-ii-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Gryphon Holdings Inc.
30 Wall Street
New York, New York 10005-2201
(212) 825-1200
Commission file number 0-5537
State of Incorporation: Delaware
I.R.S. Employer Identification No. 13-3287060
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock NASDAQ National Market
(par value $.01 per share)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period than 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 (229.405 of this chapter)
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. [ ]
As of March 3, 1998, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $101,191,379.
As of March 3, 1998, the number of shares outstanding of the
Registrant's Common Stock, par value $.01 per share, was
6,696,381.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement for the Annual Meeting of Shareholders to be
held on May 12, 1998, which is incorporated into Part III of this
Form 10-K.
FORM 10-K
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders
21
Part II
Item 5. Market for Company's Common Equity and
Related Stockholder Matters 22
Item 6. Selected Consolidated Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 30
Part III 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 31
PART I
ITEM 1. BUSINESS.
(a) General Development of Business.
Gryphon Holdings Inc. ("Gryphon" or the "Company") was
incorporated under the laws of the State of Delaware in 1983. The
Company is a holding company that operates through its main subsidiary,
Gryphon Insurance Group ("GIG"), as a specialty property and casualty
underwriting organization. The Company's wholly owned insurance company
subsidiaries are Associated International Insurance Company
("Associated") and Calvert Insurance Company ("Calvert"). Associated, a
California-domiciled insurance corporation, is an admitted carrier in
California and an approved excess and surplus lines insurer in 48 other
states. Calvert, a Pennsylvania-domiciled insurance corporation, is
admitted in all states, the District of Columbia and Canada and all of
its provinces.
The Company has developed expertise in lines of insurance
typically not emphasized by standard lines insurers, including
architects' and engineers' professional liability ("A&E"), difference in
conditions ("DIC") (primarily earthquake coverage), and various other
specialty coverages. The Company focuses on providing coverage for
small to medium-sized insureds.
The Company employs a disciplined approach to underwriting to
achieve an overall underwriting profit, even if it is necessary to limit
premium growth at times. The Company emphasizes quality service in all
areas of its operations and believes that this approach has enabled the
Company to maintain strong relationships with its insurance producers,
which are primarily excess and surplus lines brokers and general agents.
In February 1998, the Company agreed to acquire The First
Reinsurance Company of Hartford ("FRH") and certain affiliated entities
from Dearborn Risk Management, Inc. for a combination of cash and
preferred stock valued at $43.6 million, plus certain other performance-
driven contingent consideration.
The purchase consideration of $43.6 million consists of $31.9
million of cash and $11.7 million fair value of a new issue of Gryphon
perpetual convertible preferred stock. The preferred stock, which will
have a face amount of $14.4 million, will be convertible into 643,672
shares of the Company's common stock, reflecting a conversion price of
$22.44 per share. No cash dividends will be paid or owed during the
first four and one-half years; a cash dividend at the rate of 4.0% of
the face amount will be paid thereafter. The preferred shares, which
are non-callable for three years, have no sinking fund or mandatory
redemption features. In connection with the transaction, Gryphon
intends to enter into a $55 million credit facility with a group of
financial institutions, the proceeds of which will be used to pay the
cash portion of the purchase price and to repay existing bank
borrowings.
The GAAP shareholders' equity of FRH at December 31, 1997 was
approximately $35 million. Its statutory surplus at that date was
approximately $31 million. FRH is currently rated A- (excellent) by
A.M. Best.
The transaction, which is subject only to regulatory approvals
and other customary conditions, is expected to close during the second
quarter of 1998.
Business Plan
Since January 1, 1996, the Company has pursued a business plan
that has emphasized a more coordinated and integrated approach to the
businesses of its two major underwriting subsidiaries. Through this
strategy, the Company has endeavored to better utilize the complementary
state licensing of the subsidiaries by making available to all
underwriting personnel of the Company the policy issuance capability of
either its admitted insurance company subsidiary, Calvert, or its non-
admitted subsidiary, Associated. In addition, the Company has attempted
to enhance the effectiveness of its smaller subsidiary, Calvert, by
making available to it the financial resources of the Company's larger
subsidiary, Associated.
In pursuit of these objectives, the Company implemented two
significant changes, effective January 1, 1996. On that date, all of
the operating-level personnel previously employed by Associated and
Calvert became employees of GIG, a new management and service
subsidiary. The consolidation into a single company has created a more
efficient organization, has facilitated a more uniform approach to
underwriting and related operations, with freer access to either issuing
company, and has encouraged a single-company culture. Secondly, the
Company has put into place a pooling arrangement between Associated and
Calvert through which the financial resources of the two subsidiaries
are, in effect, combined into one larger and stronger entity. This
arrangement has enhanced various operating ratios and facilitated the
use of higher net retentions in most lines of business.
Underwriting Strategy
The Company seeks to optimize underwriting profitability
regardless of market conditions by providing specialty insurance
products to small and medium-sized commercial insureds. Using its
expertise in specialty lines of insurance, the Company endeavors to
maintain adequate pricing by exercising underwriting discipline,
particularly during times of excess underwriting capacity and greater
competition among insurers. The principal elements of this strategy are
set forth below.
Focus on Specialty Lines. The Company focuses on specialty
lines of insurance where the Company expects that its particular
expertise in evaluating and pricing risks will give it a
competitive advantage. By underwriting a variety of specialty
insurance programs, the Company diversifies its risk among lines of
insurance.
Underwriting Discipline. The Company seeks to write
insurance at prices and terms that it believes will generate
overall underwriting profits. In underwriting, the Company
typically reviews the type of risk, the attractiveness of the
pricing and terms relative to the risk and the Company's aggregate
exposure to similar risks.
Opportunistic Approach. The Company changes its mix of
business as market conditions change and opportunities arise. The
Company generally emphasizes insurance products that have greater
potential for underwriting profitability. The Company avoids
underwriting a line of business if the line cannot be priced
profitably. The Company does not emphasize market share.
Commitment to Service. The Company focuses on providing
consistent, high quality service to its insurance producers and
insureds in both underwriting and claims handling. The Company
believes its producers and insureds benefit from the extensive
experience of its underwriting and claims personnel.
Use of Sophisticated Computer Modeling Techniques. In
addition to employing standard insurance underwriting techniques,
the Company's DIC underwriters utilize the Insurance/Investment
Risk Assessment System ("IRAS"), a sophisticated computer model
which estimates the probable maximum loss ("PML") from earthquakes
of varying frequency and severity, to quantify the risk of and
assist in determining the price and terms of coverage. The Company
also uses IRAS on an ongoing basis to monitor aggregate earthquake
exposure.
Emphasis on Relationships with Producers. The Company
utilizes select wholesale producers, including general agents and
excess and surplus lines brokers, to distribute its insurance
products, expand market reach and provide specialized knowledge of
particular coverages, markets and customers. The Company generally
seeks to be a substantial underwriter for its producers, in order
to enhance the likelihood of receiving the most desirable
underwriting opportunities.
(b) Financial Information about Industry Segments.
The Company operates in only one industry segment, the property
and casualty insurance industry.
(c) Narrative Description of Business.
Principal Business Lines and Products
The following tables set forth the gross and net premiums written
by principal lines of business of the Company for the periods indicated:
<TABLE>
Gross Premiums Written by Principal
Lines of Business
(Dollars in thousands)
Year Ended December 31,
<CAPTION>
1997 1996 1995 1994 1993
Premiums Percent Premiums Percent Premiums Percent Premiums Percent Premiums Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lines of Business
Architects' & Engineers'
Liability $17,704 12.1% $17,843 11.4% $14,452 9.2% $15,910 11.4% $16,677 14.9%
Casualty 28,549 19.6 29,234 18.6 26,902 17.2 21,286 15.3 20,003 17.9
Commercial
Automobile 18,727 12.8 18,337 11.7 18,580 11.8 14,258 10.3 3,201 2.9
Difference in
Conditions 36,572 25.0 38,500 24.5 45,213 28.8 43,259 31.1 34,035 30.5
Other Property 15,962 10.9 24,192 15.4 27,601 17.6 18,424 13.2 13,159 11.8
Specialty Lines28,612 19.6 28,831 18.4 24,232 15.4 26,014 18.7 24,588 22.0
Total $146,126 100.0% $156,937 100.0% $156,980 100.0 $139,151 100.0% $111,663 100.0%
</TABLE>
<TABLE>
Net Premiums Written by Principal
Lines of Business
(Dollars in thousands)
Year Ended December 31,
<CAPTION>
1997 1996 1995 1994 1993
Premiums Percent Premiums Percent Premiums Percent Premiums Percent Premiums Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lines of Business
Architects' & Engineers'
Liability $13,096 13.1% $12,884 13.6% $10,576 11.7% $11,381 16.5% $12,302 19.8%
Casualty 21,005 20.9 20,775 22.0 17,266 19.2 14,613 21.1 12,861 20.7
Commercial
Automobile 14,904 14.9 13,947 14.7 13,111 14.5 6,022 8.7 2,341 3.7
Difference in
Conditions 17,639 17.6 20,238 21.4 22,497 25.0 17,247 24.9 18,008 29.0
Other Property 15,102 15.0 9,843 10.4 10,454 11.6 4,916 7.1 3,724 6.0
Specialty Lines18,588 18.5 16,920 17.9 16,271 18.0 15,008 21.7 12,931 20.8
Total $100,334 100.0% $94,607 100.0% $90,175 100.0% $69,187 100.0% $62,167 100.0%
</TABLE>
Architects' and Engineers' Liability. A&E insurance
protects architects, engineers and other design professionals
against liability to third parties due to the insured's
negligence. A&E policies are written by the Company exclusively
as claims-made coverage. A&E policies written by the Company
protect insureds for up to $5 million.
The Company generally concentrates on smaller
architectural and engineering firms (i.e., those with $10 million
or less in annual billings) where the principals actively
participate in the operations of the business. Based upon gross
premiums written, approximately 50.5% and 49.0% of the A&E
insurance was written for firms located in California for the
years ended December 31, 1997 and 1996, respectively.
The Company has generated its A&E business exclusively
through Risk Administration & Management Company ("RAMCO") for
over 10 years. RAMCO has been granted binding authority, subject
to A&E underwriting guidelines specified by the Company. The
Company may cancel any policy, subject to applicable insurance
regulations, if it is inconsistent with such guidelines. All A&E
claims are handled by RAMCO with oversight by the Company. The
Company conducts semi-annual audits of RAMCO's underwriting files
and reviews claims with RAMCO on a quarterly basis.
As compensation for A&E insurance produced by RAMCO, the
Company pays RAMCO commissions based upon a percentage of gross
A&E premiums written. RAMCO also receives a contingent
commission based upon the profitability of A&E insurance policies
it produces.
Casualty. The Company specializes in casualty policies
which provide coverage above an insured's self-insured retention
("SIR policies"), umbrella and buffer or excess layer casualty
coverage, including general liability and products liability
coverage. SIR policies have minimum attachment points of
$100,000 on automobile liability and $50,000 on general
liability. The Company's commercial umbrella coverage is
generally written in excess of primary liability insurance
coverage provided by other insurance carriers. The Company also
writes primary general liability and commercial multi-peril
package policies.
Commercial Automobile. The Company underwrites commercial
automobile policies for owner-operators and small commercial
fleets for local, intermediate and long-haul trucking risks
produced through selected general agents. The policies provide
liability, physical damage and cargo insurance with liability
protection up to $1 million.
Difference in Conditions. Substantially all of the DIC
policies written by the Company are for California earthquake
coverage. The Company uses IRAS, a computer modeling program, in
connection with underwriting DIC coverage to estimate PML from
earthquakes of varying severity. IRAS evaluates seismic hazard
by matching structural information provided by the Company
regarding a particular building, group of exposures or portfolio
with the IRAS database, which includes information concerning
earthquake severity and frequency, soil composition, and
proximity to known faults. Although IRAS is available to other
property and casualty insurers, the Company believes that the
amount and quality of information input into IRAS by the Company
results in more effective utilization of IRAS' capabilities. The
Company further believes that its use of IRAS prior to actual
risk selection enables the Company to differentiate its pricing
and terms with respect to particular risks on DIC coverage.
Other Property. The Company's other property coverage
consists primarily of monoline fire and all-risk business
packages, inland marine and plate glass insurance written on
either a primary or an excess and surplus basis. The Company
also writes course-of-construction coverage on engineering
projects, and utilities coverage including transmission lines.
Specialty Lines. Other specialty insurance products
provided by the Company include liquor liability insurance,
animal mortality insurance, special events insurance (for events
such as concerts and contests), directors' and officers'
liability insurance for "not-for-profit" organizations, fiduciary
liability insurance for pension fund trustees, public officials
liability and miscellaneous errors and omissions. The Company has
expanded its specialty lines business to diversify its risk
exposure.
Marketing
The Company writes business through wholesale excess and
surplus lines brokers and general agents. The Company believes
that close working relationships with these insurance producers
are essential to its success. These producers provide
specialized knowledge of particular products, markets and
customers, and enable the Company to capitalize on underwriting
opportunities. The Company seeks to be a substantial underwriter
for its producers in order to enhance the likelihood of receiving
the most desirable underwriting opportunities.
The Company pays brokers and agents commissions based on
the amount of premiums and types of business underwritten. These
payments constitute part of the Company's acquisition costs and
are included in its underwriting expenses. The Company also pays
RAMCO and other general agents contingent commissions based upon
the profitability of the policies they produce for the Company.
Gross premiums written in the State of California amounted
to approximately 40.9% and 43.7% of the aggregate gross premiums
written by the Company for the years ended December 31, 1997 and
1996, respectively. Gross premiums written in any other state
did not exceed 10% of gross premiums written during 1997 or 1996.
Management emphasizes quality service in all phases of its
operations and believes that this approach has enabled the
Company to maintain strong relationships with its producers. To
deliver prompt service while ensuring consistent disciplined
underwriting, the Company has granted selected general agents the
authority to sell and bind insurance coverages in accordance with
detailed procedures and limitations established by the Company.
The Company promptly reviews coverages bound by these agents,
decides whether the insurance is written in accordance with such
procedures and limitations and may cancel policies that are not
in compliance with such procedures and limitations.
Approximately 39.9% and 35.6% of the Company's gross premiums for
the years ended December 31, 1997 and 1996, respectively, were
produced by general agents with binding authority.
Underwriting
The Company employs a disciplined approach to underwriting
to achieve an overall underwriting profit, even if it is
necessary to limit premium growth at times.
At December 31, 1997, the Company's thirty-two
underwriters had an average of 18 years of underwriting
experience. By focusing on specialized classes of insurance, the
Company is able to take advantage of its underwriters' experience
to underwrite complicated insurance risks on a case-by-case
basis. In accepting risks, each underwriter is required to
comply with risk parameters, retention limits and rates
prescribed by the Company. Compensation of senior underwriters
depends in part on the profitability of the lines of business for
which they are responsible.
The Company's computer systems are capable of generating
specific risk reports, which include a variety of historical data
regarding individual risks underwritten by the Company. These
reports inform the underwriters of the historical annual premium
quoted with respect to the risk, the reported losses and loss
adjustment expenses ("LAE") relating to the risk, cumulative
underwriting profitability and other relevant information.
The Company's underwriters generally perform a complete
underwriting evaluation of applicants and determine premiums and
coverage provisions before an insurance quotation is issued.
While the Company's business is primarily underwritten in-house
(except for A&E coverage, which is underwritten exclusively by
RAMCO), the Company has granted selected agents binding authority
to underwrite programs for the Company, subject to specific
guidelines that have been established by the Company. See
"Marketing."
Claims Management and Administration
In accordance with its emphasis on underwriting
profitability, the Company has an active approach to claims
management that is designed to investigate claims as soon as
practicable, manage and anticipate developments and service
producing brokers and insureds throughout the process. The
Company maintains an experienced claims management staff at each
of its major offices, with eleven claims examiners in Woodland
Hills, California and seven claims examiners in Hoboken, New
Jersey.
Claims in respect of A&E insurance written by the Company
are administered by RAMCO under the Company's supervision. Each
of the A&E policies written by the Company is on a claims-made
basis and includes defense costs within the policy limit. Due to
the nature of this line of professional liability coverage, the
Company generally has needed to retain counsel for a majority of
its A&E claims. When the estimated value of a claim exceeds the
Company's attachment level on a particular policy, RAMCO provides
the Company with documentation and a caption report, recommends
appropriate reserve levels and sends requests for claims payments
directly to the Company for processing. The Company reviews each
claim that is submitted and makes the payment it believes is
appropriate.
Reserves
The Company's loss reserves are estimates of amounts that
may be needed in the future to pay losses as well as expenses
related to the final adjustment of those losses. Reserves for
losses and LAE have been estimated by the Company utilizing its
own historical experience as well as that of the industry. These
estimates include two components: case reserves and incurred but
not reported reserves ("IBNR"). Case reserves are estimates of
losses and LAE for reported claims and are established by the
Company's claims departments. IBNR reserves, include a provision
for losses that have occurred but have not been reported to the
Company, are the difference between (i) the sum of case reserves
and paid losses and (ii) estimated ultimate incurred losses.
Ultimate incurred losses are an estimate of total losses and LAE
necessary for the ultimate settlement of all reported claims,
including amounts already paid and IBNR claims. The Company
engages independent actuarial consultants to perform periodic
loss and LAE reserve analyses.
The Company's management believes its loss and LAE
reserves are adequate for the ultimate net cost of all losses
incurred by the Company. The Company does not discount its
reserves. The Company will continue to make additional
adjustments to loss and LAE reserve calculations based on
additional analyses and information as available.
Notwithstanding the foregoing, the Company can give no assurances
as to the ultimate adequacy of current reserves for losses or
LAE, or that additional development will not occur in the future
since the process of establishing and estimating loss and LAE
reserves is, by its nature, imprecise.
The following loss and LAE development table illustrates
the change over time of reserves established for
property-liability losses and LAE at the end of various calendar
years. The amounts shown for each year on the top line of the
table represent the Company's estimate of its gross liability for
future payments of losses and LAE as of the balance sheet date as
originally reported. The next line represents the amount of
ceded reserves recoverable from reinsurers for losses and LAE for
the same period, followed by the net losses and LAE unpaid on the
Company's business. The upper half of the table includes re-
estimates of the original balance sheet net liability for unpaid
losses and LAE at the end of each period following the original
report date. The estimates change as more information is known
about the frequency and severity patterns of claims for each
year. A redundancy (deficiency) exists when the reserve as
originally reported is greater (less) than the amount
re-estimated at each December 31. The cumulative redundancy
(deficiency) depicted in the table for a particular calendar year
shows the aggregate change in estimates over the period of years
subsequent to the original calendar year. As of December 31,
1997, the cumulative deficiency of $6,793,000 results principally
from additional loss and LAE development, related to a pre-1985
book of Casualty business and certain pre-1987 reinsurance-
assumed business, both previously discontinued.
In evaluating the information in the table, it should be
noted that each column includes the effects of all changes in
amounts for prior periods. The table does not present accident
year or policy year development data. Conditions and trends that
have affected the development of liabilities in the past may not
necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies
based on this table.
<TABLE>
Analysis of Loss and Loss Adjustment Expense Development
(Dollars in thousands)
<CAPTION>
December 31,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross liability for
unpaid losses and LAE $109,557 $115,796 $151,952 $163,818 $201,057 $231,415 $275,660 $315,691 $308,886 $309,259 $328,911
Deduct: reinsurance
recoverable on unpaid
losses and LAE 58,396 57,097 83,574 77,334 87,927 104,352 133,783 169,889 152,975 137,952 140,810
Net liability for unpaid
losses and LAE $51,161 $58,699 $68,378 $86,484 $113,130 $127,063 $141,877 $145,802 $155,911 $171,307 $188,101
Liability re-estimated as of:
One year later 49,839 61,040 67,584 83,630 111,197 125,372 133,367 146,194 160,209 178,100
Two years later 52,808 58,037 66,774 82,672 110,056 118,354 128,675 143,131 167,572
Three years later 51,360 57,297 66,244 82,271 102,436 114,577 123,942 151,120
Four years later 51,188 56,583 65,745 76,339 98,812 110,989 131,942
Five years later 52,219 55,042 61,067 72,766 96,907 118,049
Six years later 50,122 51,921 58,220 71,686 103,176
Seven years later 48,719 48,290 58,509 77,009
Eight years later 45,261 50,370 65,004
Nine years later 48,154 57,036
Ten years later 54,879
Cumulative redundancy
(deficiency) $(3,718) $ 1,663 $ 3,374 $ 9,475 $ 9,954 $9,014 $ 9,935 $(5,318) $(11,661)$(6,793) $ 0
Cumulative liability paid as of:
One year later $ 9,321 $ 8,854 $ 8,253 $ 2,692 $16,014 $16,692 $ 24,152 $28,911 $ 30,784 $40,289
Two years later 16,078 13,539 11,135 12,648 27,223 34,302 42,402 47,380 59,628
Three years later 20,020 15,143 17,906 20,788 39,657 45,587 53,752 65,835
Four years later 20,936 18,221 21,485 28,381 46,314 52,959 64,708
Five years later 23,453 19,748 26,127 33,633 51,038 60,471
Six years later 23,847 22,641 29,941 36,714 57,125
Seven years later 25,571 25,814 32,322 42,079
Eight years later 28,348 27,552 37,249
Nine years later 29,682 32,332
Ten years later 34,084
</TABLE>
Prior to 1985, the Company wrote casualty insurance
coverage at high attachment levels on an excess-of-loss basis.
The Company's net retention was generally $50,000 per risk on
such coverage. As was customary for the insurance industry at
that time, such policies sometimes included exposure to sudden
and accidental, as well as cumulative, environmental impairment
and asbestos-related risks that involve significant unresolved
issues regarding liability, policy coverage and other matters.
Given the nature of this business, the pre-1985 casualty book of
business has an extremely long tail, creating uncertainty in the
estimation of ultimate losses to be paid. The Company generally
establishes reserves for such claims if it believes that the
attachment level of such policies is likely to be reached.
The Company's reserves also reflect certain facultative
and treaty casualty and professional liability reinsurance
assumed (written) prior to 1985. The inherent uncertainties in
estimating reserves are greater for reinsurance than for primary
insurance due to the diversity of the development patterns among
different types of reinsurance contracts, the longer period
between the occurrence of a claim and the reporting of such claim
to the reinsurer, the necessary reliance on ceding companies or
reinsurance intermediaries for information regarding reported
claims and different reserving practices among ceding companies.
A reinsurer's internal data is often supplemented by industry
data to provide the basis for reserve analysis. Thus,
management's judgments about the applicability of industry data
to the Company's reinsurance assumed business add an additional
element of uncertainty to the reserving process. The Company no
longer writes this business.
The insurance industry experienced a number of reinsurance
company failures in the 1980's and certain of the Company's treaty
reinsurers relating to the pre-1985 book of casualty business have
become insolvent or are financially impaired. The Company has written
off or reserved for all debts due from insolvent companies and all
receivables for paid losses and LAE and reserves ceded to companies it
believes to be financially impaired. The Company remainsliable to its
policyholders for the portion reinsured to the extent that any reinsurer
does not meet its obligations for reinsurance ceded to it under the
reinsurance agreements. Failure of reinsurers to honor their obligations
could result in losses to the Company. In addition, as is often the case
in the normal course of business, the Company is involved in disputes
with reinsurers regarding certain loss recoverables. Although the
Company believes that such issues will be resolved in the Company's
favor, there can be no assurance that the Company will prevail; an
unfavorable resolution could have a material effect on the Company's
financial statements.
Since 1985, the Company has changed the type of casualty
insurance it writes and the risks it covers and has amended the
policy forms it uses to expressly exclude from the coverage any
risks directly associated with pollution and asbestos.
Associated revised its casualty coverage to meet the
severity of loss requirements of commercial insureds by providing
coverage over an SIR together with first layer umbrella and
buffer/excess layer policies. The policies generally have minimum
SIR's of $50,000 for general liability and $100,000 for commercial
automobile. As a result, coverage now attaches at much lower levels
and the reporting tail for claims is much shorter than for the pre-1986
book of business. The Company has also developed specialty programs
which focus on lower-severity business and, in addition, writes A&E
coverage only on a claims-made basis and includes defense costs within
A&E policy limits.
The following table provides a reconciliation of beginning
and ending loss and LAE reserve balances of the Company for each
of the years in the three-year period ended December 31, 1997, as
computed in accordance with GAAP.
<TABLE>
Reconciliation of Liability for Loss and Loss Adjustment Expenses
(Dollars in thousands)
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Gross reserves for losses
and LAE at the beginning of the year $ 309,259 $ 308,886 $ 315,691
Ceded reserves for losses and LAE at
the beginning of the year 137,952 152,975 169,889
Net reserves for losses and LAE at
the beginning of the year 171,307 155,911 145,802
Add: Provision for losses and LAE
for claims occurring in:
The current year 64,222 53,402 50,424
Prior years 6,793 4,298 392
Total net incurred losses and LAE 71,015 57,700 50,816
Less: Losses and LAE payments for claims occurring in:
The current year 13,932 11,520 11,796
Prior years 40,289 30,784 28,911
Total net paid losses and LAE 54,221 42,304 40,707
Reserves for net losses and LAE at end of year 188,101 171,307 155,911
Reinsurance recoverable on unpaid losses 140,810 137,952 152,975
Reserves for gross losses
and LAE at end of year $ 328,911 $ 309,259 $ 308,886
</TABLE>
The following table provides a reconciliation of beginning
and ending loss and LAE reserve balances of the Company for each
of the years in the three-year period ended December 31, 1997 for
environmental impairment and asbestos-related liabilities.
<TABLE>
Reconciliation of Environmental Impairment and Asbestos-related
Liability for Loss and Loss Adjustment Expenses
(Dollars in thousands)
<CAPTION>
Year ended December 31,
Environmental Impairment Liability 1997 1996 1995
<S> <C> <C> <C>
Gross reserves for losses and LAE
at the beginning of the year $12,981 $ 11,938 $ 14,200
Ceded reserves for losses and LAE
at the beginning of the year 4,177 3,958 5,100
Net reserves for losses and LAE
at the beginning of the year 8,804 7,980 9,100
Add: Provision for losses and LAE
for claims occurring in prior years (845) 1,598 3
Less: Losses and LAE payments
for claims occurring in prior years 1,159 774 1,123
Reserves for net losses and LAE at end of year 6,800 8,804 7,980
Reinsurance recoverable on unpaid losses 5,200 4,177 3,958
Reserves for gross losses and LAE at end of year $12,000 $12,981 $11,938
Year ended December 31,
Asbestos-related Liability 1997 1996 1995
Gross reserves for losses and LAE
at the beginning of the year $4,121 $1,700 $4,050
Ceded reserves for losses and LAE
at the beginning of the year 3,110 1,060 3,350
Net reserves for losses and LAE
at the beginning of the year 1,011 640 700
Add: Provision for losses and LAE
for claims occurring in prior years 847 583 612
Less: Losses and LAE payments for
claims occurring in prior years 143 212 672
Reserves for net losses and LAE at end of year 1,715 1,011 640
Reinsurance recoverable on unpaid losses 2,500 3,110 1,060
Reserves for gross losses and LAE at end of year $4,215 $4,121 $1,700
</TABLE>
At December 31, 1997, the reserve for unpaid environmental
impairment losses and related LAE was approximately $6.8 million,
net of reinsurance recoverables deemed probable of collection by
the Company of approximately $5.2 million. The range of gross
reserves for unpaid environmental impairment losses and LAE is
estimated to be $12.0 million to $20.0 million and the range of
reserves, net of reinsurance recoverable, for unpaid
environmental impairment losses and LAE is estimated to be
approximately $6.8 million to $9.5 million.
At December 31, 1997, the reserve for unpaid asbestos-
related losses and related LAE was $1.7 million, net of
reinsurance recoverables deemed probable of collection by the
Company of approximately $2.5 million. The range of gross
reserves for unpaid asbestos-related losses and LAE is estimated
to be $4.2 million to $9.4 million and the range of reserves, net
of reinsurance recoverable, for unpaid asbestos-related losses
and LAE is estimated to be approximately $1.7 million to $3.3
million.
At December 31, 1997, reserves for IBNR losses and LAE for
environmental impairment and asbestos-related claims, included in
the net reserves above, were $3.5 million and $1.4 million,
respectively.
The range of reserves, net of reinsurance recoverable, for
unpaid environmental impairment and asbestos-related losses and
LAE is estimated to be approximately $8.5 million to $12.8
million.
At December 31, 1997 and 1996, the Company had 218 and 232
environmental impairment liability claims, respectively, covering
146 and 154 policyholders, respectively. At December 31, 1997
and 1996, the Company had 72 and 66 asbestos claims,
respectively, covering 57 and 53 policyholders, respectively.
The Company disputes coverage on substantially all of its
environmental impairment and asbestos-related claims since such
underlying policies were generally written with certain coverage
exclusions. In a majority of cases, coverage is being determined
through judicial interpretation, which can vary from jurisdiction
to jurisdiction.
There are significant uncertainties in estimating the
amount of the Company's environmental impairment and asbestos-
related liabilities resulting from a lack of historical data,
long reporting delays, uncertainty as to the number and identity
of insureds with potential exposure, and complex, unresolved
legal issues regarding policy coverage and the extent and timing
of any such contractual liability. Courts have reached different
and sometimes inconsistent conclusions as to when a loss occurred
and what policies provide coverage, what claims are covered,
whether there is an insured obligation to defend, how policy
limits are determined, how policy exclusions are applied and
interpreted, and whether cleanup costs are includible as insured
property damage. These issues are not likely to be resolved in
the near future. As a result of these issues, the ultimate
number and cost of these claims may generate losses that vary
materially from the amounts currently recorded and could have a
material adverse effect on the Company's results of operations
and financial condition. While management believes the Company's
reserves for these coverages are appropriately established,
because of the uncertainty of circumstances surrounding many
critical factors that affect environmental impairment and
asbestos-related liabilities, there can be no assurance that the
Company's reserves for and losses from these claims will not
increase in the future.
Investments
The Company's investment policy has an overall objective
of enhancing after-tax return, through allocations among a range
of investment-grade securities having varying tax
characteristics, maturities and ratings. The precise allocation
varies depending upon investment opportunities, economic
conditions and tax considerations. The Company's investment
portfolio continues to be professionally managed with emphasis on
municipal bonds, U.S. Treasury securities and corporate bonds.
As of December 31, 1997, the portfolio had an estimated effective
modified duration of approximately 4.8 years.
The Company utilizes outside professional investment
managers who currently invest substantially all of the Company's
invested assets. The outside investment managers consult
frequently with management regarding the Company's tax position
and aggregate portfolio characteristics. The Investment
Committee of the Company's Board of Directors meets quarterly
with management to review and amend investment policy and monitor
the performance of the Company's investment managers.
The Company's investment portfolio is subject to several
risks, including interest rate and reinvestment risk. Fixed
maturity security values generally fluctuate inversely with
movements in interest rates. The Company's corporate and
municipal bond investments may contain call and sinking fund
features which may result in early redemptions and the Company's
mortgage-backed securities are subject to prepayment risk.
Declines in interest rates could cause early redemptions or
prepayments, which would require the Company to reinvest at lower
rates.
The Company's securities are classified as available for
sale and reported at fair value, with unrealized gains and
losses, net of deferred income taxes, included in stockholders'
equity.
The following table summarizes the investment results of
the Company for the periods indicated.
<TABLE>
Investment Results
(Dollars in thousands)
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Average invested assets $302,628 $287,210 $263,674
Net investment income 17,061 16,453 15,839
Realized gains on investments 6,188 1,203 3,647
Pre-tax yield on average assets (excluding
realized gains on investments) 5.6% 5.7% 6.0%
</TABLE>
The following table summarizes the Company's fixed
maturity portfolio, excluding short-term investments, by sector
as of December 31, 1997.
<TABLE>
Fixed Maturity Portfolio by Sector
(Dollars in thousands)
<CAPTION>
December 31, 1997
Amortized Percent of Fair
Cost Total Value
<S> <C> <C> <C>
U.S. Government and government agencies $78,623 28.6% $ 79,268
Debt securities issued by foreign governments 5,857 2.2 5,981
States and political subdivisions 108,194 39.4 112,516
Corporate securities 34,344 12.5 34,846
Mortgage-backed securities 47,488 17.3 47,942
Total $274,506 100.0% $280,553
</TABLE>
The following table summarizes the Company's fixed
maturity portfolio by rating as of December 31, 1997.
<TABLE>
Fixed Maturity Portfolio by Rating (1)
(Dollars in thousands)
<CAPTION>
December 31, 1997
Fair Percent of
Value Total
<S> <C> <C>
U.S. Government and government agencies $ 95,579 34.1%
Aaa 106,792 38.1
Aa 35,227 12.4
A 26,586 9.5
Baa 16,369 5.9
Total $280,553 100.0%
</TABLE>
(1) Ratings as assigned by Moody's. Such ratings are
generally assigned upon the issuance of the securities,
subject to revision on the basis of ongoing evaluations.
Bonds rated Aaa by Moody's are judged to be of the best
quality and are considered to carry the smallest degree of
investment risk.
The following table summarizes the Company's fixed
maturity portfolio by years to stated maturity as of December 31,
1997.
<TABLE>
(Dollars in thousands)
<CAPTION>
December 31, 1997
Fair Percent of
Value Total
<S> <C> <C>
1 year or less $ 286 0.1%
Over 1 year through 5 66,567 23.7
Over 5 years through 10 years 97,677 34.8
Over 10 years through 20 years 27,008 9.6
Over 20 years 41,073 14.7
Mortgage-backed securities 47,942 17.1
Total $280,553 100.0%
</TABLE>
At December 31, 1997, investments in Federal National
Mortgage Association securities aggregating approximately $11.8
million represented the only investments in any entity in excess
of 10% of stockholders' equity other than those investments
issued or guaranteed by the U.S. Government.
The Company is subject to state laws and regulations that
require diversification of its investment portfolio and limit the
amount of investments in certain investment categories. As of
December 31, 1997, the Company's investments complied with all
such laws and regulations.
Reinsurance
Insurance companies purchase reinsurance to spread risk on
individual exposures, protect against catastrophic losses and
increase their capacity to write insurance. Reinsurance involves
an insurance company transferring, or ceding, all or a portion of
its exposure on insurance to a reinsurer. The reinsurer assumes
the exposure in return for a portion of the premium received by
the insurance company. Reinsurance does not discharge the
insurer from its obligations to its insureds. If the reinsurer
fails to meet its obligations, the ceding insurer remains liable
to pay the insured.
The Company cedes a material amount of its business to
reinsurers to spread risk and limit loss per exposure. During
1997, 1996 and 1995, the Company ceded premiums of $45.8
million, $62.3 million and $66.8 million, respectively, which
constituted 31.3%, 39.7%, and 42.6% respectively, of gross
premiums written in each year. Management seeks to mitigate
exposure to adverse reinsurance pricing conditions and its credit
risk by maintaining a diversity of reinsurers.
Catastrophe reinsurance protects an insurer from
significant aggregate loss exposure arising from a single event
such as an earthquake, hurricane, riot, tornado or other
extraordinary event. The Company uses IRAS to evaluate its
earthquake exposure in connection with purchasing catastrophe
reinsurance coverage.
Effective January 1, 1998, The Company maintains a five-
layer catastrophe reinsurance program covering its DIC writings.
The catastrophe reinsurance program covers 95% of the annual
aggregate amount of property claims up to $143 million per
occurrence, subject to a retention of $2.5 million per
occurrence. The Company limits its net retention to $100,000 per
risk for DIC.
Most other exposures, including Casualty, A&E, Specialty
Lines, Commercial Auto and certain Other Property risks have been
consolidated in a three-layer per-event reinsurance program that
provides for indemnity of $24.5 million in excess of a net
retention of $500,000 per risk. In addition to per-risk
coverage, the program provides casualty clash & contingency and
certain non-DIC property catastrophe protection on an occurrence
basis, subject to the same net retention. Effective December 31,
1997, the Company also maintains a 50% quota share protection to
limit its Commercial Auto exposure to $250,000 per policy.
The Company continually evaluates the credit risk related
to its reinsurers and has established a minimum A.M. Best rating
of "A-" for its domestic and Bermuda-based reinsurers and also
requires at least $50 million of policyholder surplus for all
domestic and foreign reinsurers. The Company works with
intermediaries to continually monitor the financial condition of
its reinsurers, as appropriate. If a reinsurer of the Company
were to become insolvent or unable to make payments under the
terms of a reinsurance agreement, it could have a material
adverse effect on the Company.
Competition
The property and casualty insurance industry is highly
competitive. The Company competes with national and smaller
regional insurers in each state in which it operates, as well as
with monoline specialty insurers. Certain of these competitors
are larger and have greater financial resources than the Company.
Among other things, competition may take the form of lower
prices, broader coverage, greater product flexibility, higher
quality services or an insurer's rating by independent rating
agencies. The Company competes with admitted insurers, surplus
line insurers, new forms of insurance organizations such as risk
retention groups, and alternative self-insurance mechanisms.
Increased public and regulatory concerns regarding the
financial stability of participants in the insurance industry
have resulted in greater emphasis being placed by policyholders
upon insurance company ratings and have created some measure of
competitive advantage for insurance carriers with higher ratings.
Associated's and Calvert's financial strength and claims-paying
ability are currently rated "A p (Excellent)" by A.M. Best.
Also, A.M. Best has assigned the financial size category of Class
VII to both companies under its pooling arrangement. In
evaluating a company's financial and operating performance,
A.M. Best reviews the company's profitability, leverage and
liquidity as well as the company's book of business, the adequacy
and soundness of its reinsurance, the quality and estimated
market value of its assets, the adequacy of its loss reserves and
the experience and competence of the management. The ratings
assigned by A.M. Best are based upon factors of concern to
policyholders, agents and intermediaries and are not directed
toward the protection of investors.
Cyclicality
Historically, the overall financial performance of the
property and casualty industry has tended to fluctuate in
cyclical market patterns. These cycles can be more pronounced for
insurance companies, such as the Company, that underwrite
business on a surplus lines basis. During a soft market,
heightened competition for premiums not only increases
competition among surplus lines insurers, but also encourages
admitted insurers to offer coverages for risks generally
underwritten by the surplus lines insurers. During a hard market,
the constriction of available capital among admitted carriers,
combined with the opportunity for increased underwriting profit
in their more traditional lines of business, tends to cause
admitted carriers to reduce their underwriting of surplus lines
coverages. This may increase the overall number of risks
submitted to the surplus lines insurers and consequently may
enhance the opportunity of surplus lines companies to increase
premium volume and improve pricing.
Surplus lines insurance is generally placed by wholesale
brokers and general agents who specialize in particular lines of
coverage or classes of insureds. These insureds tend to be
sophisticated and price-conscious insurance purchasers. As a
result, surplus lines insurers may experience increased premium
rate competition and volume competition in soft markets.
At present, the property and casualty insurance industry
is experiencing a prolonged soft market.
Year 2000 Compliance
Recently, there has been significant public discussion
regarding the potential inability of computer programs and
systems to adequately store and process data after December 31,
1999, due to the inability of such programs and systems to
identify correctly dates subsequent to December 31, 1999.
The Company has completed an assessment of its core
financial and operational software systems and believes it will
be in compliance with the requirements necessary to avoid the
foregoing "Year 2000" problem. The Company will test these
systems to confirm their compliance. If for any reason these
systems are not in compliance by December 31, 1999, the Year 2000
issue could have a material impact on the Company's ability to
meet financial and reporting requirements and to support its
insurance operations.
The Company is in the process of initiating discussions
with significant suppliers, business partners, customers and
other third parties to determine the extent to which the Company
may be vulnerable to the failure of these parties to address and
correct their own Year 2000 issues. However, there can be no
guarantee that the systems of other companies that support the
Company's operations will be timely converted or that a failure
by these companies to correct their Year 2000 problems would not
have a material adverse effect on the Company.
The Company is currently assessing what changes may be
appropriate in insurance coverages it currently markets in light
of the Year 2000 problem. In this connection, management is
consulting with Insurance Services Offices, Inc. ("ISO") and
others regarding possible modifications and/or exclusions to
policy forms that could be implemented in connection with future
insurance policies that will extend coverage beyond December 31,
1999.
The costs incurred to date by the Company in connection
with its Year 2000 compliance initiative have been nominal, and
the Company currently has no indication that the costs associated
with any remaining remedial actions in connection with this
matter will be material.
Employees
As of December 31, 1997, the Company employed
approximately 141 persons, all in the United States. None of its
employees is represented by a labor union, and the Company
believes that its employee relations are good.
Regulation and Other Matters
As a general rule, an insurance company must be licensed
to transact insurance business in each jurisdiction in which it
operates, and almost all significant operations of a licensed
insurer are subject to regulatory scrutiny. Licensed insurance
companies are generally known as "admitted" insurers. Most
states provide a limited exemption from licensing for insurers
issuing insurance coverages that generally are not available from
admitted insurers. These coverages are referred to as "surplus
lines" insurance and these insurers are referred to as surplus
lines or "non-admitted" companies.
The Company's admitted insurance businesses are subject to
comprehensive, detailed regulation throughout the United States
and Canada. Various jurisdictions have established supervisory
agencies with broad authority to regulate, among other things,
licenses to transact business, premium rates for certain
coverages, trade practices, agent licensing, policy forms,
cancellation and renewal practices, underwriting and claims
practices, reserve adequacy and insurer solvency. Many
jurisdictions also regulate investment activities on the basis of
quality, distribution and other quantitative criteria. Further,
most jurisdictions in the United States require admitted
insurance companies to participate in their respective guaranty
funds. Insurers admitted to transact business in such
jurisdictions are required to cover losses of insolvent insurers
and are generally subject to annual assessments of 1% to 2% of
direct premiums written in that jurisdiction to pay claims of
insolvent insurers. In addition, most jurisdictions compel
participation in, and regulate the composition of, various shared
and residual market mechanisms under which insurers are induced
to provide certain coverages.
Generally, non-admitted insurers are subject to less
regulatory scrutiny than admitted companies. The eligibility of
the Company 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. State surplus lines laws typically:
(i) require the insurance producer placing the business to show
that he or she was unable to place the coverage with admitted
insurers; (ii) establish minimum financial requirements for
surplus lines insurers operating in the state; and (iii) require
the insurance producer to obtain a special surplus lines license.
In recent years, many jurisdictions have increased the minimum
financial standards applicable to surplus lines eligibility.
State insurance regulators have the discretionary
authority, in connection with the licensing of an insurance
company, to limit or prohibit writing new business within their
jurisdiction when, in the state's judgment, the insurance company
is not maintaining adequate statutory surplus or capital. The
Company does not currently anticipate that any regulator would
limit the amount of new business that Associated or Calvert may
write, given their respective current levels of statutory
surplus.
Most states have enacted legislation that regulates
insurance holding company systems, including acquisitions,
dividends, the terms of surplus notes, the terms of affiliate
transactions and other related matters. Typically, such statutes
require the Company to periodically file information with the
state insurance commissioner, including information concerning
its capital structure, ownership, financial condition and general
business operations. Under the terms of applicable state
statutes, any person or entity desiring to purchase a specified
percentage (commonly 10% or more) of the Company's outstanding
voting securities would be required to obtain prior regulatory
approval of the purchase. Further, state insurance statutes
typically place limitations on the amount of dividends or other
distributions payable by insurance companies, in order to protect
their solvency. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The insurance industry has been subject to increased
scrutiny. A number of state legislatures have considered or
enacted legislative proposals that alter and, in many cases,
increase the authority of state agencies to regulate insurance
companies and holding company systems. In addition, legislation
has been introduced in several of the past sessions of Congress
which, if enacted, could result in the federal government
assuming some role in the regulation of the insurance industry.
Several committees of Congress have made inquiries and conducted
hearings as part of a broad study of the regulation of United
States insurance companies.
The National Association of Insurance Commissioners (the
"NAIC") and insurance regulators continue to re-examine existing
laws and regulations and their application to insurance
companies. In particular, this re-examination has focused on
insurance company investment and solvency issues and, in some
instances, has resulted in new interpretations of existing law,
the development of new laws and the implementation of
non-statutory guidelines. The NAIC has formed groups to study and
formulate regulatory proposals on such diverse issues as the use
of surplus debentures, accounting for reinsurance transactions,
and the adoption of risk-based capital rules. In connection with
its accreditation of states and as part of its program to monitor
the solvency of insurance companies, the NAIC requires states to
adopt model NAIC laws and regulations on specific topics, such as
holding company regulations and the definition of extraordinary
dividends. The NAIC has adopted a system for assessing the
adequacy of statutory capital and surplus for all property and
casualty insurers. Based on the NAIC guidelines and computations
made by the Company in conformity with such risk-based capital
guidelines, Associated and Calvert satisfy the required levels of
capital. There can be no assurance, however, that capital
requirements applicable to the Company's businesses will not
increase in the future.
The NAIC has developed through the years a set of
financial relationships or "tests" called the Insurance
Regulatory Information System ("IRIS") that are designed for
early identification of companies which may require special
attention by insurance regulatory authorities. Insurance
companies submit data on an annual basis to the NAIC, which in
turn analyzes the data. Generally, an insurance company will
become subject to regulatory scrutiny if it fails to satisfy NAIC
standards for such factors as leverage, profitability, liquidity
and loss reserve development. Failure to satisfy these standards
may result in action by regulatory authorities to constrain a
company's underwriting capacity. No such action has been taken
with respect to the Company.
