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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
EXECUTIVE RISK INC.
(Exact name of registrant as specified in its charter)
Commission File No. 1-12800
DELAWARE 06-1388171
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
82 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06070
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 408-2000
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ITEM 5. OTHER EVENTS.
Restructuring of Underwriting and Reinsurance Relationships with The Aetna
Casualty and Surety Company. On February 13, 1997, Executive Risk, Inc. (the
"Company") announced a restructuring (the "Restructuring") of its relationship
with The Aetna Casualty and Surety Company ("AC&S"). The press release
announcing the Restructuring is attached hereto as EXHIBIT 99.1. Previously, an
insurance facility had operated under the terms of a number of related
documents, including: (1) an Amended and Restated Agency and Insurance Services
Agreement, dated as of January 1, 1994 among AC&S, the Company and the
partnership owned by the Company, Executive Risk Management Associates ("ERMA")
(the "Pre-restructuring Agency Agreement"), (2) an Amended and Restated Quota
Share Reinsurance Agreement, dated as of January 1, 1994, between AC&S and the
Company's indirect subsidiary, Executive Risk Indemnity Inc. ("ERII"),
respecting business issued by ERMA on AC&S policies (the "Pre-restructuring AC&S
Quota Share Agreement"), (3) a Quota Share Reinsurance Agreement, dated as of
January 1, 1994, between ERII and AC&S respecting certain business issued by
ERMA on ERII policies (the "Pre-restructuring ERII Quota Share Agreement"), and
(4) a Quota Share Reinsurance Agreement, dated as of January 1, 1994, between
the Company's indirect subsidiary, Executive Risk Specialty Insurance Company
("ERSIC"), and AC&S respecting certain business issued by ERMA on ERSIC paper
(the "Pre-restructuring ERSIC Quota Share Agreement"). In connection with the
Restructuring, the Pre-restructuring Agency Agreement, Pre-restructuring AC&S
Quota Share Agreement, Pre-restructuring ERII Quota Share Agreement and
Pre-restructuring ERSIC Quota Share Agreement have been terminated and replaced
with the following agreements:
(a) a Restructuring Agreement, dated February 13, 1997 (the
"Restructuring Agreement") attached hereto as EXHIBIT 10.1, by and among the
Company, the Company's direct subsidiary, Executive Re Inc., the Company's three
indirect subsidiaries, ERII, ERSIC and ERMA (collectively, the "Subsidiaries"),
AC&S and AC&S' direct subsidiary, Aetna Casualty & Surety of Canada;
(b) an Agency and Insurance Services Agreement, dated as of January 1,
1997, between AC&S and ERMA (the "1997 Agency Agreement") attached hereto as
EXHIBIT 10.2; and
(c) a Quota Share Reinsurance Agreement, dated as of January 1, 1997,
between AC&S and ERII (the "1997 Reinsurance Agreement") attached hereto as
EXHIBIT 10.3.
Restructuring of Agency Relationship. Under the Pre-restructuring Agency
Agreement, AC&S had authorized ERMA to underwrite and issue, on behalf of AC&S,
policies of directors and officers liability ("D&O") insurance, financial
institution trust department errors and omissions insurance ("Trust E&O"), and
certain other insurance ("Other Lines"; and collectively with D&O and Trust E&O,
"the "AC&S Lines"), all in accordance with prescribed underwriting guidelines
and within defined liability limits. Under the terms of the Pre-restructuring
Agency Agreement, ERMA had the exclusive right and authority to issue D&O
insurance on behalf of AC&S
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in North America. This exclusive arrangement was binding on AC&S' former parent,
Aetna Life and Casualty (now, Aetna Inc.) and its subsidiaries; however, the
arrangement was not binding on AC&S' current parent, Travelers/Aetna Property
Casualty Corp. ("TAPCO"), or TAPCO's affiliates. The Pre-restructuring Agency
Agreement was subject to termination upon two years' notice, provided that no
such termination could be effective until December 31, 1999.
Pursuant to the 1997 Agency Agreement, ERMA will retain the right and
authority, though on a non-exclusive basis, to (a) renew on AC&S paper all
policies of AC&S Lines written prior to February 13, 1997, and (b) underwrite
and issue new policies of AC&S D&O in the United States in accordance with
existing underwriting guidelines and specified limitations on limits of
liability. The 1997 Agency Agreement provides that annual gross premium volume
written by ERMA with respect to AC&S Lines must not exceed an aggregate amount
equal to the lesser of (a) 10% of the sum of the Company's total direct gross
D&O premiums plus the total direct gross D&O premiums written by ERMA on AC&S
policies under the 1997 Agency Agreement, and (b) $25 million. The Company
currently expects that it will underwrite and issue AC&S policies aggregating
lower premium volumes than permitted under the 1997 Agency Agreement.
Unless terminated sooner in accordance with its terms, the 1997 Agency
Agreement will remain in effect through December 31, 1999 (subject to possible
extension; see "General" below).
Restructuring of Reinsurance Arrangement. Under the Pre-restructuring ERII and
ERSIC Quota Share Agreements, AC&S had a 12.5% quota share participation in
generally all direct D&O business written on ERII and ERSIC paper. Under the
Restructuring Agreement, effective as of January 1, 1997, AC&S will no longer
participate in the Company's direct D&O business by way of reinsurance. During
1996, the Company's direct D&O business totaled approximately $225 million.
Additionally, under the Pre-restructuring AC&S Quota Share Agreement,
ERII had a 50% quota share participation in generally all AC&S D&O business
issued by ERMA. ERII also had a quota share participation in Trust E&O and
Other Lines business written by ERMA on behalf of AC&S. Pursuant to the
Restructuring Agreement, as of January 1, 1997, ERII will have a 100% quota
share participation in all AC&S Lines business written by ERMA on behalf of
AC&S. Under the 1997 Reinsurance Agreement, AC&S will receive a ceding
commission equal to actual producers' commissions plus 3.5% of gross written
premiums, less return premiums, as an allowance for premium taxes and other
costs and expenses that might be incurred by AC&S in connection with the
business covered under that agreement.
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General. In addition to modifying the agency and reinsurance relationships, the
Restructuring Agreement provides for the following:
(a) Mr. Joseph P. Kiernan, an officer of AC&S and TAPCO, has resigned
from the Boards of Directors or Partnership Committee, as the case may be, of
the Company and its Subsidiaries, and AC&S no longer has any election or
nomination rights with respect to Boards of Directors or Partnership Committee
of the Company and its Subsidiaries;
(b) all restrictions on the Company's premium volume (other than as to
the business written on AC&S policies as described above) and any remaining AC&S
consent requirements for the Company's corporate governance have been
terminated;
(c) the Company has agreed to secure AC&S' reinsurance receivable from
ERII under the Pre-restructuring AC&S Quota Share Agreement and the 1997
Reinsurance Agreement by means of providing AC&S with a standby letter of credit
in an amount of not more than $25 million, subject to adjustment in the event of
certain contingencies;
(d) AC&S, on behalf of itself and its subsidiaries and certain
affiliates, has agreed that for a period of two years it will not solicit the
Company's (or any Subsidiary's) underwriters for employment; and
(e) the parties have mutually agreed to meet in December 1999 to
discuss the possibility of entering into another agency relationship with
respect to D&O beyond December 31, 1999.
Under the Restructuring, the Company and its Subsidiaries have
relinquished the exclusive right to underwrite and issue D&O on AC&S policies.
As a result, competition for D&O business through the end of 1999 may increase.
Management is of the opinion that there are potential benefits to the Company by
virtue of the Restructuring, principally those flowing from the cessation of
AC&S' 12.5% quota share participation in ERII's and ERSIC's direct D&O business,
as described above. The financial benefits that may result from the
Restructuring depend upon a number of assumptions and marketplace
considerations, which are impossible to quantify at this time.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibits are being filed as part of this report:
Exhibit Number
Restructuring Agreement, dated as of February 13, 1997, 10.1
by and among the Company, Executive Re Inc, Executive
Risk Indemnity Inc., Executive Risk Specialty Insurance
Company, Executive Risk Management Associates, The
Aetna Casualty and Surety Company and Aetna Casualty
and Surety of Canada.
Agency and Insurance Services Agreement, dated as of 10.2
January 1, 1997, by and between The Aetna Casualty
and Surety Company and Executive Risk Management
Associates
Quota Share Reinsurance Agreement, dated as of January 1, 10.3
1997, between The Aetna Casualty and Surety Company
and Executive Risk Indemnity Inc.
Press Release of the Company, dated February 13, 1997 99.1
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
he undersigned hereunto duly authorized.
EXECUTIVE RISK INC.
(Registrant)
Date: February 18, 1997 /s/ ROBERT H. KULLAS
----------------------------------
Robert H. Kullas, Vice Chairman
and Chief Operating Officer
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EXHIBIT 10.1
- --------------------------------------------------------------------------------
RESTRUCTURING AGREEMENT
(hereinafter referred to as "Agreement")
by and among
THE AETNA CASUALTY AND SURETY COMPANY,
AETNA CASUALTY & SURETY COMPANY OF CANADA
EXECUTIVE RISK INC.
EXECUTIVE RE INC.,
EXECUTIVE RISK INDEMNITY INC.,
EXECUTIVE RISK SPECIALTY INSURANCE COMPANY
and
EXECUTIVE RISK MANAGEMENT ASSOCIATES
Dated February 13, 1997
- --------------------------------------------------------------------------------
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RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AGREEMENT (the "Agreement") is made and
entered into this 13th day of February, 1997 by and among THE AETNA CASUALTY AND
SURETY COMPANY, a Connecticut corporation ("Aetna"), AETNA CASUALTY & SURETY
COMPANY OF CANADA ("Aetna Canada"), EXECUTIVE RISK INC., a Delaware corporation
("ERI"), EXECUTIVE RE INC., a Delaware corporation ("Executive Re"), EXECUTIVE
RISK INDEMNITY INC., a Delaware corporation ("ERII"), EXECUTIVE RISK SPECIALTY
INSURANCE COMPANY ("ERSIC"), a Connecticut corporation, and EXECUTIVE RISK
MANAGEMENT ASSOCIATES, a Connecticut general partnership ("ERMA").
In consideration of the premises and the mutual covenants, obligations
and agreements hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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I
RESTRUCTURING OF AGENCY RELATIONSHIP
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.1 Termination of 1994 Amended and Restated Agency Agreement.
