reinsurer hereby agrees that it will apply for and secure delivery to the
Company a clear irrevocable and unconditional Letter of Credit issued by a bank
chosen by the Reinsurer and acceptable to the appropriate insurance authorities,
in an amount equal to the Reinsurer's proportion of the loss reserves in respect
of known outstanding losses that have been reported to the Reinsurer and
allocated loss expenses relating thereto as shown in the statement prepared by
the Company. Under no circumstances shall any amount relating to reserves in
respect of losses or loss expenses Incurred But Not Reported be included in the
amount of the Letter of Credit.
The Letter of Credit shall be "Evergreen" and shall be issued for a period of
not less than one year, and shall be automatically extended for one year from
its date of expiration or any future expiration date unless thirty (30) days
prior to any expiration date, the bank shall notify the Company by certified or
registered mail that it elects not to consider the Letter of Credit extended for
any additional period.
The Company, or its successors in interest, undertakes to use and apply any
amounts which it may draw upon such Credit pursuant to the terms of the
Agreement under which the Letter of Credit is held, and for the following
purposes only:
(a) To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any liability for loss reinsured by this
Agreement, the payment of which has been agreed by the Reinsurer and
which has not otherwise been paid.
(b) To make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's share of any liability reinsured by
this Agreement.
(c) In the event of expiration of the Letter of Credit as provided for
above, to establish deposit of the Reinsurer's share of known and
reported outstanding losses and allocated expenses relating thereto
under this Agreement. Such cash deposit shall be held in an interest
bearing account separate from the Company's other assets, and interest
thereon shall accrue to the benefit of the Reinsurer. It is understood
and agreed that this procedure will be implemented only in exceptional
circumstances and that, if it is implemented, the Company will ensure
that a rate of interest is obtained for the Reinsurers on such a
deposit account that is at least equal to the rate which would be paid
by Citibank N.A. in New York, and further that the Company will
account to the Reinsurers on an annual basis for all interest accruing
on the cash deposit account for the benefit of the Reinsurer.
The bank chosen for the issuance of the Letter of Credit shall have no
responsibility whatsoever in connection with the propriety of withdrawals made
by the Company or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized representatives
of the Company.
At annual intervals, or more frequently as agreed but never more frequently than
semiannually, the Company shall prepare a specific statement, for the sole
purpose of amending the Letter of Credit, of the Reinsurer's share of known and
reported outstanding losses and allocated expenses relating thereto. If the
statement shows that the Reinsurer's share of such losses and allocated loss
expenses exceeds the balance of credit as of the statement date, the Reinsurer
shall, within thirty (30) days after receipt of notice of such excess, secure
delivery to the Company of an amendment of the Letter of Credit increasing the
amount of credit by the amount of such difference. If, however, the statement
shows that the Reinsurer's share of known and reported outstanding losses plus
allocated loss expenses relating thereto is less than the balance of credit as
of the statement date, the Company shall, within thirty (30) days after receipt
of written request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of credit
available by the amount of such excess credit.
NOTE: -- Wherever used herein the terms:
"Company" shall be understood to mean "Company," "Reinsured,"
"Reassured" or whatever other term is used in the attached reinsurance
agreement to designate the reinsured company. "Agreement" shall be
understood to mean "Contract," "Agreement," "Policy" or whatever other
term is used to designate the attached reinsurance document. "State"
shall be understood to mean the state, province or Federal authority
having jurisdiction over the Company's loss reserves.
<PAGE> 23
ARBITRATION CLAUSE
As a condition precedent to any right of action hereunder, any irreconcilable
dispute between the parties to this Agreement will be submitted for decision to
a board of arbitration composed of two arbitrators and an umpire.
Arbitration shall be initiated by the delivery of a written notice of demand
for arbitration by one party to the other within a reasonable time after the
dispute has arisen.
The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies, or Underwriters
at Lloyd's, London, not under the control or management of either party to this
Agreement. Each party shall appoint its arbitrator and the two arbitrators
shall choose an umpire before instituting the hearing. If the respondent fails
to appoint its arbitrator within four weeks after being requested to do so by
the claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four weeks
after their nominations, each of them shall name three, of whom the other shall
decline two, and the decision shall be made by drawing lots.
The claimant shall submit its initial brief within 45 days from appointment of
the umpire. The respondent shall submit its brief within 45 days thereafter and
the claimant may submit a reply brief within 30 days after filing of the
respondent's brief.
The board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business. The board shall issue its decision in
writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and rebuttal
shall be allowed. The board shall make its decision within 60 days following
the termination of the hearings unless the parties consent to an extension. The
majority decision of the board shall be final and binding upon all parties to
the proceeding. Judgment may be entered upon the award of the board in any
court having jurisdiction.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire. The remaining
costs of the arbitration proceedings shall be allocated by the board.
Note:- Wherever used herein, the term "Company" shall be understood to mean
"Reinsured," "Reassured" or whatever other term is used in the attached
Agreement to designate the reinsured company. The term "Agreement" shall
be understood to mean "Contract," "Policy" or whatever other term is used
to designate the attached reinsurance document.
<PAGE> 24
SERVICE OF SUIT
This Clause applies only to a reinsurer domiciled outside the United States of
America or should the Company be authorized to do business in the State of New
York, a reinsurer unauthorized in New York as respects suits instituted in New
York.