It is not possible to predict the future impact of
changing state and federal regulations on the Company's
operations.
ITEM 2. PROPERTIES.
The Company leases approximately 49,500 square feet of
office space, including its corporate headquarters located in New
York, New York and underwriting offices located in Woodland
Hills, California and Hoboken, New Jersey. The headquarters in
New York, which consists of 3,900 square feet, is leased for a
term ending in the year 1999. The Woodland Hills office space
consists of 30,275 square feet and is leased for a term ending in
the year 2008. The Hoboken office space consists of 13,525
square feet and is leased for a term ending in the year 2000.
The Company also leases small regional offices in Grand Rapids,
Michigan and Denver, Colorado.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to litigation and arbitration in
the normal course of its business. The Company does not believe
that any pending litigation or arbitration to which it is a
party, or of which any of its property is the subject, is likely
to have a material adverse effect on its consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ
National Market under the symbol "GRYP". The following table
reflects the high and low prices for the quarterly periods during
the years ended December 31,1997 and 1996, as furnished by the
NASDAQ National Market:
1997 1996
High Low High Low
First Quarter $15 1/4 $13 $20 1/4 $16 7/8
Second Quarter 15 5/8 13 7/8 19 1/2 14 5/8
Third Quarter 17 3/4 15 1/4 15 1/4 12
Fourth Quarter 17 3/4 15 7/8 16 12 1/2
As of February 10, 1998, there were approximately 44
record holders of the Common Stock, which does not include
beneficial owners of shares registered in nominee or street name.
The Company has not paid any cash dividends on its Common Stock
since its initial public offering (the "Offering") and does not
anticipate paying any cash dividends in the foreseeable future.
In addition, the Company's term-loan agreement contains a
covenant restricting its ability to declare or pay any cash
dividends to its shareholders. Because the Company is a holding
company and operates through its subsidiaries, its cash flow and
consequent ability to pay dividends are dependent upon the
earnings of its subsidiaries and the distribution of those
earnings to the Company. Also, the ability of the Company's
subsidiaries to pay dividends to the Company is subject to
certain regulatory restrictions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and Note 9 of Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated
financial data of the Company for the periods indicated. The
selected consolidated financial data for the five years ended
December 31, 1997 set forth below are derived from the audited
consolidated financial statements of the Company. The selected
statutory data have been derived from the financial statements of
Associated and Calvert prepared in accordance with statutory
accounting practices ("SAP") and filed with insurance regulatory
authorities. The following information should be read in
conjunction with the Consolidated Financial Statements and the
notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included
elsewhere herein.
<TABLE>
Gryphon Holdings Inc.
Selected Consolidated Financial Data
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993
(Dollars and shares in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross premiums written $146,126 $156,937 $156,980 $139,151 $111,663
Net premiums written $100,334 $ 94,607 $ 90,175 $ 69,187 $ 62,167
Net premiums earned $104,246 $ 87,929 $ 83,399 $ 61,605 $ 57,933
Net investment income 17,061 16,453 15,839 13,099 12,216
Realized gains
(losses) on investments 6,188 1,203 3,647 (2,046) 5,163
Other income 979 1,059
Total revenues 128,474 106,644 102,885 72,658 75,312
Losses and loss
adjustment expenses 71,015 57,700 50,816 40,537 37,065
Underwriting, acquisition,
and insurance expenses 45,089 40,967 34,590 25,721 18,481
Proposition 103 settlement expense 2,000 (1)
Bonuses paid by
Willis Corroon Group plc 2,670 (2)
Interest expenses 1,607 1,761 595 172
Total expenses 117,711 100,428 86,001 66,258 60,388
Income before income taxes 10,763 6,216 16,884 6,400 14,924
Provision for income taxes 1,969 53 3,959 169 2,772 (3)
Net income $ 8,794 $ 6,163 $12,925 $ 6,231 $12,152
Basic earnings per share(5) $ 1.32 $ 0.93 $ 1.69 $ 0.77 $ 1.62
Weighted average
shares outstanding 6,680 6,656 7,648 8,132 7,485
GAAP Ratios:
Loss and loss adjustment
expense ratio 68.1 % 65.6 % 60.9 % 65.8 % 64.0 %
Underwriting expense ratio,
excluding Proposition 103
settlement 43.3 46.6 41.5 41.8 31.9
Combined ratio, excluding
Proposition 103 settlement 111.4 112.2 102.4 107.6 95.9
Proposition 103 settlement 3.5 (1)
Combined ratio 111.4 % 112.2 % 102.4 % 107.6 % 99.4 %
Selected Statutory Data:
Statutory net income $11,013 $7,298 $13,876 $5,296 $7,459 (1)(4)
Statutory surplus
(at end of period) 87,705 82,566 83,433 72,220 69,161
Ratio of net premiums
written to surplus 1.1:1 1.1:1 1.1:1 1.0:1 0.9:1
Balance Sheet Data (at end of period):
Investments, including cash
and cash equivalents $313,082 $303,869 $288,602 $245,242 $237,442
Total assets 538,985 526,984 530,989 492,717 432,080
Loss and loss adjustment
expense reserves 328,911 309,259 308,886 315,691 275,660
Long-term debt 21,125 24,625 25,500
Stockholders' equity 104,509 95,136 93,222 93,773 91,489
Book value per share 15.63 14.28 14.02 11.51 11.25
(1) As part of a stipulation and consent order with the
California Department of Insurance to settle outstanding
obligations under Proposition 103, the Company refunded to
policyholders $2.0 million, including interest. This amount has
been reflected as a charge to net income for the year ended
December 31, 1993.
(2) In connection with the Offering, Willis Corroon Group plc
paid bonuses to certain executives. The bonuses, consisting of
cash and common stock and aggregating approximately $2,670,000,
are shown as an expense and were offset by a capital contribution
equal to the after-tax cost of such bonuses.
(3) Includes the effect of the Company's adoption of SFAS No.
109, which resulted in a one-time cumulative tax benefit of
$0.7 million ($.09 per share) for the year ended December 31,
1993.
(4) Includes the effect of $5.0 million of additional
environmental impairment and asbestos-related reserves recorded
in GAAP financial statements in prior periods. The effect of
such addition was to increase the 1993 statutory combined ratio
from 97.7% to 106.3%.
(5) Prior period earnings per share were not affected by the
adoption of Statement of Financial Accounting Standards No. 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
The Company is a holding company that, through its
subsidiaries, underwrites specialty property and casualty
insurance in sectors of the insurance industry that are generally
considered difficult to insure. Many of the coverages written by
the Company can be categorized as excess and surplus lines, which
generally means that the risks are nonstandard, or that the
policies in respect of the risks are written with unusual limits
or at deviated rates. The property and casualty insurance
industry is highly cyclical. The excess and surplus lines
sectors of the property and casualty insurance industry are often
subject to greater cyclicality and volatility than the industry
in general. During soft markets, large standard lines insurers
often utilize excess capacity to assume risks in excess and
surplus and specialty lines. During hard markets, such insurers
tend to abandon the excess and surplus and specialty lines to the
carriers that concentrate in these sectors. Thus, capacity in
these lines will fluctuate substantially, often with fluctuations
in revenues or profits, or both.
Results of Operations
Year Ended December 31, 1997 Compared with Year Ended December
31, 1996
Gross Premiums Written. Gross premiums written were
$146.1 million for the year ended December 31, 1997, compared to
$156.9 million for the year ended December 31, 1996. In 1997, the
Company's gross premiums written decreased due to business lost
as a result of competition for premiums, which has affected the
following lines of business: an $8.2 million decrease in Other
Property, primarily in the Company's national accounts business;
a $1.9 million decrease in Difference in Conditions (DIC)
premiums; a $0.7 million decrease in Casualty premiums; a $0.2
million decrease in Specialty Lines; and a $0.1 million decrease
in Architects' & Engineers' liability.
Net Premiums. Net premiums written increased 6.1% to
$100.3 million for the year ended December 31, 1997 from $94.6
million for the year ended December 31, 1996. Net premiums
written were favorably affected in 1997 as a result of a new
reinsurance program, which reduced reinsurance premiums ceded by
increasing net retentions to $500,000 per risk in most lines of
business. The benefit of the reduced reinsurance premiums ceded
was offset by the effect of a decrease in gross written premiums,
which was caused by the competitive conditions in the property
and casualty marketplace.
Net premiums earned increased by 18.6% to $104.2 million
in the year ended December 31, 1997 from $87.9 million in the
year ended December 31, 1996, resulting from reduced reinsurance
premiums ceded due to increased net retentions from the Company's
new reinsurance program.
Net Investment Income. Net investment income increased
3.7% to $17.1 million for the year ended December 31, 1997 from
$16.5 million for the year ended December 31, 1996. In 1997, net
investment income was affected by additional funds available for
investment, but also by lower average interest rates compared
with 1996.
Net Realized Gains on Investments. For the year ended
December 31, 1997, the Company realized a net gain of $6.2
million, compared with a net gain of $1.2 million for the year
ended December 31, 1996. Portfolio sales were effected in each
year to optimize the mix of taxable and tax-exempt securities.
Other Income. For the year ended December 31, 1997, the
Company recorded $1.0 million of underwriting management fees for
DIC business underwritten on behalf of a companion carrier.
Losses and Loss Adjustment Expenses. Losses and LAE
increased by 23.1% to $71.0 million for the year ended
December 31, 1997 from $57.7 million for the year ended
December 31, 1996, due to increased earned premium exposures and
reserve increases. In 1997, the Company strengthened reserves by
$6.8 million, related to a pre-1985 book of Casualty business and
certain pre-1987 reinsurance-assumed business, both previously
discontinued. In 1996, the Company strengthened reserves with
respect to a truck leasing program ($5.3 million) and a used car
dealers program ($2.2 million), each discontinued during 1995, as
well as environmental impairment and asbestos-related exposures
($2.2 million) on business written prior to 1985. Losses and LAE
were 68.1% of net premiums earned for the year ended December 31,
1997, compared with 65.6% for the year ended December 31, 1996.
Underwriting, Acquisition, and Insurance Expenses.
Underwriting, acquisition, and insurance expenses increased by
10.1% to $45.1 million for the year ended December 31, 1997 from
$41.0 million for the year ended December 31, 1996. The expense
growth was primarily attributable to increased acquisition costs,
resulting from a change in the mix of business written; additions
to staff; and new facilities for the operating companies.
Interest Expense. Interest expense was $1.6 million for
the year ended December 31, 1997, compared with $1.8 million for
the year ended December 31, 1996. Interest expense resulted from
a term loan of $25.5 million borrowed in 1995 to finance the
purchase of 1.5 million shares of the Company's common stock.
Income Taxes. Income taxes were $2.0 million for the year
ended December 31, 1997, compared with $53 thousand for 1996.
In 1997, income taxes were reduced by the tax benefit from
additional reserve strengthening, increased underwriting expenses
and tax-exempt investment income. The tax benefit was partially
offset by additional income taxes resulting from net realized
gains on the sale of investments. In 1996, income taxes were
reduced by the tax benefit from additional reserve strengthening,
increased underwriting expenses and tax-exempt investment income.
Net Income. Net income was $8.8 million for the year
ended December 31, 1997, compared with $6.2 million for the year
ended December 31, 1996.
Weighted Average Shares Outstanding. Average shares
outstanding were 6.7 million in 1997, compared with 6.7 million
in 1996. In accordance with Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share", implemented in 1997, the
Company's basic earnings per share are calculated by dividing
income available to common stockholders by the weighted average
number of common shares outstanding during the period.
Year Ended December 31, 1996 Compared with Year Ended December
31, 1995
Gross Premiums Written. Gross premiums written were
$156.9 million for the year ended December 31, 1996, compared to
$157.0 million for the year ended December 31, 1995. In 1996, the
Company's gross premiums written experienced increases in the
following lines of business: a $4.6 million increase in premiums
from specialty lines, primarily due to a new animal mortality
program; a $3.4 million increase in A&E liability due to expanded
marketing and enhanced coverages offered; and a $2.3 million
increase in casualty premiums, primarily due to new programs, but
offset in part by business lost because of competitive market
conditions in other casualty business written. Such increases
were offset by a $6.7 million decrease in DIC premiums, resulting
from the sharing of premiums with a companion carrier and, to a
lesser extent, from an increase in competition with respect to
certain types of DIC risks; a $3.4 million decrease in premiums
from other property, due to increased competition, mitigated in
part by new business from plate glass and fire policies; and a
$0.2 million decrease in commercial automobile, where the non-
renewal of a truck leasing program offset growth resulting from
new business written.
Net Premiums. Net premiums written increased 4.9% to
$94.6 million for the year ended December 31, 1996 from $90.2
million for the year ended December 31, 1995. This resulted
primarily from a shift in the mix of business toward lines with
higher net retention levels. Also, the Company paid $2.2 million
of catastrophe reinsurance reinstatement premiums in 1995, which
had the effect of increasing ceded premiums and reducing net
premiums written.
Net premiums earned increased by 5.4% to $87.9 million in
the year ended December 31, 1996 from $83.4 million in the year
ended December 31, 1995.
Net Investment Income. Net investment income increased
3.9% to $16.5 million for the year ended December 31, 1996 from
$15.8 million for the year ended December 31, 1995. The increase
is primarily due to additional funds available for investment in
1996 and was partially mitigated by lower average pre-tax
interest rates in 1996 than in 1995, resulting from a greater
component of tax-exempt securities in 1996.
Net Realized Gains on Investments. For the year ended
December 31, 1996, the Company realized a net gain of $1.2
million, compared with a net gain of $3.6 million for the year
ended December 31, 1995. Portfolio sales were effected in each
year to optimize the mix of taxable and tax-exempt securities.
Other Income. For the year ended December 31, 1996, the
Company recorded $1.1 million of underwriting management fees for
DIC business underwritten on behalf of a companion carrier.
Losses and Loss Adjustment Expenses. Losses and LAE
increased by 13.5% to $57.7 million for the year ended
December 31, 1996 from $50.8 million for the year ended
December 31, 1995, due to additional losses and reserve
strengthening for a truck leasing program ($5.3 million) and used-
car dealers program ($2.2 million), each discontinued during
1995; an increase of $2.2 million in reserves for environmental
impairment and asbestos-related exposures on business written
prior to 1985; other reserve increases pertaining to previous
accident years; and, more generally, increases in earned premium
exposures. Such increases were partially offset by reserve
redundancies resulting from favorable development of A&E case
reserves and a re-estimate of other property liabilities. In
1995, the Company recorded catastrophe losses of $1.9 million
related to hailstorms and the Northridge earthquake of 1994.
Underwriting, Acquisition, and Insurance Expenses.
Underwriting, acquisition, and insurance expenses increased by
18.4% to $41.0 million for the year ended December 31, 1996 from
$34.6 million for the year ended December 31, 1995. The expense
growth was primarily attributable to increased acquisition costs,
resulting from a change in the mix of business written; additions
to staff, related to new business; and new facilities for the
operating companies. Also, in 1996, the Company expensed an
additional $1.4 million of deferred acquisition costs.
Interest Expense. Interest expense was $1.8 million for
the year ended December 31, 1996, compared with $0.6 million for
the year ended December 31, 1995. Interest expense resulted from
a term loan of $25.5 million borrowed in 1995 to finance the
purchase of 1.5 million shares of the Company's common stock.
Interest expense was lower in 1995 because it accrued only from
the date of the take-down, in September.
Income Taxes. Income taxes were $53,000 for the year
ended December 31, 1996, compared with $4.0 million for 1995. In
1996, income taxes were reduced by the tax benefit from
additional reserve strengthening on discontinued lines of
business, increased underwriting expenses and tax-exempt
investment income. In 1995, the income tax expense was reduced
by the tax benefit from net claims costs and reinstatement
premiums relating to the Northridge earthquake and tax-exempt
investment income.
Net Income. Net income was $6.2 million for the year
ended December 31, 1996, compared with $12.9 million for the year
ended December 31, 1995.
Weighted Average Shares Outstanding. Average shares
outstanding were 6.7 million in 1996, compared with 7.6 million
in 1995, reflecting the effect of the purchase by the Company of
1.5 million shares of the Company's Common Stock in September of
1995.
Liquidity and Capital Resources
The Company receives cash from premiums and, to a lesser
extent, investment income. The principal cash outflows are for
the payment of claims, reinsurance premiums, policy acquisition
costs and general and administrative expenses. Net cash provided
by operations was $8.1 million in 1997, $24.7 million in 1996,
and $22.0 million in 1995.
At December 31, 1997, the Company maintained cash and cash
equivalents of $32.3 million to meet current payment obligations.
In addition, the Company's investment portfolio could be
substantially liquidated without any material financial impact.
Substantially all of the cash and investments of the Company at
December 31, 1997 were held by its subsidiaries.
Reinsurance recoverables on unpaid losses were $140.8
million at December 31, 1997 and $138.0 million at December 31,
1996. Because of the high limits on many policies relative to
the Company's net retentions, reinsurance recoverable on unpaid
losses can fluctuate significantly depending upon the emergence
and severity of reported and unreported losses.
Net cash provided by operating activities declined to $8.1
million for the year ended December 31, 1997, from $24.7 million
for the year ended December 31, 1996, primarily due to an
increase in gross claims payments during the year. Such payments
will be recoverable from reinsurers in subsequent periods.
In September 1995, the Company purchased 1.5 million
shares of its Common Stock from Willis Corroon Group plc for a
total purchase price of $25.5 million, including related
expenses. The Company financed its purchase of such shares
through the proceeds of borrowing from commercial lending
institutions.
As a holding company, the Company depends principally on
dividends from its insurance company subsidiaries to pay
corporate overhead expenses, including principal and interest on
its borrowings. The Company's subsidiaries are subject to state
insurance laws that restrict their ability to collectively pay
dividends. See "Regulation and Other Matters." Under the
insurance code of Pennsylvania, dividends from Calvert are
limited to the greater of 10% of surplus as regards policyholders
as of the preceding year end or the net income for the previous
year, without prior approval from the Pennsylvania Department of
Insurance. Under the insurance code of California, dividends
from Associated are limited to the greater of 10% of
policyholders' statutory surplus as of the preceding year end or
the Company's statutory net income for the previous year, without
prior approval from the California Department of Insurance. In
1997, 1996 and 1995, the aggregate dividends paid by the two
subsidiaries were $6.7 million, $4.7 million and $2.0 million,
respectively.
The NAIC has adopted a risk-based capital system for
assessing the adequacy of statutory capital and surplus for all
property and casualty insurers. Based on the guidelines and
computations made by the Company in conformity with such
guidelines, Associated and Calvert have exceeded the required
levels of capital. There can be no assurance that capital
requirements applicable to the Company's business will not
increase in the future.
Recently, there has been significant public discussion
regarding the potential inability of computer programs and
systems to adequately store and process data after December 31,
1999, due to the inability of such programs and systems to
identify correctly dates subsequent to December 31, 1999.
The Company has completed an assessment of its core
financial and operational software systems and believes it will
be in compliance with the requirements necessary to avoid the
foregoing "Year 2000" problem. The Company will test these
systems to confirm their compliance. If for any reason these
systems are not in compliance by December 31, 1999, the Year 2000
issue could have a material impact on the Company's ability to
meet financial and reporting requirements and to support its
insurance operations.
The Company is in the process of initiating discussions
with significant suppliers, business partners, customers and
other third parties to determine the extent to which the Company
may be vulnerable to the failure of these parties to address and
correct their own Year 2000 issues. However, there can be no
guarantee that the systems of other companies that support the
Company's operations will be timely converted or that a failure
by these companies to correct their Year 2000 problems would not
have a material adverse effect on the Company.
The Company is currently assessing what changes may be
appropriate in insurance coverages it currently markets in light
of the Year 2000 problem. In this connection, management is
consulting with ISO and others regarding possible modifications
and/or exclusions to policy forms that could be implemented in
connection with future insurance policies that will extend
coverage beyond December 31, 1999.
The costs incurred to date by the Company in connection
with its Year 2000 compliance initiative have been nominal, and
the Company currently has no indication that the costs associated
with any remaining remedial actions in connection with this
matter will be material.
In February 1998, the Company agreed to acquire The First
Reinsurance Company of Hartford ("FRH") and certain affiliated
entities from Dearborn Risk Management, Inc. for a combination of
cash and preferred stock valued at $43.6 million, plus certain
other performance-driven contingent consideration.
The purchase consideration of $43.6 million consists of
$31.9 million of cash and $11.7 million fair value of a new issue
of Gryphon perpetual convertible preferred stock. The preferred
stock, which will have a face amount of $14.4 million, will be
convertible into 643,672 shares of the Company's common stock,
reflecting a conversion price of $22.44 per share. No cash
dividends will be paid or owed during the first four and one-half
years; a cash dividend at the rate of 4.0% of the face amount
will be paid thereafter. The preferred shares, which are non-
callable for three years, have no sinking fund or mandatory
redemption features. In connection with the transaction, Gryphon
intends to enter into a $55 million credit facility with a group
of financial institutions, the proceeds of which will be used to
pay the cash portion of the purchase price and to repay existing
bank borrowings.
The acquisition will be accounted for by the purchase
method of accounting under Opinion No. 16, "Business
Combinations", of the Accounting Principles Board of the American
Institute of Certified Public Accountants. Under this accounting
method, any excess of purchase price over the fair market value
of identifiable assets acquired less liabilities assumed will be
recorded as goodwill.
The transaction, which is subject only to regulatory
approvals and other customary conditions, is expected to close
during the second quarter of 1998.
The Company regularly evaluates opportunities for the
acquisitions of books of business, of specialty insurance
companies or companies in related businesses and for business
combinations or joint ventures with other specialty insurance
companies. There can be no assurance, however, that any suitable
business opportunities will arise. In the event that such
opportunities do arise, the Company may incur indebtedness for
borrowed money in connection with the consummation of any such
transaction. Such indebtedness, under certain circumstances,
could adversely affect the Company's liquidity and capital
resources.
The Company has no off-balance-sheet obligations that are
not disclosed in its financial statements. The Company believes
that retained earnings will be sufficient to satisfy its long-
term capital requirements to fund growth.
Effects of Inflation
There was no significant impact on the Company's
operations as a result of inflation during 1997, 1996 and 1995.
However, there can be no assurance that inflation will not have a
material impact on the Company's operations in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to financial statements and required financial
statement schedules is set forth at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
The information required in Part III (Items 10, 11, 12 and
13) is hereby incorporated by reference from the Company's
definitive Proxy Statement, which is expected to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934
not later than 120 days after the end of the fiscal year covered
by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) Financial Statements. See the index
immediately following the signature pages.
(b) Reports on Form 8-K. The Company did not file
any reports on Form 8-K during the last quarter of the
year ended December 31, 1997.
(c) Exhibits. All exhibits listed below are
filed with this Annual Report on Form 10-K unless
specifically stated to be incorporated by reference
to other documents previously filed with the
Securities and Exchange Commission.
3.1 Amended and Restated Certificate of Incorporation
incorporated herein by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange
Commission (the "SEC") on September 23, 1993.
3.2 Amended and Restated By-Laws incorporated herein by
reference to Exhibit 3.2 of the 1995 Form 10-K.
4.1 Specimen Common Stock certificate incorporated herein
by reference to Exhibit 4.1 to Amendment No. 3 to the
Registration Statement filed with the SEC on December 14,
1993.
10.1 Loan Agreement, dated September 8, 1995, in the
principal amount of $25,500,000 by and among Gryphon
Holdings Inc., CIBC Inc. and Canadian Imperial Bank of
Commerce incorporated herein by reference to Exhibit 10.1 of
the 1995 Form 10-K.
10.2 Tax Sharing Agreement among Willis Corroon Group plc,
the Company and certain other parties thereto incorporated
herein by reference to Exhibit 10.2 to Amendment No. 1 to
the Registration Statement.
10.3 General Indemnity Agreement between Willis Corroon
Group plc and the Company incorporated herein by reference
to Exhibit 10.3 to Amendment No. 1 to the Registration
Statement.
10.4 Form of Indemnification Agreement between the Company
and each of its directors and executive officers
incorporated herein by reference to Exhibit 10.4 to the
Registration Statement.
10.5 1993 Stock Option Plan of the Company incorporated
herein by reference to Exhibit 10.5 to Amendment No. 1 to
the Registration Statement.
10.6 Contractual Management Subsidiary Agreement, dated
July 1, 1987, between Associated and RAMCO incorporated
herein by reference to Exhibit 10.6 to the Registration
Statement.
10.7 Severance and Confidentiality Agreement among the
Company, Willis Corroon Group plc and John F. Iannucci
incorporated herein by reference to Exhibit 10.30 of
Amendment No. 1 to the Registration Statement.
10.10 Severance and Confidentiality Agreement between the
Company and Stephen A. Crane incorporated herein by reference
to Exhibit 10.32 of Amendment No. 1 to the Registration
Statement.
10.11 Restricted Stock Plan of the Company incorporated herein by
reference to Exhibit 10.34 of Amendment No. 1 to the
Registration Statement.
10.12 Severance and Confidentiality Agreement dated as of March
21, 1994 between the Company and Robert P. Cuthbert
incorporated herein by reference to Exhibit 10.35 of the
Company's Annual Report on Form 10-K for 1994 (the "1994
Form 10-K").
10.13 Severance and Confidentiality Agreement dated as of
November 11, 1994 between the Company and Robert M. Coffee
incorporated herein by reference to Exhibit 10.36 of the
1994 Form 10-K.
10.14 Amendment to Severance and Confidentiality Agreement dated
as of November 11, 1994 between the Company and Stephen A.
Crane incorporated herein by reference to Exhibit 10.37 of
the 1994 Form 10-K.
10.15 Amendment to Severance and Confidentiality Agreement dated
as of November 11, 1994 between the Company and Robert P.
Cuthbert incorporated herein by reference to Exhibit 10.38
of the 1994 Form 10-K.
10.16 Casualty Quota Share Treaty, effective December 1, 1994,
among Calvert and various reinsurers incorporated herein by
reference to Exhibit 10.45 of the 1994 Form 10-K.
10.17 Excess Catastrophe Reinsurance Contract, effective January
1, 1994, among Associated, Calvert and various reinsurers
stated therein incorporated herein by reference to Exhibit
10.52 of the 1994 Form 10-K.
10.18 Casualty Excess of Loss Reinsurance Contract, effective
July 1, 1994, among Associated, Calvert and various reinsurers
stated therein incorporated herein by reference to Exhibit
10.54 of the 1994 Form 10-K.
10.19 Casualty Excess of Loss Reinsurance Contract, effective
July 1, 1995, among Associated, Calvert, Timberline Insurance
Company and various reinsurers stated therein incorporated
herein by reference to Exhibit 10.51 of the 1995 Form 10-K.
10.20 First Excess Multiple Line Reinsurance Contract, effective
July 1, 1994, among Associated, Calvert and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.55 of the 1994 Form 10-K.
10.21 Second Excess Multiple Line Reinsurance Contract, effective
July 1, 1994, among Associated, Calvert and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.56 of the 1994 Form 10-K.
10.22 Form of Stock Option Agreement under the 1995 Non-Employee
Directors Stock Option Plan incorporated herein by reference
to Exhibit 10.54 of the 1995 Form 10-K.
10.23 Combined Casualty 1st Excess of Loss and Quota Share
Reinsurance Contract, effective July 1, 1995, among
Associated, Calvert, Timberline Insurance Company and
various reinsurers stated therein incorporated herein by
reference to Exhibit 10.55 of the 1995 Form 10-K.
10.24 Casualty Second Excess of Loss Reinsurance Agreement,
effective July 1, 1995, among Associated, Calvert,
Timberline Insurance Company and various reinsurers stated
therein incorporated herein by reference to Exhibit 10.56 of
the 1995 Form 10-K.
10.25 Multi-Line Excess of Loss Reinsurance Contract, effective
July 1, 1995, among Associated, Calvert, Timberline
Insurance Company and various reinsurers stated therein
incorporated herein by reference to Exhibit 10.57 of the
1995 Form 10-K.
10.26 Casualty Excess of Loss Reinsurance Contract, effective July
1, 1993, among Associated, Calvert and various reinsurers
stated therein incorporated herein by reference to Exhibit
10.62 of the 1995 Form 10-K.
10.27 First Excess Casualty Contingency Reinsurance Contract,
effective October 1, 1992, among Associated and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.63 of the 1995 Form 10-K.
10.28 External Third through Fifth Excess Catastrophe Reinsurance
Contract, effective January 1, 1994, among Associated,
Calvert and various reinsurers stated therein incorporated
herein by reference to Exhibit 10.67 of the 1995 Form 10-K.
10.29 Second Catastrophe Excess Reinsurance Agreement, dated July
1, 1995, among Calvert and various reinsurers stated therein
incorporated herein by reference to Exhibit 10.74 of the
1995 Form 10-K.
10.30 Third Catastrophe Excess Reinsurance Agreement, dated July
1, 1995, among Calvert and various reinsurers stated therein
incorporated herein by reference to Exhibit 10.75 of the
1995 Form 10-K.
10.31 Fourth Catastrophe Excess Reinsurance Agreement, dated July
1, 1995, among Calvert and various reinsurers stated therein
incorporated herein by reference to Exhibit 10.76 of the
1995 Form 10-K.
10.32 Casualty First Excess of Loss Reinsurance Contract, dated
July 1, 1995, among Calvert, the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.77 of the 1995 Form 10-K.
10.33 Casualty Second Excess of Loss Reinsurance Contract, dated
July 1, 1995, among Calvert, the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.78 of the 1995 Form 10-K.
10.34 Casualty Third Excess of Loss Reinsurance Contract, dated
July 1, 1995, among Calvert, the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.79 of the 1995 Form 10-K.
10.35 Casualty Fourth Excess of Loss Reinsurance Contract, dated
July 1, 1995, among Calvert, the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.80 of the 1995 Form 10-K.
10.36 Property Excess Per Risk Reinsurance Contract, dated January
1, 1998 between the subsidiaries of the Company and various
reinsurers stated therein.
10.37 Property Excess and Surplus Lines Excess Per Risk
Reinsurance Contract, dated January 1, 1998 between the
subsidiaries of the Company and various reinsurers stated
therein.
10.38 Franchise Excess of Loss Reinsurance Contract, dated January
1, 1998 between the subsidiaries of the Company and various
reinsurers stated therein incorporated herein.
10.39 External Third Through Seventh Catastrophe Excess
Reinsurance Contract, dated January 1, 1998 between the
subsidiaries of the Company and various reinsurers stated
therein.
10.40 Aggregate Excess of Loss Reinsurance Contract, dated January
1, 1997 between the subsidiaries of the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.69 of the 1997 Form 10-K.
10.41 Per Event Reinsurance Contract, dated October 1, 1996
between the subsidiaries of the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.70 of the 1997 Form 10-K.
10.42 "Working" Per Event Reinsurance Contract, dated October 1,
1996 between the subsidiaries of the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.71 of the 1997 Form 10-K.
10.43 Excess Per Event Reinsurance Contract, dated October 1, 1996
between the subsidiaries of the Company and various
reinsurers stated therein incorporated herein by reference
to Exhibit 10.72 of the 1997 Form 10-K.
10.44 "Working" Per Event Reinsurance Contract, dated January 1,
1998 between the subsidiaries of the Company and various
reinsurers stated therein.
10.45 Excess Per Event Reinsurance Contract, dated January 1, 1998
between the subsidiaries of the Company and various
reinsurers stated therein.
10.46 Quota Share Reinsurance Contract, dated January 1, 1998
between the subsidiaries of the Company and Redland
Insurance Co.
10.47 Property Facultative Binding Agreement dated June 1, 1996
between the subsidiaries of the Company and various
reinsurers stated therein.
10.48 Excess of Loss, Blanch Catastrophe Plan, dated January 1,
1998 between the subsidiaries of the Company and
Scandinavian Reinsurance Co.
10.49 Commercial Automobile Quota Share Reinsurance Contract,
dated January 1, 1998 between the subsidiaries of the
Company and various reinsurers stated therein.
10.50 Entertainment Quota Share Treaty, dated January 1, 1998
between the subsidiaries of the Company and various
reinsurers stated therein.
10.51 Entertainment Excess of Loss Treaty, dated January 1, 1998
between the subsidiaries of the Company and various
reinsurers stated therein.
10.52 Stock Purchase Agreement, dated as of February 9, 1998, by
and between the Company of Dearborn Risk Management, Inc.
incorporated therein by reference to Exhibit 10.1 to Form 8-
K filed by the Company with the SEC on February 19, 1998.
21.1 Subsidiaries of the Company (included in Notes to the
Consolidated Financial Statements).
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K
are incorporated by reference to Item 14(a).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Gryphon Holdings Inc. has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
GRYPHON HOLDINGS INC.
Dated: March 25, 1998
By: Stephen A. Crane
Stephen A. Crane
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
Signature Title Date
Stephen A. Crane Director and President March 25, 1998
Stephen A. Crane (Chief Executive Officer)
Robert P. Cuthbert Chief Financial Officer March 25, 1998
Robert P. Cuthbert and Chief Accounting Officer
Robert M. Baylis Director March 25, 1998
Robert M. Baylis
Franklin L. Damon Director March 25, 1998
Franklin L. Damon
Robert R. Douglass Director March 25, 1998
Robert R. Douglass
David H. Elliott Director March 25, 1998
David H. Elliott
Hadley C. Ford Director March 25, 1998
Hadley C. Ford
Richard W. Hanselman Director March 25, 1998
Richard W. Hanselman
Joe M. Rodgers Director March 25, 1998
Joe M. Rodgers
George L. Yeager Director March 25, 1998
George L. Yeager
Form 10-K--Item 14(a)(1) and (2)
Gryphon Holdings Inc. and Subsidiaries
Index of Consolidated Financial Statements and Financial Statement Schedules
Page
Reports of Independent Auditors:
KPMG Peat Marwick LLP F-2
The following audited consolidated financial statements of
Gryphon Holdings Inc. and subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1997 and 1996 F-3
Consolidated Statements of Income
for the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
The following consolidated financial statement schedules of
Gryphon Holdings Inc. and subsidiaries are included
in Item 14(d):
Schedules
I Summary of Investments -- Other Than
Investments in Related Parties S-1
II Condensed Financial Information of Registrant S-2
III Supplemental Insurance Information S-4
IV Reinsurance S-5
VI Supplemental Information Concerning
Property/Casualty Insurance Operations S-6
All other schedules to the consolidated financial statements
required by Article 7 of Regulation S-X are not required under the related
instructions or are not applicable and, therefore, have been
omitted.
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Gryphon Holdings Inc.
We have audited the accompanying consolidated balance sheets of
Gryphon Holdings Inc. and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. In connection with
our audits of the consolidated financial statements, we have also
audited the financial statement schedules, as of December 31,
1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, as listed in the accompanying index.
These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules 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 financial
position of Gryphon Holdings Inc. and subsidiaries as of December
31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedules as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December
31, 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
February 24, 1998
</TABLE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Assets
Investments:
Fixed maturities, available for sale, at fair value
(amortized cost: 1997 - $274,506; 1996 - $274,515) $ 280,553 $ 280,164
Short-term investments, at cost, which
approximates market 257 307
Total investments 280,810 280,471
Cash and cash equivalents 32,272 23,398
Accrued investment income 4,071 3,919
Premiums receivable 16,151 18,509
Reinsurance recoverable on paid losses 18,261 14,326
Reinsurance recoverable on unpaid losses 140,810 137,952
Prepaid reinsurance premiums 16,573 18,965
Deferred policy acquisition costs 11,849 12,415
Deferred income taxes 10,569 10,282
Other assets 7,619 6,747
Total assets $ 538,985 $ 526,984
Liabilities and Stockholders' Equity
Policy liabilities:
Unpaid losses and loss adjustment expenses $ 328,911 $ 309,259
Unearned premiums 62,351 68,683
Total policy liabilities 391,262 377,942
Reinsurance balances payable 12,179 16,207
Income taxes payable 389 55
Long-term debt 21,125 24,625
Other liabilities 9,521 13,019
Total liabilities 434,476 431,848
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value; 15,000,000 shares
authorized; 8,148,050 shares issued 81 81
Additional paid-in capital 30,742 30,847
Foreign currency translation adjustment, net of tax (346) (219)
Net unrealized investment gains, net of tax 3,931 3,672
Deferred compensation (151) (257)
Retained earnings 95,065 86,271
Treasury stock, at cost; shares
1997: 1,461,169: 1996:1,487,075 (24,813) (25,259)
Total stockholders' equity 104,509 95,136
Total liabilities and stockholders' equity $ 538,985 $ 526,984
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
Year ended December 31,
1997 1996 1995
(Dollars and shares in thousands,
except per-share data)
<S> <C> <C> <C>
Revenues
Net premiums earned $ 104,246 $ 87,929 $ 83,399
Net investment income 17,061 16,453 15,839
Realized gains on investments 6,188 1,203 3,647
Other income 979 1,059
Total revenues 128,474 106,644 102,885
Expenses
Losses and loss adjustment expenses 71,015 57,700 50,816
Underwriting, acquisition, and insurance expenses 45,089 40,967 34,590
Interest expense 1,607 1,761 595
Total expenses 117,711 100,428 86,001
Income before income taxes 10,763 6,216 16,884
Provision for income taxes (benefit):
Current 2,395 1,389 2,969
Deferred (426) (1,336) 990
Total income taxes 1,969 53 3,959
Net income $ 8,794 $ 6,163 $ 12,925
Basic earnings per share $ 1.32 $ 0.93 $ 1.69
Weighted average shares outstanding 6,680 6,656 7,648
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Foreign Unrealized
Additional Currency Investment
Common Paid-in Translation Gains Deferred Retained Treasury
Stock Capital Adjustment (Losses) Compensation Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balances at
January 1, 1995 $ 81 $ 30,850 $ (259) $ (3,840) $ (242) $ 67,183 $ 93,773
Add (deduct):
Net income 12,925 12,925
Translation adjustment 50 50
Stock award plans 49 49
Net unrealized investment
gains, net of tax 11,903 11,903
Purchase of common stock
for treasury (25,478) (25,478)
Balances at
December 31, 1995 81 30,850 (209) 8,063 (193) 80,108 (25,478) 93,222
Add (deduct):
Net income 6,163 6,163
Translation adjustment (10) (10)
Stock award plans (3) (64) 219 152
Net unrealized investment
losses, net of tax (4,391) (4,391)
Balances at
December 31, 1996 81 30,847 (219) 3,672 (257) 86,271 (25,259) 95,136
Add (deduct):
Net income 8,794 8,794
Translation adjustment (127) (127)
Stock award plans (105) 106 446 447
Net unrealized investment
gains, net of tax 259 259
Balances at
December 31, 1997 $ 81 $ 30,742 $ (346) $ 3,931 $ (151) $ 95,065 $(24,813) $104,509
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 8,794 $ 6,163 $ 12,925
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in net policy liabilities 8,919 32,239 4,958
Decrease (increase) in premiums receivable 2,358 (1,034) (3,196)
Decrease (increase) in deferred
policy acquisition costs 566 (233) (2,388)
Deferred income tax provision (426) (1,336) 990
Decrease (increase) in other
assets and liabilities (3,009) 1,543 (539)
Amortization and depreciation 781 595 402
Amortization of bond discount, net 498 944 370
Realized gains on investments (6,188) (1,203) (3,647)
Increase (decrease) in
reinsurance balances payable (4,028) (13,166) 12,341
Decrease (increase) in accrued
investment income (152) 161 (175)
Net cash provided by operating activities 8,113 24,673 22,041
Investing activities
Sales of fixed maturities 438,021 281,728 221,026
Purchases of fixed maturities (434,292) (310,660) (249,119)
Maturities or calls of fixed maturities 1,800 3,000 4,775
Net sales of Short-term investments 50 230
Capital expenditures (1,568) (2,111) (366)
Net cash provided by (used in) investing activities 4,011 (27,813) (23,684)
Financing activities
Proceeds from long-term debt 25,500
Common stock acquired for treasury (25,478)
Principal payment on long-term debt (3,500) (875)
Issuance of common stock 340 217
Deferred compensation 37 (131)
Net cash provided by (used in) financing activities (3,123) (789) 22
Effect of exchange rate changes on cash (127) (10) 50
Increase (decrease) in cash and cash equivalents 8,874 (3,939) (1,571)
Cash and cash equivalents at beginning of year 23,398 27,337 28,908
Cash and cash equivalents at end of year $ 32,272 $ 23,398 $ 27,337
Supplemental disclosure of cash flow information
Income taxes paid $ 1,855 $ 1,701 $ 2,783
Interest paid 1,607 1,761 586
See accompanying notes to consolidated financial statements.
</TABLE>
1. Summary of Significant Accounting Policies
The significant accounting policies followed by the
Company are summarized below.
Basis of Presentation and Principles of Consolidation
Gryphon Holdings Inc. operates through its main
subsidiary, Gryphon Insurance Group Inc., as a specialty property
and casualty underwriting organization. The Company's wholly
owned insurance company subsidiaries are Associated International
Insurance Company ("Associated") and Calvert Insurance Company
("Calvert"), which operate in the property and casualty insurance
industry. Associated writes the majority of its property and
casualty insurance policies in the State of California. Calvert
writes property and casualty insurance policies throughout the
United States and Canada.
The accompanying consolidated financial statements have
been prepared on the basis of generally accepted accounting
principles ("GAAP"), which as to the two insurance subsidiaries
differ from the statutory accounting practices ("SAP") prescribed
or permitted by regulatory authorities, and include the accounts
of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of the consolidated financial statements
in conformity with GAAP requires the use of estimates and
assumptions that affect amounts reported in the consolidated
financial statements and the accompanying notes. Actual
results could differ from such estimates.
Premium Revenues
Direct, assumed and ceded property and liability insurance
premiums written are recognized as earned on a pro rata basis
over the terms of the policies. Unearned premiums are calculated
principally by the application of pro rata fractions and
represent the portion of premiums written that is applicable to
unexpired terms of policies in force.
Recoverable policy acquisition costs that vary with and
are directly related to the production of business, consisting of
commissions, premium taxes and other underwriting expenses
incurred, net of ceding allowances, are deferred and amortized to
income as the related premiums are earned. The Company does not
consider anticipated investment income when determining the
recoverability of amounts deferred. Amortization of deferred
policy acquisition costs amounted to $34.0 million, $30.1
million, and $26.7 million for the years ended December 31, 1997,
1996 and 1995, respectively.
Reinsurance
Assumed reinsurance premiums written, commissions and
unpaid losses and loss adjustment expenses are accounted for
based principally on the reports received from the ceding
insurance companies and in a manner consistent with the terms of
the related reinsurance agreements.
To limit its risks, the Company acquires reinsurance
coverage with retentions and limits that management believes are
appropriate for the circumstances. Reinsurance arrangements
effected under quota-share reinsurance contracts and excess-of-
loss reinsurance contracts provide for greater diversification of
business, allow management to control exposure to potential
losses arising from large risks, and provide additional capacity
for growth. The accompanying consolidated financial statements
reflect premiums earned, losses and loss adjustment expenses
("LAE") and underwriting, acquisition and insurance expenses, net
of reinsurance ceded. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability
associated with the reinsured policies.
Contingent commissions and retrospectively-rated premiums
are accounted for on an earned basis and are accrued, in
accordance with the terms of the applicable reinsurance
agreement, based on the estimated ultimate level of profitability
relating to such reinsured business. Accordingly, the
profitability of the reinsured business is continually reviewed
and as adjustments become necessary, such adjustments are
reflected in current operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Investments
The Company's securities are classified as available for
sale and reported at fair value, with unrealized gains and
losses, net of deferred income taxes, included in stockholders'
equity.
Fair values are based on quoted market prices, when
available, or estimates based on market prices for similar
securities, when quotes are not available. Short-term
investments are carried at cost, which approximates their fair
value. Realized gains and losses from sales or liquidations of
investments are determined on the basis of the specific
identification method and are included in net income. Investment
income is recognized when earned. The amortization of premium
and accretion of discount for fixed maturity securities are
computed utilizing the interest method.
Losses and Loss Adjustment Expenses
The liabilities for unpaid losses and LAE are based on the
Company's estimates of the ultimate cost of unpaid losses
reported prior to the close of the accounting period, IBNR
losses, and the related LAE. These liabilities are estimated by
management utilizing methods and procedures which it believes are
reasonable and necessarily are subject to the impact of future
changes in claim severity and frequency, as well as numerous
other factors. Although management believes that the estimated
liabilities for losses and LAE are reasonable, because of the
extended period of time over which such losses are reported and
settled, the subsequent development of these liabilities may not
conform to the assumptions inherent in their determination and,
accordingly, may vary from the estimated amounts included in the
accompanying consolidated financial statements. To the extent
that the actual emerging loss experience varies from the
assumptions used in the determination of these liabilities, they
are adjusted to reflect actual experience. Such adjustments, to
the extent they occur, are reported in the period recognized.
The Company's liabilities for unpaid losses and LAE
include estimates for certain types of latent exposures, such as
environmental impairment and asbestos-related claims, relating to
business written prior to 1985 and which are generally difficult
to establish with traditional reserving techniques.