By their execution hereof, ERI, ERMA, Aetna and Aetna Canada mutually agree that
the Insurance Services Agreement, dated December 24, 1986 between Aetna and
ERMA, as amended by an Amended and Restated Insurance Services Agreement, dated
as of May 1, 1991, between Aetna and ERMA, as further amended by an Amended and
Restated Agency and Insurance Services Agreement, dated January 1, 1994, among
Aetna, ERI and ERMA, as further amended by the First Amendment thereto, dated as
of January 1, 1995, and as further supplemented by the Letter Agreement (the
"1994 Canadian Letter Agreement"), dated May 26, 1995, among ERI, ERII, ERMA,
Aetna and Aetna Canada (collectively, the "1994 Agency Agreement"), is hereby
terminated as to all parties effective as of December 31, 1996, except that
business with an effective date on or after January 1, 1997 written consistent
with the terms of the 1997 Agency Agreement (as defined in Section 1.2 hereof),
including, without limitation, Schedule A thereto (as the same may be updated in
accordance with the terms of the 1997 Agency Agreement), shall be serviced and
administered under the 1997 Agency Agreement and reinsured by ERII pursuant to
the 1997 Quota Share Reinsurance Agreement (as defined in Section 2.3 hereof).
The parties agree that the only obligations of the parties remaining under the
1994 Agency Agreement shall be as set forth in this Agreement and in the 1997
Agency Agreement including all Exhibits and Schedules thereto,
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except that the 1994 Agency Agreement shall continue in force for the purpose of
governing the parties' rights and obligations with respect to the business
written by ERMA pursuant to the terms of such Agreement with policy effective
dates prior to January 1, 1997, until all such policies expire and all
liabilities with respect to such policies have been settled, and ERMA's
obligations to render reports and make payments to Aetna shall be as provided in
the Reporting and Accounting Convention attached hereto as Exhibit C.
.2 1997 Agency Agreement. Upon the execution hereof, Aetna and
ERMA shall enter into an Agency and Insurance Services Agreement (the "1997
Agency Agreement") in the form of Exhibit A hereto.
.3 1997 Canadian Letter Agreement. Upon the execution hereof,
ERMA and Aetna Canada shall enter into a letter agreement in the form of Exhibit
B hereto (the "1997 Canadian Letter Agreement").
.4 Memorandum of Understanding. By their execution hereof, the
parties agree that the Memorandum of Understanding attached as Schedule C to the
1994 Quota Share Reinsurance Agreement (as defined in Section 2.1 hereof) is
hereby terminated as to all parties effective as of December 31, 1996, except
that all business with an effective date on or after January 1, 1997 written
consistent with the terms of such Memorandum of Understanding during the period
January 1, 1997 to the date
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hereof shall be serviced and administered under the 1997 Agency Agreement and
reinsured by ERII pursuant to the 1997 Quota Share Reinsurance Agreement (as
defined in Section 2.3 hereof).
ARTICLE II
RESTRUCTURING OF REINSURANCE RELATIONSHIP
.1 Termination of 1994 Quota Share Reinsurance Agreement. By
their execution hereof, ERII and Aetna agree that the Amended and Restated Quota
Share Reinsurance Agreement, dated as of January 1, 1994, between Aetna and
ERII, as amended by the Amendment thereto, dated as of August 5, 1994, as
further amended by the Second Amendment thereto, dated as of January 1, 1995,
and as further supplemented by the 1994 Canadian Letter Agreement (the "1994
Quota Share Reinsurance Agreement"), is hereby terminated effective December 31,
1996.
.2 Run-off of Reinsurance Business. ERII and Aetna hereby
agree that all applicable terms of the 1994 Quota Share Reinsurance Agreement
shall continue in force solely for the purpose of governing the parties' rights
and obligations with respect to the business ceded by Aetna to ERII pursuant to
the terms of such agreement with effective dates prior to January 1, 1997, until
all liabilities with respect to such business have been settled except that (i)
ERII's only obligation to provide security to Aetna in connection therewith
shall be as provided in the 1997 Quota Share Reinsurance Agreement (as defined
in Section 2.3
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hereof) and (ii) ERII's only obligation to render reports and make payments to
Aetna shall be as provided in the Reporting and Accounting Convention attached
hereto as Exhibit C.
.3 1997 Quota Share Reinsurance Agreement. Upon the execution
hereof, ERII and Aetna shall enter into a Quota Share Reinsurance Agreement, in
the form attached hereto as Exhibit D (the "1997 Quota Share Reinsurance
Agreement"), with respect to the cession by Aetna to ERII of business written
with effective dates on and after January 1, 1997 pursuant to the 1997 Agency
Agreement.
.4 ERII Quota Share Reinsurance Agreement. By their execution
hereof, ERII and Aetna agree that the Quota Share Reinsurance Agreement, dated
as of January 1, 1994, between ERII and Aetna, as amended by the Amendment
thereto, dated as of August 5, 1994, as further amended by the Second Amendment
thereto, dated as of January 1, 1995, and as further amended by the Third
Amendment thereto, dated as of November 1, 1995 (the "ERII Reinsurance
Agreement"), is hereby terminated effective as of December 31, 1996. All
applicable terms of the ERII Reinsurance Agreement shall continue in force
solely for the purpose of governing the parties' rights and obligations with
respect to business ceded by ERII to Aetna pursuant to the terms thereof with
effective dates prior to January 1, 1997, until all liabilities with respect to
such business have been settled, except that all reports and payments with
respect to such
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business shall be made in accordance with the Reporting and Accounting
Convention attached hereto as Exhibit C.
.5 ERSIC Quota Share Reinsurance Agreement. By their execution
hereof, ERSIC and Aetna agree that the Quota Share Reinsurance Agreement, dated
as of January 1, 1994, between ERSIC and Aetna, as amended by the Amendment
thereto, dated as of August 5, 1994, as further amended by the Second Amendment
thereto, dated as of January 1, 1995, and as further amended by the Third
Amendment thereto, dated as of November 1, 1995 (the "ERSIC Reinsurance
Agreement"), is hereby terminated effective December 31, 1996. All applicable
terms of the ERSIC Reinsurance Agreement shall continue in force solely for the
purpose of governing the parties' rights and obligations with respect to
business ceded by ERSIC to Aetna pursuant to the terms thereof with effective
dates prior to January 1, 1997, until all liabilities with respect to such
business have been settled, except that all reports and payments with respect to
such business shall be made in accordance with the Reporting and Accounting
Convention attached hereto as Exhibit C.
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ARTICLE III
CERTAIN AGREEMENTS AND RIGHTS
.1 Exchange Agreement. By their execution hereof, Aetna,
Executive Re and ERI agree that all of the terms of the Exchange Agreement shall
be void and of no further effect on and after the date hereof with no liability
of any such party except that ERI shall cause ERII to make the profit-sharing
distribution payable to Aetna under Section 6.8 of the Exchange Agreement on or
before May 30, 1997.
.2 Securityholders Agreement. By their execution hereof, ERI
and Aetna agree that the Securityholders Agreement, dated as of January 1, 1994,
among ERI, Aetna and the securityholders listed therein (the "Securityholders
Agreement"), as amended by the Amendment thereto, dated as of August 5, 1994, as
further amended by the Amended and Restated Stock Repurchase Agreement (the
"Stock Repurchase Agreement"), dated as of March 22, 1996, among Aetna Life and
Casualty Company ("Aetna Life"), Aetna, and ERI, is hereby amended by
terminating all rights of Aetna thereunder, and all obligations of ERI with
respect to Aetna, including, without limitation, the provisions of Articles 2
and 5 of the Securityholders Agreement, which shall be void and shall have no
further effect on and after the date hereof.
.3 Board Representation. Aetna shall cause Joseph P. Kiernan,
who has been serving as Aetna's designee
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on the Boards of Directors of ERI, Executive Re, ERII and ERSIC and the
Partnership Committee of ERMA pursuant to the terms of the Securityholders
Agreement, to resign from each such position effective on the date hereof by
signing and delivering to ERI a letter of resignation in the form of Exhibit E
hereto.
ARTICLE IV
SETTLEMENT OF ACCOUNTS
.1 Reconciliation of Records. No later than March 15, 1997,
ERMA and Aetna shall reconcile and settle all outstanding accounts for business
with effective dates on or before December 31, 1996, which accounts have been
submitted to Aetna on or before January 15, 1997. This includes business written
pursuant to the 1994 Agency Agreement and reinsured under the 1994 Quota Share
Reinsurance Agreement, the ERII Reinsurance Agreement and the ERSIC Reinsurance
Agreement.
.2 Right of Offset. Each party hereto may offset any balance
or amount due from one party to another, whether on account of any premium,
commission, claim, loss, adjustment expense, salvage, interest or otherwise,
under the Exchange Agreement, 1994 Agency Agreement, 1997 Agency Agreement, 1994
Quota Share Reinsurance Agreement, 1994 Canadian Letter Agreement, 1997 Canadian
Letter Agreement, 1997 Quota Share Reinsurance Agreement, ERII Reinsurance
Agreement or ERSIC Reinsurance Agreement.
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ARTICLE V
COVENANTS
.1 Maintenance of Rates and Forms. During the term of this
Agreement, Aetna shall maintain the existing state insurance department filings
of all rates and forms with respect to business authorized to be written on
Aetna policies under the 1997 Agency Agreement and shall provide ERMA access to
any rates and forms or amendments to existing rates and forms which may be filed
after the date hereof on behalf of Aetna in respect of such business. ERMA may
request Aetna to file amendments to all such rates and forms, or to file
additional rates and forms, although Aetna shall be under no obligation
hereunder to make such filings.
.2 Right of Substitution.
The parties agree that if (i) Aetna receives from A.M. Best
Company, Inc. a claims paying rating of below "A-" or a size rating of less than
XV and (ii) Travelers/Aetna Property Casualty Corp. ("Travelers/Aetna")
maintains or establishes a D&O facility in one of its Subsidiaries or
Affiliates, other than Gulf Insurance Company, which has a higher claims paying
or size rating than Aetna and utilizes such facility to write D&O on a direct,
as distinguished from reinsurance, basis, Aetna shall cause such Subsidiary or
Affiliate to enter into an agency agreement with ERMA, if ERMA so elects, with
terms substantially similar to the terms of the 1997 Agency Agreement, and Aetna
shall cause such Subsidiary or Affiliate to enter into a reinsurance
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agreement with ERII with terms substantially similar to the terms of the 1997
Quota Share Reinsurance Agreement.