It is agreed that in the event of the failure of the Reinsurer hereon to pay
any amount claimed to be due hereunder, the Reinsurer hereon, at the request of
the Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's right to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States district court or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
It is further agreed that service of process in such suit may be made upon
Messrs. Mendes & Mount, 750 Seventh Avenue, New York, New York 10019-6829 and
that in any suit instituted against the Reinsurer upon this Agreement, the
Reinsurer will abide by the final decision of such court or of any appellate
court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the superintendent, commissioner or director of insurance or other
officer specified for that purpose in the statute or his successor or
successors in office as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
Note: - Wherever used herein the terms:
"Company" shall be understood to mean "Company," "Reinsured," "Reassured"
or whatever other term is used in the attached reinsurance Agreement to
designate the reinsured company. "Agreement" shall be understood to mean
"Contract," "Agreement," "Policy" or whatever other term is used to
designate the attached reinsurance document.
<PAGE> 25
ENDORSEMENT NO. 1
Attaching to and forming part of the AUTOMOBILE LEASING RESIDUAL VALUE EXCESS OF
LOSS REINSURANCE AGREEMENT between PHILADELPHIA INSURANCE COMPANY, and
PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd, Pennsylvania
(hereinafter together called the "Company") and the Reinsurer specifically
identified below (hereinafter called the "Reinsurer").
IT IS AGREED, effective 12:01 a.m., Eastern Standard Time, January 1, 1997, that
the following changes are made in this Agreement:
1. ARTICLE 3 - TERM, will read as follows and not as heretofore:
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard
Time, January 1, 1997, and shall remain in full force and effect until
all leases under all Policies covered hereunder have expired.
2. ARTICLE 5 - EXCLUSIONS, exclusion A. will read as follows and not as
heretofore:
A. Policies on leases enrolled before 12:01 a.m., Eastern
Standard Time, January 1, 1994.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Endorsement as of the following dates:
PARTICIPATING REINSURERS
Constitution Reinsurance Corporation
Sedgwick Re Limited
GIO Insurance Ltd., Trading as GIO Reinsurance
Everest Reinsurance Company
Upon completion of Reinsurers' signing, fully executed signature pages will be
forwarded to you for the completion of your file.
Page 1
<PAGE> 26
ENDORSEMENT NO. 1
Attaching to and forming part of the AUTOMOBILE LEASING RESIDUAL VALUE EXCESS OF
LOSS REINSURANCE AGREEMENT between PHILADELPHIA INSURANCE COMPANY, and
PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd, Pennsylvania
(hereinafter together called the "Company") and the Reinsurer specifically
identified below (hereinafter called the "Reinsurer").
IT IS AGREED, effective 12:01 a.m., Eastern Standard Time, January 1, 1997, that
the following changes are made in this Agreement:
1. ARTICLE 3 - TERM, will read as follows and not as heretofore:
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard
Time, January 1, 1997, and shall remain in full force and effect until
all leases under all Policies covered hereunder have expired.
2. ARTICLE 5 - EXCLUSIONS, exclusion A. will read as follows and not as
heretofore:
A. Policies on leases enrolled before 12:01 a.m., Eastern
Standard Time, January 1, 1994.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Endorsement as of the following dates:
In New York, New York, this 26th day of September, 1997.
CONSTITUTION REINSURANCE CORPORATION
New York, New York
By /s/ Thomas C. Bredahl
---------------------------------------
(signature)
Thomas C. Bredahl
-----------------------------------------
(name)
Vice President
-----------------------------------------
(title)
Page 1
<PAGE> 27
ENDORSEMENT NO. 1
Attaching to and forming part of the AUTOMOBILE LEASING RESIDUAL VALUE EXCESS OF
LOSS REINSURANCE AGREEMENT between PHILADELPHIA INSURANCE COMPANY, and
PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd, Pennsylvania
(hereinafter together called the "Company") and the Reinsurer specifically
identified below (hereinafter called the "Reinsurer").
IT IS AGREED, effective 12:01 a.m., Eastern Standard Time, January 1, 1997, that
the following changes are made in this Agreement:
1. ARTICLE 3 - TERM, will read as follows and not as heretofore:
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard
Time, January 1, 1997, and shall remain in full force and effect until
all leases under all Policies covered hereunder have expired.
2. ARTICLE 5 - EXCLUSIONS, exclusion A. will read as follows and not as
heretofore:
A. Policies on leases enrolled before 12:01 a.m., Eastern
Standard Time, January 1, 1994.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Endorsement as of the following dates:
In Liberty Corner, New Jersey, this 26th day of September 1997.
EVEREST REINSURANCE COMPANY
A Delaware Corporation
By /s/ Robert Capicchioni
---------------------------------------
(signature)
Robert Capicchioni
-----------------------------------------
(Name)
VP
-----------------------------------------
(title)
Page 1
<PAGE> 28
ENDORSEMENT NO. 1
Attaching to and forming part of the AUTOMOBILE LEASING RESIDUAL VALUE EXCESS OF
LOSS REINSURANCE AGREEMENT between PHILADELPHIA INSURANCE COMPANY, and
PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd, Pennsylvania
(hereinafter together called the "Company") and the Reinsurer specifically
identified below (hereinafter called the "Reinsurer").
IT IS AGREED, effective 12:01 a.m., Eastern Standard Time, January 1, 1997, that
the following changes are made in this Agreement:
1. ARTICLE 3 - TERM, will read as follows and not as heretofore:
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard
Time, January 1, 1997, and shall remain in full force and effect until
all leases under all Policies covered hereunder have expired.
2. ARTICLE 5 - EXCLUSIONS, exclusion A. will read as follows and not as
heretofore:
A. Policies on leases enrolled before 12:01 a.m., Eastern
Standard Time, January 1, 1994.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Endorsement as of the following dates:
In Sydney, Australia, this 29th day of September, 1997.
GIO INSURANCE LTD. ACN 052 179 647
Trading as GIO REINSURANCE
Sydney, Australia
By /s/ C. Maclachlan
---------------------------------------
(signature)
C. Maclachlan
-----------------------------------------
(name)
Underwriting Assistant
-----------------------------------------
(title)
Page 1
<PAGE> 29
and in Bala Cynwyd, Pennsylvania, this day of , 1997.