The Company wrote policies with environmental impairment
and asbestos-related exposures at high attachment levels and
obtained reinsurance coverage reducing its net retention to
$50,000 per occurrence. Among the complications of reserving for
this type of business are a lack of sufficient historical data,
long reporting delays, uncertainty as to the number and identity
of insureds with potential exposure, and complex, unresolved
legal issues regarding policy coverage and the extent and timing
of any such contractual liability. Courts have reached different
and sometimes inconsistent conclusions as to when a loss occurred
and which policies provide coverage, which claims are covered,
whether there is an insured obligation to defend, how policy
limits are determined, how policy exclusions are applied and
interpreted, and whether clean-up costs are includible as insured
property damage. These legal issues are not likely to be
resolved in the near future.
The establishment of appropriate reserves is an inherently
uncertain process, and there can be no assurance that the
ultimate liability, particularly with respect to latent exposures
such as environmental impairment and asbestos, will not
materially exceed the Company's current liability for unpaid loss
and loss adjustment expense reserve estimates and have a material
adverse effect on its future results of operations and financial
condition. Furthermore, due to the inherent uncertainty of
estimating such liabilities, particularly with respect to such
latent exposures, it has been, and may over time continue to be,
necessary to revise such estimated liabilities. However, on the
basis of the Company's internal procedures, which analyze, among
other things, its experience with similar cases and historical
trends such as reserving patterns, loss payments, pending levels
of unpaid claims, and product mix, as well as court decisions,
economic conditions and public attitudes, management believes
that adequate provision has been made for the Company's
liabilities for unpaid losses and LAE as of December 31, 1997.
Foreign Currency
Transactions denominated in foreign currencies are
translated at the rate of exchange at the transaction date.
Revenues and expenses are translated at average exchange rates.
Assets and liabilities are translated at the exchange rates in
effect at the balance sheet date.
Earnings per Share
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share", which the Company
implemented in 1997. SFAS No. 128 establishes standards for
computing and presenting earnings per share. Primary earnings
per share have been replaced by basic earnings per share and
calculated by dividing income available to common stockholders by
the weighted average number of common shares outstanding during
the period. Fully diluted earnings per share have been replaced
by diluted earnings per share and calculated by including
additional common shares that would have been outstanding if
potentially dilutive shares had been issued during the period.
Prior period earnings per share were not affected by the adoption
of SFAS No. 128.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which requires enterprises to disclose
comprehensive income and its components in a prominent position
on the face of the financial statement. The Company will
implement this statement in 1998. This statement relates to
presentation of information and will have no impact on results of
operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information", which
will be effective for the Company beginning January 1, 1998.
SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive
information about a company's operating segments. This statement
relates to presentation of information and will have no impact on
results of operations or financial condition. Interim financial
information will be required beginning in 1999 (with comparative
1998 information). The Company is currently evaluating the
segment information disclosures required by SFAS No. 131.
In December of 1997, the American Institute of Certified
Public Accountants issued Statement of Position No. 97-3
"Accounting by Insurance and Other Enterprises for Insurance-
related Assessments" ("SOP 97-3"). SOP 97-3 establishes standards
for accounting for guaranty-fund and certain other insurance related
assessments. SOP 97-3 is effective for fiscal years beginning after
December 15, 1998 and requires any impact of adoption to be reported
as a change in accounting principle. The adoption of this statement
is not expected to have a material effect on the Company's results
of operations or financial condition.
2. Investments
The major categories of net investment income are
summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Fixed maturities $16,384 $ 16,256 $ 15,245
Cash, cash equivalents
and short-term investments 1,684 1,117 1,610
Total investment income 18,068 17,373 16,855
Less related expenses (1,007) (920) (1,016)
Net investment income $17,061 $ 16,453 $ 15,839
</TABLE>
The gross realized gains and losses from sales of fixed
maturity securities are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Gross realized gains $ 7,530 $ 3,074 $ 4,306
Gross realized losses (1,342) (1,871) (659)
Net realized gains on sales $ 6,188 $ 1,203 $ 3,647
</TABLE>
At December 31, 1997 and 1996, the amortized cost and
estimated fair values of investments in fixed maturities, by
categories of securities, and short-term investments were as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 78,623 $ 667 $ (22) $ 79,268
Debt securities issued
by foreign governments 5,857 130 (6) 5,981
Tax-exempt obligations of states
and political subdivisions 108,194 4,322 112,516
Mortgage-backed securities 47,488 501 (47) 47,942
Corporate securities 34,344 617 (115) 34,846
274,506 6,237 (190) 280,553
Short-term investments 257 257
$ 274,763 $ 6,237 $ (190) $ 280,810
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
<S> <C> <C> <C> <C
December 31, 1996
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 55,845 $ 826 $ (87) $ 56,584
Debt securities issued by
foreign governments 5,747 186 (10) 5,923
Tax-exempt obligations of states
and political subdivisions 141,686 4,718 (69) 146,335
Mortgage-backed securities 43,381 294 (214) 43,461
Corporate securities 27,856 345 (340) 27,861
274,515 6,369 (720) 280,164
Short-term investments 307 307
$ 274,822 $ 6,369 $ (720) $ 280,471
</TABLE>
At December 31, 1997, the amortized cost and estimated
fair value of fixed maturities, by contractual maturity, are
shown below. Expected maturities, which are best estimates, will
differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without prepayment
penalties.
<TABLE>
<CAPTION>
December 31, 1997
Amortized Fair
Cost Value
(Dollars in thousands)
<S> <C> <C>
Due in one year or less $ 279 $ 286
Due after one year through five years 65,562 66,567
Due after five years through ten years 95,153 97,677
Due after ten years 66,024 68,081
227,018 232,611
Mortgage-backed securities 47,488 47,942
Total $274,506 $280,553
</TABLE>
At December 31, 1997, investments in Federal National
Mortgage Association securities aggregating $11.8 million
represented the only investments in any entity in excess of 10.0%
of stockholders' equity other than those investments issued or
guaranteed by the U.S. government.
Securities on Deposit
At December 31, 1997 and 1996, securities with a fair
value of approximately $19.3 million and $18.6 million,
respectively were on deposit with various state or governmental
insurance departments in order to comply with statutory insurance
laws.
3. Losses and Loss Adjustment Expenses
The following table provides a reconciliation of beginning
and ending loss and LAE reserve balances of the Company for each
of the years in the three-year period ended December 31, 1997 as
computed in accordance with GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Gross reserves for losses and
LAE at the beginning of the year $ 309,259 $ 308,886 $ 315,691
Ceded reserves for losses and
LAE at the beginning of the year 137,952 152,975 169,889
Net reserves for losses and
LAE at the beginning of the year 171,307 155,911 145,802
Add: Provision for losses and
LAE for claims occurring in:
The current year 64,222 53,402 50,424
Prior years 6,793 4,298 392
Total net incurred losses and LAE 71,015 57,700 50,816
Less: Losses and LAE payments
for claims occurring in:
The current year 13,932 11,520 11,796
Prior years 40,289 30,784 28,911
Total net paid losses and LAE 54,221 42,304 40,707
Reserves for net losses and
LAE at end of year 188,101 171,307 155,911
Reinsurance recoverable on unpaid losses 140,810 137,952 152,975
Reserves for gross losses
and LAE at end of year $ 328,911 $ 309,259 $ 308,886
</TABLE>
The provision for losses and LAE for claims occurring in
prior years shows an unfavorable development of $6.8 million in
1997. The unfavorable development resulted principally from a
pre-1985 book of Casualty business and certain pre-1987
reinsurance-assumed business, both previously discontinued.
The following table provides a reconciliation of beginning
and ending loss and LAE reserve balances of the Company for each
of the years in the three-year period ended December 31, 1997 for
environmental impairment and asbestos-related liabilities.
<TABLE>
Reconciliation of Environmental Impairment and Asbestos-related
Liability for Loss and Loss Adjustment Expenses
(Dollars in thousands)
<CAPTION>
Year ended December 31,
Environmental Impairment Liability
1997 1996 1995
<S> <C> <C> <C>
Gross reserves for losses and
LAE at the beginning of the year $ 12,981 $ 11,938 $ 14,200
Ceded reserves for losses and
LAE at the beginning of the year 4,177 3,958 5,100
Net reserves for losses and
LAE at the beginning of the year 8,804 7,980 9,100
Add: Provision for losses and
LAE for claims occurring in prior years (845) 1,598 3
Less: Losses and LAE payments
for claims occurring in prior years 1,159 774 1,123
Reserves for net losses and LAE at end of year 6,800 8,804 7,980
Reinsurance recoverable on unpaid losses 5,200 4,177 3,958
Reserves for gross losses and LAE at end of year $ 12,000 $ 12,981 $ 11,938
Year ended December 31,
Asbestos-related Liability
1997 1996 1995
Gross reserves for losses and
LAE at the beginning of the year $ 4,121 $ 1,700 $ 4,050
Ceded reserves for losses and
LAE at the beginning of the year 3,110 1,060 3,350
Net reserves for losses and
LAE at the beginning of the year 1,011 640 700
Add: Provision for losses and
LAE for claims occurring in prior years 847 583 612
Less: Losses and LAE payments for
claims occurring in prior years 143 212 672
Reserves for net losses and LAE at end of year 1,715 1,011 640
Reinsurance recoverable on unpaid losses 2,500 3,110 1,060
Reserves for gross losses and LAE at end of year $ 4,215 $ 4,121 $ 1,700
</TABLE>
At December 31, 1997, the reserve for unpaid environmental
impairment losses and related LAE was approximately $6.8 million,
net of reinsurance recoverables deemed probable of collection by
the Company of approximately $5.2 million. The range of gross
reserves for unpaid environmental impairment losses and LAE is
estimated to be $12.0 million to $20.0 million and the range of
reserves, net of reinsurance recoverable, for unpaid
environmental impairment losses and LAE is estimated to be
approximately $6.8 million to $9.5 million.
At December 31, 1997, the reserve for unpaid asbestos-
related losses and related LAE was $1.7 million, net of
reinsurance recoverables deemed probable of collection by the
Company of approximately $2.5 million. The range of gross
reserves for unpaid asbestos-related losses and LAE is estimated
to be $4.2 million to $9.4 million and the range of reserves, net
of reinsurance recoverable, for unpaid asbestos-related losses
and LAE is estimated to be approximately $1.7 million to $3.3
million.
There are significant uncertainties in estimating the
amount of the Company's environmental impairment and asbestos-
related liabilities resulting from a lack of historical data,
long reporting delays, uncertainty as to the number and identity
of insureds with potential exposure, and complex, unresolved
legal issues regarding policy coverage and the extent and timing
of any such contractual liability. Courts have reached different
and sometimes inconsistent conclusions as to when a loss occurred
and what policies provide coverage, what claims are covered,
whether there is an insured obligation to defend, how policy
limits are determined, how policy exclusions are applied and
interpreted, and whether cleanup costs are includible as insured
property damage. These issues are not likely to be resolved in
the near future. As a result of these issues, the ultimate
number and cost of these claims may generate losses that vary
materially from the amounts currently recorded and could have a
material adverse effect on the Company's results of operations
and financial condition. While management believes the Company's
reserves for these coverages are appropriately established,
because of the uncertainty of circumstances surrounding many
critical factors that affect environmental impairment and
asbestos-related liabilities, there can be no assurance that the
Company's reserves for and losses from these claims will not
increase in the future.
4. Reinsurance
Certain premiums and losses are assumed from and ceded to
other insurance companies under various reinsurance agreements.
The Company cedes a portion of its business through quota share
treaties, excess of loss treaties and facultative placements, and
generally retains net amounts of risk ranging from $100,000 to
$500,000 per risk.
The following table sets forth the significant reinsurance
receivables due from reinsurers as of December 31, 1997.
<TABLE>
<CAPTION>
Year ended December 31, 1997
(Dollars in thousands)
Reinsurance A.M. Best's
Reinsurer Receivables Rating
<S> <C> <C>
American Re-Insurance Company $ 19,684 A+
Signet Star Reinsurance Corporation 10,853 A
Odyssey Reinsurance Corporation 10,507 A -
St. Paul Fire and Marine Insurance Company 10,224 A+
First Excess & Reinsurance Corporation 9,430 A
Lloyd's Underwriters 9,310 *
Great Lakes American Reinsurance Company 8,884 A -
Swiss Reinsurance America Corp. 7,589 A
* A.M. Best does not assign ratings to Lloyd's syndicates.
</TABLE>
The amount and cost of reinsurance available to companies
specializing in property and casualty insurance are subject, in
large part, to prevailing market conditions beyond the control of
the Company. The Company's ability to provide insurance at
competitive premium rates and coverage limits on a continuing
basis depends to a significant extent upon its ability to obtain
adequate reinsurance in amounts and at rates that will not
adversely affect its competitive position.
For the years ended December 31, 1997, 1996 and 1995,
amounts relating to assumed and ceded reinsurance premiums
written and earned and losses and LAE incurred reflected in the
accompanying consolidated statements of income approximated the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Premiums Written:
Assumed $ 3,315 $ 2,390 $ 2,076
Ceded 45,792 62,330 66,805
Premiums Earned:
Assumed $ 3,715 $ 2,209 $ 1,715
Ceded 48,179 63,824 66,064
Losses & LAE Incurred:
Assumed $ 14,617 $ 4,455 $ 2,585
Ceded 46,569 42,052 52,089
</TABLE>
At December 31, 1997 the Company held letters of credit of
approximately $7.7 million securing amounts due from reinsurers.
During 1997, Associated maintained a six-layer property
catastrophe reinsurance program which covered 95% of the annual
aggregate amount of property claims up to $138.0 million per
occurrence, subject to a retention of $2.5 million per
occurrence.
Associated limits its net retention to $100,000 per risk
for difference in conditions ("DIC"). Until October 1, 1996,
Associated retained $250,000 per risk for casualty, architects'
and engineers' professional liability, specialty lines, and
commercial auto and up to $500,000 per risk for non-DIC property
policies. Calvert reinsured various lines of business through
quota share treaties, excess of loss treaties and facultative
placements which limited Calvert's net retention per risk to a
maximum of $200,000 for property and casualty.
Effective October 1, 1996, the Company's reinsurance
program was restructured to provide protection for loss events
covering property and casualty classes of business, excluding DIC
and certain other property business. The program provides for
$24.5 million of coverage in excess of a new retention of
$500,000 for each and every event. Certain business is covered
by a quota share treaty that limits the Company's net retention
per risk to a maximum of $250,000.
Reinsurance ceded contracts do not relieve the Company of
its obligations to policyholders. The Company remains liable to
its policyholders for the portion reinsured to the extent that any
reinsurer does not meet its obligations for reinsurance ceded to it
under the reinsurance agreements. Failure of reinsurers to honor
their obligations could result in losses to the Company. In addition,
as is often the case in the normal course of business, the Company
is involved in disputes with reinsurers regarding certain loss
recoverables. Although the Company believes that such issues will be
resolved in the Company's favor, there can be no assurance that the
Company will prevail; an unfavorable resolution could have a material
effect on the Company's financial statements.
5. Federal Income Taxes
The Company uses an asset and liability approach for
financial accounting and reporting for income taxes. Under the
asset and liability method, deferred tax assets and liabilities
are recorded based on the difference between the financial
statement and tax bases of assets and liabilities and the tax
rates in effect when these temporary differences are expected to
reverse. The principal assets and liabilities giving rise to
such differences are loss and LAE reserves, unearned premiums,
deferred policy acquisition costs, and net unrealized investment
gains (losses).
The components of the net deferred income tax asset are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Discount on loss reserves $ 12,769 $ 12,270
Unearned premium reserve 3,204 3,477
Alternative minimum tax credit 1,099 1,099
Other, net 130 129
Deferred income tax asset 17,202 16,975
Deferred policy acquisitions costs (4,147) (4,345)
Unrealized gains on investments (2,117) (1,977)
Other, net (369) (371)
Deferred income tax liability (6,633) (6,693)
Net deferred income tax asset $ 10,569 $ 10,282
</TABLE>
The Company has not established a valuation reserve
because it believes, based on its tax-planning strategies and
projected future earnings, that it is likely that the net
deferred tax asset will be fully realized.
A reconciliation of income taxes computed at the statutory
federal income tax rate to the income tax provision is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
% of Pre-Tax % of Pre-Tax % of Pre-Tax
Amount Income Amount Income Amount Income
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes based on statutory
federal income tax rate $ 3,767 35.0% $ 2,176 35.0% $ 5,909 35.0%
Add (deduct):
Tax exempt interest (1,994)(18.5) (2,338)(37.6) (2,131)(12.6)
Other, net 196 1.8 215 3.5 181 1.1
Total income taxes $ 1,969 18.3% $ 53 0.9% $ 3,959 23.5%
</TABLE>
6. Long-Term Debt
In September 1995, the Company purchased 1.5 million
shares of its common stock beneficially owned by Willis Corroon
Group plc for a purchase price of $25.5 million, including
related expenses. The Company financed its purchase through an
unsecured term loan from commercial lending institutions. This
loan matures in varying amounts through 2002 with interest
payable at least quarterly. The term loan interest rate is
equivalent to either the bank's prime rate or the London
Interbank Offered Rate ("LIBOR") plus 1%, at the discretion of
the Company. The term loan agreement contains certain
restrictive covenants, including restrictions on the Company's
ability to declare or pay any cash dividends to its shareholders.
As of December 31, 1997, the weighted average interest rate was
6.89%, and the fair value of the loan approximated the carrying
value.
Principal payments due on the term loan are as follows:
Year ending December 31, Principal Amount
(Dollars in thousands)
1998 $ 3,625
1999 4,125
2000 4,625
2001 5,000
2002 3,750
Total $21,125
In October 1995, the Company entered into an interest rate
swap agreement with a commercial lending institution in order to
reduce the impact of interest rate fluctuations on the Company's
term loan. The interest rate swap was effected with respect to
the first $15.5 million of scheduled principal amortizations of
the $25.5 million loan. The impact of the swap was to create an
effective fixed rate of 6.97% on the $15.5 million principal
amount. As of December 31, 1997, the fair value of the interest
rate swap approximated the carrying value.
7. Fair Value of Financial Instruments
The Company follows SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." SFAS No. 119 requires disclosure of an estimate of
the fair value of financial instruments. The Statement defines
the fair value of financial instruments as the amount at which
the instruments could be exchanged in a current transaction
between willing parties. The following table summarizes the
carrying amount and estimated fair value of the Company's
financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Year ended December 31
1997 1996
(Dollars in thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Investments and cash $313,082 $313,082 $303,869 $303,869
Financial liabilities:
Long-term debt 21,125 21,129 24,625 24,651
</TABLE>
The following methods and assumptions were used to
estimate the fair value of each class of financial instrument:
Investments and cash
The fair values of fixed maturities are based on quoted
market prices. The fair value of short-term instruments
approximates amortized cost. The fair value of cash and cash
equivalents approximates amortized cost.
Long-term debt
The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or
similar issues or on current rates offered to the Company for
debt of the same maturities. The fair value includes the effect
of the interest rate swap.
8. Commitments and Contingencies
Leases
The Company and its subsidiaries lease certain office
facilities and computer equipment. Minimum rental commitments for
these leases, exclusive of escalations due to real estate taxes
and operating expenses, are as follows:
Year ending December 31, (Dollars in thousands)
1998 $1,163
1999 1,130
2000 964
2001 755
2002 784
Thereafter 4,728
$9,524
Total rent expense for all leases was $1,469,000,
$1,310,000 and $959,000 in 1997, 1996 and 1995, respectively.
9. Dividends and Stockholders' Equity
Dividends
Associated, a California domiciled company, and Calvert, a
Pennsylvania domiciled company, are required to file with the
Department of Insurance of various states an annual convention
statement, which is prepared in conformity with accounting
practices prescribed or permitted by the respective states.
These practices vary from GAAP principally in that policy
acquisition costs are charged to expense when incurred, deferred
federal income taxes are not recognized, investments are
reflected at amortized cost, and nonadmitted assets are excluded
from the balance sheet.
Under state insurance laws of Pennsylvania, the maximum
amount of dividends which can be paid by Pennsylvania-domiciled
insurance companies without prior approval of the Insurance
Commissioner is limited to the greater of 10% of surplus as
regards policyholders as of the preceding year end or the
insurance company's net income for the previous year. Under
state insurance laws of California, Associated is permitted to
pay as dividends to the Company, after advance notice to the
California Insurance Department, an amount equal to the greater
of 10% of Associated's policyholders surplus at the end of the
preceding year or its statutory net income for the preceding
year. Dividends in excess of these amounts require the prior
approval of the California Insurance Department. Dividends may
be paid only out of earned surplus. As such, at December 31,
1997, the maximum amount of dividends that Associated could pay
in 1998 without California Insurance Department approval amounted
to approximately $9.0 million and the maximum amount of dividends
that Calvert could pay in 1998 without Pennsylvania Insurance
Department approval amounted to approximately $2.0 million.
Stockholders' Equity
A reconciliation of the two insurance subsidiaries' net
income and stockholders' equity for each of the years in the
three years ended December 31, 1997 and as of December 31, 1997
and 1996, as reported to the various regulatory authorities in
accordance with SAP, to the related GAAP amounts included in the
accompanying consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Stockholders'
Net Income Equity
1997 1996 1995 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Associated's and Calvert's
statutory basis amounts $ 11,013 $ 7,298 $ 13,876 $ 87,705 $ 82,566
Add (deduct):
Deferred policy
acquisition costs (566) 233 2,388 11,849 12,415
Deferred income taxes 426 341 (728) 11,602 11,175
Nonadmitted assets 2,781 3,090
Unauthorized reinsurance 3,862 3,980
Foreign currency
translation adjustment 7 (68) (110)
Unrealized investment gains 3,931 3,672
Net income - non
insurance subsidiaries 794 816
Other, net (197) (67) 25 98 (33)
Associated's and Calvert's
GAAP amounts 11,477 8,553 15,451 121,828 116,865
Holding Company:
Non-insurance
company expenses (2,683) (2,390) (2,526)
GAAP equity (17,319) (21,729)
Consolidated amounts
-- GAAP basis $8,794 $6,163 $12,925 $104,509 $95,136
</TABLE>
10. Shareholder Rights Plan
In June 1995, the Board of Directors declared a dividend
of one right for each outstanding share of Common Stock. Each
right entitles the holder to purchase from the Company a unit
consisting of 1/100 of a share of Junior Participating Cumulative
Preferred Stock at a price of $50 per unit. Initially, the
rights will not be exercisable and will trade with the Common
Stock. In the event a person or group acquires 20% or more of
the Common Stock, or commences a tender offer for the outstanding
shares, the rights become exercisable.
If a person or group acquires 20% or more of the Common
Stock, the rights will entitle a holder (other than the acquiring
person or group of acquiring persons) to buy shares of Common
Stock having a market value of twice the exercise price of the
right. If the Company is subsequently involved in a merger or
other business combination with a holder of 20% or more of the
stock of the Company, the rights will entitle a holder to buy
shares of common stock of the acquiring corporation having a
market value of twice the exercise price of the right.
The rights may be redeemed by the Company at $.001 per
right at any time prior to the acquisition by any person or group
of 20% or more of the Company's shares. The rights have no
voting power and will expire in June 2005, if not previously
redeemed.
11. Property and Equipment
Property and equipment is classified with other assets in
the accompanying consolidated balance sheets and is stated at
cost, net of accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related property and equipment
and ranges principally from three to seven years.
Property and equipment, included in Other assets in the
balance sheet, is comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Furniture, fixtures and leasehold improvements $ 2,539 $ 2,475
Computers 2,074 1,011
Office equipment 416 354
5,029 3,840
Less: Accumulated depreciation and amortization 1,715 1,116
$ 3,314 $ 2,724
</TABLE>
12. Stock Option and Restricted Stock Plans
The Company's stock option plans provide for granting of
stock options to key employees and non-employee directors.
Options are granted at a price not less than the market price on
the date of grant. Options that have been granted under the
plans will become exercisable in four annual installments of 25%
each commencing on the second anniversary of the date of grant
and will expire ten years from the date of grant.
The Company's restricted stock award plan provides for the
granting of up to 100,000 shares of common stock to key
employees, subject to restrictions as to continuous employment
except in the case of death or normal retirement. Restrictions
generally expire over a five-year period from date of grant.
Compensation expense is recognized over the restriction period.
As of December 31, 1997, 76,500 shares are available for issuance
under the plan.
The Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123
provides an option either to continue the Company's current
method of accounting for stock-based compensation, or to adopt
the fair value method of accounting for stock-based employee
compensation plans, which would require the Company to expense
the fair value of its stock options at the date of grant over the
vesting period.
The Company has continued to elect to follow Accounting
Principle Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting
for its stock option and restricted stock plans. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plans other than for restricted stock awards.
Although the Company elected to continue to follow APB No. 25, it
is required to provide additional disclosures including pro forma
net income and earnings per share as if the Company adopted the
fair value method for recognition purposes in 1995.
A summary of stock option activity as of December 31,
1997, follows:
<TABLE>
<CAPTION>
Weighted Average of
Available Exercise Price of
for Option Outstanding Outstanding Options
<S> <C> <C> <C>
Balance, December 31, 1994 34,000 366,000 $13.18
Authorized 100,000
Granted (114,000) 114,000 14.89
Cancelled 21,000 (21,000) 13.07
Balance, December 31, 1995 41,000 459,000 13.61
Authorized 250,000
Granted (162,500) 162,500 17.44
Exercised (3,925) 13.00
Cancelled 59,250 (59,250) 15.03
Balance, December 31, 1996 187,750 558,325 14.58
Granted (46,500) 46,500 16.02
Exercised - (32,500) 13.00
Cancelled 41,250 (41,250) 15.18
Balance, December 31, 1997 182,500 531,075 14.76
</TABLE>
The following table summarizes outstanding and exercisable
options as of December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Range of Average Weighted Weighted
Year of Exercise Number Remaining Average Number Average
of Grant Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C> <C>
1993 $13 209,825 6.00 $13.00 148,263 $13.00
1994 $13 - $15 57,500 6.45 14.11 28,750 14.11
1995 $13 - $16 100,250 7.48 14.88 50,125 14.88
1996 $14 - $20 122,000 8.36 17.44 30,500 17.44
1997 $13 - $17 41,500 9.85 16.31 - 16.31
531,075 257,638
</TABLE>
The pro forma net income and basic earnings per share
determined consistent with SFAS No. 123 is as follows:
Pro forma (1) 1997 1996 1995
Net income $8,583 $5,974 $12,880
Basic earnings per share $1.28 $.90 $1.68
(1) During the initial phase-in period of SFAS No. 123, the
effects of applying the standard for either recognizing
compensation cost or providing pro forma disclosures are not
likely to be representative of the effects on reported net income
for future years, based on the fact that options vest over
several years and additional awards generally are made each year.
The weighted average fair value of options granted during
1997, 1996 and 1995 were $6.62, $7.64 and $6.29, respectively.
The Black-Scholes option-pricing model was used with the
following weighted average assumptions: volatility of 22.8%, and
risk-free interest rate of 5.99% in 1997; volatility of 24.3%,
and risk-free interest rate of 6.81% in 1996; volatility of
24.3%, and risk-free interest rate of 6.18% in 1995. For all
periods, a seven-year life is assumed.
13. Employee Benefits and Incentive Bonus Plans
The Company maintains a defined contribution retirement
401(k) & Profit Sharing Plan. Participation in the plan is
available to all employees upon their satisfaction of specified
eligibility requirements. Under the 401(k) component of the
plan, the Company matches, on a dollar-for-dollar basis, each
employee's contribution up to 3% of eligible compensation. Under
the profit sharing component of the plan, annual contributions
may be authorized by the Board of Directors based upon the
Company's performance for the relevant year. The Company's costs
are charged to income and amounted to $0.5 million in 1997, $0.5
million in 1996 and $0.4 million in 1995.
The Company maintains an annual incentive bonus plan for
officers and other key employees. Bonuses are based upon
predetermined objectives established by the Compensation
Committee. The Company's total incentive bonus plan expense for
the years ended December 31, 1997, 1996 and 1995 was $0.4
million, $0.6 million and $1.6 million, respectively.
14. Concentrations of Business
Gross premiums written in the State of California amounted
to approximately $59,696,000, $68,663,000 and $76,396,000 in
1997, 1996 and 1995, respectively. In the State of New York, the
Company's gross premiums written were $11,190,000, $11,975,000
and $20,141,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Gross premiums written in any other state do
not exceed 10% of gross premiums written.
The Company's architects' and engineers' professional
liability insurance business is produced by Risk Administration
and Management Company ("RAMCO"), an unaffiliated managing
general agent. For the years ended December 31, 1997, 1996 and
1995, direct premiums written by RAMCO for the Company amounted
to approximately $17,704,000, $17,843,000 and $14,452,000,
respectively.
15. Quarterly Financial Information (unaudited)
Quarterly financial information (unaudited) for the year
ended December 31, 1997 is presented below:
<TABLE>
<CAPTION>
Three months ended
March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross premiums written $ 35,651 $ 40,747 $ 37,290 $ 32,438
Net premiums written 24,423 27,209 28,223 20,479
Net premiums earned 23,101 25,917 27,783 27,445
Net investment income 4,170 4,315 4,344 4,232
Realized gains on investments 17 12 2,601 3,558
Other income 242 256 296 185
Total revenues 27,530 30,500 35,024 35,420
Income before income taxes 2,740 2,475 5,019 529
Net income 2,171 2,167 3,697 759
Basic earnings per share $ 0.33 $ 0.32 $ 0.55 $ 0.11
Weighted average shares outstanding 6,663 6,68 6,688 6,686
</TABLE>
Quarterly financial information (unaudited) for the year
ended December 31, 1996 is presented below:
<TABLE>
<CAPTION>
Three months ended
March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross premiums written $ 34,919 $ 39,017 $ 44,807 $ 38,194
Net premiums written 21,213 22,585 28,165 22,644
Net premiums earned 21,951 21,180 22,292 22,506
Net investment income 4,159 3,921 4,065 4,308
Realized gains (losses)
on investments 802 (190) 4 587
Other income 270 285 389 115
Total revenues 27,182 25,196 26,750 27,516
Income (loss) before income taxes 4,658 (294) 2,249 (397)
Net income 3,505 337 1,986 335
Basic earnings per share (1) $ 0.53 $ 0.05 $ 0.30 $ 0.05
Weighted average shares outstanding 6,648 6,656 6,660 6,661
(1) As a result of the Company's purchase of its Common Stock,
the average number of shares outstanding varies from quarter to
quarter, and the sum of the quarterly earnings per common share
may not equal the total for the year.
16. Subsequent Event
In February 1998, the Company agreed to acquire The First
Reinsurance Company of Hartford ("FRH") and certain affiliated
entities from Dearborn Risk Management, Inc. for a combination of
cash and preferred stock valued at $43.6 million, plus certain
other performance-driven contingent consideration.
The purchase consideration of $43.6 million consists of
$31.9 million of cash and $11.7 million fair value of a new issue
of Gryphon perpetual convertible preferred stock. The preferred
stock, which will have a face amount of $14.4 million, will be
convertible into 643,672 shares of the Company's common stock,
reflecting a conversion price of $22.44 per share. No cash
dividends will be paid or owed during the first four and one-half
years; a cash dividend at the rate of 4.0% of the face amount
will be paid thereafter. The preferred shares, which are non-
callable for three years, have no sinking fund or mandatory
redemption features. In connection with the transaction, Gryphon
intends to enter into a $55 million credit facility with a group
of financial institutions, the proceeds of which will be used to
pay the cash portion of the purchase price and to repay existing
bank borrowings.
The acquisition will be accounted for by the purchase
method of accounting under Opinion No. 16, "Business
Combinations," of the Accounting Principles Board of the American
Institute of Certified Public Accountants. Under this accounting
method, any excess of purchase price over the fair market value
of identifiable assets acquired less liabilities assumed will be
recorded as goodwill.
The transaction, which is subject only to regulatory
approvals and other customary conditions, is expected to close
during the second quarter of 1998.
</TABLE>
<TABLE>
At December 31, 1997
SCHEDULE I -- SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
<CAPTION>
COLUMN COLUMN COLUMN COLUMN
A B C D
Amount at
which
shown in the
Type of Investment Cost Value balance sheet
(Dollars in thousands)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government and
government agencies and authorities $ 78,623 $ 79,268 $ 79,268
States, municipalities and
political subdivisions 108,194 5,981 5,981
Foreign governments 5,857 112,516 112,516
Mortgage-backed securities 47,488 47,942 47,942
Corporate bonds 34,344 34,846 34,846
Total fixed maturities 274,506 280,553 280,553
Short-term investments 257 257 257
Total investments $274,763 $280,810 $280,810
</TABLE>
<TABLE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets
<CAPTION>
December 31,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 517 $ 289
Investment in subsidiaries 123,235 118,336
Income tax recoverable 1,574 439
Deferred income taxes 1,084 1,084
Other assets (99) 268
Total assets $ 126,311 $120,416
Liabilities and stockholders' equity
Liabilities:
Other liabilities $ 677 $ 655
Long-term debt 21,125 24,625
Total liabilities 21,802 25,280
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value; 15,000,000 shares
authorized; 8,148,050 shares issued 81 81
Additional paid in capital 30,742 30,847
Foreign currency translation adjustment, net of tax (346) (219)
Net unrealized gains, net of tax 3,931 3,672
Deferred compensation (151) (257)
Retained earnings 95,065 86,271
Treasury stock, at cost; shares
1997: 1,487,075: 1996: 1,500,000 (24,813) (25,259)
Total stockholders' equity 104,509 95,136
Total liabilities and stockholders' equity $ 126,311 $120,416
</TABLE>
<TABLE>
Statements of Income
<CAPTION>
Year ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Revenue
Net investment income $ 28 $ 24 $ 28
Total revenues 28 24 28
Expenses
Operating expenses 2,521 1,921 3,282
Interest expense 1,607 1,761 595
Total expenses 4,128 3,682 3,877
Loss before income taxes and equity in
undistributed income of subsidiaries (4,100) (3,658) (3,849)
Income tax benefit 1,417 1,268 1,323
Loss before equity in undistributed
income of subsidiaries (2,683) (2,390) (2,526)
Equity in undistributed income
of subsidiaries 11,477 8,553 15,451
Net income $ 8,794 $ 6,163 $12,925
</TABLE>
<TABLE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Cash Flows
<CAPTION>
Year ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities
Loss before equity in undistributed
income of subsidiaries $ (2,683) $ (2,390) $ (2,526)
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in income tax recoverable (487)
Deferred income tax provision (995) 261
Amortization and depreciation 79 68 85
Decrease (increase) in other
assets and liabilities (684) (798) 825
Net cash used by operating activities (3,288) (4,115) (1,842)
Investing activities
Capital expenditures (11) (2) (5)
Net cash used by investing activities (11) (2) (5)
Financing activities
Dividends received 6,650 4,726 2,000
Proceeds from long-term debt 25,500
Common stock acquired for treasury (25,478)
Issuance of common stock 340 217
Deferred compensation 37 (131)
Principal payment on long term debt (3,500) (875)
Net cash provided by financing activities 3,527 3,937 2,022
Increase (decrease) in cash
and cash equivalents 228 (180) 175
Cash and cash equivalents at
beginning of year 289 469 294
Cash and cash equivalents at end of year $ 517 $ 289 $ 469
</TABLE>
<TABLE>
Year ended December 31,
SCHEDULE III--SUPPLEMENTAL INSURANCE INFORMATION
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J
Future Policy
Benefits Other Policy Benefits Underwriting,
Deferred Policy Losses, Claims Claims and Claims Losses Acquisition,
Acquisition and Loss Unearned Benefits Premium Net Investment & Settlement and Insurance Premiums
Year&Segment Costs Expenses Premiums Payable Revenue Income Expenses Expense Written
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
1997
Property/
Casualty $ 11,849 $ 328,911 $ 62,351 $ 0 $104,246 $ 17,061 $ 71,015 $ 45,089 $100,334
Total $ 11,849 $ 328,911 $ 62,351 $ 0 $104,246 $ 17,061 $ 71,015 $ 45,089 $100,334
1996
Property/
Casualty $ 12,415 $ 309,259 $ 68,683 $ 0 $ 87,929 $ 16,453 $ 57,700 $ 40,967 $ 94,607
Total $ 12,415 $ 309,259 $ 68,683 $ 0 $ 87,929 $ 16,453 $ 57,700 $ 40,967 $ 94,607
1995
Property/
Casualty $ 12,182 $ 308,886 $ 63,472 $ 0 $ 83,399 $ 15,839 $ 50,816 $ 34,590 $ 90,175
Total $ 12,182 $ 308,886 $ 63,472 $ 0 $ 83,399 $ 15,839 $ 50,816 $ 34,590 $ 90,175
</TABLE>
<TABLE>
Year ended December 31,
SCHEDULE IV--REINSURANCE
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
<S> <C> <C> <C> <C> <C>
Percentage of
Assumed from Amount
Ceded to Other Other Assumed to
Direct Amount Companies Companies Net Amount Net
(Dollars in thousands)
1997
Premiums:
Property/ Casualty
Insurance $ 142,811 $ 45,792 $ 3,315 $ 100,334 3.3%
Total Premiums$ 142,811 $ 45,792 $ 3,315 $ 100,334 3.3%
1996
Premiums:
Property/Casualty
Insurance $ 154,547 $ 62,330 $ 2,390 $ 94,607 2.5%
Total Premiums$ 154,547 $ 62,330 $ 2,390 $ 94,607 2.5%
1995
Premiums:
Property/Casualty
Insurance $ 154,904 $ 66,805 $ 2,076 $ 90,175 2.3%
Total Premiums$ 154,904 $ 66,805 $ 2,076 $ 90,175 2.3%
</TABLE>
<TABLE>
Year ended December 31,
SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
Claims & Claim
Adjustment Expenses
Incurred Related to
(1) (2)
Reserves for Amortization
Affiliation Policy Claim any, Net Policy and Claim
with Acquisition Adjustment Deducted in Unearned Earned Investment Current Prior Acquisition Adjustment Premiums
Company Costs Expenses Column C Premiums Premiums Income Year Years Costs Expenses Written
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
1997
Consolidated
Property/Casualty
Entities $11,849 $328,911 $ - $62,351 $104,246 $17,061 $64,222 $ 6,793 $34,006 $54,221 $100,334
1996
Consolidated
Property/Casualty
Entities $12,415 $309,259 $ - $68,683 $87,929 $16,453 $53,402 $ 4,298 $30,062 $42,304 $ 94,607
1995
Consolidated
Property/Casualty
Entities $12,182 $308,886 $ - $63,472 $83,399 $15,839 $50,424 $ 392 $26,706 $40,707 $ 90,175
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 280553
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 280810
<CASH> 32272
<RECOVER-REINSURE> 18261
<DEFERRED-ACQUISITION> 11849
<TOTAL-ASSETS> 538985
<POLICY-LOSSES> 328911
<UNEARNED-PREMIUMS> 62351
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 21125
0
0
<COMMON> 81
<OTHER-SE> 104428
<TOTAL-LIABILITY-AND-EQUITY> 538985
104246
<INVESTMENT-INCOME> 17061
<INVESTMENT-GAINS> 6188
<OTHER-INCOME> 979
<BENEFITS> 71015
<UNDERWRITING-AMORTIZATION> 45089
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 10763
<INCOME-TAX> 1969
<INCOME-CONTINUING> 8794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8794
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<RESERVE-OPEN> 171307
<PROVISION-CURRENT> 64222
<PROVISION-PRIOR> 6793
<PAYMENTS-CURRENT> 13932
<PAYMENTS-PRIOR> 40289
<RESERVE-CLOSE> 188101
<CUMULATIVE-DEFICIENCY> (6793)
</TABLE>
E. W. BLANCH CO.
R:\98R\15176.DOC Reinsurance Services
Page 20
Property Excess Per Risk
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Classes of Business Reinsured 3
II Term 3
III Territory 4
IV Exclusions 4
V Retention and Limit 6
VI Reinstatement: Second Property Excess Per Risk 7
VII Other Reinsurance 8
VIII Definitions 8
IX Losses and Loss Adjustment Expense 11
X Special Provisions 12
XI Salvage and Subrogation 12
XII Premium 12
XIII Offset (BRMA 36C) 14
XIV Access to Records (BRMA 1D) 14
XV Liability of the Reinsurer 14
XVI Net Retained Lines (BRMA 32E) 14
XVII Errors and Omissions (BRMA 14F) 14
XVIII Currency (BRMA 12A) 15
XIX Taxes (BRMA 50C) 15
XX Federal Excise Tax (BRMA 17A) 15
XXI Unauthorized Reinsurers 15
XXII Insolvency 17
XXIII Arbitration 18
XXIV Service of Suit (BRMA 49C) 19
XXV Agency Agreement 19
XXVI Intermediary (BRMA 23A) 19
Property Excess Per Risk
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Property business underwritten by Associated
International Insurance Company, Woodland Hills, California,
subject to the terms, conditions and limitations hereinafter set
forth.
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses occurring on or after that date, and shall
remain in force until December 31, 1998, both days inclusive.
B. Unless the Company elects that the Reinsurer have no liability
for losses occurring after the effective date of expiration,
and so notifies the Reinsurer prior to or as promptly as
possible after the effective date of expiration, reinsurance
hereunder on business in force on the effective date of
expiration shall remain in full force and effect until
expiration, cancellation or next premium anniversary of such
business, whichever first occurs, but in no event beyond
12 months plus odd time (not exceeding 18 months in all as
respects Builders' Risk policies) following the effective date
of expiration.
Article III - Territory
This Contract shall apply to the territorial limits set forth in
the Company's policies reinsured hereunder.
Article IV - Exclusions
A. This Contract does not apply to and specifically excludes the
following:
1. Loss or liability excluded under the terms of the
"Pools, Associations & Syndicates Exclusion Clause"
attached to and forming part of this Contract.
2. All reinsurance assumed, with the exception of intra-
company reinsurance and specific insureds whose
reinsurance is written through their own captive company
and quoted by a non-related entity.
3. Risks of war, whether or not declared, invasion,
civil war, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
4. Hail insurance or reinsurance covering growing,
drying or standing crops when written as such.
5. Flood when written as such; however, this exclusion
shall not apply to flood when included in Difference in
Conditions, Inland Marine and All Risk policies.
6. All armored car business except when written in
excess of $500,000.
7. Credit, financial or insolvency guarantees.
8. Livestock insurance or reinsurance when written as
such.
9. Third Party Bodily Injury and Property Damage
Liability, Medical Payments, Workers' Compensation,
Fidelity and Surety, whether written separately or as part
of a Multiple Peril policy. However, nothing herein
contained shall be construed as excluding liability for
damage to property in an insured's care, custody or
control or for which the insured may be liable.
10. Ocean Marine when written as such.
11. Aircraft, meaning direct damage to hulls insured
under Aircraft Hull policies, but not to exclude aircraft
hulls insured under regular Fire, Inland Marine and All
Risk policies (other than Aircraft Hull policies). In no
event shall any liability attach to the Reinsurer
hereunder in respect of aircraft while in flight or
taxiing.
12. Offshore drilling rigs.
13. Automobile risks insured under Automobile policies
with the exception of floor plans.
14. Space and space related risks for the intention of
ignition of the launch vehicle which includes taxiing
within the launch site area and in flight.
15. Grain elevators.
16. Petrochemical risks and refineries.
17. Underground mining.
18. Inland Marine policies covering jewelers block and
motor truck cargo.
19. Mortgage Impairment insurance.
20. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
21. Kidnap and Ransom.
22. Residual Value and Credit insurance.
23. Crop insurance.
24. Burglary and Theft when written as such.
25. Strike insurance.
26. Product impairment, recall and tampering.
27. Data processing companies whose sole purpose is to
provide data processing services to other companies which
include media exposures defined as material on which data
is to be or is already stored (i.e., disks, magnetic and
paper tapes, drums, cores and programs).
28. Risks as detailed in the "Target Risks Exclusion
Clause" attached to and forming part of this Contract.
29. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance
(U.S.A.)," the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (Canada)," and the "Nuclear
Energy Risks Exclusion Clause - Reinsurance (Worldwide
Excluding U.S.A. & Canada)," attached to and forming part
of this Contract.
30. Boiler and Machinery when written as such.
31. Mechanical breakdowns when written as such.
32. Transmission and distribution lines.
Notwithstanding the foregoing provisions of this paragraph A,
these exclusions do not apply where the excluded class or
operations, in the opinion of the Company, constitutes a minor
part of or incidental exposure to the main operations of the
insured, except for exclusions 2, 3, 7, 10, 11, 12, 14, 20,
28, 29 and 32 of this paragraph A.
B. As respects business written by the General E&S department,
this Contract does not apply to and specifically excludes the
following:
1. Onshore drilling rigs.
2. Equipment maintenance, warranty or similar coverages.
Notwithstanding the foregoing provisions of this paragraph B,
these exclusions do not apply where the excluded class or
operations, in the opinion of the Company, constitutes a minor
part of or incidental exposure to the main operations of the
insured.
Article V - Retention and Limit
A. First Property Excess Per Risk Reinsurance
The Company shall retain and be liable for the first $100,000
of ultimate net loss as respects any one risk, each loss. The
Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company's retention, but the
liability of the Reinsurer shall not exceed $4,900,000 as
respects any one risk, each loss, nor shall it exceed
$12,500,000 as respects all risks involved in any one loss
occurrence.