.3 No Solicitation. Aetna will ensure that none of Aetna or
any of its property/casualty insurance Subsidiaries or Affiliates may, for a
period of two years from the date hereof, either directly or indirectly through
a recruiting firm, other third party or otherwise, solicit for employment any
individual who is at the time of such act an insurance underwriter in the
employment of ERI or one or more of its Subsidiaries or Affiliates, except that
this covenant shall not apply to Gulf Insurance Company with respect to
solicitation of individuals for employment outside Connecticut. For purposes
hereof, the foregoing restrictions shall apply to any possible relationship
between such underwriter and Aetna or any of its property/casualty insurance
Subsidiaries or Affiliates--i.e. whether as director, officer, employee, agent,
independent contractor, representative, consultant or otherwise. Neither Aetna
nor any such Subsidiary or Affiliate will be deemed in violation of this
provision as a result of media advertising or other recruiting practices not
targeted at such underwriters of ERI and its Subsidiaries and Affiliates. In the
event the 1997 Agency Agreement is terminated pursuant to Sections 10.1(a),
10.1(b) or 10.1(f) thereof, the terms of this Section 5.3 shall terminate
effective immediately therewith.
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.4 Announcements. No party hereto shall issue or cause the
publication of the initial press release or other initial formal public
announcement with respect to this Agreement and the transactions contemplated by
this Agreement without the consent of the other parties, unless such initial
announcement is required by the provisions of applicable law or regulations or
by any governmental entity having jurisdiction over such party. In connection
with any such initial announcement, the parties shall consult with each other
before issuing such announcement with respect to the content thereof.
.5 Return of Forms and Files. ERI agrees to return to Aetna,
on or before February 20, 1997, all policy forms, application forms and
endorsements (whether filed with regulatory authorities or not), as well as
rating plans and other materials filed with regulatory authorities on behalf of
Aetna, which are in the possession of ERI or any of its Subsidiaries or
Affiliates and reasonably accessible, in respect of business written on Aetna
policies pursuant to the 1994 Agency Agreement with effective dates on or before
December 31, 1996; provided, however, that ERI shall not be required to provide
to Aetna its underwriting files on the respective accounts and ERI may retain
copies of any such materials provided to Aetna.
Forms, underwriting and claim files not provided to Aetna will
be maintained on Aetna's behalf in compliance with all regulatory and records
retention requirements and
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access to such files will be provided to Aetna upon request for regulators,
examiners or parties acting under lawful subpoenas. Nothing in this paragraph is
intended to limit Aetna's access to any files or records in order to comply with
any regulatory requirements, court orders, subpoenas, discovery requests served
upon Aetna in a legal proceeding or documents needed in connection with a legal
proceeding or regulatory action.
.6 Access To Records. The parties acknowledge that Aetna has
the right to obtain certain information, as well as copies of certain materials,
and to inspect certain records, data, files and other materials which are the
property of ERMA, with respect to insureds under the 1997 Agency Agreement and
the 1997 Quota Share Reinsurance Agreement. Aetna acknowledges that such
information is highly sensitive and expressly agrees not to use such information
for marketing purposes.
ARTICLE VI
MISCELLANEOUS
.1 Certificate of Incorporation and By-Laws. Aetna
acknowledges that ERI may in its discretion amend or restate, as the case may
be, its Certificate of Incorporation and By-Laws to eliminate all rights of
Aetna thereunder and all obligations of ERI with respect to such rights.
.2 Arbitration. Any dispute arising out of this Agreement
shall be resolved in accordance with the
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arbitration procedures set forth in Section 11.3 of the 1997 Agency Agreement.
.3 Certain Defined Terms. For purposes of this Agreement, the
term "Subsidiary" shall mean, with respect to any person, (i) any corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors of such corporation are at the time owned, directly or
indirectly through one or more intermediaries, by such person or (ii) in the
case of unincorporated entities, any such entity with respect to which such
person has the power, directly or indirectly, to designate more than 50% of the
individuals exercising functions similar to a board of directors.
For purposes of this Agreement, the term "Affiliate" shall
mean, with respect to any person, any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, the term "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such person, whether through the ownership of voting securities
or by agreement or otherwise.
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.4 Notices. Except as otherwise provided in this Agreement,
all notices and other communications hereunder shall be in writing, and shall be
considered deemed given (i) upon delivery if delivered personally, (ii) upon
receipt if sent by facsimile transmission, or (iii) if sent by an overnight
delivery service, one business day after sending by such service, to the parties
at the following addresses or at such other address for a party as may have been
specified to the other parties by like notice:
1. if to ERI, Executive Re, ERII, ERSIC or ERMA at:
Executive Risk Inc.
82 Hopmeadow Street
Simsbury, CT 06070
Telecopy No.: (860) 408-2502
Attention: Robert V. Deutsch
Executive Vice President
1. if to Aetna, at:
The Aetna Casualty and Surety Company
One Tower Square
Hartford, CT 06183
Telecopy No.: (860) 277-3944
Attention: Joseph P. Kiernan
President & Chief Executive
Officer, Bond
.1 Amendment and Waiver. The parties hereto may amend any
provision of this Agreement only by written instrument executed by each party.
Any party may grant consents or waive any of its rights under this Agreement;
provided, however, that each such consent or waiver shall be in writing.
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.2 Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Connecticut.
.3 Severability. If any term or provision of this Agreement is
for any reason deemed illegal or invalid, such illegality shall not affect the
validity of the remainder of this Agreement, and each such term or provision
shall be valid and enforceable to the fullest extent permitted by law. In the
event one of the parties hereto becomes subject to any legal requirement,
including, without limitation, any regulation or administrative interpretation
of any insurance or other regulatory agency having authority over it, which
materially adversely affects its ability to enjoy its rights under this
Agreement, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties with respect to such rights as
closely as possible in an acceptable manner.
.4 Binding Effect; Assignment. This Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns; provided that neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties.
.5 Modifications. This Agreement may not be modified verbally,
nor may it be modified by any subsequent practice or course of dealing by the
parties, or in any
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manner other than in writing signed by the parties hereto. No waiver may modify
this Agreement or affect the rights of one party with respect to any subsequent
default or failure of performance by any other party.
.6 Entire Agreement. This Agreement and related documents
identified herein set forth the complete understanding of the parties relating
to the specific subject matter addressed herein.
.7 Counterparts. This Agreement may be signed in any number of
counterparts, and each of the counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute the same
Agreement.
.8 Financial Information. Any reference in this Agreement to
any financial information (including any financial ratios) relating to any party
hereto shall be deemed to refer to such financial information as it is prepared
in accordance with generally accepted statutory accounting principles and, where
applicable, as contained in the statutory-basis financial documents filed by the
applicable insurer with its state of domicile.
.9 Interpretation. This Agreement is a result of arm's-length
negotiations among parties hereto and has been prepared jointly by the parties.
In applying and interpreting the provisions of the Agreement, there shall be no
presumption that this Agreement was prepared by any one
17
<PAGE> 19
party or that the Agreement should be construed by or in favor of any one party.
18
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement
by their duly authorized representatives as of the date first above written.
THE AETNA CASUALTY AND SURETY
COMPANY
By:________________________________
AETNA CASUALTY & SURETY COMPANY OF
CANADA
By:________________________________
EXECUTIVE RISK INC.
By:_______________________________
EXECUTIVE RE INC.
By:_______________________________
EXECUTIVE RISK INDEMNITY INC.
By:_______________________________
EXECUTIVE RISK SPECIALTY INSURANCE
COMPANY
By:_______________________________
EXECUTIVE RISK MANAGEMENT
ASSOCIATES
By:_______________________________
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<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
RESTRUCTURING OF AGENCY RELATIONSHIP................................ 1
1.1 Termination of 1994 Amended and Restated Agency Agreement............................ 1
1.2 1997 Agency Agreement................................................................ 3
1.3 1997 Canadian Letter Agreement....................................................... 3
1.4 Memorandum of Understanding.......................................................... 3
ARTICLE II
RESTRUCTURING OF REINSURANCE RELATIONSHIP............................. 4
2.1 Termination of 1994 Quota Share Reinsurance Agreement................................ 4
2.2 Run-off of Reinsurance Business...................................................... 4
2.3 1997 Quota Share Reinsurance Agreement............................................... 5
2.4 ERII Quota Share Reinsurance Agreement............................................... 5
2.5 ERSIC Quota Share Reinsurance Agreement.............................................. 5
ARTICLE III
CERTAIN AGREEMENTS......................................... 6
3.1 Exchange Agreement................................................................... 6
3.2 Securityholders Agreement............................................................ 7
3.3 Board Representation................................................................. 7
ARTICLE IV
SETTLEMENT OF ACCOUNTS....................................... 7
4.1 Reconciliation of Records ........................................................... 7
4.2 Right of Offset...................................................................... 8
ARTICLE V
COVENANTS............................................. 8
5.1 Maintenance of Rates and Forms....................................................... 8
5.2 Right of Substitution................................................................ 9
5.3 No Solicitation...................................................................... 9
5.4 Announcements ....................................................................... 10
5.5 Return of Forms and Files............................................................ 11
5.6 Access To Records.................................................................... 11
ARTICLE VI
MISCELLANEOUS........................................... 12
6.1 Certificate of Incorporation and By-Laws............................................. 12
6.2 Arbitration.......................................................................... 12
6.3 Certain Defined Terms................................................................ 12
6.4 Notices.............................................................................. 13
6.5 Amendment and Waiver................................................................. 14
6.6 Governing Law........................................................................ 14
6.7 Severability......................................................................... 14
6.8 Binding Effect; Assignment........................................................... 15
6.9 Modifications ....................................................................... 15
6.10 Entire Agreement..................................................................... 15
6.11 Counterparts......................................................................... 15
6.12 Financial Information................................................................ 16
6.13 Interpretation....................................................................... 16
</TABLE>
<PAGE> 22
Exhibits
- --------
Exhibit A.........................................Form of 1997 Agency Agreement
Exhibit B................................Form of 1997 Canadian Letter Agreement
Exhibit C...................................Reporting and Accounting Convention
Exhibit D....................... Form of 1997 Quota Share Reinsurance Agreement
Exhibit E............................................Form of Resignation Letter
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<PAGE> 1
Exhibit 10.2
AGENCY AND
INSURANCE SERVICES AGREEMENT
(hereinafter referred to as "Agreement")
by and between
THE AETNA CASUALTY AND SURETY COMPANY
and
EXECUTIVE RISK MANAGEMENT ASSOCIATES
Dated as of January 1, 1997
<PAGE> 2
AGENCY AND INSURANCE
SERVICES AGREEMENT
This AGENCY AND INSURANCE SERVICES AGREEMENT (the "Agreement")
is made and entered into as of January 1, 1997 by and between The Aetna Casualty
and Surety Company, a Connecticut insurance corporation ("Aetna"), having its
principal office at Hartford, Connecticut, and Executive Risk Management
Associates, a Connecticut general partnership ("ERMA"), having its principal
office at Simsbury, Connecticut.