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
BY /s/ Christopher J. Maguire
--------------------------------------
(signature)
Christopher J. Maguire
----------------------------------------
(name)
VP Underwriting
----------------------------------------
(title)
AUTOMOBILE LEASING RESIDUAL VALUE
EXCESS OF LOSS REINSURANCE AGREEMENT
issued to
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Page 2
<PAGE> 30
[SEDGWICK RE LOGO]
SEDGWICK
Sedgwick Re
Century Square, Suite 1400, 1501 Fourth Avenue, Seattle, Washington 98101-1635
Telephone (206) 223-1200. Facsimile (206) 625-6926
May 13, 1997
Mr. Christopher J. Maguire
Assistant Vice President
Philadelphia Insurance Companies
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
Dear Mr. Maguire:
Auto Leasing Residual Value Excess Of Loss
Reinsurance Agreement
Effective: January 1, 1997
Our Reference: P10500-061
We are happy to enclose for your permanent file a copy of the fully executed
documentation for the captioned Agreement, effective January 1, 1997.
This completes the signing process for these documents. Please discard any
"working Copies" of these documents you may have previously received and retain
this as your permanent record. If you have any questions or we can be of further
assistance please do not hesitate to call.
Very truly yours,
SEDGWICK RE
/s/ Debbie A. Mysliwy
Deborah A. Mysliwy, ARe, FLMI
Senior Treaty Specialist
DAM
97DM153
Enclosure
Special Mail Services
cc: James Overend, Sedgwick Re, Philadelphia
Atlanta - Boston - Chicago - Dallas - Hartford - Los Angeles
Minneapolis - New York - Philadelphia - San Francisco - Seattle - Toronto
<PAGE> 31
SUMMARY
AND
AGREEMENT WORDING
FOR
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1997
<PAGE> 32
SUMMARY OF
SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
<TABLE>
<S> <C> <C>
REINSURED COMPANY: PHILADELPHIA INSURANCE COMPANY, and (PREAMBLE)
PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of
Bala Cynwyd, Pennsylvania (hereinafter together
called the "Company")
BUSINESS REINSURED: In force, new and renewal business classified by the ARTICLE 1
Company as Casualty, Fidelity, and/or Fiduciary
Liability.
ACCOUNT BASIS: Losses occurring.
COVER: $5,000,000 Ultimate Net Loss, each loss, each ARTICLE 2
Insured, excess $1,000,000 Ultimate Net Loss, each
loss, each Insured.
The Company shall be the sole judge of what
constitutes one "Insured".
TERM: Effective 12:01 a.m., EST, January 1, 1997; expires ARTICLE 3
12:01 a.m., EST, January 1, 1998. Upon expiration of
this Agreement, the entire liability of the Reinsurer
for losses occurring subsequent to expiration shall
cease concurrently with the expiration.
TERRITORY: Per original Policies. ARTICLE 4
EXCLUSIONS: Per Agreement wording. ARTICLE 5
PREMIUM: Deposit premium $2,000,000, payable quarterly in ARTICLE 6
arrears. Adjustable within 90 days after expiration,
at 3.5% GNEPI.
REPORTS: Within 90 days after expiration. ARTICLE 7
DEFINITIONS: Ultimate Net Loss (Includes 100% ECO, 100% XPL, ARTICLE 8
allocated loss adjustment expense, including claim-
specific declaratory judgment expense).
Gross Net Earned Premium Income Policy
CLAUSES: Net Retained Lines ARTICLE 9
Currency - U.S. Dollar ARTICLE 10
Loss Funding (including IBNR) ARTICLE 11
Taxes (Reinsurers pay FET as applicable) ARTICLE 12
Notice of Loss and Loss Settlements (Company to ARTICLE 13
report individual claims reserved at 50% or more of
retention.)
Excess of Policy Limits ARTICLE 14
</TABLE>
Page A
<PAGE> 33
<TABLE>
<S> <C> <C>
Extra Contractual Obligations ARTICLE 15
Delay, Omission or Error ARTICLE 16
Inspection ARTICLE 17
Arbitration ARTICLE 18
Service of Suit ARTICLE 19
Insolvency ARTICLE 20
Sedgwick Re Intermediary Clause ARTICLE 21
PARTICIPATION: ARTICLE 22
REGULATION 98: Premium and loss payments made to Sedgwick Re shall
be deposited in a Premium and Loss Account in
accordance with Section 32.3(a)(1) of Regulation 98
of the New York Insurance Department. The parties
hereto consent to withdrawals from said Account in
accordance with Section 32.3(a)(3) of the Regulation,
including interest and Federal Excise Tax.
</TABLE>
Page B
<PAGE> 34
SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
This Agreement is made and entered into by and between PHILADELPHIA INSURANCE
COMPANY, and PHILADELPHIA INDEMNITY INSURANCE COMPANY, both of Bala Cynwyd,
Pennsylvania (hereinafter together called the "Company") and the Reinsurer
specifically identified on the signature page of this Agreement (hereinafter
called the "Reinsurer").
ARTICLE 1
BUSINESS REINSURED
This Agreement is to indemnify the Company in respect of the net excess
liability as a result of any loss or losses which may occur during the term of
this Agreement under any Policies classified by the Company as Casualty,
Fidelity, and/or Fiduciary Liability in force, written or renewed by or on
behalf of the Company, subject to the terms and conditions herein contained.