B. Second Property Excess Per Risk Reinsurance
The Company shall retain and be liable for the first
$5,000,000 of ultimate net loss as respects any one risk, each
loss. The Reinsurer shall then be liable for the amount by
which such ultimate net loss exceeds the Company's retention,
but the liability of the Reinsurer shall not exceed $5,000,000
as respects any one risk, each loss, nor shall it exceed
$10,000,000 as respects all risks involved in any one loss
occurrence.
C. The Company shall be the sole judge of what constitutes "one
risk," except that in no event shall a building and its
contents be considered more than one risk.
Article VI - Reinstatement: Second Property Excess Per Risk
A. As respects the Second Property Excess Per Risk layer
hereunder, in the event all or any portion of the reinsurance
hereunder is exhausted by loss arising out of any one loss
occurrence, the amount so exhausted shall be reinstated
immediately from the time the loss occurrence commences
hereon.
1. For the first $10,000,000 of ultimate net loss so
reinstated the Company shall pay no additional premium.
2. For the second $10,000,000 of ultimate net loss so
reinstated the Company agrees to pay additional premium
equal to the product of the following:
a. The percentage of the occurrence limit reinstated
(based on the ultimate net loss paid by the Reinsurer);
times
b. One-half of the earned reinsurance premium for
that excess layer for the term of this Contract
(exclusive of reinstatement premium).
3. For the third $10,000,000 of ultimate net loss so
reinstated the Company agrees to pay additional premium
equal to the product of the following:
a. The percentage of the occurrence limit reinstated
(based on the ultimate net loss paid by the Reinsurer);
times
b. The earned reinsurance premium for that excess
layer for the term of this Contract (exclusive of
reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
ultimate net loss hereunder, the Company shall submit a
statement to the Reinsurer of reinstatement premium due the
Reinsurer. If the earned reinsurance premium for the term of
this Contract has not been finally determined as of the date
of any such statement, the calculation of reinstatement
premium due shall be based on the annual deposit premium and
shall be readjusted when the earned reinsurance premium for
the term of this Contract has been finally determined. Any
reinstatement premium shown to be due the Reinsurer as
reflected by any such statement (less prior payments, if any)
shall be payable by the Company concurrently with payment by
the Reinsurer of the requested loss. Any return reinstatement
premium shown to be due the Company shall be remitted by the
Reinsurer as promptly as possible after receipt and
verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer under the Second Property Excess Per Risk
reinsurance shall not exceed $10,000,000 as respects all risks
involved in any one loss occurrence, nor shall it exceed
$40,000,000 in all during the term of this Contract.
Article VII - Other Reinsurance
A. The Company shall be permitted to carry excess catastrophe
reinsurance, recoveries under which shall inure solely to the
benefit of the Company and be entirely disregarded in applying
all of the provisions of this Contract.
B. With regard to business written in the General E&S division of
the Company, the Company shall be permitted to carry excess
and/or pro rata reinsurance, recoveries under which shall
inure solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
C. The Company shall be permitted to purchase facultative
reinsurance, recoveries under which may inure to the benefit
of this Contract. If such reinsurance does not inure to the
benefit of this Contract, it will be entirely disregarded as
respects this Contract.
Article VIII - Definitions
A. The term "ultimate net loss" shall mean the actual loss
incurred by the Company under policies covered hereunder.
Such loss shall include sums paid in settlement of claims and
suits and in satisfaction of judgments, including prejudgment
interest when added to a judgment. Such loss also shall
include any losses in excess of policy limits and any extra
contractual obligations incurred by the Company.
All salvages, recoveries, payments and reversals or reductions
of verdicts or judgments whether recovered, received or
obtained prior or subsequent to loss settlement under this
Contract, including amounts recoverable under other
reinsurance whether collected or not, shall be applied as if
recovered, received or obtained prior to the aforesaid
settlement and shall be deducted from the actual losses
sustained to arrive at the amount of the net loss. Nothing
herein shall be construed to mean losses are not recoverable
until the net loss to the Company finally has been
ascertained.
B. "Loss adjustment expense" as used herein shall include:
1. Expenses sustained in connection with settlement and
litigation of claims and suits, satisfaction of judgments,
resistance to or negotiations concerning a loss (which
shall include the pro rata share of the Company's outside
employees according to the time occupied in adjusting such
loss and the salaries and expenses of the Company's
employees while diverted from their normal duties to the
service of field adjustment, but shall not include any
salaries of officers nor normal overhead expenses of the
Company);
2. Legal expenses and costs incurred in connection with
coverage questions and legal actions, including
declaratory judgment actions, connected thereto;
3. All interest on judgments other than prejudgment
interest when added to a judgment, and;
4. Expenses sustained to obtain recoveries, salvages and
other reimbursements, or to secure the reversal or
reduction of a verdict or judgment.
C. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90% of
any amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its
policy, as a result of an action against it by its insured
or its insured's assignee to recover damages the insured
is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits,
or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean 90% of any
punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company as a result of an action against
it by its insured, its insured's assignee or a third party
claimant, which action alleges negligence or bad faith on
the part of the Company in handling a claim under a policy
subject to this Contract.
There will be no recovery hereunder for an extra contractual
obligation or loss in excess of policy limits that has been
incurred due to fraud committed by a member of the board of
directors or a corporate officer of the Company, acting
individually, collectively, or in collusion with a member of
the board of directors, a corporate officer, or a partner of
any other corporation, partnership, or organization involved
in the defense or settlement of a claim on behalf of the
Company.
The date on which any extra contractual obligation and/or loss
in excess of policy limits is incurred by the Company will be
deemed, in all circumstances, to be the date of the original
loss occurrence. Nothing in this Article will be construed to
create a separate or distinct loss occurrence apart from the
original covered loss occurrence that gave rise to the extra
contractual obligations and/or loss in excess of policy limits
discussed in the preceding paragraphs. In no event will the
total liability of the Reinsurer exceeds its applicable limit
of liability as set forth in Article V.
Recoveries from any form of insurance or inuring reinsurance,
if any, which protects the Company against claims the subject
matter of this paragraph shall inure to the benefit of this
Contract.
D. 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 anywhere in the world
but limited in the United States of America and Canada to the
area of one state of the United States or province of Canada
and states or provinces contiguous thereto and to one another.
However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the
Company occurring during any period of 168 consecutive hours
arising out of and directly occasioned by the same event,
except that the term "loss occurrence" shall be further
defined as follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of
72 consecutive hours may be extended in respect of
individual losses which occur beyond such
72 consecutive hours during the continued occupation of an
assured's premises by strikers, provided such occupation
commenced during the aforesaid period.
3. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to in the introductory portion of this
paragraph D) and fire following directly occasioned by the
earthquake, only those individual fire losses which
commence during the period of 168 consecutive hours may be
included in the Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
Except for those "loss occurrences" referred to in
subparagraphs 1 and 2 above, the Company may choose the date
and time when any such period of consecutive hours commences,
provided that it is not earlier than the date and time of the
occurrence of the first recorded individual loss sustained by
the Company arising out of that disaster, accident or loss,
and provided that only one such period of
168 consecutive hours shall apply with respect to one event.
However, as respects those "loss occurrences" referred to in
subparagraphs 1 and 2 above, if the disaster, accident or loss
occasioned by the event is of greater duration than
72 consecutive hours, then the Company may divide that
disaster, accident or loss into two or more "loss
occurrences," provided that no two periods overlap and no
individual loss is included in more than one such period, and
provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster,
accident or loss.
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.
E. "Net earned premium" as used herein is defined as the
Company's gross earned premium for the classes of business
subject to this Contract, less only the earned portion of
premiums, if any, ceded by the Company for reinsurance which
inures to the benefit of this Contract.
F. "Losses incurred" as used herein shall mean losses and loss
adjustment expense paid by the Reinsurer as of the effective
date of calculation, plus the ceded reserves for losses and
loss adjustment expense outstanding as of the same date, all
as respects losses occurring during the term of this Contract.
For all loss occurrences during the term of this Contract
which have two or fewer policies with loss subject to this
Contract, up to two policies having the largest subject loss
recoverables during the term of this Contract shall be deemed
to have a maximum loss and loss adjustment expense recovery of
$900,000 included in losses incurred hereunder.
Article IX - Losses and Loss Adjustment Expense
A. Whenever a loss sustained by the Company appears likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
C. In the event of loss hereunder, loss adjustment expenses (as
defined in Article VIII) incurred by the Company in connection
therewith shall be shared by the Company and the Reinsurer in
the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total ultimate net loss paid or payable
by the Company, prior to any reinsurance recoveries, but after
deduction of all salvage and other recoveries. The
Reinsurer's liability for loss adjustment expenses shall be in
addition to its limit of liability for ultimate net loss.
D. In the event the ultimate net loss subject to recovery
hereunder includes an amount of loss in excess of policy
limits and/or extra contractual obligations, then the actual
ultimate net loss recovered hereunder shall be allocated among
indemnity loss, loss in excess of policy limits and/or extra
contractual obligations as follows:
1. When the limits defined in paragraphs A, B and/or C
of Article V with regard to all risks subject to recovery
hereunder involved in any one loss occurrence have not
been exceeded, the actual ultimate net loss recovered
hereunder as respects any one risk, each loss shall be
allocated to indemnity loss, loss in excess of policy
limits and/or extra contractual obligations in the same
proportion that each bears to the total ultimate net loss
subject to recovery on that risk.
2. When the limits defined in paragraphs A, B and/or C
of Article V with regard to all risks subject to recovery
hereunder involved in any one loss occurrence have been
exceeded, the actual ultimate net loss recovered hereunder
as respects any one loss occurrence shall be allocated to
indemnity loss, loss in excess of policy limits and/or
extra contractual obligations in the same proportion that
each bears, before application of the applicable per
occurrence limit, to the total ultimate net loss subject
to recovery on that loss occurrence.
Article X - Special Provisions
As respects loss or damage or costs or expenses arising from
asbestos or seepage and/or pollution and/or contamination, other
than contamination from smoke damage, the maximum sublimit shall
be $25,000 per risk, each loss, or so deemed. Nevertheless, this
does not preclude payment of the cost of removal of debris of
property damaged by a loss otherwise covered hereunder.
Article XI - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XII - Premium
A. First Property Excess Per Risk Reinsurance
1. As provisional premium for the First Property Excess
Per Risk Reinsurance provided hereunder, the Company shall
pay the Reinsurer a deposit premium of $3,125,000 in four
equal installments of $781,250 on January 1, April 1,
July 1 and October 1 of 1998. The provisional premium
paid by the Company shall be adjusted periodically in
accordance with the provisions set forth herein. For
purposes hereof, the "term of this Contract" shall be from
the effective date of this Contract through the date of
expiration if this Contract expires on a "cutoff" basis or
the end of the runoff period if this Contract expires on a
"runoff" basis.
2. The adjusted premium for the term of this Contract
shall be equal to the Reinsurer's losses incurred for the
term of this Contract, plus 3.6% of the Company's net
earned premium for the term of this Contract, but the
adjusted premium shall not be less than an amount equal to
6.72% of the Company's net earned premium for the term of
this Contract, nor shall it exceed an amount equal to
10.1% of the Company's net earned premium for the term of
this Contract.
3. In the event this Contract expires on a "runoff"
basis, on December 31, 1998, the Company shall pay the
Reinsurer, as promptly as possible after that date, an
additional deposit premium of 8.4% of the Company's
subject net unearned premium as of December 31, 1998. The
Company shall calculate and report the adjusted premium
for the term of this Contract in accordance with
subparagraph 2 within 60 days following 12 months after
the expiration of this Contract and within 60 days after
the end of each 12-month period thereafter until all
losses occurring during the term of this Contract have
been finally settled. If the adjusted premium exceeds the
reinsurance premiums previously paid for the term of this
Contract, the Company shall remit the difference to the
Reinsurer with its report. If the adjusted premium is
less than reinsurance premiums previously paid for the
term of this Contract, the Reinsurer shall remit the
difference to the Company as promptly as possible after
receipt and verification of the Company's report.
B. Second Property Excess Per Risk Reinsurance
1. As premium for the Second Property Excess Per Risk
Reinsurance provided hereunder during the period
January 1, 1998 through December 31, 1998, the Company
shall pay the Reinsurer the greater of $750,000 or 2.0% of
its net earned premium for such period.
2. The Company shall pay the Reinsurer a deposit premium
of $750,000 in four equal installments of $187,500 on
January 1, April 1, July 1 and October 1 of 1998.
3. As promptly as possible after December 31, 1998, the
Company shall provide a report to the Reinsurer setting
forth the premium due hereunder, computed in accordance
with subparagraph 1, and any additional premium due the
Reinsurer shall be remitted by the Company with its
report.
4. In the event this Contract expires on a "runoff"
basis, on December 31, 1998, the Company shall pay the
Reinsurer, as promptly as possible after that date,
premium for the runoff period equal to 2.0% of the
Company's subject net unearned premium as of December 31,
1998.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XV - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVI - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XIX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves (including incurred but not
reported loss reserves) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves (including incurred but not
reported loss reserves) funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
F. It is agreed that the jurisdiction of the Arbiters to make or
render any decision or award shall be limited by the limit of
liability expressly hereinbefore set forth, and that the
Arbiters shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of
liability of the Reinsurer, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage
awards between the parties hereto.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of ______________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
Section A:
Excluding:
(a) All business derived directly or indirectly from any
Pool, Association or Syndicate which maintains its own
reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory)
formed after March 1, 1968 for the purpose of insuring
property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the
same perils, which is known at the time to be insured by, or in
excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals,
Improved Risk Mutuals,
Any Pool, Association or Syndicate formed for the purpose of
writing Oil, Gas or Petro-Chemical Plants and/or Oil or Gas
Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters.
Section B does not apply:
(a) Where The Total Insured Value over all interests of
the risk in question is less than $300,000,000.
(b) To interests traditionally underwritten as Inland
Marine or stock and/or contents written on a blanket
basis.
(c) To Contingent Business Interruption, except when the
Company is aware that the key location is known at the
time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section
B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only.
Where this clause attaches to Catastrophe Excesses, the
following Section C is added:
Nevertheless the Reinsurer specifically agrees that
liability accruing to the Company from its participation in:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association
Louisiana Insurance Underwriting Association
Mississippi Insurance Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting
Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" business
for all perils otherwise protected hereunder shall not be
excluded, except, however, that this reinsurance does not include
any increase in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" or "Fair Plan" to meet its liability.
(ii) Any claim against such "Coastal Pool" or "Fair
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 Fund Exclusion Clause
incorporated in this Contract).
E. W. BLANCH CO.
R:\98R\15177.DOC Reinsurance Services
Page 6
Property Excess and Surplus Lines
Excess Per Risk Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Classes of Business Reinsured 3
II Term 4
III Territory 4
IV Exclusions 4
V Retention and Limit 6
VI Other Reinsurance 7
VII Definitions 7
VIII Losses and Loss Adjustment Expense 11
IX Special Provisions 11
X Salvage and Subrogation 12
XI Commission (BRMA 10A) 12
XII Premium 12
XIII Profit Sharing 14
XIV Offset (BRMA 36C) 14
XV Access to Records (BRMA 1D) 15
XVI Liability of the Reinsurer 15
XVII Net Retained Lines (BRMA 32E) 15
XVIII Errors and Omissions (BRMA 14F) 15
XIX Currency (BRMA 12A) 16
XX Taxes (BRMA 50C) 16
XXI Federal Excise Tax (BRMA 17A) 16
XXII Unauthorized Reinsurers 16
XXIII Insolvency 18
XXIV Arbitration 19
XXV Service of Suit (BRMA 49C) 20
XXVI Agency Agreement 20
XXVII Intermediary (BRMA 23A) 20
Appendix A
Property Excess and Surplus Lines
Excess Per Risk Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Classes of Business Reinsured
A. By this Contract the Company obligates itself to cede to the
Reinsurer and the Reinsurer obligates itself to accept
reinsurance of the Company's liability under policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, underwritten in the
General E&S Division and classified by the Company as Fire and
Allied Lines, Commercial Multiple Peril (property perils
only), Homeowners (property perils only) and Inland Marine,
subject to the terms, conditions and limitations set forth
herein and in Appendix A attached to and forming part of this
Contract.
B. It is understood that west coast earthquake business
underwritten in the General E&S Division, other than
earthquake on Course of Construction, Transmission and
Distribution Lines, Boiler and Machinery and Mechanical
Breakdown policies, is not subject to this Contract.
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses occurring on or after that date, and shall
remain in force until December 31, 1998, both days inclusive.
B. Reinsurance hereunder on business in force on the effective
date of expiration shall remain in full force and effect until
expiration, cancellation or next premium anniversary of such
business, whichever first occurs, but in no event beyond the
effective date of expiration as follows:
1. As regards Course of Construction policies, 36
months;
2. As regards all other policies, 12 months plus odd
time not to exceed 18 months.
C. Notwithstanding the provisions of paragraph B above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of expiration, in which event the Reinsurer
shall return to the Company the ceded unearned premium
hereunder as of the effective date of termination (less ceding
commission allowed thereon) and the Reinsurer shall have no
liability hereunder with respect to losses occurring after the
date of expiration.
D. In the event renewal negotiations are not completed by
December 31, 1998, at the Company's option, this Contract
shall be extended through March 31, 1999.
Article III - Territory
This Contract shall apply to the territorial limits set forth in
the Company's policies reinsured hereunder.
Article IV - Exclusions
A. This Contract does not apply to and specifically excludes the
following:
1. Loss or liability excluded under the terms of the
"Pools, Associations & Syndicates Exclusion Clause"
attached to and forming part of this Contract.
2. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance
(U.S.A.)," the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (Canada)," and the "Nuclear
Energy Risks Exclusion Clause - Reinsurance (Worldwide
Excluding U.S.A. & Canada)," attached to and forming part
of this Contract.
3. All reinsurance assumed, except intra-company
reinsurance. However, this exclusion shall not apply to
reinsurance of captive companies when pricing for business
reinsured is quoted by a non-related entity, or to
reinsurance of foreign COC business for U.S. insureds
where a foreign admitted carrier is required to issue the
policy.
4. Risks of war, whether or not declared, invasion,
civil war, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
5. Hail insurance or reinsurance covering growing,
drying or standing crops when written as such.
6. Flood when written as such. However, this exclusion
shall not apply to flood when included in Difference in
Conditions, Inland Marine and All Risk policies.
7. All armored car business, except when written in
excess of $500,000.
8. Credit, financial or insolvency guarantees.
9. Livestock insurance or reinsurance when written as
such.
10. Third Party Bodily Injury and Property Damage
Liability, Medical Payments, Workers' Compensation,
Fidelity and Surety, whether written separately or as part
of a Multiple Peril policy. However, nothing herein
contained shall be construed as excluding liability for
damage to property in an insured's care, custody or
control or for which the insured may be liable.
11. Ocean Marine when written as such.
12. Aircraft, meaning direct damage to hulls insured
under Aircraft Hull policies, but not to exclude aircraft
hulls insured under regular Fire, Inland Marine and All
Risk policies (other than Aircraft Hull policies). In no
event shall any liability attach to the Reinsurer
hereunder in respect of aircraft while in flight or
taxiing.
13. Offshore drilling rigs.
14. Onshore drilling rigs.
15. Grain elevators.
16. Petrochemical risks and refineries.
17. Underground mining.
18. Automobile risks insured under Automobile policies,
with the exception of "floor plans."
19. Space and space related risks for the intention of
ignition of the launch vehicle which includes taxiing
within the launch site area and in flight.
20. Inland Marine policies covering jeweler's block and
motor truck cargo.
21. Mortgage Impairment insurance.
22. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
23. Kidnap and Ransom.
24. Residual Value and Credit insurance.
25. Crop Insurance.
26. Burglary and Theft when written as such.
27. Strike Insurance.
28. Product impairment, recall and tampering.
29. Data processing companies and media exposures.
30. Equipment maintenance, warranty or similar coverages.
However, this exclusion shall not be construed to apply to
business classified as Course of Construction or Utilities
where testing of equipment is involved.
31. Risks as detailed in the "Target Risks Exclusion
Clause" attached to and forming part of this Contract.
B. Notwithstanding the foregoing, any exclusion set forth in
paragraph A (except subparagraphs 2, 3, 4, 6, 8, 11, 12, 13,
19, 22 and 31) shall be waived automatically when, in the
opinion of the Company, the exposure excluded therein is
incidental to the principal exposure on the risk in question.
Article V - Retention and Limit
A. The Company shall retain and be liable for the first $500,000
of ultimate net loss as respects any one risk, each loss. The
Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company's retention, but the
liability of the Reinsurer shall not exceed $12,000,000 as
respects any one risk, each loss, nor shall it exceed
$20,000,000 as respects all risks involved in any one loss
occurrence.
B. The Company shall be the sole judge of what constitutes "one
risk," except that in no event shall a building and its
contents be considered more than one risk.
Article VI - Other Reinsurance
A. The Company shall be permitted to carry excess catastrophe
reinsurance, recoveries under which shall inure solely to the
benefit of the Company and be entirely disregarded in applying
all of the provisions of this Contract.
B. The Company shall purchase or be deemed to have purchased
inuring excess reinsurance to limit its ultimate net loss
under any one policy so as to comply with the maximum policy
limits set forth in Article IX.
Article VII - Definitions
A. The term "ultimate net loss" shall mean the actual loss
incurred by the Company under policies covered hereunder.
Such loss shall include sums paid in settlement of claims and
suits and in satisfaction of judgments, including prejudgment
interest when added to a judgment. Such loss also shall
include any losses in excess of policy limits and any extra
contractual obligations incurred by the Company. It is
understood that the term "incurred" as used in this paragraph
shall mean those sums paid or imminent to be paid by the
Company.
All salvages, recoveries, payments and reversals or reductions
of verdicts or judgments whether recovered, received or
obtained prior or subsequent to loss settlement under this
Contract, including amounts recoverable under other
reinsurance whether collected or not, shall be applied as if
recovered, received or obtained prior to the aforesaid
settlement and shall be deducted from the actual losses
sustained to arrive at the amount of the net loss. Nothing
herein shall be construed to mean losses are not recoverable
until the net loss to the Company finally has been
ascertained.
B. "Loss adjustment expense" as used herein shall include:
1. Expenses sustained in connection with settlement and
litigation of claims and suits, satisfaction of judgments,
resistance to or negotiations concerning a loss (which
shall include the pro rata share of the Company's outside
employees according to the time occupied in adjusting such
loss and the salaries and expenses of the Company's
employees while diverted from their normal duties to the
service of field adjustment, but shall not include any
salaries of officers nor normal overhead expenses of the
Company);
2. Legal expenses and costs incurred in connection with
coverage questions and legal actions, including
declaratory judgment actions, connected thereto;
3. All interest on judgments other than prejudgment
interest when added to a judgment, and;
4. Expenses sustained to obtain recoveries, salvages and
other reimbursements, or to secure the reversal or
reduction of a verdict or judgment.
C. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90.0% of
any amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its
policy, as a result of an action against it by its insured
or its insured's assignee to recover damages the insured
is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits,
or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean 90.0% of
any punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company as a result of an action against
it by its insured, its insured's assignee or a third party
claimant, which action alleges negligence or bad faith on
the part of the Company in handling a claim under a policy
subject to this Contract. An extra contractual obligation
shall be deemed to have occurred on the same date as the
loss covered or alleged to be covered under the policy.
There will be no recovery hereunder for an extra contractual
obligation or loss in excess of policy limits that has been
incurred due to fraud committed by a member of the board of
directors or a corporate officer of the Company, acting
individually, collectively, or in collusion with a member of
the board of directors, a corporate officer, or a partner of
any other corporation, partnership, or organization involved
in the defense or settlement of a claim on behalf of the
Company.
The date on which any extra contractual obligation and/or loss
in excess of policy limits is incurred by the Company will be
deemed, in all circumstances, to be the date of the original
loss occurrence. Nothing in this Article will be construed to
create a separate or distinct loss occurrence apart from the
original covered loss occurrence that gave rise to the extra
contractual obligations and/or loss in excess of policy limits
discussed in the preceding paragraphs. In no event will the
total liability of the Reinsurer exceed its applicable limit
of liability as set forth in Article V.
Recoveries from any form of insurance or inuring reinsurance,
if any, which protects the Company against claims the subject
matter of this paragraph shall inure to the benefit of this
Contract.
D. 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 anywhere in the world
but limited in the United States of America and Canada to the
area of one state of the United States or province of Canada
and states or provinces contiguous thereto and to one another.
However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the
Company occurring during any period of 168 consecutive hours
arising out of and directly occasioned by the same event,
except that the term "loss occurrence" shall be further
defined as follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72
consecutive hours may be extended in respect of individual
losses which occur beyond such 72 consecutive hours during
the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to in the introductory portion of this
paragraph D) and fire following directly occasioned by the
earthquake, only those individual fire losses which
commence during the period of 168 consecutive hours may be
included in the Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
Except for those "loss occurrences" referred to in
subparagraphs 1 and 2 above, the Company may choose the date
and time when any such period of consecutive hours commences,
provided that it is not earlier than the date and time of the
occurrence of the first recorded individual loss sustained by
the Company arising out of that disaster, accident or loss,
and provided that only one such period of 168 consecutive
hours shall apply with respect to one event.
However, as respects those "loss occurrences" referred to in
subparagraphs 1 and 2 above, if the disaster, accident or loss
occasioned by the event is of greater duration than
72 consecutive hours, then the Company may divide that
disaster, accident or loss into two or more "loss
occurrences," provided that no two periods overlap and no
individual loss is included in more than one such period, and
provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster,
accident or loss.
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.
E. "Premiums earned" as used herein shall mean ceded net written
premium for policies which are in force on the effective date
of this Contract or have effective or renewal dates during the
term of this Contract, less the unearned portion thereof as of
the effective date of calculation, it being understood and
agreed that all premiums for policies which are in force on
the effective date of this Contract or have effective or
renewal dates during the term of this Contract shall be
credited to this Contract, unless this Contract expires on a
"cut-off" basis, in which event the unearned reinsurance
premium (less previously allowed commission) as of the date of
expiration shall be returned by the Reinsurer to the Company.
F. "Losses incurred" as used herein shall mean ceded losses and
loss adjustment expense paid as of the effective date of
calculation, plus:
1. The ceded reserves for losses and loss adjustment
expense outstanding as of the same date;
2. An amount representing Incurred But Not Reported
Losses (hereinafter called "IBNR") equal to 20.0% of the
premiums earned for Course of Construction business
hereunder for the term of this Contract (said IBNR factor
to be applied) until all premiums for Course of
Construction business are earned, at which time no further
amounts of IBNR will be added);
it being understood and agreed that all losses and related
loss adjustment expense under policies which are in force on
the effective date of this Contract or have effective or
renewal dates during the term of this Contract shall be
charged to this Contract, regardless of the date said losses
actually occur, unless this Contract expires on a "cutoff"
basis, in which event the Reinsurer shall have no liability
for losses occurring after the effective date of expiration.
As respects any subscribing reinsurer participating under this
Contract who also participated under the Company's Property
Excess and Surplus Lines Excess Per Risk Reinsurance Contract,
effective January 1, 1997 and expired December 31, 1997
(hereinafter referred to as the "expired contract"), such
subscribing reinsurer's share of any net loss to the
"Reinsurer" under the expired contract shall be added to that
subscribing reinsurer's share of losses incurred under this
Contract.
Article VIII - Losses and Loss Adjustment Expense
A. Whenever a loss sustained by the Company appears likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
C. In the event of loss hereunder, loss adjustment expenses (as
defined in Article VII) incurred by the Company in connection
therewith shall be shared by the Company and the Reinsurer in
the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total ultimate net loss paid or payable
by the Company, prior to any reinsurance recoveries, but after
deduction of all salvage and other recoveries. The
Reinsurer's liability for loss adjustment expenses shall be in
addition to its limit of liability for ultimate net loss.
Notwithstanding the foregoing, if the ultimate net loss to the
Company (exclusive of loss adjustment expenses) is less than
the Company's retention stated in Article V, then loss
adjustment expenses shall be included in the ultimate net loss
for purposes of recovery hereunder, but subject to the limit
of liability stated in Article V.
D. In the event the ultimate net loss subject to recovery
hereunder includes an amount of loss in excess of policy
limits and/or extra contractual obligations, then the actual
ultimate net loss recovered hereunder shall be allocated among
indemnity loss, loss in excess of policy limits and/or extra
contractual obligations as follows:
1. When the limit defined in paragraph A of Article V
with regard to all risks subject to recovery hereunder
involved in any one loss occurrence has not been exceeded,
the actual ultimate net loss recovered hereunder as
respects any one risk, each loss shall be allocated to
indemnity loss, loss in excess of policy limits and/or
extra contractual obligations in the same proportion that
each bears to the total ultimate net loss subject to
recovery on that risk.
2. When the limit defined in paragraph A of Article V
with regard to all risks subject to recovery hereunder
involved in any one loss occurrence has been exceeded, the
actual ultimate net loss recovered hereunder as respects
any one loss occurrence shall be allocated to indemnity
loss, loss in excess of policy limits and/or extra
contractual obligations in the same proportion that each
bears, before application of the per occurrence limit, to
the total ultimate net loss subject to recovery on that
loss occurrence.
Article IX - Special Provisions
A. The Company's maximum policy limits subject to this Contract
shall be as follows:
1. $12,500,000 for all policies except as outlined in
subparagraphs 2 and 3 below, or so deemed;
2. As respects coverage for Transmission and
Distribution lines, $1,000,000 each risk, or so deemed;
3. As respects coverage for Foreign COC business,
$5,000,000 each risk, or so deemed.
B. As respects loss or damage or costs or expenses arising from
asbestos or seepage and/or pollution and/or contamination,
other than contamination from smoke damage, the maximum
sublimit shall be $25,000 per risk, each loss except business
classified as Railroad in which case the sublimit shall be
$250,000 each risk, each loss. Nevertheless, this does not
preclude payment of the cost of removal of debris of property
damaged by a loss otherwise covered hereunder.
Article X - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XI - Commission (BRMA 10A)
A. The Reinsurer shall allow the Company a 30.0% commission on
all premiums ceded to the Reinsurer hereunder. The Company
shall allow the Reinsurer return commission on return premiums
at the same rate.
B. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions,
taxes, assessments, and all other expenses of whatever nature,
except loss adjustment expense.
Article XII - Premium
A. With respect to business issued or renewed on or after the
effective date of this Contract, as premium for the
reinsurance provided hereunder, the Company shall pay to the
Reinsurer a reinsurance premium based on Appendix A and
calculated by applying the applicable Coded Excess Factor to
the gross written premium of each policy ceded hereunder.
With respect to business in force on the effective date of
this Contract, as premium for the reinsurance provided
hereunder, the Company shall pay to the Reinsurer a
reinsurance premium based on Appendix A and calculated by
applying the applicable Coded Excess Factor to the gross
unearned premium, as of January 1, 1998, of each policy ceded
hereunder.
1. The Coded Excess Factor will be determined based
upon:
a. The size of the gross policy limit (before all
other reinsurance);
b. The attachment point;
c. The Company's participation in the primary
insurance limit;
and will be in compliance with the Coded Excess
Factor Table included in Appendix A attached to and
forming part of this Contract. It is understood and
agreed that the Coded Excess Factor Table included in
Appendix A cannot contemplate each specific combination of
gross policy limit and attachment point for business
subject to this Contract. In the event the combination of
gross policy limit and attachment point on a specific risk
does not coincide with the Coded Excess Factor Tables, the
Company shall be permitted to utilize the original formula
methodology used to construct the Coded Excess Factor
Tables in determining the appropriate reinsurance premium
for such risk.
2. The gross written premium and gross unearned premium
will be the gross premium of the policy for the coverage
provided before deduction of premium for all other
reinsurance.
B. At inception, the Company shall report its gross unearned
premium applicable to subject business in force at inception.
The premium due the Reinsurer, based upon the cessions
outlined in paragraph A, shall be paid by the Company with its
report.
C. Within 60 days after the end of each calendar quarter, the
Company shall report its gross written premium for the
quarter. The premium due the Reinsurer, based upon the
cessions outlined in paragraph A above, shall be paid by the
Company with its report.
D. As respects business classified as "National Accounts," the
Company shall provide a quarterly report to the Reinsurer
detailing the following for each insured:
1. Total insured values and California, Texas, Florida
and Puerto Rico total insured values;
2. Overall gross rate for coverage provided;
3. Gross written premium for coverages provided; and
4. Premium split between earthquake and all other
perils/all other lines covered.
E. Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its
Annual Convention Statement.
Article XIII - Profit Sharing
A. The Reinsurer shall pay the Company profit sharing equal to
50.0% of the net profit, if any, accruing to the Reinsurer
during the term of this Contract.
B. The Reinsurer's net profit for the term of this Contract shall
be calculated in accordance with the following formula, it
being understood that a positive balance equals net profit and
a negative balance equals net loss:
1. Premiums earned for the term of this Contract; less
2. Ceding commission allowed the Company on premiums
earned for the term of this Contract; less
3. Expenses incurred by the Reinsurer at 30.0% of
premiums earned for the term of this Contract; less
4. Losses incurred for the term of this Contract.
C. The Company shall calculate and report the Reinsurer's net
profit no sooner than 12 months following the expiration of
this Contract, and no sooner than 12 months following the end
of each 12-month period thereafter until all premiums subject
hereto have earned and all losses subject hereto have been
finally settled. Each such calculation shall be based on
cumulative transactions hereunder from the beginning of the
term of this Contract through the date of calculation. As
respects the initial calculation referred to above, any profit
sharing shown to be due the Company shall be paid by the
Reinsurer as promptly as possible after receipt and
verification of the Company's report. As respects each
recalculation, any additional profit sharing shown to be due
the Company shall be paid by the Reinsurer as promptly as
possible after receipt and verification of the Company's
report. Any return profit sharing shown to be due the
Reinsurer shall be paid by the Company with its report.
B. With respect to any subscribing reinsurer participating under
this Contract and also under the contract, if any, which
replaces this Contract at January 1, 1999 (hereinafter
referred to as the "replacement contract"), the subscribing
reinsurer's share of any net loss to the "Reinsurer" under
this Contract shall be carried forward and added to the
subscribing reinsurer's share of losses incurred under the
replacement contract.
Article XIV - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XVI - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVII - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVIII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XIX - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company."
Article XX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XXI - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXII - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
unearned premium and outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian unearned premium and
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
unearned premiums returned to insureds on account of
policy cancellations, unless paid in cash by the
Reinsurer;
2. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
4. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded unearned premium and/or
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) funded
by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration
date;
5. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded unearned premium and/or outstanding
loss and loss adjustment expense reserves (including
incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1),
C(2) or C(4), or in the case of C(3), the actual amount
determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn.
Article XXIII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIV - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30
days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
F. It is agreed that the jurisdiction of the Arbiters to make or
render any decision or award shall be limited by the limit of
liability expressly hereinbefore set forth, and that the
Arbiters shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of
liability of the Reinsurer, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage
awards between the parties hereto.
Article XXV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXVI - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVII - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California, this ________ day of ____________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
<TABLE>
Property Excess and Surplus Lines
Excess Per Risk Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
<CAPTION>
Appendix A
Property Rating Grid
XOL Limit 12,000,000 Retention 500,000 Q.S. % 0% Placement 100.00
Limit 50.00% 80.00% 90.00% 93.33% 95.00% 96.00% 80.00% 60.00% 48.00% 24.00% 12.00%
Exposed
Gross Limit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000,000 2,500,000 5,000,000 7,500,000 10,000,000 12,500,000 15,000,000 20,000,000 25,000,000 50,000,000 100,000,000
Attachment
Point
0 14.25% 28.19% 36.21% 40.17% 42.71% 44.54% 36.36% 26.41% 20.62% 9.59% 4.48%
100,000 26.88% 47.45% 57.10% 61.36% 63.93% 65.71% 53.33% 38.36% 29.71% 13.46% 6.13%
250,000 32.63% 55.52% 65.36% 69.48% 71.89% 73.54% 59.81% 43.12% 33.42% 15.11% 6.84%
500,000 37.42% 62.09% 71.93% 75.85% 78.08% 79.58% 64.97% 47.06% 36.59% 16.62% 7.51%
1,000,000 41.78% 68.05% 77.82% 81.51% 83.55% 84.88% 69.63% 50.81% 39.70% 18.25% 8.29%
2,500,000 45.92% 73.86% 83.59% 87.03% 88.86% 90.01% 74.30% 54.77% 43.14% 20.30% 9.38%
5,000,000 47.78% 76.57% 86.34% 89.69% 91.42% 92.49% 76.61% 56.82% 45.00% 21.57% 10.15%
7,500,000 48.47% 77.62% 87.42% 90.75% 92.44% 93.48% 77.56% 57.68% 45.79% 22.15% 10.54%
10,000,000 48.83% 78.17% 88.01% 91.33% 93.01% 94.03% 78.08% 58.17% 46.24% 22.50% 10.78%
25,000,000 49.52% 79.24% 89.16% 92.47% 94.13% 95.13% 79.15% 59.17% 47.19% 23.27% 11.36%
50,000,000 49.76% 79.61% 89.57% 92.89% 94.55% 95.55% 79.55% 59.56% 47.57% 23.59% 11.63%
100,000,000 49.88% 79.81% 89.78% 93.11% 94.77% 95.77% 79.77% 59.77% 47.77% 23.78% 11.80%
</TABLE>
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
Section A:
Excluding:
(a) All business derived directly or indirectly from any
Pool, Association or Syndicate which maintains its own
reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory)
formed after March 1, 1968 for the purpose of insuring
property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the
same perils, which is known at the time to be insured by, or in
excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals,
Improved Risk Mutuals,
Any Pool, Association or Syndicate formed for the purpose of
writing Oil, Gas or Petro-Chemical Plants and/or Oil or Gas
Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters.
Section B does not apply:
(a) Where The Total Insured Value over all interests of
the risk in question is less than $300,000,000.
(b) To interests traditionally underwritten as Inland
Marine or stock and/or contents written on a blanket
basis.
(c) To Contingent Business Interruption, except when the
Company is aware that the key location is known at the
time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section
B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only.
Where this clause attaches to Catastrophe Excesses, the
following Section C is added:
Nevertheless the Reinsurer specifically agrees that
liability accruing to the Company from its participation in:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association
Louisiana Insurance Underwriting Association
Mississippi Insurance Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting
Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" business
for all perils otherwise protected hereunder shall not be
excluded, except, however, that this reinsurance does not include
any increase in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" or "Fair Plan" to meet its liability.
(ii) Any claim against such "Coastal Pool" or "Fair
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 Fund Exclusion Clause
incorporated in this Contract).
E. W. BLANCH CO.
R:\98R\14154.DOC Reinsurance Services
Page 14
Franchise Excess of Loss
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Classes of Business Reinsured 3
II Term 3
III Territory 4
IV Exclusions 4
V Retention and Limit 4
VI Definitions 4
VII Loss Notices and Settlements 7
VIII Special Provisions 7
IX Salvage and Subrogation 7
X Premium 8
XI Offset (BRMA 36C) 8
XII Access to Records (BRMA 1D) 8
XIII Net Retained Lines (BRMA 32B) 8
XIV Errors and Omissions (BRMA 14F) 9
XV Currency (BRMA 12A) 9
XVI Taxes (BRMA 50B) 9
XVII Federal Excise Tax (BRMA 17A) 9
XVIII Unauthorized Reinsurers 10
XIX Insolvency 11
XX Arbitration 11
XXI Service of Suit (BRMA 49C) 13
XXII Agency Agreement 13
XXIII Intermediary (BRMA 23A) 13
Schedule A
Franchise Excess of Loss
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Property business underwritten by Associated
International Insurance Company, Woodland Hills, California,
subject to the terms, conditions and limitations hereinafter set
forth. However, this Contract shall only apply to losses
sustained by the Company, either directly or indirectly, as a
result of seismic activity and/or volcanic eruption.
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 1998, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
Article III - Territory
This Contract shall apply to losses occurring anywhere within the
State of California.
Article IV - Exclusions
This Contract shall follow in all respects the exclusions under
the Company's External Third through Sixth Excess Catastrophe
Reinsurance Contract, effective January 1, 1998 (except for the
exclusion of loss in excess of policy limits and extra
contractual obligations), including any interpretations given
those exclusions by the "Reinsurer" under that contract.
Article V - Retention and Limit
A. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain and be liable for
the first amount of ultimate net loss, shown as "Company's
Retention" for that excess layer in Schedule A attached
hereto, arising out each loss occurrence. The Reinsurer shall
then be liable (subject to the provisions of paragraph B
below), as respects each excess layer, for the amount by which
such ultimate net loss exceeds the Company's applicable
retention, but the liability of the Reinsurer under each
excess layer shall not exceed the amount, shown as
"Reinsurer's Per Occurrence Limit" for that excess layer in
Schedule A attached hereto, as respects any one loss
occurrence, nor shall it exceed the amount shown as
"Reinsurer's Annual Limit" for that excess layer in all during
the term of this Contract.
B. As respects each excess layer of reinsurance coverage provided
by this Contract, there shall be no recovery under this
Contract until the Company's gross loss as respects business
subject to its 1998 property catastrophe reinsurance program
from any one loss occurrence exceeds the amount shown as
"Company's Gross Loss" for that excess layer in Schedule A
attached hereto.
Article VI - Definitions
A. "Ultimate net loss" as used herein is defined as the sum or
sums (including loss in excess of policy limits, extra
contractual obligations, any loss adjustment expense as
hereinafter defined, premium adjustments remitted by the
Company under the Company's Property Excess Per Risk
Reinsurance Contract, effective January 1, 1998, arising as a
result of a loss occurrence, any reinstatement premiums paid
by the Company under the Company's Excess Catastrophe
Reinsurance Contract, effective January 1, 1998 and External
Third Through Sixth Excess Catastrophe Reinsurance Contract,
effective January 1, 1998, regardless of whether the Company
has an actual cash payment associated with the same loss
occurrence, and losses retained by the Company under its 5.0%
co-participation under the Excess Catastrophe Reinsurance
Contract, effective January 1, 1998 and External Third Through
Sixth Excess Catastrophe Reinsurance Contract, effective
January 1, 1998) paid or payable by the Company in settlement
of claims and in satisfaction of judgments rendered on account
of such claims, after deduction of all salvage, all recoveries
and all claims on inuring insurance or reinsurance, whether
collectible or not. Nothing herein shall be construed to mean
that losses under this Contract are not recoverable until the
Company's ultimate net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean any
amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its
policy, as a result of an action against it by its insured
or its insured's assignee to recover damages the insured
is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits,
or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean any
punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company as a result of an action against
it by its insured, its insured's assignee or a third party
claimant, which action alleges negligence or bad faith on
the part of the Company in handling a claim under a policy
subject to this Contract.
Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with any individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. "Loss adjustment expense" shall mean expenses assignable to
the investigation, defense and/or settlement of specific
claims, regardless of how such expenses are classified for
statutory reporting purposes. Loss adjustment expense shall
include 1) prejudgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; and
3) declaratory judgment expenses or other legal expenses and
costs incurred in connection with coverage questions and legal
actions connected thereto. Loss adjustment expense shall not
include office expenses or salaries of the Company's regular
employees, except that assigned outside costs of the Company's
salaried adjusters shall be included.
D. 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 anywhere in the world
but limited in the United States of America and Canada to 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 introductory portion of this paragraph)
and fire following directly occasioned by the earthquake,
only those individual fire losses which commence during
the period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
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 subparagraphs 1 and 2 above
where only one such period of 72 consecutive hours shall apply
with respect to one event.
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 VII - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
Article VIII - Special Provisions
A. As respects loss or damage or costs or expenses arising from
asbestos or seepage and/or pollution and/or contamination,
other than contamination from smoke damage, the maximum
sublimit shall be $25,000 each risk, each loss except business
classified as Railroad in which case the sublimit shall be
$250,000 each risk, each loss. Nevertheless, this does not
preclude payment of the cost of removal of debris of property
damaged by a loss otherwise covered hereunder.
B. The Company shall be the sole judge of what constitutes "one
risk," except that in no event shall a building and its
contents be considered more than one risk.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Premium
A. As premium for each excess layer of reinsurance coverage
provided by this Contract, the Company shall pay the Reinsurer
the amount, shown as "Premium" for that excess layer in
Schedule A attached hereto, in four equal installments of the
amount, shown as "Quarterly Premium Installment" for that
excess layer in Schedule A attached hereto, on January 1,
April 1, July 1, and October 1 of 1998.
B. In the event that a loss becomes subject to any excess layer
of reinsurance coverage hereunder, the Company shall pay the
Reinsurer the amount, shown as "Additional Premium" for that
excess layer in Schedule A attached hereto. Such additional
premium shall be payable concurrently with payment by the
Reinsurer of any loss under that excess layer.
Article XI - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XIII - Net Retained Lines (BRMA 32B)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account, and in
calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this
Contract attaches, only loss or losses in respect of that
portion of any policy which the Company retains net for its
own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XIV - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XV - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVI - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XVII - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XVIII - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XIX - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XX - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30
days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
F. It is agreed that the jurisdiction of the Arbiters to make or
render any decision or award shall be limited by the limit of
liability expressly hereinbefore set forth, and that the
Arbiters shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of
liability of the Reinsurer, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage
awards between the parties hereto.