In consideration of the promises herein contained, the parties
agree as follows:
I.
APPOINTMENT OF ERMA
Aetna hereby appoints ERMA (and will appoint such employees of
ERMA as may be necessary or appropriate for ERMA to conduct the Covered Business
(as hereinafter defined) hereunder) as its agent, on a non-exclusive basis, with
the authority, pursuant to and subject to law and the terms and conditions of
this Agreement, to conduct the Covered Business.
ERMA shall perform all of its responsibilities hereunder
directly and shall not have the right, without Aetna's express written consent,
to delegate any such responsibilities to any other person, including, without
limitation, any Subsidiary or Affiliate (as such terms are hereinafter defined)
of ERMA.
<PAGE> 3
ERMA shall remain licensed and authorized in all jurisdictions
where required or advisable to perform its functions under this Agreement.
For purposes of this Agreement, the term "Covered Business"
shall mean, collectively, (i) stand alone policies of directors and officers
liability/indemnity insurance ("D&O") insuring companies, or groups of companies
including a parent company, incorporated or having corporate headquarters
anywhere in the United States, its territories or possessions, (ii) renewals of
policies in other lines of insurance, and renewals of D&O policies insuring
companies, or groups of companies including a parent company, incorporated or
having corporate headquarters in Canada, written under the 1994 Agency Agreement
(as hereinafter defined) and identified in Schedule A hereto (such renewal
policies, the "Renewal Business") and (iii) policies, other than those referred
to in (i) or (ii) of this paragraph, issued, or with respect to which quotes or
binders were issued, prior to February 13, 1997 in accordance with the 1994
Agency Agreement (provided that no later than May 13, 1997, and once again no
later than August 13, 1997, ERMA shall update Schedule A to include all such
policies issued prior to February 13, 1997 and policies issued subsequent to
February 13, 1997 with respect to such quotes or binders), and renewals of those
policies.
For purposes of this Agreement, the term "1994 Agency
Agreement" shall mean the Insurance Services Agreement, dated December 24, 1986
between Aetna and ERMA, as amended by an Amended and Restated
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<PAGE> 4
Insurance Services Agreement, dated as of May 1, 1991, between Aetna and ERMA,
as amended by an Amended and Restated Agency and Insurance Services Agreement,
dated January 1, 1994, among Aetna, Executive Risk Inc. ("ERI") and ERMA, as
amended by the First Amendment thereto, dated as of January 1, 1995, and as
further supplemented by the Letter Agreement, dated May 26, 1995, among ERI,
Executive Risk Indemnity Inc. ("ERII"), ERMA, Aetna and Aetna Casualty & Surety
Company of Canada.
For purposes of this Agreement, the term "Subsidiary" shall
mean, with respect to any person, (i) any corporation of which shares of stock
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors
of such corporation are at the time owned, directly or indirectly through one or
more intermediaries, by such person or (ii) in the case of unincorporated
entities, any such entity with respect to which such person has the power,
directly or indirectly, to designate more than 50% of the individuals exercising
functions similar to a board of directors.
For purposes of this Agreement, the term "Affiliate" shall
mean, with respect to any person, any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, the term "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of
3
<PAGE> 5
the power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities or by agreement or
otherwise.
II.
LIMITS ON COVERED BUSINESS
1 Premium and Policy Limits
(a) Total gross premiums written by ERMA hereunder in 1997
shall not exceed $25,000,000. In each of 1998 and 1999, total gross premiums
written by ERMA hereunder shall not exceed the lesser of (i) ten percent (10%)
of the amount of Direct Written D&O Insurance (as defined below) for the
calendar year last preceding, as established on or before March 1 of each
calendar year, or (ii) $25,000,000. For purposes of this Section 2.1(a), "Direct
Written D&O Insurance" shall mean the sum of (x) the total direct gross D&O
premiums written by ERII, Executive Risk Specialty Insurance Company and any
other insurance company Subsidiary of ERI and (y) the total direct gross D&O
premiums written by ERMA on policies of Aetna under this Agreement.
(b) ERMA shall not write Aetna policies with limits of
liability exceeding $20,000,000 per policy, or $20,000,000 per insured, with the
following exceptions:
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<PAGE> 6
(i) renewals of policies having limits of liability of up to
$25,000,000 per policy, which policies were issued under the 1994 Agency
Agreement and are identified in Schedule C hereto; and
(ii) in addition to policies described in paragraph (i)
above, ERMA may during the period commencing January 1, 1997 and ending at the
termination of this Agreement write up to six policies of D&O insurance having
limits of liability of up to $25,000,000 per policy; and
(iii) any policy written pursuant to this Section 2.1(b) may
be renewed during the term hereof up to the limit of liability existing at the
time of such renewal.
2 Underwriting Guidelines and Rating Rules
Notwithstanding the foregoing, ERMA shall have no authority to
bind or issue Aetna policies that are not underwritten in accordance with the
terms and conditions of: (a) the underwriting guidelines, attached as Schedule B
hereto, as in effect on the date hereof and as subsequently amended from time to
time (such underwriting guidelines, as so amended, are hereinafter referred to
as the "Underwriting Guidelines"), (b) the policy forms and such endorsements
and policy term extension provisions attached thereto as may be permitted in
accordance with the Underwriting Guidelines and Section 5.1 of this Agreement
and (c) the rating rules, schedules and manuals, identified in Schedule B
hereto, and any amendments thereto as may be provided or approved by Aetna (the
"Rating Rules").
5
<PAGE> 7
III.
DUTIES, POWERS AND AUTHORITY OF ERMA
The duties, powers and authority of ERMA shall, with respect
to all Covered Business transacted by Aetna pursuant to this Agreement, consist
of the following:
1 Insurance Underwriting and Production
(a) Underwriting authority as granted by this Agreement and
exercised (and limited) pursuant to Article V of this Agreement.
(b) Receipt and giving, on behalf of Aetna, of notices under
Aetna policies of Covered Business issued by ERMA on behalf of Aetna.
(c) Collection of, and issuance of receipts for, premiums on
behalf of Aetna.
2 Loss Investigation
(a) Investigation of losses under policies of D&O and
financial institution trust department errors and omissions insurance
("Financial E&O") issued on behalf of Aetna under the 1994 Agency Agreement and
this Agreement in accordance with the claims guidelines, attached hereto as
Schedule D (the "Claims Guidelines"). Upon termination of this Agreement,
6
<PAGE> 8
ERMA shall retain all settlement and payment authority with respect to such D&O
and Financial E&O policies consistent with the Claims Guidelines (as may be
amended by Aetna in writing).
(b) Subject to the Claims Guidelines, enforcement of
subrogation and recovery rights of Aetna under any policy issued on behalf of
Aetna under this Agreement.
(c) Notwithstanding anything in this Agreement to the
contrary, the parties hereto understand and acknowledge that all of the claims
functions relating to all policies of Aetna other than D&O insurance and
Financial E&O insurance, including, without limitation, the functions and
responsibilities referred to in this Section 3.2, shall be performed exclusively
by Aetna.
3 Administration
(a) Maintenance of an office.
(b) Maintenance of books and records of all business
transactions of or with Aetna.
(c) Preparation of regular reports to Aetna (as more
specifically described in the Claims Guidelines and the Reporting and Accounting
Convention attached as Exhibit C to the Restructuring Agreement, dated February
13, 1997, by and among ERI, Aetna and the other parties thereto (the
"Restructuring Agreement")) with respect to the accounts and transactions of or
with Aetna.
7
<PAGE> 9
(d) Compliance with all provisions of law with respect to the
conduct of the business of ERMA hereunder, including, but not limited to:
applicable laws relating to rating plans, insurance agent licensing,
countersignature and advertising, claims handling and the preparation and filing
of any necessary tax returns of ERMA; provided, however, this provision shall
not include the preparation and filing with regulatory authorities on behalf of
Aetna of reports, policy forms (including endorsements), application forms,
rating information or any other documents, all of which shall be performed
solely by Aetna pursuant to Section 5.3 below.
(e) Notwithstanding anything in this Agreement to the
contrary, ERMA shall indemnify and hold Aetna and its Subsidiaries and
Affiliates harmless from and against any and all penalties or fines assessed
against Aetna or any of its Subsidiaries or Affiliates due to ERMA's failure to
comply with any provisions of law, except for such penalties or fines that
result from actions or inactions of Aetna or any Subsidiary or Affiliate of
Aetna, for which Aetna shall be solely liable.
(f) Notwithstanding anything in this Agreement to the
contrary, Aetna shall indemnify and hold ERMA and its Subsidiaries and
Affiliates harmless from and against any and all penalties or fines assessed
against ERMA or any of its Subsidiaries or Affiliates due to Aetna's failure to
comply with any provisions of law, except for such penalties or fines that
result
8
<PAGE> 10
from actions or inactions of ERMA or any Subsidiary or Affiliate of ERMA, for
which ERMA shall be solely liable.
ARTICLE II.
PRODUCERS
ERMA shall be responsible for the payment of all producers'
commissions with respect to the Covered Business and reporting such payments to
Aetna. Aetna shall have no obligation to pay any such commission to any such
insurance producer, and ERMA shall indemnify Aetna and hold Aetna harmless
against any loss or liability incurred by Aetna in respect of any such
commission.
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<PAGE> 11
IV.