ARTICLE 2
COVER
The Reinsurer will be liable in respect of each loss, each Insured for the
Ultimate Net Loss over and above an initial Ultimate Net Loss of $1,000,000 each
loss, each Insured, subject to a limit of liability to the Reinsurer of
$5,000,000 each loss, each Insured.
Recoveries from the Company's underlying Per Insured Excess Reinsurance
Agreement(s) will not be deducted when establishing Ultimate Net Loss for
purposes of this Agreement.
The Company shall be the sole judge of what constitutes one "Insured".
ARTICLE 3
TERM
This Agreement shall become effective at 12:01 a.m., Eastern Standard Time,
January 1, 1997, and shall remain in full force and effect for one year,
expiring 12:01 a.m., Eastern Standard Time, January 1, 1998.
Upon expiration of this Agreement, the entire liability of the Reinsurer for
losses occurring subsequent to expiration shall cease concurrently with the
expiration.
ARTICLE 4
TERRITORY
This Agreement will cover wherever the Company's original Policies cover.
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ARTICLE 5
EXCLUSIONS
This Agreement does not cover:
A. Pools, Associations and Syndicates, except losses from Assigned Risk
Plans or similar plans are not excluded.
B. Business excluded by the attached Nuclear Incident Exclusion Clauses:
1. Nuclear Incident Exclusion Clause - Liability - Reinsurance -
U.S.A., No. 08-31.1.
2. Nuclear Incident Exclusion Clause - Liability - Reinsurance -
Canada, No. 08-32.1.
C. Liability of the Company arising by contract, operation of law or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee or other obligation of
an insurer or its successors or assigns which has been declared by any
competent authority to be insolvent or which is otherwise deemed unable
to meet any claim, debt, charge, fee or other obligation in whole or in
part.
D. Financial Guarantee or Insolvency
However, the liability of the Company under any bond covering losses
due to negligence of any person or failure of any person to faithfully
perform his duty or failure to account for and pay over money or other
property in his custody shall not be considered Financial Guarantee or
Insolvency.
Notwithstanding the foregoing, no claim to attach hereto in respect of
any loss or losses arising as a result of:
1. the insolvency of any financial institution at which trust
moneys are deposited or insolvency of any person, firm, or
company, or
2. the fall in the market value of investments,
unless such loss is the direct result of a) a dishonest,
fraudulent, criminal or negligent act on the part of the
bonded person or b) a dishonest, fraudulent or criminal act on
the part of any other person or persons or c) unless such loss
is solely created by a physical damage loss to property other
than where such physical damage loss could have been recovered
from a third party but for the insolvency of such third party.
E. Pollution to the extent excluded in the Company's original Policies.
F. Fidelity business, except when written in conjunction with a Director's
and Officers' Liability Policy.
G. Primary Rental Liability and Supplemental Liability.
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ARTICLE 6
PREMIUM
A. The Company will pay the Reinsurer a deposit premium of $2,000,000 for
the term of this Agreement, to be paid in the amount of $500,000 on
March 31, June 30, September 30, and December 31, 1997.
B. Within 90 days following the expiration of this Agreement, the Company
will calculate a premium at a rate of 3.5% multiplied by the Company's
Gross Net Earned Premium Income. Should the premium so calculated
exceed the deposit premium paid in accordance with Paragraph A. above,
the Company will immediately pay the Reinsurer the difference. Should
the premium so calculated be less than the deposit premium, the
Reinsurer will immediately pay the Company the difference.
ARTICLE 7
REPORTS
Within 90 days following the expiration of this Agreement, the Company will
furnish the Reinsurer with:
A. Gross Net Earned Premium Income of the Company for the term of this
Agreement.
B. Any other information which the Reinsurer may require to prepare its
Annual Statement which is reasonably available to the Company,
ARTICLE 8
DEFINITIONS
A. The term "Ultimate Net Loss" as used in this Agreement shall mean the
actual loss paid by the Company or for which the Company becomes liable
to pay, such loss to include 100% of any Extra Contractual Obligation
(and expense) as defined in the EXTRA CONTRACTUAL OBLIGATIONS ARTICLE,
100% of any Excess of Policy Limit as defined in the EXCESS OF POLICY
LIMITS ARTICLE, expenses of litigation and interest, claim-specific
declaratory judgment expenses, and all other loss expense of the
Company including subrogation, salvage, and recovery expenses (office
expenses and salaries of officials and employees not classified as loss
adjusters are not chargeable as expenses for purposes of this
paragraph), but salvages and all recoveries, including recoveries under
all reinsurances which inure to the benefit of this Agreement (whether
recovered or not), shall be first deducted from such loss to arrive at
the amount of liability attaching hereunder.
The phrase "claim-specific declaratory judgment expenses," as used in
this Agreement will mean all expenses incurred by the Company in
connection with declaratory judgment actions brought to determine the
Company's defense and/or indemnification obligations that are allocable
to specific Policies and claims subject to this Agreement. Declaratory
judgment expenses will be deemed to have been incurred by the Company
on the date of the original loss (if any) giving rise to the
declaratory judgment action.
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All salvages, recoveries or payments recovered or received subsequent
to loss settlements hereunder shall be applied as if recovered or
received prior to the aforesaid settlement, and all necessary
adjustments shall be made by the parties hereto.
For purposes of this definition, the phrase "becomes liable to pay"
shall mean the existence of a judgment which the Company does not
intend to appeal, or a release has been obtained by the Company, or the
Company has accepted a proof of loss.
Nothing in this clause shall be construed to mean that losses are not
recoverable hereunder until the Company's Ultimate Net Loss has been
ascertained.
B. The term "Gross Net Earned Premium Income" as used in this Agreement
shall mean gross earned premium income on business the subject of this
Agreement less earned premium income paid for reinsurances, recoveries
under which would inure to the benefit of this Agreement.