Article XXI - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXII - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXIII - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company hereto by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of ________________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
Schedule A
<TABLE>
Franchise Excess of Loss
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
<CAPTION>
First Second Third
Excess Excess Excess
<S> <C> <C> <C>
Company's Retention $2,500,000 $7,500,000 $12,500,000
Reinsurer's Per $5,000,000 $5,000,000 $5,000,000
Occurrence Limit
Reinsurer's Annual Limit $5,000,000 $5,000,000 $5,000,000
Company's Gross Loss $50,000,000 $100,000,000 $140,000,000
Premium $650,000 $475,000 $300,000
Quarterly Premium $162,500 $118,750 $75,000
Installment
Additional Premium $250,000 $250,000 $200,000
</TABLE>
The figures listed above for each excess layer shall apply to
each Subscribing Reinsurer in the percentage share for that
excess layer as expressed in its Interests and Liabilities
Agreement attached hereto.
E. W. BLANCH CO.
R:\98R\14128.DOC Reinsurance Services
Page 2
External Third through Sixth Catastrophe Excess
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Classes of Business Reinsured 3
II Term 3
III Territory 4
IV Exclusions 4
V Retention and Limit 7
VI Other Reinsurance 7
VII Definitions 8
VIII Reinstatement 9
IX Loss Notices and Settlements 10
X Special Provisions 10
XI Salvage and Subrogation 10
XII Premium 11
XIII Offset (BRMA 36C) 12
XIV Access to Records (BRMA 1D) 12
XV Net Retained Lines (BRMA 32E) 12
XVI Errors and Omissions (BRMA 14F) 12
XVII Currency (BRMA 12A) 12
XVIII Taxes (BRMA 50C) 13
XIX Federal Excise Tax (BRMA 17A) 13
XX Unauthorized Reinsurers 13
XXI Insolvency 14
XXII Arbitration 15
XXIII Service of Suit (BRMA 49C) 16
XXIV Agency Agreement 17
XXV Intermediary (BRMA 23A) 17
Schedule A
External Third through Sixth Catastrophe Excess
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Property business underwritten by Associated
International Insurance Company, Woodland Hills, California,
subject to the terms, conditions and limitations set forth herein
and in Schedule A attached to and forming part of this Contract.
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 1998, both days inclusive.
B. If this Contract expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the expiration of this Contract, provided
that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.
Article III - Territory
As respects the External Third and Fourth Excess Catastrophe
Reinsurance layers hereunder and subject to all other terms and
conditions of this Contract, this Contract shall apply to the
territorial limits of the Company's policies reinsured hereunder.
As respects the External Fifth and Sixth Excess Catastrophe
Reinsurance layers hereunder and subject to all other terms and
conditions of this Contract, this Contract shall apply to losses
occurring anywhere within the State of California.
Article IV - Exclusions
A. This Contract does not apply to and specifically excludes the
following:
1. Loss or liability excluded under the provisions of
the "Pools, Associations and Syndicates Exclusion Clause"
attached to and forming part of this Contract.
2. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)"
and the "Nuclear Incident Exclusion Clause - Physical
Damage - Reinsurance (Canada)" attached to and forming
part of this Contract.
3. All reinsurance assumed, with the exception of intra-
company reinsurance and specific insureds whose
reinsurance is written through their own captive company
and quoted by a non-related entity.
4. Risks of war, whether or not declared, invasion,
civil war, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
5. Hail insurance or reinsurance covering growing,
drying or standing crops when written as such.
6. Flood when written as such; however, this exclusion
shall not apply to flood when included in Difference in
Conditions, Inland Marine and All Risk policies.
7. All armored car business except when written in
excess of $500,000.
8. Credit, financial or insolvency guarantees.
9. Livestock insurance or reinsurance when written as
such.
10. Third Party Bodily Injury and Property Damage
Liability, Medical Payments, Workers' Compensation,
Fidelity and Surety, whether written separately or as part
of a Multiple Peril policy. However, nothing herein
contained shall be construed as excluding liability for
damage to property in an insured's care, custody or
control or for which the insured may be liable.
11. Ocean Marine when written as such.
12. Aircraft, meaning direct damage to hulls insured
under Aircraft Hull policies, but not to exclude aircraft
hulls insured under regular Fire, Inland Marine and All
Risk policies (other than Aircraft Hull policies). In no
event shall any liability attach to the Reinsurer
hereunder in respect of aircraft while in flight or
taxiing.
13. Offshore drilling rigs.
14. Automobile risks insured under Automobile policies.
15. Boiler and Machinery when written as such.
16. Space and space related risks for the intention of
ignition of the launch vehicle which includes taxiing
within the launch site area and in flight.
17. Grain elevators.
18. Mechanical breakdowns when written as such.
19. Petrochemical risks and refineries.
20. Underground mining.
21. Inland Marine policies covering jewelers block and
motor truck cargo.
22. Mortgage Impairment insurance.
23. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
24 Kidnap and Ransom.
25. Residual Value and Credit insurance.
26. Crop insurance.
27. Burglary and Theft when written as such.
28. Strike insurance.
29. Product impairment, recall and tampering.
30. Data processing companies whose sole purpose is to
provide data processing services to other companies which
include media exposures defined as material on which data
is to be or is already stored (i.e., disks, magnetic and
paper tapes, drums, cores and programs).
31. Transmission and distribution lines.
32. Onshore drilling rigs.
33. Course of Construction risks covering dams, bridges,
tunnels, subways, construction work over water, or any
project involving water, unless the aforementioned
projects are incidental to the insured's total
construction project.
34. Rolling stock owned or operated by a railroad, but
this exclusion shall not apply to interests while
contained in buildings owned or leased by an insured.
35. Risks excluded under the provisions of the "Total
Insured Value Exclusion Clause" attached to and forming
part of this Contract.
36. Extra contractual obligations (i.e., any punitive,
exemplary, compensatory or consequential damages paid or
payable by the Company as a result of an action against it
by its insured or its insured's assignee, which action
alleges negligence or bad faith on the part of the Company
in handling a claim under a policy subject to this
Contract).
37. Loss in excess of policy limits (i.e., any amount
paid or payable by the Company in excess of its policy
limits, but otherwise within the terms of its policy, as a
result of an action against it by its insured or its
insured's assignee to recover damages the insured is
legally obligated to pay to a third party claimant because
of the Company's alleged or actual negligence or bad faith
in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal
consequent upon such an action).
B. Notwithstanding the foregoing, any exclusion set forth in
paragraph A (except subparagraphs 2, 3, 4, 6, 8, 11, 12, 13,
16, 23, 36 and 37 shall be waived automatically when, in the
opinion of the Company, the exposure excluded therein is
incidental to the principal exposure on the risk in question.
C. As regards business underwritten in the General E&S Division
of the Company:
1. Exclusions 15, 18, 33 and 34 of paragraph A shall be
waived.
2. Exclusion 35(Total Insured Value) and Section B of
Exclusion 1 (Pools, Associations) of paragraph A shall be
waived except for risks with total insured values greater
than $300,000,000 in the State of California. This
exception contained in this paragraph only applies to
risks in the State of California.
3. Exclusion 14 (Automobile) of paragraph A shall be
waived as regards Automobile Floor Plans.
Article V - Retention and Limit
A. As respects each excess layer of reinsurance coverage provided
by this Contract, the Company shall retain and be liable for
the first amount of ultimate net loss, shown as "Company's
Retention" for that excess layer in Schedule A attached
hereto, arising out of each loss occurrence. The Reinsurer
shall then be liable (subject to the provisions of paragraph B
below), as respects each excess layer, for the amount by which
such ultimate net loss exceeds the Company's applicable
retention, but the liability of the Reinsurer under each
excess layer shall not exceed the amount, shown as
"Reinsurer's Per Occurrence Limit" for that excess layer in
Schedule A attached hereto, as respects any one loss
occurrence.
B. No claim shall be made under any excess layer of reinsurance
coverage provided by this Contract in any one loss occurrence
unless at least two risks insured or reinsured by the Company
are involved in such loss occurrence. "Risk" to be defined as
all the values at one location unless otherwise stated in the
Company's risk file but not less than all the values within
four walls. For purposes of this Article, the Company shall
be the sole judge of what constitutes one risk, except that in
no event shall a building and its contents be considered more
than one risk.
Article VI - Other Reinsurance
A. The Company shall be permitted to carry underlying excess
catastrophe reinsurance, recoveries under which shall inure
solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
B. As regards DIC business, the Company shall purchase or be
deemed to have purchased inuring excess per risk and/or pro
rata facultative reinsurance to limit its ultimate net loss on
any one risk, each loss (exclusive of extra contractual
obligations) to $100,000 subject to the following occurrence
limits by layer of inuring excess per risk reinsurance:
<TABLE>
<CAPTION>
Layer Limit Retention Occurrence Limit
<S> <C> <C> <C>
1 4,900,000 100,000 12,500,000 Per Occurrence
2 5,000,000 5,000,000 10,000,000 Per Occurrence
</TABLE>
C. As regards business underwritten in the General E&S division,
the Company shall be permitted to purchase inuring coverage as
follows:
1. West Coast earthquake incurred loss shall be ceded to
the DIC Excess Per Risk noted in paragraph B above.
2. As regards all other incurred loss, $12,000,000
excess $500,000 per risk; subject to a per occurrence
limit of $20,000,000.
3. The only exception to subparagraph 1 above is Course
of Construction (COC) policies written in the General E&S
division. The California earthquake portions of those
policies are ceded 100% to the E&S treaty.
Article VII - Definitions
A. "Ultimate net loss" as used herein is defined as the sum or
sums (including litigation expenses, interest on judgments and
all other loss adjustment expenses, including a pro rata share
of the salaries and expenses of the Company's field employees
according to the time occupied adjusting the loss and expenses
of the Company's officials incurred in connection with the
loss, but excluding office expenses and salaries of the
Company's officials and any normal overhead charges) paid or
payable by the Company in settlement of claims and in
satisfaction of judgments rendered on account of such claims,
after deduction of all salvage, all recoveries and all claims
on inuring insurance or reinsurance, whether collectible or
not. Nothing herein shall be construed to mean that losses
under this Contract are not recoverable until the Company's
ultimate net loss has been ascertained.
B. 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 anywhere in the world
but limited in the United States of America and Canada to 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 introductory portion of this paragraph)
and fire following directly occasioned by the earthquake,
only those individual fire losses which commence during
the period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
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
subparagraphs 1 and 2 above where only one such period of
72 consecutive hours shall apply with respect to one event.
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.
C. "Net earned premium" as used herein is defined as the
Company's gross earned premium on the classes of business
subject to this Contract, less only the earned portion of
premiums, if any, ceded by the Company for reinsurance which
inures to the benefit of this Contract.
Article VIII - Reinstatement
A. In the event all or any portion of the reinsurance under any
excess layer of reinsurance coverage provided by this Contract
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss occurrence
commences hereon. For each amount so reinstated the Company
agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit for the excess
layer reinstated (based on the loss paid by the Reinsurer
under that excess layer); times
2. The earned reinsurance premium for the excess layer
reinstated for the term of this Contract (exclusive of
reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any
loss under any excess layer hereunder, the Company shall
submit a statement to the Reinsurer of reinstatement premium
due the Reinsurer for that excess layer. If the earned
reinsurance premium for any excess layer for the term of this
Contract has not been finally determined as of the date of any
such statement, the calculation of reinstatement premium due
for that excess layer shall be based on the annual deposit
premium for that excess layer and shall be readjusted when the
earned reinsurance premium for that excess layer for the term
of this Contract has been finally determined. Any
reinstatement premium shown to be due the Reinsurer for any
excess layer as reflected by any such statement (less prior
payments, if any, for that excess layer) shall be payable by
the Company concurrently with payment by the Reinsurer of the
requested loss for that excess layer. Any return reinstatement
premium shown to be due the Company shall be remitted by the
Reinsurer as promptly as possible after receipt and
verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer under any excess layer of reinsurance coverage
provided by this Contract shall not exceed either of the
following:
1. The amount, shown as "Reinsurer's Per Occurrence
Limit" for that excess layer in Schedule A attached
hereto, as respects loss or losses arising out of any one
loss occurrence; or
2. The amount, shown as "Reinsurer's Annual Limit" for
that excess layer in Schedule A attached hereto, in all
during the term of this Contract.
Article IX - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
Article X - Special Provisions
As respects loss or damage or costs or expenses arising from
asbestos or seepage and/or pollution and/or contamination, other
than contamination from smoke damage, the maximum sublimit shall
be $25,000 per risk, each loss, or so deemed. Nevertheless, this
does not preclude payment of the cost of removal of debris of
property damaged by a loss otherwise covered hereunder.
Article XI - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XII - Premium
A. As premium for each excess layer of reinsurance coverage
provided by this Contract, the Company shall pay the Reinsurer
the greater of the following:
1. The amount, shown as "Annual Minimum Premium" for
that excess layer in Schedule A attached hereto; or
2. An amount equal to the sum of the percentages shown
as "DIC" and "AOP" percentages for that excess layer in
Schedule A attached hereto, of the Company's net earned
premium for the DIC business and AOP business respectively
for the term of this Contract.
B. The Company shall pay the Reinsurer an annual deposit premium
for each excess layer of an amount, shown as "Annual Deposit
Premium" for that excess layer in Schedule A attached hereto,
in two equal installments of an amount, shown as "Semiannual
Deposit Premium" for that excess layer in Schedule A attached
hereto, on January 1 and July 1 of 1998.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder for each excess layer, computed in
accordance with paragraph A, and any additional premium due
the Reinsurer or return premium due the Company for each such
excess layer shall be remitted promptly.
D. As respects the Third and/or Fourth Excess Catastrophe
reinsurance layers hereunder, in the event that no claims
arise under this Contract, certain reinsurers participating
hereunder on the Third and/or Fourth Excess Catastrophe
reinsurance layers shall pay the Company a no claims bonus
equal to 20.0% of the adjusted premium under this Contract
subject to the following:
1. The Company shall only be entitled to the no claims
bonus if this Contract and the two prior renewals are loss
free for a continuous period of three years.
2. When such no claims bonus is calculated, it shall be
calculated on the premium for this Contract and for the
prior and subsequent renewals. Payment of the no claims
bonus by the reinsurers to the Company shall constitute a
commutation of this Contract and such payment once
effected shall constitute a full and final release of the
reinsurers from all liability hereunder.
3. Should the Reinsurer decline to offer a renewal of
this Contract at similar terms as expiring in relation to
the exposure presented, the no claims bonus shall be
calculated for the years actually reinsured subject to the
above provisions.
It is understood that these no claims bonus provisions shall
only apply to certain reinsurers hereunder participating on
the Third and/or Fourth Excess Catastrophe reinsurance layers.
The figures listed under "With `No Claims Bonus'" in
Schedule A attached to and forming part of this Contract shall
apply to such reinsurers. The figures listed under "Without
`No Claims Bonus'" in Schedule A attached to and forming part
of this Contract shall apply to the remaining reinsurers on
those layers.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XV - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVI - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVIII - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XIX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXI - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXII - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30
days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
Article XXIII - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXIV - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXV - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of ________________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
<TABLE>
Schedule A
External Third through Sixth Catastrophe Excess
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
<CAPTION>
Third Excess Fourth Excess Fifth Sixth
Excess Excess
With "No Without With "No Without
Claims "No Claims Claims "No Claims
Bonus" Bonus" Bonus" Bonus"
<S> <C> <C> <C> <C> <C> <C>
Company's $17,500,000 $17,500,000 $22,500,000 $22,500,000 $32,500,000 $ 65,000,000
Retention
Reinsurer's Per $ 5,000,000 $ 5,000,000 $10,000,000 $10,000,000 $32,500,000 $ 78,000,000
Occurrence Limit
Reinsurer's $10,000,000 $10,000,000 $20,000,000 $20,000,000 $65,000,000 $156,000,000
Annual Limit
Annual Minimum $ 780,000 $ 700,000 $ 1,240,000 $ 1,080,000 $ 2,405,000 $ 3,744,000
Premium
Rate-DIC/CA EQ 2.925% 2.625% 4.649% 4.049% 9.017% 14.037%
Business "DIC"
Rate=General E&S 0.540% 0.540% 0.833% 0.833% 1.854% 2.887%
Business "AOP"
Annual Deposit $ 975,000 $ 875,000 $ 1,550,000 $ 1,350,000 $ 3,006,250 $ 4,680,000
Premium
Semiannual $ 487,500 $ 437,500 $ 775,000 $ 675,000 $ 1,503,125 $ 2,340,000
Deposit Premium
</TABLE>
The figures listed above for each exess layer shall apply to each
Subscribing Reinsurer in the percentage share for that excess layer
as expressed in the Interests and Liabilities Agreement attached
hereto.
E. W. BLANCH CO.
R:\98R\14122.DOC Reinsurance Services
Page 20
"Working" Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Business Reinsured 3
II Term 4
III Territory (BRMA 51A) 4
IV Exclusions 5
V Retentions and Limits 5
VI Definitions 6
VII Other Reinsurance 10
VIII Loss Settlements 10
IX Salvage and Subrogation 11
X Reinsurance Premium 11
XI Late Payments 12
XII Profit Sharing 14
XIII Offset (BRMA 36C) 14
XIV Access to Records (BRMA 1D) 15
XV Liability of the Reinsurer 15
XVI Net Retained Lines 15
XVII Errors and Omissions (BRMA 14F) 15
XVIII Currency (BRMA 12A) 16
XIX Taxes (BRMA 50B) 16
XX Federal Excise Tax 16
XXI Unauthorized Reinsurers 16
XXII Insolvency 17
XXIII Arbitration 18
XXIV Service of Suit (BRMA 49C) 19
XXV Agency Agreement 20
XXVI Intermediary (BRMA 23A) 20
Schedule A
"Working" Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreements
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Business Reinsured
A. By this Contract the Reinsurer agrees to reinsure and/or
indemnify the Company for the net excess liability which may
accrue to the Company under its policies, contracts and
binders of insurance or reinsurance (hereinafter called
"policies") in force on the effective date hereof, or issued
or renewed on or after that date, and classified by the
Company as all lines of business (direct and assumed) as
respects programs managed by the Company, subject to the
terms, conditions and limitations hereinafter set forth.
Programs set forth in Schedule A attached to and forming part
of this Contract shall be excluded from coverage hereunder.
The Company shall have the option of excluding additional
programs from coverage hereunder in accordance with paragraph
B below.
B. The Company shall have the option to exclude any program from
this Contract by submitting each such program in writing to
the Reinsurer not more than 90 days after the inception of the
program as respects those programs eligible for coverage
hereunder. Casualty programs that generate $5,000,000 or less
of estimated annualized subject earned premium during the
first 12 months of the program will be deemed to have
automatic coverage under the terms and conditions hereinafter
set forth if not excluded from this Contract. All property
programs and those casualty programs that generate greater
than $5,000,000 of estimated annualized subject earned premium
during the first 12 months of the program must be submitted to
the lead reinsurer(s) hereunder for acceptance on behalf of
the Reinsurer of coverage under the terms and conditions
hereinafter set forth if declared to this Contract.
C. The Company shall be the sole judge of what constitutes a
"program."
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses arising out of loss events commencing on or
after that date, and shall remain in force until December 31,
1998, both days inclusive. Notwithstanding the foregoing, in
the event negotiations for a renewal of this Contract are not
completed by December 31, 1998, at the Company's option, this
Contract shall be extended by addendum through March 31, 1999.
B. Except as provided in paragraph C below, reinsurance hereunder
on business in force on the effective date of expiration shall
remain in full force and effect until expiration, cancellation
or next premium anniversary of such business, whichever first
occurs, but in no event beyond 36 months, plus odd time (not
exceeding 42 months in all) as respects multiple year
policies, nor 12 months plus odd time (not exceeding 18 months
in all) as respects policies of one year policy terms or less,
following the effective date of expiration. However, these
limitations shall not apply to any Extended Reporting Period
or Extended Discovery Endorsement provisions or policies
classified by the Company as Project Specific coverage.
C. Notwithstanding the provisions of paragraph B above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of expiration, in which event the Reinsurer
shall not be liable for claims made or losses arising out of
loss events commencing after that date. As respects policies
providing an aggregate limit of liability which are in force
on the effective date of expiration, the Reinsurer shall be
liable for the entire aggregate loss under such policies if
the inception date of the policy period falls on or before the
effective date of expiration, as respects policies written on
an occurrence basis, or if the first claim is made on or
before the effective date of expiration as respects policies
written on a claims made basis.
D. If this Contract expires while a loss event covered hereunder
is in progress, the Reinsurer's liability hereunder shall,
subject to the other terms and conditions of this Contract, be
determined as if the entire loss event had occurred prior to
the expiration of this Contract, provided that no part of such
loss event is claimed against any renewal or replacement of
this Contract.
Article III - Territory (BRMA 51A)
The territorial limits of this Contract shall be identical with
those of the Company's policies.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Reinsurance assumed by the Company (unless an assumed
program has been specifically declared to this Contract
and accepted by the Reinsurer), except inter-company
reinsurance between any member companies of Gryphon
Insurance Group, Inc.
2. Financial guarantee and insolvency.
3. Business written by the Company on a co-indemnity
basis where the Company is not an equal or controlling
carrier.
4. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance" and the
"Nuclear Incident Exclusion Clause - Physical Damage"
attached to and forming part of this Contract.
5. Liability as a member, subscriber or reinsurer of any
Pool, Syndicate or Association which is not underwritten
or controlled by the Company. However, this exclusion
shall not apply to Assigned Risk Plans or similar plans.
6. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
Article V - Retentions and Limits
A. As respects business subject to this Contract, for each layer
of reinsurance coverage provided by this Contract the Company
shall retain and be liable for the first amount of ultimate
net loss arising out of each loss event identified as
"Company's Retention" for the excess layer in the schedule set
forth below. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
the amount identified as "Reinsurer's Limit" for the excess
layer in the schedule set forth below as respects any one loss
event.
Reinsurer's Limit Company's
Retention
First Excess Layer: $ 500,000 xs $ 500,000
Second Excess Layer: $9,000,000 xs $1,000,000
B. With respect to business subject hereunder, the maximum policy
limit (except statutory) with respect to any one coverage, any
one policy shall be deemed not to exceed $5,000,000 any one
loss event, with limits in excess of this amount deemed
reinsured elsewhere.
Article VI - Definitions
A. "Net excess liability" as used herein shall mean those amounts
payable by the Company as defined in the ultimate net loss
definition set forth in paragraph B below.
B. "Ultimate net loss" as used herein is defined as the sum or
sums (including loss in excess of policy limits, extra
contractual obligations, prejudgment interest if included as
part of an award or judgment and any loss adjustment expense,
as hereinafter defined) paid or payable by the Company in
settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed
to mean that losses under this Contract are not recoverable
until the Company's ultimate net loss has been ascertained.
C. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall mean:
1. "Loss in excess of policy limits" shall mean 90% of
any amount paid or payable by the Company under a policy
ceded to this Contract in excess of its policy limits, but
otherwise within the terms of its policy, as a result of
an action against it by its insured or its insured's
assignee to recover damages the insured is legally
obligated to pay to a third party claimant because of the
Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean 90% of any
punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company under a policy ceded to this
Contract as a result of an action against it by its
insured, its insured's assignee or a third party claimant,
which action alleges negligence or bad faith on the part
of the Company in handling a claim under a policy subject
to this Contract.
Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with an individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. "Loss adjustment expense" as used herein shall mean expenses
allocable to the investigation, defense and/or settlement of
specific claims, including 1) prejudgment interest, unless
included as part of the award or judgment; 2) post-judgment
interest; and 3) legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto; but not including office expenses or salaries of the
Company's regular employees, except that allocated outside
costs of the Company's or RA&MCO's salaried adjusters shall be
included. Claim costs shall also be included which are
incurred by RA&MCO and billed to the Company in accordance
with its management agreement.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such expenses shall, for purposes of this
Contract, not exceed an amount equal to the applicable limit
of the policy or policies involved unless agreed to by the
Reinsurer.
E. The term "loss event" as used herein shall mean an accident,
occurrence, claim made, loss discovered or any other
circumstance that triggers coverage as provided, defined, or
interpreted in the Company's original policies, however:
1. Where the Company's policy provides for an aggregate
limit of liability, the term "loss event" shall mean all
losses subject to that aggregate limit, each aggregate
period. For purposes of this Contract, the date of loss
for purposes of this reinsurance will be the inception
date of each aggregate period, as respects policies
written on an occurrence basis and the date the first
claim is made as respects policies written on a claims
made basis. Nevertheless, the Company may extract from
any aggregate "loss event" a single loss so it may be
combined with losses from other policies and submitted as
a single "loss event."
In the event the Company's losses arising out of a
single "loss event" involve policies providing different
types of coverage such as an occurrence and a claims made
policy, all losses can be combined and submitted as a
single "loss event" utilizing the occurrence date of loss
for the purpose of reinsurance coverage. In the event the
Company's losses arising out of a single "loss event"
involve multiple claims made policies, all losses can be
combined and submitted as a single "loss event" utilizing
the date the first claim is made for the purpose of
reinsurance coverage.
2. As respects policies written on a claims made basis,
the date of loss shall be the date the claim is made under
the original policy. As respects any extended reporting
or discovery period provisions under a claims made policy
subject hereto, it is understood and agreed that the
following shall apply:
a. Claims made against and/or reported to the Company
during the extended reporting or discovery period shall
be deemed to have occurred on the last full day of the
applicable policy period;
b. If the Company issues a separate policy and/or
reinstates the aggregate limit provided under a policy,
premium and losses during the period to which said
separate policy and/or reinstated limit applies may, at
the time of issuance and at the Company's option, be
allocated to (i) the contract which is in effect at the
effective date of said separate policy and/or at the
beginning of the period to which the reinstated limit
applies, or (ii) the contract which was in effect at the
effective date of the original policy. If the Company
elects (i), said losses shall be subject to a separate
retention and limit (as specified in the Article V) from
that of the original policy period.
3. As respects multiple year policies, whether issued
with one limit or reinstatement of the limit, each 12-
month period within a multiple year policy shall be
considered a separate period as regards the Company's
retention and the aggregate policy limit. However, as
respects business classified by the Company as Project
Specific coverage, the entire multiple year term shall be
considered one period as regards the Company's retention
and the aggregate policy limit.
4. As respects property losses subject hereto, all
individual losses directly occasioned by any one disaster,
occurrence or loss or series of disasters, occurrences or
losses arising out of one occurrence which occurs anywhere
in the world, but limited in the United States of America
and Canada to 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 event"
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
loss event, except that the term "loss event" shall be
further defined as follows:
a. 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 loss event.
However, the loss event need not be limited to one state
or province or states or provinces contiguous thereto.
b. 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 loss 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.
c. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to above) 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
event."
d. As regards "freeze," only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting frozen pipes and tanks
and melting snow) may be included in the Company's "loss
event."
Except for those "loss events" referred to in
subparagraphs (a) and (b) above, the Company may choose
the date and time when any such period of consecutive
hours commences, provided that it is not earlier than the
date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of
that disaster, occurrence or loss, and provided that only
one such period of 168 consecutive hours shall apply with
respect to one loss event.
However, as respects those "loss events" referred to
in subparagraphs (a) and (b) above, if the disaster,
occurrence or loss occasioned by the occurrence is of
greater duration than 72 consecutive hours, then the
Company may divide that disaster, occurrence or loss into
two or more "loss events," provided that no two periods
overlap and no individual loss is included in more than
one such period, and provided that no period commences
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, occurrence or loss.
It is understood that losses arising from a
combination of two or more perils as a result of the same
occurrence shall be considered as having arisen from one
"loss event." Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as
respects the applicable perils and no single "loss event"
shall encompass a time period greater than 168 consecutive
hours.
Notwithstanding the foregoing, it is understood that the
Company shall be the sole judge of what constitutes a single
"loss event."
F. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less cancellations and return premiums, and less
the earned portion of premiums ceded by the Company for
reinsurance which inures to the benefit of this Contract or
increases the Company's available capacity.
G. "Losses incurred" as used herein for each excess layer shall
mean ceded losses and loss adjustment expense paid as of the
effective date of calculation for the excess layer, plus the
ceded reserves for losses and loss adjustment expense
outstanding as of the same date, all as respects losses
arising out of loss events commencing during the term of this
Contract, plus:
1. As respects the first calculation of the profit
sharing, an amount representing Incurred But Not Reported
Losses (hereinafter called "IBNR") equal to 50.0% of the
reinsurance premium paid or payable hereunder as respects
the First Excess Layer, and 60.0% of the reinsurance
premium paid or payable hereunder as respects the Second
Excess Layer;
2. As respects the first recalculation of the profit
sharing, an amount representing IBNR equal to 35.0% of the
reinsurance premium paid or payable hereunder as respects
the First Excess Layer, and 45.0% of the reinsurance
premium paid or payable hereunder as respects the Second
Excess Layer;
3. As respects the second recalculation of the profit
sharing, an amount representing IBNR equal to 20.0% of the
reinsurance premium paid or payable hereunder as respects
the First Excess Layer, and 30.0% of the reinsurance
premium paid or payable hereunder as respects the Second
Excess Layer;
4. As respects the third recalculation of the profit
sharing, an amount representing IBNR equal to 0% of the
reinsurance premium paid or payable hereunder as respects
the First Excess Layer, and 15.0% of the reinsurance
premium paid or payable hereunder as respects the Second
Excess Layer.
IBNR shall not be included in any subsequent recalculations of
the profit sharing.
Article VII - Other Reinsurance
Notwithstanding the provisions of paragraph B of Article V, the
Company is permitted, but not required, to purchase other
facultative and/or other treaty reinsurance on business subject
to this Contract. Premiums ceded by the Company for reinsurance
which inures to the benefit of this Contract or increases the
Company's available capacity shall be deducted in determining
subject premium hereunder as provided in paragraph F of
Article VI.
Article VIII - Loss Settlements
A. Wherever a claim is reserved by the Company for an amount of
ultimate net loss greater than 50% of the Company's retention
hereunder as respects policy limits or statutory benefits
applicable to the claim which are greater than the Company's
retention, and/or whenever, in the opinion of the Company, a
loss appears likely to result in claim hereunder, the Company
shall notify the Reinsurer. Within 90 days after any claim is
reported to the Reinsurer in accordance with the foregoing,
the Company shall advise the Reinsurer whether or not, in the
sole judgment of the Company, the claim is anticipated to
exceed its retention hereunder. Further, as respects claims
arising under Casualty business subject hereto, the Company
shall notify the Reinsurer whenever a claim involves a
fatality, amputation, spinal cord damage, brain damage,
blindness, extensive burns or multiple fractures, regardless
of liability, if the policy limits or statutory benefits
applicable to the claim are greater than the Company's
retention. The Company shall also notify the Reinsurer of any
declaratory judgment expense relating directly to a specific
claim brought against a policy reinsured under this Contract.
The Reinsurer shall have the right to participate in the
adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (other than extra
contractual obligations and loss in excess of policy limits)
and the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all ultimate net
loss amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company may, however, give the
Reinsurer written notice of its intention to pay any loss on a
certain date and may require the Reinsurer to have its share
of such loss in the possession of the Company by such date;
provided that the Reinsurer shall have a period of five
business days after receipt of such written notice from the
Company to mail or otherwise dispatch its payment.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company, and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Reinsurance Premium
A. As premium for each layer of reinsurance coverage provided by
this Contract, the Company shall pay the Reinsurer the
following:
1. As respects the First Excess Layer of reinsurance
provided by this Contract, the Company shall pay the
Reinsurer 6.70% of the Company's net earned premium for
the term of this Contract.
2. As respects the Second Excess Layer of reinsurance
provided by this Contract, the Company shall pay the
Reinsurer 2.65% of the Company's net earned premium for
the term of this Contract.
In the event this Contract expires on a "runoff" basis in
accordance with the provisions of paragraph B of Article II,
premium for the reinsurance provided under each excess layer
of reinsurance coverage shall be the respective rate set forth
in subparagraphs 1 and 2 above applied to the Company's net
earned premium for each 12-month period within the runoff
period, as respects business in force on the effective date of
expiration.
B. For each excess layer of reinsurance coverage provided by this
Contract, the Company shall pay the Reinsurer a deposit
premium as follows:
1. As respects the First Excess Layer of reinsurance
coverage, the Company shall pay the Reinsurer $6,520,440
in four equal quarterly installments of $1,630,110 on
January 1, April 1, July 1 and October 1 of 1998.
2. As respects the Second Excess Layer of reinsurance
coverage, the Company shall pay the Reinsurer $2,578,980
in four equal quarterly installments of $644,745 on
January 1, April 1, July 1 and October 1 of 1998.
No deposit premium shall be payable during the runoff period,
if any.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder for each excess layer, computed in
accordance with paragraph A, and any additional premium due
the Reinsurer or return premium due the Company shall be
remitted promptly. Premium for the runoff period, if any,
shall be payable by the Company within 60 days after the end
of each 12-month period within the runoff period.
Article XI - Late Payments
A. It is understood and agreed that the provisions of this
Article shall not be implemented unless specifically invoked,
in writing, by one of the parties to this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in
Article XXVI (hereinafter referred to as the "Intermediary")
by the payment due date, the party to whom payment is due may,
by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in the Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects the payment of routine deposits and
premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 45 days after the
date of transmittal by the Intermediary of the initial
billing for each such payment.
2. Any claim or loss payment due the Company hereunder
shall be deemed due five business days following receipt
by the applicable Subscribing Reinsurer of written
notification that payment has been received from
Subscribing Reinsurers constituting at least 662/3% of the
interests and liabilities of all Subscribing Reinsurers
participating under the applicable layer of this Contract,
who are active as of the due date; it being understood
that said date shall not be later than 75 days from the
date of transmittal by the Intermediary of the initial
billing for each such payment.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as five business days following receipt of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. As provided under Article VIII, it is understood and agreed
that the Company shall furnish the Reinsurer with usual and
customary claim information and nothing herein shall be
construed as limiting or prohibiting a Subscribing Reinsurer
from requesting additional information that it may deem
necessary.
F. As respects subparagraph 2 of paragraph C above, a Subscribing
Reinsurer shall be deemed not to be active when it 1) ceases
assuming new or renewal reinsurance business through the
Intermediary; 2) is declared insolvent, or put in liquidation,
conservatorship or rehabilitation by a competent regulatory
authority or court; 3) is declared insolvent, or is the
subject of an administrative order or enters provisional
liquidation and/or liquidation; or 4) has a reduction in its
statutory surplus or shareholders' funds of 50% or more from
its statutory surplus or shareholders' funds as of the
effective date of this Contract.
G. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XII - Profit Sharing
A. Separately, as respects each excess layer of reinsurance
coverage provided by this Contract, the Reinsurer shall pay
the Company a Profit Sharing equal to 25.0% of the net profit,
if any, accruing to the Reinsurer individually under each
excess layer of reinsurance hereunder. The Reinsurer's net
profit for each excess layer hereunder shall be calculated in
accordance with the following formula, it being understood
that a positive balance equals net profit and a negative
balance equals net loss:
1. Reinsurance premium paid or payable hereunder for the
excess layer; less
2. Expenses incurred by the Reinsurer at 15.0% of the
reinsurance premium paid or payable hereunder for the
excess layer; less
3. Losses incurred hereunder for the excess layer.
B. The Company shall calculate and report the Reinsurer's net
profit for each excess layer within 60 days after 12 months
following the date of expiration of this Contract, and within
60 days after the end of each 12-month period thereafter until
all losses subject hereto have been finally settled. Each
such calculation shall be based on cumulative transactions
hereunder from the effective date of this Contract through the
date of calculation. As respects the initial calculation
referred to above, any profit sharing shown to be due the
Company for one or both of the excess layers shall be paid by
the Reinsurer as promptly as possible after receipt and
verification of the Company's report. As respects each
recalculation, any additional profit sharing shown to be due
the Company for one or both of the excess layers shall be paid
by the Reinsurer as promptly as possible after receipt and
verification of the Company's report. Any return Profit
Sharing shown to be due the Reinsurer shall be paid by the
Company with its report.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset
any balance or amounts due from one party to the other under
the terms of this Contract. The party asserting the right of
offset may exercise such right any time whether the balances
due are on account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have
access at any reasonable time to all records of the Company
which pertain in any way to this reinsurance.
Article XV - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVI - Net Retained Lines
A. This Contract applies only to that portion of any insurance or
reinsurance (whether inter-company reinsurance and/or
reinsurance assumed which has been declared to this Contract
and accepted by the Reinsurer) the Company retains net for its
own account (prior to deduction of any underlying reinsurance
specifically permitted in the Contract), and in calculating
the amount of any loss hereunder and also computing the amount
or amounts in excess of which this Contract attaches, only
loss or losses in respect of that portion of any insurance or
reinsurance the Company retains net for its own account shall
be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may be due from such reinsurer(s), whether such inability
arises from the insolvency of such other reinsurer(s) or
otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered into the
books of the Company.
Article XIX - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XX - Federal Excise Tax
If the Reinsurer is subject to the Federal Excise Tax, the
Reinsurer agrees to allow the Company to withhold the required
amount for the purpose of paying the Tax. In the event of any
return premium becoming due hereunder, the Reinsurer will deduct
from the amount of the return premium the same percentage as it
allowed, and the Company or its agent should take steps to
recover the Tax from the U. S. Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves (including incurred
but not reported loss reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves (including incurred but not
reported loss reserves) funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, any
dispute arising out of the interpretation, performance or
breach of this Contract, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator who shall preside at the hearing.
If either party fails to appoint its arbitrator within 30 days
after being requested to do so by the other party, the latter,
after ten days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third
arbitrator within thirty (30) days of their appointment, the
two arbitrators will jointly petition the American Arbitration
Association to appoint the third arbitrator from the AAA's
Panel of Reinsurance Arbitrators.
D. All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies,
underwriters at Lloyd's of London, reinsurance intermediaries
and attorneys actively or formerly engaged in practicing law
in the areas of insurance or reinsurance.
E. Within 30 days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs,
discovery procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. The arbitration shall take place in Woodland Hills,
California or, if unanimously agreed by the panel, any other
mutually acceptable location.
G. 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. However, nothing shall impair the
rights of such reinsurers to assert several rather than joint
defenses or claims, nor shall this provision be construed as
changing the liability of the reinsurers under the terms of
this Contract from several to joint.
H. The panel shall make its decision considering custom and
practice as promptly as possible following the termination of
hearings. The decision of any two arbitrators, when rendered
in writing shall be final and binding, and judgment upon the
award may be entered in any court having jurisdiction. The
panel is empowered to grant such interim relief as it may deem
appropriate.
I. Each party shall bear the expense of its own arbitrator and
shall jointly and equally with the other party bear the cost
of the third arbitrator. The remaining costs of the
arbitration shall be allocated by the panel. The panel may,
at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorney's
fees and interest to the extent permitted by law. Insofar as
the arbitration panel chooses to look to substantive law, it
shall consider the law of the State of California.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Gryphon Insurance Group, Inc. shall be deemed the agent of the
reinsured companies for purposes of sending or receiving
notices required by the terms and conditions of this Contract,
and for purposes of remitting or receiving any monies due any
party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
New York, New York,this _________ day of __________________ 199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
Schedule A
attached to the
"Working" Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
A. Umbrella business produced by Jean Deal & Associates, Dallas,
Texas for the Specialty Lines Division of Gryphon Insurance
Group, Inc., Woodland Hills, California.
B. DIC business produced by the Pacific Coast DIC Division of
Gryphon Insurance Group, Inc., Woodland Hills, California.
C. General Property E&S business produced by the General E&S
Division of Gryphon Insurance Group, Inc., Woodland Hills,
California.
D. Animal Mortality business produced by American Equine
Insurance Group, Rolling Meadows, Illinois, for Gryphon
Insurance Group, Inc., Hoboken, New Jersey.
E. Canadian business produced by KMS Insurance Services, Toronto,
Canada, for Gryphon Insurance Group, Inc., Hoboken, New
Jersey.
F. Midwest Garage program produced by Business Risk Services,
Geneva, Illinois, for Gryphon Insurance Group, Inc., Hoboken,
New Jersey.
G. Architects and Engineers business produced by RA&MCO Insurance
Services, Concord, California for Gryphon Insurance Group,
Inc., Woodland Hills, California, which is reinsured by Zurich
Re (UK).
H. Entertainment Industry Insurance produced by the
Entertainment, Sports & Special Risks Division, Woodland
Hills, California, which is covered under separate reinsurance
agreements.
E. W. BLANCH CO.
R:\98R\14124.DOC Reinsurance Services
Page 2
Excess Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Business Reinsured 3
II Term 4
III Territory (BRMA 51A) 5
IV Exclusions 5
V Retention and Limit 5
VI Reinstatement 6
VII Definitions 6
VIII Other Reinsurance 10
IX Loss Settlements 10
X Salvage and Subrogation 11
XI Reinsurance Premium 11
XII Late Payments 12
XIII Offset (BRMA 36C) 14
XIV Access to Records (BRMA 1D) 14
XV Liability of the Reinsurer 14
XVI Net Retained Lines 14
XVII Errors and Omissions (BRMA 14F) 15
XVIII Currency (BRMA 12A) 15
XIX Taxes (BRMA 50B) 15
XX Federal Excise Tax 15
XXI Unauthorized Reinsurers 15
XXII Insolvency 17
XXIII Arbitration 17
XXIV Service of Suit (BRMA 49C) 19
XXV Agency Agreement 19
XXVI Intermediary (BRMA 23A) 19
Schedule A
Excess Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreements
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Business Reinsured
A. By this Contract the Reinsurer agrees to reinsure and/or
indemnify the Company for the net excess liability which may
accrue to the Company under its policies, contracts and
binders of insurance or reinsurance (hereinafter called
"policies") in force on the effective date hereof, or issued
or renewed on or after that date, and classified by the
Company as all lines of business (direct and assumed) as
respects programs managed by the Company, subject to the
terms, conditions and limitations hereinafter set forth.
Programs set forth in Schedule A attached to and forming part
of this Contract shall be excluded from coverage hereunder.
The Company shall have the option of excluding additional
programs from coverage hereunder in accordance with paragraph
B below.
B. The Company shall have the option to exclude any program from
this Contract by submitting each such program in writing to
the Reinsurer not more than 90 days after the inception of the
program as respects those programs eligible for coverage
hereunder. Casualty programs that generate $5,000,000 or less
of estimated annualized subject earned premium during the
first 12 months of the program will be deemed to have
automatic coverage under the terms and conditions hereinafter
set forth if not excluded from this Contract. All property
programs and those casualty programs that generate greater
than $5,000,000 of estimated annualized subject earned premium
during the first 12 months of the program must be submitted to
the lead reinsurer(s) hereunder for acceptance on behalf of
the Reinsurer of coverage under the terms and conditions
hereinafter set forth if declared to this Contract.
The Company shall be the sole judge of what constitutes a
"program."
Article II - Term
A. This Contract shall become effective on January 1, 1998, with
respect to losses arising out of loss events commencing on or
after that date, and shall remain in force until December 31,
1998, both days inclusive. Notwithstanding the foregoing, in
the event negotiations for a renewal of this Contract are not
completed by December 31, 1998, at the Company's option, this
Contract shall be extended by addendum through March 31, 1999.
B. Except as provided in paragraph C below, reinsurance hereunder
on business in force on the effective date of expiration shall
remain in full force and effect until expiration, cancellation
or next premium anniversary of such business, whichever first
occurs, but in no event beyond 36 months, plus odd time (not
exceeding 42 months in all) as respects multiple year
policies, nor 12 months plus odd time (not exceeding 18 months
in all) as respects policies of one year policy terms or less,
following the effective date of expiration. However, these
limitations shall not apply to any Extended Reporting Period
or Extended Discovery Endorsement provisions or policies
classified by the Company as Project Specific coverage.
C. Notwithstanding the provisions of paragraph B above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of expiration, in which event the Reinsurer
shall not be liable for claims made or losses arising out of
loss events commencing after that date. As respects policies
providing an aggregate limit of liability which are in force
on the effective date of expiration, the Reinsurer shall be
liable for the entire aggregate loss under such policies if
the inception date of the policy period falls on or before the
effective date of expiration, as respects policies written on
an occurrence basis, or if the first claim is made on or
before the effective date of expiration as respects policies
written on a claims made basis.
D. If this Contract expires while a loss event covered hereunder
is in progress, the Reinsurer's liability hereunder shall,
subject to the other terms and conditions of this Contract, be
determined as if the entire loss event had occurred prior to
the expiration of this Contract, provided that no part of such
loss event is claimed against any renewal or replacement of
this Contract.
Article III - Territory (BRMA 51A)
The territorial limits of this Contract shall be identical with
those of the Company's policies.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Reinsurance assumed by the Company (unless an assumed
program has been specifically declared to this Contract
and accepted by the Reinsurer), except inter-company
reinsurance between any member companies of Gryphon
Insurance Group, Inc.
2. Financial guarantee and insolvency.
3. Business written by the Company on a co-indemnity
basis where the Company is not an equal or controlling
carrier.
4. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance" and the
"Nuclear Incident Exclusion Clause - Physical Damage"
attached to and forming part of this Contract.