UNDERWRITING
1 Underwriting Guidelines, Policy Forms and Rating Rules
Aetna shall have the right to approve all amendments to the
Underwriting Guidelines, and no such amendment shall be made to such
underwriting guidelines without the prior written approval of Aetna. Aetna shall
have the right to approve all endorsements and extensions attached to its policy
forms to be issued hereunder if and to the extent such endorsements and
extensions would render such policy forms outside the Underwriting Guidelines.
Such endorsements and extensions shall not be attached to such an Aetna policy
form without the prior consent of Aetna (such Aetna policy forms, endorsements
and extensions are hereinafter referred to as the "Policy Forms"). ERMA is
authorized to approve applications for, bind, write, non-renew, cancel and
endorse the Covered Business on behalf of Aetna in any manner ERMA, in its
discretion, deems reasonable and appropriate, provided ERMA performs all such
activities in accordance with the applicable Underwriting Guidelines, Policy
Forms and Rating Rules as then in effect.
2 Binders and Policies
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<PAGE> 12
ERMA shall not issue any binder, policy, non-renewal, cancellation or
endorsement of the Covered Business except in accordance with this Agreement.
3 Form and Rate Filings
Aetna shall have sole discretion with respect to filing with insurance
regulatory authorities all rates, forms, endorsements and extensions with
respect to the Covered Business and ERMA shall have no rights or
responsibilities with respect thereto, except as provided by Sections 3.3(d) and
(e) and Section 5.1 hereof. Aetna shall provide ERMA with written notice of any
changes made by it to such rates and forms, such written notice to be delivered
to ERMA as soon as practicable, but in no event later than five days before the
filing of such rates and forms with the appropriate regulatory authorities. ERMA
may request that Aetna file with the appropriate state regulatory authorities
such forms and rates as ERMA deems reasonable and appropriate for the conduct of
the Covered Business. Aetna shall consider each such filing request in good
faith; however, Aetna has no obligation hereunder to make such form and rate
filings at the request of ERMA.
In the event that Aetna files with one or more state insurance
departments new or additional rates or forms, ERMA may use either the existing
rates or forms or such new or additional rates or forms, unless and to the
extent the use of the existing rates or forms is prohibited by law.
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<PAGE> 13
4 Closed Claim Reports
ERMA will file closed claim reports with respect to claims on Covered
Business written hereunder and claims with respect to business written under the
1994 Agency Agreement where required by law.
V.
REPORTS AND ACCOUNTS
ERMA shall render to Aetna accounts and reports with respect
to the Covered Business, and remit to Aetna all amounts owed to Aetna hereunder,
in accordance with the Reporting and Accounting Convention attached as Exhibit C
to the Restructuring Agreement.
VI.
PROPERTY, RECORDS AND SYSTEMS
1 Interests in Property, Records and Systems
All records and data produced in the performance of this Agreement
(other than such records or data developed or purchased by Aetna), including all
media on which such records and data are or shall be stored (other than such
media developed or purchased by Aetna), whether or not in the custody of ERMA,
shall be the property of, and proprietary to, ERMA; provided that upon any
termination of this Agreement for any reason, ERMA (x) shall deliver to Aetna
copies of the policies and the corresponding applications
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<PAGE> 14
concerning the Covered Business written by ERMA under this Agreement on behalf
of Aetna which have not previously been furnished to Aetna and (y) shall furnish
to Aetna all such other historical information concerning the Covered Business
written by ERMA hereunder as reasonably may be requested by Aetna in order to
allow Aetna to prepare financial statements and fulfill legal and regulatory
requirements.
2 Inspection
All records, data, files and other material relating to the business of
Aetna hereunder and maintained by ERMA shall be available for inspection by
Aetna at the office of ERMA at reasonable times and on reasonable advance
requests therefor by Aetna. Each of Aetna and ERMA shall bear its own expenses
in connection with any such inspection.
VII.
COMMISSIONS; PAYMENTS
ERMA shall be entitled to no fees or commissions from Aetna
with respect to Covered Business underwritten pursuant to this Agreement. Upon
issuing any Aetna policy for any Covered Business in accordance with this
Agreement, ERMA shall pay to Aetna, on behalf of ERII, an amount equal to 3.5%
of the gross written premiums, less return premiums, for each such policy as an
allowance for premium taxes and all other costs and expenses whatsoever as
required under Article 7 of the 1997 Quota Share Reinsurance Agreement (as
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<PAGE> 15
defined in Article X hereof). ERMA shall pay Aetna all amounts to which Aetna is
entitled under this Agreement, and Aetna shall pay ERMA all amounts to which
ERII is entitled with respect to return premiums under this Agreement, in
accordance with the terms of the Reporting and Accounting Convention attached as
Exhibit C to the Restructuring Agreement.
VIII.
OTHER ACTIVITIES
The parties acknowledge and agree that ERMA currently serves as the
agent, broker, representative and underwriting manager of other insurance
companies, including ERII and its affiliated insurance companies, and nothing
herein shall be construed to limit or restrict in any manner whatsoever ERMA's
right, power or authority to continue to do so, or to serve as the agent,
broker, representative and/or underwriting manager for any other insurance
company or entity in the future.
The parties acknowledge and agree that, subject to the terms of this
Agreement, Aetna may conduct the Covered Business and any other business
directly or through agents or brokers other than ERMA.
IX.
TERMINATION
1 Termination
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<PAGE> 16
This Agreement shall terminate on December 31, 1999. The
parties acknowledge, however, the mutually beneficial relationship that has
existed between them, and agree to meet in good faith to discuss the possibility
of entering into another agency relationship with respect to D&O insurance
beyond December 31, 1999. The parties further agree that such discussion shall
take place between December 1, 1999 and December 15, 1999. It is expressly
understood that if an agreement is reached, the terms and conditions may differ
from those set forth herein.
This Agreement may be terminated prior to December 31, 1999 as
follows:
(a) Upon the written consent of the parties hereto.
(b) At any time by ERMA upon 30 days prior written notice of
such termination to Aetna.
(c) In the event of a breach by ERMA of an obligation under
this Agreement (other than a breach described in paragraph (d) to this Section
10.1), which breach has not been cured by ERMA within 30 days of notice thereof
by Aetna, Aetna has the right to seek termination of this Agreement by
instituting an arbitration proceeding in accordance with Section 11.3 hereof. In
conducting such arbitration, the arbitrator may grant remedies other than
termination and in administering any remedy thereunder, the arbitrator shall
consider the following factors: (i) materiality, (ii) nature and severity of
conduct, (iii) pattern and practice of violations, (iv) harm caused or likely to
be caused to
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<PAGE> 17
Aetna as a result of the breach and (v) harm caused or likely to be caused to
ERMA as a result of the termination of this Agreement and the appropriateness of
such remedy.
(d) In the event of a breach by ERMA of an obligation under
this Agreement, which breach has Material Regulatory Exposure to Aetna (as
hereinafter defined), or in the event of a Willful Breach (as hereinafter
defined), Aetna may terminate this Agreement by written notice of such
termination to ERMA, effective upon delivery of such notice.
For purposes of this Section 10.1(d), the term "Material
Regulatory Exposure to Aetna" means: (i) fines imposed against Aetna in an
aggregate amount which exceeds $250,000 or (ii) a cease and desist order issued
by any regulator to Aetna with respect to the Covered Business which is
continuing and which materially adversely affects Aetna's ability to conduct any
line of insurance business in any state.
For purposes of this Section 10.1(d), the term "Willful
Breach" means: (i) the failure of ERII to deliver to Aetna the Letter of Credit
(as defined in Article 10 of the Quota Share Reinsurance Agreement by and
between Aetna and ERII dated as of January 1, 1997 (the "1997 Quota Share
Reinsurance Agreement")), or any renewal, extension or increase in the amount
thereof, within 30 days of the date such delivery is due, (ii) the willful,
repeated disregard by ERMA of the restrictions on Aetna policy limits imposed
under Section 2.1(b) of this Agreement, (iii) the repeated issuance by ERMA of
Aetna policies that do
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<PAGE> 18
not come within the definition of Covered Business ("Nonconforming Policies"),
but only if (a) such policies were issued by an underwriter or underwriters who
acted with willful disregard of the fact that such policies constituted
Nonconforming Policies or (b) issuance of such policies resulted from ERMA's
failure to maintain commercially reasonable underwriting controls, including
communication to underwriters of the Underwriting Guidelines and the definition
of the Covered Business which may be written hereunder, or (iv) the action or
inaction of ERMA constituting a willful, repeated disregard by ERMA of a written
ruling, directive or other writing of an insurance regulatory authority finding
that ERMA's issuance or servicing of Aetna policies hereunder is in violation of
state insurance laws or regulations, unless ERMA has promptly made a good faith
challenge with respect to such ruling, directive or other writing and then only
so long as such good faith challenge is continuing.
(e) This Agreement shall terminate automatically without any further
notice upon the effective date of any termination of the 1997 Quota Share
Reinsurance Agreement.
(f) Aetna shall have the right to terminate this Agreement by written
notice of such termination to the other parties, effective upon delivery of such
notice, if:
(ii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately prior to the execution of this Agreement, is or
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<PAGE> 19
becomes the "beneficial owner" (as defined in the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire without condition, other than the passage
of time, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 50% or more of the voting stock of ERI,
after giving effect to the exercise of all outstanding options, warrants and
other securities exercisable for, or convertible into, such voting stock, or
(iii) Executive Risk Inc. ("ERI") ceases to own, directly or
indirectly, all of the voting stock or partnership interests of ERMA or ERII, as
the case may be, after giving effect to the exercise of all outstanding options,
warrants and other securities exercisable for, or convertible into, such voting
stock or partnership interests, as the case may be, or
(iv) individuals who on the date hereof constitute the Board
of Directors of ERI (together with any new directors whose election by such
Board of Directors, or whose nomination for election by the respective
shareholders, as the case may be, of ERI was approved by a vote of 66 2/3% of
the directors of ERI then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) shall cease for any reason to constitute 66 2/3% of the
members of the Board of Directors of ERI.
Upon termination of this Agreement, ERMA shall retain all settlement
and payment authority with respect to the Covered Business
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<PAGE> 20
consisting solely of policies of D&O and Financial E&O business, consistent with
the applicable Claims Guidelines (as may be amended by Aetna in writing), and
Aetna shall retain all settlement and payment authority with respect to all
other Covered Business written hereunder.