C. The term "Policy" as used in this Agreement shall mean any binder,
policy, or contract of insurance or reinsurance issued, accepted or
held covered provisionally or otherwise, by or on behalf of the
Company.
ARTICLE 9
NET RETAINED LINES
This Agreement applies only to that portion of any insurances or reinsurances
covered by this Agreement which the Company retains net for its own account, and
in calculating the amount of any loss hereunder and also in computing the amount
in excess of which this Agreement attaches, only loss or losses in respect of
that portion of any insurances or reinsurances which the Company retains net for
its own account shall be included, it being understood and agreed that 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 reinsurers, whether specific or general, any amounts which may
have become due from them whether such inability arises from the insolvency of
such other reinsurers or otherwise.
ARTICLE 10
CURRENCY
The currency to be used for all purposes of this Agreement shall be United
States of America currency.
ARTICLE 11
LOSS FUNDING
With respect to losses, funding will be in accordance with the attached Loss
Funding Clause No. 13-03.
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ARTICLE 12
TAXES
The Company will be liable for taxes (except Federal Excise Tax) on premiums
reported to the Reinsurer hereunder.
Federal Excise Tax applies only to those Reinsurers, excepting Underwriters at
Lloyd's, London and other Reinsurers exempt from the Federal Excise Tax, who are
domiciled outside the United States of America.
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax 1% of the premium payable hereon to the extent such premium is subject to
Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer will
deduct 1% from the amount of the return, and the Company or its agent should
take steps to recover the Tax from the U.S. Government.
ARTICLE 13
NOTICE OF LOSS AND LOSS SETTLEMENTS
The Company will advise the Reinsurer promptly of all claims which in the
opinion of the Company may involve the Reinsurer and of all subsequent
developments on these claims which may materially affect the position of the
Reinsurer, such advices to include any claim for which the reserve is 50% or
more of the Company's retention.
The Reinsurer agrees to abide by the loss settlements of the Company, provided
that retroactive extension of Policy terms or coverages made voluntarily by the
Company and not in response to court decisions (whether such court decision is
against the Company or other companies affording the same or similar coverages)
will not be covered under this Agreement.
When so requested the Company will afford the Reinsurer an opportunity to be
associated with the Company, at the expense of the Reinsurer, in the defense of
any claim or suit or proceeding involving this reinsurance and the Company will
cooperate in every respect in the defense of such claim, suit or proceeding.
The Reinsurer will pay its share of loss settlements immediately upon receipt of
proof of loss from the Company.
ARTICLE 14
EXCESS OF POLICY LIMITS
In the event the Ultimate Net Loss includes an amount in excess of the Company's
Policy limit, such amount, as provided for in the definition of Ultimate Net
Loss, in excess of the Company's Policy limit shall be added to the amount of
the Company's Policy limit, and the sum thereof shall be covered hereunder,
subject to the Reinsurer's limit of liability appearing in the COVER ARTICLE of
this Agreement.
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<PAGE> 39
However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original Policy.
ARTICLE 15
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company, subject to the Reinsurer's limit of
liability appearing in the COVER ARTICLE of this Agreement, where the loss
includes any Extra Contractual Obligations as provided for in the definition of
Ultimate Net Loss. "Extra Contractual Obligations" are defined as those
liabilities not covered under any other provision of this Agreement and which
arise from handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the Company to
settle within the Policy limit, or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial of any action against its insured or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss.
However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 16
DELAY, OMISSION OR ERROR
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if
such delay, omission or error had not been made, providing such delay, omission
or error is rectified upon discovery.
ARTICLE 17
INSPECTION
The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Company in connection with
any reinsurance hereunder or claims in connection herewith.
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ARTICLE 18
ARBITRATION
Any irreconcilable dispute between the parties to this Agreement will be
arbitrated in Bala Cynwyd, Pennsylvania in accordance with the attached
Arbitration Clause No. 22-01.1.
ARTICLE 19
SERVICE OF SUIT
The attached Service of Suit Clause No, 20-01.5 - U.S.A. will apply to this
Agreement.
ARTICLE 20
INSOLVENCY
In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable by the Reinsurer on the basis of the liability of the Company
under Policy or Policies reinsured without diminution because of the insolvency
of the Company, to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance Law
or except when the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company and when 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.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Company shall give written notice to the Reinsurer of the pendency
of a claim against the insolvent Company on the Policy or Policies reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding when such claim is to
be adjudicated, any defense or defenses which it may deem available to the
Company or its liquidator or receiver or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
When 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 Agreement as though such
expense had been incurred by the insolvent Company.
Should the Company go into liquidation or should a receiver be appointed, the
Reinsurer shall be entitled to deduct from any sums which may be due or may
become due to the Company under this reinsurance Agreement any sums which are
due to the Reinsurer by the Company under this reinsurance Agreement and which
are payable at a fixed or stated date as well as any other sums due the
Reinsurer which are permitted to be offset under applicable law.
In the event of the insolvency of any company or companies included in the
designation of "Company," this clause will apply only to the insolvent company
or companies.
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ARTICLE 21
INTERMEDIARY
Sedgwick Re, Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications, including notices,
premiums, return premiums, commissions, taxes, losses, loss adjustment expenses,
salvages and loss settlements relating thereto shall be transmitted to the
Reinsurer or the Company through Sedgwick Re, Inc., 1501 Fourth Avenue, Suite
1400, Seattle, Washington 98101. 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 only to constitute payment to the
Company to the extent that such payments are actually received by the Company.