5. Liability as a member, subscriber or reinsurer of any
Pool, Syndicate or Association which is not underwritten
or controlled by the Company. However, this exclusion
shall not apply to Assigned Risk Plans or similar plans.
6. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
Article V - Retention and Limit
A. As respects business subject to this Contract, the Company
shall retain and be liable for the first $10,000,000 of
ultimate net loss arising out of each loss event. The
Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company's retention, but the
liability of the Reinsurer shall not exceed $15,000,000 as
respects any one loss event.
B. With respect to business subject hereunder, the maximum policy
limit (except statutory) with respect to any one coverage, any
one policy shall be deemed not to exceed $5,000,000 any one
loss event, with limits in excess of this amount deemed
reinsured elsewhere.
Article VI - Reinstatement
A. In the event all or any portion of the reinsurance hereunder
is exhausted by loss, the amount so exhausted shall be
reinstated immediately from the time the loss event commences
hereon. As respects each amount so reinstated, the Company
shall pay the Reinsurer additional premium equal to the
product of the following:
1. The percentage of the loss event limit reinstated
(based on the loss paid by the Reinsurer); times
2. The earned reinsurance premium for the term of this
Contract (exclusive of reinstatement premium and exclusive
of the earned reinsurance premium for the runoff period,
if any), it being understood and agreed that if the loss
event commences during the runoff period, reinstatement
premium shall be based on the earned reinsurance premium
during the runoff period for business in force on the
effective date of expiration of this Contract.
B. Whenever the Company requests payment by the Reinsurer of any
loss hereunder, the Company shall submit a statement to the
Reinsurer of reinstatement premium due the Reinsurer. If the
earned reinsurance premium for the term of this Contract or
the runoff period, if applicable, has not been finally
determined as of the date of any such statement, the
calculation of reinstatement premium due shall be based on the
annual deposit premium and shall be readjusted when the earned
reinsurance premium for the term of this Contract has been
finally determined. Any reinstatement premium shown to be due
the Reinsurer as reflected by any such statement (less prior
payments, if any) shall be payable by the Company concurrently
with payment by the Reinsurer of the requested loss. Any
return reinstatement premium shown to be due the Company shall
be remitted by the Reinsurer as promptly as possible after
receipt and verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the
Reinsurer hereunder shall not exceed $15,000,000 as respects
loss or losses arising out of any one loss event, nor shall it
exceed $45,000,000 as respects all losses arising out of loss
events subject to this Contract.
Article VII - Definitions
A. "Net excess liability" as used herein shall mean those amounts
payable by the Company as defined in the ultimate net loss
definition set forth in paragraph B below.
B. "Ultimate net loss" as used herein is defined as the sum or
sums (including loss in excess of policy limits, extra
contractual obligations, prejudgment interest if included as
part of an award or judgment and any loss adjustment expense,
as hereinafter defined) paid or payable by the Company in
settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed
to mean that losses under this Contract are not recoverable
until the Company's ultimate net loss has been ascertained.
C. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall mean:
1. "Loss in excess of policy limits" shall mean 90% of
any amount paid or payable by the Company under a policy
ceded to this Contract in excess of its policy limits, but
otherwise within the terms of its policy, as a result of
an action against it by its insured or its insured's
assignee to recover damages the insured is legally
obligated to pay to a third party claimant because of the
Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean 90% of any
punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company under a policy ceded to this
Contract as a result of an action against it by its
insured, its insured's assignee or a third party claimant,
which action alleges negligence or bad faith on the part
of the Company in handling a claim under a policy subject
to this Contract.
Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with an individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. "Loss adjustment expense" as used herein shall mean expenses
allocable to the investigation, defense and/or settlement of
specific claims, including 1) prejudgment interest, unless
included as part of the award or judgment; 2) post-judgment
interest; and 3) legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto; but not including office expenses or salaries of the
Company's regular employees, except that allocated outside
costs of the Company's or RA&MCO's salaried adjusters shall be
included. Claim costs shall also be included which are
incurred by RA&MCO and billed to the Company in accordance
with its management agreement.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such expenses shall, for purposes of this
Contract, not exceed an amount equal to the applicable limit
of the policy or policies involved unless agreed to by the
Reinsurer.
E. The term "loss event" as used herein shall mean an accident,
occurrence, claim made, loss discovered or any other
circumstance that triggers coverage as provided, defined, or
interpreted in the Company's original policies, however:
1. Where the Company's policy provides for an aggregate
limit of liability, the term "loss event" shall mean all
losses subject to that aggregate limit, each aggregate
period. For purposes of this Contract, the date of loss
for purposes of this reinsurance will be the inception
date of each aggregate period, as respects policies
written on an occurrence basis and the date the first
claim is made as respects policies written on a claims
made basis. Nevertheless, the Company may extract from
any aggregate "loss event" a single loss so it may be
combined with losses from other policies and submitted as
a single "loss event."
In the event the Company's losses arising out of a
single "loss event" involve policies providing different
types of coverage such as an occurrence and a claims made
policy, all losses can be combined and submitted as a
single "loss event" utilizing the occurrence date of loss
for the purpose of reinsurance coverage. In the event the
Company's losses arising out of a single "loss event"
involve multiple claims made policies, all losses can be
combined and submitted as a single "loss event" utilizing
the date the first claim is made for the purpose of
reinsurance coverage.
2. As respects policies written on a claims made basis,
the date of loss shall be the date the claim is made under
the original policy. As respects any extended reporting
or discovery period provisions under a claims made policy
subject hereto, it is understood and agreed that the
following shall apply:
a. Claims made against and/or reported to the Company
during the extended reporting or discovery period shall
be deemed to have occurred on the last full day of the
applicable policy period;
b. If the Company issues a separate policy and/or
reinstates the aggregate limit provided under a policy,
premium and losses during the period to which said
separate policy and/or reinstated limit applies may, at
the time of issuance and at the Company's option, be
allocated to (i) the contract which is in effect at the
effective date of said separate policy and/or at the
beginning of the period to which the reinstated limit
applies, or (ii) the contract which was in effect at the
effective date of the original policy. If the Company
elects (i), said losses shall be subject to a separate
retention and limit (as specified in Article V) from
that of the original policy period.
3. As respects multiple year policies, whether issued
with one limit or reinstatement of the limit, each 12-
month period within a multiple year policy shall be
considered a separate period as regards the Company's
retention and the aggregate policy limit. However, as
respects business classified by the Company as Project
Specific coverage, the entire multiple year term shall be
considered one period as regards the Company's retention
and the aggregate policy limit.
4. As respects property losses subject hereto, all
individual losses directly occasioned by any one disaster,
occurrence or loss or series of disasters, occurrences or
losses arising out of one occurrence which occurs anywhere
in the world, but limited in the United States of America
and Canada to 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 event"
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
loss event, except that the term "loss event" shall be
further defined as follows:
a. 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 loss event.
However, the loss event need not be limited to one state
or province or states or provinces contiguous thereto.
b. 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 loss 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.
c. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to above) 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
event."
d. As regards "freeze," only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting frozen pipes and tanks
and melting snow) may be included in the Company's "loss
event."
Except for those "loss events" referred to in
subparagraphs (a) and (b) above, the Company may choose
the date and time when any such period of consecutive
hours commences, provided that it is not earlier than the
date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of
that disaster, occurrence or loss, and provided that only
one such period of 168 consecutive hours shall apply with
respect to one loss event.
However, as respects those "loss events" referred to
in subparagraphs (a) and (b) above, if the disaster,
occurrence or loss occasioned by the occurrence is of
greater duration than 72 consecutive hours, then the
Company may divide that disaster, occurrence or loss into
two or more "loss events," provided that no two periods
overlap and no individual loss is included in more than
one such period, and provided that no period commences
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, occurrence or loss.
It is understood that losses arising from a
combination of two or more perils as a result of the same
occurrence shall be considered as having arisen from one
"loss event." Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as
respects the applicable perils and no single "loss event"
shall encompass a time period greater than 168 consecutive
hours.
Notwithstanding the foregoing, it is understood that the
Company shall be the sole judge of what constitutes a single
"loss event."
F. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less cancellations and return premiums, and less
the earned portion of premiums ceded by the Company for
reinsurance which inures to the benefit of this Contract or,
increases the Company's available capacity.
Article VIII - Other Reinsurance
Notwithstanding the provisions of paragraph B of Article V, the
Company is permitted, but not required, to purchase other
facultative and/or other treaty reinsurance on business subject
to this Contract. Premiums ceded by the Company for reinsurance
which inures to the benefit of this Contract or increases the
Company's available capacity shall be deducted in determining
subject premium hereunder as provided in paragraph F of Article
VII.
Article IX - Loss Settlements
A. Wherever a claim is reserved by the Company for an amount of
ultimate net loss greater than 50% of the Company's retention
hereunder as respects policy limits or statutory benefits
applicable to the claim which are greater than the Company's
retention, and/or whenever, in the opinion of the Company, a
loss appears likely to result in claim hereunder, the Company
shall notify the Reinsurer. Within 90 days after any claim is
reported to the Reinsurer in accordance with the foregoing,
the Company shall advise the Reinsurer whether or not, in the
sole judgment of the Company, the claim is anticipated to
exceed its retention hereunder. Further, as respects claims
arising under Casualty business subject hereto, the Company
shall notify the Reinsurer whenever a claim involves a
fatality, amputation, spinal cord damage, brain damage,
blindness, extensive burns or multiple fractures, regardless
of liability, if the policy limits or statutory benefits
applicable to the claim are greater than the Company's
retention. The Company shall also notify the Reinsurer of any
declaratory judgment expense relating directly to a specific
claim brought against a policy reinsured under this Contract.
The Reinsurer shall have the right to participate in the
adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (other than extra
contractual obligations and loss in excess of policy limits)
and the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all ultimate net
loss amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company may, however, give the
Reinsurer written notice of its intention to pay any loss on a
certain date and may require the Reinsurer to have its share
of such loss in the possession of the Company by such date;
provided that the Reinsurer shall have a period of five
business days after receipt of such written notice from the
Company to mail or otherwise dispatch its payment.
Article X - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company, and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XI - Reinsurance Premium
A. As premium for the reinsurance coverage provided hereunder,
the Company shall pay the Reinsurer 0.80% of the Company's net
earned premium for the term of this Contract, subject to a
minimum of $622,848 (or $778,560 if this Contract is extended
through March 31, 1999, as provided in paragraph A of
Article II). In the event this Contract expires on a "runoff"
basis in accordance with the provisions of paragraph B of
Article II, premium for the reinsurance provided hereunder
shall be 0.80% of the Company's net earned premium for each
12-month period within the runoff period, as respects business
in force on the effective date of expiration.
B. The Company shall pay the Reinsurer a deposit premium of
$778,560 in four equal quarterly installments of $194,640 on
January 1, April 1, July 1 and October 1 of 1998. No deposit
premium shall be payable during the runoff period, if any.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with
paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.
Premium for the runoff period, if any, shall be payable by the
Company within 60 days after the end of each 12-month period
within the runoff period.
Article XII - Late Payments
A. It is understood and agreed that the provisions of this
Article shall not be implemented unless specifically invoked,
in writing, by one of the parties to this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in
Article XXVI (hereinafter referred to as the "Intermediary")
by the payment due date, the party to whom payment is due may,
by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in the Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects the payment of routine deposits and
premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 45 days after the
date of transmittal by the Intermediary of the initial
billing for each such payment.
2. Any claim or loss payment due the Company hereunder
shall be deemed due five business days following receipt
by the applicable Subscribing Reinsurer of written
notification that payment has been received from
Subscribing Reinsurers constituting at least 662/3% of the
interests and liabilities of all Subscribing Reinsurers
participating under the applicable layer of this Contract,
who are active as of the due date; it being understood
that said date shall not be later than 75 days from the
date of transmittal by the Intermediary of the initial
billing for each such payment.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as five business days following receipt of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. As provided under Article IX, it is understood and agreed that
the Company shall furnish the Reinsurer with usual and
customary claim information and nothing herein shall be
construed as limiting or prohibiting a Subscribing Reinsurer
from requesting additional information that it may deem
necessary.
F. As respects subparagraph 2 of paragraph C above, a Subscribing
Reinsurer shall be deemed not to be active when it 1) ceases
assuming new or renewal reinsurance business through the
Intermediary; 2) is declared insolvent, or put in liquidation,
conservatorship or rehabilitation by a competent regulatory
authority or court; 3) is declared insolvent, or is the
subject of an administrative order or enters provisional
liquidation and/or liquidation; or 4) has a reduction in its
statutory surplus or shareholders' funds of 50% or more from
its statutory surplus or shareholders' funds as of the
effective date of this Contract.
G. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset
any balance or amounts due from one party to the other under
the terms of this Contract. The party asserting the right of
offset may exercise such right any time whether the balances
due are on account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have
access at any reasonable time to all records of the Company
which pertain in any way to this reinsurance.
Article XV - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVI - Net Retained Lines
A. This Contract applies only to that portion of any insurance or
reinsurance (whether inter-company reinsurance and/or
reinsurance assumed which has been declared to this Contract
and accepted by the Reinsurer) the Company retains net for its
own account (prior to deduction of any underlying reinsurance
specifically permitted in the Contract), and in calculating
the amount of any loss hereunder and also computing the amount
or amounts in excess of which this Contract attaches, only
loss or losses in respect of that portion of any insurance or
reinsurance the Company retains net for its own account shall
be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may be due from such reinsurer(s), whether such inability
arises from the insolvency of such other reinsurer(s) or
otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered into the
books of the Company.
Article XIX - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XX - Federal Excise Tax
If the Reinsurer is subject to the Federal Excise Tax, the
Reinsurer agrees to allow the Company to withhold the required
amount for the purpose of paying the Tax. In the event of any
return premium becoming due hereunder, the Reinsurer will deduct
from the amount of the return premium the same percentage as it
allowed, and the Company or its agent should take steps to
recover the Tax from the U. S. Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves (including incurred
but not reported loss reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves (including incurred but not
reported loss reserves) funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, any
dispute arising out of the interpretation, performance or
breach of this Contract, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator who shall preside at the hearing.
If either party fails to appoint its arbitrator within 30 days
after being requested to do so by the other party, the latter,
after ten days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third
arbitrator within 30 days of their appointment, the two
arbitrators will jointly petition the American Arbitration
Association to appoint the third arbitrator from the AAA's
Panel of Reinsurance Arbitrators.
D. All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies,
underwriters at Lloyd's of London, reinsurance intermediaries
and attorneys actively or formerly engaged in practicing law
in the areas of insurance or reinsurance.
E. Within 30 days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs,
discovery procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. The arbitration shall take place in Woodland Hills,
California or, if unanimously agreed by the panel, any other
mutually acceptable location.
G. 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. However, nothing shall impair the
rights of such reinsurers to assert several rather than joint
defenses or claims, nor shall this provision be construed as
changing the liability of the reinsurers under the terms of
this Contract from several to joint.
H. The panel shall make its decision considering custom and
practice as promptly as possible following the termination of
hearings. The decision of any two arbitrators, when rendered
in writing shall be final and binding, and judgment upon the
award may be entered in any court having jurisdiction. The
panel is empowered to grant such interim relief as it may deem
appropriate.
I. Each party shall bear the expense of its own arbitrator and
shall jointly and equally with the other party bear the cost
of the third arbitrator. The remaining costs of the
arbitration shall be allocated by the panel. The panel may,
at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorney's
fees and interest to the extent permitted by law. Insofar as
the arbitration panel chooses to look to substantive law, it
shall consider the law of the State of California.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Gryphon Insurance Group, Inc. shall be deemed the agent of the
reinsured companies for purposes of sending or receiving
notices required by the terms and conditions of this Contract,
and for purposes of remitting or receiving any monies due any
party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
New York, New York,this _________ day of ______________________ 199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
Schedule A
attached to the
Excess Per Event Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
A. Umbrella business produced by Jean Deal & Associates, Dallas,
Texas for the Specialty Lines Division of Gryphon Insurance
Group, Inc., Woodland Hills, California.
B. DIC business produced by the Pacific Coast DIC Division of
Gryphon Insurance Group, Inc., Woodland Hills, California.
C. General Property E&S business produced by the General E&S
Division of Gryphon Insurance Group, Inc., Woodland Hills,
California.
D. Animal Mortality business produced by American Equine
Insurance Group, Rolling Meadows, Illinois, for Gryphon
Insurance Group, Inc., Hoboken, New Jersey.
E. Canadian business produced by KMS Insurance Services, Toronto,
Canada, for Gryphon Insurance Group, Inc., Hoboken, New
Jersey.
F. Midwest Garage program produced by Business Risk Services,
Geneva, Illinois, for Gryphon Insurance Group, Inc., Hoboken,
New Jersey.
G. Architects and Engineers business produced by RA&MCO Insurance
Services, Concord, California for Gryphon Insurance Group,
Inc., Woodland Hills, California, which is reinsured by Zurich
Re (UK).
H. Entertainment Industry Insurance produced by the
Entertainment, Sports & Special Risks Division, Woodland
Hills, California, which is covered under separate reinsurance
agreements.
R:\98\A0000014.DOC
Quota Share
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
Preamble 3
I Classes of Business Reinsured 3
II Commencement and Termination 4
III Territory (BRMA 51A) 4
IV Exclusions 4
V Retention and Limit 7
VI Loss in Excess of Policy Limits/ECO 7
VII Losses and Loss Adjustment Expense 8
VIII Salvage and Subrogation 8
IX Original Conditions 8
X Sliding Scale Commission 8
XI Reports and Remittances 10
XII Offset (BRMA 36C) 10
XIII Access to Records (BRMA 1D) 11
XIV Errors and Omissions (BRMA 14F) 11
XV Currency (BRMA 12A) 11
XVI Taxes (BRMA 50B) 11
XVII Federal Excise Tax (BRMA 17A) 11
XVIII Unauthorized Reinsurers 12
XIX Insolvency 13
XX Arbitration (BRMA 6J) 13
XXI Service of Suit (BRMA 49C) 14
XXII Agency Agreement 15
Quota Share
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Preamble
If any provisions of this Contract shall be rendered illegal or
unenforceable by the laws, regulations or public policy of any
state, such provision shall be considered void in such state, but
this shall not affect the validity or enforceability of any
provision of this Contract or the enforceability of such
provision in any other jurisdiction.
Article I - Classes of Business Reinsured
A. By this Contract the Company obligates itself to cede to the
Reinsurer and the Reinsurer obligates itself to accept quota
share reinsurance of the Company's net liability under
policies, contracts and binders of insurance or reinsurance
(hereinafter called "policies") issued or renewed on or after
the effective date hereof, and classified by the Company as
Pacific Coast Difference in Conditions, California Earthquake
(IBAW Program) and General E&S West Coast Earthquake business.
As respects General E&S West Coast Earthquake, business
classified by the Company as Course of Construction,
Transmission and Distribution Lines, Mechanical Breakdown and
Boiler and Machinery shall not be covered hereunder.
B. "Net liability" as used herein is defined as the Company's
gross liability remaining after cessions, if any, to other pro
rata reinsurers.
C. The liability of the Reinsurer with respect to each cession
hereunder shall commence obligatorily and simultaneously with
that of the Company, subject to the terms, conditions and
limitations hereinafter set forth.
Article II - Commencement and Termination
A. This Contract shall become effective on January 1, 1998, with
respect to losses occurring on or after that date, and shall
continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by
giving the other party not less than 90 days prior notice by
certified mail.
C. Unless the Company elects to reassume the ceded unearned
premium in force on the effective date of termination, and so
notifies the Reinsurer prior to or as promptly as possible
after the effective date of termination, reinsurance hereunder
on business in force on the effective date of termination
shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business,
whichever first occurs, but not to exceed the following:
1. As respects Builders Risk policies, 18 months
following the effective date of termination;
2. As respects all other policies, 12 months plus odd
time following the effective date of termination.
D. Notwithstanding paragraph B above, the Reinsurer may terminate
this Contract within 30 days of learning of a change in the
management responsibility or authority of Matthew T. Peller by
giving the Company not less than 60 days prior notice by
certified mail.
E. If the Reinsurer is unable to procure retrocessional
protection, no cessions will be made under this Contract after
the expiration or termination of any in force retrocessional
protections or 90 days after receipt of notification from the
Reinsurer by the Company, whichever last occurs.
Article III - Territory (BRMA 51A)
The territorial limits of this Contract shall be identical with
those of the Company's policies.
Article IV - Exclusions
A. This Contract does not apply to and specifically excludes the
following:
1. Loss or liability excluded under the terms of the
"Pools, Associations and Syndicates Exclusion Clause"
attached to and forming part of this Contract.
2. All reinsurance assumed, with the exception of intra-
company reinsurance and specific insureds whose
reinsurance is written through their own captive company
and quoted by a non-related entity.
3. Risks of war, whether or not declared, invasion,
civil war, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
4. Hail insurance or reinsurance covering growing,
drying or standing crops when written as such.
5. Flood, when written as such; however, this exclusion
shall not apply to flood when included in Difference in
Conditions, Inland Marine and All Risk policies.
6. All armored car business except when written in
excess of $500,000.
7. Credit, financial or insolvency guarantees.
8. Livestock insurance or reinsurance, when written as
such.
9. Third Party Bodily Injury and Property Damage
Liability, Medical Payments, Workers' Compensation,
Fidelity and Surety, whether written separately or as part
of a Multiple Peril policy. However, nothing herein
contained shall be construed as excluding liability for
damage to property in an insured's care, custody or
control or for which the insured may be liable.
10. Ocean Marine, when written as such.
11. Aircraft, meaning direct damage to hulls insured
under Aircraft Hull policies, but not excluding aircraft
hulls insured under regular Fire, Inland Marine and All
Risk policies (other than Aircraft Hull policies). In no
event shall any liability attach to the Reinsurer
hereunder in respect of aircraft while in flight or
taxiing.
12. Offshore drilling rigs.
13. Automobile risks insured under Automobile policies
with the exception of floor plans.
14. Space and space related risks for the intention of
ignition of the launch vehicle which includes taxiing
within the launch site area and in flight.
15. Grain elevators.
16. Petrochemical risks and refineries.
17. Underground mining.
18. Inland Marine policies covering jewelers block and
motor truck cargo.
19. Mortgage Impairment insurance.
20. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
21. Kidnap and Ransom.
22. Residual Value and Credit insurance.
23. Crop insurance.
24. Burglary and Theft, when written as such.
25. Strike insurance.
26. Product impairment, recall and tampering.
27. Data processing companies whose sole purpose is to
provide data processing services to other companies which
include media exposures defined as material on which data
is to be or is already stored (i.e., disks, magnetic and
paper tapes, drums, cores and programs).
28. Risks as detailed in the "Target Risks Exclusion
Clause" attached to and forming part of this Contract.
29. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance
(U.S.A.)," the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (Canada)," and the "Nuclear
Energy Risks Exclusion Clause - Reinsurance (Worldwide
Excluding U.S.A. & Canada)," attached to and forming part
of this Contract.
30. Boiler and Machinery, when written as such.
31. Mechanical breakdowns, when written as such.
32. Transmission and distribution lines.
B. Notwithstanding the foregoing provisions of paragraph A, these
exclusions do not apply where the excluded class or
operations, in the opinion of the Company, constitutes a minor
part of or incidental exposure to the main operations of the
insured, except for the exclusions set forth in subparagraphs
2, 3, 7, 10, 11, 12, 14, 20, 28, 29 and 32 of paragraph A.
C. As respects business written by the General E&S department,
this Contract does not apply to and specifically excludes the
following:
1. Onshore drilling rigs.
2. Equipment maintenance, warranty or similar coverages.
D. Notwithstanding the foregoing, the exclusions set forth in
paragraph C do not apply where the excluded class or
operation, in the opinion of the Company, constitute a minor
part of or incidental exposure to the main operations of the
insured.
Article V - Retention and Limit
A. As respects business subject to this Contract, the Company
shall retain and be liable for 66.67% of its net liability.
The Company shall cede to the Reinsurer and the Reinsurer
agrees to accept 33.33% of the Company's net liability.
B. The Company shall purchase or be deemed to have purchased
inuring facultative reinsurance to limit its loss subject
hereto from any one coverage, any one policy (exclusive of
loss in excess of policy limits or extra contractual
obligations) to $15,000,000 each occurrence, recoveries under
which shall inure to the benefit of this Contract.
Article VI - Loss in Excess of Policy Limits/ECO
A. In the event the Company pays or is held liable to pay an
amount of loss in excess of its policy limit, but otherwise
within the terms of its policy (hereinafter called "loss in
excess of policy limits") or any punitive, exemplary,
compensatory or consequential damages, other than loss in
excess of policy limits (hereinafter called "extra contractual
obligations") because of alleged or actual bad faith or
negligence on its part in rejecting a settlement within policy
limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its policyholder, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a
claim under a policy subject to this Contract, 100% of the
loss in excess of policy limits and/or 100% of the extra
contractual obligations shall be added to the Company's loss,
if any, under the policy involved, and the sum thereof shall
be subject to the provisions of Article V.
B. An extra contractual obligation shall be deemed to have
occurred on the same date as the loss covered or alleged to be
covered under the policy.
C. Notwithstanding anything stated herein, this Contract shall
not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with any individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Recoveries from any form of insurance or reinsurance which
protects the Company against claims the subject matter of this
Article shall inure to the benefit of this Contract.
Article VII - Losses and Loss Adjustment Expense
A. Losses shall be reported by the Company in summary form as
hereinafter provided. The Reinsurer shall have the right to
participate in the adjustment of losses subject to this
Contract at its own expense.
B. All loss settlements made by the Company, whether under strict
policy conditions or by way of compromise, shall be binding
upon the Reinsurer, and the Reinsurer agrees to pay or allow,
as the case may be, its proportion of each such settlement in
accordance with Article XI.
C. In the event of a claim under a policy subject hereto, the
Reinsurer shall be liable for its proportionate share of loss
adjustment expense incurred by the Company in connection
therewith (including litigation expenses and interest on
judgments, but not including office expenses or salaries of
the Company's regular employees), and shall be credited with
its proportionate share of any recoveries of such expense.
Article VIII - Salvage and Subrogation
The Reinsurer shall be credited with its proportionate share of
salvage (i.e., reimbursement obtained or recovery made by the
Company, less the actual cost, excluding salaries of officials
and employees of the Company and sums paid to attorneys as
retainer, of obtaining such reimbursement or making such
recovery) on account of claims and settlements involving
reinsurance hereunder. The Company hereby agrees to enforce its
rights to salvage or subrogation relating to any loss, a part of
which loss was sustained by the Reinsurer, and to prosecute all
claims arising out of such rights.
Article IX - Original Conditions
A. All reinsurance under this Contract shall be subject to the
same rates, terms, conditions and waivers and to the same
modifications and alterations as the respective policies of
the Company. However, in no event shall this be construed in
any way to provide coverage outside the terms and conditions
set forth in this Contract. The Reinsurer shall be credited
with its exact proportion of the original premiums received by
the Company, prior to disbursement of any dividends, but after
deduction of premiums, if any, ceded by the Company for
inuring reinsurance.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article X - Sliding Scale Commission
A. The Reinsurer shall allow the Company a 32.5% provisional
commission on all premiums ceded to the Reinsurer hereunder.
The Company shall allow the Reinsurer return commission on
return premiums at the same rate.
B. The provisional commission allowed the Company shall be
adjusted periodically in accordance with the provisions set
forth herein. The first adjustment period shall be from the
effective date of this Contract through December 31, 1998, and
each subsequent 12-month period shall be a separate adjustment
period. However, if this Contract is terminated, the final
adjustment period shall be from the beginning of the then
current adjustment period through the date of termination if
this Contract is terminated on a "cutoff" basis, or the end of
the runoff period if this Contract is terminated on a "runoff"
basis.
C. The adjusted commission rate shall be calculated as follows
and be applied to premiums earned for the period under
consideration:
1. If the ratio of losses incurred to premiums earned is
10% or greater, the adjusted commission rate for the
period under consideration shall be 30%;
2. If the ratio of losses incurred to premiums earned is
less than 10%, the adjusted commission rate for the period
under consideration shall be 30%, plus 50% of the
difference in percentage points between 10% and the actual
ratio of losses incurred to premiums earned;
3. If the ratio of losses incurred to premiums earned is
0%, the adjusted commission rate for the period under
consideration shall be 35%.
D. If the ratio of losses incurred to premiums earned for any
period is greater than 10%, the difference in percentage
points between the actual ratio of losses incurred to premiums
earned and 10% shall be multiplied by premiums earned for the
period and the product shall be carried forward to the next
adjustment period as a debit to losses incurred.
E. Except as provided in the next paragraph, the Company shall
calculate and report the adjusted commission on premiums
earned within 60 days after the end of each adjustment period,
and within 60 days after the end of each 12-month period
thereafter until all losses subject hereto have been finally
settled. Each such calculation shall be based on cumulative
transactions hereunder from the beginning of the adjustment
period through the date of adjustment, including, as respects
losses incurred, any debit or credit from the preceding
adjustment period. If the adjusted commission on premiums
earned for the adjustment period as of the date of adjustment
is less than commissions previously allowed by the Reinsurer
on premiums earned for the same period, the Company shall
remit the difference to the Reinsurer with its report. If the
adjusted commission on premiums earned for the adjustment
period as of the date of adjustment is greater than
commissions previously allowed by the Reinsurer on premiums
earned for the same period, the Reinsurer shall remit the
difference to the Company as promptly as possible after
receipt and verification of the Company's report.
F. As respects the final adjustment period, the Company shall
calculate and report the adjusted commission on premiums
earned within 60 days after the date of termination, and
within 60 days after the end of each 12-month period
thereafter until all losses subject hereto have been finally
settled. Each such calculation shall be based on cumulative
transactions hereunder from the beginning of the final
adjustment period through the date of adjustment, including,
as respects losses incurred, any debit from the preceding
adjustment period. If the adjusted commission on premiums
earned for the final adjustment period as of the date of
adjustment is less than commissions previously allowed by the
Reinsurer on premiums earned for the same period, the Company
shall remit the difference to the Reinsurer with its report.
If the adjusted commission on premiums earned for the final
adjustment period as of the date of adjustment is greater than
commissions previously allowed by the Reinsurer on premiums
earned for the same period, the Reinsurer shall remit the
difference to the Company as promptly as possible after
receipt and verification of the Company's report.
G. "Losses incurred" as used herein shall mean ceded losses and
loss adjustment expense paid as of the effective date of
calculation, plus the ceded reserves for losses and loss
adjustment expense outstanding as of the same date, all as
respects losses occurring during the adjustment period under
consideration, plus the debit from the preceding adjustment
period.
H. "Premiums earned" as used herein shall mean ceded unearned
premiums at the beginning of the adjustment period under
consideration, plus ceded net written premiums during the
period, less ceded unearned premiums at the end of the period.
I. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions,
taxes, assessments, and all other expenses of whatever nature,
except loss adjustment expense.
Article XI - Reports and Remittances
A. Within 60 days after the end of each month, the Company shall
report to the Reinsurer:
1. Ceded net written premium for the month;
2. Provisional commission thereon;
3. Ceded losses and loss adjustment expense paid during
the month.
The positive balance of (1) less (2) less (3) shall be
remitted by the Company with its report. Any balance shown to
be due the Company shall be remitted by the Reinsurer as
promptly as possible after receipt and verification of the
Company's report.
B. Within 60 days after the end of each calendar quarter, the
Company shall report to the Reinsurer the ceded unearned
premiums and ceded outstanding loss reserves as of the end of
the calendar quarter.
C. Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its
Annual Convention Statement.
Article XII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XIV - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XV - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XVI - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XVII - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon as imposed under Section 4371 of the
Internal Revenue Code to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return premium becoming due hereunder the
Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XVIII - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded unearned
premium and outstanding loss and loss adjustment expense
reserves (including incurred but not reported loss reserves)
by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
unearned premiums returned to insureds on account of
policy cancellations, unless paid in cash by the
Reinsurer;
2. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
4. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded unearned premium and/or
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) funded
by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration
date;
5. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded unearned premium and/or outstanding
loss and loss adjustment expense reserves (including
incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1),
B(2) or B(4), or in the case of B(3), the actual amount
determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn.
Article XIX - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company under the contracts reinsured without diminution
because of the insolvency of the company or because the
liquidator, receiver, conservator or statutory successor of
the company has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the company shall give
written notice to the Reinsurer of the pendency of a claim
against the company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of
the Reinsurer within a reasonable time after such claim is
filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the
Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem
available to the company or its liquidator, receiver,
conservator or statutory successor. The expense thus incurred
by the Reinsurer shall be chargeable, subject to the approval
of the Court, against the company as part of the expense of
conservation or liquidation to the extent of a pro rata share
of the benefit which may accrue to the company solely as a
result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XX - Arbitration (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location
mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.
Article XXI - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXII - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of ________________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
K:\GIG\98PERM\AMRECONT.DOC
Property Facultative Binding Agreement
between
Associated International Insurance Company
and any other company authorized to issue
for and on behalf of the Company
and
American Re-Insurance Company
Table of Contents
ARTICLE PAGE
1. General Conditions 1
2. Business Reinsured 1
3. Agency Agreement 2
4. Territory 2
5. Retention and Limit 2
6. Exclusions 2
7. Special Acceptances 3
8. Definition of Loss 4
9. Definition of Loss Occurrence 4
10. Reinsurance Premium 5
11. Reports and Remittances 6
12. Knowledge of Loss 7
13. Audits 7
14. Offset and Security Clause 7
15. Insolvency Clause 8
16. Commencement and Termination 8
Property Facultative Binding Agreement
American Re-Insurance Company
American Re Plaza
555 College Road East
P.O. Box 5241
Princeton, New Jersey 08543-5241
The Binding Agreement made and entered into by and between
Associated International Insurance Company of Woodland Hills,
California, and any other company authorized to issue policies
for and on behalf of the Company (hereinafter collectively
referred to as "Company") and participating reinsurers
subscribing to the respective Interests and Liabilities Contract
to which this Agreement is attached (hereinafter collectively
referred to as "Reinsurer").
Witnesseth:
Facultative Reinsurance is provided by the Reinsurer to the
Company wherein the Company shall cede to the Reinsurer and the
Reinsurer shall accept from the Company property insurance to the
extent on the terms and conditions hereinafter set forth.
This Binding Agreement authorizes the Company to bind the
Reinsurer on Property Facultative risks for a period of 60 days
commencing not earlier that 60 days prior to the mailing of the
binding information shall be mutually agreed to between the
Company and the Reinsurer.
If the risk is unacceptable to the Reinsurer, the Reinsurer
shall notify the Company in writing of its declination within 30
days after receipt of the binding information from the Company
and the Company shall terminate the Reinsurer's liability on the
risk within 30 days after the receipt by the Company of the
notice of declination.
In addition to the above terms, the reinsurance provided for
risks reinsured hereunder shall be subject to the terms ,
conditions and limitations set forth herein:
1. General Conditions
All risks are subject to the General Conditions of the
Property Facultative Reinsurance Certificate as of the
effective date of this Agreement, a copy of which is
attached to and made part of this Agreement , except as such
General Conditions may be modified by the terms of this
Agreement.
2. Business Reinsured
This reinsurance shall indemnify the Company in respect of
excess liability incurred by the Company as a result of loss
or losses arising from policies issued by the Company during
the term of this Agreement and as respects property business
classified by the Company as Fire and Allied Liens, Inland
Marine, Commercial Multiple Peril (property section) and
Homeowners (property section), and Difference in Conditions
including flood and earthquake that is underwritten by the
Company's DIC Division and General Excess and Surplus
Division.
3. Agency Agreement
a) The business reinsured hereunder shall include policies
issued by the Company and any other company authorized to issue
policies for and on behalf of the Company.
b) The Agreement is solely between the Company and the
Reinsurer. When more than one Company is named as a party to
this Agreement, the first company named shall be the agent of the
other companies as to all matters pertaining to this Agreement.
Performance of the obligations of each party to this Agreement
shall be rendered solely to the other party; however, if the
Company becomes insolvent, the liability of the Reinsurer shall
be modified to the extent set forth in Article 15, Insolvency
Clause.
4. Territory
This Agreement shall apply to the territorial limits set
forth in the Company's policies reinsured hereunder.
5. Retention and Limit
a) As respects risk located along the Newport-Inglewood Fault
line:
The Company shall retain and be liable for the first $5,000,000
of loss per risk each loss occurrence. The Reinsurer shall then
be liable for the loss amount that exceeds the Company's
retention but the liability of the Reinsurer shall not exceed
$2,500,000 per risk each loss occurrence.
b) As respects risks located at all other locations:
The Company shall retain and be liable for the first $7,500,000
of loss per risk each loss occurrence. The Reinsurer shall be
then liable for the loss amount that exceeds the Company's
retention but the liability of the Reinsurer shall not exceed
$2,500,000 per risk each loss occurrence.
c) It is understood and agreed that the Reinsurer's liability
shall not exceed $10,000,000 per loss occurrence for all losses
under paragraphs (a) and (b) above.
6. Exclusions
The following are excluded from coverage under this
Agreement:
a) Casualty.
b) Boiler and Machinery.
c) Fidelity.
d) Surety.
e) Credit insurance and all forms of financial guarantees.
f) Ocean Marine.
g) Aviation.
h) Risks assumed by participation in or reinsurance of pools or
syndicates.
i) All reinsurance assumed by the Company. This does not apply
to intra-company pooling.
j) Growing or standing crops.
k) Loss or liability excluded by the provisions of Nuclear
Incident Exclusion Clause, Physical Damage Reinsurance Number 2
and Reinsurance Number 4, attached hereto.
l) War risks as excluded under a standard policy containing a
war risk exclusion clause.
m) Bridges, dams, tunnels.
n) Jewelers Block, Fine Arts and Furriers' Customers.
o) Loss or liability excluded by the provisions of Pollution,
Contamination, Debris Removal Exclusion Clause Number 1, attached
hereto.
p) Loss in respect of overhead transmission and distribution
lines and their supporting structures, other than those on or
within 300 meters (or 2,000 feet) of the Insured's premises.
q) Mortgage Impairment insurance, except this exclusion shall
not apply to Lender's Single Interest Mortgage insurance.
r) Business classified by the Company as Railroads and
Engineered Course of Construction risks.
s) Risks located outside of the territorial limits of the United
States of America, except this exclusion shall not apply to such
risk which total insured value is less than 20% of the total
insured values of the account.
7. Special Acceptances
Risks which are specifically excluded by this Agreement may
be individually submitted by the Company to the Reinsurer
for inclusion hereunder, and, if accepted by the Reinsurer,
such business shall then be covered under the terms of this
Agreement, except as such terms may be modified by such
acceptance.
8. Definition of Loss
a) The term "loss" as used herein shall mean the actual loss
incurred by the Company under policies reinsured hereunder. Such
loss shall include sums paid in settlement of claims and suits,
including allocated loss adjustment expenses (as defined
hereinafter), and in satisfaction of judgments, including
prejudgment interest when added to a judgment.
All salvages, recoveries, payments and reversals or reductions of
verdicts or judgments whether recovered, received or obtained
prior or subsequent to loss settlements under Agreement,
including amounts recoverable under other reinsurance whether
collected or not, shall be applied as if recovered, received or
obtained prior to the aforesaid settlement and shall be applied
as if recovered, received or obtained prior to the aforesaid
settlement and shall be deducted from the actual losses sustained
to arrive at the amount of the net loss. Nothing herein shall be
construed to mean losses are not recoverable until the loss to
the Company finally has been ascertained.
b) The term "allocated loss adjustment expenses" as used herein
shall mean expenses sustained in connection with settlement and
litigation of claims and suits, satisfaction of judgments,
resistance to or negotiations concerning a loss (which shall
include the pro rata share of the Company's outside employees
according to the time occupied in adjusting such loss and
salaries and expenses of the Company's employees while diverted
from their normal duties to the service of field adjustment, but
shall not include any salaries of officers nor normal overhead
expenses of the Company's), legal expenses and costs incurred in
connection with coverage questions and legal actions, including
declaratory judgment actions, connected thereto, interest on
judgments other than prejudgment interest when added to a
judgment, and expenses sustained to obtain recoveries, salvages
and other reimbursements, or to secure the reversal of reduction
of a verdict or judgment.
9. Definition of 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.
b) As respects property catastrophe loss occurrence, 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 terms "loss occurrence" shall be
further defined as follows:
i) 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.
ii) 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.
iii) As regards earthquake (the epicenter of which need not
necessarily by 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".
iv) 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".
c) 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 subparagraphs
(i) and (ii) above where only one such period of 72 consecutive
hours shall apply with respect to one event, regardless of the
duration of the event.
d) No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "loss
occurrence" claimed under the 168 hours provision.
10. Reinsurance Premium
a) As consideration for the reinsurance provided by this
Agreement the Company shall pay the Reinsurer 10% of the Net
Written Premium, as defined in paragraph (d) of this Article, as
respects the business reinsured during the term of this
Agreement, however, subject to a minimum reinsurance premium of
$1,000,000.
b) Within 30 days after the end of each calendar quarter, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder, computed in accordance with paragraph
(a) of this Article and if the premium so computed is greater
than the deposit premium paid, as set forth in paragraph (c) of
this Article, the balance shall be remitted by the Company with
its report.
c) The Company shall pay the Reinsurer a deposit premium of
$200,000 payable on or before the inception of this Agreement.
d) "Net Written Premium" as used herein is defined as gross
written premium of the Company for the classes of business
reinsured hereunder, less cancellations and return premiums on
policies reinsured hereunder, and less premiums ceded by the
Company for reinsurance inures to the benefit of this Agreement.
11. Reports and Remittances
a) The Company will provide the Reinsurer with all necessary
data respecting premiums and losses, including reserves thereon,
on forms mutually acceptable to the Company and the Reinsurer.
b) Within 30 days after the end of each month, the Company shall
render to the Reinsurer a monthly account summarizing the
following information relating to the business reinsured under
this Agreement during said month:
1) Named of Insured;
2) Policy Number;
3) Effective and expiration dates of Policy;
4) Policy Limit of Liability;
5) Policy attachment point;
6) Original Gross Written Premium;
7) Net written premium due hereunder.
c) Reinsurance premium due the Reinsurer shall be paid and
reported by the Company in accordance with provisions set forth
in Article 10, Reinsurance Premium.
d) Within 30 days after the end of each calendar quarter the
Company shall provide and report to the Reinsurer IRAS data.
e) The Company shall advise the Reinsurer promptly of all claims
and any subsequent developments pertaining thereto which may
reasonably be expected to develop into losses involving
reinsurance hereunder, including reserves for outstanding losses
and allocated loss adjustment expenses.
12. Knowledge of Loss
The Company shall have no direct or indirect knowledge or
information of any loss or impending loss under any risk to
be reinsured affecting or threatening adversely the interest
of the Reinsurer.
13. Audits
The Company shall place at the disposal of the Reinsurer and
the Reinsurer shall have the right to inspect, through its
authorized representatives, at all reasonable times during
the currency of this Agreement and thereafter, the books,
records and papers of the Company pertaining to the
reinsurance provided hereunder and all claims made in
connection therewith.
14. Offset and Security Clause
a) Each party hereto has the right, which may be exercised at
any time, to offset any amounts, whether on account or premiums
or losses or otherwise, due from such party to another party
under this Agreement or any other reinsurance agreement
heretofore or hereafter entered into between them, against any
amounts, whether on account of premiums or losses or otherwise
due from the latter party to the former party. The party
asserting the right of offset may exercise this right, whether as
assuming or ceding insurer or in both roles in the relevant
agreement or agreements.
b) Each party hereby assigns and pledges to the other party (or
to each other party, if more than one) all of its rights under
this Agreement to receive premium or loss payments at any time
forms such other party ("Collateral"), to secure its premium or
loss obligations to such other party at any time under this
Agreement and any other reinsurance agreement heretofore or
hereinafter entered into by and between them ("Secured
Obligations"). If at any time a party is in default under any
Secured Obligation or shall be subject to liquidation,
rehabilitation, reorganization or conservation proceeding, each
other party shall be entitled in its discretion, to apply, or to
withhold for the purpose of applying in due course, any
Collateral assigned and pledged to it by the former party and
otherwise to realize upon such Collateral as security for such
Secured Obligations.
c) The security interest described herein, and the term
"Collateral", shall apply to all payments and other proceeds in
respect of the rights assigned and pledged. A party's security
interest in Collateral shall be deemed evidenced only by the
counterpart of this Agreement delivered to such party.
d) Each right under this Article is a separate and independent
right, exercisable, without notice or demand, alone or together
with other rights, in the sole election of the party entitled
thereto, and no waiver, delay, or failure to exercise, in respect
of any right, shall constitute a waiver of any other right. The
provisions of this Article shall survive any cancellation or
other termination of this Agreement.