2 Accounting
In the event of termination of this Agreement, ERMA shall continue to
provide reports pursuant to the terms of the Reporting and Accounting convention
attached as Exhibit C to the Restructuring Agreement.
3 Cooperation
In the event of termination of this Agreement, the parties shall
cooperate with one another to ensure the performance of the terms of this
Agreement.
ARTICLE II.
MISCELLANEOUS
1 No Admission of Liability
Except as otherwise provided in Section 3.2(a), ERMA is not authorized
to and shall not admit liability on the part of Aetna, except as communicated in
writing to ERMA by Aetna.
2 Confidentiality
All copies of the Underwriting Guidelines, Claims Guidelines, and any
other non-public written materials supplied by or on behalf of Aetna, ERI, ERMA
or ERII or their respective Subsidiaries or Affiliates shall be preserved as
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confidential by the parties hereto and their respective Subsidiaries and
Affiliates. Notwithstanding the foregoing, nothing contained in this Agreement
shall prevent any party hereto or any Subsidiary or Affiliate thereof at any
time from furnishing any information pursuant to court order or to any
governmental entity required for compliance by such entity with its legal
obligations or from furnishing to an insured or prospective insured or
controlling insurance producer such insured's or prospective insured's premium
or premium quotation with respect to business hereunder.
3 Arbitration
(a) Any dispute arising out of this Agreement shall be
submitted to the decision of a Board of Arbitration composed of two arbitrators
and an umpire (hereafter referred to as the "Board"), meeting in Hartford,
Connecticut unless otherwise agreed. The majority decision of the Board shall be
final and binding on the parties to the proceeding and judgment may be entered
upon the award of the Board in any court having jurisdiction thereof.
(b) The members of the Board shall be active or retired
disinterested officials of insurance or reinsurance companies. Each of Aetna and
ERMA shall appoint an arbitrator and the two arbitrators shall choose an umpire
before instituting the hearing. If either party fails to appoint its arbitrator
within 15 days after being requested to do so by the claimant, the other party
shall also appoint the second arbitrator. If the two arbitrators fail to agree
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<PAGE> 22
upon the appointment of an umpire within 15 days after their nominations, the
umpire shall be appointed by the American Arbitration Association.
(c) Except as otherwise provided in paragraph (d) of this
Section 11.3, any and all arbitration proceedings commenced under this Agreement
shall be conducted in accordance with the rules and procedures of the American
Arbitration Association, as then in effect.
(d) In the case of any dispute arising out of Section 10.1(c)
of this Agreement which is submitted to arbitration, the following rules and
procedures shall apply.
The claimant shall submit its initial brief within 20 days
from appointment of the umpire. The respondent shall submit its brief within 20
days after receipt of the claimant's brief and the claimant shall submit a reply
brief within 10 days after receipt of the respondent's brief. A hearing shall be
conducted as soon as practicable, but in no event later than 30 days following
receipt of all briefs in accordance with this schedule. The Board shall issue
its decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross examination and
rebuttal shall be allowed. The Board shall make its decision within 30 days
following the termination of the hearings unless the parties consent to an
extension. Each party shall bear the expense of its own arbitrators and shall
equally bear with the other party the expense of the umpire. The remaining costs
of the arbitration proceedings shall be allocated by the Board.
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4 Notice of Breach
Each of ERMA and Aetna will give prompt notice to the other of any
breach by such party of any of the provisions of this Agreement applicable to
it.
2 Notices
Except as otherwise provided in this Agreement, all notices and other
communications hereunder shall be in writing, and shall be considered deemed
given (i) upon delivery if delivered personally, (ii) upon receipt if sent by
facsimile transmission, or (iii) if sent by an overnight delivery service, one
business day after sending by such service, to the parties at the following
addresses or at such other address for a party as may have been specified to the
other parties by like notice:
(a) if to ERMA, at:
Executive Risk Management Associates
82 Hopmeadow Street
Simsbury, CT 06070
Telecopy No.: (860) 408-2502
Attention: Robert V. Deutsch
Assistant Secretary
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<PAGE> 24
(a) if to Aetna, at:
The Aetna Casualty and Surety Company
One Tower Square
Hartford, CT 06183
Telecopy No.: (860) 277-3944
Attention: Joseph P. Kiernan
President and Chief
Executive Officer, Bond
3 Amendment and Waiver
The parties hereto may amend any provision of this Agreement only by
written instrument executed by each party.
Any party may grant consents or waive any of its rights under this
Agreement; provided, however, that each such consent or waiver shall be in
writing.
4 Governing Law
This Agreement shall be construed and enforced in accordance with the
internal laws of the State of Connecticut.
5 Severability
If any term or provision of this Agreement is for any reason deemed
illegal or invalid, such illegality shall not affect the validity of the
remainder of this Agreement, and each such term or provision shall be valid and
enforceable to the fullest extent permitted by law. In the event Aetna or ERMA
becomes subject to any legal requirement, including, without limitation, any
regulation or administrative interpretation of any insurance or other regulatory
agency having authority over it, which materially adversely affects its ability
to enjoy its rights
23
<PAGE> 25
under this Agreement, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties with respect to
such rights as closely as possible in an acceptable manner.
6 Binding Effect; Assignment
This Agreement will be binding upon, inure to the benefit of and be
enforceable by, the parties and their respective successors and permitted
assigns; provided that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either of the parties hereto
without the prior written consent of the other party.
7 Modifications
This Agreement may not be modified verbally, nor may it be modified by
any subsequent practice or course of dealing by the parties, or in any manner
other than in writing signed by the parties hereto. No waiver may modify this
Agreement or affect the rights of one party with respect to any subsequent
default or failure of performance by the other party.
8 Entire Agreement
This Agreement and related documents identified herein set forth the
complete understanding of the parties relating to the specific subject matter
addressed herein.
9 Counterparts
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<PAGE> 26
This Agreement may be signed in any number of counterparts, and each of
the counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute the same Agreement.
10 Financial Information
Any reference in this Agreement to any financial information (including
any financial ratios) relating to any party hereto shall be deemed to refer to
such financial information as it is prepared in accordance with generally
accepted statutory accounting principles and, where applicable, as contained in
the statutory-basis financial documents filed by the applicable insurer with its
state of domicile.
11 Interpretation
This Agreement is a result of arms-length negotiations between parties
hereto and has been prepared jointly by the parties. In applying and
interpreting the provisions of the Agreement, there shall be no presumption that
this Agreement was prepared by any one party or that the Agreement should be
construed by or in favor of any one party.
25
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date first above written.
THE AETNA CASUALTY AND SURETY COMPANY
By:______________________________________
EXECUTIVE RISK MANAGEMENT ASSOCIATES
By:______________________________________
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<PAGE> 28
TABLE OF CONTENTS
Page
----
i
<PAGE> 29
ARTICLE I.
APPOINTMENT OF ERMA......................................................... 1
ARTICLE II.
LIMITS ON COVERED BUSINESS.................................................. 4
2.1 Premium and Policy Limits................................. 4
2.2 Underwriting Guidelines and Rating Rules.................. 5
ARTICLE III.
DUTIES, POWERS AND AUTHORITY OF ERMA........................................ 6
3.1 Insurance Underwriting and Production..................... 6
3.2 Loss Investigation........................................ 6
3.3 Administration............................................ 7
ARTICLE IV.
PRODUCERS................................................................... 8
ARTICLE V.
UNDERWRITING................................................................ 9
5.1 Underwriting Guidelines, Policy Forms and Rating Rules.... 9
5.2 Binders and Policies...................................... 10
5.3 Form and Rate Filings..................................... 10
5.4 Closed Claim Reports...................................... 11
ARTICLE VI.
REPORTS AND ACCOUNTS........................................................ 11
ARTICLE VII.
PROPERTY, RECORDS AND SYSTEMS............................................... 11
7.1 Interests in Property, Records and Systems................ 11
7.2 Inspection................................................ 12
ARTICLE VIII.
COMMISSIONS; PAYMENTS....................................................... 12
ARTICLE IX.
OTHER ACTIVITIES............................................................ 13
ARTICLE X.
TERMINATION................................................................. 13
10.1 Termination............................................... 13
10.2 Accounting................................................ 17
10.3 Cooperation............................................... 18
ARTICLE XI.
MISCELLANEOUS............................................................... 18
11.1 No Admission of Liability................................. 18
<PAGE> 30
Page
----
11.2 Confidentiality.......................................... 18
11.3 Arbitration.............................................. 19
11.4 Notice of Breach......................................... 20
11.5 Notices.................................................. 20
11.6 Amendment and Waiver..................................... 21
11.7 Governing Law............................................ 22
11.8 Severability............................................. 22
11.9 Binding Effect; Assignment............................... 22
11.10 Modifications............................................ 22
11.11 Entire Agreement......................................... 23
11.12 Counterparts............................................. 23
11.13 Financial Information.................................... 23
11.14 Interpretation........................................... 23
SCHEDULES
Schedule A ........................Renewal Business; Policies Written Under 1994
Agency Agreement
Schedule B ........................Underwriting Guidelines; Rating Rules
Schedule C ........................Policies with Limits of Liability of up to
$25,000,000 Issued Under 1994 Agency
Agreement
Schedule D ........................Claims Guidelines
iii
<PAGE> 1
Exhibit 10.3
QUOTA SHARE REINSURANCE AGREEMENT
This QUOTA SHARE REINSURANCE AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of January, 1997, by and between:
THE AETNA CASUALTY AND SURETY COMPANY, a Connecticut corporation,
having its principal office at One Tower Square, Hartford, Connecticut
06183 ("Aetna"); and
EXECUTIVE RISK INDEMNITY INC., a Delaware corporation, having its
principal office at 82 Hopmeadow Street, Simsbury, Connecticut 06070
("ERII")
on the following terms and conditions:
ARTICLE 1 -- BUSINESS COVERED
This Agreement applies to all Policies (as defined below) of Aetna
incepting or renewed on or after January 1, 1997 which are or have been written
on behalf of Aetna by Executive Risk Management Associates ("ERMA") pursuant to
the Agency and Insurance Services Agreement between Aetna and ERMA dated as of
January 1, 1997 (the "1997 Agency Agreement") (the "Covered Business.")