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ARTICLE 22
PARTICIPATION: SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for ________% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
<TABLE>
<CAPTION>
PARTICIPATING REINSURERS
--------------------------------------------
<S> <C>
Kemper Reinsurance Company 50.00%
NAC Reinsurance Corporation 25.00%
SCOR Reinsurance Company 25.00%
-----
TOTAL: 100.00%
</TABLE>
Upon completion of Reinsurers' signing, fully executed signature pages will be
forwarded to you for the completion of your file.
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ARTICLE 22
PARTICIPATION: SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 25.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In New York, New York, this 21st day of May, 1997.
SCOR REINSURANCE COMPANY
New York, New York
By: /s/ Richard D. Eckis
------------------------
(signature)
RICHARD D. ECKIS
------------------------
(name)
V.P.
------------------------
(title)
Page 9
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ARTICLE 22
PARTICIPATION: SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 50.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In Long Grove, Illinois, this 18th day of March, 1997.
KEMPER REINSURANCE COMPANY
Long Grove, Illinois
By /s/ John Jenkins
------------------------------------------
(signature)
John Jenkins, Treaty Officer Ref: 23103-8
------------------------------------------
(name)
------------------------------------------
(title)
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<PAGE> 45
ARTICLE 22
PARTICIPATION: SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: January 1, 1997
This Agreement obligates the Reinsurer for 25.00% of the interests and
liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates:
In Greenwich, Connecticut, this 9th day of April, 1997.
NAC REINSURANCE CORPORATION
(Formerly NORTH AMERICAN COMPANY FOR
PROPERTY AND CASUALTY INSURANCE)
New York, New York
By /s/ Robert H. McFadden
-------------------------------
(signature)
ROBERT H. McFADDEN
-------------------------------
(name)
SECOND VICE PRESIDENT
-------------------------------
(title)
Page 9
<PAGE> 46
and in Bala Cynwyd, Pennsylvania, this day of , 1997.
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
By /s/ Christopher J. Maguire
----------------------------------
(signature)
Christopher J. Maguire
----------------------------------
(name)
V.P. Underwriting
----------------------------------
(title)
SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
issued to
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
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<PAGE> 47
LOSS FUNDING
This clause is only applicable to those Reinsurers who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.
As regards policies or bonds issued by the Company coming within the scope of
this Agreement, the Company agrees that when it shall file with the insurance
department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them.
The Reinsurer hereby agrees that it will apply for and secure delivery to the
Company a clean irrevocable and unconditional Letter of Credit issued by a bank
chosen by the Reinsurer and acceptable to the appropriate insurance
authorities, in an amount equal to the Reinsurer's proportion of the loss
reserves in respect of known outstanding losses that have been reported to the
Reinsurer, allocated loss expenses relating thereto and Incurred But Not
Reported loss and loss expense as shown in the statement prepared by the
Company.
The Letter of Credit shall be "Evergreen" and shall be issued for a period of
not less than one year, and shall be automatically extended for one year
from its date of expiration or any future expiration date unless thirty
(30) days prior to any expiration date, the bank shall notify the Company by
certified or registered mail that it elects not to consider the Letter of
Credit extended for any additional period.
The Company, or its successors in interest, undertakes to use and apply any
amounts which it may draw upon such Credit pursuant to the terms of the
Agreement under which the Letter of Credit is held, and for the following
purposes only:
(a) To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any liability for loss reinsured by this
Agreement, the payment of which has been agreed by the Reinsurer and
which has not otherwise been paid.
(b) To make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's share of any liability reinsured
by this Agreement.
(c) In the event of expiration of the Letter of Credit as provided for
above, to establish deposit of the Reinsurer's share of known and
reported outstanding losses and allocated expenses relating thereto,
and Incurred But Not Reported loss and loss expense, under this
Agreement. Such cash deposit shall be held in an interest bearing
account separate from the Company's other assets, and interest
thereon shall accrue to the benefit of the Reinsurer. It is understood
and agreed that this procedure will be implemented only in exceptional
circumstances and that, if it is implemented, the Company will ensure
that a rate of interest is obtained for the Reinsurers on such a
deposit account that is at least equal to the rate which would be
paid by Citibank N.A. in New York, and further that the Company will
account to the Reinsurers on an annual basis for all interest accruing
on the cash deposit account for the benefit of the Reinsurer.
The bank chosen for the issuance of the Letter of Credit shall have no
responsibility whatsoever in connection with the propriety of withdrawals made
by the Company or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized representatives
of the Company.
At annual intervals, or more frequently as agreed but never more frequently
than semiannually, the Company shall prepare a specific statement, for the sole
purpose of amending the Letter of Credit, of the Reinsurer's share of known and
reported outstanding losses and allocated expenses relating thereto. If the
statement shows that the Reinsurer's share of such losses and allocated loss
expenses, and Incurred But Not Reported loss and loss expense, exceeds the
balance of credit as of the statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurer's share of known and reported outstanding losses plus allocated loss
expenses, and Incurred But Not Reported loss and loss expense, relating thereto
is less than the balance of credit as of the statement date, the Company shall,
within thirty (30) days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letter of
Credit reducing the amount of credit available by the amount of such excess
credit.
NOTE:-- Wherever used herein the terms:
"Company" shall be understood to mean "Company," "Reinsured,"
"Reassured" or whatever other term is used in the attached reinsurance
agreement to designate the reinsured company. "Agreement" shall be
understood to mean "Contract," "Agreement," "Policy" or whatever other
term is used to designate the attached reinsurance document. "State"
shall be understood to mean the state, province or Federal authority
having jurisdiction over the Company's loss reserves.
<PAGE> 48
SERVICE OF SUIT
This Clause applies only to a reinsurer domiciled outside the United States of
America or should the Company be authorized to do business in the State of New
York, a reinsurer unauthorized in New York as respects suits instituted in New
York.