15. Insolvency Clause
a) In the event of the insolvency of the Company and the
appointment of a conservator, liquidator or statutory successor
of the Company, the reinsurance provided by this Agreement shall
be payable to such conservator, liquidator or statutory successor
immediately upon demand, subject to the right of offset and with
reasonable provisions for verification of the Reinsurer's
liability, on the basis of claim allowed against the insolvent
Company by any court if competent jurisdiction or by any
conservator, liquidator, or statutory successor of the Company
having the authority to allow such claims, with diminution
because of such insolvency or because such conservator,
liquidator or statutory successor has failed to pay all or a
portion of any claims. Payments by the Reinsurer as above set
forth shall be made directly to the Company or to its
conservator, liquidator or statutory successor, except where this
Agreement specifically provides another payee of such reinsurance
in the event of the insolvency of the Company.
b) In the event of the insolvency of the Company, the
liquidator, conservator or statutory successor of the Company
shall give the Reinsurer written notice of the pendency of each
claim against the Company on a policy or bond reinsured within a
reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer
may, at its own expense, investigate such claim and interpose in
the proceeding where such claim is to be adjudicated any defense
or defenses which it may deem available to the Company, its
conservator, liquidator or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be
chargeable against the Company as part of the expense of
liquidation to the extent of such proportionate share of the
benefit as shall accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.
16. Commencement and Termination
a) This Agreement shall take effect as of 12:01 a.m., Standard
Time, June 1, 1996 and continue in force until 12:01 a.m.,
Standard Time, June 1, 1997. The term "Standard Time" as used
herein shall mean the Standard Time as specified in the original
policy of insurance.
b) The Reinsurer shall not be liable for losses arising under
Policies incepting on or after the expiration date of this
Agreement. The Reinsurer shall remain liable for losses
occurring under Policies in force at the expiration date of this
Agreement until the earlier of the Policy's next anniversary or
renewal date, natural expiration or the Policy's prior
termination date.
c) Notwithstanding the expiration of this Agreement, the
provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and
liabilities incurred by each party hereunder prior to said date
is fully performed and discharged.
GENERAL CONDITIONS
The Reinsurer agrees to indemnify the Company against losses or
damages which the Company is legally obligated to pay with
respect to which insurance is afforded during the term of this
Certificate under the policy reinsured, subject to the
reinsurance limits and coverages shown in the Declarations. The
Reinsurer shall not indemnify the Company for liability beyond
circumscribed policy provisions, including but not limited to
punitive, exemplary, consequential or compensatory damages
resulting from an action of an insured or assignee against the
Company. The Company warrants the copy of the policy forwarded
to the Reinsurer to be a true and complete copy of the said
policy, and agrees to notify the Reinsurer promptly of any
changes made therein, provided that such changes shall not be
binding upon the Reinsurer until accepted thereby. Nothing
contained herein shall in any manner create any obligations of
the Reinsurer or establish any rights against the Reinsurer in
favor of the direct insured or any third parties or any persons
not parties to this Certificate of Reinsurance.
The Company shall settle all claims under its policy in
accordance with the terms and conditions thereof. If the
reinsurance hereunder is pro rata, the Reinsurer shall be liable
for its pro rata proportion of settlements made by the Company.
If the reinsurance hereunder is excess, the Reinsurer shall be
liable for its excess proportion of settlements made by the
Company after deduction of any recoveries from pro rata
reinsurance inuring to the benefit of the Reinsurer.
The Reinsurer shall be liable for its proportion of allocated
loss expenses incurred by the Company in the same ratio that the
Reinsurer's share of the settlement of judgment bears to the
total amount of such settlement or judgment under the policy
reinsured. The term "allocated loss expense" means all expenses
incurred in the investigation and settlement of claims or suits,
including the salaries and expenses of staff adjusters but
excluding other Company salaries and office expenses. It also
includes court costs and interest on any judgment or award
provided the Reinsurer's prior consent to trial court proceedings
has been obtained. Allocated loss expenses shall not include
expenses incurred by the Company in regard to any actual or
alleged liability that it not within the circumscribed provisions
of the policy reinsured.
The Company shall advise the Reinsurer promptly of any claim
and any subsequent developments pertaining thereto which, in the
opinion of the Company, may involve the reinsurance hereunder.
The Company has the obligation to investigate and defend claims
or suits affecting this reinsurance and to pursue such claims or
suits to final determination. The Company, when so requested,
will afford the Reinsurer an opportunity to be associated with
the Company, at the expense of the Reinsurer, in the defense or
control of any claim, suit or proceeding involving this
reinsurance, and the Company and the Reinsurer shall cooperate in
every respect in the defense and control of such claim, suit or
proceeding.
The Reinsurer shall be paid or credited with its proportion of
salvages (i.e., recoveries or reimbursements made or obtained by
the Company) less the cost of obtaining such salvage, excluding
the office expenses of the Company and the salaries and expenses
of all employees of the Company. If the reinsurance hereunder is
excess, salvage shall be applied in the inverse order in which
liability attaches, otherwise salvage shall be applied on a pro
rata basis.
The Company shall furnish proof that payment of a loss and loss
expense has actually been made by the Company and payment by the
Reinsurer of its proportion thereof shall be made promptly;
provided however, in the event of insolvency of the Company
payment by the Reinsurer of its proportion of loss and loss
expense which the Company has incurred or for which it is liable,
shall be made to the liquidator, receiver or statutory successor
of the Company in accordance with the provisions of Section 8 of
these general conditions.
The Company shall place at the disposal of the Reinsurer and
the Reinsurer shall have the right to inspect, through its
authorized representative, at all reasonable times during the
currency of this Certificate and thereafter, the books, records
and papers of the Company pertaining to the reinsurance provided
hereunder and all claims made in connection therewith.
The reinsurance provided by this Certificate shall be payable
by the Reinsurer directly to the Company or to its liquidator,
receiver or statutory successor on the basis of the liability of
the Company under the policy reinsured without diminution because
of the insolvency of the Company. In the event of the insolvency
of the Company, the liquidator, receiver or statutory successor
of the Company shall give written notice of the pendency of each
claim against the Company on the policy reinsured hereunder
within a reasonable time after such claim is filed in the
insolvency proceeding and during the pendency of such claim the
Reinsurer may investigate such claim and interpose at its own
expense in the proceeding where such claim is to be adjudicated
any defenses or defenses which it may deem available to the
Company, 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 such proportionate
share of the benefit which may accrue to the Company solely as
the result of the defense undertaken by the Reinsurer. The
reinsurance shall be payable as hereinbefore in this paragraph
provided except (a) where this Certificate specifically provides
another payee of such reinsurance in the event of the insolvency
of the Company and (b) where the Reinsurer with the consent of
the direct insured or insureds has assumed such policy
obligations of the Company as direct obligations of the Reinsurer
to the payee under such policy and in substitution for the
oblations of the Company to such payee.
Each party hereto shall have, and may exercise at any time and
from time to time, the right to offset any balance or balances,
whether on account of premiums or on account of losses or
otherwise, due from such party to the other (or, if more that
one, any other) party hereto under this Certificate or under any
other reinsurance certificate or agreement heretofore or
hereafter entered into by and between them, and may offset the
same against any balance or balances due or to become due to the
former from the latter under the same or any other reinsurance
certificate or agreement between them; and the party asserting
the right to offset shall have and may exercise such right
whether the balance or balances due or to become due to such
party form the other are on account of premiums or on account of
losses or otherwise and regardless of the capacity, whether as
assuming insurer or as ceding insurer, in which each party acted
under the certificate or agreement or if more that one, the
different certificates and agreement involved, provided, however,
that, in the event of the insolvency of a party hereto, offset
shall only be allowed in accordance with the provisions of
Section 538 of the Insurance Law of the State of New York.
This Certificate may be canceled by either party giving not
less than thirty days' notice in writing by registered mail to
the other party. If canceled by the Reinsurer, adjustment of
premium shall be on the pro rata basis. If canceled by the
Company, with simultaneous cancellation of the original policy
reinsured, adjustment of premium shall be on the short rate
basis. However, if the Company's original policy reinsured is
canceled, same shall constitute simultaneous cancellation of this
certificate and calculation of the reinsurance premium hereunder
shall follow the Company's calculation in the use of the short
rate or pro rata tables.
IN WITNESS WHEREOF THE AMERICAN RE-INSURANCE COMPANY has caused
this Certificate to be signed by its Vice President and
Secretary, but same shall not be binding upon the Reinsurer
unless countersigned by an authorized representative of the
Reinsurer.
NUCLEAR INCIDENT EXCLUSION CLAUSE
PHYSICAL DAMAGE -- REINSURANCE -- NO. 2
(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, form any insurance against
Physical Damage (including business interruption or consequential
loss arising out of such Physical Damage) to:
I.Nuclear reactor power plants including all auxiliary
property on the site, or
II. Any other nuclear reactor installation, including
laboratories handling radioactive materials in connection
with reactor installations and "critical facilities" as
such, or
III.Installations for fabricating complete fuel elements or
for processing substantial quantities of "special nuclear
material," and for reprocessing, salvaging, chemically
separating, storing or disposing of "spent" nuclear fuel or
waste materials, or
IV. Installations other than those listed in paragraph (2) III
above using substantial quantities of radioactive isotopes
or other products of nuclear fission.
(3)Without in any way restricting the operations of paragraphs
(1) and (2) hereof, this Reinsurance does not cover any loss or
liability by radioactive contamination accruing to the Reassured,
directly or indirectly, and whether as Insurer or Reinsurer, from
any insurance on property which is on the same site as a nuclear
reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph
(3) shall not operate:
(a) where Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused. However on and
after 1st January 1960 this sub-paragraph (b) shall only
apply provided the said radioactive contamination exclusion
provision has been approved by the Governmental Authority
having jurisdiction thereof.
(4)Without in any way restricting the operations of paragraphs
(1), (2) and (3) hereof, this Reinsurance does not cover any loss
or liability by radioactive contamination accruing to the
Reassured, directly or indirectly, and whether as Insurer or
Reinsure, when such radioactive contamination is a named hazard
specifically insured against.
(5)It is understood and agreed that this Clause shall not
extend to risks using radioactive isotopes in any form where the
nuclear exposure is not considered by the Reassured to be the
primary hazard.
(6)The term "special nuclear material" shall have the meaning
given it in the Atomic Energy Act of 1954 or by any law
amendatory thereof.
(7)Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note. -- Without in any way restricting the operation of
paragraph (1) hereof, it is understood and agreed that:
(a) All policies issued by the Reassured on or before
31st December 1957 shall be free from the application of the
other provisions of this Clause until expiry date or
31st December 1960 whichever first occurs whereupon all the
provision 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.
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 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 Clause No. 1B - Liability, No. 2 - Physical
Damage, No. 3 - Boiler and Machinery and paragraph (1) of this
clause, it is understood and agreed that for all purposes as
respects the reinsurance assumed by the Reinsurer from the
Reassured, all original insurance policies or contracts of the
Reassured (new, renewal and replacement) shall be deemed to
include the applicable existing Nuclear Clause and/or Nuclear
Exclusion Clause(s) in effect at that time and any subsequent
revisions thereto as agreed upon and approved by the Insurance
Industry and/or a qualified Advisory or Rating Bureau.
POLLUTION, CONTAMINATION, DEBRIS REMOVAL
EXCLUSION CLAUSE - NO. 1
I. DEFINITION
"CONTAMINATION" means any unclean or unsafe or damaging or
injurious or unhealthful condition arising out of the
presence of pollutants, whether permanent or transient in
any environment;
"ENVIRONMENT" includes any person, any real or personal
property, animals, crops and vegetation, land including land
under which the building is placed, bodies of water,
underground water or water table supplies, air and any other
feature of the earth or its atmosphere, whether or not
altered, developed or cultivated, including, but not limited
to, any of the above owned, controlled or occupied by an
insured;
"POLLUTANTS" means smoke, vapors, soot, fumes, acids,
sounds, alkalies, chemicals, liquids, solids, gases, thermal
pollutants, waste, and all other irritants, or contaminants.
Waste includes material to be recycled, reconditioned or
reclaimed;
II. POLLUTION AND CONTAMINATION EXCLUSION
This Reinsurance does not cover:
Loss or damage caused by the release, discharge or
dispersal of pollutants or contaminants (as defined in
Section I above) into the environment anywhere, anytime,
in anyway, whether accidental or intentional, sudden or
intermittent or continuous, unless the release, discharge
or dispersal is itself caused by any of the following
"specified causes of loss": fire, lightning, aircraft,
explosion, riot, civil commotion, smoke, vehicles,
windstorm or hail to property contained in any building,
vandalism, malicious mischief or leakage or accidental
discharge form automatic fire protection systems. The
term "Loss or Damage" is understood to also include any
claim arising from loss of use. If loss or damage by
the above "specified causes of loss" results, then the
Reinsurer under this Certificate shall be liable for the
resulting loss or damage caused by the "specified cause
of loss."
III. ASBESTOS EXCLUSION
This reinsurance does not cover:
1.Asbestos, dioxin or polychlorinated biphenols
(hereinafter all referred to as "Materials") removal from
any good, product or structure unless the asbestos is
itself damaged by fire, lightning, aircraft impact,
explosion, riot, civil commotion, smoke, vehicle impact,
windstorm or hail, vandalism, malicious mischief, leakage
or accidental discharge from automatic fire protective
systems.
2.Demolition or increased cost of reconstruction, repair,
debris removal or loss of use necessitated by the
enforcement of any law or ordinance regulating such
Materials.
3.Any governmental direction or request declaring that such
Materials present in or part of or utilized on any
undamaged portion of the insured's property can no longer
be used for the purpose for which it was intended or
installed and must be removed or modified.
The coverage afforded does not apply to payment for the
investigation or defense of any loss, damage or any cost,
loss of use expense, fine or penalty or for any expense or
claim or suit related to any of the above.
IV. DEBRIS REMOVAL EXCLUSION
Notwithstanding any other exclusion listed in this
reinsurance, this reinsurance shall only cover the expense
to remove debris of insured property damaged or destroyed by
an insured peril during the policy term and, then, only up
to an amount equal to 25% of the amount payable under this
Reinsurance.
This Reinsurance does not cover any expense involved to:
1.Extract contaminants or pollutants, as defined in Section
I, from the debris; or
2.Extract contaminants or pollutants, as defined in Section
I, from land or water; or
3.Remove, restore or replace contaminated or polluted land
or water; or
4.Remove or transport any property or debris to a site for
storage or decontamination required because the property
or debris is affected by pollutants or contaminants,
whether or not such removal, transport, or
decontamination is required by law or regulation.
IT IS CONDITION PRECEDENT TO RECOVERY UNDER THIS CERTIFICATION
THAT THE COMPANY SHALL HAVE PAID [OR AGREED TO PAY] FOR DIRECT
PHYSICAL LOSS OR DAMAGE TO THE PROPERTY REINSURED HEREUNDER AND
THAT THE COMPANY RECEIVED WRITTEN NOTICE OF INTENT TO CLAIM FOR
COST OF REMOVAL OF DEBRIS OR COST TO CLEAN UP NOT LATER THAN
TWELVE MONTHS AFTER THE DATE OF SUCH PHYSICAL LOSS OR DAMAGE.
ENDORSEMENT
Attached to and forming part of Property Facultative Binding
Agreement No. 428-0016 made and entered into by and between
ASSOCIATED INTERNATIONAL INSURANCE COMPANY of Woodland Hills,
California, and any other company for which the Company is
authorized to issue policies for and on behalf of the Company
(hereinafter collectively referred to as "Company") and the
Subscribing Reinsurer executing the Addendum to the Interests and
Liability Contract attached hereto (hereinafter referred to as
the "Reinsurer")
It is mutually understood and agreed that effective
12:01 a.m. Standard Time July 1, 1997, the provisions of this
Agreement are revised as follows:
A. Article 5 - Retention and Limit is amended as follows:
5. (a) As respects risks written by the
Company's General Excess and Surplus
Division:
The Company shall retain and be liable for
the first $10,000,000 of loss per risk net
and treaty each loss occurrence. The
Reinsurer shall then be liable for the loss
amount that exceeds the Company's retention
but the liability of the Reinsurer shall not
exceed $2,5000,000 per risk each loss
occurrence.
(b) As respects risks written by the
Company's Pacific Coast DIC Division:
The Company shall retain and be liable for
the first $5,000,000 of loss per risk net and
treaty each loss occurrence. The Reinsurer
shall then be liable for the loss amount that
exceeds the Company's retention but the
liability of the Reinsurer shall not exceed
$2,5000,000 per risk each loss occurrence.
(c) It is understood and agreed that the
Reinsurer's liability shall not exceed
$10,000,000 per loss occurrence for all
losses under paragraphs (a) and (b) of this
Article.
B. Article 10 - Reinsurance Premium is amended as follows:
10. REINSURANCE PREMIUM
(a) As consideration for the reinsurance
provided by this Agreement the Company shall
pay the Reinsurer 10% of the Net Written
Premium, as defined in paragraph (c) of this
Article, as respects the business reinsured
during the term of this Agreement.
(b) Within 30 days after the end of each
calendar quarter, the Company shall provide a
report to the Reinsurer setting forth the
premium due hereunder, computed in accordance
with paragraph (a) of this Article.
(c) "Net Written Premium" as used herein is
defined as gross written premium of the
Company for the classes of business reinsured
hereunder, less cancellations and return
premiums on policies reinsured hereunder, and
less premiums ceded by the Company for
reinsurance that inures to the benefit of
this Agreement.
C. Paragraph (a) of Article 16 - Commencement and
Termination is amended as follows:
(a) This agreement shall take effect as of
12:01 a.m., Standard Time June 1, 1996 and
continue in force until 12:01 a.m., Standard
Time December 31, 1998. The term "Standard
Time" as used herein shall mean the Standard
Time as specified in the original policy of
insurance.
All other terms and conditions remain unchanged.
ADDENDUM
Attached to and forming part of the Interests and Liabilities
Contract made and entered into by and between ASSOCIATED
INTERNATIONAL INSURANCE COMPANY of Woodland Hills, California,
and any other company for which the Company is authorized to
issue policies for and on behalf of the Company (hereinafter
collectively referred to as "Company") and AMERICAN RE-INSURANCE
COMPANY, a Delaware Corporation with Administrative Offices in
Princeton, New Jersey (hereinafter referred to as the
"Subscribing Reinsurer").
It is mutually agreed between the Company and the Subscribing
Reinsurer that the Property Facultative Binding Agreement No. 428-
0016 is amended as of 12:01 a.m. Standard Time July 1, 1997, in
accordance with the provisions of attached Endorsement E001.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum
to be signed in duplicate by their duly authorized
representatives in Woodland Hills, California, this 18th day of
November, 1997.
ACCEPTED:
ASSOCIATED INTERNATIONAL INSURANCE COMPANY
and any other company authorized to issue policies for and on
behalf of the Company
_________________________________
_________________________________
Attested by:
and in Princeton, New Jersey, this 13th day of November, 1997,
AMERICAN RE-INSURANCE COMPANY
_________________________________
_________________________________
Attested by:
ENDORSEMENT NO. 2
Attached to and forming part of Reinsurance agreement No. 428-
0016 between ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Woodland
Hills, California and any other company which is authorized to
issue policies for and on behalf of the Company (therein and
herein referred to as the "Company") and the AMERICAN RE-
INSURANCE COMPANY, a Delaware Corporation with Administrative
Offices in Princeton, New Jersey (therein and herein referred to
as the "Reinsurer").
It is hereby understood and agreed between the parties hereto
that effective as of 12:01 a.m., Standard Time, January 1, 1998,
this Agreement is amended as set forth herein.
I. Article 5 -- Retention and Limit is deleted in its entirety
and replaced as follows:
As respects risks written by the Company's General Excess
and Surplus Division and its Pacific Coast DIC Division, the
Reinsurer shall be liable for a one (1) time match of the
Company's net and treaty retention, subject to the
following:
a $1,000,000 minimum attachment point;
a maximum of $2,500,000 in any one layer;
a maximum of $2,500,000 on any one risk, and
a maximum of $10,000,000 in any one loss occurrence.
II. Paragraph (a) of Article 10 -- Reinsurance Premium is
deleted and the subsequent paragraphs re-lettered and
revised to read as follows:
(a) Within 30 days after the end of each calendar quarter,
the Company shall provide a report to the Reinsurer
setting forth the net written premium due hereunder.
(b) "Net Written Premium" as used herein is defined as the
Company's gross written premium for the classes of
business reinsured hereunder, plus any additional
premiums, less cancellations and return premiums on
policies reinsured hereunder and less premiums ceded by
the Company for reinsurance that inures to the benefit
of this Agreement.
III. A new Article 11 -- Commission is added as follows, and all
subsequent Articles are renumbered accordingly.
The Reinsurer will allow the Company a ceding commission of:
(1) 30% on all business ceded by the company's General
Excess and Surplus Division or
(2) 27.5% on all business ceded by the company's
Pacific Coast DIC Division
on all gross premiums ceded on each risk under this
Agreement and said commission allowed shall include
provision for all taxes, assessments and any other expenses
of whatsoever nature except allocated loss adjustment
expenses.
All other terms and conditions remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this
Endorsement to be executed in duplicate by their duly authorized
representatives
in Woodland Hills, California, this 16th day of March, 1998.
ACCEPTED:
ASSOCIATED INTERNATIONAL INSURANCE COMPANY
and any other company authorized to issue policies for and on
behalf of the Company
_________________________________
_________________________________
Attested by:
and in Princeton, New Jersey, this 10th day of March, 1998,
AMERICAN RE-INSURANCE COMPANY
_________________________________
_________________________________
Attested by:
E. W. BLANCH CO.
R:\98R\15527.DOC Reinsurance Services
Page 3
Blanch Catastrophe Plan
First Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
Preamble 3
I Classes of Business Reinsured 3
II Commencement and Termination 4
III Territory 4
IV Exclusions 5
V Retention and Limit 8
VI Definitions 8
VII Other Reinsurance 9
VIII Loss Notices and Settlements 10
IX Salvage and Subrogation 10
X Special Provisions 10
XI Premium 10
XII Commutation of Losses 11
XIII Contract Experience Account 11
XIV Offset (BRMA 36C) 12
XV Access to Records (BRMA 1D) 12
XVI Net Retained Lines (BRMA 32E) 12
XVII Errors and Omissions (BRMA 14F) 12
XVIII Currency (BRMA 12A) 13
XIX Taxes (BRMA 50C) 13
XX Federal Excise Tax (BRMA 17A) 13
XXI Unauthorized Reinsurers 13
XXII Insolvency 15
XXIII Arbitration 15
XXIV Service of Suit (BRMA 49C) 16
XXV Enforceability 17
XXVI Entire Agreement 17
XXVII Agency Agreement 17
XXVIII Intermediary (BRMA 23A) 17
Blanch Catastrophe Plan
First Excess Catastrophe
Reinsurance Contract
Effective: January 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing
the Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Subscribing Reinsurers")
Preamble
It is understood that the Subscribing Reinsurers participating in
this Contract through the Intermediary named in Article XXVIII
have a 95.0% part of 100% share in the interests and liabilities
of the "Reinsurer."
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") in force at the effective date hereof or
issued or renewed on or after that date, and classified by the
Company as Property business underwritten by Associated
International Insurance Company, subject to the terms, conditions
and limitations set forth herein.
Article II - Commencement and Termination
A. This Contract shall become effective on January 1, 1998, with
respect to losses arising out of loss occurrences commencing
on or after that date, and shall remain in force until
December 31, 2002, both days inclusive, or until terminated by
either party pursuant to the provisions of paragraph B of this
Article.
B. Either party may terminate this Contract on any December 31 by
giving the other party not less than 90 days prior written
notice by certified mail. In the event a loss occurrence(s)
commences during the last 90 days of any contract year, the
party giving notice may rescind its notice during the 90-day
notice period.
C. In the event of a sale, merger or acquisition of the Company,
which results in a change of, or loss of control, by current
owners and/or management of the Company, this Contract will
follow that sale, merger or acquisition and continue in force
as respects the new owners and/or management or may be
canceled by the Reinsurer within 60 days of the effective date
of such sale, merger or acquisition. Upon such termination,
the risks bound by the Company through the date of sale,
merger of acquisition will be subject to this agreement on a
run off basis, subject to the limit of liability as expressed
in Article V.
"Change of, or loss of control," as used herein, means any
transaction or series of transactions in which any person or
group (within the meaning of Sections 13(d) and 14(d) of the
Securities and Exchange Act) other than the Company and its
subsidiaries acquires all or substantially all of the
Company's assets or becomes the direct or indirect beneficial
owner, by way of merger, consolidation, other business
combination or otherwise, of greater than 20.0% of the total
voting power entitled to vote in the election of directors of
the Company or the surviving entity (if other than the
Company).
D. In the event of termination in accordance with this Article,
the Reinsurer shall have no liability hereunder with respect
to losses arising out of loss occurrences commencing after the
date of termination.
E. If this Contract is terminated while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss occurrence had
occurred prior to the termination date of this Contract,
provided that no part of such loss occurrence is claimed
against any renewal or replacement of this Contract.
Article III - Territory
This Contract shall apply to the territorial limits set forth in
the Company's policies reinsured hereunder.
Article IV - Exclusions
A. This Contract does not apply to and specifically excludes the
following:
1. Loss or liability excluded under the provisions of
the "Pools, Associations and Syndicates Exclusion Clause"
attached to and forming part of this Contract.
2. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)"
and the "Nuclear Incident Exclusion Clause - Physical
Damage - Reinsurance (Canada)" attached to and forming
part of this Contract.
3. All reinsurance assumed, with the exception of intra-
company reinsurance and specific insureds whose
reinsurance is written through their own captive company
and quoted by a non-related entity.
4. Risks of war, whether or not declared, invasion,
civil war, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
5. Hail insurance or reinsurance covering growing,
drying or standing crops when written as such.
6. Flood when written as such; however, this exclusion
shall not apply to flood when included in Difference in
Conditions, Inland Marine and All Risk policies.
7. All armored car business except when written in
excess of $500,000.
8. Credit, financial or insolvency guarantees.
9. Livestock insurance or reinsurance when written as
such.
10. Third Party Bodily Injury and Property Damage
Liability, Medical Payments, Workers' Compensation,
Fidelity and Surety, whether written separately or as part
of a Multiple Peril policy. However, nothing herein
contained shall be construed as excluding liability for
damage to property in an insured's care, custody or
control or for which the insured may be liable.
11. Ocean Marine when written as such.
12. Aircraft, meaning direct damage to hulls insured
under Aircraft Hull policies, but not to exclude aircraft
hulls insured under regular Fire, Inland Marine and All
Risk policies (other than Aircraft Hull policies). In no
event shall any liability attach to the Reinsurer
hereunder in respect of aircraft while in flight or
taxiing.
13. Offshore drilling rigs.
14. Automobile risks insured under Automobile policies.
15. Boiler and Machinery when written as such.
16. Space and space related risks for the intention of
ignition of the launch vehicle which includes taxiing
within the launch site area and in flight.
17. Grain elevators.
18. Mechanical breakdowns when written as such.
19. Petrochemical risks and refineries.
20. Underground mining.
21. Inland Marine policies covering jewelers block and
motor truck cargo.
22. Mortgage Impairment insurance.
23. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation 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.
24. Kidnap and Ransom.
25. Residual Value and Credit insurance.
26. Crop insurance.
27. Burglary and Theft when written as such.
28. Strike insurance.
29. Product impairment, recall and tampering.
30. Data processing companies whose sole purpose is to
provide data processing services to other companies which
include media exposures defined as material on which data
is to be or is already stored (i.e., disks, magnetic and
paper tapes, drums, cores and programs).
31. Transmission and distribution lines.
32. Onshore drilling rigs.
33. Course of Construction risks covering dams, bridges,
tunnels, subways, construction work over water, or any
project involving water, unless the aforementioned
projects are incidental to the insured's total
construction project.
34. Rolling stock owned or operated by a railroad, but
this exclusion shall not apply to interests while
contained in buildings owned or leased by an insured.
35. Risks excluded under the provisions of the "Total
Insured Value Exclusion Clause" attached to and forming
part of this Contract.
36. Extra contractual obligations (i.e., any punitive,
exemplary, compensatory or consequential damages paid or
payable by the Company as a result of an action against it
by its insured or its insured's assignee, which action
alleges negligence or bad faith on the part of the Company
in handling a claim under a policy subject to this
Contract).
37. Loss in excess of policy limits (i.e., any amount
paid or payable by the Company in excess of its policy
limits, but otherwise within the terms of its policy, as a
result of an action against it by its insured or its
insured's assignee to recover damages the insured is
legally obligated to pay to a third party claimant because
of the Company's alleged or actual negligence or bad faith
in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal
consequent upon such an action).
B. Notwithstanding the foregoing, any exclusion set forth in
paragraph A (except subparagraphs 2, 3, 4, 6, 8, 11, 12, 13,
16, 23, 36 and 37) shall be waived automatically when, in the
opinion of the Company, the exposure excluded therein is
incidental to the principal exposure on the risk in question.
C. As regards business underwritten in the General E&S Division
of the Company:
1. Exclusions 15, 18, 33 and 34 of paragraph A shall be
waived.
2. Exclusion 35 (Total Insured Value) and Section B of
Exclusion 1 (Pools, Associations) of paragraph A shall be
waived except for risks with total insured values greater
than $300,000,000 in the State of California. This
exception contained in this paragraph only applies to
risks in the State of California.
3. Exclusion 14 (Automobile) of paragraph A shall be
waived as regards Automobile Floor Plans.
Article V - Retention and Limit
A. The Company shall retain and be liable for the first
$2,500,000 of ultimate net loss arising out of each loss
occurrence. The Reinsurer shall then be liable for 100.0% of
the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall
not exceed any of the following:
1. 100.0% of $15,000,000 as respects loss or losses
arising out of any one loss occurrence;
2. 100.0% of $30,000,000 as respects all losses arising
out of loss occurrences commencing during any one contract
year; or
3. 100.0% of $67,500,000 as respects all losses arising
out of loss occurrences commencing during the term of this
Contract.
B. No claim shall be made under this Contract in any one loss
occurrence unless at least two risks insured or reinsured by
the Company are involved in such loss occurrence. "Risk"
shall be defined as all the values at one location unless
otherwise stated in the Company's risk file, but not less than
all the values within four walls. For purposes of this
Article, the Company shall be the sole judge of what
constitutes "one risk."
Article VI - Definitions
A. "Ultimate net loss" as used herein is defined as the sum or
sums (including litigation expenses, interest on judgments and
all other loss adjustment expenses, including a pro rata share
of the salaries and expenses of the Company's field employees
according to the time occupied adjusting the loss and expenses
of the Company's officials incurred in connection with the
loss, but excluding office expenses and salaries of the
Company's officials and any normal overhead charges) paid or
payable by the Company in settlement of claims and in
satisfaction of judgments rendered on account of such claims,
after deduction of all salvage, all recoveries and all claims
on inuring insurance or reinsurance, whether collectible or
not. Nothing herein shall be construed to mean that losses
under this Contract are not recoverable until the Company's
ultimate net loss has been ascertained.
B. 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 anywhere in the world
but limited in the United States of America and Canada to the
area of one state of the United States or province of Canada
and states or provinces contiguous thereto and to one another.
However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the
Company occurring during any period of 168 consecutive hours
arising out of and directly occasioned by the same event,
except that the term "loss occurrence" shall be further
defined as follows:
1. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same event. However, the
event need not be limited to one state or province or
states or provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area
of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72
consecutive hours may be extended in respect of individual
losses which occur beyond such 72 consecutive hours during
the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicentre of which need
not necessarily be within the territorial confines
referred to in paragraph A of this Article) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 consecutive hours may be included in the
Company's "loss occurrence."
4. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass and water damage
(caused by bursting frozen pipes and tanks) may be
included in the Company's "loss occurrence."
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 subparagraphs 1 and 2 above
where only one such period of 72 consecutive hours shall apply
with respect to one event.
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.
C. "Contract year" as used herein shall mean the period from
January 1, 1998 to December 31, 1998, both days inclusive, and
each respective twelve-month period thereafter that this
Contract continues in force.
Article VII - Other Reinsurance
The Company shall purchase or be deemed to have purchased inuring
excess per risk and/or pro rata reinsurance to limit its ultimate
net loss on any one risk, each loss (exclusive of extra
contractual obligations) to the amount as represented by the
Company to the Reinsurer. Annually, the Company shall notify the
Reinsurer of any material changes in the coverage provided by its
inuring reinsurance.
Article VIII - Loss Notices and Settlements
A. Whenever losses sustained by the Company appear likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of such losses at its own
expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts on a
quarterly basis (subject to the provisions of paragraph C
below) for which it may be liable following receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company.
C. The Company may request early payment of loss in increments of
$1,000,000. This "cash call" provision is limited to one
request in any ten-day period. The Reinsurer agrees to pay
said requested amounts immediately upon receipt of reasonable
evidence of the amount paid (or scheduled to be paid) by the
Company.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Special Provisions
As respects loss or damage or costs or expenses arising from
asbestos or seepage and/or pollution and/or contamination, other
than contamination from smoke damage, the maximum sublimit shall
be $25,000 per risk, each loss, except business classified as
Railroad in which case the sublimit shall be $250,000 each risk,
each loss. Nevertheless, this does not preclude payment of the
cost of removal of debris of property damaged by a loss otherwise
covered hereunder.
Article XI - Premium
A. As premium for the reinsurance coverage provided by this
Contract during each contract year, the Company shall pay the
Reinsurer an annual reinsurance premium equal to $5,700,000 in
semiannual installments of $2,850,000 on January 1 and July 1
of each contract year.
B. Notwithstanding the provisions of paragraph A above, if the
loss to the Reinsurer arising out of loss occurrences
commencing during the term of this Contract exceeds
$15,000,000, the Company agrees to pay additional premium for
loss amounts in excess of $15,000,000 up to $67,500,000, as
promptly as possible, with such additional premium to be equal
to the product of the following:
1. The percentage which any such loss amount bears to
the loss occurrence limit ($15,000,000); times
2. $5,700,000.
Article XII - Commutation of Losses
The Company shall commute the outstanding losses under this
Contract in accordance with the provisions of paragraph B of
Article XIII and the Reinsurer shall be bound to accept the
Company's valuation of such losses so long as the Contract
Experience Account balance is positive based upon the Company's
declaration/statement of the commuted value of the losses.
Payment thereof by the Reinsurer shall constitute a full and
final settlement of all losses hereunder (whether known or
unknown).
Article XIII - Contract Experience Account
A. The Reinsurer shall maintain a Contract Experience Account,
the balance of which shall equal the following:
1. The cumulative annual reinsurance premiums ceded
hereunder from inception through the date of calculation
in accordance with the provisions of paragraph A of
Article XI; plus
2. The cumulative additional premiums ceded hereunder
from inception through the date of calculation in
accordance with the provisions of paragraph B of Article
XI; less
3. $1,530,000 for each contract year; less
4. 10.0% of the cumulative additional premiums ceded
hereunder from inception through the date of calculation
in accordance with the provisions of paragraph B of
Article XI; less
5. Ceded incurred losses (incurred losses shall be
defined as ceded ultimate net losses paid from inception
plus ceded ultimate net loss outstanding as of the date of
calculation).
B. In the event this Contract terminates prior to December 31,
2002, the Reinsurer shall pay the Company an amount equal to
100% of the positive Contract Experience Account balance (as
defined in this Article) as of the date on which all losses
hereunder have been settled or commuted. Such payment shall
be remitted by the Reinsurer as promptly as possible after
that date, less any previous Contract Experience Account
balance payments.
Article XIV - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XVI - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission will be rectified as soon as possible
after discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XIX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
outstanding loss and loss adjustment expense reserves by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian outstanding loss and
loss adjustment expense reserves by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expenses paid under the
terms of policies reinsured hereunder, unless paid in cash
by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves, if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1) or
C(3), or in the case of C(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or both of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or both of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30
days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Enforceability
If any term or provision of this Contract is held to be invalid
or unenforceable, such invalidity or unenforceability shall not
affect any other term or provision hereof, and this Contract
shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity
of unenforceability) had not been contained herein.
Article XXVI - Entire Agreement
By their signatures hereunto affixed, the parties to this
Contract stipulate that this Contract comprises the entire
agreement between the parties as to this transaction and that
there are no side agreements which would now or in the future
affect any terms or provisions of this Contract. Any changes to
this Contract must be agreed to in writing and signed by the
parties to this Contract.
Article XXVII - Agency Agreement
If more than one reinsured company is named as a party to this
Contract, the first named company shall be deemed the agent of
the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVIII - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of _______________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
TOTAL INSURED VALUE EXCLUSION CLAUSE
It is the mutual intention of the parties to exclude risks, other
than Offices, Hotels, Apartments, Hospitals, Educational
Establishments and Public Utilities (except Railroad Schedules),
and Builders Risks on the above classes, where at the time of
cession, the Total Insured Value over all interests exceeds
$300,000,000. However, the Company shall be protected hereunder,
subject to the other terms and conditions of this Contract, if
subsequent 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; on condition that 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 interests 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 $300,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at
the key location.
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 $300,000,000.
It is understood and agreed that this Clause shall not apply
hereunder where the Company writes 100% of the risk.
POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE
Section A:
Excluding:
(a) All business derived directly or indirectly from any
Pool, Association or Syndicate which maintains its own
reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory)
formed after March 1, 1968 for the purpose of insuring
property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the
same perils, which is known at the time to be insured by, or in
excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals,
Improved Risk Mutuals,
Any Pool, Association or Syndicate formed for the purpose of
writing Oil, Gas or Petro-Chemical Plants and/or Oil or Gas
Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters.
Section B does not apply:
(a) Where The Total Insured Value over all interests of
the risk in question is less than $300,000,000.
(b) To interests traditionally underwritten as Inland
Marine or stock and/or contents written on a blanket
basis.
(c) To Contingent Business Interruption, except when the
Company is aware that the key location is known at the
time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section
B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only.
Where this clause attaches to Catastrophe Excesses,
the following Section C is added:
Section C:
Nevertheless the Reinsurer specifically agrees that liability
accruing to the Company from its participation in residual market
mechanisms including but not limited to:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association ("FWUA")
Louisiana Insurance Underwriting Association
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting
Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" business
for all perils otherwise protected hereunder shall not be
excluded, except, however, that this reinsurance does not
include any increase in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" or "Fair Plan" to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair
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 Fund Exclusion Clause incorporated in this
Contract).
R:\97R\15030.DOC
Commercial Automobile Quota Share
Reinsurance Contract
Effective: December 31, 1997
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Business Reinsured 3
II Commencement and Termination 3
III Territory (BRMA 51A) 4
IV Exclusions 4
V Retention and Limit 5
VI Assignments and Assessments 5
VII Loss in Excess of Policy Limits/ECO 6
VIII Other Reinsurance 6
IX Claims and Loss Adjustment Expense 6
X Salvage and Subrogation 7
XI Original Conditions (BRMA 37B) 7
XII Commission 8
XIII Contingent Commission 8
XIV Reports and Remittances 9
XV Late Payments 10
XVI Offset (BRMA 36C) 11
XVII Access to Records (BRMA 1D) 11
XVIII Errors and Omissions (BRMA 14F) 11
XIX Taxes (BRMA 50B) 12
XX Unauthorized Reinsurers 12
XXI Insolvency 13
XXII Arbitration 14
XXIII Service of Suit (BRMA 49C) 15
XXIV Agency Agreement 15
XXV Intermediary (BRMA 23A) 15
Commercial Automobile Quota Share
Reinsurance Contract
Effective: December 31, 1997
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreements
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Business Reinsured
A. By this Contract the Company obligates itself to cede to the
Reinsurer and the Reinsurer obligates itself to accept quota
share reinsurance of the Company's net liability under
policies, contracts and binders of insurance or reinsurance
(hereinafter called "policies") in force at the effective date
hereof or issued or renewed on or after that date, and
classified by the Company as Commercial Automobile Bodily
Injury and Property Damage Liability, Commercial Automobile
Physical Damage, Cargo Property and General Liability
business.
B. "Net liability" as used herein is defined as the Company's
gross liability remaining after cessions, if any, to other pro
rata reinsurers.
C. The liability of the Reinsurer with respect to each cession
hereunder shall commence obligatorily and simultaneously with
that of the Company, subject to the terms, conditions and
limitations hereinafter set forth.
D. It is understood that the classes of business reinsured under
this Contract are deemed to include coverages required under
Section 30 of the Motor Carrier Act of 1980 and/or any
amendments thereto.
Article II - Commencement and Termination
A. This Contract shall become effective on December 31, 1997,
with respect to losses occurring on or after that date, and
shall continue in force thereafter until terminated.
Notwithstanding the foregoing, in the event negotiations for a
renewal of this Contract are not completed by any December 31,
at the Company's option, this Contract shall be extended
through March 31 of the subsequent calendar year and any
notices of cancellation issued by either the Company or
Reinsurer shall also be extended through that March 31.
B. Either party may terminate this Contract on any December 31 by
giving the other party not less than 90 days prior notice by
certified mail.
C. Unless the Company elects to reassume the ceded unearned
premium in force on the effective date of termination, and so
notifies the Reinsurer prior to or as promptly as possible
after the effective date of termination, reinsurance hereunder
on business in force on the effective date of termination
shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business,
whichever first occurs, but in no event beyond 12 months
following the effective date of termination.
Article III - Territory (BRMA 51A)
The territorial limits of this Contract shall be identical with
those of the Company's policies.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. All business not specifically classified and covered
in accordance with the provisions of Article I.
2. Treaty and facultative reinsurance.
3. Business written by the Company on a co-indemnity
basis where the Company is not the controlling carrier.
4. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance" and the
"Nuclear Incident Exclusion Clause - Liability -
Reinsurance" attached to and forming part of this
Contract.
5. Risks of war, whether or not declared, invasion,
civil war,, insurrection, rebellion, revolution or
confiscation by duly constituted governmental or civil
authority as excluded under a standard policy containing a
standard War Exclusion Clause.
6. Liability as a member, subscriber or reinsurer of any
Pool, Syndicate or Association, and any FAIR Plan or other
combination of insurers or reinsurers formed for the
purpose of covering specific perils, specific classes of
business or for the purpose of insuring risks located in
specific geographical areas.
7. Except as provided in Article VI, all liability of
the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund.
"Insolvency fund" includes any guaranty fund, insolvency
fund, plan, pool, association, fund or other arrangement,
however denominated, established or governed, which
provides for the 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 is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or
in part.
8. Seepage and Pollution is excluded per ISO policy or
endorsement forms, or so deemed. Notwithstanding the
foregoing, the Reinsurer agrees that this reinsurance
exclusion shall not apply to coverage provided by ISO Form
CA 99-48, "Pollution Liability - Broadened Coverage for
Covered Autos - Business Auto and Truckers Coverage
Forms," MCS-90 or the original policies or endorsements
issued in any state where the primary seepage and
pollution exclusions have not been approved or are not
permitted to be included or attached to original policies.
Further, the Reinsurer agrees that this reinsurance
exclusion shall not apply in any case where the Company
has included the primary seepage and pollution exclusion
within an original policy or endorsement but has sustained
a loss as a result of that primary seepage and pollution
exclusion being deemed invalid or inapplicable by a court
of law.
B. Notwithstanding the foregoing, any reinsurance falling within
the scope of the exclusion set forth in subparagraph 8 of
paragraph A that is specially accepted by the Reinsurer from
the Company shall be covered under this Contract and be
subject to the terms hereof, except as such terms shall be
modified by the special acceptance. Furthermore, the
exclusion set forth in subparagraph 8 of paragraph A shall be
waived automatically when, in the opinion of the Company, the
exposure excluded therein is incidental to the principal
exposure on the risk in question.
C. If the Company is bound, without the knowledge and contrary to
the instructions of the Company's supervisory underwriting
personnel, on any business falling within the scope of the
exclusion set forth in subparagraph 8 of paragraph A, the
exclusion shall be suspended with respect to such business
until 30 days after an underwriting supervisor of the Company
acquires knowledge thereof or until the Company is able to
cancel in compliance with statutory terms, whichever is
longer.
D. If the Company is required to accept an assigned risk which
conflicts with the exclusion set forth in subparagraph 8 of
paragraph A, reinsurance shall apply, but in no event shall
the Reinsurer's liability exceed the limit set forth in
Article V.
Article V - Retention and Limit
As respects business subject to this Contract, the Company shall
retain and be liable for 50.0% of its net liability. The Company
shall cede to the Reinsurer and the Reinsurer agrees to accept
50.0% of the Company's net liability.
Article VI - Assignments and Assessments
A. Reinsurance under this Contract shall apply to risks assigned
to the Company under any Assigned Risk Plan if, in the opinion
of the Company, such risks were assigned to the Company
because of the business written and reinsured hereunder.
B. Reinsurance under this Contract shall also apply to a
proportion of any assessments made against the Company
pursuant to those laws and regulations creating obligatory
funds (including insurance guaranty and insolvency funds to
the extent that such costs are transferable to the
policyholder), pools, joint underwriting associations, FAIR
plans and similar plans, said proportion to be the proportion
of the Company's total premiums causing the assessment which
were or are subject to this Contract.
C. In the event this Contract is terminated, unless the Company
elects cutoff, the provisions of this Article shall continue
to apply for as long as the Company is required to accept
assignments and/or assessments because of the business
reinsured hereunder.