For the purpose of this Agreement, the term "Policies" shall mean all
binders, policies, contracts, agreements, endorsements and other evidences of
insurance or reinsurance constituting Covered Business.
ARTICLE 2 -- COVER AND RETENTION
Aetna shall cede, and ERII shall accept by way of quota share
reinsurance under this Agreement, one hundred percent (100%) of Aetna's Ultimate
Net Loss (as defined in Article 5 below) under all Policies reinsured hereunder.
ARTICLE 3 -- TERRITORY
<PAGE> 2
This Agreement shall apply to Policies covering risks wherever
situated.
ARTICLE 4 -- PERIOD
This Agreement covers all claims made on Policies incepting or renewed
on and after 12:01 a.m. on January 1, 1997, including discovery period coverage
and/or extended reporting endorsements attaching to such.
This Agreement shall terminate at 11:59 p.m. on the effective date of
termination of the 1997 Agency Agreement.
In the event this Agreement is terminated for any reason (i) ERII shall
remain liable for claims made under Policies reinsured hereunder and (ii) ERII
shall maintain security for its obligations to Aetna so long as it is required
to do so pursuant to Article 10 hereof.
ARTICLE 5 -- ULTIMATE NET LOSS
The term "Ultimate Net Loss" shall mean the amount paid or payable by
Aetna in the resolution of claims under the Policies. Ultimate Net Loss shall
include all costs, charges and expenses (other than unallocated loss adjustment
expenses) incurred by Aetna, consistent with the terms of the 1997 Agency
Agreement, in connection with the resistance to, defense of, investigation of,
or negotiations concerning, trial or settlement of, or recovery on, any claims
or suits in respect of the Policies.
For the purposes hereof, all salvages and recoveries by Aetna first
shall be deducted from Aetna's loss to arrive at the amount of Aetna's Ultimate
Net Loss. All salvages, recoveries or payments recovered or received subsequent
to a claim resolution under this Agreement shall be applied as if recovered or
received prior to the settlement, and all necessary adjustments shall be made by
the parties to this Agreement. Nothing in this clause, however, shall be
construed to mean that losses under this Agreement are not recoverable from ERII
until Aetna's Ultimate Net Loss has been finally ascertained.
2
<PAGE> 3
ARTICLE 6 -- PREMIUM
In consideration of the liabilities undertaken by ERII in accordance
with the terms of this Agreement, Aetna shall pay to ERII a reinsurance premium
equal to ERII's one hundred percent (100%) quota share of Aetna's Original Gross
Written Premiums in respect of each and every Policy.
As used herein, the term "Original Gross Written Premiums" shall mean
the gross premium written by Aetna in respect of the Policies, less
cancellations and return premiums.
ARTICLE 7 -- CEDING COMMISSION
With regard to each Policy ceded to ERII under this Agreement, Aetna
shall be entitled to a ceding commission equal to the aggregate of (i) the
actual amount of producers' commissions with respect to such Policy and (ii)
3.5% of the Original Gross Written Premiums, as an allowance for premium taxes
and all other costs and expenses whatsoever. Payment of such amounts shall be
effected, on behalf of ERII, by ERMA which, pursuant to Article IV of the 1997
Agency Agreement, shall pay such producers' commissions (to the extent such
commissions are not deducted by such producers) and, pursuant to Article VIII of
the 1997 Agency Agreement, shall pay to Aetna such 3.5% of Original Gross
Written Premiums.
ARTICLE 8 -- ACCOUNTS AND REMITTANCES
ERII will, or will cause its affiliate ERMA to, render to Aetna such
accounts and reports with respect to the Covered Business, and remit to Aetna
all amounts owed to Aetna hereunder, in accordance with the Reporting and
Accounting Convention attached to the Restructuring Agreement, dated February
13, 1997, by and among Aetna, Executive Risk Inc. and the other parties thereto,
as Exhibit C thereto.
ARTICLE 9 -- LOSS ADJUSTMENT EXPENSE
(a) All legal defense costs and loss adjustment expenses (including
both pre-judgment and post-judgment interest paid by Aetna, but excluding
unallocated loss adjustment expenses) incurred by Aetna,
3
<PAGE> 4
consistent with the terms of the 1997 Agency Agreement, in connection with any
resistance to, defense of, investigation of, or negotiations concerning trial or
settlement of, or recovery on, any claims in respect of Policies are covered
hereunder.
(b) In the event that only external legal or external loss adjustment
expense (including, for example, rescission and declaratory judgment expense) is
incurred by Aetna in connection with an attempt to mitigate any loss or
potential loss covered by a Policy, and such expense is not otherwise covered
under the original Policy, then such expense shall be treated as if it was a
loss for the purposes of determining any recovery under this Agreement. In the
event that such an expense is incurred by Aetna in addition to a loss covered by
the original Policy, such expense will be paid in addition to such loss.
ARTICLE 10 -- LETTER OF CREDIT
(a) On or before March 1, 1997, ERII shall, at its expense, deliver to
Aetna a clean, irrevocable and unconditional letter of credit in the form
attached as Exhibit A to this Agreement or in a form reasonably acceptable to
Aetna (the "Letter of Credit") for the benefit of Aetna in the amount of
$25,000,000. Subject to the terms of paragraphs (b) and (d) of this Article 10,
the Letter of Credit shall be maintained in an amount equal to the lesser of (i)
$25,000,000 or (ii) the aggregate amount of ERII's reserves for known
outstanding losses and allocated loss adjustment expenses with respect to the
Policies reinsured hereunder and the business ceded to ERII by Aetna under the
Amended and Restated Quota Share Reinsurance Agreement between Aetna and ERII
dated as of January 1, 1994, as amended (the "1994 Quota Share Reinsurance
Agreement") (the "Case Reserves").
(b) In the event that (i) ERII is assigned a claims paying rating by
either A.M. Best Company, Inc. or Standard & Poor's Corporation, the first
letter of which is "B" or lower or (ii) ERII is no longer an authorized
reinsurer for purposes of credit for reinsurance under the Insurance Law of the
State of Connecticut (in either case, a "Triggering Event"), the amount of the
Letter of Credit shall be adjusted to the aggregate of the Case
4
<PAGE> 5
Reserves and ERII's reserves for unearned premiums with respect to the Policies
reinsured hereunder and the business reinsured by ERII under the 1994 Quota
Share Reinsurance Agreement. In the event that a Triggering Event has been
cured, ERII shall provide to Aetna evidence reasonably satisfactory to Aetna
that such Triggering Event has been cured and thereafter ERII and Aetna promptly
shall cause the Letter of Credit to be adjusted to the amount required under
paragraph (a) of this Article 10.
(c) On a quarterly basis beginning June 30, 1997, ERII shall
recalculate the Case Reserves and, if necessary pursuant to paragraph (b) of
this Article 10, the unearned premium reserves and, if such recalculation
results in a reduction in the required amount of the Letter of Credit, shall
furnish such recalculation to Aetna, including the claim number and reserve
amount for each claim. After each quarterly recalculation, ERII shall notify
Aetna of any adjustments required to the amount of the Letter of Credit and ERII
and Aetna promptly shall cause appropriate adjustments to be made to the Letter
of Credit.
(d) During any period that the Case Reserves are less than the
aggregate amount of the reserves for known outstanding losses and allocated loss
adjustment expenses ceded to Aetna by ERII and Executive Risk Specialty
Insurance Company ("ERSIC") pursuant to the Quota Share Reinsurance Agreement
between ERII and Aetna dated as of January 1, 1994, as amended, and the Quota
Share Reinsurance Agreement between ERSIC and Aetna dated as of January 1, 1994,
as amended, as determined in good faith by ERII, the obligation of ERII to
maintain the Letter of Credit hereunder shall cease and ERII and Aetna promptly
shall take such actions as are necessary to terminate the Letter of Credit. The
obligations of ERII to maintain the Letter of Credit shall be reinstated if Case
Reserves subsequently exceed the aggregate amount of reserves for known
outstanding losses and allocated loss adjustment expenses ceded to Aetna by ERII
and ERSIC under such agreements.
5
<PAGE> 6
(e) The Letter of Credit procured pursuant to this Agreement shall be
issued by Chase Manhattan Bank or another bank which is a member of the Federal
Reserve and which is reasonably acceptable to Aetna.
(f) Subject to the provisions of this Article 10, the Letter of Credit
shall be "evergreen" in that it shall be issued for an initial period of not
less than one year and shall be extended automatically for one year from its
original expiration date and subsequently from its extended expiration dates
unless and until, at least thirty days before any expiration date, the issuing
bank gives written notice to Aetna that the issuing bank elects not to extend
the life of the Letter of Credit in question beyond its forthcoming expiration
date.
(g) In consideration of the agreement of ERII to furnish the Letter of
Credit to Aetna under this Agreement, Aetna hereby undertakes to use and apply
the proceeds of any such drawings solely for the purpose of paying ERII's share
or reimbursing Aetna for that share of any liability for loss or allocated loss
expense reinsured by this Agreement or the 1994 Quota Share Reinsurance
Agreement. Thereafter, Aetna shall refund to ERII any balance by which the
amount drawn under the Letter of Credit exceeds ERII's liability for loss or
allocated loss expense reinsured by this Agreement and the 1994 Quota Share
Reinsurance Agreement or any other amount owing by ERII to Aetna under this
Agreement or the 1994 Quota Share Agreement.
ARTICLE 11 -- CURRENCY
The currency to be used for all purposes of this Agreement shall be
United States of America dollars.
ARTICLE 12 -- EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect Aetna where the losses include any Extra
Contractual Obligations. "Extra Contractual Obligations" means those liabilities
not covered under another provision of this Agreement and which arise from the
handling of any claim under Policies, such liabilities arising because of, but
not limited to, the following: failure by Aetna to settle within the policy
limit, or by reason of alleged or actual negligence, fraud
6
<PAGE> 7
or bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or in the preparation
or production of an appeal consequent upon such action.
The date on which an Extra Contractual Obligation is incurred by Aetna
shall be deemed to be the date the original claim was made against any Policy.
This Article shall not apply where the loss is due to the fraud of any
member of the Board of Directors or corporate officer of Aetna acting
individually or collectively with any individual or corporation or other
organization or party involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 13 -- EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect Aetna for loss in excess of the limit of
Aetna's original policy, such loss in excess of the limit having been incurred
because of failure by Aetna to settle within the policy limit or by reason of
alleged or actual negligence, fraud or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or in the preparation or prosecution of an appeal consequent
upon such action.
This Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of Aetna
acting individually or collectively with any individual or corporation or any
other organization or party involved in the presentation, defense or settlement
of any claim covered hereunder.
For purposes of this Article, the word "loss" shall mean any amounts
for which Aetna would have been contractually liable to pay had it not been for
the limit of the original policy.
7
<PAGE> 8
ARTICLE 14 -- INADVERTENT DELAY
No inadvertent delay, error or omission shall be held to relieve either
party hereto of any liability which would have attached to such party under this
Agreement if such delay, error or omission had not been made, provided that any
such delay, error or omission is rectified promptly upon discovery.
ARTICLE 15 -- ACCESS TO RECORDS
Each of Aetna and ERII shall place at the disposal of the other for
inspection, at its respective offices, at all reasonable times, all books,
records and papers in its possession regarding any insurance, reinsurance, or
claims in connection with Policies ceded hereunder. It is hereby expressly
agreed that the rights given to each party under this Article shall survive the
termination of this Agreement for any reason.
ARTICLE 16 -- ORIGINAL CONDITIONS
The liability of ERII shall follow that of Aetna, subject in all
respects to the terms and conditions of the original Policies and the terms and
conditions of this Agreement. Notwithstanding the foregoing, it is understood
and acknowledged that this Agreement is a contract of reinsurance separate and
distinct from the original Policies. Except as provided in Article 19 below,
ERII will not, under any circumstances whatsoever, be or be deemed to be
directly liable to the original insureds.
ARTICLE 17 -- AMENDMENTS AND ALTERATIONS
The terms and provisions contained in this Agreement comprise the
entire agreement between Aetna and ERII concerning the subject matter hereof. No
amendment, modification or waiver of this Agreement or any provision hereof
shall be binding unless in writing and signed by both parties.
8
<PAGE> 9
ARTICLE 18 -- RIGHT OF OFFSET
Aetna or ERII may offset any balance or amount due from one party to
the other, whether on account of premiums, losses or otherwise, to the extent
permitted by law. This provision shall not be affected by the insolvency of
either party to this Agreement.
ARTICLE 19 -- INSOLVENCY
Notwithstanding any provision to the contrary in this Agreement, in the
event of the insolvency of Aetna, the reinsurance provided by this Agreement
shall be payable by ERII on the basis of the liability of Aetna for the business
reinsured hereunder without diminution because of such insolvency, directly to
Aetna or its liquidator, receiver or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where a contract
specifically provides for another payee of such reinsurance in the event of the
insolvency of Aetna and (b) where ERII, with the consent of the direct insured
or insureds, has assumed such policy obligations of Aetna as direct obligations
of ERII to the payees under such policies and in substitution for the
obligations of Aetna to such payees.
ERII shall be given written notice of the pendency of each claim or
loss which may involve the reinsurance provided by this Agreement within a
reasonable time after such claim or loss is filed in the insolvency proceeding.
ERII shall have the right to investigate each such claim or loss and interpose,
at its own expense, in the proceeding where the claim or loss is to be
adjudicated, any defense available to Aetna, its liquidator, receiver or
statutory successor. The expense thus incurred by ERII shall be chargeable,
subject to court approval, against the insolvent Aetna as part of the expense of
liquidation to the extent of a proportionate share of the benefit which may
accrue to Aetna solely as a result of the defense undertaken by ERII.
To the extent permitted by law, should Aetna go into liquidation, or
should a conservator, liquidator or statutory successor be appointed, ERII shall
be entitled to deduct from any sums which may be, or may become, due to Aetna
under this Agreement, any sums which are due to ERII from Aetna under this
Agreement
9
<PAGE> 10
and which are payable at a fixed or stated date, as well as any other sums due
to ERII which are permitted to be offset under applicable law.
ARTICLE 20 -- MISCELLANEOUS
(a) Arbitration. Any dispute arising out of this Agreement shall be
resolved in accordance with the arbitration procedures set forth in Section 11.3
of the 1997 Agency Agreement.
(b) Notices. Any notice or communication to be given hereunder by any
party to another shall be in writing and shall be delivered by hand delivery,
certified or registered mail (return receipt requested), facsimile transmission
(receipt confirmed), or overnight express service, addressed to the respective
party as follows:
If to ERII, at: Executive Risk Indemnity Inc.
82 Hopmeadow Street
Simsbury, CT 06070-7683
Facsimile No.: (860) 408-2502
Attention: Robert V. Deutsch
Executive Vice President
If to Aetna, at: The Aetna Casualty and Surety Company
One Tower Square
Hartford, Connecticut 06183
Facsimile No.: (860) 277-3944
Attention: Joseph P. Kiernan
President & Chief Executive
Officer, Bond
or to such other address or addresses as any party may designate to the others
by like notice as set forth above. Any notice given hereunder will be deemed
received on the date of hand delivery or receipt of facsimile transmission or
certified or registered mailing, or one (1) business day after delivery to an
overnight express service for next day delivery, as the case may be.
(c) Reinsurance Intermediaries. No reinsurance intermediaries are
involved in this Agreement.
10
<PAGE> 11
(d) Amendment and Waiver. The parties hereto may amend any provision of
this Agreement only by written instrument executed by each party. Any party may
grant consents or waive any of its rights under this Agreement; provided,
however, that each such consent or waiver shall be in writing.
(e) Governing Law. This Agreement shall be governed and construed in
accordance with the internal laws of the State of Connecticut.
(f) Severability. If any term or provision of this Agreement is for any
reason deemed illegal or invalid, such illegality shall not affect the validity
of the remainder of this Agreement, and each such term or provision shall be
valid and enforceable to the fullest extent permitted by law. In the event one
of the parties hereto becomes subject to any legal requirement, including,
without limitation, any regulation or administrative interpretation of any
insurance or other regulatory agency having authority over it, which materially
adversely affects its ability to enjoy its rights under this Agreement, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties with respect to such rights as closely as
possible in an acceptable manner.
(g) Binding Effect; Assignment. This Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns; provided that neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto without the prior written consent of the other party.
(h) Modifications. This Agreement may not be modified verbally, nor may
it be modified by any subsequent practice or course of dealing by the parties,
or in any manner other than in writing signed by the parties hereto. No waiver
may modify this Agreement or affect the rights of one party with respect to any
subsequent default or failure of performance by the other party.
(i) Entire Agreement. This Agreement and related documents identified
herein set forth the complete understanding of the parties relating to the
specific subject matter addressed herein.
11
<PAGE> 12
(j) Counterparts. This Agreement may be signed in any number of
counterparts, and each of the counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute the same
Agreement.
(k) Financial Information. Any reference in this Agreement to any
financial information (including any financial ratios) relating to any party
hereto shall be deemed to refer to such financial information as it is prepared
in accordance with generally accepted statutory accounting principles and, where
applicable, as contained in the statutory-basis financial documents filed by the
applicable insurer with its state of domicile.
(l) Interpretation. This Agreement is a result of arm's-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of the Agreement, there
shall be no presumption that this Agreement was prepared by any one party or
that the Agreement should be construed by or in favor of any one party.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
representatives, executed this Agreement as of the date first above written.
EXECUTIVE RISK INDEMNITY INC.
By:___________________________________
Its:
THE AETNA CASUALTY AND SURETY COMPANY
By:___________________________________
Its:
13
<PAGE> 1
Exhibit 99.1
FOR IMMEDIATE RELEASE Contacts:
Financial Relations:
Robert V. Deutsch
Chief Financial Officer
(860) 408-2500
Media Relations:
Robert E. Chudzik
Communications/Marketing Assistant
(860) 408-2437
EXECUTIVE RISK TO RESTRUCTURE RELATIONSHIP WITH
THE AETNA CASUALTY AND SURETY COMPANY
Simsbury, CT, February 13, 1997 -- Executive Risk Inc. (ERI) (NYSE: ER)
announced today that it has restructured its relationship with The Aetna
Casualty and Surety Company (Aetna). As part of that restructured relationship,
Executive Risk will continue to be authorized to underwrite and issue directors
and officers liability insurance (D&O) on Aetna policies, but on a
non-exclusive basis. Effective January 1, 1997, Executive Risk will reinsure,
on a 100% quota share basis, all such Aetna D&O business and will pay Aetna a
ceding commission that approximates actual costs. Previously, Executive Risk
had a 50% quota share participation of this business. In addition, effective
January 1, 1997, Aetna will no longer be a 12.5% quota share reinsurer of
Executive Risk on Executive Risk's direct D&O business, which totaled
approximately $225 million in 1996.
Under the new agreements, Aetna no longer has rights with respect to
representation on the Boards of Directors of Executive Risk and its
subsidiaries. Accordingly, Joseph P. Kiernan, President and Chief Executive
Officer, Bond, of Aetna, resigned as a director of Executive Risk and its
-more-
<PAGE> 2
ERI Release, p. 2
subsidiaries effective February 13, 1997.
Consistent with the prior agreements, the restructured relationship will
continue through December 31, 1999. Executive Risk and Aetna have also agreed
to meet in the future to discuss the possibility of another agency relationship
with respect to D&O insurance beyond December 31, 1999.
According to Stephen Sills, Executive Risk's President and Chief Underwriting
Officer, "This change in our relationship with Aetna is a very positive step
for Executive Risk and its shareholders. The restructuring enables us to issue
Aetna D&O policies, which in 1996 constituted approximately 4% of our gross
premiums written, while contributing additional net premiums."
Executive Risk Inc. (ERI) is a specialty insurance holding company that wholly
owns Executive Risk Management Associates, Executive Risk Indemnity Inc. (ERII)
and Executive Risk Specialty Insurance Company (ERSIC). Through these
subsidiaries, ERI develops, markets, underwrites and issues directors and
officers (D&O) liability insurance, lawyers professional liability insurance,
miscellaneous professional liability insurance, and other programs. ERII and
ERSIC have ratings of "A (Excellent)" from A.M. Best Company, Inc. and "A+"
from Standard & Poor's. In addition, ERI underwrites D&O insurance in Europe in
a joint venture with UAP Incendie-Accidents (UAP), the second largest insurance
organization in Europe. The common stock of ERI is traded under the ticker
symbol "ER" on the New York Stock Exchange.
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