It is agreed that in the event of the failure of the Reinsurer hereon to pay
any amount claimed to be due hereunder, the Reinsurer hereon, at the request of
the Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Clause constitutes or
should be understood to constitute a waiver of the Reinsurer's right to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States district court or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
It is further agreed that service of process in such suit may be made upon
Messrs. Mendes & Mount, 750 Seventh Avenue, New York, New York 10019-6829 and
that in any suit instituted against the Reinsurer upon this Agreement, the
Reinsurer will abide by the final decision of such court or of any appellate
court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the superintendent, commissioner or director of insurance or other
officer specified for that purpose in the statute or his successor or
successors in office as its true and lawful attorney upon whom may be served any
lawful process in any action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
Note: -- Wherever used herein the terms:
"Company" shall be understood to mean "Company," "Reinsured,"
"Reassured" or whatever other term is used in the attached reinsurance
Agreement to designate the reinsured company. "Agreement" shall be
understood to mean "Contract," "Agreement," "Policy" or whatever other
term is used to designate the attached reinsurance document.
<PAGE> 49
ARBITRATION CLAUSE
As a condition precedent to any right of action hereunder, any irreconcilable
dispute between the parties to this Agreement will be submitted for decision to
a board of arbitration composed of two arbitrators and an umpire.
Arbitration shall be initiated by the delivery of a written notice of demand
for arbitration by one party to the other within a reasonable time after the
dispute has arisen.
The members of the board of arbitration shall be active or retired disinterested
officials of insurance or reinsurance companies, or Underwriters at Lloyd's,
London, not under the control or management of either party to this Agreement.
Each party shall appoint its arbitrator and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint its
arbitrator within four weeks after being requested to do so by the claimant, the
latter shall also appoint the second arbitrator. If the two arbitrators fail to
agree upon the appointment of an umpire within four weeks after their
nominations, each of them shall name three, of whom the other shall decline two,
and the decision shall be made by drawing lots.
The claimant shall submit its initial brief within 45 days from appointment of
the umpire. The respondent shall submit its brief within 45 days thereafter and
the claimant may submit a reply brief within 30 days after filing of the
respondent's brief.
The board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business. The board shall issue its decision in
writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and rebuttal
shall be allowed. The board shall make its decision within 60 days following the
termination of the hearing unless the parties consent to an extension. The
majority decision of the board shall be final and binding upon all parties to
the proceeding. Judgment may be entered upon the award of the board in any court
having jurisdiction.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire. The remaining
costs of the arbitration proceedings shall be allocated by the board.
Note:-- Wherever used herein, the term "Company" shall be understood to mean
"Reinsured," "Reassured" or whatever other term is used in the attached
Agreement to designate the reinsured company. The term "Agreement" shall
be understood to mean "Contract," "Policy" or whatever other term is
used to designate the attached reinsurance document.
<PAGE> 50
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.
(Wherever the word "Reassured" appears in this clause, it shall be deemed to
read "Reassured," "Reinsured," "Company," or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage,
( injury, sickness, disease, death or destruction
to (
( bodily injury or property damage
with respect to which an insured under the policy is also an insured
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or would be
an insured under any such policy but for its termination upon
exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the applicable
types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited Exclusion
Provision set out above; provided this paragraph (2) shall not be
applicable to Family Automobile Policies, Special Automobile Policies,
or policies or combination policies of a similar nature, issued by the
Reassured on New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority having
jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
( injury, sickness, disease,
( death or destruction
I. Under any Liability Coverage, to (
( bodily injury or
( property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada,
or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is required
to maintain financial protection pursuant to the Atomic Energy Act
of 1954, or any law amendatory thereof, or (2) the insured is, or
had this policy not been issued would be, entitled to indemnity
from the United States of America, or any agency thereof, under
any agreement entered into by the United States of America, or any
agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
immediate medical or
surgical relief
to [brace] to expenses incurred with respect
first aid,
Page 1
<PAGE> 51
(bodily injury, sickness, disease or death
to ( resulting from the hazardous properties
( of nuclear material and
(bodily injury
arising out of the operation of a nuclear facility by any person or
organization.
III. Under any Liability Coverage, to (injury, sickness, disease, death
(or destruction
(bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has discharged or
dispersed therefrom:
(b) the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used, processed, stored, transported or disposed
of by or on behalf of an insured; or
(c) the (injury, sickness, disease, death or destruction
( arises out of the furnishing by an
( insured of services,
(bodily injury or property damage
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility,
but if such facility is located within the United States of America,
its territories or possessions or Canada, this exclusion (c) applies
only
to (injury to or destruction of property at such nuclear facility.
(property damage to such nuclear facility and any property
(thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive properties;
"NUCLEAR MATERIAL" means source material, special nuclear material or
byproduct material; "SOURCE MATERIAL," "SPECIAL NUCLEAR MATERIAL," and
"BYPRODUCT MATERIAL" have the meanings given them in the Atomic Energy Act
of 1954 or in any law amendatory thereof; "SPENT FUEL" means any fuel
element or fuel component, solid or liquid, which has been used or exposed
to radiation in a nuclear reactor; "WASTE" means any waste material (1)
containing byproduct material other than tailings or wastes produced by
the extraction or concentration of uranium or thorium from any ore
processed primarily for its source material content, and (2) resulting
from the operation by any person or organization of any nuclear facility
included under the first two paragraphs of the definition of nuclear
facility; "NUCLEAR FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent
fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total amount
of such material in the custody of the insured at the premises where
such equipment or device is located consists of or contains more than
25 grams of plutonium or uranium 233 or any combination thereof, or
more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or used
for the storage or disposal of waste,
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain
a critical mass of fissionable material;
With respect to injury to or destruction of property, the word "injury" or
destruction
"property damage" includes all forms of radioactive contamination of
property.
includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New York
risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association or the Independent Insurance Conference of Canada.