Article VII - Loss in Excess of Policy Limits/ECO
A. In the event the Company pays or is held liable to pay an
amount of loss in excess of its policy limit, but otherwise
within the terms of its policy (hereinafter called "loss in
excess of policy limits") or any punitive, exemplary,
compensatory or consequential damages, other than loss in
excess of policy limits (hereinafter called "extra contractual
obligations") because of alleged or actual bad faith or
negligence on its part in rejecting a settlement within policy
limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its policyholder, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a
claim under a policy subject to this Contract, 90.0% of the
loss in excess of policy limits and/or 90.0% of the extra
contractual obligations shall be added to the Company's loss,
if any, under the policy involved, and the sum thereof shall
be subject to the provisions of the Article V.
B. An extra contractual obligation shall be deemed to have
occurred on the same date as the loss covered or alleged to be
covered under the policy.
C. Notwithstanding anything stated herein, this Contract shall
not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with any individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Recoveries from any form of insurance or reinsurance which
protects the Company against claims the subject matter of this
Article shall inure to the benefit of this Contract.
Article VIII - Other Reinsurance
The Company shall maintain in force excess of loss reinsurance
with limits of $24,500,000 excess of $500,000 each loss event,
recoveries under which shall inure to the benefit of this
Contract. Premiums ceded by the Company for reinsurance which
inures to the benefit of this Contract shall be deducted in
determining subject premium hereunder as provided in Article XI.
Article IX - Claims and Loss Adjustment Expense
A. Losses shall be reported by the Company in summary form as
hereinafter provided, but the Company shall notify the
Reinsurer immediately when a specific case involves unusual
circumstances or large loss possibilities. Further, the
Company shall notify the Reinsurer whenever a claim involves a
fatality, amputation, spinal cord damage, brain damage,
blindness, extensive burns or multiple fractures, regardless
of liability. The Reinsurer shall have the right to
participate, at its own expense, in the defense or control of
any claim or suit or proceeding involving this reinsurance.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (other than extra
contractual obligations and loss in excess of policy limits),
shall be binding upon the Reinsurer, and the Reinsurer agrees
to pay or allow, as the case may be, its proportion of each
such settlement in accordance with Article XIV. It is agreed,
however, that if the Reinsurer's share of any loss is equal to
or greater than $250,000, the Reinsurer will pay its share of
said loss as promptly as possible after receipt of reasonable
evidence of the amount paid by the Company.
C. In the event of a claim under a policy subject hereto, the
Reinsurer shall be liable for its proportionate share of loss
adjustment expenses incurred by the Company in connection
therewith, and shall be credited with its proportionate share
of any recoveries of such expense.
D. "Loss adjustment expenses" as used herein shall mean expenses
allocable to the investigation, defense and/or settlement of
specific claims, including 1) prejudgment interest, unless
included as part of the award or judgment; 2) post-judgment
interest; 3) legal expenses and costs incurred in connection
with coverage questions and legal actions connected thereto;
but not including office expenses or salaries of the Company's
regular employees, except that allocated outside costs of the
Company's salaried adjusters shall be included.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such expenses shall, for purposes of this
Contract, not exceed an amount equal to the applicable limit
of the policy or policies involved unless agreed by the
Reinsurer.
Article X - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company, and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article XI - Original Conditions (BRMA 37B)
A. All reinsurance under this Contract shall be subject to the
same rates, terms, conditions, waivers and interpretations and
to the same modifications and alterations as the respective
policies of the Company. However, in no event shall this be
construed in any way to provide coverage outside the terms and
conditions set forth in this Contract. The Reinsurer shall be
credited with its exact proportion of the original premiums
received by the Company, prior to disbursement of any
dividends, but after deduction of premiums, if any, ceded by
the Company for inuring reinsurance.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XII - Commission
A. The Reinsurer shall allow the Company a 32.5% commission on
all premiums ceded to the Reinsurer hereunder. The Company
shall allow the Reinsurer return commission on return premiums
at the same rate.
B. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions,
taxes, assessments (except as provided in Article VI), and all
other expenses of whatever nature, except loss adjustment
expense.
Article XIII - Contingent Commission
A. The Reinsurer shall pay the Company a contingent commission
equal to 20.0% of the net profit, if any, accruing to the
Reinsurer during each accounting period defined herein. The
first accounting period shall be from the effective date of
this Contract through December 31, 1998, and each subsequent
12-month period (or 15-month period if this Contract is
extended through March 31 of any calendar year as provided in
paragraph A of Article II) shall be a separate accounting
period. However, if this Contract is terminated, the final
accounting period shall be from the beginning of the then
current accounting period through the date of termination if
this Contract is terminated on a "cutoff" basis, or the end of
the runoff period if this Contract is terminated on a "runoff"
basis.
B. The Reinsurer's net profit for each accounting period shall be
calculated in accordance with the following formula, it being
understood that a positive balance equals net profit and a
negative balance equals net loss:
1. Premiums earned for the accounting period; less
2. Ceding commission allowed the Company on premiums
earned for the accounting period; less
3. Expenses incurred by the Reinsurer at 15.0% of
premiums earned for the accounting period; less
4. Losses incurred for the accounting period; less
5. The Reinsurer's net loss, if any, from the
immediately preceding accounting period.
C. As respects each accounting period except the final accounting
period, the Company shall calculate and report the Reinsurer's
net profit within 60 days following 24 months after the end of
each accounting period, and within 60 days after the end of
each 12-month period thereafter until all losses subject
hereto have been finally settled. As respects the final
accounting period, the Company shall calculate and report the
Reinsurer's net profit within 60 days after the date of
termination, and within 60 days after the end of each 12-month
period thereafter until all losses subject hereto have been
finally settled. Each such calculation for each accounting
period shall be based on cumulative transactions hereunder
from the beginning of the accounting period through the date
of calculation, including the Reinsurer's net loss, if any,
from the immediately preceding accounting period. As respects
the initial calculation referred to above, any contingent
commission shown to be due the Company shall be paid by the
Reinsurer as promptly as possible after receipt and
verification of the Company's report. As respects each
recalculation, any additional contingent commission shown to
be due the Company shall be paid by the Reinsurer as promptly
as possible after receipt and verification of the Company's
report. Any return contingent commission shown to be due the
Reinsurer shall be paid by the Company with its report.
D. "Premiums earned" as used herein shall mean ceded unearned
premiums at the beginning of the accounting period, plus ceded
net written premiums during the period, less ceded unearned
premiums at the end of the period.
E. "Losses incurred" as used herein shall mean ceded losses and
loss adjustment expense paid as of the effective date of
calculation, plus the ceded reserves for losses and loss
adjustment expense outstanding as of the same date, all as
respects losses occurring during the accounting period under
consideration.
Article XIV - Reports and Remittances
A. As promptly as possible after the effective date of this
Contract, the Company shall remit the Reinsurer's share of the
unearned premium (less commission thereon) applicable to
subject business in force at the effective date of this
Contract.
B. Within 60 days after the end of each month, the Company shall
report to the Reinsurer:
1. Ceded net written premium for the month;
2. Commission thereon;
3. Ceded losses and loss adjustment expense paid during
the month (net of any recoveries during the month under
the "cash call" provisions of Article IX).
The positive balance of (1) less (2) less (3) shall be
remitted by the Company with its report. Any balance shown to
be due the Company shall be remitted by the Reinsurer as
promptly as possible after receipt and verification of the
Company's report.
C. Within 60 days after the end of each calendar quarter, the
Company shall report to the Reinsurer the ceded unearned
premiums and ceded outstanding loss reserves as of the end of
the calendar quarter.
D. Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its
Annual Convention Statement.
Article XV - Late Payments
A. It is understood and agreed that the provisions of this
Article shall not be implemented unless specifically invoked,
in writing, by one of the parties to this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in Article XXV
(hereinafter referred to as the "Intermediary") by the payment
due date, the party to whom payment is due may, by notifying
the Intermediary in writing, require the debtor party to pay,
and the debtor party agrees to pay, an interest penalty on the
amount past due calculated for each such payment on the last
business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in the Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects any routine payment, adjustment or return
due either party, the due date shall be as provided for in
the applicable section of this Contract. In the event a
due date is not specifically stated for a given payment,
it shall be deemed due 45 days after the date of
transmittal by the Intermediary of the initial billing for
each such payment.
2. Any "cash call" payment due the Company in accordance
with paragraph B of Article IX shall be deemed due
10 business days after the proof of loss or demand for
payment is transmitted to the Reinsurer. If such payment
is not received within the 10 days, interest will accrue
on the payment or amount overdue in accordance with
paragraph B above, from the date the proof of loss or
demand for payment was transmitted to the Reinsurer.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as 10 business days following transmittal of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. As provided under Article IX, it is understood and agreed that
the Company shall furnish the Reinsurer with usual and
customary claim information and nothing herein shall be
construed as limiting or prohibiting a Subscribing Reinsurer
from requesting additional information that it may deem
necessary.
F. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XVI - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset
any balance or amounts due from one party to the other under
the terms of this Contract. The party asserting the right of
offset may exercise such right any time whether the balances
due are on account of premiums or losses or otherwise.
Article XVII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have
access at any reasonable time to all records of the Company
which pertain in any way to this reinsurance.
Article XVIII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XIX - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XX - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded unearned
premium and outstanding loss and loss adjustment expense
reserves (including incurred but not reported loss reserves)
by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
unearned premiums returned to insureds on account of
policy cancellations, unless paid in cash by the
Reinsurer;
2. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
4. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded unearned premium and/or
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) funded
by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration
date;
5. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded unearned premium and/or outstanding
loss and loss adjustment expense reserves (including
incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1),
B(2) or B(4), or in the case of B(3), the actual amount
determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn.
Article XXI - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXII - Arbitration
A. As a condition precedent to any right of action hereunder, any
dispute arising out of the interpretation, performance or
breach of this Contract, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator who shall preside at the hearing.
If either party fails to appoint its arbitrator within 30 days
after being requested to do so by the other party, the latter,
after ten days notice by certified or registered mail of its
intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third
arbitrator within 30 days of their appointment, the two
arbitrators will jointly petition the American Arbitration
Association to appoint the third arbitrator from the AAA's
Panel of Reinsurance Arbitrators.
D. All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies,
underwriters at Lloyd's of London, reinsurance intermediaries
and attorneys actively or formerly engaged in practicing law
in the areas of insurance or reinsurance.
E. Within 30 days after notice of appointment of all arbitrators,
the panel shall meet and determine timely periods for briefs,
discovery procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. The arbitration shall take place in Woodland Hills,
California or, if unanimously agreed by the panel, any other
mutually acceptable location.
G. 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. However, nothing shall impair the
rights of such reinsurers to assert several rather than joint
defenses or claims, nor shall this provision be construed as
changing the liability of the reinsurers under the terms of
this Contract from several to joint.
H. The panel shall make its decision considering custom and
practice as promptly as possible following the termination of
hearings. The decision of any two arbitrators, when rendered
in writing shall be final and binding, and judgment upon the
award may be entered in any court having jurisdiction. The
panel is empowered to grant such interim relief as it may deem
appropriate.
I. Each party shall bear the expense of its own arbitrator and
shall jointly and equally with the other party bear the cost
of the third arbitrator. The remaining costs of the
arbitration shall be allocated by the panel. The panel may,
at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorney's
fees and interest to the extent permitted by law. Insofar as
the arbitration panel chooses to look to substantive law, it
shall consider the law of the State of California.
Article XXIII - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXIV - Agency Agreement
Gryphon Insurance Group, Inc. shall be deemed the agent of the
reinsured companies for purposes of sending or receiving
notices required by the terms and conditions of this Contract,
and for purposes of remitting or receiving any monies due any
party.
Article XXV - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
New York, New York,this _________ day of _________________ 199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
.
R:\98R\15962.DOC
Entertainment Quota Share
Reinsurance Contract
Effective: March 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Business Reinsured 3
II Commencement and Termination 4
III Territory (BRMA 51D) 4
IV Exclusions 4
V Retention and Limit 5
VI Other Reinsurance 6
VII Loss in Excess of Policy Limits/ECO 6
VIII Definitions 6
IX Claims and Loss Adjustment Expense 8
X Salvage and Subrogation 8
XI Original Conditions (BRMA 37B) 8
XII Commission (BRMA 10A) 9
XIII Contingent Commission 9
XIV Reports and Remittances 10
XV Late Payments 11
XVI Offset (BRMA 36C) 12
XVII Access to Records (BRMA 1D) 12
XVIII Errors and Omissions (BRMA 14F) 12
XIX Currency (BRMA 12A) 13
XX Taxes (BRMA 50C) 13
XXI Federal Excise Tax (BRMA 17A) 13
XXII Unauthorized Reinsurers 13
XXIII Insolvency 15
XXIV Arbitration 16
XXV Service of Suit (BRMA 49C) 17
XXVI Agency Agreement 17
XXVII Intermediary (BRMA 23A) 17
Entertainment Quota Share
Reinsurance Contract
Effective: March 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company, or
Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Business Reinsured
A. By this Contract the Company obligates itself to cede to the
Reinsurer and the Reinsurer obligates itself to accept quota
share reinsurance of the Company's net liability under
policies, contracts and binders of insurance or reinsurance
(hereinafter called "policies") issued or renewed on or after
the effective date hereof, and classified by the Company as
Entertainment Industry Insurance including but not limited to
Negative Film, Faulty Stock/Camera, Props, Sets and Wardrobe,
Producers Liability, Third Party Property Damage, Extra
Expense and Broad Form All Risks Extra Expense, Office
Contents, Automobile Physical Damage, Money and Securities,
Miscellaneous Equipment, all types of Cast Insurance, Event
Cancellation, Non-Appearance and Other Contingency Coverages,
and Other Property Floater Coverages.
B. "Net liability" as used herein is defined as the Company's
gross liability remaining after cessions, if any, to other pro
rata reinsurers.
C. The liability of the Reinsurer with respect to each cession
hereunder shall commence obligatorily and simultaneously with
that of the Company, subject to the terms, conditions and
limitations hereinafter set forth.
Article II - Commencement and Termination
A. This Contract shall become effective on March 1, 1998, with
respect to occurrences arising out of loss events commencing
on or after that date, and shall continue in force thereafter
until terminated. In the event renewal negotiations are not
completed by any June 30, at the Company's option, this
Contract shall continue in force through the following
September 30, and any notices of cancellation issued by either
the Company or Reinsurer shall also be extended through that
following September 30.
B. Either party may terminate this Contract on any June 30 by
giving the other party not less than 90 days prior notice by
certified mail.
C. Except as provided in paragraph D below, reinsurance hereunder
on business in force on the effective date of termination
shall remain in full force and effect until termination,
cancellation or next premium anniversary of such business,
whichever first occurs, following the effective date of
termination. However, these limitations shall not apply to
any Extended Discovery Endorsement provisions or policies.
D. Notwithstanding the provisions of paragraph C above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of termination, in which event the
Reinsurer shall not be liable for claims made or losses
arising out of loss events commencing after that date. As
respects policies providing an aggregate limit of liability
which are in force on the effective date of termination, the
Reinsurer shall be liable for the entire aggregate loss under
such policies if the inception date of the policy period falls
on or before the effective date of termination, as respects
policies written on an occurrence basis, or if the first claim
is made on or before the effective date of termination as
respects policies written on a claims made basis.
Article III - Territory (BRMA 51D)
This Contract shall be worldwide in its geographical scope.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Financial guarantee and insolvency.
2. War as set out below:
a. In those cases where the original policy contains
a standard "War Exclusion Clause," this Contract shall
follow the wording of the original policy.
b. In those cases where the original policy does not
contain a standard "War Exclusion Clause" no liability
shall attach hereto in respect of any loss or damage
which is occasioned by war, invasion, hostilities, acts
of foreign enemies, civil war, rebellion, insurrection,
military or usurped power, or martial law, or
confiscation by order of any government or public
authority, but such exclusion shall not apply to
business classified by the Company as Third Party
Property Damage. Nevertheless, this clause shall not
be construed to apply to loss or damage occasioned by
riots, strikes, civil commotion, vandalism or malicious
damage, or to acts committed by agents of any
government, party or faction engaged in war,
hostilities or other warlike operations, provided such
agents are acting secretly and not in connection with
any operations of armed forces (whether military, naval
or air forces) in the country where the interests
insured are situated.
3. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance
(U.S.A.)," the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (Canada)," the "Nuclear
Incident Exclusion Clause - Liability - Reinsurance
(U.S.A.)" and the "Nuclear Incident Exclusion Clause -
Liability - Reinsurance (Canada)" attached to and forming
part of this Contract.
4. Nuclear Energy Risks as defined in "Nuclear Energy
Risks Exclusion Clause (Reinsurance) (1994) (Worldwide
excluding U.S.A. & Canada) - NMA 1975a" attached to and
forming part of this Contract.
5. All liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency Fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or
governed, which provides for any assessment of or 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.
6. Loss or liability excluded under the provisions of
the "Pools, Associations and Syndicates Exclusion Clause"
attached to and forming part of this Contract.
7. Seepage and pollution as per the original policies
where legal, approved and applicable.
Article V - Retention and Limit
A. As respects business subject to this Contract, the Company
shall retain and be liable for 25.0% of its net liability.
The Company shall cede to the Reinsurer and the Reinsurer
agrees to accept 75.0% of the Company's net liability.
B. The Company shall purchase or be deemed to have purchased
inuring excess reinsurance to limit its loss subject hereto
from any one coverage, any one policy (inclusive of loss in
excess of policy limits and extra contractual obligations) to
$10,000,000.
Article VI - Other Reinsurance
The Company shall be permitted, but not required (except as
provided in paragraph B of Article V), to purchase other
reinsurance on business subject to this Contract. Premiums ceded
by the Company for reinsurance which inures to the benefit of
this Contract or increases the Company's available capacity shall
be deducted in determining subject premium hereunder.
Article VII - Loss in Excess of Policy Limits/ECO
A. In the event the Company pays or is held liable to pay an
amount of loss in excess of its policy limit, but otherwise
within the terms of its policy (hereinafter called "loss in
excess of policy limits") or any punitive, exemplary,
compensatory or consequential damages, other than loss in
excess of policy limits (hereinafter called "extra contractual
obligations") because of alleged or actual bad faith or
negligence on its part in rejecting a settlement within policy
limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its policyholder, or
in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a
claim under a policy subject to this Contract, 90.0% of the
loss in excess of policy limits and/or 90.0% of the extra
contractual obligations shall be added to the Company's loss,
if any, under the policy involved, and the sum thereof (not
exceeding, however, $10,000,000) shall be subject to the
provisions of the Article V.
B. Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
C. Notwithstanding anything stated herein, this Contract shall
not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with any individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Recoveries from any form of insurance or reinsurance which
protects the Company against claims the subject matter of this
Article shall inure to the benefit of this Contract.
Article VIII - Definitions
A. The term "loss event" as used herein shall mean an accident,
occurrence, claim made, loss discovered or any other
circumstance that triggers coverage as provided, defined, or
interpreted in the Company's original policies, however:
1. Where the Company's policy provides for an aggregate
limit of liability, the term "loss event" shall mean all
losses subject to that aggregate limit, each aggregate
period. For purposes of this Contract, the date of loss
for purposes of this reinsurance will be the inception
date of each aggregate period, as respects policies
written on an occurrence basis and the date the first
claim is made as respects policies written on a claims
made basis. Nevertheless, the Company may extract from
any aggregate "loss event" a single loss so it may be
combined with losses from other policies and submitted as
a single "loss event."
In the event the Company's losses arising out of a
single "loss event" involve policies providing different
types of coverage such as an occurrence and a claims made
policy, all losses can be combined and submitted as a
single "loss event" utilizing the occurrence date of loss
for the purpose of reinsurance coverage. In the event the
Company's losses arising out of a single "loss event"
involve multiple claims made policies, all losses can be
combined and submitted as a single "loss event" utilizing
the date the first claim is made for the purpose of
reinsurance coverage.
2. As respects policies written on a claims made basis,
the date of loss shall be the date the claim is made under
the original policy. As respects any extended reporting
or discovery period provisions under a claims made policy
subject hereto, it is understood and agreed that the
following shall apply:
a. Claims made against and/or reported to the Company
during the extended reporting discovery period shall be
deemed to have occurred on the last full day of the
applicable policy period;
b. If the Company issues a separate policy and/or
reinstates the aggregate limit provided under a policy,
premium and losses during the period to which said
separate policy and/or reinstated limit applies may, at
the time of issuance and at the Company's option, be
allocated to (i) the reinsurance contract which is in
effect at the effective date of said separate policy
and/or at the beginning of the period to which the
reinstated limit applies, or (ii) the reinsurance
contract which was in effect at the effective date of
the original policy. If the Company elects (i), said
losses shall be subject to a separate retention and
limit (as specified in Article V) from that of the
original policy period.
B. "Loss adjustment expense" shall mean expenses assignable to
the investigation, defense and/or settlement of specific
claims, regardless of how such expenses are classified for
statutory reporting purposes. Loss adjustment expense shall
include 1) prejudgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; and
3) declaratory judgment expenses or other legal expenses and
costs incurred in connection with coverage questions and legal
actions connected thereto. Loss adjustment expense shall not
include office expenses or salaries of the Company's regular
employees, except that assigned outside costs of the Company's
salaried adjusters shall be included.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such loss adjustment expense shall, for
purposes of this Contract, not exceed an amount equal to the
applicable limit of the policy or policies involved unless
agreed to by the Reinsurer.
Article IX - Claims and Loss Adjustment Expense
A. Losses shall be reported by the Company in summary form as
hereinafter provided, but the Company shall notify the
Reinsurer immediately when a specific case involves unusual
circumstances or large loss possibilities. The Reinsurer
shall have the right to participate, at its own expense, in
the defense or control of any claim or suit or proceeding
involving this reinsurance.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (other than extra
contractual obligations and loss in excess of policy limits),
shall be binding upon the Reinsurer, and the Reinsurer agrees
to pay or allow, as the case may be, its proportion of each
such settlement in accordance with Article XIV. It is agreed,
however, that if the Reinsurer's share of any loss is equal to
or greater than $375,000, the Reinsurer will pay its share of
said loss as promptly as possible after receipt of reasonable
evidence of the amount paid by the Company.
C. In the event of a claim under a policy subject hereto, the
Reinsurer shall be liable for its proportionate share of loss
adjustment expenses incurred by the Company in connection
therewith, and shall be credited with its proportionate share
of any recoveries of such expense.
Article X - Salvage and Subrogation
The Reinsurer shall be credited with its proportionate share of
salvage (i.e., reimbursement obtained or recovery made by the
Company, less the actual cost, excluding salaries of officials
and employees of the Company and sums paid to attorneys as
retainer, of obtaining such reimbursement or making such
recovery) on account of claims and settlements involving
reinsurance hereunder. The Company hereby agrees to enforce its
rights to salvage or subrogation relating to any loss, a part of
which loss was sustained by the Reinsurer, and to prosecute all
claims arising out of such rights.
Article XI - Original Conditions (BRMA 37B)
A. All reinsurance under this Contract shall be subject to the
same rates, terms, conditions, waivers and interpretations and
to the same modifications and alterations as the respective
policies of the Company. However, in no event shall this be
construed in any way to provide coverage outside the terms and
conditions set forth in this Contract. The Reinsurer shall be
credited with its exact proportion of the original premiums
received by the Company, prior to disbursement of any
dividends, but after deduction of premiums, if any, ceded by
the Company for inuring reinsurance.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XII - Commission (BRMA 10A)
A. The Reinsurer shall allow the Company a 35.0% commission on
all premiums ceded to the Reinsurer hereunder. The Company
shall allow the Reinsurer return commission on return premiums
at the same rate.
B. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions,
taxes, assessments, and all other expenses of whatever nature,
except loss adjustment expense.
Article XIII - Contingent Commission
A. The Reinsurer shall pay the Company a contingent commission
equal to 25.0% of the net profit, if any, accruing to the
Reinsurer during each accounting period defined herein. The
first accounting period shall be from the effective date of
this Contract through June 30, 2001, and each subsequent 36-
month period shall be a separate accounting period. However,
if this Contract is terminated, the final accounting period
shall be from the beginning of the then current accounting
period through the date of termination if this Contract is
terminated on a "cutoff" basis, or the end of the runoff
period if this Contract is terminated on a "runoff" basis.
B. The Reinsurer's net profit for each accounting period shall be
calculated in accordance with the following formula, it being
understood that a positive balance equals net profit and a
negative balance equals net loss:
1. Premiums earned for the accounting period; less
2. Ceding commission allowed the Company on premiums
earned for the accounting period; less
3. Expenses incurred by the Reinsurer at 15.0% of
premiums earned for the accounting period; less
4. Losses incurred for the accounting period.
C. The Company shall calculate and report the Reinsurer's net
profit within 60 days after the end of each contract year
within each accounting period, within 60 days after the end of
each accounting period, and within 60 days after the end of
each 12-month period thereafter until all losses subject
hereto have been finally settled. Each such calculation shall
be based on cumulative transactions hereunder from the
beginning of the accounting period through the date of
calculation, including the Reinsurer's net loss, if any, from
the immediately preceding accounting period. As respects the
initial calculation referred to above, any contingent
commission shown to be due the Company shall be paid by the
Reinsurer as promptly as possible after receipt and
verification of the Company's report. As respects each
subsequent calculation, any additional contingent commission
shown to be due the Company shall be paid by the Reinsurer as
promptly as possible after receipt and verification of the
Company's report. Any return contingent commission shown to
be due the Reinsurer shall be paid by the Company with its
report.
D. "Premiums earned" as used herein shall mean ceded unearned
premiums at the beginning of the accounting period, plus ceded
net written premiums during the period, less ceded unearned
premiums at the end of the period.
E. "Losses incurred" as used herein shall mean ceded losses and
loss adjustment expense paid as of the effective date of
calculation, plus the ceded reserves for losses and loss
adjustment expense outstanding as of the same date, all as
respects occurrences arising out of loss events commencing
during the accounting period under consideration.
F. "Contract year" as used herein shall mean the period from
March 1, 1998, to June 30, 1999, both days inclusive, and each
respective twelve-month period thereafter that this Contract
continues in force.
Article XIV - Reports and Remittances
A. Within 45 days after the end of each contract quarter, the
Company shall report to the Reinsurer:
1. Ceded net written premium for the quarter;
2. Commission thereon;
3. Ceded losses and loss adjustment expense paid during
the quarter (net of any recoveries during the month under
the "cash call" provisions of Article VIII);
4. Ceded unearned premiums and ceded outstanding loss
reserves as of the end of the quarter.
The positive balance of (1) less (2) less (3) shall be
remitted by the Company with its report. Any balance shown to
be due the Company shall be remitted by the Reinsurer as
promptly as possible after receipt and verification of the
Company's report.
B. Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its
Annual Convention Statement.
C "Contract quarter" as used herein shall mean the period from
March 1, 1998, to June 30, 1998, both days inclusive, and each
respective twelve-month period thereafter that this Contract
continues in force.
Article XV - Late Payments
A. The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to
this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in
Article XXVI (hereinafter referred to as the "Intermediary")
by the payment due date, the party to whom payment is due may,
by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six-month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in The Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects any routine payment, adjustment or return
due either party, the due date shall be as provided for in
the applicable section of this Contract. In the event a
due date is not specifically stated for a given payment,
it shall be deemed due 45 days after the date of
transmittal by the Intermediary of the initial billing for
each such payment.
2. Any "cash call" payment due the Company in accordance
with paragraph B of Article VIII shall be deemed due
10 business days after the proof of loss or demand for
payment is transmitted to the Reinsurer. If such payment
is not received within the 10 days, interest will accrue
on the payment or amount overdue in accordance with
paragraph B above, from the date the proof of loss or
demand for payment was transmitted to the Reinsurer.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as 10 business days following transmittal of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XVI - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset
any balance or amounts due from one party to the other under
the terms of this Contract. The party asserting the right of
offset may exercise such right any time whether the balances
due are on account of premiums or losses or otherwise.
Article XVII - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have
access at any reasonable time to all records of the Company
which pertain in any way to this reinsurance.
Article XVIII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XIX - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XXI - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXII - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
unearned premium and outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian unearned premium and
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
unearned premiums returned to insureds on account of
policy cancellations, unless paid in cash by the
Reinsurer;
2. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
4. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded unearned premium and/or
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) funded
by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration
date;
5. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded unearned premium and/or outstanding
loss and loss adjustment expense reserves (including
incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1),
C(2) or C(4), or in the case of C(3), the actual amount
determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn.
Article XXIII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIV - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
F. It is agreed that the jurisdiction of the Arbiters to make or
render any decision or award shall be limited by the limit of
liability expressly hereinbefore set forth, and that the
Arbiters shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of
liability of the Reinsurer, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage
awards between the parties hereto.
Article XXV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXVI - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any
monies due any party.
Article XXVII - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
New York, New York,this _________ day of _________________ 199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
E. W. BLANCH CO.
R:\98R\16342.DOC Reinsurance Services
Page 3
Entertainment Coded Excess of Loss
Reinsurance Contract
Effective: March 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Classes of Business Reinsured 3
II Term 3
III Territory (BRMA 51D) 4
IV Exclusions 4
V Retention and Limit 5
VI Other Reinsurance 6
VII Definitions 6
VIII Claims 9
IX Salvage and Subrogation 9
X Commission (BRMA 10A) 10
XI Premium 10
XII Late Payments 10
XIII Offset (BRMA 36C) 12
XIV Access to Records (BRMA 1D) 12
XV Liability of the Reinsurer 12
XVI Net Retained Lines (BRMA 32E) 12
XVII Errors and Omissions (BRMA 14F) 12
XVIII Currency (BRMA 12A) 13
XIX Taxes (BRMA 50C) 13
XX Federal Excise Tax (BRMA 17A) 13
XXI Unauthorized Reinsurers 13
XXI Insolvency 15
XXII Arbitration 16
XXIII Service of Suit (BRMA 49C) 17
XXIV Agency Agreement 17
XXV Intermediary (BRMA 23A) 17
Schedule A
Entertainment Coded Excess of Loss
Reinsurance Contract
Effective: March 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Classes of Business Reinsured
By this Contract the Reinsurer agrees to reinsure the excess
liability which may accrue to the Company under its policies,
contracts and binders of insurance or reinsurance (hereinafter
called "policies") issued or renewed on or after the effective
date hereof, and classified by the Company as Entertainment
Industry Insurance, including but not limited to Negative Film,
Faulty Stock/Camera, Props, Sets and Wardrobe, Producers
Liability, Third Party Property Damage, Extra Expense and Broad
Form All Risks Extra Expense, Office Contents, Automobile
Physical Damage, Money and Securities, Miscellaneous Equipment,
all types of Cast Insurance, Event Cancellation, Non-Appearance
and Other Contingency Coverages, and Other Property Floater
Coverages, subject to the terms, conditions and limitations
hereinafter set forth.
Article II - Commencement and Termination
A. This Contract shall become effective on March 1, 1998, with
respect to occurrences arising out of loss events commencing
on or after that date, and shall continue in force thereafter
until terminated. In the event renewal negotiations are not
completed by any June 30, at the Company's option, this
Contract shall continue in force through the following
September 30, and any notices of cancellation issued by either
the Company or Reinsurer shall also be extended through that
following September 30.
B. Either party may terminate this Contract on any June 30 by
giving the other party not less than 90 days prior notice by
certified mail.
C. Except as provided in paragraph D below, reinsurance hereunder
on business in force on the effective date of termination
shall remain in full force and effect until termination,
cancellation or next premium anniversary of such business,
whichever first occurs, following the effective date of
termination. However, these limitations shall not apply to
any Extended Discovery Endorsement provisions or policies.
D. Notwithstanding the provisions of paragraph C above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of termination, in which event the
Reinsurer shall not be liable for claims made or losses
arising out of loss events commencing after that date. As
respects policies providing an aggregate limit of liability
which are in force on the effective date of termination, the
Reinsurer shall be liable for the entire aggregate loss under
such policies if the inception date of the policy period falls
on or before the effective date of termination, as respects
policies written on an occurrence basis, or if the first claim
is made on or before the effective date of termination as
respects policies written on a claims made basis.
E. If this Contract is terminated while a loss event covered
hereunder is in progress, the Reinsurer's liability hereunder
shall, subject to the other terms and conditions of this
Contract, be determined as if the entire loss event had
occurred prior to the termination of this Contract, provided
that no part of such loss event is claimed against any renewal
or replacement of this Contract.
Article III - Territory (BRMA 51D)
This Contract shall be worldwide in its geographical scope.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Financial guarantee and insolvency.
2. War as set out below:
a. In those cases where the original policy contains
a standard "War Exclusion Clause," this Contract shall
follow the wording of the original policy.
b. In those cases where the original policy does not
contain a standard "War Exclusion Clause" no liability
shall attach hereto in respect of any loss or damage
which is occasioned by war, invasion, hostilities, acts
of foreign enemies, civil war, rebellion, insurrection,
military or usurped power, or martial law, or
confiscation by order of any government or public
authority, but such exclusion shall not apply to
business classified by the Company as Third Party
Property Damage. Nevertheless, this clause shall not
be construed to apply to loss or damage occasioned by
riots, strikes, civil commotion, vandalism or malicious
damage, or to acts committed by agents of any
government, party or faction engaged in war,
hostilities or other warlike operations, provided such
agents are acting secretly and not in connection with
any operations of armed forces (whether military, naval
or air forces) in the country where the interests
insured are situated.
3. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance
(U.S.A.)," the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (Canada)," the "Nuclear
Incident Exclusion Clause - Liability - Reinsurance
(U.S.A.)" and the "Nuclear Incident Exclusion Clause -
Liability - Reinsurance (Canada)" attached to and forming
part of this Contract.
4. Nuclear Energy Risks as defined in the "Nuclear
Energy Risks Exclusion Clause (Liability and Physical
Damage) (Reinsurance) (1994) (Worldwide excluding U.S.A. &
Canada) - NMA 1975a" attached to and forming part of this
Contract.
5. All liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency Fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or
governed, which provides for any assessment of or 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.
6. Loss or liability excluded under the provisions of
the "Pools, Associations and Syndicates Exclusion Clause"
attached to and forming part of this Contract.
7. Seepage and pollution as per the original policies
where legal, approved and applicable.
Article V - Retention and Limit
The Company shall retain and be liable for the first $10,000,000
of ultimate net loss as respects any one loss event. The
Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company's retention, but the
liability of the Reinsurer shall not exceed $40,000,000 as
respects any one loss event.
Article VI - Other Reinsurance
The Company shall be permitted, but not required, to purchase
other pro rata reinsurance on business subject to this Contract.
Premiums ceded by the Company for reinsurance which inures to the
benefit of this Contract or increases the Company's available
capacity shall be deducted in determining subject premium
hereunder.
Article VII - Definitions
A. "Ultimate net loss" as used herein is defined as the sum or
sums (including loss in excess of policy limits, extra
contractual obligations, prejudgment interest if included as
part of an award or judgment and any loss adjustment expense,
as hereinafter defined) paid or payable by the Company in
settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all savage, all
recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed
to mean that losses under this Contract are not recoverable
until the Company's ultimate net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall mean:
1. "Loss in excess of policy limits" shall mean 90% of any
amount paid or payable by the Company under a policy ceded
to this Contract in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an
action against it by its insured or its insured's assignee
to recover damages the insured is legally obligated to pay
to a third party claimant because of the Company's alleged
or actual negligence or bad faith in rejecting a settlement
within policy limits, or in discharging its duty to defend
or prepare the defense in the trial of an action against its
insured, or in discharging its duty to prepare or prosecute
an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 90% of any
punitive, exemplary, compensatory or consequential damages,
other than loss in excess of policy limits, paid or payable
by the Company under a policy ceded to this Contract as a
result of an action against it by its insured, its insured's
assignee or a third party claimant, which action alleges
negligence or bad faith on the part of the Company in
handling a claim under a policy subject to this Contract.
Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with an individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. "Loss adjustment expense" shall mean expenses assignable to
the investigation, defense and/or settlement of specific
claims, regardless of how such expenses are classified for
statutory reporting purposes. Loss adjustment expense shall
include 1) prejudgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; and
3) declaratory judgment expenses or other legal expenses and
costs incurred in connection with coverage questions and legal
actions connected thereto. Loss adjustment expense shall not
include office expenses or salaries of the Company's regular
employees, except that assigned outside costs of the Company's
salaried adjusters shall be included.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such loss adjustment expense shall, for
purposes of this Contract, not exceed an amount equal to the
applicable limit of the policy or policies involved unless
agreed to by the Reinsurer.
D. The term "loss event" as used herein shall mean an accident,
occurrence, claim made, loss discovered or any other
circumstance that triggers coverage as provided, defined, or
interpreted in the Company's original policies, however:
1. Where the Company's policy provides for an aggregate
limit of liability, the term "loss event" shall mean all
losses subject to that aggregate limit, each aggregate
period. For purposes of this Contract, the date of loss
for purposes of this reinsurance will be the inception
date of each aggregate period, as respects policies
written on an occurrence basis and the date the first
claim is made as respects policies written on a claims
made basis. Nevertheless, the Company may extract from
any aggregate "loss event" a single loss so it may be
combined with losses from other policies and submitted as
a single "loss event."
In the event the Company's losses arising out of a
single "loss event" involve policies providing different
types of coverage such as an occurrence and a claims made
policy, all losses can be combined and submitted as a
single "loss event" utilizing the occurrence date of loss
for the purpose of reinsurance coverage. In the event the
Company's losses arising out of a single "loss event"
involve multiple claims made policies, all losses can be
combined and submitted as a single "loss event" utilizing
the date the first claim is made for the purpose of
reinsurance coverage.
2. As respects policies written on a claims made basis,
the date of loss shall be the date the claim is made under
the original policy. As respects any extended reporting
or discovery period provisions under a claims made policy
subject hereto, it is understood and agreed that the
following shall apply:
a. Claims made against and/or reported to the Company
during the extended reporting discovery period shall be
deemed to have occurred on the last full day of the
applicable policy period;
b. If the Company issues a separate policy and/or
reinstates the aggregate limit provided under a policy,
premium and losses during the period to which said
separate policy and/or reinstated limit applies may, at
the time of issuance and at the Company's option, be
allocated to (i) the reinsurance contract which is in
effect at the effective date of said separate policy
and/or at the beginning of the period to which the
reinstated limit applies, or (ii) the reinsurance
contract which was in effect at the effective date of
the original policy. If the Company elects (i), said
losses shall be subject to a separate retention and
limit (as specified in the Article) from that of the
original policy period.
3. As respects property losses subject hereto, all
individual losses directly occasioned by any one disaster,
occurrence or loss or series of disasters, occurrences or
losses arising out of one occurrence which occurs anywhere
in the world, but limited in the United States of America
and Canada to 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 event"
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
loss event, except that the term "loss event" shall be
further defined as follows:
a. 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 loss
event. However, the loss event need not be limited to
one state or province or states or provinces contiguous
thereto.
b. 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 loss 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.
c. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to above) 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 event."
d. As regards "freeze," only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting frozen pipes and tanks
and melting snow) may be included in the Company's
"loss event."
Except for those "loss events" referred to in
subparagraphs a and b above, the Company may choose the
date and time when any such period of consecutive hours
commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of
that disaster, occurrence or loss, and provided that only
one such period of 168 consecutive hours shall apply with
respect to one loss event.
However, as respects those "loss events" referred to
in subparagraphs a and b above, if the disaster,
occurrence or loss occasioned by the occurrence is of
greater duration than 72 consecutive hours, then the
Company may divide that disaster, occurrence or loss into
two or more "loss events," provided that no two periods
overlap and no individual loss is included in more than
one such period, and provided that no period commences
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, occurrence or loss.
It is understood that losses arising from a
combination of two or more perils as a result of the same
occurrence shall be considered as having arisen from one
"loss event." Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as
respects the applicable perils and no single "loss event"
shall encompass a time period greater than 168 consecutive
hours.
Notwithstanding the foregoing, it is understood that the
Company shall be the sole judge of what constitutes a single
"loss event."
Article VIII - Claims
A. Whenever a loss sustained by the Company appears likely to
result in a claim hereunder, the Company shall notify the
Reinsurer, and the Reinsurer shall have the right to
participate in the adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all amounts for
which it may be liable upon receipt of reasonable evidence of
the amount paid (or scheduled to be paid) by the Company.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Commission (BRMA 10A)
A. The Reinsurer shall allow the Company a 35.0% commission on
all premiums ceded to the Reinsurer hereunder. The Company
shall allow the Reinsurer return commission on return premiums
at the same rate.
B. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions,
taxes, assessments, and all other expenses of whatever nature,
except loss adjustment expense.
Article XI - Premium
A. As premium for the reinsurance provided hereunder, the Company
shall pay the Reinsurer a portion of its net written premium,
determined at the applicable reinsurance rates set forth in
Schedule A attached to and forming part of this Contract, less
commission allowed thereon.
B. Within 45 days after the end of each contract quarter, the
Company shall report its net written premium for the quarter.
The premium due the Reinsurer for the quarter, determined in
accordance with paragraph A above, shall be paid by the
Company with its report.
C. Within 45 days after the end of each contract quarter, the
Company shall calculate and report the unearned reinsurance
premium as of the end of the quarter.
D. "Net written premium" as used herein is defined as gross
written premium of the Company for the classes of business
reinsured hereunder, less cancellations and return premiums,
and less premiums ceded by the Company for reinsurance which
inures to the benefit of this Contract or increases the
Company's available capacity.
E. "Contract quarter" as used herein shall mean the period from
March 1, 1998, to June 30, 1998, both days inclusive, and each
respective twelve-month period thereafter that this Contract
continues in force.
Article XII - Late Payments
A. The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to
this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in
Article XXVI (hereinafter referred to as the "Intermediary")
by the payment due date, the party to whom payment is due may,
by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six-month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in The Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects any routine payment, adjustment or return
due either party, the due date shall be as provided for in
the applicable section of this Contract. In the event a
due date is not specifically stated for a given payment,
it shall be deemed due 45 days after the date of
transmittal by the Intermediary of the initial billing for
each such payment.
2. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as 10 business days following transmittal of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
Article XIV - Access to Records (BRMA 1D)
The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.
Article XV - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVI - Net Retained Lines (BRMA 32E)
A. This Contract applies only to that portion of any policy which
the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted
in this Contract), and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in
excess of which this Contract attaches, only loss or losses in
respect of that portion of any policy which the Company
retains net for its own account shall be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other
reinsurer(s) or otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
Article XIX - Taxes (BRMA 50C)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.
Article XX - Federal Excise Tax (BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at
Lloyd's London and other reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded United States
unearned premium and outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. If the Reinsurer is unauthorized in any province or
jurisdiction of Canada, the Reinsurer agrees to fund 115% of
its share of the Company's ceded Canadian unearned premium and
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) by:
1. A clean, irrevocable and unconditional letter of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
Canadian bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters
of credit and acceptable to said insurance regulatory
authorities, for no more than 15/115ths of the total
funding required; and/or
2. Cash advances for the remaining balance of the
funding required;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved.
C. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
unearned premiums returned to insureds on account of
policy cancellations, unless paid in cash by the
Reinsurer;
2. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
4. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded unearned premium and/or
outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves) funded
by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration
date;
5. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded unearned premium and/or outstanding
loss and loss adjustment expense reserves (including
incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for C(1),
C(2) or C(4), or in the case of C(3), the actual amount
determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the
approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Contract, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies or Lloyd's
London Underwriters. In the event that either party should
fail to choose an Arbiter within 30 days following a written
request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their
appointment, each Arbiter shall nominate three candidates
within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within
30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable
engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both
parties. Judgment upon the final decision of the Arbiters may
be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this Article and communications shall be made by
the Company to each of the reinsurers constituting one party,
provided, however, that nothing herein shall impair the rights
of such reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability
of the reinsurers participating under the terms of this
Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and
shall jointly and equally bear with the other the expense of
the Umpire and of the arbitration. In the event that the two
Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall
be equally divided between the two parties.
E. Any arbitration proceedings shall take place at Woodland
Hills, California, unless otherwise mutually agreed.
F. It is agreed that the jurisdiction of the Arbiters to make or
render any decision or award shall be limited by the limit of
liability expressly hereinbefore set forth, and that the
Arbiters shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of
liability of the Reinsurer, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage
awards between the parties hereto.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of a
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Associated International Insurance Company shall be deemed the
agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies
due any party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
Woodland Hills, California,this _______ day of _____________199___.
__________________________________________________
Associated International Insurance Company
Calvert Insurance Company
Schedule A
to the
Entertainment Coded Excess of Loss
Reinsurance Contract
Effective: March 1, 1998
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Hoboken, New Jersey
and
any additional company established or acquired
by Associated International Insurance Company, Calvert Insurance
Company
or Gryphon Holdings, Inc., New York, New York,
to be included hereunder
Rating Table
Policy Limits Reinsurance Rate
0 to $10,000,000 0%
$10,000,001 to $20,000,000 18.0%
$20,000,001 to $30,000,000 33.0%
$30,000,001 to $40,000,000 40.0%
$40,000,001 and above 44.0%
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Gryphon Holdings Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 333-12775, 33-96922, 33-83630) on Form S-8 of
Gryphon Holdings Inc. of our report dated February 24, 1998,
relating to the consolidated balance sheets of Gryphon Holdings
Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period
ended December 31, 1997, and all related schedules, which report
appears in the December 31, 1997 annual report on Form 10-K of
Gryphon Holdings Inc.
KPMG Peat Marwick LLP
New York, New York
March 27, 1998