________________________________________________________________________________
*NOTE. The words printed in italics in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision containing those words.
________________________________________________________________________________
Page 2
<PAGE> 52
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA
1. This Agreement does not cover any loss or liability accruing to the
Company as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of the
following classes, namely,
Personal Liability.
Farmers Liability.
Storekeepers Liability.
which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision:_
LIMITED EXCLUSION PROVISION.
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of nuclear
energy liability insurance (whether the Insured is unnamed in such contract
and whether or not it is legally enforceable by the Insured) issued by the
Nuclear Insurance Association of Canada or any other group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limits of liability.
With respect to property, loss of use of such property shall be deemed
to be property damage.
3. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Agreement all the original
liability contracts of the Company, whether new, renewal or replacement, of any
class whatsoever (other than Personal Liability, Farmers Liability,
Storekeepers Liability or Automobile Liability contracts), which become
effective on or after 31st December 1984, shall be deemed to include, from
their inception dates and thereafter, the following provision of:_
BROAD EXCLUSION PROVISION.
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act; nor
(b) to bodily injury or property damage with respect to which an
Insured under this Policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
unnamed in such contract and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured;
(ii) the furnishing by an Insured of services, materials, parts
or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility; and
(iii)the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other
radioactive material (except radioactive isotopes, away from
a nuclear facility, which have reached the final stage of
fabrication so as to be useable for any scientific, medical,
agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
As used in this Policy:
1. The term "nuclear energy hazard" means the radioactive, toxic,
explosive, or other hazardous properties of radioactive material;
2. The term "radioactive material" means uranium, thorium,
plutonium, neptunium, their respective derivatives and compounds,
radioactive isotopes of other elements and any other substances
that the Atomic Energy Control Board may, by regulation,
designate as being prescribed substances capable of releasing
atomic energy, or as being requisite for the production, use or
application of atomic energy;
3. The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission in
a self-supporting chain reaction or to contain a critical
mass of plutonium, thorium and uranium or any one or more of
them;
(b) any equipment or device designed or used for (i) separating
the isotopes of plutonium, thorium and uranium or any one
or more of them, (ii) processing or utilizing spent fuel, or
(iii) handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating
or alloying of plutonium, thorium or uranium enriched in the
isotope uranium 233 or in the isotope uranium 235, or any
one or more of them if at any time the total amount of such
material in the custody of the Insured at the premises where
such equipment or device is located consists of or contains
more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste radioactive
material;
and includes the site on which any of the foregoing is located,
together with all operations conducted thereon and all premises
used for such operations.
4. The term "fissionable substance" means any prescribed substance
that is, or from which can be obtained, a substance capable of
releasing atomic energy by nuclear fission.
5. With respect to property, loss of use of such property shall be
deemed to be property damage.
<PAGE> 1
EXHIBIT 11.0
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Computation of Earnings Per Share
(Dollars and Share Data in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
As of and For the Years Ended December 31,
------------------------------------------
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Weighted Average Common Shares Outstanding(1) 12,194 11,880 11,628
Weighted Average Share Equivalents Outstanding(1) 2,736 2,373 2,049
------- ------- -------
Weighted Average Share and Share Equivalents
Outstanding(1) 14,930 14,253 13,677
======= ======= =======
Net Income $16,870 $13,374 $ 9,830
======= ======= =======
Basic Earnings Per Share(1) $ 1.38 $ 1.13 $ 0.85
======= ======= =======
Diluted Earnings Per Share(1) $ 1.13 $ 0.94 $ 0.72
======= ======= =======
</TABLE>
(1) 1996 and 1995 share information restated to reflect a two for one split of
the Company's common stock distributed in November 1997.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Philadelphia Consolidated Holding Corp. on Forms S-8 (File Nos. 33-96604,
333-29643, and 333-29647) of our reports dated February 6, 1998 on our audits of
the consolidated financial statements and financial statement schedules of
Philadelphia Consolidated Holding Corp. and Subsidiaries as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
which report is included in this Annual Report on Form 10-K.
/S/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 10, 1998
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Philadelphia Consolidated
Holding Corp. and Subsidiaries is included on page 24 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index on page 23 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 170,678
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 46,988
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 217,666
<CASH> 11,933
<RECOVER-REINSURE> 1,625
<DEFERRED-ACQUISITION> 10,970
<TOTAL-ASSETS> 288,126
<POLICY-LOSSES> 122,430
<UNEARNED-PREMIUMS> 42,116
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 42,788
<OTHER-SE> 68,496
<TOTAL-LIABILITY-AND-EQUITY> 288,126
100,555
<INVESTMENT-INCOME> 9,703
<INVESTMENT-GAINS> (16)
<OTHER-INCOME> 228
<BENEFITS> 55,009
<UNDERWRITING-AMORTIZATION> 31,344
<UNDERWRITING-OTHER> 1,909
<INCOME-PRETAX> 22,208
<INCOME-TAX> 5,338
<INCOME-CONTINUING> 16,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,870
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.13
<RESERVE-OPEN> 85,723<F1>
<PROVISION-CURRENT> 56,725
<PROVISION-PRIOR> (1,716)
<PAYMENTS-CURRENT> 9,512
<PAYMENTS-PRIOR> 22,292
<RESERVE-CLOSE> 108,928<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Unpaid loss and loss adjustment expenses differ from the amounts reported in
the consolidated financial statements because of the inclusion herein of
reinsurance receivables of $ 13,502 and $ 10,919 at December 31, 1997 and 1996,
respectively.
</FN>
</TABLE>
